A N N UA L
REPORT2013

Financial Highlights
As of or for the year ended December 31,
2013			
(in millions, except per share, ratio data and headcount)		

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

96,606 		
$70,467			
26,139 			
225 			17,923		
$Per common share data
Net income per share:Basic$
4.39 		Diluted 		
4.35 		Cash dividends declared		
1.44		
Book value		53.25		40.81		Tangible book value(b)		

2012
97,03164,72932,302
3,385
21,284$

Selected ratios
Return on common equity		
9 %		
Return on tangible common equity(b)		
11			
Tier 1 capital ratio 		11.9			Total capital ratio 		14.4			Tier 1 common capital ratio(b)		
10.7			

5.22
5.20
1.20
51.27
38.75
11%
15
12.6
15.3
11.0

Selected balance sheet data (period-end)
Loans$ 738,418		
$ 733,796
Total assets
2,415,689		
2,359,141
Deposits 		1,287,765			1,193,593
Total stockholders’ equity 		 211,178		
204,069
Headcount		
251,196		
258,753(a) Results are presented in accordance with accounting principles generally accepted in the United States of America
		 (U.S. GAAP), except where otherwise noted.
(b) Non-GAAP financial measure. For further discussion, see “Explanation and Reconciliation of the Firm’s Use of		 Non-GAAP Financial Measures” and “Regulatory capital” in this Annual Report.

JPMorgan Chase & Co. (NYSE symbol: JPM) 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 has $2.4 trillion in assets and $211.2
billion in stockholders’ equity. The firm is a leader in investment banking, financial
services for consumers and small businesses, commercial banking, financialtransaction processing, asset management and private equity. A component of the
Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of consumers
in the U.S. and many of the world’s most prominent corporate, institutional andgovernment clients under its J.P. Morgan and Chase brands.
Information about J.P. Morgan’s capabilities can be found at jpmorgan.com andabout Chase’s capabilities at chase.com. Information about the firm is available
at jpmorganchase.com.

communities
clients
customers
employees
veterans
nonprofits
business owners
schools
hospitals
local governments

Together we can.

Dear Fellow Shareholders,Jamie Dimon,
Chairman andChief Executive Officer

What a year. Despite tremendous challenges, your company earned $17.9 billion in
net income on revenue of $96.6 billion in 2013. Our financial results reflected strong
underlying performance across our four main businesses — unfortunately marred bysignificant legal settlements largely related to mortgages. These legal expenses cost thecompany $8.6 billion after-tax. Excluding these expenses and some one-time positive
benefits from reserve reductions (which we never have considered true earnings) and
one-time gains on the sale of assets, your company earned about $23 billion.
As tough as the year was — the company was under constant and intense pressure —I can hardly express the admiration, even pride, I feel because of the enduring resolve
and resiliency of our management team and our employees. They never wavered asthey attacked our problems while maintaining a relentless focus on serving our clients.
We all owe them a great deal of gratitude.
The bad news was bad. The most painful, difficult and nerve-wracking experiencethat I have ever dealt with professionally was trying to resolve the legal issues we
had this past year with multiple government agencies and regulators as we tried toget many large and risky legal issues behind us, including the Chief Investment Office(CIO) situation (that happened in 2012) and mortgage-related matters (that happened2

primarily in 2005-2008, a significant portion of which occurred at heritage Bear
Stearns and Washington Mutual (WaMu)).
There is much to say and a lot to be learned in analyzing what happened, but I am notgoing to do so in this letter — more distance and perspective are required. Suffice it tosay, we thought the best option, perhaps the only sensible option — for our company,
our clients and our shareholders — was to acknowledge our issues and settle as muchas we could all at once, albeit at a high price. This allowed us to focus on what we arehere for: serving our clients and communities around the world.
The good news is that our four franchises maintained — and even strengthened — ourleadership positions as we continued to gain market share and improve customer
satisfaction in every business.
When I look back at our company last year with all of our ups and downs, I see it as A
Tale of Two Cities: “It was the best of times, it was the worst of times.” We came throughit scarred but strengthened — steadfast in our commitment to do the best we can.
And we believe that we continued to deliver for our shareholders. For Bank One
shareholders since March 27, 2000, the stock has performed far better than mostfinancial companies and the Standard & Poor’s 500 Index (S&P 500). And since the
JPMorgan Chase & Co. merger with Bank One on July 1, 2004, we have performed wellvs. other financial companies and slightly below the S&P 500. The details are shown in
the tables on the following page. One of the tables also shows the growth in tangible
book value per share, which we believe is a conservative measure of value. You can see
Earnings and Diluted Earnings per Share
Tangible Book Value per Share
2005-2013
that2005-2013
it has grown far more than the S&P 500 in
both time periods.
($ in millions, except diluted EPS)

Earnings and Diluted Earnings per Share
2005–2013

Tangible Book Value per Share
2005–2013($ in millions, except diluted EPS)
$38.75$21,284$18,976$33.69$30.18$17,923$17,370$14,444$27.09$15,365$5.20$11,728$8,483$4.00$40.81

$4.33

$4.48

$4.35

$21.96$22.52

2007

2008$18.88$16.45$3.96$5,605

$2.35

$2.26
$1.35

2005

2006

2007

2008

2009

2010

2011

2012

2013

2005

2006

2009

2010

2011

2012

2013

 Net income  Diluted EPS
3

Stock and Book Value Performance
Stock Total Return Analysis
Bank OneS&P 500

S&P Financials Index

Performance since becoming CEO of Bank One(3/26/2000–12/31/2013)(a):Compounded Annual Gain

10.4%

3.3%

1.3%

Overall Gain

289.8%

57.3%

19.3%

JPMorgan Chase & Co.

S&P 500

S&P Financials Index

Performance since the Bank One
and JPMorgan Chase & Co. merger(7/1/2004–12/31/2013):

Compounded Annual Gain (Loss)

7.2%

7.4%

(0.5)%Overall Gain (Loss)

94.1%

97.5%

(5.0)%

These charts show actual returns of the stock, with dividends included, for heritage shareholders of Bank One and JPMorgan Chase & Co.
vs. the Standard & Poor’s 500 Index (S&P 500) and the Standard & Poor’s Financials Index (S&P Financials Index).
(a)

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

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(3/26/2000–12/31/2013)(a):Compounded Annual Gain

12.9%

4.6%

8.3%

Overall Gain

385.7%

80.4%

305.3%

JPMorgan Chase & Co.
(A)

S&P 500(B)

Relative Results(A) — (B)

Performance since the Bank One
and JPMorgan Chase & Co. merger(7/1/2004–12/31/2013):

Compounded Annual Gain

14.5%

7.4%

7.1%

Overall Gain

261.9%

97.5%

164.4%

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 S&P 500 (a pre-tax number with dividends reinvested).
(a)

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

Here’s what most of the headlines left out: JPMorgan Chase continued to serve ourclients and make a significant positive impact on our communities. In 2013, the firm
provided credit and raised capital of more than $2.1 trillion for our clients. The
firm also has hired more than 6,300 military veterans since 2011 as a proud founding
member of the 100,000 Jobs Mission, which now has increased the goal to 200,000
jobs. Our firm was there to help small businesses — we provided $19 billion of credit
to U.S. small businesses, which allowed them to develop new products, expand theiroperations and hire more workers. We also were there for families to buy their firsthome with a mortgage we made possible — overall, we originated more than 800,000
mortgages last year. In total, we provided $274 billion of credit to consumers. Ourstrength allows us to be there for our clients and communities in good times — and,more important, in bad times. In this, we have never faltered.
4New and Renewed Credit and Capital for Clients
at December 31,
Corporate Clients($ in trillions)

Consumer and Commercial Banking($ in billions)Year-over-Year Change

$556
$474

$1.4

$419

$1.2

$18

$20

$1.5
$1.3

$583

$11

$17
$91

$83

$82

$122

$92

$131

$110
$93

2010

2011

2012

2013

$141

$67

$100

$165

$156

2010

2011

$165

$191

$177

2012

2013

'10 to '11 '11 to '12 '12 to '13

 Corporate Clients

20%

(9)%

20%

 Small Business

52%

18%

(8)%

 Card & Auto

10%

(10)%

12%

 Commercial/
Middle Market

18%

11%

8%

 AssetManagement

48%

41%

17%

 Mortgage/
Home Equity

(5)%

22%

(7)%

Total Consumer &13%
Commercial Banking

17%

5%

Our clients also exhibit their faith in us by entrusting us to take care of their money— either as deposits or as client assets entrusted to us — as shown in the chart below.
Assets Entrusted to Us by Our ClientsatDecember
31,
Assets
Entrusted
to Us by Our Clients
at December 31,

Deposits and Client Assets($ in billions)Year-over-Year Change'10 to '11 '11 to '12 '12 to '13$3,822$3,438$3,163$2,872$558$1,942

2010

$439

$398

$372

$464
$824

 Consumer

7%

10%

6%

 Wholesale

31%

3%

9%

 Client assets(a)

5%

10%

13%

$755
$730

$2,0352011$2,2442012$2,5342013

Assets under custody(b)($ in billions)$16,120

Deposits$16,870$18,835$20,485(a)Client assets include assets under management,
custody, brokerage, administration accounts and all
Chase Wealth Management assets not managed by
Asset Management(b)Represents activities associated with thesafekeeping and servicing of assets

5In this letter, I will discuss the issues highlighted below. I also encourage you to readthe letters written by several of our business leaders about our main businesses, ourcritical operations and controls, and some of our corporate responsibility efforts.
As usual, this letter will describe some of our successes and opportunities, as well as
our challenges and issues. The main sections of the letter are as follows:I.

We face the future with a strong foundation and excellent franchises built to serve
our clientsII.

We will dedicate extraordinary effort in 2014 adapting to the new global financial
architecture

III. We have made significant progress strengthening our company
IV. We believe our long-term outlook is bright6

I . W E FAC E T H E FUTUR E WI TH A STR ON G FOUN DATI ON
A N D E XC E LLE N T F R A N C HI S E S BUI LT TO S E RV E OUR
C L I E N TS

During 2014, most of the contours of the newand complex global financial architecture
will be put in place. The changes are extensive – and later in this letter, I will talk about
just how extensive they are. All banks will
have to adjust to the new rules, which will beharder for some than for others. Some may
have to make drastic changes to their business plan and strategies. So as we enter theyear, we should take stock of where we stand.

We have consistently shown good financial
performance and maintained our fortressbalance sheet
All of our businesses have had good – infact, close to best-in-class – financial performance over the last several years in terms of

margins and returns on tangible common
equity. We have done this while meeting
increasingly higher standards in liquidity
and capital. Our fortress balance sheet isstronger than ever.
We have an enormous amount of what we
consider highly liquid assets

First and foremost are the High Quality
Liquid Assets (HQLA), shown in the chart
below, which are mostly deposits at central
banks, agency mortgage-backed securities
and Treasuries. Only HQLA count for liquid
assets under the banking regulators’ definition of liquidity. These assets are super safe
and can provide cash to the company should
it need cash in a crisis situation.

Cash andand High
Securities
Cash
HighQuality
Quality
Securities
at December 31,($ in billions)

Liquid Assets = Cash1 (mostly deposits at
central banks)

 HQLA-eligible securities2

 Additional marketable securities heldin the investment securities portfolio(excluding trading assets)3

$741
$588

$141

$173

$244

$239
$356
$176
2012

2013

1

Represents total amount of cash reported on the balance sheet, including $294 billion and $120 billion of eligible cash included in
HQLA in the Basel III Liquidity Coverage Ratio at December 31, 2013 and 2012, respectively

2

HQLA is the estimated amount of assets the firm believes will qualify for inclusion in the Basel III Liquidity Coverage Ratio and primarily
includes U.S. agency mortgage-backed securities, U.S. Treasuries, sovereign bonds and other government-guaranteed or governmentsponsored securities

3

Additionally, the firm has other unencumbered marketable securities available to raise liquidity if required.
Excludes trading securities and collateral received in reverse repo agreements

7In addition to the HQLA securities, otherunencumbered marketable securities
can provide significant liquidity for thecompany. (This category does not include
any securities held in our trading portfolio.) Our investment securities portfolio
has an average duration of 2.8 years and an
average AA+ rating. The majority of securities balances presented above reside in ourinvestment securities. These securities could
be utilized to provide liquidity and a sourceof cash for the company if necessary.
Our total assets are $2.4 trillion so you cansee just how liquid our balance sheet is. As
a reference point, our cash and high-quality
securities are essentially the same as the$740 billion of our total loans. This is a very
conservative utilization of our total deposits
of approximately $1.3 trillion.
We have increasingly strong capital ratios

You can see on the capital chart below that
under Basel I, our Tier 1 Common has gonefrom 7.0% to 10.7% from 2007–2013 (ifBasel I had been consistently applied, that

number would have been 11.8%), and our
new Basel III ratio has gone from 5.0% to9.5% over that same time period.
In 2014, we will meet all of our current targets
in capital, liquidity and leverage. One ratio
not shown in the chart is called the Supplementary Leverage Ratio (SLR) that is, simply,
the ratio of equity to assets and certain offbalance sheet exposures, regardless of thequality of assets. While that calculation stillis being finalized, we currently are at 4.6%
vs. a requirement of 5%. We intend to have acushion over 5% by the end of this year.
We have good returns on capital despite
increasingly higher capital ratios

Even with the increasingly higher capitalratios over the past several years, all of ourmain businesses have been earning strong
returns on tangible equity (see Return on
Equity (ROE) chart on the following page).
Some of our competitors are not earningsimilar returns, and they likely will feel morepressure to alter their business strategies
going forward.

JPMorgan Chase Capital Levels
 Basel I Tier 1 Common
 Basel III Tier 1 Common

11.0%

3

 Basel I Tier 1 Common Projection

9.8%

2007
1

9.5%

10.0% +
Target420132014 Projection

8.7%
7.9%

7.0%
6.4%

5.0%

11.3%

10.7%

10.1%

8.8%
7.0%

12.3%

11.8%2
1

7.0%

4.7%

2008

2009

2010

2011

2012

	Through 2013, Basel III capital ratios reflect the firm’s best estimate based on its understanding of the rules in the relevant period(2007-2008 ratios are pro forma)	Reflects the firm’s estimated Basel I capital ratio, excluding the impact on the firm’s positions as of December 31, 2013 of Basel 2.5
market-risk rules, which became effective January 1, 20132	Effective January 1, 2014, the Basel I ratio is no longer a regulatory capital measure. The ratios shown reflect an approximation of what
the firm’s Basel I capital ratio would be as of December 31, 2014, both including and excluding the impact of Basel 2.5 market-risk rules,
were Basel I still in effect3

4

	Reflects the firm’s stated 2014 Basel III Tier 1 Common ratio objective8

Return on Equity
Excludingsignificant items(c)
2011

2012

2013

2013

15%

15%

11%

15%

Consumer & Community Banking

15%

25%

23%

Corporate & Investment Bank

17%

18%

15%(b)

Commercial Banking

30%

28%

19%

Asset Management

25%

24%

23%

Corporate/Private Equity

0%

(3)%

(9)%(d)JPMorgan Chase & Co. (ROTCE(a))
ROE by line of business(a)Represents return on tangible common equity(b)

Excluding funding and debit valuation adjustments (FVA and DVA), CIB ROE was 17% in 2013(c)Primarily excludes legal expenses, benefits from reserve releases, one-time gains on the sale of assets and FVA/DVA(d)Includes legal expenses and one-time gains on the sale of assets

Later in this letter, I will discuss how wethink all the new rules will affect our returns.

Our scale and breadth create large crosssell opportunities and strong competitive
advantage
Each of our four major businesses operates at good economies of scale and getssignificant additional advantages from theother businesses. We believe this is one of
the key reasons we have maintained goodfinancial performance.
Below are some pretty powerful examples:• Our North America Investment Bank
generates 29% of its investment banking
revenue1 through Commercial Bank clientscovered locally. This helps both ourInvestment Bank and our Commercial
Bank do a better job serving their clients.
• Our Global Corporate Bank helped generate$1.3 billion in revenue for our fixed income
sales and trading operation, increasing
business to our trading desks and helping
them offer better pricing to our clients.

1

Calculated based on grossdomestic investment banking
revenue for syndicated leverage
finance, mergers and acquisitions(M&A), equity underwriting andbond underwriting• Our Private Bank gets new clients from bothour Investment Bank and our Commercial
Bank. And the Private Bank and Commercial Bank would have a hard time existing
without our Chase retail branch network. In
fact, 55% of Commercial Bank clients and
35% of Private Bank households visit our
retail branches each quarter.

• Of our $1.6 trillion of assets undermanagement, approximately $300 billion
comes from the Corporate & Investment
Bank (CIB), the Commercial Bank or theConsumer Bank.
• Fifty-five percent of retail mortgages and
40% of Chase-branded credit cards are soldthrough the retail branches.
In total, we believe that the combination of
our businesses accounts for $15 billion of
additional revenue, which helps drive bothprofits and customer satisfaction. Each of ourbusinesses would be worse off but for theother three.
Our capabilities are extraordinary and are difficult
to replicate — we can bring huge resources to bearfor the benefit of our company and our clients

Our scale creates huge cost efficiencies andenables significant resources to be brought
to bear for the benefit of our company. For
example, in global technology, we havenearly 30,000 programmers, application
developers and information technology
employees who keep our 7,200 applications,
32 data centers, 58,000 servers, 300,000 desktops and global network operating smoothly
for all our clients. Resources like these allow
us to constantly improve our operating
efficiencies and bring enormous capability
to deal with issues when we need to do sosuch as adjusting to all the new global rules
and requirements. In total, we believe that
expense synergies across the company save
us approximately $3 billion a year.
9Across the firm, we serve approximately
50% of U.S. households, approximately 80%
of Fortune 500 companies, and 60% of theworld’s largest pensions, sovereigns andcentral banks. Today, our firm has on-theground operations in 60 countries and servesclients in more than 100 countries aroundthe world. To support those clients, we move
up to $10 trillion a day and lend or raise
capital of over $500 billion each quarter.
The markets in which we operate cover 5.6
billion people who speak 100+ languages
and use close to 50 currencies. It would be
difficult to replicate the size, capabilities andknowledgeable staff of our businesses globally. We can help our clients when and where
they need it.

Consumer & Community Banking

It is important to remember our capabilities and efficiencies accrue to our clients –over time, they get the benefit in improved
pricing or better services.

• #1 in customer satisfaction in small business banking in three of four regions of the
U.S. by J.D. Power and Associates and #1
Small Business Administration lender for
the fourth year in a row.

This has led to increasing market shareand customer satisfaction in all of our main
businesses• #1 online financial services destination (chase.com) (per compete.com as ofDecember 2013).

None of the things previously mentioned
would matter if they didn’t help us do a
better job for our customers. You know yourbusiness model is working when customers– voting with their feet – give you more business. Increasing market share and customer
satisfaction may not always immediately
show on the bottom line – but both are critical to the future growth of our businesses
and drive current and potential earnings
power of the company. The bullet points that
follow say it strongly.

• Total deposits of $453 billion up 10% fromthe prior year – more than two times theindustry average.
• #1 credit card issuer in the U.S. based onloans outstanding. Record credit card sales
volume of $420 billion was up 10% fromthe prior year – outpacing the industry insales growth for 23 consecutive quarters.
• #1 in customer satisfaction among thelargest banks for the second year in arow, as ranked by the American Customer
Satisfaction Index (and, in the future, wewant to be #1 among all banks).
• Customer attrition at an all-time low.

• #1 mobile banking functionality (Forrester
Research’s 2013 Global and U.S. Mobile
Banking Functionality Rankings).
• #1 ATM network; #2 retail branch
network.
Corporate & Investment Bank• #1 in Global Investment Banking Fees.
• #1 Fixed Income Market revenue share of
top 10 investment banks; #1 Total Markets
revenue share of top 10 investment banks.
• #1 in Global Long-Term Debt.
• #1 in Global Loan Syndications.
• #1 in U.S. Announced M&A.
• #2 in Global Equity and Equity-Related;#2 in Global Announced M&A.

10

• #6 in Cash Equities (we’re working onthat one).

• Several groundbreaking transactions,
including transformational deals for
Verizon, Sprint, Facebook, Virgin Mediaand the University of California, to namejust a few.
• #1 for both All-America Fixed Income
Research and Equity Research – for theprevious four years.
Commercial Banking• #1 traditional Middle Market syndicatedlender in the U.S.
• #1 multifamily lender in the U.S. – since2008.
• Loan balances of $137 billion up 7% vs.
the year before – reflecting 14 consecutive
quarters of loan growth.
• Gains in market share in our Middle
Market expansion regions and within ourcommercial real estate businesses – as wedeliver our capabilities locally in 119 U.S.
cities and 13 international ones.
Asset Management• Client assets of $2.3 trillion up by $248
billion from the year before – reflecting
19 straight quarters of positive long-term
inflows.
• Client assets double since the beginningof 2006.
• 80% of 10-year mutual fund assets undermanagement in top two quartiles.
• #1 Ultra-High-Net-Worth Global Private
Bank (Euromoney, 2013).
• #1 Institutional Money Market FundManager Worldwide (iMoneyNet, 2013).

We have never been a fair-weather friend— we hope that, over time, this builds moretrust and respect
During the recent financial crisis andthroughout our 200-year history, JPMorgan
Chase always has been there for our constituents around the world – not only in goodtimes but, more critically, in the toughestof times when strong banks are needed themost. However terrifying events became, we
never wavered in supporting our clients andcommunities. In fact, we did many bold andunprecedented things, including acquiring
Bear Stearns and WaMu. And we neverstopped raising capital and providing credit
for companies, nonprofits, states, municipalities, hospitals and universities during timesof trouble. And when the situation becamevery difficult in European countries such as
Greece, Italy and Spain, we stayed to help
our clients, which included the countries
themselves. While we may make mistakes
along the way, we never lose sight of why weare here. We believe that our long-term viewand consistent behavior earn us the trust andrespect of our clients and the communities inwhich we operate.

Our strategy remains the same — and wealways invest for the long run
While we need to make a lot of adjustments
to adapt to the new world (I will discuss laterin this letter how we intend to do that), weare fortunate not to have to do a strategic
reset. Our strategies have worked – a consistent strategy properly executed is important
for the long-term success of any company.
So whatever the future brings, we will face itfrom a position of strength and stability. And
we will continue to do what we always havedone – manage the company and invest for
the long run.

11

II.	WE WILL DEDICATE EXTRAORDINARY EFFORT IN 2014
ADAPTING TO THE NEW GLOBAL FINANCIAL ARCHITECTURE

While we will meet all of our new capitaland liquidity requirements this year, we
still have an enormous amount of work to
do to conform and adapt to the plethoraof new global rules.

minimum unsecured debt levels, the Recovery
and Resolution plans (or so-called living wills),
and the strengthened capabilities of the regulators have put an end, we hope, to the ideathat anybody is “Too Big to Fail.”

The changes are substantial and will
require significant changes to businesspractices

We are applying enormous resources tothe task

A quick look at the chart on the next
page will give you a sense of the enormous number of new rules and reporting
requirements with which we need tocomply. They are global and range fromthe new European Union (EU) Markets in
Financial Instruments Directive (MiFID)
rules to the 398 Dodd-Frank rules to theBasel III capital and liquidity requirements, the Volcker Rule, and new mortgage rules around both originationand servicing, to name just a few. Fully
complying with and adapting to the newworld is a daunting task and will require
enormous effort and energy on the part of
all of us at JPMorgan Chase. We are goingto get it right – both to meet the letter andspirit of the new regulations and to minimize disruption to our clients.
These rules will affect every client, every
product, every system and every country
in which we operate. We do not underestimate the extent of the changes. Neverbefore have we focused so much time,
technology, money and brainpower onsuch an enterprise-wide undertaking. In
the end, all these efforts will make us abetter and stronger company.
Importantly, these new regulations in
total have unquestionably made the global
banking system safer, more transparent
and more accountable – which is good foreverybody. Every bank is far better capitalized than in the past, and the liquidity
in the system probably has never been
higher. In addition, the new rules around
12

Reading the bullet points below will give youa sense of the time, money and manpower
we are applying to adapt to the new rules:• 13,000 employees will have been addedsince the beginning of 2012 throughthe end of 2014 to support our regulatory, compliance and control effort (Risk,
Compliance, Legal, Finance, Technology,
Oversight and Control, and Audit) acrossthe entire firm.
• 8,000 of our employees across our lines ofbusiness will be dedicated solely to building
and maintaining an industry-leading AntiMoney Laundering (AML) program.
• 500 professionals (and thousands of additional contributors) were dedicated to
the 2013 resubmission and 2014 submission of the Federal Reserve’s capital stresstest or Comprehensive Capital Analysis
and Review (CCAR). These individuals
developed and reviewed more than 100
new models and submodels; conducted
over 130 independent qualitative andquantitative assessments of the firm’s
forecast methodologies and results; andestablished new permanent functions andprocesses to enhance the firm’s overall
capital planning process.
• 500 professionals globally across our linesof business and support functions areworking on the firm’s annual Recovery and
Resolution plans.
• 400 people are dedicated to continue tobuild out our Liquidity Risk Management
infrastructure, which will create far
more detailed reporting on our daily
global liquidity.

New Financial Architecture
Description

Capital
CCAR stress testing, leverage andrisk-based requirements

Liquidity
Liquidity Coverage Ratio and
Net Stable Funding Ratio

Recovery and Resolution
U.S. Dodd-Frank1 Title I & II, UK2
Recovery and Resolution, EU BRRD3

Mortgages
U.S. Dodd-Frank1, Housing Finance
Reform Legislation

Securitization
Basel Revised Securitization
Framework, Risk Retention,
Regulation AB II

Derivatives
U.S. Dodd-Frank1 Title VII, European
Market Infrastructure Regulation,
Markets in Financial Instruments
Directive II/Markets in Financial
Instruments Regulation

Volcker Rule

Selected requirements

Selected JPMorgan Chase actions

 I mproving the banking sector’s ability
to absorb losses arising from financial
and economic stress 750+ requirements with 21
regulators involved ~25 different capital ratio
requirements

 500+ people 5,000+ pages of supporting
documentation
 100+ new models

 Ensuring banks hold sufficient liquid
assets to survive acute liquidity stress Prevent overreliance on short-term
wholesale funding 258 requirements 15+ jurisdictional variations
expected 400+ people billion records processed from5
over 200 feeds
 0+ million calculations performed
2
daily

 E nsuring the resolvability ofsystemically important financial
institutions
 Preparing living wills

 esolution plans for 35
Rentities and plans by business,
sub-business and for criticaloperations 1+ million work hours devoted
annually Reforming the nation’s housing
finance system ~9,000 pages of rules,
guidance and legislative text ~100,000 work hours of training
 1
 + million work hours dedicated tosystem and process implementation

 E nhancing capital requirements
and market standards for originatorsand investors I mproving the strength and safety of
securitization markets 2,000+ pages of proposals 35,000+ work hours dedicatedto system development tocomply with Basel risk-weighted
assets rules

 E nhancing pre- and post-tradetransparency
 romoting the use of electronic
P
trading venues and central clearing
 olstering capital and margin
B
requirements

8 3 key rules (U.S.) and 237
articles (EU) finalized 700+ people 60 workstreams

 Restricting banks from undertaking
certain types of market activities Insulating retail banking fromwholesale banking 1,000+ pages of rules
and preamble text with 5
regulators involved 36 requirements 300+ people
 trading metrics in development
7
across 13 business areas

Note: This list of regulations is not comprehensive; estimates of resources are approximate
1
U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act
2
United Kingdom
3
Bank Recovery and Resolution Directive• 250+ employees are working in Model Risk
and Development – up by more than 130
employees. In 2013, this highly specialized
team completed over 450 model reviews,
built capital models that enabled the firm
to achieve the regulatory approval required
to exit parallel Basel III reporting, andimplemented a permanent new governance and control structure for the proper
creation and implementation of models.
• $600+ million has been spent on technology
focused on our agenda in the Regulatory
and Control space – an increase of approximately 25% since 2011. We also have built
a state-of-the-art control room in our corporate headquarters to provide streamlined

data analysis and reporting capabilities ofcontrol and operational risk data acrossthe firm.
• $2+ billion in additional expenses in ouroverall control effort will have been madesince 2012 through the end of 2014.
The numbers above show some of theadditional resources dedicated to this objective but barely represent the full resources
dedicated to our regulatory and control
agenda. It is hard to estimate, but perhaps
20%-30% of all our Risk, Compliance, Legal,
Finance, Technology, Oversight and Control,and Audit employees have been reassigned

13and will be devoted to this effort. In total,
it is hard to measure the overall scope andinvestment since nearly all employees andsystems are engaged in some way or another.

We will be applying the new rules all theway to the client level, the product level andthe trading desk
We will be applying the new rules, particularly around capital, liquidity and the SLR(and the factors that increase our capitalsurcharge as a global systemically important bank), all the way down to each client
we serve, each product we offer and eachtrading desk we operate. Doing so will allow
our client executives as well as product andtrading managers to understand how the
new rules affect us at a very granular level
and allow our professionals to begin making
proper and compensating adjustments. At
the most basic level, some of these rules
conflict with one another; for example, theclient may be profitable on Basel III capitalbut not on SLR capital or vice versa. The
binding constraint at the client level may bevery different from the binding constraint at
the firmwide level. To be successful, we willneed to actively manage all these constraints
so we get a fair return on our capital andproperly manage our risks.
At the firmwide level, once we satisfy BaselIII capital, SLR capital and the Liquidity
Coverage Ratio, the binding constraints on
the firm may very well become the CCAR
test, the annual stress test from the Federal
Reserve Board. By its nature, the CCAR test is
less predictable because it will change every
year. And while you can’t effectively manage
stress testing at the client or product level, we
will manage it at the business level so that it
has more predictable outcomes, allowing for
more predictable capital planning.

14

We are big believers in stress testing, andyou should know that we do it all the timeand successfully conduct a large number ofdifferent kinds of stress tests every week.
This enables us to effectively manage risk toprotect your company.

The new rules will have a major effect on
certain clients and products
All the new rules will not affect all clientsand all products equally. I obviously can’t
cover all client types and products, but I
would like to give some examples of thosethat may be affected more than most – andwhat that impact means for both JPMorgan
Chase and our clients.
Derivatives. Non-corporate users of deriva-

tives (asset managers, hedge funds, financial companies, governments, etc.) will haveto move all their standardized derivatives(mostly interest rate and credit derivatives)to exchanges, as opposed to handling them
directly with a bank. Corporate end usersof derivatives will be allowed to continue
to trade bilaterally with a bank. However,for both of these segments, the cost to offer
derivatives to our various client groups will
increase due to capital, liquidity and margin
requirements imposed on us. It still remains
to be seen how all this will sort out.
Non-operational deposits. Essentially, theseare deposits that wholesale clients hold withus that typically are short term and transactional in nature. We take these deposits
more as a service to the client – not because
they are profitable for us. The new rules
require us to hold 100% of HQLA against
financial institution deposits and 40%
against non-financial corporate deposits. In
addition, based on current proposals, wewould have to hold 6% equity against theassets we maintain for financial institutions
even if those assets consist of cash or otherlow-risk assets such as government bonds.
This makes non-operational deposits hugelyunprofitable; therefore, over time, banks
probably will minimize this type of deposit,
and clients will seek other alternatives, probably in the money markets.
Committed, undrawn revolvers. Many clients

have large, committed, unused revolvers
so they can manage their cash flows andnot leave too much unused cash on theirbalance sheet. Because new rules impose
liquidity and additional capital requirementson committed, undrawn revolvers, the cost
involved in providing them could increase
by up to 60 basis points, depending on theclient segment and nature of the facility.
Banks will either have to charge more forthis product or focus more acutely on thenature and value of the particular client relationship as a whole in considering whether
to make revolvers available to that client.
Trade finance. The cost of short-term tradefinance and standby letters of credit also will
increase dramatically, with pricing potentially up by 75 basis points in the long term.
The rates business (mostly trading government
securities and interest rate swaps). The newrules have a huge effect on this businessbecause they require substantially more
capital and liquidity. And for some banks,
the rates business has gone from profitable
to unprofitable, causing some banks to exit
the business altogether. Because of our large
volume and low costs, we already have begun
to make significant changes to this businessand expect to maintain decent profitability.
The mortgage business. The U.S. mortgage

market still faces huge hurdles and has along way to go before it is a well-functioning
market that is good for consumers and thecountry’s economic health (and makes sense
for financial companies). There has beena large increase in the capital required toservice and hold mortgages. Servicing itself
has become far more costly and dangerous
to the servicer – servicing costs alone havegone up 20 basis points. We still have been

unable to reform the government-sponsoredenterprises (GSE) or to get the securitization
markets healthy again. This has real costs to
consumers, especially for lower credit-quality
consumers and particularly for governmentguaranteed mortgages, which have become
more expensive, more time intensive andless available for consumers. Originators arebeing more conservative because making
loans that may default has become far morerisky and costly due to:• The highly litigious environment anduncertainty surrounding Federal Housing
Administration (FHA) guarantees withrespect to FHA mortgages.
• The ongoing “put-back” risk and thelitigation costs around reps and warranties
from the GSEs and sophisticated private
investors.
• The increasing prescriptiveness of rules onservicing from different – and sometimes
conflicting – regulators and government
agencies.
• The increasing difficulty of moving
servicing – again, especially for high-riskloans, which often are unprofitable to us andother large financial institutions – to otherservicers that have systems and processes
better able to serve these customers.
These issues make mortgages more costly
and unpredictable for companies and far lessconsumer friendly. In many cases, deserving
lower- and middle-income consumers may
pay far more than they might have in thepast for a mortgage or, worse yet, they won’t
be able to get one.
We need for all those involved in the mortgage business to come up with a practicalset of coherent and consistent policies thatwork for originators, servicers, investors,

15

consumers and regulators. While it’s critical to protect the consumer, the new rules
should not allow for arbitrary and capricious
interpretations or overly punitive penalties
and litigation.
When you look at how the cost of specificproducts has changed, it’s easy to see howsome clients will be affected more thanothers. While most clients will see somehigher costs, certain clients – for example,
municipalities (which will see far higher
costs for certain types of deposits and credit
lines), clients with large amounts of trade,credit-only clients and specific types of financial companies – will experience far higher
costs to transact banking business.

We need to achieve proper cross-borderregulatory coordination
One of the initial objectives of the global
regulatory regime was to set out fairly consistent global rules; i.e., a level playing field.
The rules don’t have to be exactly the samein all countries, but if they are dramaticallydifferent, that could cause large and unfair
distortions in global competition. Some areas
at risk are: 1) dramatically different calculations of risk-weighted assets, 2) much lower
leverage ratios in some countries vs. othersand 3) varying capital structures for a bank’s
subsidiaries in different countries. We areconvinced that the regulators want to get thisright, but there are a lot of interests involved,
and only time will tell if they succeed.

We need to recognize that models and riskweighted assets do not reflect all knowledge
or judgment
We recognize the importance of detailed anddisciplined modeling and forecasting, particularly around risk and risk-weighted assets. But
we want our shareholders to know that eventhe best models provide an incomplete, sometimes misleading and backward-looking viewof risk. Let me list a few things that are notincorporated in risk-weighted asset models:16• Character of the borrower.
• Changes in the tax code.
• Changes in the structure of the industry(usually driven by technology – look atwhat the Internet did to media and some
types of retail).
• Changes in business practices (for example,
virtually no one offers subprime mortgage
lending anymore).
• Changes in government or regulatory
policy.
• Geopolitical risk.
We need to do our math right, but we alsoneed to remind ourselves to always try to
add judgment and wisdom.

All things being equal, returns will be
reducedIf you have to hold higher capital and higher
liquidity and some of your costs are higher –all things being equal – your returns obviously will come down. Many analysts haveestimated that the average effect of the higher
capital, liquidity and costs on banks will
reduce their return on equity substantiallyand for some banks far below fair market
returns. These banks possibly would need totake dramatic action – shareholders would
not accept poor market returns for long.

But all things are not equal
Clients, markets and businesses adjust tochanging economic circumstances. Our
company already has taken action that gives
us some confidence that we will be able tomaintain decent returns in spite of what astatic analysis would show. The list below
notes some of those things that likely willchange over time and, in general, will allowbanks, on average, to earn market returns:

• Run-off of unprofitable products. Banks
simply will stop handling some very expensive products. For example, many exotic
derivatives, subprime mortgages and otherproducts no longer will be offered.
• Product repricing. Some products will
reprice. For example, we expect the cost to
the client for revolvers and transactional
deposits to go up.
• Product redesign. Some products will beredesigned. For example, uncommittedlines of credit (that were popular many
years ago) may make a comeback. Or
revolvers may be written so that theborrower cannot borrow all the money all
at once, reducing the liquidity burden andcost to the bank.
• Client selection and re-optimization. Banks
will focus on clients that can be served profitably with a mix of products and services.
For example, we may seek to earn more ofcertain clients’ capital-lite business like cash
management or a higher share of their feebased business such as M&A or issuance.
Some clients will go to other banks with adifferent mix of products and services, andsome will be banked in the shadow banking
market, which may be able to serve someclients in a less expensive way.
• Tactical and strategic changes. These changes
are hard to forecast – but they will happen.
Not all banks will adjust to the new worldin the same way. Some banks will stop
offering certain products or will leavecertain markets – market shares will change
and, in some cases, consolidate. This eventually should lead to margins in each productand business that are adequate for thosethat remain in the business.
• Return on equity. Some banks will continue
to earn better-than-average ROEs. Not allcompanies are created equal, and in every
industry that I have observed, some compa-

nies have outperformed for an extended
period of time. Sometimes it is because
these companies have lower cost structures, better technology or simply greater
economies of scale due to higher market
share. It also is important to rememberthat a complex business that has many
products is not earning the same ROE
on every product. Many industries havehistoric structural issues that lead to someproducts being loss leaders (e.g., selling
milk at grocery stores). And some products
have an extremely high return because
there is little equity involved (for example,
think of money management, transaction
processing, etc.). It is the combination of
how a company does all these things that
determines the company’s aggregate ROE.
In the past, we told you we would expect our
average return on tangible equity throughthe cycle (by this, we mean in average times
with normalized credit losses) to be 16%.
With higher levels of capital, significant
regulatory changes and some remaining
uncertainties, we moved the number to be
somewhere between 15% and 16%.

We continue to have a healthy fear of theunknown because we cannot predict the
cumulative effect of so many changes on acomplex system
We still worry about the cumulative effectof all the changes, which simply cannot
be known. It is our nature to worry more
about the downside than to guess about theupside; however, some of these changes actually may be good for JPMorgan Chase (andother banks). It could be that these changes
may make it harder for new competitors. It
is possible that many of these changes will
create a bigger “moat” around the banking
system. Regardless, we will be vigilant inlooking for, and reacting to, any negative
effects that we simply cannot predict today.

17

What we can predict is that we are going tohave tough global competitors
We have a healthy fear of and respect forour competitors. No matter what business
you’re in or how strong you might look, there
are a lot of smart, devoted, tough competitors that have the potential to gain on you.
So we always make the assumption that wewill have tough competition. In addition to
the regular lineup of great competitors that
we currently have, I want to point out threeareas (among others) that we will be keeping
an eye on.
Large, global Chinese banks. Today, there are
four very large and rapidly growing Chinesebanks. They may be operating under lessrestrictive rules than we are. They are ambitious, and they have a strategic reason togo global (following their rapidly growing
Chinese companies overseas). They havebegun their global expansion, and, over time,they will become tough global competitors.
Technological obsolescence. It’s easy to bescared about this one. Many companies
are working on new payment systems,
trading has become increasingly electronic,
customers want more and more mobile
services, and, increasingly, companies arestarting to handle lending online. Your
company is deploying substantial resources
and launching new programs and products
and will try to be creative, innovative andnimble in all these areas, which we will talkmore about in the last section of this letter.
Increasingly sophisticated shadow banks. We

really should not call them “shadow” banks– they do not operate in shadows. They are
non-bank financial competitors, and there isa wide set of them. They range from money
market funds and asset managers, mortgage

18

real estate investment trusts and mortgage
servicers, and middle market lending funds
to PayPal and clearinghouses. Many of these
institutions are smart and sophisticated andwill benefit as banks move out of certain
products and services. Non-bank financial
competitors will look at every product we
price, and if they can do it cheaper with their
set of capital providers, they will. There isnothing inherently wrong with this – it isa natural state of affairs and, in some cases,
may benefit the clients who get the better
price. But regulators should – and will –be looking at how all financial companies(including non-bank competitors) need tobe regulated and will be evaluating what isbetter to be done by banks vs. non-banks
and vice versa.
We will spend a lot of energy in 2014
adapting, adjusting and navigating to
the new financial architecture, as well as
monitoring its impact on our clients andkeeping a watchful eye on the landscapeas we move forward.

III. W E H AV E M A DE S I G N I FI C A N T PR OG R E SS
ST R E N GT H E NI N G OUR COMPA N Y

We continue to make substantial progressstrengthening our company. We have madeenormous strides on our control agenda,
which is detailed in a letter by our Chief
Operating Officer on pages 33-35. We havecontinued our disciplined organic growth
while also simplifying our business andcontinuing to reduce expenses. But first andforemost is the importance of maintaining
the strength of our client franchises.

In this new global financial architecture, wewill protect our great client franchises — at
the expense of profits, if necessary
As we adapt to all the new rules, we will
deliberately maintain our franchises even at
the expense of sub-optimal profits. Since we
don’t know what the impact of all the newrules will be, we don’t want to guess or makemajor changes in strategy in anticipation ofthese new rules. If some of the changes cause
disappointing profits in the short term, so be
it. We are fairly convinced that we will be able
to adjust and earn fair profits in the long run.

We are aggressively pruning and simplifying
our business — allowing us to reduce risk
and to focus our resources on what is
important
In general, it is good for any company todiligently prune and simplify its businessso that it can focus on what it does best.
This is just simple good housekeeping. It iseven more important in this environment,
largely to help with the control agenda. The
chart below notes that we are exiting certain
products and businesses. None of these exits
will affect our main franchises. These actions
eventually will reduce revenue by about $3
billion, but they will have little impact on
profits. Some of the businesses we are selling
originally had great promise – and we still
have no problem trying things (and failingat them) as long as we have the discipline tostop doing them if they don’t work. Some
don’t fit the new regulatory environment,
some are not customer friendly and some arejust simply too small to matter.

Business Simplification
Simplifying our business E xiting products non-core to our customers or withoutsized operational risk — for example:
 One Equity Partners
 Physical commodities
 Global Special Opportunities Group Student lending originations
 Canadian money orders
 Co-branded business debit cards and gift cards
 Rationalization of products in Mortgage Banking1
 Identity theft protection
 Credit insuranceD iscontinuing certain client businesses on a case-by-casebasis in light of the new global requirements

Financial impact of business simplification ($ in billions)

Revenue
ExpensePre-tax income
Net income

2014 impact

Run-rate impact

$1.5
(0.9)
0.6
$0.3

$2.8
(2.3)
0.4
$0.3

Expense reductions
lag revenue reductions

Not included in the analysis

1	

19

We still are investing in organic growth, andour investments from the past are paying off
As we have shown you in previous letters,
the following nine investment initiatives(outlined in the chart below) will contributeto our profits over the next 10 years. All theseprojects are pretty much on track, and we
expect they will provide substantial value
for our clients and our shareholders in the
future. Our current estimate is that they will
add another $2 billion in profits by 2017. We
like organic growth, and while we have notstarted as many major new initiatives thisyear as in previous years so we can focus
on our control agenda, there will be great
opportunities in the future.

We continue to be vigilant about our
expenses
Earlier, we spoke about the regulatory andcontrol issues that, by year-end 2014, will
have increased our overhead expenses by$2 billion since 2012. Our total overhead(except litigation) was $60 billion in 2013,
and we expect it will be less than $59 billion
in 2014. We expect to continue to drive down
expenses as a percentage of revenue over

Overview of Select Investments
Expense and net income impact of cumulative spend from select investments ($ in millions)Line of business

Consumer &Community Banking

Corporate &Investment Bank

Commercial
Banking

Asset
Management

Target annual
net income

Investment

StatusBranch buildsü Portfolio of branches opened from 2002–2012
 Average branch contributes $1 million+ to pre-tax income when mature 4-year+/– breakeven and 7-year+/– payback for 2002–2012 portfolio>$600

Business Banking

ü Expansion market branches fully staffed Approaching core market productivity levels$600+/–

Chase Private Clientü Added 2,100+ Chase Private Client locations since beginning of 2011 22,000 clients as of 2011; 100,000+ clients as of 2012; 215,000+
clients as of 2013
 $14 billion net new money in 2013

$600+/–

Over-the-Counter
Clearing & CollateralManagement

In progress Delivered a global platform and top three market share Timing of steady state dependent on implementation of final Europe,
Middle East and Africa and Asia Pacific rules$150+/–

Global Prime Brokeragebuild-outü Build out international platform to facilitate clients’ regional strategies Successful launch of international prime brokerage in Europe, the Middle
East and Africa in 2011; Asia Pacific launch in 2014

$175+/–

Global Corporate Bankü Committed to meeting needs of international clients ~200 bankers hired since 2009

$600+/–

Equities electronic
tradingü Focused on building best-in-class electronic trading capabilities Grew low-touch equities revenue at 21% CAGR since 2010

$100+/–

Middle Market expansion1

Ongoing Expand Commercial Banking coverage into new markets New cities added in 2013 include Tacoma and Jacksonville Continue to add ~200 clients per year

$450+/–

Private Bankers/
Investment Management
sales expansion
Investment Managementbusiness initiatives

Ongoing Hired ~700 Private Bank client advisors and ~300 Investment
Management salespeople since beginning of 2010
 Expansion investments contributed net income of ~$100 million in 2013

$800+/–

üIndicates investment complete

Comments

2013 expense2
2013 net income

Expect $3.5 billion+/– of net income in 2017 run-rate
12

Includes WaMu, as well as out-of-footprint expansion markets
Expense for aggregate investments reflects expenses related to select investments with overhead ratios higher than business average20~$2.6 billion~$1 billion~$4,100

the years. We are not doing this by skimping
on investments – we never will do thatsince we believe investments in technology,
training, controls, effective marketing andother efforts are critical for the long-term
health and growth of the company. We are
driving down costs by being extremely
vigilant on expenses – always seeking out
ways to automate and improve efficiency
and operations. While we don’t have aformal expense-cutting program, you can rest
assured that we always are looking for ways
to cut wasteful expenditures. We also believethat new industry utilities will emerge thatwill sharply reduce costs; for example, autility could manage Know Your Customer
processes (this way, corporate customers
would not have to fill out the same forms
and answer the same questions for all theirbanking partners). The financial sector
always has been a large user of industry-wide
utilities, particularly with regard to processes
like settlement, clearance and payments.

And we always are learning (which also will
make us a stronger company)
We always have believed that analyzing yourmistakes makes you a better company. We
often are asked about some of the management lessons we’ve learned over the past few
years so let me share a few of them with you.
Customer advocacy. Treat the customer theway you want to be treated and make sure
you see everything from the customer’s eyes.
Read customer complaints – and be thecustomer’s advocate. This acts as an early
warning system, it reduces problems and it
will make you a better company.
Constantly improving systems and processes.

We always have believed in this, but there isan example of where we didn’t with our AntiMoney Laundering systems. For years, wescored fairly well on our AML program, but we
did not continually improve our systems andprocesses, and, in hindsight, we fell behind. All
systems and processes need to have regularreview and continual improvement.

A tin ear. In the past few years, we had
started to see regulatory and enforcement
actions against our competitors – and saw
signals from our regulators that things weregoing to get tougher going forward. Our
response generally was, “We know what
we’re doing.” Well, we should have done
more self-examination. We need to be better
listeners and do a better job at examining
critiques of others so we can learn fromother people’s mistakes, too.
Enterprise-wide controls. We generally have

had a preference for leaving things somewhat decentralized, if possible, to foster
responsibility and innovation throughout
the organization. We’ve prided ourselves on
our controls, and, for the most part, we didthem well. But not all critical controls wereconsistently executed throughout the firm
– and they should have been. This reduces
the chance of a control gap somewhere in
the company, and it ensures a sustainable,
rigorous discipline and process in place everywhere. In addition to our fortress balance
sheet, we want a fortress control system.
Processes should be known, front to back. Fromthe moment a customer is opening his or her
account to conducting business through the
middle office to properly recording that business on your books and records, you are only
as strong as your weakest link. Management
teams need to understand and review all theprocesses in their business.
Sustainability. It’s not enough for an activity

to be done well – it needs to be done well ona sustained basis. This means a rigorous risk
assessment, a constant review of all processes,
properly functioning risk and control
committees, vigilant compliance and a thorough rechecking of everything by Audit.
Your management is taking full responsibility
for all aspects of our business operations.
Transparency and escalation are key so we
can deal with problems properly and quickly.
While we need to be extremely self-critical,
we intend to do this in an environment ofcollaboration without finger-pointing.

21

CYBERSECURITY UPDATEIn last year’s letter, I gave a frank assessment about cybersecurity and why it is such a critical priority for the entire
company. We outlined how JPMorgan Chase had spent approximately $200 million in 2012 to protect ourselvesfrom cyberwarfare and to make sure our data were safe and secure, and we dedicated more than 600 employees
across the firm to the task. Despite these intense efforts, we acknowledged that the issue of cybersecurity worried
us — and, today, that worry only has continued to intensify.
By the end of 2014, we will have spent more than $250 million annually with approximately 1,000 people focusedon the effort. This effort will continue to grow exponentially over the years.
In our existing environment and at our company, cybersecurity attacks are becoming increasingly complex andmore dangerous. The threats are coming in not just from computer hackers trying to take over our systems andsteal our data but also from highly coordinated external attacks both directly and via third-party systems (e.g.,
suppliers, vendors, partners, exchanges, etc.). It appears that a large, successful attack on a major retailer last year
was the result of a third-party system breach.
We are continuing to carefully protect our perimeter from external threats, beef up our processes to detect internal
threats and monitor related third-party systems to make sure their protections are adequate. In addition, we aremoving rapidly ahead with Europay Mastercard Visa (EMV) and tokenization for credit and debit card transactions,which we will need to do in conjunction with merchants. We also are building three state-of-the-art Cybersecurity
Operations Centers in our regional headquarters to provide points of coordination for all incoming information, theidentification of threats, the protocol around managing our responses and the security of our buildings around theworld. A major focus of these centers is the concept of intelligence fusion, which will pull together all our internal
information from Internet and systems monitoring, as well as reconnaissance from our partners in industry andgovernment. This approach will give us a comprehensive and consolidated view of all the threats facing our firmand our customers, and it will help to inform our view on how best to combat them.
We’re making good progress on these and other efforts, but cyberattacks are growing every day in strength andvelocity across the globe. It is going to be a continual and likely never-ending battle to stay ahead of it — and,
unfortunately, not every battle will be won. Rest assured that we will stay vigilant and do what we need to do toenhance our defenses and protect our company.

22

IV. W E B E L I EV E OUR LON G -T E R M OUT LOOK I S BR I G HT

In the last seven years, we have been througha global financial crisis, massive regulatorychanges and a number of setbacks – but
our company has been able to recover andprosper. Most important, our client franchises consistently got stronger. All companies, at some point, are going to have toughtimes. The ability of a company to overcome
them and be better for having done so is asign of its strength, not weakness.
As we navigate through 2014, our fortresscompany and the power of our franchises
put us in good stead. We are in this business forever. And we need to look beyond
current challenges so that we properly invest
and plan for the future. When all is said
and done, there is reason to believe that the
future of banking will be quite good. The
following paragraphs explain why.

The world has been getting better, not worse
It is hard to believe sometimes – when
you read in the newspapers and see on TV
all the terrible events happening on theplanet – that the world has consistently,
over the course of history, become a better
place for human beings. A recent book by
Harvard professor Steven Pinker entitled
The Better Angels of Our Nature chronicles
how mankind has made enormous progressand has improved society throughout thecenturies. His research looks at issues likemurder, torture and other acts of violenceover the past thousands of years and shows
how today’s world is much safer and morehumane than in the past. It’s amazing thateven the 20th century, bloodied by two world
wars, was less violent than all other centuries before it. Cruelties such as torture andslavery over many, many years have become
increasingly rare (though they tragically still
exist). There are many contributing factors,
but Pinker points out some of the reasons:increasingly just and moral governments;
the invention of new institutions like courtsof law and police forces; and expansion ofhuman knowledge and a heightened senseof morality spread by the written word, religious institutions and schools, all of whichhave helped influence people’s minds about
what is acceptable – and what is not.
Dr. Martin Luther King said, “The arc of themoral universe is long, but it bends towardjustice.” Progress, sometimes painful andslow, has been happening all around us all
the time, and the optimist in me believes that
it will continue.

We have an abiding faith in the UnitedStates of America
I have spoken about this in the past, andI don’t believe that it is blind optimism or
patriotism. America today may be stronger
than ever before. For example:• The United States has the world’s strongest military, and this will be the case for
decades. We also are fortunate to be atpeace with our neighbors and to have theprotection of two great oceans.
• The United States has among the world’s
best universities and hospitals.
• The United States has a reliable rule of law
and low corruption.
• The people of the United States have agreat work ethic and “can do” attitude.
• Americans are among the most entrepreneurial and innovative people in theworld – from those who work on thefactory floors to geniuses like Steve Jobs.
Improving “things” and increasing productivity are American pastimes. And America
still fosters an entrepreneurial culture
where risk taking is allowed – acceptingthat it can result in success or failure.

23• The United States is home to many of thebest businesses on the planet – from small
and middle-sized companies to large,
global multinationals.
• The United States also has the widest,
deepest, most transparent and best financial markets in the world. And I’m nottalking just about Wall Street and banks –I include the whole mosaic: venture capital,
private equity, asset managers, individualand corporate investors, and the public
and private capital markets. Our financial
markets have been an essential part of thegreat American business machine.
America’s future is not guaranteed, and, ofcourse, America has its issues. Later in thissection, I will discuss some of the issues,
especially the ones possibly holding back ourcountry’s growth. But throughout history, we
have shown great resiliency and a capacity
to face our problems. Warren Buffett, thegreatest investor of all time and my friend, hassaid, “It’s never paid to bet against America.” I
think we all should take his advice.

The outlook for long-term growth isexcellent — our clients are growing, andthey need us
The financial needs of countries, companies
and individuals will continue to grow overtime. And that growth will be broad based
and global. A few examples suffice.
GDP and trade• World gross domestic product (GDP) is
projected to grow an average of 7% peryear through 2023, from $73 trillion in2013 to $139 trillion in 2023.
• The value of the world’s exports grew at an
average rate of 11% per year between 2002
and 2012, from $8.1 trillion to $22.8 trillion.
Many economists expect international trade
to grow faster than world GDP over time.
Infrastructure• Keeping pace with global GDP growth will
require an estimated $57 trillion in infrastructure investment between now and2030 – this is 60% more than the $36 trillion spent over the past 18 years. Emerging
economies are likely to account for 40% to
50% of this infrastructure spending.
24• Infrastructure-related trade is forecast
to grow by 9% per year on average
between 2013 and 2030, outpacing overallmerchandise trade growth of 8% per year
so that by 2030, infrastructure-relatedtrade will account for 54% of total goods
traded globally.
Growth of large companies• A staggering 7,000 new large companies(those with revenue greater than $1 billion)
are expected to develop between 2010 and2025; 70% are expected to be in emerging
regions, with the share of large company
revenue generated from those based inemerging regions rising from 24% in 2010
to 46% in 2025.
• By 2025, emerging regions are expected tobe home to almost 230 companies in the
Fortune Global 500, up from 85 in 2010. Of
the 230 emerging region companies, 120 are
expected to be based in the China region.
• Today, 80% of the 2,200 large companies in emerging economies are spread
across almost 100 cities; by 2025, 80% of
the 7,000 large companies are likely to be
spread across nearly 160 cities.
Urbanization and population growth• A majority of the world’s population now
lives in urban areas for the first timein history, and by 2050, that number
is expected to grow to 67%. This mass
urbanization will create cities on a scale
beyond what most of the world hasseen. Providing the infrastructure andclean water, schooling, healthcare andsocial safety nets (to name just a few) toanticipate, accommodate and sustain thisgrowth will be hugely challenging.
Financial assets• Total global financial assets of consumers
and businesses grew to $248 trillion by theend of 2013 and are projected to grow at
a compound annual growth rate of 6.6%
through 2023 to roughly $453 trillion.
• Much of this growth is expected to comefrom emerging market economies, which
consisted of 20% of global financial assets
in 2013 and is expected to grow to 34%
by 2023.

All the points above are the fuel that drives
all of our businesses. The growth will be
there. The hard part about our businesses
is managing the complexity and the often
volatile and violent swings of moods andmarkets, as well as the episodic nature ofsome of the businesses. (Not all of our businesses operate on a convenient annual cycle.)
What we try to do is see through the fog andnoise and the madness of crowds to clearly,
consistently and safely manage our businesses and invest in our future.

Of course risk and uncertainty remain, but
we need to put it all into perspective
Of course there is risk in the system. There
always was, and there always will be. As
a company, we need to be prepared foreven the unlikely and unpredictable badoutcomes. But like everything else, it helps
to put risk into perspective. Some of thecommon risks spoken about today include
geopolitical risks and what some think are
inflated stock market values (I am not goingto talk about the stock market as I have little
to add to that debate). Probably the most
discussed area of uncertainty is what effectthe reversal of the Fed’s Quantitative Easing(QE) policy will have on the economy andmarkets. I will speak about Fed policy laterin this section. Here I will briefly review
some of the risk issues we see today.
Geopolitical risk is a constant

History teaches us that geopolitical risk isalways there. Some of the risks are wellknown to us such as Afghanistan, Iran,North Korea, etc. But many of the risks are
not known, and they often are the ones
that create huge problems. For example,
most people did not foresee the events in
the Middle East (the “Arab Spring”), thestart of World War I or the serious issues
in the Eurozone, to name a few. Many of
the changes in the geopolitical world werehugely positive; for example, the falling of
the Berlin Wall, the re-emergence of China
in the global economy and the spreading of
democracy throughout many parts of theworld. Two years ago, there was deep fear
about the collapse of the Eurozone, which, ofcourse, hasn’t happened. When I graduatedfrom business school 30 years ago, the greatfear at the time was that America had seen
its best days and was soon to be surpassed bya resurgent Japan.
While we are prepared and watchful, we see
nothing that would change our long-termplans.
There are many positive factors:• Consumers are in increasingly good financial shape. Over 6 million more Americans
are working since the depths of the financial
crisis. The amount of consumer income thatthey spend to service their debt is the lowest
it has been since it has been recorded,dating back to 1980. And Americans’ net
worth has been increasing, along with stock
market prices and the value of homes.
• Housing has turned the corner in mostmarkets. We’ve moved from a buyer’s
market to a seller’s market in four years,
construction of new homes has steadily
improved and home values have increased
nationally more than 19% in the past two
years due to the strengthening economy.
• Capital markets are wide open – credit, forthe most part, is flowing freely. (The only
exception I see here is that it still is too
hard to get a mortgage for many people.)• Corporations and middle market companies are in extremely good shape. Corporate cash balances now are 11.4% of assets,
up from 5.2% in 2000.
• The banking system is almost fully recovered, and banks are better capitalized
than they have been in 60 years. Banks
had average equity to assets of 11.1% in2013 – the highest it’s been since 1950.
And banks in total have $10 trillion in
deposits vs. $7.6 trillion in loans today –the lowest loan-to-deposit ratio since 1970.
In addition, banks currently hold HQLA of
approximately $2 trillion.
• Consumers are benefiting from abundantand less costly oil and gas due to technological advances in extraction.

25

But something is holding back our growth

Something is holding back the strong
recovery of the great American economic
engine. It is not lack of access to capital orloans, but it might be a combination ofsome of the following factors:• Concerns around excessive regulation
and red tape – I travel around the U.S. all
the time, and this is a loud and growing
complaint that I hear from businesses,
small to large, across virtually all industries.
• Whether you were for or against “Obamacare,” when massive changes to such animportant part of the American economy
are made, it does create uncertainty formany businesses.
• The inability to face our fiscal reality is aconcern. I believe that if we had adopted
some form of the Simpson-Bowles plan to
fix the debt, it would have been extremely
beneficial to the economy.
• Entitlement spending – which now is 60%
of federal spending and is growing – iscrowding out infrastructure spending andspending on initiatives like research anddevelopment and training.
• In addition, uncertainty about the ultimate outcome of the Fed’s unconventional QE policy (and our inability to deal
with some fiscal issues) makes future Fed
policy more complicated.
• Political gridlock resulting not only in
our government shutdown but in two
debt ceiling crises was damaging andirresponsible.
• U.S. corporate tax policy is hugely inefficient and, at the margin, drives American
capital overseas.
• U.S. immigration policy (which we should
fix for moral reasons alone) also is driving
brains and entrepreneurs overseas. Mosteconomists think a good immigration
policy could accelerate U.S. economic
growth by 0.2% right away and by 2% overa 10-year period. This, alone, could create
3 million jobs.

26

In addition, uncertainty and hypersensitivity torisk may be holding back growth

Uncertainty also has always been a constantin business. But coming out of a financial
crisis, in addition to the items I mentioned
above, we may be living in a time of heightened sensitivity, uncertainty and risk aversion. It seems that just about everyone has
become a risk expert and sees risk behind
every rock. They don’t want to miss it –like they did in 2008. They want to be able
to say, “I told you so.” And, therefore, they
identify everything as risky. Here are a few
facts that support the uncertainty and risk
aversion hypothesis:• Corporations seem unduly conservative.
We already have mentioned how muchexcess cash they hold.
• U.S. gross capital formation as apercentage of GDP has been at lower
levels in the last five years than it has
been for more than 40 years. Capital
expenditures ultimately are the drivers of
productivity, jobs and growth.
• The top 1,000 companies account for
approximately 50% of all capital expenditures. One reason that large companies
may be more conservative in their useof cash and debt is that rating agencies
are much tougher on ratings. In 1993, thenumber of AAA and AA issuers was 413,
and in 2013, that number was 147. Today,
the companies are bigger, basic financial
metrics (i.e., debt to equity and margins)essentially are the same and defaults arelower. I have defended the rating agencies’
right to their opinions, but it seems theyalso may have largely overreacted to thefinancial crisis.
• Finally, one of the great aspects of theAmerican system is that it is okay to failand to try again. But even that seems to
be diminishing as failure, other than in
Silicon Valley, is severely punished.
This all can be fixed

There is nothing in all of the negative items
that I mentioned above that can’t be fixed
through our own actions. Collaboration as
opposed to destructive finger-pointing isneeded. A few smart decisions and a lot of

constructive collaboration will improve confidence – and confidence is the “secret sauce”
of growth. As consumers and businesses
grow more confident, they will spend more
and invest more. Stronger economic growth
will create more jobs and higher incomesand give us the necessary resources to tackle
pressing and important issues like inner city
school education, income inequality andproper infrastructure investing.

The impact of tapering
Today, there is hyperfocus on central bankpolicy and, in particular, on what’s called“Fed tapering.” The U.S. Federal Reserve had
been buying $85 billion a month in Treasuries
and mortgage securities (it recently reduced
that amount to $55 billion a month). Most
observers expect that number to come down
to zero by the end of the year. Eventually, theFed may need to begin selling some of the
securities it has purchased.
The Fed’s balance sheet has gone from $1 trillion in 2007 to an estimated $4.5 trillion by theend of this year. Some feel the Fed’s QE policies have been too aggressive and ultimately
will be inflationary. Additionally, there is afear that ending QE will be risky and complex,
particularly since QE has little precedence.
We cannot predict the future, and it isrational to have a healthy fear of new anduntested policies. However, we think it will
be helpful to put some of these issues inperspective, too.
Put it in perspective

2

Regardless of what those receiving
cash for their securities did withthe cash, it ultimately will end up
back in the banking system in theform of deposits, both at the bankand, therefore, deposits at theFed. The deposits at the Fed arecalled reserves

The value of all financial assets in America
today is approximately $90 trillion. When
the Fed stops buying securities, the $4.5
trillion it owns will run off to $2 trillion by2020 simply from paydowns of principal in
Treasuries and mortgages. While it is notclear what the new steady state will be – theFed probably will not need to take its balance
sheet all the way back down to $1 trillion.
Even if the Fed eventually needs to sell somesecurities, the American economy shouldbe able to handle it easily – particularly in astrong economy.

This unconventional monetary policy (QE) may
have worked, but it is confusing

Figuring out the full effect of QE is hard to
do. And, therefore, figuring out the effect of
the reversal of QE is even harder to do.
QE replaced $3 trillion in Treasuries andmortgage securities held by individuals,
investors, funds and others with cash
reserves created by the Fed. If all that might
happen is the various investors involved
took the cash and deposited it at a bank andthe bank, in turn, deposited it at the Fed,
there essentially would be no real change
in economic effect. But if those involved
spent the money, bought additional stocks orbonds and invested in long-term assets, there
would be an effect on the real economy.
There is little question that QE – because
it drove long-term rates down – lifted asset
prices, including stocks and home prices(there were other global effects, but I won’t
talk about them here), reduced funding costs,
improved economic activity and helped theeconomy recover. This probably was moretrue early on with QE and less true later on.
But much of QE appeared to be “unused.”
At the end of 2007, before QE started, banks
had $6.7 trillion in deposits, $6.8 trillion inloans and only $20.8 billion in deposits2 at
the Fed. Today, banks have $10 trillion in
deposits, $7.6 trillion in loans and $2.6 trillion in deposits at the Fed. You can see thatloans increased very little, while deposits andreserves at the Fed increased dramatically.
Banks clearly did not use all of these additional deposits to make more loans, though
this was due to several factors, including the
weak economy and the banks’ need to build
up their capital and liquidity ratios. One
concern is that this “unused” money will one
day be aggressively used – and cause toomuch inflation.
The Fed has tools in place to reverse QE if
necessary — and banks have more constraints inlending out the money anyway

The Fed has many tools to reverse QE
if necessary, which it can readily use if
too much credit is created in the system.
However, banks will be far more constrainedin how much they can lend than in the past
because of the new, higher liquidity and27

capital requirements. In the new regulatoryenvironment, the transmission and effect ofmonetary policy by the Fed will be different
from the way it was in the past. It is very
hard to calculate this impact, although I’msure the Fed is taking it into consideration.
In addition, business financing needs arelikely to be moderate because businesses will
be able to fund many of their projects with
their own excess cash and strong earnings.
Normalization is a good thing

Ultimately, a normalization of interest
rates, capital flow and allocation without
central bank interference, concurrent witha strengthening economy, has to be a goodthing – something that we all eventuallyshould want even though it probably will
be accompanied by volatile movements ininterest rates. When rates do normalize, weknow one thing for certain – it will happen
differently from what people expect. And
my guess is that when it happens, it will
be faster than people expect. A normalizedinterest rate curve might have short-term
interest rates at 3%-4% and 10-year Treasury
bond rates at 5% plus or minus. If the yield
curve returns to those kinds of levels in ahealthy economy, we all will be okay. And
the Fed already has made it absolutely clearthat it will normalize its monetary policy
only as the economy strengthens.
Focus on the real economy vs. the money
economyThe real U.S. economy includes 145 million
people who get up and go to work every
day, trying to improve their lives and thelives of their family (and counter to what
you read in the newspapers, 80% of thosepeople are happy with their job). The real
economy includes millions of companies
serving clients every day and generallybuilding to expand and meet their customers’
order flows. In fact, most people in the real
economy appropriately pay very little attention to the money economy. I would remind
our readers that there are 320 million Americans, but only a small fraction watch CNBC
or read The Wall Street Journal. In the real
economy, what matters to most people isone’s family, job and quality of life.

28

Those of us who operate in the money
economy are very sensitive to interest rates –maybe overly sensitive. And we should lookthrough the volatility at interest rates, which
will almost definitely be there as the Fedchanges its policy. Volatility in interest rates
will not necessarily dampen real growth in
the real economy.

Rising interest rates (all things being equal)
will be a big plus for your company
Even as we have grown deposits and market
share in many of our businesses, profit
margins have been squeezed because ofabnormally low interest rates. If interest
rates rise to the normalized scenario that I
described earlier, our net interest margins
could expand 2.2%-2.7%, increasing our net
interest income and profits by approximately$6 billion after-tax, all things being equal.
This, of course, would take place over three
to five years and not in a straight line. But,
indeed, all things are not equal – many otherfactors will have an impact on our businessflows and results.
We have been vigilant in trying to analyze
the effect of interest rates on interest
margins (we have managed the balance sheet
to benefit from rising interest rates), and we
also have been vigilant in trying to predict
the effect of interest rates and Fed monetary policy on deposit flows. There is little
question that the Fed’s QE policy increased
deposits substantially and that, as QE isreversed, it will reduce deposits. It is possiblethat we could see significant outflows ofcertain types of deposits over the years – anevent for which we will be prepared.

Banks still need to be there in good times
and in bad times — but it will be a little
harder in the new world
In the last financial crisis, many banks
stood against the tide. They were there for
their clients and continued to fund businesses, cities, schools, hospitals and investments when many other banks wouldn’t or
couldn’t do so. It is not because these banks
were irrational but because that is their job.
Imagine yourself being a client of a bank,and, at the first sign of trouble, the bankruns like a rabbit.

The money markets and some of the capital
markets are like rabbits – at the first signof trouble, they run as far and as fast as
they can. Human psychology isn’t going tochange, and even the Fed can only mitigate
the effect of this reaction. It is quite possiblethat some shadow banks will act that way– they may make loans only in good times
but not in bad times. So when the regulators
finish designing the new system, they should
try to keep this in mind.
Many of the new rules have added procyclicality. For example, Basel III capital rules
require that risk-weighted assets will go up
in a stressed environment. We estimate thatbetween 10% to 20% of our capital may be
used in an extreme stressed environment tosatisfy additional regulatory requirements,
and this will force us more quickly and moreaggressively to reduce, or not add to, risk
assets as the stressed environment unfolds.
And the new liquidity rules require us tohold 100% of liquid assets against possible
outflows. So as a crisis unfolds, by definition,
we will have outflows higher than expectedthat will require more liquid assets. This
will require the selling of risky assets to buy
liquid assets. We hope the regulators will
come up with a schematic that allows theuse of liquid assets in stressed times without
penalty so that banks can continue tolend when times are tough. We certainly
don’t want to have liquidity or capital rules
aggravating a crisis.

And we have many exciting new things
comingWe have focused a lot of attention in thisletter on the new rules and regulations andon many issues about which we need to be
worried. But there still are a lot of initiatives
and innovative new products and services
coming down the pike about which we are
excited. I’d like to mention just a few of them:• Better client data management leading todeeper penetration. In all of our businesses,
we are building better client data management systems. This gives us a deeper understanding of our clients and better coordination of our selling efforts. This allows us
to more effectively sell additional products
to the same customers – which helps drive
both profitability and customer satisfaction.

• Increasing segmentation and focus on morerefined market segments. For example, thisincludes advertising and products specifically designed for market segments likeretirees, women and certain minority
groups. Our Commercial Bank has formed
specialty lending departments so that, as awhole, this line of business has deep expertise about particular industries. And ourmobile banking products will be specificallydesigned for different market segments.
Even in areas where we already are ranked#1, like fixed income sales and trading,when you dig deeper, there still is a lot ofroom for improvement in certain parts of
the world and in certain sub-businesses
and products.
• An exceptional customer experience. We havebeen on this journey for a while, and weare getting better, but there is so much
more to do. We want to be known for ourcustomer service – and we want to becompared in this regard with the best in
the business.
• JPMorgan Chase Institute. We are going toform a thought-leading institute backed
by all of the knowledge, broad relationships and resources across the firm to help
continue to educate the world on topics inwhich JPMorgan Chase has a distinct anddeep knowledge. We intend to analyze andpublish our insights on small, middle-sized
and large businesses, the development of
cities and communities, global trade andcapital flows, and workforce development,
among other themes.
• Big Data. We have created a high-powered
group of experts to enhance our use ofdata (generated across JPMorgan Chaseor purchased externally) to create intelligent solutions for our clients. For example,
we are looking at our data assets to help
clients in managing collateral positions,assist merchants in gaining insights andaid consumers in validating credit reports,
among others. This group will have an
unending supply of work.
• ChaseNet. We announced this initiative
last year. It allows us to rethink the wholeend-to-end payment experience for both29

consumers and merchants. We now haveseveral clients on a beta test, and we arehoping to roll out some exciting programs
that are good for consumers and merchants
alike.
• Payments. While this topic does keep us
up at night due to the talent and innovation of the competition that would love
to make us obsolete, we should point out
that JPMorgan Chase is one of the biggest
payment companies in the world (acrosscredit cards, merchant payments, global
wire transfers, etc.). We are even one of thebiggest mobile payment companies. So in
this space, there is both risk and opportunity. We have some good ideas and actionplans so stay tuned!
• European capital markets. As the bankmarkets are shrinking in Europe, the publicbond markets will be growing. It is hard for
us to compete in the bank lending markets
in Europe, but we are very qualified to gain
market share in the public capital markets.

THE ROLE OF BANKS IN DEVELOPING SOCIETY
At JPMorgan Chase, we believe we have a responsibility to be part of the solution to the world’s most pressing
problems, not only because it’s the right thing to do but because our own long-term success depends on the
success of our communities and the people, companies and institutions we serve.
JPMorgan Chase contributes approximately $200 million a year — much of it to help the poor and disadvantaged— and our people dedicated more than 540,000 hours of volunteer service in local communities around the globe.
The volunteer work that our employees do helps to define the meaning of corporate responsibility by creating
tangible connections in communities around the world — from the largest countries to the smallest towns.
And our efforts go well beyond philanthropic work. We also develop programs that bring together our financial
capital, as well as our core strengths, capabilities, and the expertise of our business and our people to help
improve the world in which we live. It is a big responsibility to be a bank — and communities around the globe are
better off if we do it well.
We will continue to use our size, scale and expertise to make a difference and to be a real, positive contributor tosociety — from fighting income inequality to improving education and work skills. I see evidence of the difference
we make every day, and following are just a few examples that I’d like to mention.
Helping Close the Skills Gap
Even in the face of high unemployment, we hear from our clients daily about how hard it is to find workers withthe right skills. Some 4 million jobs stand open, while 11 million Americans remain unemployed, and millions more
have given up seeking employment. That’s why we launched New Skills at Work, an unprecedented $250 million,
five-year private sector initiative to improve job training at the middle-skill level (for jobs that require training
beyond high school but not a four-year degree). The sense of urgency to address this issue is something we see
everywhere we do business, and we are working with community leaders across the country — community colleges,
technical training programs, policymakers and employers — to tackle the skills gap. We know that helping workers
gain the skills they need is only one part of the solution to the unemployment challenge, but it is an area we can dosomething about right now. And JPMorgan Chase is uniquely suited to the task of rallying a broad range of businessleaders around the goal of aligning our investments in education and skills training with current job openings andfuture career pathways.

30• Emerging markets. As the world grows, sodoes the number of countries and companies that we can serve. Every time we open
an operation in a country, we support
companies from around the world to dobusiness there – and we help the country’s
companies explore the world. The network
effect is huge and hard to duplicate.

Taking everything on balance, all the risks
and all the opportunities in what essentially is an improving and growing world,
we remain optimistic about the future ofbanking.

Improving Educational Outcomes for Young Men of Color
We’re also willing to roll up our sleeves. Over the last four years, our employees coached 24 young men of color
from low-income New York City neighborhoods — where less than 30% of black and Hispanic males graduate fromhigh school — in an end-to-end program that supplemented their academics, gave them leadership training andhelped them apply for college. All 24 got into college — they started last fall — with $8 million in scholarships, andwe’re hoping we see them this summer in internships here.
Attracting Private Capital to Social and Environmental Challenges
Foundations and governments, with their limited resources, can do only so much to solve the challenges facing
low-income populations around the world. To make progress at the scale required, we need to create vehicles
that attract private capital and apply it to generate measurable social and environmental benefits — alongside
financial returns. The Global Health Investment Fund that we established with the Bill & Melinda Gates Foundation
raised private capital to invest in new drugs and vaccines, emerging diagnostic tools, child-friendly formulations ofexisting products, and technologies to reduce maternal and infant mortality — all focusing on diseases that disproportionately affect the world’s poorest countries. By including global access requirements, products are available at affordable prices to the populations most in need. And we’re working now with The Nature Conservancy
to establish a new center for natural capital investing that will structure transactions that generate revenue fromsustainable use of a property — monetizing habitat protection, water conservation, sustainable timber harvesting,wetlands, etc. Stay tuned for more on that.
Serving Cities as Clients and the Engines of Economic Growth
JPMorgan Chase continues to focus on ways to help metropolitan communities operate and grow. We offer states andcities our best advice and considerable financial support. Last year, the firm provided more than $85 billion in capitalor credit to nearly 1,500 government entities, including states, municipalities, hospitals, universities and nonprofits.
We extended the reach of our Global Cities Initiative with The Brookings Institution by creating a network of trading
cities across the United States and ultimately around the globe — these are cities that will build new commercial
relationships by strengthening trade and investment ties and by learning from each other about how to growindustries with real export potential. Our Global Cities Initiative with Brookings, which we launched two years ago,
includes a $10 million financial commitment and the ability to tap our network of relationships around the world toconvene an extraordinary series of events in cities from Los Angeles to São Paulo. These sessions bring together
policymakers, business leaders and non-governmental organizations to share best practices and formulate strategies for improved competitiveness. As a result of these meetings, participants are developing locally driven, actionable strategies to strengthen their respective region’s trade and investment practices.
31

I N C LOS I N G

It is important to acknowledge that no matter how good one’s
position is, no one has a divine right to success. Many of you
have seen companies in extraordinary positions erode over time.
Sometimes this happens because of structural or technologicalchanges, but, frequently, it happens because of plain and simple
mismanagement. And this is even more true when you operate intough, complex, competitive and sometimes volatile global markets.
So to succeed long term, we need an excellent management team.
And in my opinion, your management team has the character,
culture, intellect, experience and wisdom necessary to succeed.
And importantly, this management team does not rest on its laurels
and is continually questioning itself and often focusing not on what
we do well but on what we have not done well. Years ago, the U.S.
military adopted a review process called the After Action Reviews(AAR). An AAR is a disciplined process where military leaders review
the results of all missions taken. This examination is conducted not so
the commanders in charge can find faults and point fingers – but soeveryone can continually get better. At our company, we have the same
attitude and just hope that we can do it half as well as the U.S. military.
In closing, I want to reiterate how honored I am to work at thiscompany and with its people. What they have accomplished during
these difficult circumstances has been extraordinary. On behalf of
JPMorgan Chase and its management, I want to express my deepest
gratitude to our people – I am proud to be their partner.

Jamie Dimon
Chairman and Chief Executive Officer
April 9, 201432

Safeguarding the business

Matt Zames

Our goal is to be the safest, soundest
and most profitable financial services
company in the world, doing thehighest-quality business and delivering to our clients and customers
best-in-class products every day.
How we operate as a company is key
to accomplishing that goal. Looking
across our entire enterprise, theChief Operating Officer’s office drives
many of the processes and corporate
utilities, as well as the infrastructure,to that end, ranging from managing
the firm’s liquidity, funding andstructural interest rate risk to overseeing strategic firmwide functions
such as global Technology andOperations, Oversight and Control,
Compliance, Corporate Strategy andRegulatory Affairs, among others.
In the past year, we re-prioritized
our major projects and initiatives,
deployed massive new resources andrefocused critical managerial timeon these efforts. We’ve enhanced
significantly our governance process
and developed a system for management reporting that enables muchgreater transparency up to senior
management and our Board. We aresimplifying our business model,
eliminating products and services
that are not essential to serving ourcustomers and are not core to ourbusinesses. We are ensuring that oursystems, practices, controls, technology and, above all, culture meet thehighest standards.

narrowly defined the JPMorgan
Chase liquid asset buffer available tomeet short-term liquidity needs to be
more conservative and consistent
with the scale of our balance sheet.
We further built out technology thatwill enable more flexible and timely
liquidity stress testing for the enterprise and our major legal entities.
Our internal framework is moreconservative than the related Baselliquidity measures. Compliancewith our framework, which wasachieved in 2013, results in the firm
exceeding regulatory minimums,
notably the Basel III Liquidity
Coverage Ratio. Of course, we are
diligent in understanding new
regulations as they are introduced
and stand ready to comply.

Last year, we continued to advanceour approach to liquidity and interest rate risk management, cornerstones of safety and soundness. We
have focused on striking the appropriate calibration when it comes tomanaging our balance sheet, protecting the deposits our clients and customers entrust to us and, ultimately,
our shareholders.

We continued to make strides inadvancing our Asset-Liability Management (ALM) capabilities, which
are critically important as we contemplate the reversal of Fed monetary policy and the ensuing impact
on interest rates. We established a
global ALM portfolio strategy teamin 2013, whose mandate includes
working across the firm to ensure
consistency in our analytical
approach and modeling in relation to
structural interest rate risk. A significant area of focus for us this past
year was advancing our scenario andanalytical capabilities, including
materially investing in our technology and supporting infrastructure toallow for more dynamic analysis.

2013 represents a year of significant
progress in managing the firm’s
liquidity risk. We evolved our internal liquidity framework to ensurethat the firm has sufficient liquidity
resources to continue business-asusual operations under both a shortterm and prolonged market andcompany-specific stress. Consistent
with this new framework, we more

We continue to actively and conservatively manage our substantial
investment securities portfolio,
which is the primary vehicle we use
to manage our firmwide structuralinterest rate risk. In 2013, we applied
held-to-maturity accounting for certain investment securities the firmpurchased, which will help to mitigate Basel III capital volatility in a

Liquidity and interest rate risk
management more critical than ever33

rising rate environment. The average
yield of our investment securities
portfolio increased by more than
50 basis points from 4Q 2012 to 4Q
2013, reflecting our ability to deploy
new investments at higher yields
throughout the year.
We have put enormous resources on
the control and compliance agenda
We have developed and implemented
an end-to-end control and complianceagenda, central to which is early issue
identification and escalation andsustainable remediation. Over thecourse of 2013 and 2014, we will haveincreased our total spend on thatagenda by approximately $2 billion.
We are looking at issues on a firmwidebasis

One of the things we focused on lastyear is a series of firmwide reviews– issues raised by our regulators andissues we identified internally – that
we thought should be examined onan enterprise-wide basis. We stoodup 24 separate programs and dedicated teams around the globe to lookat these issues across businesses andgeographies to make sure we areappropriately and consistently managing the associated risks. They
include matters like Anti-Money
Laundering (AML), Basel implementation and how we evaluate new
business initiatives. Oversight of ourtens of thousands of vendors acrossour front and back offices is anotherexample of a process we re-evaluated,so that across our company, we manage these relationships and theirassociated risks to a common set of
highly developed standards. We
report on these programs regularly
to our Board of Directors.

34

Another thing we worked on in2013 is how to take problems wefind in one area of the firm anddetermine whether there are any
similar risks in another part of the
firm. We created a state-of-the-art
controls room in our executive headquarters to maintain a repository of
firmwide control-related informationand to enable rapid access to relevant
data, reporting capabilities, sophisticated analytics and more proactive
issue identification.
We have made substantial progressin AMLWe also are deploying unprecedented resources, dedicating senior
managerial time and prioritizing
efforts to build and maintain anindustry-leading AML program. By
the end of 2014, we will have dedicated close to 8,000 full-time employees solely to AML. We are making
progress in strengthening our ability
to measure AML risk, are improving
how we onboard clients and perform
customer due diligence, and areenhancing how we monitor clienttransactions to detect potentially suspicious activity. At the same time, wehave taken substantial steps to derisk, or simplify, our businesses. We
have exited more than 500 relationships with foreign correspondentbanks and are moving any accounts
for foreign government officials/
politically exposed persons out ofConsumer Banking.
We want to make sure we have nothing
but open and honest dialogues with
our regulators

We have hundreds of regulators
around the globe and are examined
extensively each year. We also havethousands of documents and data
points we periodically share withthem. It is imperative that we are
fully transparent with our regulators
at every level of our organization.

We pay close attention to our regulatory environment, not only to makesure we behave in ways consistent
with the spirit as well as the letter ofthe rules but to anticipate the evolving regulatory agenda. I personallymeet with our primary regulators atleast twice a month to make sure we
as a company understand their
expectations and fully address them.
Technology drives the experience ofour clients and customers and ourrisk and controls management
Technology fuels almost every aspectof this company and is a core part ofour value proposition to clients andcustomers. Over the past five years,
the firm has invested 8% - 9% of its
annual revenue to fund our global
technology capabilities. This is one of
our largest investments as a company.
Technology enables our businessgrowth, supports our worldwide operations, helps us build stronger controls and meet regulatory requirements, enhances our productivity andefficiency, and, most important, protects the safety of our clients’ assets.
The scale of our businesses continues to expand. Information Technology (IT) supports 300,000 desktops,
58,000 servers in 32 data centers,
26,000 databases and 7,250 businessapplications. Our global telecommunications network connects our presence in 60 countries along with our
5,600 Chase branches and 19,000
ATMs. Technology in our Consumer
business supports 30+ million customers via our digital platform and15+ million customers using ourinnovative mobile capabilities. In our
Corporate & Investment Bank (CIB),
we process up to $4 trillion of U.S.
dollar payments daily.

Innovation is happening acrossour business lines every day. Our
Consumer Branch of the Future is
powered by IT innovation. Our
recently completed Strategic
Reengineering Program in the CIB
has improved efficiency by hundreds of millions of dollars. IT is
improving not only the speed andscale of our credit card authorizations but has enhanced our fraud
protection capabilities and is theengine behind new, innovative
products, including BlueprintTM.
Each year, we invest hundreds of millions of dollars in our risk and controls technology agenda. A sizable
part of this investment is dedicatedto ensuring that we have the systems
to identify problems – whether these
problems have to do with AML risk,
fraud risk or something else – on areal-time basis. A core objective of
our technology strategy is to reduce
variability and increase consistency
and standardization. As such, one ofour most important goals is to lessen
our reliance on manual controls,
which are more susceptible to humanerror. We also are seeking to substantially reduce subjectivity to allow for amore consistent and predictable way
to identify control gaps in the environment. Systems enhancements,
including information technology anddata architecture, are critical to thebroad management of financial risks.
Our technology environment continues to be tested. In the past two
years, we have faced unprecedented
cyber threats from sophisticatedadversaries bent on wreaking havoc
in the financial industry. Two years
ago, we saw a rise in “denial of service” attacks aimed at disrupting theflow of financial transactions. We
have invested heavily in improving
our overall cyber defenses anddramatically improved our ability
to withstand these attacks. However,as the threats continue to grow andattacks continue to evolve, it’s crucial
that we evolve as well and focus
on tomorrow’s threats, as well as
today’s. To that end, we’ve nearly
doubled our investment in cybersecurity, including deployment of
increased monitoring and protection
technology, and we’ve expanded thenumber of dedicated cybersecurity
professionals in the company tofocus on protecting our customers
and our staff.
Last year, we kicked off an effort todevelop multi-year technology plansfor our businesses and corporate
functions that reflect the firm’s toppriorities and business requirements.
These “road maps” will enable us to
manage the firm’s technology investments against the backdrop of astrategic plan, which we’ll continue
to revisit and refine.

improving our e-trading platforms,
enabling growth in Commercial
Banking or making our corporate
functions more effective, technology
is core to the delivery.
Conclusion
Not every organization has the leadership team, the talent and the fortitude to make this level of investment
for the future. We feel privileged to
be able to do so on behalf of ourclients, our customers and our shareholders. I could not be more proudof our employees and our accomplishments to date. 2014 is anotherimportant year for us, and I am
confident that we will continue todeliver at the level you expect of us– holding ourselves, our businesspractices and our culture to thehighest standards.

Matt Zames
Chief Operating Officer

As we look to 2014, our reliance ontechnology will continue to expand.
We will spend close to $250 million
on our cyber capabilities. IT will beat the core of what we need to do toadapt to the new global financial
architecture and to meet regulatory
requirements, including AML,
Comprehensive Capital Analysis andReview (CCAR), Volcker and DoddFrank, among others. We will leverage our internal cloud platforms tofurther improve the efficiency andtime to market for our IT infrastructure. Each of our business lines has arobust set of strategic initiatives.
Whether it is upgrading our nextgeneration digital and mobile
programs, enhancing our AssetManagement Solutions business,

35

Consumer & Community Banking
issues. Having strong controls is
simply how we do business going
forward, and it will make us a better,more efficient company. We still
have work ahead in 2014, but I am
confident that as we start 2015, we
will have put many of these legacy
issues behind us.
Exceptional franchise

Gordon Smith

Across Consumer & Community
Banking (CCB), we are growing
our business by building lifelong
relationships with our customers.
Throughout 2013, we maintained
our strong momentum in creating agreat customer experience across allof our channels. Chase ranked #1
among the largest banks by theAmerican Customer Satisfaction
Index (ACSI) for the second year ina row, and J.D. Power and Associatesranked us #1 in customer satisfaction in three out of four small business banking regions. These are all
significant improvements fromthree years ago.
We started with the simple theory
that if we treat people well, they will
want to do more business with us;
and this steady focus on improving
the customer experience is working.
We have relationships with nearly
half of the households in America,
and that number is growing. The
number of households that we servein Consumer Banking is up 5% from2012. Average total deposits are up
10% from a year ago, and we’ve

36grown deposits at a rate that’s morethan twice the industry average –that’s more than any other bank forthe second year in a row.
But improving our customers’ experiences does not mean being all things
to all customers. Reducing operational complexity and simplifying
our products were top priorities for
us in 2013. Complexity can kill agreat customer experience. In 2013,
we exited products that were notcore to our business or that served
only a small number of customers.
These products more often led touneven experiences for customers,
added complexity for our employees
and required additional operational
support. As one example, we havegreatly streamlined our Mortgage
products and programs. In 2010,
we offered a suite of 37 products/
programs in Mortgage. Over thecourse of 2013, we reduced them to25, and throughout 2014, we willfurther reduce them to 15.
In 2013, we made significant investments in improving our controls. It
was a challenging year, and I am very
proud of all our Chase colleagues
who stepped up to tackle these

CCB is an exceptional franchise withleadership positions across our businesses. I wouldn’t trade our portfolioof businesses for anyone’s. We are
the #1 credit card issuer in the U.S.
based on loans outstanding, the #1
Small Business Administration (SBA)
lender, the #1 U.S. co-brand credit
card issuer, #1 in total U.S. credit anddebit card payments volume, the #2
mortgage originator and servicer,
and the #3 bank auto loan originator.
In addition, we are leading the way
in making it easier for our customers
to do their banking when they want
and how they want. Chase has the #1
ATM network, #2 retail branch network and #1 mobile banking functionality, and chase.com is the #1
online financial services destination.
Few, if any, banks can provide customers the quality of products andchannels that Chase can.
2013 financial results
In 2013, CCB delivered strong results
in a challenging environment. Our
net income was $10.7 billion, up
slightly from $10.6 billion in 2012.
Our revenue of $46.0 billion was
down 8% from $49.9 billion in 2012,
driven by lower mortgage production volume as fewer Americans refinanced when interest rates rose in
the second half of the year. We also
felt the impact of lower deposit
margins and lower loan balances.
We ended 2013 with a strong returnon equity of 23%.

CCB had double-digit growth in mostof our businesses. Consumer Banking
average deposits were up 11%, client
investment assets were up 19%,
Business Banking average deposits
were up 13%, credit card sales volume was up 10%, merchant processing volume was up 14% and auto
originations were up 12%. These
numbers are the strongest we’veseen in years. The outlier was mortgage originations, which were down
8%, consistent with the industry.
Here are some highlights from ourindividual business units:• Consumer & Business Banking net
income of $2.9 billion was down
10% from 2012, but net revenue of$17.3 billion was up 1%. Chase
Private Client (CPC) continues tobe a big success with our customers. We reached a record $189
billion in client investment assets.
Our net new investments perhousehold have grown 77% peryear since 2010. To date, we haveopened roughly 2,150 CPC locations to serve more than 200,000
clients. We remain the #1 SBA
lender for the fourth year in a row
even with Business Banking loan
originations down 21% from 2012.
• We are managing Mortgage Banking toward becoming a smaller,higher-quality and less volatilebusiness. While Mortgage Production was strong in the first half ofthe year, our origination volume
dropped 37% in the second half as
rates increased. As a result, ourfull-year net income was $3.1 billion, down 8% from 2012. Returnon equity was 16% for 2013.
Although these results are lower
than last year when production
volume was a record, we arepleased that Mortgage Banking ismaintaining profitability.

• Card, Merchant Services & Auto
performed exceptionally well in
2013. Net income was up a verystrong 19% to $4.8 billion from
$4.0 billion in 2012, driven bylower provision for credit losses.
Card Services sales volume of$419.5 billion was up 10% yearover-year, outperforming theindustry for the 23rd consecutive
quarter. Credit trends continue
to improve, and charge-off rates
continue to fall to historic lows.
Our 2013 net charge-off rate for
Credit Card of 3.14% was downfrom 3.95% in 2012.
• Over the years, Chase has developed
a leading end-to-end payments
franchise. Merchant Servicing
processing volume of $750.1 billion
was up 14% year-over-year, andtransaction volume of 35.6 billion
was up 21%.
• In Auto, our average loans were up
5% year-over-year, and originations
were up 12%. The Auto net chargeoff rate of 0.31% was down from
0.39% in 2012. In 2013, we also
made the strategic decision to stop
student loan originations. Student
loan originations were becoming asmaller and smaller part of ourbusiness, and we chose to further
de-risk our franchise by getting outof that product.
Expenses
CCB expenses were down by nearly$1 billion, or 3%, during 2013, andwe will continue to drive out waste
and improve efficiency. We arepleased that we met or exceeded our
expense and headcount targets for2013. Going forward, we have set amore ambitious goal to exit 2016
with expenses nearly $4 billion
lower than they were in 2013. We
intend to meet that goal while making further investments in controls,

technology and self-service channels.
We are keenly aware that every dollar of our budget is a dollar of shareholders’ money, and we intend to
manage our business with extreme
financial discipline while producing
strong, long-term returns.
2014 priorities
As we move into 2014, we recognizethat the environment in which we
operate has fundamentally changed.
Our core strategy includes further
strengthening our controls, investing in digital service and running
great community branches.
Further strengthening our controls
Controls remain the #1 priority forthe firm.
In 2014, CCB will invest approximately$500 million more in technologyrelated controls. That investment will
be directed at automating manual
processes and reducing complexity
for our employees and our customers.
We believe these investments willmore than pay for themselves withfewer errors, more consistency and ahigher-quality service experiencefor customers down the road.
Investing in digital service
Technology is changing our businessrapidly, and consumer adoption ofdigital and mobile channels is staggering. In just the past three years,
customer deposits made throughself-service channels increased from
38% to 53%. The number of active
mobile customers has more thantripled from 2010. Technology isdriving service enhancements forour customers that will not only
improve their banking experiencebut will serve them more efficiently
and lower our cost base.

37

As an example, in December of 2013,
we launched an Ultimate Rewards
mobile app for our customers toredeem their credit card points.
Within the first month, mobile
reward redemptions reached 15%.
Customers are very pleased by how
easy it is to cash in their points. It’s
also far more efficient to do so; amobile redemption costs about apenny vs. $3 through a call center.
Technology innovations really are awin-win. They make banking moreconvenient for our customers andreduce our cost to serve them.
We intend to continue to be at theforefront of innovation in Payments.
In 2014-2015, we will roll out two
new features – Chase Wallet and Pay
with Chase. Chase Wallet will greatly
simplify online and mobile shopping
for our customers by allowing users
to access all their credit and debit
cards, including non-Chase cards, in
one digital wallet. And unlike otherdigital wallets, the Chase Wallet willautomatically update the Chase card
numbers when cards are replaced.
Chase Quick Checkout will givecustomers a “Pay with Chase” option
when they shop online. Using their
Chase log-in, they can access theirdigital wallet, select a payment
option and place their order. It will
reduce the online/mobile checkout
from about two minutes to roughly
30 seconds. It’s more convenient andsafer for customers, and online businesses should see increased sales andlower shopping cart abandonment.
Running great community branches
Branches remain very important toour customers. More than 95% ofChase accounts are opened in abranch, and branches are essential to38

our other businesses across
JPMorgan Chase. For example, 55%
of Commercial Banking customers
and 35% of Private Banking households visit a Chase branch every
quarter. Branches are a core distribution channel for our other products
as well – 55% of retail mortgages are
originated through a branch, and
40% of Chase-branded credit cards
are sold through the branches.
Branches aren’t just a store – theyalso are centers of community.
During and after severe storms orcommunity crises, we’ve seen people
come to the branch for help. They
come in to make calls and charge
their phones when they are out of
power or they stop by simply for a
hot cup of coffee. In addition, we’ve
hosted events in branches on how tomanage a small business or to better
understand personal finance.
Branches will always be the lifeblood of our business, but we areseeing foot traffic and transaction
volume come down as more customers prefer to do their daily banking
online and through mobile. Tellertransactions have declined 4% peryear from 2010 to 2013, and nearly
60% of all traditional branch transactions now are handled throughself-service channels.
Over the past several years, we havebuilt out our network in growthmarkets, and that expansion now iscomplete. We have a terrific network
to serve customers, and we plan tokeep the number of branches in our
footprint in the current range. We
will further optimize the network wehave – opening locations where we
see growth opportunity and consolidating where we have enough density
or low traffic. As always, customer
behavior and satisfaction will drive
those decisions.

The branches are changing. We used
to talk about the “branch of the
future,” and, in many cases, it’s here.
Branches are becoming more andmore automated. Today, over 300
branches have Express Banking
Kiosks, which are designed toperform 85% of what can be done
by a teller. Today’s branch also will
be more focused on providing great
financial advice from one of ourexperts. If you haven’t been to a
Chase branch lately, I encourage you
to stop by. We’ve come a long way.
Conclusion
I’m proud to work at Chase. Our
more than 150,000 employees work
so hard to help customers achieve
their goals, whether assisting in abranch or a call center or working
hard behind the scenes. Thank you
to our shareholders for your investment in us, and thank you to ourcustomers for your business.

Gordon Smith
CEO, Consumer & Community Banking

2013 HIGHLIGHTS AND ACCOMPLISHMENTS• #1 in customer satisfaction by
ACSI among the largest banks forthe second year in a row• #1 in customer satisfaction by
J.D. Power and Associates inthree out of four small businessbanking regions• #1 SBA lender for the fourth year
a row
Netin Promoter
Scores1• #1 for women-owned andminority-owned SBA loans• Deposit growth more than double
the industry average• Record credit card sales andclient investment assets• Customer relationships withalmost half of U.S. households• #2 mortgage originator andservicer• #1 credit card issuer in the U.S.
based on loans outstanding• #1 ATM and #2 retail branch
network for the second year
in a row• #1 online financial services
destination (chase.com) and #1
mobile banking functionality• #1 in total U.S. credit and debit
payments volume

Net Promoter Score1• #5 in customer satisfaction by
J.D. Power and Associates inmortgage originations andservicing• 135,000 homeowner foreclosure
preventions• 360,000 downloads of the ChaseMy New HomeSM mobile app• #2 wholly owned merchantacquirer3• #3
non-captive
auto
lenderHousehold
Attrition
Rates

Household Attrition2 by Business Line70(5) PPT

61

61

42

43

2010 2013(4) PPT

32(2) PPT

23

6

 Consumer Banking  Card  Business Banking  Mortgage Banking
Sep-11

Dec-11Mar-12

Jun-12

Sep-12

Dec-12Mar-13Jun-13

Sep-13Business Banking

Dec-13

Source: Internal data

Consumer Banking

Card

Source: Internal data1

 Net Promoter Score (NPS) represents the percentage of customers who say they would
definitely recommend Chase to a friend or colleague (promoter who gave Chase a ratingof 9 or 10 on a 10-point scale) vs. those who would not (detractors who gave Chase a
rating of 0 to 6); a higher NPS signifies greater customer loyalty

PPT = Percentage points
2

Households that close all Chase accounts

The future is here
Chase reopened its Water Street branch in downtown New York
City after flooding from Superstorm Sandy destroyed it. The new
Chase branch design uses some of the most advanced technology
for customers. Chase has been redesigning many of its new
locations to this format, about 400 in total.

39Corporate & Investment Bank
That collaborative structure enables
the CIB to cover clients more comprehensively. Recognizing that trust is
the cornerstone of our client relationships, we are committed to recommending only the solutions that serve
our clients’ long-term objectives. We
never forget that their success is thebest measure of our own.

Daniel Pinto

As the world’s economy regained
momentum in 2013, J.P. Morgan’s
Corporate & Investment Bank (CIB)
solidified its leadership in an increasingly global financial market.
A truly global business, the CIB has
52,250 employees in 60 countries
with a mission to serve 7,700 of theworld’s most significant companies,
governments and institutions. To
provide those clients with the rangeof services they need, more than
13,000 employees are in front officelines of business such as banking,markets, investor services andresearch. The remainder is primarily
dedicated to technology, operations,risk and finance to ensure we havebest-in-class controls and a robust
operating infrastructure.
Demonstrating our ability to deliver
strategic solutions, we helped clientsraise nearly $500 billion in the public
equity and bond capital markets in
2013, according to Dealogic. Overall,the CIB provided credit and raised
capital for clients of more than $1.5
trillion1 in 2013. Of that, $65 billion2
was raised on behalf of states, local
governments, hospitals, school dis40

tricts and nonprofits, providing themwith necessary funds to build schools,
roads and college facilities and tosupport other infrastructure projects.
Markets revenue of $20 billion was
up materially from the level in 2006,
at $12 billion. More than 85% of the2013 markets revenue was attributable to client-driven, flow-oriented
products.
On the processing side of the CIB’soperations, J.P. Morgan continues
to rank as the #1 U.S. dollar clearer,
processing up to $4 trillion of U.S.
dollar payments daily. In our custodial
business, clients entrusted the firmwith a record $20.5 trillion in assets
under custody, up 9% from 2012.
When J.P. Morgan combined thestrengths of the heritage Investment
Bank and Treasury & Securities Services in 2012, the aim was to ensurethat clients benefit from the mosteffective mix of products, deliveredin the most integrated way. Now
organized within the CIB as Banking
and Markets & Investor Services,
the businesses have been aligned topromote their working together
across sales, products and services, astructure that makes cohesive sense
for our clients.

We also know that our work forclients helps support a healthy
global economy. Our deep andbroad relationships enable us toconnect investors looking forpromising opportunities with thecorporations and governments
looking to access capital.
By raising money or by guiding abusiness through its initial public
offering, we are providing clients withthe resources they need to grow, todevelop new products or to extend
their footprint into new markets.
When our Treasury Services businessprovides clients with liquidity management solutions for cash balances orhelps clients secure trade financing,
we’re helping those clients enhancetheir operational efficiency. And when
our Public Finance business provides
financing for a metropolitan transit
system, we’re helping cities work better and improve the environment.
Those positive results ripple throughthe global economy. Ultimately, they
help raise standards of living, expand
job opportunities and create innovative technologies. We are proud of
our accomplishments and look forward to continuing our work in 2014.
Our 2013 financial performance
The CIB’s product strength andclient focus were evident in our leadership roles on some of the major
landmark transactions of 2013:• J.P. Morgan advised Verizon on its$130 billion buyout of Vodafone’s

45% stake in Verizon Wireless,serving as global coordinator, joint
lead arranger, joint bookrunner andadministrative agent on Verizon’s$61 billion bridge facility, the largest corporate debt facility ever, andas joint bookrunner on the subsequent $49 billion bond. This transformational deal drew on theexpertise of J.P. Morgan’s franchiseacross multiple product and coverage groups globally.
• Just two days later, we followed thatup with another significant transaction for a telecommunications
company – a $6.5 billion bondoffering for Sprint, the largest highyield transaction ever sold to investors. The two transactions, coming
within days of each other, made ita week the Technology, Media andTelecommunications team willlong remember.

• In equities, Facebook closed out
2013 with a $3.9 billion follow-on
offering, with J.P. Morgan acting as
joint bookrunner. This was thelargest follow-on offering of 2013
and the second-largest technology
follow-on since 2006.
• In Public Finance, we came throughfor public agencies around the
U.S. During the year, it led a $656
million series of bonds to modernize housing for New York City’s
lowest income residents and torefund previously outstanding
debt. It served as senior manager
on a $1.5 billion bond offering for
JobsOhio, a unique program aimed
at growing existing jobs and attracting new ones to the state, and waslead manager on $1.3 billion inrevenue bonds for the Universityof California in a refinancing

CIB Integrated Client Coverage Modeltransaction that produced morethan $200 million in debt service
savings for the university system.
What distinguishes the CIB further,beyond our strong product capabilities, is how our integrated model
works for our clients.
Because of that integrated approach,a leading European insurancecompany, after assigning a custody
mandate to our Investor Services
unit, also ultimately benefited froma credit facility from J.P. Morgan.
And when a large asset manager,
with a historically long relationshipwith the firm across Markets, Banking and Custody, needed prime brokerage services, it chose J.P. Morgan.
Turning to our financial results, 2013
was a strong year for the CIB, which
reported net income of $8.5 billion

Markets
Revenue
Dominatedby(in Client-Driven
Flow Business
Markets revenue
by flow
vs. structured
billions)
Markets revenue by flow vs. structured ($ in billions)$20.2

Lending,
Trade
Finance

Advisory,
CapitalMarkets$12.2

Liquidity,
CashManagement

Flow

Banking
Structured

Custody
FundServices

Clearing &Collateral

Fixed
IncomeCLIENT
Investor
Services

2006
Net Income1 (in billions)

Strong Earnings PowerNet income1 ($ in billions)Markets

$9.7

$9.0

Research%Δ
2010-2013:
32%

$7.4

Prime
Brokerage
Financing

2013

$7.1

Equities

2010
1

2011

2012

2013

Net income excludes funding valuation adjustments (FVA, effective 4Q 2013)and debit valuation adjustments (DVA)41

on revenue of $34.2 billion and areported return on equity of 15%.
Excluding the impact of funding anddebit valuation adjustments (FVA
and DVA), the CIB delivered net
revenue of $36.1 billion3; net incomeof $9.7 billion3, an increase from lastyear’s $9.0 billion3 and up 32%
from 2010; and a return on equity
in 2013 of 17%3, one of the strongest
in the industry.
Our share of total industry revenue
continues to grow. We put moredistance between ourselves and ourcompetitors with market share gains,
as measured by both fee wallet andmarkets revenue share.
In an industry where investmentbanking fee wallet grew by 11%
compared with the previous year,
J.P. Morgan’s wallet share advanced
110 basis points, according to Dealogic, more than what most otherlarge firms experienced. Along withour #1 ranking in Global Investment
Banking fee wallet share, Dealogic
ranked J.P. Morgan, based on volume,#1 in Global Debt, Equity and EquityRelated; #1 in Global Long-Term
Debt; and #1 in Global Loan Syndications. J.P. Morgan also earned a strong
position in Global Equity and EquityRelated and Global M&A Announced,
ranking #2 in both categories. Our
M&A teams advised on eight of the
top 10 transactions announced globally in 2013, ranking #1 in the U.S.
and #2 in the Europe, Middle East
and Africa (EMEA) region.
On the Markets side, we are a leader
in fixed income, with an 18.6%
market share in 2013, up from 15.6%
in 20124. We also earned a strong
market position in Equity Markets
this year, and we continue to befocused on moving from our current#4 equity markets overall revenue
position4 to a top three ranking as we
42build out key areas within our franchise. The CIB’s Equity Markets
performance in 2013 was materiallystrengthened by our #2 position inderivatives, according to Coalition,and the investments made in ourelectronic capabilities, which now
are on par with the market leaders.
As noted above, our markets revenue
is well-diversified, with the majority
derived from client-driven, floworiented products. The remainder
is driven by structured products,
which are geared toward helping
clients with their more complex risk
management and other needs.
Across the spectrum of products in
Banking and Markets & Investor
Services, the CIB ranked among the
top three in 15 out of 16 key productcategories in 20135. While we takepride in those rankings, we never arecomplacent about them. Nor do wetake them for granted. The rankings
are not the goal; they’re a reflectionof the quality of our product offerings, the dedication of our people toserving clients around the globe and ademonstration of our clients’ increasing interest in working with us.
International reach
We are committed to having apresence where our multinational
clients need us to be. And we intend
to actively assist developing corporations in pursuing their growth
aspirations so they, too, can taketheir place among the next generation of multinationals. Virtually halfof the CIB’s revenue today stems
from international business activities and has grown at a compound
annual growth rate of 5% 3 since2010. More than 60% of our clientsare international. Of our total
employees, close to 60% are based
in offices throughout EMEA, Asia
Pacific and Latin America.

This international platform lays thefoundation necessary to provide ourmultinational clients with the coverage to serve their needs, both in their
headquarters and in subsidiary locations. Our international focus is notnew. We’ve been in China for 93
years; we’ve done business in the
United Kingdom since the mid1800s; we’ve been in Mexico for
more than 100 years. We are one of
the few institutions that has the commitment and resources required tomaintain a global client and productnetwork of this magnitude. Although
we continue to see growth in our
existing international platform, thepace of that growth may slow in thenear future as we ensure that wehave best-in-class controls.
Being invested globally requires along-term view as inevitable periodsof volatility will arise from time totime. It’s during those times, whencapital is more scarce or when marketmaking becomes more challenged,that our clients need us the most.
That’s when our steady presencehelps cement client relationships ina way that’s lasting years later.
Our 2014 priorities
In 2013, our leadership across thebreadth of Banking and Markets &Investor Services positioned us wellto build on our strengths and provide clients with the financial tools
to seed their growth and economic
vitality into the future.
In support of these objectives, the
CIB’s 2014 priorities are focused on
three broad pillars:• Optimizing our business mix
while investing in core growth
opportunities;• Adapting to the evolving regulatory
landscape and market structurechanges; and• Maintaining expense discipline
while absorbing increased regulatory and controls costs.
As the CIB, we strive to be at theforefront of market structurechanges. As a major custody bankand leading broker-dealer, we are
well-positioned to act as the agent ofchoice for clients – taking them fromexecution to clearing and custody.
By our estimate, we have a top-threeshare in over-the-counter clearing
and are connected with all the major
swap venues. We also are assisting
our clients to adapt to market structure changes through creative, newofferings such as Collateral Central.
Launched in 2013, the service helps
clients manage their collateral acrossmultiple venues and enables themto continually track and optimize
the use of their available assets
against their obligations across all
counterparties. And finally, also
in the Investor Services space, ourinternational prime brokerage
platform has seen significant growthfrom EMEA-based managers since
its 2011 launch, and as our Asia coreplatform now is live, we expect toramp up meaningfully over the next
several years.

Across Markets, we continue todevelop our electronic marketmaking capabilities in equities, aswell as in fixed income. We’ve seen
significantly greater e-trading volume
in both foreign exchange and equities
since 2011, and we were the topranked bank by volume in U.S.
Treasuries trading on electronicinterdealer platforms in 2013.
While we are investing in thesegrowth opportunities, we are selectively exiting certain activities – suchas the Global Special Opportunities
Group and our physical commodities
business – having determined thatthey are not core offerings to ourclients or no longer fit our desiredrisk profile. We do not expect theseexits to meaningfully affect the CIB’s
return profile.
Our integrated platform of core businesses provides us with significant
economies of scale, and our financial
strength allows us to make theinvestments necessary to ensurecompliance with an expanding set of
regulations. By maintaining a disciplined approach in expenses, wehave been able to largely offset
increased spending on regulatory
assessments and controls. In fact, themarket share gains achieved during

2013 occurred even as the CIB’s
overhead ratio was reduced from62%3 in 2012 to 60%3 in 2013.
Closing thoughts
Deep market knowledge, a global
platform and long-lasting client relationships built on trust have served
our firm and our clients well. We area market leader because we set thestandards for what can be done, notwhat has been done before.
Our top priority remains helping ourclients achieve their objectives withthe best possible advice and products
we can provide. Since the formationof the CIB, clients have shown they
are embracing our model and actively
seek the range of capabilities andexpertise we possess. With the continued energy and commitment that ouremployees demonstrate, we expect toearn our clients’ business again thisyear, setting new standards for theirsuccess – and for ours.

Daniel Pinto
CEO, Corporate & Investment Bank

2013 HIGHLIGHTS AND ACCOMPLISHMENTS• The CIB provided credit and raised
capital of more than $1.5 trillion 1 forclients in 2013, up 20% from 2012

• The CIB ranked among the top
three market positions in 15 out of
16 major products 5• Assets under custody reached arecord $20.5 trillion, a 9% gain
over 2012• The CIB produced net income of $9.7
billion3 in 2013, up 32% from 2010,
and a return on equity of 17% 3• J.P. Morgan ranked #1 in Global
Investment Banking fees, with an
8.6% share, up from 7.5% in 2012,according to Dealogic• There are 52,250 employees
globally, serving approximately
7,700 clients in 60 countries• Key growth initiatives include
global prime brokerage,electronic trading and market
structure changes

1

 Dealogic and internal reporting2

 Thomson Financial, internal sources3

Net revenue, net income, return on equity and overhead ratio, excluding FVA (effective fourth quarter 2013) and DVA, are non-GAAP financial measures.
These measures are used by management to assess the underlying performance of the business

4

Represents rank and share of J.P. Morgan Fixed Income Markets and Equity Markets revenue of 10 leading competitors based on reported information,
excluding FVA and DVA

5

Dealogic, Fedwire & Clearing House for Interbank Payments System, Coalition and internal reporting43Commercial Banking
Our model

Douglas Petno

In Commercial Banking, serving ourclients is at the heart of everything
we do. Each day, we come to workto generate ideas, deliver solutions
and provide capital to help themgrow and succeed. We take a longterm view and stand by our clientsin tough times.
It is difficult to capture in words thestrength of our relationships. There
are so many incredible stories that I
could share, but one of the mostmemorable came from a small business owner in Cleveland. He described
how his international operations werecrippled by the tsunami in Japan in
2011, and when – despite their 40-year
relationship – his former bankrefused to help, he turned to ourteam. In a matter of days, we wereable to raise the needed capital to help
him make it through a very difficult
time. Today, the client’s business isthriving again, and we have foundadditional ways to support him along
the way. His emotional testament
to our partnership was quite moving– and spoke to the power of our franchise and the quality of our bankers
across the country.

44

Our people
The strength of our business starts
and ends with our people – integrity,
fortitude, compassion and partnership are the values they bring towork every day. These are whatpower our long-standing relationships and drive our success. Our
1,300 bankers1, who average morethan 20 years of experience, havedeep local perspective and tested
credit judgment.
Across Commercial Banking, ournearly 7,000 employees are dedicatedto their communities, working withchambers of commerce, sitting on
local boards, and staying active inschool and service organizations.
Over the past year, our people havemade a difference in many ways,
including volunteering their time toprovide job counseling to military veterans, serving meals to families at a
Ronald McDonald house in Chicago,
stuffing backpacks for underprivileged children in Dallas and painting
a community center in Brooklyn. I am
inspired by our team’s passion for
their clients and communities.

Commercial Banking’s proven business model provides the flexibility to
manage challenging market conditions, regulatory changes and evolving client needs. Experienced teams
in 29 states, 119 U.S. cities and 13
major international locations give us
broad reach, and we serve approximately 59,000 clients, owners andinvestors in more than 40 of the top
50 U.S. metropolitan areas. Our
bankers understand their markets,
which enables them to make decisions locally and react quickly andproactively for clients. Rigorous
client selection is one of the pillarsof our model and results in a highquality client base. Our industry
expertise coupled with our local
perspective allow us to select thebest clients in the markets we serve.
Being a part of JPMorgan Chasemeans we can offer a broad range of
unique capabilities. There are many
examples of how we work acrosslines of business to deliver the firm
to our clients. Our partnership with
the Corporate & Investment Bank
has never been stronger. We were
extremely active last year, leading
833 financing transactions, including
31 initial public offerings, and advising clients on 67 merger and acquisition (M&A) transactions. In addition,
the Corporate & Investment Bank’streasury services products are essential to our business, generating $2.4
billion in revenue last year.
The Consumer & Community
Banking network has been critical to
the success of our Middle Market
Banking business. Our clients used
Chase branches almost 18 million
times last year. Increasingly, they use
our commercial card and merchantprocessing services, and we see anopportunity to bring specialized payments solutions to even more clients.

Ultimately, there are many reasons
why clients choose us. They recognize
the quality of our professionals,
the value of our brand, our financial
strength and stability, our global reachand the ease of dealing with one firm
for all of their financial services needs.
2013 results
Although the economy remainedfragile and competition intensified in2013, we continued to stay focused,
invest in our business and maintainour risk discipline. Commercial
Banking delivered revenue of $7.0
billion and net income of $2.6 billion,
up 2% and down 3%, respectively,from 2012. Demonstrating our strong
partnerships across the company, we
had record-setting revenue in several
areas, including investment banking
revenue2 of $1.7 billion, Card
Services revenue2 of $438 million
and International Banking revenueof $261 million.
Even as many of our clients remained
cautious, paying down debt andincreasing liquidity, Commercial
Banking continued to perform andhas delivered 14 consecutive quartersof overall loan growth. Importantly,
we achieved these results while adhering to our strict credit standards, andour net charge-off rate of 0.03% was
one of the best in the industry. A solid
credit culture and strong risk discipline have been critical to the successand stability of our franchise.
We continued to see our Middle
Market Banking expansion strategy
deliver steady results. Since 2006, wehave successfully entered 16 major
new markets across the country.
Commercial Banking’s growth in the
Florida market is one of many excellent examples highlighting this progress. Five years ago, we entered thestate with 20 employees and seven
Middle Market Banking clients.

By 2013, our Florida business had 77
employees, 250 clients, and morethan $1.3 billion in loans and $1.2
billion in deposits. Over time, we
believe this to be a tremendous
opportunity to expand and deepen
our Middle Market Banking franchise. Our long-term success will
depend upon continuous investment,
patience and the determination to
stick to our strategy.
Since 2008, we have concentrated on
selectively building our real estateloan portfolios, and the success of
our real estate business remains ahighlight. Commercial Term Lending
saw record loan growth and continued to be the top multifamily lenderin the U.S. Real Estate Banking had arecord $9 billion in loan originations
last year, and we continued to see
excellent opportunities to support
our clients and grow our portfolio.
Exemplifying our strong focus on
local communities, Community
Development Banking remained
quite active. The team completed
transactions that financed the development of more than 8,200 units ofaffordable housing across the U.S.,
as well as other community-based
projects, including charter schools,
health clinics and grocers.
Overall, return on equity for thebusiness was 19%. We achieved
these returns despite a materiallyhigher capital allocation and continual significant investments to growour franchise and improve our compliance capabilities and controls.
While we are proud of these results
and our business is strong, we arecommitted to making Commercial
Banking even better.

new projects and growth initiatives,
we stand ready to support them.
With greater economic activity, we
expect to see more M&A and capital
markets transactions, and we will
work closely with the Corporate &Investment Bank to assist in these
efforts. Our corporate clients are
increasingly expanding outside theU.S., and we are well-placed to help
them. In addition, to help our clients navigate transformationalchanges in key industries, we haveinvested in specialized teams covering areas that include healthcare,energy and technology.
A top priority across the firm isensuring we fully meet the letterand spirit of all regulations governing our business. We will continue
to improve our regulatory andcompliance processes, and we haveasked several of our key executives
to lead those efforts full time.
In 2013, the Commercial Banking
team rose to the occasion and overcame market uncertainty and regulatory challenges. I want to thankour dedicated professionals for theircontinued commitment and hard
work. I am incredibly proud of what
we have accomplished.
We have a solid foundation built
upon our people and the extraordinary capabilities and scope of ourfirm. I believe we have the strategy
and resources in place to continue
to deliver dynamic opportunities forour employees, a great experiencefor our clients and strong returns forour shareholders.

Looking ahead
As the U.S. economy continues toimprove and our clients gain theconfidence to increase borrowing for

Douglas Petno
CEO, Commercial Banking
45

2013 HIGHLIGHTS AND ACCOMPLISHMENTS

Performance highlights• Record revenue of $7 billion• Grew end-of-period loans 7%;
14 consecutive quarters ofloan growth• Generated return on equity of
19% on $13.5 billion of allocatedcapital• Continued superior credit
quality — net charge-off ratio at
0.03% for second consecutive
year
Leadership positions• #1 traditional middle market
syndicated lender3• #1 U.S. multifamily lender4• Recognized with 2013 Greenwich
Associates’ Excellence Awards in
Middle Market online services,international service and treasury
management and Mid-Corporate
Banking investment banking andinternational service
Business segment highlights• Middle Market Banking — Record
revenue of more than $3 billion;
nearly 800 new client relationships;
double-digit growth in both loans
and deposits in expansion markets• Corporate Client Banking — Record
gross investment banking revenue2
and credit quality improvement• Commercial Term Lending —Record growth: $6 billion increasein multifamily loan balances(up 17%)

Resilient Earnings ($ in billions)Firmwide contribution• Commercial Banking clients
accounted for 29% of total North
America investment banking fees5• $2.4 billion in treasury services
revenue

Progress in key growth areas• Middle Market expansion — Record
revenue of $287 million; 46%
CAGR6 since 2011
• Investment banking — Record
gross revenue2 of $1.7 billion; 9%
CAGR6 since 2011
• International Banking — Record
revenue7 of $261 million; 16%
CAGR6 since 2011

• Almost $100 billion in assets
under management from
Commercial Banking clients,
generating close to $500 million
in Investment Management
revenue

Strong Credit Portfolio (net charge-offs)($ in billions)

$7.0

$6.8

$6.4

$6.0

• Community Development
Banking — More than $1 billion in
new commitments, supporting~8,200 affordable housing units
in the U.S.

• Nearly $440 million in Card
Services revenue2

Net Charge-offs

Strong Growth and Resilient Earnings$5.7• Real Estate Banking — Record
originations (up 35%); 6%
deposit growth

1.02%
0.94%

$4.8
$4.1

$2.1
$1.1

$1.4

$2.4

$2.6

$2.6
0.35%

$1.3

0.18%
0.07%

2007
Revenue

2008

2009

2010

2011

2012

2013

2007

2008

2009

2010

Net income

1

Based on total number of revenue-producing employees

2

Investment banking and Card Services revenue represents gross revenue generated by Commercial Banking clients. Investment banking includes Banking andMarkets revenue. Card Services includes Commercial Card and Paymentech revenue

3

Thomson Reuters as of year-end 2013. Traditional middle market is defined as credit facilities of < $100 million from clients with < $500 million in revenue

4

Federal Deposit Insurance Corporation data as of 4Q 20135

Calculated based on gross domestic investment banking fees for syndicated and leveraged finance, M&A, equity underwriting and bond underwriting

6

Compound annual growth rate

7

Denotes overseas revenue from U.S. multinational clients

46

2011

0.03%

0.03%

2012

2013

Asset Management
3,000 intermediaries investing for clients

Our success in working with institutions and individuals provided
the foundation for packaging ourinvestment expertise into mutual
funds. Globally, more than 3,000
financial intermediary firms invest
on their clients’ behalf in our fullrange of solutions, which spans
fixed income, equities, multi-asset
and alternatives strategies.
20,000 people in 30+ countries

Mary Callahan Erdoes

Strong fiduciary culture ofmanaging money
In Asset Management, our heritageof managing client assets dates backover 180 years. During that time,
we’ve stood side by side with our clients as markets have reached record
highs, hit bottom and seen everything in between. Through the highs
and lows, clients have relied on us tohelp them see through the noise to
make smart, long-term decisions thatare always in their best interests.
Our strong fiduciary culture enables
us to provide advice and solutions
that help individuals retire more
comfortably, pension funds meettheir obligations, universities reinvest
in important endeavors and wealthyfamilies ensure lasting legacies.
Although difficult to quantify, thoseare our ultimate measures of success.

also advise wealthy families and individuals on everything from money
management to trusts and estates tomortgages, banking and lending.

Across the more than 30 countries
where we operate, all of our 20,000
employees live by our ethos offirst-class business in a first-classway. The heart of what they do ismanaging money for our clients.
We are proud that 241 of our mutual
funds ranked 4 or 5 stars by Morningstar and that 80% of all our assets% of 2013 AUM Over Peers/Benchmark1(net of fees)
3-Year

5-Year

10-Year

60%

62%

80%

77%

80%

81%

80%

75%

73%

79%

90%

97%

Fixed Income

EquitySolutions

60% of the largest institutions and manyof the world’s wealthiest individuals

The core roots of our business beganwith serving the world’s most sophisticated institutional clients. Today,
not only do we work with 60% of thelargest pensions and sovereigns, we

Alternatives/
Absolute Return¹ Fixed Income, Equity and Solutions represent percentage of mutual fund assets under management (AUM) in top
two quartiles vs. Lipper, Morningstar and Nomura peers; Alternatives/Absolute Return represent percentage of
AUM exceeding benchmark

47are in the first or second performancequartile during the 10-year period.

consumer and community banking,commercial banking and investmentbanking capabilities.

Part of a global leader in every segment

received following the 2008 financial crisis. Since 2009, we haveachieved positive net flows fromevery channel, every asset class andevery region.

Half a trillion in five years

In addition to insights from someof the industry’s best advisors andstrategists, we can offer clients solutions that span their broad personaland business financial needs by partnering across the JPMorgan Chasefranchise, which has best-in-class

The stability and strength of the relationships we have built – some ofwhich span generations and morethan 100 years – perhaps are mostevident in the $475 billion of cumulative positive long-term flows we

19 quarters and 11 years

Equally impressive, our investment
management business reached its
19th consecutive quarter of net
long-term inflows, the longest suchstreak by any of our key competitors.
Our wealth management businessmarked its 11th year of positive
client flows, as well as record yearend balances in deposits, mortgages
and loans.

Revenue ($ in billions)
Revenue($ in billions)

: 10%

CAGR

$11.3
$9.0

$9.5

Record financial results driven bycontinued investment$9.9

Net income ($ in billions)

Asset Management’s financial
performance maintained its steady
growth trajectory in 2013. Ourrevenue of $11.3 billion, net incomeof $2.0 billion and client assets of$2.3 trillion all were records – up
14%, 19% and 12%, respectively.
While that’s clearly an outstanding
year, our long-term performance isjust as strong, with a 10-year compound annual growth rate2 of 10%
for revenue, 12% for net income and
7% for client assets.

Net Income

1,000+ new advisors and continued
reinvestment

$8.6
$7.6

$6.8
$4.3

2003

$4.9

2004

$8.0

$5.7

2005

2006

2007

2008

2009

2010

2011

2012

2013

CAGR = Compound annual growth rate($ in billions)

Our financial success is the result of
having advisors who are laserfocused on our clients’ needs and ourconstant dedication to growing thebusiness by continually reinvestingin our people, technology and innovation. We have been focused on adding top talent on the ground where

: 12%

CAGR

$2.03

$1.97
$1.71
$1.41

$1.36

$1.22

$1.43

$1.59

$1.70

$0.88
$0.63
2

2003

48

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

The 10-year compound annual growth rate for revenue, net
income and client assets is based upon pro forma combined
historical financial information reflecting how the operationsof JPMorgan Chase & Co. and Bank One may have appearedon a combined basis had the two companies actually been
merged as of January 1, 2003

clients need us most. We have hired
more than 1,000 advisors globally
since 2009. It’s a virtuous cycle: Asrevenue and net income increase,both provide us with capital to fuelfuture growth and strengthen our
infrastructure and coverage of clientsaround the world.
Priority #1: Controls

As we continue to invest, we also
are scaling our infrastructure toensure we have the appropriate
oversight and controls. We’ve madegreat progress in these efforts, which
will remain a top priority in 2014.
We have a strong partnership with
our regulators around the world andare committed to maintaining aworld-class culture of complianceand controls.
2014 strategic priorities
Our long-term strategy and approachmean that many of our priorities
remain consistent with what I haveshared in recent years. Four of ourcore focuses continue to be:• Strong investment performanceacross a broad range of products.
• Predictable delivery of financial
targets.
• Continuous reinvestment into thebusiness.
• Global enhancement of our clients’experience.
Deepening our client relationships

In addition, one of our biggest
opportunities in 2014 is deepening
existing client relationships. Withstrong performance across our franchise and a best-in-class offering
spanning virtually every productand region, we want to meet evenmore of our clients’ needs. When we
can solve multiple problems for ourclients, it simplifies their lives andenables them to get more complete
financial solutions.

We are the second-largest alternatives/absolute return manager
with $207 billion in client assets.
A number of our Alternatives
strategies have exhibited consistentlong-term outperformance, including U.S. Core Real Estate, Private
Equity, Multi-Strategy Fund ofFunds and Global Macro. In thesefunds, 100% of our assets undermanagement have outperformed
their benchmark over the threeand five-year periods.
Above all, we are humbled to haveconsistently maintained our clients’
trust and confidence for nearly two
centuries. There’s no greater privilege or responsibility than being
entrusted with a client’s assets,
and we are grateful every day thatclients choose us as their first call.

Sustaining leadership in alternatives
and multi-asset strategies

Innovation also continues to be an
important focus area for us, particularly in alternatives and multi-asset
solutions, where more clients areturning to find enhanced returns.

Mary Callahan Erdoes
CEO, Asset Management

2013 HIGHLIGHTS AND ACCOMPLISHMENTS• #1 Ultra-High-Net-Worth Global
Private Bank, Euromoney• #1 U.S. Mid-Cap Value Equity
Manager of the Year, Institutional
Investor• #1 Non-U.S. Equity GrowthManager of the Year, Institutional
Investor• #1 Equity and Fixed Income Private
Bank Portfolio Management,
Euromoney• #1 U.S. and overall active equity
mutual fund flows, Strategic
Insight• #1 Institutional Money Market FundManager Worldwide, iMoneyNet• Top European Buyside Firm,
Thomson Reuters Extel• #1 U.S. Real Estate Money Manager,
Pensions & Investments• Best Asset Management Company
for Asia, The Asset• Best Private Bank in Asia,
WealthBriefing Asia
• Second-largest hedge fundmanager, Absolute Return49

Corporate Responsibility
address the mismatch between theskills available in the workforce andthose that employers need in order togrow their business.
Ongoing global health challenges
presented another opportunity towork with great partners to launch agroundbreaking initiative. In partnership with the Bill & Melinda Gates
Foundation, we created the Global
Health Investment Fund to attract
private capital into an investment
vehicle with the potential to save millions of lives in low-income countries(see next page).
Peter Scher

About corporate responsibility
Tremendous progress has been madein recent decades to address many of
the world’s most pressing social, economic and environmental problems.
But a host of challenges persist, andthere is an urgent need to find solutions that create greater economic
opportunity for more people.
Companies like JPMorgan Chase
have a responsibility to be part ofthe solution, not only because it’s
the right thing to do but because ourown long-term success depends on
the success of our communities andthe people, companies and institutions we serve.
In the past, most corporations foundit sufficient to fulfill this responsibility by simply donating money tocharities. But today, we recognize thatspurring greater economic growthand employment requires much morethan writing checks. At a time whenpublic sector resources are increasingly constrained, there is a compelling need for the private sector to doeven more – in our case, by putting
our financial expertise in the serviceof broader community needs. We areat our best when our core businesshelps communities thrive.
50

To be sure, the financial resources thatfirms provide are critical, but they are
only one of many assets we can bring
to bear. We can help make a difference by leveraging the skills, technology, data and expertise we use to drive
our own business and then applying
these assets to meet the global challenges that impact our communities.
At JPMorgan Chase, corporate
responsibility always has been central to how we do business, startingwith operating with integrity in all
we do and extending to all the ways
we help our clients and communities
navigate a complex global economy.
We strive to develop innovative
programs that leverage the corestrengths, capabilities and expertiseof our business and our people – andthose of our partners – to maximize
our impact. We are very proud ofwhat we accomplished in 2013.
2013 results
To help reduce unemployment andexpand economic opportunity, we
launched New Skills at Work, an
unprecedented $250 million, fiveyear initiative aimed at helping close
the skills gap around the world (seenext page). The effort brings together
our resources and capabilities withthose of proven partners to help

And there are many more examplesof our work over the last year.
JPMorgan Chase has collaborated
with best-in-class partners to address
the unique challenges military andveterans face in employment, education and housing; to help metro areas
create global trade strategies throughour Global Cities Initiative with The
Brookings Institution; and to advanceenvironmental stewardship and spur
innovation across our business inpartnership with our clients. And weroll up our sleeves to support theseand other initiatives – last year, ouremployees provided more than
540,000 hours of volunteer service inlocal communities around the globe.
While there is much we were proud ofduring 2013, we know there is much
more work to be done. The more wecan break down the traditional barriers among the public, private and nonprofit sectors, the more we can achievefor our communities. It is a tall order,
but JPMorgan Chase is profoundly
optimistic about how much can beaccomplished when people cometogether to do extraordinary things.

Peter Scher
Head of Corporate Responsibility

New Skills at Work

Global Health Investment Fund

Helping people gain the skills they need to compete for jobs cantransform lives — and strengthen economies. That’s why JPMorgan Chaselaunched New Skills at Work, a $250 million, five-year initiative aimed
at helping inform and accelerate efforts to develop a demand-driven
approach to education and skills training.

Emerging scientific and technological advances hold great hope foraddressing infectious diseases and medical conditions that kill millions ofpeople every year, mainly in low-income countries. But breakthroughs
can save lives only if these new developments make it out of clinical
trials and into the marketplace. And that requires financing. Filling thatneed is the new $108 million Global Health Investment Fund (GHIF)
from JPMorgan Chase and the Bill & Melinda Gates Foundation.

The numbers seem contradictory: Unemployment is high across theglobe, yet recent data reveal that employers are having trouble finding
workers who are trained for the jobs that are available, particularly in
middle-skill jobs — those jobs that require more than a high school but
less than a four-year degree. Around the world, employers, educators,
policymakers, training organizations and others have recognized thecritical importance of tackling this skills gap. JPMorgan Chase believes
doing so can be one of our most powerful tools for reducing
unemployment, strengthening economies and creating more broadly
shared prosperity.
New Skills at Work, the largest-ever private sector philanthropic effort
in this area, will help address the skills gap by:• ncouraging industry collaboration: Convening people from acrossE
sectors to share experiences and formulate strategies for building
demand-driven workforce training systems•

I nvesting in training programs: Making targeted investments tostrengthen and scale the most effective workforce training programs•Improving data: Sponsoring data-driven analysis of skills demandand supply gaps in local markets

JPMorgan Chase has identified an initial set of best-in-class partnerorganizations, and we will add new local and regional partners in 2014.
Our national partners in the U.S. include the Aspen Institute’s Forum forCommunity Solutions, Jobs for the Future, National Academy Foundation,
National Fund for Workforce Solutions, Year Up and YouthBuild USA,and in the U.K., they include the Institute for Public Policy Researchand Participle.

The GHIF is a unique vehicle that was structured to attract investment
capital as an alternative to grant-based funding for global health,building upon research and development executed by visionary
philanthropists, sovereign donors and industry leaders over the past
decade. The GHIF is intended to act as a pilot both to attract more capitalof this nature into the global health sector and to serve as a model fordelivering impact via investment in other sectors.
The GHIF brings together a diverse pool of investors to provide
financing to advance the development of drugs, vaccines, diagnostics
and other interventions against diseases that disproportionately burden
low-income countries while at the same time seek a financial return forinvestors. The social impact of the fund will be achieved by focusing
investments on diseases like tuberculosis, malaria, HIV and diarrhea andon conditions that contribute to maternal and infant mortality;
investments will also include requirements to ensure the accessibility of
products to the populations most in need. Financial returns will be linked
to commercial success in developed country markets, while investors’
downside is limited by a partial backstop provided by the Bill & Melinda
Gates Foundation and the Swedish government. This structure allows
individual investors, corporations, private foundations, development
finance institutions and others to come together around the sharedobjective of ensuring that cutting-edge global health technologies reachthe populations most in need.

51

2013 HIGHLIGHTS AND ACCOMPLISHMENTS

Supporting small businessdevelopment

Strengthening local economies
and communities• Provided $19 billion in new credit
to American small businesses
and, for the fourth fiscal year in arow, was the #1 U.S. Small Business
Administration lender by units.

• Provided approximately $1.1
billion in community development loans and $1.6 billion in
equity investments to build orpreserve 45,000 units of affordable housing for low- andmoderate-income families inmore than 260 U.S. cities.

• Awarded $3 million throughour Mission Main StreetSM Grants
program to support small
businesses around the U.S. thatare making a positive impact intheir communities.
• Provided seed grants to four
small business clusters across the
U.S. to foster the development ofinvesting networks, facilitate innovation and technology transfer,provide access to specialized suppliers and speed commercialization of new technologies.
Building financial capability• Provided nearly $7 million in
grants to leading nonprofits topromote the financial capabilityof consumers in cities around theworld, including $1.15 million to
Bank On 2.0, a program sponsoredby the Cities for Financial Empowerment Fund to create a national
approach in the U.S. to delivering
safe, affordable banking products
and services to low-income andunderbanked people.
• Provided $600,000 over two years
to Mission Asset Fund to help
replicate its Lending Circle program, in which individuals in acommunity borrow from and loan
to one another via zero-fee, zerointerest credit-building social
loans and to develop high-quality
financial education resources tosupport participants.
• Became the first financial institution to adopt The Pew Charitable
Trusts’ new model disclosure box
for reloadable prepaid cards for
Chase Liquid®.

52• Lent $181 million to community
development financial institutions (CDFI) that leveraged
our capital to secure financing
for more affordable housing,schools, healthcare clinics andsmall businesses.
• Launched the CDFI Collaboratives
program, a three-year, $33 million
philanthropic initiative to foster
growth, collaboration and capacity
building among smaller, regionallyfocused CDFIs that can uniquely
reach communities that lackaccess to affordable financial
products and services.
• Provided more than $31 million
to nonprofits working to help
first-time homebuyers, to offer
home ownership counseling andto develop affordable housing
in the U.S.

• Launched the Global Cities
Exchange, a network of U.S. andinternational cities that willdevelop and implement regional
strategies to boost global tradeand investment. The network ispart of the Global Cities Initiative,a joint project with The Brookings
Institution launched in 2012 aimed
at helping metropolitan leadersstrengthen their regional economy.
• Launched New Skills at Work, a$250 million, five-year workforce
development initiative (seeprevious page).
Honoring U.S. military andveterans• Continued our leadership of the
100,000 Jobs Mission, a coalitionof employers that collectively
hired 117,439 U.S. military veteransby the end of 2013, prompting
it to double its hiring goal to200,000 veterans by 2020.
JPMorgan Chase has hired morethan 6,300 veterans since 2011.
• Joined the U.S. Department of
Defense Military Spouse Employment Partnership, committing torecruit, hire, promote and retain
military spouses.

• Donated $275 million in the formof more than 6,100 free or discounted homes since 2008 to
community associations, municipalities, veterans groups andnonprofit housing providers
across the U.S., with nearly 1,600
homes donated or discounted in2013 alone.

• Launched internal training
programs to help militaryexperienced employees assimilate
into the firm and to educate ourhiring managers about the skills
that servicemembers bring to thetable. We made our Military 101
program for hiring managers publicly available to other employers.
• Provided grants totaling morethan $1 million to educational
institutions focused on improving
veteran performance and retention in higher education.

Promoting sustainable investing• Led our industry in an effort tosupport responsible natural gas
development by engaging withmore than 100 oil and gas clientsto understand how they manage
environmental and community
impacts from hydraulic fracturing,by funding research and by convening our clients to share insights on
best practices.
• Worked with a group of peer investment banks to develop the Green
Bond Principles, a set of voluntary
guidelines designed to promote
integrity and transparency in thegrowing market for Green Bonds,
which are issued to finance environmentally beneficial projects.
• Announced the Global Health Investment Fund, a $108 million innovative social impact fund (see previouspage) and invested an additional$9 million in best-in-class funds
addressing the needs of low-income
populations around the world.
Increasing transparency withstakeholders• Collaborated with Ceres to engage
a group of external stakeholders
in a dialogue focused on sharing
perspectives and priorities tohelp us enhance our approach toenvironmental sustainability andcorporate responsibility.
• Convened regular Chase Advisory
Panel sessions with experts fromleading U.S. consumer policy groups
to gain insight into the challenges
facing low- and moderate-income
consumers and learn how Chasecan better serve them.
• Strengthened the firm’s political
disclosure and accountability
policies, which led a leading nonprofit oversight organization toscore JPMorgan Chase in the
top 10 companies on the Center
for Political Accountability-Zicklin
Index of Corporate Political
Accountability and Disclosure.

Table of contents

Financial:
62

Five-Year Summary of Consolidated Financial Highlights Audited financial statements:

63

Five-Year Stock Performance

Management’s discussion and analysis:

182

Management’s Report on Internal Control Over
Financial Reporting

183

Report of Independent Registered Public Accounting
Firm

64

Introduction

184

Consolidated Financial Statements

66

Executive Overview

189

Notes to Consolidated Financial Statements

71

Consolidated Results of Operations

75

Balance Sheet Analysis

77

Off–Balance Sheet Arrangements and Contractual Cash
Obligations

80

Cash Flows Analysis

82

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

Supplementary information:

84

Business Segment Results

339

Selected Quarterly Financial Data

112

International Operations

341

Glossary of Terms

113

Enterprise-Wide Risk Management

117

Credit Risk Management

142

Market Risk Management

149

Country Risk Management

153

Model Risk Management154

Principal Risk Management

155

Operational Risk Management

158

Legal Risk, Regulatory Risk, and Compliance Risk
Management

159

Fiduciary Risk Management

159

Reputation Risk Management

160

Capital Management

168

Liquidity Risk Management

174

Critical Accounting Estimates Used by the Firm

179

Accounting and Reporting Developments

180

Nonexchange-Traded Commodity Derivative Contracts
at Fair Value

181

Forward-Looking Statements

JPMorgan Chase & Co./2013 Annual Report61Financial
FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL HIGHLIGHTS(unaudited)
As of or for the year ended December 31,(in millions, except per share, ratio and headcount data)
Selected income statement data
Total net revenue
Total noninterest expense
Pre-provision profit
Provision for credit losses
Income before income tax expense and extraordinary gain
Income tax expense
Income before extraordinary gain
Extraordinary gain
Net income
Per common share data
Basic earnings
Income before extraordinary gain
Net income
Diluted earnings
Income before extraordinary gain
Net income
Cash dividends declared per share
Book value per share
Tangible book value per share (“TBVS”)(a)Common shares outstanding
Average: Basic
DilutedCommon shares at period-end
Share price(b)
High
Low
Close
Market capitalization
Selected ratios
Return on common equity (“ROE”)
Income before extraordinary gain
Net income
Return on tangible common equity (“ROTCE”)(a)Income before extraordinary gain
Net income
Return on assets (“ROA”)
Income before extraordinary gain
Net income
Return on risk-weighted assets(c)(d)Income before extraordinary gain
Net income
Overhead ratio
Loans-to-deposits ratio
High Quality Liquid Assets (“HQLA“) (in billions)(e)Tier 1 capital ratio (d)Total capital ratio(d)Tier 1 leverage ratio
Tier 1 common capital ratio(d)(f)Selected balance sheet data (period-end)
Trading assets
Securities(g)LoansTotal assets
Deposits
Long-term debt(h)Common stockholders’ equity
Total stockholders’ equity
Headcount(i)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(j)Nonperforming assets
Net charge-offs
Net charge-off rate

62

2013
$

2012

96,60670,467
26,139225
25,914
7,991
17,923—
17,923

$

$

4.39
4.39

$

4.35
4.35
1.44
53.25
40.81

$

97,03164,72932,302
3,385
28,917
7,633
21,284—
21,284

$

$

5.22
5.22

$

5.20
5.20
1.20
51.27
38.75

$

3,782.4
3,814.9
3,756.1
$

$

$

$

$

58.55
44.20
58.48
219,657

2011
97,23462,911
34,323
7,574
26,7497,773
18,976—
18,976

$

$

4.50
4.50

$

4.48
4.48
1.00
46.59
33.69

$

3,809.4
3,822.2
3,804.0$2010
102,694
61,196
41,498
16,63924,8597,489
17,370—17,370

$

$

3.98
3.98

$

2.25
2.27

$

3.96
3.96
0.20
43.04
30.18

$

2.24
2.26
0.20
39.88
27.09

$

3,900.4
3,920.3
3,772.7

46.49
30.83
43.97
167,260

$

48.36
27.85
33.25
125,4422009$

3,956.3
3,976.9
3,910.3
$

48.20
35.16
42.42
165,875

100,434
52,35248,08232,015
16,067
4,415
11,65276
11,7283,862.8
3,879.7
3,942.0
$

47.47
14.96
41.67
164,261

9%
9

11%
11

11%
11

10%
10

6%
6

11
11

15
15

15
15

15
15

10
10

0.75
0.75

0.94
0.94

0.86
0.86

0.85
0.85

0.58
0.58

1.28
1.28
73
57
522 $
11.9%
14.4
7.1
10.7

1.65
1.65
67
61
341
12.6%
15.3
7.1
11.0

1.58
1.58
65
64
NA
12.3%
15.4
6.8
10.1

1.50
1.50
60
74
NA
12.1%
15.5
7.0
9.8

0.95
0.95
52
68
NA
11.1%
14.8
6.9
8.8

374,664
354,003
738,418
2,415,689
1,287,765
267,889
200,020
211,178
251,196$

16,969 $2.25%
1.80
9,706 $
5,802
0.81%

450,028
371,152
733,7962,359,141
1,193,593
249,024
195,011204,069
258,753$

22,604 $3.02%
2.43
11,906 $
9,063
1.26%

443,963364,793723,7202,265,792
1,127,806
256,775
175,773
183,573
259,940$

28,282 $3.84%
3.35
11,315 $12,237
1.78%

489,892
316,336
692,927
2,117,605
930,369
270,653
168,306
176,106
239,515$

32,983 $4.71%
4.46
16,682 $23,6733.39%

411,128
360,390
633,458
2,031,989
938,367
289,165
157,213
165,365
221,200
32,541
5.04%
5.51
19,94822,965
3.42%

JPMorgan Chase & Co./2013 Annual Report(a) TBVS and ROTCE are non-GAAP financial measures. TBVS represents the Firm’s tangible common equity divided by period-end common shares. ROTCE measures the Firm’s
annualized earnings as a percentage of tangible common equity. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP
Financial Measures on pages 82–83 of this Annual Report.
(b) Share prices shown for JPMorgan Chase’s common stock are from the New York Stock Exchange. JPMorgan Chase’s common stock is also listed and traded on the London Stock
Exchange and the Tokyo Stock Exchange.
(c) Return on Basel I risk-weighted assets is the annualized earnings of the Firm divided by its average risk-weighted assets (“RWA”).
(d) Basel 2.5 rules became effective for the Firm on January 1, 2013. The implementation of these rules in the first quarter of 2013 resulted in an increase of approximately $150
billion in RWA compared with the Basel I rules. The implementation of these rules also resulted in decreases of the Firm’s Tier 1 capital, Total capital and Tier 1 common capitalratios by 140 basis points, 160 basis points and 120 basis points, respectively, at March 31, 2013. For further discussion of Basel 2.5, see Regulatory capital on pages 160–167
of this Annual Report.
(e) The Firm began estimating its total HQLA as of December 31, 2012, based on its current understanding of the Basel III LCR rules. For further discussion about HQLA, including
its components, see Liquidity Risk on page 172 of this Annual Report.
(f) Basel I Tier 1 common capital ratio (“Tier 1 common ratio”) is Tier 1 common capital (“Tier 1 common”) divided by RWA. The Firm uses Tier 1 common capital along with theother capital measures to assess and monitor its capital position. For further discussion of the Tier 1 common capital ratio, see Regulatory capital on pages 161–165 of thisAnnual Report.
(g) Included held-to-maturity balances of $24.0 billion at December 31, 2013. Held-to-maturity balances for the other periods were not material.
(h) Included unsecured long-term debt of $199.4 billion, $200.6 billion, $231.3 billion, $238.2 billion and $258.1 billion, respectively, as of December 31, of each year presented.
(i) Effective January 1, 2013, interns are excluded from the firmwide and business segment headcount metrics. Prior periods were revised to conform with this presentation.
(j) Excludes the impact of residential real estate purchased credit-impaired (“PCI”) loans. For further discussion, see Allowance for credit losses on pages 139–141 of this 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 U.S. equity benchmark consisting of leading companies from different economic
sectors. The KBW Bank Index seeks to reflect the performance of banks and thrifts that are publicly-traded in the U.S. and iscomposed of 24 leading national money center and regional banks and thrifts. The S&P Financial Index is an index of 81
financial companies, all of which are components of the S&P 500. The Firm is a component of all three industry indices.
The following table and graph assume simultaneous investments of $100 on December 31, 2008, in JPMorgan Chase common
stock and in each of the above indices. The comparison assumes that all dividends are reinvested.
December 31,(in dollars)
JPMorgan Chase

2008
$

2009

2010

2011

2012

2013

100.00 $134.36 $137.45 $110.00 $149.79 $204.78KBW Bank Index

100.0098.24

121.1993.08

123.69170.39S&P Financial Index

100.00117.15131.36108.95140.27190.19S&P 500 Index

100.00126.45145.49148.55172.31228.10

JPMorgan Chase & Co./2013 Annual Report63

Management’s discussion and analysis
This section of JPMorgan Chase’s Annual Report for the year ended December 31, 2013 (“Annual Report”), provides Management’s
discussion and analysis (“MD&A”) of the financial condition and results of operations of JPMorgan Chase. See the Glossary of Terms
on pages 341–345 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 anduncertainties. These risks and uncertainties could cause the Firm’s actual results to differ materially from those set forth in suchforward-looking statements. Certain of such risks and uncertainties are described herein (see Forward-looking Statements on page181 of this Annual Report) and in JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2013 (“2013Form 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 has $2.4 trillion in assets
and $211.2 billion in stockholders’ equity as ofDecember 31, 2013. The Firm is a leader in investmentbanking, financial services for consumers and small
businesses, commercial banking, financial transaction
processing, asset management and private equity. Under
the J.P. Morgan and Chase brands, the Firm serves millionsof customers in the U.S. and many of the world’s mostprominent corporate, institutional and government clients.
JPMorgan Chase’s principal bank subsidiaries are JPMorgan
Chase Bank, National Association (“JPMorgan Chase Bank,
N.A.”), a national bank with U.S. branches in 23 states, andChase Bank USA, National Association (“Chase Bank USA,
N.A.”), a national bank that is the Firm’s credit card–issuingbank. JPMorgan Chase’s principal nonbank subsidiary is J.P.
Morgan Securities LLC (“JPMorgan Securities”), the Firm’s
U.S. investment banking firm. The bank and nonbank
subsidiaries of JPMorgan Chase operate nationally as wellas through overseas branches and subsidiaries,
representative offices and subsidiary foreign banks. One of
the Firm’s principal operating subsidiaries in the United
Kingdom (“U.K.”) is J.P. Morgan Securities plc (formerly J.P.
Morgan Securities Ltd.), a subsidiary of JPMorgan Chase
Bank, N.A.

64

JPMorgan Chase’s activities are organized, for management
reporting purposes, into four major reportable businesssegments, as well as a Corporate/Private Equity segment.
The Firm’s consumer business is the Consumer &Community Banking segment. The Corporate & Investment
Bank, Commercial Banking, and Asset Management
segments comprise the Firm’s wholesale businesses. A
description of the Firm’s business segments, and the
products and services they provide to their respective client
bases, follows.
Consumer & Community Banking
Consumer & Community Banking (“CCB”) serves consumers
and businesses through personal service at bank branches
and through ATMs, online, mobile and telephone banking.
CCB is organized into Consumer & Business Banking,Mortgage Banking (including Mortgage Production,
Mortgage Servicing and Real Estate Portfolios) and Card,
Merchant Services & Auto (“Card”). Consumer & BusinessBanking offers deposit and investment products andservices to consumers, and lending, deposit, and cash
management and payment solutions to small businesses.
Mortgage Banking includes mortgage origination andservicing activities, as well as portfolios comprised ofresidential mortgages and home equity loans, including thepurchased credit-impaired (“PCI”) portfolio acquired in the
Washington Mutual transaction. Card issues credit cards toconsumers and small businesses, provides payment services
to corporate and public sector clients through its
commercial card products, offers payment processing
services to merchants, and provides auto and student loan
services.

JPMorgan Chase & Co./2013 Annual ReportCorporate & Investment BankThe Corporate & Investment Bank (“CIB”) comprised of
Banking and Markets & Investor Services, offers a broad
suite of investment banking, market-making, prime
brokerage, and treasury and securities products andservices to a global client base of corporations, investors,
financial institutions, government and municipal
entities. Within Banking, the CIB 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. Also included in
Banking is Treasury Services, which includes transaction
services, comprised primarily of cash management andliquidity solutions, and trade finance products. The Markets& Investor Services segment of the CIB is a global marketmaker in cash securities and derivative instruments, andalso offers sophisticated risk management solutions, prime
brokerage, and research. Markets & Investor Services also
includes the Securities Services business, a leading global
custodian which includes custody, fund accounting andadministration, and securities lending products soldprincipally to asset managers, insurance companies andpublic and private investment funds.
Commercial Banking
Commercial Banking (“CB”) delivers extensive industry
knowledge, local expertise and dedicated service to U.S.
and U.S. multinational clients, including corporations,municipalities, financial institutions and nonprofit entities
with annual revenue generally ranging from $20 million to$2 billion. CB provides financing to real estate investors andowners. 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.

JPMorgan Chase & Co./2013 Annual Report

Asset Management
Asset Management (“AM”), with client assets of $2.3
trillion, is a global leader in investment and wealthmanagement. AM clients include institutions, high-networth individuals and retail investors in every major market
throughout the world. AM offers investment management
across all major asset classes including equities, fixedincome, alternatives and money market funds. AM alsooffers multi-asset investment management, providing
solutions to a broad range of clients’ investment needs. For
individual investors, AM also provides retirement products
and services, brokerage and banking services including
trusts and estates, loans, mortgages and deposits. The
majority of AM’s client assets are in actively managed
portfolios.
Corporate/Private Equity
The Corporate/Private Equity segment comprises Private
Equity, Treasury and Chief Investment Office (“CIO”) and
Other Corporate, which includes corporate staff units 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, Central Technology,
Legal, Compliance, Finance, Human Resources, Internal
Audit, Risk Management, Oversight & Control, Corporate
Responsibility and various Other Corporate groups. Other
centrally managed expense includes the Firm’s occupancy
and pension-related expense that are subject to allocation
to the businesses.

65

Management’s discussion and analysis
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 events, trends and uncertainties, as well as theenterprise risks and critical accounting estimates affecting
the Firm and its various lines of business, this Annual Report
should be read in its entirety.
Economic environment
The global economy regained momentum in 2013, led by
faster growth in the advanced economies, helped bydecisive policy actions in the U.S., European Union, U.K.,
and Japan. Uncertainties about U.S. fiscal policy werereduced substantially by year-end, as were extreme
downside risks to performance in the Eurozone and Chinathat had been concerns earlier in the year. In addition, realconsumer spending in the U.S. was supported late in theyear by solid job growth, falling gasoline prices, and rising
equity and house prices.
The U.S. economic forecast for 2014 looks for a gradualacceleration in real sales growth and for inflation to remain
well below the Federal Reserve’s Open Market Committee’slong-run target of 2%. If the economic forecast for 2014 isrealized, the tapering of asset purchases by the Federal
Reserve’s Open Market Committee will proceed and is
expected to be completed before the end of 2014. However,the forecast does not look for a first rate hike by the Federal
Reserve’s Open Market Committee until sometime in 2015.
The European Central Bank’s (“ECB”) support in stabilizing
European financial markets, along with the constructive
steps taken by the European Union to lay the groundwork
for a more coherent banking union, helped the region to
return to growth during the first half of 2013. However,later in the year, the pace of the Eurozone’s recovery
remained slow, high unemployment tested the social andpolitical stability of several of Europe’s weaker economies,
and Cyprus became the fourth country in the Eurozone toreceive a full bail-out. While Germany and the northern
European economies continued to drive growth, elsewherein Europe growth was more subdued. More encouraging
were signs that the peripheral economies in the region are
showing signs of healing.
Economic performance in Asia was mixed in 2013. Japanboomed; in contrast, activity decelerated across much of
the rest of the region. Growth outcomes were also mixed
across Latin America. Economic activity decelerated in
Mexico. Brazil began 2013 with positive momentum butthen lost significant steam, with a widening gap between
projected growth outcomes and inflation indicators. Policy
uncertainties, slowing China demand for commodities,
credit overhangs, and elevated inflation all weighed oninvestment in many emerging countries.

66

In summary, there is reason to be optimistic about the U.S.
economic outlook in 2014. The economy finally appears tohave broken out of the 2% range of growth experienced in
the first several years of recovery, and the extent of bothfiscal policy restraint and fiscal policy uncertainty should be
sharply reduced. While growth in emerging markets is
expected to remain subdued, economic activity is expected
to continue accelerating in Europe.
Financial performance of JPMorgan Chase
Year ended December 31,(in millions, except per sharedata and ratios)

2013

2012

Selected income statement data
Total net revenue$ 96,606$ 97,031
Total noninterest expense
70,46764,729Pre-provision profit
26,13932,302
Provision for credit losses
225
3,385
Net income
17,923
21,284
Diluted earnings per share
4.35
5.20
Return on common equity
9%
11%
Capital ratios
Tier 1 capital
11.9
12.6
Tier 1 common
10.7
11.0

Change
—%
9
(19)
(93)
(16)
(16)

Summary of 2013 Results
JPMorgan Chase reported full-year 2013 net income of$17.9 billion, or $4.35 per share, on net revenue of $96.6
billion. Net income decreased by $3.3 billion, or 16%,
compared with net income of $21.3 billion, or $5.20 per
share, in 2012. ROE for the year was 9%, compared with
11% for the prior year.
The decrease in net income in 2013 was driven by a higher
noninterest expense, partially offset by lower provision for
credit losses. The increase in noninterest expense wasdriven by higher legal expense. The reduction in theprovision for credit losses reflected continued favorable
credit trends across the consumer and wholesale portfolios.
The decline in the provision for credit losses reflected lower
consumer and wholesale provisions as net charge-offs
decreased and the related allowance for credit losses was
reduced by $5.6 billion in 2013. The decline in theallowance reflected improved home prices in the residential
real estate portfolios, as well as improved delinquency
trends in the residential real estate, credit card loan andwholesale portfolios. Firmwide, net charge-offs were $5.8
billion for the year, down $3.3 billion, or 36%, from 2012,
which included $800 million of incremental charge-offs
related to regulatory guidance. Nonperforming assets at
year-end were $9.7 billion, down $2.2 billion, or 18%. Total
firmwide allowance for credit losses was $17.0 billion,
resulting in a loan loss coverage ratio of 1.80%, excluding
the purchased credit-impaired portfolio, compared with2.43% in 2012.

JPMorgan Chase & Co./2013 Annual Report

The Firm’s results reflected strong underlying performanceacross its four major reportable business segments, withstrong lending and deposit growth. Consumer & BusinessBanking within Consumer & Community Banking was #1 indeposit growth for the second year in a row and #1 incustomer satisfaction among the largest banks for thesecond year in a row as measured by The American
Customer Satisfaction Index (“ACSI”). In Card, MerchantServices & Auto, credit card sales volume (excluding
Commercial Card) was up 10% for the year. The Corporate& Investment Bank maintained its #1 ranking in Global
Investment Banking Fees and reported record assets undercustody of $20.5 trillion at December 31, 2013.
Commercial Banking loans increased to a record $137.1
billion, a 7% increase compared with the prior year. AssetManagement achieved nineteen consecutive quarters of
positive net long-term client flows into assets undermanagement. Asset Management also increased loanbalances to a record $95.4 billion at December 31, 2013.
JPMorgan Chase ended the year with a Basel I Tier 1
common ratio of 10.7%, compared with 11% at year-end
2012. The Firm estimated that its Tier 1 common ratio
under the Basel III Advanced Approach on a fully phased-in
basis, based on the interim final rule issued in October
2013, was 9.5% as of December 31, 2013. Total deposits
increased to $1.3 trillion, up 8% from the prior year. Total
stockholders’ equity at December 31, 2013, was $211.2
billion. (The Basel I and III Tier 1 common ratios are nonGAAP financial measures, which the Firm uses along withthe other capital measures, to assess and monitor its capital
position. For further discussion of the Tier 1 common
capital ratios, see Regulatory capital on pages 161–165 ofthis Annual Report.)
During 2013, the Firm worked to help its customers,
corporate clients and the communities in which it does
business. The Firm provided credit to and raised capital ofmore than $2.1 trillion for its clients during 2013; thisincluded $19 billion lent to small businesses and $79 billion
to nonprofit and government entities, including states,
municipalities, hospitals and universities. The Firm also
originated more than 800,000 mortgages.
The discussion that follows highlights the performance ofeach business segment compared with the prior year andpresents results on a managed basis. Managed basis starts
with the reported results under accounting principles
generally accepted in the United States of America (“U.S.
GAAP”) and, for each line of business and the Firm as awhole, includes certain reclassifications to present total net
revenue on a tax-equivalent basis. For more information
about managed basis, as well as other non-GAAP financial
measures used by management to evaluate theperformance of each line of business, see pages 82–83 ofthis Annual Report.

JPMorgan Chase & Co./2013 Annual Report

Consumer & Community Banking net income increased
compared with the prior year due to lower provision for
credit losses and lower noninterest expense, predominantly
offset by lower net revenue. Net interest income decreased,
driven by lower deposit margins, lower loan balances due to
net portfolio runoff and spread compression in Credit Card,largely offset by the impact of higher deposit balances.
Noninterest revenue decreased, driven by lower mortgage
fees and related income, partially offset by higher card
income. The provision for credit losses was $335 million
compared with $3.8 billion in the prior year. The currentyear provision reflected a $5.5 billion reduction in theallowance for loan losses and total net charge-offs of $5.8
billion. The prior-year provision reflected a $5.5 billion
reduction in the allowance for loan losses and total net
charge-offs of $9.3 billion, including $800 million ofincremental charge-offs related to regulatory guidance.
Noninterest expense decreased compared with the prioryear, driven by lower mortgage servicing expense, partially
offset by investments in Chase Private Client expansion,
higher non-MBS related legal expense in Mortgage
Production, higher auto lease depreciation and costs related
to the control agenda.
Corporate & Investment Bank net income increased by 2%
compared with the prior year. Net revenue included a $1.5
billion loss from the implementation of a funding valuation
adjustment (“FVA”) framework for over-the-counter (“OTC”)
derivatives and structured notes in the fourth quarter, and a$452 million loss from debit valuation adjustments (“DVA”)
on structured notes and derivative liabilities. The prior year
net revenue included a $930 million loss from DVA. Banking
revenue increased compared with the prior year, reflecting
higher lending and investment banking fees revenue,
partially offset by Treasury Services revenue which was
down slightly from the prior year. Lending revenue
increased driven by gains on securities received fromrestructured loans. Investment banking fees revenue
increased compared with the prior year driven by higher
equity and debt underwriting fees, partially offset by lower
advisory fees. Excluding FVA (effective fourth quarter2013) and DVA, Markets and Investor Services revenue
increased compared with the prior year. The provision for
credit losses was a lower benefit reflecting lower recoveries
compared with the prior year. Noninterest expense wasslightly down from the prior year primarily driven by lower
compensation expense.
Commercial Banking net income was slightly lower for2013 compared with the prior year, reflecting higher
noninterest expense and an increase in the provision for
credit losses, partially offset by higher net revenue. Net
interest income increased, driven by growth in loanbalances and the proceeds from a lending-related workout,partially offset by lower purchase discounts recognized onloan repayments. Noninterest expense increased, primarilyreflecting higher product- and headcount-related expense.

67

Management’s discussion and analysis
Asset Management net income increased in 2013, driven
by higher net revenue, largely offset by higher noninterest
expense. Net revenue increased, driven by net client
inflows, the effect of higher market levels and net interest
income resulting from higher loan and deposit balances.
Noninterest expense increased, driven by higher headcountrelated expenses, higher performance-based compensationand costs related to the control agenda.
Corporate/Private Equity reported a higher net loss
compared with the prior year driven by higher noninterest
expense partially offset by higher net revenue. Noninterest
expense for 2013 included $10.2 billion in legal expenses
compared with $3.7 billion in the prior year. The current
year net revenue included a $1.3 billion gain from the saleof Visa shares and a $493 million gain from the sale of One
Chase Manhattan Plaza. The prior year net revenue included
losses from the synthetic credit portfolio in the CIO.
Consent Orders and Settlements
During the course of 2013, the Firm continued to makeprogress on its control, regulatory, and litigation agenda
and put some significant issues behind it. In January 2013,
the Firm entered into the Consent Orders with its banking
regulators relating to the Firm’s Bank Secrecy Act/AntiMoney Laundering policies, procedures and controls, andwith respect to the risk management and control functionsin the CIO, as well as with respect to its other trading
activities. Other settlements during the year included theConsent Orders entered into in September 2013 concerning
oversight of third parties, operational processes and control
functions related to credit card collections litigation
practices and to billing practices for credit monitoringproducts formerly offered by the Firm; the settlements in
November 2013 of certain repurchase representation andwarranty claims by a group of institutional investors andwith the U.S. Department of Justice, several other federal
agencies and several State Attorneys General relating tocertain residential mortgage-backed securitization activitiesof the Firm, Bear Stearns and Washington Mutual; theDeferred Prosecution Agreement entered into in January
2014 with the U.S. Department of Justice and relatedagreements with the OCC and FinCEN relating to Bernard L.
Madoff Investment Securities LLC and the Firm's AML
compliance programs; and the February 2014 settlement
entered into with several federal government agencies
relating to the Firm's participation in certain federalmortgage insurance programs.
In addition to the payment of restitution and, in several
instances, significant penalties, these Consent Orders andsettlements require that the Firm modify or enhance its
processes and controls with respect to, among other items,
its mortgage foreclosure and servicing procedures, AntiMoney Laundering procedures, oversight of third parties,
credit card litigation practices, and risk management, model
governance, and other control functions related to the CIO
and certain other trading activities at the Firm. The Firm
believes it was in the best interest of the company and its
68

shareholders to accept responsibility for these matters,
resolve them, and move forward. These settlements willallow the Firm to focus on continuing to serve its clients andcommunities, and to continue to build the Firm’s businesses.
Business outlook
The following forward-looking statements are based on thecurrent 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 forthin such forward-looking statements. See Forward-Looking
Statements on page 181 of this Annual Report and the Risk
Factors section on pages 9–18 of the 2013 Form 10-K.
As a global financial services firm, JPMorgan Chase issubject to extensive regulation under state and federal laws
in the United States, as well as the applicable laws of eachof the various other jurisdictions outside the U.S. in which
the Firm does business. The Firm is currently experiencing
an unprecedented increase in regulations and supervision,and such changes could have a significant impact on how
the Firm conducts business. For a summary of the moresignificant rules and regulations to which it currently is or
will shortly be subject, as well as the more noteworthy rules
and regulations currently being proposed to be
implemented, see Supervision and Regulation on pages 1–9of the 2013 Form 10-K.
Having reached the minimum capital levels required by the
new and proposed rules, the Firm intends to continue tohold excess capital in order to support its businesses.
However, the new rules will require the Firm to modify its
on- and off-balance sheet assets and liabilities to meet the
supplementary leverage ratio requirements, restrict or limit
the way the Firm offers products to customers or charges
fees for services, exit certain activities and productofferings, and make structural changes with respect towhich of its legal entities offer certain products in order tocomply with the margin, extraterritoriality and clearing
rules promulgated pursuant to the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the "Dodd-FrankAct").
The Firm intends to respond to the new financial
architecture resulting from this changing landscape in a waythat will allow it to grow its revenues over time, manage its
expenses, and comply with the new regulatory
requirements, while at the same time investing in its
businesses and meeting the needs of its customers andclients. Initiatives will include a disciplined approach tocapital and liquidity management as well as optimization of
the Firm’s balance sheet. The Firm intends to continue tomeet the higher U.S. and Basel III liquidity requirements
and make progress towards meeting all of its capital targets
in advance of regulatory deadlines, while at the same time
returning capital to its shareholders. For further
information, see Liquidity Risk Management and CapitalManagement on pages 168–173 and 160–167,
respectively, of this Annual Report.
JPMorgan Chase & Co./2013 Annual Report

The Firm is also devoting substantial resources in order tocontinue to execute on its control and regulatory agendas.
In 2012, it established its Oversight and Control function,
which works closely with all control disciplines, including
Compliance, Legal, Risk Management, Internal Audit andother functions, to provide a cohesive and centralized viewof control functions and issues and to address complex
control-related projects that are cross-line of business andthat have significant regulatory impact or respond to
regulatory actions such as the Consent Orders. See
Operational Risk Management on pages 155–157 in thisAnnual Report for further information on the Oversight andControl function. The Firm’s control agenda is receiving
significant senior management and Board of Director
attention and oversight, and represents a very high priority
for the Firm, with 23 work-streams currently underway
involving more than 3,500 employees. In 2013, the Firm
increased the amount spent on the control agenda byapproximately $1 billion, and expects to spend anincremental amount of slightly more than $1 billion on thecontrol agenda in 2014.
The Firm is also executing a business simplification agendathat will allow it to focus on core activities for its coreclients and better manage its operational, regulatory andlitigation risks. These initiatives include ceasing student
loan originations, ceasing to offer traveler’s checks andmoney orders for non-customers, exiting certain highcomplexity arrangements (such as third-party lockbox
services), and being more selective about on-boarding
certain customers, among other initiatives. These businesssimplification changes will not fundamentally change thebreadth of the Firm’s business model. However, they are
anticipated to reduce both revenues and expenses overtime, although the effect on annualized net income isexpected to be modest. In addition, the efforts are also
expected to have the benefit of freeing up capital over time.
The Firm expects it will continue to make appropriate
adjustments to its business and operations, capital andliquidity management practices, and legal entity structurein the year ahead in response to developments in the legal
and regulatory, as well as business and economic,
environment in which it operates.

2014 Business Outlook
JPMorgan Chase’s outlook for the full year 2014 should beviewed against the backdrop of the global and U.S.
economies, financial markets activity, the geopoliticalenvironment, the competitive environment, client activity
levels, and regulatory and legislative developments in the
U.S. and other countries where the Firm does business. Eachof these inter-related factors will affect the performance of
the Firm and its lines of business.
The Firm expects that net interest margin will be relatively
stable in the near term. Firmwide adjusted expense is
expected to be below $59 billion for the full year 2014,
excluding firmwide (Corporate and non-Corporate) legal
expenses and foreclosure-related matters, even as the Firm
continues to invest in controls and compliance.
In the Mortgage Banking business within CCB, management
expects that higher levels of mortgage interest rates willcontinue to have a negative impact on refinancing volumes
and margins, and, accordingly, the pretax income ofMortgage Production is anticipated to be modestly negative
for the first quarter of 2014. For Real Estate Portfolios
within Mortgage Banking, if delinquencies continue to trend
down and the macro-economic environment remains stableor improves, management expects charge-offs to decline
and a further reduction in the allowance for loan losses.
In Card Services within CCB, the Firm expects that spreadcompression will continue in 2014; the shift from high-rateand low-FICO balances is expected to be replaced by moreengaged customers or transactors, which is expected topositively affect card spend and credit performance in
2014. If current positive credit trends continue, the cardrelated allowance for loan losses could be reduced over thecourse of 2014.
The currently anticipated results for CCB described above
could be adversely affected if economic conditions,
including U.S. housing prices or the unemployment rate, do
not continue to improve. Management continues to closely
monitor the portfolios in these businesses.
In Private Equity, within the Corporate/Private Equity
segment, earnings will likely continue to be volatile andinfluenced by capital markets activity, market levels, theperformance of the broader economy and investmentspecific factors.
For Treasury and CIO, within the Corporate/Private Equity
segment, as the Firm continues to reinvest its investment
securities portfolio, net interest income is expected to
improve and to reach break-even during the second half of2014.

JPMorgan Chase & Co./2013 Annual Report69Management’s discussion and analysis
Business events

Subsequent events

Visa B Shares
In December 2013, the Firm sold 20 million Visa Class B
shares, resulting in a net pretax gain of approximately $1.3
billion recorded in Other income. After the sale, the Firm
continues to own approximately 40 million Visa Class B
shares. For further information, see Note 2 on pages 326–
332 of this Annual Report.

Settlement agreement with The U.S. Departments Of
Justice, Housing and Urban Development, and Veterans
Affairs, and The Federal Housing Administration

One Chase Manhattan PlazaOn December 17, 2013, the Firm sold One Chase
Manhattan Plaza, an office building located in New York
City, and recognized a pretax gain of $493 million in Other
Income.
Other events
For information about the Firm’s announcements regarding
the physical commodities business, One Equity Partners,
and the student loan business, see Note 2 on pages 326–
332 of this Annual Report.

On February 4, 2014, the Firm announced that it hadreached a settlement with the U.S. Attorney’s Office for theSouthern District of New York, Federal Housing
Administration (“FHA”), the U.S. Department of Housing and
Urban Development (“HUD”), and the U.S. Department of
Veterans Affairs (“VA”) resolving claims relating to theFirm’s participation in federal mortgage insurance
programs overseen by FHA, HUD and VA (“FHASettlement”). Under the FHA Settlement, which relates to
FHA and VA insurance claims that have been paid to theFirm from 2002 through the date of the settlement, theFirm will pay $614 million in cash, and agree to enhance its
quality control program for loans that are submitted in the
future to FHA’s Direct Endorsement Lender Program. The
Firm is fully reserved for the settlement, and any financial
impact related to exposure on future claims is not expected
to be significant. For information about the ongoingcollectibility of insurance reimbursements on loans sold toGinnie Mae, see Note 31 on pages 326–332 of this Annual
Report.
Madoff Litigation and Investigations
On January 7, 2014, the Firm announced that certain of its
bank subsidiaries had entered into settlements with various
governmental agencies in resolution of investigations
relating to Bernard L. Madoff Investment Securities LLC(“BLMIS”). The Firm and certain of its subsidiaries also
entered into settlements with several private parties inresolution of civil litigation relating to BLMIS. At the sametime, certain bank subsidiaries of the Firm consented to theassessment of a civil money penalty by the OCC inconnection with various Bank Secrecy Act/Anti-Money
Laundering deficiencies, including with relation to the
BLMIS fraud, and JPMorgan Chase Bank, N.A. additionallyagreed to the assessment of a civil money penalty by the
Financial Crimes Enforcement Network for failure to detectand adequately report suspicious transactions relating to
BLMIS. For further information on these settlements, seeNote 31 on pages 326–332 of this Annual Report.

70

JPMorgan Chase & Co./2013 Annual ReportCONSOLIDATED RESULTS OF OPERATIONS
The following section provides a comparative discussion of
JPMorgan Chase’s Consolidated Results of Operations on areported basis for the three-year period ended December 31,
2013. Factors that relate primarily to a single businesssegment are discussed in more detail within that businesssegment. For a discussion of the Critical Accounting Estimates
Used by the Firm that affect the Consolidated Results ofOperations, see pages 174–178 of this Annual Report.

RevenueYear ended December 31,(in millions)2013

Investment banking fees

$

6,354

2012
$

5,808

2011
$

5,911

Principal transactions(a)10,141

5,536

10,005

Lending- and deposit-related
fees

5,945

6,196

6,458

Asset management,
administration andcommissions
Securities gains

15,106

13,86814,094

667

2,110

1,593

Mortgage fees and related
income

5,205

8,687

2,721

Card income

6,022

5,658

6,158

Other income(b)Noninterest revenue

3,847

4,258

2,605

53,287

52,12149,545

Net interest income

43,319Total net revenue$ 96,606

44,910$97,03147,689$97,234(a) Included a $(1.5) billion loss in the fourth quarter of 2013 as a resultof implementing an FVA framework for OTC derivatives and structured
notes. Also included DVA on structured notes and derivative liabilities
measured at fair value. DVA gains/(losses) were $(452) million,$(930) million and $1.4 billion for the years ended December 31,
2013, 2012 and 2011, respectively.
(b) Included operating lease income of $1.5 billion, $1.3 billion and $1.2
billion for the years ended December 31, 2013, 2012 and 2011,
respectively.

2013 compared with 2012
Total net revenue for 2013 was $96.6 billion, down by$425 million, or less than 1%. The results of 2013 were
driven by lower mortgage fees and related income, net
interest income, and securities gains. These items werepredominantly offset by higher principal transactions
revenue, and asset management, administration andcommissions revenue.
Investment banking fees increased compared with the prioryear, reflecting higher equity and debt underwriting fees,partially offset by lower advisory fees. Equity and debt
underwriting fees increased, driven by strong market
issuance and improved wallet share in equity capital
markets and loans. Advisory fees decreased, as theindustry-wide M&A wallet declined. For additional
information on investment banking fees, see CIB segment
results on pages 98–102 and Note 7 on pages 234–235 of
this Annual Report.
JPMorgan Chase & Co./2013 Annual Report

Principal transactions revenue, which consists of revenue
primarily from the Firm’s market-making and private equity
investing activities, increased compared with the prior year.
The current-year period reflected CIB’s strong equity
markets revenue, partially offset by a $1.5 billion loss as aresult of implementing a funding valuation adjustment(“FVA”) framework for OTC derivatives and structured notesin the fourth quarter of 2013, and a $452 million loss from
DVA on structured notes and derivative liabilities (comparedwith a $930 million loss from DVA in the prior year). The
prior year included a $5.8 billion loss on the synthetic
credit portfolio incurred by CIO in the six months ended
June 30, 2012; a $449 million loss on the index credit
derivative positions retained by CIO in the three months
ended September 30, 2012; and additional modest losses
incurred by CIB from the synthetic credit portfolio in the last
six months of 2012; these were partially offset by a $665
million gain recognized in 2012 in Other Corporate,
representing the recovery on a Bear Stearns-related
subordinated loan. For additional information on principaltransactions revenue, see CIB and Corporate/Private Equity
segment results on pages 98–102 and 109–111,
respectively, and Note 7 on pages 234–235 of this Annual
Report.
Lending- and deposit-related fees decreased compared withthe prior year, largely due to lower deposit-related fees in
CCB, resulting from reductions in certain product andtransaction fees. For additional information on lending- anddeposit-related fees, see the segment results for CCB on
pages 86–97, CIB on pages 98–102 and CB on pages 103–
105 of this Annual Report.
Asset management, administration and commissions
revenue increased from 2012. The increase was driven byhigher investment management fees in AM, due to net client
inflows, the effect of higher market levels, and higher
performance fees, as well as higher investment sales
revenue in CCB. For additional information on these fees
and commissions, see the segment discussions for CIB on
pages 98–102, CCB on pages 86–97, AM on pages 106–108, and Note 7 on pages 234–235 of this Annual Report.
Securities gains decreased compared with the prior-year
period, reflecting the results of repositioning the CIO
available-for-sale (“AFS”) portfolio. For additional
information on securities gains, see the Corporate/Private
Equity segment discussion on pages 109–111, and Note 12
on pages 249–254 of this Annual Report.
Mortgage fees and related income decreased in 2013
compared with 2012. The decrease resulted from lower
Mortgage Banking net production and servicing revenue.
The decrease in net production revenue was due to lower
margins and volumes. The decrease in net servicing revenue
was predominantly due to lower mortgage servicing rights(“MSR”) risk management results. For additional
71

Management’s discussion and analysis
information on mortgage fees and related income, see CCB’s
Mortgage Banking’s discussion on pages 92–93, and Note
17 on pages 299–304 of this Annual Report.
Card income increased compared with the prior year period.
The increase was driven by higher net interchange incomeon credit and debit cards and merchant servicing revenue,
due to growth in sales volume. For additional information
on credit card income, see the CCB segment results on
pages 86–97 of this Annual Report.
Other income decreased in 2013 compared with the prioryear, predominantly reflecting lower revenues fromsignificant items recorded in Corporate/Private Equity. In
2013, the Firm recognized a $1.3 billion gain on the sale ofVisa shares, a $493 million gain from the sale of One Chase
Manhattan Plaza, and a modest loss related to theredemption of trust preferred securities (“TruPS”). In 2012,
the Firm recognized a $1.1 billion benefit from the
Washington Mutual bankruptcy settlement and an $888
million extinguishment gain related to the redemption of
TruPS. The net decrease was partially offset by higher
revenue in CIB, largely from client-driven activity.
Net interest income decreased in 2013 compared with theprior year, primarily reflecting the impact of the runoff ofhigher yielding loans and originations of lower yielding
loans, and lower trading-related net interest income. The
decrease in net interest income was partially offset by lower
long-term debt and other funding costs. The Firm’s averageinterest-earning assets were $2.0 trillion in 2013, and thenet interest yield on those assets, on a fully taxableequivalent (“FTE”) basis, was 2.23%, a decrease of 25
basis points from the prior year.
2012 compared with 2011
Total net revenue for 2012 was $97.0 billion, down slightly
from 2011. Results for 2012 were driven by lower principaltransactions revenue from losses incurred by CIO, and lower
net interest income. These items were predominantly offset
by higher mortgage fees and related income and higher
other income.
Investment banking fees decreased slightly from 2011,reflecting lower advisory fees on lower industry-wide
volumes, and to a lesser extent, slightly lower equity
underwriting fees on industry-wide volumes that were flatfrom the prior year. These declines were predominantly
offset by record debt underwriting fees, driven by favorable
market conditions and the impact of continued low interest
rates.
Principal transactions revenue decreased compared with
2011, predominantly due to $5.8 billion of losses incurredby CIO from the synthetic credit portfolio for the six months
ended June 30, 2012, and $449 million of losses incurredby CIO from the retained index credit derivative positions
for the three months ended September 30, 2012; andadditional modest losses incurred by CIB from the synthetic
credit portfolio in the last six months of 2012.
Principal transaction revenue also included a $930 million
loss in 2012, compared with a $1.4 billion gain in 2011,
72

from DVA on structured notes and derivative liabilities,
resulting from the tightening of the Firm’s credit spreads.
These declines were partially offset by higher marketmaking revenue in CIB, driven by strong client revenue andhigher revenue in rates-related products, as well as a $665
million gain recognized in Other Corporate associated withthe recovery on a Bear Stearns-related subordinated loan.
Private equity gains decreased in 2012, predominantly due
to lower unrealized and realized gains on private
investments, partially offset by higher unrealized gains on
public securities.
Lending- and deposit-related fees decreased in 2012
compared with the prior year. The decrease predominantly
reflected lower lending-related fees in CIB and lower
deposit-related fees in CCB.
Asset management, administration and commissions
revenue decreased from 2011, largely driven by lower
brokerage commissions in CIB. This decrease was largely
offset by higher asset management fees in AM driven by net
client inflows, the effect of higher market levels, and higher
performance fees; and higher investment service fees in
CCB, as a result of growth in sales of investment products.
Securities gains increased, compared with the 2011 level,reflecting the results of repositioning the CIO AFS securities
portfolio.
Mortgage fees and related income increased significantly in2012 compared with 2011, due to higher Mortgage
Banking net production and servicing revenue. The increasein net production revenue, reflected wider margins driven
by favorable market conditions; and higher volumes due tohistorically low interest rates and the Home Affordable
Refinance Programs (“HARP”). The increase in net servicing
revenue resulted from a favorable swing in risk
management results related to mortgage servicing rights(“MSR”), which was a gain of $619 million in 2012,
compared with a loss of $1.6 billion in 2011.
Card income decreased during 2012, driven by lower debitcard revenue, reflecting the impact of the Durbin
Amendment; and to a lesser extent, higher amortization ofloan origination costs. The decrease in credit card income
was offset partially by higher net interchange income
associated with growth in credit card sales volume, andhigher merchant servicing revenue.
Other income increased in 2012 compared with the prioryear, largely due to a $1.1 billion benefit from the
Washington Mutual bankruptcy settlement, and $888
million of extinguishment gains in Corporate/Private Equity
related to the redemption of TruPS. The extinguishment
gains were related to adjustments applied to the cost basisof the TruPS during the period they were in a qualified
hedge accounting relationship. These items were offset
partially by the absence of a prior-year gain on the sale ofan investment in AM.
Net interest income decreased in 2012 compared with theprior year, predominantly reflecting the impact of lower
average trading asset balances, the runoff of higher-yielding
JPMorgan Chase & Co./2013 Annual Reportloans, faster prepayment of mortgage-backed securities,
limited reinvestment opportunities, as well as the impact oflower interest rates across the Firm’s interest-earning
assets. The decrease in net interest income was partially
offset by lower deposit and other borrowing costs. The
Firm’s average interest-earning assets were $1.8 trillion for2012, and the net yield on those assets, on a fully taxableequivalent (“FTE”) basis, was 2.48%, a decrease of 26
basis points from 2011.

Noninterest expense
Year ended December 31,
2013

2012

2011

$30,810$30,585$29,037

Occupancy

3,693

3,925

3,895

Technology, communications andequipment

5,425

5,224

4,947

Professional and outside services

7,641

7,429

7,482

Provision for credit losses

Marketing

2,500

2,577

3,143

Year ended December 31,

Other(a)(b)

19,761

14,032

13,559(in millions)

Noncompensation expense:

2011

Amortization of intangibles

637

957

848

Total noncompensation expense

39,65734,14433,874

3,444

2,925

Total noninterest expense$70,467$64,729$62,911

308

3,746

7,597

(83)

(361)

(23)

(a) Included firmwide legal expense of $11.1 billion, $5.0 billion and $4.9
billion for the years ended December 31, 2013, 2012 and 2011,
respectively.
(b) Included FDIC-related expense of $1.5 billion, $1.7 billion and $1.5
billion for the years ended December 31, 2013, 2012 and 2011,
respectively.

2012
302

2,179

Total consumer
Wholesale
Total provision for credit losses $225

Credit card

Compensation expense

4,672

2013
$ (1,871) $Consumer, excluding credit card(in millions)

$

3,385

$

$

7,574

2013 compared with 2012
The provision for credit losses decreased compared with theprior year, due to a decline in the provision for total
consumer credit losses. The decrease in the consumer
provision was attributable to continued reductions in theallowance for loan losses, resulting from the impact ofimproved home prices on the residential real estate
portfolio, and improved delinquency trends in theresidential real estate and credit card portfolios, as well as
lower net charge-offs partially due to the prior-yearincremental charge-offs recorded in accordance withregulatory guidance on certain loans discharged under
Chapter 7 bankruptcy. The wholesale provision in thecurrent period reflected a favorable credit environment andstable credit quality trends. For a more detailed discussionof the loan portfolio and the allowance for credit losses, see
the segment discussions for CCB on pages 86–97, CIB on
pages 98–102, CB on pages 103–105, and Allowance For
Credit Losses on pages 139–141 of this Annual Report.
2012 compared with 2011
The provision for credit losses decreased by $4.2 billion
from 2011. The decrease was driven by a lower provision
for consumer, excluding credit card loans, which reflected a
reduction in the allowance for loan losses, due primarily to
lower estimated losses in the non-PCI residential real estate
portfolio as delinquency trends improved, partially offset by
the impact of charge-offs of Chapter 7 loans. A higher levelof recoveries and lower charge-offs in the wholesale
provision also contributed to the decrease. These items
were partially offset by a higher provision for credit cardloans, largely due to a smaller reduction in the allowance
for loan losses in 2012 compared with the prior year.

JPMorgan Chase & Co./2013 Annual Report2013 compared with 2012
Total noninterest expense for 2013 was $70.5 billion, up by$5.7 billion, or 9%, compared with the prior year. The
increase was predominantly due to higher legal expense.
Compensation expense increased in 2013 compared withthe prior year, due to the impact of investments across thebusinesses, including front office sales and support staff, as
well as costs related to the Firm’s control agenda; partially
offset by lower compensation expense in CIB and a decline
in CCB’s mortgage business, which included the effect oflower servicing headcount.
Noncompensation expense increased in 2013 from theprior year. The increase was due to higher other expense,
reflecting $11.1 billion of firmwide legal expense,
predominantly in Corporate/Private Equity, representing
additional reserves for several litigation and regulatory
proceedings, compared with $5.0 billion of expense in theprior year. Investments in the businesses, higher legalrelated professional services expense, and costs related to
the Firm’s control agenda also contributed to the increase.
The increase was offset partially by lower mortgage
servicing expense in CCB and lower occupancy expense for
the Firm, which predominantly reflected the absence of
charges recognized in 2012 related to vacating excess
space. For a further discussion of legal expense, see Note
31 on pages 326–332 of this Annual Report. For a
discussion of amortization of intangibles, refer to Note 17
on pages 299–304 of this Annual Report.

73

Management’s discussion and analysis
2012 compared with 2011
Total noninterest expense for 2012 was $64.7 billion , up
by $1.8 billion, or 3%, from 2011. Compensation expense
drove the increase from the prior year.
Compensation expense increased from the prior year,
predominantly due to investments in the businesses,
including the sales force in CCB and bankers in the otherbusinesses, partially offset by lower compensation expensein CIB.
Noncompensation expense for 2012 increased from theprior year, reflecting continued investments in thebusinesses, including branch builds in CCB; higher expense
related to growth in business volume in CIB and CCB; higher
regulatory deposit insurance assessments; expenses related
to exiting a non-core product and writing-off intangible
assets in CCB; and higher legal expense in Corporate/Private
Equity. These increases were partially offset by lower legal
expense in AM and CCB (including the Independent
Foreclosure Review settlement) and lower marketing
expense in CCB.

74

Income tax expense
Year ended December 31,(in millions, except rate)

2013

2012

2011

Income before income tax expense $25,914$28,917$26,749

Income tax expense

7,991

7,633

7,773

Effective tax rate

30.8%

26.4%

29.1%

2013 compared with 2012
The increase in the effective tax rate compared with theprior year was predominantly due to the effect of higher
nondeductible expense related to litigation and regulatory
proceedings in 2013. This was largely offset by the impactof lower reported pre-tax income in combination withchanges in the mix of income and expense subject to
U.S. federal, state and local taxes, business tax credits, tax
benefits associated with prior year tax adjustments andaudit resolutions. For additional information on income
taxes, see Critical Accounting Estimates Used by the Firm on
pages 174–178 and Note 26 on pages 313–315 of thisAnnual Report.
2012 compared with 2011
The decrease in the effective tax rate compared with theprior year was largely the result of changes in the
proportion of income subject to U.S. federal and state andlocal taxes, as well as higher tax benefits associated with
tax audits and tax-advantaged investments. This waspartially offset by higher reported pretax income and lower
benefits associated with the disposition of certain
investments. The current and prior periods include deferred
tax benefits associated with state and local income taxes.

JPMorgan Chase & Co./2013 Annual ReportBALANCE SHEET ANALYSIS
Selected Consolidated Balance Sheets data
December 31, (in millions)

2013

2012

ChangeAssetsCash and due from banks$

39,771$53,723(26)%

Deposits with banks

316,051

121,814

159

Federal funds sold andsecurities purchased underresale agreements

248,116

296,296(16)

Securities borrowed

111,465

119,017(6)

Debt and equity
instruments

308,905

375,045(18)

Derivative receivables

65,75974,983(12)

Securities

354,003371,152

(5)

Loans

738,418

733,796

1

Allowance for loan losses(16,264)(21,936)(26)

Loans, net of allowance forloan losses

722,154

711,860

1

Accrued interest and accounts
receivable

65,16060,9337

Premises and equipment

14,891

14,5193

Goodwill

48,081

48,175—Mortgage servicing rights

9,614

7,614

26

Trading assets:

Other intangible assets

1,618

2,235

(28)

Other assets

110,101

101,775

8

Total assets$ 2,415,689$ 2,359,1412$ 1,287,765$ 1,193,593

8

Liabilities
Deposits
Federal funds purchased andsecurities loaned or soldunder repurchaseagreements

181,163

240,103(25)

Commercial paper

57,84855,367

4

Other borrowed funds

27,994

26,636

5

Debt and equity
instruments

80,43061,26231

Derivative payables

57,31470,656(19)

Accounts payable and otherliabilities

194,491

195,240—

Beneficial interests issued byconsolidated VIEs

49,617

63,191(21)

Trading liabilities:

Long-term debt

267,889

249,024

8

Total liabilities

2,204,511

2,155,072

2

211,178

204,0693$ 2,415,689$ 2,359,141

Stockholders’ equity
Total liabilities andstockholders’ equity

2%

Consolidated Balance Sheets overview
Total assets increased by $56.5 billion or 2%, and total
liabilities increased by $49.4 billion or 2%, from December
31, 2012. The following is a discussion of the significant
changes in the specific line item captions on theConsolidated Balance Sheets during 2013.
Cash and due from banks and deposits with banks
The net increase reflected the placement of the Firm’s
excess funds with various central banks, predominantly
Federal Reserve Banks. For additional information, refer tothe Liquidity Risk Management discussion on pages 168–173 of this Annual Report.
Federal funds sold and securities purchased under resaleagreements; and securities borrowed
The decrease in securities purchased under resaleagreements and securities borrowed was predominantly
due to a shift in the deployment of the Firm’s excess cash by
Treasury.
Trading assets and liabilities – debt and equity
instruments
The decrease in trading assets was driven by client-driven
market-making activity in CIB, which resulted in lower levelsof debt securities. For additional information, refer to Note
3 on pages 195–215 of this Annual Report.
The increase in trading liabilities was driven by client-driven
market-making activity in CIB, which resulted in higher
levels of short positions in debt and equity securities.
Trading assets and liabilities – derivative receivables andpayablesDerivative receivables and payables decreased
predominantly due to reductions in interest rate derivatives
driven by an increase in interest rates and reductions incommodity derivatives due to market movements. The
decreases were partially offset by an increase in equity
derivatives driven by a rise in equity markets.
For additional information, refer to Derivative contracts on
pages 135–136, and Note 3 and Note 6 on pages 195–215
and 220–233, respectively, of this Annual Report.
Securities
The decrease in securities was largely due to repositioning
which resulted in lower levels of corporate debt, non-U.S.
government securities and non-U.S. residential MBS. The
decrease was partially offset by higher levels of U.S.
Treasury and government agency obligations andobligations of U.S. states and municipalities. For additional
information related to securities, refer to the discussion in
the Corporate/Private Equity segment on pages 109–111,
and Note 3 and Note 12 on pages 195–215 and 249–254,
respectively, of this Annual Report.
Loans and allowance for loan losses
Loans increased predominantly due to continued growth inwholesale loans partially offset by a decrease in consumer,

JPMorgan Chase & Co./2013 Annual Report75Management’s discussion and analysis
excluding credit card loans, predominantly due to paydowns
and the charge-off or liquidation of delinquent loans,partially offset by new mortgage and auto originations.
The allowance for loan losses decreased as a result of a$5.5 billion reduction in the consumer allowance, reflecting
the impact of improved home prices on the residential realestate portfolio and improved delinquency trends in theresidential real estate and credit card portfolios. For a moredetailed discussion of the loan portfolio and the allowance
for loan losses, refer to Credit Risk Management on pages
119–141, and Notes 3, 4, 14 and 15 on pages 195–215,
215–218, 258–283 and 284–287, respectively, of thisAnnual Report.
Premises and Equipment
The increase in premises and equipment was largely due toinvestments in CBB in the U.S. and other investments infacilities globally.
Mortgage servicing rights
The increase was predominantly due to originations andchanges in market interest rates, partially offset bycollection/realization of expected cash flows, dispositions,and changes in valuation due to model inputs andassumptions. For additional information on MSRs, see Note
17 on pages 299–304 of this Annual Report.
Other assets
The increase is primarily driven by the implementation ofgross initial margin requirements for certain U.S.
counterparties for exchange-traded derivatives (“ETD”),
higher ETD margin balances, and mandatory clearing for
certain over-the-counter derivative contracts in the U.S.
Deposits
The increase was due to growth in both wholesale andconsumer deposits. The increase in wholesale clientbalances was due to higher short-term deposits as well as
growth in client operating balances. Consumer deposit
balances increased from the effect of continued strong
growth in business volumes and strong customer retention.
For more information on consumer deposits, refer to the
CCB segment discussion on pages 86–97; the Liquidity Risk
Management discussion on pages 168–173; and Notes 3
and 19 on pages 195–215 and 305, respectively, of thisAnnual Report. For more information on wholesale client
deposits, refer to the AM, CB and CIB segment discussions
on pages 106–108, 103–105 and 98–102, respectively, of
this Annual Report.
Federal funds purchased and securities loaned or soldunder repurchase agreements
The decrease was predominantly due to a change in the mixof the Firm’s funding sources. For additional information on
the Firm’s Liquidity Risk Management, see pages 168–173
of this Annual Report.

76

Commercial paper and other borrowed funds
Commercial paper increased slightly due to higher
commercial paper issuance from wholesale funding markets
and an increase in the volume of liability balances related to
CIB’s liquidity management product, whereby clients choose
to sweep their deposits into commercial paper. Other
borrowed funds increased slightly due to higher secured
short-term borrowings to meet short-term funding needs.
For additional information on the Firm’s Liquidity Risk
Management and other borrowed funds, see pages 168–173 of this Annual Report.
Accounts payable and other liabilities
Accounts payable and other liabilities remained relatively
flat compared with the prior year. For additional
information on the Firm’s accounts payable and otherliabilities, see Note 20 on page 305 of this Annual Report.
Beneficial interests issued by consolidated VIEs
Beneficial interests issued by consolidated VIEs decreased
primarily due to unwinds of municipal bond vehicles, net
credit card maturities and a reduction in outstanding
conduit commercial paper held by third parties. For
additional information on Firm-sponsored VIEs and loan
securitization trusts, see Note 16 on pages 288–299 of thisAnnual Report.
Long-term debt
The increase was primarily due to net issuances, which also
reflected the redemption of trust preferred securities in thesecond quarter of 2013. For additional information on the
Firm’s long-term debt activities, see the Liquidity Risk
Management discussion on pages 168–173 of this Annual
Report.
Stockholders’ equity
Total stockholders’ equity increased, predominantly due to
net income; net issuance of preferred stock; and theissuances and commitments to issue under the Firm’s
employee stock-based compensation plans. The increase
was partially offset by the declaration of cash dividends oncommon and preferred stock, repurchases of common stock
and a net decrease in accumulated other comprehensive
income. The net decrease in accumulated othercomprehensive income was primarily related to the decline
in fair value of U.S. government agency issued MBS andobligations of U.S. states and municipalities due to market
changes, as well as net realized gains. For additional
information on the Firm’s capital actions, see Capital actions
on pages 166–167 of this Annual Report.

JPMorgan Chase & Co./2013 Annual Report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 U.S. GAAP.
The Firm is involved with several types of off–balance sheet
arrangements, including through nonconsolidated specialpurpose entities (“SPEs”), which are a type of VIE, andthrough lending-related financial instruments (e.g.,commitments and guarantees).

Special-purpose entities

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. SPEs are an important part of the financial
markets, including the mortgage- and asset-backed
securities and commercial paper markets, as they provide
market liquidity by facilitating investors’ access to specificportfolios of assets and risks. SPEs may be organized astrusts, partnerships or corporations and are typicallyestablished for a single, discrete purpose. SPEs are nottypically operating entities and usually have a limited lifeand no employees. The basic SPE structure involves acompany selling assets to the SPE; the SPE funds thepurchase of those assets by issuing securities to investors.
JPMorgan Chase uses SPEs as a source of liquidity for itself
and its clients by securitizing financial assets, and bycreating investment products for clients. The Firm is
involved with SPEs through multi-seller conduits, investor
intermediation activities, and loan securitizations. See Note
16 on pages 288–299 for further information on thesetypes of SPEs.
The Firm holds capital, as deemed appropriate, against all
SPE-related transactions and related exposures, such asderivative 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. These rules
prohibit employees from self-dealing and acting on behalfof the Firm in transactions with which they or their family
have any significant financial interest.
Implications of a credit rating downgrade to JPMorgan Chase
Bank, N.A.
For certain liquidity commitments to SPEs, JPMorgan Chase
Bank, N.A. could be required to provide funding if its shortterm credit rating were downgraded below specific levels,
primarily “P-1”, “A-1” and “F1” for Moody’s, Standard &Poor’s and Fitch, respectively. These liquidity commitments
support the issuance of asset-backed commercial paper byboth Firm-administered consolidated and third-party

JPMorgan Chase & Co./2013 Annual Reportsponsored nonconsolidated SPEs. In the event of such ashort-term credit rating downgrade, JPMorgan Chase Bank,
N.A., absent other solutions, would be required to provide
funding to the SPE, if the commercial paper could not bereissued as it matured. The aggregate amounts of commercial paper outstanding, issued by both Firm-administeredand third-party sponsored SPEs, that are held by third
parties as of December 31, 2013 and 2012, was $15.5
billion and $18.1 billion, respectively. The aggregate
amounts of commercial paper outstanding could increase in
future periods should clients of the Firm-administeredconsolidated or third-party sponsored nonconsolidated
SPEs draw down on certain unfunded lending-related
commitments. These unfunded lending-related commitments were $9.2 billion and $10.9 billion at December 31,
2013 and 2012, respectively. The Firm could facilitate therefinancing of some of the clients’ assets in order to reduce
the funding obligation. For further information, see thediscussion of Firm-administered multi-seller conduits in
Note 16 on pages 292–293 of this Annual Report.
The Firm also acts as liquidity provider for certain municipal
bond vehicles. The Firm’s obligation to perform as liquidity
provider is conditional and is limited by certain termination
events, which include bankruptcy or failure to pay by themunicipal bond issuer or credit enhancement provider, an
event of taxability on the municipal bonds or the immediate
downgrade of the municipal bond to below investment
grade. See Note 16 on pages 288–299 of this Annual
Report for additional information.

Off–balance sheet lending-related financial
instruments, guarantees, and other commitments
JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to meetthe financing needs of its customers. The contractual
amount of these financial instruments represents the
maximum possible credit risk to the Firm should thecounterparty draw upon the commitment or the Firm berequired to fulfill its obligation under the guarantee, andshould the counterparty subsequently fail to perform
according to the terms of the contract. Most of thesecommitments and guarantees expire without being drawn
or a default occurring. As a result, the total contractual
amount of these instruments is not, in the Firm’s view,
representative of its actual future credit exposure or
funding requirements. For further discussion of lendingrelated financial instruments, guarantees and othercommitments, and the Firm’s accounting for them, seeLending-related commitments on page 135, and Note 29(including the table that presents the related amounts bycontractual maturity as of December 31, 2013) on pages
318–324 of this Annual Report. For a discussion of loan
repurchase liabilities, see Mortgage repurchase liability on
pages 78–79 and Note 29 on pages 318–324, respectively,of this Annual Report.

77

Management’s discussion and analysis

Contractual cash obligations

The accompanying table summarizes, by remaining
maturity, JPMorgan Chase’s significant contractual cash
obligations at December 31, 2013. 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 contractual 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 loan repurchase liabilities, see
Mortgage repurchase liability on pages 78–79 of thisAnnual Report. For further discussion of other obligations,see the Notes to Consolidated Financial Statements in thisAnnual Report.

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

2014

2013
2017-20182015-2016

After 2018

Total

2012
Total

On-balance sheet obligations
Deposits(a)1,269,092 $

11,382 $

2,143 $

3,970 $

1,286,587 $

1,191,776

Federal funds purchased and securities loaned orsold under repurchase agreements$

177,109

2,097

608

1,349

181,163

240,103

Commercial paper

57,848———57,84855,367

Other borrowed funds(a)15,655———

15,655

15,357

Beneficial interests issued by consolidated VIEs

21,57812,567

7,986

5,490

47,621

62,021Long-term debt(a)41,96674,90064,35475,519256,739

231,223(a)Other(b)Total on-balance sheet obligations

2,864

1,214

973

2,669

7,720

7,012

1,586,112

102,160

76,064

88,997

1,853,333

1,802,859

Off-balance sheet obligations
Unsettled reverse repurchase and securities
borrowing agreements(c)38,211———

38,211

34,871

Contractual interest payments(d)7,230

10,363

6,778

23,65048,021

56,280Operating leases(e)

1,936

3,532

2,796

6,002

14,266

14,915Equity investment commitments

516

82

28

1,493

2,119

1,909

Contractual purchases and capital expenditures(g)

1,227

1,042

615

541

3,425

3,052

Obligations under affinity and co-brand programs

921

1,861

447

54

3,283

4,306

Other

11

—

—

—

11

34

50,052

16,880

10,664

31,740109,336

115,367

1,636,164 $

119,040 $

86,728 $120,737 $1,962,669 $

1,918,226(f)

Total off-balance sheet obligations
Total contractual cash obligations$(a) Excludes structured notes where the Firm is not obligated to return a stated amount of principal at the maturity of the notes, but is obligated to return anamount based on the performance of the structured notes.
(b) Primarily includes dividends declared on preferred and common stock, deferred annuity contracts, pension and postretirement obligations and insurance
liabilities. Prior periods were revised to conform with the current presentation.
(c) For further information, refer to unsettled reverse repurchase and securities borrowing agreements in Note 29 on pages 321–322 of this Annual Report.
(d) Includes accrued interest and future contractual interest obligations. Excludes interest related to structured notes where the Firm’s payment obligation isbased on the performance of certain benchmarks.
(e) Includes noncancelable operating leases for premises and equipment used primarily for banking purposes and for energy-related tolling service
agreements. Excludes the benefit of noncancelable sublease rentals of $2.6 billion and $1.9 billion at December 31, 2013 and 2012, respectively. Prior
periods were revised to conform with the current presentation.
(f) At December 31, 2013 and 2012, included unfunded commitments of $215 million and $370 million, respectively, to third-party private equity funds thatare generally fair valued at net asset value as discussed in Note 3 on pages 195–215 of this Annual Report; and $1.9 billion and $1.5 billion of unfunded
commitments, respectively, to other equity investments.
(g) Prior periods were revised to conform with the current presentation.

Mortgage repurchase liability
In connection with the Firm’s mortgage loan sale andsecuritization activities with Fannie Mae and Freddie Mac(the “GSEs”) and other mortgage loan sale and private-label
securitization transactions, the Firm has maderepresentations and warranties that the loans sold meetcertain requirements. The Firm has been, and may be,required to repurchase loans and/or indemnify the GSEs
(e.g., with “make-whole” payments to reimburse the GSEs
for realized losses on liquidated loans) and other investors
for losses due to material breaches of these representations
78

and warranties. To the extent that repurchase demands thatare received relate to loans that the Firm purchased fromthird parties that remain viable, the Firm typically will havethe right to seek a recovery of related repurchase losses
from the third party.
On October 25, 2013, the Firm announced it had reached a$1.1 billion agreement with the Federal Housing FinanceAgency (“FHFA”) to resolve, other than certain limited typesof exposures, outstanding and future mortgage repurchasedemands associated with loans sold to the GSEs from 2000

JPMorgan Chase & Co./2013 Annual Reportto 2008 (“FHFA Settlement Agreement”). The majority ofthe mortgage repurchase demands that the Firm hadreceived from the GSEs related to loans originated from2005 to 2008.

Private label securitizations
The liability related to repurchase demands associated withprivate label securitizations is separately evaluated by the
Firm in establishing its litigation reserves.

The Firm has recognized a mortgage repurchase liability of$681 million and $2.8 billion as of December 31, 2013 and2012, respectively. The amount of the mortgage repurchaseliability at December 31, 2013, relates to repurchase losses
associated with loans sold in connection with loan sale andsecuritization transactions with the GSEs that are notcovered by the FHFA Settlement Agreement (e.g.,
post-2008 loan sale and securitization transactions,mortgage insurance rescissions and certain mortgage
insurance settlement-related exposures, as well as certain
other specific exclusions). At December 31, 2013, the Firm
had outstanding repurchase demands of $330 million andunresolved mortgage insurance rescission notices of $263
million (excluding mortgage insurance rescission notices onloans for which a repurchase demand also has been
received).

On November 15, 2013, the Firm announced it had reached
a $4.5 billion agreement with 21 major institutional
investors to make a binding offer to the trustees of 330
residential mortgage-backed securities trusts issued by
J.P.Morgan, Chase and Bear Stearns (“RMBS TrustSettlement”) to resolve all representation and warranty
claims, as well as all servicing claims, on all trusts issued by
J.P.Morgan, Chase and Bear Stearns between 2005 and2008. The RMBS Trust Settlement may be subject to court
approval. For further information about the RMBS TrustSettlement, see Note 31 on pages 326–332 of this Annual
Report.

The following table summarizes the change in the mortgage
repurchase liability for each of the periods presented.
Summary of changes in mortgage repurchase liability
Year ended December 31,(in millions)
Repurchase liability at beginning of
period

2013

2012

2011

$ 2,811$ 3,557$ 3,285

Net realized losses(a)(b)(1,561)(1,158)(1,263)

Reclassification tolitigation reserve(c)

(179)

—

—

Provision for repurchase losses(d)

(390)

412

1,535

681

$ 2,811$ 3,557

Repurchase liability at end of
period$In addition, from 2005 to 2008, Washington Mutual madecertain loan level representations and warranties inconnection with approximately $165 billion of residential
mortgage loans that were originally sold or deposited into
private-label securitizations by Washington Mutual. Of the$165 billion, approximately $75 billion has been repaid. In
addition, approximately $47 billion of the principal amountof such loans has liquidated with an average loss severity of
59%. Accordingly, the remaining outstanding principalbalance of these loans as of December 31, 2013, wasapproximately $43 billion, of which $10 billion was 60 daysor more past due. The Firm believes that any repurchaseobligations related to these loans remain with the FDIC
receivership.
For additional information regarding the mortgage
repurchase liability, see Note 29 on pages 318–324 of thisAnnual Report.

(a) Presented net of third-party recoveries and includes principal losses
and accrued interest on repurchased loans, “make-whole” settlements,
settlements with claimants, and certain related expense. Make-whole
settlements were $414 million, $524 million and $640 million, for theyears ended December 31, 2013, 2012 and 2011, respectively.
(b) The 2013 amount includes $1.1 billion for the FHFA Settlement
Agreement.
(c) Prior to December 31, 2013, in the absence of a repurchase demand
by a party to the relevant contracts, the Firm’s decision to repurchaseloans from private-label securitization trusts when it determined it had
an obligation to do so was recognized in the mortgage repurchaseliability. Pursuant to the terms of the RMBS Trust Settlement, all
repurchase obligations relating to the subject private-label
securitization trusts, whether resulting from a repurchase demand orotherwise, are now recognized in the Firm’s litigation reserves for thissettlement. The RMBS Trust Settlement is fully accrued as of December
31, 2013.
(d) Included a provision related to new loan sales of $20 million, $112
million and $52 million, for the years ended December 31, 2013,2012 and 2011, respectively.

JPMorgan Chase & Co./2013 Annual Report79Management’s discussion and analysis

CASH FLOWS ANALYSIS
For the years ended December 31, 2013, 2012 and 2011,
cash and due from banks decreased $14.0 billion and $5.9
billion, and increased $32.0 billion, respectively. The
following discussion highlights the major activities andtransactions that affected JPMorgan Chase’s cash flows
during 2013, 2012 and 2011, respectively.
Cash flows from operating activities
JPMorgan Chase’s operating assets and liabilities support
the Firm’s capital markets and lending activities, including
the origination or purchase of loans initially designated as
held-for-sale. Operating assets and liabilities can varysignificantly in the normal course of business due to theamount and timing of cash flows, which are affected byclient-driven and risk management activities, and market
conditions. Management believes cash flows fromoperations, available cash balances and the Firm’s ability togenerate cash through short- and long-term borrowings are
sufficient to fund the Firm’s operating liquidity needs.
For the year ended December 31, 2013, net cash provided
by operating activities was $108.0 billion, and it wassignificantly higher than net income. This resulted from adecrease in trading assets - debt and equity instruments
driven by client-driven market-making activity in CIB, which
resulted in lower levels of debt securities; and an increasein trading liabilities – debt and equity instruments driven byclient-driven market-making activity in CIB, which resulted
in higher levels of short positions in debt and equity
securities. Net cash generated from operating activities also
reflected adjustments for noncash items such as deferredtaxes, depreciation and amortization, and stock-based
compensation. Partially offsetting these cash inflows was
cash used for loans originated and purchased with an initialintent to sell, which was slightly higher than the cash
proceeds received from sales and paydowns of the loans,
and also reflected significantly higher levels of activities
over the prior-year period.
For the year ended December 31, 2012, net cash provided
by operating activities was $25.1 billion. This resulted froma decrease in securities borrowed reflecting a shift in the
deployment of excess cash to resale agreements, as well as
lower client activity in CIB, and lower trading assets derivative receivables, primarily related to the decline in
the U.S. dollar and tightening of credit spreads. Partially
offsetting these cash inflows was a decrease in accounts
payable and other liabilities predominantly due to lower CIB
client balances, and an increase in trading assets - debt andequity instruments driven by client-driven market-making
activity in CIB. Net cash generated from operating activities
was higher than net income largely as a result of
adjustments for noncash items such as depreciation andamortization, provision for credit losses, and stock-based
compensation. Cash used to acquire loans was slightly
higher than cash proceeds received from sales andpaydowns of such loans originated and purchased with an

80

initial intent to sell, and also reflected a lower level ofactivity compared with the prior-year period.
For the year ended December 31, 2011, net cash provided
by operating activities was $95.9 billion, and it wassignificantly higher than net income. This resulted from a
net decrease in trading assets and liabilities – debt andequity instruments, driven by client-driven market-making
activity in CIB; an increase in accounts payable and otherliabilities predominantly due to higher CIB client balances,
and a decrease in accrued interest and accounts
receivables, primarily in CIB, driven by a large reduction incustomer margin receivables due to changes in client
activity. Net cash generated from operating activities also
reflected adjustments for noncash items such as theprovision for credit losses, depreciation and amortization,and stock-based compensation. Additionally, cash provided
from sales and paydowns of loans originated or purchasedwith an initial intent to sell was higher than cash used toacquire such loans. Partially offsetting these cash proceeds
was an increase in securities borrowed, predominantly in
Corporate due to higher excess cash positions at year-end.
Cash flows from investing activities
The Firm’s investing activities predominantly include loans
originated to be held for investment, the investment
securities portfolio and other short-term interest-earning
assets. For the year ended December 31, 2013, net cash of$150.5 billion was used in investing activities. This resulted
from an increase in deposits with banks reflecting theplacement of the Firm’s excess funds with various central
banks, predominantly Federal Reserve banks; andcontinued growth of wholesale loans. Partially offsetting
this cash outflow was a decrease in securities purchased
under resale agreements predominantly due to a shift in the
deployment of the Firm’s excess cash by Treasury; adecrease in consumer loans excluding credit card loans,predominantly due to paydowns and liquidation ofdelinquent loans, partially offset by new mortgage and auto
originations; and proceeds from maturities and sales ofinvestment securities which were higher than the cash used
to acquire new investment securities.
For the year ended December 31, 2012, net cash of $119.8
billion was used in investing activities. This resulted from anincrease in securities purchased under resale agreements
due to deployment of the Firm’s excess cash by Treasury;
higher deposits with banks reflecting placements of the
Firm’s excess cash with various central banks, primarily
Federal Reserve Banks; and higher levels of wholesaleloans, primarily in CB and AM, driven by higher wholesale
activity across most of the Firm’s regions and businesses.
Partially offsetting these cash outflows were a decline in
consumer, excluding credit card, loans predominantly due
to mortgage-related paydowns and portfolio runoff, and a
decline in credit card loans due to higher repayment rates;and proceeds from maturities and sales of AFS securities,

JPMorgan Chase & Co./2013 Annual Reportwhich were higher than the cash used to acquire new AFS
securities.
For the year ended December 31, 2011, net cash of $170.8
billion was used in investing activities. This resulted from asignificant increase in deposits with banks reflecting theplacement of funds with various central banks, including
Federal Reserve Banks, predominantly resulting from theoverall growth in wholesale client deposits; an increase inloans reflecting continued growth in client activity across allof the Firm’s wholesale businesses and regions; netpurchases of AFS securities, largely due to repositioning of
the portfolio in Corporate in response to changes in themarket environment; and an increase in securities
purchased under resale agreements, predominantly in
Corporate due to higher excess cash positions at year-end.
Partially offsetting these cash outflows were a decline in
consumer, excluding credit card, loan balances due to
paydowns and portfolio runoff, and in credit card loans, due
to higher repayment rates, runoff of the Washington Mutual
portfolio and the Firm’s sale of the Kohl’s portfolio.
Cash flows from financing activities
The Firm’s financing activities predominantly include taking
customer deposits, and issuing long-term debt as well as
preferred and common stock. For the year ended
December 31, 2013, net cash provided by financing
activities was $28.3 billion. This increase was driven by
growth in both wholesale and consumer deposits; net
issuances of long-term borrowings, which also reflected theredemption of trust preferred securities in the second
quarter of 2013; and proceeds from the net issuance ofpreferred stock. The increase in wholesale client deposit
balances was due to higher short-term deposits as well as
growth in client operating balances. Consumer deposit
balances increased from the effect of continued strong
growth in business volumes and strong customer retention.
Partially offsetting these cash inflows was a decrease in
securities loaned or sold under repurchase agreements,
predominantly due to a change in the mix of the Firm’s
funding sources; repurchases of common stock; andpayments of cash dividends on common and preferredstock.
For the year ended December 31, 2012, net cash provided
by financing activities was $87.7 billion. This was driven byproceeds from long-term borrowings and a higher level of
securitized credit cards; an increase in deposits due togrowth in both consumer and wholesale deposits; anincrease in federal funds purchased and securities loaned orsold under repurchase agreements due to higher secured
financings of the Firm’s assets; an increase in commercial
paper issuance in the wholesale funding markets to meetshort-term funding needs, partially offset by a decline in thevolume of client deposits and other third-party liability
balances related to CIB’s liquidity management product; anincrease in other borrowed funds due to higher secured andunsecured short-term borrowings to meet short-term
funding needs; and proceeds from the issuance of preferredstock. Partially offsetting these cash inflows were
JPMorgan Chase & Co./2013 Annual Report

redemptions and maturities of long-term borrowings,
including trust preferred securities, and securitized credit
cards; and payments of cash dividends on common andpreferred stock and repurchases of common stock andwarrants.
For the year ended December 31, 2011, net cash provided
by financing activities was $107.7 billion. This was largely
driven by a significant increase in deposits, predominantly
due to an overall growth in wholesale client balances and,to a lesser extent, consumer deposit balances. The increasein wholesale client balances, particularly in CIB and CB, wasprimarily driven by lower returns on other available
alternative investments and low interest rates during 2011,
and in AM, driven by growth in the number of clients andlevel of deposits. In addition, there was an increase incommercial paper due to growth in the volume of liability
balances in sweep accounts related to CIB’s cash
management program. Cash was used to reduce securities
sold under repurchase agreements, predominantly in CIB,
reflecting the lower funding requirements of the Firm basedon lower trading inventory levels, and change in the mix offunding sources; for net repayments of long-termborrowings, including a decrease in long-term debt,
predominantly due to net redemptions and maturities, aswell as a decline in long-term beneficial interests issued byconsolidated VIEs due to maturities of Firm-sponsoredcredit card securitization transactions; to reduce otherborrowed funds, predominantly driven by maturities ofshort-term secured borrowings, unsecured bank notes andshort-term Federal Home Loan Banks ("FHLB") advances;and for repurchases of common stock and warrants, andpayments of cash dividends on common and preferredstock.

81

Management’s discussion and analysis

EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURESThe Firm prepares its consolidated financial statements
using accounting principles generally accepted in the U.S.
(“U.S. GAAP”); these financial statements appear on pages
184–188 of this Annual Report. That presentation, which isreferred 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.

the managed results on a basis comparable to taxable
investments and securities. This non-GAAP financial
measure allows management to assess the comparability ofrevenue arising from both taxable and tax-exempt sources.
The corresponding income tax impact related to tax-exempt
items is recorded within income tax expense. These
adjustments have no impact on net income as reported by
the Firm as a whole or by the lines of business.
Management also uses certain non-GAAP financial
measures at the business-segment level, because it believes
these other non-GAAP financial measures provide
information to investors about the underlying operational
performance and trends of the particular business segment
and, therefore, facilitate a comparison of the businesssegment with the performance of its competitors. NonGAAP financial measures used by the Firm may not becomparable to similarly named non-GAAP financial
measures used by other companies.

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

The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.
2013

2012

2011

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

Reported
Results

Fully taxableequivalentadjustments(a)Managedbasis

Reported
Results

Fully taxableequivalentadjustments(a)Managedbasis

Reported
Results

Fully taxableequivalentadjustments(a)Managedbasis

Other income

$

$

$

$

$

$

$

$

$

3,847

2,495

6,342

4,258

2,116

6,374

2,605

2,003

4,608

Total noninterest revenue

53,2872,495

55,782

52,121

2,116

54,23749,5452,003

51,548Net interest income

43,319697

44,01644,910743

45,65347,689530

48,219Total net revenue

96,606

3,192

99,79897,031

2,859

99,89097,234

2,533

99,767Pre-provision profit

26,1393,192

29,33132,302

2,859

35,161

34,3232,533

36,856

Income before income tax expense

25,914

3,192

29,10628,9172,859

31,776

26,7492,533

29,282

Income tax expense

7,991

3,192

11,183

7,633

2,859

10,492

7,773

2,533

10,306

Overhead ratio

73%

NM

71%

67%

NM

65%

65%

NM

63%

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

Tangible common equity (“TCE”), ROTCE, tangible bookvalue per share (“TBVS”), and Tier 1 common under Basel I
and III rules are each non-GAAP financial measures. TCE
represents the Firm’s common stockholders’ equity (i.e.,
total stockholders’ equity less preferred stock) less goodwill
and identifiable intangible assets (other than MSRs), net of
related deferred tax liabilities. ROTCE measures the Firm’s
earnings as a percentage of TCE. TBVS represents the Firm’s
tangible common equity divided by period-end commonshares. Tier 1 common under Basel I and III rules are usedby management, along with other capital measures, toassess and monitor the Firm’s capital position. TCE, ROTCE,
and TBVS are meaningful to the Firm, as well as investors
and analysts, in assessing the Firm’s use of equity. The Firm
uses ROTCE, a non-GAAP financial measure, to evaluate its
use of equity and to facilitate comparisons withcompetitors. For additional information on Tier 1 common
under Basel I and III, see Regulatory capital on pages 161–
165 of this Annual Report.

82

Calculation of certain U.S. GAAP and non-GAAP metrics
The following U.S. GAAP and non-GAAP measures, we calculated asfollows:
Return on common equity
Net income* / Average common stockholders’ equity
Return on tangible common equity
Net income* / Average tangible common equity
Return on assets
Reported net income / Total average assets
Return on risk-weighted assets
Annualized earnings / Average risk-weighted assets
Overhead ratio
Total noninterest expense / Total net revenue* Represents net income applicable to common equity

JPMorgan Chase & Co./2013 Annual ReportAverage tangible common equity
Year ended December 31,(in millions)
Common stockholders’ equity

2013

2012

2011

$ 196,409$ 184,352$ 173,266

48,102

48,176

48,632

1,950

2,833

3,632

Less: Goodwill
Less: Certain identifiableintangible assets
Add: Deferred tax liabilities

2,885

2,754

2,635

$ 149,242$ 136,097$ 123,637(a)Tangible common equity(a)Represents deferred tax liabilities related to tax-deductible goodwill
and to identifiable intangibles created in nontaxable transactions,which are netted against goodwill and other intangibles whencalculating TCE.

Core net interest income
In addition to reviewing net interest income on a managedbasis, management also reviews core net interest income toassess the performance of its core lending, investing(including asset-liability management) and deposit-raising
activities (which excludes the impact of CIB’s market-based
activities). The core data presented below are non-GAAP
financial measures due to the exclusion of CIB’s marketbased net interest income and the related assets.
Management believes this exclusion provides investors andanalysts a more meaningful measure by which to analyze
the non-market-related business trends of the Firm andprovides a comparable measure to other financial
institutions that are primarily focused on core lending,investing and deposit-raising activities.
Core net interest income data
Year ended December 31,(in millions, except rates)
Net interest income - managedbasis(a)(b)

2013

2012

$

44,016

Core net interest income(a)$39,037

Average interest-earning assets$ 1,970,231$ 1,842,417$ 1,761,355

504,218

499,339

519,655$ 1,466,013$ 1,343,078$ 1,241,700

Less: Market-based net interest
incomeLess: Average market-based earning
assetsCore average interest-earning
assets$45,653$39,866

2011

4,979

$

48,219$40,890

5,787

7,329

Net interest yield on interest-earning
assets - managed basis

2.23%

2.48%

2.74%

Net interest yield on market-based
activities

0.99

1.16

1.41

Core net interest yield on core
average interest-earning assets

2.66%

2.97%

3.29%

2013 compared with 2012
Core net interest income decreased by $829 million to$39.0 billion for 2013, and core average interest-earning
assets increased by $122.9 billion in 2013 to $1,466.0
billion. The decline in net interest income in 2013 primarilyreflected the impact of the runoff of higher yielding loans
and originations of lower yielding loans. The decrease in net
interest income was partially offset by lower long-term debt
and other funding costs. The increase in average interestearning assets reflected the impact of higher deposits withbanks. The core net interest yield decreased by 31 basis
points to 2.66% in 2013, primarily reflecting the impact ofa significant increase in deposits with banks and lower loan
yields, partially offset by the impact of lower long-term debt
yields and deposit rates.
2012 compared with 2011
Core net interest income decreased by $1.0 billion to $39.9
billion for 2012, and core average interest-earning assets
increased by $101.4 billion in 2012 to $1,343.1 billion.
The decline in net interest income in 2012 reflected theimpact of the runoff of higher-yielding loans, faster
prepayment of mortgage-backed securities, and limited
reinvestment opportunities, as well as the impact of lower
interest rates across the Firm’s interest-earning assets. The
decrease in net interest income was partially offset by lower
deposit and other borrowing costs. The increase in averageinterest-earning assets was driven by higher deposits withbanks and other short-term investments, increased levels ofloans, and an increase in investment securities. The core netinterest yield decreased by 32 basis points to 2.97% in
2012, primarily driven by the runoff of higher-yielding
loans, lower customer loan rates, higher financing costs
associated with mortgage-backed securities, and limited
reinvestment opportunities, slightly offset by lower
customer deposit rates.

(a) Interest includes the effect of related hedging derivatives. Taxableequivalent amounts are used where applicable.
(b) For a reconciliation of net interest income on a reported and managedbasis, see reconciliation from the Firm’s reported U.S. GAAP results tomanaged basis on page 82 of this Annual Report.

JPMorgan Chase & Co./2013 Annual Report83Management’s discussion and analysis

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 Management. In addition,
there is a Corporate/Private Equity segment.
The business segments are determined based on the
products and services provided, or the type of customer

Description of business segment reporting methodology
Results of the business segments are intended to reflect
each segment as if it were essentially a stand-alone
business. The management reporting process that derives
business segment results allocates income and expense
using market-based methodologies. The Firm continues toassess the assumptions, methodologies and reportingclassifications used for segment reporting, and further
refinements may be implemented in future periods.
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.
Funds transfer pricing
Funds transfer pricing is used to allocate interest income
and expense to each business and transfer the primaryinterest rate risk exposures to the Treasury group within
Corporate/Private Equity. The allocation process is unique

84

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 82–83 of this Annual Report.

to each business segment and considers the interest raterisk, liquidity risk and regulatory requirements of thatsegment as if it were operating independently, and ascompared with its stand-alone peers. This process isoverseen by senior management and reviewed by the Firm’s
Asset-Liability Committee (“ALCO”).
Business segment capital allocation changes
Each business segment is allocated capital by taking into
consideration stand-alone peer comparisons, regulatory
capital requirements (as estimated under Basel III) andeconomic risk measures. The amount of capital assigned toeach business is referred to as equity. Effective January 1,
2013, the Firm refined the capital allocation framework toalign it with the line of business structure described above.
The increase in equity levels for the lines of businesses islargely driven by evolving regulatory requirements and thehigher capital targets the Firm has established under the
Basel III Advanced Approach. For further information about
these capital changes, see Line of business equity on pages
165–166 of this Annual Report.

JPMorgan Chase & Co./2013 Annual ReportExpense allocation
Where business segments use services provided by support
units within the Firm, or another business segment, thecosts of those services are allocated to the respective
business segments. The expense is generally allocatedbased on actual cost and upon usage of the services
provided. In contrast, certain other expense related tocertain corporate functions, or to certain technology andoperations, are not allocated to the business segments andare retained in Corporate. Retained expense includes:
parent company costs that would not be incurred if thesegments were stand-alone businesses; adjustments toalign certain corporate staff, technology and operations
allocations with market prices; and other items not alignedwith a particular business segment.

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

Total net revenue(in millions)

Total noninterest expense

2013

2012

2011

2013

$ 46,026 $

49,884 $45,619$ 27,842 $Corporate & Investment Bank

34,22534,32633,984

21,744

21,85021,97912,481

12,476

12,005

Commercial Banking

6,973

6,825

6,418

2,610

2,389

2,278

4,363

4,436

4,140

Asset Management

11,320

9,946

9,543

8,016

7,104

7,002

3,304

2,842

2,541

Corporate/Private Equity(a)1,254(1,091)

4,203

10,255

4,559

4,015

(9,001)(5,650)188$ 99,798 $

99,890 $99,767$ 70,467 $Consumer & Community Banking(a)TotalYear ended December 31,

Provision for credit losses(in millions, except ratios)

2013

2012

2011

Consumer & Community Banking

2011

28,827 $ 27,637

64,729 $ 62,911

2013

2012

Return on equity
2011

2013

2012

2011

335 $

3,774 $

7,620

6,105

23%

25%

15%

(479)

(285)

8,546

8,406

7,993

15

18

17

Commercial Banking

85

41

208

2,575

2,646

2,367

19

28

30

Asset Management

65

86

67

2,031

1,703

1,592

23

24

25

(5,978)(2,022)

919

NM

NM

NM

$ 17,923 $ 21,284 $ 18,976

9%

11%

11%

Corporate & Investment Bank

Corporate/Private Equity
Total

(a)

$

(28)

(37)

(36)

225 $

3,385 $

7,574

$ 10,749 $ 10,551 $2011$ 29,331 $ 35,161 $ 36,856

Net income/(loss)
2013

2012

$ 18,184 $ 21,057 $ 17,982

(232)

(a)

$

2012

Pre-provision profit/(loss)(a) The 2012 and 2011 data for certain income statement line items (predominantly net interest income, compensation and noncompensation expense) were revised to reflect thetransfer of certain technology and operations, as well as real estate-related functions and staff, from Corporate/Private Equity to CCB, effective January 1, 2013.

JPMorgan Chase & Co./2013 Annual Report85Management’s discussion and analysis

CONSUMER & COMMUNITY BANKING
Consumer & Community Banking (“CCB”) serves
consumers and businesses through personal service atbank branches and through ATMs, online, mobile andtelephone banking. CCB is organized into Consumer &Business Banking, Mortgage Banking (including
Mortgage Production, Mortgage Servicing and Real
Estate Portfolios) and Card, Merchant Services & Auto(“Card”). Consumer & Business Banking offers deposit
and investment products and services to consumers,
and lending, deposit, and cash management andpayment solutions to small businesses. Mortgage
Banking includes mortgage origination and servicing
activities, as well as portfolios comprised of residential
mortgages and home equity loans, including the PCI
portfolio acquired in the Washington Mutualtransaction. Card issues credit cards to consumers andsmall businesses, provides payment services tocorporate and public sector clients through its
commercial card products, offers payment processing
services to merchants, and provides auto and student
loan services.
Selected income statement data(a)Year ended December 31,(in millions, except ratios)

2013

2012

2011

Lending- and deposit-related fees

$ 2,983$ 3,121$ 3,219

Asset management,
administration and commissions

2,116

2,093

2,046

Mortgage fees and related income

5,195

8,680

2,714

Card income

5,785

5,446

6,152

All other income

1,473

1,473

1,183

Noninterest revenue

17,552

20,813

15,314

Net interest income

28,47429,07130,305

Total net revenue

46,02649,88445,619

335

3,774

7,620

Compensation expense

11,686

11,632

10,329Noncompensation expense

15,74016,42016,669Amortization of intangibles

416

775

639

Total noninterest expense

27,842

28,827

27,637

Income before income tax
expense17,84917,283

10,362

Income tax expense

7,100

6,732

4,257

$ 10,749$10,551$ 6,105

Revenue

Provision for credit losses
Noninterest expense

Net income
Financial ratios
Return on common equity

23%

25%

15%

Overhead ratio

60

58

61

(a) The 2012 and 2011 data for certain income statement line items(predominantly net interest income, compensation and noncompensation
expense) were revised to reflect the transfer of certain technology andoperations, as well as real estate-related functions and staff, from Corporate/
Private Equity to CCB, effective January 1, 2013.

86

2013 compared with 2012
Consumer & Community Banking net income was $10.7
billion, an increase of $198 million, or 2%, compared withthe prior year, due to lower provision for credit losses andlower noninterest expense, predominantly offset by lower
net revenue.
Net revenue was $46.0 billion, a decrease of $3.9 billion, or
8%, compared with the prior year. Net interest income was$28.5 billion, down $597 million, or 2%, driven by lower
deposit margins, lower loan balances due to net portfolio
runoff and spread compression in Credit Card, largely offset
by higher deposit balances. Noninterest revenue was $17.6
billion, a decrease of $3.3 billion, or 16%, driven by lower
mortgage fees and related income, partially offset by higher
card income.
The provision for credit losses was $335 million, comparedwith $3.8 billion in the prior year. The current-year
provision reflected a $5.5 billion reduction in the allowance
for loan losses and total net charge-offs of $5.8 billion. The
prior-year provision reflected a $5.5 billion reduction in theallowance for loan losses and total net charge-offs of $9.3
billion, including $800 million of incremental charge-offs
related to regulatory guidance. For more information,
including net charge-off amounts and rates, see Consumer
Credit Portfolio on pages 120–129 of this Annual Report.
Noninterest expense was $27.8 billion, a decrease of $985
million, or 3%, from the prior year, driven by lower
mortgage servicing expense, partially offset by investments
in Chase Private Client expansion, higher non-MBS related
legal expense in Mortgage Production, higher auto leasedepreciation, and costs related to the control agenda.
2012 compared with 2011
Consumer & Community Banking net income was $10.6
billion, up 73% when compared with the prior year. The
increase was driven by higher net revenue and lower
provision for credit losses, partially offset by higher
noninterest expense.
Net revenue was $49.9 billion, up $4.3 billion, or 9%,
compared with the prior year. Net interest income was$29.1 billion, down $1.2 billion, or 4%, driven by lower
deposit margins and lower loan balances due to portfolio
runoff, largely offset by higher deposit balances.
Noninterest revenue was $20.8 billion, up $5.5 billion, or
36%, driven by higher mortgage fees and related income,partially offset by lower debit card revenue, reflecting theimpact of the Durbin Amendment.
The provision for credit losses was $3.8 billion comparedwith $7.6 billion in the prior year. The current-year
provision reflected a $5.5 billion reduction in the allowance
for loan losses due to improved delinquency trends andreduced estimated losses in the real estate and credit cardloan portfolios. Current-year total net charge-offs were $9.3
billion, including $800 million of incremental charge-offs

JPMorgan Chase & Co./2013 Annual Reportrelated to regulatory guidance. Excluding these charge-offs,
net charge-offs during the year would have been $8.5
billion compared with $11.8 billion in the prior year. For
more information, including net charge-off amounts andrates, see Consumer Credit Portfolio on pages 120–129 ofthis Annual Report.
Noninterest expense was $28.8 billion, an increase of $1.2
billion, or 4%, compared with the prior year, driven byhigher production expense reflecting higher volumes, andinvestments in sales force, partially offset by lower costs
related to mortgage-related matters and lower marketing
expense in Card.
Selected metrics
As of or for the year ended
December 31,(in millions, except
headcount)

2013

2012

2011

$ 452,929$ 467,282$ 486,697

393,351

402,963425,581

7,772

18,801

12,796

Total loans

401,123

421,764

438,377

Deposits

464,412438,517397,868

Equity46,00043,00041,000456,468

467,641

491,035

Loans retained

392,797

408,559

429,975

Loans held-for-sale andloans at fair value(b)15,81218,006

17,187

Total loans

408,609426,565

447,162

Deposits

453,304

413,948

382,702

Equity46,00043,00041,000

Headcount(a)151,333

164,391

166,053

Selected balance sheet
data (period-end)(a)Total assets
Loans:
Loans retained
Loans held-for-sale andloans at fair value(b)Selected balance sheet
data (average)(a)Total assets
Loans:(a) The 2012 and 2011 data for certain balance sheet line items (predominantly
total assets) as well as headcount were revised to reflect the transfer of certain
technology and operations, as well as real estate-related functions and staff,
from Corporate/Private Equity to CCB, effective January 1, 2013.
(b) Predominantly consists of prime mortgages originated with the intent to sell thatare accounted for at fair value and classified as trading assets on theConsolidated Balance Sheets.

JPMorgan Chase & Co./2013 Annual Report

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

2013

2012

2011

9,280

$ 11,815

7,455

9,114

7,354

40

39

103

7,495

9,153

7,457

8,149
12,201
1.48%

9,830
17,752
2.27%

8,292
23,256
2.75%

1.73

2.68

3.27

3.10

4.41

5.46

2.36

3.51

4.87

57

72

143

2.74

3.12

2.44

3.40

3.91

3.10

5,630
19,211

5,614
18,6995,508
17,23533,742

31,11429,74915,62912,3598,203

Credit data and quality statistics
Net charge-offs(a)(b)Nonaccrual loans:
Nonaccrual loans retained
Nonaccrual loans held-for-saleand loans at fair value
Total nonaccrual loans(c)(d)(e)(f)Nonperforming assets(c)(d)(e)(f)Allowance for loan losses(a)Net charge-off rate(b)(g)
Net charge-off rate, excluding PCI
loans(a)(b)(g)Allowance for loan losses toperiod-end loans retained
Allowance for loan losses toperiod-end loans retained,
excluding PCI loans(h)Allowance for loan losses tononaccrual loans retained,
excluding credit card(c)(f)(h)Nonaccrual loans to total periodend loans, excluding
credit card(f)Nonaccrual loans to total periodend loans, excluding credit cardand PCI loans(c)(f)Business metrics
Number of:
Branches
ATMs
Active online customers (inthousands)
Active mobile customers (inthousands)

$

5,826

$

(a) Net charge-offs and net charge-off rates for the year ended December 31, 2013
excluded $53 million of write-offs in the PCI portfolio. These write-offs decreased theallowance for loan losses for PCI loans. For further information, see Consumer Credit
Portfolio on pages 120–129 of this Annual Report.
(b) Net charge-offs and net charge-off rates for the year ended December 31, 2012,
included $800 million of charge-offs, recorded in accordance with regulatory guidanceon certain loans discharged under Chapter 7 bankruptcy and not reaffirmed by theborrower (“Chapter 7 loans”) to be charged off to the net realizable value of thecollateral and to be considered nonaccrual, regardless of their delinquency status.
Excluding these charges-offs, net charge-offs for the year ended December 31, 2012,
would have been $8.5 billion and excluding these charge-offs and PCI loans, the net
charge-off rate for the year ended December 31, 2012, would have been 2.45%. For
further information, see Consumer Credit Portfolio on pages 120–129 of this Annual
Report.
(c) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as
they are all performing.
(d) Certain mortgages originated with the intent to sell are classified as trading assets on
the Consolidated Balance Sheets.
(e) At December 31, 2013, 2012 and 2011, nonperforming assets excluded: (1) mortgage
loans insured by U.S. government agencies of $8.4 billion, $10.6 billion, and $11.5
billion, respectively, that are 90 or more days past due; (2) real estate owned insured
by U.S. government agencies of $2.0 billion, $1.6 billion, and $954 million,
respectively; and (3) student loans insured by U.S. government agencies under theFederal Family Education Loan Program (“FFELP”) of $428 million, $525 million, and$551 million, respectively, that are 90 or more days past due. These amounts havebeen excluded from nonaccrual loans based upon the government guarantee.
(f) Nonaccrual loans included $3.0 billion of loans at December 31, 2012, based uponregulatory guidance. For further information, see Consumer Credit Portfolio on pages
120–129 of this Annual Report.
(g) Loans held-for-sale and loans accounted for at fair value were excluded whencalculating the net charge-off rate.
(h) An allowance for loan losses of $4.2 billion at December 31, 2013, and $5.7 billion at
December 31, 2012 and 2011 was recorded for PCI loans; these amounts were also
excluded from the applicable ratios.

87

Management’s discussion and analysis
Consumer & Business Banking
Selected income statement data(a)Year ended December 31,(in millions, except ratios)

2013

2012

2011

$ 2,942$ 3,068$ 3,160

Asset management,
administration andcommissions

1,815

1,638

1,561

Card income

1,495

1,353

2,024

492

498

473

Noninterest revenue

6,744

6,557

7,218

Net interest income

10,566

10,594

10,732

Total net revenue

17,31017,151

17,950

347

311

419

Noninterest expense

12,162

11,49011,336

Income before income tax
expense

4,801

5,350

6,195

$ 2,881$ 3,203$ 3,699

Revenue
Lending- and deposit-related
fees

All other income

Provision for credit losses

Net income
Return on common equity

26%

36%

39%

Overhead ratio

70

67

63

Overhead ratio, excluding core
deposit intangibles(b)

69

66

62

$ 11,000$ 9,000$ 9,500

Equity (period-end andaverage)(a) The 2012 and 2011 data for certain income statement line items wererevised to reflect the transfer of certain functions and staff from
Corporate/Private Equity to CCB, effective January 1, 2013.
(b) Consumer & Business Banking (“CBB”) uses the overhead ratio(excluding the amortization of core deposit intangibles (“CDI”)), a nonGAAP financial measure, to evaluate the underlying expense trends ofthe business. Including CDI amortization expense in the overhead ratio
calculation would result in a higher overhead ratio in the earlier years
and a lower overhead ratio in later years; this method would therefore
result in an improving overhead ratio over time, all things remaining
equal. This non-GAAP ratio excluded CBB’s CDI amortization expense
related to prior business combination transactions of $163 million,$200 million, and $238 million for the years ended December 31,
2013, 2012 and 2011, respectively.

2013 compared with 2012
Consumer & Business Banking net income was $2.9 billion,a decrease of $322 million, or 10%, compared with theprior year, due to higher noninterest expense, partially
offset by higher noninterest revenue.
Net revenue was $17.3 billion, up 1% compared with theprior year. Net interest income was $10.6 billion, flatcompared with the prior year, driven by higher deposit
balances, offset by lower deposit margin. Noninterest
revenue was $6.7 billion, an increase of 3%, driven byhigher investment sales revenue and debit card revenue,
partially offset by lower deposit-related fees.

2012 compared with 2011
Consumer & Business Banking net income was $3.2 billion,a decrease of $496 million, or 13%, compared with theprior year. The decrease was driven by lower net revenue
and higher noninterest expense, partially offset by lower
provision for credit losses.
Net revenue was $17.2 billion, down 4% from the prioryear. Net interest income was $10.6 billion, down 1% fromthe prior year, driven by the impact of lower deposit
margins, predominantly offset by higher deposit balances.
Noninterest revenue was $6.6 billion, down 9% from theprior year, driven by lower debit card revenue, reflecting theimpact of the Durbin Amendment.
The provision for credit losses was $311 million, comparedwith $419 million in the prior year. The current-year
provision reflected a $100 million reduction in theallowance for loan losses. Net charge-offs were $411 million
compared with $494 million in the prior year.
Noninterest expense was $11.5 billion, up 1% from theprior year, resulting from investment in the sales force andnew branch builds.
Selected metrics
As of or for the year
ended December 31,(in millions, except
ratios)

2013

2012

2011

Business metrics
Business banking
origination volume$

Period-end loans

5,148

$

6,542

$

5,827

19,416

18,883

17,652Checking

187,182

170,354

147,821

Savings

238,223

216,422

191,891

Time and other

26,02231,75336,746

Total period-end
deposits

451,427

418,529

376,458

Average loans

18,844

18,104

17,121

Checking

176,005

153,422

136,602

Savings

229,341

204,449

182,587

Period-end deposits:(a)Average deposits:(a)Time and otherTotal average deposits
Deposit margin
Average assets(a)29,22734,224

41,577434,573

392,095

360,766

2.32%$

37,174

2.57%$

34,431

2.82%$

32,886(a) The 2012 and 2011 data for certain balance sheet line items wererevised to reflect the transfer of certain functions and staff from
Corporate/Private Equity to CCB, effective January 1, 2013.

The provision for credit losses was $347 million, comparedwith $311 million in the prior year.
Noninterest expense was $12.2 billion, up 6% from theprior year, reflecting continued investments in the business,and costs related to the control agenda.

88

JPMorgan Chase & Co./2013 Annual ReportSelected metrics
As of or for the year ended
December 31,(in millions, except ratios andwhere otherwise noted)

2013

2012

2011

Credit data and quality statistics
Net charge-offs$

Net charge-off rate
Allowance for loan losses

337

$

411

1.79%
$

Nonperforming assets

707

$

2.27%
$

698

494
2.89%

$

798

391

488

710

Investment sales volume$ 35,050$ 26,036$ 22,716

Client investment assets

188,840

158,502

137,853

Retail branch business metrics% managed accounts

36%

29%

24%

Number of:
Chase Private Client
locations

2,149

1,218

262

Personal bankers

23,58823,67424,308

Sales specialists

5,740

6,076

6,017

Client advisors

3,044

2,963

3,201

Chase Private Clients

215,888

105,700

21,723

Accounts (in thousands)(a)29,43728,073

26,626(a) Includes checking accounts and Chase Liquid cards (launched in thesecond quarter of 2012).
SM

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

2013

2012

2011

$ 5,195$ 8,680$ 2,714

283

475

490

Noninterest revenue

5,478

9,155

3,204

Net interest income

4,548

4,808

5,324

Total net revenue

10,026

13,963

8,528

Provision for credit losses(2,681)

(490)

3,580

Noninterest expense

7,602

9,121

8,256

RevenueMortgage fees and related
incomeAll other income

Income/(loss) before income
tax expense/(benefit)
Net income/(loss)

5,105

5,332

(3,308)$ 3,082$ 3,341$ (2,138)

Return on equity

16%

Overhead ratio

76

65

97

Equity (period-end and average) $ 19,500$ 17,500$15,500

JPMorgan Chase & Co./2013 Annual Report

19%

(14)%

2013 compared with 2012
Mortgage Banking net income was $3.1 billion, a decreaseof $259 million, or 8%, compared with the prior year,
driven by lower net revenue, predominantly offset by ahigher benefit from the provision for credit losses and lower
noninterest expense.
Net revenue was $10.0 billion, a decrease of $3.9 billion
compared with the prior year. Net interest income was $4.5
billion, a decrease of $260 million, or 5%, driven by lower
loan balances due to net portfolio runoff. Noninterest
revenue was $5.5 billion, a decrease of $3.7 billion, driven
by lower mortgage fees and related income.
The provision for credit losses was a benefit of $2.7 billion,
compared with a benefit of $490 million in the prior year.
The current year reflected a $3.8 billion reduction in theallowance for loan losses due to continued improvement inhome prices and delinquencies. The prior year included a$3.9 billion reduction in the allowance for loan losses.
Noninterest expense was $7.6 billion, a decrease of $1.5
billion, or 17%, from the prior year, due to lower servicing
expense, partially offset by higher non-MBS related legal
expense in Mortgage Production.
2012 compared with 2011
Mortgage Banking net income was $3.3 billion, comparedwith a net loss of $2.1 billion in the prior year. The increase
was driven by higher net revenue and lower provision for
credit losses, partially offset by higher noninterest expense.
Net revenue was $14.0 billion, up $5.4 billion, or 64%,
compared with the prior year. Net interest income was $4.8
billion, down $516 million, or 10%, resulting from lower
loan balances due to net portfolio runoff. Noninterest
revenue was $9.2 billion, up $6.0 billion compared with theprior year, driven by higher mortgage fees and related
income.
The provision for credit losses was a benefit of $490
million, compared with a provision expense of $3.6 billion
in the prior year. The current year reflected a $3.85 billion
reduction in the allowance for loan losses due to improved
delinquency trends and lower estimated losses.
Noninterest expense was $9.1 billion, an increase of $865
million, or 10%, compared with the prior year, driven byhigher production expense reflecting higher volumes,
partially offset by lower costs related to mortgage-related
matters.

89

Management’s discussion and analysis

Functional results

Selected income statement data

Year ended December 31,(in millions, except ratios)Year ended December 31,
2013

2012

2011

Mortgage Production
Production revenue
Production-related net interest& other income
Production-related revenue,
excluding repurchase(losses)/benefits$ 2,673$ 5,783$ 3,395

909

787

840

(in millions)2013

Production revenue$

Repurchase (losses)/benefits
Net production revenue

6,570

4,235

3,088

2,747

1,895

Income, excluding
repurchase (losses)/
benefits

494

3,823

2,340

Loan servicing revenue

Repurchase (losses)/benefits

331

(272)

(1,347)

Income before income tax
expense

825

3,551

993

Changes in MSR asset fairvalue due to collection/
realization of expectedcash flows
Total operating revenue

2,673

$

5,783

$

3,395

331

(272)

(1,347)

3,004

5,511

2,048

3,552

3,772

4,134

(1,094)(1,222)(1,904)

2,458

2,550

2,230

2,119

(587)

(5,390)

(511)

(46)

(1,727)

Net mortgage servicing
revenue:
Operating revenue:

Mortgage Servicing
Loan servicing revenue

2011

Net production revenue:

3,582

Production expense(a)2012

Supplemental mortgage feesand related income details

Risk management:

3,552

3,772

4,134

Servicing-related net interest &other income

411

407

390

Servicing-related revenue

3,963

4,179

4,524

Changes in MSR asset fair value
due to collection/realization of
expected cash flows(1,094)(1,222)(1,904)

Default servicing expense

2,069

3,707

3,814

Other changes in MSR asset
fair value due to other
inputs and assumptions inmodel(b)Changes in derivative fairvalue and other(1,875)

1,252

5,553

Core servicing expense

904

1,033

1,031

Total risk management

(267)

619

(1,564)(104)(1,783)(2,225)

Total net mortgage servicing
revenue

2,191

3,169

666

MSR risk management,
including related net interest
income/(expense)

(268)

616

(1,572)

Income/(loss) before income
tax expense/(benefit)(372)(1,167)(3,797)

Income/(loss), excluding MSR
risk management

Real Estate Portfolios
Noninterest revenue

(209)

43

38

Net interest income

3,721

4,049

4,554

Total net revenue

3,512

4,092

4,592

Provision for credit losses(2,693)

(509)

3,575

Noninterest expense

1,553

1,653

1,521

4,652

2,948

(504)

Mortgage Banking income/(loss)
before income tax expense/$ 5,105(benefit)Mortgage Banking net income/(loss)$ 3,082$ 5,332$ (3,308)$ 3,341$ (2,138)

Income/(loss) before income
tax expense/(benefit)

Changes in MSR asset fairvalue due to market interest
rates and other(a)Mortgage fees and related
income

$

5,195

$

8,680

$

2,714

(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).

Overhead ratios
Mortgage Production

79%

43%

65%

Mortgage Servicing

114

133

462

Real Estate Portfolios

44

40

33

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

90

JPMorgan Chase & Co./2013 Annual ReportNet production revenue includes net gains or losses on
originations and sales of mortgage loans, other productionrelated fees and losses related to the repurchase of previouslysold loans.
Net mortgage servicing revenue includes the following
components:(a) Operating revenue predominantly represents the return on
Mortgage 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 to thecollection or realization of expected cash flows.
(b) Risk management represents the components ofMortgage Servicing’s MSR asset that are subject to ongoingrisk management activities, together with derivatives andother instruments used in those risk management activities
Mortgage origination channels comprise the following:
Retail – Borrowers who buy or refinance a home through directcontact with a mortgage banker employed by the Firm using abranch office, the Internet or by phone. Borrowers are
frequently referred to a mortgage banker by a banker in a Chasebranch, real estate brokers, home builders or other third parties.
Wholesale – Includes loans guaranteed by the U.S. Departmentof Agriculture under its Section 502 Guaranteed Loan programthat serves low-and-moderate income families in small ruralcommunities.
Correspondent – Banks, thrifts, other mortgage banks and otherfinancial institutions that sell closed loans to the Firm.

2013 compared with 2012
Mortgage Production pretax income was $825 million, adecrease of $2.7 billion from the prior year, reflecting lower
margins, lower volumes and higher legal expense, partially
offset by a benefit in repurchase losses. Production-related
revenue, excluding repurchase losses, was $3.6 billion, adecrease of $3.0 billion, or 45%, from the prior year,
largely reflecting lower margins and lower volumes fromrising rates. Production expense was $3.1 billion, an
increase of $341 million from the prior year, due to higher
non-MBS related legal expense and higher compensationrelated expense. Repurchase losses for the current year
reflected a benefit of $331 million, compared with
repurchase losses of $272 million in the prior year. The
current year reflected a reduction in repurchase liability
largely as a result of the settlement with the GSEs. For
further information, see Mortgage repurchase liability on
pages 78–79 of this Annual Report.
Mortgage Servicing pretax loss was $372 million,
compared with a pretax loss of $1.2 billion in the prior year,
driven by lower expense, partially offset by mortgage
servicing rights (“MSR”) risk management loss. Mortgage
net servicing-related revenue was $2.9 billion, a decreaseof $88 million. MSR risk management was a loss of $268
million, compared with income of $616 million in the prioryear, driven by the net impact of various changes in model
inputs and assumptions. See Note 17 on pages 299–304 of
this Annual Report for further information regarding
changes in value of the MSR asset and related hedges.
JPMorgan Chase & Co./2013 Annual Report

Servicing expense was $3.0 billion, a decrease of $1.8
billion from the prior year, reflecting lower costs associatedwith the Independent Foreclosure Review and lower
servicing headcount.
Real Estate Portfolios pretax income was $4.7 billion, up$1.7 billion from the prior year, due to a higher benefit
from the provision for credit losses, partially offset by lower
net revenue. Net revenue was $3.5 billion, a decrease of$580 million, or 14%, from the prior year. This decrease
was due to lower net interest income, resulting from lower
loan balances due to net portfolio runoff, and lower
noninterest revenue due to higher loan retention. The
provision for credit losses was a benefit of $2.7 billion,
compared with a benefit of $509 million in the prior year.
The current-year provision reflected a $3.8 billion reductionin the allowance for loan losses, $2.3 billion from the noncredit-impaired allowance and $1.5 billion from thepurchased credit-impaired allowance, reflecting continued
improvement in home prices and delinquencies. The prioryear provision included a $3.9 billion reduction in theallowance for loan losses from the non credit-impaired
allowance. Net charge-offs were $1.1 billion, compared with
$3.3 billion in the prior year. Prior-year total net chargeoffs included $744 million of incremental charge-offs
reported in accordance with regulatory guidance on certain
loans discharged under Chapter 7 bankruptcy. See
Consumer Credit Portfolio on pages 120–129 of this Annual
Report for the net charge-off amounts and rates.
Noninterest expense was $1.6 billion, a decrease of $100
million, or 6%, compared with the prior year, driven bylower foreclosed asset expense due to lower foreclosure
inventory, largely offset by higher FDIC-related expense.
2012 compared with 2011
Mortgage Production pretax income was $3.6 billion, an
increase of $2.6 billion compared with the prior year.
Mortgage production-related revenue, excluding repurchaselosses, was $6.6 billion, an increase of $2.3 billion, or 55%,
from the prior year. These results reflected wider margins,
driven by favorable market conditions, and higher volumes
due to historically low interest rates and the Home
Affordable Refinance Programs (“HARP”). Production
expense, including credit costs, was $2.7 billion, an
increase of $852 million, or 45%, reflecting higher volumes
and additional litigation costs. Repurchase losses were$272 million, compared with $1.3 billion in the prior year.
The current-year reflected a reduction in the repurchaseliability of $683 million compared with a build of $213
million in the prior year, primarily driven by improved curerates on Agency repurchase demands and lower
outstanding repurchase demand pipeline. For further
information, see Mortgage repurchase liability on pages 78–
79 of this Annual Report.
Mortgage Servicing reported a pretax loss of $1.2 billion,
compared with a pretax loss of $3.8 billion in the prior year.
Mortgage servicing revenue, including amortization, was$3.0 billion, an increase of $337 million, or 13%, from the91

Management’s discussion and analysis
prior year, driven by lower mortgage servicing rights(“MSR”) asset amortization expense as a result of lower
MSR asset value, partially offset by lower loan servicing
revenue due to the decline in the third-party loans serviced.
MSR risk management income was $616 million, comparedwith a loss of $1.6 billion in the prior year. The prior year
MSR risk management loss was driven by refinements to thevaluation model and related inputs. See Note 17 on pages
299–304 of this Annual Report for further information
regarding changes in value of the MSR asset and related
hedges. Servicing expense was $4.7 billion, down 2% fromthe prior year, but elevated in both the current and prioryear primarily due to higher default servicing costs.
Real Estate Portfolios pretax income was $2.9 billion,
compared with a pretax loss of $504 million in the prioryear. The improvement was driven by a benefit from theprovision for credit losses, reflecting the continued
improvement in credit trends, partially offset by lower net
revenue. Net revenue was $4.1 billion, down $500 million,or 11%, from the prior year. The decrease was driven by adecline in net interest income as a result of lower loanbalances due to net portfolio runoff. The provision for credit
losses reflected a benefit of $509 million, compared with aprovision expense of $3.6 billion in the prior year. The
current-year provision reflected a $3.9 billion reduction in
the non credit-impaired allowance for loan losses due toimproved delinquency trends and lower estimated losses.
Current-year net charge-offs totaled $3.3 billion, including$744 million of incremental charge-offs reported inaccordance with regulatory guidance on certain loans
discharged under Chapter 7 bankruptcy, compared with
$3.8 billion in the prior year. See Consumer Credit Portfolio
on pages 120–129 of this Annual Report for the net chargeoff amounts and rates. Nonaccrual loans were $7.9 billion,
compared with $5.9 billion in the prior year. Excluding theimpact of certain regulatory guidance, nonaccrual loans
would have been $4.9 billion at December 31, 2012. For
more information on the reporting of Chapter 7 loans andperforming junior liens that are subordinate to senior liensthat are 90 days or more past due as nonaccrual, seeConsumer Credit Portfolio on pages 120–129 of this Annual
Report. Noninterest expense was $1.7 billion, up $132
million, or 9%, compared with the prior year due to anincrease in servicing costs.
PCI Loans
Included within Real Estate Portfolios are PCI loans that the
Firm acquired in the Washington Mutual transaction. For PCI
loans, the excess of the undiscounted gross cash flows
expected to be collected over the carrying value of the loans(the “accretable yield”) is accreted into interest income at alevel rate of return over the expected life of the loans.
The net spread between the PCI loans and the related
liabilities are expected to be relatively constant over time,
except for any basis risk or other residual interest rate riskthat remains and for certain changes in the accretable yieldpercentage (e.g., from extended loan liquidation periods
92

and from prepayments). As of December 31, 2013, theremaining weighted-average life of the PCI loan portfolio is
expected to be 8 years. The loan balances are expected to
decline more rapidly over the next three years as the mosttroubled loans are liquidated, and more slowly thereafter as
the remaining troubled borrowers have limited refinancing
opportunities. Similarly, default and servicing expense are
expected to be higher in the earlier years and decline overtime as liquidations slow down.
For further information, see Note 14, PCI loans, on pages
274–276 of this Annual Report.

Mortgage Production and Servicing
Selected metrics
As of or for the year ended
December 31,(in millions, except ratios)

2013

2012

2011

Prime mortgage, including
option ARMs(a)$ 15,136$17,290$ 16,891

Loans held-for-sale and loans
at fair value(b)7,44618,801

12,694

Prime mortgage, including
option ARMs(a)16,495

17,335

14,580Loans held-for-sale and loans
at fair value(b)15,717

17,573

16,354

57,131

59,83759,891

651

2,530

3,213

12

19

5

Prime mortgage, including
option ARMs

0.07%

0.11%

0.03%

30+ day delinquency rate(d)

2.75

3.05

Selected balance sheet data
Period-end loans:

Average loans:

Average assets
Repurchase liability (periodend)(c)Credit data and quality
statistics
Net charge-offs:
Prime mortgage, including
option ARMs
Net charge-off rate:

Nonperforming assets(e)

$

559

$

638

3.15
$

716

(a) Predominantly represents prime loans repurchased from Government
National Mortgage Association (“Ginnie Mae”) pools, which are
insured by U.S. government agencies. See further discussion of loans
repurchased from Ginnie Mae pools in Mortgage repurchase liability
on pages 78–79 of this Annual Report.
(b) Predominantly consists of prime mortgages originated with the intent
to sell that are accounted for at fair value and classified as trading
assets on the Consolidated Balance Sheets.
(c) For more information on the Firm’s mortgage repurchase liability, see
Mortgage repurchase liability on pages 78–79 of this Annual Report.
(d) At December 31, 2013, 2012 and 2011, excluded mortgage loans
insured by U.S. government agencies of $9.6 billion, $11.8 billion,
and $12.6 billion, respectively, that are 30 or more days past due.
These amounts have been excluded from nonaccrual loans based
upon the government guarantee. For further discussion, see Note 14
on pages 258–283 of this Annual Report which summarizes loandelinquency information.
(e) At December 31, 2013, 2012 and 2011, nonperforming assets
excluded: (1) mortgage loans insured by U.S. government agencies of$8.4 billion, $10.6 billion, and $11.5 billion, respectively, that are 90

JPMorgan Chase & Co./2013 Annual Reportor more days past due; and (2) real estate owned insured by U.S.
government agencies of $2.0 billion, $1.6 billion, and $954 million,
respectively. These amounts have been excluded from nonaccrualloans based upon the government guarantee. For further discussion,see Note 14 on pages 258–283 of this Annual Report whichsummarizes loan delinquency information.

Real Estate Portfolios
Selected metrics
As of or for the year ended
December 31,(in millions)

Selected metrics

Loans, excluding PCI

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

Period-end loans owned:

Mortgage origination volume bychannel
RetailHome equity
2013

2012

2011

77.0

$ 101.4$ 87.2Wholesale(a)

0.2

0.3

0.5

Correspondent(a)

88.3

79.1

57.9

Total mortgage origination
volume(b)Mortgage application volume bychannel
RetailWholesale(a)Correspondent$ 165.5$ 180.8$ 145.6$ 108.0$ 164.5$ 137.2

0.2

0.7

1.0

89.0

100.5

66.5

Total mortgage application
volume$ 197.2$ 265.7$ 204.7

Third-party mortgage loans
serviced (period-end)$ 815.5$ 859.4$ 902.2

Third-party mortgage loans
serviced (average)

837.3

847.0

937.6

9.6

7.6

7.2

(a)

MSR carrying value (period-end)
Ratio of MSR carrying value(period-end) to third-party
mortgage loans serviced (periodend)
Ratio of loan servicing-related
revenue to third-party mortgage
loans serviced (average)
MSR revenue multiple(c)

2012

2011

$ 57,863$ 67,385$ 77,800

Prime mortgage, including
option ARMs

49,46341,31644,284

Subprime mortgage

7,104

8,255

9,664

551

633

718

$114,981$117,589$132,466

Other
$

2013

Total period-end loans owned
Average loans owned:
Home equity$ 62,369$ 72,674$ 82,886

Prime mortgage, including
option ARMs

44,98842,311

46,971

Subprime mortgage

7,687

8,947

10,471

588

675

773

$115,632$124,607$141,101$ 18,927$ 20,971$ 22,697

Prime mortgage

12,03813,674

15,180Subprime mortgage

4,175

4,626

4,976

Option ARMs

17,915

20,466

22,693$ 53,055$ 59,737$ 65,546

Other
Total average loans owned
PCI loans
Period-end loans owned:
Home equity

Total period-end loans owned
Average loans owned:
Home equity

1.18%

0.88%

0.80%

$ 19,950$ 21,840$ 23,514

Prime mortgage

12,90914,40016,181

Subprime mortgage

4,416

4,777

5,170

0.40

0.46

0.44

Option ARMs

2.95x

1.91x

1.82x

Total average loans owned(a) Includes rural housing loans sourced through brokers andcorrespondents, which are underwritten and closed with pre-funding
loan approval from the U.S. Department of Agriculture Rural
Development, which acts as the guarantor in the transaction.
(b) Firmwide mortgage origination volume was $176.4 billion, $189.9
billion, and $154.2 billion for the years ended December 31, 2013,2012 and 2011, respectively.
(c) Represents the ratio of MSR carrying value (period-end) to thirdparty mortgage loans serviced (period-end) divided by the ratio of
loan servicing-related revenue to third-party mortgage loans serviced(average).

Total Real Estate Portfolios

21,54524,045$ 62,562$ 68,910

Period-end loans owned:
Home equity$ 76,790$ 88,356$100,497

Prime mortgage, including
option ARMs

79,41675,45682,157

Subprime mortgage

11,27912,881

14,640

551

633

718

$168,036$177,326$198,012

Other
Total period-end loans owned
Average loans owned:
Home equity$ 82,319$ 94,514$106,400

Prime mortgage, including
option ARMs

77,13378,25687,197

Subprime mortgage

12,103

13,724

15,641

588

675

773

$172,143$187,169$210,011$163,898$175,712$197,096

2,124

1,420

1,127

Other
Total average loans owned
Average assets
Home equity origination volume

JPMorgan Chase & Co./2013 Annual Report

19,236$ 56,511

93

Management’s discussion and analysis

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

2013

2012

2011

Net charge-offs, excluding
PCI loans:(a)(b)Home equity$
Prime mortgage, including
option ARMs
Subprime mortgage
Other
Total net charge-offs,$
excluding PCI loans
Net charge-off rate,
excluding PCI loans:(b)Home equity
Prime mortgage, including
option ARMs
Subprime mortgage
Other
Total net charge-off rate,
excluding PCI loans

966

$

2,385

$

2,472

41

454

682

90
10

486
16

626
25

1,107

$

3,341

$

3,805

1.55%

3.28%

2.98%

0.09

1.07

1.45

1.17
1.70

5.43
2.37

5.98
3.23

0.96

2.68

2.70

1.17%

2.52%

2.32%

0.05

0.58

0.78

0.74
1.70

3.54
2.37

4.00
3.23

0.64

1.79

1.81

3.66%

5.03%

5.69%

Net charge-off rate –reported:(a)(b)Home equity
Prime mortgage, including
option ARMs
Subprime mortgage
Other
Total net charge-off rate –reported
30+ day delinquency rate,
excluding PCI loans(c)Allowance for loan losses,
excluding PCI loans
Allowance for PCI loans(a)Allowance for loan losses
Nonperforming assets(d)(e)Allowance for loan losses toperiod-end loans retained
Allowance for loan losses toperiod-end loans retained,
excluding PCI loans

$

2,568

$

$

4,158
6,726
6,919

4,868

5,711
$ 10,579
8,439

$

8,718

5,711
$ 14,429
6,638

4.00%

5.97%

7.29%

2.23

4.14

6.58

(a) Net charge-offs and net charge-off rates for the year ended December 31,
2013 excluded $53 million of write-offs in the PCI portfolio. These write-offs
decreased the allowance for loan losses for PCI loans. For further information,
see Consumer Credit Portfolio on pages 120–129 of this Annual Report.
(b) Net charge-offs and net charge-off rates for the year ended December 31, 2012,
included $744 million of charge-offs related to regulatory guidance. Excludingthese charges-offs, net charge-offs for the year ended December 31, 2012,
would have been $1.8 billion, $410 million and $416 million for the homeequity, prime mortgage, including option ARMs, and subprime mortgage
portfolios, respectively. Net charge-off rates for the same period, excluding thesecharge-offs and PCI loans, would have been 2.41%, 0.97% and 4.65% for thehome equity, prime mortgage, including option ARMs, and subprime mortgage
portfolios, respectively. For further information, see Consumer Credit Portfolio
on pages 120–129 of this Annual Report.
(c) The 30+ day delinquency rate for PCI loans was 15.31%, 20.14%, and 23.30%
at December 31, 2013, 2012 and 2011, respectively.
(d) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as they are all performing.
(e) Nonperforming assets at December 31, 2012, included loans based uponregulatory guidance. For further information, see Consumer Credit Portfolio on
pages 120–129 of this Annual Report.

94

Mortgage servicing-related matters
The financial crisis resulted in unprecedented levels ofdelinquencies and defaults of 1-4 family residential realestate loans. Such loans required varying degrees of loss
mitigation activities. Foreclosure is usually a last resort, andaccordingly, the Firm has made, and continues to make,significant efforts to help borrowers remain in their homes.
The Firm has a well-defined foreclosure prevention process
when a borrower fails to pay on his or her loan. The Firm
makes multiple attempts, in various ways, to contact theborrower in an effort to pursue home retention or options
other than foreclosure. If the Firm is unable to contact aborrower, the Firm completes various reviews of theborrower’s facts and circumstances before a foreclosure
sale is completed. Over the last year, the averagedelinquency period for the borrower at the time offoreclosure was approximately 28 months.
The high volume of delinquent and defaulted mortgages
experienced during the financial crisis placed a significant
amount of stress on servicing operations in the industry.
The GSEs impose compensatory fees on mortgage servicers,
including the Firm, if such servicers are unable to comply
with the foreclosure timetables mandated by the GSEs. The
Firm has incurred, and continues to incur, compensatory
fees, which are reported in default servicing expense. The
Firm has made, and will continue to make changes to andrefine its mortgage operations to address mortgage
servicing, loss mitigation, and foreclosure issues.
Since 2011, the Firm has entered into Consent Orders andsettlements with federal and state governmental agencies
and private parties related to mortgage servicing,origination, and residential mortgage-backed securities
activities. The terms of these Consent Orders andsettlements vary, but in general, required cash
compensatory payments or fines and/or “borrower relief,”
including principal reductions, refinancing, short saleassistance, and other specified types of borrower relief. The
Firm has satisfied or is committed to satisfying theseobligations within the mandated timeframes.
Other obligations required under Consent Orders andsettlements, as well as under new regulatory requirements,
include enhanced mortgage servicing and foreclosure
standards and processes. Among other initiatives, the Firm
has implemented a new Customer Assistance Specialist
organization to serve as a single point of contact forborrowers requiring assistance in the foreclosure or loss
mitigation process; implemented specific controls on “dualtracking” of foreclosure and loss mitigation activities;
strengthened its compliance program to ensure mortgage
servicing and foreclosure operations comply with applicablelegal requirements; and made technological enhancements
to automate and streamline processes for document
management, payment processing, training, and skills
assessment. For further information on these settlements
and Consent Orders, see Note 2 and Note 31 on pages 192–

JPMorgan Chase & Co./2013 Annual Report194 and pages 326–332, respectively, of this Annual
Report.
The mortgage servicing consent order is subject to ongoingoversight by the Mortgage Compliance Committee of theBoard, and certain Consent Orders and settlements are thesubject of ongoing reporting to various regulators, and the
Office of Mortgage Settlement Oversight (“OMSO”).

Card, Merchant Services & Auto
Selected income statement data
Year ended December 31,(in millions, except ratios)

2013

2012

2011

$ 4,289$ 4,092$ 4,127

All other income

1,041

1,009

765

Noninterest revenue

5,330

5,101

4,892

Net interest income

13,36013,66914,249Total net revenue

18,69018,77019,141

Provision for credit losses

2,669

3,953

3,621

Noninterest expense

8,078

8,216

8,045

Revenue
Card income

Income before income tax
expense

7,943

6,601

7,475

$ 4,786$ 4,007$ 4,544

ROE

31%

24%

28%

Overhead ratio

43

44

42

$ 15,500$ 16,500$ 16,000

Net income

Equity (period-end andaverage)2013 compared with 2012
Card, Merchant Services & Auto net income was $4.8 billion,
an increase of $779 million, or 19%, compared with the prioryear, driven by lower provision for credit losses.
Net revenue was $18.7 billion, flat compared with the prioryear. Net interest income was $13.4 billion, down $309
million, or 2%, from the prior year. The decrease wasprimarily driven by spread compression in Credit Card andAuto and lower average credit card loan balances, largely
offset by the impact of lower revenue reversals associatedwith lower net charge-offs in Credit Card. Noninterest
revenue was $5.3 billion, an increase of $229 million, or
4%, compared with the prior year primarily driven byhigher net interchange income, auto lease income andmerchant servicing revenue, largely offset by lower revenue
from an exited non-core product and a gain on an
investment security recognized in the prior year.
The provision for credit losses was $2.7 billion, comparedwith $4.0 billion in the prior year. The current-year
provision reflected lower net charge-offs and a $1.7 billion
reduction in the allowance for loan losses due to lower
estimated losses reflecting improved delinquency trends
and restructured loan performance. The prior-year
provision included a $1.6 billion reduction in the allowance
for loan losses. The Credit Card net charge-off rate was
3.14%, down from 3.95% in the prior year; and the 30+
day delinquency rate was 1.67%, down from 2.10% in theprior year. The Auto net charge-off rate was 0.31%, downfrom 0.39% in the prior year.

JPMorgan Chase & Co./2013 Annual Report95Management’s discussion and analysis
Noninterest expense was $8.1 billion, a decrease of$138 million, or 2%, from the prior year. This decrease isdue to one-time expense items recognized in the prior year
related to the exit of a non-core product and the write-off ofintangible assets associated with a non-strategic
relationship. The reduction in expenses was partially offset
by increased auto lease depreciation and payments tocustomers required by a regulatory Consent Order during
2013.

Selected metrics

Auto2012 compared with 2011
Card, Merchant Services & Auto net income was $4.0 billion,a decrease of $537 million, or 12%, compared with the prioryear. The decrease was driven by lower net revenue and higher
provision for credit losses.
Net revenue was $18.8 billion, a decrease of $371 million,
or 2%, from the prior year. Net interest income was$13.7 billion, down $580 million, or 4%, from the prioryear. The decrease was driven by narrower loan spreads andlower average loan balances, partially offset by lower
revenue reversals associated with lower net charge-offs.
Noninterest revenue was $5.1 billion, an increase of$209 million, or 4%, from the prior year. The increase wasdriven by higher net interchange income, including lower
partner revenue-sharing due to the impact of the Kohl’s
portfolio sale on April 1, 2011, and higher merchantservicing revenue, partially offset by higher amortization ofloan origination costs.
The provision for credit losses was $4.0 billion, comparedwith $3.6 billion in the prior year. The current-year
provision reflected lower net charge-offs and a $1.6 billion
reduction in the allowance for loan losses due to lower
estimated losses. The prior-year provision included a $3.9
billion reduction in the allowance for loan losses. The Credit
Card net charge-off rate was 3.95%, down from 5.44% in
the prior year; and the 30+ day delinquency rate was
2.10%, down from 2.81% in the prior year. The net chargeoff rate would have been 3.88% absent a policy change on
restructured loans that do not comply with their modified
payment terms. The Auto net charge-off rate was 0.39%,
up from 0.32% in the prior year, including $53 million of
charge-offs related to regulatory guidance. Excluding thesecharge-offs, the net charge-off rate would have been
0.28%.

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

2013

2012

2011

$127,791$127,993$132,277

52,75749,91347,426Student

10,541

11,55813,425

Total loans$191,089$189,464$193,128$198,265$197,661$201,162

Credit Card

123,613

125,464

128,167

Auto

50,74848,41347,034Student

11,04912,507

13,986

Total loans$185,410$186,384$189,187$$$

Selected balance sheet data(period-end)
Loans:
Credit Card

Selected balance sheet data
(average)
Total assets
Loans:

Business metrics
Credit Card, excluding
Commercial Card
Sales volume (in billions)
New accounts opened

419.5
7.3

381.1
6.7

343.7
8.8

Open accounts

65.3

64.5

65.2

Accounts with sales activity

32.3

30.6

30.7

55%

51%

32%

% of accounts acquired
onlineMerchant Services (Chase
Paymentech Solutions)
Merchant processing volume(in billions)
Total transactions(in billions)
Auto & Student

$

750.1

$

35.6

655.2

$

29.5

553.7
24.4

Origination volume(in billions)AutoStudent

$

26.1
0.1

$

23.4
0.2

$

21.0
0.3

Noninterest expense was $8.2 billion, an increase of$171 million, or 2%, from the prior year, driven by
expenses related to a non-core product that is being exitedand the write-off of intangible assets associated with a nonstrategic relationship, partially offset by lower marketing
expense.

96

JPMorgan Chase & Co./2013 Annual Report

The following are brief descriptions of selected businessmetrics within Card, Merchant Services & Auto.
Card Services includes the Credit Card and Merchant Services
businesses.
Merchant Services is a business that processes transactions formerchants.
Total transactions – Number of transactions and authorizations
processed for merchants.
Commercial Card provides a wide range of payment services tocorporate and public sector clients worldwide through thecommercial card products. Services include procurement,
corporate travel and entertainment, expense management
services, and business-to-business payment solutions.
Sales volume - Dollar amount of cardmember purchases, net of
returns.
Open accounts – Cardmember accounts with charging
privileges.
Auto origination volume - Dollar amount of auto loans andleases originated.

Selected metrics

Card Services supplemental information

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

2013

2012

2011

2012

2011

Noninterest revenue$ 3,977$ 3,887

Net interest income

11,466

11,611

12,084152

Total net revenue

15,443

15,49815,824434

Revenue$ 3,879

Auto

$

158

(a)

Student$ 4,370

4,944

$

188

333

Total net charge-offs

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

2013

Credit data and quality
statistics
Net charge-offs:
Credit Card(a) Net charge-offs and net charge-off rates for the year ended December 31,
2012, included $53 million of charge-offs of Chapter 7 loans. Excludingthese incremental charge-offs, net charge-offs for the year ended
December 31, 2012 would have been $135 million, and the net charge-off
rate would have been 0.28%. For further information, see Consumer Credit
Portfolio on pages 120–129 of this Annual Report.
(b) Average credit card loans included loans held-for-sale of $95 million, $433
million, and $833 million for the years ended December 31, 2013, 2012
and 2011, respectively. These amounts are excluded when calculating thenet charge-off rate.
(c) Period-end credit card loans included loans held-for-sale of $326 million
and $102 million at December 31, 2013 and 2011, respectively. There
were no loans held-for-sale at December 31, 2012. These amounts are
excluded when calculating delinquency rates and the allowance for loan
losses to period-end loans.
(d) Excluded student loans insured by U.S. government agencies under the
FFELP of $737 million, $894 million and $989 million at December 31,
2013, 2012 and 2011, respectively, that are 30 or more days past due.
These amounts are excluded as reimbursement of insured amounts is
proceeding normally.
(e) Nonperforming assets excluded student loans insured by U.S. government
agencies under the FFELP of $428 million, $525 million and $551 million
at December 31, 2013, 2012 and 2011, respectively, that are 90 or moredays past due. These amounts are excluded as reimbursement of insured
amounts is proceeding normally.

377
$

5,509

$

6,925

Provision for credit losses

2,179

3,444

2,925

Noninterest expense

6,245

6,566

6,544

5.44%

Auto

0.31

0.39

0.32

Income before income tax
expenseNet income

Student

3.01

3.01

3.10

Percentage of average loans:

Total net charge-off rate

2.36

2.96

3.99

3.14%

(a)

3.95%

3,740

7,511

Net charge-off rate:
Credit Card(b)

$

7,019

5,488

$ 4,235$ 3,344

6,355
$

3,876

Noninterest revenue

3.22%

3.10%

Delinquency rates

Net interest income

9.28

9.25

9.43

30+ day delinquency rate:

Total net revenue

12.49

12.35

12.35

Credit Card(c)

1.67

2.10

2.81

Auto

1.15

1.25

1.13

Student(d)

2.56

2.13

1.78

Total 30+ day
delinquency rate

1.58

1.87

2.32

0.80

1.02

1.44

90+ day delinquency rate –Credit Card(c)Nonperforming assets

(e)

$

280

$

265

$

228

$ 3,795

$

5,501

$

6,999

2.92%

Allowance for loan losses:
Credit Card
Auto & Student
Total allowance for loan
losses953$ 4,748

954
$

6,455

1,010
$

8,009

Allowance for loan losses toperiod-end loans:
Credit Card(c)

2.98%

4.30%

5.30%

Auto & Student

1.51

1.55

1.66

Total allowance for loan
losses to period-end
loans

2.49

3.41

4.15

JPMorgan Chase & Co./2013 Annual Report97Management’s discussion and analysis
CORPORATE & INVESTMENT BANKThe Corporate & Investment Bank (“CIB”) 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. Within Banking, the CIB offers a fullrange of investment banking products and services inall major capital markets, including advising on
corporate strategy and structure, capital-raising inequity and debt markets, as well as loan originationand syndication. Also included in Banking is Treasury
Services, which includes transaction services,comprised primarily of cash management and liquidity
solutions, and trade finance products. The Markets &Investor Services segment of the CIB is a global marketmaker in cash securities and derivative instruments,
and also offers sophisticated risk management
solutions, prime brokerage, and research. Markets &Investor Services also includes the Securities Services
business, a leading global custodian which holds,
values, clears and services securities, cash andalternative investments for investors and brokerdealers, and manages depositary receipt programs
globally.
Selected income statement data
Year ended December 31,(in millions)

2013

2012

2011

Revenue
Investment banking fees

$

6,331

$

5,769

$

5,859

Principal transactions

9,289

9,510

8,347

Lending- and deposit-related fees

1,884

1,948

2,098

Asset management,
administration and commissions

4,713

4,693

4,955

All other income

1,593

1,184

1,264

Noninterest revenue

23,81023,104

22,523

Net interest income

10,415

11,222

11,461

Total net revenue

34,22534,32633,984

(232)

(479)

(285)

Compensation expense

10,835

11,313

11,654

Noncompensation expense

10,90910,537

10,325

Total noninterest expense

21,744

21,85021,979

Income before income tax
expense12,713

12,955

12,290

Income tax expense

4,167

4,549

(a)

(b)

Provision for credit losses
Noninterest expense

Net income

$

8,546

$

8,406

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

2013

2012

2011

Financial ratios
Return on common equity(a)

15%

18%

17%

Overhead ratio(B)

64

64

65

Compensation expense as
percentage of total net
revenue(c)Revenue by business

32

33

34

Advisory$ 1,315$ 1,491$ 1,792

Equity underwriting

1,499

1,026

1,181

Debt underwriting

3,517

3,252

2,886

Total investment banking fees

6,331

5,769

5,859

Treasury Services

4,135

4,249

3,841

Lending

1,595

1,331

1,054

Total Banking

12,061

11,34910,754

Fixed Income Markets(d)15,46815,412

14,784Equity Markets

4,758

4,406

4,476

Securities Services

4,082

4,000

3,861

Credit Adjustments & Other(e)(2,144)

(841)

109

Total Markets & Investor
Services

22,16422,977

23,230Total net revenue$ 34,225$ 34,326$ 33,984(a) Return on equity excluding FVA (effective fourth quarter 2013) and DVA, a
non-GAAP financial measure, was 17%, 19% and 15% for the years ended
December 31, 2013, 2012 and 2011, respectively.
(b) Overhead ratio excluding FVA (effective fourth quarter 2013) and DVA, a
non-GAAP financial measure, was 60%, 62% and 68% for the years ended
December 31, 2013, 2012 and 2011, respectively.
(c) Compensation expense as a percentage of total net revenue excluding FVA(effective fourth quarter 2013) and DVA, a non-GAAP financial measure,was 30%, 32% and 36% for the years ended December 31, 2013, 2012
and 2011, respectively.
(d) Includes results of the synthetic credit portfolio that was transferred fromthe CIO effective July 2, 2012.
(e) Primarily credit portfolio credit valuation adjustments (“CVA”) net of
associated hedging activities; DVA gains/(losses) on structured notes andderivative liabilities of $(452) million, $(930) million and $1.4 billion forthe years ended December 31, 2013, 2012 and 2011, respectively; a$(1.5) billion loss in the fourth quarter of 2013 as a result of implementing
an FVA framework for OTC derivatives and structured notes, andnonperforming derivative receivable results.

4,297
$

7,993

(a) Included a $(1.5) billion loss in the fourth quarter of 2013 as a result of
implementing a FVA framework for OTC derivatives and structured notes.
Also included DVA on structured notes and derivative liabilities. DVA gains/(losses) were $(452) million, $(930) million and $1.4 billion for the years
ended December 31, 2013, 2012 and 2011, respectively.
(b) Included tax-equivalent adjustments, predominantly due to income tax
credits related to affordable housing and alternative energy investments, aswell as tax-exempt income from municipal bond investments of $2.3 billion,$2.0 billion and $1.9 billion for the years ended December 31, 2013, 2012
and 2011, respectively.

98

JPMorgan Chase & Co./2013 Annual Report

CIB provides several non-GAAP financial measures which
exclude the impact of FVA (effective fourth quarter 2013) and
DVA on: net revenue, net income, compensation ratio,
overhead ratio, and return on equity. The ratio for theallowance for loan losses to end-of-period loans is calculated
excluding the impact of consolidated Firm-administeredmulti-seller conduits and trade finance, to provide a moremeaningful assessment of CIB’s allowance coverage ratio.
These measures are used by management to assess theunderlying performance of the business and forcomparability with peers.
2013 compared with 2012
Net income was $8.6 billion, up 2% compared with theprior year.
Net revenue was $34.2 billion compared with $34.3 billion
in the prior year. Net revenue in the current year’s fourth
quarter included a $1.5 billion loss as a result of
implementing a funding valuation adjustment (“FVA”)
framework for over-the-counter (“OTC”) derivatives andstructured notes. The FVA framework incorporates theimpact of funding into the Firm’s valuation estimates for
OTC derivatives and structured notes and reflects anindustry migration towards incorporating the market cost of
unsecured funding in the valuation of such instruments. The
loss recorded in the fourth quarter of 2013 is a one-time
adjustment arising on implementation of the new FVA
framework. In future periods the Firm will incorporate FVA
in its estimates of fair value for OTC derivatives andstructured notes from the date of initial recognition.
Net revenue also included a $452 million loss from debit
valuation adjustments (“DVA”) on structured notes andderivative liabilities, compared with a loss of $930 million
in the prior year. Excluding the impact of FVA (effective
fourth quarter of 2013) and DVA, net revenue was $36.1
billion and net income was $9.7 billion, compared with$35.3 billion and $9.0 billion in the prior year, respectively.
Banking revenues were $12.1 billion, compared with $11.3
billion in the prior year. Investment banking fees were $6.3
billion, up 10% from the prior year, driven by higher equity
underwriting fees of $1.5 billion (up 46%) and record debt
underwriting fees of $3.5 billion (up 8%), partially offset
by lower advisory fees of $1.3 billion (down 12%). Equity
underwriting results were driven by higher industry-wideissuance and an increase in the Firm’s wallet sharecompared with the prior year, according to Dealogic.
Industry-wide loan syndication volumes and wallet
increased as the low rate environment continued to fuelrefinancing activity. The Firm also ranked #1 in wallet andvolumes shares across high grade, high yield and loan
products. Advisory fees were lower compared with the prioryear as industry-wide completed M&A wallet declined 13%.
The Firm maintained its #2 ranking and improved share forboth announced and completed volumes during the period.
Treasury Services revenue was $4.1 billion, down 3%
compared with the prior year, primarily reflecting lower
trade finance spreads, partially offset by higher net interest
income on higher deposit balances. Lending revenue was
JPMorgan Chase & Co./2013 Annual Report$1.6 billion, up from $1.3 billion, in the prior year
reflecting net interest income on retained loans, fees on
lending related commitments, as well as gains on securities
received from restructured loans.
Markets and Investor Services revenue was $22.2 billion
compared to $23.0 billion in the prior year. Combined Fixed
Income and Equity Markets revenue was $20.2 billion, up
from $19.8 billion the prior year. Fixed Income Markets
revenue of $15.5 billion was slightly higher reflecting
consistently strong client revenue and lower losses from thesynthetic credit portfolio, which was partially offset bylower rates-related revenue given an uncertain rate outlook
and low spread environment. Equities Markets revenue of$4.8 billion was up 8% compared with the prior year driven
by higher revenue in derivatives and cash equities products
as well as Prime Services primarily on higher balances.
Securities Services revenue was $4.1 billion compared with
$4.0 billion in the prior year on higher custody and fundservices revenue primarily driven by record assets undercustody of $20.5 trillion. Credit Adjustments & Other was aloss of $2.1 billion predominantly driven by FVA (effective
the fourth quarter of 2013) and DVA.
The provision for credit losses was a benefit of $232
million, compared with a benefit of $479 million in theprior year. The current year benefit reflected lower
recoveries as compared to 2012 as the prior year benefited
from the restructuring of certain nonperforming loans. Net
recoveries were $78 million, compared with $284 million in
the prior year reflecting a continued favorable credit
environment with stable credit quality trends.
Nonperforming loans were down 57% from the prior year.
Noninterest expense of $21.7 billion was slightly down
compared with the prior year, driven by lower compensation
expense, offset by higher non compensation expense
related to higher litigation expense as compared to theprior year. The compensation ratio, excluding the impact of
DVA and FVA which was effective for the fourth quarter of2013, was 30% and 32% for 2013 and 2012, respectively.
Return on equity was 15% on $56.5 billion of average
allocated capital and 17% excluding FVA (effective fourth
quarter of 2013) and DVA.
2012 compared with 2011
Net income was $8.4 billion, up 5% compared with theprior year. These results primarily reflected slightly higher
net revenue compared with 2011, lower noninterest
expense and a larger benefit from the provision for credit
losses. Net revenue was $34.3 billion, compared with $34.0
billion in the prior year. Net revenue included a $930
million loss from DVA on structured notes and derivative
liabilities resulting from the tightening of the Firm’s credit
spreads. Excluding the impact of DVA, net revenue was$35.3 billion and net income was $9.0 billion, comparedwith $32.5 billion and $7.1 billion in the prior year,
respectively.
Banking revenues were $11.3 billion, compared with $10.8
billion in the prior year. Investment banking fees were99

Management’s discussion and analysis$5.8 billion, down 2% from the prior year; these consistedof record debt underwriting fees of $3.3 billion (up 13%),
advisory fees of $1.5 billion (down 17%) and equity
underwriting fees of $1.0 billion (down 13%). Industrywide debt capital markets volumes were at their second
highest annual level since 2006, as the low rateenvironment continued to fuel issuance and refinancing
activity. In contrast there was lower industry-wide
announced mergers and acquisitions activity, while
industry-wide equity underwriting volumes remained
steady. Treasury Services revenue was a record $4.2 billion
compared with $3.8 billion in the prior year driven bycontinued deposit balance growth and higher average tradeloans outstanding during the year. Lending revenue was$1.3 billion, compared with $1.1 billion in the prior year
due to higher net interest income on increased averageretained loans as well as higher fees on lending-related
commitments. This was partially offset by higher fair value
losses on credit risk-related hedges of the retained loan
portfolio.
Markets and Investor Services revenue was $23.0 billion
compared to $23.2 billion in the prior year. Combined Fixed
Income and Equity Markets revenue was $19.8 billion, up
from $19.3 billion the prior year as client revenue remained
strong across most products, with particular strength inrates-related products, which improved from the prior year.
2012 generally saw credit spread tightening and lower
volatility in both the credit and equity markets comparedwith the prior year, during which macroeconomic concerns,
including those in the Eurozone, caused credit spreadwidening and generally more volatile market conditions,particularly in the second half of the year. Securities
Services revenue was $4.0 billion compared with $3.9
billion the prior year primarily driven by higher deposit
balances. Assets under custody grew to a record $18.8
trillion by the end of 2012, driven by both market
appreciation as well as net inflows. Credit Adjustments &Other was a loss of $841 million, driven predominantly by
DVA, which was a loss of $930 million due to the tighteningof the Firm’s credit spreads.

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

2013

2012

2011

$ 843,577$ 876,107$ 845,095

95,627

109,501

111,099

Selected balance sheet
data (period-end)
AssetsLoans:
Loans retained(a)Loans held-for-sale andloans at fair value
Total loans
Equity11,913

5,749

3,016

107,540

115,250

114,115

56,50047,50047,000

Selected balance sheet
data (average)
Assets$ 859,071$ 854,670$ 868,930

Trading assets-debt andequity instruments

321,585

312,944348,234

Trading assets-derivative
receivables

70,35374,87473,200104,864

110,100

91,173Loans:
Loans retained(a)Loans held-for-sale andloans at fair value

5,158

3,502

3,221

110,022

113,602

94,394Equity56,50047,50047,000

Headcount

52,25052,02253,557

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

The provision for credit losses was a benefit of $479
million, compared with a benefit of $285 million in theprior year, as credit trends remained stable. The 2012
benefit reflected recoveries and a net reduction in theallowance for credit losses, both related to the restructuringof certain nonperforming loans, credit trends and otherportfolio activities. Net recoveries were $284 million,
compared with net charge-offs of $161 million in the prioryear. Nonperforming loans were down 35% from the prioryear.
Noninterest expense was $21.9 billion, down 1%, driven
primarily by lower compensation expense.
Return on equity was 18% on $47.5 billion of average
allocated capital.

100

JPMorgan Chase & Co./2013 Annual ReportSelected metrics
As of or for the year ended
December 31,(in millions, except ratios
and where otherwise noted)

2013

2012

2011

Market shares and rankings(a)Credit data and quality
statistics
Net charge-offs/(recoveries)(e) Client deposits and other third party liabilities pertain to the Treasury
Services and Securities Services businesses, and include deposits, as well as
deposits that are swept to on-balance sheet liabilities (e.g., commercial
paper, federal funds purchased and securities loaned or sold under
repurchase agreements) as part of their client cash management program.

$(78) $(284) $

161

Nonperforming assets:
Nonaccrual loans:

2013

2012

2011

Year ended
December 31,

MarketShare Rankings

MarketShare Rankings

MarketShare Rankings

Globalinvestmentbanking fees(b)

8.6%

#1

7.5%

#1

8.1%

#1

Nonaccrual loans
retained(a)(b)

163

535

1,039

Nonaccrual loans heldfor-sale and loans atfair value(c)Debt, equity
and equityrelated

180

254

166

Global

7.3

1

7.2

1

6.7

1

U.S.

11.8

1

11.5

1

11.1

1

Global

10.0

1

9.5

1

10.8

1

U.S.

17.5

1

17.6

1

21.2

1

Global

7.2

1

7.1

1

6.7

1

U.S.

11.7

1

11.6

1

11.2

1

Global(d)

8.2

2

7.8

4

6.8

3

U.S.

12.1

2

10.4

5

12.5

1

Global

23.0

2

19.9

2

18.3

2

U.S.

36.1

1

24.3

2

26.7

2

Total nonaccrual loans

343

789

1,205

Derivative receivables

415

239

293

Assets acquired in loansatisfactions

80

64

79

838

1,092

1,577

Total nonperforming
assetsAllowance for credit losses:
Allowance for loan
losses

1,096

1,300

1,501

Allowance for lendingrelated commitments

525

473

467

Total allowance for credit
losses

1,621

1,773

1,968

Net charge-off/(recovery)rate(a)(0.07)

Allowance for loan losses toperiod-end loans
retained(a)(0.26)

1.15

1.19

0.18%
1.35

SyndicatedloansLong-termdebt(c)Equity andequity-related

Announced
M&A(e)

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

2.02

2.52

3.06

Allowance for loan losses tononaccrual loans
retained(a)(b)

672

243

144

(a) Source: Dealogic. Global Investment Banking fees reflects the
ranking of fees and market share. The remaining rankings reflects
transaction volume and market share. Global announced M&A isbased on transaction value at announcement; because of joint
M&A assignments, M&A market share of all participants will add
up to more than 100%. All other transaction volume-basedrankings are based on proceeds, with full credit to each book
manager/equal if joint.

Nonaccrual loans to total
period-end loans(c)

0.32

0.68

1.06

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

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

Assets under custody(“AUC”) by asset class(period-end) in billions:Fixed Income$

11,903$

11,745$ 10,926

Equity

6,913

5,637

4,878

Other(d)

1,669

1,453

1,066

18,835$ 16,870

Total AUC$

Client deposits and otherthird party liabilities(average)(e)$ 383,667$ 355,766$ 318,802

30,75235,78336,696

Trade finance loans(period-end)

20,485$(d) Global equity and equity-related ranking includes rights offerings
and Chinese A-Shares.
(e) Announced M&A reflects the removal of any withdrawn
transactions. U.S. announced M&A represents any U.S.
involvement ranking.

(a) Loans retained includes credit portfolio loans, trade finance loans, otherheld-for-investment loans and overdrafts.
(b) Allowance for loan losses of $51 million, $153 million and $263 million
were held against these nonaccrual loans at December 31, 2013, 2012 and2011, respectively.
(c) In 2013 certain loans that resulted from restructurings that werepreviously classified as performing were reclassified as nonperforming
loans. Prior periods were revised to conform with the current presentation.
(d) Consists of mutual funds, unit investment trusts, currencies, annuities,
insurance contracts, options and other contracts.

JPMorgan Chase & Co./2013 Annual Report101Management’s discussion and analysis
International metrics
Year ended December 31,(in millions)

2013

2012

2011

Total net revenue(a)Europe/Middle East/Africa$ 10,509$ 10,639$ 11,102

Asia/Pacific

4,698

4,100

4,589

Latin America/Caribbean

1,329

1,524

1,409

Total international net revenue

16,536

16,263

17,100

North America

17,68918,063

16,884$ 34,225$ 34,326$ 33,984$ 29,392$ 30,266$ 29,484

Asia/Pacific

22,151

27,19327,803Latin America/Caribbean

8,362

10,2209,692

Total international loans

59,90567,67966,979North America

35,722

41,822

44,120Total loans$ 95,627$ 109,501$ 111,099$ 143,807$ 127,326$ 123,920

54,42851,18043,524

Total net revenue
Loans (period-end)(a)Europe/Middle East/Africa

Client deposits and other thirdparty liabilities (average)(a)Europe/Middle East/Africa
Asia/Pacific
Latin America/Caribbean

15,301

11,052

12,625

Total international

213,536

189,558

180,069

North America

170,131

166,208

138,733$ 383,667$ 355,766$ 318,802$ 11,299$ 10,504

$

9,186

8,331

7,135

$ 20,485$ 18,835$ 16,870

Total client deposits and otherthird-party liabilities
AUC (period-end) (in billions)(a)North America
All other regions
Total AUC

9,735(a) Total net revenue is based predominantly on the domicile of the clientor location of the trading desk, as applicable. Loans outstanding(excluding loans held-for-sale and loans at fair value), client deposits
and other third-party liabilities, and AUC are based predominantly on
the domicile of the client.

102

JPMorgan Chase & Co./2013 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. 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, except ratios)

2013

2012

2011

$ 1,033$ 1,072$ 1,081
136

Revenue
Lending- and deposit-related fees
Asset management, administrationand commissions

116

130

All other income(a)

1,149

1,081

978

Noninterest revenue

2,298

2,283

2,195

Net interest income

4,675

4,542

4,223

Total net revenue(b)

6,973

6,825

6,418

85

41

208

Compensation expense(c)

1,115

1,014

936

Noncompensation expense(c)

1,472

1,348

1,311

Amortization of intangibles

23

27

31

Total noninterest expense

2,610

2,389

2,278

Income before income tax expense

4,278

4,395

3,932

Income tax expense

1,703

1,749

1,565

$ 2,575$ 2,646$ 2,367

Provision for credit losses
Noninterest expense

Net income
Revenue by productLending$ 3,826$ 3,675$ 3,455

Treasury services

2,429

2,428

2,270

Investment banking

575

545

498

Other

143

177

195

Total Commercial Banking revenue$ 6,973$ 6,825$ 6,418

Investment banking revenue, gross$ 1,676$ 1,597$ 1,421

Middle Market Banking(d)$ 3,019$ 2,971$ 2,803

Corporate Client Banking(d)

1,824

1,819

1,603

Commercial Term Lending

1,215

1,194

1,168

Real Estate Banking

549

438

416

Other

366

403

428

$ 6,973$ 6,825$ 6,418

Revenue by client segment

Total Commercial Banking revenue
Financial ratios
Return on common equity

19%

28%

30%

Overhead ratio

37

35

35

(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 low-

JPMorgan Chase & Co./2013 Annual Report

income communities, as well as tax-exempt income from municipal bondactivity of $407 million, $381 million, and $345 million for the years
ended December 31, 2013, 2012 and 2011, respectively.
(c) Effective July 1, 2012, certain Treasury Services product sales staff
supporting CB were transferred from CIB to CB. As a result, compensation
expense for these sales staff is now reflected in CB’s compensation expense
rather than as an allocation from CIB in noncompensation expense. CB’sand CIB’s previously reported headcount, compensation expense andnoncompensation expense have been revised to reflect this transfer.
(d) Effective January 1, 2013, the financial results of financial institution
clients were transferred to Corporate Client Banking from Middle Market
Banking. Prior periods were revised to conform with this presentation.

CB revenue comprises the following:
Lending includes a variety of financing alternatives, which
are predominantly provided on a basis secured byreceivables, inventory, equipment, real estate or otherassets. Products include term loans, revolving lines of credit,
bridge financing, asset-based structures, leases, commercial
card products and standby letters of credit.
Treasury services includes revenue from a broad range of
products and services that enable CB clients to manage
payments and receipts, as well as invest and manage funds.
Investment banking includes revenue from a range of
products 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 market products available to CB clients is also
included. Investment banking revenue, gross, represents
total revenue related to investment banking products sold to
CB clients.
Other product revenue primarily includes tax-equivalentadjustments generated from Community Development
Banking activity and certain income derived from principaltransactions.
Commercial Banking is divided into four primary client
segments for management reporting purposes: Middle
Market Banking, Commercial Term Lending, Corporate
Client Banking, and Real Estate Banking.
Middle Market Banking covers corporate, municipal andnonprofit clients, with annual revenue generally ranging
between $20 million and $500 million.
Commercial Term Lending primarily provides term financing
to real estate investors/owners for multifamily properties aswell as financing office, retail and industrial properties.
Corporate Client Banking covers clients with annual revenue
generally ranging between $500 million and $2 billion andfocuses on clients that have broader investment banking
needs.
Real Estate Banking provides full-service banking toinvestors and developers of institutional-grade real estate
properties.
Other primarily includes lending and investment activity
within the Community Development Banking and Chase
Capital businesses.

2013 compared with 2012
Net income was $2.6 billion, a decrease of $71 million, or
3%, from the prior year, driven by an increase innoninterest expense and the provision for credit losses
partially offset by an increase in net revenue.

103

Management’s discussion and analysis
Net revenue was a record $7.0 billion, an increase of $148
million, or 2%, from the prior year. Net interest income was$4.7 billion, up by $133 million, or 3%, driven by higher
loan balances and the proceeds from a lending-related
workout, partially offset by lower purchase discounts
recognized on loan repayments. Noninterest revenue was$2.3 billion, flat compared with the prior year.
Revenue from Middle Market Banking was $3.0 billion, an
increase of $48 million, or 2%, from the prior year.
Revenue from Commercial Term Lending was $1.2 billion,
an increase of $21 million, or 2%, from the prior year.
Revenue from Corporate Client Banking was $1.8 billion,
flat compared with the prior year. Revenue from Real Estate
Banking was $549 million, an increase of $111 million, or25%, driven by the proceeds from a lending relatedworkout.
The provision for credit losses was $85 million, comparedwith $41 million in the prior year. Net charge-offs were $43
million (0.03% net charge-off rate) compared with net
charge-offs of $35 million (0.03% net charge-off rate) in2012. Nonaccrual loans were $514 million, down by $159
million, or 24%, due to repayments. The allowance for loan
losses to period-end retained loans was 1.97%, downslightly from 2.06%.
Noninterest expense was $2.6 billion, an increase of $221
million, or 9%, from the prior year, reflecting higher
product- and headcount-related expense.

Revenue from Middle Market Banking was $3.0 billion, an
increase of $168 million, or 6%, from the prior year driven
by higher loans and client deposits, partially offset by lower
spreads from lending and deposit products. Revenue from
Commercial Term Lending was $1.2 billion, an increase of$26 million, or 2%. Revenue from Corporate Client Banking
was $1.8 billion, an increase of $216 million, or 13%,driven by growth in loans and client deposits and higher
revenue from investment banking products, partially offset
by lower lending spreads. Revenue from Real Estate
Banking was $438 million, an increase of $22 million, or
5%, partially driven by higher loan balances.
The provision for credit losses was $41 million, comparedwith $208 million in the prior year. Net charge-offs were
$35 million (0.03% net charge-off rate) compared with net
charge-offs of $187 million (0.18% net charge-off rate) in2011. The decrease in the provision and net charge-offs
was largely driven by improving trends in the credit qualityof the portfolio. Nonaccrual loans were $673 million, down
by $380 million, or 36%, due to repayments and loan sales.
The allowance for loan losses to period-end retained loans
was 2.06%, down from 2.34%.
Noninterest expense was $2.4 billion, an increase of $111
million, or 5%, from the prior year, reflecting higher
compensation expense driven by expansion, portfolio
growth and increased regulatory requirements.

2012 compared with 2011
Record net income was $2.6 billion, an increase of $279
million, or 12%, from the prior year. The improvement was
driven by an increase in net revenue and a decrease in theprovision for credit losses, partially offset by higher
noninterest expense.
Net revenue was a record $6.8 billion, an increase of $407
million, or 6%, from the prior year. Net interest income was$4.5 billion, up by $319 million, or 8%, driven by growth inloans and client deposits, partially offset by spreadcompression. Loan growth was strong across all client
segments and industries. Noninterest revenue was $2.3
billion, up by $88 million, or 4%, compared with the prioryear, largely driven by increased investment banking
revenue.

104

JPMorgan Chase & Co./2013 Annual Report

(e) Effective July 1, 2012, certain Treasury Services product sales staff
supporting CB were transferred from CIB to CB. For further discussionof this transfer, see footnote (c) on page 103 of this Annual Report.

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

2013

2012

2011

$ 190,782$ 181,502$ 158,040

135,750

126,996

111,162

1,388

1,212

840

$ 137,138$ 128,208$ 112,002

Selected balance sheet data(period-end)
Total assets
Loans:
Loans retained(a)Loans held-for-sale andloans at fair value
Total loans
Equity13,500

9,500

8,000

Period-end loans by client
segment
Middle Market Banking(b)$52,289$50,552$44,22420,92521,707

16,960Commercial Term Lending

48,92543,512

38,583

Real Estate Banking

11,024

8,552

8,211

Other

3,975

3,885

4,024

$ 137,138$ 128,208$ 112,002

Loans retained$ 185,776$ 165,111

131,100(a)Loans held-for-sale andloans at fair value

Nonperforming assets
Nonaccrual loans:
Nonaccrual loans retained(a)

471

644

1,036

Nonaccrual loans held-for-saleand loans at fair value

43

29

17

514

673

1,053

Assets acquired in loansatisfactions

15

14

85

Total nonperforming assets

529

687

1,138

2,669

2,610

2,603

Allowance for credit losses:
Allowance for loan losses
Allowance for lending-related
commitments

2,792
0.18%

$ 146,230

Allowance for loan losses toperiod-end loans retained

1.97

2.06

2.34

103,462

Allowance for loan losses tononaccrual loans retained(a)

567

405

251

Nonaccrual loans to total periodend loans

0.37

0.52

0.94

198,356

195,912

174,729

Equity13,500

9,500

8,000

Average loans by client
segment$(a) Allowance for loan losses of $81 million, $107 million and $176
million was held against nonaccrual loans retained at December 31,
2013, 2012 and 2011, respectively.
(b) Loans held-for-sale and loans at fair value were excluded whencalculating the net charge-off rate.

40,497

Corporate Client Banking(b)20,91819,572

14,255

Commercial Term Lending

45,98940,872

38,107

Real Estate Banking

9,582

8,562

7,619

Other

3,711

4,085

3,729

$ 132,030$ 120,100$ 104,207

6,848

6,117

5,782

Headcount

187

0.03%

Client deposits and otherthird-party liabilities(c)(d)(e)$

2,793$ 104,207

47,00935

0.03%

119,218

$

$

2,811

$ 120,100

51,83043

Net charge-off rate(b)$ 132,030

$

$

189

745

Total Commercial Banking
loans

Net charge-offs

183

882

Middle Market Banking(b)

2011

142

930

Total loans

2012

Total allowance for credit
lossesSelected balance sheet data
(average)
Total assets
Loans:

2013

Credit data and quality
statistics

Total nonaccrual loans

Corporate Client Banking(b)Total Commercial Banking
loans

As of or for the year ended
December 31, (in millions,
except headcount and ratios)(a) Effective January 1, 2013, whole loan financing agreements,
previously reported as other assets, were reclassified as loans. For theyear ended December 31, 2013, the impact on period-end andaverage loans was $1.6 billion.
(b) Effective January 1, 2013, the financial results of financial institution
clients were transferred to Corporate Client Banking from Middle
Market Banking. Prior periods were revised to conform with thispresentation.
(c) Client deposits and other third-party liabilities include deposits, as well
as deposits that are swept to on-balance sheet liabilities (e.g.,commercial paper, federal funds purchased, and securities loaned orsold under repurchase agreements) as part of client cash management
programs.
(d) Effective January 1, 2013, headcount includes transfers from otherbusiness segments largely related to operations, technology and othersupport staff.

JPMorgan Chase & Co./2013 Annual Report105Management’s discussion and analysis

ASSET MANAGEMENT
Asset Management, with client assets of $2.3 trillion, isa global leader in investment and wealth management.
AM clients include institutions, high-net-worth
individuals and retail investors in every major market
throughout the world. AM offers investment
management across all major asset classes including
equities, fixed income, alternatives and money market
funds. AM also offers multi-asset investment
management, providing solutions to a broad range ofclients’ investment needs. For individual investors, AM
also provides retirement products and services,brokerage and banking services including trusts andestates, loans, mortgages and deposits. The majority ofAM’s client assets are in actively managed portfolios.
Selected income statement data
Year ended December 31,(in millions, except ratios)

2013

2012

2011

Asset management,
administration and commissions $ 8,232$ 7,041$ 6,748

797

806

1,147

Noninterest revenue

9,029

7,847

7,895

Net interest income

2,291

2,099

1,648

Total net revenue

11,320

9,946

9,543

65

86

67

Compensation expense

4,875

4,405

4,152

Noncompensation expense

3,002

2,608

2,752

Revenue

All other income

Provision for credit losses
Noninterest expense

Amortization of intangibles

139

91

98

Total noninterest expense

8,016

7,104

7,002

Income before income tax
expense

3,239

2,756

2,474

Income tax expense

1,208

1,053

882

$ 2,031$ 1,703$ 1,592$ 6,020$ 5,426$ 5,116

2,536

2,386

2,273

Net income
Revenue by client segment
Private Banking
Institutional
RetailTotal net revenue

2,764

2,134

2,154

$11,320$ 9,946$ 9,543

Financial ratios
Return on common equity

23%

24%

25%

Overhead ratio

71

71

73

Pretax margin ratio

29

28

26

2013 compared with 2012
Net income was $2.0 billion, an increase of $328 million, or
19%, from the prior year, reflecting higher net revenue,largely offset by higher noninterest expense.
Net revenue was $11.3 billion, an increase of $1.4 billion,or 14%, from the prior year. Noninterest revenue was $9.0
billion, up $1.2 billion, or 15%, from the prior year, due to
net client inflows, the effect of higher market levels andhigher performance fees. Net interest income was $2.3

106billion, up $192 million, or 9%, from the prior year, due tohigher loan and deposit balances, partially offset bynarrower loan and deposit spreads.
Revenue from Private Banking was $6.0 billion, up 11%
from the prior year due to higher net interest income fromloan and deposit balances and higher brokerage revenue.
Revenue from Retail was $2.8 billion, up 30% due to net
client inflows and the effect of higher market levels.
Revenue from Institutional was $2.5 billion, up 6% due tohigher valuations of seed capital investments, the effect ofhigher market levels and higher performance fees.
The provision for credit losses was $65 million, comparedwith $86 million in the prior year.
Noninterest expense was $8.0 billion, an increase of $912
million, or 13%, from the prior year, primarily due to higher
headcount-related expense driven by continued front office
expansion efforts, higher performance-based compensationand costs related to the control agenda.
2012 compared with 2011
Net income was $1.7 billion, an increase of $111 million, or
7%, from the prior year. These results reflected higher net
revenue, partially offset by higher noninterest expense anda higher provision for credit losses.
Net revenue was $9.9 billion, an increase of $403 million,
or 4%, from the prior year. Noninterest revenue was $7.8
billion, down $48 million, or 1%, due to lower loan-related
revenue and the absence of a prior-year gain on the sale ofan investment. These decreases were predominantly offset
by net client inflows, higher valuations of seed capital
investments, the effect of higher market levels, higher
brokerage revenue and higher performance fees. Net
interest income was $2.1 billion, up $451 million, or 27%,
due to higher loan and deposit balances.
Revenue from Private Banking was $5.4 billion, up 6% fromthe prior year due to higher net interest income from loan
and deposit balances and higher brokerage revenue,
partially offset by lower loan-related fee revenue. Revenue
from Institutional was $2.4 billion, up 5% due to net client
inflows and the effect of higher market levels. Revenue
from Retail was $2.1 billion, down 1% due to the absenceof a prior-year gain on the sale of an investment,
predominantly offset by higher valuations of seed capital
investments and higher performance fees.
The provision for credit losses was $86 million, comparedwith $67 million in the prior year.
Noninterest expense was $7.1 billion, an increase of $102
million, or 1%, from the prior year, due to higher
performance-based compensation and higher headcountrelated expense, partially offset by the absence of nonclient-related litigation expense.

JPMorgan Chase & Co./2013 Annual ReportSelected metrics
Business metrics
As of or for the year ended
December 31, (in millions,
except headcount, ranking
data, ratios and whereotherwise noted)
Number of:
Client advisors% of customer assets in 4 & 5Star Funds(a)

2013

2012

2011

2,962

2,821

2,883

49%

47%

43%

1 year68

67

48

3 years

68

74

72

5 years

69

76

78

$122,414$108,999$ 86,242% of AUM in 1st and 2ndquartiles:(b)Selected balance sheet data(period-end)
Total assets
(c)

Loans

95,44580,216

57,573

Deposits

146,183

144,579

127,464

Equity

9,000

7,000

6,500

$ 76,141

Selected balance sheet data
(average)
Total assets$113,198$ 97,447

Loans

86,066

68,71950,315

Deposits

139,707129,208

106,421Equity

9,000

7,000

6,500

Headcount

20,04818,46518,036

Credit data and quality
statistics
Net charge-offs$

Nonaccrual loans

40

$

64

$

92

167

250

317

Allowance for loan losses

278

248

209

Allowance for lendingrelated commitments

5

5

10

283

253

219

Net charge-off rate

0.05%

0.09%

0.18%

Allowance for loan losses toperiod-end loans

0.29

0.31

0.36

Allowance for loan losses tononaccrual loans

166

99

66

Nonaccrual loans to periodend loans

0.17

0.31

0.55

Allowance for credit losses:

Total allowance for credit
lossesprime mortgage loans reported in the CIO portfolio within the
Corporate/Private Equity segment, respectively.
(d) Includes Chase Wealth Management (“CWM”), which is a unit ofConsumer & Business Banking. The firmwide metrics are presented inorder to capture AM’s partnership with CWM. Management reviews
firmwide metrics in assessing the financial performance of AM’s client
asset management business.
(e) Excludes CWM client assets that are managed by AM.

AM’s client segments comprise the following:
Private Banking offers investment advice and wealthmanagement services to high- and ultra-high-net-worth
individuals, families, money managers, business owners
and small corporations worldwide, including investment
management, capital markets and risk management, tax
and estate planning, banking, capital raising andspecialty-wealth advisory services.
Institutional brings comprehensive global investment
services – including asset management, pension analytics,
asset-liability management and active risk-budgetingstrategies – to corporate and public institutions,endowments, foundations, non-profit organizations andgovernments worldwide.
Retail provides worldwide investment management
services and retirement planning and administration,
through financial intermediaries and direct distribution ofa full range of investment products.
J.P. Morgan Asset Management has two high-levelmeasures of its overall fund performance.
• Percentage of assets under management in funds rated
4- and 5-stars (three years). Mutual fund rating services
rank funds based on their risk-adjusted performanceover various periods. A 5-star rating is the best andrepresents the top 10% of industry-wide ranked funds. A
4-star rating represents the next 22% of industry wide
ranked funds. The worst rating is a 1-star rating.
• Percentage of assets under management in first- or
second- quartile funds (one, three and five years).
Mutual fund rating services rank funds according to apeer-based performance system, which measures returns
according to specific time and fund classification (small-,mid-, multi- and large-cap).

AM firmwide disclosures(d)Total net revenue$ 13,391$ 11,443$ 10,715

Client assets (in billions)(e)

2,534

2,244

2,035

Number of client advisors

6,006

5,784

6,084

(a) Derived from Morningstar for the U.S., the U.K., Luxembourg, France,
Hong Kong and Taiwan; and Nomura for Japan.
(b) Quartile ranking sourced from: Lipper for the U.S. and Taiwan;
Morningstar for the U.K., Luxembourg, France and Hong Kong; andNomura for Japan.
(c) Included $18.9 billion, $10.9 billion and $2.1 billion of prime
mortgage loans reported in the Consumer, excluding credit card, loan
portfolio at December 31, 2013, 2012 and 2011, respectively. For thesame periods, excluded $3.7 billion, $6.7 billion and $13.0 billion of

JPMorgan Chase & Co./2013 Annual Report107Management’s discussion and analysis
Client assets
2013 compared with 2012
Client assets were $2.3 trillion at December 31, 2013, an
increase of $248 billion, or 12%, compared with the prioryear. Assets under management were $1.6 trillion, an
increase of $172 billion, or 12%, from the prior year, due
to net inflows to long-term products and the effect of higher
market levels. Custody, brokerage, administration anddeposit balances were $745 billion, up $76 billion, or 11%,from the prior year, due to the effect of higher market levels
and custody inflows, partially offset by brokerage outflows.
2012 compared with 2011
Client assets were $2.1 trillion at December 31, 2012, anincrease of $174 billion, or 9%, from the prior year. Assets
under management were $1.4 trillion, an increase of $90
billion, or 7%, due to the effect of higher market levels andnet inflows to long-term products, partially offset by net
outflows from liquidity products. Custody, brokerage,administration and deposit balances were $669 billion, up$84 billion, or 14%, due to the effect of higher market
levels and custody and brokerage inflows.
Client assets
December 31,(in billions)

2013

2012

2011

Year ended December 31,(in billions)

Beginning balance

8

27

36

34

8

—

Multi-asset and alternatives

48

23

15

86

73

(33)

Market/performance/otherimpacts
Ending balance, December 31

Beginning balance

North America

312

Total net revenue

Total client assets

669

585

Alternatives client assets

2,343

$

158

2,095

$

142

1,921
134

Assets by client segment
Private Banking

2,095

$

1,921

$

1,840

60

$

2,343

123

114
$

2,095

(42)
$

1,921

2013
$ 1,852

2012
$

1,641

2011
$

1,704

1,175

967

971

867

772

808

7,426

6,566

6,060

$ 11,320

$

9,946

$

9,543

$

$

258

$

278

Assets under management
305

Asia/Pacific

132

114

Latin America/Caribbean

47

45

34

1,114

1,009

919

North America
Total assets under management105$ 1,598

$

1,426

$

1,336

$

$

317

$

329

Client assets
$

361

$

318

$

291

Europe/Middle East/Africa

Institutional

777

741

722

Asia/Pacific

Retail

460

367

323

Latin America/Caribbean

Total assets under management

$

1,598

$

1,426

$

1,336

Private Banking

$

977

$

877

$

781

Institutional

777

741

723

Retail

589

477

417

Total client assets$

168

Europe/Middle East/Africa
$

1,336

Year ended December 31,(in billions, except whereotherwise noted)
Total net revenue (in millions)(a)

236

745

$

International metrics

277

1,336

1,426

80

Ending balance, December 31

370

1,426

$

Market/performance/otherimpacts

Equity

1,598

1,598

Net asset flows

287

Custody/brokerage/administration/deposits$

Client assets rollforward

330

Total assets under management

1,298

Equity

330

361

$

Fixed income

Fixed income

447

1,336

20

Latin America/Caribbean

Multi-asset and alternatives

$

(41)

501

$

1,426
(4)

Liquidity

458$

Liquidity

Asia/Pacific

$

2011

Net asset flows:

Europe/Middle East/Africa
451

2012

Assets under management
rollforward

Assets by asset class
$

2013

$

2,343

$

2,095

$

1,921

$

392

$

410

$

458

North America
Total client assets

367
180

160

139

117

110

89

1,679

1,508

1,364

$ 2,343

$

2,095

$

1,921

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

Mutual fund assets by asset class
Liquidity
Fixed income

137

136

107

Equity

198

139

116

Multi-asset and alternatives

77

46

39

Total mutual fund assets

108

$

804

$

731

$

720

JPMorgan Chase & Co./2013 Annual ReportCORPORATE/PRIVATE EQUITYThe Corporate/Private Equity segment comprises
Private Equity, Treasury and Chief Investment Office(“CIO”), and Other Corporate, which includes corporate
staff units and expense that is centrally managed.
Treasury and CIO are predominantly responsible formeasuring, monitoring, reporting and managing the
Firm’s liquidity, funding and structural interest rate
and foreign exchange risks, as well as executing the
Firm’s capital plan. The major Other Corporate units
include Real Estate, Central Technology, Legal,
Compliance, Finance, Human Resources, Internal Audit,
Risk Management, Oversight & Control, Corporate
Responsibility and various Other Corporate groups.
Other centrally managed expense includes the Firm’s
occupancy and pension-related expense that are
subject to allocation to the businesses.
Selected income statement data(a)Year ended December 31,(in millions, except headcount)

2013

2012

2011

RevenuePrincipal transactions(4,268) $1,434

Securities gains

$

666

2,024

1,600

All other income

1,864

2,434

587

Noninterest revenue

3,093

190

3,621

Net interest income(1,839)(1,281)

582

Total net revenue(b)1,254(1,091)

4,203

(28)

(37)

(36)

Compensation expense

2,299

2,221

1,966

Noncompensation expense(c)13,208

6,972

6,325

Subtotal

Provision for credit losses

563$

Noninterest expense

15,507

9,193

8,291

Net expense allocated to otherbusinesses(5,252)(4,634)(4,276)

Total noninterest expense

10,255

4,559

4,015

Income before income tax
expense/(benefit)(8,973)(5,613)224(2,995)(3,591)(695)(2,022) $

919

601

836

Income tax expense/(benefit)
Net income/(loss)$ (5,978) $Total net revenue
Private equity

$

589

$

Treasury and CIO(792)(3,064)

Other Corporate(a)

1,457

1,372

Total net revenue

$

1,254

$

285

$

$

3,196
171

(1,091) $4,203

Net income/(loss)
Private equity$

Treasury and CIO(676)

Other Corporate(a)Total net income/(loss)
Total assets (period-end)
Headcount(a)

(a)

292

$

391

(2,093)

1,349(5,587)

(221)

(821)

$ (5,978) $(2,022) $919$805,987
20,717$ 725,251
17,758$ 689,718
16,653For further information on this transfer, see footnote (a) on page 86 of
this Annual Report.
(b) Included tax-equivalent adjustments, predominantly due to tax-exempt
income from municipal bond investments of $480 million, $443
million and $298 million for the years ended December 31, 2013,2012 and 2011, respectively.
(c) Included litigation expense of $10.2 billion, $3.7 billion and $3.2
billion for the years ended December 31, 2013, 2012 and 2011,
respectively.

2013 compared with 2012
Net loss was $6.0 billion, compared with a net loss of $2.0
billion in the prior year.
Private Equity reported net income of $285 million,
compared with net income of $292 million in the prior year.
Net revenue was of $589 million, compared with $601
million in the prior year.
Treasury and CIO reported a net loss of $676 million,
compared with a net loss of $2.1 billion in the prior year.
Net revenue was a loss of $792 million, compared with aloss of $3.1 billion in the prior year. Net revenue in thecurrent year includes $659 million of net securities gains
from the sales of available-for-sale investment securities,
compared with securities gains of $2.0 billion and $888
million of pretax extinguishment gains related to theredemption of trust preferred capital debt securities in theprior year. The extinguishment gains were related toadjustments applied to the cost basis of the trust preferred
securities during the period they were in a qualified hedge
accounting relationship. The prior year loss also reflected$5.8 billion of losses incurred by CIO from the synthetic
credit portfolio for the six months ended June 30, 2012,
and $449 million of losses from the retained index credit
derivative positions for the three months ended September
30, 2012. Current year net interest income was a loss of$1.4 billion compared with a loss of $683 million in theprior year, primarily due to low interest rates and limited
reinvestment opportunities. Net interest income improvedin the fourth quarter of 2013 due to higher interest rates
and better reinvestment opportunities.
Other Corporate reported a net loss of $5.6 billion,
compared with a net loss of $221 million in the prior year.
Current year noninterest revenue was $1.8 billion
compared with $1.8 billion in the prior year. Current year
noninterest revenue included gains of $1.3 billion and $493
million on the sales of Visa shares and One Chase
Manhattan Plaza, respectively. Noninterest revenue in theprior year included a $1.1 billion benefit for the Washington
Mutual bankruptcy settlement and a $665 million gain for
the recovery on a Bear Stearns-related subordinated loan.
Noninterest expense of $9.7 billion was up $5.9 billion
compared to the prior year. The current year included$10.2 billion of legal expense, including reserves forlitigation and regulatory proceedings compared with $3.7
billion of expense for additional litigation reserves, largely
for mortgage-related matters, in the prior year.

(a) The 2012 and 2011 data for certain income statement line items(predominantly net interest income, compensation, and noncompensation) were revised to reflect the transfer of certain
technology and operations, as well as real estate-related functions andstaff from Corporate/Private Equity to CCB, effective January 1, 2013.

JPMorgan Chase & Co./2013 Annual Report109Management’s discussion and analysis
2012 compared with 2011
Net loss was $2.0 billion, compared with a net income of$919 million in the prior year.
Private Equity reported net income of $292 million,
compared with net income of $391 million in the prior year.
Net revenue was $601 million, compared with $836 million
in the prior year, due to lower unrealized and realized gains
on private investments, partially offset by higher unrealized
gains on public securities. Noninterest expense was $145
million, down from $238 million in the prior year.
Treasury and CIO reported a net loss of $2.1 billion,
compared with net income of $1.3 billion in the prior year.
Net revenue was a loss of $3.1 billion, compared with net
revenue of $3.2 billion in the prior year. The current year
loss reflected $5.8 billion of losses incurred by CIO from thesynthetic credit portfolio for the six months ended June 30,
2012, and $449 million of losses from the retained index
credit derivative positions for the three months ended
September 30, 2012. These losses were partially offset by
securities gains of $2.0 billion. The current year revenue
reflected $888 million of extinguishment gains related to
the redemption of trust preferred securities, which areincluded in all other income in the above table. The
extinguishment gains were related to adjustments applied
to the cost basis of the trust preferred securities during theperiod they were in a qualified hedge accounting
relationship. Net interest income was negative $683
million, compared with $1.4 billion in the prior year,
primarily reflecting the impact of lower portfolio yields andhigher deposit balances across the Firm.
Other Corporate reported a net loss of $221 million,
compared with a net loss of $821 million in the prior year.
Noninterest revenue of $1.8 billion was driven by a $1.1
billion benefit for the Washington Mutual bankruptcy
settlement, which is included in all other income in theabove table, and a $665 million gain from the recovery on a
Bear Stearns-related subordinated loan. Noninterest
expense of $3.8 billion was up $1.0 billion compared withthe prior year. The current year included expense of $3.7
billion for additional litigation reserves, largely formortgage-related matters. The prior year included expenseof $3.2 billion for additional litigation reserves.

Treasury and CIO overview

Treasury and CIO are 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.
CIO achieves the Firm’s asset-liability management
objectives generally by investing in high-quality securities
that are managed for the longer-term as part of the Firm’s
AFS and HTM investment securities portfolios (the“investment securities portfolio”). CIO also uses derivatives,
as well as securities that are not classified as AFS or HTM, tomeet the Firm’s asset-liability management objectives. For
further information on derivatives, see Note 6 on pages
220–233 of this Annual Report. For further information
about securities not classified within the AFS or HTM
portfolio, see Note 3 on pages 195–215 of this Annual
Report. The Treasury and CIO investment securities
portfolio primarily consists of U.S. and non-U.S. government
securities, agency and non-agency mortgage-backed
securities, other asset-backed securities, corporate debt
securities and obligations of U.S. states and municipalities.
At December 31, 2013, the total Treasury and CIO
investment securities portfolio was $347.6 billion; theaverage credit rating of the securities comprising theTreasury and CIO investment securities portfolio was AA+(based upon external ratings where available and where notavailable, based primarily upon internal ratings that
correspond to ratings as defined by S&P and Moody’s). See
Note 12 on pages 249–254 of this Annual Report 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 168–173 of thisAnnual Report. For information on interest rate, foreignexchange and other risks, Treasury and CIO Value-at-risk(“VaR”) and the Firm’s structural interest rate-sensitive
revenue at risk, see Market Risk Management on pages
142–148 of this Annual Report.
Selected income statement and balance sheet data
As of or for the year ended
December 31, (in millions)2013

Securities gains

659

$

2,028

2011
$

1,385

Investment securities portfolio(average)

353,712358,029

330,885

Investment securities portfolio(period–end)(a)347,562

365,421355,605

Mortgage loans (average)

5,145

10,241

13,006Mortgage loans (period-end)

3,779

7,037

13,375

(a)

110

$

2012

Period-end investment securities included held-to-maturity balanceof $24.0 billion at December 31, 2013. Held-to-maturity balances
for the other periods were not material.

JPMorgan Chase & Co./2013 Annual ReportPrivate Equity portfolio

Private equity portfolio information(a)Direct investments

Selected income statement and balance sheet data
Year ended December 31,(in millions)2013

December 31, (in millions)

2012

2011

17

$ 1,842

Carrying value

Private equity gains/(losses)
Realized gains$

Unrealized gains/(losses)(170) $
734

(a)

639

(1,305)

2013

2012

2011

Publicly held securities$

Cost
Quoted public value

1,035

$

578

$

805

672

350

573

1,077

578

896

Total direct investments

564

656

537

Privately held direct securities

Third-party fund investments

137

134

417

Carrying value

5,065

5,379

4,597

Cost

6,022

6,584

6,793

Carrying value

1,768

2,117

2,283

Cost

1,797

1,963

2,452

Total private equity gains/(losses)(b)
(a)
(b)

$

701

$

790

$

Includes reversals of unrealized gains and losses that wererecognized in prior periods and have now been realized.
Included in principal transactions revenue in the Consolidated
Statements of Income.

954

Third-party fund investments(b)Total private equity portfolio
Carrying value
Cost
(a)
(b)

$

7,868
8,491

$

8,074
8,897

$

7,685
9,818

For more information on the Firm’s policies regarding the valuation of
the private equity portfolio, see Note 3 on pages 195–215 of thisAnnual Report.
Unfunded commitments to third-party private equity funds were$215 million, $370 million and $789 million at December 31, 2013,2012 and 2011, respectively.

2013 compared with 2012
The carrying value of the private equity portfolio at
December 31, 2013 was $7.9 billion, down from $8.1
billion at December 31, 2012. The decrease in the portfolio
was predominantly driven by sales of investments, partially
offset by new investments and unrealized gains.
2012 compared with 2011
The carrying value of the private equity portfolio at
December 31, 2012 was $8.1 billion, up from $7.7 billion
at December 31, 2011. The increase in the portfolio waspredominantly driven by new investments and unrealized
gains, partially offset by sales of investments.

JPMorgan Chase & Co./2013 Annual Report111Management’s discussion and analysis

INTERNATIONAL OPERATIONS
During the years ended December 31, 2013, 2012 and2011, the Firm recorded $24.0 billion, $18.5 billion and$24.5 billion, respectively, of managed revenue derived
from clients, customers and counterparties domiciled
outside of North America. Of those amounts, 65%, 57%
and 66%, respectively, were derived from Europe/Middle

East/Africa (“EMEA”); 26%, 30% and 25%, respectively,from Asia/Pacific; and 9%, 13% and 9%, respectively, from
Latin America/Caribbean. For additional information
regarding international operations, see Note 32 on page333 of this Annual Report.

International wholesale activities
The Firm is committed to meeting the needs of its clients aspart of a coordinated international business strategy.
Set forth below are certain key metrics related to the Firm’s wholesale international operations, including, for each of EMEA,
Asia/Pacific and Latin America/Caribbean, the number of countries in each such region in which they operate, front-officeheadcount, number of significant clients, revenue and selected balance-sheet data.
As of or for the year ended
December 31,(in millions, except headcountand where otherwise noted)
Revenue(a)

EMEA
2013
$ 15,441 $Asia/Pacific

2012

2011

10,398 $16,141

2013
$

2012

Latin America/Caribbean
2011

2013

6,138 $

5,590 $

5,971

$

2012

2011

2,233 $

2,327 $

2,232

Countries of operation(b)

33

33

33

17

17

16

9

9

9

New offices

—

—

1

—

2

2

—

—

4

15,560

15,485

16,185

21,69920,50920,212

1,495

1,435

1,380

6,285

5,805

5,937

4,353

4,166

4,263

655

591

524

1,071

1,008

950

498

509

496

177

162

138

5,546 $

4,823 $

5,318

Total headcount(c)

Front-office headcountSignificant clients(d)Deposits (average)(e)Loans (period-end)(f)$ 192,064 $ 169,693 $ 168,882$

56,440 $57,329 $ 57,684$

45,571

40,76036,637

26,56030,287

31,11929,21430,32225,141

Assets under management(in billions)

305

258

278

132

114

105

47

45

34

Client assets (in billions)

367

317

329

180

160

139

117

110

89

7,348

6,502

5,430

1,607

1,577

1,426

231

252

279

Assets under custody (in billions)

Note: International wholesale operations is comprised of CIB, AM, CB and Treasury and CIO.
(a) Revenue is based predominantly on the domicile of the client, the location from which the client relationship is managed, or the location of the tradingdesk.
(b) Countries of operation represents locations where the Firm has a physical presence with employees actively engaged in “client facing” activities.
(c) Total headcount includes all employees, including those in service centers, located in the region. Effective January 1, 2013, interns are excluded from thefirmwide and business segment headcount metrics. Prior periods were revised to conform with this presentation.
(d) Significant clients are defined as companies with over $1 million in revenue over a trailing 12-month period in the region (excludes private banking
clients).
(e) Deposits are based on the location from which the client relationship is managed.
(f) Loans outstanding are based predominantly on the domicile of the borrower and exclude loans held-for-sale and loans carried at fair value.

112

JPMorgan Chase & Co./2013 Annual Report

ENTERPRISE-WIDE RISK MANAGEMENT
Risk is an inherent part of JPMorgan Chase’s businessactivities. The Firm employs a holistic approach to risk
management that is intended to ensure the broad spectrumof risk types are considered in managing its businessactivities.
The Firm believes effective risk management requires:• Acceptance of responsibility by all individuals within the
Firm;• Ownership of risk management within each line ofbusiness; and• Firmwide structures for risk governance and oversight.
Firmwide Risk Management is overseen and managed on an
enterprise-wide basis. The Firm’s Chief Executive Officer(“CEO”), Chief Financial Officer (“CFO”), Chief Risk Officer(“CRO”) and Chief Operating Officer (“COO”) develop andset the risk management framework and governancestructure for the Firm which is intended to provide
comprehensive controls and ongoing management of the
major risks inherent in the Firm’s business activities. The

JPMorgan Chase & Co./2013 Annual ReportFirm’s risk management framework is intended to create aculture of risk transparency and awareness, and personal
responsibility throughout the Firm where collaboration,
discussion, escalation and sharing of information areencouraged. The CEO, CFO, CRO and COO are ultimately
responsible and accountable to the Firm’s Board of
Director’s.
The Firm believes that risk management is the responsibilityof every employee. Employees are expected to operate withthe highest standards of integrity and identify, escalate, andcorrect mistakes. The Firm’s risk culture strives forcontinual improvement through ongoing employee training
and development, as well as talent retention. The Firm also
approaches its incentive compensation arrangements
through an integrated risk, compensation and financial
management framework to encourage a culture of risk
awareness and personal accountability. The Firm’s overall
objective in managing risk is to protect the safety andsoundness of the Firm, and avoid excessive risk taking.

113

Management’s discussion and analysis
The following sections outline the key risks that are inherent in the Firm’s business activities.

Risks
managedcentrally

Risk

Definition

Key risk management metrics

Page
references

Capital risk

The risk the Firm has insufficient capital resources to support the Firm’s
business activities and related risks.

Risk-based capital ratios, Supplementary Leverageratio

160-167

Liquidityrisk

The risk the Firm will not have the appropriate amount, composition or
tenor of funding and liquidity to support its assets and obligations.

LCR; Stress; Parent Holding Company Pre-Funding

168-173

FX Net Open Position (“NOP”)

220,
229-231

Non-USD FX Risk arising from capital investments, forecasted expense and revenue,
risk
investment securities portfolio or issuing debt in denominations otherthan the U.S. dollar.
Structuralinterest
rate risk

Risk resulting from the Firm’s traditional banking activities (both on- and Earnings-at-risk
off-balance sheet positions) arising from the extension of loans and credit
facilities, taking deposits and issuing debt, and the impact of the CIO
investment securities portfolio.

Country risk Risk that a sovereign’s unwillingness or inability to pay will result inmarket, credit, or other losses.

Default exposure at 0% recovery, Stress149-152

Credit risk

Risk of loss from obligor or counterparty default.

Total exposure; industry and geographic
concentrations; risk ratings; delinquencies; loss
experience; stress

117-141

Fiduciaryrisk

Risk of failing to exercise the applicable standard of care or to act in thebest interests of clients or treat all clients fairly as required underapplicable law or regulation.

Not Applicable

159

Legal risk

Risk of loss or imposition of damages, fines, penalties or other liability
arising from failure to comply with a contractual obligation or to comply
with laws or regulations to which the Firm is subject.

Not Applicable

158

Market risk
Risksmanagedon an LOBaligned Model risk
basis

Risk of loss arising from adverse changes in the value of the Firm’s assets VaR, Stress, Sensitivities
and liabilities resulting from changes in market variables such as interest
rates, foreign exchange rates, equity and commodity prices and theirimplied volatilities, and credit spreads.

142-148

Risk of a material inaccuracy in the quantification of the value of, or an
inaccuracy of the identification and measurement of a position held by or
activity engaged in by the Firm.

Model Status, Model Tier

153

Operational Risk of loss resulting from inadequate or failed processes or systems,
riskhuman factors or external events

Various metrics- see page 156

155-157

Principal
risk

Risk of an adverse change in the value of privately-held financial assets
and instruments, typically representing an ownership or junior capital
position. These positions have unique risks due to their illiquidity or forwhich there is less observable market or valuation data.

Carrying Value, Stress154

Regulatory
andCompliancerisk

Risk of regulatory actions, including fines or penalties, arising from thefailure to comply with the various U.S. federal and state laws andregulations and the laws and regulations of the various jurisdictions
outside the United States in which the Firm conducts business.

Not Applicable

158

Reputation
risk

Risk that an action, transaction, investment or event will reduce the trustthat clients, shareholders, employees or the broader public has in the
Firm’s integrity or competence.

Not Applicable

159

Risk governance and oversight
The Board of Directors provides oversight of risk principally
through the Board of Directors’ Risk Policy Committee(“DRPC”), Audit Committee and, with respect tocompensation, Compensation & Management Development
Committee.
The Firm’s overall risk appetite is established bymanagement taking into consideration the Firm’s capitaland liquidity positions, earnings power, and diversified
business model. The risk appetite framework is a tool tomeasure the capacity to take risk and is expressed in loss
tolerance parameters at the Firm and/or LOB levels,
including net income loss tolerances, liquidity limits andmarket limits. Performance against these parametersinforms management's strategic decisions and is reported
to the DRPC.

114

147-148

The Firm-level risk appetite parameters are set andapproved by the Firm’s CEO, CFO, CRO and COO. LOB-levelrisk appetite parameters are set by the LOB CEO, CFO, andCRO and are approved by the Firm’s functional heads as
noted above. Firmwide LOB diversification allows the sum of
the LOBs’ loss tolerances to be greater than the Firmwide
loss tolerance.
The CRO is responsible for the overall direction of the Firm’s
Risk Management function and is the head of the Risk
Management Organization. The LOBs and legal entities areultimately responsible for managing the risks inherent intheir respective business activities.
The Firm’s Risk Management Organization and otherFirmwide functions with risk-related responsibilities (i.e.,
Regulatory Capital Management Office (“RCMO”), Oversightand Control Group, Valuation Control Group (“VCG”), Legaland Compliance) provide independent oversight of themonitoring, evaluation and escalation of risk.
JPMorgan Chase & Co./2013 Annual Report

The chart below illustrates the Firm’s Risk Governance structure and certain key management level committees that areprimarily responsible for key risk-related functions; there are additional committees not represented in the chart (e.g.
Firmwide Fiduciary Risk Committee, and other functional forums) that are also responsible for management and oversight ofrisk. Additionally, the chart illustrates how the primary escalation mechanism works.

In assisting the Board in its oversight of risk, primary
responsibility with respect to credit risk, market risk,
structural interest rate risk, principal risk, liquidity risk,
country risk, fiduciary risk and model risk rests with the
DRPC, while primary responsibility with respect to operatingrisk, legal risk and compliance risk rests with the Audit
Committee. Each committee of the Board oversees
reputation risk issues within its scope of responsibility.
The Directors’ Risk Policy Committee (“DRPC”) assists theBoard in its oversight of management’s exercise of its
responsibility to (i) assess and manage the Firm’s risk; (ii)ensure that there is in place an effective system reasonably
designed to evaluate and control such risks throughout theFirm; and (iii) manage capital and liquidity planning andanalysis. The DRPC reviews and approves Primary Risk
Policies (as designated by the DRPC), reviews firmwide
value-at-risk, stress limits and any other metrics agreed towith management, and performance against such metrics.
The Firm’s CRO, LOB CROs, LOB CEOs, heads of risk forCountry Risk, Market Risk, Wholesale Credit Risk, Consumer
Credit Risk, Model Risk, Risk Management Policy, Reputation
Risk Governance, Fiduciary Risk Governance, andOperational Risk Governance (all referred to as Firmwide
Risk Executives) meet with and provide updates andescalations to the DRPC. Additionally, breaches in risk
JPMorgan Chase & Co./2013 Annual Report

appetite tolerances, liquidity issues that may have amaterial adverse impact on the Firm and other significant
matters as determined by the CRO or Firmwide functions
with risk responsibility are escalated to the DRPC.
The Audit Committee assists the Board in its oversight ofguidelines and policies that govern the process by whichrisk assessment and management is undertaken. In
addition, the Audit Committee reviews with management
the system of internal control that is relied upon to provide
reasonable assurance of compliance with the Firm’s
execution of operational risk. In addition, Internal Audit, an
independent function within the Firm that provides
independent and objective assessments of the control
environment, reports directly to the Audit Committee andadministratively to the CEO. Internal Audit conducts
independent reviews to evaluate the Firm’s internal control
structure and compliance with applicable regulatory
requirements and is responsible for providing the Audit
Committee, senior management and regulators with anindependent assessment of the Firm’s ability to manage andcontrol risk.
The Compensation & Management Development Committee,
assists the Board in its oversight of the Firm’s compensation
programs and reviews and approves the Firm’s overall
compensation philosophy and practices. The Committee
115

Management’s discussion and analysis
reviews the Firm’s compensation practices as they relate torisk and risk management in light of the Firm’s objectives,
including its safety and soundness and the avoidance ofexcessive risk taking. The Committee reviews and approves
the terms of compensation award programs, including
recovery provisions, restrictive covenants and vesting
periods. The Committee also reviews and approves the
Firm’s overall incentive compensation pools and reviews
those of each of the Firm’s lines of business and Corporate/
Private Equity segment. The Committee reviews theperformance and approves all compensation awards for the
Firm’s Operating Committee on a name-by-name basis. The
full Board’s independent directors review the performanceand approve the compensation of the Firm’s CEO.
Among the Firm’s management level committees that areprimarily responsible for key risk-related functions are:
The Asset-Liability Committee (“ALCO”), chaired by the
Corporate Treasurer under the direction of the COO,
monitors the Firm’s overall liquidity risk. ALCO is
responsible for reviewing and approving the Firm’s liquidity
policy and contingency funding plan. ALCO also reviews the
Firm’s funds transfer pricing policy (through which lines ofbusiness “transfer” interest rate and foreign exchange risk
to Treasury), overall structural interest rate risk position,
funding requirements and strategy, and the Firm’s
securitization programs (and any required liquidity support
by the Firm of such programs).
The Capital Governance Committee, chaired by the Firm’s
CFO, is responsible for reviewing the Firm’s CapitalManagement Policy and the principles underlying capitalissuance and distribution alternatives. The Committee isalso responsible for governing the capital adequacy
assessment process, including overall design, assumptions
and risk streams; and, ensuring that capital stress test
programs are designed to adequately capture theidiosyncratic risks across the Firm’s businesses.
The Firmwide Risk Committee (“FRC”) provides oversight of
the risks inherent in the Firm’s businesses, including
market, credit, principal, structural interest rate,
operational risk framework, fiduciary, reputational, country,
liquidity and model risks. The Committee is co-chaired by
the Firm’s CEO and CRO. Members of the committee include
the the Firm’s COO, LOB CEOs, LOB CROs, General Counsel,
and other senior managers from risk and control functions.
This committee serves as an escalation point for risk topics
and issues raised by the Firm’s Operating Committee, theLine of Business Risk Committees, Firmwide Control
Committee (“FCC”) and other subordinate committees.
The Firmwide Control Committee (“FCC”) provides a forum
for senior management to review and discuss firmwide
operational risks including existing and emerging issues, aswell as operational risk metrics, management andexecution. The FCC serves as an escalation point forsignificant issues raised from LOB and Functional Control
Committees, particularly those with potential enterprisewide impact. The FCC (as well as the LOB and Functional
Control Committees) oversees the risk and control
environment, which includes reviewing the identification,
management and monitoring of operational risk, control
issues, remediation actions and enterprise-wide trends. The
FCC escalates significant issues to the FRC.
116

Each LOB Risk Committee is responsible for decisions
relating to risk strategy, policy, measurement and control
within its respective LOB. The committee is co-chaired by
the LOB CRO and LOB CEO or equivalent. The committee hasa clear set of escalation rules and it is the responsibility ofcommittee members to escalate line of business risk topics
to the Firmwide Risk Committee as appropriate.
Other corporate functions and forums with risk
management-related responsibilities include:
The Firm’s Oversight and Control Group is comprised of
dedicated control officers within each of the lines ofbusiness and Corporate functional areas, as well as a central
oversight team. The group is charged with enhancing the
Firm’s controls by looking within and across the lines ofbusiness and Corporate functional areas to identify andcontrol issues. The group enables the Firm to detect control
problems more quickly, escalate issues promptly and get
the right people involved to understand common themes
and interdependencies among the various parts of the Firm.
The group works closely with the Firm’s other controlrelated functions, including Compliance, Legal, Internal
Audit and Risk Management, to effectively remediate
identified control issues across all affected areas of theFirm. As a result, the group facilitates the effective
execution of the Firm’s control framework and helps
support operational risk management across the Firm.
The Firmwide Valuation Governance Forum (“VGF”) is
composed of senior finance and risk executives and is
responsible for overseeing the management of risks arisingfrom valuation activities conducted across the Firm. The
VGF is chaired by the firmwide head of the Valuation Control
function (under the direction of the Firm’s CFO), and also
includes sub-forums for the CIB, Mortgage Bank, andcertain corporate functions, including Treasury and CIO.
In addition to the committees, forums and groups listed
above, the Firm has other management committees andforums at the LOB and regional levels, where risk-related
topics are discussed and escalated as necessary. The
membership of these committees is composed of senior
management of the Firm including representation from thebusiness and various control functions. The committees
meet regularly to discuss a broad range of topics.
The JPMorgan Chase Bank N.A. Board of Directors is
responsible for the oversight of management on behalf of
JPMorgan Chase Bank N.A. The JPMorgan Chase Bank N.A.
Board accomplishes this function acting directly andthrough the principal standing committees of the Firm's
Board of Directors. Risk oversight on behalf of JPMorgan
Chase Bank N.A. is primarily the responsibility of the Firm’s
DRPC, Audit Committee and, with respect to compensationrelated matters, the Compensation & Management
Development Committee.

JPMorgan Chase & Co./2013 Annual Report

CREDIT RISK MANAGEMENT
Credit risk is the risk of loss from obligor or counterparty
default. The Firm provides credit to a variety of customers,
ranging from large corporate and institutional clients toindividual consumers and small businesses. In its consumer
businesses, the Firm is exposed to credit risk through its
residential real estate, credit card, auto, business banking
and student lending businesses. Originated mortgage loans
are retained in the mortgage portfolio, or securitized orsold to U.S. government agencies and U.S. governmentsponsored enterprises; other types of consumer loans are
typically retained on balance sheet. In its wholesale
businesses, the Firm is exposed to credit risk through its
underwriting, lending and derivatives activities with and forclients and counterparties, as well as through its operating
services activities, such as cash management and clearing
activities. A portion of the loans originated or acquired by
the Firm’s wholesale businesses are generally retained on
the balance sheet; the Firm’s syndicated loan business
distributes a significant percentage of originations into themarket and is an important component of portfolio
management.
Credit risk organization
Credit risk management is overseen by the Chief Risk
Officer and implemented within the lines of business. The
Firm’s credit risk management governance consists of thefollowing activities:•

Establishing a comprehensive credit risk policy
framework•

Monitoring and managing credit risk across all portfolio
segments, including transaction and line approval•

Assigning and managing credit authorities in connection
with the approval of all credit exposure•Managing criticized exposures and delinquent loans•

Determining the allowance for credit losses and ensuring
appropriate credit risk-based capital management

Risk identification and measurement
Credit Risk Management works in partnership with thebusiness segments in identifying and aggregating exposuresacross all lines of business. To measure credit risk, the Firm
employs several methodologies for estimating the likelihoodof obligor or counterparty default. Methodologies formeasuring credit risk vary depending on several factors,
including type of asset (e.g., consumer versus wholesale),risk measurement parameters (e.g., delinquency status andborrower’s credit score versus wholesale risk-rating) andrisk management and collection processes (e.g., retailcollection center versus centrally managed workout
groups). Credit risk measurement is based on theprobability of default of an obligor or counterparty, the loss
severity given a default event and the exposure at default.
Based on these factors and related market-based inputs,
the Firm estimates credit losses for its exposures. Probablecredit losses inherent in the consumer and wholesale loan
JPMorgan Chase & Co./2013 Annual Report

portfolios are reflected in the allowance for loan losses, andprobable credit losses inherent in lending-related
commitments are reflected in the allowance for lendingrelated commitments. These losses are estimated using
statistical analyses and other factors as described in Note
15 on pages 284–287 of this Annual Report. In addition,
potential and unexpected credit losses are reflected in the
allocation of credit risk capital and represent the potential
volatility of actual losses relative to the establishedallowances for loan losses and lending-related
commitments. The analyses for these losses include stresstesting (considering alternative economic scenarios) as
described in the Stress Testing section below.
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 and includes
residential real estate loans, credit card loans, certain autoand business banking loans, and student loans. For thescored portfolio, credit loss estimates are based on
statistical analysis of credit losses over discrete periods oftime and are estimated using 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 AM,
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 and loss severity given adefault. The estimation process begins with risk-ratings thatare assigned to each loan facility to differentiate risk within
the portfolio. These risk-ratings are reviewed on an ongoingbasis by Credit Risk management and revised as needed toreflect the borrower’s current financial position, risk profileand related collateral. The probability of default is thelikelihood that a loan will default and not be fully repaid by
the borrower. The probability of default is estimated foreach borrower, and a loss given default is estimatedconsidering the collateral and structural support for eachcredit facility. The calculations and assumptions are basedon management information systems and methodologies
that are under continual review.

117Management’s discussion and analysis
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 parameters underlying thosescenarios, are defined centrally and applied across thebusinesses. These scenarios are articulated in terms ofmacroeconomic factors, and the stress test results may
indicate credit migration, changes in delinquency trends
and potential losses in the credit portfolio. In addition to theperiodic stress testing processes, management also
considers additional stresses outside these scenarios, asnecessary. The Firm uses stress testing to inform ourdecisions on setting risk appetite both at a Firm and line ofbusiness level, as well as for assessing the impact of stresson industry concentrations.

Wholesale credit risk is monitored regularly at an aggregate
portfolio, industry and individual counterparty level withestablished concentration limits that are reviewed andrevised, as deemed appropriate by management, typicallyon an annual basis. Industry and counterparty limits, asmeasured in terms of exposure and economic credit risk
capital, are subject to stress-based loss constraints.

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.

In addition to Risk Management, Internal Audit performs
periodic exams, as well as continuous review, whereappropriate, of the Firm’s consumer and wholesale
portfolios. For risk-rated portfolios, a credit review groupwithin Internal Audit is responsible for:For consumer credit risk, delinquency and other trends,
including any concentrations at the portfolio level, aremonitored, 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 businessexpectations, current and forecasted economic conditions,and industry benchmarks. Loss mitigation strategies are
employed for all residential real estate portfolios. These
strategies include interest rate reductions, term or payment
extensions, principal and interest deferral and other actions
intended to minimize economic loss and avoid foreclosure.
Historical and forecasted trends are incorporated into themodeling of estimated consumer credit losses and are partof the monitoring of the credit risk profile of the portfolio.
Under the Firm’s model risk policy, new significant risk
management models, as well as major changes to suchmodels, are required to be reviewed and approved by the
Model Review Group prior to implementation into theoperating environment. Internal Audit also periodically tests
the internal controls around the modeling process including
the integrity of the data utilized. For a discussion of theModel Review Group, see page 153 of this Annual Report.
For further discussion of consumer loans, see Note 14 on
pages 258–283 of this Annual Report.

118

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
Use of master netting agreements
Collateral and other risk-reduction techniques

Independently assessing and validating the changing risk
grades assigned to exposures; andEvaluating the effectiveness of business units’ riskratings, including the accuracy and consistency of risk
grades, the timeliness of risk grade changes and thejustification of risk grades in credit memoranda

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 Credit Risk Management. Detailed
portfolio reporting of industry, customer, product andgeographic concentrations occurs monthly, and theappropriateness of the allowance for credit losses isreviewed by senior management at least on a quarterly
basis. Through the risk reporting and governance structure,credit risk trends and limit exceptions are provided
regularly to, and discussed with, senior management andthe Board of Directors as appropriate.

JPMorgan Chase & Co./2013 Annual Report

CREDIT PORTFOLIO
2013 Credit Risk Overview
The credit environment in 2013 continued to improve, with
reduced concerns around the European financial crisis andimproving market conditions in the U.S. Over the course of
the year, the Firm continued to actively manage its
underperforming and nonaccrual loans and reduce such
exposures through repayments, loan sales and workouts.
The Firm saw decreased downgrade, default and charge-off
activity and improved consumer delinquency trends. The
Firm increased its overall lending activity driven by thewholesale businesses. The combination of these factors
resulted in an improvement in the credit quality of theportfolio compared with 2012 and contributed to the Firm’s
reduction in the allowance for credit losses. For further
discussion of the consumer credit environment andconsumer loans, see Consumer Credit Portfolio on pages
120–129 and Note 14 on pages 258–283 of this Annual
Report. For further discussion of wholesale credit
environment and wholesale loans, see Wholesale Credit
Portfolio on pages 130–138 and Note 14 on pages 258–
283 of this Annual Report.
The following tables present the Firm’s credit-related
information with respect to its credit portfolio. Total credit
exposure was $1.9 trillion at December 31, 2013, an
increase of $2.2 billion from December 31, 2012, reflecting
an increase in the wholesale portfolio of $13.7 billion offset
by a decrease in the consumer portfolio of $11.5 billion.
For further information on the changes in the credit
portfolio, see Consumer Credit Portfolio on pages 120–129,
and Wholesale Credit Portfolio on pages 130–138, of thisAnnual Report.
In the following tables, reported loans include loans
retained (i.e., held-for-investment); loans held-for-sale(which are carried at the lower of cost or fair value, withvaluation changes recorded in noninterest revenue); andcertain loans accounted for at fair value. In addition, theFirm records certain loans accounted for at fair value in
trading assets. For further information regarding theseloans see Note 3 on pages 195–215 of this Annual Report.
For additional information on the Firm’s loans andderivative receivables, including the Firm’s accounting
policies, see Note 14 and Note 6 on pages 258–283 and
220–233, respectively, of this Annual Report.
For further information regarding the credit risk inherent in
the Firm’s investment securities portfolio, see Note 12 on
pages 249–254 of this Annual Report.

JPMorgan Chase & Co./2013 Annual Report

Total credit portfolio
December 31, 2013

Credit exposure(in millions)
Loans retained

2013

Nonperforming(c)(d)(e)

2012

2013

$ 724,177 $ 726,835

$

2012

8,317 $ 10,609

Loans held-for-sale

12,230

4,406

26

18

Loans at fair value(a)

2,011

2,555

197

265

Total loans – reported

738,418

733,796

8,540

10,892Derivative receivables

65,75974,983415

239

Receivables from
customers and other

26,88323,761——

Total credit-related
assets831,060

832,540

8,955

11,131

Real estate owned

NA

NA

710

738

Other

NA

NA

41

37

Assets acquired in loansatisfactions

Total assets acquired inloan satisfactions

NA

NA

751

775

831,060

832,540

9,706

11,906

Lending-related
commitments

1,031,672

1,027,988

206

355

Total credit portfolio$1,862,732 $1,860,528$

Credit Portfolio
Management derivatives
notional, net(b)$$Total assets

Liquid securities and othercash collateral held
against derivatives(27,996) $(27,447)(14,435)(15,201)

Year ended December 31,(in millions, except ratios)
Net charge-offs(f)9,912 $ 12,261
(5) $

(25)

NA

NA

2013
$

5,802

2012
$

9,063

Average retained loans
Loans – reported

720,152

717,035

Loans – reported, excluding
residential real estate PCI loans

663,629

654,454

Net charge-off rates(f)Loans – reported

0.81%

1.26%

Loans – reported, excluding PCI

0.87

1.38

(a) During 2013, certain loans that resulted from restructurings that werepreviously classified as performing were reclassified as nonperforming loans.
Prior periods were revised to conform with the current presentation.
(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. Excludes the synthetic credit portfolio. For additional information, see
Credit derivatives on pages 137–138 and Note 6 on pages 220–233 of thisAnnual Report.
(c) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as they are all performing.
(d) At December 31, 2013 and 2012, nonperforming assets excluded: (1) mortgage
loans insured by U.S. government agencies of $8.4 billion and $10.6 billion,
respectively, that are 90 or more days past due; (2) real estate owned insured by
U.S. government agencies of $2.0 billion and $1.6 billion, respectively; and (3)student loans insured by U.S. government agencies under the FFELP of $428
million and $525 million, respectively, that are 90 or more days past due. Theseamounts 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 guidanceissued by the Federal Financial Institutions Examination Council (“FFIEC”).
(e) At December 31, 2013 and 2012, total nonaccrual loans represented 1.16%
and 1.48%, respectively, of total loans.
(f) Net charge-offs and net charge-off rates for the year ended December 31, 2012,
included $800 million of incremental charge-offs of Chapter 7 loans. See
Consumer Credit Portfolio on pages 120–129 of this Annual Report for further
details.

119Management’s discussion and analysis

CONSUMER CREDIT PORTFOLIO
JPMorgan Chase’s consumer portfolio consists primarily of
residential real estate loans, credit card loans, auto loans,business banking loans, and student loans. The Firm’s focus
is on serving the prime segment of the consumer credit
market. For further information on consumer loans, see Note
14 on pages 258–283 of this Annual Report.
A substantial portion of the consumer loans acquired in the
Washington Mutual transaction were identified as purchased
credit-impaired (“PCI”) based on an analysis of high-risk
characteristics, including product type, loan-to-value (“LTV”)
ratios, FICO risk scores and delinquency status. These PCI
loans are accounted for on a pool basis, and the pools are
considered to be performing. For further information on PCI
loans see Note 14 on pages 258–283 of this Annual Report.

120

The credit performance of the consumer portfolio continues
to improve as the economy slowly expands and home prices
improve. Loss rates are improving, particularly in the credit
card and residential real estate portfolios. Early-stage
residential real estate delinquencies (30–89 days
delinquent), excluding government guaranteed loans,declined from December 31, 2012. Late-stage delinquencies(150+ days delinquent) continued to decline but remain
elevated. The elevated level of the late-stage delinquentloans is due, in part, to loss mitigation activities currently
being undertaken and to elongated foreclosure processing
timelines. Losses related to these loans continue to berecognized in accordance with the Firm’s standard charge-off
practices, but some delinquent loans that would otherwise
have been foreclosed upon remain in the mortgage andhome equity loan portfolios.

JPMorgan Chase & Co./2013 Annual Report

The following table presents consumer credit-related information with respect to the credit portfolio held by CCB as well as forprime mortgage loans held in the Asset Management and the Corporate/Private Equity segments for the dates indicated. For
further information about the Firm’s nonaccrual and charge-off accounting policies, see Note 14 on pages 258–283 of thisAnnual Report.
Consumer credit portfolio
Credit exposure

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

2013

2012

Nonaccrual loans(f)(g)

Net charge-offs(h)(i)Average annual net
charge-off rate(h)(i)(j)

2013

2013

2013

2012

2012

2012

Consumer, excluding credit card
Loans, excluding PCI loans and loans held-for-saleHome equity – senior lien

17,113 $19,385

132 $

279

0.72%

1.33%

Home equity – junior lien$

40,75048,000

1,876

2,277

834

2,106

1.90

4.07

Prime mortgage, including option ARMs

87,162

76,256

2,666

3,445

59

487

0.07

0.64

Subprime mortgage

7,104

8,255

1,390

1,807

90

486

1.17

5.43

Auto(a)52,75749,913

161

163

158

188

0.31

0.39

Business banking

18,951

18,883

385

481

337

411

1.81

2.27

Student and other

11,557

12,191

86

70

297

340

2.51

2.58

235,394

232,883

7,496

9,174

1,907

4,297

0.82

1.81

Home equity

18,927

20,971

NA

NA

NA

NA

NA

NA

Prime mortgage

12,03813,674

NA

NA

NA

NA

NA

NA

Subprime mortgage

4,175

4,626

NA

NA

NA

NA

NA

NA

Option ARMs

17,915

20,466

NA

NA

NA

NA

NA

NA

Total loans – PCI

53,05559,737

NA

NA

NA

NA

NA

NA

Total loans – retained

288,449

292,620

7,496

9,174

1,907

4,297

0.66

1.43

Total loans, excluding PCI loans and loans held-for-sale

$

932 $

931

$

Loans – PCI

Loans held-for-sale(b)

614

—

—

—

—

—

—

—

289,063292,620

7,496

9,174

1,907

4,297

0.66

1.43

Home equity – senior lien(c)13,15815,180Home equity – junior lien(c)17,837

21,796

Prime mortgage

4,817

4,107

3.95

Total consumer, excluding credit card loans
Lending-related commitments

Subprime mortgage

—

—

Auto

8,309

7,185

Business banking

11,251

11,092Student and other

685

796

56,05760,156

Total lending-related commitments
Receivables from customers(d)

139

113

345,259

352,889

127,465

127,993

—

1

3,879

4,944

3.14

326

—

—

—

—

—

—

—

Total credit card loans

127,791

127,993

—

1

3,879

4,944

3.14

3.95

Lending-related commitments(c)529,383

533,018

Total consumer exposure, excluding credit card
Credit Card
Loans retained(e)Loans held-for-sale

Total credit card exposure

657,174

661,011

Total consumer credit portfolio$

1,002,433 $1,013,900$

7,496 $

9,175$

5,786 $

9,241

1.40%

2.17%

Memo: Total consumer credit portfolio, excluding PCI$

949,378 $954,163$7,496 $

9,175$

5,786 $

9,241

1.62%

2.55%

(a)
(b)
(c)
(d)
(e)
(f)

At December 31, 2013 and 2012, excluded operating lease-related assets of $5.5 billion and $4.7 billion, respectively.
Represents prime mortgage loans held-for-sale.
Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, anddoes 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 aremet), the Firm can reduce or cancel these lines of credit by providing the borrower notice or, in some cases, without notice as permitted by law.
Receivables from customers primarily represent margin loans to retail brokerage customers, which are included in accrued interest and accounts receivableon the Consolidated Balance Sheets.
Includes accrued interest and fees net of an allowance for the uncollectible portion of accrued interest and fee income.
At December 31, 2013 and 2012, nonaccrual loans excluded: (1) mortgage loans insured by U.S. government agencies of $8.4 billion and $10.6 billion,
respectively, that are 90 or more days past due; and (2) student loans insured by U.S. government agencies under the FFELP of $428 million and $525
million, respectively, that are 90 or more days past due. These amounts have been excluded from nonaccrual loans based upon the government guarantee.
In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.

JPMorgan Chase & Co./2013 Annual Report121Management’s discussion and analysis
(g)
(h)

(i)
(j)

Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing.
Charge-offs and net charge-off rates for the year ended December 31, 2012, included incremental Chapter 7 loan net charge-offs of $91 million for senior
lien home equity, $539 million for junior lien home equity, $47 million for prime mortgage, including option ARMs, $70 million for subprime mortgage and$53 million for auto loans. Net charge-off rates for the for the year ended December 31, 2012, excluding these incremental net charge-offs would havebeen 0.90%, 3.03%, 0.58%, 4.65% and 0.28% for the senior lien home equity, junior lien home equity, prime mortgage, including option ARMs, subprime
mortgages and auto loans, respectively. See Consumer Credit Portfolio on pages 120–129 of this Annual Report for further details.
Net charge-offs and net charge-off rates excluded $53 million of write-offs of prime mortgages in the PCI portfolio for the year ended December 31, 2013.
See Consumer Credit Portfolio on pages 120–129 of this Annual Report for further details.
Average consumer loans held-for-sale were $209 million and $433 million, respectively, for the years ended December 31, 2013 and 2012. These amounts
were excluded when calculating net charge-off rates.

Consumer, excluding credit card
Portfolio analysis
Consumer loan balances declined during the year ended
December 31, 2013, due to paydowns and the charge-off orliquidation of delinquent loans, partially offset by new
mortgage and auto originations. Credit performance has
improved across most portfolios but residential real estatecharge-offs and delinquent loans remain elevated comparedwith pre-recessionary levels.
The following discussion relates to the specific loan andlending-related categories. PCI loans are generally excluded
from individual loan product discussions and are addressed
separately below. For further information about the Firm’s
consumer portfolio, including information about
delinquencies, loan modifications and other credit quality
indicators, see Note 14 on pages 258–283 of this Annual
Report.
Home equity: The home equity portfolio at December 31,
2013, was $57.9 billion, compared with $67.4 billion at
December 31, 2012. The decrease in this portfolio
primarily reflected loan paydowns and charge-offs. Earlystage delinquencies showed improvement from
December 31, 2012, for both senior and junior lien homeequity loans. Late-stage delinquencies also improved from
December 31, 2012, but continue to be elevated as
improvement in the number of loans becoming severely
delinquent was offset by higher average carrying value onthese loans, reflecting improving collateral values. Senior
lien nonaccrual loans were flat compared with the prioryear while junior lien nonaccrual loans decreased in 2013.
Net charge-offs for both senior and junior lien home equity
loans declined when compared with the prior year as aresult of improvement in delinquencies and home prices, aswell as the impact of prior year incremental charge-offs
reported in accordance with regulatory guidance on certain
loans discharged under Chapter 7 bankruptcy.
Approximately 20% of the Firm’s home equity portfolio
consists of home equity loans (“HELOANs”) and theremainder consists of home equity lines of credit(“HELOCs”). HELOANs are generally fixed-rate, closed-end,
amortizing loans, with terms ranging from 3–30 years.
Approximately half of the HELOANs are senior liens and theremainder are junior liens. In general, HELOCs originated by
the Firm are revolving loans for a 10-year period, after
which time the HELOC recasts into a loan with a 20-year
amortization period. At the time of origination, theborrower typically selects one of two minimum payment

122

options that will generally remain in effect during therevolving period: a monthly payment of 1% of theoutstanding balance, or interest-only payments based on avariable index (typically Prime). HELOCs originated by
Washington Mutual were generally revolving loans for a 10year period, after which time the HELOC converts to aninterest-only loan with a balloon payment at the end of theloan’s term.
The unpaid principal balance of non-PCI HELOCs
outstanding was $50 billion at December 31, 2013. Basedon the contractual terms of the loans, $30 billion of the
non-PCI HELOCs outstanding are scheduled to recast at
which time the borrower must begin to make fully
amortizing payments, of which, $7 billion, $8 billion and $7
billion are scheduled to recast in 2015, 2016 and 2017,
respectively. However, of the $30 billion in non-PCI HELOCs
scheduled to recast, approximately $14 billion are currently
expected to recast, with the remaining $16 billion
representing loans to borrowers who are expected toprepay (including borrowers who appear to have the ability
to refinance based on the borrower’s LTV ratio and FICO
score) or are loans that are expected to charge-off. The
Firm has considered this payment recast risk in its
allowance for loan losses based upon the estimated amountof payment shock (i.e., the excess of the fully-amortizing
payment over the interest-only payment in effect prior torecast) expected to occur at the payment recast date, alongwith the corresponding estimated probability of default andloss severity assumptions. Certain factors, such as future
developments in both unemployment and home prices,
could have a significant impact on the expected and/or
actual performance of these loans.
The Firm manages the risk of HELOCs during their revolving
period by closing or reducing the undrawn line to the extent
permitted by law when borrowers are exhibiting a material
deterioration in their credit risk profile or when thecollateral does not support the loan amount. The Firm willcontinue to evaluate both the near-term and longer-term
repricing and recast risks inherent in its HELOC portfolio toensure that changes in the Firm’s estimate of incurred
losses are appropriately considered in the allowance forloan losses and that the Firm’s account management
practices are appropriate given the portfolio’s risk profile.
At December 31, 2013, the Firm estimated that its homeequity portfolio contained approximately $2.3 billion ofcurrent junior lien loans where the borrower has a firstmortgage loan that is either delinquent or has been
modified (“high-risk seconds”), compared with $3.1 billion
JPMorgan Chase & Co./2013 Annual Report

at December 31, 2012. Such loans are considered to pose ahigher risk of default than that of junior lien loans for which
the senior lien is neither delinquent nor modified. The Firm
estimates the balance of its total exposure to high-risk
seconds on a quarterly basis using internal data and loanlevel credit bureau data (which typically provides thedelinquency status of the senior lien). The estimatedbalance of these high-risk seconds may vary from quarterto quarter for reasons such as the movement of relatedsenior liens into and out of the 30+ day delinquency bucket.
Current high risk junior liens
December 31, (in billions)

2013

2012

Junior liens subordinate to:Modified current senior lien$

Senior lien 30 – 89 days delinquent
Senior lien 90 days or more delinquent

$

0.6
$

2.3

1.1
0.9

0.8

(a)

Total current high risk junior liens
(a)

0.9

1.1
$

3.1

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

Of the estimated $2.3 billion of high-risk junior liens at
December 31, 2013, the Firm owns approximately 5% andservices approximately 25% of the related senior lien loans
to the same borrowers. The performance of the Firm’s
junior lien loans is generally consistent regardless ofwhether the Firm owns, services or does not own or service
the senior lien. The increased probability of default
associated with these higher-risk junior lien loans wasconsidered in estimating the allowance for loan losses.
Mortgage: Mortgage loans at December 31, 2013,
including prime, subprime and loans held-for-sale, were
$94.9 billion, compared with $84.5 billion at December 31,
2012. The mortgage portfolio increased in 2013 asretained prime mortgage originations, which representloans with high credit quality, were greater than paydowns
and the charge-off or liquidation of delinquent loans. Net
charge-offs decreased from the prior year reflecting
continued home price improvement and favorable
delinquency trends. Delinquency levels remain elevatedcompared with pre-recessionary levels.
Prime mortgages, including option adjustable-rate
mortgages (“ARMs”) and loans held-for-sale, were $87.8
billion at December 31, 2013, compared with $76.3 billion
at December 31, 2012. Prime mortgage loans increased asretained originations exceeded paydowns, the run-off ofoption ARM loans and the charge-off or liquidation ofdelinquent loans. Excluding loans insured by U.S.
government agencies, both early-stage and late-stage
delinquencies showed improvement from December 31,
2012. Nonaccrual loans decreased from the prior year but
remain elevated as a result of elongated foreclosure
processing timelines. Net charge-offs continued to improve,as a result of improvement in delinquencies and homeprices.
JPMorgan Chase & Co./2013 Annual Report

At December 31, 2013 and 2012, the Firm’s prime
mortgage portfolio included $14.3 billion and $15.6 billion,
respectively, of mortgage loans insured and/or guaranteedby U.S. government agencies, of which $9.6 billion and$11.8 billion, respectively, were 30 days or more past due,
including $8.4 billion and $10.6 billion, respectively, whichwere 90 days or more past due. Following the Firm’s
settlement regarding loans insured under federal mortgage
insurance programs overseen by FHA, HUD, and VA, theFirm will continue to monitor exposure on future claim
payments for government insured loans; however, any
financial impact related to exposure on future claims is notexpected to be significant.
At December 31, 2013 and 2012, the Firm’s prime
mortgage portfolio included $15.6 billion and $16.0 billion,
respectively, of interest-only loans, which represented 18%
and 21% of the prime mortgage portfolio, respectively.
These loans have an interest-only payment period generally
followed by an adjustable-rate or fixed-rate fully amortizing
payment to maturity and are typically originated as higherbalance loans to higher-income borrowers. The decrease inthis portfolio was primarily due to voluntary prepayments,
as borrowers are generally refinancing into lower rate
products. To date, losses on this portfolio generally havebeen consistent with the broader prime mortgage portfolio
and the Firm’s expectations. The Firm continues to monitor
the risks associated with these loans.
Non-PCI option ARM loans acquired by the Firm as part of
the Washington Mutual transaction, which are included in
the prime mortgage portfolio, were $5.6 billion and $6.5
billion and represented 6% and 9% of the prime mortgage
portfolio at December 31, 2013 and 2012, respectively.
The decrease in option ARM loans resulted from portfolio
runoff. As of December 31, 2013, approximately 4% ofoption ARM borrowers were delinquent. Substantially all of
the remaining borrowers were making amortizing
payments, although such payments are not necessarily fully
amortizing and may be subject to risk of payment shock due
to future payment recast. The Firm estimates the following
balances of option ARM loans will undergo a payment recast
that results in a payment increase: $807 million in 2014,$675 million in 2015 and $164 million in 2016. As the
Firm’s option ARM loans, other than those held in the PCI
portfolio, are primarily loans with lower LTV ratios andhigher borrower FICO scores, it is possible that many ofthese borrowers will be able to refinance into a lower rate
product, which would reduce this payment recast risk. To
date, losses realized on option ARM loans that haveundergone payment recast have been immaterial andconsistent with the Firm’s expectations.
Subprime mortgages at December 31, 2013, were $7.1
billion, compared with $8.3 billion at December 31, 2012.
The decrease was due to portfolio runoff. Early-stage andlate-stage delinquencies as well as nonaccrual loans have
improved from December 31, 2012, but remain at elevated123Management’s discussion and analysis
levels. Net charge-offs continued to improve as a result of
improvement in delinquencies and home prices.
Auto: Auto loans at December 31, 2013, were $52.8
billion, compared with $49.9 billion at December 31, 2012.
Loan balances increased due to new originations, partially
offset by paydowns and payoffs. Delinquencies andnonaccrual loans improved compared with December 31,
2012. Net charge-offs decreased from the prior year due toprior year incremental charge-offs reported in accordancewith regulatory guidance on certain loans discharged under
Chapter 7 bankruptcy. Loss levels are considered low as aresult of favorable trends in both loss frequency and loss
severity, mainly due to enhanced underwriting standards
and a strong used car market. The auto loan portfolio
reflected a high concentration of prime-quality credits.
Business banking: Business banking loans at December 31,
2013, were $19.0 billion, compared with $18.9 billion at
December 31, 2012. Business Banking loans primarily
include loans that are collateralized, often with personalloan guarantees, and may also include Small Business
Administration guarantees. Nonaccrual loans showed
improvement from December 31, 2012. Net charge-offs
declined for the year ended December 31, 2013, comparedwith the year ended December 31, 2012.
Student and other: Student and other loans at
December 31, 2013, were $11.6 billion, compared with$12.2 billion at December 31, 2012. The decrease wasprimarily due to runoff of the student loan portfolio. Otherloans primarily include other secured and unsecured
consumer loans. Nonaccrual loans increased compared with
December 31, 2012, while net charge-offs decreased forthe year ended December 31, 2013, compared with theprior year.
Purchased credit-impaired loans: PCI loans at
December 31, 2013, were $53.1 billion, compared with$59.7 billion at December 31, 2012. This portfolio
represents loans acquired in the Washington Mutualtransaction, which were recorded at fair value at the time ofacquisition. PCI HELOCs originated by Washington Mutual
were generally revolving loans for a 10-year period, after
which time the HELOC converts to an interest-only loan witha balloon payment at the end of the loan’s term.
Substantially all undrawn HELOCs within the revolving
period have been blocked.
As of December 31, 2013, approximately 19% of theoption ARM PCI loans were delinquent and approximately
54% have been modified into fixed-rate, fully amortizing
loans. Substantially all of the remaining loans are making
amortizing payments, although such payments are notnecessarily fully amortizing. This latter group of loans are
subject to the risk of payment shock due to future payment
recast.

quarterly impairment assessment. The cumulative amountof unpaid interest added to the unpaid principal balance ofthe option ARM PCI pool was $724 million and $879 million
at December 31, 2013, and December 31, 2012,
respectively. The Firm estimates the following balances of
option ARM PCI loans will undergo a payment recast that
results in a payment increase: $487 million in 2014, $810
million in 2015 and $710 million in 2016.
The following table provides a summary of lifetime principal
loss estimates included in both the nonaccretable difference
and the allowance for loan losses.
Summary of lifetime principal loss estimates
December 31,(in billions)Home equity
Prime mortgage
Subprime mortgage
Option ARMs
Total
(a)

(b)

Lifetime loss
estimates(a)2013$ 14.73.8
3.3
10.2$ 32.02012$ 14.94.2
3.6
11.3$ 34.0LTD liquidation
losses(b)2013$ 12.1
3.3
2.6
8.8$ 26.82012$ 11.52.9
2.2
8.0$ 24.6

Includes the original nonaccretable difference established in purchaseaccounting of $30.5 billion for principal losses only plus additional principal
losses recognized subsequent to acquisition through the provision andallowance for loan losses. The remaining nonaccretable difference for principal
losses only was $3.8 billion and $5.8 billion at December 31, 2013 and 2012,
respectively.
Life-to-date (“LTD”) liquidation losses represent both realization of loss uponloan resolution and any principal forgiven upon modification. LTD liquidation
losses included $53 million of write-offs of prime mortgages for the year ended
December 31, 2013.

Lifetime principal loss estimates declined from
December 31, 2012, to December 31, 2013, reflecting
improvement in home prices and delinquencies. The decline
in lifetime principal loss estimates during the year ended
December 31, 2013, resulted in a $1.5 billion reduction of
the PCI allowance for loan losses ($1.0 billion related tooption ARM loans, $200 million to subprime mortgage,$150 million to home equity loans and $150 million toprime mortgage). In addition, for the year ended
December 31, 2013, PCI write-offs of $53 million wererecorded against the prime mortgage allowance for loan
losses. For further information about the Firm’s PCI loans,including write-offs, see Note 14 on pages 258–283 of thisAnnual Report.
As a result of reserve actions and PCI prime mortgage
write-offs, the allowance for loan loss for the PCI portfolio
declined from $5.7 billion at December 31, 2012, to $4.2
billion at December 31, 2013. The allowance for loan losses
decreased from $1.5 billion to $494 million for the option
ARM portfolio, from $1.9 billion to $1.7 billion for prime
mortgage, from $380 million to $180 million for subprime
mortgage and from $1.9 billion to $1.8 billion for the homeequity portfolio from December 31, 2012 to December 31,
2013.

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

124

JPMorgan Chase & Co./2013 Annual ReportGeographic composition of residential real estate loans

At December 31, 2013, California had the greatest concentration of residential real estate loans with 25% of the total retained
residential real estate loan portfolio, excluding mortgage loans insured by U.S. government agencies and PCI loans, comparedwith 24% at December 31, 2012. Of these loans, $85.9 billion, or 62%, were concentrated in California, New York, Illinois,
Florida and Texas at December 31, 2013, compared with $82.4 billion, or 60%, at December 31, 2012. The unpaid principalbalance of PCI loans concentrated in these five states represented 74% of total PCI loans at December 31, 2013, comparedwith 73% at December 31, 2012.

Current estimated LTVs of residential real estateloans

The current estimated average LTV ratio for residential realestate loans retained, excluding mortgage loans insured by
U.S. government agencies and PCI loans, was 75% at
December 31, 2013, compared with 81% at December 31,
2012. Of these loans, 9% had a current estimated LTV ratio
greater than 100%, and 2% had a current estimated LTV
ratio greater than 125% at December 31, 2013, comparedwith 20% and 8%, respectively, at December 31, 2012.

JPMorgan Chase & Co./2013 Annual Report

Although home prices continue to recover, the decline inhome prices since 2007 has had a significant impact on thecollateral values underlying the Firm’s residential realestate loan portfolio. In general, the delinquency rate forloans with high LTV ratios is greater than the delinquency
rate for loans in which the borrower has equity in thecollateral. While a large portion of the loans with current
estimated LTV ratios greater than 100% continue to pay
and are current, the continued willingness and ability ofthese borrowers to pay remains a risk.

125

Management’s discussion and analysis
The following table for PCI loans presents the current estimated LTV ratios, as well as the ratios of the carrying value of theunderlying loans to the current estimated collateral value. Because such loans were initially measured at fair value, the ratiosof the carrying value to the current estimated collateral value will be lower than the current estimated LTV ratios, which are
based on the unpaid principal balances. The estimated collateral values used to calculate these ratios do not represent actual
appraised loan-level collateral values; as such, the resulting ratios are necessarily imprecise and should therefore be viewed as
estimates.
LTV ratios and ratios of carrying values to current estimated collateral values – PCI loans
2013
December 31,(in millions,
except ratios)
Home equity
Prime mortgage
Subprime mortgage
Option ARMs

Unpaidprincipal
balance$

19,83011,876
5,471
19,223Current
estimated
LTV ratio(a)90% (b) $
83
91
82

Net
carrying
value(c)2012
Ratio of net
carrying value
to current estimatedcollateral value(c)17,16910,312
3,995
17,421

78%
72
66
74

Unpaidprincipal
balance$

22,343
13,884
6,326
22,591

Current
estimated
LTV ratio(a)111% (b) $
104
107
101

Net
carrying
value(c)19,063
11,745
4,246
18,972

Ratio of net
carrying value
to current estimatedcollateral value(c)
95%
88
72
85

(a) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated atleast quarterly based on home valuation models that utilize nationally recognized home price index valuation estimates; such models incorporate actual
data to the extent available and forecasted data where actual data is not available.
(b) Represents current estimated combined LTV for junior home equity liens, which considers all available lien positions, as well as unused lines, related to theproperty. All other products are presented without consideration of subordinate liens on the property.
(c) Net carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition and is also net ofthe allowance for loan losses at December 31, 2013 and 2012 of $1.8 billion and $1.9 billion for home equity, $1.7 billion and $1.9 billion for prime
mortgage, $494 million and $1.5 billion for option ARMs, and $180 million and $380 million for subprime mortgage, respectively.

The current estimated average LTV ratios were 85% and103% for California and Florida PCI loans, respectively, at
December 31, 2013, compared with 110% and 125%,
respectively, at December 31, 2012. Average LTV ratios
have declined consistent with recent improvement in homeprices. Although home prices have improved, home prices in
California and Florida are still lower than at the peak of the
housing market; this continues to negatively contribute tocurrent estimated average LTV ratios and the ratio of net
carrying value to current estimated collateral value forloans in the PCI portfolio. Of the total PCI portfolio, 26%
had a current estimated LTV ratio greater than 100%, and
7% had a current LTV ratio of greater than 125% at
December 31, 2013, compared with 55% and 24%,
respectively, at December 31, 2012.
While the current estimated collateral value is greater than
the net carrying value of PCI loans, the ultimate
performance of this portfolio is highly dependent onborrowers’ behavior and ongoing ability and willingness tocontinue to make payments on homes with negative equity,
as well as on the cost of alternative housing. For further
information on the geographic composition and current
estimated LTVs of residential real estate – non-PCI and PCI
loans, see Note 14 on pages 258–283 of this Annual
Report.
Loan modification activities – residential real estate loans
For both the Firm’s on–balance sheet loans and loans
serviced for others, more than 1.5 million mortgage
modifications have been offered to borrowers andapproximately 734,000 have been approved since thebeginning of 2009. Of these, more than 725,000 haveachieved permanent modification as of December 31,

126

2013. Of the remaining modifications offered, 9% are in atrial period or still being reviewed for a modification, while
91% have dropped out of the modification program orotherwise were deemed not eligible for final modification.
The Firm is participating in the U.S. Treasury’s Making Home
Affordable (“MHA”) programs and is continuing to offer its
other loss-mitigation programs to financially distressedborrowers who do not qualify for the U.S. Treasury’s
programs. The MHA programs include the Home Affordable
Modification Program (“HAMP”) and the Second Lien
Modification Program (“2MP”). The Firm’s other lossmitigation programs for troubled borrowers who do not
qualify for HAMP include the traditional modification
programs offered by the GSEs and other governmental
agencies, as well as the Firm’s proprietary modification
programs, which include concessions similar to thoseoffered under HAMP and 2MP but with expanded eligibility
criteria. In addition, the Firm has offered specific targeted
modification programs to higher risk borrowers, many ofwhom were current on their mortgages prior tomodification. For further information about how loans are
modified, see Note 14, Loan modifications, on pages 268–
273 of this Annual Report.
Loan modifications under HAMP and under one of the Firm’s
proprietary modification programs, which are largely
modeled after HAMP, require at least three payments to bemade under the new terms during a trial modification
period, and must be successfully re-underwritten withincome verification before the loan can be permanently
modified. In the case of specific targeted modification
programs, re-underwriting the loan or a trial modification
period is generally not required, unless the targeted loan is

JPMorgan Chase & Co./2013 Annual Reportdelinquent at the time of modification. When the Firm
modifies home equity lines of credit, future lending
commitments related to the modified loans are canceled aspart of the terms of the modification.
The primary indicator used by management to monitor the
success of the modification programs is the rate at which
the modified loans redefault. Modification redefault rates
are affected by a number of factors, including the type ofloan modified, the borrower’s overall ability and willingness
to repay the modified loan and macroeconomic factors.
Reduction in payment size for a borrower has shown to be
the most significant driver in improving redefault rates.
The performance of modified loans generally differs by
product type and also on whether the underlying loan is in
the PCI portfolio, due both to differences in credit quality
and in the types of modifications provided. Performance
metrics for modifications to the residential real estate
portfolio, excluding PCI loans, that have been seasoned
more than six months show weighted average redefault
rates of 20% for senior lien home equity, 20% for juniorlien home equity, 15% for prime mortgages including
option ARMs, and 26% for subprime mortgages. The
cumulative performance metrics for modifications to the
PCI residential real estate portfolio seasoned more than six
months show weighted average redefault rates of 20% forhome equity, 16% for prime mortgages, 14% for option
ARMs and 29% for subprime mortgages. The favorable
performance of the PCI option ARM modifications is theresult of a targeted proactive program which fixes theborrower’s payment at the current level. The cumulative
redefault rates reflect the performance of modifications
completed under both HAMP and the Firm’s proprietarymodification programs from October 1, 2009, throughDecember 31, 2013.
Certain loans that were modified under HAMP and the
Firm’s proprietary modification programs (primarily the
Firm’s modification program that was modeled after HAMP)
have interest rate reset provisions (“step-rate
modifications”). Beginning in 2014, interest rates on theseloans will generally increase by 1% per year until the rate
reaches a specified cap, typically at a prevailing market
interest rate for a fixed-rate loan as of the modification
date. The carrying value of non-PCI loans modified in steprate modifications was $5 billion at December 31, 2013,
with $1 billion and $2 billion scheduled to experience theinitial interest rate increase in 2015 and 2016, respectively.
The unpaid principal balance of PCI loans modified in steprate modifications was $11 billion at December 31, 2013,
with $2 billion and $3 billion scheduled to experience theinitial interest rate increase in 2015 and 2016, respectively.
The impact of these potential interest rate increases isappropriately considered in the Firm’s allowance for loan
losses. The Firm will continue to monitor this risk exposure
to ensure that it is appropriately considered in the Firm’s
allowance for loan losses.

JPMorgan Chase & Co./2013 Annual Report

The following table presents information as ofDecember 31, 2013 and 2012, relating to modified on–balance sheet residential real estate loans for which
concessions have been granted to borrowers experiencing
financial difficulty. Modifications of PCI loans continue to beaccounted for and reported as PCI loans, and the impact ofthe modification is incorporated into the Firm’s quarterly
assessment of estimated future cash flows. Modifications ofconsumer loans other than PCI loans are generally
accounted for and reported as troubled debt restructurings(“TDRs”). For further information on TDRs for the years
ended December 31, 2013 and 2012, see Note 14 on
pages 258–283 of this Annual Report.
Modified residential real estate loans
2013
On–balance
sheet
loans

December 31,(in millions)2012

Nonaccrualon–balancesheetloans(d)On–balance
sheet
loans

Nonaccrualon–balancesheetloans(d)Modified residential
real estate loans,
excluding PCI
loans(a)(b)Home equity –senior lien

$ 1,146 $641$ 1,092 $607

Home equity –junior lien

1,319

666

1,223

599

Prime mortgage,including option
ARMs

7,004

1,737

7,118

1,888

Subprime mortgage

3,698

1,127

3,812

1,308

Total modified
residential realestate loans,
excluding PCI
loans$ 13,167 $4,171$ 13,245 $4,402

Modified PCI loans(c)Home equity$ 2,619NA$ 2,302

NA

Prime mortgage

6,977

NA

7,228

NA

Subprime mortgage

4,168

NA

4,430

NA

Option ARMs

13,131NA

14,031NA$ 26,895NA$ 27,991

NA

Total modified PCI
loans(a) Amounts represent the carrying value of modified residential real estateloans.
(b) At December 31, 2013 and 2012, $7.6 billion and $7.5 billion,
respectively, of loans modified subsequent to repurchase from Ginnie Maein accordance with the standards of the appropriate government agency(i.e., FHA, VA, RHS) are not included in the table above. When such loans
perform subsequent to modification in accordance with Ginnie Mae
guidelines, they are generally sold back into Ginnie Mae loan pools.
Modified loans that do not re-perform become subject to foreclosure. For
additional information about sales of loans in securitization transactions
with Ginnie Mae, see Note 16 on pages 288–299 of this Annual Report.
(c) Amounts represent the unpaid principal balance of modified PCI loans.
(d) As of December 31, 2013 and 2012, nonaccrual loans included $3.0 billion
and $2.9 billion, respectively, of TDRs for which the borrowers were lessthan 90 days past due. For additional information about loans modified in a
TDR that are on nonaccrual status, see Note 14 on pages 258–283 of thisAnnual Report.

127

Management’s discussion and analysis
Nonperforming assets
The following table presents information as ofDecember 31, 2013 and 2012, about consumer, excluding
credit card, nonperforming assets.
Nonperforming assets(a)December 31, (in millions)

2013

2012

Nonaccrual loans(b)Residential real estate$ 6,864

Other consumer

$

8,460

632

714

7,496

9,174

Real estate owned

614

647

Other

41

37

Total assets acquired in loan satisfactions

655

684

Total nonaccrual loans
Assets acquired in loan satisfactions

Total nonperforming assets$ 8,151$

9,858(a) At December 31, 2013 and 2012, nonperforming assets excluded: (1)mortgage loans insured by U.S. government agencies of $8.4 billion
and $10.6 billion, respectively, that are 90 or more days past due; (2)real estate owned insured by U.S. government agencies of $2.0 billion
and $1.6 billion, respectively; and (3) student loans insured by U.S.
government agencies under the FFELP of $428 million and $525
million, respectively, that are 90 or more days past due. Theseamounts have been excluded from nonaccrual loans based upon thegovernment guarantee.
(b) Excludes PCI loans that were acquired as part of the Washington
Mutual transaction, which are accounted for on a pool basis. Since
each pool is accounted for as a single asset with a single composite
interest rate and an aggregate expectation of cash flows, the past-due
status of the pools, or that of individual loans within the pools, is notmeaningful. Because the Firm is recognizing interest income on eachpool of loans, they are all considered to be performing.

Nonaccrual loans: The following table presents changes in
the consumer, excluding credit card, nonaccrual loans forthe years ended December 31, 2013 and 2012.
Nonaccrual loans
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 additions/(reductions)Ending balance
(a)
(b)

$

$

2013
2012
9,174 $ 7,411
6,618
12,605

(b)

1,559
1,445
1,869
2,771
3,793
4,738
1,075
1,888
8,296
10,842(1,678)1,763
7,496 $ 9,174

than 150 days past due was charged down by
approximately 51% and 52% to estimated net realizablevalue of the collateral at December 31, 2013 and 2012,
respectively. The elongated foreclosure processing timelines
are expected to continue to result in elevated levels of
nonaccrual loans in the residential real estate portfolios.
At December 31, 2012, the Firm reported, in accordancewith regulatory guidance, $1.7 billion of residential realestate and auto loans that were discharged under Chapter 7
bankruptcy and not reaffirmed by the borrower (“Chapter 7loans”) as collateral-dependent nonaccrual TDRs,
regardless of their delinquency status. Pursuant to that
guidance, these Chapter 7 loans were charged off to the net
realizable value of the collateral, resulting in $800 millionof charge-offs for the year ended December 31, 2012. The
Firm expects to recover a significant amount of these losses
over time as principal payments are received. The Firm alsobegan reporting performing junior liens that are
subordinate to senior liens that are 90 days or more past
due as nonaccrual loans in the first quarter of 2012, based
upon regulatory guidance. Nonaccrual loans included $3.0
billion of loans at December 31, 2012 based upon theregulatory guidance noted above. The prior year was notrestated for the policy changes.
Real estate owned (“REO”): REO assets are managed forprompt sale and disposition at the best possible economic
value. REO assets are those individual properties where theFirm receives the property in satisfaction of a debt (e.g., bytaking legal title or physical possession). The Firm generally
recognizes REO assets at the completion of the foreclosure
process or upon execution of a deed in lieu of foreclosure
with the borrower. REO assets, excluding those insured by
U.S. government agencies, decreased by $33 million from$647 million at December 31, 2012, to $614 million at
December 31, 2013.
At December 31, 2013 and 2012, the Firm had non-PCIresidential real estate loans, excluding those insured by the
U.S. government agencies, with a carrying value of $2.1
billion and $3.4 billion, respectively; not included in REO,
that were in the process of active or suspended foreclosure.
The Firm also had PCI residential real estate loans that werein the process of active or suspended foreclosure at
December 31, 2013 and 2012, with an unpaid principalbalance of $4.8 billion and $8.2 billion, respectively.

Other reductions includes loan sales.
Included $1.7 billion of Chapter 7 loans at September 30, 2012, and$1.6 billion as a result of reporting performing junior lien homeequity loans that are subordinate to senior liens that are 90 days ormore past due as nonaccrual loans based on regulatory guidance at
March 31, 2012.

Nonaccrual loans in the residential real estate portfolio
totaled $6.9 billion at December 31, 2013, of which 34%
were greater than 150 days past due, compared with $8.5
billion at December 31, 2012, of which 42% were greaterthan 150 days past due. In the aggregate, the unpaid
principal balance of residential real estate loans greater
128

JPMorgan Chase & Co./2013 Annual ReportCredit Card

Total credit card loans were $127.8 billion at December 31,
2013, a decrease of $202 million from December 31,
2012. The 30+ day delinquency rate decreased to 1.67% at
December 31, 2013, from 2.10% at December 31, 2012.
For the years ended December 31, 2013 and 2012, the net
charge-off rates were 3.14% and 3.95% respectively.
Charge-offs have improved compared with a year ago as aresult of continued improvement in delinquent loans. The
credit card portfolio continues to reflect a well-seasoned,largely rewards-based portfolio that has good U.S.
geographic diversification. The greatest geographic
concentration of credit card retained loans is in California,
which represented 13% of total retained loans at both
December 31, 2013 and 2012. Loan outstanding
concentration for the top five states of California, New York,
Texas, Illinois and Florida consisted of $52.7 billion inreceivables, or 41% of the retained loan portfolio, at
December 31, 2013, compared with $52.3 billion, or 41%,
at December 31, 2012.

Geographic composition of Credit Card loans

Modifications of credit card loans
At December 31, 2013 and 2012, the Firm had $3.1 billion
and $4.8 billion, respectively, of credit card loans
outstanding that have been modified in TDRs. Thesebalances included both credit card loans with modified
payment terms and credit card loans that reverted back totheir pre-modification payment terms because thecardholder did not comply with the modified payment
terms. The decrease in modified credit card loans
outstanding from December 31, 2012, was attributable to a
reduction in new modifications as well as ongoing payments
and charge-offs on previously modified credit card loans.

JPMorgan Chase & Co./2013 Annual Report

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 interest and fee
income.
For additional information about loan modification
programs to borrowers, see Note 14 on pages 258–283 ofthis Annual Report.

129

Management’s discussion and analysis

WHOLESALE CREDIT PORTFOLIO
The wholesale credit environment remained favorable
throughout 2013 driving an increase in commercial client
activity. Discipline in underwriting across all areas oflending continues to remain a key point of focus, consistent
with evolving market conditions and the Firm’s risk
management activities. The wholesale portfolio is actively
managed, in part by conducting ongoing, in-depth reviewsof credit quality and of industry, product and client
concentrations. During the year, wholesale criticized assets
and nonperforming assets decreased from higher levels
experienced in 2012, including a reduction in nonaccrualloans by 39%.

Wholesale credit portfolio

As of December 31, 2013, wholesale exposure (primarily
CIB, CB and AM) increased by $13.7 billion from
December 31, 2012, primarily driven by increases of $11.4
billion in lending-related commitments and $8.4 billion inloans reflecting increased client activity primarily in CB and
AM. These increases were partially offset by a $9.2 billion
decrease in derivative receivables. Derivative receivables
decreased predominantly due to reductions in interest rate
derivatives driven by an increase in interest rates andreductions in commodity derivatives due to market
movements. The decreases were partially offset by anincrease in equity derivatives driven by a rise in equity
markets.

December 31,(in millions)
Loans retained

2013

Nonperforming(d)2012$308,263 $306,222

2013
$

2012

821 $ 1,434

Loans held-for-sale11,290

4,406

26

18

Loans at fair value(a)

2,011

2,555

197

265

Loans – reported

321,564

313,183

1,044

1,717

Derivative receivables

65,75974,983415

239

Receivables from
customers and other(b)26,744

23,648——

Total wholesale creditrelated assets

414,067

411,814

1,459

1,956

Lending-related
commitments

446,232

434,814206

355

Total wholesale credit
exposure$860,299 $846,628$ 1,665 $ 2,311

Credit Portfolio
Management derivatives
notional, net(c)$ (27,996) $ (27,447) $

(5) $

(25)

Liquid securities andother cash collateral
held against derivatives

NA

NA

(a)

(b)

(c)

(d)

130

Credit exposure(14,435)(15,201)

During 2013, certain loans that resulted from restructurings thatwere previously classified as performing were reclassified as
nonperforming loans. Prior periods were revised to conform with thecurrent presentation.
Receivables from customers and other primarily includes marginloans to prime and retail brokerage customers; these are classified in
accrued interest and accounts receivable on the Consolidated Balance
Sheets.
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. Excludes the synthetic
credit portfolio. For additional information, see Credit derivatives on
pages 137–138, and Note 6 on pages 220–233 of this Annual
Report.
Excludes assets acquired in loan satisfactions.

JPMorgan Chase & Co./2013 Annual Report

The following table presents summaries of the maturity and ratings profiles of the wholesale credit portfolio as ofDecember 31, 2013 and 2012. The ratings scale is based on the Firm’s internal risk ratings, which generally correspond to
the ratings as defined by S&P and Moody’s.
Wholesale credit exposure – maturity and ratings profile
Maturity profile(e)Due after
1 yearthrough 5
years

Ratings profile(in millions, except ratios)

Due in 1
year or
less

Loans retained$ 108,392 $ 124,111 $ 75,760 $ 308,263

December 31, 2013

Due after
5 years

Derivative receivables

Total

Investment-grade

Noninvestmentgrade

AAA/Aaa to BBB-/Baa3

BB+/Ba1 & below$

226,070$

82,193 $ 308,263

65,759Less: Liquid securities and other cash collateral
held against derivatives

Total

Total %
of IG
73%

65,759(14,435)(14,435)

Total derivative receivables, net of all collateral

13,55015,935

21,83951,324

44,677

6,647

51,324

87

Lending-related commitments

179,301

255,426

11,505446,232

353,974

92,258446,232

79

Subtotal

301,243

395,472

109,104

805,819624,721

181,098

805,81978

Loans held-for-sale and loans at fair value(a)13,301

13,301

Receivables from customers and other

26,744

26,744$ 845,864$ 845,864

Total exposure – net of liquid securities andother cash collateral held against derivatives

Credit Portfolio Management derivatives net
notional by reference entity ratings profile(b)(c)(d) $ (1,149) $ (19,516) $ (7,331) $ (27,996)$(24,649)

Maturity profile(e)Due after
1 yearthrough 5
years(in millions, except ratios)
Loans retained$ 115,227 $ 117,673 $ 73,322 $ 306,222

Due after
5 years

Derivative receivables(3,347) $ (27,996)

Total
$

Investment-grade

Noninvestmentgrade

AAA/Aaa to BBB-/Baa3

BB+/Ba1 & below

214,446$

Total

91,776 $ 306,222

74,983

Less: Liquid securities and other cash collateral
held against derivatives

88%

Ratings profile

Due in 1
year orless

December 31, 2012$

Total %
of IG
70%

74,983(15,201)(15,201)

Total derivative receivables, net of all collateral

13,344

17,31029,12859,78250,0699,713

59,782

84

Lending-related commitments

164,327

261,2619,226

434,814347,316

87,498434,81480

Subtotal

292,898396,244

111,676

800,818

611,831

188,987

800,81876

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

6,961

6,961

Receivables from customers and other

23,64823,648

Total exposure – net of liquid securities andother cash collateral held against derivatives$ 831,427$ 831,427

Credit Portfolio Management derivatives net
notional by reference entity ratings profile(b)(c)(d)$ (1,579) $ (16,475) $ (9,393) $ (27,447)

(a)
(b)
(c)
(d)
(e)

$

(24,622)$(2,825) $ (27,447)

90%

Represents loans held-for-sale primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value.
These derivatives do not quality for hedge accounting under U.S. GAAP. Excludes the synthetic credit portfolio.
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, including Credit Portfolio Management derivatives, are executed withinvestment grade counterparties.
The maturity profile of retained loans, lending-related commitments and derivative receivables is based on remaining contractual maturity. Derivatives contracts that are in a
receivable position at December 31, 2013, may become a payable prior to maturity based on their cash flow profile or changes in market conditions. Prior to this Annual
Report, the maturity profile of derivative receivables was based on the maturity profile of average exposure (see pages 135–136 of this Annual Report for more detail); priorperiod amounts have been revised to conform to the current presentation.

Wholesale credit exposure – selected industry exposures
The Firm focuses on the management and diversification of
its industry exposures, paying particular attention toindustries with actual or potential credit concerns.
Exposures deemed criticized align with the U.S. banking
regulators’ definition of criticized exposures, which consistof the special mention, substandard and doubtful
categories. The total criticized component of the portfolio,
excluding loans held-for-sale and loans at fair value,decreased by 22% to $12.2 billion at December 31, 2013,
from $15.6 billion at December 31, 2012, primarily due torepayments and sales.
JPMorgan Chase & Co./2013 Annual Report131Management’s discussion and analysis
Below are summaries of the top 25 industry exposures as of December 31, 2013 and 2012. For additional information on industry
concentrations, see Note 5 on page 219 of this Annual Report.
Selected metrics
Noninvestment-grade(e)As of or for the year ended
December 31, 2013
(in millions)Creditexposure(d)Investmentgrade

Noncriticized

Criticized
performing

Criticized
nonperforming

30 days ormore past
due andaccruing
loans

Net chargeoffs/(recoveries)

Creditderivative
hedges(f)Liquidsecurities
and othercash
collateral
held against
derivative
receivables

Top 25 industries(a)Real Estate

87,102 $62,964 $21,505 $2,286 $

347 $

178 $

Banks & Finance Cos$

66,881

56,675

9,707

431

68

14

(22)

(2,692)(6,227)

Oil & Gas

46,93434,708

11,779

436

11

34

13

(227)

(67)

Healthcare

45,91037,635

7,952

317

6

49

3

(198)

(195)

State & Municipal Govt(b)35,66634,563

826

157

120

40

1

(161)

(144)

Consumer Products

34,145

21,10012,505

537

3

4

11

(149)

(1)

Asset Managers

33,50626,991

6,477

38

—

217

(7)

(5)

(3,191)

Utilities

28,98325,521

3,045

411

6

2

28

(445)

(306)

Retail & Consumer Services

25,068

16,101

8,453

492

22

6

—

(91)

—

Technology

21,403

13,787

6,771

825

20

—

—

(512)

—

Central Govt

21,04920,633

345

71

—

—

—

(10,088)(1,541)

Machinery & Equipment Mfg

19,078

11,154

7,549

368

7

20

(18)

(257)

(8)

Metals/Mining

17,434

9,266

7,508

594

66

1

16

(621)

(36)

Business Services

14,601

7,838

6,447

286

30

9

10

(10)

(2)

Transportation

13,975

9,683

4,165

100

27

10

8

(68)

—

Telecom Services

13,906

9,130

4,284

482

10

—

7

(272)

(8)

Media

13,858

7,783

5,658

315

102

6

36

(26)

(5)

Insurance

13,761

10,681

2,757

84

239

—

(2)

(98)

(1,935)

Building Materials/Construction

12,901

5,701

6,354

839

7

15

3

(132)

—

Automotive

12,532

7,881

4,490

159

2

3

(3)

(472)

—

Chemicals/Plastics

10,637

7,189

3,211

222

15

—

—

(13)

(83)

Securities Firms & Exchanges

10,035

7,781

2,233

14

7

1

(68)

(4,169)(175)

Agriculture/Paper Mfg

7,387

4,238

3,064

82

3

31

—

(4)

(4)

Aerospace/Defense

6,873

5,447

1,426

—

—

—

—

(142)

(1)

Leisure

5,331

2,950

1,797

495

89

5

—

(10)

(14)

201,298

180,460

19,911

692

235

1,249

(6)

(7,068)820,254 $

637,860 $170,219 $

10,733 $1,442 $

1,894 $

16 $ (27,996) $All other(c)Subtotal$

Loans held-for-sale and loans at fair
value

132

(66) $

(125)

(367)
(14,435)

13,301

Receivables from customers and
other
Total

6 $

26,744$860,299

JPMorgan Chase & Co./2013 Annual ReportSelected metrics
Noninvestment-grade(e)As of or for the year ended
December 31, 2012
(in millions)Creditexposure(d)Investmentgrade

Noncriticized

Criticized
performing

Criticized
nonperforming

30 days ormore past
due andaccruing
loans

Net chargeoffs/(recoveries)

Creditderivative
hedges(f)Liquidsecurities
and othercash
collateral
held against
derivative
receivables

Top 25 industries(a)Real Estate

76,198 $50,103 $21,503 $4,067 $

525 $

391 $

54 $

Banks & Finance Cos

73,31855,805

16,928

578

7

20

(34)

(3,524)(6,027)

Oil & Gas

42,563

31,25811,012

270

23

9

—

(155)

(101)

Healthcare

48,487

41,146

6,761

569

11

38

9

(238)

(459)

State & Municipal Govt(b)41,821

40,562

1,093

52

114

28

2

(186)

(221)

Consumer Products

32,77821,428

10,473

868

9

2

(16)

(275)

(12)

Asset Managers

31,474

26,283

4,987

204

—

46

—

—

(2,714)

Utilities

29,53324,917

4,257

175

184

2

15

(315)

(368)

Retail & Consumer Services

25,597

16,100

8,763

700

34

20

(11)

(37)

(1)

Technology

18,48812,089

5,683

696

20

—

1

(226)

—

Central Govt

21,223

20,678

484

61

—

—

—

(11,620)(1,154)

Machinery & Equipment Mfg

18,504

10,228

7,827

444

5

—

2

(23)

—

Metals/Mining

20,95812,912

7,608

406

32

8

(1)

(409)

(126)

Business Services

13,577

7,172

6,132

232

41

9

23

(10)

—

Transportation

19,827

15,128

4,353

283

63

5

2

(82)

(1)

Telecom Services

12,239

7,792

3,244

1,200

3

5

1

(229)

—

Media

16,007

7,473

7,754

517

263

2

(218)

(93)

(8)

Insurance

14,446

12,156

2,119

171

—

2

(2)

(143)

(1,729)Building Materials/Construction

12,377

5,690

4,172

791

4

8

1

(114)

(11)

Automotive

11,511

6,447

5,892

101

—

—

—

(530)

—

Chemicals/Plastics

11,591

7,234

4,172

169

16

18

2

(55)

(74)

Securities Firms & Exchanges

5,756

4,096

1,612

46

2

—

—

(171)

(183)

Agriculture/Paper Mfg

7,729

5,029

2,657

42

1

5

—

—

—

Aerospace/Defense

6,702

5,518

1,150

33

1

—

—

(141)

—

Leisure

7,748

3,160

3,724

551

313

—

(13)

(63)

(24)

All other(c)195,567

174,264

21,353

384

357

1,478

5

(8,767)

Subtotal$ 816,019 $

624,668 $

175,713 $

13,610 $2,028 $

2,096 $

Loans held-for-sale and loans at fairvalue
Receivables from customers and
other
Total

$

(41) $(178) $ (27,447) $(509)(1,479)(15,201)

6,961
23,648$ 846,628(a) The industry rankings presented in the table as of December 31, 2012, are based on the industry rankings of the corresponding exposures at
December 31, 2013, not actual rankings of such exposures at December 31, 2012.
(b) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2013 and 2012, noted above, theFirm held $7.9 billion and $18.2 billion, respectively, of trading securities and $30.4 billion and $21.7 billion, respectively, of AFS and HTM securities
issued by U.S. state and municipal governments. For further information, see Note 3 and Note 12 on pages 195–215 and 249–254, respectively, of thisAnnual Report.
(c) All other includes: individuals, private education and civic organizations; SPEs; and holding companies, representing approximately 64%, 22% and 5%,
respectively, at December 31, 2013, and 57%, 28% and 7%, respectively, at December 31, 2012.
(d) Credit exposure is net of risk participations and excludes the benefit of “Credit Portfolio Management derivatives net notional” held against derivative
receivables or loans and “Liquid securities and other cash collateral held against derivative receivables”.
(e) Exposures deemed criticized correspond to special mention, substandard and doubtful categories as defined by US bank regulatory agencies.
(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. Credit Portfolio
Management derivatives excludes the synthetic credit portfolio.

JPMorgan Chase & Co./2013 Annual Report133Management’s discussion and analysis•

Presented below is a discussion of several industries towhich the Firm has significant exposure and continues tomonitor because of actual or potential credit concerns.
For additional information, refer to the tables on theprevious pages.

The following table presents the change in the nonaccrualloan portfolio for the years ended December 31, 2013 and2012. Nonaccrual wholesale loans decreased by $673
million from December 31, 2012, largely reflecting
paydowns.

Real estate: Exposure to this industry increased by$10.9 billion or 14%, in 2013 to $87.1 billion. The
increase was largely driven by growth in multifamily
exposure in the CB. The credit quality of this industry
improved as the investment-grade portion of the
exposures to this industry increased by 26% from 2012.
The ratio of nonaccrual retained loans to total retainedloans decreased to 0.50% at December 31, 2013 from
0.86% at December 31, 2012. For further informationon commercial real estate loans, see Note 14 on pages
258–283 of this Annual Report.

Wholesale nonaccrual loan activity• State and municipal governments: Exposure to this
sector decreased by $6.2 billion in 2013 to $35.7
billion. Lending-related commitments compriseapproximately 66% of the exposure to this sector,
generally in the form of liquidity and standby letter ofcredit facilities backing bonds and commercial paper.
The credit quality of the portfolio remains high as 97%
of the portfolio was rated investment-grade, unchanged
from 2012. The Firm continues to actively monitor thisexposure in light of the challenging environment facedby certain state and municipal governments. For further
discussion of commitments for bond liquidity andstandby letters of credit, see Note 29 on pages 318–324
of this Annual Report.
Loans
In the normal course of its wholesale business, the Firm
provides loans to a variety of customers, ranging from large
corporate and institutional clients to high-net-worth
individuals. For further discussion on loans, including
information on credit quality indicators, see Note 14 on
pages 258–283 of this Annual Report.

Year ended December 31, (in millions)
Beginning balance

2013
$

2012

1,717 $

2,581

1,293

1,920

Paydowns and other

1,075

1,784

Gross charge-offs

241

335

Returned to performing status

279

240

Sales

371

425

1,966

2,784

Additions(a)Reductions:

Total reductions
Net reductions
Ending balance

$

(673)

(864)

1,044 $

1,717(a) During 2013, certain loans that resulted from restructurings that werepreviously classified as performing were reclassified as nonperforming
loans. Prior periods were revised to conform with the current
presentation.

The following table presents net charge-offs/recoveries,
which are defined as gross charge-offs less recoveries, forthe years ended December 31, 2013 and 2012. The
amounts in the table below do not include gains or losses
from sales of nonaccrual loans.
Wholesale net charge-offs/(recoveries)
Year ended December 31,(in millions, except ratios)

2013

2012

$ 307,340$ 291,980

Loans – reported
Average loans retained
Gross charge-offs

241

346

Gross recoveries

(225)

(524)

Net charge-offs/(recoveries)

16

(178)

Net charge-off/(recovery) rate

0.01%

(0.06)%The Firm actively manages its wholesale credit exposure.
One way of managing credit risk is through secondary
market sales of loans and lending-related commitments.
During 2013 and 2012, the Firm sold $16.3 billion and$8.4 billion, respectively, of loans and lending-related
commitments.

134

JPMorgan Chase & Co./2013 Annual Report

Receivables from customers
Receivables from customers primarily represent marginloans to prime and retail brokerage clients that arecollateralized through a pledge of assets maintained inclients’ brokerage accounts that are subject to daily
minimum collateral requirements. In the event that thecollateral value decreases, a maintenance margin call ismade to the client to provide additional collateral into theaccount. If additional collateral is not provided by the client,
the client’s position may be liquidated by the Firm to meetthe minimum collateral requirements.
Lending-related commitments
JPMorgan Chase uses lending-related financial instruments,
such as commitments (including revolving credit facilities)
and guarantees, to meet the financing needs of its
customers. The contractual amounts of these financial
instruments represent the maximum possible credit risk
should the counterparties draw down on thesecommitments or the Firm fulfills its obligations under theseguarantees, and the counterparties subsequently fails toperform according to the terms of these contracts.
In the Firm’s view, the total contractual amount of thesewholesale lending-related commitments is not
representative of the Firm’s actual future credit exposure or
funding requirements. In determining the amount of credit
risk exposure the Firm has to wholesale lending-related
commitments, which is used as the basis for allocating
credit risk capital to these commitments, the Firm hasestablished a “loan-equivalent” amount for eachcommitment; this amount represents the portion of theunused commitment or other contingent exposure that is
expected, based on average portfolio historical experience,
to become drawn upon in an event of a default by anobligor. The loan-equivalent amount of the Firm’s lendingrelated commitments was $218.9 billion and $223.7 billion
as of December 31, 2013 and 2012, respectively.

Derivative contracts
In the normal course of business, the Firm uses derivative
instruments predominantly for market-making activities.
Derivatives enable customers to manage exposures tofluctuations in interest rates, currencies and other markets.
The Firm also uses derivative instruments to manage its
own credit exposure. The nature of the counterparty andthe settlement mechanism of the derivative affect the credit
risk to which the Firm is exposed. For over-the-counter(“OTC”) derivatives the Firm is exposed to the credit risk ofthe derivative counterparty. For exchange tradedderivatives (“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 on derivatives transactions throughthe use of legally enforceable master netting arrangements
and collateral agreements. For further discussion ofderivative contracts, counterparties and settlement types,
see Note 6 on pages 220–233 of this Annual Report.
The following table summarizes the net derivative
receivables for the periods presented.
Derivative receivables
Derivative receivables
December 31, (in millions)Interest rate

2013$

25,782 $2012
39,205Credit derivatives

1,516

1,735

Foreign exchange

16,79014,142Equity12,227

9,266

Commodity

9,444

10,635

Total, net of cash collateral

65,75974,983(14,435)(15,201)

51,324 $59,782Liquid securities and other cash collateral
held against derivative receivables
Total, net of all collateral$

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 (“CCPs”).
Where possible, the Firm seeks to mitigate its credit risk to
its clients through the collection of adequate margin at
inception and throughout the life of the transactions 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 29 on
318–324, of this Annual Report.

JPMorgan Chase & Co./2013 Annual Report135Management’s discussion and analysis
Derivative receivables reported on the Consolidated Balance
Sheets were $65.8 billion and $75.0 billion at
December 31, 2013 and 2012, respectively. These amounts
represent the fair value of the derivative contracts, after
giving effect to legally enforceable master netting
agreements and cash collateral held by the Firm. However,in management’s view, the appropriate measure of current
credit risk should also take into consideration additionalliquid securities (primarily U.S. government and agency
securities and other G7 government bonds) and other cash
collateral held by the Firm aggregating $14.4 billion and$15.2 billion at December 31, 2013 and 2012,
respectively, that may be used as security when the fairvalue of the client’s exposure is in the Firm’s favor.
In addition to the collateral described in the preceding
paragraph, the Firm also holds additional collateral(primarily: cash; G7 government securities; other liquid
government-agency and guaranteed securities; 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. Though 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. As of December 31,
2013 and 2012, the Firm held $29.0 billion, of thisadditional collateral. The derivative receivables fair value,
net of all collateral, also does not include other credit
enhancements, such as letters of credit. For additional
information on the Firm’s use of collateral agreements, seeNote 6 on pages 220–233 of this Annual Report.
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.

Finally, AVG is a measure of the expected fair value of the
Firm’s derivative receivables at future time periods,
including the benefit of collateral. AVG exposure over the
total life of the derivative contract is used as the primary
metric for pricing purposes and is used to calculate credit
capital and the CVA, as further described below. The threeyear AVG exposure was $35.4 billion and $42.3 billion at
December 31, 2013 and 2012, respectively, compared with
derivative receivables, net of all collateral, of $51.3 billion
and $59.8 billion at December 31, 2013 and 2012,
respectively.
The fair value of the Firm’s derivative receivables
incorporates an adjustment, the CVA, to reflect the credit
quality of counterparties. The CVA is based on the Firm’s
AVG to a counterparty and the counterparty’s credit spreadin the credit derivatives market. The primary components ofchanges in CVA are credit spreads, new deal activity or
unwinds, and changes in the underlying market
environment. The Firm believes that active risk
management is essential to controlling the dynamic credit
risk in the derivatives portfolio. In addition, the Firm’s risk
management process takes into consideration the potential
impact of wrong-way risk, which is broadly defined as 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 toderivatives over the next 10 years as calculated by the DRE
and AVG metrics. The two measures generally show that
exposure will decline after the first year, if no new trades
are added to the portfolio.

Peak exposure to a counterparty is an extreme measure of
exposure calculated at a 97.5% confidence level. DRE
exposure is a measure that expresses the risk of derivative
exposure on a basis intended to be equivalent to the risk ofloan exposures. The measurement is done by equating theunexpected loss in a derivative counterparty exposure(which takes into consideration both the loss volatility andthe credit rating of the counterparty) with the unexpected
loss in a loan exposure (which takes into consideration only
the credit rating of the counterparty). DRE is a less extreme
measure of potential credit loss than Peak and is theprimary measure used by the Firm for credit approval ofderivative transactions.

136

JPMorgan Chase & Co./2013 Annual Report

The following table summarizes the ratings profile by derivative counterparty of the Firm’s derivative receivables, including credit
derivatives, net of other liquid securities collateral, for the dates indicated.
Ratings profile of derivative receivables
Rating equivalent

2013

December 31,(in millions, except ratios)

Exposure net of
all collateral

AAA/Aaa to AA-/Aa3

$

2012

% of exposure
net of all
collateral

Exposure net of
all collateral% of exposure
net of all
collateral

12,45324% $19,964

34%

A+/A1 to A-/A3

17,243

34

12,03920

BBB+/Baa1 to BBB-/Baa3

14,981

29

18,06630

BB+/Ba1 to B-/B3

5,820

11

8,434

14

827

2

1,279

2

51,324

100% $

59,782100%

CCC+/Caa1 and below
Total

$

As noted above, the Firm uses collateral agreements tomitigate counterparty credit risk. The percentage of the
Firm’s derivatives transactions subject to collateralagreements – excluding foreign exchange spot trades, which
are not typically covered by collateral agreements due totheir short maturity – was 86% as of December 31, 2013,
largely unchanged compared with December 31, 2012.

The Firm also uses credit derivatives as an end-user tomanage other exposures, including credit risk arising fromcertain AFS securities and from certain securities held in
the Firm’s market-making businesses. These credit
derivatives, as well as the synthetic credit portfolio, are notincluded in credit portfolio management activities; forfurther information on these credit derivatives as well as
credit derivatives used in the Firm’s capacity as a market
maker in credit derivatives, see Credit derivatives in Note 6
on pages 231–233 of this Annual Report.

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 6 on pages 220–233 of this Annual
Report.
Credit portfolio management activities
Included in end-user activities are credit derivatives used tomitigate the credit risk associated with traditional lending
activities (loans and unfunded commitments) and
derivatives counterparty exposure in the Firm’s wholesale
businesses (collectively, “credit portfolio management”
activities). Information on credit portfolio management
activities is provided in the table below. For further
information on derivatives used in credit portfolio
management activities, see Credit derivatives in Note 6 on
pages 220–233 of this Annual Report.

JPMorgan Chase & Co./2013 Annual Report

Credit derivatives used in credit portfolio management
activities
Notional amount ofprotection
purchased and sold (a)December 31, (in millions)

2013

2012

Credit derivatives used to manage:
Loans and lending-related commitments$

Derivative receivables
Total net protection purchased
Total net protection sold
Credit portfolio management derivatives
notional, net

$

2,764

$

2,166

25,32825,34728,092

27,51396

66

27,996$27,447(a) Amounts are presented net, considering the Firm’s net protection
purchased or sold with respect to each underlying reference entity orindex.

137

Management’s discussion and analysis
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,
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.

Credit portfolio hedges
The following table sets out the fair value related to theFirm’s credit derivatives used in credit portfolio
management activities, the fair value related to the CVA(which reflects the credit quality of derivatives counterparty
exposure), as well as certain other hedges used in the risk
management of CVA. These results can vary from period-toperiod due to market conditions that affect specificpositions in the portfolio.

The effectiveness of the Firm’s credit default swap (“CDS”)
protection as a hedge of the Firm’s exposures may varydepending on a number of factors, including the named
reference entity (i.e., the Firm may experience losses on
specific exposures that are different than the named
reference entities in the purchased CDS), and thecontractual terms of the CDS (which may have a defined
credit event that does not align with an actual loss realized
by the Firm) and the maturity of the Firm’s CDS protection(which in some cases may be shorter than the Firm’s
exposures). However, the Firm generally seeks to purchasecredit protection with a maturity date that is the same orsimilar to the maturity date of the exposure for which theprotection was purchased, and remaining differences inmaturity are actively monitored and managed by the Firm.

Hedges of loans and lendingrelated commitments

Net gains and losses on credit portfolio hedges
Year ended December 31,(in millions)

2013$

CVA and hedges of CVA
Net gains/(losses)

$

2012

2011

(142) $

(163) $

(32)

(130)

127

(769)

(272) $

(36) $(801)

COMMUNITY REINVESTMENT ACT EXPOSURE
The Community Reinvestment Act (“CRA”) encourages
banks to meet the credit needs of borrowers in all segmentsof their communities, including neighborhoods with low ormoderate incomes. The Firm is a national leader incommunity development by providing loans, investments
and community development services in communities
across the United States.
At December 31, 2013 and 2012, the Firm’s CRA loan
portfolio was approximately $18 billion and $16 billion,
respectively. At December 31, 2013 and 2012, 50% and138

62%, respectively, of the CRA portfolio were residential
mortgage loans; 26% and 13%, respectively, werecommercial real estate loans; 16% and 18%, respectively,
were business banking loans; and 8% and 7%, respectively,
were other loans. CRA nonaccrual loans were 3% and 4%,
respectively, of the Firm’s total nonaccrual loans. For theyears ended December 31, 2013 and 2012, net charge-offs
in the CRA portfolio were 1% and 3%, respectively, of the
Firm’s net charge-offs in both years.

JPMorgan Chase & Co./2013 Annual ReportALLOWANCE FOR CREDIT LOSSES
JPMorgan Chase’s allowance for loan losses covers theconsumer (primarily scored) portfolio; and wholesale (riskrated) portfolio. The allowance represents management’s
estimate of probable credit losses inherent in the Firm’s
loan portfolio. Management also determines an allowancefor wholesale and certain consumer lending-related
commitments.
The allowance for loan losses includes an asset-specificcomponent, a formula-based component, and a component
related to PCI loans. For a further discussion of thecomponents of the allowance for credit losses and related
management judgments, see Critical Accounting Estimates
Used by the Firm on pages 174–178 and Note 15 on pages
284–287 of this Annual Report.
At least quarterly, the allowance for credit losses isreviewed by the Chief Risk Officer, the Chief Financial
Officer and the Controller of the Firm, and discussed with
the Risk Policy and Audit Committees of the Board of
Directors of the Firm. As of December 31, 2013, JPMorgan
Chase deemed the allowance for credit losses to beappropriate and sufficient to absorb probable credit losses
inherent in the portfolio.
The allowance for credit losses was $17.0 billion at
December 31, 2013, a decrease of $5.6 billion from
$22.6 billion at December 31, 2012. The decrease in theallowance for loan losses was due to a $5.5 billion
reduction in the consumer portfolio allowance reflecting
lower estimated losses due to the impact of improved homeprices on the residential real estate portfolio and improved
delinquency trends in the residential real estate and credit
card portfolios. However, relatively high unemployment,
uncertainties regarding the ultimate success of loan
modifications, and the risk attributes of certain loans within
the portfolio (e.g., loans with high LTV ratios, junior lienloans that are subordinate to a delinquent or modified
senior lien, HELOCs with future payment recast) continued
to contribute to uncertainty regarding the performance ofthe residential real estate portfolio; these uncertainties
were considered in estimating the allowance for loan losses.

JPMorgan Chase & Co./2013 Annual Report

The consumer, excluding credit card, allowance for loan
losses decreased $3.8 billion from December 31, 2012, of
which $2.3 billion was from the real estate portfolio non
credit-impaired allowance and $1.6 billion from the PCI
allowance. The decrease in the allowance was largely due tothe impact of improved home prices as well as improved
delinquency trends. For additional information about
delinquencies and nonaccrual loans in the consumer,
excluding credit card, loan portfolio, see Consumer Credit
Portfolio on pages 120–129 and Note 14 on pages 258–
283 of this Annual Report.
The credit card allowance for loan losses decreased by$1.7 billion from December 31, 2012. The decrease
included reductions in both the asset-specific and formulabased allowance. The reduction in the asset-specificallowance, which relates to loans restructured in TDRs,
largely reflects the changing profile of the TDR portfolio.
The volume of new TDRs, which have higher loss rates due
to expected redefaults, continues to decrease, and the loss
rate on existing TDRs is also decreasing over time aspreviously restructured loans continue to perform. The
reduction in the formula-based allowance was primarily
driven by the continuing trend of improving delinquencies
and a reduction in bankruptcies. For additional information
about delinquencies in the credit card loan portfolio, seeConsumer Credit Portfolio on pages 120–129 and Note 14
on pages 258–283 of this Annual Report.
The wholesale allowance was relatively unchanged
reflecting a favorable credit environment and stable credit
quality trends.
The allowance for lending-related commitments for both theconsumer, excluding credit card, and wholesale portfolios,
which is reported in other liabilities, was $705 million and$668 million at December 31, 2013, and December 31,
2012, respectively.

139

Management’s discussion and analysis

Summary of changes in the allowance for credit losses
2013
Year ended December 31,(in millions, except ratios)

Consumer,
excludingcredit card

Credit card

$

$

2012

Wholesale

Total

Consumer,
excludingcredit card

21,936$

Credit card

Wholesale

Total

Allowance for loan losses
Beginning balance at January 1,

12,292

5,501

$

4,143

$

16,294Gross charge-offs

2,754

4,472

241

7,467

4,805

Gross recoveries

(847)

(593)

(225)

(1,665)(508)

Net charge-offs/(recoveries)

1,907

3,879

16

5,802

4,297

Write-offs of PCI loans(a)

53

—

—

53

Provision for loan losses(1,872)

2,179

(119)

(4)

(6)

5

Other
Ending balance at December 31,

$

8,456

$

601

$

3,795

$

971

$

4,013

$

181

$

$

6,999

$

4,316

$

27,6095,755

346

10,906

(811)

(524)

(1,843)

4,944

(178)

9,063

—

—

—

—

188

302

3,444

(359)

3,387

(5)

(7)

2

8

16,264

$

1,753

$

(d)

(d)

12,292

$

5,501

$

729

$

1,681

$

3

4,143

$

319

$

21,936

Impairment methodology
Asset-specific(b)$Formula-based

3,697

PCI
Total allowance for loan losses

2,824

4,158

3,832

—

10,353

—

5,852

4,158

3,820

5,711

3,824

—

2,729
13,496

—

5,711

$

8,456

$

3,795

$

4,013

$

16,264$

12,292

$

5,501

$

4,143

$

21,936

$

7

$

—

$

661

$

668

$

7

$

—

$

666

$

673

Allowance for lending-related
commitments
Beginning balance at January 1,
Provision for lending-related
commitments

1

—

36

37

—

—

(2)

(2)

Other

—

—

—

—

—

—

(3)

(3)

Ending balance at December 31,

$

8

$

—

$

$

—

$

—

$

697

$

60

$

705

$

7

$

—

$

60

$

—

$

—

$

661

$

97

$

668

Impairment methodology
Asset-specific
Formula-based

8

—

637

645

7

—

97

564

571

Total allowance for lending-related
commitments

$

8

$

—

$

697

$

705

$

7

$

—

$

661

$

668

Total allowance for credit losses

$

8,464

$

3,795

$

4,710

$

16,969$12,299

$

5,501

$

4,804

$

22,604

Memo:
Retained loans, end of period$ 288,449$ 127,465$ 308,263$ 724,177$ 292,620$ 127,993$ 306,222$ 726,835

Retained loans, average289,294

123,518

307,340

720,152

300,024

125,031291,980

717,035

PCI loans, end of period

53,055—

6

53,061

59,737—19

59,756

Credit ratios
Allowance for loan losses to retained
loans

2.93%

2.98%

1.30%

2.25%

4.20%

4.30%

1.35 %

3.02%

Allowance for loan losses to retained
nonaccrual loans(c)

113

NM

489

196

134

NM

289

207

Allowance for loan losses to retained
nonaccrual loans excluding credit card

113

NM

489

150

134

Net charge-off/(recovery) rates

0.66

3.14

0.01

0.81

1.43

Allowance for loan losses toretained loans

1.83

2.98

1.30

1.80

Allowance for loan losses toretained nonaccrual loans(c)

57

NM

489

146

NM

289

155

3.95

(0.06)

1.26

2.83

4.30

1.35

2.43

72

NM

289

153

(d)

Credit ratios, excluding residential realestate PCI loans

Allowance for loan losses toretained nonaccrual loans excluding
credit card(b)Net charge-off/(recovery) rates

57

NM

489

100

72

NM

289

101

0.82%

3.14%

0.01%

0.87%

1.81% (d)3.95%

(0.06)%

1.38%(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 purchaseaccounting adjustments at the time of acquisition. Any write-offs of PCI loans are recognized when the underlying loan is removed from a pool (e.g., uponliquidation).
(b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
(c) The Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.
(d) Net charge-offs and net charge-off rates for the year ended December 31, 2012, included $800 million of charge-offs of Chapter 7 loans. See Consumer Credit
Portfolio on pages 120–129 of this Annual Report for further details.

140

JPMorgan Chase & Co./2013 Annual ReportProvision for credit losses
For the year ended December 31, 2013, the provision for
credit losses was $225 million, down by 93% from 2012.
The provision for the year ended December 31, 2013
included a $5.6 billion reduction in the allowance for loan
losses, due to the impact of improved home prices on theresidential real estate portfolio and improved delinquency
trends in the residential real estate and credit card
portfolios.

estate portfolio, and improved delinquency trends in theresidential real estate and credit card portfolios, as well as
lower net charge-offs, partially due to the prior year
incremental charge-offs of $800 million recorded inaccordance with regulatory guidance on certain loans
discharged under Chapter 7 bankruptcy.
In 2013 the wholesale provision for credit losses was abenefit of $83 million, compared with a benefit of $361
million in 2012. The current periods’ wholesale provision
for credit losses reflected a favorable credit environmentand stable credit quality trends. For further information on
the provision for credit losses, see the Consolidated Resultsof Operations on pages 71–74 of this Annual Report.

Total consumer provision for credit losses was $308 million
in 2013, compared with $3.7 billion in 2012. The decline in
the total consumer provision was attributable to continued
reductions in the allowance for loan losses, resulting fromthe impact of improved home prices on the residential realYear ended December 31,

Provision for loan losses(in millions)2013

Consumer, excluding credit card

$ (1,872) $Credit card

2012
302 $

Provision for
lending-related commitments

2011
4,670

2013
$

2012

Total provision for credit losses

2011

2013

1 $

— $

2

$ (1,871) $

2012

2011

302 $

4,672

2,179

3,444

2,925

—

—

—

2,179

3,444

2,925

Total consumer

307

3,746

7,595

1

—

2

308

3,746

7,597

Wholesale

(119)

(359)

17

36

(2)

(40)

(83)

(361)

(23)

188 $

3,387 $

7,612

37 $

(2) $

(38) $

225 $3,385 $

7,574

Total provision for credit losses

JPMorgan Chase & Co./2013 Annual Report

$

$

141

Management’s discussion and analysis

MARKET RISK MANAGEMENT
Market risk is the potential for adverse changes in the valueof the Firm’s assets and liabilities resulting from changes inmarket variables such as interest rates, foreign exchange
rates, equity prices, commodity prices, implied volatilities
or credit spreads.
Market risk management
Market Risk is an independent risk management functionthat works in close partnership with the lines of business,
including Treasury and CIO within Corporate/Private Equity,
to identify and monitor market risks throughout the Firm
and to define market risk policies and procedures. The
Market Risk function reports to the Firm’s CRO.
Market Risk seeks to control risk, facilitate efficient risk/
return decisions, reduce volatility in operating performanceand provide transparency into the Firm’s market risk profilefor senior management, the Board of Directors andregulators. Market Risk 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

Risk identification and classification
Each line of business is responsible for the management of
the market risks within its units. The independent risk
management group responsible for overseeing each line ofbusiness is charged with ensuring that all material market
risks are appropriately identified, measured, monitored andmanaged in accordance with the risk policy framework set
out by Market Risk.
Risk measurement
Tools used to measure risk
Because no single measure can reflect all aspects of market
risk, the Firm uses various metrics, both statistical andnonstatistical, including:• VaR• Economic-value stress testing• Nonstatistical risk measures• Loss advisories• Profit and loss drawdowns• Risk identification for large exposures (“RIFLEs”)• Earnings-at-risk• Performance of stress testing and qualitative risk
assessments

142

JPMorgan Chase & Co./2013 Annual Report

The following table summarizes by LOB the predominant business activities that give rise to market risks, and the market risk
management tools utilized to manage those risks; CB is not presented in the table below as it does not give rise to significant
market risk.
Risk identification and classification for business activities
Predominant business activities andrelated market risks

Positions included in Risk
Management VaR

CIB• Makes markets and services its
clients’ activity in products acrossfixed income, foreign exchange,
equities and commodities• Market risk arising from market
making and other derivatives
activities which may lead to apotential decline in net income asa result of changes in market
prices; e.g. rates and credit
spreads• Trading assets/liabilities - debt andequity instruments, and derivatives• Certain securities purchased underresale agreements and securities
borrowed• Certain securities loaned or soldunder repurchase agreements• Structured notes, see Note 4 onpages 215-218 of this Annual
Report• Derivative CVA• Hedges of the retained loan portfolio
and CVA, classified as derivatives

CCB• Origination and servicing ofmortgage loans• Complex, non-linear interest raterisks, as well as 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 from differencesin the relative movements of therate indices underlying mortgage
exposure and other interest rates

Mortgage Banking• Mortgage pipeline loans, classified
as derivatives• Warehouse loans, classified as
trading assets - debt instruments• MSRs• Hedges of the MSRs and loans,classified as derivatives• Interest only securities, classified as
trading assets and related hedges
classified as derivatives• Retained loan portfolio• Deposits

Corporate/
Privateequity• Predominantly responsible formanaging the Firm’s liquidity,
funding, structural interest rate andforeign exchange risks arising from
activities undertaken by the Firm’s
four major reportable businesssegments, as well as executing the
Firm’s capital plan

Treasury and CIO• Primarily derivative positions
measured at fair value throughearnings, classified as derivatives• Private Equity• Investment securities portfolio andrelated hedges• Deposits• Long-term debt and related hedges

AM• Market risk arising from the Firm’s
initial capital investments in
products, such as mutual funds,
which are managed by AM• Hedges of seed capital investments,
classified as derivatives• Initial seed capital investments• Capital invested alongside thirdparty investors, typically in privately
distributed collective vehicles
managed by AM (i.e., CoInvestments)• Retained loan portfolio• Deposits

LOB

Positions included in other risk
measures (Not included in Risk
Management VaR)(a)(b)• Principal investing activities• Retained loan portfolio• Deposits(a) Additional market risk positions result from debit valuation adjustments (“DVA”) taken on structured notes and derivative liabilities to reflect the credit
quality of the Firm. Neither DVA nor the additional market risk positions resulting from it are included in VaR.
(b) During the fourth quarter of 2013, the Firm implemented a funding valuation adjustment (“FVA”) framework in order to incorporate the impact of funding
into its valuation estimates for OTC derivatives and structured notes. FVA gives rise to additional market risk positions, and is not currently included in VaR.
Effective in the first quarter of 2014, the FVA market risk exposure and its associated hedges will be included in CIB’s average VaR.

JPMorgan Chase & Co./2013 Annual Report143Management’s discussion and analysis
Value-at-risk
JPMorgan Chase utilizes VaR, a statistical risk measure, toestimate the potential loss from adverse market moves in anormal market environment consistent with the day-to-day
risk decisions made by the lines of business.
The Firm has one overarching VaR model framework, Risk
Management VaR, used for risk management purposes
across the Firm, which utilizes historical simulation basedon data for the previous 12 months. The framework’s
approach assumes that historical changes in market values
are representative of the distribution of potential outcomesin the immediate future. The Firm believes the use of Risk
Management VaR provides a stable measure of VaR thatclosely aligns to the day-to-day risk management decisions
made by the lines of business and provides necessary/
appropriate information to respond to risk events on a daily
basis.
Risk Management VaR is calculated assuming a one-day
holding period and an expected tail-loss methodology whichapproximates a 95% confidence level. This means that,assuming current changes in market values are consistent
with the historical changes used in the simulation, the Firm
would expect to incur VaR “band breaks,” defined as losses
greater than that predicted by VaR estimates, not morethan five times every 100 trading days. The number of VaRband breaks observed can differ from the statistically
expected number of band breaks if the current level ofmarket volatility is materially different from the level ofmarket volatility during the twelve 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 as
sensitivities and historical time series used to generate daily
market values may be different across product types or risk
management systems. The VaR model results across all
portfolios are aggregated at the Firm level.
Data sources used in VaR models may be the same as thoseused for financial statement valuations. However, in cases
where market prices are not observable, or where proxies
are used in VaR historical time series, the sources may
differ. In addition, the daily market data used in VaR models
may be different than the independent third-party datacollected for VCG price testing in their monthly valuation
process (see pages 196–200 of this Annual Report for
further information on the Firm’s valuation process.) VaR
model calculations require more timely (i.e., daily) data anda consistent source for valuation and therefore it is not

144

practical to use the data collected in the VCG monthly
valuation process.
VaR provides a consistent framework to measure risk
profiles and levels of diversification across product types
and is used for aggregating risks across businesses andmonitoring limits. These VaR results are reported to senior
management, the Board of Directors and regulators.
Since 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. As VaR cannot be used todetermine future losses in the Firm’s market risk positions,
the Firm considers other metrics, such as economic-value
stress testing and other techniques, as described further
below, to capture and manage its market risk positions
under stressed scenarios.
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 uses alternative methods to capture and measure
those risk parameters that are not otherwise captured in
VaR, including economic-value stress testing, nonstatisticalmeasures and risk identification for large exposures as
described further below.
The Firm’s VaR model calculations are continuously
evaluated and enhanced in response to changes in thecomposition of the Firm’s portfolios, changes in market
conditions, improvements in the Firm’s modeling techniques
and other factors. Such changes will also affect historicalcomparisons of VaR results. Model changes go through areview and approval process by the Model Review Groupprior to implementation into the operating environment.
For further information, see Model risk on page 153 of thisAnnual Report.
Separately, the Firm calculates a daily aggregated VaR in
accordance with regulatory rules (“Regulatory VaR”), which
is used to derive the Firm’s regulatory VaR-based capitalrequirements under the Basel 2.5 Market Risk Rule (“Basel2.5”). This Regulatory VaR model framework currently
assumes a ten business-day holding period and an expected
tail loss methodology which approximates a 99%
confidence level. Regulatory VaR is applied to “covered”
positions as defined by Basel 2.5, which may be different
than the positions included in the Firm’s Risk Management
VaR. For example, credit derivative hedges of accrual loans
JPMorgan Chase & Co./2013 Annual Reportare included in the Firm’s Risk Management VaR, while
Regulatory VaR excludes these credit derivative hedges.
For additional information on Regulatory VaR and the othercomponents of market risk regulatory capital (e.g. VaRbased measure, stressed VaR-based measure and therespective backtesting) for the Firm, see JPMorgan Chase’s“Regulatory Capital Disclosures – Market Risk Pillar 3
Report” which are available on the Firm’s website (http://
investor.shareholder.com/jpmorganchase/basel.cfm) and
Capital Management on pages 160–167 of this Annual
Report.

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
Diversification benefit to CIB trading VaR
CIB trading VaR
Credit portfolio VaRDiversification benefit to CIB VaR

Avg.
$

(a)

2013
Min

Max

43
7
13
14
(b)
(34)
43
13
(9) (b)

$ 23
5
9
11
NM
21
10
NM

CIB VaR

47

25

74

Mortgage Banking VaR
Treasury and CIO VaR (f)Asset Management VaR
Diversification benefit to other VaR
Other VaR
Diversification benefit to CIB and other VaR
Total VaR
$

12
(a)
6
4
(b)
(8)
14
(b)
(9)
52

4
3
2
NM
6
NM
$ 29

24
14
5
NM
28
NM
$ 87

(a)(e)

$

(c)

(c)

(c)

(c)

62
11
21
18
NM
66
18
NM

2012
Min

Max

83
10
21
15
(b)
(45)
84
25
(13) (b)

$ 47
6
12
11
NM
50
16
NM

$ 131
22
35
27
NM
128
42
NM

96

58

Avg.
$

(c)

(c)

(c)

(c)

(a)

(a)(e)

17
(d)
92
2
(b)
(10)
101
(b)
(45)
$ 152

8
5
—
NM
18
NM
$ 93

(c)

(c)

At December 31,
2013
2012
$

(c)

(c)

142

(d)
(g)
(c)

(c)

43
196
5
NM
204
NM
$ 254

(d)

(c)

(c)

$

36
9
14
13
(b)
(36)
36
11
(5) (b)

(a)

$ 69
8
22
15
(b)
(39)
75
18
(9) (b)42(a)(e)

84

5
4
3
(b)
(5)
7
(b)
(5)
44

(a)

(a)(e)

24
6
2
(b)
(7)
25
(b)
(11)
$ 98

(a) On July 2, 2012, CIO transferred its synthetic credit portfolio, other than a portion aggregating approximately $12 billion notional, to CIB; CIO’s retained portfolio was effectively
closed out during the three months ended September 30, 2012.
(b) Average portfolio VaR and period-end portfolio VaR were less than the sum of the VaR of the components described above, which is due to portfolio diversification. The
diversification effect reflects the fact that risks are not perfectly correlated.
(c) Designated as not meaningful (“NM”), because the minimum and maximum may occur on different days for distinct risk components, and hence it is not meaningful to computea portfolio-diversification effect.
(d) The Firm restated its 2012 first quarter financial statements regarding the CIO synthetic credit portfolio. The CIO VaR amounts for 2012 were not recalculated to reflect therestatement.
(e) Effective in the fourth quarter of 2012, CIB’s VaR includes the VaR of the former reportable business segments, Investment Bank and Treasury & Securities Services (“TSS”),
which were combined to form the CIB business segment as a result of the reorganization of the Firm’s business segments. TSS VaR was not material and was previously classified
within Other VaR. Prior period VaR disclosures were not revised as a result of the business segment reorganization.
(f) The Treasury and CIO VaR includes Treasury VaR as of the third quarter of 2013.
(g) The minimum Asset Management VaR for 2012 was immaterial.

As presented in the table above, average Total VaR andaverage CIB VaR decreased during 2013 compared with2012. These decreases were primarily driven by reduced
risk in the synthetic credit portfolio and lower market
volatility across multiple asset classes.
During the third quarter of 2012, the Firm applied a new
VaR model to calculate VaR for CIO’s synthetic credit
portfolio that had been transferred to the CIB on July 2,
2012. In the first quarter of 2013, in order to achieve
consistency among like products within CIB and in
conjunction with the implementation of Basel 2.5
requirements, the Firm moved CIO’s synthetic credit
portfolio to an existing VaR model within the CIB. Thischange had an insignificant impact to the average fixedincome VaR and average total CIB trading and credit
portfolio VaR, and it had no impact to the average Total VaR
compared with the model used in the third and fourth
quarters of 2012.
JPMorgan Chase & Co./2013 Annual Report

Average Treasury and CIO VaR for the year ended December
31, 2013, decreased from 2012, predominantly reflecting
the reduction in and transfer of risk from CIO’s synthetic
credit portfolio to the CIB on July 2, 2012. The index credit
derivative positions retained by CIO were effectively closed
out during the three months ended September 30, 2012.
Average Mortgage Banking VaR for the year ended
December 31, 2013, decreased from 2012. The decrease isattributable to reduced risk across the Mortgage Production
and Mortgage Servicing businesses.
The Firm’s average Total VaR diversification benefit was $9
million or 15% of the sum for 2013, compared with $45
million or 23% of the sum for 2012. In general, over thecourse of the year, VaR exposure can vary significantly as
positions change, market volatility fluctuates anddiversification benefits change.

145

Management’s discussion and analysis
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 recognized onmarket-risk related revenue.
Effective during the fourth quarter of 2013, the Firm
revised its definition of market risk-related gains and losses
to be consistent with the definition used by the banking
regulators under Basel 2.5. Under this definition market
risk-related gains and losses are defined as: profits andlosses on the Firm’s Risk Management positions, excluding
fees, commissions, fair value adjustments, net interest
income, and gains and losses arising from intraday trading.

Prior to the fourth quarter of 2013, the Firm disclosed ahistogram which presented the results of daily backtesting
against its daily market risk-related gains and losses for
positions included in the Firm’s Risk Management VaR
calculation. Under this previous presentation, the market
risk related revenue was defined as the change in value of:principal transactions revenue for CIB, and Treasury and
CIO; trading-related net interest income for CIB, Treasury
and CIO, and Mortgage Production and Mortgage Servicing
in CCB; CIB brokerage commissions, underwriting fees or
146

The following chart compares the daily market risk-related
gains and losses on the Firm’s Risk Management positions
for the year ended December 31, 2013, under the revised
definition. As the chart presents market risk-related gains
and losses related to those positions included in the Firm’s
Risk Management VaR, the results in the table below differ
from the results of backtesting disclosed in the Firm’s Basel
2.5 report, which are based on Regulatory VaR. The chartshows that for the year ended December 31, 2013, theFirm observed two VaR band breaks and posted gains on
177 of the 260 days in this period.

other revenue; revenue from syndicated lending facilities
that the Firm intends to distribute; mortgage fees andrelated income for the Firm’s mortgage pipeline andwarehouse loans, MSRs, and all related hedges; and marketrisk related revenue from Asset Management hedges; gains
and losses from DVA were excluded. Under this priormeasure there were no VaR band breaks nor any trading
loss days for the year ended December 31, 2013.

JPMorgan Chase & Co./2013 Annual Report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 or commodity
prices. The framework uses a grid-based approach, whichcalculates multiple magnitudes of stress for both market
rallies and market sell-offs for each risk factor. Stress-test
results, trends and explanations based on current market
risk positions are reported to the Firm’s senior management
and to the lines of business to allow them to better
understand the sensitivity of positions to certain defined
events and to enable them to manage their risks with moretransparency.
Stress scenarios are defined and reviewed by Market Risk,
and significant changes are reviewed by the relevant Risk
Committees. While most of the scenarios estimate losses
based on significant market moves, such as an equity
market collapse or credit crisis, the Firm also develops
scenarios to quantify risk arising from specific portfolios orconcentrations of risks, which attempt to capture certain
idiosyncratic market movements. Scenarios may be
redefined on an ongoing basis to reflect current market
conditions. Ad hoc scenarios are run in response to specificmarket events or concerns. Furthermore, the Firm’s stresstesting framework is utilized in calculating results underscenarios mandated by the Federal Reserve’s CCAR and
ICAAP (“Internal Capital Adequacy Assessment Process”)
processes.
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 used for tactical control
and monitoring limits.
Loss advisories and profit and loss drawdowns
Loss advisories and profit and loss drawdowns are tools
used to highlight trading losses above certain levels of risk
tolerance. Profit and loss drawdowns are defined as thedecline in net profit and loss since the year-to-date peakrevenue level.

Risk identification for large exposures
Individuals who manage risk positions consider potential
material losses that could arise from specific, unusual
events, such as a potential change in tax legislation, or aparticular combination of unusual market moves. This
information allows the Firm to monitor further earnings
vulnerability that is not adequately covered by standard risk
measures.
Earnings-at-risk
The VaR and stress-test measures described above illustrate
the total economic sensitivity of the Firm’s Consolidated
Balance Sheets to changes in market variables. The effect ofinterest rate exposure on reported net income is also
important as interest rate risk represents one of the Firm’s
significant market risks. Interest rate risk arises not only
from trading activities but also from the Firm’s traditionalbanking activities, which include extension of loans andcredit facilities, taking deposits and issuing debt. The CIO,
Treasury and Corporate (“CTC”) Risk Committee establishes
the Firm’s structural interest rate risk policies and market
risk limits, which are subject to approval by the Risk Policy
Committee of the Firm’s Board of Directors. CIO, working in
partnership with the lines of business, calculates the Firm’s
structural interest rate risk profile and reviews it with senior
management including the CTC Risk Committee and the
Firm’s ALCO.
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 manages interest rate exposure related to its
assets and liabilities on a consolidated, corporate-widebasis. Business units transfer their interest rate risk toTreasury through a transfer-pricing system, which takes into
account the elements of interest rate exposure that can be
risk-managed in financial markets. These elements include
asset and liability balances and contractual rates of interest,
contractual principal payment schedules, expected
prepayment experience, interest rate reset dates andmaturities, rate indices used for repricing, and any interest
rate ceilings or floors for adjustable rate products. Alltransfer-pricing assumptions are dynamically reviewed.
Oversight of structural interest rate risk is managed througha dedicated risk function reporting to the CTC CRO. This riskfunction is responsible for providing independent oversight,

JPMorgan Chase & Co./2013 Annual Report147Management’s discussion and analysis
creating governance over assumptions and establishing andmonitoring limits for structural interest rate risk.
The Firm manages structural interest rate risk generally
through its investment securities portfolio and related
derivatives. The Firm evaluates its structural interest raterisk exposure through earnings-at-risk, which measures theextent to which changes in interest rates will affect the
Firm’s core net interest income (see page 83 of this Annual
Report for further discussion of core net interest income)and interest rate-sensitive fees. Earnings-at-risk excludes
the impact of trading activities and MSR, as thesesensitivities are captured under VaR.
The Firm conducts simulations of changes in structuralinterest rate-sensitive revenue under a variety of interest
rate scenarios. Earnings-at-risk scenarios estimate thepotential change in this revenue, and the corresponding
impact to the Firm’s pretax core net interest income, overthe following 12 months, utilizing multiple assumptions as
described below. These scenarios highlight exposures tochanges in interest rates, pricing sensitivities on deposits,
optionality and changes in product mix. The scenarios
include forecasted balance sheet changes, as well as
prepayment and reinvestment behavior. Mortgage
prepayment assumptions are based on current interest
rates compared with underlying contractual rates, the timesince origination, and other factors which are updated
periodically based on historical experience.
JPMorgan Chase’s 12-month pretax core net interest
income sensitivity profiles.
(Excludes the impact of trading activities and MSRs)
Instantaneous change in rates(a)(in millions)+200 bps+100 bps

December 31, 2013
December 31, 2012

$ 4,718
3,886$ 2,5182,145-100 bps
NM
NM

(b)
(b)

-200 bps
NM
NM

(b)
(b)

(a) Instantaneous changes in interest rates present a limited view of risk,
and so alternative scenarios are also reviewed.
(b) Downward 100- and 200-basis-points parallel shocks result in afederal funds target rate of zero and negative three- and six-monthtreasury rates. The earnings-at-risk results of such a low-probability
scenario are not meaningful.

Risk monitoring and control
LimitsMarket risk is controlled primarily through a series of limits
set in the context of the market environment and businessstrategy. In setting limits, the Firm takes into consideration
factors such as market volatility, product liquidity andaccommodation of client business and management
experience. The Firm maintains different levels of limits.
Corporate level limits include VaR and stress limits.
Similarly, line of business limits include VaR and stresslimits and may be supplemented by loss advisories,
nonstatistical measurements and profit and loss
drawdowns. Limits may also be allocated within the lines ofbusiness, as well at the portfolio level.
Limits are established by Market Risk in agreement with thelines of business. Limits are reviewed regularly by Market
Risk and updated as appropriate, with any changes
approved by lines of business management and Market
Risk. Senior management, including the Firm’s Chief
Executive Officer and Chief Risk Officer, are responsible forreviewing and approving certain of these risk limits on an
ongoing basis. All limits that have not been reviewed within
specified time periods by Market Risk are escalated tosenior management. The lines of business are responsible
for adhering to established limits against which exposures
are monitored and reported.
Limit breaches are required to be reported in a timely
manner by Risk Management to limit approvers, Market
Risk and senior management. In the event of a breach,Market Risk consults with Firm senior management andlines of business senior management to determine theappropriate course of action required to return tocompliance, which may include a reduction in risk in orderto remedy the excess. Any Firm or line of business-level
limits that are in excess for three business days or longer, orthat are over limit by more than 30%, are escalated tosenior management and the Firmwide Risk Committee.

The change in earnings-at-risk from December 31, 2012,
resulted from higher expected deposit balances, partially
offset by repositioning the investment securities portfolio.
The Firm’s benefit to rising rates is largely a result of
reinvesting at higher yields and assets re-pricing at a fasterpace than deposits.
Additionally, another interest rate scenario used by the Firm
— involving a steeper yield curve with long-term rates risingby 100 basis points and short-term rates staying at current
levels — results in a 12-month pretax core net interest
income benefit of $407 million. The increase in core netinterest income under this scenario reflects the Firm
reinvesting at the higher long-term rates, with funding costs
remaining unchanged.

148

JPMorgan Chase & Co./2013 Annual Report

COUNTRY RISK MANAGEMENTCountry risk is the risk that a sovereign event or action
alters the value or terms of contractual obligations of
obligors, counterparties and issuers, or adversely impacts
markets related to a country. The Firm has a comprehensive
country risk management framework for assessing country
risks, determining risk tolerance, and measuring andmonitoring direct country exposures in the Firm. The
Country Risk Management group is responsible fordeveloping guidelines and policy for managing country risk
in both emerging and developed countries. The Country Risk
Management group actively monitors the various portfolios
giving rise to country risk to ensure the Firm’s country risk
exposures are diversified and that exposure levels areappropriate given the Firm’s strategy and risk tolerance
relative to a country.
Country risk organization
The Country Risk Management group is an independent risk
management function which works in close partnership withother risk functions to identify and monitor country risk
within the Firm. The Firmwide Risk Executive for Country
Risk reports to the Firm’s CRO.
Country Risk Management is responsible for the following
functions:• Developing guidelines and policies consistent with acomprehensive country risk framework• Assigning sovereign ratings and assessing country risks• Measuring and monitoring country risk exposure andstress across the Firm
• Managing country limits and reporting trends and limit
breaches to senior management• Developing surveillance tools for early identification ofpotential country risk concerns• Providing country risk scenario analysis
Country risk identification and measurement
The Firm is exposed to country risk through its lending,investing, and market-making activities, whether crossborder or locally funded. Country exposure includes activity
with both government and private-sector entities in acountry. Under the Firm’s internal country risk management
approach, country exposure is reported based on the
country where the majority of the assets of the obligor,
counterparty, issuer or guarantor are located or where themajority of its revenue is derived, which may be different
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 tranched credit derivatives. Different
measurement approaches or assumptions would affect theamount of reported country exposure.
JPMorgan Chase & Co./2013 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• 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,
including credit derivative receivables, is measured at thederivative’s fair value, net of the fair value of the related
collateral• 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 recognized derivative
receivable or payable. Credit derivatives protection
purchased and sold in the Firm’s market-making activities
is presented on a net basis, as such activities often result
in selling and purchasing protection related to the sameunderlying reference entity; this reflects the manner inwhich the Firm manages these exposures
The Firm also has indirect exposures to country risk (forexample, related to the collateral received on securities
financing receivables or related to client clearing activities).
These indirect exposures are managed in the normal courseof business through the Firm’s credit, market, andoperational risk governance, rather than through Country
Risk Management.
The Firm’s internal country risk reporting differs from thereporting provided under FFIEC bank regulatory
requirements as there are significant differences inreporting methodology. For further information on the
FFIEC’s reporting methodology, see Cross-border
outstandings on page 357 of the 2013 Form 10-K.

149

Management’s discussion and analysis
Country risk stress testing
The country risk stress framework aims to identify potential
losses arising from a country crisis by capturing the impactof large asset price movements in a country based onmarket shocks combined with counterparty specificassumptions. Country Risk Management periodically defines
and runs ad hoc stress scenarios for individual countries in
response to specific market events and sector performance
concerns.
Country risk monitoring and control
The Country Risk Management Group establishes guidelines
for sovereign ratings reviews and limit management.
Country stress and nominal exposures are measured undera comprehensive country limit framework. Country ratingsand limits activity are actively monitored and reported on aregular basis. Country limit requirements are reviewed andapproved by senior management as often as necessary, but
at least annually. In addition, the Country Risk Management
group uses surveillance tools for early identification ofpotential country risk concerns, such as signaling models
and ratings indicators.

Country risk reporting
The following table presents the Firm’s top 20 exposures bycountry (excluding the U.S.). The selection of countries isbased solely on the Firm’s largest total exposures bycountry, based on the Firm’s internal country risk
management approach, and does not represent the Firm’sview of any actual or potentially adverse credit conditions.
Top 20 country exposures
December 31, 2013
(in billions)Lending(a)United Kingdom$

Trading andinvesting(b)(c)Other(d)Totalexposure

34.4 $

43.5 $

1.4 $

79.3

Germany

13.0

29.1

0.2

42.3

Netherlands

5.3

25.5

2.6

33.4

France

13.9

17.0

—

30.9

Switzerland

19.9

1.7

0.6

22.2

Canada

13.8

5.4

0.2

19.4

Australia

7.4

11.3

—

18.7

China

11.1

3.9

0.7

15.7

Brazil

5.7

5.6

—

11.3

India

6.8

3.8

0.1

10.7

Hong Kong

3.8

3.5

1.7

9.0

Korea

4.8

2.9

—

7.7

Italy

3.4

4.0

—

7.4

Singapore

3.4

2.0

1.3

6.7

Mexico

2.3

4.4

—

6.7

Japan

3.9

2.6

—

6.5

Sweden

1.8

4.0

0.1

5.9

Russia

4.7

0.7

—

5.4

Spain

3.2

1.3

—

4.5

Malaysia

2.4

1.5

0.6

4.5

(a) Lending includes loans and accrued interest receivable, net ofcollateral and the allowance for loan losses, deposits with banks,
acceptances, other monetary assets, issued letters of credit net ofparticipations, and undrawn commitments to extend credit. Excludes
intra-day and operating exposures, such as from settlement andclearing activities.
(b) Includes market-making inventory, securities held in AFS accounts andhedging.
(c) Includes single-name and index and tranched credit derivatives forwhich one or more of the underlying reference entities is in a country
listed in the above table.
(d) Includes capital invested in local entities and physical commodity
inventory.

150

JPMorgan Chase & Co./2013 Annual ReportSelected European exposureNotwithstanding the economic and fiscal situation in Europe showing signs of stabilization, with Spain and Ireland exiting theirbail out programs and some encouraging progress on financial reform, the Firm continues to closely monitor its exposures in
Spain, Italy, Ireland, Portugal and Greece. Management believes its exposure to these five countries is modest relative to theFirm’s aggregate exposures. The Firm continues to conduct business and support client activity in these countries and,
therefore, the Firm’s aggregate net exposures and sector distribution may vary over time. In addition, the net exposures may
be affected by changes in market conditions, including the effects of interest rates and credit spreads on market valuations.
The following table presents the Firm’s direct exposure to Spain, Italy, Ireland, Portugal and Greece at December 31, 2013, as
measured under the Firm’s internal country risk management approach. For individual exposures, corporate clients represent
approximately 93% of the Firm’s non-sovereign exposure in these five countries, and substantially all of the remaining 7% of
the non-sovereign exposure is to the banking sector.
December 31, 2013
(in billions)
Spain
Sovereign
Non-sovereign
Total Spain exposure
Italy
Sovereign
Non-sovereign
Total Italy exposure
IrelandSovereign
Non-sovereign
Total Ireland exposure
PortugalSovereign
Non-sovereign
Total Portugal exposure
GreeceSovereign
Non-sovereign
Total Greece exposure
Total exposure

Lending net of
Allowance(a)$AFS securities

Derivative
collateral(c)Trading(b)Portfolio
hedging(d)Total exposure

— $
3.2
3.2 $

0.5 $
—
0.5 $

(0.2) $
3.3
3.1 $

— $
(1.9)
(1.9) $

(0.2) $
(0.2)
(0.4) $

0.1
4.4
4.5

— $
3.4
3.4 $

— $
—
— $

8.0 $
3.0
11.0 $(1.0) $
(1.1)
(2.1) $

(4.3) $
(0.6)
(4.9) $

2.7
4.7
7.4

— $
0.2
0.2 $

— $
—
— $

— $
0.5
0.5 $

— $
(0.1)
(0.1) $

(0.1) $—
(0.1) $

(0.1)
0.6
0.5

— $
0.5
0.5 $

— $
—
— $

0.1 $
0.9
1.0 $

— $
(0.4)
(0.4) $

— $(0.1)(0.1) $

0.1
0.9
1.0

$

— $
0.1
0.1 $

— $
—
— $

0.1 $
0.5
0.6 $

— $
(0.5)
(0.5) $

— $
—
— $

0.1
0.1
0.2

$

7.4 $

0.5 $

16.2 $(5.0) $

(5.5) $

13.6

$
$
$
$
$
$
$
$

(a) Lending includes loans and accrued interest receivable, deposits with banks, acceptances, other monetary assets, issued letters of credit net ofparticipations, and undrawn commitments to extend credit. Excludes intra-day and operating exposures, such as from settlement and clearing activities.
Amounts are presented net of the allowance for credit losses of $100 million (Spain), $43 million (Italy), $6 million (Ireland), $19 million (Portugal), and$13 million (Greece) specifically attributable to these countries. Includes $3.0 billion of unfunded lending exposure at December 31, 2013. These
exposures consist typically of committed, but unused corporate credit agreements, with market-based lending terms and covenants.
(b) Primarily includes: $13.9 billion of counterparty exposure on derivative and securities financings, $1.6 billion of issuer exposure on debt and equity
securities. Securities financings of approximately $25.2 billion were collateralized with approximately $27.5 billion of cash and marketable securities as ofDecember 31, 2013.
(c) Includes cash and marketable securities pledged to the Firm, of which approximately 95% of the collateral was cash at December 31, 2013.
(d) Reflects net protection purchased through the Firm’s credit portfolio management activities, which are managed separately from its market-making
activities. Predominantly includes single-name CDS and also includes index credit derivatives and short bond positions.

JPMorgan Chase & Co./2013 Annual Report151Management’s discussion and analysis
Effect of credit derivatives on selected European exposures
Country exposures in the Selected European exposure table above have been reduced by purchasing protection through single
name, index, and tranched credit derivatives. The following table presents the effect of purchased and sold credit derivatives
on the trading and portfolio hedging activities in the Selected European exposure table.
December 31, 2013

Trading(in billions)
Spain

Purchased$

Italy(92.5)

Portfolio hedging

Sold$(139.7)

Net
92.3

$

Purchased
(0.2)

$

Sold

(7.8)

$

Net
7.4

$

(0.4)

140.9

1.2

(23.6)

18.7

(4.9)

Ireland

(7.2)

7.1

(0.1)

(0.7)

0.6

(0.1)

Portugal(32.9)

33.2

0.3

(2.8)

2.7

(0.1)

Greece

(7.7)

7.7

—

(0.7)

0.7

Total

$

(280.0)$281.2

Under the Firm’s internal country risk management
approach, credit derivatives are generally reported basedon the country where the majority of the assets of thereference entity are located. Exposures are measured
assuming that all of the reference entities in a particularcountry default simultaneously with zero recovery. For
example, single-name and index credit derivatives aremeasured at the notional amount, net of the fair value ofthe derivative receivable or payable. Exposures for index
credit derivatives, which may include several underlying
reference entities, are determined by evaluating therelevant country for each of the reference entities
underlying the named index, and allocating the applicableamount of the notional and fair value of the index credit
derivative to each of the relevant countries. Tranched credit
derivatives are measured at the modeled change in value ofthe derivative assuming the simultaneous default of all
underlying reference entities in a specific country; thisapproach considers the tranched nature of the derivative(i.e., that some tranches are subordinate to others) and the
Firm’s own position in the structure.
The “Total” line in the table above represents the simple
sum of the individual countries. Changes in the Firm’s
methodology or assumptions would produce different
results.
The credit derivatives reflected in the “Portfolio hedging”
column are predominantly single-name CDS used in the
Firm’s credit portfolio management activities, which areintended to mitigate the credit risk associated withtraditional lending activities and derivative counterparty

152

$

1.2

$

(35.6)

$

30.1

—
$

(5.5)

exposure. The effectiveness of the Firm’s CDS protection asa hedge of the Firm’s exposures may vary depending upon anumber of factors, including the maturity of the Firm’s CDS
protection, the named reference entity, and the contractual
terms of the CDS. For further information about credit
derivatives see Credit derivatives on pages 137–138, andNote 6 on pages 220–233 of this Annual Report.
The Firm’s net presentation of purchased and sold credit
derivatives reflects the manner in which this exposure ismanaged, and reflects, in the Firm’s view, the substantial
mitigation of market and counterparty credit risk in its
credit derivative activities. Market risk is substantiallymitigated because market-making activities, and to a lesser
extent, hedging activities, often result in selling andpurchasing protection related to the same underlying
reference entity. For example, for each of the five named
countries as of December 31, 2013, the protection sold by
the Firm was more than 94% offset by protection
purchased on the identical reference entity.
In addition, counterparty credit risk has also been
substantially mitigated by the master netting and collateralagreements in place for these credit derivatives. As of
December 31, 2013, 100% of the purchased protection
presented in the table above is purchased under contracts
that require posting of cash collateral; 88% is purchasedfrom investment-grade counterparties domiciled outside of
the selected European countries; and 68% of the protection
purchased offsets protection sold on the identical reference
entity, with the identical counterparty subject to a masternetting agreement.

JPMorgan Chase & Co./2013 Annual Report

MODEL RISK MANAGEMENT
Model risk
The Firm uses models, for many purposes, but primarily forthe measurement, monitoring and management of risk
positions. Valuation models are employed by the Firm tovalue certain financial instruments which cannot otherwise
be valued using quoted prices. These valuation models may
also be employed as inputs to risk management models,
including VaR and economic stress models. The Firm also
makes use of models for a number of other purposes,
including the calculation of regulatory capital requirements
and estimating the allowance for credit losses.
Models are owned by various functions within the Firm
based on the specific purposes of such models. For
example, VaR models and certain regulatory capital models
are owned by the line-of-business aligned risk management
functions. Owners of models are responsible for thedevelopment, implementation and testing of their models,
as well as referral of models to the Model Risk function(within the Model Risk and Development unit) for review
and approval. Once models have been approved, modelowners are responsible for the maintenance of a robust
operating environment and must monitor and evaluate theperformance of the models on an ongoing basis. Modelowners may seek to enhance models in response to changes
in the portfolios and for changes in product and market
developments, as well as to capture improvements inavailable modeling techniques and systems capabilities.
The Model Risk function is part of the Firm’s Model Risk andDevelopment unit, which in turn reports to the Chief Risk
Officer. The Model Risk function is independent of the modelowners and reviews and approves a wide range of models,
including risk management, valuation and certain
regulatory capital models used by the Firm.
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

JPMorgan Chase & Co./2013 Annual Reportsuitability 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 tier of themodel.
Under the Firm’s model risk policy, new models, as well as
material changes to existing models, are reviewed andapproved by the Model Risk function prior to
implementation in the operating environment.
In the event that the Model Risk function does not approve amodel, the model owner is required to remediate the model
within a time period agreed upon with the Model Risk
function. The model owner is also required to resubmit themodel for review to the Model Risk function and to takeappropriate actions to mitigate the model risk if it is to be
used in the interim. These actions will depend on the modeland may include, for example, limitation of trading activity.
The Firm may also implement other appropriate risk
measurement tools to augment the model that is subject toremediation.
Exceptions to the Firm’s model risk policy may be grantedby the head of the Model Risk function to allow a model tobe used prior to review or approval.
For a summary of valuations based on models, see Critical
Accounting Estimates Used by the Firm on pages 176–177
and Note 3 on pages 195–215 of this Annual Report.

153

Management’s discussion and analysis
PRINCIPAL RISK MANAGEMENT
Principal investments are predominantly privately-held
financial assets and instruments, typically representing anownership or junior capital position, that have unique risks
due to their illiquidity or for which there is less observable
market or valuation data. Such investing activities, including
private equity investments, mezzanine financing, and taxoriented investments are typically intended to be held overextended investment periods and, accordingly, the Firm has
no expectation for short-term gain with respect to theseinvestments.
The Firm’s approach to managing principal risk is consistent
with the Firm’s general risk governance structure. A firmwide risk policy framework exists for all principal investing
activities. All investments are approved by investmentcommittees that include executives who are independent
from the investing businesses. An independent valuation
function is responsible for reviewing the appropriateness ofthe carrying values of principal investments, in accordancewith relevant accounting, valuation and risk policies.
Targeted levels for total and annual investments are
established in order to manage the overall size of theportfolios. Industry, geographic, and position level

154

concentration limits are in place and intended to ensure
diversification of the portfolios. The Firm also conducts
stress testing on these portfolios using specific scenariosthat estimate losses based on significant market moves
and/or other risk events.
The Firm’s principal investments are managed undervarious lines of business and are captured within therespective LOB’s financial results. Principal investments
cover multiple asset classes and occur either as astandalone investing businesses or as part of a broader
business platform. Asset classes include private equity, tax
equity investments including affordable housing, andmezzanine/junior debt investments. The majority of the
Firm’s private equity is reported separately under
Corporate/Private Equity (for detailed information, see
Private Equity portfolio on page 111 of this Annual Report).

JPMorgan Chase & Co./2013 Annual ReportOPERATIONAL RISK MANAGEMENT
Operational risk is the risk of loss resulting from inadequate
or failed processes or systems, human factors or external
events.
Overview
Operational risk is inherent in each of the Firm’s businesses
and support activities. Operational risk can manifest itself invarious ways, including errors, fraudulent acts, businessinterruptions, inappropriate behavior of employees, orvendors that do not perform in accordance with theirarrangements. These events could result in financial losses,
including litigation and regulatory fines, as well as otherdamage to the Firm, including reputational harm. To
monitor and control operational risk, the Firm maintains anoverall framework that includes oversight and governance,
policies and procedures, consistent practices across thelines of business, and enterprise risk management tools
intended to provide a sound and well-controlled operational
environment.
The framework clarifies:• Roles and Responsibilities
Ownership of the risk by the businesses and functional
areas
Monitoring and validation by business control officers
Oversight by independent risk management• Governance through business risk and control committees• Risk Categories• Independent review by Internal Audit• Tools to measure, monitor, and mitigate risk
The goal is to keep operational risk at appropriate levels, inlight of the Firm’s financial strength, the characteristics of
its businesses, the markets in which it operates, and thecompetitive and regulatory environment to which it issubject.
In order to strengthen the focus on the Firm’s control
environment and drive consistent practices acrossbusinesses and functional areas, the Firm established a
Firmwide Oversight and Control Group during 2012.
Oversight and Control is comprised of dedicated control
officers within each of the lines of business and Corporate
functional areas, as well as a central oversight team. The
group is charged with enhancing the Firm’s controls bylooking within and across the lines of business andCorporate functional areas to identify and control issues.
The group enables the Firm to detect control problems
more quickly, escalate issues promptly and get the rightpeople involved to understand common themes andinterdependencies among the various parts of the Firm. The
group works closely with the Firm’s other control-related
functions, including Compliance, Legal, Internal Audit andRisk Management, to effectively remediate identified
control issues across all affected areas of the Firm. As aresult, the group facilitates the effective execution of the
JPMorgan Chase & Co./2013 Annual ReportFirm’s control framework and helps support operational risk
management across the Firm.
Risk Management is responsible for defining the
Operational Risk Management Framework and providing
independent oversight of the framework across the Firm.
Operational risk management framework
The Firm’s approach to operational risk management isintended to identify potential issues and mitigate losses bysupplementing traditional control-based approaches tooperational risk with risk measures, tools and disciplinesthat are risk-specific, consistently applied and utilized
firmwide. Key themes are transparency of information,
escalation of key issues and accountability for issue
resolution.
In addition to the standard Basel risk event categories, theFirm has developed the operational risk categorization
taxonomy below for purposes of identification, monitoring,
reporting and analysis:• Fraud risk
• Market practices• Client management• Processing error• Financial reporting error• Information risk
• Technology risk (including cybersecurity risk)• Third-party risk
• Disruption and safety risk
• Employee risk
• Risk management error (including model risk)• Oversight and governance errors
Key components of the Operational Risk Management
Framework include:
Risk governance
The Firmwide Control Committee (“FCC”) provides a forum
for senior management to review and discuss firmwide
operational risks including existing and emerging issues aswell as operational risk metrics, management andexecution. The FCC serves as an escalation point forsignificant issues raised from LOB and Functional Control
Committees, particularly those with potential enterprisewide impact. The FCC (as well as the LOB and Functional
Control Committees) oversees the risk and control
environment, which includes reviewing the identification,
management and monitoring of operational risk, control
issues, remediation actions and enterprise-wide trends. The
FCC escalates significant issues to the FRC.

155

Management’s discussion and analysis
Risk identification assessment
In order to evaluate and monitor operational risk,businesses and functions utilize the Firm’s standard risk andcontrol self-assessment (“RCSA”) process and supportingarchitecture. The RCSA process requires management to
identify material inherent operational risks, assess thedesign and operating effectiveness of relevant controls
designed to mitigate such risks, and evaluate residual risk.

Audit alignment
Internal Audit utilizes a risk-based program of audit
coverage to provide an independent assessment of thedesign and effectiveness of key controls over the Firm’s
operations, regulatory compliance and reporting. This
includes reviewing the operational risk framework, theeffectiveness of the business self-assessment process, andthe loss data-collection and reporting activities.

Action plans are developed for control issues that are
identified, and businesses are held accountable for tracking
and resolving issues on a timely basis.

Insurance
One of the ways operational loss is mitigated is throughinsurance maintained by the Firm. The Firm purchases
insurance to be in compliance with local laws andregulations (e.g., workers compensation), as well as toserve 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 isreviewed and approved by senior management.

Risk monitoring
The Firm has a process for monitoring operational risk
event data, which permits analysis of errors and losses aswell as trends. Such analysis, performed both at a line ofbusiness level and by risk-event type, enables identificationof the causes associated with risk events faced by thebusinesses. Where available, the internal data can besupplemented with external data for comparative analysis
with industry patterns.
Risk reporting and analysis
Operational risk management reports provide information,
including actual operational loss levels, self-assessment
results and the status of issue resolution to the lines ofbusiness and senior management. The purpose of thesereports is to enable management to maintain operationalrisk at appropriate levels within each line of business, toescalate issues and to provide consistent data aggregation
across the Firm’s businesses and functions.
Risk measurement
Operational risk is measured using a statistical model basedon the loss distribution approach. The operational risk
capital model uses actual losses, a comprehensive inventoryof forward looking potential loss scenarios and adjustments
to reflect changes in the quality of the control environment
in determining firmwide operational risk capital. Thismethodology is designed to comply with the Advanced
Measurement rules under the Basel framework. For
additional information on operational risk capital, seeRegulatory Capital on pages 161–165 of this Annual
Report.
Operational risk management system
The Firm’s operational risk framework is supported by
Phoenix, an internally designed operational risk system,
which integrates the individual components of theoperational risk management framework into a unified,
web-based tool. Phoenix enhances the capture, reporting
and analysis of operational risk data by enabling risk
identification, measurement, monitoring, reporting andanalysis to be done in an integrated manner across the
Firm.

156

Cybersecurity
The Firm devotes significant resources to maintain andregularly update its systems and processes that aredesigned to protect the security of the Firm’s computer
systems, software, networks and other technology assets
against attempts by third parties to obtain unauthorizedaccess to confidential information, destroy data, disrupt or
degrade service, sabotage systems or cause other damage.
The Firm and several other U.S. financial institutions
continue to experience significant distributed denial-ofservice attacks from technically sophisticated and wellresourced third parties which are intended to disrupt online
banking services. The Firm is also regularly targeted bythird-parties using malicious code and viruses, and has also
experienced other attempts to breach the security of the
Firm’s systems and data which, in certain instances, haveresulted in unauthorized access to customer account data.
The Firm has established, and continues to establish,
defenses on an ongoing basis to mitigate these attacks, andthese cyberattacks have not, to date, resulted in any
material disruption of the Firm’s operations, material harmto the Firm’s customers, and have not had a material
adverse effect on the Firm’s results of operations.
Third parties with which the Firm does business or thatfacilitate the Firm’s business activities (e.g., vendors,
exchanges, clearing houses, central depositories, andfinancial intermediaries) could also be sources ofcybersecurity risk to the Firm, including with respect tobreakdowns or failures of their systems, misconduct by theemployees of such parties, or cyberattacks which could
affect their ability to deliver a product or service to the Firmor result in lost or compromised information of the Firm or
its clients.
The Firm is working with appropriate government agencies
and other businesses, including the Firm's third-party
service providers, to continue to enhance defenses andimprove resiliency to cybersecurity threats.

JPMorgan Chase & Co./2013 Annual Report

Business resiliency
JPMorgan Chase’s global resiliency and crisis management
program is intended to ensure that the Firm has the ability
to recover its critical business functions and supporting
assets (i.e., staff, technology and facilities) in the event of abusiness interruption, and to remain in compliance with
global laws and regulations as they relate to resiliency risk.
The program includes corporate governance, awareness andtraining, as well as strategic and tactical initiatives toensure that risks are properly identified, assessed, andmanaged.
The Firm’s Global Resiliency team has establishedcomprehensive and qualitative tracking and reporting ofresiliency plans in order to proactively anticipate andmanage various potential disruptive circumstances such as
severe weather, technology and communications outages,
flooding, mass transit shutdowns and terrorist threats,

JPMorgan Chase & Co./2013 Annual Reportamong others. The resiliency measures utilized by the Firm
include backup infrastructure for data centers, ageographically distributed workforce, dedicated recovery
facilities, ensuring technological capabilities to support
remote work capacity for displaced staff andaccommodation of employees at alternate locations.
JPMorgan Chase continues to coordinate its global
resiliency program across the Firm and mitigate business
continuity risks by reviewing and testing recovery
procedures. The strength and proficiency of the Firm’s
global resiliency program has played an integral role inmaintaining the Firm’s business operations during andquickly after various events that have resulted in businessinterruptions, such as Superstorm Sandy and Hurricane
Isaac in the U.S., monsoon rains in the Philippines, tsunamis
in Asia, and earthquakes in Latin America.

157

Management’s discussion and analysis
LEGAL RISK, REGULATORY RISK, AND COMPLIANCE RISK MANAGEMENTThe Firm’s success depends not only on its prudent
management of the liquidity, capital, credit, market,
principal and operational risks that are part of its businessrisks, but equally on the recognition among its many
constituents — customers and clients, employees, investors,
government officials, regulators, as well as the generalpublic — that the Firm adheres consistently to a set of corevalues that drive the way the Firm conducts business. The
Firm has established policies and procedures, and has inplace various oversight functions intended to promote itscore values and the Firm’s culture of “doing the right thing”
by doing “first class business in a first class way”.
The Firm has in place a Code of Conduct (the “Code”), andeach employee is given annual training in respect of theCode and is required annually to affirm his or her
compliance with the Code. The Code sets forth the Firm’s
core principles and fundamental values, including that no
employee should ever sacrifice integrity – or give theimpression that he or she has – even if one thinks it would
help the Firm’s business. The Code requires prompt
reporting of any known or suspected violation of the Code,any internal Firm policy, or any law or regulation applicableto the Firm’s business. It also requires the reporting of any
illegal conduct, or conduct that violates the underlying
principles of the Code, by any of the Firm’s customers,
suppliers, contract workers, business partners, or agents.
Specified employees are specially trained and designated as“code specialists” who act as a resource to employees on
Code of Conduct matters. In addition, concerns may bereported anonymously and the Firm prohibits retaliation
against employees for the good faith reporting of any actualor suspected violations of the Code.
Management of conflicts of interest is essential to themaintenance of the Firm’s client relationships, and its
reputation. Each of the various committees of senior
management that oversee and approve transactions andactivities undertaken by the Firm are responsible forconsidering any potential conflicts that may arise from suchtransactions or activities. In addition, the Firm’s Conflicts
Office examines the Firm’s wholesale transactions that may
have the potential to create conflicts of interest for the
Firm.

158

The risk of legal or regulatory fines or sanctions or of
financial damage or loss due to the failure to comply withlaws, rules, and regulations, is a primary focus of the Legal,
Compliance and Oversight and Controls functions. In recent
years, the Firm has experienced heightened scrutiny by its
regulators of its compliance with regulations, and withrespect to its controls and operational processes. The Firm
expects such regulatory scrutiny will continue, and that
regulators will increasingly use formal actions (such asConsent Orders) instead of informal supervisory actions(such as “Matters Requiring Attention”), resulting infindings of violations of law and impositions of fines andpenalties.
In addition to providing legal services and advice to theFirm, and communicating and helping businesses adjust to
the legal and regulatory changes facing the businesses,
including the heightened scrutiny and expectations of its
regulators, the global Legal function is responsible forpartnering with the businesses to fully understand andassess the businesses’ adherence to laws and regulations,as well as potential exposures on key litigation andtransactional matters.
Global Compliance Risk Management is responsible for
identifying and advising on compliance risks, establishingpolicies and procedures intended to mitigate and control
compliance risks, implementing training andcommunication forums to provide appropriate oversightand coordination of compliance risks, overseeing
remediation of compliance risks and issues, andindependently monitoring and testing the Firm’s compliancerisk controls.
Legal and Compliance, together with the Oversight andControl function, share responsibility with the businesses
for identifying legal, compliance and regulatory issues,
escalating these issues through the Firm’s risk governancestructures, and, as necessary, in assisting the businesses intheir remediation efforts. For information about theOversight & Control function, see Enterprise-Wide Risk
Management on pages 113–173.

JPMorgan Chase & Co./2013 Annual ReportFIDUCIARY RISK MANAGEMENTREPUTATION RISK MANAGEMENT

Fiduciary risk is the risk of failing to exercise the applicablestandard of loyalty and care, or to act in the best interestsof clients or to treat all clients fairly as required underapplicable law or regulation, potentially resulting in
regulatory action, reputational harm or financial liability.

Maintenance of the Firm’s reputation is the responsibility ofeach individual employee of the Firm.The Firm’s Reputation
Risk policy explicitly vests each employee with the
responsibility to consider the reputation of the Firm, rather
than business benefits and regulatory requirements alone,
in deciding whether to pursue any new product, transaction,client, or any other activity. Since the types of events that
could harm the Firm’s reputation are so varied across the
Firm’s lines of business, each line of business has a separate
reputation risk governance infrastructure in place, which
comprises three key elements: clear, documented escalation
criteria appropriate to the business footprint; a designatedprimary discussion forum – in most cases, one or more
dedicated reputation risk committees; and a list ofdesignated contacts. Line of business reputation risk
governance is overseen by a Firmwide Reputation Risk
Governance function, which provides oversight of thegovernance infrastructure and process to support theconsistent identification, escalation, management andreporting of reputation risk issues firmwide.

Depending on the fiduciary activity and capacity in which
the Firm is acting, federal and state statutes, common law
and regulations require the Firm to adhere to specific duties
in which the Firm must always place the client’s interests
above its own.
Fiduciary risk governance
Fiduciary Risk Management is the responsibility of therelevant LOB risk committees. Senior business, legal, risk
and compliance management, who have particularresponsibility for fiduciary issues, work with the relevant
LOB risk committees with the goal of ensuring thatbusinesses providing investment, trusts and estates, orother fiduciary products or services that give rise tofiduciary duties to clients, perform at the appropriate
standard relative to their fiduciary relationship with a client.
Each LOB and its respective risk and governancecommittees are responsible for the oversight andmanagement of the fiduciary risks in their businesses. Of
particular focus are the policies and practices that address
a business’ responsibilities to a client, including
performance and service requirements and expectations;client suitability determinations; and disclosure obligations
and communications. In this way, the relevant LOB risk
committees provide oversight of the Firm’s efforts tomonitor, measure and control the performance and risks
that may arise in the delivery of products or services toclients that give rise to such fiduciary duties, as well as
those stemming from any of the Firm’s fiduciary
responsibilities under the Firm’s various employee benefit
plans.
During 2013 the Firm created the Firmwide Fiduciary Risk
Committee (“FFRC”). The FFRC provides a forum fordiscussing the risks inherent in the Firm’s fiduciary
activities. The Committee is responsible for a cross-LOB
process to support the consistent identification, escalation
and reporting of fiduciary risk issues firmwide. Issues fromthe FFRC may be escalated to the Firmwide Risk Committee.

JPMorgan Chase & Co./2013 Annual Report159Management’s discussion and analysis
CAPITAL MANAGEMENT
A strong capital position is essential to the Firm’s businessstrategy and competitive position. The Firm’s capital
strategy focuses on long-term stability, which enables theFirm to build and invest in market-leading businesses, evenin a highly stressed environment. Prior to making any
decisions on future business activities, senior management
considers the implications on the Firm’s capital. In addition
to considering the Firm’s earnings outlook, senior
management evaluates all sources and uses of capital witha view to preserving the Firm’s capital strength. Maintaining
a strong balance sheet to manage through economic
volatility is considered a strategic imperative by the Firm’s
Board of Directors, CEO and Operating Committee. The
Firm’s balance sheet philosophy focuses on risk-adjusted
returns, strong capital and reserves, and robust liquidity.
The Firm’s capital management objectives are to holdcapital sufficient to:• Cover all material risks underlying the Firm’s businessactivities;• Maintain “well-capitalized” status under regulatory
requirements;• Maintain debt ratings that enable the Firm to optimize its
funding mix and liquidity sources while minimizing costs;• Retain flexibility to take advantage of future investment
opportunities;• Maintain sufficient capital in order to continue to build
and invest in its businesses through the cycle and instressed environments; and• Distribute excess capital to shareholders while balancing
other stated objectives.
These objectives are achieved through ongoing monitoringof the Firm’s capital position, regular stress testing, and acapital governance framework. Capital management isintended to be flexible in order to react to a range ofpotential events. JPMorgan Chase has firmwide and LOB
processes for ongoing monitoring and active managementof its capital position.
Capital strategy and governance
The Firm’s CEO and Operating Committee establish
principles and guidelines for capital planning, capitalissuance, usage and distributions; and, establish capitaltargets and minimums for the level and composition ofcapital in both business-as-usual and highly-stressed
environments.
The Firm’s capital targets and minimums are calibrated to
the U.S. Basel III requirements. The Firm’s target Tier 1
common ratio under the Basel III Advanced approach, on a
fully phased-in basis, is 10%+. This long-term Tier 1
common ratio target level will enable the Firm to retain
market access, continue the Firm’s strategy to invest in andgrow its businesses; and, maintain flexibility to distributeexcess capital. The Firm intends to manage its capital sothat it achieves the required capital levels and composition
160

during the transition from Basel I to Basel III, in line with, orahead of, the required timetable.
The Firm’s senior management recognizes the importanceof a capital management function that supports strategic
decision-making. The Firm has established the Capital
Governance Committee and the Regulatory CapitalManagement Office (“RCMO”) as key components in supportof this objective. The Capital Governance Committee is
responsible for reviewing the Firm’s Capital Management
Policy and the principles underlying capital issuance anddistribution alternatives. The Committee is also responsible
for governing the capital adequacy assessment process,including overall design, assumptions and risk streams, andensuring that capital stress test programs are designed toadequately capture the idiosyncratic risks across the Firm’s
businesses. The RCMO is responsible for reviewing,
approving and monitoring the implementation of the Firm’s
capital policies and strategies, as well as its capital
adequacy assessment process. The Board of Director’s Risk
Policy Committee assesses the Firm’s capital adequacy
process and its components. This review encompasses
determining the effectiveness of the capital adequacy
process, the appropriateness of the risk tolerance levels,and the strength of the control infrastructure. For additional
discussion on the Board’s Risk Policy Committee, see Risk
Management on pages 113–173 of this Annual Report.
Internal Capital Adequacy Assessment Process
Semiannually, the Firm completes the Internal Capital
Adequacy Assessment Process (“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, realized events can always be worse. Accordingly,
management considers additional stresses outside thesescenarios, as necessary. ICAAP results are reviewed bymanagement and the Board of Directors.
Comprehensive Capital Analysis and Review (“CCAR”)
The Federal Reserve requires large bank holding
companies, including the Firm, to submit a capital plan on
an annual basis. The Federal Reserve uses the CCAR andDodd-Frank Act Wall Street Reform and Consumer
Protection Act (the “Dodd-Frank Act”) stress test processes
JPMorgan Chase & Co./2013 Annual Report

to ensure that large bank holding companies have sufficient
capital during periods of economic and financial stress, andhave robust, forward-looking capital assessment andplanning processes in place that address each bank holding
company’s unique risks to enable them to have the ability toabsorb losses under certain stress scenarios. Through the
CCAR, the Federal Reserve evaluates each bank holding
company’s capital adequacy and internal capital adequacy
assessment processes, as well as its plans to make capital
distributions, such as dividend payments or stock
repurchases.
The Firm’s CCAR process is integrated into and employs thesame methodologies utilized in the Firm’s ICAAP process.
On January 7, 2013, the Firm submitted its capital plan to
the Federal Reserve under the Federal Reserve’s 2013
CCAR process. On March 14, 2013, the Federal Reserve
informed the Firm that it did not object to the Firm’s 2013
capital plan, but asked the Firm to submit an additional
capital plan.
On September 18, 2013, the Firm submitted the additional
capital plan which addressed the weaknesses the Federal
Reserve had identified in the Firm’s original 2013
submission. On December 2, 2013, the Federal Reserve
informed the Firm it did not object to the Firm’s 2013
capital plan, as resubmitted.
On January 6, 2014, the Firm submitted its 2014 capitalplan to the Federal Reserve under the Federal Reserve’s
2014 CCAR process. The Firm expects to receive the Federal
Reserve’s final response to its plan no later than March 14,
2014.
For additional information on the Firm’s capital actions, see
Capital actions on pages 166–167, and Notes 22 and 23 on
pages 309 and 310, respectively, of this Annual Report.
Capital Disciplines
The Firm uses three primary capital disciplines:• Regulatory capital• Economic capital• Line of business equity

JPMorgan Chase & Co./2013 Annual Report

Regulatory capital
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The Office of the Comptroller of
the Currency (“OCC”) establishes similar capitalrequirements and standards for the Firm’s national banks,
including JPMorgan Chase Bank, N.A. andChase Bank USA, N.A.
In connection with the U.S. Government’s Supervisory
Capital Assessment Program in 2009 (“SCAP”), U.S.
banking regulators developed an additional measure ofcapital, Tier 1 common, which is defined as Tier 1 capitalless elements of Tier 1 capital not in the form of common
equity, such as perpetual preferred stock, noncontrollinginterests in subsidiaries and trust preferred securities. In
2013, the Federal Reserve employed a minimum 5% Tier 1
common ratio standard for CCAR purposes, in addition toother minimum capital requirements, to assess a bankholding company’s capital adequacy. For the 2014 CCAR
process, the Federal Reserve has introduced a requirement
to include, in addition to the Basel I Tier 1 common
standards, a Basel III Tier 1 common test with a minimum of
4% for 2014 projections and 4.5% for 2015 projections.
Basel I and Basel 2.5
The minimum U.S. risk-based capital requirements in effecton December 31, 2013, follow the Capital Accord (“BaselI”) of the Basel Committee. In June 2012, U.S. federalbanking agencies published the final rule that specifies
revised market risk regulatory capital requirements (“Basel2.5”). While the Firm is still subject to the capitalrequirements of Basel I, Basel 2.5 rules also became
effective for the Firm on January 1, 2013. The Basel 2.5
final rule revised the scope of positions subject to themarket risk capital requirements and introduced newmarket risk measures, which resulted in additional capitalrequirements for covered positions as defined. The
implementation of Basel 2.5 in the first quarter of 2013
resulted in an increase of approximately $150 billion in
RWA compared with the Basel I rules at March 31, 2013.
The implementation of these rules also resulted indecreases of the Firm’s Tier 1 capital, Total capital and Tier
1 common capital ratios by 140 basis points, 160 basis
points and 120 basis points, respectively, at March 31,
2013.

161

Management’s discussion and analysis
A reconciliation of total stockholders’ equity to Tier 1
common, Tier 1 capital and Total qualifying capital ispresented in the table below.

Capital rollforward
The following table presents the changes in Basel I Tier 1
common, Tier 1 capital and Tier 2 capital for the year ended
December 31, 2013.

Risk-based capital components and assets
December 31, (in millions)

2013

2012

Year ended December 31, (in millions)2013$ 140,342

204,069

Tier 1 common at December 31, 2012

Less: Preferred stock

11,1589,058

Net income applicable to common equity

17,118

Common stockholders’ equity

200,020

195,011

Dividends declared on common stock(5,585)

Net issuance of treasury stock(2,845)

Total stockholders’ equity$

211,178$

Effect of certain items in accumulated
other comprehensive income/(loss)
excluded from Tier 1 common(1,337)(4,198)Less: Goodwill(a)45,32045,663

2,012

2,311

Other intangible assets(a)Fair value DVA on structured notes
and derivative liabilities related to
the Firm’s credit quality

1,300

1,577

Investments in certain subsidiaries
and other

1,164

920

Tier 1 common

148,887

140,342

Preferred stock

11,158

9,058

Qualifying hybrid securities andnoncontrolling interests(b)5,618

10,608—(6)

165,663

160,002

Other
Total Tier 1 capital
Long-term debt and other instruments
qualifying as Tier 2

16,69518,061

Qualifying allowance for credit losses

16,96915,995(41)(22)

33,62334,034

Other
Total Tier 2 capital

Qualifying noncontrolling minority interests in consolidated
subsidiaries(47)

DVA on structured notes and derivative liabilities

277

Goodwill and other nonqualifying intangibles (net ofdeferred tax liabilities)

642

Other

(199)

Increase in Tier 1 common

8,545

Tier 1 common at December 31, 2013

$ 148,887

Tier 1 capital at December 31, 2012

$ 160,002

Change in Tier 1 common

8,545

Net issuance of noncumulative perpetual preferred stock

2,100

Redemption of qualifying trust preferred securities(4,942)

Other

(42)

Increase in Tier 1 capital

5,661

Tier 1 capital at December 31, 2013

$ 165,663

Tier 2 capital at December 31, 2012$$

$ 1,223,147$ 1,156,102

Market risk RWA

164,716

114,276

Total RWA

$ 1,387,863$ 1,270,378

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

Total adjusted average assets$ 2,343,713$ 2,243,242

Change in allowance for credit losses

162

194,036(40)

Credit risk RWA

(b)

$

(776)

Effect of certain items in accumulated other comprehensive
income/(loss) excluded from Tier 1 common

Total qualifying capital(a)

199,286

Changes in capital surplus

Goodwill and other intangible assets are net of any associateddeferred tax liabilities.
Primarily includes trust preferred securities of certain businesstrusts. Under the Basel III interim final rule published by U.S. federalbanking agencies in October 2013, trust preferred securities will bephased out from inclusion as Tier 1 capital, but included as Tier 2
capital, beginning in 2014 through the end of 2015 and phased out
from inclusion as Tier 2 capital beginning in 2016 through the end of
2021.

34,034(1,366)
974

Other

(19)

Decrease in Tier 2 capital(411)

Tier 2 capital at December 31, 2013$

Total capital at December 31, 2013

$ 199,286

33,623

JPMorgan Chase & Co./2013 Annual Report

RWA Rollforward
The following table presents the changes in the credit risk
and market risk components of RWA under Basel I including
Basel 2.5 for the year ended December 31, 2013. The
rollforward categories are estimates, based on the
predominant driver of the change.
Year ended December 31, 2013
(in billions)Credit risk
RWA

Marketrisk RWA

Total RWA

RWA at December 31, 2012

$

$

$

1,270

$

1,388

1,156

114

Rule changes

39

134

Model & data changes(b)24

1Portfolio runoff

(11)

(45)

Movement in portfolio levels(d)

15

(39)

Increase in RWA

67

(a)

(c)

RWA at December 31, 2013

$

1,223

51
$

165

118

(a) Rule changes refer to movements in RWA as a result of changes inregulations, in particular, Basel 2.5, which resulted in certain positions
previously captured under market risk under Basel I being included as
noncovered positions under credit risk RWA.
(b) Model & data changes refer to movements in RWA as a result of revised
methodologies and/or treatment per regulatory guidance (exclusive ofrule changes).
(c) Portfolio runoff for credit risk RWA reflects lower loan balances in
Mortgage Banking and for market risk RWA reflects reduced risk fromposition rolloffs, including changes in the synthetic credit portfolio.
(d) Movement in portfolio levels for credit risk RWA refers to changes inbook size, composition, quality, as well as market movements; and formarket risk RWA, refers to changes in position and market movements.

The following table presents the risk-based capital ratios for
JPMorgan Chase at December 31, 2013 and 2012, under
Basel I (and, for December 31, 2013, inclusive of Basel 2.5)
Risk-based capital ratios
December 31,
Capital ratios
Tier 1 capital
Total capital
Tier 1 leverage
Tier 1 common(a)

2013
11.9%
14.4
7.1
10.7

2012
12.6%
15.3
7.1
11.0

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

At December 31, 2013 and 2012, JPMorgan Chase
maintained Basel I Tier 1 and Total capital ratios in excessof the well-capitalized standards established by the Federal
Reserve. In addition, at December 31, 2013 and 2012, theFirm’s Basel I Tier 1 common ratio was significantly above
the 2013 5% CCAR standard.
Additional information regarding the Firm’s capital ratios
and the federal regulatory capital standards to which the
Firm is subject is presented in Note 28 on pages 316–318
of this Annual Report and the Supervision and Regulation
section of the 2013 10-K. For further information on the
Firm’s Basel 2.5 measures and additional market risk
disclosures, see the Firm’s consolidated Basel 2.5 Market
Risk Pillar 3 Reports which are available on the Firm’s
website (http://investor.shareholder.com/jpmorganchase/basel.cfm) within 60 days after December 31, 2013.

JPMorgan Chase & Co./2013 Annual Report

Basel II & Basel III
U.S. banking regulators published a final Basel II rule in
December 2007, which was intended to be more risk
sensitive than Basel I and eventually replace Basel I forlarge and internationally active U.S. banks, including theFirm. The Firm has been reporting Basel II capital ratios inparallel to the banking agencies since 2008. In October
2013, U.S. federal banking agencies published an interim
final rule implementing further revisions to the Capital
Accord in the U.S.; such further revisions are commonlyreferred to as “Basel III.” Basel III is comprised of aStandardized Approach and an Advanced Approach. For
large and internationally active banks, including the Firm,
both the Basel III Standardized and Advanced Approaches
became effective commencing January 1, 2014.
For 2014, the Basel III Standardized Approach requires theFirm to calculate its capital ratios using the Basel III
definition of capital divided by the Basel I definition of RWA,
inclusive of Basel 2.5 for market risk. Commencing January
1, 2015 the Basel III Standardized Approach requires theFirm to calculate the ratios using the Basel III definition ofcapital divided by the Basel III Standardized RWA, inclusiveof Basel 2.5 for market risk.
Prior to full implementation of the Basel III Advanced
Approach, the Firm is required to complete a qualification
period (“parallel run”) of at least four consecutive quarters(inclusive of quarters in which the Firm reported in parallel
under Basel II) during which it needs to demonstrate that itmeets the requirements of the rule to the satisfaction of its
U.S. banking regulators. Pursuant to the requirements of
the Dodd-Frank Act, the Firm, upon exiting the Basel III
Advanced Approach parallel run, will be required to
calculate regulatory capital ratios under both theStandardized and Advanced Approaches. The Firm’s capital
adequacy will be evaluated against the approach that
results in the lower ratio.
Basel III revises Basel I and II by, among other things,
narrowing the definition of capital, and increasing capitalrequirements for specific exposures. Basel III introduces a
new Tier 1 common ratio requirement which has a phase-in
period from 2015 to 2019. By January 1, 2019, theminimum Tier 1 common ratio requirement is 7%,
comprised of a minimum ratio of 4.5% plus a 2.5% capitalconservation buffer.
Global systemically important banks (“GSIBs”) will also be
required to maintain Tier 1 common requirements above
the 7% minimum, in amounts ranging from an additional
1% to an additional 2.5%. In November 2013, theFinancial Stability Board (“FSB”) indicated that it would
require the Firm, as well as one other bank, to hold the
additional 2.5% of Tier 1 common; the requirement will bephased in beginning in 2016. The Basel Committee also
stated that certain GSIBs could be required to hold as muchas an additional 3.5% of Tier 1 common above the 7%
minimum if they were to take actions that further increase
their systemic importance. Currently, no GSIB (including the163Management’s discussion and analysis
Firm) is required to hold more than the additional 2.5% ofTier 1 common.
In addition, Basel III establishes a 6.5% Tier I common
equity standard for the definition of “well capitalized”

under the Prompt Corrective Action (“PCA”) requirementsof the FDIC Improvement Act (“FDICIA”). The Tier I common
equity standard is effective from the first quarter of 2015.

The following chart presents the Basel III minimum risk-based capital ratios during the transitional periods and on a fully
phased-in basis. The chart also includes management’s target for the Firm’s Tier 1 common ratio. It is the Firm’s current
expectation that its Basel III Tier 1 common ratio will exceed the regulatory minimums, both during the transition period andupon full implementation in 2019 and thereafter.

The Firm estimates that its Tier 1 common ratio under the
Basel III Advanced Approach on a fully phased-in basis
would be 9.5% as of December 31, 2013, achieving
management’s previously stated objectives. The Tier 1
common ratio as calculated under the Basel III Standardized
Approach is estimated at 9.4% as of December 31, 2013.
The Tier 1 common ratio under both Basel I and Basel III are
non-GAAP financial measures. However, such measures areused by bank regulators, investors and analysts to assess
the Firm’s capital position and to compare the Firm’s capitalto that of other financial services companies.
The following table presents a comparison of the Firm’s Tier
1 common under Basel I rules to its estimated Tier 1
common under the Advanced Approach of the Basel III
rules, along with the Firm’s estimated risk-weighted assets.
Key differences in the calculation of RWA between Basel I
and Basel III Advanced Approach include: (1) Basel III credit
risk RWA is based on risk-sensitive approaches which largely
rely on the use of internal credit models and parameters,
whereas Basel I RWA is based on fixed supervisory riskweightings which vary only by counterparty type and asset
class; and (2) Basel III includes RWA for operational risk,
whereas Basel I does not. Operational risk capital takes into
consideration operational losses in the quarter following
the period in which those losses were realized, and thecalculation generally incorporates such losses irrespectiveof whether the issues or business activity giving rise to thelosses have been remediated or reduced. The Firm’s

164

operational risk capital model continues to be refined inconjunction with the Firm’s Basel III Advanced Approachparallel run. As a result of model enhancements in 2013, as
well as taking into consideration the legal expenses incurredby the Firm in 2013, the Firm’s operational risk capitalincreased substantially in 2013 over 2012.
Tier 1 common under Basel III includes additional
adjustments and deductions not included in Basel I Tier 1
common, such as the inclusion of accumulated othercomprehensive income (“AOCI”) related to AFS securities
and defined benefit pension and other postretirement
employee benefit (“OPEB”) plans.
December 31, 2013
(in millions, except ratios)Tier 1 common under Basel I rules$

148,887

Adjustments related to AOCI for AFS securities anddefined benefit pension and OPEB plans

1,474

Add back of Basel I deductions

1,780

(a)

Deduction for deferred tax asset related to net
operating loss and foreign tax credit carryforwards(741)

All other adjustments(198)

Estimated Tier 1 common under Basel III rules$

Estimated risk-weighted assets under Basel III
Advanced Approach(b)$ 1,590,873

Estimated Tier 1 common ratio under Basel III
Advanced Approach(c)151,202

9.5%(a) Certain exposures, which are deducted from capital under Basel I, arerisked-weighted under Basel III.

JPMorgan Chase & Co./2013 Annual Report(b) RWA under Basel III Advanced Approach is on a fully phased-in basis.
Effective January 1, 2013, market risk RWA requirements under Basel
2.5 became largely consistent across Basel I and Basel III.
(c) The Tier 1 common ratio under Basel III rules is Tier 1 common divided
by RWA under Basel III Advanced Approach.

Additionally, the Firm estimates that its Tier 1 capital ratio
under the Basel III Advanced Approach on a fully phased-in
basis would be 10.2% as of December 31, 2013. The Tier 1
capital ratio as calculated under the Basel III Standardized
Approach on a fully phased-in basis is estimated at 10.1%
as of December 31, 2013.
Management’s current objective is for the Firm to reach an
estimated Basel III Tier I common ratio of 10%+ and a Basel
III Tier 1 capital ratio of 11.0%, both by the end of 2014.
Tier 1 common capital and the Tier 1 common and Tier 1
capital ratios under Basel III are all non-GAAP financial
measures. However, such measures are used by bankregulators, investors and analysts to assess the Firm’s
capital position and to compare the Firm’s capital to that ofother financial services companies.
The Basel III interim final rule also includes a requirement
for advanced approach banking organizations, including theFirm, to calculate a supplementary leverage ratio (“SLR”).
The SLR, a non-GAAP financial measure, is defined as Tier 1
capital under Basel III divided by the Firm’s total leverage
exposure. Total leverage exposure is calculated by taking
the Firm’s total average on-balance sheet assets, lessamounts permitted to be deducted for Tier 1 capital, andadding certain off-balance sheet exposures, such as
undrawn commitments and derivatives future exposure.
Following approval of the Basel III interim final rule, the U.S.
banking agencies issued proposed rulemaking relating to
the SLR that would require U.S. bank holding companies,
including JPMorgan Chase, to have a minimum SLR of atleast 5% and insured depository institutions (“IDI”),
including JPMorgan Chase Bank, N.A. andChase Bank USA, N.A., to have a minimum SLR of at least
6%. The Firm and its IDI subsidiaries are not required tomeet the minimum SLR until January 1, 2018. The Firm
estimates, based on its current understanding of the U.S.
rules, that if the rules were in effect at December 31, 2013,
the Firm’s SLR would have been approximately 4.7% andJPMorgan Chase Bank, N.A.’s SLR would have been
approximately 4.7%. Management’s current objective is toachieve an SLR of 5.5% for the Firm and an SLR of 6% for
JPMorgan Chase Bank, N.A, each in advance of the SLR
effective date.
On January 12, 2014, the Basel Committee issued a revised
framework for the calculation of the denominator of the
SLR. The estimated impact of these revisions would havebeen to reduce each of the Firm’s SLR and J.P. Morgan
Chase Bank, N.A.’s SLR by 10 basis points as of December
31, 2013.

based on the current published rules and on the applicationof such rules to its businesses as currently conducted. The
actual impact on the Firm’s capital and SLR ratios at theeffective date of the rules may differ from the Firm’s current
estimates depending on changes the Firm may make to its
businesses in the future, further implementation guidancefrom the regulators, and regulatory approval of certain of
the Firm’s internal risk models (or, alternatively, regulatory
disapproval of the Firm’s internal risk models that havepreviously been conditionally approved).
Economic risk capital
Economic risk capital is another of the disciplines the Firm
uses to assess the capital required to support its
businesses. Economic risk capital is a measure of the capitalneeded to cover JPMorgan Chase’s business activities in theevent of unexpected losses. The Firm measures economicrisk capital using internal risk-assessment methodologies
and models based primarily on four risk factors: credit,
market, operational and private equity risk and considers
factors, assumptions and inputs that differ from thoserequired to be used for regulatory capital requirements.
Accordingly economic risk capital provides acomplementary measure to regulatory capital. As economicrisk capital is a separate component of the capitalframework for Advanced Approach banking organizations
under Basel III, the Firm is currently in the process ofenhancing its economic risk capital framework to address
the Basel III interim final rule.
Line of business equity
The Firm’s framework for allocating capital to its businesssegments is based on the following objectives:• Integrate firmwide and line of business capitalmanagement activities;• Measure performance consistently across all lines ofbusiness; and• Provide comparability with peer firms for each of thelines of business
Equity for a line of business represents the amount the Firm
believes the business would require if it were operating
independently, considering capital levels for similarly rated
peers, regulatory capital requirements (as estimated under
Basel III) and economic risk measures. Capital is also
allocated to each line of business for, among other things,
goodwill and other intangibles associated with acquisitions
effected by the line of business. ROE is measured andinternal targets for expected returns are established as key
measures of a business segment’s performance.

The Firm’s estimates of its Tier 1 common ratio under Basel
III and of the Firm’s and JPMorgan Chase Bank, N.A.’s SLR
reflect its current understanding of the U.S. Basel III rules
JPMorgan Chase & Co./2013 Annual Report165Management’s discussion and analysis

Line of business equity
Year ended December 31,(in billions)
Consumer & Community Banking

The following table shows the common dividend payout
ratio based on reported net income.

Yearly average
2013
$

46.0

2012
$

43.0

2011
$

41.0

Year ended December 31,

2013

2012

2011

33%

23%

22%

Corporate & Investment Bank

56.5

47.5

47.0

Common dividend payout ratio

Commercial Banking

13.5

9.5

8.0

Asset Management

9.0

7.0

6.5

Preferred stock
On August 27, 2012, the Firm issued $1.3 billion of fixed–
rate noncumulative perpetual preferred stock.
On February 5, 2013 the Firm issued $900 million of
noncumulative preferred stock. On each of April 23, 2013,
and July 29, 2013, the Firm issued $1.5 billion of
noncumulative preferred stock.
The Firm redeemed all $1.8 billion of its outstanding
8.625% noncumulative preferred stock, Series J on
September 1, 2013.
On January 22, 2014, January 30, 2014, and February 6,
2014, the Firm issued $2.0 billion, $850 million, and $75
million, respectively, of noncumulative preferred stock. For
additional information on the Firm’s preferred stock, seeNote 22 on page 309 of this Annual Report.

Corporate/Private Equity
Total common stockholders’ equity

71.4

77.4

70.8

$ 196.4$ 184.4$ 173.3

Effective January 1, 2012, the Firm revised the capital
allocated to each of its businesses, reflecting eachsegment’s Basel III Tier 1 common capital requirements.
Effective January 1, 2013, the Firm further refined thecapital allocation framework to align it with the revised lineof business structure that became effective in the fourth
quarter of 2012. The increase in equity levels for the linesof businesses was largely driven by the evolving regulatory
requirements and higher capital targets the Firm hasestablished under the Basel III Advanced Approach.
Effective January 1, 2014, the Firm further revised thecapital allocated to certain businesses and will continue toassess the level of capital required for each line of business,
as well as the assumptions and methodologies used toallocate capital to the business segments. Further
refinements may be implemented in future periods.

Capital actions
Dividends
On March 18, 2011, the Board of Directors increased the
Firm’s quarterly common stock dividend from $0.05 to$0.25 per share, effective with the dividend paid on April
30, 2011, to shareholders of record on April 6, 2011.
On March 13, 2012, the Board of Directors increased the
Firm’s quarterly common stock dividend from $0.25 to$0.30 per share, effective with the dividend paid on April
30, 2012, to shareholders of record on April 5, 2012.
On May 21, 2013, the Board of Directors increased the
Firm’s quarterly common stock dividend from $0.30 to$0.38 per share, effective with the dividend paid on
July 31, 2013, to shareholders of record on July 5, 2013.
The Firm’s common stock dividend policy reflects
JPMorgan Chase’s earnings outlook, desired dividend
payout ratio, capital objectives, and alternative investment
opportunities.
The Firm’s current expectation is to continue to target apayout ratio of approximately 30% of normalized earnings
over time.
For information regarding dividend restrictions, see Note 22
and Note 27 on pages 309 and 316, respectively, of thisAnnual Report.

Redemption of outstanding trust preferred securities
On May 8, 2013, the Firm redeemed approximately$5.0 billion, or 100% of the liquidation amount, of thefollowing eight series of trust preferred securities:
JPMorgan Chase Capital X, XI, XII, XIV, XVI, XIX, XXIV, andBANK ONE Capital VI. For a further discussion of trust
preferred securities, see Note 21 on pages 306–308 of thisAnnual Report.
Common equity repurchases
On March 13, 2012, the Board of Directors authorized a$15.0 billion common equity (i.e., common stock andwarrants) repurchase program. The amount of equity that
may be repurchased is also subject to the amount that is set
forth in the Firm’s annual capital plan that is submitted to
the Federal Reserve as part of the CCAR process. As part ofthis authorization, and in conjunction with the Firm’s 2013
CCAR submission, the Board of Directors authorized theFirm to repurchase up to $6 billion gross of common equity
commencing with the second quarter of 2013 through theend of the first quarter of 2014. From April 1, 2013,
through December 31, 2013, the Firm repurchased $2.2
billion of common equity. The following table shows the
Firm’s repurchases of common equity for the years ended
December 31, 2013, 2012 and 2011, on a trade-datebasis. As of December 31, 2013, $8.6 billion of authorized
repurchase capacity remained under the $15.0 billion
repurchase program.
Year ended December 31,(in millions)2013

Total number of shares of common stock
repurchased

2011

96

31

229

Aggregate purchase price of common
stock repurchases$ 4,789$ 1,329$ 8,827

Total number of warrants repurchased

—

18

10

Aggregate purchase price of warrant
repurchases

166

2012

$

—

$

238

$

122

JPMorgan Chase & Co./2013 Annual Report

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“black-out periods.” All purchases under a Rule 10b5-1
plan must be made according to a predefined planestablished 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 programs;
and may be suspended at any time.
For additional information regarding repurchases of the
Firm’s equity securities, see Part II, Item 5: Market forregistrant’s common equity, related stockholder mattersand issuer purchases of equity securities on pages 20–21 of
JPMorgan Chase’s 2013 Form 10-K.

JPMorgan Chase & Co./2013 Annual Report

Broker-dealer regulatory capital

JPMorgan Chase’s principal U.S. broker-dealer subsidiaries
are J.P. Morgan Securities LLC (“JPMorgan Securities”) and
J.P. Morgan Clearing Corp. (“JPMorgan Clearing”).
JPMorgan Clearing is a subsidiary of JPMorgan Securities
and provides clearing and settlement services. JPMorgan
Securities and JPMorgan Clearing are each subject to Rule15c3-1 under the Securities Exchange Act of 1934 (the“Net Capital Rule”). JPMorgan Securities and JPMorgan
Clearing are also each registered as futures commission
merchants and subject to Rule 1.17 of the Commodity
Futures Trading Commission (“CFTC”).
JPMorgan Securities and JPMorgan Clearing have elected tocompute their minimum net capital requirements inaccordance with the “Alternative Net Capital Requirements”
of the Net Capital Rule. At December 31, 2013,
JPMorgan Securities’ net capital, as defined by the Net
Capital Rule, was $12.9 billion, exceeding the minimum
requirement by $10.8 billion, and JPMorgan Clearing’s net
capital was $7.1 billion, exceeding the minimum
requirement by $5.3 billion.
In addition to its minimum net capital requirement,
JPMorgan Securities is required to hold tentative net capitalin excess of $1.0 billion and is also required to notify the
Securities and Exchange Commission (“SEC”) in the eventthat tentative net capital is less than $5.0 billion, in
accordance with the market and credit risk standards ofAppendix E of the Net Capital Rule. As of December 31,
2013, JPMorgan Securities had tentative net capital inexcess of the minimum and notification requirements.
J.P. Morgan Securities plc (formerly J.P. Morgan Securities
Ltd.) is a wholly owned subsidiary of JPMorgan Chase Bank,
N.A. and is the Firm’s principal operating subsidiary in
the U.K. It has authority to engage in banking,investment banking and broker-dealer activities.
J.P. Morgan Securities plc is jointly regulated by the U.K.
Prudential Regulation Authority (“PRA”) and Financial
Conduct Authority (“FCA”) (together, formerly the U.K.
Financial Services Authority). During the fourth quarter of2013, J.P. Morgan Securities plc received a capital
contribution of $3.3 billion from JPMorgan Chase Bank,
N.A., which was made to cover the anticipated capitalrequirements related to the introduction of Basel III rules,
to which J.P. Morgan Securities plc is subject beginning
January 1, 2014. Following this capital contribution, at
December 31, 2013, J.P. Morgan Securities plc had total
capital of $26.5 billion, or a Pillar 1 Total capital ratio of
18.1%, which exceeded the 8% well-capitalized standard
applicable to it under Basel 2.5.

167

Management’s discussion and analysis

LIQUIDITY RISK MANAGEMENT
Liquidity risk management is intended to ensure that the
Firm has the appropriate amount, composition and tenor offunding and liquidity in support of its assets. The primaryobjectives of effective liquidity management are to ensurethat the Firm’s core businesses are able to operate insupport of client needs and meet contractual andcontingent obligations through normal economic cycles, aswell as during market stress events, and to maintain debt
ratings that enable the Firm to optimize its funding mix andliquidity sources while minimizing costs.
The Firm manages liquidity and funding using a centralized,
global approach in order to optimize liquidity sources anduses for the Firm as a whole, monitor exposures, identify
constraints on the transfer of liquidity among legal entities
within the Firm, and maintain the appropriate amount of
surplus liquidity as part of the Firm’s overall balance sheet
management strategy.
In the context of the Firm’s liquidity management, Treasuryis responsible for:• Measuring, managing, monitoring and reporting the
Firm’s current and projected liquidity sources and uses;• Understanding the liquidity characteristics of the Firm’s
assets and liabilities;• Defining and monitoring firmwide and legal entity
liquidity strategies, policies, guidelines, and contingency
funding plans;• Liquidity stress testing under a variety of adverse
scenarios• Managing funding mix and deployment of excess shortterm cash;• Defining and implementing funds transfer pricing(“FTP”) across all lines of business and regions; and• Defining and addressing the impact of regulatorychanges on funding and liquidity.
The Firm has a liquidity risk governance framework toreview, approve and monitor the implementation of liquidity
risk policies at the firmwide, regional and line of businesslevels.
Specific risk committees responsible for liquidity risk
governance include ALCO as well as lines of business andregional asset and liability management committees, andthe CTC Risk Committee. For further discussion of the risk
committees, see Enterprise-wide Risk Management on
pages 113–173 of this Annual Report. In addition, during
2013, the Firm established an independent liquidity risk
oversight function reporting into the CIO, Treasury andCorporate (“CTC”) CRO, which provides independent
assessments and monitoring of liquidity risk across the
Firm.

168

Management considers the Firm’s liquidity position to bestrong as of December 31, 2013, and believes that the
Firm’s unsecured and secured funding capacity is sufficient
to meet its on- and off-balance sheet obligations.
LCR and NSFRIn December 2010, the Basel Committee introduced two
new measures of liquidity risk: the liquidity coverage ratio(“LCR”), which is intended to measure the amount of “highquality liquid assets” (“HQLA”) held by the Firm in relation
to estimated net cash outflows within a 30-day period
during an acute stress event; and the net stable funding
ratio (“NSFR”) which is intended to measure the “available”
amount of stable funding relative to the “required” amountof stable funding over a one-year horizon. The standards
require that the LCR be no lower than 100% and the NSFR
be greater than 100%.
In January 2013, the Basel Committee introduced certain
amendments to the formulation of the LCR, and a revised
timetable to phase in the standard. The LCR will continue tobecome effective on January 1, 2015, but the minimum
requirement will begin at 60%, increasing in equal annual
increments to reach 100% on January 1, 2019. At
December 31, 2013, the Firm was compliant with the Basel
III LCR. The LCR may fluctuate from period-to-period due tonormal flows from client activity.
On October 24, 2013, the U.S. banking regulators releaseda proposal to implement a U.S. quantitative liquidity
requirement consistent with, but more conservative than,Basel III LCR for large banks and bank holding companies(“U.S. LCR”). The proposal also provides for an accelerated
transition period compared to that which is currently
required under the Basel III LCR rules. At December 31,
2013, the Firm was also compliant with the U.S. LCR basedon its current understanding of the proposed rules.
On January 12, 2014, the Basel Committee released
proposed revisions to the NSFR. Based on its current
understanding of the proposed revisions, the Firm wascompliant with the NSFR as of December 31, 2013.

Funding

Sources of funds
The Firm funds its global balance sheet through diverse
sources of funding including a stable deposit franchise as
well as secured and unsecured funding in the capital
markets. The Firm’s loan portfolio, aggregating
approximately $722.2 billion, net of allowance, atDecember 31, 2013, is funded with a portion of the Firm’s
deposits (aggregating approximately $1,287.8 billion at
December 31, 2013), and through securitizations and, withrespect to a portion of the Firm’s real estate-related loans,with secured borrowings from the Federal Home Loan
Banks. Deposits in excess of the amount utilized to fundloans are primarily invested in the Firm’s investment
securities portfolio or deployed in cash or other short-term
liquid investments based on their interest rate and liquidity
JPMorgan Chase & Co./2013 Annual Reportrisk characteristics. Capital markets secured financing
assets and trading assets are primarily funded by the Firm’s
capital market secured financing liabilities, trading
liabilities and a portion of the Firm’s long-term debt andequity.
In addition to funding capital markets assets, proceeds fromthe 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
disclosures relating to Deposits, Short-term funding, andLong-term funding and issuance.

Deposits
A key strength of the Firm is its diversified deposit
franchise, through each of its lines of business, which
provides a stable source of funding and limits reliance on
the wholesale funding markets. As of December 31, 2013,
the Firm’s loans-to-deposits ratio was 57%, compared with
61% at December 31, 2012.
As of December 31, 2013, total deposits for the Firm were$1,287.8 billion, compared with $1,193.6 billion at
December 31, 2012 (58% and 55% of total liabilities at
December 31, 2013 and 2012, respectively). The increase
was due to growth in both wholesale and consumer
deposits. For further information, see Balance Sheet
Analysis on pages 75–76 of this Annual Report.

The Firm typically experiences higher customer deposit inflows at period-ends. Therefore, the Firm believes average deposit
balances are more representative of deposit trends. The table below summarizes, by line of business, the period-end andaverage deposit balances as of and for the years ended December 31, 2013 and 2012.
Deposits

Year ended December 31,

As of or for the period ended December 31,

Average(in millions)
Consumer & Community Banking

2013

2012

453,304 $413,948438,517

Corporate & Investment Bank

446,237

385,560

384,289

353,048

Commercial Banking

206,127

198,383

184,409

181,805

Asset Management

146,183

144,579

139,707129,208

Corporate/Private Equity

24,806

26,55427,43327,874

1,287,765 $

1,193,593

1,189,142 $

1,105,883

$

$

2013

464,412 $Total Firm

$

2012

$

A significant portion of the Firm’s deposits are consumer deposits (36% and 37% at December 31, 2013 and 2012,
respectively), which are considered particularly stable as they are less sensitive to interest rate changes or market volatility.
Additionally, the majority of the Firm’s institutional deposits are also considered to be stable sources of funding since they are
generated from customers that maintain operating service relationships with the Firm. For further discussions of deposit andliability balance trends, see the discussion of the results for the Firm’s business segments and the Balance Sheet Analysis on
pages 86–111 and 75–76, respectively, of this Annual Report.

JPMorgan Chase & Co./2013 Annual Report169Management’s discussion and analysis
The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2013 and 2012,
and average balances for the years ended December 31, 2013 and 2012. For additional information, see the Balance Sheet
Analysis on pages 75–76 and Note 21 on pages 306–308 of this Annual Report.
Sources of funds (excluding deposits)
As of or for the year ended December 31,(in millions)
Commercial paper:
Wholesale funding
Client cash management
Total commercial paper
Other borrowed funds
Securities loaned or sold under agreements to repurchase:
Securities sold under agreements to repurchase
Securities loaned
Total securities loaned or sold under agreements to repurchase(a)(b)(c)
Total senior notes

2013$

Average

2012

2013

2012
14,30236,47850,78024,174

15,58939,77855,367$$

17,249 $40,59957,848 $$17,785 $35,93253,717 $$27,994 $26,636$30,449 $$$

155,808 $19,509175,317 $

212,278
23,125
235,403$ 207,106 $ 219,625
26,06820,763$ 233,174 $ 240,388$$ 137,662 $ 141,936

135,754 $

130,297

Trust preferred securities

5,445

10,3997,178

15,814

Subordinated debt

29,57829,731

27,95529,41029,51731,330

Structured notes

28,60330,194

Total long-term unsecured funding$

199,380 $

200,621$ 202,312 $ 218,490

Credit card securitization$$

26,580 $30,123

27,834 $29,249Other securitizations(d)

3,253

3,680

3,501

3,974

FHLB advances

61,87642,04555,487

20,415

Other long-term secured funding(e)

6,633

6,358

6,284

6,757

Total long-term secured funding$

98,342 $82,206$

93,106 $60,395Preferred stock(f)$11,158 $9,058$

10,960 $8,236$

200,020 $

195,011

Common stockholders’ equity(f)$ 196,409 $ 184,352(a) Excludes federal funds purchased.
(b) Excluded long-term structured repurchase agreements of $4.6 billion and $3.3 billion as of December 31, 2013 and 2012, respectively, and averagebalance of $4.2 billion and $7.0 billion for the years ended December 31, 2013 and 2012, respectively.
(c) Excluded long-term securities loaned of $483 million and $457 million as of December 31, 2013 and 2012, respectively, and average balance of $414
million and $113 million for the years ended December 31, 2013 and 2012, respectively.
(d) Other securitizations includes securitizations of residential mortgages and student loans. The Firm’s wholesale businesses also securitize loans for clientdriven transactions; those client-driven loan securitizations are not considered to be a source of funding for the Firm and are not included in the table.
(e) Includes long-term structured notes which are secured.
(f) For additional information on preferred stock and common stockholders’ equity see Capital Management on pages 160–167, Consolidated Statements of
Changes in Stockholders’ Equity on page 187, Note 22 on page 309 and Note 23 on page 310 of this Annual Report.

Short-term funding
A significant portion of the Firm’s total commercial paper
liabilities, approximately 70% as of December 31, 2013,
are not sourced from wholesale funding markets, but wereoriginated from deposits that customers choose to sweep
into commercial paper liabilities as a cash management
program offered to customers of the Firm.
The Firm’s sources of short-term secured funding primarily
consist of securities loaned or sold under agreements torepurchase. Securities loaned or sold under agreements torepurchase are secured predominantly by high-quality
securities collateral, including government-issued debt,
agency debt and agency MBS, and constitute a significant

170

portion of the federal funds purchased and securities
loaned or sold under purchase agreements. The amounts of
securities loaned or sold under agreements to repurchase at
December 31, 2013, decreased predominantly due to achange in the mix of the Firm’s funding sources. Thebalances associated with securities loaned or sold underagreements to repurchase fluctuate over time due tocustomers’ investment and financing activities; the Firm’s
demand for financing; the ongoing management of the mixof the Firm’s liabilities, including its secured and unsecured
financing (for both the investment and market-making
portfolios); and other market and portfolio factors.

JPMorgan Chase & Co./2013 Annual Report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 by expected client activity and theliquidity required to support this activity. Long-term funding
objectives include maintaining diversification, maximizing
market access and optimizing funding cost, as well as
maintaining a certain level of pre-funding at the parent
holding company. The Firm evaluates various funding
markets, tenors and currencies in creating its optimal longterm funding plan.

The following table summarizes the securitization issuanceand FHLB advances and their respective maturities orredemption for the years ended December 31, 2013 and2012.

The majority of the Firm’s long-term unsecured funding isissued by the parent holding company to provide maximum
flexibility in support of both bank and nonbank subsidiaryfunding. The following table summarizes long-term
unsecured issuance and maturities or redemption for theyears ended December 31, 2013 and 2012. For additional
information, see Note 21 on pages 306–308 of this Annual
Report.

FHLB advances

Long-term unsecured funding
Year ended December 31,(in millions)

2013

2012

19,835 $15,566

8,843

8,341

28,67823,907——

Subordinated debt

3,232

—

Structured notes

16,97915,120$48,889 $39,027$

18,418 $40,244

5,052

9,482

Issuance
Senior notes issued in the U.S. market$

Senior notes issued in non-U.S. markets
Total senior notes
Trust preferred securities

Total long-term unsecured funding –issuance
Maturities/redemptions
Total senior notes
Trust preferred securities(a)Subordinated debt

2,418

1,045

Structured notes

17,785

18,63843,673 $69,409Total long-term unsecured funding –maturities/redemptions(a)$

On May 8, 2013, the Firm redeemed approximately $5.0 billion, or
100% of the liquidation amount, of trust preferred securities
pursuant to the optional redemption provisions set forth in the
documents governing those trust preferred securities.

In addition, from January 1, 2014, through February 19,
2014, the Firm issued $12.7 billion of senior notes.
The Firm raises secured long-term funding throughsecuritization of consumer credit card loans and advancesfrom the FHLBs. It may also in the future raise long-term
funding through securitization of residential mortgages,
auto loans and student loans, which will increase funding
and investor diversity.

JPMorgan Chase & Co./2013 Annual Report

Long-term secured funding
Year ended
December 31,

Issuance(in millions)Credit card
securitization

2013

Maturities/Redemptions

2012

2013

$ 8,434 $ 10,800

Other securitizations(a)$ 11,853 $2012
13,187

—

—

427

487

23,65035,3503,815

11,124

Other long-term
secured funding$

Total long-term
secured funding$ 32,835 $ 46,684

751 $

534

$

159 $

1,785

$ 16,254 $

26,583(a) Other securitizations includes securitizations of residential mortgages
and student loans.

On January 27, 2014, the Firm securitized $1.8 billion of
consumer credit card loans.
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 16 on pages 288–299 of this Annual Report.
Parent holding company and subsidiary funding
The parent holding company acts as an important source offunding to its subsidiaries. The Firm’s liquidity management
is intended to ensure that liquidity at the parent holding
company is maintained at levels sufficient to fund theoperations of the parent holding company and its
subsidiaries for an extended period of time in a stressenvironment where access to normal funding sources is
disrupted.
To effectively monitor the adequacy of liquidity and fundingat the parent holding company, the Firm uses three primarymeasures:• Number of months of pre-funding: The Firm targets prefunding of the parent holding company to ensure thatboth contractual and non-contractual obligations can be
met for at least 18 months assuming no access towholesale funding markets. However, due to conservativeliquidity management actions taken by the Firm, thecurrent pre-funding of such obligations is greater thantarget.
• Excess cash: Excess cash is managed to ensure that daily
cash requirements can be met in both normal andstressed environments. Excess cash generated by parent
holding company issuance activity is placed on depositwith or is advanced to both bank and nonbank
subsidiaries or held as liquid collateral purchased throughreverse repurchase agreements.
• Stress testing: The Firm conducts regular stress testingfor the parent holding company and major subsidiaries to171

Management’s discussion and analysis
ensure sufficient liquidity for the Firm in a stressed
environment. The Firm’s liquidity management takes into
consideration its subsidiaries’ ability to generate
replacement funding in the event the parent holding
company requires repayment of the aforementioned
deposits and advances. For further information, see theStress testing discussion below.
HQLA
HQLA is the estimated amount of assets the Firm believes
will qualify for inclusion in the Basel III LCR. HQLA primarily
consists of cash and certain unencumbered high quality,
liquid assets as defined in the rule.
As of December 31, 2013, HQLA was estimated to beapproximately $522 billion, compared with $341 billion asof December 31, 2012. The increase in HQLA was due tohigher cash balances primarily driven by increased deposits
and long-term debt issuance, as well as by a reduction in
trading assets. HQLA may fluctuate from period-to-period
due to normal flows from client activity.
The following table presents the estimated Basel III LCRHQLA broken out by HQLA-eligible cash and HQLA-eligible
securities as of December 31, 2013.
(in billions)

December 31, 2013

HQLA

(a)

Eligible cash$

Eligible securities
Total HQLA
(a)

294
228

$

522

Table represents Basel III LCR HQLA. HQLA under proposed U.S. LCR isestimated to be lower primarily due to exclusions of certain security
types based on the Firm’s understanding of the proposed rule.

In addition to HQLA, as of December 31, 2013, the Firm hasapproximately $282 billion of unencumbered marketablesecurities, such as equity securities and fixed income debt
securities, available to raise liquidity, if required.
Furthermore, the Firm maintains borrowing capacity at
various FHLBs, the Federal Reserve Bank discount window
and various other central banks as a result of collateralpledged by the Firm to such banks. Although available, theFirm does not view the borrowing capacity at the Federal
Reserve Bank discount window and the various othercentral banks as a primary source of liquidity. As of
December 31, 2013, the Firm’s remaining borrowing
capacity at various FHLBs and the Federal Reserve Bank
discount window was approximately $109 billion. Thisborrowing capacity excludes the benefit of securities
included above in HQLA or other unencumbered securities
held at the Federal Reserve Bank discount window for which
the Firm has not drawn liquidity.

172

Stress testing
Liquidity stress tests are intended to ensure sufficientliquidity for the Firm under a variety of adverse scenarios.
Results of stress tests are therefore considered in theformulation of the Firm’s funding plan and assessment of its
liquidity position. Liquidity outflow assumptions aremodeled across a range of time horizons and varying
degrees of market and idiosyncratic stress. Standard stresstests are performed on a regular basis and ad hoc stresstests are performed in response to specific market events orconcerns. Stress scenarios are produced for the parent
holding company and the Firm’s major subsidiaries. In
addition, separate regional liquidity stress testing is
performed.
Liquidity stress tests assume all of the Firm’s contractual
obligations are met and then take into consideration
varying levels of access to unsecured and secured funding
markets. Additionally, assumptions with respect to potential
non-contractual and contingent outflows include, but are
not limited to, the following:• Deposits
For bank deposits that have no contractual maturity,
the range of potential outflows reflects the type andsize of deposit account, and the nature and extent of
the Firm’s relationship with the depositor.
• Secured funding
Range of haircuts on collateral based on security typeand counterparty.
• Derivatives
Margin calls by exchanges or clearing houses;
Collateral calls associated with ratings downgrade
triggers and variation margin;
Outflows of excess client collateral;
Novation of derivative trades.
• Unfunded commitments
Potential facility drawdowns reflecting the type ofcommitment and counterparty.
Contingency funding plan
The Firm’s contingency funding plan (“CFP”), which isreviewed and approved by ALCO, provides a documented
framework for managing both temporary and longer-term
unexpected adverse liquidity stress. The CFP incorporates
the limits and indicators set by the Liquidity Risk Oversightgroup. These limits and indicators are reviewed regularly toidentify emerging risks or increased vulnerabilities in the
Firm’s liquidity position. The CFP is also regularly updated
to identify alternative contingent liquidity resources thatcan be accessed under adverse liquidity circumstances.

JPMorgan Chase & Co./2013 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, see
Special-purpose entities on page 77, and Credit risk,
liquidity risk and credit-related contingent features in Note
6 on pages 220–233, of this Annual Report.

The credit ratings of the parent holding company and certain of the Firm’s significant operating subsidiaries as of December
31, 2013, were as follows.
JPMorgan Chase & Co.
Long-termissuerShort-term
issuerMoody’s Investor Services

A3Standard & Poor’sA

Fitch Ratings

A+

December 31, 2013

J.P. Morgan Securities LLC

OutlookLong-termissuerShort-term
issuerOutlookLong-termissuerShort-term
issuerOutlook

P-2

StableAa3

P-1

StableAa3

P-1

StableA-1

NegativeA+

A-1

StableA+

A-1

StableF1

StableA+

F1

StableA+

F1

StableOn June 11, 2013, S&P announced a reassessment of thegovernment support assumptions reflected in its holding
company ratings of eight systemically important financial
institutions, including the Firm. As a result of thisreassessment, the outlook for the parent company wasrevised to negative from stable; the outlook for the Firm’s
operating subsidiaries remained unchanged at stable.
On November 14, 2013, Moody’s downgraded the Firm andseveral other bank holding companies based on Moody’s
reassessment of its assumptions relating to implicit
government support for such companies. Specifically,
Moody’s downgraded the senior and subordinated debt
ratings of JPMorgan Chase and Co., and the subordinateddebt rating of JPMorgan Chase Bank, N.A. and upgraded thelong-term issuer rating of JPMorgan Securities. The parent
company downgrade also resulted in Moody’s downgrade of
the parent company’s short-term rating. The rating actions
did not have a material adverse impact on the Firm’s cost offunds or its ability to fund itself.
Additional downgrades of the Firm’s long-term ratings by
one notch or two notches could result in a further
downgrade of the Firm’s short-term ratings. If this were tooccur, the Firm believes its cost of funds could increase andaccess to certain funding markets could be reduced. The
nature and magnitude of the impact of further ratings
downgrades depends on numerous contractual and

JPMorgan Chase & Co./2013 Annual Report

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

behavioral factors (which the Firm believes areincorporated in its liquidity risk and stress testing metrics).
The Firm believes it maintains sufficient liquidity towithstand a potential decrease in funding capacity due tofurther 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, rating
uplift assumptions surrounding government support, future
profitability, risk management practices, and legal
expenses, all of which could lead to adverse ratings actions.
Although the Firm closely monitors and endeavors tomanage factors influencing its credit ratings, there is no
assurance that its credit ratings will not be further changedin the future.

173

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 value of assets
and liabilities. The Firm has established detailed policies
and control procedures intended to ensure that valuation
methods, including any judgments made as part of suchmethods, are well-controlled, independently reviewed andapplied consistently from period to period. In addition, thepolicies and procedures are intended to ensure that theprocess for changing methodologies occurs in an
appropriate manner. The Firm believes its estimates fordetermining the value of its assets and liabilities areappropriate. The following is a brief description of the
Firm’s critical accounting estimates involving significant
valuation 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 consumer and wholesale 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 loan losses includes an asset-specificcomponent, a formula-based component, and a component
related to PCI loans. The determination of each of thesecomponents involves significant judgment on a number ofmatters, as discussed below. For further discussion of themethodologies used in establishing the Firm’s allowance for
credit losses, see Note 15 on pages 284–287 of this Annual
Report.
Asset-specific component
The asset-specific allowance for loan losses for each of the
Firm’s portfolio segments is generally measured as thedifference between the recorded investment in the impaired
loan and the present value of the cash flows expected to becollected, discounted at the loan’s original effective interest
rate. Estimating the timing and amounts of future cash
flows is highly judgmental as these cash flow projections
further rely upon estimates such as redefault rates, loss
severities, the amounts and timing of prepayments andother factors that are reflective of current and expected
future market conditions. These estimates are, in turn,dependent on factors such as the level of future homeprices, the duration of current overall economic conditions,and other macroeconomic and portfolio-specific factors. Allof these estimates and assumptions require significant
management judgment and certain assumptions are highly
subjective.

174

Formula-based component - Consumer loans and lendingrelated commitments, excluding PCI loans
The formula-based allowance for credit losses for the
consumer portfolio, including credit card, is calculated byapplying statistical credit loss factors to outstanding
principal balances over an estimated loss emergence period
to arrive at an estimate of incurred credit losses in theportfolio. The loss emergence period represents the time
period between the date at which the loss is estimated tohave been incurred and the ultimate realization of that loss
(through a charge-off). Estimated loss emergence periods
may vary by product and may change over time;
management applies judgment in estimating loss
emergence periods, using available credit information 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 portfolio and collateral valuation trends to review
the appropriateness of the primary statistical loss estimate.
The statistical calculation is then adjusted to take into
consideration model imprecision, external factors 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, the potential
impact of payment recasts within the HELOC portfolio, andother relevant internal and external factors affecting thecredit quality of the portfolio. In certain instances, theinterrelationships between these factors create further
uncertainties. For example, the performance of a HELOC
that experiences a payment recast may be affected by boththe quality of underwriting standards applied in originating
the loan and the general economic conditions in effect at
the time of the payment recast. For junior lien products,
management considers the delinquency and/or modification
status of any senior liens in determining the adjustment.
The application of different inputs into the statistical
calculation, and the assumptions used by management toadjust the statistical calculation, are subject to management
judgment, and emphasizing one input or assumption overanother, or considering other inputs or assumptions, could
affect the estimate of the allowance for loan losses for the
consumer credit portfolio.
Overall, the allowance for credit losses for the consumer
portfolio, including credit card, is sensitive to changes in theeconomic environment (e.g., unemployment rates),delinquency rates, the realizable value of collateral (e.g.,
JPMorgan Chase & Co./2013 Annual Reporthousing prices), FICO scores, borrower behavior and otherrisk factors. While all of these factors are important
determinants of overall allowance levels, changes in thevarious factors may not occur at the same time or at thesame rate, or changes may be directionally inconsistentsuch that improvement in one factor may offset
deterioration in the other. In addition, changes in thesefactors would not necessarily be consistent across all
geographies or product types. Finally, it is difficult topredict the extent to which changes in these factors would
ultimately affect the frequency of losses, the severity oflosses or both.
PCI loans
In connection with the Washington Mutual transaction,
JPMorgan Chase acquired certain PCI loans, which areaccounted for as described in Note 14 on pages 258–283 ofthis Annual Report. The allowance for loan losses for the PCI
portfolio is based on quarterly estimates of the amount ofprincipal and interest cash flows expected to be collected
over the estimated remaining lives of the loans.
These cash flow projections are based on estimates
regarding default rates, loss severities, the amounts andtiming of prepayments and other factors that are reflectiveof current and expected future market conditions. Theseestimates are dependent on assumptions regarding thelevel of future home price declines, and the duration ofcurrent overall economic conditions, among other factors.
These estimates and assumptions require significant
management judgment and certain assumptions are highly
subjective.
Formula-based component - Wholesale loans and lendingrelated commitments
The Firm’s methodology for determining the allowance forloan losses and the allowance for lending-related
commitments requires the early identification of creditsthat are deteriorating. The Firm uses a risk-rating system todetermine the credit quality of its wholesale loans.
Wholesale loans are reviewed for information affecting theobligor’s ability to fulfill its obligations. In assessing the risk
rating of a particular loan, 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. Emphasizing one
factor over another or considering additional factors could
affect the risk rating assigned by the Firm to that loan.

The Firm applies its judgment to establish loss factors usedin calculating the allowances. Wherever possible, the Firm
uses independent, verifiable data or the Firm’s own
historical loss experience in its models for estimating theallowances. Many factors can affect estimates of loss,
including volatility of loss given default, probability ofdefault and rating migrations. Consideration is given to theparticular source of external data used as well as the time
period to which loss data relates (for example, point-in-timeloss estimates and estimates that reflect longer views of thecredit cycle). Finally, differences in loan characteristics
between the Firm’s specific loan portfolio and thosereflected in the external data could also affect loss
estimates. The application of different inputs would change
the amount of the allowance for credit losses determined
appropriate by the Firm.
Management also applies its judgment to adjust themodeled loss estimates, taking into consideration model
imprecision, external factors and economic events that haveoccurred but are not yet reflected in the loss factors.
Historical experience of both loss given default andprobability of default are considered when estimating theseadjustments. Factors related to concentrated anddeteriorating industries also are incorporated where
relevant. These estimates are based on management’s viewof uncertainties that relate to current macroeconomic andpolitical conditions, quality of underwriting standards andother relevant internal and external factors affecting thecredit quality of the current portfolio.
Allowance for credit losses sensitivity
As noted above, the Firm’s allowance for credit losses issensitive to numerous factors, depending on the portfolio.
Changes in economic conditions or in the Firm’s
assumptions could affect its estimate of probable credit
losses inherent in the portfolio at the balance sheet date.
For example, deterioration in the following inputs would
have the following effects on the Firm’s modeled loss
estimates as of December 31, 2013, without considerationof any offsetting or correlated effects of other inputs in the
Firm’s allowance for loan losses:
•

•

•

•

JPMorgan Chase & Co./2013 Annual Report

For PCI loans, a combined 5% decline in housing prices
and a 1% increase in unemployment from current levels
could imply an increase to modeled credit loss estimatesof approximately $1.4 billion.
For the residential real estate portfolio, excluding PCI
loans, a combined 5% decline in housing prices and a
1% increase in unemployment from current levels could
imply an increase to modeled annual loss estimates ofapproximately $300 million.
A 50 basis point deterioration in forecasted credit card
loss rates could imply an increase to modeled
annualized credit card loan loss estimates ofapproximately $600 million.
A one-notch downgrade in the Firm’s internal risk ratings
for its entire wholesale loan portfolio could imply an
increase in the Firm’s modeled loss estimates ofapproximately $2.1 billion.
175

Management’s discussion and analysis
The purpose of these sensitivity analyses is to provide anindication of the isolated impacts of hypothetical alternative
assumptions on modeled loss estimates. The changes in the
inputs presented above are not intended to imply
management’s expectation of future deterioration of thoserisk factors.
These analyses are not intended to estimate changes in theoverall allowance for loan losses, which would also be
influenced by the judgment management applies to themodeled loss estimates to reflect the uncertainty andimprecision of these modeled loss estimates based on thencurrent circumstances and conditions.
It is difficult to estimate how potential changes in specificfactors might affect the allowance for credit losses because
management considers a variety of factors and inputs inestimating the allowance for credit losses. Changes in thesefactors and inputs may not occur at the same rate and may
not be consistent across all geographies or product types,
and changes in factors may be directionally inconsistent,such that improvement in one factor may offset
deterioration in other factors. In addition, it is difficult topredict how changes in specific economic conditions orassumptions could affect borrower behavior or otherfactors considered by management in estimating theallowance for credit losses. Given the process the Firm
follows in evaluating the risk factors related to its loans,including risk ratings, home price assumptions, and credit
card loss estimates, management believes that its current
estimate of the allowance for credit loss is appropriate.
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 3 on pages 195–215 of thisAnnual Report.
December 31, 2013
(in billions, except ratio data)
Trading debt and equity instruments
Derivative receivables
Trading assets
AFS securities
Loans
MSRs
Private equity investments
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
Level 3 assets as a percentage of total
Firm assets at fair value

Total assets at Total level 3
fair value
assets$ 308.9$ 27.2
65.8
18.6
374.7
45.8
330.0
2.3 (a)
2.0
1.9
9.6
9.6
7.5
6.5
36.5
3.2
760.3

69.3

6.2
$ 766.5$ 2,415.7

5.8
$

75.1

3.1% (a)9.8% (a)(a) Reflects $27.4 billion of collateralized loan obligations (“CLOs”) transferred fromlevel 3 to level 2 during the year ended December 31, 2013. For further discussionof the transfers, see Note 3 on pages 195–215 of this Annual Report.

Valuation
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. The Firm has established welldocumented processes for determining fair value; forfurther details see Note 3 on pages 195–215 of this Annual
Report. Fair value is based on quoted market prices, whereavailable. If listed prices or quotes are not available for an
instrument or a similar instrument, fair value is generally
based on models that consider relevant transaction
characteristics (such as maturity) and use as inputs marketbased or independently sourced parameters.
Estimating fair value requires the application of judgment.
The type and level of judgment required is largely
dependent on the amount of observable market information
available to the Firm. For instruments valued using
internally developed models that use significant
unobservable inputs and are therefore classified within
level 3 of the valuation hierarchy, judgments used toestimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.

176

JPMorgan Chase & Co./2013 Annual ReportIn arriving at an estimate of fair value for an instrument
within level 3, management must first determine theappropriate model to use. Second, the lack of observabilityof certain significant inputs requires management to assess
all relevant empirical data in deriving valuation inputs —including, for example, transaction details, yield curves,interest rates, prepayment rates, default rates, volatilities,
correlations, equity or debt prices, valuations ofcomparable instruments, foreign exchange rates and credit
curves. For further discussion of the valuation of level 3
instruments, including unobservable inputs used, see Note
3 on pages 195–215 of this Annual Report.
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 credit-worthiness, liquidity considerations,
unobservable parameters, and for certain portfolios thatmeet specified criteria, the size of the net open risk
position. The judgments made are typically affected by thetype of product and its specific contractual terms, and thelevel of liquidity for the product or within the market as awhole.
During the fourth quarter of 2013 the Firm implemented
the FVA framework to incorporate the impact of funding
into its valuation estimates for OTC derivatives andstructured notes, reflecting an industry migration towards
incorporating the market cost of unsecured funding in thevaluation of such instruments. Implementation of the FVA
framework required a number of important management
judgments including: (i) determining when theaccumulation of market evidence was sufficiently
compelling to implement the FVA framework; (ii) estimating
the market clearing price for funding in the relevant market;
and (iii) determining the interaction between DVA and FVA,
given that DVA already reflects credit spreads, which are asignificant component of funding spreads that drive FVA.
For further discussion of valuation adjustments applied by
the Firm, including FVA, see Note 3 on pages 195–215 ofthis Annual Report.
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 orassumptions different than those used by the Firm could
result in a different estimate of fair value at the reporting
date. For a detailed discussion of the Firm’s valuation
process and hierarchy, and its determination of fair value
for individual financial instruments, see Note 3 on pages
195–215 of this Annual Report.

JPMorgan Chase & Co./2013 Annual Report

Goodwill impairment
Under U.S. GAAP, goodwill must be allocated to reporting
units and tested for impairment at least annually. The Firm’s
process and methodology used to conduct goodwill
impairment testing is described in Note 17 on pages 299–
304 of this Annual Report.
Management applies significant judgment when estimating
the fair value of its reporting units. Estimates of fair value
are dependent upon estimates of (a) the future earnings
potential of the Firm’s reporting units, including theestimated effects of regulatory and legislative changes,
such as the Dodd-Frank Act, (b) long-term growth rates and(c) the relevant cost of equity. Imprecision in estimatingthese factors can affect the estimated fair value of thereporting units.
Based upon the updated valuations for all of its reporting
units, the Firm concluded that goodwill allocated to its
reporting units was not impaired at December 31, 2013,
nor was any goodwill written off during 2013. The fairvalues of almost all of the Firm’s reporting units exceeded
their carrying values and did not indicate a significant riskof goodwill impairment based on current projections andvaluations. For those reporting units where fair value
exceeded carrying value, the excess fair value as a percent
of carrying value ranged from approximately 15% to180%.
As of December 31, 2013, the estimated fair value of the
Firm’s mortgage lending business within CCB did not exceed
its carrying value. While the implied fair value of the
goodwill allocated to the mortgage lending businessexceeded its carrying value as of December 31, 2013, theassociated goodwill remains at an elevated risk for goodwill
impairment due to its exposure to U.S. consumer credit risk
and the effects of economic, regulatory and legislativechanges. The assumptions used in the valuation of thisbusiness include: (a) estimates of future cash flows for thebusiness (which are dependent on outstanding loanbalances, net interest margin, operating expense, credit
losses and the amount of capital necessary to meet
regulatory capital requirements), and (b) the cost of equity
used to discount those cash flows to a present value. Eachof these factors requires significant judgment and theassumptions used are based on management’s current best
estimate and most current projections, including the
anticipated effects of regulatory and legislative changes,
derived from the Firm’s business forecasting process asreviewed with senior management.
The projections for all of the Firm’s reporting units are
consistent with the short-term assumptions discussed in theBusiness Outlook on pages 68–69 of this Annual Report,
and, in the longer term, incorporate a set of macroeconomic
assumptions and the Firm’s best estimates of long-term
growth and returns of its businesses. Where possible, theFirm uses third-party and peer data to benchmark its
assumptions and estimates.

177

Management’s discussion and analysis
Deterioration in economic market conditions, increased
estimates of the effects of recent regulatory or legislativechanges, or additional regulatory or legislative changes may
result in declines in projected business performance beyond
management’s current expectations. For example, in the
Firm’s mortgage lending business, such declines could
result from increases in primary mortgage interest rates,
lower mortgage origination volume, higher costs to resolve
foreclosure-related matters or from deterioration ineconomic conditions that result in increased credit losses,
including decreases in home prices beyond management’s
current expectations. Declines in business performance,increases in equity capital requirements, or increases in theestimated cost of equity, could cause the estimated fairvalues of the Firm’s reporting units or their associatedgoodwill to decline, which could result in a material
impairment charge to earnings in a future period related tosome portion of the associated goodwill.
For additional information on goodwill, see Note 17 on
pages 299–304 of this Annual Report.
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 laws,
legal interpretations and tax planning 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.

178

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 net operating losses. The Firm
performs regular reviews to ascertain whether deferred tax
assets are realizable. These reviews include management’s
estimates and assumptions regarding future taxable
income, which also incorporates various tax planning
strategies, including strategies that may be available toutilize net operating losses 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 in tax
planning strategies, it is more likely than not that all or partof the deferred tax asset will become realizable. As of
December 31, 2013, management has determined it ismore likely than not that the Firm will realize its deferred
tax assets, net of the existing valuation allowance.
JPMorgan Chase does not provide U.S. federal income taxes
on the undistributed earnings of certain non-U.S.
subsidiaries, to the extent that such earnings have been
reinvested abroad for an indefinite period of time. Changes
to the income tax rates applicable to these non-U.S.
subsidiaries may have a material impact on the effective tax
rate in a future period if such changes were to occur.
The Firm adjusts its unrecognized tax benefits as necessary
when additional information becomes available. Uncertain
tax positions that meet the more-likely-than-not recognition
threshold are measured to determine the amount of benefit
to recognize. An uncertain tax position is measured at 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 tax rate in the period in which the reassessment
occurs.
For additional information on income taxes, see Note 26 on
pages 313–315 of this Annual Report.
Litigation reserves
For a description of the significant estimates and judgments
associated with establishing litigation reserves, see Note 31
on pages 326–332 of this Annual Report.

JPMorgan Chase & Co./2013 Annual Report

ACCOUNTING AND REPORTING DEVELOPMENTS
Presentation of other comprehensive income
In June 2011, the FASB issued guidance that modifies thepresentation of other comprehensive income in theConsolidated Financial Statements. The guidance requiresthat items of net income, items of other comprehensive
income, and total comprehensive income be presented in
one continuous statement or in two separate but
consecutive statements. The guidance was effective in thefirst quarter of 2012, and the Firm adopted the new
guidance by electing the two-statement approach, effective
January 1, 2012. The application of this guidance only
affected the presentation of the Consolidated Financial
Statements and had no impact on the Firm’s Consolidated
Balance Sheets or results of operations.
In February 2013, the FASB issued guidance that requires
enhanced disclosures of any reclassifications out ofaccumulated other comprehensive income. The guidance
was effective in the first quarter of 2013. The application ofthis guidance had no impact on the Firm’s Consolidated
Balance Sheets or results of operations. For further
information, see Note 25 on page 312 of this Annual
Report.
Balance sheet netting
In December 2011, the FASB issued guidance that requires
enhanced disclosures about certain financial assets andliabilities that are subject to enforceable master netting
agreements or similar agreements, or that have otherwise
been offset on the balance sheet under certain specificconditions that permit net presentation. In January 2013,
the FASB clarified that the scope of this guidance is limited
to derivatives, repurchase and reverse repurchaseagreements, and securities borrowing and lendingtransactions. The Firm adopted the new guidance effective
the first quarter of 2013. The application of this guidance
had no impact on the Firm’s Consolidated Balance Sheets or
results of operations. For further information, see Notes 1,
6, and 13 on pages 189–191, 220–233, and 255–257,
respectively, of this Annual Report.
Investment companies
In June 2013, the FASB issued guidance that clarifies thecharacteristics of an investment company and requires new
disclosures for investment companies. Under the guidance,
a company regulated under the Investment Company Act of

JPMorgan Chase & Co./2013 Annual Report

1940 is considered an investment company for accounting
purposes. All other companies must meet all of thefundamental characteristics described in the guidance andconsider other typical characteristics to qualify as aninvestment company. An investment company will be
required to provide additional disclosures, including the factthat the company is an investment company, information
about changes, if any, in a company’s status as aninvestment company, and information about financial
support provided or contractually required to be provided
by an investment company to any of its investees. The
guidance will become effective in the first quarter of 2014.
The adoption of the guidance is not expected to have amaterial impact on the Firm’s Consolidated Balance Sheetsor results of operations.
Inclusion of the Fed funds effective swap rate
In July 2013, the FASB issued guidance that amends theacceptable U.S. benchmark interest rates for hedge
accounting involving interest rate risk. In addition tointerest rates on direct U.S. Treasury obligations and the
LIBOR swap rate, the guidance also permits the overnightindexed swap rate (“OIS”) to be designated as a benchmark
interest rate for hedge accounting purposes. The
amendments are effective prospectively for qualifying new
or redesignated hedging relationships entered into on orafter July 17, 2013. For further information on the Firm’s
benchmark interest rate hedges, see Note 6 on pages 220–
233 of this Annual Report.
Investments in qualified affordable housing projects
In January 2014, the FASB issued guidance regarding theaccounting for investments in affordable housing projects
that qualify for the low-income housing tax credit. The
guidance replaces the effective yield method and allows
companies to make an accounting policy election toamortize the cost of its investments in proportion to the tax
benefits received if certain criteria are met, and present theamortization as a component of income tax expense. The
guidance will become effective in the first quarter of 2015,
with early adoption permitted in the first quarter of 2014.
The Firm is currently evaluating this guidance to determine
any potential impact on the Firm’s Consolidated Financial
Statements.

179

Management’s discussion and analysis

NONEXCHANGE TRADED COMMODITY DERIVATIVE CONTRACTS AT FAIR VALUE
In the normal course of business, JPMorgan Chase trades
nonexchange-traded commodity derivative contracts. To
determine the fair value of these contracts, the Firm uses
various fair value estimation techniques, primarily based oninternal models with significant observable market
parameters. The Firm’s nonexchange-traded commodity
derivative contracts are primarily energy-related.
The following table summarizes the changes in fair value fornonexchange-traded commodity derivative contracts for theyear ended December 31, 2013.
Year ended December 31, 2013
(in millions)
Net fair value of contracts outstanding at January 1,
2013(a)Asset
position$

Effect of legally enforceable master netting
agreements(a)Liability
position

7,934$

20,72910,74528,66333,137

Contracts realized or otherwise settled(21,406)(23,246)

Fair value of new contracts

11,955

12,709——Other changes in fair value

3,998

2,647

Gross fair value of contracts outstanding at
December 31, 2013

23,21025,247

Effect of legally enforceable master netting
agreements(15,082)(15,318)

Net fair value of contracts outstanding at
December 31, 2013

$

8,128

Asset
position

December 31, 2013 (in millions)
Maturity less than 1 year$

13,750Liability
position$

14,766

Maturity 1–3 years

7,155

6,733

Maturity 4–5 years

1,214

1,048

Maturity in excess of 5 years

1,091

2,700

Gross fair value of contracts outstanding at
December 31, 2013

23,21025,247

Effect of legally enforceable master netting
agreements(15,082)(15,318)

Net fair value of contracts outstanding at
December 31, 2013

$

8,128

$

9,929

22,392Gross fair value of contracts outstanding at
January 1, 2013

Changes in fair values attributable to changes invaluation techniques and assumptions

The following table indicates the maturities ofnonexchange-traded commodity derivative contracts at
December 31, 2013.

$

9,929

(a) The prior period has been revised.

180

JPMorgan Chase & Co./2013 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 Securities andExchange Commission. In addition, the Firm’s senior
management may make forward-looking statements orally
to analysts, investors, representatives of the media andothers.
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 international business, economic andpolitical conditions and geopolitical events;• Changes in laws and regulatory requirements, including
as a result of recent financial services legislation;• Changes in trade, monetary and fiscal policies and laws;• 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;• Mergers and acquisitions, including the Firm’s ability tointegrate acquisitions;• 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;
JPMorgan Chase & Co./2013 Annual Report• Ability of the Firm to address enhanced regulatory
requirements affecting its mortgage business;• Acceptance of the Firm’s new and existing products andservices by the marketplace and the ability of the Firm toincrease market share;• Ability of the Firm to attract and retain employees;• Ability of the Firm to control expense;• Competitive pressures;• Changes in the credit quality of the Firm’s customers andcounterparties;• 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;• Ability of the Firm to determine accurate values ofcertain assets and liabilities;• Occurrence of natural or man-made disasters orcalamities or conflicts, including any effect of any suchdisasters, calamities or conflicts on the Firm’s power
generation facilities and the Firm’s other physicalcommodity-related activities;• Ability of the Firm to maintain the security of its
financial, accounting, technology, data processing andother operating systems and facilities;• The other risks and uncertainties detailed in Part I, Item
1A: Risk Factors in the Firm’s Annual Report on Form 10K for the year ended December 31, 2013.
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 to reflect the impact of circumstances or
events that arise after the date the forward-looking
statements were made. The reader should, however, consult
any further disclosures of a forward-looking nature the Firm
may make in any subsequent Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, or Current Reports on
Form 8-K.

181

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,
2013. In making the assessment, management used theframework in “Internal Control - Integrated Framework(1992)” promulgated by the Committee of Sponsoring
Organizations of the Treadway Commission, commonlyreferred to as the “COSO” criteria.

182

Based upon the assessment performed, management
concluded that as of December 31, 2013, JPMorgan Chase’s
internal control over financial reporting was effective based
upon the COSO 1992 criteria. 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, 2013.
The effectiveness of the Firm’s internal control overfinancial reporting as of December 31, 2013, 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 19, 2014

JPMorgan Chase & Co./2013 Annual ReportReport of independent registered public accounting firm

To the Board of Directors and Stockholders of JPMorgan
Chase & Co.:In our opinion, the accompanying consolidated balance
sheets and the related consolidated statements of income,comprehensive income, changes in stockholders’ equity andcash flows present fairly, in all material respects, thefinancial position of JPMorgan Chase & Co. and its
subsidiaries (the “Firm”) at December 31, 2013 and 2012
and the results of their operations and their cash flows foreach of the three years in the period ended December 31,
2013 in conformity with accounting principles generally
accepted in the United States of America. Also in our
opinion, the Firm maintained, in all material respects,
effective internal control over financial reporting as ofDecember 31, 2013 based on criteria established inInternal Control - Integrated Framework (1992) issued by theCommittee of Sponsoring Organizations of the Treadway
Commission (COSO). The Firm’s management is responsible
for these financial statements, for maintaining effective
internal control over financial reporting and for its
assessment of the effectiveness of internal control overfinancial reporting, included in the accompanying“Management’s report on internal control over financial
reporting”. Our responsibility is to express opinions onthese financial statements and on the Firm’s internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and performthe audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement
and whether effective internal control over financial
reporting was maintained in all material respects. Our
audits of the financial statements included examining, on atest basis, evidence supporting the amounts and disclosuresin the financial statements, assessing the accounting
principles used and significant estimates made bymanagement, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that amaterial weakness exists, and testing and evaluating thedesign and operating effectiveness of internal control basedon the assessed risk. Our audits also included performing
such other procedures as we considered necessary in thecircumstances. We believe that our audits provide a
reasonable basis for our opinions.
A company’s internal control over financial reporting is aprocess designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes inaccordance with generally accepted accounting principles.
A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions anddispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements inaccordance with generally accepted accounting principles,
and that receipts and expenditures of the company arebeing made only in accordance with authorizations ofmanagement and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of
the company’s assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control 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.

February 19, 2014

PricewaterhouseCoopers LLP 300 Madison Avenue New York, NY 10017

JPMorgan Chase & Co./2013 Annual Report183Consolidated statements of income

Year ended December 31, (in millions, except per share data)

2013

2012

2011

Revenue
Investment banking fees

$

6,354

$

5,808

$

5,911

Principal transactions

10,141

5,536

10,005

Lending- and deposit-related fees

5,945

6,196

6,458

Asset management, administration and commissions

15,106

13,86814,094

667

2,110

1,593

Mortgage fees and related income

5,205

8,687

2,721

Card income

6,022

5,658

6,158

Securities gains(a)Other income

3,847

4,258

2,605

Noninterest revenue

53,287

52,12149,545Interest income

52,99656,063

61,293

Interest expense

9,677

11,153

13,604

Net interest income

43,31944,91047,689Total net revenue

96,606

97,031

97,234

225

3,385

7,574

Compensation expense

30,81030,58529,037

Occupancy expense

3,693

3,925

3,895

Technology, communications and equipment expense

5,425

5,224

4,947

Professional and outside services

7,641

7,429

7,482

Marketing

2,500

2,577

3,143

Other expense

19,761

14,032

13,559Provision for credit losses
Noninterest expense

Amortization of intangibles

637

957

848

Total noninterest expense

70,46764,72962,911

Income before income tax expense

25,91428,917

26,749

Income tax expense

7,991

7,633

7,773

Net income$

17,923$

21,284$

18,976

Net income applicable to common stockholders$

16,593$

19,877$

17,568

$

4.39

$

5.22

$

4.50

Net income per common share data
Basic earnings per share
Diluted earnings per share

4.35

5.20

4.48

Weighted-average basic shares

3,782.4

3,809.4

3,900.4

Weighted-average diluted shares

3,814.9

3,822.2

Cash dividends declared per common share

$

1.44

$

1.20

3,920.3$

1.00(a) The following other-than-temporary impairment losses are included in securities gains for the periods presented.
Year ended December 31, (in millions)

2013

2012

2011

Debt securities the Firm does not intend to sell that have credit losses
Total other-than-temporary impairment losses

$

(1)

$

(113)

$

(27)

Losses recorded in/(reclassified from) other comprehensive income

—

85

(49)

Total credit losses recognized in income

(1)

(28)

(76)

(20)

(15)

Securities the Firm intends to sell
Total other-than-temporary impairment losses recognized in income

$

(21)

$

(43)

—
$

(76)

The Notes to Consolidated Financial Statements are an integral part of these statements.

184

JPMorgan Chase & Co./2013 Annual ReportConsolidated statements of comprehensive income

Year ended December 31, (in millions)
Net income

2013$

17,923

2012$

21,2842011$

18,976

Other comprehensive income/(loss), after–tax
Unrealized gains/(losses) on AFS securities
Translation adjustments, net of hedges(4,070)

3,303

1,067

(41)

(69)

(279)

Cash flow hedges

(259)

69

(155)

Defined benefit pension and OPEB plans

1,467

(145)

(690)

Total other comprehensive income/(loss), after–tax(2,903)

3,158

Comprehensive income$

15,020$24,442(57)$

18,919The Notes to Consolidated Financial Statements are an integral part of these statements.

JPMorgan Chase & Co./2013 Annual Report185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 $25,135 and $24,258 at fair value)
Securities borrowed (included $3,739 and $10,177 at fair value)
Trading assets (included assets pledged of $106,299 and $108,784)
Securities (included $329,977 and $371,145 at fair value and assets pledged of $23,446 and $52,063)
Loans (included $2,011 and $2,555 at fair value)
Allowance for loan losses
Loans, net of allowance for loan losses
Accrued interest and accounts receivable
Premises and equipment
Goodwill
Mortgage servicing rights
Other intangible assets
Other assets (included $15,187 and $16,458 at fair value and assets pledged of $2,066 and $1,127)
Total assets(a)Liabilities
Deposits (included $6,624 and $5,733 at fair value)
Federal funds purchased and securities loaned or sold under repurchase agreements (included $5,426 and $4,388 atfair value)
Commercial paper
Other borrowed funds (included $13,306 and $11,591 at fair value)
Trading liabilities
Accounts payable and other liabilities (included $25 and $36 at fair value)
Beneficial interests issued by consolidated variable interest entities (included $1,996 and $1,170 at fair value)
Long-term debt (included $28,878 and $30,788 at fair value)
Total liabilities(a)Commitments and contingencies (see Notes 29, 30 and 31 of this Annual Report)
Stockholders’ equity
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 1,115,750 and 905,750 shares)
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
Capital surplus
Retained earnings
Accumulated other comprehensive income
Shares held in RSU Trust, at cost (476,642 and 479,126 shares)
Treasury stock, at cost (348,825,583 and 300,981,690 shares)
Total stockholders’ equity
Total liabilities and stockholders’ equity

2013

2012

$

39,771 $316,051
248,116
111,465374,664
354,003
738,418(16,264)
722,154
65,16014,891
48,0819,614
1,618
110,101
2,415,689 $

53,723
121,814296,296
119,017450,028
371,152
733,796(21,936)
711,860
60,933
14,51948,175
7,614
2,235
101,775
2,359,141$

1,287,765

1,193,593$$$

181,163

240,103

57,84827,994
137,744
194,491
49,617
267,889
2,204,511

55,367
26,636
131,918
195,240
63,191
249,024
2,155,072

11,1584,105
93,828
115,756
1,199(21)(14,847)
211,178
2,415,689 $

9,058
4,105
94,604104,2234,102(21)(12,002)
204,069
2,359,141(a) The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at December 31, 2013 and 2012. 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)2013

AssetsTrading assets

$

2012
6,366

Loans

70,072All other assets

2,168

Total assets$

11,96682,7232,090$

78,606$

96,779$49,617$

63,191$64,435

Liabilities
Beneficial interests issued by consolidated variable interest entities
All other liabilities
Total liabilities

1,061
$

50,678

1,244

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, 2013 and 2012, the Firm provided limited program-wide credit enhancement of $2.6 billion and $3.1 billion, respectively, related to its Firm-

administered multi-seller conduits, which are eliminated in consolidation. For further discussion, see Note 16 on pages 288–299 of this Annual Report.

The Notes to Consolidated Financial Statements are an integral part of these statements.

186

JPMorgan Chase & Co./2013 Annual ReportConsolidated statements of changes in stockholders’ equity
Year ended December 31, (in millions, except per share data)

2013

2012

2011

Preferred stock
Balance at January 1

$

9,058

$

7,800

$

7,800

Issuance of preferred stock

3,900

1,258

Redemption of preferred stock(1,800)———

Balance at December 31

11,158

9,058

7,800

4,105

4,105

4,105

94,604

95,602

97,415

Shares issued and commitments to issue common stock for employee stock-based compensation awards, andrelated tax effects

(752)

(736)

(1,688)

Other

(24)

(262)

(125)

93,82894,604

95,602

Balance at January 1

104,223

88,31573,998Net income

17,923

21,284

18,976

(805)

(647)

(629)

Common stock
Balance at January 1 and December 31
Capital surplus
Balance at January 1

Balance at December 31
Retained earnings

Dividends declared:
Preferred stock
Common stock ($1.44, $1.20 and $1.00 per share for 2013, 2012 and 2011, respectively)(5,585)(4,729)(4,030)115,756

104,223

88,315

Balance at January 1

4,102

944

1,001

Other comprehensive income/(loss)(2,903)

3,158

(57)

Balance at December 31

1,199

4,102

944

(21)

(38)

(53)

Balance at December 31
Accumulated other comprehensive income/(loss)

Shares held in RSU Trust, at cost
Balance at January 1
Reissuance from RSU Trust

—

17

15

Balance at December 31

(21)

(21)

(38)

Balance at January 1(12,002)(13,155)(8,160)Purchase of treasury stock(4,789)(1,415)(8,741)

Reissuance from treasury stock

1,944

2,574

3,750

—

(6)

(4)

Balance at December 31(14,847)(12,002)(13,155)

Total stockholders’ equity$ 211,178$ 204,069$ 183,573

Treasury stock, at cost

Share repurchases related to employee stock-based compensation awards

The Notes to Consolidated Financial Statements are an integral part of these statements.

JPMorgan Chase & Co./2013 Annual Report187Consolidated statements of cash flows
Year ended December 31, (in millions)Operating activities
Net income
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Provision for credit losses
Depreciation and amortization
Amortization of intangibles
Deferred tax expense
Investment securities gains
Stock-based compensation
Originations and purchases of loans held-for-sale
Proceeds from sales, securitizations and paydowns of loans held-for-saleNet change in:Trading assets
Securities borrowed
Accrued interest and accounts receivable
Other assets
Trading liabilities
Accounts payable and other liabilities
Other operating adjustments
Net cash provided by operating activities
Investing activities
Net change in:
Deposits with banks
Federal funds sold and securities purchased under resale agreements
Held-to-maturity securities:
Proceeds from paydowns and maturities
Purchases
Available-for-sale securities:
Proceeds from paydowns and maturities
Proceeds from sales
Purchases
Proceeds from sales and securitizations of loans held-for-investment
Other changes in loans, net
Net cash (used in)/received from business acquisitions or dispositions
All other investing activities, net
Net cash used in investing activities
Financing activities
Net change in:
Deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Commercial paper and other borrowed funds
Beneficial interests issued by consolidated variable interest entities
Proceeds from long-term borrowings and trust preferred securities
Payments of long-term borrowings and trust preferred securities
Excess tax benefits related to stock-based compensation
Proceeds from issuance of preferred stock
Redemption of preferred stock
Treasury stock and warrants repurchased
Dividends paid
All other financing activities, net
Net cash provided by financing activities
Effect of exchange rate changes on cash and due from banks
Net (decrease)/increase in cash and due from banks
Cash and due from banks at the beginning of the period
Cash and due from banks at the end of the period
Cash interest paid
Cash income taxes paid, net

2013$17,923

2012
$

2011

21,284$

18,976

225
4,669
637
8,003
(667)
2,219
(75,928)
73,566

3,385
4,190
957
1,130
(2,110)2,545(34,026)
33,202

7,574
4,257
848
1,693
(1,593)
2,675(52,561)
54,092

89,1107,562(2,340)526(9,772)(5,743)(2,037)
107,953(5,379)23,455
1,732(4,683)(3,921)(13,069)(3,613)25,07936,443(18,936)
8,655(15,456)
7,905
35,203
6,157
95,932(194,363)
47,726(36,595)(60,821)(63,592)(12,490)189(24,214)4—

6—

89,631
73,312(130,266)
12,033(23,721)
(149)
(679)
(150,501)

112,633
81,957(189,630)
6,430(30,491)
88(3,400)(119,825)

86,85068,631(202,309)
10,478(58,365)
102(63)(170,752)

81,476(58,867)
2,784(10,433)
83,546(60,497)
137
3,873(1,800)(4,789)(6,056)(1,050)28,324272(13,952)
53,723$ 39,771
$
9,573
3,502

67,25026,546
9,315
345
86,271(96,473)
255
1,234
—
(1,653)(5,194)(189)
87,7071,160(5,879)59,602$ 53,723$ 11,161
2,050

203,420(63,116)
7,230
1,165
54,844(82,078)867——(8,863)(3,895)(1,868)
107,706(851)
32,03527,567$ 59,602$ 13,725
8,153

The Notes to Consolidated Financial Statements are an integral part of these statements.

188

JPMorgan Chase & Co./2013 Annual ReportNotes to consolidated financial statements

Note 1 – Basis of presentation
JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”), a
financial holding company incorporated under Delaware law
in 1968, is a leading global financial services firm and oneof the largest banking institutions in the United States ofAmerica (“U.S.”), with operations worldwide. The Firm is aleader in investment banking, financial services for
consumers and small business, commercial banking,financial transaction processing, asset management andprivate equity. For a discussion of the Firm’s businesssegments, see Note 33 on pages 334–337 of this Annual
Report.
The accounting and financial reporting policies of JPMorgan
Chase and its subsidiaries conform to accounting principles
generally accepted in the U.S. (“U.S. GAAP”). Additionally,
where applicable, the policies conform to the accounting
and reporting guidelines prescribed by regulatory
authorities.
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. The Firm
determines whether it has a controlling financial interest in
an entity by first evaluating whether the entity is a votinginterest entity or a variable interest entity (“VIE”).
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 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./2013 Annual Report(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 funds. In the limited cases where
the nonaffiliated partners or members do not havesubstantive kick-out or participating rights, the Firm
consolidates the funds.
The Firm’s investment companies make 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.
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 a special purpose entity(“SPE”). SPEs are commonly used in securitizationtransactions in order to isolate certain assets and distributethe cash flows from those assets to investors. The basic SPE
structure involves a company selling assets to the SPE; theSPE funds the purchase of those assets by issuing securities
to investors. The legal documents that govern thetransaction specify how the cash earned on the assets mustbe allocated to the SPE’s investors and other parties thathave rights to those cash flows. SPEs are generally
structured to insulate investors from claims on the SPE’s
assets by creditors of other entities, including the creditorsof 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; andsecond, 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
189Notes to consolidated financial statements
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.

Foreign currency translation
JPMorgan Chase revalues assets, liabilities, revenue andexpense denominated in non-U.S. currencies into U.S.
dollars using applicable exchange rates.

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 derivative 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 the
Firm.

Gains and losses relating to translating functional currency
financial statements for U.S. reporting are included in othercomprehensive income/(loss) (“OCI”) within stockholders’equity. Gains and losses relating to nonfunctional currencytransactions, including non-U.S. operations where thefunctional currency is the U.S. dollar, are reported in theConsolidated Statements of Income.

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 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.
In January 2010, the Financial Accounting Standards Board(“FASB”) issued an amendment which deferred therequirements of the accounting guidance for VIEs forcertain investment funds, including mutual funds, private
equity funds and hedge funds. For the funds to which thedeferral applies, the Firm continues to apply other existing
authoritative accounting guidance to determine whether
such funds should be consolidated.
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.
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.

190

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 balance sheet when a legally enforceable
master netting agreement exists. U.S. GAAP also permits
securities sold and purchased under repurchase agreements
to be presented net when specified conditions are met,
including the existence of a legally enforceable masternetting agreement. The Firm has elected to net suchbalances when the specified conditions are met.
The Firm uses master netting agreements to mitigate
counterparty credit risk in certain transactions, including
derivatives transactions, repurchase and reverse
repurchase agreements, and securities borrowed andloaned agreements. A master netting agreement is a single
contract with a counterparty that permits multiple
transactions governed by that contract to be terminatedand settled through a single payment in a single currency inthe event of a default (e.g., bankruptcy, failure to make arequired payment or securities transfer or deliver collateralor margin when due after expiration of any grace period).
Upon the exercise of termination rights by the nondefaulting party, (i) all transactions are terminated, (ii) all
transactions are valued and the positive value or “in themoney” transactions are netted against the negative valueor “out of the money” transactions and (iii) the only
remaining payment obligation is of one of the parties to pay
the netted termination amount. Upon exercise of
repurchase agreement and securities loaned default rights(i) all securities loan transactions are terminated andaccelerated, (ii) all values of securities or cash held or to bedelivered are calculated, and all such sums are netted
against each other and (iii) the only remaining payment
obligation is of one of the parties to pay the netted
termination amount.

JPMorgan Chase & Co./2013 Annual Report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.

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.

For further discussion of the Firm’s derivative instruments,
see Note 6 on pages 220–233 of this Annual Report. For
further discussion of the Firm’s repurchase and reverse
repurchase agreements, and securities borrowing andlending agreements, see Note 13 on pages 255–257 of thisAnnual Report.
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./2013 Annual Report

Business changes and developments

Note 2

Page 192

Fair value measurement

Note 3

Page 195

Fair value option

Note 4

Page 215

Derivative instruments

Note 6

Page 220

Noninterest revenue

Note 7

Page 234

Interest income and interest expense

Note 8Page 236

Pension and other postretirement
employee benefit plans

Note 9Page 237

Employee stock-based incentives

Note 10

Page 247

Securities

Note 12Page 249

Securities financing activities

Note 13

Page 255

Loans

Note 14

Page 258

Allowance for credit losses

Note 15

Page 284

Variable interest entities

Note 16

Page 288

Goodwill and other intangible assets

Note 17

Page 299

Premises and equipment

Note 18

Page 305

Long-term debt

Note 21

Page 306

Income taxes

Note 26

Page 313

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

Note 29

Page 318

Litigation

Note 31

Page 326

191

Notes to consolidated financial statements
Note 2 – Business changes and developments
Student loan business
In September 2013, the Firm announced it ceased student
loan originations.
Physical commodities businesses
On July 26, 2013 the Firm announced that it is pursuing
strategic alternatives for its physical commodities
businesses. Pursuant to that announcement, the Firm is
exploring the sale of certain physical commodities
operations, including physical oil, gas, power, warehousing
facilities and transportation operations. During this process,the Firm will continue to run its physical commodities
business as a going concern. The Firm remains fullycommitted to its traditional banking activities in thecommodities markets, including financial derivatives andthe trading of precious metals, which are not part of thesestrategic alternatives.
One Equity Partners
As announced on June 14, 2013, One Equity Partners(“OEP”) is expected to raise its next fund from an externalgroup of limited partners and then become independent
from JPMorgan Chase. Until it becomes independent fromthe Firm, OEP will continue to make direct investments for
JPMorgan Chase, and thereafter is expected to continue
managing the then-existing group of portfolio companies
for JPMorgan Chase in order to maximize value for the Firm.

Other business events

Visa B Shares
In December 2013, JP Morgan Chase sold 20 million Visa
Class B shares, resulting in a net pre-tax gain of
approximately $1.3 billion recorded in other income. In
conjunction with the sale, the Firm entered into a derivative
instrument with the purchaser under which the Firm will (a)make periodic fixed payments, calculated by reference tothe market price of Visa Class A common shares and (b)make or receive payments based on subsequent changes in
the conversion rate of Visa Class B shares into Visa Class A
shares. The payments under the derivative continue as longas Class B shares remain “restricted”. The derivative isaccounted for as a trading liability. The fair value of thederivative is estimated using a discounted cash flow
methodology and is dependent upon the final resolution ofcertain Visa litigation matters; changes in fair value will berecognized in other income.

192

After the sale, the Firm continues to own approximately 40
million Visa Class B shares. These shares will be converted
into Visa Class A shares upon final resolution of certain Visa
litigation matters; the conversion rate of Visa Class B shares
to Visa Class A shares is 0.4206 as of December 31, 2013
and will be adjusted by Visa depending on developments
related to certain Visa litigation matters.
One Chase Manhattan PlazaOn December 17, 2013, the Firm sold One Chase
Manhattan Plaza, an office building located in New York
City, and recognized a pretax gain of $493 million in Other
Income.
Settlement with the President’s Task Force on Residential
Mortgage-Backed Securities (“RMBS”)
On November 19, 2013, the Firm announced a resolution of
actual and potential civil claims by a number of federal andstate government agencies, including the U.S. Departmentof Justice and, several State Attorneys General, as well as
litigation by the Federal Deposit Insurance Corporation, theNational Credit Union Administration and the Federal
Housing Finance Agency relating to residential mortgagebacked securities activities by JPMorgan Chase, Bear
Stearns and Washington Mutual (the "RMBS settlement").
Under the settlement, the Firm paid a total of $9 billion in
cash, and committed to provide $4 billion in borrower relief.
The cash portion consists of a $2 billion civil monetary
penalty and $7 billion in compensatory payments, including$4 billion to resolve the Federal Housing Finance Agency
litigation (see "Mortgage-backed securities settlements with
the Federal Housing Finance Agency, Freddie Mac, andFannie Mae" below). The $4 billion of borrower relief will bein the form of principal reduction, forbearance and otherdirect benefits from various relief programs. The Firm has
committed to complete the delivery of the relief toborrowers before the end of 2017.
The Firm’s 2013 results of operations reflected theestimated costs of the settlement (i.e., the cash payments
as well as the borrower relief). The estimated impact of the
cash settlement has been considered in the Firm’s legal
reserve, whereas the impact of the borrower relief portionof the settlement has been considered in the allowance forloan losses.

JPMorgan Chase & Co./2013 Annual ReportRMBS Trust Settlement
On November 15, 2013, the Firm announced it had reached
a $4.5 billion agreement with 21 major institutional
investors to make a binding offer to the trustees of 330
residential mortgage-backed securities trusts issued by J.P.
Morgan, Chase, and Bear Stearns (“RMBS TrustSettlement”) to resolve all representation and warranty
claims, as well as all servicing claims, on all trusts issued by
J.P. Morgan, Chase, and Bear Stearns between 2005 and2008. The RMBS Trust Settlement is under consideration by
the trustees and may be subject to court approval. Thisagreement does not resolve claims on trusts issued by
Washington Mutual. For further information about the
RMBS Trust Settlement, see Note 31 on pages 326–332 of
this Annual Report.
Mortgage-backed securities settlements with the Federal
Housing Finance Agency, Freddie Mac and Fannie Mae
On October 25, 2013, the Firm announced that it hadreached a $4.0 billion agreement to resolve all of its
mortgage-backed securities (“MBS”) litigation with theFederal Housing Finance Agency (“FHFA”) as conservator
for Freddie Mac and Fannie Mae. The Firm also
simultaneously agreed to resolve, for $1.1 billion, otherthan certain limited types of exposures, outstanding andfuture mortgage repurchase demands associated with loans
sold to the GSEs from 2000 to 2008 ("FHFA Settlement
Agreement").
Mortgage foreclosure settlement agreement with the
Office of the Comptroller of the Currency and the Board ofGovernors of the Federal Reserve System
On January 7, 2013, the Firm announced that it and anumber of other financial institutions entered into asettlement agreement with the Office of the Comptroller of
the Currency (“OCC”) and the Board of Governors of theFederal Reserve System (“Federal Reserve”) providing forthe termination of the independent foreclosure review
programs (the “Independent Foreclosure Review”). Under
this settlement, the Firm made a cash payment ofapproximately $760 million into a settlement fund for
distribution to qualified borrowers. The Firm has also
committed $1.2 billion to foreclosure prevention actions,which will be fulfilled through credits given to the Firm for
modifications, short sales and other specified types ofborrower relief. Foreclosure prevention actions that earncredit under the Independent Foreclosure Review
settlement are in addition to actions taken by the Firm to

JPMorgan Chase & Co./2013 Annual Reportearn credit under the global settlement entered into by the
Firm with state and federal agencies (see "Global settlement
on servicing and origination of mortgages" below). The
estimated impact of the foreclosure prevention actions
required under the Independent Foreclosure Review
settlement have been considered in the Firm’s allowance forloan losses. The Firm recognized a pretax charge ofapproximately $700 million in the fourth quarter of 2012
related to the Independent Foreclosure Review settlement.
Washington Mutual, Inc. bankruptcy plan confirmation
On March 19, 2012, a bankruptcy court approved the joint
plan containing the global settlement agreement resolving
numerous disputes among Washington Mutual, Inc.
(“WMI”), JPMorgan Chase and the Federal Deposit
Insurance Corporation (“FDIC”) as well as significant
creditor groups (the “WaMu Global Settlement”). The Firm
recognized additional assets, including certain pensionrelated assets, as well as tax refunds, resulting in a pretax
gain of $1.1 billion in 2012.
Global settlement on servicing and origination ofmortgages
On February 9, 2012, the Firm announced that it had
agreed to a settlement in principle (the “global settlement”)
with a number of federal and state government agencies,
including the U.S. Department of Justice (“DOJ”), the U.S.
Department of Housing and Urban Development, theConsumer Financial Protection Bureau and the State
Attorneys General, relating to the servicing and originationof mortgages.
The global settlement releases the Firm from certain
further claims by the participating government entities
related to servicing activities, including foreclosures andloss mitigation activities; certain origination activities; andcertain bankruptcy-related activities. Not included in the
global settlement are any claims arising out of
securitization activities, including representations made toinvestors with respect to mortgage-backed securities;
criminal claims; and repurchase demands from U.S.
government-sponsored entities (“GSEs”), among otheritems.
Also on February 9, 2012, the Firm entered into
agreements with the Federal Reserve and the OCC for thepayment of civil money penalties related to conduct thatwas the subject of consent orders entered into with thebanking regulators in April 2011.

193

Notes to consolidated financial statements
Subsequent events

Settlement agreement with The U.S. Departments Of
Justice, Housing and Urban Development, and Veterans
Affairs, and The Federal Housing Administration
On February 4, 2014, the Firm announced that it hadreached a settlement with the U.S. Attorney’s Office for theSouthern District of New York, Federal Housing
Administration (“FHA”), the U.S. Department of Housing and
Urban Development (“HUD”), and the U.S. Department of
Veterans Affairs (“VA”) resolving claims relating to theFirm’s participation in federal mortgage insurance
programs overseen by FHA, HUD and VA (“FHASettlement”). Under the FHA Settlement, which relates to
FHA and VA insurance claims that have been paid to theFirm from 2002 through the date of the settlement, theFirm will pay $614 million in cash, and agree to enhance its
quality control program for loans that are submitted in the
future to FHA’s Direct Endorsement Lender Program. The
Firm is fully reserved for the settlement, and any financial
impact related to exposure on future claims is not expected
to be significant.
Madoff Litigation and Investigations
On January 7, 2014, the Firm announced that certain of its
bank subsidiaries had entered into settlements with various
governmental agencies in resolution of investigations
relating to Bernard L. Madoff Investment Securities LLC(“BLMIS”). The Firm and certain of its subsidiaries also
entered into settlements with several private parties inresolution of civil litigation relating to BLMIS. At the sametime, certain bank subsidiaries of the Firm consented to theassessment of a civil money penalty by the OCC inconnection with various Bank Secrecy Act/Anti-Money
Laundering deficiencies, including with relation to the
BLMIS fraud, and JPMorgan Chase Bank, N.A. additionallyagreed to the assessment of a civil money penalty by the
Financial Crimes Enforcement Network for failure to detectand adequately report suspicious transactions relating to
BLMIS. For further information on these settlements, seeNote 31 on pages 326–332 of this Annual Report.

194

JPMorgan Chase & Co./2013 Annual ReportNote 3 – Fair value measurement
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. These assets and liabilities are predominantly
carried at fair value on a recurring basis (i.e., assets andliabilities that are measured and reported at fair value on
the Firm’s Consolidated Balance Sheets). Certain assets(e.g., certain mortgage, home equity and other loans,
where the carrying value is based on the fair value of theunderlying collateral), 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, where available. If listed prices or quotes are notavailable, fair value is based on models that consider
relevant transaction characteristics (such as maturity) and
use as inputs observable or unobservable market
parameters, including but not limited to yield curves,interest rates, volatilities, equity or debt prices, foreignexchange rates and credit curves. Valuation adjustments
may be made to ensure that financial instruments arerecorded at fair value, as described below.
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.

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’svaluation control function, which is part of the Firm’s
Finance function and independent of the risk-taking
functions, is responsible for verifying these estimates anddetermining any fair value adjustments that may berequired to ensure that the Firm’s positions are recorded atfair value. In addition, the Firm has a firmwide Valuation
Governance Forum (“VGF”) comprising senior finance andrisk executives to oversee the management of risks arisingfrom valuation activities conducted across the Firm. The
VGF is chaired by the firm-wide head of the valuation
control function, and also includes sub-forums for the
Corporate & Investment Bank (“CIB”), Mortgage Banking,(part of Consumer & Community Banking) and certain
corporate functions including Treasury and Chief
Investment Office (“CIO”).
The valuation control function verifies fair value estimatesleveraging independently derived prices, valuation inputs
and other market data, where available. Where independent
prices or inputs are not available, additional review isperformed by the valuation control function to ensure thereasonableness of estimates that cannot be verified toexternal independent data, and may include: evaluating thelimited market activity including client unwinds;
benchmarking of valuation inputs to those for similar
instruments; decomposing the valuation of structured
instruments into individual components; comparing
expected to actual cash flows; reviewing profit and loss
trends; and reviewing trends in collateral valuation. In
addition there are additional levels of management review
for more significant or complex positions.

The Firm uses various methodologies and assumptions in
the determination of fair value. The use of different
methodologies or assumptions to those used by the Firm
could result in a different estimate of fair value at thereporting date.

JPMorgan Chase & Co./2013 Annual Report

195Notes to consolidated financial statements
The valuation control function determines any valuation
adjustments that may be required to the estimates provided
by the risk-taking functions. No adjustments are applied tothe quoted market price for instruments classified within
level 1 of the fair value hierarchy (see below for further
information on the fair value hierarchy). For otherpositions, judgment is required to assess the need forvaluation adjustments to appropriately reflect liquidity
considerations, unobservable parameters, and, for certain
portfolios that meet specified criteria, the size of the net
open risk position. The determination of such adjustments
follows a consistent framework across the Firm:•

Liquidity valuation adjustments are considered when
the Firm may not be able to observe a recent market
price for a financial instrument that trades in an
inactive (or less active) market. The Firm estimates theamount of uncertainty in the initial fair value estimatebased on the degree of liquidity in the market. Factorsthat may be considered in determining the liquidity
adjustment include: (1) the amount of time since thelast relevant pricing point; (2) whether there was an
actual trade or relevant external quotes or alternatively
pricing points for similar instruments in active markets;and (3) the volatility of the principal risk component of
the financial instrument.
The Firm manages certain portfolios of financial
instruments on the basis of net open risk exposure and,as permitted by US 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.
Unobservable parameter valuation adjustments may bemade when positions are valued using internallydeveloped models that incorporate unobservableparameters – that is, parameters that must be
estimated and are, therefore, subject to management
judgment. Unobservable parameter valuation
adjustments are applied to reflect the uncertainty
inherent in the valuation estimate provided by themodel.

•

196

Where appropriate, the Firm also applies adjustments to its
estimates of fair value in order to appropriately reflect
counterparty credit quality and the Firm’s own
creditworthiness, applying a consistent framework acrossthe Firm. For more information on such adjustments see
Credit adjustments on page 212 of this Note
Impact of funding on valuation estimates
The Firm incorporates the impact of funding in its valuation
estimates where there is evidence that a market participant
in the principal market would incorporate it in a transfer ofthe instrument. As a result, the fair value of collateralized
derivatives is estimated by discounting expected future cash
flows at the relevant overnight indexed swap (“OIS”) rate
given the underlying collateral agreement with thecounterparty. Prior to the fourth quarter of 2013, the Firm
did not incorporate the impact of funding in its valuation of
uncollateralized (including partially collateralized)
derivatives and structured notes. However, during thefourth quarter of 2013, the Firm implemented a funding
valuation adjustment (“FVA”) framework to incorporate its
best estimate of the funding cost or benefit that a relevantmarket participant would consider in the transfer of an OTC
derivative or structured note. As a result, the Firm recorded
a one time $1.5 billion loss in principal transactions
revenue in the fourth quarter, which was recorded in the
CIB.
The FVA framework applies to both assets and liabilities, but
the adjustment in the fourth quarter largely relates touncollateralized derivative receivables given that the impactof the Firm’s own credit risk, which is a significant
component of funding costs, is already incorporated in thevaluation of liabilities through the application of DVA.
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.
The Firm’s Model Risk function within the Firm’s Model Risk
and Development Group, which in turn reports to the Chief
Risk Officer, reviews and approves valuation models used by
the Firm. Model reviews consider a number of factors about
the model’s suitability for valuation of a particular productincluding whether it accurately reflects the characteristics
and significant risks of a particular instrument; the selection
and reliability of model inputs; consistency with models for
similar products; the appropriateness of any model-related
adjustments; and sensitivity to input parameters andassumptions that cannot be observed from the market.
When reviewing a model, the Model Risk function analyzes
and challenges the model methodology and thereasonableness of model assumptions and may perform or
require additional testing, including back-testing of modeloutcomes.

JPMorgan Chase & Co./2013 Annual ReportNew significant valuation models, as well as materialchanges to existing models, are reviewed and approved
prior to implementation except where specified conditions
are met. The Model Risk function performs an annual
firmwide model risk assessment where developments in the
product or market are considered in determining whether
valuation models which have already been reviewed need tobe reviewed and approved again.
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 substantiallythe full term of the financial instrument.

•

Level 3 – one or more inputs to the valuation
methodology are unobservable and significant to thefair value 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.

JPMorgan Chase & Co./2013 Annual Report197Notes to consolidated financial statements
The following table describes the valuation methodologies used by the Firm to measure its more significant products/
instruments at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.
Product/instrument

Classifications in the valuation
hierarchy

Valuation methodology

Securities financing agreements

Valuations are based on discounted cash flows, which consider:• Derivative features. For further information refer to thediscussion of derivatives below.
• Market rates for the respective maturity• Collateral
Loans and lending-related commitments - wholesale
Trading portfolio
Where observable market data is available, valuations are based on:• Observed market prices (circumstances are limited)• Relevant broker quotes• 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:• Yield• Lifetime credit losses• Loss severity• Prepayment speed• Servicing costs
Loans held for investment and Valuations are based on discounted cash flows, which consider:associated lending related• Credit spreads, derived from the cost of CDS; or benchmark credit
commitments
curves developed by the Firm, by industry and credit rating, andwhich take into account the difference in loss severity rates
between bonds and loans• Prepayment speed

Level 2

Level 2 or 3

Predominantly level 3

Lending related commitments are valued similar to loans and reflect
the portion of an unused commitment expected, based on the Firm’s
average portfolio historical experience, to become funded prior to an
obligor default
For information regarding the valuation of loans measured atcollateral value, see Note 14 on pages 258-283 of this Annual Report.
Loans - consumer
Held for investment consumer
loans, excluding credit card

Valuations are based on discounted cash flows, which consider:
Predominantly level 3• Discount rates (derived from primary origination rates and market
activity)• Expected lifetime credit losses (considering expected and current
default rates for existing portfolios, collateral prices, andeconomic environment expectations (i.e., unemployment rates))• Estimated prepayments• Servicing costs• Market liquidity
For information regarding the valuation of loans measured atcollateral value, see Note 14 on pages 258-283 of this Annual Report.

Held for investment credit card Valuations are based on discounted cash flows, which consider:receivables• Projected interest income and late fee revenue, funding, servicing
and credit costs, and loan repayment rates• Estimated life of receivables (based on projected loan payment
rates)• Discount rate - based on expected return on receivables• Credit costs - allowance for loan losses is considered a reasonableproxy for the credit cost based on the short-term nature of credit
card receivables
Trading loans - Conforming
Fair value is based upon observable prices for mortgage-backed
residential mortgage loans
securities with similar collateral and incorporates adjustments to
expected to be soldthese prices to account for differences between the securities and thevalue of the underlying loans, which include credit characteristics,
portfolio composition, and liquidity.

198

Level 3

Predominantly level 2

JPMorgan Chase & Co./2013 Annual ReportProduct/instrument

Valuation methodology, inputs and assumptions

Securities

Quoted market prices are used where available.
In 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, and over-the-counter contracts where quoted
prices are available in an active market.

Physical commodities
Derivatives

Classifications in the valuation
hierarchy
Level 1
Level 2 or 3

Predominantly Level 1 and 2
Level 1

Derivatives that are valued using models such as the Black-Scholes
Level 2 or 3
option pricing model, simulation models, or a combination of models,that use observable or unobservable valuation inputs (e.g. plain vanilla
options and interest rate and credit default swaps). Inputs include:• Contractual terms including the period to maturity• Readily observable parameters including interest rates andvolatility• Credit quality of the counterparty and of the Firm
• Market funding levels• Correlation levels
In addition, the following specific inputs are used for the following
derivatives that are valued based on models with significant
unobservable inputs:
Structured credit derivatives specific inputs include:• CDS spreads and recovery rates• Credit correlation between the underlying debt instruments (levels
are modeled on a transaction basis and calibrated to liquid
benchmark tranche indices)• Actual transactions, where available, are used to regularly
recalibrate unobservable parameters
Certain long-dated equity option specific inputs include:• Long-dated equity volatilities
Certain interest rate and FX exotic options specific inputs include:• Interest rate correlation• Interest rate spread volatility• Foreign exchange correlation• Correlation between interest rates and foreign exchange rates• Parameters describing the evolution of underlying interest rates
Certain commodity derivatives specific inputs include:• Commodity volatility• Forward commodity price
Adjustments to reflect counterparty credit quality (credit valuation
adjustments or “CVA”), the Firms own creditworthiness (debit valuation
adjustments or “DVA”), and FVA to incorporate the impact of funding
see page 212 of this Note.

JPMorgan Chase & Co./2013 Annual Report

199

Notes to consolidated financial statements
Product/instrument

Classification in the valuation
hierarchy

Valuation methodology, inputs and assumptions

Mortgage servicing rights
See Mortgage servicing rights in Note 17 on pages 299-304 of this(“MSRs”)
Annual Report.
Private equity direct investments Private equity direct investments
Fair value is estimated using all available information and considering
the range of potential inputs, including:• Transaction prices• Trading multiples of comparable public companies• Operating performance of the underlying portfolio company• Additional available inputs relevant to the investment• Adjustments as required, since comparable public companies are
not identical to the company being valued, and for companyspecific issues and lack of liquidity
Public investments held in the Private Equity portfolio• Valued using observable market prices less adjustments forrelevant restrictions, where applicable
Fund investments (i.e., mutual/ Net asset value (“NAV”)
collective investment funds,• NAV is validated by sufficient level of observable activity (i.e.,
private equity funds, hedge
purchases and sales)
funds, and real estate funds)• Adjustments to the NAV as required, for restrictions on
redemption (e.g., lock up periods or withdrawal limitations) or
where observable activity is limited
Beneficial interests issued by
Valued using observable market information, where available
consolidated VIE
In the absence of observable market information, valuations are
based on the fair value of the underlying assets held by the VIELong-term debt, not carried at
Valuations are based on discounted cash flows, which consider:fair value• Market rates for respective maturity• The Firm’s own creditworthiness (DVA), see page 212 of this Note.
Structured notes (included indeposits, other borrowed funds
and long-term debt)

200

Level 3
Level 3

Level 1 or 2

Level 1
Level 2 or 3
Level 2 or 3

Predominantly level 2• 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 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 derivative valuation. Adjustments are then madeto this base valuation to reflect the Firm’s own credit risk (DVA)
and to incorporate the impact of funding (FVA). See page 212 ofthis Note.

JPMorgan Chase & Co./2013 Annual Report

The following table presents the asset and liabilities measured at fair value as of December 31, 2013 and 2012 by major
product category and fair value hierarchy.
Assets and liabilities measured at fair value on a recurring basis
Fair value hierarchy
December 31, 2013 (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

Level 1$

Physical commodities(c)OtherTotal debt and equity instruments(d)Derivative receivables:
Interest rate
CreditForeign exchange
EquityCommodity
Total derivative receivables(e)Total trading assets
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:
Private equity investments(f)All other
Total other assets
Total assets measured at fair value on a recurring basis
Deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Other borrowed funds
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

JPMorgan Chase & Co./2013 Annual Report$$$

Level 2
— $—Netting
adjustments

Level 325,135
3,739

$

—
—

$

Total fair value— $—25,135
3,739

4
—
—
4
14,933——25,762———
40,699107,667

25,582
1,749
871
28,202
10,547
6,538
3,071
22,37924,802
17,331
3,647
116,517
954

1,005
726
432
2,163
—
1,382
—
143
5,920
13,455
1,272
24,335
885

—
—
—
—
—
—
—
—
—
—
—
—
—

26,5912,475
1,303
30,36925,4807,920
3,071
48,28430,72230,786
4,919
181,551
109,506

4,968—
153,334

5,217
5,659
128,3474
2,000
27,224———

10,1897,659
308,905419—
434

848,862
79,754
151,521

5,398
3,766
1,644

(828,897)(82,004)(136,809)

25,782
1,516
16,790—320
1,173
154,50745,892
34,696
1,160,725
1,289,072

7,039
722
18,56945,793(40,704)(26,294)(1,114,708)(1,114,708)

12,2279,444
65,759374,664————
21,091——25,648—77,81561,76015,900155,475
298
29,461
1,041
30,60021,512

—
709
525
1,234
—
—
—
—
—

—
—
—
—
—
—
—
—
—

77,81562,46916,425
156,709
21,38929,461
1,041
56,24821,512——
3,142
49,881——

27,40911,978—
277,774
80
—

821
267
—
2,322
1,931
9,614

—
—
—
—
—
—

28,23012,2453,142
329,977
2,011
9,614

606
4,213
4,819
209,207 $
— $

429
289
718
1,596,518
4,369

6,474
3,176
9,650
69,310
2,255

(g)

$
$

(g)

$
$

—
—
—
(1,114,708) $
— $

7,509
7,678
15,187760,327
6,624

—
—

5,426
11,232

—
2,074

—
—

5,426
13,306

61,262

19,055113—

80,430822,01478,731
156,838
46,55236,6091,140,744
1,159,799—
756
18,8701,200,452

3,019
3,671
2,844
8,102
607
18,24318,35625
1,240
10,00833,958

321
—
443
—
398
1,162
62,424———62,424 $$$(812,071)(80,121)(144,178)(39,935)(26,530)(1,102,835)(1,102,835)———(1,102,835) $13,283
2,281
15,947
14,71911,08457,314
137,74425
1,996
28,878
193,999201

Notes to consolidated financial statements
Fair value hierarchy
December 31, 2012 (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)(h)Obligations of U.S. states and municipalities
Certificates of deposit, bankers’ acceptances and commercial paper
Non-U.S. government debt securities(h)Corporate debt securities(h)Loans(b)Asset-backed securities
Total debt instruments
Equity securities
Physical commodities(c)OtherTotal debt and equity instruments(d)Derivative receivables:
Interest rate(h)CreditForeign exchange(h)Equity(h)Commodity(h)Total derivative receivables(e)Total trading assets
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)(h)Obligations of U.S. states and municipalities
Certificates of deposit
Non-U.S. government debt securities(h)Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
Other
Equity securities
Total available-for-sale securities
Loans
Mortgage servicing rights
Other assets:
Private equity investments(f)All other
Total other assets
Total assets measured at fair value on a recurring basis
Deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Other borrowed funds
Trading liabilities:
Debt and equity instruments(d)(h)Derivative payables:
Interest rate(h)CreditForeign exchange(h)Equity(h)Commodity(h)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
— $—Netting
adjustments

Level 324,258
10,177$——$

Total fair value— $—24,258
10,177————
15,170——26,095———41,265
106,898
10,107—
158,270

36,2401,509
1,565
39,314
7,255
16,726
4,759
44,02831,88230,754
4,182
178,900
2,687
6,066
3,483
191,136

498
663
1,207
2,368
—
1,436
—
67
5,308
10,787
3,696
23,662
1,114—
863
25,639

—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—

36,7382,172
2,772
41,682
22,425
18,162
4,759
70,19037,19041,541
7,878
243,827
110,699
16,173
4,346
375,045476

1,295,239

6,617(1,263,127)

39,205

—
450
—
316
1,242
159,51293,821
143,752
37,75842,3001,612,870
1,804,006

6,489
3,051
4,921
1,155
22,23347,872(98,575)(133,111)(33,413)(33,136)(1,561,362)(1,561,362)

1,735
14,142
9,266
10,63574,983450,028————
11,08935—
29,556—

98,38874,18912,948
185,525
1,041
21,4892,783
36,48838,609

—
450
255
705
—
187
—
—
—

—
—
—
—
—
—
—
—
—

98,38874,63913,203
186,230
12,13021,711
2,783
66,04438,609——2,733
43,413———
12,84338
298,816273—

27,896
128—
28,916
2,282
7,614

—
—
—
—
—
—

27,896
12,971
2,771
371,145
2,555
7,614

578
4,188
4,766
207,691 $
— $
—
—

—
253
253
2,137,783
3,750
4,388
9,972

7,181
4,258
11,43998,123
1,983
—
1,619

47,46913,588205

1,256,989
95,411
155,323
37,80846,5481,592,079
1,605,667—
245
22,312
1,646,334

3,295
4,616
4,801
6,727
901
20,34020,54536
925
8,476
33,584

490
—
428
—
176
1,094
48,563———48,563 $

(g)

$
$

$

(g)

$
$

—
—
—
(1,561,362) $
— $
—
—
—

$

(1,235,868)(97,523)(141,951)(32,716)(34,799)(1,542,857)(1,542,857)———(1,542,857) $

7,759
8,699
16,458882,235
5,733
4,388
11,591
61,262
24,9062,504
18,601
11,81912,82670,656
131,91836
1,170
30,788
185,624(a) At December 31, 2013 and 2012, included total U.S. government-sponsored enterprise obligations of $91.5 billion and $119.4 billion, respectively, which were predominantly
mortgage-related.
(b) At December 31, 2013 and 2012, included within trading loans were $14.8 billion and $26.4 billion, respectively, of residential first-lien mortgages, and $2.1 billion and $2.2
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 $6.0 billion and $17.4 billion, respectively, and reverse mortgages of $3.6 billion and $4.0 billion, respectively.

202

JPMorgan Chase & Co./2013 Annual Report

(c) Physical commodities inventories are generally accounted for at the lower of cost or market. “Market” is a term defined in U.S. GAAP as not exceeding fair value less costs to sell(“transaction costs”). Transaction costs for the Firm’s physical commodities inventories are either not applicable or immaterial to the value of the inventory. Therefore, market
approximates fair value for the Firm’s physical commodities inventories. When fair value hedging has been applied (or when market is below cost), the carrying value of physicalcommodities approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. For a further discussion of the Firm’s hedge
accounting relationships, see Note 6 on pages 220–233 of this Annual Report. To provide consistent fair value disclosure information, all physical commodities inventories havebeen included in each period presented.
(d) Balances reflect the reduction of securities owned (long positions) by the amount of securities sold but not yet purchased (short positions) when the long and short positions
have identical Committee on Uniform Security Identification Procedures numbers (“CUSIPs”).
(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. Therefore, the balances reported in the fair value hierarchy table are gross of any counterparty netting adjustments. However, if the Firm were to net suchbalances within level 3, the reduction in the level 3 derivative receivables and payables balances would be $7.6 billion and $7.4 billion at December 31, 2013 and 2012,
respectively; this is exclusive of the netting benefit associated with cash collateral, which would further reduce the level 3 balances.
(f) Private equity instruments represent investments within the Corporate/Private Equity line of business. The cost basis of the private equity investment portfolio totaled $8.0
billion and $8.4 billion at December 31, 2013 and 2012, respectively.
(g) Includes investments in hedge funds, private equity funds, real estate and other funds that do not have readily determinable fair values. The Firm uses net asset value per sharewhen measuring the fair value of these investments. At December 31, 2013 and 2012, the fair values of these investments were $3.2 billion and $4.9 billion, respectively, of
which $899 million and $1.1 billion, respectively were classified in level 2, and $2.3 billion and $3.8 billion, respectively, in level 3.
(h) The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations.

Transfers between levels for instruments carried at fairvalue on a recurring basis
For the year ended December 31, 2013 and 2011, there
were no significant transfers between levels 1 and 2.
During the year ended December 31, 2013, transfers fromlevel 3 to level 2 included certain highly rated CLOs,
including $27.4 billion held in the Firm’s available-for-sale(“AFS”) securities portfolio and $1.4 billion held in the
trading portfolio, based on increased liquidity and pricetransparency; and $1.3 billion of long-term debt, largely
driven by an increase in observability of certain equity
structured notes. Transfers from level 2 to level 3 included$1.4 billion of corporate debt securities in the trading
portfolio largely driven by a decrease in observability forcertain credit instruments.
For the year ended December 31, 2012, $113.9 billion of
settled U.S. government agency mortgage-backed securities
were transferred from level 1 to level 2. While the U.S.
government agency mortgage-backed securities market
remained highly liquid and transparent, the transfer
reflected greater market price differentiation between
settled securities based on certain underlying loan specificfactors. There were no significant transfers from level 2 tolevel 1 for the year ended December 31, 2012.
For the years ended December 31, 2012 and 2011, there
were no significant transfers from level 2 into level 3. For
the year ended December 31, 2012, transfers from level 3
into level 2 included $1.2 billion of derivative payables
based on increased observability of certain structured
equity derivatives; and $1.8 billion of long-term debt due toincreased observability of certain equity structured notes.
For the year ended December 31, 2011, transfers fromlevel 3 into level 2 included $2.6 billion of long-term debt
due to a decrease in valuation uncertainty of certain
structured notes.

JPMorgan Chase & Co./2013 Annual Report

All transfers are assumed to occur at the beginning of thequarterly reporting period in which they occur.
During 2012 the liquidity for certain collateralized loan
obligations increased and price transparency improved.
Accordingly, the Firm incorporated a revised valuation
model into its valuation process for CLOs to better calibrate
to market data where available. The Firm began to verify
fair value estimates from this model to independent sources
during the fourth quarter of 2012. Although market
liquidity and price transparency have improved, CLO market
prices were not yet considered materially observable andtherefore CLOs remained in level 3 as of December 31,
2012. The change in the valuation process did not have asignificant impact on the fair value of the Firm’s CLO
positions. As previously described, a portion of the CLOs
that were subject to the revised valuation model (namely
certain highly rated CLOs) were transferred from level 3 tolevel 2 of the fair value hierarchy during the year ended
December 31, 2013.

203

Notes to consolidated financial statements
Level 3 valuations
The Firm has established well-documented 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 offair value for individual financial instruments, see pages
196–200 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 models 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 model to use. Second, due to the lack ofobservability of significant inputs, management must assess
all relevant empirical data in deriving valuation inputs —including, but not limited to, transaction details, yield
curves, interest rates, prepayment speed, default rates,
volatilities, correlations, equity or debt prices, valuations ofcomparable instruments, foreign exchange rates and credit
curves.
Finally, management judgment must be applied to assess
the appropriate level of valuation adjustments to reflect
counterparty credit quality, the Firm’s creditworthiness, theimpact of funding, constraints on liquidity and unobservableparameters, where relevant. The judgments made are
typically affected by the type of product and its specificcontractual terms, and the level of liquidity for the productor within the market as a whole.
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 of such inputs. While the determination to classify
an instrument within level 3 is based on the significance of
the unobservable inputs to the overall fair value
measurement, level 3 financial instruments typically include
observable components (that is, components that are
actively quoted and can be validated to external sources) in

204

addition to the unobservable components. The level 1 and/or level 2 inputs are not included in the table. In addition,
the Firm manages the risk of the observable components oflevel 3 financial instruments using securities and derivative
positions that are classified within levels 1 or 2 of the fairvalue hierarchy.
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/
instrument classification. The input range does not reflect
the level of input uncertainty; rather, it is driven by thedifferent underlying characteristics of the various
instruments within the classification. For example, two
option contracts may have similar levels of market risk
exposure and valuation uncertainty, but may havesignificantly different implied volatility levels because theoption contracts have different underlyings, tenors, or
strike prices.
Where provided, the weighted averages of the input values
presented in the table are calculated based on the fair valueof the instruments that the input is being used to value. 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 estimatesand assumptions. Rather, they reflect the characteristics ofthe various instruments held by the Firm and the relative
distribution of instruments within the range ofcharacteristics. The input range and weighted averagevalues will therefore vary from period-to-period andparameter to parameter based on the characteristics of the
instruments held by the Firm at each balance sheet date.
For the Firm’s derivatives and structured notes positionsclassified within level 3, the equity and interest rate
correlation inputs used in estimating fair value wereconcentrated at the upper end of the range presented,
while the credit correlation inputs were distributed acrossthe range presented and the foreign exchange correlation
inputs were concentrated at the lower end of the range
presented. In addition, the interest rate volatility inputs
used in estimating fair value were concentrated at theupper end of the range presented, while equity volatilities
were concentrated at the lower end of the range. The
forward commodity prices used in estimating the fair valueof commodity derivatives were concentrated within thelower end of the range presented.

JPMorgan Chase & Co./2013 Annual Report

Level 3 inputs(a)December 31, 2013 (in millions, except for ratios and basis points)
Product/Instrument

Fair
value

Principal valuation
techniqueUnobservable inputs

Residential mortgage-backed securities $ 11,089
and loans

Discounted cash flows

Yield
Prepayment speed
Conditional default rate
Loss severity
Yield
Conditional default rate
Loss severity
Credit spread
Yield
Price
Interest rate correlation
Interest rate spread volatility

Commercial mortgage-backed
securities and loans(b)1,204Discounted cash flows

Corporate debt securities, obligationsof U.S. states and municipalities, andother(c)15,209

Discounted cash flows

Net interest rate derivatives

5,843
2,379

Market comparables
Option pricing

Net credit derivatives(b)(c)
Net foreign exchange derivatives

95 Discounted cash flows(1,200) Option pricing

Credit correlation
Foreign exchange correlation

Net equity derivatives
Net commodity derivatives
Collateralized loan obligations(1,063) Option pricing
115 Discounted cash flows
821 Discounted cash flows

Range of input values
3% 0% 0% 0% 6% 0% 0% 88 bps 1% 3(75)% 0% -

18%
15%
100%
100%
29%
100%
40%
255 bps
40%
122
95%
60%

Weighted
average
7%
7%
26%
21%
11%
10%
33%
154 bps
10%95

34 % - 82%
45 % - 75%487

Market comparables

Equity volatility
Forward commodity price
Credit spread
Prepayment speed
Conditional default rate
Loss severity
Price

20 % - 55%$20 - $160 per megawatt hour
214 bps - 575 bps
234 bps
20%
20%
2%
2%
40%
40%
0 - 11488

Mortgage servicing rights (“MSRs”)

9,614

Discounted cash flows

Refer to Note 17 on pages 299–304 of this Annual
Report.

Private equity direct investments

4,872

Market comparables

Private equity fund investments(d)Long-term debt, other borrowed funds,
and deposits(e)1,602
13,282

Net asset value
Option pricing

1,055

Discounted cash flows

EBITDA multiple
Liquidity adjustment
Net asset value(f)Interest rate correlation
Foreign exchange correlation

4.0x - 14.7x
0 % - 37%(75)% - 95%
0 % - 75%

Equity correlation
Credit correlation(50)% - 85%
34 % - 82%

8.1x
11%

(a) The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated
Balance Sheets.
(b) The unobservable inputs and associated input ranges for approximately $735 million of credit derivative receivables and $644 million of credit derivative
payables with underlying mortgage risk have been included in the inputs and ranges provided for commercial mortgage-backed securities and loans.
(c) The unobservable inputs and associated input ranges for approximately $1.0 billion of credit derivative receivables and $890 million of credit derivative
payables with underlying asset-backed securities risk have been included in the inputs and ranges provided for corporate debt securities, obligations of
U.S. states and municipalities and other.
(d) As of December 31, 2013, $757 million of private equity fund exposure was carried at a discount to net asset value per share.
(e) Long-term debt, other borrowed funds and deposits include structured notes issued by the Firm that are predominantly financial instruments containing
embedded derivatives. The estimation of the fair value of structured notes is predominantly based on the derivative features embedded within the
instruments. The significant unobservable inputs are broadly consistent with those presented for derivative receivables.
(f) The range has not been disclosed due to the wide range of possible values given the diverse nature of the underlying investments.

JPMorgan Chase & Co./2013 Annual Report205Notes to consolidated financial statements
Changes in and ranges of unobservable inputs
The following discussion provides a description of the
impact on a fair value measurement of a change in each
unobservable input in isolation, and the interrelationshipbetween unobservable inputs, where relevant andsignificant. The impact of changes in inputs may not be
independent as a change in one unobservable input may
give rise to a change in another unobservable input, andwhere relationships exist between two unobservable inputs,
those relationships are discussed below. Relationships may
also exist between observable and unobservable inputs (forexample, as observable interest rates rise, unobservableprepayment rates decline). Such relationships have notbeen included in the discussion below. In addition, for eachof the individual relationships described below, the inverse
relationship would also generally apply.
In addition, the following discussion provides a descriptionof attributes of the underlying instruments and externalmarket factors that affect the range of inputs used in thevaluation of the Firm’s positions.
Yield – The yield of an asset is the interest rate used to
discount future cash flows in a discounted cash flow
calculation. An increase in the yield, in isolation, would
result in a decrease in a fair value measurement.
Credit spread – The credit spread is the amount ofadditional annualized return over the market interest ratethat 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 rateused in a discounted cash flow calculation. Generally, an
increase in the credit spread would result in a decrease in afair 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 levelof the 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 ofrisk 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, loan-tovalue ratios for residential mortgages and the nature of theproperty and/or any tenants for commercial mortgages. For
corporate debt securities, obligations of U.S. states andmunicipalities and other similar instruments, credit spreads
reflect the credit quality of the obligor and the tenor of theobligation.

206

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 ina decrease in a fair value measurement of assets valued at
a premium to par and an increase in a fair value
measurement of assets valued at a discount to par.
Prepayment speeds may vary from collateral pool tocollateral pool, and are driven by the type and location of
the underlying borrower, 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.
Typically collateral pools with higher borrower credit quality
have a higher prepayment rate than those with lower
borrower credit quality, all other factors being equal.
Conditional default rate – The conditional default rate is 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
have high prepayment speeds will tend to have lower
conditional default rates. An increase in conditional default
rates would generally be accompanied by an increase in loss
severity and an increase in credit spreads. An increase in
the conditional default rate, in isolation, would result in 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 mosttypically at 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 a host of factors relating to
the underlying mortgages. This includes the loan-to-value
ratio, the nature of the lender’s charge over the property
and various other instrument-specific factors.

JPMorgan Chase & Co./2013 Annual Report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 tothe nature of the underlying risks. When parameters are
positively correlated, an increase in one parameter will
result in an increase in the other parameter. Whenparameters are negatively correlated, an increase in one
parameter will result in a decrease in the other parameter.
An increase in correlation can result in an increase or adecrease in a fair value measurement. Given a shortcorrelation position, an increase in correlation, in isolation,
would generally result in a decrease in a fair value
measurement. Correlation inputs between risks within thesame asset class are generally narrower than thosebetween 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 the correlation input as the relationship between theunderlying risks may be different over different time
periods. Furthermore, correlation levels are very muchdependent on market conditions and could have a relatively
wide range of levels within or across asset classes overtime, particularly in volatile market conditions.
Volatility – Volatility is a measure of the variability inpossible returns for an instrument, parameter or market
index given how much the particular instrument, parameteror index changes in value over time. Volatility is a pricing
input for options, including equity options, commodity
options, and interest rate options. Generally, the higher thevolatility of the underlying, the riskier the instrument. Givena long position in an option, an increase in volatility, inisolation, would generally result in an increase in a fairvalue measurement.

EBITDA multiple – EBITDA multiples refer to the input (often
derived from the value of a comparable company) that is
multiplied by the historic and/or expected earnings before
interest, taxes, depreciation and amortization (“EBITDA”) of
a company in order to estimate the company’s value. An
increase in the EBITDA multiple, in isolation, net ofadjustments, would result in an increase in a fair value
measurement.
Net asset value – Net asset value is the total value of afund’s assets less liabilities. An increase in net asset value
would result in an increase in a fair value measurement.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of theConsolidated Balance Sheet amounts (including changes infair value) for financial instruments classified by the Firm
within level 3 of the fair value hierarchy for the years ended
December 31, 2013, 2012 and 2011. When adetermination is made to classify a financial instrument
within level 3, the determination is based on thesignificance of the unobservable parameters to the overall
fair value measurement. However, level 3 financial
instruments typically include, in addition to theunobservable or level 3 components, observable
components (that is, components that are actively quoted
and can be validated to external sources); accordingly, thegains and losses in the table below include changes in fairvalue due in part to observable factors that are part of thevaluation methodology. Also, the Firm risk-manages theobservable components of level 3 financial instruments
using securities and derivative positions that are classified
within level 1 or 2 of the fair value hierarchy; as these level
1 and level 2 risk management instruments are notincluded below, the gains and losses in the following tables
do not reflect the effect of the Firm’s risk management
activities related to such level 3 instruments.

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.

JPMorgan Chase & Co./2013 Annual Report207Notes to consolidated financial statements
Fair value measurements using significant unobservable inputs

Year ended
December 31, 2013
(in millions)

Fair value
at January
1, 2013

Total
realized/unrealized
gains/(losses)

Purchases(g)SalesSettlements

Transfers into
and/or out oflevel 3(h)Fair value
at Dec.
31, 2013

Change inunrealized gains/(losses) related
to financial
instruments heldat Dec. 31, 2013

Assets:Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies

819 $

(381)

(100) $

— $

1,005

Residential – nonagency$

498 $ 169
663

407

$

780

(1,028)

$

(91)

(5)

726

$

200
205

Commercial – nonagency

1,207

114

841

(1,522)

(208)

—

432

(4)

Total mortgage-backed
securities

2,368

690

2,440

(2,931)

(399)

(5)

2,163

401

Obligations of U.S. states andmunicipalities

1,436

71

472

(251)

(346)

—

1,382

18

Non-U.S. government debt
securities

67

4

1,449

(1,479)

(8)

110

143

(1)

Corporate debt securities

5,308

103

7,602

(5,975)(1,882)

764

5,920

466

Loans

10,787665

10,411(7,431)

(685)

(292)

13,455315

Asset-backed securities

3,696

191

1,912

(2,379)(292)(1,856)

1,272

105

Total debt instruments

23,662

1,724

24,286(20,446)(3,612)(1,279)24,3351,304

Equity securities

1,114

(41)

328

(266)

(135)

(115)

885

46

—

(4)

—

(8)

—

16

4

(4)

863

558

659

(95)

(120)

135

2,000

1,074

25,6392,237

25,273(20,815)(3,867)(1,243)27,224

2,420

Physical commodities
Other
Total trading assets – debt andequity instruments

(c)

(c)

Net derivative receivables:(a)Interest rate

3,322

1,358

344

(220)

(2,391)

(34)

2,379

107

Credit1,873(1,697)

115

(12)

(357)

173

95

(1,449)Foreign exchange(1,750)

(101)

3

(4)

683

(31)

(1,200)(110)

Equity(1,806)

2,587

2,918

(3,783)(1,353)374(1,063)

872

254

816

105

(3)

(1,107)

50

115

410

1,893

2,963

3,485

(4,022)(4,525)532326(170) (c)Commodity
Total net derivative receivables(c)

Available-for-sale securities:
Asset-backed securities

28,024

4

579

(57)

(57)

(27,405)

1,088

4

892

26

508

(216)

(6)

30

1,234

25

Total available-for-sale securities

28,916

30

(d)

1,087

(273)

(63)

(27,375)

2,322

29

Loans

2,282

81

(c)

1,065

(191)

(1,306)—

1,931(21) (c)Mortgage servicing rights

7,614

1,612

(e)

2,215

(725)

(1,102)

—

9,614

1,612

(e)

Private equity investments

7,181

645

(c)

673

(1,137)

(687)

(201)

6,474

262

(c)

All other

4,258

98

(f)

272

(730)

(722)

—

3,176

53

(f)

Other

(d)

Other assets:

Fair value measurements using significant unobservable inputs

Year ended
December 31, 2013
(in millions)

Fair value
at January
1, 2013

Total
realized/unrealized(gains)/lossesPurchases(g)Sales

IssuancesSettlements

Transfers into
and/or out oflevel 3(h)Fair value
at Dec.
31, 2013

Change inunrealized(gains)/losses
related tofinancial
instruments heldat Dec. 31, 2013

Liabilities:(b)Deposits

1,983 $

(82) (c)— $— $1,248 $

(672) $

2,255

1,619

(177) (c)

—

—

7,108

(6,845)

369

2,074

291

Trading liabilities – debt and equity
instruments

205(83) (c)(2,418)

2,594

—

(54)

(131)

113

(100) (c)Accounts payable and otherliabilities

36(2) (f)

—

—

—

(9)

—

25

(2) (f)Other borrowed funds

Beneficial interests issued byconsolidated VIEs
Long-term debt

208

$

$

(222) $$

(88) (c)
(c)

925

174

(c)

—

—

353

(212)

—

1,240

167

8,476

(435) (c)

—

—

6,830

(4,362)(501)

10,008(85) (c)(c)

JPMorgan Chase & Co./2013 Annual ReportFair value measurements using significant unobservable inputs

Year ended
December 31, 2012
(in millions)

Fair value
at January
1, 2012

Total
realized/unrealized
gains/(losses)

Purchases

Sales

(g)

Settlements

Transfers into
and/or out oflevel 3(h)Fair value at
Dec. 31,2012

Change inunrealized gains/(losses) related
to financial
instruments heldat Dec. 31, 2012

Assets:Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies

86 $

(44)

575 $

(103)

Residential – nonagency

$

796

151

$

417

(533)

$

(145)

(16) $

(23)

— $

498
663

$

(21)
74

Commercial – nonagency

1,758

(159)

287

(475)

(104)

(100)

1,207

(145)

Total mortgage-backed securities

2,640

(52)

1,279

(1,111)

(265)

(123)

2,368

(92)

Obligations of U.S. states andmunicipalities

1,619

37

336

(552)

(4)

—

1,436

(15)

Non-U.S. government debt
securities

104

(6)

661

(668)

(24)

—

67

(5)

Corporate debt securities

6,373

187

8,391

(6,186)(3,045)

(412)

5,308

689

Loans

12,209836

5,342(3,269)(3,801)(530)

10,787411

Asset-backed securities

7,965

272

2,550

(6,468)

(614)

(9)

3,696

184

Total debt instruments

30,9101,274

18,559(18,254)(7,753)(1,074)

23,662

1,172

Equity securities

1,177

(209)

460

(379)

(12)

77

1,114

(112)

880

186

68

(108)

(163)

—

863

180

32,9671,251

19,087(18,741)(7,928)(997)

25,639

1,240

Other
Total trading assets – debt andequity instruments

(c)

(c)

Net derivative receivables:(a)Interest rate

3,561

6,930

406

(194)

(7,071)

(310)

3,322

905

Credit7,732(4,487)124(84)(1,416)

4

1,873(3,271)

Foreign exchange(1,263)

(800)

112

(184)

436

(51)

(1,750)(957)

Equity(3,105)

168

1,676

(2,579)

899

1,135

(1,806)

580

(687)

(673)

74

64

1,278

198

254

(160)

6,238

1,138

2,392

(2,977)(5,874)

976

1,893

(2,903) (c)24,958135

9,280(3,361)(3,104)116

28,024

118

528

55

667

(113)

(245)

—

892

59

Total available-for-sale securities

25,486

190

(d)

9,947

(3,474)(3,349)116

28,916

177

(d)

Loans

1,647

695

(c)

1,536

(22)

(1,718)

144

2,282

12

(c)

Mortgage servicing rights

7,223(635) (e)

2,833

(579)

(1,228)—7,614(635) (e)Commodity
Total net derivative receivables(c)

Available-for-sale securities:
Asset-backed securities
Other

Other assets:
Private equity investments

6,751

420

(c)

1,545

(512)

(977)

(46)

7,181

333

All other

4,374(195) (f)

818

(238)

(501)

—

4,258

(200) (f)Fair value at
Dec. 31,2012

Change inunrealized(gains)/losses
related tofinancial
instruments heldat Dec. 31, 2012(c)

Fair value measurements using significant unobservable inputs

Year ended
December 31, 2012
(in millions)

Fair value
at January
1, 2012

Total
realized/unrealized(gains)/lossesPurchases

(g)

Sales

IssuancesSettlements

Transfers into
and/or out oflevel 3(h)Liabilities:(b)Deposits
Other borrowed funds$

1,418 $

212

(c)

— $

— $

1,236 $

1,507

148

(c)

$

—

—

1,646

(380) $

(503) $

1,983

(1,774)

92

$

185

(c)

1,619

72

(c)

Trading liabilities – debt and equity
instruments

211(16) (c)(2,875)

2,940

—

(50)

(5)

205

(12) (c)Accounts payable and other liabilities

51

1

(f)

—

—

—

(16)

—

36

1

(f)

Beneficial interests issued byconsolidated VIEs

791

181

(c)

—

—

221

(268)

—

925

143

(c)

10,310

328

(c)

—

—

3,662

(4,511)(1,313)8,476(101) (c)Long-term debt

JPMorgan Chase & Co./2013 Annual Report209Notes to consolidated financial statements
Fair value measurements using significant unobservable inputs

Year ended
December 31, 2011
(in millions)

Fair value
at January
1, 2011

Total
realized/unrealized
gains/(losses)

Purchases

Sales

(g)

Settlements

Transfers into
and/or out oflevel 3(h)Fair value at
Dec. 31,2011

Change inunrealized gains/(losses) related
to financial
instruments heldat Dec. 31, 2011

Assets:Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies

174 $

24

28 $

(39)

(43) $(58) $

86

Residential – nonagency

$

687

109

708

(432)

(221)

(55)

796

(9)

Commercial – nonagency

2,069

37

796

(973)

(171)

—

1,758

33

2,930

170

1,532

(1,444)

(435)

(113)

2,640

(27)

807

(1,465)

(1)

12

1,619

(11)
38

Total mortgage-backed
securities
Obligations of U.S. states andmunicipalities

$

$

$

(51)

2,257

9

Non-U.S. government debt
securities

202

35

552

(531)

(80)

(74)

104

Corporate debt securities

4,946

32

8,080

(5,939)(1,005)

259

6,373

26

Loans

13,144329

5,532(3,873)(2,691)(232)

12,209

142
(217)

8,460

90

4,185

(4,368)

(424)

22

7,965

Total debt instruments

Asset-backed securities

31,939665

20,688(17,620)(4,636)(126)

30,910(49)

Equity securities

1,685

267

180

(541)

(352)

(62)

1,177

278

930

48

36

(39)

(95)

—

880

79

34,554980

20,904(18,200)(5,083)(188)

32,967308

Interest rate

2,836

5,205

511

(219)

(4,534)

(238)

3,561

1,497

Credit

5,386

2,240

22

(13)

116

(19)

7,732

2,744

Foreign exchange(614)(1,913)

191

(20)

886

207

(1,263)(1,878)(2,446)(60)

715(1,449)37

98(3,105)

(132)

(805)

596

328

(350)

(294)

(162)

(687)

208

4,357

6,068

1,767

(2,051)(3,789)

(114)

6,238

2,439

13,775(95)

15,268(1,461)(2,529)—24,958

(106)

512

—

57

(15)

(26)

—

528

8

14,287(95) (d)15,325(1,476)(2,555)—25,486(98) (d)Other
Total trading assets – debt andequity instruments

(c)

(c)

Net derivative receivables:(a)EquityCommodity
Total net derivative receivables

(c)

(c)

Available-for-sale securities:
Asset-backed securities
Other
Total available-for-sale securities
Loans

1,466

504

(c)

326

(9)

(639)

(1)

1,647

484

Mortgage servicing rights

13,649(7,119) (e)

2,603

—

(1,910)—7,223(7,119) (e)Private equity investments

7,862

943

(c)

1,452

(2,746)

(594)

(166)

6,751

(242) (c)All other

4,179(54) (f)

938

(139)

(521)

(29)

4,374

(83) (f)Fair value at
Dec. 31,2011

Change inunrealized(gains)/losses
related tofinancial
instruments heldat Dec. 31, 2011(c)

Other assets:

Fair value measurements using significant unobservable inputs

Year ended
December 31, 2011
(in millions)

Fair value
at January
1, 2011

Total
realized/unrealized(gains)/lossesPurchases

(g)

$

Sales

IssuancesSettlements

Transfers into
and/or out oflevel 3(h)Liabilities:(b)Deposits
Other borrowed funds

$

773 $
1,384

15

(c)

— $

— $

(244)

(c)

—

—

433 $

(386) $

583 $

1,418

$

4

1,597

(834)

(396)

1,507

(85) (c)(c)

Trading liabilities – debt and equity
instruments

54

17

(c)

(533)

778

—

(109)

4

211

(7) (c)Accounts payable and other liabilities

236(61) (f)

—

—

—

(124)

—

51

5

Beneficial interests issued byconsolidated VIEs

873

17

(c)

—

—

580

(679)

—

791

(15) (c)13,044

60

(c)

—

—

2,564

(3,218)(2,140)

10,310Long-term debt

288

(f)

(c)

(a) All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty.
(b) Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis) were 18%, 18% and
22% at December 31, 2013, 2012 and 2011, respectively.
(c) Predominantly reported in principal transactions revenue, except for changes in fair value for Consumer & Community Banking (“CCB”) mortgage loans, lending-related
commitments originated with the intent to sell, and mortgage loan purchase commitments, which are reported in mortgage fees and related income.

210

JPMorgan Chase & Co./2013 Annual Report(d) Realized gains/(losses) on AFS securities, as well as other-than-temporary impairment losses that are recorded in earnings, are reported in securities gains. Unrealized gains/(losses) are reported in OCI. Realized gains/(losses) and foreign exchange remeasurement adjustments recorded in income on AFS securities were $17 million, $145 million,
and $(240) million for the years ended December 31, 2013, 2012 and 2011, respectively. Unrealized gains/(losses) recorded on AFS securities in OCI were $13 million, $45
million and $145 million for the years ended December 31, 2013, 2012 and 2011, respectively.
(e) Changes in fair value for CCB mortgage servicing rights are reported in mortgage fees and related income.
(f) Largely reported in other income.
(g) Loan originations are included in purchases.
(h) All transfers into and/or out of level 3 are assumed to occur at the beginning of the quarterly reporting period in which they occur.

Level 3 analysis
Consolidated Balance Sheets changes
Level 3 assets (including assets measured at fair value on anonrecurring basis) were 3.1% of total Firm assets at
December 31, 2013. The following describes significant
changes to level 3 assets since December 31, 2012, forthose items measured at fair value on a recurring basis. For
further information on changes impacting items measured
at fair value on a nonrecurring basis, see Assets andliabilities measured at fair value on a nonrecurring basis on
page 213 of this Annual Report.
For the year ended December 31, 2013
Level 3 assets were $69.3 billion at December 31, 2013,reflecting a decrease of $28.8 billion from December 31,
2012, due to the following:• $27.0 billion decrease in asset-backed AFS securities,
predominantly driven by transfers of highly rated CLOs
from level 3 to into level 2 during the year ended 2013,
based on increased liquidity and price transparency;• $3.7 billion decrease in gross derivative receivables,
predominantly driven by a $2.7 billion decrease from theimpact of tightening reference entity credit spreads andrisk reductions of credit derivatives, $1.4 billion decreasein foreign exchange derivatives due to market
movements, and $1.2 billion decrease in interest rate
derivatives due to the increase in interest rates, partially
offset by $2.1 billion increase in equity derivatives due toclient-driven market-making activity;• $1.1 billion decrease in all other assets, predominantly
driven by sales of tax-oriented and hedge fundinvestments, and redemptions from investment funds.
The decreases above are partially offset by:• $2.0 billion increase in MSRs. For further discussion of
the change, refer to Note 17 on pages 299–304 of thisAnnual Report;• $1.6 billion increase in trading assets – debt and equity
instruments, largely driven by net purchases of tradingloans, new client-driven financing transactions, andpartially offset by transfers of highly rated CLOs fromlevel 3 to into level 2 during the year ended 2013, basedon increased liquidity and price transparency.

JPMorgan Chase & Co./2013 Annual Report

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 2013, 2012 and 2011. For further information onthese instruments, see Changes in level 3 recurring fairvalue measurements rollforward tables on pages 207–210
of this Annual Report.
2013• $3.0 billion of net gains on derivatives, largely driven by$2.6 billion of gains on equity derivatives, primarily
related to client-driven market-making activity and a risein equity markets; and $1.4 billion of gains,
predominantly on interest rate lock and mortgage loanpurchase commitments; partially offset by $1.7 billion oflosses on credit derivatives from the impact of tighteningreference entity credit spreads;• $2.2 billion of net gains on trading assets - debt andequity instruments, largely driven by market making andcredit spread tightening in nonagency mortgage-backed
securities and trading loans, and the impact of market
movements on client-driven financing transactions;• $1.6 billion of net gains on MSRs. For further discussionof the change, refer to Note 17 on pages 299–304 of thisAnnual Report.
2012• $1.3 billion of net gains on trading assets - debt andequity instruments, largely driven by tightening of credit
spreads and fluctuation in foreign exchange rates;• $1.1 billion of net gains on derivatives, driven by $6.9
billion of net gains predominantly on interest rate lockcommitments due to increased volumes and lower
interest rates, partially offset by $4.5 billion of net losses
on credit derivatives largely as a result of tightening ofreference entity credit spreads.
2011• $7.1 billion of losses on MSRs. For further discussion of
the change, refer to Note 17 on pages 299–304 of thisAnnual Report;• $6.1 billion of net gains on derivatives, related to
declining interest rates and widening of reference entity
credit spreads, partially offset by losses due tofluctuation in foreign exchange rates.

211

Notes to consolidated financial statements
Credit and funding adjustments
When determining the fair value of an instrument, it may benecessary to record adjustments to the Firm’s estimates offair value in order to reflect the counterparty credit quality
and the Firm’s own creditworthiness:• Credit valuation adjustments (“CVA”) are taken to reflect
the credit quality of a counterparty in the valuation ofderivatives. CVA adjustments are necessary when themarket price (or parameter) is not indicative of the credit
quality of the counterparty. As few classes of derivative
contracts are listed on an exchange, derivative positions
are predominantly valued using models that use as theirbasis observable market parameters. An adjustment
therefore may be necessary to reflect the credit quality ofeach derivative counterparty to arrive at fair value.
The Firm estimates derivatives CVA using a scenario
analysis to estimate the expected credit exposure acrossall of the Firm’s positions with each counterparty, andthen estimates losses as a result of a counterparty credit
event. The key inputs to this methodology are (i) the
expected positive exposure to each counterparty basedon a simulation that assumes the current population ofexisting derivatives with each counterparty remains
unchanged and considers contractual factors designed tomitigate the Firm’s credit exposure, such as collateral andlegal rights of offset; (ii) the probability of a default event
occurring for each counterparty, as derived fromobserved or estimated credit default swap (“CDS”)
spreads; and (iii) estimated recovery rates implied by
CDS, adjusted to consider the differences in recovery
rates as a derivative creditor relative to those reflected in
CDS spreads, which generally reflect senior unsecured
creditor risk.
• Debit valuation adjustments (“DVA”) are taken to reflect
the credit quality of the Firm in the valuation of liabilities
measured at fair value. The DVA calculation methodology
is generally consistent with the CVA methodology
described above and incorporates JPMorgan Chase’s
credit spread as observed through the CDS market toestimate the probability of default and loss given default
as a result of a systemic event affecting the Firm.
Structured notes DVA is estimated using the current fairvalue of the structured note as the exposure amount, andis otherwise consistent with the derivative DVA
methodology.

transfer to a market participant with similar credit standing
as the Firm.
The following table provides the credit and funding
adjustments, excluding the effect of any hedging activity,
reflected within the Consolidated Balance Sheets as of thedates indicated.
December 31, (in millions)2013

Derivative receivables balance(a)

$

2012

65,759$74,983

Derivative payables balance

57,31470,656

Derivatives CVA(b)(c)
Derivatives DVA and FVA(b)(d)Structured notes balance (net ofstructured notes DVA and FVA)(b)(e)(2,352)(322)(4,238)830

48,808

48,112

Structured notes DVA and FVA(b)(f)

952

1,712

(a)

(a) Balances are presented net of applicable credit and funding
adjustments.
(b) Positive credit and funding adjustments represent amounts that
increased receivable balances or decreased payable balances; negative
credit and funding adjustments represent amounts that decreased
receivable balances or increased payable balances.
(c) Derivatives CVA, gross of hedges, includes results managed by theCredit Portfolio and other lines of business within the CIB.
(d) At December 31, 2013 and 2012 included derivatives DVA of $715
million and $830 million, respectively.
(e) Structured notes are predominantly financial instruments containing
embedded derivatives. At December 31, 2013 and 2012, included$1.1 billion and $1.1 billion, respectively, of financial instruments with
with no embedded derivative for which the fair value option has been
elected.
(f) At December 31, 2013 and 2012 included structured notes DVA of$1.4 billion and $1.7 billion, respectively.

The following table provides the impact of credit andfunding adjustments on earnings in the respective periods,
excluding the effect of any hedging activity.
Year ended December 31,(in millions)
Derivative CVA(a)Derivative DVA and FVA(b)Structured notes DVA and FVA(c)(d)

2013

2012

2011

$ 1,886$ 2,698$ (2,574)(1,152)

(590)

538

(760)

(340)

899

(a) Derivatives CVA, gross of hedges, includes results managed by theCredit Portfolio and other lines of business within the CIB.
(b) At December 31, 2013, 2012 and 2011 included derivatives DVA of$(115) million, $(590) million and $538 million, respectively.
(c) Structured notes are measured at fair value based on the Firm’s
election under the fair value option. For further information on theseelections, see Note 4 on pages 215–218 of this Annual Report.
(d) At December 31, 2013, 2012 and 2011 included structured notes DVA
of $(337) million, $(340) million and $899 million, respectively.

During the fourth quarter of 2013 the Firm implemented
the FVA framework to incorporate the impact of funding
into its valuation estimates for OTC derivatives andstructured notes. The Firm’s FVA framework leverages its
existing CVA and DVA calculation methodologies, and the
key inputs are: (i) the expected funding requirements
arising from the Firm’s positions with each counterparty
and collateral arrangements; (ii) for assets, the estimatedmarket funding cost in the principal market; and (iii) for
liabilities, the hypothetical market funding cost for a

212

JPMorgan Chase & Co./2013 Annual ReportAssets and liabilities measured at fair value on anonrecurring basis
At December 31, 2013 and 2012, assets measured at fairvalue on a nonrecurring basis were $6.2 billion and $5.1
billion, respectively, comprised predominantly of loans. At
December 31, 2013, $339 million and $5.8 billion of theseassets were classified in levels 2 and 3 of the fair value
hierarchy, respectively. At December 31, 2012, $667
million and $4.4 billion of these assets were classified inlevels 2 and 3 of the fair value hierarchy, respectively.
Liabilities measured at fair value on a nonrecurring basis
were not significant at December 31, 2013 and 2012. For
the years ended December 31, 2013, 2012 and 2011,
there were no significant transfers between levels 1, 2,
and 3.
Of the $6.2 billion of assets measured at fair value on anonrecurring basis, $3.6 billion related to trade financeloans that were reclassified to held-for-sale during thefourth quarter of 2013 and subject to a lower of cost or fairvalue adjustment. These loans were classified as level 3, as
they are valued based on the indicative pricing received
from external investors, which ranged from a spread of 30
bps to 78 bps, with a weighted average of 60 bps.
At December 31, 2013, the assets measured at fair value
on a nonrecurring basis also included $1.7 billion related toresidential real estate loans at the net realizable value ofthe underlying collateral (i.e., collateral-dependent loans
and other loans charged off in accordance with regulatory
guidance). These amounts are classified as level 3, as they
are valued using a broker’s price opinion and discounted
based upon the Firm’s experience with actual liquidation
values. These discounts to the broker price opinions ranged
from 17% to 62%, with a weighted average of 29%.
The total change in the value of assets and liabilities forwhich a fair value adjustment has been included in theConsolidated Statements of Income for the years ended
December 31, 2013, 2012 and 2011, related to financial
instruments held at those dates were losses of $789
million, $1.6 billion and $2.2 billion, respectively; theselosses were predominantly associated with loans. Thechanges reported for the year ended December 31, 2012,
included the impact of charge-offs recognized on residential
real estate loans discharged under Chapter 7 bankruptcy, as
described in Note 14 on page 267 of this Annual Report.

Additional disclosures about the fair value of financial
instruments that are not carried on the Consolidated
Balance 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
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.
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 with short-dated
maturities; short-term receivables and accrued interest
receivable; commercial paper; federal funds purchased;
securities loaned and sold under repurchase agreementswith short-dated maturities; other borrowed funds;
accounts payable; and accrued liabilities. In addition, U.S.
GAAP requires that the fair value of deposit liabilities withno stated maturity (i.e., demand, savings and certain money
market deposits) be equal to their carrying value;
recognition of the inherent funding value of these
instruments is not permitted.

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 14 on
pages 258–283 of this Annual Report.

JPMorgan Chase & Co./2013 Annual Report213

Notes to consolidated financial statements
The following table presents the carrying values and estimated fair values at December 31, 2013 and 2012, of financial assets
and liabilities, excluding financial instruments which are carried at fair value on a recurring basis, and information is provided
on their classification within the fair value hierarchy. For additional information regarding the financial instruments within thescope of this disclosure, and the methods and significant assumptions used to estimate their fair value, see pages 196–200 ofthis Note.
December 31, 2013

December 31, 2012

Estimated fair value hierarchy
Carryingvalue(in billions)Level 1

Level 2Estimated fair value hierarchy
Total
estimated
fair value

Level 3Carrying
value

Level 1

Level 2Total
estimated
fair value

Level 3Financial assets
Cash and due from banks$

39.8 $

39.8 $

Deposits with banks

316.1

309.7

Accrued interest and accounts
receivable

65.2

Federal funds sold andsecurities purchased underresale agreements
Securities borrowed

— $

— $

39.8

6.4

—

—

64.9

223.0

—

107.7

—

Securities, held-to-maturity(a)24.0Loans, net of allowance forloan losses(b)
Other

$

53.7 $

53.7 $

316.1

121.8

114.1

0.3

65.2

60.9

223.0

—

223.0

107.7

—

107.7

—

23.7

—

720.1

—

23.0

58.1

—

54.5

— $

— $

53.7

7.7

—

121.8

—

60.3

0.6

60.9

272.0

—

272.0

—

272.0

108.8

—

108.8

—

108.8

23.7

—

—

—

—

—

697.2

720.2

709.3

—

26.4

685.4

711.8

4.3

58.8

49.7

—

42.7

7.4

50.1

Financial liabilities
Deposits$ 1,281.1 $— $ 1,280.3 $1.2 $ 1,281.5$ 1,187.9 $— $ 1,187.2 $1.2 $ 1,188.4

Federal funds purchased andsecurities loaned or soldunder repurchase agreements
Commercial paper

175.7

—

175.7

—

175.7

235.7

—

235.7

—

235.7

57.8

—

57.8

—

57.8

55.4

—

55.4

—

55.4

Other borrowed funds

14.7

—

14.7

—

14.7

15.0

—

15.0

—

15.0

Accounts payable and otherliabilities

160.2

—

158.2

1.8

160.0

156.5

—

153.8

2.5

156.3

Beneficial interests issued byconsolidated VIEs

47.6

—

44.3

3.2

47.5

62.0

—

57.7

4.4

62.1

Long-term debt and juniorsubordinated deferrable
interest debentures(c)

239.0

—

240.8

6.0

246.8

218.2

—

220.0

5.4

225.4

(a)
(b)

(c)

Carrying value includes unamortized discount or premium.
Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal,
contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, andprimary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. The
difference between the estimated fair value and carrying value of a financial asset or liability is the result of the different methodologies used todetermine fair value as compared with carrying value. For example, credit losses are estimated for a financial asset’s remaining life in a fair value
calculation but are estimated for a loss emergence period in the allowance for loan loss calculation; future loan income (interest and fees) is
incorporated in a fair value calculation but is generally not considered in the allowance for loan losses. For a further discussion of the Firm’s
methodologies for estimating the fair value of loans and lending-related commitments, see Valuation hierarchy on pages 196–200 of this Annual Report.
Carrying value includes unamortized original issue discount and other valuation adjustments.

The majority of the Firm’s lending-related commitments are not carried at fair value on a recurring basis on the Consolidated
Balance Sheets, nor are they actively traded. The carrying value and estimated fair value of the Firm’s wholesale lendingrelated commitments were as follows for the periods indicated.
December 31, 2013

December 31, 2012

Estimated fair value hierarchy(in billions)

Carrying
value(a)Wholesale lendingrelated commitments

$

(a)

214

0.7 $

Level 1

Level 2— $Estimated fair value hierarchy

Level 3— $Totalestimated
fair value

1.0 $

1.0

Carrying
value(a)$0.7 $Level 1

Level 2
— $Level 3— $Totalestimated
fair value

1.9 $

1.9

Represents the allowance for wholesale lending-related commitments. Excludes the current carrying values of the guarantee liability and the offsetting
asset, each of which are recognized at fair value at the inception of guarantees.

JPMorgan Chase & Co./2013 Annual Report

The Firm does not estimate the fair value of consumer
lending-related commitments. In many cases, the Firm canreduce or cancel these commitments by providing theborrower notice or, in some cases, without notice aspermitted by law. For a further discussion of the valuationof lending-related commitments, see page 198 of this Note.
Trading assets and liabilities
Trading assets include debt and equity instruments owned
by JPMorgan Chase (“long” positions) that are held forclient market-making and client-driven activities, as well as
for certain risk management activities, certain loans
managed on a fair value basis and for which the Firm has
elected the fair value option, and physical commodities

inventories that are generally accounted for at the lower ofcost or market (market approximates fair value). Trading
liabilities include debt and equity instruments that the Firm
has sold to other parties but does not own (“short”
positions). The Firm is obligated to purchase instruments at
a future date to cover the short positions. Included in
trading assets and trading liabilities are the reported
receivables (unrealized gains) and payables (unrealized
losses) related to derivatives. Trading assets and liabilities
are carried at fair value on the Consolidated Balance Sheets.
Balances reflect the reduction of securities owned (longpositions) by the amount of identical securities sold but not
yet purchased (short positions).

Trading assets and liabilities – average balances
Average trading assets and liabilities were as follows for the periods indicated.
Year ended December 31, (in millions)
Trading assets – debt and equity instruments
Trading assets – derivative receivables
Trading liabilities – debt and equity instruments(a)Trading liabilities – derivative payables$

2013
340,449
72,62977,70664,553$

2012
349,337
85,74469,001
76,162$

2011
393,890
90,003
81,916
71,539(a) Primarily represent securities sold, not yet purchased.

Note 4 – Fair value option

The fair value option provides an option to elect fair value
as an alternative measurement for selected financial assets,financial liabilities, unrecognized firm commitments, andwritten loan commitments not previously carried at fairvalue.
ElectionsElections were made by the Firm to:• Mitigate income statement volatility caused by thedifferences in the measurement basis of elected
instruments (for example, certain instruments elected
were previously accounted for on an accrual basis) while
the associated risk management arrangements areaccounted for on a fair value basis;• Eliminate the complexities of applying certain
accounting models (e.g., hedge accounting or bifurcationaccounting for hybrid instruments); and/or• Better reflect those instruments that are managed on afair value basis.

JPMorgan Chase & Co./2013 Annual ReportElections include the following:• Loans purchased or originated as part of securitization
warehousing activity, subject to bifurcation accounting,or managed on a fair value basis.
• Securities financing arrangements with an embedded
derivative and/or a maturity of greater than one year.
• Owned beneficial interests in securitized financial assetsthat contain embedded credit derivatives, which would
otherwise be required to be separately accounted for asa derivative instrument.
• Certain investments that receive tax credits and other
equity investments acquired as part of the Washington
Mutual transaction.
• Structured notes issued as part of CIB’s client-driven
activities. (Structured notes are predominantly financial
instruments that contain embedded derivatives.)• Long-term beneficial interests issued by CIB’s
consolidated securitization trusts where the underlying
assets are carried at fair value.

215

Notes to consolidated financial statements
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, 2013, 2012 and 2011, 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.
2013

December 31, (in millions)

Principaltransactions

Federal funds sold and securities
purchased under resaleagreements

$

Other
income(454) $

—

10

—

582

7

Changes in instrumentspecific credit risk

1,161

Other changes in fair value

Securities borrowed

2012
Total
changesin fair
value
recorded$Principaltransactions

2011

Other
income(454) $

161 $

—

10

10

—

(c)

589

513

7

23

(c)

1,184

1,489

(133) 1,833

(c)

1,700

Total
changesin fair
value
recordedPrincipaltransactions

$

$

161

Other
incomeTotalchangesin fair
value
recorded

270 $

—

10

(61)

—

$

270
(61)

(c)

520

53

(6) (c)

47

81

(c)

1,570

934

(174) (c)(183) 7,670

(c)

7,487

127

5,263

Trading assets:
Debt and equity instruments,
excluding loans
Loans reported as trading
assets:

(c)

760
5,390

Loans:
Changes in instrument-specificcredit risk

36

—

36

(14)

—

(14)

2

—

2

Other changes in fair value

17

—

17

676

—

676

535

—

535

Other assets

32(29) (d)3—(339) (d)

(339)

(49)

(19) (d)(68)

Deposits(a)

260

—

260

(188)

—

(188)

(237)

—

(237)

Federal funds purchased andsecurities loaned or sold under
repurchase agreements

73

—

73

(25)

—

(25)

(4)

—

(4)

Other borrowed funds(a)

(399)

—

(399)

494

—

494

2,986

—

2,986

Trading liabilities

(46)

—

(46)

(41)

—

(41)

(57)

—

(57)

Beneficial interests issued byconsolidated VIEs

(278)

—

(278)

(166)

—

(166)

(83)

—

—

2

2

—

—

—

(3)

(5)

Changes in instrument-specificcredit risk(a)

(271)

—

(271)

(835)

—

(835)

927

—

927

Other changes in fair value(b)

1,280

—

1,280

(1,025)—(1,025)

322

—

322

Other liabilities

(d)

(83)
(d)

(8)

Long-term debt:(a) Total changes in instrument-specific credit risk related to structured notes were $(337) million, $(340) million, and $899 million for the years ended
December 31, 2013, 2012 and 2011, respectively. These totals include adjustments for structured notes classified within deposits and other borrowed
funds, as well as long-term debt.
(b) Structured notes are predominantly financial instruments containing embedded derivatives. Where present, the embedded derivative is the primary driverof risk. Although the risk associated with the structured notes is actively managed, the gains/(losses) reported in this table do not include the income
statement impact of the risk management instruments used to manage such risk.
(c) Reported in mortgage fees and related income.
(d) Reported in other income.

216

JPMorgan Chase & Co./2013 Annual ReportDetermination of instrument-specific credit risk for items
for which a fair value election was madeThe following describes how the gains and losses included inearnings during December 31, 2013, 2012 and 2011,
which were attributable to changes in instrument-specificcredit 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.
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.

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, 2013 and 2012, for loans, long-term debt and long-term beneficial interests forwhich the fair value option has been elected.
2013

December 31, (in millions)2012

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

1,491 $

(3,665) $4,217

Loans(d)

5,156
209

154

(55)

293

$

960 $
236

(3,257)(57)

Subtotal

5,365

1,645

(3,720)

4,510

1,196

(3,314)Loans reported as trading assets

33,06929,295(3,774)44,084

40,581(3,503)Loans(d)

1,618

1,563

(55)

2,034

1,927

(107)

$

32,503 $(7,549) $50,628$43,704 $(6,924)$

15,909 $112

16,541$

16,391 $(150)

12,969NANA

14,397NA

All other performing loans

Total loans$

40,052$

15,797Long-term debt
Principal-protected debt
Nonprincipal-protected debt(b)

Total long-term debt

(c)

NA

$

(c)

NA

$

28,878NANA$

30,788NA

Nonprincipal-protected debt(b)

NA

$

1,996

NA

NA

$

1,170

NA

Total long-term beneficial interests

NA

$

1,996

NA

NA

$

1,170

NA

Long-term beneficial interests(a) There were no performing loans that were ninety days or more past due as of December 31, 2013 and 2012, respectively.
(b) Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is
obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return 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.
(c) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflected as the remaining contractual principal is the final principal
payment at maturity.
(d) During 2013, certain loans that resulted from restructurings that were previously classified as performing were reclassified as nonperforming loans. Prior
periods were revised to conform with the current presentation.

At December 31, 2013 and 2012, the contractual amount of letters of credit for which the fair value option was elected was$4.5 billion and $4.5 billion, respectively, with a corresponding fair value of $(99) million and $(75) million, respectively. For
further information regarding off-balance sheet lending-related financial instruments, see Note 29 on pages 318–324 of thisAnnual Report.

JPMorgan Chase & Co./2013 Annual Report217

Notes to consolidated financial statements
Structured note products by balance sheet classification and risk component
The table below presents the fair value of the structured notes issued by the Firm, by balance sheet classification and theprimary risk to which the structured notes’ embedded derivative relates.
December 31, 2013
(in millions)

Other
Long-term borrowed
debt
funds

Deposits

December 31, 2012
Total

Other
Long-term borrowed
debt
funds

Deposits

Total

Risk exposure
Interest rate$

9,516 $

615 $ 1,270 $ 11,401$

8,669 $

1,143 $

559 $ 10,371

Credit

4,248

13

—

4,261

6,166

—

—

Foreign exchange

2,321

194

27

2,542

2,819

—

29

2,848

Equity11,082

11,936

3,736

26,754

11,580

9,809

2,972

24,361

Commodity

1,260

310

1,133

2,703

1,379

332

1,555

3,266

Total structured notes

218$ 28,427 $ 13,068 $ 6,166 $ 47,661$ 30,613 $ 11,284 $

6,166

5,115 $ 47,012

JPMorgan Chase & Co./2013 Annual ReportNote 5 – Credit risk concentrations

Concentrations of credit risk arise when a number ofcustomers are engaged in similar business activities or
activities in the same geographic region, or when they have
similar economic features that would cause their ability tomeet contractual obligations to be similarly affected bychanges in economic conditions.
JPMorgan Chase regularly monitors various segments of its
credit portfolios to assess potential concentration risks andto obtain collateral when deemed necessary. Senior
management is significantly involved in the credit approval
and review process, and risk levels are adjusted as needed
to reflect the Firm’s risk appetite.
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 risk concentrations can be
remedied through changes in underwriting policies andportfolio guidelines. In the wholesale portfolio, risk
concentrations are evaluated primarily by industry andmonitored regularly on both an aggregate portfolio leveland on an individual customer basis. Management of the
Firm’s wholesale exposure is accomplished through loan
syndications and participations, loan sales, securitizations,credit derivatives, use of master netting agreements, andcollateral and other risk-reduction techniques. For

additional information on loans see Note 14 on pages 258–
283 of this Annual Report.
The Firm does not believe that its exposure to any
particular loan product (e.g., option adjustable rate
mortgages (“ARMs”)), industry segment (e.g., commercial
real estate) or its exposure to residential real estate loans
with high loan-to-value ratios results in a significant
concentration of credit risk. Terms of loan products andcollateral coverage are included in the Firm’s assessment
when extending credit and establishing its allowance forloan losses.
Customer receivables representing primarily margin loans
to prime and retail brokerage clients of $26.9 billion and$23.8 billion at December 31, 2013 and 2012,
respectively, are included in the table below. These marginloans are generally over-collateralized through a pledge ofassets maintained in clients’ brokerage accounts and are
subject to daily minimum collateral requirements. In theevent that the collateral value decreases, a maintenancemargin call is made to the client to provide additional
collateral into the account. If additional collateral is notprovided by the client, the client’s positions may beliquidated by the Firm to meet the minimum collateralrequirements. As a result of the Firm’s credit risk mitigation
practices, the Firm did not hold any reserves for credit
impairment on these receivables as of December 31, 2013
and 2012.

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, 2013 and 2012.

December 31, (in millions)
Total consumer, excluding credit card
Total credit card
Total consumer
Wholesale-related
Real Estate
Banks & Finance Cos
Oil & Gas
Healthcare
State & Municipal Govt
Consumer Products
Asset Managers
Utilities
Retail & Consumer Services
Technology
Central Govt
Machinery & Equipment Mfg
Metals/Mining
Business Services
Transportation
All other(a)Subtotal
Loans held-for-sale and loans at fair value

2013
On-balance sheet
Off-balance
sheet(b)Loans
Derivatives$ 345,259 $ 289,063 $— $56,057657,174
127,791—
529,383
1,002,433
416,854—585,440
Creditexposure

87,102
66,881
46,93445,91035,66634,14533,50628,98325,06821,40321,04919,07817,434
14,601
13,975308,519820,254
13,301

69,151
25,482
14,383
13,319
8,708
9,099
5,656
5,582
7,504
4,426
1,754
5,969
5,825
4,497
6,845
120,063308,263
13,301

460
18,888
2,203
3,202
3,319
715
7,175
2,248
273
1,392
9,998
476
560
594
621
13,63565,759—17,491
22,511
30,34829,38923,63924,331
20,675
21,153
17,291
15,585
9,297
12,633
11,0499,510
6,509
174,821446,232—

2012
On-balance sheet
Off-balance
sheet(b)Loans
Derivatives$ 352,889 $ 292,620 $— $60,156
661,011
127,993—533,018
1,013,900
420,613—593,174
Creditexposure

76,19873,31842,56348,487
41,821
32,77831,47429,53325,59718,48821,22318,504
20,958
13,577
19,827
301,673
816,019
6,961

60,74026,651
14,704
11,638
7,998
9,151
6,220
6,814
7,901
3,806
1,333
6,304
6,059
4,550
12,763
119,590306,222
6,961

1,084
19,846
2,345
3,359
5,138
826
8,390
2,649
429
1,192
11,232
592
624
190
673
16,41474,983—

14,374
26,821
25,51433,49028,68522,801
16,86420,07017,267
13,4908,658
11,608
14,275
8,837
6,391
165,669
434,814—

Receivables from customers and other

26,744———

23,648———

Total wholesale-related

860,299

321,564

65,759446,232

846,628

313,183

74,983434,814$ 1,862,732 $

738,418 $

65,759 $ 1,031,672$ 1,860,528 $

733,796 $74,983 $ 1,027,988

Total exposure(c)(a) For more information on exposures to SPEs included within All other see Note 16 on pages 288–299 of this Annual Report.
(b) Represents lending-related financial instruments.
(c) For further information regarding on–balance sheet credit concentrations by major product and/or geography, see Notes 6, 14 and 15 on pages 220–233, 258–283 and 284–287,
respectively, of this Annual Report. For information regarding concentrations of off–balance sheet lending-related financial instruments by major product, see Note 29 on pages
318–324 of this Annual Report.

JPMorgan Chase & Co./2013 Annual Report219

Notes to consolidated financial statements
Note 6 – Derivative instruments
Derivative instruments enable end-users to modify or
mitigate exposure to credit or market risks. Counterparties
to a derivative contract seek to obtain risks and rewards
similar to those that could be obtained from purchasing or
selling a related cash instrument without having to
exchange upfront the full purchase or sales price. JPMorgan
Chase makes markets in derivatives for customers and alsouses derivatives to hedge or manage its own risk exposures.
Predominantly all of the Firm’s derivatives are entered into
for market-making or risk management purposes.
Market-making derivatives
The majority of the Firm’s derivatives are entered into formarket-making purposes. Customers use derivatives tomitigate or modify interest rate, credit, foreign exchange,
equity and commodity risks. The Firm actively manages therisks from its exposure to these derivatives by entering into
other derivative transactions or by purchasing or sellingother financial instruments that partially or fully offset the
exposure from client derivatives. The Firm also seeks toearn a spread between the client derivatives and offsetting
positions, and from the remaining open risk positions.
Risk management derivatives
The Firm manages its market risk exposures using various
derivative instruments.
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 forecasted revenue or expense
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.
Commodities contracts are used to manage the price risk ofcertain commodities inventories. Gains or losses on thesederivative instruments are expected to substantially offset

220

the depreciation or appreciation of the related inventory.
Also in the commodities portfolio, electricity and natural
gas futures and forwards contracts are used to manage
price risk associated with energy-related tolling and loadserving contracts and investments.
The Firm uses credit derivatives to manage thecounterparty credit risk associated with loans and lendingrelated commitments. Credit derivatives compensate thepurchaser when the entity referenced in the contract
experiences a credit event, such as bankruptcy or a failure
to pay an obligation when due. Credit derivatives primarily
consist of credit default swaps. For a further discussion of
credit derivatives, see the discussion in the Credit
derivatives section on pages 231–233 of this Note.
For more information about risk management derivatives,
see the risk management derivatives gains and losses tableon page 231 of this Note, and the hedge accounting gains
and losses tables on pages 229–231 of this Note.
Derivative counterparties and settlement types
The Firm enters into over-the-counter (“OTC”) derivatives,
which are negotiated and settled bilaterally with thederivative counterparty. The Firm also enters into, as
principal, certain exchange traded derivatives (“ETD”) suchas futures and options, and “cleared” over-the-counter(“OTC-cleared”) derivative contracts with central
counterparties (“CCPs”). ETD contracts are generally
standardized contracts traded on an exchange and clearedby the CCP, which is the counterparty from the inception of
the transactions. OTC-cleared derivatives are traded on abilateral basis and then novated to the CCP for clearing.
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. For informationon the derivatives that the Firm clears for its clients’accounts, see Note 29 on pages 318–324 of this Annual
Report.
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 on pages 189–
191 of this Annual Report. The accounting for changes invalue of a derivative depends on whether or not thetransaction has been designated and qualifies for hedge
accounting. Derivatives that are not designated as hedges
are reported and measured at fair value through earnings.
The tabular disclosures on pages 223–233 of this Noteprovide additional information on the amount of, andreporting for, derivative assets, liabilities, gains and losses.
For further discussion of derivatives embedded instructured notes, see Notes 3 and 4 on pages 195–215 and
215–218, respectively, of this Annual Report.

JPMorgan Chase & Co./2013 Annual Report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 credit default swaps used to
manage the credit risk of loans and lending-related
commitments, because of the difficulties in qualifying suchcontracts as hedges. For the same reason, the Firm does not
apply hedge accounting to certain interest rate andcommodity 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.

JPMorgan Chase & Co./2013 Annual Report

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 interest-bearing instruments is amortized toearnings 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 inaccumulated other comprehensive income/(loss) (“AOCI”) is
recognized in earnings when the cash flows that were
hedged affect earnings. For hedge relationships that are
discontinued because a forecasted transaction is expected
to not occur according to the original hedge forecast, any
related derivative values recorded in AOCI are immediately
recognized in earnings.
JPMorgan Chase uses foreign currency hedges to protect
the value of the Firm’s net investments in certain non-U.S.
subsidiaries or branches whose functional currencies are
not the U.S. dollar. For foreign currency qualifying net
investment hedges, changes in the fair value of thederivatives are recorded in the translation adjustments
account within AOCI.

221

Notes to consolidated financial statements
The following table outlines the Firm’s primary uses of derivatives and the related hedge accounting designation or disclosure
category.
Type of Derivative

Use of Derivative

Affected
Designation and disclosure segment or unit

Page
referenceManage specifically identified risk exposures in qualifying hedge accounting relationships:
Hedge fixed rate assets and liabilities

Fair value hedge

Corporate/PE

229

Hedge floating rate assets and liabilities

Cash flow hedge

Corporate/PE

230

Foreign exchange

Hedge foreign currency-denominated assets and liabilities

Fair value hedge

Corporate/PE

229

Foreign exchange

Hedge forecasted revenue and expense

Cash flow hedge

Corporate/PE

230

Foreign exchange

Hedge the value of the Firm’s investments in non-U.S. subsidiaries

Net investment hedge

Corporate/PE

231

Commodity

Hedge commodity inventory

Fair value hedge

CIB

229

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

231

CreditManage the credit risk of wholesale lending exposures

Specified risk management

CIB

231

Credit(a)Manage the credit risk of certain AFS securities

Specified risk management

Corporate/PE

231

Commodity

Manage the risk of certain commodities-related contracts andinvestments

Specified risk management

CIB

231

Interest rate andforeign exchangeManage the risk of certain other specified assets and liabilities

Specified risk management

Corporate/PE

231

Market-making derivatives and other activities:• Various

Market-making and related risk management

Market-making and other

CIB

231

• Various

Other derivatives, including the synthetic credit portfolio

Market-making and other

CIB, Corporate/
PE

231

(b)

(a) Includes a limited number of single-name credit derivatives used to mitigate the credit risk arising from specified AFS securities.
(b) The synthetic credit portfolio is a portfolio of index credit derivatives, including short and long positions, that was held by CIO. On July 2, 2012, CIO
transferred the synthetic credit portfolio, other than a portion that aggregated to a notional amount of approximately $12 billion, to CIB. The positions
making up the portion of the synthetic credit portfolio retained by CIO on July 2, 2012, were effectively closed out during the third quarter of 2012. The
results of the synthetic credit portfolio, including the portion transferred to CIB, have been included in the gains and losses on derivatives related tomarket-making activities and other derivatives category discussed on page 231 of this Note.

222

JPMorgan Chase & Co./2013 Annual ReportNotional amount of derivative contracts
The following table summarizes the notional amount ofderivative contracts outstanding as of December 31, 2013
and 2012.
Notional amounts(c)December 31, (in billions)

2013

2012

35,221 $33,037

Futures and forwards

11,251

11,756

Written options

3,991

3,860

Purchased options

4,187

3,909

Total interest rate contracts

54,65052,562Credit derivatives(b)

5,386

5,981

Cross-currency swaps

3,488

3,413

Spot, futures and forwards

3,773

4,005

Written options

659

651

Purchased options

652

662

8,572

8,731

Swaps

205

163

Futures and forwards(a)4938Written options(a)

425

441

Purchased options

380

403

Total equity contracts

1,059

1,045

Swaps(a)124

120Spot, futures and forwards(a)

234

367

Written options

202

262

Purchased options

203

260

Total commodity contracts

763

1,009

70,430 $69,328Interest rate contracts(a)
Swaps

$

Foreign exchange contracts(a)Total foreign exchange contracts
Equity contracts

Commodity contracts

Total derivative notional amounts$(a) The prior period amounts have been revised. This revision had no
impact on the Firm’s Consolidated Balance Sheets or its results ofoperations.
(b) Primarily consists of credit default swaps. For more information on
volumes and types of credit derivative contracts, see the Credit
derivatives discussion on pages 231–233 of this Note.
(c) 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.

JPMorgan Chase & Co./2013 Annual Report223

Notes to consolidated financial statements
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, 2013 and 2012, by accounting designation (e.g.,whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
Free-standing derivative receivables and payables(a)Gross derivative receivables
December 31, 2013
(in millions)Not
designatedas hedges

Designatedas hedges

Gross derivative payables

Total
derivative
receivables

Net
derivative
receivables(c)Notdesignatedas hedges$$$

Designatedas hedges

Total
derivative
payablesNet
derivative
payables(c)Trading assets and liabilities
Interest rate

820,811 $4,543 $

825,354

Credit$851,189 $
83,5203,490—

854,679
83,5201,516

82,402—82,4022,281

Foreign exchange

152,240

1,359

153,599

16,790158,728

1,397

160,125

15,947

Equity52,931—52,931

12,22754,654—54,654

14,719Commodity

34,344

1,394

35,7389,444

37,605

937,614

11,084

Total fair value of trading
assets and liabilities$ 1,174,224 $6,243$ 1,180,467

65,759$ 1,154,200 $December 31, 2012
(in millions)Not
designatedas hedges$

25,782Gross derivative receivables$

13,28357,314Gross derivative payables

Total
derivative
receivables

Net
derivative
receivables(c)Notdesignatedas hedges

6,064$ 1,302,332$

39,205$ 1,257,654 $Designatedas hedges

5,949 $ 1,160,149$

Designatedas hedges

Total
derivative
payablesNet
derivative
payables(c)Trading assets and liabilities
Interest rate(b)$ 1,296,268 $

3,120 $ 1,260,774$

24,906

Credit100,310—

100,310

1,735

100,027—

100,027

2,504

Foreign exchange(b)145,676

1,577

147,253

14,142

158,419

2,133

160,552

18,601Equity(b)42,679—42,6799,266

44,535—44,535

11,819Commodity(b)43,185586

43,771

10,63546,981644

47,625

12,826$ 1,628,118 $8,227$ 1,636,345

74,983$ 1,607,616 $Total fair value of trading
assets and liabilities$

5,897 $ 1,613,513$

70,656(a) Balances exclude structured notes for which the fair value option has been elected. See Note 4 on pages 215–218 of this Annual Report for further
information.
(b) The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations.
(c) 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.

224

JPMorgan Chase & Co./2013 Annual Report

The following table presents, as of December 31, 2013 and 2012, the gross and net derivative receivables by contract andsettlement type. Derivative receivables have been netted on the Consolidated Balance Sheets against derivative payables to thesame counterparty with respect to derivative contracts for which the Firm has obtained an appropriate legal opinion withrespect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, the receivables
are not eligible under U.S. GAAP for netting against related derivative payables on the Consolidated Balance Sheets, and areshown separately in the table below.

Grossderivative
receivables

December 31, (in millions)

2013

2012

Amounts nettedon theConsolidatedbalance sheets

Amounts nettedon theConsolidatedbalance sheets

Grossderivative
receivables

Net derivative
receivables

Net derivative
receivables

U.S. GAAP nettable derivative receivables
Interest rate contracts:
Over–the–counter (“OTC”)(a)$486,449 $(466,493)

794,282 $(771,449)

362,426(362,404)

22

491,947(491,678)

—

—

—

—

—

—

848,875(828,897)

19,9781,286,229(1,263,127)

23,102

OTC

66,269(65,725)544

90,744(90,104)640

OTC–cleared

16,841(16,279)

562

8,471

(8,471)—

83,110(82,004)

1,106

99,215(98,575)

640

OTC–cleared
Exchange traded(b)Total interest rate contracts$

19,956$$

22,833269

Credit contracts:

Total credit contracts
Foreign exchange contracts:
OTC(a)

148,953(136,763)

12,190141,053(133,088)

7,965

OTC–cleared

46

(46)

—

23

(23)

—

Exchange traded(b)

—

—

—

—

—

—

148,999(136,809)

12,190141,076(133,111)

7,965

31,870(29,289)

2,581

26,025(24,645)

1,380

—

—

—

—

—

—

17,732(11,415)

6,317

12,841(8,768)4,073

49,602(40,704)

8,898

38,866(33,413)

5,453

21,619(15,082)

6,537

26,850(20,729)

6,121

Total foreign exchange contracts
Equity contracts:
OTC(a)
OTC–cleared
Exchange traded(b)

Total equity contracts
Commodity contracts:
OTC(a)
OTC–cleared
Exchange traded(b)Total commodity contracts
Derivative receivables with appropriate legal
opinion$Derivative receivables where an appropriate
legal opinion has not been either sought orobtained
Total derivative receivables recognized on theConsolidated Balance Sheets

—

—

—

—

—

—

12,528(11,212)

1,316

15,108(12,407)

2,701

34,147(26,294)

7,853

41,958(33,136)

8,822

1,164,733 $ (1,114,708) (c) $15,734$

1,180,467

50,025$

15,734$65,7591,607,344 $ (1,561,362) (c) $29,001$

1,636,345

45,98229,001$

74,983(a) The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations.
(b) Exchange traded derivative amounts that relate to futures contracts are settled daily.
(c) Included netted cash collateral payables of $63.9 billion and $79.2 billion at December 31, 2013, and December 31, 2012, respectively.

JPMorgan Chase & Co./2013 Annual Report225Notes to consolidated financial statements
The following table presents, as of December 31, 2013 and 2012, the gross and net derivative payables by contract andsettlement type. Derivative payables have been netted on the Consolidated Balance Sheets against derivative receivables to thesame counterparty with respect to derivative contracts for which the Firm has obtained an appropriate legal opinion withrespect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, the payables are
not eligible under U.S. GAAP for netting against related derivative receivables on the Consolidated Balance Sheets, and areshown separately in the table below.

Grossderivative
payablesDecember 31, (in millions)

2013

2012

Amounts nettedon theConsolidatedbalance sheets

Amounts nettedon theConsolidatedbalance sheets

Grossderivative
payablesNet derivative
payablesNet derivative
payablesU.S. GAAP nettable derivative payables
Interest rate contracts:
OTC(a)$

467,850 $(458,081)

774,824 $(754,105)354,698(353,990)

708

482,018(481,763)

—

—

—

—

—

—

822,548(812,071)

10,477

1,256,842(1,235,868)

20,974OTC

65,223(63,671)

1,552

89,170(88,151)

1,019

OTC–cleared

16,506(16,450)

56

9,372

(9,372)—

81,729(80,121)

1,608

98,542(97,523)

1,019
11,253OTC–cleared
Exchange traded(b)Total interest rate contracts

$

9,769

$

$

20,719255

Credit contracts:

Total credit contracts
Foreign exchange contracts:
OTC(a)

155,110(144,119)

10,991

153,181(141,928)

OTC–cleared

61

(59)

2

29

(23)

6

Exchange traded(b)

—

—

—

—

—

—

155,171(144,178)

10,993

153,210(141,951)

11,25933,295(28,520)

4,775

28,321(23,949)

4,372

—

—

—

—

—

—

17,349(11,415)

5,934

12,000(8,767)3,233

50,644(39,935)

10,70940,321(32,716)

7,605

21,993(15,318)

6,675

28,744(22,392)

6,352

Total foreign exchange contracts
Equity contracts:
OTC(a)
OTC–cleared
Exchange traded(b)

Total equity contracts
Commodity contracts:
OTC(a)
OTC–cleared
Exchange traded(b)Total commodity contracts
Derivative payables with appropriate legal
opinions$

Derivative payables where an appropriate
legal opinion has not been either sought orobtained
Total derivative payables recognized on theConsolidated Balance Sheets

—

—

—

—

—

—

12,367(11,212)

1,155

14,488(12,407)

2,081

34,360(26,530)

7,830

43,232(34,799)

8,433

1,144,452 $ (1,102,835) (c) $15,697$

1,160,149

41,617$

15,697$57,314

1,592,147 $ (1,542,857) (c) $21,366$

1,613,513

49,29021,366$70,656(a) The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations.
(b) Exchange traded derivative balances that relate to futures contracts are settled daily.
(c) Included netted cash collateral receivables of $52.1 billion and $60.7 billion related to OTC and OTC-cleared derivatives at December 31, 2013, andDecember 31, 2012, respectively.

226

JPMorgan Chase & Co./2013 Annual ReportIn addition to the cash collateral received and transferredthat is presented on a net basis with net derivative
receivables and payables, the Firm receives and transfers
additional collateral (financial instruments and cash). Theseamounts mitigate counterparty credit risk associated with
the Firm’s derivative instruments but are not eligible for netpresentation, because (a) the collateral is non-cash

financial instruments (generally U.S. government andagency securities and other G7 government bonds), (b) theamount of collateral held or transferred exceeds the fairvalue exposure, at the individual counterparty level, as ofthe date presented, or (c) the collateral relates to derivative
receivables or payables where an appropriate legal opinion
has not been either sought or obtained.

The following tables present information regarding certain financial instrument collateral received and transferred as ofDecember 31, 2013 and 2012, that is not eligible for net presentation under U.S. GAAP. The collateral included in these tables
relates only to the derivative instruments for which appropriate legal opinions have been obtained; excluded are (i) additional
collateral that exceeds the fair value exposure and (ii) all collateral related to derivative instruments where an appropriate
legal opinion has not been either sought or obtained.
Derivative receivable collateral

December 31, (in millions)

Net derivative
receivables

Derivative receivables with appropriate legal opinions $

2013

2012

Collateral notnettable on theConsolidatedbalance sheets

Collateral notnettable on theConsolidatedbalance sheets

50,025 $Net
exposure(12,414) (a) $ 37,611

Net derivative
receivables$

45,982 $Net
exposure(11,350) (a) $ 34,632

Derivative payable collateral(b)December 31, (in millions)

Net derivative
payablesDerivative payables with appropriate legal opinions

$

(a)
(b)
(c)

2013

2012

Collateral notnettable on theConsolidatedbalance sheets

Collateral notnettable on theConsolidatedbalance sheets

41,617 $Net
amount(c)(6,873) (a) $ 34,744

Net derivative
payables$49,290 $Net
amount(c)(20,109) (a) $ 29,181

Represents liquid security collateral as well as cash collateral held at third party custodians. For some counterparties, the collateral amounts of financial
instruments may exceed the derivative receivables and derivative payables balances. Where this is the case, the total amount reported is limited to thenet derivative receivables and net derivative payables balances with that counterparty.
Derivative payable collateral relates only to OTC and OTC-cleared derivative instruments. Amounts exclude collateral transferred related to exchangetraded derivative instruments.
Net amount represents exposure of counterparties to the Firm.

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, 2013 and 2012.

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)

JPMorgan Chase & Co./2013 Annual Report

OTC and OTC-cleared derivative payables containing
downgrade triggers
Aggregate fair value of net derivative
payablesCollateral posted

2013
$

2012

24,631 $40,844

20,346

34,414227

Notes to consolidated financial statements
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, 2013 and 2012, 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, or termination payment requirements. The liquidity impact in the table is calculated based upon adowngrade below the lowest current rating of the rating agencies referred to in the derivative contract.
Liquidity impact of downgrade triggers on OTC andOTC-cleared derivatives
2013
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)2012
Two-notch
downgrade

952 $

3,244

540

876

Single-notch
downgrade$

Two-notch
downgrade

1,234 $

4,090

857

1,270

(a) Includes the additional collateral to be posted for initial margin. Prior period amounts have been revised to conform with the current presentation.
(b) Amounts represent fair value of derivative payables, and do not reflect collateral posted.

228

JPMorgan Chase & Co./2013 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 pretax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 2013,2012 and 2011, 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, 2013 (in millions)

Derivatives

Hedged items$ (3,469)$

Income statement impact due to:Total income
statement
impactHedge
ineffectiveness(e)Excludedcomponents(f)Contract typeInterest rate(a)Foreign exchange(b)Commodity(c)Total

4,851 $

1,382

(132) $

1,514

(1,096) (d)

864

(232)

—

(232)

485

(1,304)

(819)

38

(857)

4,411 $

331

(94) $425$ (4,080)$$$

Gains/(losses) recorded in income
Year ended December 31, 2012 (in millions)

Derivatives

Hedged items

Income statement impact due to:Total income
statement
impactHedge
ineffectiveness(e)Excludedcomponents(f)Contract typeInterest rate(a)$ (1,238)

Foreign exchange(b)Commodity(c)
Total

$

(3,027) (d)(2,530)$ (6,795)$

1,879 $

641

(28) $

669

2,925

(102)

—

(102)

1,131

(1,399)107(1,506)

5,935 $$

(860) $

Gains/(losses) recorded in income
Year ended December 31, 2011 (in millions)

Derivatives

Hedged items

79 $

(939)

Income statement impact due to:Total income
statement
impactHedge
ineffectiveness(e)Excludedcomponents(f)Contract typeInterest rate(a)$Foreign exchange(b)Commodity(c)
Total

532
5,684

$
(d)

1,784
$

8,000

$

33 $

565

(3,761)

1,923(2,880)(1,096)(6,608) $

1,392

$

$

104 $

461

—

1,923

(10)

(1,086)

94 $

1,298

(a) Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate (“LIBOR”)) interest rate risk of fixed-rate long-term debt and AFS
securities. Gains and losses were recorded in net interest income. The current presentation excludes accrued interest.
(b) Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses
related to the derivatives and the hedged items, due to changes in foreign currency rates, were recorded in principal transactions revenue and net interest
income.
(c) Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or market (market approximatesfair value). Gains and losses were recorded in principal transactions revenue.
(d) Included $(556) million, $(3.1) billion and $4.9 billion for the years ended December 31, 2013, 2012 and 2011, respectively, of revenue related tocertain foreign exchange trading derivatives designated as fair value hedging instruments.
(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./2013 Annual Report229

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 pretax gains/(losses) recorded on such derivatives, for the years ended December 31, 2013, 2012 and 2011, respectively.
The Firm includes the gain/(loss) on the hedging derivative and the change in cash flows on the hedged item in the same line
item in the Consolidated Statements of Income.
Gains/(losses) recorded in income and other comprehensive income/(loss)(c)Year ended December 31, 2013
(in millions)

Derivatives –effective portion
reclassified fromAOCI to income

Hedge
ineffectivenessrecorded
directly inincome(d)Total income
statement
impactDerivatives –effective portion
recorded in OCI

Total change
in OCI
for period

Contract typeInterest rate(a)$Foreign exchange(b)
Total

$

(108) $— $(108) $

(565) $

7

—

7

40

(457)
33

(101) $— $(101) $

(525) $

(424)

Gains/(losses) recorded in income and other comprehensive income/(loss)(c)Year ended December 31, 2012
(in millions)

Derivatives –effective portion
reclassified fromAOCI to income

Hedge
ineffectivenessrecorded
directly inincome(d)Total income
statement
impactDerivatives –effective portion
recorded in OCI

Total change
in OCI
for period

Contract typeInterest rate(a)$Foreign exchange(b)
Total

$

(3) $

5 $

2 $

13 $

31

—

31

128

16
97

28 $

5 $

33 $

141 $

113

Gains/(losses) recorded in income and other comprehensive income/(loss)(c)Year ended December 31, 2011
(in millions)

Derivatives –effective portion
reclassified fromAOCI to income

Hedge
ineffectivenessrecorded
directly inincome(d)Total income
statement
impactDerivatives –effective portion
recorded in OCI

Total change
in OCI
for period

Contract typeInterest rate(a)

$

310 $
(9)

$

301 $

Foreign exchange

(b)

Total

19 $

329 $

107 $

(203)

—

(9)

(57)

(48)

19 $

320 $

50 $

(251)

(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) The Firm did not experience any forecasted transactions that failed to occur for the years ended December 31, 2013, 2012 or 2011.
(d) Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the
cumulative expected change in cash flows on the hedged item attributable to the hedged risk.

Over the next 12 months, the Firm expects that $4.6 million (after-tax) of net losses recorded in AOCI at December 31, 2013,
related to cash flow hedges will be recognized in income. The maximum length of time over which forecasted transactions arehedged is 10 years, and such transactions primarily relate to core lending and borrowing activities.

230

JPMorgan Chase & Co./2013 Annual ReportNet investment hedge gains and losses
The following tables present hedging instruments, by contract type, that were used in net investment hedge accounting
relationships, and the pretax gains/(losses) recorded on such instruments for the years ended December 31, 2013, 2012 and2011.
Gains/(losses) recorded in income and other comprehensive income/(loss)
2013
2012
2011
Excluded
Excluded
Excludedcomponents
components
components
recorded
Effective
recorded
Effective
recorded
Effective
directly in
portiondirectly in
portiondirectly in
portion(a)(a)(a)
incomerecorded in OCI
incomerecorded in OCI
incomerecorded in OCI

Year ended December 31,(in millions)Contract type
Foreign exchange derivatives
Foreign currency denominated debt
Total

$

(383) $—
(383) $

$

773
—
773

$
$

(306) $—
(306) $

(82) $—(82) $(251) $—
(251) $

2251
226(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 current-period income. The Firm measures the ineffectiveness of
net investment hedge accounting relationships based on changes in spot foreign currency rates, and therefore there was no ineffectiveness for net
investment hedge accounting relationships during 2013, 2012 and 2011.

Gains and losses on derivatives used for specified risk
management purposes
The following table presents pretax gains/(losses) recorded
on a limited number of derivatives, not designated in hedge
accounting relationships, that are used to manage risks
associated with certain specified assets and liabilities,
including certain risks arising from the mortgage pipeline,
warehouse loans, MSRs, wholesale lending exposures, AFS
securities, foreign currency-denominated liabilities, 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

$

$

2013

2012

2011

617 $
(142)
1
178
654 $

5,353 $
(175)
47
94
5,319 $

8,084
(52)
(157)
41
7,916

(a) Primarily relates to interest rate derivatives used to hedge the interest
rate risks associated with the mortgage pipeline, warehouse loans andMSRs. 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, and singlename credit derivatives used to mitigate credit risk arising fromcertain AFS securities. These derivatives do not include the synthetic
credit portfolio or credit derivatives used to mitigate counterparty
credit risk arising from derivative receivables, both of which areincluded 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 hedges of the foreign exchange risk of specified
foreign currency-denominated liabilities. Gains and losses wererecorded in principal transactions revenue and net interest income.
(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./2013 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 the Firm’s
market-making activities, including the counterparty credit
risk arising from derivative receivables. These derivatives,
as well as all other derivatives (including the synthetic
credit portfolio ) that are not included in the hedge
accounting or specified risk management categories above,
are included in this category. Gains and losses on thesederivatives are primarily recorded in principal transactions
revenue. See Note 7 on pages 234–235 of this Annual
Report 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 from231

Notes to consolidated financial statements
certain AFS securities and from certain financial
instruments in the Firm’s market-making businesses. For
more information on the synthetic credit portfolio, see thediscussion on page 222 of this Note. Following is asummary of various types of credit derivatives.
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 typically OTC-cleared derivative
contracts. Single-name CDS are used to manage the default
risk of a single reference entity, while index CDS contracts
are used to manage the credit risk associated with thebroader credit markets or credit market segments. Like the
S&P 500 and other market indices, a CDS index comprises a
portfolio of CDS across many reference entities. New seriesof 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.

232

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 experiences a specified
credit event (or one of the entities that makes up areference index). 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. For a further discussion of credit-related
notes, see Note 16 on pages 288–299 of this Annual
Report.
The following tables present a summary of the notionalamounts of credit derivatives and credit-related notes theFirm sold and purchased as of December 31, 2013 and2012. 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./2013 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 amount

December 31, 2013 (in millions)Protection soldProtection purchasedwith identicalunderlyings(b)Net protection(sold)/purchased(c)Other protection
purchased(d)Credit derivatives
Credit default swaps(2,601,581) $2,610,198 $Other credit derivatives(a)$(95,094)

45,921(49,173)

24,192

Total credit derivatives(2,696,675)

2,656,119(40,556)

32,914

(130)

—

(130)

2,720

(40,686) $35,634Credit-related notes
Total

$

(2,696,805) $8,617 $

2,656,119 $8,722

Maximum payout/Notional amount

December 31, 2012 (in millions)Protection soldProtection purchasedwith identicalunderlyings(b)Net protection(sold)/purchased(c)Other protection
purchased(d)Credit derivatives
Credit default swaps(2,954,705) $2,879,105 $(75,600) $42,460

Other credit derivatives(a)$(66,244)5,649(60,595)

33,174

Total credit derivatives(3,020,949)

2,884,754(136,195)

75,634

(233)

—

(233)

3,255

(136,428) $78,889Credit-related notes
Total

$

(3,021,182) $2,884,754 $(a) Other credit derivatives predominantly consists of put options on fixed income portfolios.
(b) Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument onprotection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than
the notional amount of protection sold.
(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 ofprotection pays to the buyer 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 and fair value amounts of credit derivatives and credit-related notes as ofDecember 31, 2013 and 2012, where JPMorgan Chase is the seller of protection. The maturity profile is based on theremaining contractual maturity of the credit derivative contracts. The ratings profile is based on the rating of the reference
entity on which the credit derivative contract is based. The ratings and maturity profile of credit derivatives and credit-related
notes where JPMorgan Chase is the purchaser of protection are comparable to the profile reflected below.
Protection sold – credit derivatives and credit-related notes ratings(a)/maturity profile
December 31, 2013 (in millions)<1 year

1–5 years>5 years

Total
notional amount

Fair value of Fair value of
receivables(b) payables(b) Net fair value

Risk rating of reference entity
Investment-grade
Noninvestment-grade
Total

December 31, 2012 (in millions)$ (365,660) $ (1,486,394) $ (130,597) $(140,540)(544,671)(28,943)$ (506,200) $ (2,031,065) $ (159,540) $<1 year

1–5 years>5 years(1,982,651) $31,727 $(5,629) $26,098(714,154)

27,426(16,674)

10,752(2,696,805) $59,153 $(22,303) $36,850

Total
notional amount

Fair value of Fair value of
receivables(b) payables(b) Net fair value

Risk rating of reference entity
Investment-grade
Noninvestment-grade
Total$ (409,748) $ (1,383,644) $ (224,001) $(214,949)(722,115)(66,725)$ (624,697) $ (2,105,759) $ (290,726) $(2,017,393) $16,690 $(22,393) $(5,703)(1,003,789)

22,355(36,815)(14,460)(3,021,182) $39,045 $(59,208) $(20,163)(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.
(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./2013 Annual Report233Notes to consolidated financial statements
Note 7 – Noninterest revenue
Investment banking fees
This revenue category includes equity and debt
underwriting and advisory fees. Underwriting fees arerecognized as revenue when the Firm has rendered allservices to the issuer and is entitled to collect the fee fromthe issuer, as long as there are no other contingencies
associated with the fee. Underwriting fees are net ofsyndicate expense; the Firm recognizes credit arrangement
and syndication fees as revenue after satisfying certain
retention, timing and yield criteria. Advisory fees arerecognized as revenue when the related services have been
performed and the fee has been earned.
The following table presents the components of investmentbanking fees.
Year ended December 31,(in millions)

2013

2012

2011

Equity$ 1,499$ 1,026

Debt

3,537

3,290

2,934

Total underwriting

5,036

4,316

4,115

Advisory

1,318

1,492

$ 6,354$ 5,808

Underwriting

Total investment banking fees

$

1,181

The following table presents principal transactions revenue
by major underlying type of risk exposures. This table does
not include other types of revenue, such as net interest
income on trading assets, which are an integral part of theoverall performance of the Firm’s client-driven marketmaking activities.

1,796
$

5,911

Principal transactions
Principal transactions revenue includes realized andunrealized gains and losses recorded on derivatives, otherfinancial instruments, and private equity investments.
Principal transactions revenue also includes certain realized
and unrealized gains and losses related to hedge accounting
and specified risk management activities disclosed
separately in Note 6, including: (a) certain derivatives
designated in qualifying hedge accounting relationships(primarily fair value hedges of commodity and foreignexchange risk), (b) certain derivatives used for specific risk
management purposes, primarily to mitigate credit risk,
foreign exchange risk and commodity risk, and (c) otherderivatives, including the synthetic credit portfolio. See
Note 6 on pages 220–233 of this Form Annual Report for
information on the income statement classification of gains
and losses on derivatives.
Principal transactions revenue also includes revenue
associated with market-making and client-driven activities
that involve physical commodities. The Firm, through its
Global Commodities Group within CIB (“Commodities
Group”) generally provides risk management, investment
and financing solutions to clients globally both throughfinancial derivatives transactions, as well as throughphysical commodities transactions. On the financial side,
the Commodities Group engages in OTC derivatives
transactions (e.g., swaps, forwards, options) and exchangetraded derivatives referencing various types of commodities(see below and Note 6 – Derivative instruments for further
information). On the physical side, the Commodities Group
engages in the purchase, sale, transport, and storage ofpower, gas, liquefied natural gas, coal, crude oil, refined234

products, precious and base metals among others. Realized
gains and losses and unrealized losses arising from marketmaking and client-driven activities involving physicalcommodities inventories that are generally carried at thelower of cost or market (market approximates fair value),subject to any applicable fair value hedge accounting
adjustments, are recorded in principal transactions
revenue. Fees relating to storage and transportation arerecorded in other income. These fees are generally
recognized over the arrangement period. Expenses relating
to such activities are recorded in other expense (see Note
11 on page 249 of this Annual Report for further
information). Additional information on the physicalcommodities business can be found in Note 2 – BusinessChanges and Developments on pages 192–194 of thisAnnual Report.

Year ended December 31,(in millions)

2013

2012

2011

Trading revenue by risk exposure
Interest rate(a)Credit

$

776

$

3,922

$

(873)

2,424

(5,460)3,393

Foreign exchange

1,540

1,436

1,154

Equity

2,526

2,504

2,401

Commodity(c)

2,073

2,363

2,823

Total trading revenue

9,339

4,765

8,898

Private equity gains(f)

802

771

1,107

Principal transactions$ 10,141

5,536$ 10,005(b)(d)(e)$(a) Includes a pretax gain of $665 million for the year ended December 31, 2012,reflecting the recovery on a Bear Stearns-related subordinated loan.
(b) Includes $5.8 billion of losses incurred by CIO from the synthetic credit portfolio
for the six months ended June 30, 2012, and $449 million of losses incurred by
CIO from the retained index credit derivative positions for the three months
ended September 30, 2012; and losses incurred by CIB from the synthetic credit
portfolio.
(c) Includes realized gains and losses and unrealized losses on physical commodities
inventories that are generally carried at the lower of cost or market (market
approximates fair value), subject to any applicable fair value hedge accounting
adjustments, and gains and losses on commodity derivatives and other financial
instruments that are carried at fair value through income. Commodity derivatives
are frequently used to manage the Firm’s risk exposure to its physicalcommodities inventories. Gains/(losses) related to commodity fair value hedges
were $(819) million, $(1.4) billion and $(1.1) billion for the years ended
December 31, 2013, 2012 and 2011, respectively.
(d) Principal transactions revenue included DVA related to structured notes andderivative liabilities measured at fair value in CIB. DVA gains/(losses) were$(452) million, $(930) million, and $1.4 billion for the years ended
December 31, 2013, 2012 and 2011, respectively.
(e) During the fourth quarter of 2013, the Firm implemented a funding valuation
adjustment (“FVA”) framework in order to incorporate the impact of funding into
its valuation estimates for over-the-counter (“OTC”) derivatives and structured
notes. As a result the Firm recorded a $1.5 billion loss in principal transactions
revenue in the fourth quarter of 2013, reported in the CIB. This reflects anindustry migration towards incorporating the cost of unsecured funding in thevaluation of such instruments.
(f) Includes revenue on private equity investments held in the Private Equity
business within Corporate/Private Equity, as well as those held in other businesssegments.

JPMorgan Chase & Co./2013 Annual Report

Lending- and deposit-related fees
This revenue category includes fees from loan
commitments, standby letters of credit, financial
guarantees, deposit-related fees in lieu of compensatingbalances, cash management-related activities ortransactions, deposit accounts and other loan-servicing
activities. These fees are recognized over the period inwhich the related service is provided.
Asset management, administration and commissions
This revenue category includes fees from investment
management and related services, custody, brokerage
services, insurance premiums and commissions, and otherproducts. These fees are recognized over the period inwhich the related service is provided. Performance-based
fees, which are earned based on exceeding certain
benchmarks or other performance targets, are accrued andrecognized at the end of the performance period in which
the target is met. The Firm has contractual arrangementswith third parties to provide certain services in connection
with its asset management activities. Amounts paid to thirdparty service providers are predominantly expensed, suchthat asset management fees are recorded gross of
payments made to third parties.
The following table presents components of asset
management, administration and commissions.
Year ended December 31,(in millions)

2013

2012

2011

Asset management
Investment management fees(a)All other asset management fees(b)

$

8,044

$

6,744

$

6,449

505

357

241

Total asset management fees

8,549

7,101

6,690

Total administration fees

2,101

2,135

2,171

Brokerage commissions

2,321

2,331

2,753

All other commissions and fees

2,135

2,301

2,480

Total commissions and fees

4,456

4,632

5,233

$ 15,106$ 13,868$ 14,094(c)Commissions and other fees

Total asset management,
administration and commissions
(a)
(b)
(c)

Represents fees earned from managing assets on behalf of Firmclients, including investors in Firm-sponsored funds and owners of
separately managed investment accounts.
Represents fees for services that are ancillary to investment
management services, such as commissions earned on the sales or
distribution of mutual funds to clients.
Predominantly, includes fees for custody, securities lending, funds
services and securities clearance.

Mortgage fees and related income
This revenue category primarily reflects CCB’s Mortgage
Production and Mortgage 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 CCB MSRs are reported
in mortgage fees and related income. Net interest income
from mortgage loans is recorded in interest income. For afurther discussion of MSRs, see Note 17 on pages 299–304
of this Annual Report.
Card income
This revenue category includes interchange income fromcredit and debit cards and net fees earned from processing
credit card transactions for merchants. Card income isrecognized as earned. Annual fees and direct loan
origination costs are deferred and recognized on a straightline basis over a 12-month period. Expense related to
rewards programs is recorded when the rewards are earned
by the customer and netted against interchange income.
Credit card revenue sharing agreements
The Firm has contractual agreements with numerous cobrand partners and affinity organizations (collectively,“partners”), which grant the Firm exclusive rights to market
to the customers or members of such partners. These
partners endorse the credit card programs and provide
their customer and member lists to the Firm, and they may
also conduct marketing activities and provide awards underthe various credit card programs. The terms of these
agreements generally range from three to ten years.
The Firm typically makes incentive payments to thepartners based on new account originations, charge
volumes and the cost of the partners’ marketing activities
and awards. Payments based on new account originations
are accounted for as direct loan origination costs. Payments
to partners based on charge volumes are deducted frominterchange income as the related revenue is earned.
Payments based on marketing efforts undertaken by thepartners are expensed by the Firm as incurred and reported
as noninterest expense.
Other income
Included in other income is operating lease income of $1.5
billion, $1.3 billion and $1.2 billion for the years ended
December 31, 2013, 2012 and 2011, respectively.
Additionally, included in other income is a net pre-tax gainof approximately $1.3 billion, from the sale of the Visa B
Shares. See Note 2 on pages 192–194 of this Annual Reportfor more information.

JPMorgan Chase & Co./2013 Annual Report235

Notes to consolidated financial statements
Note 8 – Interest income and Interest expense
Interest income and interest expense is recorded in theConsolidated Statements of Income and classified based on
the nature of the underlying asset or liability. Interest
income and interest expense includes the current-periodinterest accruals for financial instruments measured at fairvalue, except for financial instruments containing
embedded derivatives that would be separately accounted
for in accordance with U.S. GAAP absent the fair value
option election; for those instruments, all changes in fairvalue, including any interest elements, are reported inprincipal transactions revenue. For financial instrumentsthat are not measured at fair value, the related interest is
included within interest income or interest expense, asapplicable.
Details of interest income and interest expense were as
follows.
Year ended December 31,(in millions)

2013

2012

2011
$ 37,098

Interest income
Loans$33,489$ 35,832

Securities

7,812

7,939

9,215

Trading assets

8,426

9,039

11,142Federal funds sold andsecurities purchased underresale agreements

1,940

2,442

2,523

Securities borrowed(127) (c)Deposits with banks

918

555

599

Other assets(a)

538

259

606

52,99656,063

61,293

Interest-bearing deposits

2,067

2,655

3,855

Short-term and otherliabilities(b)

2,125

1,788

2,873

Long-term debt

5,007

6,062

6,109

Total interest income(3) (c)110

Interest expense

Beneficial interests issued byconsolidated VIEs

478

648

767

Total interest expense

9,677

11,153

13,604

Net interest income

43,31944,91047,689

225

3,385

7,574

$43,094$ 41,525$ 40,115

Provision for credit losses
Net interest income after
provision for credit losses(a) Largely margin loans.
(b) Includes brokerage customer payables.
(c) Negative interest income for the years ended December 31, 2013 and2012, is a result of increased client-driven demand for certain
securities combined with the impact of low interest rates; the offset of
this matched book activity is reflected as lower net interest expense
reported within short-term and other liabilities.

236

JPMorgan Chase & Co./2013 Annual ReportNote 9 – Pension and other postretirement
employee benefit plans
The Firm’s defined benefit pension plans and its otherpostretirement employee benefit (“OPEB”) plans(collectively the “Plans”) are accounted for in accordancewith U.S. GAAP for retirement benefits.
Defined benefit pension plans
The Firm has a qualified noncontributory U.S. defined
benefit pension plan that provides benefits to substantiallyall U.S. employees. The U.S. plan employs a cash balance
formula in the form of pay and interest credits to determine
the benefits to be provided at retirement, based on eligible
compensation and years of service. Employees begin to
accrue plan benefits after completing one year of service,and benefits generally vest after three years of service. The
Firm also offers benefits through defined benefit pension
plans to qualifying employees in certain non-U.S. locations
based on factors such as eligible compensation, age and/or
years of service.
It is the Firm’s policy to fund the pension plans in amounts
sufficient to meet the requirements under applicable laws.
The Firm does not anticipate at this time any contribution to
the U.S. defined benefit pension plan in 2014. The 2014
contributions to the non-U.S. defined benefit pension plans
are expected to be $49 million of which $32 million arecontractually required.
JPMorgan Chase also has a number of defined benefit
pension plans that are not subject to Title IV of the
Employee Retirement Income Security Act. The mostsignificant of these plans is the Excess Retirement Plan,pursuant to which certain employees previously earned pay
credits on compensation amounts above the maximum
stipulated by law under a qualified plan; no further pay
credits are allocated under this plan. The Excess Retirement
Plan had an unfunded projected benefit obligation in theamount of $245 million and $276 million, at December 31,
2013 and 2012, respectively.
Effective March 19, 2012, pursuant to the WaMu Global
Settlement, JPMorgan Chase Bank, N.A. became the sponsorof the WaMu Pension Plan. This plan’s assets were mergedwith and into the JPMorgan Chase Retirement Plan effective
as of December 31, 2012.

JPMorgan Chase & Co./2013 Annual Report

Defined contribution plans
JPMorgan Chase currently provides two qualified defined
contribution plans in the U.S. and other similararrangements in certain non-U.S. locations, all of which areadministered in accordance with applicable local laws andregulations. The most significant of these plans is The
JPMorgan Chase 401(k) Savings Plan (the “401(k) SavingsPlan”), which covers substantially all U.S. employees. The
401(k) Savings Plan allows employees to make pretax andRoth 401(k) contributions to tax-deferred investment
portfolios. The JPMorgan Chase Common Stock Fund, which
is an investment option under the 401(k) Savings Plan, is anonleveraged employee stock ownership plan.
The Firm matches eligible employee contributions up to 5%of benefits-eligible compensation (e.g., base pay) on anannual basis. Employees begin to receive matching
contributions after completing a one-year-of-service
requirement. Employees with total annual cash
compensation of $250,000 or more are not eligible formatching contributions. Matching contributions vest after
three years of service for employees hired on or after
May 1, 2009. The 401(k) Savings Plan also permits
discretionary profit-sharing contributions by participatingcompanies for certain employees, subject to a specified
vesting schedule.
OPEB plans
JPMorgan Chase offers postretirement medical and life
insurance benefits to certain retirees and postretirement
medical benefits to qualifying U.S. employees. Thesebenefits vary with the length of service and the date of hire
and provide for limits on the Firm’s share of covered
medical benefits. The medical and life insurance benefits
are both contributory. Postretirement medical benefits also
are offered to qualifying U.K. employees.
JPMorgan Chase’s U.S. OPEB obligation is funded withcorporate-owned life insurance (“COLI”) purchased on the
lives of eligible employees and retirees. While the Firm
owns the COLI policies, COLI proceeds (death benefits,
withdrawals and other distributions) may be used only toreimburse the Firm for its net postretirement benefit claim
payments and related administrative expense. The U.K.
OPEB plan is unfunded.

237

Notes to consolidated financial statements
The following table presents the changes in benefit obligations, plan assets and funded status amounts reported on theConsolidated Balance Sheets for the Firm’s U.S. and non-U.S. defined benefit pension and OPEB plans.
Defined benefit pension plans
As of or for the year ended December 31,

U.S.

(in millions)

Non-U.S.

2013

2012

2013

OPEB plans(d)
2012

2013

2012

Change in benefit obligation
Benefit obligation, beginning of year

$ (11,478)$ (9,043)

Benefits earned during the year

(314)

(272)

(34)

(41)

(1)

(1)

Interest cost on benefit obligations

(447)

(466)

(125)

(126)

(35)

(44)

—

—

—

6

—

—

WaMu Global Settlement—(1,425)

—

—

—

—

Employee contributions

NA

NA

(7)

(5)

(72)

(74)

Net gain/(loss)

794

(864)

(62)

(244)

138

(9)

Benefits paid

669

592

106

108

144

149

Expected Medicare Part D subsidy receipts

NA

NA

NA

NA

(10)

(10)

Foreign exchange impact and other

—

—

(68)

(112)

—

$ (10,776)$(11,478)$(3,433)$(3,243)$$ 13,012$ 10,472

$

3,330

$

2,989

$ 1,563$ 1,435

1,979

1,292

187

237

211

142

Firm contributions

32

31

45

86

2

2

WaMu Global Settlement

—

1,809

—

—

—

—

Plan amendments

Benefit obligation, end of year$

(3,243)$(2,829)

$

(990)

(826)

$

(999)

(2)
$

(990)

Change in plan assets
Fair value of plan assets, beginning of year
Actual return on plan assets

Employee contributions
Benefits paid
Foreign exchange impact and other

—

—

7

5

—

—

(669)

(592)

(106)

(108)

(19)

(16)

—

—

Funded/(unfunded) status(a)

$

3,578

$ 1,534

$

99

$

87

Accumulated benefit obligation, end of year

$ (10,685)$(11,447)$(3,406)$(3,221)(b)(c)

$

3,532

121

$ 14,354(b)(c)$ 13,012

69

Fair value of plan assets, end of year

(c)

$

3,330

(c)

—

—

$ 1,757$ 1,563

$

$

931
NA

573
NA

(a) Represents plans with an aggregate overfunded balance of $5.1 billion and $2.8 billion at December 31, 2013 and 2012, respectively, and plans with anaggregate underfunded balance of $540 million and $612 million at December 31, 2013 and 2012, respectively.
(b) At December 31, 2013 and 2012, approximately $429 million and $418 million, respectively, of U.S. plan assets included participation rights underparticipating annuity contracts.
(c) At December 31, 2013 and 2012, defined benefit pension plan amounts not measured at fair value included $96 million and $137 million, respectively, ofaccrued receivables, and $104 million and $310 million, respectively, of accrued liabilities, for U.S. plans; and at December 31, 2012, $47 million of
accrued receivables, and $46 million of accrued liabilities, for non-U.S. plans.
(d) Includes an unfunded accumulated postretirement benefit obligation of $34 million and $31 million at December 31, 2013 and 2012, respectively, for the
U.K. plan.

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
projected benefit obligation or the fair value of the plan
assets. Any excess is amortized over the average futureservice period of defined benefit pension plan participants,
which for the U.S. defined benefit pension plan is currently
nine years. In addition, prior service costs are amortizedover the average remaining service period of active
employees expected to receive benefits under the plan
when the prior service cost is first recognized. The averageremaining amortization period for current prior service
costs is six years.

238

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 thirteen years; however, prior service
costs resulting from plan changes are amortized over the
average years of service remaining to full eligibility age,which is currently two years.

JPMorgan Chase & Co./2013 Annual Report

The following table presents pretax pension and OPEB amounts recorded in AOCI.
Defined benefit pension plans
December 31,

U.S.

(in millions)
Net gain/(loss)

2013

OPEB plans

2012

$

(1,726) $(3,814) $

196

237

14

18

1

$

(1,530) $(3,577) $(644) $

(658) $

126

Prior service credit/(cost)
Accumulated other comprehensive income/(loss), pretax, end of year

Non-U.S.

2013

2012

(658) $

2013(676) $

2012

125

$

(133)

$

(132)

1

The following table presents the components of net periodic benefit costs reported in the Consolidated Statements of Income
and other comprehensive income for the Firm’s U.S. and non-U.S. defined benefit pension, defined contribution and OPEB
plans.
Pension plans
U.S.
Year ended December 31, (in millions)2013

Non-U.S.

2012

2011

2013

OPEB plans

2012

2011

2013

2012

2011

Components of net periodic benefit cost
Benefits earned during the year

314 $ 272 $

249

41 $

36

1 $

1 $

1

Interest cost on benefit obligations

$

447

466

451

$

125

34

$

126

133

$

35

44

51

Expected return on plan assets

(956)

(861)

(791)

(142)

(137)

(141)

(92)

(90)

(88)

Net (gain)/loss

271

289

165

49

36

48

1

(1)

1

Prior service cost/(credit)

(41)

(41)

(43)

(2)

—

(1)

—

—

(8)

35

125

31

64

66

75

(55)

(46)

(43)

Amortization:

Net periodic defined benefit cost
Other defined benefit pension plans

15

15

19

14

8

12

NA

NA

NA

Total defined benefit plans

50

140

50

78

74

87

(55)

(46)

(43)

Total defined contribution plans

447

409

370

321

302

285

NA

NA

NA

420

$ 399

$ 376 $ 372$(55) $(46) $

(43)

$

58

(a)

Total pension and OPEB cost included in compensation
expense$497 $ 549 $Changes in plan assets and benefit obligations recognizedin other comprehensive income
Net (gain)/loss arising during the year

19

$ 146 $

25

$ (257) $(43) $

—

—

—

—

(6)

—

—

—

—

(271)

(289)

(165)

(49)

(36)

(48)

(1)

1

(1)

Amortization of prior service (cost)/credit

41

41

43

2

Foreign exchange impact and other

—

—

—

14

Prior service credit arising during the year
Amortization of net loss

$ (1,817) $ 434 $ 1,207

(a)

—

1

—

—

8

22

1

—

(1)

—

Total recognized in other comprehensive income$ (2,047) $ 186 $ 1,085

$

(14)

$ 126 $

(21)

$ (258) $(43) $

65

Total recognized in net periodic benefit cost and othercomprehensive income$ (2,012) $ 311 $ 1,116$

50$ 192 $

54

$ (313) $(89) $

22(a) Includes various defined benefit pension plans which are individually immaterial.

JPMorgan Chase & Co./2013 Annual Report239

Notes to consolidated financial statements
The estimated pretax amounts that will be amortized from AOCI into net periodic benefit cost in 2014 are as follows.
Defined benefit pension plans(in millions)U.S.

Net loss/(gain)$

35

Prior service cost/(credit)
Total

OPEB plans

Non-U.S.

$

$

U.S.
47

(41)

(2)

(6) $

45

Non-U.S.

$

—

$

—

—
$

—

—
$

—

The following table presents the actual rate of return on plan assets for the U.S. and non-U.S. defined benefit pension and
OPEB plans.
U.S.
Year ended December 31,

Non-U.S.

2013

2012

2011

2013

2012

2011

Defined benefit pension plans

15.95%

12.66%

0.72%

3.74 - 23.80%

7.21 - 11.72%(4.29)-13.12%

OPEB plans

13.88

10.10

5.22

NA

NA

NA

Actual rate of return:Plan assumptions
JPMorgan Chase’s expected long-term rate of return for U.S.
defined benefit pension and OPEB plan assets is a blended
average of the investment advisor’s projected long-term (10years or more) returns for the various asset classes,
weighted by the asset allocation. Returns on asset classes
are developed using a forward-looking approach and are
not strictly based on historical returns. Equity returns are
generally developed as the sum of inflation, expected realearnings growth and expected long-term dividend yield.
Bond returns are generally developed as the sum of
inflation, real bond yield and risk spread (as appropriate),adjusted for the expected effect on returns from changing
yields. Other asset-class returns are derived from theirrelationship to the equity and bond markets. Considerationis also given to current market conditions and the shortterm portfolio mix of each plan; as a result, in 2013 theFirm generally maintained the same expected return on
assets as in the prior year.
For the U.K. defined benefit pension plans, which represent
the most significant of the non-U.S. defined benefit pension
plans, procedures similar to those in the U.S. are used todevelop the expected long-term rate of return on plan

assets, taking into consideration local market conditions
and the specific allocation of plan assets. The expectedlong-term rate of return on U.K. plan assets is an average of
projected long-term returns for each asset class. The returnon equities has been selected by reference to the yield on
long-term U.K. government bonds plus an equity risk
premium above the risk-free rate. The expected return on“AA” rated long-term corporate bonds is based on an
implied yield for similar bonds.
The discount rate used in determining the benefit obligation
under the U.S. defined benefit pension and OPEB plans was
selected by reference to the yields on portfolios of bonds
with maturity dates and coupons that closely match each of
the plan’s projected cash flows; such portfolios are derived
from a broad-based universe of high-quality corporate
bonds as of the measurement date. In years in which thesehypothetical bond portfolios generate excess cash, suchexcess is assumed to be reinvested at the one-year forward
rates implied by the Citigroup Pension Discount Curve
published as of the measurement date. The discount rate
for the U.K. defined benefit pension plan represents a rate
implied from the yield curve of the year-end iBoxx £corporate “AA” 15-year-plus bond index.

The following tables present the weighted-average annualized actuarial assumptions for the projected and accumulated
postretirement benefit obligations, and the components of net periodic benefit costs, for the Firm’s significant U.S. and nonU.S. defined benefit pension and OPEB plans, as of and for the periods indicated.
Weighted-average assumptions used to determine benefit obligations
U.S.
December 31,

Non-U.S.

2013

2012

2013

2012

Defined benefit pension plans

5.00%

3.90%

1.10 - 4.40%

1.40 - 4.40%

OPEB plans

4.90

3.90

—

—

3.50

4.00

2.75 - 4.60

2.75 - 4.10

Assumed for next year

6.50

7.00

—

—

Ultimate

5.00

5.00

—

—

Year when rate will reach ultimate

2017

2017

—

—

Discount rate:

Rate of compensation increase
Health care cost trend rate:

240

JPMorgan Chase & Co./2013 Annual ReportWeighted-average assumptions used to determine net periodic benefit costs
U.S.
Year ended December 31,

Non-U.S.

2013

2012

2011

2013

2012

2011

Defined benefit pension plans

3.90%

4.60%

5.50%

1.40 - 4.40%

1.50 - 4.80%

1.60-5.50%

OPEB plans

3.90

4.70

5.50

—

—

—

Defined benefit pension plans

7.50

7.50

7.50

2.40 - 4.90

2.50 - 4.60

2.40-5.40

OPEB plans

6.25

6.25

6.25

NA

NA

NA

4.00

4.00

4.00

2.75 - 4.10

2.75 - 4.20

3.00-4.50

Assumed for next year

7.00

7.00

7.00

—

—

—

Ultimate

5.00

5.00

5.00

—

—

—

Year when rate will reach ultimate

2017

2017

2017

—

—

—

Discount rate:

Expected long-term rate of return on plan assets:

Rate of compensation increase
Health care cost trend rate:

The following table presents the effect of a one-percentagepoint change in the assumed health care cost trend rate on
JPMorgan Chase’s total service and interest cost andaccumulated postretirement benefit obligation.
Year ended December 31, 2013
(in millions)

1-Percentage
point
increase

Effect on total service and interest cost $1

Effect on accumulated postretirement
benefit obligation

31

1-Percentage
point
decrease
$

(1)
(26)

At December 31, 2013, the Firm increased 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 result in a decrease in
expense of approximately $84 million for 2014. The 2014
expected long-term rate of return on U.S. defined benefit
pension plan assets and U.S. OPEB plan assets are 7.00%
and 6.25%, respectively. For 2014, the initial health carebenefit obligation trend assumption has been set at 6.50%,
and the ultimate health care trend assumption and the year
to reach the ultimate rate remains at 5.00% and 2017,
respectively, unchanged from 2013. As of December 31,
2013, the interest crediting rate assumption remained at
5.00% while the assumed rate of compensation increase
decreased to 3.50%.
JPMorgan Chase’s U.S. defined benefit pension and OPEB
plan expense is sensitive to the expected long-term rate of
return on plan assets and the discount rate. With all otherassumptions held constant, a 25-basis point decline in the
expected long-term rate of return on U.S. plan assets would
result in an aggregate increase of approximately $39
million in 2014 U.S. defined benefit pension and OPEB plan
expense. A 25-basis point decline in the discount rate for
the U.S. plans would result in an increase in 2014 U.S.
defined benefit pension and OPEB plan expense of
approximately an aggregate $26 million and an increase in
the related benefit obligations of approximately anaggregate $254 million. A 25-basis point decrease in theinterest crediting rate for the U.S. defined benefit pension
plan would result in a decrease in 2014 U.S. defined benefit
pension expense of approximately $32 million and a
JPMorgan Chase & Co./2013 Annual Report

decrease in the related projected benefit obligations ofapproximately $130 million. A 25-basis point decline in the
discount rates for the non-U.S. plans would result in an
increase in the 2014 non-U.S. defined benefit pension plan
expense of approximately $15 million.
Investment strategy and asset allocation
The Firm’s U.S. defined benefit pension plan assets are heldin trust and are invested in a well-diversified portfolio of
equity and fixed income securities, cash and cash
equivalents, and alternative investments (e.g., hedge funds,
private equity, real estate and real assets). Non-U.S. defined
benefit pension plan assets are held in various trusts andare also invested in well-diversified portfolios of equity,
fixed income and other securities. Assets of the Firm’s COLI
policies, which are used to partially fund the U.S. OPEB
plan, are held in separate accounts with an insurancecompany and are invested in funds intended to replicate
equity and fixed income indices.
The investment policy for the Firm’s U.S. defined benefit
pension plan assets is to optimize the risk-return
relationship as appropriate to the needs and goals using a
global portfolio of various asset classes diversified bymarket segment, economic sector, and issuer. Assets aremanaged by a combination of internal and external
investment managers. Periodically the Firm performs acomprehensive analysis on the U.S. defined benefit pension
plan asset allocations, incorporating projected asset andliability data, which focuses on the short- and long-term
impact of the asset allocation on cumulative pension
expense, economic cost, present value of contributions andfunded status. As the U.S. defined benefit pension plan isoverfunded, the investment strategy for this plan was
adjusted in 2013 to provide for greater liquidity. Currently,
approved asset allocation ranges are: U.S. equity 0% to
45%, international equity 0% to 40%, debt securities 0%
to 80%, hedge funds 0% to 20%, and real estate 0% to10%, real assets 0% to 10% and private equity 0% to20%. Asset allocations are not managed to a specific target
but seek to shift asset class allocations within these statedranges. Investment strategies incorporate the economic
outlook and the anticipated implications of the241Notes to consolidated financial statements
macroeconomic environment on the various asset classes
while maintaining an appropriate level of liquidity for theplan. The Firm regularly reviews the asset allocations andasset managers, as well as other factors that impact theportfolio, which is 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 registered investment companies are further diversified
into various financial instruments. As of December 31,
2013, assets held by the Firm’s U.S. and non-U.S. defined
benefit pension and OPEB plans do not include JPMorgan
Chase common stock, except through indirect 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$2.9 billion and $1.8 billion for U.S. plans and $242 million
and $220 million for non-U.S. plans, as of December 31,
2013 and 2012, respectively.

For the U.K. defined benefit pension plans, which represent
the most significant of the non-U.S. defined benefit pension
plans, the assets are invested to maximize returns subject
to an appropriate level of risk relative to the plans’
liabilities. In order to reduce the volatility in returns relative
to the plans’ liability profiles, the U.K. defined benefit
pension plans’ largest asset allocations are to debt
securities of appropriate durations. Other assets, mainly
equity securities, are then invested for capital appreciation,
to provide long-term investment growth. Similar to the U.S.
defined benefit pension plan, asset allocations and asset
managers for the U.K. plans are reviewed regularly and theportfolio is rebalanced when deemed necessary.

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 range/target allocation by asset category, for the Firm’s U.S. and nonU.S. defined benefit pension and OPEB plans.
Defined benefit pension plans
U.S.
TargetDecember 31,

Allocation

Non-U.S.

% of plan assets

TargetOPEB plans(c)% of plan assets

Target% of plan assets

2013

2012

Allocation

2013

2012

Allocation

2013

2012

Asset category
Debt securities(a)

0-80%

25%

20%

64%

63%

72%

50%

50%

50%

Equity securities

0-85

48

41

35

36

27

50

50

50

Real estate

0-10

4

5

—

—

—

—

—

—

Alternatives(b)

0-50

23

34

1

1

1

—

—

—

Total

100%

100%

100%

100%

100%

100%

100%

100%

100%

(a)
(b)
(c)

242

Debt securities primarily include corporate debt, U.S. federal, state, local and non-U.S. government, and mortgage-backed securities.
Alternatives primarily include limited partnerships.
Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded.

JPMorgan Chase & Co./2013 Annual Report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 3 on pages 195–215 of this Annual Report.
Pension and OPEB plan assets and liabilities measured at fair value
U.S. defined benefit pension plans
December 31, 2013
(in millions)Level 1

Cash and cash equivalents$

Level 2

62$

Total fairvalue

Level 3—$

Non-U.S. defined benefit pension plans(i)

—

$

62

Level 1$

Total fairvalue

Level 2

221

$

3

$

224

Equity securities:
Capital equipment

1,084

—

—

1,084

86

17

103

Consumer goods

1,085

—

—

1,085

225

50

275

Banks and finance companies

737

—

—

737

233

29

262

Business services

510

—

—

510

209

14

223

Energy

292

—

—

292

64

20

84

Materials

344

—

—

344

36

9

45

Real Estate

38

—

—

38

—

1

1

Other

1,337

18

4

1,359

25

103

128

Total equity securities

5,427

18

4

5,449

878

243

1,121

—

1,308

4

1,312

98

248

346

Hedge funds

—

355

718

1,073

—

—

—

Private equity

—

—

1,969

1,969

—

—

—

Real estate

—

—

558

558

—

—

—

Real assets(c)

—

—

271

271

—

—

—

Total limited partnerships

—

355

3,516

3,871

—

—

—

—

1,223

7

1,230

—

787

787

U.S. federal, state, local and non-U.S. government
debt securities

343

299

—

642

—

777

777

Mortgage-backed securities

37

50

—

87

73

—

73

—

30

—

30

—

302

302

1,214

41

430

1,685

148

52

Common/collective trust funds(a)Limited partnerships:(b)Corporate debt securities(d)Derivative receivables
Other(e)Total assets measured at fair value(f)(g)

$

7,083

$

Derivative payables

$

—

$

—

Total liabilities measured at fair value(h)

JPMorgan Chase & Co./2013 Annual Report

3,324

$

3,961

$

$

(6) $

—

$

(6) $

—

14,368

200

$

1,418

$

2,412

$

3,830

$

(6) $

—

$

(298) $

(298)

$

(6) $

—

$

(298) $

(298)

243

Notes to consolidated financial statements
U.S. defined benefit pension plans
December 31, 2012
(in millions)Level 1

Cash and cash equivalents$

Level 2

162$

Total fairvalue

Level 3—$

Non-U.S. defined benefit pension plans(i)

—

$

162

Level 1$

Total fairvalue

Level 2

142

$

—

$

142

Equity securities:
Capital equipment

702

6

—

708

115

15

130

Consumer goods

744

4

—

748

136

32

168

Banks and finance companies

425

54

—

479

94

23

117

Business services

424

—

—

424

125

8

133

Energy

192

—

—

192

54

12

66

Materials

211

—

—

211

30

6

36
10

Real estate

18

—

—

18

10

—

Other

1,107

42

4

1,153

19

71

90

Total equity securities

3,823

106

4

3,933

583

167

750

412

1,660

199

2,271

62

192

254

Hedge funds

—

878

1,166

2,044

—

—

—

Private equity

—

—

1,743

1,743

—

—

—

Real estate

—

—

467

467

—

—

—

Real assets

—

—

311

311

—

—

—

Total limited partnerships

—

878

3,687

4,565

—

—

—

Corporate debt securities(d)

—

1,114

1

1,115

—

765

765

U.S. federal, state, local and non-U.S. government
debt securities

—

537

—

537

—

1,237

1,237

Common/collective trust funds(a)Limited partnerships:

(b)

(c)

Mortgage-backed securities

107

30

—

137

100

—

100

Derivative receivables

3

5

—

8

109

—

109

Other(e)

7

34

420

461

21

67

Total assets measured at fair value(f)(g)

$

4,514

$

Derivative payables$—

Total liabilities measured at fair value(h)

$

—

(a)
(b)
(c)
(d)
(e)

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

4,364

$

4,311

$

$

(4) $

—

$

$

(4) $

—

$

13,189

$

1,017

88

$

2,428

$

3,445

(4) $

(116) $

—

$

(116)

(4) $

(116) $

—

$

(116)

At December 31, 2013 and 2012, common/collective trust funds primarily included a mix of short-term investment funds, domestic and international
equity investments (including index) and real estate funds.
Unfunded commitments to purchase limited partnership investments for the plans were $1.6 billion and $1.4 billion for 2013 and 2012, respectively.
Real assets include investments in productive assets such as agriculture, energy rights, mining and timber properties and exclude raw land to be
developed for real estate purposes.
Corporate debt securities include debt securities of U.S. and non-U.S. corporations.
Other consists of money markets, exchange-traded funds and participating and non-participating annuity contracts. Money markets and exchange-tradedfunds are primarily classified within level 1 of the fair value hierarchy given they are valued using market observable prices. Participating and nonparticipating annuity contracts are classified within level 3 of the fair value hierarchy due to lack of market mechanisms for transferring each policy andsurrender restrictions.
At December 31, 2013 and 2012, the fair value of investments valued at NAV were $2.7 billion and $4.4 billion, respectively, which were classified
within the valuation hierarchy as follows: $100 million and $400 million in level 1, $1.9 billion and $2.5 billion in level 2 and $700 million and$1.5 billion in level 3.
At December 31, 2013 and 2012, excluded U.S. defined benefit pension plan receivables for investments sold and dividends and interest receivables of$96 million and $137 million, respectively; and at December 31, 2012, excluded non-U.S. defined benefit pension plan receivables for investments soldand dividends and interest receivables of $47 million.
At December 31, 2013 and 2012, excluded $102 million and $306 million, respectively, of U.S. defined benefit pension plan payables for investmentspurchased; and $2 million and $4 million, respectively, of other liabilities; and at December 31, 2012, excluded non-U.S. defined benefit pension planpayables for investments purchased of $46 million.
There were no assets or liabilities classified as level 3 for the non-U.S. defined benefit pension plans as of December 31, 2013 and 2012.

The Firm’s U.S. OPEB plan was partially funded with COLI policies of $1.7 billion and $1.6 billion at December 31, 2013 and2012, respectively, which were classified in level 3 of the valuation hierarchy.

244

JPMorgan Chase & Co./2013 Annual ReportChanges in level 3 fair value measurements using significant unobservable inputs
Actual return on plan assets

Fair value,
January 1,
2013

Year ended December 31, 2013
(in millions)

Realized
gains/(losses)

Unrealized
gains/(losses)

Purchases, sales
and settlements,
net

Transfers in
and/or outof level 3

Fair value,
December 31,
2013

$

$

$

$

$

U.S. defined benefit pension plans
Equities$

Common/collective trust funds

4

—

199

59

Hedge funds

1,166

Private equity

1,743

Real estate

467

—

—

—
—

4

(32)

(222)

4

137

14

(593)

(6)

718

108

170

(4)

(48)

1,969

21

44

26

—

558

Limited partnerships:

Real assets
Total limited partnerships

311

4

12

(98)

42

271

3,687

270

240

(669)

(12)

3,516

1

—

—

—

6

7

420

—

10

—

—

430

Corporate debt securities
Other
Total U.S. defined benefit pension plans

$

4,311

$

329

$

218

$

(891) $

(6) $

3,961

COLI

$

1,554

$

—

$

195

$

—

Total OPEB plans

$

1,554

$

—

$

195

$

—

$

—

$

1,749

$

—

$

1,749

OPEB plans

Actual return on plan assets

Fair value,
January 1,
2012

Year ended December 31, 2012
(in millions)

Realized
gains/(losses)

Unrealized
gains/(losses)$$

Purchases, sales
and settlements,
net

Transfers in
and/or outof level 3

Fair value,
December 31,
2012

$

$

U.S. defined benefit pension plans
Equities$

Common/collective trust funds

1
202

—

(1) $

2

22

—

4

4

(27)

—

199

Limited partnerships:
Hedge funds

1,039

1

71

55

—

1,166

Private equity

1,367

59

54

263

—

1,743

Real estate

306

16

1

144

—

467

Real assets

264

—

10

37

—

311

2,976

76

136

499

—

3,687

2

—

—

(1)

—

1

Total limited partnerships
Corporate debt securities
Other
Total U.S. defined benefit pension plans

427

—

(7)

—

—

420

$

3,608

$

78

$

150

$

471

$

4

$

4,311

COLI

$

1,427

$

—

$

127

$

—

$

—

$

1,554

Total OPEB plans

$

1,427

$

—

$

127

$

—

$

—

$

1,554

OPEB plans

JPMorgan Chase & Co./2013 Annual Report245Notes to consolidated financial statements
Actual return on plan assets

Fair value,
January 1,
2011

Year ended December 31, 2011
(in millions)

Realized
gains/(losses)

Unrealized
gains/(losses)

Purchases, sales
and settlements,
net

Transfers in
and/or outof level 3

Fair value,
December 31,
2011

$

$

$

$

$

U.S. defined benefit pension plans
Equities$—

Common/collective trust funds

—

—

—

1

1

194

35

1

(28)

—

202

Hedge funds

1,160

(16)

27

(76)

(56)

1,039

Private equity

1,232

56

2

77

—

1,367

Real estate

304

8

40

14

(60)

306

Real assets

—

5

(7)

150

116

264

2,696

53

62

165

—

2,976

1

—

—

1

—

2

Limited partnerships:

Total limited partnerships
Corporate debt securities
Other
Total U.S. defined benefit pension plans

387

—

41

(1)

—

427

$

3,278

$

88

$

104

$

137

$

1

$

3,608

COLI

$

1,381

$

—

$

70

$

(24) $

—

$

1,427

Total OPEB plans

$

1,381

$

—

$

70

$

(24) $

—

$

1,427

OPEB plans

Estimated future benefit payments
The following table presents benefit payments expected to be paid, which include the effect of expected future service, for theyears indicated. The OPEB medical and life insurance payments are net of expected retiree contributions.
Year ended December 31,(in millions)2014

U.S. defined benefit
pension plans$

703

OPEB before
Medicare Part D
subsidy

Non-U.S. defined
benefit pension plans
$

112

$

Medicare Part D
subsidy
86

$

10

2015

731

118

85

11

2016

872

123

83

12

2017

907

129

81

12

2018

931

140

78

13

4,139

785

345

47

Years 2019–2023

246

JPMorgan Chase & Co./2013 Annual ReportNote 10 – Employee stock-based incentives
Employee stock-based awards
In 2013, 2012 and 2011, JPMorgan Chase granted longterm stock-based awards to certain employees under its
Long-Term Incentive Plan, which was last amended in
May 2011 (“LTIP”). Under the terms of the LTIP, as ofDecember 31, 2013, 266 million shares of common stock
were available for issuance through May 2015. The LTIP is
the only active plan under which the Firm is currently
granting stock-based incentive awards. In the following
discussion, the LTIP, plus prior Firm plans and plans
assumed as the result of acquisitions, are referred tocollectively as the “LTI Plans,” and such plans constitute theFirm’s stock-based incentive plans.
Restricted stock units (“RSUs”) are awarded at no cost to
the recipient upon their grant. Generally, RSUs are granted
annually and vest at a rate of 50% after two years and
50% after three years and are converted into shares ofcommon stock as of the vesting date. In addition, RSUs
typically include full-career eligibility provisions, whichallow employees to continue to vest upon voluntarytermination, subject to post-employment and otherrestrictions based on age or service-related requirements.
All RSUs awards are subject to forfeiture until vested andcontain clawback provisions that may result in cancellation
under certain specified circumstances. RSUs entitle therecipient to receive cash payments equivalent to any
dividends paid on the underlying common stock during theperiod the RSUs are outstanding and, as such, areconsidered participating securities as discussed in Note 24
on page 311 of this Annual Report.
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 typically awards
SARs to certain key employees once per year; the Firm also
periodically grants employee stock options and SARs to
individual employees. The 2013, 2012 and 2011 grants ofSARs become exercisable ratably over five years (i.e., 20%
per year) and contain clawback provisions similar to RSUs.
The 2013, 2012 and 2011 grants of SARs contain fullcareer eligibility provisions. SARs generally expire ten years
after the grant date.

JPMorgan Chase & Co./2013 Annual Report

The Firm separately recognizes compensation expense foreach tranche of each award as if it were a separate award
with its own vesting date. Generally, for each tranche
granted, compensation expense is recognized on a straightline basis from the grant date until the vesting date of therespective tranche, provided that the employees will not
become full-career eligible during the vesting period. Forawards with full-career eligibility provisions and awards
granted with no future substantive service requirement, theFirm accrues the estimated value of awards expected to beawarded to employees as of the grant date without giving
consideration to the impact of post-employment
restrictions. For each tranche granted to employees whowill become full-career eligible during the vesting period,
compensation expense is recognized on a straight-line basis
from the grant date until the earlier of the employee’s fullcareer eligibility date or the vesting date of the respective
tranche.
The Firm’s policy for issuing shares upon settlement of
employee stock-based incentive awards is to issue either
new shares of common stock or treasury shares. During
2013, 2012 and 2011, the Firm settled all of its employee
stock-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. Effective
January 2013, the Compensation Committee and Board of
Directors determined that, while all the requirements forvesting of these awards have been met, vesting should be
deferred for a period of up to 18 months (i.e., up to July 22,2014), to enable the Firm to make progress against the
Firm’s strategic priorities and performance goals, including
remediation relating to the CIO matter. The SARs, which will
expire in January 2018, will become exercisable no earlier
than July 22, 2014, and have an exercise price of $39.83(the price of JPMorgan Chase common stock on the date of
grant). Vesting will be subject to a Board determination
taking into consideration the extent of such progress andsuch other factors as it deems relevant. The expense related
to this award is dependent on changes in fair value of the
SARs through the date when the vested number of SARs are
determined, if any, and the cumulative expense isrecognized ratably over the service period, which was
initially assumed to be five years but, effective in the firstquarter of 2013, has been extended to six and one-halfyears. The Firm recognized $14 million, $5 million and$(4) million in compensation expense in 2013, 2012 and2011, respectively, for this award.

247

Notes to consolidated financial statements
RSUs, employee stock options and SARs activity
Compensation expense for RSUs is measured based on the number of shares granted multiplied by the stock price at the grantdate, and for employee stock options and SARs, is measured at the grant date using the Black-Scholes valuation model.
Compensation expense for these awards is recognized in net income as described previously. The following table summarizes
JPMorgan Chase’s RSUs, employee stock options and SARs activity for 2013.
RSUs
Year ended December 31, 2013
(in thousands, except weighted-average data, and whereotherwise stated)

Number ofsharesOutstanding, January 1
GrantedExercised or vested
Forfeited
Canceled
Outstanding, December 31
Exercisable, December 31

Options/SARs

Weightedaverage grant
date fairvalue

142,006 $46,171(62,331)(4,605)NA
121,241 $
NA

40.49
46.92
43.28
40.77
NA
41.47
NA

Number ofawards

Weightedaverage
exercise price

115,906 $12,563(35,825)(4,007)(1,562)
87,075 $46,855Weightedaverageremaining
contractual
life (in years)

42.44
46.77
37.32
39.44
104.4944.24
47.50

Aggregate
intrinsic
value

5.6 $ 1,622,238
4.2
904,017

The total fair value of RSUs that vested during the years ended December 31, 2013, 2012 and 2011, was $2.9 billion, $2.8
billion and $5.4 billion, respectively. The weighted-average grant date per share fair value of stock options and SARs granted
during the years ended December 31, 2013, 2012 and 2011, was $9.58, $8.89 and $13.04, respectively. The total intrinsic
value of options exercised during the years ended December 31, 2013, 2012 and 2011, was $507 million, $283 million and$191 million, respectively.
Compensation expense
The Firm recognized the following noncash compensation
expense related to its various employee stock-based
incentive plans in its Consolidated Statements of Income.
Year ended December 31, (in millions)
Cost of prior grants of RSUs and SARs
that are amortized over theirapplicable vesting periods
Accrual of estimated costs of RSUs andSARs to be granted in future periods
including those to full-career eligible
employees
Total noncash compensation expense
related to employee stock-based
incentive plans

2013

2012

2011

$ 1,440$ 1,810$ 1,986

Year ended December 31, (in millions)

2013

2012

2011

Cash received for options exercised

$ 166

$ 333

$ 354

42

53

31

Tax benefit realized(a)
779

735

689

$ 2,219$ 2,545$ 2,675

At December 31, 2013, approximately $848 million(pretax) of compensation cost related to unvested awards
had not yet been charged to net income. That cost is
expected to be amortized into compensation expense over aweighted-average period of 1.0 year. The Firm does not
capitalize any compensation cost related to share-based
compensation awards to employees.
Cash flows and tax benefits
Income tax benefits related to stock-based incentive
arrangements recognized in the Firm’s Consolidated
Statements of Income for the years ended December 31,
2013, 2012 and 2011, were $865 million, $1.0 billion and$1.0 billion, respectively.

248

The following table sets forth the cash received from theexercise of stock options under all stock-based incentive
arrangements, and the actual income tax benefit realized
related to tax deductions from the exercise of the stock
options.

(a) The tax benefit realized from dividends or dividend equivalents paid on equityclassified share-based payment awards that are charged to retained earnings arerecorded as an increase to additional paid-in capital and included in the pool ofexcess tax benefits available to absorb tax deficiencies on share-based payment
awards.

Valuation assumptions
The following table presents the assumptions used to value
employee stock options and SARs granted during the years
ended December 31, 2013, 2012 and 2011, under theBlack-Scholes valuation model.
Year ended December 31,
Weighted-average annualized valuation
assumptions

2013

2012

2011

Risk-free interest rate
Expected dividend yield
Expected common stock price volatility
Expected life (in years)

1.18%
2.66
28
6.6

1.19%
3.15
35
6.6

2.58%
2.20
34
6.5

The expected dividend yield is determined using forwardlooking assumptions. The expected volatility assumption isderived from the implied volatility of JPMorgan Chase’s
stock options. The expected life assumption is an estimateof the length of time that an employee might hold an option
or SAR before it is exercised or canceled, and theassumption is based on the Firm’s historical experience.
JPMorgan Chase & Co./2013 Annual ReportNote 11 – Noninterest expense
The following table presents the components of noninterest
expense.
Year ended December 31,(in millions)

2013

2012

2011

$ 30,810$ 30,585$ 29,037

Occupancy expense

3,693

3,925

3,895

Technology, communications
and equipment expense

5,425

5,224

4,947

Professional and outsideservices

7,641

7,429

7,482

Marketing

2,500

2,577

3,143

19,761

14,032

13,559

637

957

848

39,65734,14433,874$ 70,467$ 64,729$ 62,911

Compensation expense
Noncompensation expense:

Other expense(a)(b)

Amortization of intangibles
Total noncompensation
expenseTotal noninterest expense(a) Included firmwide legal expense of $11.1 billion, $5.0 billion and $4.9
billion for the years ended December 31, 2013, 2012 and 2011,
respectively.
(b) Included FDIC-related expense of $1.5 billion, $1.7 billion and $1.5
billion for the years ended December 31, 2013, 2012 and 2011,
respectively.

Note 12 – Securities
Securities are classified as AFS, held-to-maturity (“HTM”) or
trading. Securities classified as trading assets are discussed
in Note 3 on pages 195–215 of this Annual Report.
Predominantly all of the Firm’s AFS and HTM investment
securities (the “investment securities portfolio”) is held by
CIO in connection with its asset-liability management
objectives. At December 31, 2013, the average credit ratingof the debt securities comprising the investment securities
portfolio was AA+ (based upon external ratings whereavailable, and where not available, based primarily uponinternal ratings which correspond to ratings as defined by
S&P and Moody’s). AFS securities are carried at fair valueon the Consolidated Balance Sheets. Unrealized gains andlosses, after any applicable hedge accounting adjustments,
are reported as net increases or decreases to accumulated
other comprehensive income/(loss). The specificidentification method is used to determine realized gains
and losses on AFS securities, which are included insecurities gains/(losses) on the Consolidated Statements ofIncome. HTM debt securities, which management has theintent and ability to hold until maturity, are carried atamortized cost on the Consolidated Balance Sheets. For
both AFS and HTM debt securities, purchase discounts or
premiums are amortized into interest income.
Other-than-temporary impairment
AFS debt and equity securities and HTM debt securities in
unrealized loss positions are analyzed as part of the Firm’s
ongoing assessment of other-than-temporary impairment(“OTTI”). For most types of debt securities, the Firm
considers a decline in fair value to be other-than-temporary
when the Firm does not expect to recover the entire
amortized cost basis of the security. For beneficial interests
JPMorgan Chase & Co./2013 Annual Reportin securitizations that are rated below “AA” at theiracquisition, or that can be contractually prepaid orotherwise settled in such a way that the Firm would notrecover substantially all of its recorded investment, the Firm
considers an OTTI to have occurred when there is anadverse change in expected cash flows. For AFS equity
securities, the Firm considers a decline in fair value to beother-than-temporary if it is probable that the Firm will notrecover its amortized 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, including AFS securities theFirm has the intent and ability to hold, the expected cash
flows to be received from the securities are evaluated todetermine if a credit loss exists. In the event of a credit loss,
only the amount of impairment associated with the credit
loss is recognized in income. Amounts relating to factors
other than credit losses are recorded in OCI.
The Firm’s cash flow evaluations take into account 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.
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
carrying value. Any impairment loss on an equity security isequal to the full difference between the amortized costbasis and the fair value of the security.
249

Notes to consolidated financial statements
Realized gains and losses
The following table presents realized gains and losses andcredit losses that were recognized in income from AFS
securities.
Year ended December 31,(in millions)

2013

2012

2011

Realized gains$1,302$2,610$1,811

Realized losses

(614)

(457)

(142)

Net realized gains(a)

688

2,153

1,669

Credit-related

(1)

(28)

(76)

Securities the Firm intends to sell(20) (b)(15) (b)

—

(21)

(43)

(76)

$ 667

$2,110$1,593

OTTI losses

Total OTTI losses recognized inincomeNet securities gains(a) Proceeds from securities sold were within approximately 2% ofamortized cost in 2013, and within approximately 4% of amortizedcost in 2012 and 2011.
(b) Excludes realized losses of $12 million and $24 million for the years
ended December 31, 2013 and 2012, respectively that had beenpreviously reported as an OTTI loss due to the intention to sell the
securities.

The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
2013
December 31, (in millions)

Amortized
cost

Gross
unrealized
gains

2012

Gross
unrealized
lossesFair
value

Amortized
cost

77,815$Grossunrealized
gains

Gross
unrealized
lossesFair
value

Available-for-sale debt securities
Mortgage-backed securities:
U.S. government agencies(a)$76,428 $2,364 $

977$

93,693 $4,708 $

13$

98,388Residential:
Prime and Alt-A

2,744

61

27

2,778

1,853

83

3

Subprime

908

23

1

930

825

28

—

853

Non-U.S.

57,4481,314

158,76170,3581,524

2971,853

Commercial

1,933

15,891560

26

16,425

12,268948

13

13,203

Total mortgage-backed securities

153,419

4,322

1,032

156,709

178,997

7,291

58

186,230

U.S. Treasury and government agencies(a)21,310385

306

21,38912,022116

812,130Obligations of U.S. states and municipalities

29,741707

987

29,461

19,8761,845

1021,711

Certificates of deposit

1,041

1

1

1,041

2,781

4

2

2,783

Non-U.S. government debt securities

55,507863

122

56,24865,168901

25

66,044

Corporate debt securities

21,043498

29

21,51237,999694

84

38,609Collateralized loan obligations

28,130236

136

28,23027,483465

52

27,896

Other

12,062186

312,245

12,816166

11

12,971

322,253

7,198

2,616

326,835

357,142

11,482

250

368,374

Available-for-sale equity securities

3,125

17

—

3,142

2,750

21

—

2,771

Total available-for-sale securities$ 325,378 $

7,215 $ 2,616$ 329,977$ 359,892 $

11,503 $250$ 371,145

Total held-to-maturity securities(b)

$

$

$

1 $

—

Asset-backed securities:

Total available-for-sale debt securities

24,026 $

22 $

317

23,7317 $$8(a) Includes total U.S. government-sponsored enterprise obligations with fair values of $67.0 billion and $84.0 billion at December 31, 2013 and 2012,
respectively, which were predominantly mortgage-related.
(b) As of December 31, 2013, consists of MBS issued by U.S. government-sponsored enterprises with an amortized cost of $23.1 billion and obligations of
U.S. states and municipalities with an amortized cost of $920 million.

250

JPMorgan Chase & Co./2013 Annual ReportSecurities impairment
The following tables present the fair value and gross unrealized losses for the investment securities portfolio by aging category
at December 31, 2013 and 2012.
Securities with gross unrealized losses
Less than 12 months
December 31, 2013 (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$

20,293 $

895

1,061

27

$

1,150 $

82 $

21,443 $

977

—

—

1,061

27
1

Residential:
Prime and Alt-A
Subprime

152

1

—

—

152

Non-U.S.

—

—

158

1

158

1

Commercial

3,980

26

—

—

3,980

26

25,486

949

1,308

83

26,794

1,032

U.S. Treasury and government agencies

6,293

250

237

56

6,530

306

Obligations of U.S. states and municipalities

15,387

975

55

12

15,442

987

988

1

—

—

988

1

Non-U.S. government debt securities

11,286

110

821

12

12,107122

Corporate debt securities

1,580

21

505

8

2,085

29

Collateralized loan obligations

18,369

129

393

7

18,762

136

Other

1,114

3

—

—

1,114

3

80,503

2,438

3,319

178

83,822

2,616

—

—

—

—

—

—

20,745317——

20,745317

101,248 $2,755

3,319 $

178 $

104,567 $2,933

Total mortgage-backed securities

Certificates of deposit

Asset-backed securities:

Total available-for-sale debt securities
Available-for-sale equity securities
Held-to-maturity securities
Total securities with gross unrealized losses

JPMorgan Chase & Co./2013 Annual Report

$

$

251

Notes to consolidated financial statements
Securities with gross unrealized losses
Less than 12 months
December 31, 2012 (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$

2,440 $

13

$

— $

— $

2,440 $

13

Residential:
Prime and Alt-A

218

2

76

1

294

3

Subprime

—

—

—

—

—

—

Non-U.S.

2,442

6

734

23

3,176

29

Commercial

1,159

8

312

5

1,471

13

Total mortgage-backed securities

6,259

29

1,122

29

7,381

58

U.S. Treasury and government agencies

4,198

8

—

—

4,198

8

907

10

—

—

907

10

Obligations of U.S. states and municipalities
Certificates of deposit

741

2

—

—

741

2

Non-U.S. government debt securities

14,527

21

1,927

4

16,45425

Corporate debt securities

2,651

10

5,641

74

8,292

84

Collateralized loan obligations

6,328

17

2,063

35

8,391

52

Other

2,076

7

275

4

2,351

11

37,687104

11,028146

48,715

250

—

—

—

—

—

—

Asset-backed securities:

Total available-for-sale debt securities
Available-for-sale equity securities
Held-to-maturity securities
Total securities with gross unrealized losses

252

$

—

—

37,687 $

104

$

—

—

—

—

11,028 $146 $48,715 $250

JPMorgan Chase & Co./2013 Annual ReportOther-than-temporary impairment
The following table presents OTTI losses that are included in
the securities gains and losses table above.
Year ended December 31,(in millions)

2013

2012

(1)

$ (113)2011

Debt securities the Firm does
not intend to sell that havecredit losses
Total OTTI(a)

$

$

(27)

Year ended December 31, (in millions)
Balance, beginning of period

Losses recorded in/(reclassified from) AOCI

—

85

(49)

Total credit losses
recognized in income(b)

(1)

(28)

(76)

Securities the Firm intends tosell(20) (c)(15) (c)—Total OTTI losses recognized
in incomeChanges in the credit loss component of credit-impaired
debt securities
The following table presents a rollforward for the years
ended December 31, 2013, 2012 and 2011, of the credit
loss component of OTTI losses that have been recognized inincome, related to AFS debt securities that the Firm does
not intend to sell.

$

(21)

$ (43)$(76)(a) For initial OTTI, represents the excess of the amortized cost over thefair value of AFS debt securities. For subsequent impairments of thesame security, represents additional declines in fair value subsequent
to previously recorded OTTI, if applicable.
(b) Subsequent credit losses may be recorded on securities without acorresponding further decline in fair value if there has been a decline
in expected cash flows.
(c) Excludes realized losses of $12 million and $24 million for the years
ended December 31, 2013 and 2012, respectively that had beenpreviously reported as an OTTI loss due to the intention to sell the
securities.

JPMorgan Chase & Co./2013 Annual Report

$

2013

2012

522 $

708 $ 632

2011

Additions:
Newly credit-impaired securities

1

21

4

Losses reclassified from othercomprehensive income on previously
credit-impaired securities

—

7

72

(522)

(214)

—

Reductions:
Sales and redemptions of creditimpaired securities
Balance, end of period$

1 $522 $ 708

Gross unrealized losses
Gross unrealized losses, including those that have been in
an unrealized loss position for 12 months or more, havegenerally increased since December 31, 2012. The Firm hasrecognized the unrealized losses on securities it intends tosell. As of December 31, 2013, the Firm does not intend tosell any securities with a loss position in AOCI, and it is not
likely that the Firm will be required to sell these securities
before recovery of their amortized cost basis. Except for the
securities reported in the table above for which credit
losses have been recognized in income, the Firm believes
that the securities with an unrealized loss in AOCI are notother-than-temporarily impaired as of December 31, 2013.

253

Notes to consolidated financial statements
Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at December 31, 2013, of JPMorgan Chase’s
investment securities portfolio by contractual maturity.
By remaining maturity
December 31, 2013
(in millions)
Available-for-sale debt securities
Mortgage-backed securities(a)Amortized cost
Fair value
Average yield(b)U.S. Treasury and government agencies(a)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)Total held-to-maturity securities
Amortized cost
Fair value
Average yield(b)Due in one
year or lessDue after one
year throughfive years

Due after five years
through 10 years

Due after
10 years(c)

Total

$

209 $
210
2.17%

13,689 $14,1172.10%

8,239 $
8,489
2.83%

131,282 $
133,893
2.93%

153,419
156,7092.85%$

8,781 $
8,792
0.36%

10,246 $10,2570.39%

1,425 $
1,425
0.34%

858 $
915
0.59%

21,31021,389
0.38%

$

57 $
58
3.12%

479 $
505
4.91%

1,644 $
1,664
4.27%

27,561 $27,234
6.19%

29,741
29,461
6.06%

$

990 $
988
6.37%

51 $
53
3.28%

— $
—
—%

— $
—
—%

1,041
1,041
6.22%

$

11,210 $11,223
2.72%

16,999 $17,191
2.26%

24,735 $25,1661.39%

2,563 $
2,668
1.64%

55,50756,2481.94%$

2,871 $
2,873
1.94%

12,318 $
12,6382.41%

5,854 $
6,001
2.60%

— $
—
—%

21,04321,512
2.40%

$

42 $
42
2.17%

2,412 $
2,438
1.98%

15,135 $15,2581.74%

22,603 $
22,7371.80%

40,19240,475
1.79%$

24,160 $24,186
1.91%

56,194 $57,1991.93%

57,032 $58,003
1.87%

184,867 $
187,447
3.25%

322,253
326,835
2.67%

$

— $
—
—%

— $
—
—%

— $
—
—%

3,125 $
3,142
0.20%

3,125
3,142
0.20%

$

24,160 $24,186
1.91%

56,194 $57,1991.93%

57,032 $58,003
1.87%

187,992 $
190,589
3.20%

325,378
329,977
2.65%

$

— $
—
—%

3 $
4
6.86%

1 $
1
6.48%

24,022 $23,726
3.53%

24,02623,731
3.53%(a) U.S. government-sponsored enterprises were the only issuers whose securities exceeded 10% of JPMorgan Chase’s total stockholders’ equity at
December 31, 2013.
(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 eachsecurity. The effective yield considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging
derivatives. Taxable-equivalent amounts are used where applicable. The effective yield excludes unscheduled principal prepayments; and accordingly,
actual maturities of securities may differ from their contractual or expected maturities as certain securities may be prepaid.
(c) Includes securities with no stated maturity. Substantially all of the Firm’s residential mortgage-backed securities and collateralized mortgage obligations
are due in 10 years or more, based on contractual maturity. The estimated duration, which reflects anticipated future prepayments based on a consensus
of dealers in the market, is approximately five years for agency residential mortgage-backed securities, two years for agency residential collateralized
mortgage obligations and three years for nonagency residential collateralized mortgage obligations.

254

JPMorgan Chase & Co./2013 Annual ReportNote 13 – Securities financing activities

connection with securities financing agreements arerecorded in interest income and interest expense on theConsolidated Statements of Income.

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.

The Firm has elected the fair value option for certain
securities financing agreements. For further information
regarding the fair value option, see Note 4 on pages 215–
218 of this Annual Report. The securities financing
agreements for which the fair value option has been elected
are reported within securities purchased under resaleagreements; securities loaned or sold under repurchaseagreements; and securities borrowed on the Consolidated
Balance Sheets. Generally, for agreements carried at fairvalue, current-period interest accruals are recorded withininterest income and interest expense, with changes in fairvalue reported in principal transactions revenue. However,for financial instruments containing embedded derivatives
that would be separately accounted for in accordance withaccounting guidance for hybrid instruments, all changes infair value, including any interest elements, are reported inprincipal transactions revenue.

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 on pages 189–
191 of this Annual Report. Fees received and paid in

The following table presents as of December 31, 2013 and 2012, the gross and net securities purchased under resaleagreements and securities borrowed. Securities purchased under resale agreements have been presented on the Consolidated
Balance Sheets net of securities sold under repurchase agreements where the Firm has obtained an appropriate legal opinion
with respect to the master netting agreement, and where the other relevant criteria have been met. Where such a legal opinion
has not been either sought or obtained, the securities purchased under resale agreements are not eligible for netting and areshown separately in the table below. Securities borrowed are presented on a gross basis on the Consolidated Balance Sheets.

December 31, (in millions)

Gross asset
balance

2013

2012

Amounts
netted on theConsolidated
Balance
SheetsAmounts
netted on theConsolidated
Balance
SheetsNet asset
balance

Gross asset
balance

Net asset
balanceSecurities purchased under resale agreements
Securities purchased under resale agreementswith an appropriate legal opinion$

Securities purchased under resale agreements
where an appropriate legal opinion has notbeen either sought or obtained

354,814 $(115,408) $8,279

Total securities purchased under resaleagreements$

363,093 $Securities borrowed$

111,465

239,406$

8,279

381,377 $(96,947) $10,983(115,408) $247,685(a)$392,360 $N/A $111,465(b)(c)$

119,017

284,430

10,983(96,947) $295,413

(a)

N/A $

119,017(b)(c)(a) At December 31, 2013 and 2012, included securities purchased under resale agreements of $25.1 billion and $24.3 billion, respectively, accounted for atfair value.
(b) At December 31, 2013 and 2012, included securities borrowed of $3.7 billion and $10.2 billion, respectively, accounted for at fair value.
(c) Included $26.9 billion and $28.4 billion at December 31, 2013 and 2012, respectively, of securities borrowed where an appropriate legal opinion has notbeen either sought or obtained with respect to the master netting agreement. The prior period amounts have been revised with a corresponding impact inthe table below. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations.

JPMorgan Chase & Co./2013 Annual Report255

Notes to consolidated financial statements
The following table presents information as of December 31, 2013 and 2012, regarding the securities purchased under resaleagreements and securities borrowed for which an appropriate legal opinion has been obtained with respect to the masternetting agreement. The below table excludes information related to resale agreements and securities borrowed where such alegal opinion has not been either sought or obtained.
2013

2012

Amounts not nettable on
the Consolidated Balance
Sheets(a)Amounts not nettable on
the Consolidated Balance
Sheets(a)December 31, (in millions)

Net asset
balanceFinancial
instruments(b)Securities purchased underresale agreements with anappropriate legal opinion$ 239,406$(234,495) $(98) $

4,813$ 284,430$(282,468) $(998) $

964

Securities borrowed$$(81,127) $

— $

3,404

$

$

(87,651) $

— $

2,958

84,531

Cashcollateral

Net asset
balance

Net exposure

90,609Financial
instruments(b)CashcollateralNet exposure(a) For some counterparties, the sum of the financial instruments and cash collateral not nettable on the Consolidated Balance Sheets may exceed the net
asset balance. Where this is the case the total amounts reported in these two columns are limited to the balance of the net reverse repurchase agreement
or securities borrowed asset with that counterparty. As a result a net exposure amount is reported even though the Firm, on an aggregate basis for its
securities purchased under resale agreements and securities borrowed, has received securities collateral with a total fair value that is greater than thefunds provided to counterparties.
(b) Includes financial instrument collateral received, repurchase liabilities and securities loaned liabilities with an appropriate legal opinion with respect to themaster netting agreement; these amounts are not presented net on the Consolidated Balance Sheets because other U.S. GAAP netting criteria are not met.

The following table presents as of December 31, 2013 and 2012, the gross and net securities sold under repurchaseagreements and securities loaned. Securities sold under repurchase agreements have been presented on the Consolidated
Balance Sheets net of securities purchased under resale agreements where the Firm has obtained an appropriate legal opinion
with respect to the master netting agreement, and where the other relevant criteria have been met. Where such a legal opinion
has not been either sought or obtained, the securities sold under repurchase agreements are not eligible for netting and areshown separately in the table below. Securities loaned are presented on a gross basis on the Consolidated Balance Sheets.
2013

December 31, (in millions)

2012

Amounts
netted on theConsolidated
Gross liability
Balancebalance
SheetsAmounts
netted on theConsolidated
Gross liability
Balancebalance
SheetsNet liability
balance

Net liability
balanceSecurities sold under repurchase agreements
Securities sold under repurchase agreementswith an appropriate legal opinion$

Securities sold under repurchase agreements
where an appropriate legal opinion has notbeen either sought or obtained(a)261,265 $

14,508

Total securities sold under repurchaseagreements$

275,773 $Securities loaned$

25,769(b)(115,408) $145,857$

14,508301,352 $(96,947) $11,155(115,408) $160,365(c)$

312,507 $N/A $25,769(d)(e)$

30,458204,405

11,155(96,947) $215,560

(c)

N/A $

30,458(d)(e)(a) Includes repurchase agreements that are not subject to a master netting agreement but do provide rights to collateral.
(b) Included securities-for-securities borrow vs. pledge transactions of $5.8 billion and $6.9 billion at December 31, 2013 and 2012, respectively, whenacting as lender and as presented within other liabilities in the Consolidated Balance Sheets.
(c) At December 31, 2013 and 2012, included securities sold under repurchase agreements of $4.9 billion and $3.9 billion, respectively, accounted for at fairvalue.
(d) At December 31, 2013 and 2012, included securities loaned of $483 million and $457 million, respectively, accounted for at fair value.
(e) Included $397 million and $889 million at December 31, 2013 and 2012, respectively, of securities loaned where an appropriate legal opinion has notbeen either sought or obtained with respect to the master netting agreement.

256

JPMorgan Chase & Co./2013 Annual Report

The following table presents information as of December 31, 2013 and 2012, regarding the securities sold under repurchaseagreements and securities loaned for which an appropriate legal opinion has been obtained with respect to the master netting
agreement. The below table excludes information related to repurchase agreements and securities loaned where such a legal
opinion has not been either sought or obtained.
2013

2012

Amounts not nettable on
the Consolidated balance
sheets(a)Amounts not nettable on
the Consolidated balance
sheets(a)December 31, (in millions)

Net liability
balanceFinancial
instruments(b)Securities sold under
repurchase agreementswith an appropriate legal
opinion$ 145,857$(142,686) $(450) $

2,721

Securities loaned$$(25,125) $

— $

247

25,372

Cashcollateral

Net amount(c)Net liability
balanceFinancial
instruments(b)$ 204,405$(202,925) $(162) $

1,318

$

$

(28,465) $

— $

1,104

29,569Cashcollateral

Net amount(c)(a) For some counterparties the sum of the financial instruments and cash collateral not nettable on the Consolidated Balance Sheets may exceed the net
liability balance. Where this is the case the total amounts reported in these two columns are limited to the balance of the net repurchase agreement or
securities loaned liability with that counterparty.
(b) Includes financial instrument collateral transferred, reverse repurchase assets and securities borrowed assets with an appropriate legal opinion withrespect to the master netting agreement; these amounts are not presented net on the Consolidated Balance Sheets because other U.S. GAAP netting
criteria are not met.
(c) Net amount represents exposure of counterparties to the Firm.

JPMorgan Chase’s policy is to take possession, where
possible, of securities purchased under resale agreements
and of securities borrowed. The Firm monitors the value ofthe underlying securities (primarily G7 government
securities, U.S. agency securities and agency MBS, andequities) that it has received from its counterparties andeither requests additional collateral or returns a portion of
the collateral when appropriate in light of the market valueof the underlying securities. Margin levels are establishedinitially based upon the counterparty and type of collateraland monitored on an ongoing basis to protect against
declines in collateral value in the event of default. JPMorgan
Chase typically enters into master netting agreements andother collateral arrangements with its resale agreement andsecurities borrowed counterparties, which provide for theright to liquidate the purchased or borrowed securities inthe event of a customer default. As a result of the Firm’s
credit risk mitigation practices with respect to resale andsecurities borrowed agreements as described above, theFirm did not hold any reserves for credit impairment withrespect to these agreements as of December 31, 2013 and2012.

JPMorgan Chase & Co./2013 Annual Report

For further information regarding assets pledged andcollateral received in securities financing agreements, seeNote 30 on page 325 of this Annual Report.
Transfers not qualifying for sale accounting
In addition, at December 31, 2013 and 2012, the Firm held
$14.6 billion and $9.6 billion, respectively, of financial
assets for which the rights have been transferred to third
parties; however, the transfers did not qualify as a sale inaccordance with U.S. GAAP. These transfers have beenrecognized as collateralized financing transactions. The
transferred assets are recorded in trading assets, otherassets and loans, and the corresponding liabilities arerecorded in other borrowed funds, accounts payable andother liabilities, and long-term debt, on the Consolidated
Balance Sheets.

257

Notes to consolidated financial statements
Note 14 – Loans
Loan accounting framework
The accounting for a loan depends on management’s
strategy for the loan, and on whether the loan was 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 purchased credit-impaired (“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 measured at the principal amountoutstanding, net of the following: allowance for loan losses;
net charge-offs; interest applied to principal (for loans
accounted for on the cost recovery method); unamortizeddiscounts and premiums; and net deferred loan fees orcosts. 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 the life of theloan 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 in doubt, which for consumer loans, excluding credit card,
generally occurs when principal or interest is 90 days ormore past due 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.
Consumer, excluding credit card, loans that are less than 90days past due may be placed on nonaccrual status when
there is evidence that full payment of principal and interest
is in doubt (e.g., performing junior liens that are
subordinate to nonperforming senior liens). Finally,collateral-dependent loans are typically maintained on
nonaccrual status.

258

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 thecarrying 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 allowancefor the estimated uncollectible portion of accrued interestand fee income on credit card loans. The allowance isestablished 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. Changes in theallowance for loan losses are recorded in the provision for
credit losses on the Firm’s Consolidated Statements ofIncome. See Note 15 on pages 284–287 of this Annual
Report for further information on the Firm’s accounting
polices for the allowance for loan losses.
Charge-offs
Consumer loans, other than risk-rated business banking,risk-rated auto and PCI loans, are generally charged off or
charged down to the net realizable value of the underlying
collateral (i.e., fair value less costs to sell), with an offset tothe allowance for loan losses, upon reaching specified
stages of delinquency in accordance with standards
established by the Federal Financial Institutions
Examination Council (“FFIEC”). Residential real estate loans,non-modified credit card loans and scored business banking
loans are generally charged off at 180 days past due. In thesecond quarter of 2012, the Firm revised its policy tocharge-off modified credit card loans that do not comply
with their modified payment terms at 120 days past due
rather than 180 days past due. Auto and student loans arecharged off no later than 120 days past due.

JPMorgan Chase & Co./2013 Annual ReportCertain consumer loans will be charged off earlier than the
FFIEC charge-off standards in certain circumstances asfollows:• A charge-off is recognized when a loan is modified in a
TDR if the loan is determined to be collateral-dependent.
A loan is considered to be collateral-dependent when
repayment of the loan is expected to be provided solely
by the underlying collateral, rather than by cash flows
from the borrower’s operations, income or otherresources.
• Loans to borrowers who have experienced an event (e.g.,bankruptcy) that suggests a loss is either known or highly
certain are subject to accelerated charge-off standards.
Residential real estate and auto loans are charged off
when the loan becomes 60 days past due, or sooner if theloan is determined to be collateral-dependent. Credit cardand scored business banking loans are charged off within
60 days of receiving notification of the bankruptcy filingor other event. Student loans are generally charged off
when the loan becomes 60 days past due after receiving
notification of a bankruptcy.
• Auto loans are written down to net realizable value upon
repossession of the automobile and after a redemption
period (i.e., the period during which a borrower may curethe loan) has passed.
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.

JPMorgan Chase & Co./2013 Annual Report

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), generally, either through foreclosure or upon
the execution of a deed in lieu of foreclosure transaction
with the borrower, the Firm obtains an appraisal based on
an inspection that includes the interior of the home(“interior appraisals”). Exterior opinions and interior
appraisals are discounted based upon the Firm’s experience
with actual liquidation values as compared to the estimatedvalues provided by exterior opinions and interior appraisals,considering state- and product-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.
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 and discounts or
premiums are an adjustment to the basis of the loan andtherefore are included in the periodic determination of thelower of cost or fair value adjustments and/or the gain or
losses 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.

259

Notes to consolidated financial statements
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.
For these loans, the earned current contractual interest
payment is recognized in interest income. 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
nonaccrual, allowance for loan losses, and charge-off
policies do not apply to these loans.
See Note 4 on pages 215–218 of this Annual Report for
further information on the Firm’s elections of fair value
accounting under the fair value option. See Note 3 and Note
4 on pages 195–215 and 215–218 of this Annual Reportfor further information on loans carried at fair value andclassified 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 274 of this Note for
information on accounting for PCI loans subsequent to theiracquisition.
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; losses due to changes in interest rates orforeign currency exchange rates are recognized innoninterest 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 15 on pages 284–287 of this Annual Report.

260

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, 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 astroubled debt restructurings (“TDRs”). A loan that has been
modified in a TDR is generally considered to be impaired
until it matures, is repaid, or is otherwise liquidated,regardless of whether the borrower performs under themodified terms. In certain limited cases, the effective
interest rate applicable to the modified loan is at or above
the current market rate at the time of the restructuring. In
such circumstances, and assuming that the loan
subsequently performs under its modified terms and theFirm expects to collect all contractual principal and interest
cash flows, the loan is disclosed as impaired and as a TDR
only during the year of the modification; in subsequent
years, the loan is not disclosed as an impaired loan or as a
TDR so long as repayment of the restructured loan under its
modified terms is reasonably assured.
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: (a) the borrower has performed under themodified terms for a minimum of six months and/or six
payments, and (b) the Firm has an expectation that
repayment of the modified loan is reasonably assured basedon, for example, the borrower’s debt capacity and level offuture earnings, collateral values, loan-to-value (“LTV”)
ratios, and other current market considerations. In certain
limited and well-defined circumstances in which the loan iscurrent at the modification date, such loans are not placedon 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 remains
subject to the asset-specific allowance methodology
throughout its remaining life, regardless of whether theloan is performing and has been returned to accrual status
and/or the loan has been removed from the impaired loans
disclosures (i.e., loans restructured at market rates). For
further discussion of the methodology used to estimate theFirm’s asset-specific allowance, see Note 15 on pages 284–
287 of this Annual Report.

JPMorgan Chase & Co./2013 Annual Report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 Consolidated
Balance 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.

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, theFirm 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• Home equity – senior lien
• Home equity – junior lien
• Prime mortgage, including
option ARMs
• Subprime mortgage
Other consumer loans• Auto(b)• Business banking(b)• Student and other
Residential real estate – PCI• Home equity• Prime mortgage• Subprime mortgage• Option ARMs

Credit card
• Credit card loans

Wholesale(c)• Commercial and industrial• Real estate• Financial institutions• Government agencies• Other(d)(a) Includes loans held in CCB, and prime mortgage loans held in the AM business segment and in Corporate/Private Equity.
(b) Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses;
these loans are managed by CCB, and therefore, for consistency in presentation, are included with the other consumer loan classes.
(c) Includes loans held in CIB, CB and AM business segments and in Corporate/Private Equity. Classes are internally defined and may not align with regulatory
definitions.
(d) Other primarily includes loans to SPEs and loans to private banking clients. See Note 1 on pages 189–191 of this Annual Report for additional information
on SPEs.

JPMorgan Chase & Co./2013 Annual Report261

Notes to consolidated financial statements
The following tables summarize the Firm’s loan balances by portfolio segment.
December 31, 2013
(in millions)
Retained
Held-for-saleAt fair value
Total

Consumer, excluding
credit card$

288,449 $614—
289,063 $$December 31, 2012
(in millions)
Retained
Held-for-saleAt fair value
Total

Credit card(a)Consumer, excluding
credit card
$

Total

308,263 $11,2902,011
321,564 $Credit card(a)292,620 $——292,620 $$Wholesale

127,465 $326—
127,791 $Wholesale

127,993 $——
127,993 $724,177
12,2302,011
738,418(b)

726,835
4,406
2,555
733,796

(b)

Total

306,222 $
4,406
2,555
313,183 $(a) Includes billed finance charges and fees net of an allowance for uncollectible amounts.
(b) Loans (other than PCI loans and those for which the fair value option has been elected) are presented net of unearned income, unamortized discounts andpremiums, and net deferred loan costs of $1.9 billion and $2.5 billion at December 31, 2013 and 2012, respectively.

The following table provides information about the carrying value of retained loans purchased, sold and reclassified to heldfor-sale during the periods indicated. These tables exclude loans recorded at fair value. The Firm manages its exposure tocredit risk on an ongoing basis. Selling loans is one way that the Firm reduces its credit exposures.
2013
Years ended December 31,(in millions)Purchases
Sales
Retained loans reclassified
to held-for-saleConsumer,
excludingcredit card
$

7,616
4,845
1,261

Credit card(a)(b)$

2012
Wholesale

Total

328 $
—

697 $
4,232

8,641
9,077

309

5,641

7,211

Consumer,
excludingcredit card
$

6,601
1,852

Credit card(a)(b)$—

Wholesale

— $
—

Total

827 $
3,423

7,428
5,275

504

1,547

1,043

(a) Purchases predominantly represent the Firm’s voluntary repurchase of certain delinquent loans from loan pools as permitted by Ginnie Mae guidelines.
The Firm typically elects to repurchase these delinquent loans as it continues to service them and/or manage the foreclosure process in accordance withapplicable requirements of Ginnie Mae, the Federal Housing Administration (“FHA”), Rural Housing Services (“RHS”) and/or the U.S. Department of
Veterans Affairs (“VA”).
(b) Excluded retained loans purchased from correspondents that were originated in accordance with the Firm’s underwriting standards. Such purchases were
$5.7 billion and $1.4 billion for the years ended December 31, 2013 and 2012, respectively.

The following table provides information about gains/(losses) on loan sales by portfolio segment.
Year ended December 31, (in millions)

2013

2012

2011

Net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)(a)Consumer, excluding credit card$

Credit card
Wholesale
Total net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)

$

313 $

122 $

131

3

(9)

(24)

(76)

180

121

240 $

293 $

228

(a) Excludes sales related to loans accounted for at fair value.

262

JPMorgan Chase & Co./2013 Annual Report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, business banking loans, andstudent and other 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 originated by Washington Mutual that may
result in negative amortization.
The table below provides information about retained
consumer loans, excluding credit card, by class.
December 31, (in millions)

2013

2012

17,113 $19,38540,75048,000Prime, including option ARMs

87,162

76,256

Subprime

7,104

8,255

Auto

52,75749,913Business banking

18,951

18,883Student and other

11,557

12,191

Home equity

18,927

20,971

Prime mortgage

12,03813,674

Subprime mortgage

4,175

4,626

17,915

20,466

Residential real estate – excluding PCIHome equity:
Senior lien
Junior lien$

Mortgages:

Other consumer loans

Residential real estate – PCI

Option ARMs
Total retained loans$ 288,449 $ 292,620

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 that the borrower is likely
either unable or unwilling to pay. In the case of residential
real estate loans, late-stage delinquencies (greater than
150 days past due) are a strong indicator of loans that will
ultimately result in a foreclosure or similar liquidationtransaction. In addition to delinquency rates, other credit
quality indicators for consumer loans vary based on theclass 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 can provide

JPMorgan Chase & Co./2013 Annual Reportinsight into a borrower’s continued willingness to pay, as
the delinquency rate of high-LTV loans tends to begreater 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 (660 or below) is considered to be of higher
risk than a loan to a borrower with a high FICO score.
Further, a loan to a borrower with a high LTV ratio and a
low FICO score is at greater risk of default than a loan toa borrower that has both a high LTV ratio and a high
FICO score.
• For scored auto, scored business banking and student
loans, geographic distribution is an indicator of thecredit performance of the portfolio. Similar to residential
real estate loans, geographic distribution provides
insights into the portfolio performance based onregional economic activity and events.
• Risk-rated business banking and auto loans are similar towholesale 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 279 of this Note.
Residential real estate – excluding PCI loans
The following table provides information by class forresidential real estate – excluding retained PCI loans in the
consumer, excluding credit card, portfolio segment.
The following factors should be considered in analyzingcertain credit statistics applicable to the Firm’s residential
real estate – excluding PCI loans portfolio: (i) junior lien
home equity loans may be fully charged off when the loan
becomes 180 days past due, and the value of the collateraldoes not support the repayment of the loan, resulting in
relatively high charge-off rates for this product class; and(ii) the lengthening of loss-mitigation timelines may resultin higher delinquency rates for loans carried at the net
realizable value of the collateral that remain on the Firm’s
Consolidated Balance Sheets.

263

Notes to consolidated financial statements
Residential real estate – excluding PCI loans
Home equity
Senior lien

December 31,(in millions, except ratios)
Loan delinquency(a)Current
30–149 days past due
150 or more days past due
Total retained loans% of 30+ days past due to total retained loans
90 or more days past due and still accruing
90 or more days past due and government guaranteed(b)Nonaccrual loans
Current estimated LTV ratios(c)(d)(e)Greater than 125% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
101% to 125% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
80% to 100% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
Less than 80% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
U.S. government-guaranteed
Total retained loans
Geographic region
California
New York
Illinois
FloridaTexas
New Jersey
Arizona
Washington
MichiganOhio
All other(f)Total retained loans

2013
$

$
$

$

$
$

$

Junior lien
2012

2013

16,470 $298
345
17,113 $
3.76%
— $
—
932

18,688330
367
19,385
3.60%
—
—
931

$

40
22

197
93

$

$

$
$

2012

39,864662
224
40,750
2.17%
—
—
1,876

$

1,101
346

$

$
$

46,805960
235
48,000
2.49%
—
—
2,277

4,561
1,338

212
107

491
191

4,645
1,407

7,089
1,971

858
326

1,502
485

7,995
2,128

9,604
2,279

13,186
2,362—
17,113

13,9882,438—
19,385

19,732
3,396—
40,75018,252
2,906—
48,000

2,397
2,732
1,248
847
2,044
630
1,019
555
799
1,298
3,544
17,113

$
$

$

2,786
2,847
1,358
892
2,508
652
1,183
651
910
1,514
4,084
19,385

$
$

$

9,240
8,429
2,815
2,167
1,199
2,442
1,827
1,378
976
907
9,370
40,750$$$10,969
9,753
3,265
2,572
1,503
2,838
2,151
1,629
1,169
1,091
11,06048,000(a) Individual delinquency classifications included mortgage loans insured by U.S. government agencies as follows: current included $4.7 billion and $3.8
billion; 30–149 days past due included $2.4 billion and $2.3 billion; and 150 or more days past due included $6.6 billion and $9.5 billion at
December 31, 2013 and 2012, respectively.
(b) These balances, which are 90 days or more past due but insured by U.S. government agencies, are excluded from nonaccrual loans. In predominantly allcases, 100% of the principal balance of the loans is insured and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-uponservicing guidelines. These amounts have been excluded from nonaccrual loans based upon the government guarantee. At December 31, 2013 and 2012,
these balances included $4.7 billion and $6.8 billion, respectively, of loans that are no longer accruing interest because interest has been curtailed by the
U.S. government agencies although, in predominantly all cases, 100% of the principal is still insured. For the remaining balance, interest is being accruedat the guaranteed reimbursement rate.
(c) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at aminimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to theextent available and forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateralvalues; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates.
(d) Junior lien represents combined LTV, which considers all available lien positions, as well as unused lines, related to the property. All other products arepresented without consideration of subordinate liens on the property.
(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, 2013 and 2012, included mortgage loans insured by U.S. government agencies of $13.7 billion and $15.6 billion, respectively.
(g) At December 31, 2013 and 2012, excluded mortgage loans insured by U.S. government agencies of $9.0 billion and $11.8 billion, respectively. Theseamounts have been excluded from nonaccrual loans based upon the government guarantee.

264

JPMorgan Chase & Co./2013 Annual Report

(table continued from previous page)
Mortgages
Prime, including option ARMs
2013
2012
$

$
$

$

$
$

$

76,108
$
3,155
7,899
87,162
$
(g)
2.32%
—
$
7,823
2,666

61,4393,237
11,58076,256
3.97%—
10,625
3,445

1,084
303

2,573
991

$

Subprime
2013
$

$
(g)

$

$

Total residential real estate – excluding PCI
2013
2012

2012
5,956 $
646
502
7,104 $
16.16%
— $
—
1,390

6,673
727
855
8,255
19.16%
—
—
1,807

$

52
197

236
653

$

$

$
$

138,398
$
4,761
8,970
152,129
$
(g)
3.09%
—
$
7,823
6,864

2,277
868

$

133,605
5,254
13,037
151,896(g)
4.28%—
10,625
8,460

7,567
3,075

1,433
687

3,697
1,376

249
597

457
985

6,539
2,798

11,734
4,523

4,528
1,579

7,070
2,117

614
1,141

726
1,346

13,995
5,174

18,902
6,227

58,477
5,359
13,712
87,16238,281
4,549
15,602
76,256

1,961
2,293
—
7,104

1,793
2,059
—
8,255

93,356
13,41013,712
152,129

72,314
11,952
15,602
151,896

21,876
14,085
5,216
4,598
3,565
2,679
1,385
1,951
998
466
30,34387,162$$$

17,539
11,190
3,999
4,372
2,927
2,131
1,162
1,741
866
405
29,92476,256

JPMorgan Chase & Co./2013 Annual Report

$
$

$

1,069
942
280
885
220
339
144
150
178
161
2,736
7,104

$
$

$

1,240
1,081
323
1,031
257
399
165
177
203
191
3,188
8,255

$
$

$

34,582
26,188
9,559
8,497
7,028
6,090
4,375
4,034
2,951
2,832
45,993
152,129$$$

32,53424,871
8,945
8,867
7,195
6,020
4,661
4,198
3,148
3,201
48,256
151,896265

Notes to consolidated financial statements
The following tables represent the Firm’s delinquency statistics for junior lien home equity loans and lines as of December 31,
2013 and 2012.
Delinquencies
December 31, 2013

30–89 days
past due(in millions, except ratios)

90–149 days
past due150+ days
past due

Total loans

Total 30+ day
delinquency
rate

HELOCs:(a)Within the revolving period(b)$341Beyond the revolving period
HELOANs
Total

$

$

104

$

162

$

31,848

1.91%

84

21

46

4,980

3.03

86

26

16

3,922

3.26

40,750

2.17%

511

$

151

$

224

$

Delinquencies
December 31, 2012

30–89 days
past due(in millions, except ratios)

90–149 days
past due150+ days
past due

Total loans

Total 30+ day
delinquency
rate

HELOCs:(a)Within the revolving period(b)$Beyond the revolving period
HELOANs
Total

$

514

$

196

$

185

$

40,794

2.19%

48

19

27

2,127

4.42

125

58

23

5,079

4.06

48,000

2.49%

687

$

273

$

235

$

(a) These HELOCs are predominantly revolving loans for a 10-year period, after which time the HELOC converts to a loan with a 20-year amortization period,
but also include HELOCs originated by Washington Mutual that require interest-only payments beyond the revolving period.
(b) The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers
are experiencing financial difficulty or when the collateral does not support the loan amount.

Home equity lines of credit (“HELOCs”) beyond therevolving period and home equity loans (“HELOANs”) havehigher delinquency rates than do HELOCs within therevolving period. That is primarily because the fullyamortizing payment that is generally required for those
products is higher than the minimum payment options

266

available for HELOCs within the revolving period. The higher
delinquency rates associated with amortizing HELOCs andHELOANs are factored into the loss estimates produced by
the Firm’s delinquency roll-rate methodology, which
estimates defaults based on the current delinquency statusof a portfolio.

JPMorgan Chase & Co./2013 Annual Report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 15 on pages 284–287 of this Annual Report.
Home equity
Senior lien

December 31,(in millions)
Impaired loans
With an allowance
Without an allowance(a)Total impaired loans(b)Allowance for loan losses
related to impaired loans
Unpaid principal balance ofimpaired loans(c)Impaired loans on
nonaccrual status(d)2013$Mortgages
Prime, including
option ARMs

Junior lien

2012

2013

542
550
1,092

$

$

567 $
579
1,146 $

$

94 $

159

2012

2013

677
546
1,223

$

$

727 $
592
1,319 $

$

162 $

188

2012

Subprime

2013

5,810
1,308
7,118

$

$

5,871 $
1,133
7,004 $

$

144 $

70

Total residential
real estate– excluding PCI

2012

2013

$

2,989 $
709
3,698 $

3,071
741
3,812

$

94 $

174

2012

$ 10,154 $ 10,100
3,013
3,145
$ 13,167 $ 13,245
$

494 $

591

1,515

1,408

2,625

2,352

8,990

9,095

5,461

5,700

18,591

18,555

641

607

666

599

1,737

1,888

1,127

1,308

4,171

4,402

(a) Represents collateral-dependent residential mortgage loans that are charged off to the fair value of the underlying collateral less cost to sell. The Firm
reports, in accordance with regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmedby the borrower (“Chapter 7 loans”) as collateral-dependent nonaccrual TDRs, regardless of their delinquency status.
(b) At December 31, 2013 and 2012, $7.6 billion and $7.5 billion, respectively, of loans modified subsequent to repurchase from Government National
Mortgage Association (“Ginnie Mae”) in accordance with the standards of the appropriate government agency (i.e., FHA, VA, RHS) are not included in thetable above. When such loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Maeloan pools. Modified loans that do not re-perform become subject to foreclosure.
(c) Represents the contractual amount of principal owed at December 31, 2013 and 2012. The unpaid principal balance differs from the impaired loanbalances due to various factors, including charge-offs, net deferred loan fees or costs; and unamortized discounts or premiums on purchased loans.
(d) As of December 31, 2013 and 2012, nonaccrual loans included $3.0 billion and $2.9 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 258–260 of this Note.

The following table presents average impaired loans and the related interest income reported by the Firm.
Year ended December 31,

Interest income on
impaired loans(a)Average impaired loans(in millions)
2013
2012
2011
Home equity
Senior lien
$ 1,151 $610 $287
Junior lien
1,297
848
521
Mortgages
Prime, including option ARMs
7,214
5,989
3,859
Subprime
3,798
3,494
3,083
Total residential real estate – excluding PCI $ 13,460 $ 10,941 $ 7,750

2013
$

$

2012

Interest income on impairedloans on a cash basis(a)
2011

59 $
82

27 $
42

10
18

280
200
621 $

238
183
490 $

147
148
323

2013
$

$

2012

2011

40 $
55

12 $
16

1
2

59
55
209 $

28
31
87 $

14
16
33

(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.

JPMorgan Chase & Co./2013 Annual Report267

Notes to consolidated financial statements
Loan modifications
As required under the terms of certain settlements, theFirm is required to provide borrower relief, which will
include, for example, reductions of principal andforbearance. For further information on the global and
RMBS settlements, see Business changes and developments
in Note 2 on pages 192–194 of this Annual Report.

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.

TDR activity rollforward
The following table reconciles the beginning and ending balances of residential real estate loans, excluding PCI loans, modified
in TDRs for the periods presented.
Home equity
Year ended
December 31,(in millions)2013

Beginning balanceof TDRs$1,092 $ 335 $ 226

Mortgages

Senior lien
2012

Prime, including
option ARMs

Junior lien
2011

2013

2012

2011

$1,223 $ 657 $ 283

2013

2012

Total residential real estate –excluding PCI

Subprime2011$ 7,118 $ 4,877 $2,084

2013

2012

2011

$3,812 $3,219 $2,751

2013

2012

2011

$13,245 $ 9,088 $ 5,344

New TDRs

210

835

138

388

711

518

770

2,918

3,268

319

1,043

883

1,687

5,507

4,807

Charge-offs postmodification(a)

(31)

(31)

(15)

(100)

(2)

(78)

(51)

(135)

(119)

(93)

(208)

(234)

(275)

(376)

(446)

Foreclosures andother liquidations(e.g., short sales)

(18)

(5)

—

(24)

(21)

(11)

(145)

(138)

(108)

(73)

(113)

(82)

(260)

(277)

(201)

Principal payments
and other

(107)

(42)

(14)

(168)

(122)

(55)

(688)

(404)

(248)

(267)

(129)

(99)

(1,230)

(697)

(416)

Ending balance ofTDRs$1,146 $1,092 $ 335$1,319 $1,223 $ 657$ 7,004 $ 7,118 $4,877$3,698 $3,812 $3,219$13,167 $13,245 $ 9,088

Permanent
modifications$1,107 $1,058 $ 285$1,313 $1,218 $ 634$ 6,838 $ 6,834 $4,601$3,596 $3,661 $3,029$12,854 $12,771 $ 8,549

Trial modifications$$$ 166 $ 284 $ 276$ 102 $ 151 $ 190

$

39 $

34 $

50

6 $

5 $

23

313 $

474 $

539

(a) Includes charge-offs on unsuccessful trial modifications.

268

JPMorgan Chase & Co./2013 Annual ReportNature and extent of modifications
Making Home Affordable (“MHA”), as well as the Firm’s
proprietary modification programs, generally provide
various concessions to financially troubled borrowers
including, but not limited to, interest rate reductions, termor payment extensions and deferral of principal and/orinterest payments that would otherwise have been required
under the terms of the original agreement.

The following table provides information about how residential real estate loans, excluding PCI loans, were modified under the
Firm’s loss mitigation programs during the periods presented. This table excludes Chapter 7 loans where the sole concession
granted is the discharge of debt. At December 31, 2013, there were approximately 36,700 of such Chapter 7 loans, consistingof approximately 8,800 senior lien home equity loans, 21,700 junior lien home equity loans, 3,100 prime mortgage, including
option ARMs, and 3,100 subprime mortgages.
Home equity

Mortgages

Senior lien

Prime, including
option ARMs

Junior lien

Total residential real estate- excluding PCI

Subprime

Year ended
Dec. 31,

2013

2012

2011

2013

2012

2011

2013

2012

2011

2013

2012

2011

2013

2012

2011

Numberof loans
approved
for a trial
modification(a)

1,719

1,695

1,219

884

918

1,308

2,846

3,895

4,676

4,233

4,841

6,446

9,682

11,34913,649Numberof loans
permanently
modified

1,765

4,385

1,006

5,040

7,430

9,142

4,356

9,043

9,579

5,364

9,964

4,972

16,52530,822

24,699Concession
granted:(a)(b)Interest rate
reduction

70%

83%

80%

88%

88%

95%

73%

74%

53%

72%

69%

80%

77%

77%

75%

Term orpayment
extension

76

47

88

80

76

81

73

57

71

56

41

72

70

55

75

Principal
and/orinterest
deferred

12

6

10

24

17

21

30

16

17

13

7

19

21

12

19

Principal
forgiveness

38

11

7

32

23

20

38

29

2

48

42

13

39

29

11

Other(c)

—

—

29

—

—

7

23

29

68

14

8

26

11

11

35

(a) Prior period amounts have been revised to conform with the current presentation.
(b) 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.
(c) Represents variable interest rate to fixed interest rate modifications.

JPMorgan Chase & Co./2013 Annual Report269

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 Firm’s loss mitigation programs and about redefaults of certain loans
modified in TDRs for the periods presented. Because the specific types and amounts of concessions offered to borrowers
frequently change between the trial modification and the permanent modification, the following tables present only thefinancial effects of permanent modifications. These tables also exclude Chapter 7 loans where the sole concession granted isthe discharge of debt.
Year ended
December 31,(in millions, except
weighted-averagedata and numberof loans)

2013

Weighted-averageinterest rate ofloans withinterest rate
reductions –before TDR

Home equity
Senior lien

Junior lien
2013

2012

2011

2013

6.35% 7.20% 7.25%

5.05%

5.45%

5.46%

Weighted-averageinterest rate ofloans withinterest rate
reductions – after
TDR

3.23

4.61

3.51

2.14

1.94

Weighted-averageremaining
contractual term(in years) ofloans with termor payment
extensions –before TDR

19

18

18

20

Weighted-averageremaining
contractual term(in years) ofloans with termor payment
extensions – after
TDR

31

28

30

34

Charge-offs
recognized upon
permanent
modification

$

7

2012

Mortgages
Prime, including
option ARMs

$

8

2011

$

1

$

70

2011

2013

2012

2011

2013

2012

2011

5.28% 6.14%

5.98%

7.33%

7.73%

8.25%

5.88%

6.57%

6.44%

1.49

2.77

3.67

3.34

3.52

4.14

3.46

2.92

3.69

3.09

20

21

25

25

25

24

24

23

23

24

24

32

34

37

36

35

35

32

34

36

34

35

65

$ 117

$ 16

$ 35

98

$ 137

$ 198

Principal deferred

7

4

4

24

23

35

129

133

167

43

43

61

203

203

267

Principal forgiven

30

20

1

51

58

62

206

249

20

218

324

46

505

651

129

Number of loansthat redefaulted
within one year of
permanent
modification(a)

404

374

222

1,069

1,436

1,310

673

920

1,142

1,072

1,426

1,989

3,218

4,156

4,663

Balance of loansthat redefaulted
within one year of
permanent$ 26
modification(a)

$ 30

$ 18

$

$

$

$ 164

$ 255

$ 340

$ 106

$ 156

$ 281

$ 316

$ 487

$ 691

20

$

2012

Total residential real estate– excluding PCI

Subprime

46

52

$

61

$

5

$

29

$

19

$

(a) Represents loans permanently modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred
within one year of the modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which suchloans defaulted. For residential real estate loans modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments
past due. In the event that a modified loan redefaults, it is probable that the loan will ultimately be liquidated through foreclosure or another similar typeof liquidation transaction. Redefaults of loans modified within the last 12 months may not be representative of ultimate redefault levels.

270

JPMorgan Chase & Co./2013 Annual ReportApproximately 85% of the trial modifications approved on
or after July 1, 2010 (the approximate date on which
substantial revisions were made to the HAMP program),that are seasoned more than six months have beensuccessfully converted to permanent modifications.

Chapter 7 residential real estate loans that were less than
60 days past due at the time of discharge have ranged
between approximately 10% and 40% in recent years
based on the economic conditions at the time of discharge.
At December 31, 2013, Chapter 7 residential real estateloans included approximately 20% of senior lien homeequity, 11% of junior lien home equity, 33% of prime
mortgages, including option ARMs, and 23% of subprime
mortgages that were 30 days or more past due.

The primary performance indicator for TDRs is the rate at
which permanently modified loans redefault. At
December 31, 2013, the cumulative redefault rates ofresidential real estate loans that have been modified under
the Firm’s loss mitigation programs, excluding PCI loans,based upon permanent modifications that were completed
after October 1, 2009, and that are seasoned more than six
months, are 20% for senior lien home equity, 20% forjunior lien home equity, 15% for prime mortgages,
including option ARMs, and 26% for subprime mortgages.

At December 31, 2013, the weighted-average estimatedremaining lives of residential real estate loans, excluding
PCI loans, permanently modified in TDRs were 6 years forsenior lien home equity, 7 years for junior lien home equity,
10 years for prime mortgages, including option ARMs and 8
years for subprime mortgage. The estimated remaining
lives of these loans reflect estimated prepayments, bothvoluntary and involuntary (i.e., foreclosures and otherforced liquidations).

Default rates of Chapter 7 loans vary significantly based on
the delinquency status of the loan and overall economic
conditions at the time of discharge. Default rates for

Other consumer loans
The table below provides information for other consumer retained loan classes, including auto, business banking and student
loans.
Auto

December 31,(in millions, except ratios)Business banking

Student and otherTotal other consumer

2013

2012

2013

2012

2013

2012

2013

2012

Current
30–119 days past due
120 or more days past due$ 52,152599
6$ 49,290616
7$ 18,511
280
160$ 18,482
263
138$ 10,529
660
368$ 11,038
709
444$ 81,192
1,539
534$ 78,810
1,588
589

Total retained loans$ 52,757$ 49,913$ 18,951$ 18,883$ 11,557$ 12,191$ 83,265$ 80,987

Loan delinquency(a)% of 30+ days past due to total
retained loans
90 or more days past due andstill accruing (b)Nonaccrual loans

1.15%
$

—

1.25%
$

—

2.32%
$

—

2.12%
$

—

2.52% (d)$428

2.12% (d)
$

525

161

163

385

481

86

70

$ 5,615
3,898
2,917
2,012
5,310
2,014
1,855
950
1,902

$ 4,962
3,742
2,738
1,922
4,739
1,921
1,719
824
2,091

$ 2,374
3,084
1,341
646
2,646
392
1,046
234
1,383

$ 1,983
2,981
1,404
527
2,749
379
1,139
202
1,368

$ 1,112
1,218
740
539
878
397
252
227
513

$ 1,108
1,202
748
556
891
409
265
287
548

1.60% (d)$428

1.58% (d)
$

525

632

714

9,101
8,200
4,998
3,197
8,834
2,803
3,153
1,411
3,798

$ 8,053
7,925
4,890
3,005
8,379
2,709
3,123
1,313
4,007

Geographic region
California
New York
Illinois
FloridaTexas
New Jersey
Arizona
Washington
Michigan

$

Ohio

2,229

2,462

1,316

1,443

708

770

4,253

4,675

All other

24,055

22,793

4,489

4,708

4,973

5,407

33,51732,908

Total retained loans$ 52,757$ 49,913$ 18,951$ 18,883$ 11,557$ 12,191$ 83,265$ 80,987$ 9,968
54
38$ 8,882130
4$ 13,622
711
316$ 13,336
713
386

NA
NA
NA

NA
NA
NA

$ 23,590
765
354$ 22,218
843
390

Loans by risk ratings(c)Noncriticized
Criticized performing
Criticized nonaccrual(a)(b)

Individual delinquency classifications included loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”)
as follows: current included $4.9 billion and $5.4 billion; 30-119 days past due included $387 million and $466 million; and 120 or more days pastdue included $350 million and $428 million at December 31, 2013 and 2012, respectively.
These amounts represent student loans, which are insured by U.S. government agencies under the FFELP. These amounts were accruing as
reimbursement of insured amounts is proceeding normally.

JPMorgan Chase & Co./2013 Annual Report271

Notes to consolidated financial statements(c)(d)

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.
December 31, 2013 and 2012, excluded loans 30 days or more past due and still accruing, which are insured by U.S. government agencies under the
FFELP, of $737 million and $894 million, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally.

Other consumer impaired loans and loan modifications
The table below sets forth information about the Firm’s other consumer impaired loans, including risk-rated business banking
and auto loans that have been placed on nonaccrual status, and loans that have been modified in TDRs.
Auto

December 31,(in millions)
Impaired loans
With an allowance

2013
$
$

Allowance for loan losses related to impaired loans

$

2013

96 $

78

47

72

143 $

150

$
$

Without an allowance(a)Total impaired loans

Business banking
2012$

Total other consumer(c)

2012

2013

475 $

543

—

—

475 $

543

$

2012

571 $

621

47

72

$

618 $

693

$

13 $

12

94 $

126

107 $

138

Unpaid principal balance of impaired loans(b)

235

259

553

624

788

883

Impaired loans on nonaccrual status

113

109

328

394

441

503

(a) When discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require anallowance. This typically occurs when the impaired loans have been partially charged off and/or there have been interest payments received and applied
to the loan balance.
(b) Represents the contractual amount of principal owed at December 31, 2013 and 2012. The unpaid principal balance differs from the impaired loanbalances due to various factors, including charge-offs; interest payments received and applied to the principal balance; net deferred loan fees or costs;
and unamortized discounts or premiums on purchased loans.
(c) There were no impaired student and other loans at December 31, 2013 and 2012.

The following table presents average impaired loans for the periods presented.
Average impaired loans(b)Year ended December 31,(in millions)

2013

Auto

2012

$

Business banking
Total other consumer(a)

$

2011

132 $

111 $

92

516

622

760

648 $

733 $

852

(a) There were no impaired student and other loans for the years ended 2013, 2012 and 2011.
(b) The related interest income on impaired loans, including those on a cash basis, was not material for the years ended 2013, 2012 and 2011.

Loan modifications
The following table provides information about the Firm’s other consumer loans modified in TDRs. All of these TDRs arereported as impaired loans in the tables above.
Auto

December 31,(in millions)
Loans modified in troubled debt restructurings(a)(b)
TDRs on nonaccrual status

2013$

Business banking
2012

107 $

150

77

109

2013
$

Total other consumer(c)

2012

271 $

352

124

203

2013
$

2012

378 $

502

201

312

(a) These modifications generally provided interest rate concessions to the borrower or term or payment extensions.
(b) Additional commitments to lend to borrowers whose loans have been modified in TDRs as of December 31, 2013 and 2012 were immaterial.
(c) There were no student and other loans modified in TDRs at December 31, 2013 and 2012.

272

JPMorgan Chase & Co./2013 Annual ReportTDR activity rollforward
The following table reconciles the beginning and ending balances of other consumer loans modified in TDRs for the periods
presented.

Year ended December 31,(in millions)
Beginning balance of TDRs
New TDRs
Charge-offs post-modification
Foreclosures and other liquidations
Principal payments and otherEnding balance of TDRs

Auto
2013
2012
2011
$
150 $
88 $
91
90
145
54
(10)
(9)
(5)
—
—
—
(123)
(74)
(52)
$
107 $
150 $
88

Financial effects of modifications and redefaults
For auto loans, TDRs typically occur in connection with thebankruptcy of the borrower. In these cases, the loan ismodified with a revised repayment plan that typicallyincorporates interest rate reductions and, to a lesser
extent, principal forgiveness. Beginning September 30,
2012, Chapter 7 auto loans are also considered TDRs.

Business banking
2013
2012
2011
$
352 $
415 $
395
66
104
195
(10)
(9)
(11)
—
(1)
(3)
(137)
(157)
(161)
$
271 $
352 $
415

Total other consumer
2013
2012
2011
$
502 $
503 $
486
156
249
249
(20)
(18)
(16)
—
(1)
(3)
(260)
(231)
(213)
$
378 $
502 $
503

The balance of business banking loans modified in TDRs
that experienced a payment default, and for which thepayment default occurred within one year of themodification, was $43 million, $42 million and $80 million,
during the years ended December 31, 2013, 2012 and2011, respectively. The balance of auto loans modified in
TDRs that experienced a payment default, and for which thepayment default occurred within one year of themodification, was $54 million and $46 million during theyears ended December 31, 2013 and 2012, respectively.
The corresponding amount for the year ended
December 31, 2011 was insignificant. A payment default isdeemed to occur as follows: (1) for scored auto andbusiness banking loans, when the loan is two payments pastdue; and (2) for risk-rated business banking loans and autoloans, when the borrower has not made a loan payment by
its scheduled due date after giving effect to the contractual
grace period, if any.

For business banking loans, concessions are dependent on
individual borrower circumstances and can be of a shortterm nature for borrowers who need temporary relief or
longer term for borrowers experiencing more fundamental
financial difficulties. Concessions are predominantly term or
payment extensions, but also may include interest rate
reductions.

The following table provides information about the financial effects of the various concessions granted in modifications ofother consumer loans for the periods presented.
Auto

Business banking

Year ended December 31,

2013

2012

2011

Weighted-average interest rate of loans with interest rate reductions– before TDR

13.66%

12.64%

12.45%

8.37%

7.33%

7.55%

Weighted-average interest rate of loans with interest rate reductions– after TDR

4.94

4.83

5.70

6.05

5.49

5.52

Weighted-average remaining contractual term (in years) of loans withterm or payment extensions – before TDR

NM

NM

NM

1.1

1.4

1.4

Weighted-average remaining contractual term (in years) of loans withterm or payment extensions – after TDR

NM

NM

NM

3.1

2.4

2.6

JPMorgan Chase & Co./2013 Annual Report

2013

2012

2011

273

Notes to consolidated financial statements
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 foregone interest cash flows, discounted at the
pool’s effective interest rate. Impairments are recognizedthrough the provision for credit losses and an increase in
the allowance for loan losses. Probable and significant
increases in expected cash flows (e.g., decreased credit
losses, the net benefit of modifications) would first reverse
any previously recorded allowance for loan losses with any
remaining increases recognized prospectively as a yield
adjustment over the remaining estimated lives of 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 recognizedprospectively 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 foregone
interest and also considers the potential for redefault. The
Firm develops product-specific probability of default
estimates, which are used to compute expected credit
losses. In developing these probabilities of default, the Firm
considers the relationship between the credit quality
characteristics of the underlying loans and certain
assumptions about home prices and unemployment based
upon industry-wide data. The Firm also considers its own
historical loss experience to-date based on actual
redefaulted modified PCI loans.

274

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.
If the timing and/or amounts of expected cash flows on PCI
loans were determined not to be reasonably estimable, nointerest would be accreted and the loans would be reported
as nonaccrual loans; however, since the timing and amountsof expected cash flows for the Firm’s PCI consumer loans
are reasonably estimable, interest is being accreted and theloans are being reported as performing loans.
The liquidation of PCI loans, which may include sales ofloans, receipt of payment in full by 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. Because the Firm’s PCI loans are accounted forat a pool level, the Firm does not recognize charge-offs of
PCI loans when they reach specified stages of delinquency(i.e., unlike non-PCI consumer loans, these loans are notcharged 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, 2013, to have a remaining weighted-average
life of 8 years.

JPMorgan Chase & Co./2013 Annual ReportResidential real estate – PCI loans
The table below sets forth information about the Firm’s consumer, excluding credit card, PCI loans.
December 31,(in millions, except ratios)
Carrying value(a)Prime mortgage

Subprime mortgage

2013

Home equity

2012

2013

2012

2013

2012

2013

2012

2013

2012

$18,927$20,971$12,038$13,674$ 4,175$ 4,626$17,915$20,466$53,055$59,737

1,758

1,908

1,726

1,929

180

380

494

1,494

4,158

5,711

$18,135$20,331$10,118$11,078$ 4,012$ 4,198$15,501$16,415$47,766$52,022

583

803

589

740

662

698

1,006

1,314

2,840

3,555

1,112

1,209

1,169

2,066

797

1,430

2,716

4,862

5,794

9,567

$19,830$22,343$11,876$13,884$ 5,471$ 6,326$19,223$22,591$56,400$65,144

Related allowance for loan losses(b)Option ARMs

Total PCI

Loan delinquency (based on unpaid
principal balance)
Current
30–149 days past due
150 or more days past due
Total loans% of 30+ days past due to total loans

8.55%

9.01%

14.80%

20.21%

26.67%

33.64%

19.36%

27.34%

15.31%

20.14%

Current estimated LTV ratios (based on
unpaid principal balance)(c)(d)Greater than 125% and refreshed FICO
scores:Equal to or greater than 660$ 1,168$ 4,508240$ 1,478

662

2,344

290

1,449

459

301

$ 1,597$ 1,824$ 7,958

1,300

575

2,729

1,986

7,822

Equal to or greater than 660

3,248

4,966

1,017

2,968

Less than 660

1,541

2,098

884

1,983

316

434

1,164

3,281

5,745

11,649

919

1,256

1,563

3,200

4,907

8,537

Equal to or greater than 660

4,473

3,531

2,787

1,872

Less than 660

1,782

1,305

1,699

1,378

544

416

3,311

3,794

11,115

9,613

1,197

1,182

2,769

2,974

7,447

6,839

Equal to or greater than 660

5,077

2,524

2,897

1,356

Less than 660

1,879

1,067

2,062

1,400

521

255

5,671

2,624

14,166

6,759

1,400

1,108

3,869

2,392

9,210

$19,830$22,343$11,876$13,884

5,967$ 5,471$ 6,326$19,223$22,591$56,400$65,144

California$11,937$13,493$ 6,845

New York

962

1,067

807

$ 7,877$ 1,293$ 1,444$10,419$11,889$30,494$34,703

927

563

649

1,196

1,404

3,528

Illinois

451

502

4,047

353

433

283

338

481

587

1,568

Florida

1,865

1,860

2,054

826

1,023

526

651

1,817

2,480

5,034

Texas

6,208

327

385

106

148

328

368

100

118

861

1,019

New Jersey

381

423

334

401

213

260

701

854

1,629

1,938

Arizona

361

408

187

215

95

105

264

305

907

1,033

Washington

1,072

1,215

266

328

112

142

463

563

1,913

2,248

Michigan

62

70

189

211

145

163

206

235

602

679

Ohio

23

27

55

71

84

100

75

89

237

287

2,389

2,699

1,908

2,250

1,829

2,106

3,501

4,067

9,627

11,122$19,830$22,343$11,876$13,884$ 5,471$ 6,326$19,223$22,591$56,400$65,144

Less than 660

$

$

115

$

375

$

101% to 125% and refreshed FICO scores:

80% to 100% and refreshed FICO scores:

Lower than 80% and refreshed FICO scores:

Total unpaid principal balance
Geographic region (based on unpaid
principal balance)

All other
Total unpaid principal balance

(a)
(b)
(c)

(d)

Carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition.
Management concluded as part of the Firm’s regular assessment of the PCI loan pools that it was probable that higher expected credit losses would
result in a decrease in expected cash flows. As a result, an allowance for loan losses for impairment of these pools has been recognized.
Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at aminimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to theextent available and forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateralvalues; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates. Current estimated combined LTV for junior lien homeequity loans considers all available lien positions, as well as unused lines, related to the property.
Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.

JPMorgan Chase & Co./2013 Annual Report275Notes to consolidated financial statements
Approximately 20% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANs or
HELOCs. The following tables set forth delinquency statistics for PCI junior lien home equity loans and lines of credit based on
unpaid principal balance as of December 31, 2013 and 2012.
Delinquencies
December 31, 2013

30–89 days
past due(in millions, except ratios)

90–149 days
past due150+ days
past due

Total 30+ day
delinquency
rate

Total loans

HELOCs:(a)Within the revolving period(b)$Beyond the revolving period(c)HELOANs
Total

$

243

12,670

6.76%

54

21

82

2,336

6.72

24

11

39

908

8.15

15,914

6.84%

321

$

$

88

120

$

526

$

647

$

$

Delinquencies
December 31, 2012

30–89 days
past due(in millions, except ratios)

90–149 days
past due

Total 30+ day
delinquency
rate

Total loans

150+ days
past due

HELOCs:(a)Within the revolving period(b)$Beyond the revolving period(c)
$

428

175

$

591

13

37

Total

(b)
(c)

$

30

HELOANs
(a)

361

18
$

206

$

15,915

7.08%

666

9.46

1,085

9.12

17,666

7.30%

20
44
$

655

$

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.
Substantially all undrawn HELOCs within the revolving period have been closed.
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,
2013, 2012 and 2011, 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)

2013

Beginning balance$

Accretion into interest income
Changes in interest rates on variable-rate loans
Other changes in expected cash flows
Accretable yield percentage

$

$

2011

19,072$

19,097(2,201)(2,491)(2,767)

(287)

(449)

(573)

198

(a)

Balance at December 31

2012

18,457

16,167
4.31%

2,325
$

18,457
4.38%

3,315
$

19,072
4.33%(a) Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model and periodically updates model
assumptions. For the year ended December 31, 2013, other changes in expected cash flows were due to refining the expected interest cash flows on
HELOCs with balloon payments, partially offset by changes in prepayment assumptions. For the years ended December 31, 2012 and December 31,
2011, other changes in expected cash flows were principally driven by the impact of modifications, but also related to changes in prepayment
assumptions.

The factors that most significantly affect estimates of grosscash flows expected to be collected, and accordingly theaccretable yield balance, include: (i) changes in thebenchmark interest rate indices for variable-rate products
such as option ARM and home equity loans; and (ii) changes
in prepayment assumptions.
Since the date of acquisition, the decrease in the accretableyield percentage has been primarily related to a decrease ininterest rates on variable-rate loans and, to a lesser extent,
extended loan liquidation periods. Certain events, such as
extended or shortened loan liquidation periods, affect thetiming of expected cash flows and the accretable yield

276

percentage, but not the amount of cash expected to bereceived (i.e., the accretable yield balance). While extended
loan liquidation periods reduce the accretable yieldpercentage (because the same accretable yield balance isrecognized against a higher-than-expected loan balanceover a longer-than-expected period of time), shortenedloan liquidation periods would have the opposite effect.

JPMorgan Chase & Co./2013 Annual Report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.
However, the distribution of such scores provides a generalindicator of credit quality trends within the portfolio.
Refreshed FICO score information, which is obtained at least
quarterly, for a statistically significant random sample ofthe credit card portfolio is indicated in the table below; FICO
is considered to be the industry benchmark for creditscores.
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
technology.

JPMorgan Chase & Co./2013 Annual Report

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% of net charge-offs to retained loans
Loan delinquency
Current and less than 30 days past due
and still accruing
30–89 days past due and still accruing
90 or more days past due and still accruing
Nonaccrual loans
Total retained credit card loans
Loan delinquency ratios% of 30+ days past due to total retained
loans% of 90+ days past due to total retained
loans
Credit card loans by geographic region
California
New York
Texas
Illinois
FloridaNew Jersey
Ohio
Pennsylvania
Michigan
Virginia
All other
Total retained credit card loans
Percentage of portfolio based on carrying
value with estimated refreshed FICO
scoresEqual to or greater than 660
Less than 660

$

2013

2012

3,879 $
3.14%

4,944
3.95%

$ 125,335$ 125,309

1,108
1,022
—
$ 127,465

1,381
1,302
1
$ 127,993

1.67%

2.10%

0.80

1.02

$ 17,194
10,497
10,400
7,412
7,178
5,554
4,881
4,462
3,618
3,239
53,030$ 127,465$ 17,115
10,37910,209
7,399
7,231
5,503
4,956
4,549
3,745
3,193
53,714$ 127,993

85.1%
14.9

84.1%
15.9

277

Notes to consolidated financial statements
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)
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
Allowance for loan losses related to
impairedcredit card loans
(a)
(b)
(c)
(d)

2013

$

2012

2,746 $

4,189

369

573

$

3,115 $

4,762

The following table provides information regarding thenature and extent of modifications of credit card loans forthe periods presented.

$

971 $

1,681

Year ended December 31,

The carrying value and the unpaid principal balance are the same for
credit card impaired loans.
There were no impaired loans without an allowance.
Represents credit card loans outstanding to borrowers enrolled in a
credit card modification program as of the date presented.
Represents credit card loans that were modified in TDRs but thathave subsequently reverted back to the loans’ pre-modification
payment terms. At December 31, 2013 and 2012, $226 million and$341 million, respectively, of loans have reverted back to the premodification payment terms of the loans due to noncompliance withthe terms of the modified loans. The remaining $143 million and$232 million at December 31, 2013 and 2012, respectively, of theseloans are to borrowers who have successfully completed a short-term
modification program. The Firm continues to report these loans as
TDRs since the borrowers’ credit lines remain closed.

The following table presents average balances of impaired
credit card loans and interest income recognized on thoseloans.
Year ended December 31,(in millions)2013

Average impaired credit card loans$ 3,882 $ 5,893 $ 8,499

Interest income on
impaired credit card loans

198

2012

308

2011

463

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.

278

If the cardholder does not comply with the modified
payment terms, then the credit card loan agreement reverts
back to its pre-modification payment terms. Assuming thatthe cardholder does not begin to perform in accordancewith those payment terms, the loan continues to age andwill ultimately be charged-off in accordance with the Firm’s
standard charge-off policy. In addition, if a borrower
successfully completes a short-term modification program,then the loan reverts back to its pre-modification payment
terms. However, in most cases, the Firm does not reinstate
the borrower’s line of credit.

New enrollments(in millions)2013

Short-term programs$Long-term programs
Total new enrollments

$

2012
— $

2011
47 $

167

1,180

1,607

2,523

1,180 $

1,654 $

2,690

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)

2013

2012

2011

Weighted-average interest rateof loans – before TDR

15.37%

15.67%

16.05%

Weighted-average interest rateof loans – after TDR

4.38

5.19

5.28

Loans that redefaulted within
one year of modification(a)
(a)

$

167

$

309

$

687

Represents loans modified in TDRs that experienced a payment
default in the periods presented, and for which the payment default
occurred within one year of the modification. The amounts presented
represent the balance of such loans as of the end of the quarter inwhich they defaulted.

For credit card loans modified in TDRs, payment default isdeemed to have occurred when the loans become two
payments past due. A substantial portion of these loans is
expected to be charged-off in accordance with the Firm’s
standard charge-off policy. Based on historical experience,the estimated weighted-average default rate was expected
to be 30.72%, 38.23% and 35.47% for credit card loans
modified as of December 31, 2013, 2012 and 2011,
respectively.

JPMorgan Chase & Co./2013 Annual ReportWholesale loan portfolio

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.

The primary credit quality indicator for wholesale loans is
the risk rating assigned each loan. Risk ratings are used to
identify the credit quality of loans and differentiate risk
within the portfolio. Risk ratings on loans consider the
probability of default (“PD”) and the loss given default(“LGD”). PD is the likelihood that a loan will default and not
be repaid. 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.

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 5 on page 219 in this Annual Report for further detailon industry concentrations.

Wholesale loans include loans made to a variety ofcustomers, ranging from large corporate and institutional
clients to high-net-worth individuals.

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.

JPMorgan Chase & Co./2013 Annual Report279

Notes to consolidated financial statements
The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment.
Commercial
and industrial

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

2013

Real estate

2012

2013

2012

Loans by risk ratings
Investment grade$

57,690$61,870$52,195$

41,796

Noninvestment grade:
Noncriticized

43,47744,651

14,381

14,567

Criticized performing

2,385

2,636

2,229

3,857

Criticized nonaccrual

294

708

346

520

Total noninvestment grade

46,156

Total retained loans$

103,846

47,995$

109,865

16,956$

69,151

18,944$60,740% of total criticized to total retained loans

2.58%

3.04 %

3.72%

7.21%

% of nonaccrual loans to total retained loans

0.28

0.64

0.50

0.86

Loans by geographic distribution(a)Total non-U.S.

$

Total U.S.

34,440$69,406

Total retained loans$

Net charge-offs/(recoveries)$% of net charge-offs/(recoveries) to end-of-period retained loans

35,494$74,371

103,846

$

99

$

0.10%

1,369

$

67,782

109,865

$

(212)

$

(0.19)%

1,533
59,207

69,151$

6$

60,740
54

0.01%

0.09%

Loan delinquency(b)Current and less than 30 days past due and still accruing$

103,357$

109,019$

68,627$

59,82930–89 days past due and still accruing

181

119

164

90 or more days past due and still accruing(c)

14

19

14

69

Criticized nonaccrual

294

708

346

520

Total retained loans$

103,846$

109,865$

69,151

322$

60,740(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. For a discussion of more significant risk factors, see page279 of this Note.
(c) Represents loans that are considered well-collateralized and therefore still accruing interest.
(d) Other primarily includes loans to SPEs and loans to private banking clients. See Note 1 on pages 189–191 of this Annual Report for additional information
on SPEs.

The following table presents additional information on the real estate class of loans within the Wholesale portfolio segment
for the periods indicated. The real estate class primarily consists of secured commercial loans mainly to borrowers for multifamily and commercial lessor properties. Multifamily lending specifically finances apartment buildings. Commercial lessors
receive financing specifically for real estate leased to retail, office and industrial tenants. Commercial construction anddevelopment loans represent financing for the construction of apartments, office and professional buildings and malls. Other
real estate loans include lodging, real estate investment trusts (“REITs”), single-family, homebuilders and other real estate.
Multifamily

December 31,(in millions, except ratios)
Real estate retained loans

2013$

Commercial lessors
2012

44,389$2013

38,030$2012

15,949Criticized

1,142

2,118

1,323

% of criticized to total real estate retained loans

2.57%

5.57%

8.30%

Criticized nonaccrual% of criticized nonaccrual to total real estate retained loans

280

$

191
0.43%

$

249
0.65%

$

143
0.90%

$

14,6681,951
13.30%

$

207
1.41%

JPMorgan Chase & Co./2013 Annual Report

(table continued from previous page)
Financial
institutions
2013
$

$

$

Government agencies
2012

26,712$

22,064

$

$

9,979

$

2013

9,183

$

2012

79,494$

2013

79,533$

2012

226,070$

214,446

13,760440

356

10,992

9,914

75,964

83,248

272

395

42

5

480

201

5,408

7,094

25

8

1

—

155

198

821

1,434

6,971

14,163483

361

11,627

10,31382,193

91,776

33,683$36,227$

10,462

$

9,544

$

91,121$

89,846$308,263$306,2220.88 %

1.11 %

0.41%

0.05%

0.70%

0.44%

2.02%

2.78 %

0.07

0.02

0.01

—

0.17

0.22

0.27

0.47

22,726$26,326

33,683$(99)$

33,426

$

2,146

9,901
$

(36)

$

36,151

1,582

$

1

$

0.01%

$

10,421$

7,962

10,462(0.10)%

$

$

8,316

36,227(0.29)%

$

$

2012

6,674

10,957
$

2013

Total
retained loans

Other(d)$47,745

9,544

$

2

$

0.02%

$

43,376

9,516

39,421

91,121$

9$89,717104,057$

14$

88,177104,356
201,866

308,263

$

16

$

0.02%

$

$

204,206

89,846

0.01%

$

$

50,425306,222
(178)

0.01%

$

305,548(0.06)%$

302,692

226

62

40

28

1,233

1,427

1,844

6

6

—

—

16

44

50

138

25

8

1

—

155

198

821

1,434

33,683$36,227$

10,462

$

9,544

$

91,121$

89,846$308,263

1,958$

306,222(table continued from previous page)
Commercial construction and development
2013
$

$

Other

2012
3,674

$

2013
2,989

$

Total real estate loans
2012

5,139

$

2013
5,053

$

2012
69,151$60,740

81

119

29

189

2,575

4,377

2.20%

3.98%

0.56%

3.74%

3.72%

7.21%

3

$

0.08%

JPMorgan Chase & Co./2013 Annual Report

21
0.70%

$

9
0.18%

$

43
0.85%

$

346
0.50%

$

520
0.86%

281

Notes to consolidated financial statements
Wholesale impaired loans and loan modifications
Wholesale impaired loans are comprised of loans that have been placed on nonaccrual status and/or that have been modified
in a TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 15 on pages 284–287 of thisAnnual Report.
The table below sets forth information about the Firm’s wholesale impaired loans.
Commercial
and industrial

December 31,(in millions)2013

Financial
institutions

Real estate

2012

2013

2012

2013

Government
agencies

2012

2013

Total
retained loans

Other

2012

2013

2012

2013

2012

Impaired loans
With an allowance

$

236 $

588

58

173

$

294 $

761

Allowance for loan losses
related to impaired
loans
$

75 $

205

Unpaid principal balanceof impaired loans(b)

448

957

Without an allowance(a)Total impaired loans

(a)
(b)

$

258 $

375

109

133

$

367 $

508

$

63 $

82

454

626

$

17 $

6

8

2

$

25 $

8

$

16 $

2

24

22

$

1 $

—

—

—

$

1 $

—

$

— $

—

1

—

$

85 $

122

73

76

$

158 $

198

$

27 $

30

241

318

$

597 $

1,091

248

384

$

845 $

1,475

$

181 $

319

1,168

1,923

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.
Represents the contractual amount of principal owed at December 31, 2013 and 2012. 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.

The following table presents the Firm’s average impaired loans for the years ended 2013, 2012 and 2011.
Year ended December 31, (in millions)
Commercial and industrial

2013
$

2012

2011

412 $

873 $

1,309

Real estate

484

784

1,813

Financial institutions

17

17

84

Government agencies

—

9

20

211

277

634

1,124 $

1,960 $

3,860

Other
Total(a)$(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, 2013, 2012 and
2011.

282

JPMorgan Chase & Co./2013 Annual ReportLoan modifications
Certain loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing
financial difficulty. All TDRs are reported as impaired loans in the tables above.
The following table provides information about the Firm’s wholesale loans that have been modified in TDRs, including areconciliation of the beginning and ending balances of such loans and information regarding the nature and extent ofmodifications during the periods presented.
Commercial and industrial

Years ended December 31,(in millions)
Beginning balance of TDRs

2013
$

2012

Real estate

2011

575 $

531 $

212

New TDRs

60

162

Increases to existing TDRs

4

183

Charge-offs post-modification

(9)
(553)

Sales and other(a)

2013
$

2012

Other(b)
2011

2013

99 $

176 $

907

665

43

43

96

—

—

(27)

(30)

(3)
(51)

$

2012

Total
2011

2013

22 $

43 $

24

113

50

73

16

—

—

(2)

(146)

—

(118)

(714)

$

2012

2011

696 $

750 $ 1,143

32

153

278

—

4

183

112

(7)

—

(12)

(36)

(176)

810

(274)

(412)

(39)

(87)

(13)

(643)

(479)

(1,139)Ending balance of TDRs

$

77 $

575 $

531

$

88 $

99 $

176

$

33 $

22 $

43

$

198 $

696 $

750

TDRs on nonaccrual status

$

77 $

522 $

415

$

61 $

92 $

128

$

30 $

22 $

35

$

168 $

636 $

578

19

44

147

—

—

—

—

2

—

19

46

147

Additional commitments to lend
to borrowers whose loans havebeen modified in TDRs(a) Sales and other are largely sales and paydowns, but also includes performing loans restructured at market rates that were removed from the reported TDR balance of $12
million, $44 million and $152 million during the years ended December 31, 2013, 2012 and 2011 respectively. Loans that have been removed continue to be evaluated alongwith other impaired loans to determine the asset-specific component of the allowance for loan losses (see page 260 of this Note).
(b) Includes loans to Financial institutions, Government agencies and Other.

Financial effects of modifications and redefaults
Wholesale loans modified as TDRs are typically term or
payment extensions and, to a lesser extent, deferrals ofprincipal and/or interest on commercial and industrial andreal estate loans. For the years ended December 31, 2013,2012 and 2011, the average term extension granted onwholesale loans with term or payment extensions was 2.1
years, 1.1 years and 3.3 years, respectively. The weightedaverage remaining term for all loans modified during these

JPMorgan Chase & Co./2013 Annual Reportperiods was 2.0 years, 3.6 years and 4.5 years respectively.
Wholesale TDR loans that redefaulted within one year of themodification were $1 million, $56 million and $96 million
during the years ended December 31, 2013, 2012 and2011, respectively. A payment default is deemed to occur
when the borrower has not made a loan payment by itsscheduled due date after giving effect to any contractual
grace period.

283

Notes to consolidated financial statements
Note 15 – Allowance for credit losses
JPMorgan Chase’s allowance for loan losses covers theconsumer, including credit card, portfolio segments(primarily scored); and wholesale (risk-rated) portfolio, andrepresents management’s estimate of probable credit losses
inherent in the Firm’s loan portfolio. The allowance for loan
losses includes an asset-specific component, a formulabased component and a component related to PCI loans, as
described below. Management also estimates an allowancefor wholesale and consumer lending-related commitments
using methodologies similar to those used to estimate theallowance on the underlying loans. During 2013, the Firm
did not make any significant changes to the methodologies
or policies used to determine its allowance for credit losses;
such policies are described in the following paragraphs.
The asset-specific component of the allowance relates 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 loans areevaluated individually, while smaller loans are evaluated as
pools using historical loss experience for the respectiveclass of assets. Scored loans (i.e., consumer loans) arepooled by product type, while risk-rated loans (primarily
wholesale loans) are segmented by risk rating.
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 provision 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. Impaired collateral-dependent
loans are charged down to the fair value of collateral lesscosts to sell and therefore may not be subject to an assetspecific reserve as for other impaired loans. See Note 14 on
pages 258–283 of this Annual Report for more information
about charge-offs and collateral-dependent loans.

284

The asset-specific component of the allowance for impairedloans that have been modified in TDRs incorporates theeffects of foregone interest, if any, in the present value
calculation and also incorporates the effect of themodification on the loan’s expected cash flows, which
considers the potential for redefault. For residential realestate loans modified in TDRs, the Firm develops productspecific probability of default estimates, which are applied
at a loan level to compute expected losses. In developing
these probabilities of default, the Firm considers therelationship between the credit quality characteristics of
the underlying loans and certain assumptions about homeprices and unemployment, based upon industry-wide data.
The Firm also considers its own historical loss experience todate based on actual redefaulted modified loans. For credit
card loans modified in TDRs, expected losses incorporate
projected redefaults based on the Firm’s historicalexperience by type of modification program. For wholesaleloans modified in TDRs, expected losses incorporate
redefaults based on management’s expectation of theborrower’s ability to repay under the modified terms.
The formula-based component is based on a statistical
calculation to provide for incurred credit losses in
performing risk-rated loans and all consumer loans, except
for any loans restructured in TDRs and PCI loans. See Note
14 on pages 258–283 of this Annual Report for more
information on PCI loans.
For scored loans, the statistical calculation is performed on
pools of loans with similar risk characteristics (e.g., producttype) and generally computed by applying loss factors tooutstanding principal balances over an estimated loss
emergence period. The loss emergence period represents
the time period between the date at which the loss isestimated to have been incurred and the ultimate
realization of that loss (through a charge-off). Estimatedloss emergence periods may vary by product and maychange over time; management applies judgment inestimating loss emergence periods, using available credit
information and trends.

JPMorgan Chase & Co./2013 Annual ReportLoss factors are statistically derived and sensitive tochanges in delinquency status, credit scores, collateralvalues and other risk factors. The Firm uses a number ofdifferent forecasting models to estimate both the PD andthe loss severity, including delinquency roll rate models andcredit loss severity models. In developing PD and loss
severity assumptions, the Firm also considers known andanticipated changes in the economic environment, includingchanges in home prices, unemployment rates and other risk
indicators.
A nationally recognized home price index measure is used
to estimate both the PD and the loss severity on residential
real estate loans at the metropolitan statistical areas(“MSA”) level. Loss severity estimates are regularly
validated by comparison to actual losses recognized on
defaulted loans, market-specific real estate appraisals andproperty sales activity. The economic impact of potential
modifications of residential real estate loans is not includedin the statistical calculation because of the uncertainty
regarding the type and results of such modifications.
For risk-rated loans, the statistical calculation is the productof an estimated PD and an estimated LGD. These factors aredifferentiated by risk rating and expected maturity. In
assessing the risk rating of a particular loan, among thefactors considered are the obligor’s debt capacity andfinancial flexibility, the level of the obligor’s earnings, theamount and sources for repayment, the level and nature ofcontingencies, management strength, and the industry andgeography in which the obligor operates. These factors are
based on an evaluation of historical and current
information, and involve subjective assessment andinterpretation. Emphasizing one factor over another or
considering additional factors could impact the risk rating
assigned by the Firm to that loan. PD estimates are basedon observable external through-the-cycle data, using creditrating agency default statistics. LGD estimates are based on
the Firm’s history of actual credit losses over more than one
credit cycle.

JPMorgan Chase & Co./2013 Annual ReportManagement applies judgment within an establishedframework to adjust the results of applying the statistical
calculation described above. The determination of theappropriate adjustment is based on management’s view ofloss events that have occurred but that are not yet reflectedin the loss factors and that relate to current macroeconomic
and political conditions, the quality of underwriting
standards and other relevant internal and external factors
affecting the credit quality of the portfolio. For the scoredloan portfolios, adjustments to the statistical calculation areaccomplished in part by analyzing the historical loss
experience for each major product segment. Factors related
to unemployment, home prices, borrower behavior and lien
position, the estimated effects of the mortgage foreclosurerelated settlement with federal and state officials anduncertainties regarding the ultimate success of loan
modifications are incorporated into the calculation, as
appropriate. For junior lien products, management
considers the delinquency and/or modification status of any
senior liens in determining the adjustment. In addition, forthe risk-rated portfolios, any adjustments made to thestatistical calculation also consider concentrated anddeteriorating industries.
Management establishes an asset-specific allowance forlending-related commitments that are considered impairedand computes a formula-based allowance for performing
consumer and wholesale lending-related commitments.
These are computed using a methodology similar to thatused for the wholesale loan portfolio, modified for expectedmaturities and probabilities of drawdown.
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 Chief Risk
Officer, the Chief Financial Officer and the Controller of theFirm and discussed with the Risk Policy and Audit
Committees of the Board of Directors of the Firm. As of
December 31, 2013, JPMorgan Chase deemed theallowance for credit losses to be appropriate (i.e., sufficient
to absorb probable credit losses inherent in the portfolio).

285Notes to consolidated financial statements
Allowance for credit losses and loans and lending-related commitments by impairment methodology
The table below summarizes information about the allowance for loan losses, loans by impairment methodology, the allowance
for lending-related commitments and lending-related commitments by impairment methodology.
2013
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

12,292

$

2,754

5,501

4,143 $

21,936

4,472

$

241

7,467

Gross recoveries

(847)

(593)

(225)

(1,665)

Net charge-offs/(recoveries)

1,907

3,879

16

5,802

Write-offs of PCI loans(a)

53

—

—

53

Provision for loan losses(1,872)

2,179

(119)

188

Other
Ending balance at December 31,

(4)

(6)

$

8,456

$

3,795

$

601

$

971

5
$

4,013 $

(5)
16,264

Allowance for loan losses by impairment methodology
Asset-specific(b)

(c)

$

181 $

1,753

Formula-based

3,697

2,824

3,832

10,353

PCI

4,158

—

—

4,158

4,013 $

16,264

Total allowance for loan losses

$

8,456

$

13,785

$

3,795

$

3,115

$

Loans by impairment methodology
Asset-specific$

Formula-based

221,609

PCI
Total retained loans

124,350

53,055845 $
307,412—

6

17,745653,37153,061$

288,449$

127,465$

308,263 $

724,177

$

235

$

—

$

37 $

272

Impaired collateral-dependent loans
Net charge-offs
Loans measured at fair value of collateral less cost to sell

3,105

—

362

3,467

Allowance for lending-related commitments
Beginning balance at January 1,

661 $

668

Provision for lending-related commitments

$

7
1

$

—
—

$

36

37

Other

—

—

—

—

697 $

705

Ending balance at December 31,

$

8

$

—

$

Allowance for lending-related commitments by impairment
methodology
Asset-specific

$

—

$

—

$

Formula-based
Total allowance for lending-related commitments

8

—

60 $

60

637

645

$

8

$

—

$

697 $

705

$

—

$

—

$

206 $

206

Lending-related commitments by impairment methodology
Asset-specific
Formula-based
Total lending-related commitments

56,057$56,057529,383$

529,383$

446,026

1,031,466

446,232 $

1,031,672(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 aspurchase accounting adjustments at the time of acquisition. Any write-offs of PCI loans are recognized when the underlying loan is removed from a pool(e.g., upon liquidation).
(b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
(c) The asset-specific credit card allowance for loan losses is related to loans that have been modified in a TDR; such allowance is calculated based on theloans’ original contractual interest rates and does not consider any incremental penalty rates.
(d) Consumer, excluding credit card, charge-offs for the year ended December 31, 2012, included $747 million of charge-offs for Chapter 7 residential realestate loans and $53 million of charge-offs for Chapter 7 auto loans.

286

JPMorgan Chase & Co./2013 Annual Report

(table continued from previous page)2012
Consumer,
excludingcredit card$

Credit card

16,2944,805$

Wholesale

6,999

4,316 $

27,6095,755

346

10,906

(811)

(524)

(d)

4,944

(178)

16,471$Wholesale

11,034$Total

4,761 $

32,266

5,419

8,168

916

14,503(1,843)(547)(1,243)(476)(2,266)

9,063

4,872

6,925

440

12,237

—

—

—

—

—

—

—

—

3,444

(359)

3,387

4,670

2,925

17

7,612

(7)

2

12,292

$

5,501

$

729

$

1,681

8

(c)

3

25

(35)

$

4,143 $

21,936$

16,294

$

6,999

$

319 $

2,729

$

828

$

2,727

(22)
$

(c)

$

4,316 $

516 $

(32)
27,609

4,071

5,852

3,820

3,824

13,496

9,755

4,272

3,800

17,827

5,711

—

—

5,711

5,711

—

—

5,711

4,143 $

21,936$

4,316 $

27,60920,175$

12,292$

13,938$218,945
292,620

$

973

$

4,762

$

—

(c)

1,475 $
304,728

646,904

16,294

$

9,892

$

232,989

6,999

$

7,214

$

124,96119

59,756

21

65,567$306,222 $

726,835$

308,427$

132,175$

278,395 $

718,997

$

—

$

77 $

1,050

$

110

$

—

$

128 $

238

445

3,717

833

1,663

$

—

$

—

19,655
633,775

127,993—

65,5462,549 $
275,825

$

3,272

7

5,501

123,23159,737$$$

Credit card

302
$

$

$

Total

(d)

(508)
4,297

$

2011
Consumer,
excludingcredit card

830

666 $

673

711 $

717

—

—

(2)

(2)

2

—

(40)

(38)

—

—

(3)

(3)

(1)

—

(5)

(6)

661 $

668

$

7

$

—

$

666 $

673

$

—

$

—

$

150 $

150

516

523

$

7

$

—

$

$

—

$

—

$

7

—

97 $

97

564

571

$

6

—

$

7

—

$

—

$

7

$

—

$

661 $

668

$

7

$

—

$

666 $

673

$

—

$

—

$

355 $

355

$

—

$

—

$

865 $

865

60,156$60,156

533,018$

533,018$

JPMorgan Chase & Co./2013 Annual Report

434,459

1,027,633

434,814 $1,027,988

62,307$62,307

530,616$

530,616$

381,874

974,797382,739 $975,662287

Notes to consolidated financial statements
Note 16 – Variable interest entities
For a further description of JPMorgan Chase’s accounting policies regarding consolidation of VIEs, see Note 1 on pages 189–
191 of this Annual Report.
The following table summarizes the most significant types of Firm-sponsored VIEs by business segment. The Firm considers a“sponsored” VIE to include any entity where: (1) JPMorgan Chase is the principal beneficiary of the structure; (2) the VIE 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.
Annual Report
page references

Line-of-Business Transaction Type

Activity

CCB

Credit card securitization trusts

Securitization of both originated and purchased
credit card receivables

Other securitization trusts

Securitization of originated student loans

290-292

Mortgage securitization trusts

Securitization of originated and purchased
residential mortgages

290-292

Mortgage and other securitization trusts

Securitization of both originated and purchased
residential and commercial mortgages, automobile
and student loans

290-292

Multi-seller conduits

Assist clients in accessing the financial markets in a
cost-efficient manner and structures transactions tomeet investor needs292-296

CIB

Investor intermediation activities:

289

Municipal bond vehicles

293-294

Credit-related note and asset swap vehicles

294-296

The Firm’s other business segments are also involved with VIEs, but to a lesser extent, as follows:•

Asset Management: Sponsors and manages certain funds that are deemed VIEs. As asset manager of the funds, AM earns a
fee based on assets managed; the fee varies with each fund’s investment objective and is competitively priced. For fundentities that qualify as VIEs, AM’s interests are, in certain cases, considered to be significant variable interests that result
in consolidation of the financial results of these entities.
Commercial Banking: CB makes investments in and provides lending to community development entities that may meet thedefinition of a VIE. In addition, CB provides financing and lending related services to certain client-sponsored VIEs. In
general, CB does not control the activities of these entities and does not consolidate these entities.
Corporate/Private Equity: The Private Equity business, within Corporate/Private Equity, may be involved with entities thatare deemed VIEs. However, the Firm’s private equity business is subject to specialized investment company accounting,which does not require the consolidation of investments, including VIEs.

••

The Firm also invests in and provides financing and other services to VIEs sponsored by third parties, as described on page 296of this Note.

288

JPMorgan Chase & Co./2013 Annual ReportSignificant Firm-sponsored variable interest entities
Credit card securitizations
The Card business securitizes originated and purchased
credit card loans, primarily through the Chase Issuance
Trust (the “Trust”). The Firm’s continuing involvement incredit card securitizations includes servicing thereceivables, retaining an undivided seller’s interest in thereceivables, retaining certain senior and subordinatedsecurities 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
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 other creditors.

JPMorgan Chase & Co./2013 Annual Report

The agreements with the credit card securitization trusts
require the Firm to maintain a minimum undivided interestin the credit card trusts (which is generally 4%). As of
December 31, 2013 and 2012, the Firm held undivided
interests in Firm-sponsored credit card securitization trustsof $14.3 billion and $15.8 billion, respectively. The Firm
maintained an average undivided interest in principal
receivables owned by those trusts of approximately 30%
and 28% for the years ended December 31, 2013 and2012, respectively. The Firm also retained $130 million and$362 million of senior securities and $5.5 billion and $4.6
billion of subordinated securities in certain of its credit card
securitization trusts as of December 31, 2013 and 2012,
respectively. The Firm’s undivided interests in the credit
card trusts and securities retained are eliminated inconsolidation.
Firm-sponsored mortgage and other securitization trusts
The Firm securitizes (or has securitized) originated andpurchased residential mortgages, commercial mortgages
and other consumer loans (including automobile andstudent loans) primarily in its CIB and CCB businesses.
Depending on the particular transaction, as well as therespective business involved, the Firm may act as theservicer of the loans and/or retain certain beneficial
interests in the securitization trusts.

289

Notes to consolidated financial statements
The following table presents the total unpaid principal amount of assets held in Firm-sponsored private-label securitization
entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing
involvement includes servicing the loans, holding senior interests or subordinated interests, recourse or guarantee
arrangements, and derivative transactions. In certain instances, the Firm’s only continuing involvement is servicing the loans.
See Securitization activity on page 297 of this Note for further information regarding the Firm’s cash flows with and interests
retained in nonconsolidated VIEs, and pages 297–298 of this Note for information on the Firm’s loan sales to U.S. government
agencies.
JPMorgan Chase interest in securitized
assets in nonconsolidated VIEs(d)(e)(f)Principal amount outstanding

December 31, 2013 (a) (in billions)

Assets held in
Assets held nonconsolidated
Total assets
insecuritization
held byconsolidated
VIEs withsecuritization securitization
continuing
VIEs
VIEs
involvement

Trading
assetsTotalinterests heldby JPMorgan
Chase

AFS
securities

Securitization-related
Residential mortgage:
Prime/Alt-A and Option ARMs$

Subprime
Commercial and other(b)
Total

$

109.2 $

3.2 $

90.4

$

0.3 $

0.8

32.1

1.3

28.0

0.1

—

0.1

130.4

—

98.0

0.5

3.5

4.0

271.7 $

4.5 $

216.4

1.1 $

3.8 $

4.9

$

JPMorgan Chase interest in securitized
assets in nonconsolidated VIEs(d)(e)(f)Principal amount outstanding

December 31, 2012(a) (in billions)

0.5 $Assets held in
Assets held nonconsolidated
Total assets
insecuritization
held byconsolidated
VIEs withsecuritization securitization
continuing
VIEs
VIEs
involvement

Trading
assetsTotalinterests heldby JPMorgan
Chase

AFS
securities

Securitization-related
Residential mortgage:
Prime/Alt-A and Option ARMs(c)$Subprime
Commercial and other(b)
Total

$

133.5 $

2.7 $

106.7

$

0.3 $

— $

0.3

34.5

1.3

31.3

0.1

—

0.1

127.8

—

81.8

1.5

2.8

4.3

295.8 $

4.0 $

219.8

1.9 $

2.8 $

4.7

$

(a) Excludes U.S. government agency securitizations. See pages 297–298 of this Note for information on the Firm’s loan sales to U.S. government agencies.
(b) Consists of securities backed by commercial loans (predominantly real estate) and non-mortgage-related consumer receivables purchased from third
parties. The Firm generally does not retain a residual interest in its sponsored commercial mortgage securitization transactions.
(c) The prior period has been reclassified to conform with the current presentation methodology.
(d) The table above excludes the following: retained servicing (see Note 17 on pages 299–304 of this Annual Report for a discussion of MSRs); securities
retained from loans sales to U.S. government agencies; interest rate and foreign exchange derivatives primarily used to manage interest rate and foreignexchange risks of securitization entities (See Note 6 on pages 220–233 of this Annual Report for further information on derivatives); senior andsubordinated securities of $151 million and $30 million, respectively, at December 31, 2013, and $131 million and $45 million, respectively, at
December 31, 2012, which the Firm purchased in connection with CIB’s secondary market-making activities.
(e) Includes interests held in re-securitization transactions.
(f) As of December 31, 2013 and 2012, 69% and 74%, respectively, of the Firm’s retained securitization interests, which are carried at fair value, were riskrated “A” or better, on an S&P-equivalent basis. The retained interests in prime residential mortgages consisted of $551 million and $170 million of
investment-grade and $260 million and $171 million of noninvestment-grade retained interests at December 31, 2013 and 2012, respectively. The
retained interests in commercial and other securitizations trusts consisted of $3.9 billion and $4.1 billion of investment-grade and $80 million and $164
million of noninvestment-grade retained interests at December 31, 2013 and 2012, respectively.

290

JPMorgan Chase & Co./2013 Annual Report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
originated or purchased by CCB, and for certain mortgage
loans purchased by CIB. For securitizations serviced by CCB,
the Firm has the power to direct the significant activities of
the VIE because it is responsible for decisions related toloan modifications and workouts. CCB may also retain aninterest 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)
in residential mortgage securitizations upon securitization,
and/or reacquires positions in the secondary market in thenormal course of business. In certain instances, as a resultof the positions retained or reacquired by CIB or held byCCB, when considered together with the servicing
arrangements entered into by CCB, the Firm is deemed tobe the primary beneficiary of certain securitization trusts.
See the table on page 296 of this Note for more informationon 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. At December 31,
2013 and 2012, the Firm did not consolidate the assets ofcertain Firm-sponsored residential mortgage securitization
VIEs, in which the Firm had continuing involvement,
primarily due to the fact that the Firm did not hold aninterest in these trusts that could potentially be significant
to the trusts. See the table on page 296 of this Note formore information on the consolidated residential mortgage
securitizations, and the table on the previous page of thisNote for further information on interests held innonconsolidated residential mortgage securitizations.

JPMorgan Chase & Co./2013 Annual Report

Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans,and engages in underwriting and trading activities involving
the securities issued by securitization trusts. CIB may retain
unsold senior and/or subordinated interests in commercial
mortgage securitizations at the time of securitization but,
generally, the Firm does not service commercial loan
securitizations. For commercial mortgage securitizations
the power to direct the significant activities of the VIE
generally is held by the servicer or investors in a specifiedclass of securities (“controlling class”). See the table on
page 296 of this Note for more information on the
consolidated commercial mortgage securitizations, and thetable on the previous page of this Note for further
information on interests held in nonconsolidated
securitizations.
The Firm also securitizes student loans. The Firm retains
servicing responsibilities for all originated and certain
purchased student loans and has the power to direct theactivities of these VIEs through these servicing
responsibilities. See the table on page 296 of this Note formore information on the consolidated student loan
securitizations, and the table on the previous page of thisNote for further information on interests held innonconsolidated securitizations.
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 (Fannie Mae, Freddie Mac and
Ginnie Mae) and nonagency (private-label) sponsored VIEs,
which may be backed by either residential or commercial
mortgages. The Firm’s consolidation analysis is largely
dependent on the Firm’s role and interest in the resecuritization trusts. During the years ended December 31,
2013, 2012 and 2011, the Firm transferred $25.3 billion,$10.0 billion and $24.9 billion, respectively, of securities toagency VIEs, and $55 million, $286 million and $381
million, respectively, of securities to private-label VIEs.
Most re-securitizations with which the Firm is involved areclient-driven transactions in which a specific client or groupof clients are 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 client(s), 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.

291

Notes to consolidated financial statements
In more limited circumstances, the Firm creates a resecuritization trust independently and not in conjunction
with specific clients. In these circumstances, the Firm isdeemed to have the unilateral ability to direct the mostsignificant activities of the re-securitization trust because of
the decisions made during the establishment and design ofthe trust; therefore, the Firm consolidates the resecuritization VIE if the Firm holds an interest that could
potentially be significant.
Additionally, the Firm may invest in beneficial interests ofthird-party 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 wasn’t involved in the initial design of thetrust, or the Firm is involved with an independent third
party sponsor and demonstrates shared power over thecreation of the trust; therefore, the Firm does notconsolidate the re-securitization VIE.
As of December 31, 2013 and 2012, the Firm did notconsolidate any agency re-securitizations. As of
December 31, 2013 and 2012, the Firm consolidated $86
million and $76 million, respectively, of assets, and $23
million and $5 million, respectively, of liabilities of privatelabel re-securitizations. See the table on page 296 of thisNote for more information on the consolidated resecuritization transactions.
As of December 31, 2013 and 2012, total assets (including
the notional amount of interest-only securities) of
nonconsolidated Firm-sponsored private-label resecuritization entities in which the Firm has continuing
involvement were $2.8 billion and $4.6 billion, respectively.
At December 31, 2013 and 2012, the Firm held
approximately $1.3 billion and $2.0 billion, respectively, ofinterests in nonconsolidated agency re-securitization
entities, and $6 million and $61 million, respectively, of
senior and subordinated interests in nonconsolidated
private-label re-securitization entities. See the table on
page 290 of this Note for further information on interests
held in nonconsolidated securitizations.

292

Multi-seller conduits
Multi-seller conduit entities are separate bankruptcy
remote entities that purchase interests in, and make loans
secured by, pools of receivables and other financial assets
pursuant to agreements with customers of the Firm. The
conduits fund their purchases and loans through theissuance of highly rated commercial paper. The primarysource of repayment of the commercial paper is the cash
flows from the pools of assets. In most instances, the assets
are structured with deal-specific credit enhancements
provided to the conduits by the customers (i.e., sellers) orother third parties. Deal-specific credit enhancements are
generally structured to cover a multiple of historical losses
expected on the pool of assets, and are typically in the formof overcollateralization provided by the seller. The dealspecific 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 purchase interests inor make loans secured by pools of receivables in the eventthat the conduits do not obtain funding in the commercial
paper market, each asset pool financed by the conduits has
a minimum 100% deal-specific liquidity facility associatedwith it provided by JPMorgan Chase Bank, N.A. JPMorgan
Chase Bank, N.A. also provides the multi-seller conduitvehicles with uncommitted program-wide liquidity facilities
and program-wide credit enhancement in the form ofstandby letters of credit. The amount of program-wide
credit enhancement required is based upon commercial
paper issuance and approximates 10% of the outstandingbalance.
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
enhancement facilities provided to the conduits. See page296 of this Note for further information on consolidated VIE
assets and liabilities.

JPMorgan Chase & Co./2013 Annual ReportIn the normal course of business, JPMorgan Chase makes
markets in and invests in commercial paper, includingcommercial paper issued by the Firm-administered multiseller conduits. The Firm held $4.1 billion and $8.3 billionof the commercial paper issued by the Firm-administeredmulti-seller conduits at December 31, 2013 and 2012,
respectively. The Firm’s investments were not driven bymarket illiquidity and the Firm is not obligated under any
agreement to purchase the commercial paper issued by the
Firm-administered multi-seller conduits.
Deal-specific liquidity facilities, program-wide liquidity 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 portion of thesecommitments was $9.1 billion and $10.8 billion at
December 31, 2013 and 2012, respectively, and arereported as off-balance sheet lending-related commitments.
For more information on off-balance sheet lending-related
commitments, see Note 29 on pages 318–324 of thisAnnual Report.
VIEs associated with investor intermediation activities
As a financial intermediary, the Firm creates certain typesof VIEs and also structures transactions with these VIEs,
typically using derivatives, to meet investor needs. The Firm
may also provide liquidity and other support. The risks
inherent in the derivative instruments or liquidity
commitments are managed similarly to other credit, market
or liquidity risks to which the Firm is exposed. The principal
types of VIEs for which the Firm is engaged in on behalf ofclients are municipal bond vehicles, credit-related notevehicles and asset swap vehicles.
Municipal bond vehicles
The Firm has created a series of trusts that provide shortterm investors with qualifying tax-exempt investments, andthat allow investors in tax-exempt securities to finance theirinvestments at short-term tax-exempt rates. In a typicaltransaction, the vehicle purchases fixed-rate longer-term
highly rated municipal bonds and funds the purchase byissuing two types of securities: (1) puttable floating-rate
certificates and (2) inverse floating-rate residual interests(“residual interests”). The maturity of each of the puttablefloating-rate certificates and the residual interests is equal
to the life of the vehicle, while the maturity of theunderlying municipal bonds is typically longer. Holders of
the puttable floating-rate certificates may “put,” or tender,
the certificates if the remarketing agent cannot successfully
remarket the floating-rate certificates to another investor. A
liquidity facility conditionally obligates the liquidity provider
to fund the purchase of the tendered floating-rate
certificates. Upon termination of the vehicle, proceeds fromthe sale of the underlying municipal bonds would first repay
any funded liquidity facility or outstanding floating-rate
certificates and the remaining amount, if any, would be paid
to the residual interests. If the proceeds from the sale of theunderlying municipal bonds are not sufficient to repay the

JPMorgan Chase & Co./2013 Annual Reportliquidity facility, in certain transactions the liquidity
provider has recourse to the residual interest holders forreimbursement. Certain residual interest holders may berequired to post collateral with the Firm, as liquidity
provider, to support such reimbursement obligations should
the market value of the municipal bonds decline.
JPMorgan Chase Bank, N.A. often serves as the sole liquidity
provider, and J.P. Morgan Securities LLC serves asremarketing agent, of the puttable floating-rate certificates.
The liquidity provider’s obligation to perform is conditional
and is limited by certain termination events, which include
bankruptcy or failure to pay by the municipal bond issuer or
credit enhancement provider, an event of taxability on themunicipal bonds or the immediate downgrade of themunicipal bond to below investment grade. In addition, theFirm’s exposure as liquidity provider is further limited by
the high credit quality of the underlying municipal bonds,
the excess collateralization in the vehicle, or in certaintransactions, the reimbursement agreements with theresidual interest holders.
The long-term credit ratings of the puttable floating ratecertificates are directly related to the credit ratings of theunderlying municipal bonds, the credit rating of any insurerof the underlying municipal bond, and the Firm’s short-term
credit rating as liquidity provider. A downgrade in any ofthese ratings would affect the rating of the puttablefloating-rate certificates and could cause demand for thesecertificates by investors to decline or disappear. However, adowngrade of JPMorgan Chase Bank, N.A.’s short-term
rating does not affect the Firm’s obligation under theliquidity facility.
As remarketing agent, the Firm may hold puttable floatingrate certificates of the municipal bond vehicles. At
December 31, 2013 and 2012, the Firm held $262 million
and $252 million, respectively, of these certificates on its
Consolidated Balance Sheets. The largest amount held by
the Firm at any time during 2013 was $470 million, or4.8%, of the municipal bond vehicles’ aggregate
outstanding puttable floating-rate certificates. The Firm did
not have and continues not to have any intent to protect any
residual interest holder from potential losses on any of themunicipal bond holdings.

293Notes to consolidated financial statements
The Firm consolidates municipal bond vehicles if it owns theresidual interest. The residual interest generally allows theowner to make decisions that significantly impact theeconomic performance of the municipal bond vehicle,
primarily by directing the sale of the municipal bonds
owned by the vehicle. In addition, the residual interest
owners have the right to receive benefits and bear losses
that could potentially be significant to the municipal bondvehicle. The Firm does not consolidate municipal bondvehicles if it does not own the residual interests, since theFirm does not have the power to make decisions thatsignificantly impact the economic performance of themunicipal bond vehicle. See page 296 of this Note forfurther information on consolidated municipal bondvehicles.

The Firm’s exposure to nonconsolidated municipal bond VIEs at December 31, 2013 and 2012, including the ratings profile of
the VIEs’ assets, was as follows.
December 31,(in billions)

Fair value of assets
held by VIEs

Liquidity facilities

Excess/(deficit)(a)Maximum
exposure

Nonconsolidated municipal bond vehicles
2013

$

2012

11.8 $

6.9 $

4.9 $

6.9

14.2

8.0

6.2

8.0

Ratings profile of VIE assets(b)Noninvestmentgrade

Investment-grade
December 31,(in billions, except where otherwise noted)
2013

AAA toAAA$

2012

AA+ to AA-

A+ to A-

BBB+ toBBB-

BB+ and below

2.7 $

8.9 $

0.2 $

—

3.1

11.0

0.1

—

$

Fair value of
assets heldby VIEs

Wt. avg.
expected lifeof assets(years)

— $

11.8

7.2

—

14.2

5.9

(a) Represents the excess/(deficit) of the fair values of municipal bond assets available to repay the liquidity facilities, if drawn.
(b) The ratings scale is presented on an S&P-equivalent basis. The prior period has been reclassified to conform with the current presentation.

Credit-related note and asset swap vehicles
Credit-related note vehicles
The Firm structures transactions with credit-related notevehicles in which the VIE purchases highly rated assets,such as asset-backed securities, and enters into a credit
derivative contract with the Firm to obtain exposure to areferenced credit which the VIE otherwise does not hold.
The VIE then issues credit-linked notes (“CLNs”) withmaturities predominantly ranging from one to ten years inorder to transfer the risk of the referenced credit to the
VIE’s investors. Clients and investors often prefer using a
CLN vehicle since the CLNs issued by the VIE generally carrya higher credit rating than such notes would if issued
directly by JPMorgan Chase. As a derivative counterparty ina credit-related note structure, the Firm has a senior claimon the collateral of the VIE and reports such derivatives on
its Consolidated Balance Sheets at fair value. The collateralpurchased by such VIEs is predominantly investment grade.
The Firm divides its credit-related note structures broadly
into two types: static and managed.
In a static credit-related note structure, the CLNs andassociated credit derivative contract either reference asingle credit (e.g., a multi-national corporation), or all orpart of a fixed portfolio of credits. In a managed creditrelated note structure, the CLNs and associated credit

294

derivative generally reference all or part of an actively
managed portfolio of credits. An agreement exists between
a portfolio manager and the VIE that gives the portfolio
manager the ability to substitute each referenced credit in
the portfolio for an alternative credit. The Firm does not act
as portfolio manager; its involvement with the VIE isgenerally limited to being a derivative counterparty. As a
net buyer of credit protection, in both static and managed
credit-related note structures, the Firm pays a premium tothe VIE in return for the receipt of a payment (up to thenotional of the derivative) if one or more of the credits
within the portfolio defaults, or if the losses resulting fromthe default of reference credits exceed specified levels. The
Firm does not provide any additional contractual financial
support to the VIE. In addition, the Firm has not historicallyprovided any financial support to the CLN vehicles over andabove its contractual obligations. Since each CLN isestablished to the specifications of the investors, theinvestors have the power over the activities of that VIE thatmost significantly affect the performance of the CLN.
Furthermore, the Firm does not generally have a variableinterest that could potentially be significant. Accordingly,
the Firm does not generally consolidate these credit-related
note entities. As a derivative counterparty, the Firm has asenior claim on the collateral of the VIE and reports suchderivatives on its Consolidated Balance Sheets at fair value.
Substantially all of the assets purchased by such VIEs areinvestment-grade.

JPMorgan Chase & Co./2013 Annual ReportAsset swap vehicles
The Firm structures and executes transactions with asset
swap vehicles on behalf of investors. In such transactions,
the VIE purchases a specific asset or assets and then enters
into a derivative with the Firm in order to tailor the interest
rate or foreign exchange currency risk, or both, according toinvestors’ requirements. Generally, the assets are held by
the VIE to maturity, and the tenor of the derivatives would
match the maturity of the assets. Investors typically invest
in the notes issued by such VIEs in order to obtain exposure
to the credit risk of the specific assets, as well as exposure
to foreign exchange and interest rate risk that is tailored totheir specific needs. The derivative transaction between the
Firm and the VIE may include currency swaps to hedge
assets held by the VIE denominated in foreign currency into
the investors’ local currency or interest rate swaps to hedge
the interest rate risk of assets held by the VIE; to add
additional interest rate exposure into the VIE in order toincrease the return on the issued notes; or to convert aninterest-bearing asset into a zero-coupon bond.
The Firm’s exposure to asset swap vehicles is generally
limited to its rights and obligations under the interest rate
and/or foreign exchange derivative contracts. The Firm
historically has not provided any financial support to theasset swap vehicles over and above its contractual
obligations. The Firm does not generally consolidate theseasset swap vehicles, since the Firm does not have the power
to direct the significant activities of these entities and does
not have a variable interest that could potentially besignificant. As a derivative counterparty, the Firm has asenior claim on the collateral of the VIE and reports suchderivatives on its Consolidated Balance Sheets at fair value.
Substantially all of the assets purchased by such VIEs areinvestment-grade.

JPMorgan Chase & Co./2013 Annual Report

Exposure to nonconsolidated credit-related note and asset
swap VIEs at December 31, 2013 and 2012, was as follows.
December 31, 2013
(in billions)Credit-related notes
Static structureManaged structure
Total credit-related
notes
Asset swaps
Total

December 31, 2012
(in billions)Credit-related notes
Static structureManaged structure
Total credit-related
notes
Asset swaps
Total

Net
derivative
receivables$$$

Par value ofcollateral heldby VIEs(a)

— $
—

— $
—

4.8
3.9

—

—

8.7

0.4
0.4 $

0.4
0.4 $

7.7
16.4

Net
derivative
receivables$

Total
exposure

Total
exposure

Par value ofcollateral heldby VIEs(a)

0.5 $
0.6

0.5 $
0.6

7.3
5.6

1.1

1.1

12.9

0.4
1.5 $

0.4
1.5 $

7.9
20.8

(a) The Firm’s maximum exposure arises through the derivatives executed with the
VIEs; the exposure varies over time with changes in the fair value of thederivatives. The Firm relies on the collateral held by the VIEs to pay any amounts
due under the derivatives; the vehicles are structured at inception so that the parvalue of the collateral is expected to be sufficient to pay amounts due under thederivative contracts.

295

Notes to consolidated financial statements
The Firm consolidated Firm-sponsored and third-party
credit-related note vehicles with collateral fair values of$311 million and $483 million, at December 31, 2013 and2012, respectively. These consolidated VIEs included somethat were structured by the Firm where the Firm provides
the credit derivative, and some that have been structuredby third parties where the Firm is not the credit derivative
provider. The Firm consolidated these vehicles, because it
held positions in these entities that provided the Firm with
control of certain vehicles. The Firm did not consolidate any
asset swap vehicles at December 31, 2013 and 2012.

and a $1.15 billion subordinated loan from JPMorgan
Chase. The JPMorgan Chase loan was subordinated to the
FRBNY loan and bore the first $1.15 billion of any losses ofthe portfolio. Any remaining assets in the portfolio after
repayment of the FRBNY loan, repayment of the JPMorgan
Chase loan and the expense of the LLC was for the accountof the FRBNY. The extent to which the FRBNY and JPMorgan
Chase loans were repaid depended on the value of theassets in the portfolio and the liquidation strategy directedby the FRBNY. The Firm did not consolidate the LLC, as it did
not have the power to direct the activities of the VIE thatmost significantly impact the VIE’s economic performance.
In June 2012, the FRBNY loan was repaid in full and in
November 2012, the JPMorgan Chase loan was repaid infull. During the year ended December 31, 2012, JPMorgan
Chase recognized a pretax gain of $665 million reflecting
the recovery on the $1.15 billion subordinated loan plus
contractual interest.

VIEs sponsored by third parties
VIE used in FRBNY transaction
In conjunction with the Bear Stearns merger in June 2008,
the Federal Reserve Bank of New York (“FRBNY”) took
control, through an LLC formed for this purpose, of aportfolio of $30.0 billion in assets, based on the value ofthe portfolio as of March 14, 2008. The assets of the LLC
were funded by a $28.85 billion term loan from the FRBNY

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,
2013 and 2012.
Assets

December 31, 2013 (in billions)

Trading assets –debt and equity
instruments(a)

VIE program typeFirm-sponsored credit card trusts
Firm-administered multi-seller conduits
Municipal bond vehicles
Mortgage securitization entities(b)Other(c)
Total

$

Loans
— $
—
3.4
2.3
0.7
6.4 $

$

46.9 $
19.0
—
1.7
2.5
70.1 $

Liabilities

Other(d)
1.1 $
0.1
—
—
1.0
2.2 $

Total
assets(e)
48.0
19.1
3.4
4.0
4.2
78.7

Beneficial
interests in
VIE assets(f)$$26.6 $
14.9
2.9
2.9
2.3
49.6 $

AssetsTrading assets –debt and equity
instruments

December 31, 2012 (in billions)(a)

VIE program typeFirm-sponsored credit card trusts
Firm-administered multi-seller conduits
Municipal bond vehicles
Mortgage securitization entities(b)Other(c)
Total

$

$

Loans
— $
—
9.8
1.4
0.8
12.0 $

51.9 $
25.4
—
2.0
3.4
82.7 $

Other(g)
— $
—
—
0.9
0.2
1.1 $

Total
liabilities
26.6
14.9
2.9
3.8
2.5
50.7

Liabilities

Other(d)
0.8 $
0.1
0.1
—
1.1
2.1 $

Total
assets(e)
52.7
25.5
9.9
3.4
5.3
96.8

Beneficial
interests in
VIE assets(f)$$30.1 $
17.2
11.0
2.3
2.6
63.2 $

Other(g)
— $
—
—
1.1
0.1
1.2 $

Total
liabilities
30.1
17.2
11.0
3.4
2.7
64.4

(a) Excludes intercompany transactions which were eliminated in consolidation.
(b) Includes residential and commercial mortgage securitizations as well as re-securitizations.
(c) Primarily comprises student loan securitization entities. The Firm consolidated $2.5 billion and $3.3 billion of student loan securitization entities as ofDecember 31, 2013 and 2012, respectively.
(d) Includes assets classified as cash, derivative receivables, AFS securities, and other assets within 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 $31.8 billion and $35.0 billion at December 31,
2013 and 2012, respectively. The maturities of the long-term beneficial interests as of December 31, 2013, were as follows: $3.8 billion under one year,$20.6 billion between one and five years, and $7.4 billion over five years, all respectively.
(g) Includes liabilities classified as accounts payable and other liabilities in the Consolidated Balance Sheets.

296

JPMorgan Chase & Co./2013 Annual ReportSupplemental information on loan securitizations
The Firm has securitized and sold a variety of loans,including residential mortgage, credit card, automobile,
student and commercial (primarily related to real estate)loans, as well as debt securities. The primary purposes ofthese securitization transactions were to satisfy investor
demand and to generate liquidity for the Firm.
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 the accounting
criteria for a sale are met. Those criteria are: (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 tables provide information related to the Firm’s securitization activities for the years ended December 31, 2013,2012 and 2011, related to assets held in JPMorgan Chase-sponsored securitization entities that were not consolidated by theFirm, and where sale accounting was achieved based on the accounting rules in effect at the time of the securitization.
2013
Year ended December 31,(in millions, except rates)(a)Residential
mortgage(d)Principal securitized
All cash flows during the period:$

1,404 $

Proceeds from new securitizations(b)$1,410 $

Servicing fees collected

576

Purchases of previously transferred financial assets(or the underlying collateral)(c)Cash flows received on interests

2012

Commercial
and other(f)(g)2011

Residential
Commercial
mortgage(d)(e) and other(f)(g)Residential
mortgage(d)(e)11,318

$

— $

5,421

$

— $

5,961

11,507

$

— $

5,705

$

— $

6,142

5

662

294

—

156

325

Commercial
and other(f)(g)

4

755

4

222

—

772

—

185

163

235

178

(a) Excludes re-securitization transactions.
(b) Proceeds from residential mortgage securitizations were received in the form of securities. During 2013, $1.4 billion of residential mortgage
securitizations were classified in level 2 of the fair value hierarchy. Proceeds from commercial mortgage securitizations were received as securities andcash. During 2013, $11.3 billion of commercial mortgage securitizations were classified in level 2 of the fair value hierarchy, and $207 million ofproceeds from commercial mortgage securitizations were received as cash. During 2012, $5.7 billion of commercial mortgage securitizations wereclassified in level 2 of the fair value hierarchy. During 2011, $4.0 billion and $2.1 billion commercial mortgage securitizations were classified in levels 2
and 3 of the fair value hierarchy, respectively.
(c) Includes cash paid by the Firm to reacquire assets from off–balance sheet, nonconsolidated entities – for example, loan repurchases due to representation
and warranties and servicer clean-up calls.
(d) Includes prime, Alt-A, subprime, and option ARMs. Excludes sales for which the Firm did not securitize the loan (including loans sold to Ginnie Mae, Fannie
Mae and Freddie Mac).
(e) There were no residential mortgage securitizations during 2012 and 2011.
(f) Includes commercial and student loan securitizations.
(g) Key assumptions used to measure retained interests originated during the year included weighted-average life (in years) of 8.3, 8.8 and 1.7 for the years
ended December 31, 2013, 2012, and 2011, respectively, and weighted-average discount rate of 3.2%, 3.6% and 3.5% for the years ended December
31, 2013, 2012, and 2011, respectively.

Loans and excess mortgage servicing rights sold toagencies and other third-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 mortgage servicing rights on
a nonrecourse basis, predominantly to Ginnie Mae, Fannie
Mae and Freddie Mac (the “Agencies”). These loans andexcess mortgage servicing rights are sold primarily for the
purpose of securitization by the Agencies, which also
provide credit enhancement of the loans and excess

JPMorgan Chase & Co./2013 Annual Reportmortgage servicing rights through certain guarantee
provisions. The Firm does not consolidate thesesecuritization vehicles as it is not the primary beneficiary.
For a limited number of loan sales, the Firm is obligated toshare a portion of the credit risk associated with the soldloans with the purchaser. See Note 29 on pages 318–324 ofthis Annual Report for additional information about the
Firm’s loan sales- and securitization-related
indemnifications. See Note 17 on pages 299–304 of thisAnnual Report for additional information about the impactof the Firm’s sale of certain excess mortgage servicing
rights.

297

Notes to consolidated financial statements
The following table summarizes the activities related toloans sold to U.S. government-sponsored agencies andthird-party-sponsored securitization entities.
Year ended December 31,(in millions)

2013

2012(e)2011(e)Carrying value of loans sold(a)$ 166,028 $ 179,008 $ 149,247

Proceeds received from loan
sales as cash$

Proceeds from loan sales as
securities(b)Total proceeds received fromloan sales(c)Gains on loan sales

(d)

782 $
163,373

195 $
176,592

122
146,704$ 164,155 $ 176,787 $ 146,826
302

141

133

(a) Predominantly to U.S. government agencies.
(b) Predominantly includes securities from U.S. government agencies thatare generally sold shortly after receipt.
(c) Excludes the value of MSRs retained upon the sale of loans. 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.
(e) Prior periods have been revised to conform with the current
presentation.

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 29 on pages 318–324 ofthis Annual Report, the Firm also has the option to
repurchase delinquent loans that it services for Ginnie Maeloan pools, as well as for other U.S. government agencies
under certain arrangements. The Firm typically elects torepurchase delinquent loans from Ginnie Mae loan pools as
it continues to service them and/or manage the foreclosure
process in accordance with the applicable requirements,and such loans continue to be insured or guaranteed. When
the Firm’s repurchase option becomes exercisable, suchloans must be reported on the Consolidated Balance Sheets
as a loan with a corresponding liability. As of December 31,
2013 and 2012, the Firm had recorded on its Consolidated
Balance Sheets $14.3 billion and $15.6 billion, respectively,of loans that either had been repurchased or for which the
Firm had an option to repurchase. Predominantly all ofthese amounts relate to loans that have been repurchasedfrom Ginnie Mae loan pools. Additionally, real estate owned
resulting from voluntary repurchases of loans was $2.0
billion and $1.6 billion as of December 31, 2013 and 2012,
respectively. Substantially all of these loans and real estate
owned are insured or guaranteed by U.S. government
agencies. For additional information, refer to Note 14 on
pages 258–283 of this Annual Report.

298

JPMorgan Chase’s interest in securitized assets held atfair value
The following table outlines the key economic assumptions
used to determine the fair value, as of December 31, 2013
and 2012, of certain of the Firm’s retained interests innonconsolidated VIEs (other than MSRs), that are valued
using modeling techniques. The table also outlines thesensitivities of those fair values to immediate 10% and
20% adverse changes in assumptions used to determine
fair value. For a discussion of MSRs, see Note 17 on pages
299–304 of this Annual Report.
Commercial and otherDecember 31, (in millions, except rates andwhere otherwise noted)(a)JPMorgan Chase interests in securitized
assets(b)2013$

Weighted-average life (in years)
Weighted-average discount rate

Impact of 20% adverse change

520

$

5.5

(b)

Impact of 10% adverse change

2012

$

1,488
6.1

3.8%

4.1%

(9) $

(34)

(18)

(65)

(a) The Firm’s interests in prime mortgage securitizations were$552 million and $341 million, as of December 31, 2013 and 2012,
respectively. These include retained interests in Alt-A loans and resecuritization transactions. The Firm’s interests in subprime mortgage
securitizations were $91 million and $68 million, as of December 31,
2013 and 2012, respectively.
(b) Incorporates the Firm’s weighted-average loss assumption.

The sensitivity analysis in the preceding table ishypothetical. Changes in fair value based on a 10% or 20%
variation in assumptions generally cannot be extrapolated
easily, because the relationship of the change in theassumptions to the change in fair value may not be linear.
Also, in the 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 might
counteract or magnify the sensitivities. The above
sensitivities also do not reflect risk management practices
the Firm may undertake to mitigate such risks.

JPMorgan Chase & Co./2013 Annual ReportLoan delinquencies and liquidation losses
The table below includes information about components of nonconsolidated securitized financial assets, in which the Firm has
continuing involvement, and delinquencies as of December 31, 2013 and 2012.
As of or for the year ended December 31, (in millions)
Securitized loans(a)Residential mortgage:
Prime/ Alt-A & Option ARMs

Securitized assets
2013
2012

90 days past due
2013
2012

$ 90,381 $ 106,667$ 14,882 $ 22,865

Liquidation losses
2013
2012

4,688 $

9,118

Subprime mortgage

28,00831,264

7,726

10,570

2,420

3,013

Commercial and other

98,01881,834

2,350

4,077

1,003

1,265

Total loans securitized$ 216,407 $ 219,765(b)$ 24,958 $ 37,512$$

8,111 $ 13,396(a) Total assets held in securitization-related SPEs were $271.7 billion and $295.8 billion, respectively, at December 31, 2013 and 2012. The $216.4 billion
and $219.8 billion, respectively, of loans securitized at December 31, 2013 and 2012, excludes: $50.8 billion and $72.0 billion, respectively, of
securitized loans in which the Firm has no continuing involvement, and $4.5 billion and $4.0 billion, respectively, of loan securitizations consolidated on
the Firm’s Consolidated Balance Sheets at December 31, 2013 and 2012.
(b) Includes securitized loans that were previously recorded at fair value and classified as trading assets.

Note 17 – Goodwill and other intangible assets
Goodwill and other intangible assets consist of thefollowing.
December 31, (in millions)
Goodwill
Mortgage servicing rights
Other intangible assets:
Purchased credit card relationships
Other credit card-related intangibles
Core deposit intangibles
Other intangibles
Total other intangible assets

2013

2012

2011

$ 48,081 $ 48,175 $ 48,188
9,614
7,614
7,223
$

131 $
295 $
602
173
229
488
159
355
594
1,155
1,356
1,523
$ 1,618 $ 2,235 $ 3,207

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 Management
Corporate/Private Equity
Total goodwill

2013

2012

2011

$ 30,985 $ 31,048 $ 30,996
6,888
6,895
6,944
2,862
2,863
2,864
6,969
6,992
7,007
377
377
377
$ 48,081 $ 48,175 $ 48,188

JPMorgan Chase & Co./2013 Annual Report

The following table presents changes in the carrying
amount of goodwill.
Year ended December 31,(in millions)
Balance at beginning of period(a)Changes during the period from:
Business combinations
Dispositions
Other(b)Balance at December 31,(a)

2013

2012

2011

$ 48,175$ 48,188$ 48,854

64
43
97
(5)
(4)
(685)
(153)
(52)
(78)
$ 48,081 $ 48,175 $ 48,188(a) Reflects gross goodwill balances as the Firm has not recognized any
impairment losses to date.
(b) Includes foreign currency translation adjustments and other taxrelated adjustments.

Impairment testing
Goodwill was not impaired at December 31, 2013 or 2012,
nor was any goodwill written off due to impairment during
2013, 2012 or 2011.
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. If thefair value is in excess of the carrying value (including
goodwill), then the reporting unit’s goodwill is considered
not to be impaired. If the fair value is less than the carrying
value (including goodwill), then a second step is performed.
In the second step, the implied current fair value of thereporting unit’s goodwill is determined by comparing thefair value of the reporting unit (as determined in step one)to the fair value of the net assets of the reporting unit, as if
the reporting unit were being acquired in a 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.

299

Notes to consolidated financial statements
The Firm uses the reporting units’ allocated equity plus
goodwill capital as a proxy for the carrying amounts ofequity for the reporting units in the goodwill impairment
testing. Reporting unit equity is determined on a similarbasis as the allocation of equity to the Firm’s lines ofbusiness, which takes into consideration the capital thebusiness segment would require if it were operating
independently, incorporating sufficient capital to address
regulatory capital requirements (including Basel III),economic risk measures and capital levels for similarly
rated peers. Proposed line of business equity levels areincorporated into the Firm’s annual budget process, whichis reviewed by the Firm’s Board of Directors. Allocatedequity is further reviewed on a periodic basis and updated
as needed.
The primary method the Firm uses to estimate the fairvalue of its reporting units is the income approach. The
models project cash flows for the forecast period and use
the perpetuity growth method to calculate terminal values.
These cash flows and terminal values are then discounted
using an appropriate discount rate. Projections of cash
flows are based on the reporting units’ earnings forecasts,
which include the estimated effects of regulatory andlegislative changes (including, but not limited to the DoddFrank Wall Street Reform and Consumer Protection Act (the“Dodd-Frank Act”)), and which are reviewed with the
Operating Committee of the Firm. The discount rate used
for each reporting unit represents an estimate of the cost ofequity for that reporting unit and is determined considering
the Firm’s overall estimated cost of equity (estimated using
the Capital Asset Pricing Model), as adjusted for the risk
characteristics specific to each reporting unit (for example,
for higher levels of risk or uncertainty associated with thebusiness or management’s forecasts and assumptions). To
assess the reasonableness of the discount rates used foreach reporting unit management compares the discountrate to the estimated cost of equity for publicly tradedinstitutions with similar businesses and risk characteristics.
In addition, the weighted average cost of equity(aggregating the various reporting units) is compared with
the Firms’ overall estimated cost of equity to ensure
reasonableness.
The valuations derived from the discounted cash flow
models 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 value of the Firm’s reporting
units and JPMorgan Chase’s market capitalization. In
evaluating this comparison, management considers several
factors, including (a) a control premium that would exist ina market transaction, (b) factors related to the level ofexecution risk that would exist at the firmwide level that do

300

not exist at the reporting unit level and (c) short-term
market volatility and other factors that do not directly
affect the value of individual reporting units.
While no impairment of goodwill was recognized, the Firm’s
Mortgage Banking business in CCB remains at an elevatedrisk of goodwill impairment due to its exposure to U.S.
consumer credit risk and the effects of economic,
regulatory and legislative changes. The valuation of thisbusiness is particularly dependent upon economic
conditions (including primary mortgage interest rates,
lower mortgage origination volume, new unemployment
claims and home prices), regulatory and legislative changes(for example, those related to residential mortgage
servicing, foreclosure and loss mitigation activities), andthe amount of equity capital required. The assumptions
used in the discounted cash flow valuation models including
the amount of capital necessary given the risk of businessactivities to meet regulatory capital requirements were
determined using management’s best estimates. The cost ofequity reflected the related risks and uncertainties, and wasevaluated in comparison to relevant market peers.
Deterioration in these assumptions could cause theestimated fair values of these reporting units and theirassociated goodwill to decline, which may result in amaterial impairment charge to earnings in a future period
related to some portion of the associated goodwill.
Mortgage servicing rights
Mortgage servicing rights represent the fair value of
expected future cash flows for performing servicing
activities for others. The fair value considers estimatedfuture servicing fees and ancillary revenue, offset by
estimated costs to service the loans, and generally declines
over time as net servicing cash flows are received,
effectively amortizing the MSR asset against contractual
servicing and ancillary fee income. MSRs are eitherpurchased from third parties or recognized upon sale orsecuritization of mortgage loans if servicing is retained.
As permitted by U.S. GAAP, the Firm elected to account for
its MSRs at fair value. The Firm treats its MSRs as a single
class of servicing assets based on the availability of market
inputs used to measure the fair value of its MSR asset andits treatment of MSRs as one aggregate pool for risk
management purposes. The Firm estimates the fair value of
MSRs using an option-adjusted spread (“OAS”) model,
which projects MSR cash flows over multiple interest ratescenarios in conjunction with the Firm’s prepayment model,
and then discounts these cash flows at risk-adjusted rates.
The model considers portfolio characteristics, contractuallyspecified servicing fees, prepayment assumptions,delinquency rates, costs to service, late charges and otherancillary revenue, and other economic factors. The Firmcompares fair value estimates and assumptions toobservable market data where available, and also considers
recent market activity and actual portfolio experience.

JPMorgan Chase & Co./2013 Annual Report

The fair value of MSRs is sensitive to changes in interest
rates, including their effect on prepayment speeds. MSRs
typically decrease in value when interest rates decline
because declining interest rates tend to increase
prepayments and therefore reduce the expected life of the
net servicing cash flows that comprise the MSR asset.
Conversely, securities (e.g., mortgage-backed securities),
principal-only certificates and certain derivatives (i.e.,

those for which the Firm receives fixed-rate interest
payments) increase in value when interest rates decline.
JPMorgan Chase uses combinations of derivatives andsecurities to manage changes in the fair value of MSRs. The
intent is to offset any interest-rate related changes in thefair value of MSRs with changes in the fair value of therelated risk management instruments.

The following table summarizes MSR activity for the years ended December 31, 2013, 2012 and 2011.
As of or for the year ended December 31, (in millions, except where otherwise noted)

2013

Fair value at beginning of period

$

7,614

2012
$

7,223

2011
$

13,649MSR activity:
Originations of MSRs

2,214

Purchase of MSRs

2,376

2,570
33

1

457

Disposition of MSRs(a)

(725)

(579)

—

Net additions

1,490

2,254

2,603

(1,102)(1,228)(1,910)

2,122

(589)

(5,392)

109

(452)

(1,757)(1,238)Changes due to collection/realization of expected cash flows(b)Changes in valuation due to inputs and assumptions:
Changes due to market interest rates and other(c)Changes in valuation due to other inputs and assumptions:
Projected cash flows (e.g., cost to service)(d)Discount rates

(78)

(98)

Prepayment model changes and other(e)

(541)

504

1,268

(510)

(46)

(1,727)

Total changes in valuation due to other inputs and assumptions
Total changes in valuation due to inputs and assumptions(b)

$

1,612

$

(635) $

(7,119)Fair value at December 31,

$

9,614

$

7,614

$

7,223

Change in unrealized gains/(losses) included in income related to MSRs
held at December 31,

$

1,612

$

(635) $

(7,119)Contractual service fees, late fees and other ancillary fees included in income

$

3,309

$

3,783

$

3,977

Third-party mortgage loans serviced at December 31, (in billions)

$

822

$

867

$

910

$

9.6

$

10.9

$

11.1

(f)

Servicer advances, net of an allowance for uncollectible amounts, at December 31, (in billions)(g)(a) Predominantly represents excess mortgage servicing rights transferred to agency-sponsored trusts in exchange for stripped mortgage backed securities(“SMBS”). In each transaction, a portion of the SMBS was acquired by third parties at the transaction date; the Firm acquired and has retained theremaining balance of those SMBS as trading securities. Also includes sales of MSRs in 2013 and 2012.
(b) Included changes related to commercial real estate of $(5) million, $(8) million and $(9) million for the years ended December 31, 2013, 2012 and2011, respectively.
(c) Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual andexpected prepayments.
(d) For the year ended December 31, 2013, the increase was driven by the inclusion in the MSR valuation model of servicing fees receivable on certain
delinquent loans.
(e) Represents changes in prepayments other than those attributable to changes in market interest rates. For the year ended December 31, 2013, thedecrease was driven by changes in the inputs and assumptions used to derive prepayment speeds, primarily increases in home prices.
(f) Included $18 million, $23 million and $31 million related to commercial real estate at December 31, 2013, 2012, and 2011, respectively.
(g) Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest to a trust, taxes and insurance), which will generally bereimbursed within a short period of time after the advance from future cash flows from the trust or the underlying loans. The Firm’s credit risk associatedwith these advances is minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm
maintains the right to stop payment to investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not
be recoverable if they were not made in accordance with applicable rules and agreements.

JPMorgan Chase & Co./2013 Annual Report301Notes to consolidated financial statements
During the year ended December 31, 2011, the fair valueof the MSR decreased by $6.4 billion. This decrease waspredominantly due to a decline in market interest rates,
which resulted in a loss in fair value of $5.4 billion. These
losses were offset by gains of $5.6 billion on derivatives
used to hedge the MSR asset; these derivatives arerecognized on the Consolidated Balance Sheets separatelyfrom the MSR asset. Also contributing to the decline in fairvalue of the MSR asset was a $1.7 billion decrease related
to revised cost to service and ancillary income assumptions
incorporated in the MSR valuation. The increased cost toservice assumptions reflected the estimated impact ofhigher servicing costs to enhance servicing processes,
particularly loan modification and foreclosure procedures,
including costs to comply with Consent Orders entered intowith banking regulators. The increase in the cost to service
assumption contemplated significant and prolonged
increases in staffing levels in the core and default servicing
functions. The decreased ancillary income assumption was
similarly related to a reassessment of business practices inconsideration of the Consent Orders and the existing
industry-wide regulatory environment, which was broadly
affecting market participants.

302

Also in the fourth quarter of 2011, the Firm revised its OAS
assumption and updated its proprietary prepayment model;
these changes had generally offsetting effects. The Firm’s
OAS assumption is based upon capital and return
requirements that the Firm believes a market participant
would consider, taking into account factors such as thepending Basel III capital rules. Consequently, the OAS
assumption for the Firm’s portfolio increased byapproximately 400 basis points and decreased the fairvalue of the MSR asset by approximately $1.2 billion.
Finally, in the fourth quarter of 2011, the Firm further
enhanced its proprietary prepayment model to incorporate:(i) the impact of the Home Affordable Refinance Program(“HARP”) 2.0, and (ii) assumptions that to limit modeledrefinancings due to the combined influences of relatively
strict underwriting standards and reduced levels of
expected home price appreciation. In the aggregate, theserefinements increased the fair value of the MSR asset byapproximately $1.2 billion.

JPMorgan Chase & Co./2013 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,
2013, 2012 and 2011.
Year ended December 31,(in millions)

2013

2012

2011

CCB mortgage fees and related
incomeProduction revenue$2,673$ 5,783$3,395

Repurchase losses

331

(272)

(1,347)

Net production revenue

3,004

5,511

2,048

Net mortgage servicing revenue
Operating revenue:
Changes in MSR asset fair value
due to collection/realization of
expected cash flows

3,552

3,772

4,134

(1,222)(1,904)

2,458

2,550

2,230

Changes in MSR asset fair value due
to market interest rates and other(a)

2,119

(587)

(5,390)

Other changes in MSR asset fairvalue due to other inputs andassumptions in model(b)Change in derivative fair value and
other

(511)

(46)

(1,727)(1,875)

1,252

5,553

(267)

619

(1,564)

2,191

3,169

666

Risk management:

Total risk management
Total CCB net mortgage servicing
revenue
All otherMortgage fees and related income

Impact on fair value of 10% adversechange

2013

10

7

7

$5,205$ 8,687$2,721

2012

8.07%
$

(362)

13.04%$(517)

Impact on fair value of 20% adversechange(705)(1,009)Weighted-average option adjusted spread

7.77%

7.61%

Impact on fair value of 100 basis points
adverse change
Impact on fair value of 200 basis points
adverse change(1,094)

Total operating revenue

December 31,(in millions, except rates)
Weighted-average prepayment speed
assumption (“CPR”)

Net production revenue:

Loan servicing revenue

The table below outlines the key economic assumptions
used to determine the fair value of the Firm’s MSRs at
December 31, 2013 and 2012, and outlines thesensitivities of those fair values to immediate adversechanges in those assumptions, as defined below.

$

(389)
(750)

$

(306)
(591)

CPR: Constant prepayment rate.

The sensitivity analysis in the preceding table ishypothetical and should be used with caution. Changes infair value based on variation in assumptions generally
cannot be easily extrapolated, because the relationship ofthe change in the assumptions to the change in fair value
are often highly interrelated and may not be linear. In thistable, the effect that a change in a particular assumption
may have on the fair value is calculated without changing
any other assumption. In reality, changes in one factor may
result in changes in another, which would either magnify or
counteract the impact of the initial change.

(a) Represents both the impact of changes in estimated 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). For the year ended
December 31, 2013, the decrease was driven by changes in the inputs
and assumptions used to derive prepayment speeds, primarily
increases in home prices.

JPMorgan Chase & Co./2013 Annual Report303

Notes to consolidated financial statements
Other intangible assets
Other intangible assets are recorded at their fair value upon completion of a business combination or certain othertransactions, and generally represent the value of customer relationships or arrangements. Subsequently, the Firm’s intangible
assets with finite lives, including core deposit intangibles, purchased credit card relationships, and other intangible assets, areamortized over their useful lives in a manner that best reflects the economic benefits of the intangible asset. The $617 million
decrease in other intangible assets during 2013 was predominantly due to $637 million in amortization.
The components of credit card relationships, core deposits and other intangible assets were as follows.
2013
Gross amount(a)December 31, (in millions)Purchased credit card relationships
Other credit card-related intangibles
Core deposit intangibles
Other intangibles(b)

$

2012

Accumulated
amortization(a)3,540 $
542
4,133
2,374

Net
carrying value

3,409 $
369
3,974
1,219

131
173
159
1,155

Gross amount$

Accumulated
amortization

3,775 $
850
4,133
2,390

Net
carrying value

3,480 $
621
3,778
1,034

295
229
355
1,356

(a) The decrease in the gross amount and accumulated amortization from December 31, 2012, was due to the removal of fully amortized assets.
(b) Includes intangible assets of approximately $600 million consisting primarily of asset management advisory contracts, which were determined to have an
indefinite life and are not amortized.

Amortization expense
The following table presents amortization expense related to credit card relationships, core deposits and other intangible
assets.
Year ended December 31, (in millions)Purchased credit card relationships
Other credit card-related intangibles
Core deposit intangibles
Other intangibles
Total amortization expense

2013

2012

$

195
58
196
188
637

$

$

$

2011
309
265
239
144
957

$

295
106
285
162
848

$

Future amortization expense
The following table presents estimated future amortization expense related to credit card relationships, core deposits andother intangible assets at December 31, 2013.
Purchased credit
card relationships

Year ended December 31, (in millions)
2014
2015
2016
2017
2018

$

Other credit
card-related intangibles

96 $
12
9
5
3

Impairment testing
The Firm’s intangible assets are tested for impairment
annually or more often if events or changes incircumstances indicate that the asset might be impaired.
The impairment test for a finite-lived intangible asset
compares the undiscounted cash flows associated with theuse or disposition of the intangible asset to its carrying
value. If the sum of the undiscounted cash flows exceeds its
carrying value, then no impairment charge is recorded. If
the sum of the undiscounted cash flows is less than its
carrying value, then an impairment charge is recognized inamortization expense to the extent the carrying amount of
the asset exceeds its fair value.

304

51 $
39
34
29
20

Core deposit
intangibles

Other
intangibles
102 $
26
14
7
5

111 $
92
86
61
52

Total
360
169
143
102
80

The impairment test for indefinite-lived intangible assets
compares the fair value of the intangible asset to its
carrying amount. If the carrying value exceeds the fairvalue, then an impairment charge is recognized inamortization expense for the difference.

JPMorgan Chase & Co./2013 Annual ReportNote 18 – Premises and equipment
Premises and equipment, including leasehold
improvements, are carried at cost less accumulated
depreciation and amortization. JPMorgan Chase computes
depreciation using the straight-line method over 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. JPMorgan Chase has recorded immaterial asset
retirement obligations related to asbestos remediation in
those cases where it has sufficient information to estimate
the obligations’ fair value.

At December 31, 2013 and 2012, time deposits indenominations of $100,000 or more were as follows.
December 31, (in millions)
U.S. offices
Non-U.S. offices
Total

2013

2012

$ 74,804$ 70,008

38,412

46,890$113,216$116,898

At December 31, 2013, the maturities of interest-bearing
time deposits were as follows.

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.

December 31, 2013
(in millions)
2014
2015
2016
2017
2018
After 5 years
Total

Note 19 – Deposits

Note 20 – Accounts payable and other liabilities

At December 31, 2013 and 2012, noninterest-bearing andinterest-bearing deposits were as follows.
December 31, (in millions)
U.S. offices
Noninterest-bearing
Interest-bearing
Demand(a)Savings(b)Time (included $5,995 and $5,140 atfair value)(c)Total interest-bearing deposits
Total deposits in U.S. offices
Non-U.S. offices
Noninterest-bearing
Interest-bearing
DemandSavings
Time (included $629 and $593 at fairvalue)(c)Total interest-bearing deposits
Total deposits in non-U.S. offices
Total deposits

2013$

389,8632012$

380,320

84,631
450,405

53,980407,71091,35690,416626,392
1,016,255

552,106
932,426

17,611

17,845214,391
1,083

195,395
1,004

38,42546,923

253,899
271,510$ 1,287,765

243,322
261,167$ 1,193,593

U.S.
$ 73,130
5,395
6,274
1,387
1,845
3,325
$ 91,356

Non-U.S.
$ 37,394
361
402
55
201
12
$ 38,425

Total$ 110,524
5,756
6,676
1,442
2,046
3,337
$ 129,781

Accounts payable and other liabilities consist of payables tocustomers; payables to brokers, dealers and clearingorganizations; payables from failed securities purchases;
income taxes payables; accrued expense, including interestbearing liabilities; and all other liabilities, including
litigation reserves and obligations to return securities
received as collateral.
The following table details the components of accounts
payable and other liabilities.
December 31, (in millions)
Brokerage payables(a)Accounts payable and other liabilities(b)
Total

2013
$ 116,391
78,100$ 194,491

2012$ 108,398
86,842$ 195,240(a) Includes payables to customers, brokers, dealers and clearingorganizations, and securities fails.
(b) Includes $25 million and $36 million accounted for at fair value at
December 31, 2013 and 2012, respectively.

(a) Includes Negotiable Order of Withdrawal (“NOW”) accounts, andcertain trust accounts.
(b) Includes Money Market Deposit Accounts (“MMDAs”).
(c) Includes structured notes classified as deposits for which the fair value
option has been elected. For further discussion, see Note 4 on pages
215–218 of this Annual Report.

JPMorgan Chase & Co./2013 Annual Report305Notes to consolidated financial statements
Note 21 – Long-term debt
JPMorgan Chase issues long-term debt denominated in various currencies, although predominantly U.S. dollars, with both fixedand variable interest rates. Included in senior and subordinated debt below are various equity-linked or other indexed
instruments, which the Firm has elected to measure at fair value. Changes in fair value are recorded in principal transactions
revenue in the Consolidated Statements of Income. The following table is a summary of long-term debt carrying values(including unamortized original issue discount, valuation adjustments and fair value adjustments, where applicable) byremaining contractual maturity as of December 31, 2013.
By remaining maturity at
December 31,

2013(in millions, except rates)

Under 1 year2012

1-5 years

After 5 years

Total

Total

Parent company
Senior debt:

Fixed rate

Subordinated debt:$

11,100$49,241$40,733$101,074$

99,716

Variable rate

12,411

22,7905,829

41,03038,765Interest rates(a)0.38-6.25%

0.35-7.25%

0.19-6.40%

0.19-7.25%

0.26-7.25%

Fixed rate$

Variable rate
Interest rates(a)Subtotal $

2,904

$

4,966

$

7,328

$

15,198$16,312

—

4,557

9

4,566

3,440

1.92-5.13%

0.63-6.13%

3.38-8.53%

0.63-8.53%

0.61-8.53%

26,415

$

1,029

$

81,554

$

2,022

$

53,899$185$

161,868

$

3,236

$

158,233

Subsidiaries
Federal Home Loan Banks("FHLB") advances:

Fixed rate$

Variable rate

11,050Interest rates(a)Senior debt:

Fixed rate

0.20-1.54%$

Variable rate
Interest rates(a)Subordinated debt:

Fixed rate$347
0.12-3.75%

0.21-8.00%—

Interest rates(a)—%Fixed rate

$

1,655
14,117—8,000

0.16-2.04%
$

6,593

Variable rate
Subtotal $Junior subordinated debt:

39,590$5,445

58,6400.36-0.43%$

0.16-2.04%

3,426

$

2,748
7.28%
$

1,841

$

$

6,761

23,45821,607

0.12-8.00%

0.16-7.28%

7,286

$

7,513

—

2,528

2,466

0.57-6.00%

4.38-8.25%

0.57-8.25%

0.64-8.25%

19,019$65,357$

16,200$100,576$

80,392

—

$

—

$

2,176

$

2,176

$

7,131

—

—

Interest rates(a)

—%

—%

3,269

3,269

3,268

0.74-8.75%

0.74-8.75%

0.81-8.75%

Subtotal $

—

$

—

$

5,445

$

5,445

$

45,434$

146,911$75,544$

267,889

353

$

7,537

$

3,068

$

10,958

Total long-term debt

0.30-2.04%

5,428

2,528

Variable rate(b)(c)(d)4,712
37,333(f)(g)$

10,399$249,024$

10,393Long-term beneficial interests:
Fixed rate $Total long-term beneficial
interests(e)
(a)

(b)
(c)
(d)
(e)
(f)
(g)

306

Variable rate

3,438

13,056

4,378

20,872

24,579Interest rates

0.19-5.63%

0.19-5.35%

0.04-15.93%

0.04-15.93%

0.23-13.91%

$

$

$

$

3,791

$

20,593

7,446

31,83034,972The interest rates shown are the range of contractual rates in effect at year-end, including non-U.S. dollar fixed- and variable-rate issuances, which
excludes the effects of the associated derivative instruments used in hedge accounting relationships, if applicable. The use of these derivative
instruments modifies the Firm’s exposure to the contractual interest rates disclosed in the table above. Including the effects of the hedge accounting
derivatives, the range of modified rates in effect at December 31, 2013, for total long-term debt was (0.18)% to 8.00%, versus the contractual range of
0.12% to 8.75% presented in the table above. The interest rate ranges shown exclude structured notes accounted for at fair value.
Included long-term debt of $68.4 billion and $48.0 billion secured by assets totaling $131.3 billion and $112.8 billion at December 31, 2013 and 2012,
respectively. The amount of long-term debt secured by assets does not include amounts related to hybrid instruments.
Included $28.9 billion and $30.8 billion of long-term debt accounted for at fair value at December 31, 2013 and 2012, respectively.
Included $2.7 billion and $1.6 billion of outstanding zero-coupon notes at December 31, 2013 and 2012, respectively. The aggregate principal amountof these notes at their respective maturities is $4.5 billion and $3.0 billion, respectively.
Included on the Consolidated Balance Sheets in beneficial interests issued by consolidated VIEs. Also included $2.0 billion and $1.2 billion of outstanding
structured notes accounted for at fair value at December 31, 2013 and 2012, respectively. Excluded short-term commercial paper and other short-term
beneficial interests of $17.8 billion and $28.2 billion at December 31, 2013 and 2012, respectively.
At December 31, 2013, long-term debt in the aggregate of $24.6 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior tomaturity, based on the terms specified in the respective notes.
The aggregate carrying values of debt that matures in each of the five years subsequent to 2013 is $45.4 billion in 2014, $43.3 billion in 2015, $36.3
billion in 2016, $32.5 billion in 2017 and $34.8 billion in 2018.

JPMorgan Chase & Co./2013 Annual Report

The weighted-average contractual interest rates for total
long-term debt excluding structured notes accounted for atfair value were 2.56% and 3.09% as of December 31,
2013 and 2012, 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 issues. The use of these
instruments modifies the Firm’s interest expense on theassociated debt. The modified weighted-average interest
rates for total long-term debt, including the effects ofrelated derivative instruments, were 1.54% and 2.33% asof December 31, 2013 and 2012, respectively.
The Parent Company has guaranteed certain long-term debt
of its subsidiaries, including both long-term debt andstructured notes sold as part of the Firm’s market-making
activities. These guarantees rank on parity with all of the
Firm’s other unsecured and unsubordinated indebtedness.
Guaranteed liabilities were $478 million and $1.7 billion at
December 31, 2013 and 2012, 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.
Junior subordinated deferrable interest debentures heldby trusts that issued guaranteed capital debt securities
On May 8, 2013, the Firm redeemed approximately $5.0
billion , or 100% of the liquidation amount, of the following

JPMorgan Chase & Co./2013 Annual Report

eight series of guaranteed capital debt securities (“trust
preferred securities”): JPMorgan Chase Capital X, XI, XII,
XIV, XVI, XIX and XXIV, and BANK ONE Capital VI. Other
income for the year ended December 31, 2013, reflected amodest loss related to the redemption of trust preferred
securities. On July 12, 2012, the Firm redeemed $9.0
billion, or 100% of the liquidation amount, of the following
nine series of trust preferred securities: JPMorgan Chase
Capital XV, XVII, XVIII, XX, XXII, XXV, XXVI, XXVII and XXVIII.
Other income for the year ended December 31, 2012,reflected $888 million of pretax extinguishment gains
related to adjustments applied to the cost basis of theredeemed trust preferred securities during the period they
were in a qualified hedge accounting relationship.
At December 31, 2013, the Firm had outstanding 9 wholly
owned Delaware statutory business trusts (“issuer trusts”)
that had issued guaranteed capital debt securities.
The junior subordinated deferrable interest debentures
issued by the Firm to the issuer trusts, totaling $5.4 billion
and $10.4 billion at December 31, 2013 and 2012,
respectively, were reflected on the Firm’s Consolidated
Balance Sheets in long-term debt, and in the table on thepreceding page under the caption “Junior subordinateddebt” (i.e., trust preferred securities). The Firm also records
the common capital securities issued by the issuer trusts inother assets in its Consolidated Balance Sheets at
December 31, 2013 and 2012. The debentures issued tothe issuer trusts by the Firm, less the common capitalsecurities of the issuer trusts, qualified as Tier 1 capital asof December 31, 2013 and 2012.

307Notes to consolidated financial statements
The following is a summary of the outstanding trust preferred securities, including unamortized original issue discount, issued
by each trust, and the junior subordinated deferrable interest debenture issued to each trust, as of December 31, 2013.

December 31, 2013
(in millions)

Amount of trust
preferred
securities
issued by trust(a)Principal
amount ofdebenture
issued to trust(b)Bank One Capital III

$

$

474

Issue
date

Stated maturityof trust
preferred
securities anddebentures

Earliest
redemption
dateInterest rate oftrust preferred
securities anddebentures

Interest
payment/
distribution
dates

675

2000

2030

Any time

8.75%

Semiannually

Chase Capital II

482

498

1997

2027

Any time

LIBOR + 0.50%

Quarterly

Chase Capital III

296

305

1997

2027

Any time

LIBOR + 0.55%

Quarterly

Chase Capital VI

241

249

1998

2028

Any time

LIBOR + 0.625%

QuarterlyFirst Chicago NBD Capital I

249

257

1997

2027

Any time

LIBOR + 0.55%

Quarterly

JPMorgan Chase Capital XIII

465

480

2004

2034

2014

LIBOR + 0.95%

Quarterly

JPMorgan Chase Capital XXI

836

837

2007

2037

Any time

LIBOR + 0.95%

Quarterly

JPMorgan Chase Capital XXIII

643

644

2007

2047

Any time

LIBOR + 1.00%

Quarterly

JPMorgan Chase Capital XXIX

1,500

1,500

2010

2040

2015

6.70%

Quarterly

Total
(a)
(b)

308

$

5,186

$

5,445

Represents the amount of trust preferred securities issued to the public by each trust, including unamortized original issue discount.
Represents the principal amount of JPMorgan Chase debentures issued to each trust, including unamortized original-issue discount. The principal amountof debentures issued to the trusts includes the impact of hedging and purchase accounting fair value adjustments that were recorded on the Firm’s
Consolidated Financial Statements.

JPMorgan Chase & Co./2013 Annual ReportNote 22 – Preferred stock

In the event of a liquidation or dissolution of the Firm,
JPMorgan Chase’s preferred stock then outstanding takes
precedence over the Firm’s common stock for the payment
of dividends and the distribution of assets.

At December 31, 2013 and 2012, JPMorgan Chase wasauthorized to issue 200 million shares of preferred stock, in
one or more series, with a par value of $1 per share.

The following is a summary of JPMorgan Chase’s preferred stock outstanding as of December 31, 2013 and 2012.
Contractual rate ineffect at
December 31, 2013
Fixed-to-Floating Rate NonCumulative Perpetual
Preferred Stock, Series I
8.625% Non-Cumulative
Perpetual Preferred Stock,
Series J
5.50% Non-Cumulative
Perpetual Preferred Stock,
Series O
5.45% Non-Cumulative
Perpetual Preferred Stock,
Series P

Carrying value (in millions) at
December 31,

Shares at December 31,(a)
2013

2012

2013

7.900%

600,000

600,000

N/A—

5.500%

Share value andredemption
price per share(b)$6,000 $

6,000

4/30/2018180,000—

1,800

9/1/2013

10,000125,750

125,750

1,258

1,258

9/1/2017

10,0005.450%

90,000—900—

3/1/2018

10,000

Fixed-to-Floating Rate NonCumulative Perpetual
Preferred Stock, Series Q

5.150%

150,000

—

1,500

—

5/1/2023

10,000

Fixed-to-Floating Rate NonCumulative Perpetual
Preferred Stock, Series R

6.000%

150,000

—

1,500

—

8/1/2023

10,0001,115,750

905,750

Total preferred stock

$

2012

Earliest
redemption
date$

11,158 $10,0009,058(a) Represented by depositary shares.
(b) The redemption price includes the amount shown in the table plus any accrued but unpaid dividends.

Dividends on the Fixed-to-Floating Rate Non-Cumulative
Perpetual Preferred Stock, Series I shares are payable
semiannually at a fixed annual dividend rate of 7.90%
through April 2018, and then become payable quarterly atan annual dividend rate of three-month LIBOR plus 3.47%.
Dividends on the 5.50% Non-Cumulative Preferred Stock,
Series O and the 5.45% Non-Cumulative Preferred Stock,
Series P are payable quarterly. Dividends on the Fixed-toFloating Rate Non-Cumulative Perpetual Preferred Stock,
Series Q shares are payable semi-annually at a fixed annual
rate of 5.15% through April 2023, and then become
payable at a dividend rate of three-month LIBOR plus
3.25%. Dividends on the Fixed-to-Floating Rate NonCumulative Perpetual Preferred Stock, Series R shares arepayable semi-annually at a fixed annual dividend rate of
6.00% through July 2023, and then become payable at a
dividend rate of three-month LIBOR plus 3.30%.

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. The Series O, Series P,
Series Q and Series R preferred stock may also be redeemedfollowing a capital treatment event, as described in theterms of that series. Any redemption of the Firm’s preferredstock is subject to non-objection from the Federal Reserve.
Subsequent events
Issuance of preferred stock
On January 22, 2014, January 30, 2014, and February 6,
2014, the Firm issued $2.0 billion , $850 million, and $75
million, respectively, of noncumulative preferred stock.

The Series O Non-Cumulative Preferred Stock was issued inAugust 2012. Series P Non-Cumulative Preferred Stock was
issued in February 2013; Series Q Fixed-to-Floating NonCumulative Preferred Stock was issued in April 2013; andSeries R Fixed-to-Floating Rate Non-Cumulative Preferred
Stock, Series R was issued in July 2013.
On September 1, 2013, the Firm redeemed all of theoutstanding shares of its 8.625% Non-Cumulative Preferred
Stock, Series J at their stated redemption value.

JPMorgan Chase & Co./2013 Annual Report309

Notes to consolidated financial statements
Note 23 – Common stock
At December 31, 2013 and 2012, 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 distributed fromtreasury) by JPMorgan Chase during the years ended
December 31, 2013, 2012 and 2011 were as follows.
Year ended December 31,(in millions)
Total issued – balance atJanuary 1 and December 31
Treasury – balance at January 1
Purchase of treasury stock
Share repurchases related to
employee stock-based awards(a)Issued from treasury:
Employee benefits andcompensation plans
Employee stock purchase plans
Total issued from treasury
Total treasury – balance at
December 31
Outstanding
(a)

2013

2012

2011

4,104.9

4,104.9

4,104.9(300.9)(96.1)(332.2)(33.5)(194.6)(226.9)

—

(0.2)

(0.1)

47.1

63.7

88.3

1.1
48.3

1.3
65.0

1.1
89.4

(348.8)(300.9)(332.2)

3,756.1

3,804.0

3,772.7

Participants in the Firm’s stock-based incentive plans may haveshares withheld to cover income taxes.

At December 31, 2013, 2012, and 2011, respectively, theFirm had 59.8 million, 59.8 million and 78.2 million
warrants outstanding to purchase shares of common stock.
The warrants were originally issued pursuant to the U.S.
Treasury Capital Purchase Program in 2008, and are
currently traded on the New York Stock Exchange. The
warrants are exercisable, in whole or in part, at any timeand from time to time until October 28, 2018, at an
exercise price of $42.42 per share. The number of sharesissuable upon the exercise of each warrant and the warrant
exercise price is subject to adjustment upon the occurrenceof certain events, including in the case of: stock splits,
subdivisions, reclassifications or combinations of common
stock; cash dividends or distributions to all holders of the
Firm’s common stock of assets, rights or warrants (and withrespect to cash dividends, only to the extent regularquarterly cash dividends exceed $0.38 per share (asadjusted for any stock split, reverse stock split,
reclassification or similar transaction)); pro rata
repurchases of common stock (as defined in the warrants)
pursuant to an offer available to substantially all holders ofcommon stock; and certain business combinations (asdefined in the warrants) requiring the approval of the Firm’s
stockholders or a reclassification of the Firm’s common
stock.

$8.6 billion of authorized repurchase capacity remained
under the program.
Year ended December 31,(in millions)2013

Total number of shares of common stock
repurchased

2012

2011

96

31

229

Aggregate purchase price of common
stock repurchases$ 4,789$ 1,329$ 8,827

Total number of warrants repurchased

—

18

10

Aggregate purchase price of warrant
repurchases

$

—

$

238

$

122

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“black-out periods.” All purchases under a Rule 10b5-1
plan must be made according to a predefined planestablished when the Firm is not aware of material
nonpublic information. For additional information regarding
repurchases of the Firm’s equity securities, see Part II, Item
5: Market for registrant’s common equity, related
stockholder matters and issuer purchases of equity
securities, on pages 20–21 of JPMorgan Chase’s 2013 Form
10-K.
On March 18, 2011, the Board of Directors raised the Firm’squarterly common stock dividend from $0.05 to $0.25 pershare, effective with the dividend paid on April 30, 2011, toshareholders of record on April 6, 2011. On March 13,
2012, the Board of Directors increased the Firm’s quarterlycommon stock dividend from $0.25 to $0.30 per share,effective with the dividend paid on April 30, 2012, toshareholders of record on April 5, 2012. On May 21, 2013,
the Board of Directors increased the Firm’s quarterlycommon stock dividend from $0.30 per share to $0.38 pershare, effective with the dividend paid on July 31, 2013, toshareholders of record on July 5, 2013.
As of December 31, 2013, approximately 290 million
unissued shares of common stock were reserved forissuance under various employee incentive, compensation,
option and stock purchase plans, director compensationplans, and the warrants sold by the U.S. Treasury as
discussed above.

On March 13, 2012, the Board of Directors authorized a$15.0 billion common equity (i.e., common stock andwarrants) repurchase program. The amount of equity that
may be repurchased is also subject to the amount that is set
forth in the Firm’s annual capital plan that is submitted to
the Federal Reserve as part of the CCAR process. The
following table shows the Firm’s repurchases of common
equity for the years ended December 31, 2013, 2012 and2011, on a trade-date basis. As of December 31, 2013,
310

JPMorgan Chase & Co./2013 Annual ReportNote 24 – 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 restricted
stock and RSUs to certain employees under its stock-based
compensation programs, which entitle recipients to receive
nonforfeitable dividends during the vesting period on abasis equivalent to the dividends paid to holders of common
stock; these unvested awards meet the definition ofparticipating securities. Options issued under employee
benefit plans that have an antidilutive effect are excluded
from the computation of diluted EPS.
The following table presents the calculation of basic anddiluted EPS for the years ended December 31, 2013, 2012
and 2011.
Year ended December 31,(in millions,
except per share amounts)

2013

2012

2011

Basic earnings per share
Net income$ 17,923 $ 21,284 $ 18,976

Less: Preferred stock dividends

805

653

629

Net income applicable to common
equity17,11820,631

18,347

Less: Dividends and undistributed
earnings allocated to participating
securities
Net income applicable to common
stockholders

525

754

779

$ 16,593 $ 19,877 $ 17,568

Total weighted-average basic
shares outstanding
Net income per share

3,782.4$

4.39 $

3,809.4
5.22 $

3,900.4
4.50

Diluted earnings per share
Net income applicable to common
stockholders$ 16,593 $ 19,877 $ 17,568

Total weighted-average basic shares
outstanding

3,782.4

3,809.4

3,900.4

Add: Employee stock options, SARs
and warrants(a)

32.5

12.8

19.9

3,814.9

3,822.2

3,920.3

Total weighted-average diluted
shares outstanding(b)Net income per share$

4.35 $

5.20 $

4.48(a) Excluded from the computation of diluted EPS (due to the antidilutive effect)
were options issued under employee benefit plans and the warrants originallyissued in 2008 under the U.S. Treasury’s Capital Purchase Program to purchaseshares of the Firm’s common stock. The aggregate number of shares issuable
upon the exercise of such options and warrants was 6 million, 148 million and
133 million for the years ended December 31, 2013, 2012 and 2011,
respectively.
(b) Participating securities were included in the calculation of diluted EPS using thetwo-class method, as this computation was more dilutive than the calculation
using the treasury stock method.

JPMorgan Chase & Co./2013 Annual Report311

Notes to consolidated financial statements
Note 25 – Accumulated other comprehensive income/(loss)
AOCI includes the after-tax change in unrealized gains and losses on AFS 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 AFS
securities(a)Balance at December 31, 2010
Net change
Balance at December 31, 2011
Net change
Balance at December 31, 2012
Net change
Balance at December 31, 2013

$

2,498
1,067 (b)$ 3,565 (c)3,303 (d)$ 6,868 (c)(4,070) (e)$ 2,798 (c)Translation
adjustments,
net of hedges
$
$
$
$

253
(279)
(26)
(69)
(95)
(41)
(136)

Cash flow
hedges$$$$Defined benefit pension
and OPEB plans

206
(155)
51
69
120
(259)
(139)

$
$
$
$

(1,956)(690)(2,646)(145)(2,791)
1,467(1,324)

Accumulated
othercomprehensive
income/(loss)$ 1,001
(57)
$
944
3,158
$ 4,102(2,903)$ 1,199(a) Represents the after-tax difference between the fair value and amortized cost of securities accounted for as AFS.
(b) The net change for 2011 was due primarily to increased market value on U.S. government agency issued MBS and obligations of U.S. states andmunicipalities, partially offset by the widening of spreads on non-U.S. corporate debt and the realization of gains due to portfolio repositioning.
(c) Included after-tax unrealized losses not related to credit on debt securities for which credit losses have been recognized in income of $(56) million at
December 31, 2011. There were no such losses at December 31, 2012 and 2013.
(d) The net change for 2012 was predominantly driven by increased market value on non-U.S. residential MBS, corporate debt securities and obligations of
U.S. states and municipalities, partially offset by realized gains.
(e) The net change for 2013 was primarily related to the decline in fair value of U.S. government agency issued MBS and obligations of U.S. states andmunicipalities due to market changes, as well as net realized gains.

The following table presents the before- and after-tax changes in the components of other comprehensive income/(loss).

Year ended December 31, (in millions)

Pretax2013
TaxeffectAftertax

Pretax2012
TaxeffectAftertax

Pretax2011
TaxeffectAftertax

Unrealized gains/(losses) on AFS securities:
Net unrealized gains/(losses) arising during the$ (5,987) $ 2,323 $ (3,664) $ 7,521 $ (2,930) $ 4,591 $ 3,361 $ (1,322) $ 2,039
periodReclassification adjustment for realized (gains)/losses
(667)
261
(406)
(2,110)822(1,288)(1,593)621(972)
included in net income(a)Net change(6,654)2,584(4,070)5,411(2,108)
3,303
1,768
(701)
1,067
Translation adjustments:
Translation(b)
(807)
295
(512)
(26)
8
(18)
(672)
255
(417)
Hedges(b)
773
(302)
471
(82)
31
(51)
226
(88)
138
Net change
(34)
(7)
(41)
(108)
39
(69)
(446)
167
(279)
Cash flow hedges:
Net unrealized gains/(losses) arising during the
(525)
206
(319)
141
(55)
86
50
(19)
31
periodReclassification adjustment for realized (gains)/losses
101
(41)
60
(28)
11
(17)
(301)
115
(186)
included in net income(c)Net change
(424)
165
(259)
113
(44)
69
(251)
96
(155)
Defined benefit pension and OPEB plans:
Prior service credits arising during the period
Net gains/(losses) arising during the period
Reclassification adjustments included in net income(d):Amortization of net loss
Prior service costs/(credits)
Foreign exchange and otherNet change
Total other comprehensive income/(loss)

—
2,055

—
(750)

—
1,305

6
(537)

(2)
228

4
(309)

—
(1,290)

321
(124)
197
324
(126)
198
214
(43)
17
(26)
(41)
16
(25)
(52)
(14)
5
(9)
(21)
8
(13)
(1)
2,319
(852)
1,467
(269)
124
(145)
(1,129)$ (4,793) $ 1,890 $ (2,903) $ 5,147 $ (1,989) $ 3,158 $ (58) $

—
502

—
(788)
—

(83)
131
20
(32)
—
(1)
439
(690)
1 $ (57)(a) The pretax amount is reported in securities gains in the Consolidated Statements of Income.
(b) Reclassifications of pretax realized gains/(losses) on translation adjustments and related hedges are reported in other income in the Consolidated
Statements of Income. The amounts were not material for the year ended December 31, 2013.
(c) The pretax amount is reported in the same line as the hedged items, which are predominantly recorded in net interest income in the Consolidated
Statements of Income.
(d) The pretax amount is reported in compensation expense in the Consolidated Statements of Income.

312

JPMorgan Chase & Co./2013 Annual ReportNote 26 – 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.
A reconciliation of the applicable statutory U.S. income tax
rate to the effective tax rate for each of the years ended
December 31, 2013, 2012 and 2011, is presented in thefollowing table.
Effective tax rate
Year ended December 31,

2013

2012

2011

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

1.6

1.6

Tax-exempt income

(3.1)

(2.9)

(2.1)

Non-U.S. subsidiary earnings(a)

(4.9)

(2.4)

(2.3)

Business tax credits

(5.4)

(4.2)

(4.0)

Nondeductible legal expense(b)

8.0

(0.2)

0.9

Other, net

(1.0)

(0.5)

—

Effective tax rate

30.8%

26.4%

29.1%

(a) Includes earnings deemed to be reinvested indefinitely in non-U.S.
subsidiaries.
(b) The prior periods have been revised to conform with the current
presentation.

JPMorgan Chase & Co./2013 Annual Report

The components of income tax expense/(benefit) includedin the Consolidated Statements of Income were as follows
for each of the years ended December 31, 2013, 2012, and2011.
Income tax expense/(benefit)
Year ended December 31,(in millions)

2013

2012

2011

$ (1,316) $ 3,225$ 3,719

Current income tax expense/(benefit)
U.S. federal
Non-U.S.

1,308

1,782

1,183

U.S. state and local

(4)

1,496

1,178

Total current income tax expense/(benefit)

(12)

6,503

6,080

U.S. federal

7,080

2,238

2,109

Non-U.S.

10

(327)

102

U.S. state and local

913

(781)

(518)

8,003

1,130

1,693

$ 7,991$ 7,633$ 7,773

Deferred income tax expense/(benefit)

Total deferred income tax expense/(benefit)
Total income tax expense

Total income tax expense was $8.0 billion in 2013 with aneffective tax rate of 30.8%. The relationship between
current and deferred income tax expense is largely driven
by the reversal of significant deferred tax assets as well asprior year tax adjustments and audit resolutions. Total
income tax expense includes $531 million, $200 million
and $76 million of tax benefits recorded in 2013, 2012,
and 2011, respectively, as a result of tax audit resolutions.
The preceding table does not reflect the tax effect of certain
items that are recorded each period directly instockholders’ equity and certain tax benefits associatedwith the Firm’s employee stock-based compensation plans.
The tax effect of all items recorded directly to stockholders’equity resulted in an increase of $2.1 billion in 2013, a
decrease of $1.9 billion in 2012, and an increase of $927
million in 2011.
U.S. federal income taxes have not been provided on theundistributed earnings of certain non-U.S. subsidiaries, tothe extent that such earnings have been reinvested abroad
for an indefinite period of time. Based on JPMorgan Chase’s
ongoing review of the business requirements and capitalneeds of its non-U.S. subsidiaries, combined with theformation of specific strategies and steps taken to fulfill
these requirements and needs, the Firm has determinedthat the undistributed earnings of certain of its subsidiaries
would be indefinitely reinvested to fund current and future
growth of the related businesses. As management does notintend to use the earnings of these subsidiaries as a sourceof funding for its U.S. operations, such earnings will not be
distributed to the U.S. in the foreseeable future. For 2013,pretax earnings of approximately $3.4 billion weregenerated and will be indefinitely reinvested in thesesubsidiaries. At December 31, 2013, the cumulative
amount of undistributed pretax earnings in thesesubsidiaries approximated $28.5 billion. If the Firm were torecord a deferred tax liability associated with these313

Notes to consolidated financial statements
undistributed earnings, the amount would be approximately$6.4 billion at December 31, 2013.
Tax expense applicable to securities gains and losses for theyears 2013, 2012 and 2011 was $261 million, $822
million, and $617 million, respectively.
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, 2013 and 2012.
Deferred taxes
December 31, (in millions)

2013

2012

Deferred tax assets
Allowance for loan losses

$

6,593

$

8,712

Employee benefits

4,468

4,308

Accrued expenses and other

9,179

12,393

Non-U.S. operations

5,493

3,537

Tax attribute carryforwards

748

1,062

Gross deferred tax assets

26,48130,012

(724)

(689)

Valuation allowance
Deferred tax assets, net of valuation
allowance$

25,757$

29,323

$

3,196

$

2,563

Deferred tax liabilities
Depreciation and amortization
Mortgage servicing rights, net ofhedges
Leasing transactions

5,882

5,336

2,352

2,242

Non-U.S. operations

4,705

3,582

Other, net

3,459

4,340

Gross deferred tax liabilities
Net deferred tax assets

314

19,594$

6,163

18,063$

11,260

JPMorgan Chase has recorded deferred tax assets of $748
million at December 31, 2013, in connection with U.S.
federal and state and local net operating loss carryforwards
and foreign tax credit carryforwards. At December 31,
2013, the U.S. federal net operating loss carryforwards
were approximately $1.5 billion; the state and local net
operating loss carryforward was approximately$156 million; and the U.S. foreign tax credit carryforward
was approximately $203 million. If not utilized, the U.S.
federal net operating loss carryforwards and the state andlocal net operating loss carryforward will expire between
2027 and 2030; and the U.S. foreign tax credit
carryforward will expire in 2022.
The valuation allowance at December 31, 2013, was due tolosses associated with non-U.S. subsidiaries.
At December 31, 2013, 2012 and 2011, JPMorgan Chase’s
unrecognized tax benefits, excluding related interest
expense and penalties, were $5.5 billion, $7.2 billion and$7.2 billion, respectively, of which $3.7 billion, $4.2 billion
and $4.0 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,
New York State and City, and the State of California assummarized in the Tax examination status table below.
Based upon the status of all of the tax examinations
currently in process, it is reasonably possible that over the
next 12 months the resolution of some of these
examinations could result in a significant reduction in the
gross balance of unrecognized tax benefits; however, at thistime, it is not possible to reasonably estimate the amount of
the reduction, if any.

JPMorgan Chase & Co./2013 Annual Report

The following table presents a reconciliation of the
beginning and ending amount of unrecognized tax benefits
for the years ended December 31, 2013, 2012 and 2011.
Unrecognized tax benefits
Year ended December 31,(in millions)
Balance at January 1,

2013

2012

2011

$ 7,158$ 7,189$ 7,767

542

680

516

Increases based on tax positions
related to the current period

JPMorgan Chase is continually under examination by theInternal Revenue Service, by taxing authorities throughout
the world, and by many states throughout the U.S. The
following table summarizes the status of significant income
tax examinations of JPMorgan Chase and its consolidated
subsidiaries as of December 31, 2013.
Tax examination status
Periods under
examination

Status

JPMorgan Chase – U.S.

2003 - 2005

Field examination
completed, JPMorgan
Chase intends toappealJPMorgan Chase – U.S.

2006 - 2010

Field examination

December 31, 2013

Decreases based on tax positions
related to the current period

—

—

(110)

Increases based on tax positions
related to prior periods

88

234

496

Decreases based on tax positions
related to prior periods(2,200)(853)(1,433)

Bear Stearns – U.S.

2003 – 2005

Refund claims underreview

(53)

(50)

(16)

Bear Stearns – U.S.

2006 – 2008

Field examination

JPMorgan Chase – United
Kingdom2006 – 2011

Field examination

Decreases related to settlements withtaxing authorities
Decreases related to a lapse of
applicable statute of limitations

—

(42)

(31)

$ 5,535$ 7,158$ 7,189

JPMorgan Chase – New YorkState and City

2005 – 2007

Field examination

After-tax interest (benefit)/expense and penalties related toincome tax liabilities recognized in income tax expense were$(184) million, $147 million and $184 million in 2013,2012 and 2011, respectively.
At December 31, 2013 and 2012, in addition to the liability
for unrecognized tax benefits, the Firm had accrued$1.2 billion and $1.9 billion, respectively, for income taxrelated interest and penalties.

JPMorgan Chase – California

2006 – 2010

Field examination

Balance at December 31,

The following table presents the U.S. and non-U.S.
components of income before income tax expense for theyears ended December 31, 2013, 2012 and 2011.
Income before income tax expense - U.S. and non-U.S.
Year ended December 31,(in millions)U.S.
Non-U.S.(a)Income before income tax expense

2013

2012

2011

$ 17,229$ 24,895$ 16,336

8,685

4,022

10,413$ 25,914$ 28,917$ 26,749(a) For purposes of this table, non-U.S. income is defined as income
generated from operations located outside the U.S.

JPMorgan Chase & Co./2013 Annual Report315Notes to consolidated financial statements
Note 27 – 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.
The Federal Reserve requires depository institutions tomaintain cash reserves with a Federal Reserve Bank. The
average amount of reserve balances deposited by the Firm’sbank subsidiaries with various Federal Reserve Banks wasapproximately $5.3 billion and $5.6 billion in 2013 and2012, respectively.
Restrictions imposed by U.S. federal law prohibit JPMorgan
Chase and certain of its affiliates from borrowing frombanking subsidiaries unless the loans are secured in
specified amounts. Such secured loans to the Firm or toother affiliates are generally limited to 10% of the banking
subsidiary’s total capital, as determined by the risk-based
capital guidelines; the aggregate amount of all such loans islimited to 20% of the banking subsidiary’s total capital.
The principal sources of JPMorgan Chase’s income (on aparent company-only basis) are dividends and interest from
JPMorgan Chase Bank, N.A., and the other banking andnonbanking subsidiaries of JPMorgan Chase. In addition todividend restrictions set forth in statutes and regulations,
the Federal Reserve, the OCC and the FDIC have authority
under the Financial Institutions Supervisory Act to prohibit
or to limit the payment of dividends by the banking
organizations they supervise, including 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.

Note 28 – Regulatory capital
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
capital requirements and standards for the Firm’s nationalbanks, including JPMorgan Chase Bank, N.A., and Chase
Bank USA, N.A.
There are two categories of risk-based capital: Tier 1 capitaland Tier 2 capital. Tier 1 capital consists of common
stockholders’ equity, perpetual preferred stock,noncontrolling interests in subsidiaries and trust preferred
securities, less goodwill and certain other adjustments. Tier
2 capital consists of preferred stock not qualifying as Tier 1
capital, subordinated long-term debt and other instruments
qualifying as Tier 2 capital, and the aggregate allowance for
credit losses up to a certain percentage of risk-weighted
assets. Total capital is Tier 1 capital plus Tier 2 capital.
Under the risk-based capital guidelines of the Federal
Reserve, JPMorgan Chase is required to maintain minimum
ratios of Tier 1 and Total capital to risk-weighted assets, aswell as minimum leverage ratios (which are defined as Tier
1 capital divided by adjusted quarterly average assets).
Failure to meet these minimum requirements could cause
the Federal Reserve to take action. Banking subsidiaries
also are subject to these capital requirements by theirrespective primary regulators. As of December 31, 2013
and 2012, JPMorgan Chase and all of its banking
subsidiaries were well-capitalized and met all capitalrequirements to which each was subject.

At January 1, 2014, JPMorgan Chase’s banking subsidiaries
could pay, in the aggregate, $29.8 billion in dividends totheir respective bank holding companies without the priorapproval of their relevant banking regulators. The capacity
to pay dividends in 2014 will be supplemented by thebanking subsidiaries’ earnings during the year.
In compliance with rules and regulations established by U.S.
and non-U.S. regulators, as of December 31, 2013 and2012, cash in the amount of $17.2 billion and $25.1
billion, respectively, and securities with a fair value of $1.5
billion and $0.7 billion, respectively, were segregated in
special bank accounts for the benefit of securities andfutures brokerage customers. In addition, as ofDecember 31, 2013 and 2012, the Firm had otherrestricted cash of $3.9 billion and $3.4 billion, respectively,
primarily representing cash reserves held at non-U.S.
central banks and held for other general purposes.

316

JPMorgan Chase & Co./2013 Annual Report

The following table presents the regulatory capital, assets and risk-based capital ratios for JPMorgan Chase and its significant
banking subsidiaries at December 31, 2013 and 2012. These amounts are determined in accordance with regulations issued
by the Federal Reserve and/or OCC. The table reflects the Firm’s and JPMorgan Chase Bank, N.A.’s implementation of rules thatprovide for additional capital requirements for trading positions and securitizations (“Basel 2.5”). Basel 2.5 rules became
effective for the Firm and JPMorgan Chase Bank, N.A. on January 1, 2013. The implementation of these rules in the firstquarter of 2013 resulted in an increase of approximately $150 billion and $140 billion, respectively, in the Firm’s andJPMorgan Chase Bank, N.A.’s risk-weighted assets compared with the Basel I rules at March 31, 2013. The implementation ofthese rules also resulted in decreases of the Firm’s Tier 1 capital and Total capital ratios of 140 basis points and 160 basis
points, respectively, at March 31, 2013, and decreases of JPMorgan Chase Bank, N.A.’s Tier 1 capital and Total capital ratios of
130 basis points and 150 basis points, respectively, at March 31, 2013. Implementation of Basel 2.5 in the first quarter of2013 did not impact Chase Bank USA, N.A.’s RWA or Tier 1 capital and Total capital ratios.

December 31,

JPMorgan Chase & Co.(d)JPMorgan Chase Bank, N.A.(d)Chase Bank USA, N.A.(d)(in millions, except ratios)

2013

2012

2013

2012

2013

Tier 1(a)$ 165,663$ 160,002$ 139,727$ 111,827$ 12,956

Total

199,286

194,036

165,496

146,870

16,38913,131

Risk-weighted(b)$1,387,863$1,270,378$1,171,574$1,094,155$100,990$103,593

Adjusted average(c)2,343,713

2,243,242

1,900,770

1,815,816

109,731103,6882012

Wellcapitalized
ratios(e)Minimum
capitalratios(e)Regulatory capital
$

9,648

AssetsCapital ratios
Tier 1(a)

11.9%

12.6%

11.9%

10.2%

12.8%

9.3%

6.0%

Total

14.4

15.3

14.1

13.4

16.2

12.7

10.0

Tier 1 leverage

7.1

7.1

7.4

6.2

11.8

9.3

5.0

4.0%
8.0
(f)

3.0

(g)

(a)

At December 31, 2013, for JPMorgan Chase and JPMorgan Chase Bank, N.A., trust preferred securities were $5.3 billion and $600 million, respectively.
If these securities were excluded from the calculation at December 31, 2013, Tier 1 capital would be $160.4 billion and $139.1 billion, respectively,
and the Tier 1 capital ratio would be 11.6% and 11.9%, respectively. At December 31, 2013, Chase Bank USA, N.A. had no trust preferred securities.
(b)
Included off–balance sheet risk-weighted assets at December 31, 2013, of $315.9 billion, $304.0 billion and $14 million, and at December 31, 2012,of $304.5 billion, $297.1 billion and $16 million, for JPMorgan Chase, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., respectively.
(c)
Adjusted average assets, for purposes of calculating the leverage ratio, included total quarterly average assets adjusted for unrealized gains/(losses) on
securities, less deductions for disallowed goodwill and other intangible assets, investments in certain subsidiaries, and the total adjusted carrying valueof nonfinancial equity investments that are subject to deductions from Tier 1 capital.
(d)Asset and capital amounts for JPMorgan Chase’s banking subsidiaries reflect intercompany transactions; whereas the respective amounts for JPMorgan
Chase reflect the elimination of intercompany transactions.
(e)
As defined by the regulations issued by the Federal Reserve, OCC and FDIC.
(f)
Represents requirements for banking subsidiaries pursuant to regulations issued under the FDIC Improvement Act. There is no Tier 1 leveragecomponent in the definition of a well-capitalized bank holding company.
(g)
The minimum Tier 1 leverage ratio for bank holding companies and banks is 3% or 4%, depending on factors specified in regulations issued by theFederal Reserve and OCC.
Note: Rating agencies allow measures of capital to be adjusted upward for deferred tax liabilities, which have resulted from both nontaxable businesscombinations and from tax-deductible goodwill. The Firm had deferred tax liabilities resulting from nontaxable business combinations totaling$192 million and $291 million at December 31, 2013 and 2012, respectively; and deferred tax liabilities resulting from tax-deductible goodwill of$2.8 billion and $2.5 billion at December 31, 2013 and 2012, respectively.

JPMorgan Chase & Co./2013 Annual Report317

Notes to consolidated financial statements
A reconciliation of the Firm’s Total stockholders’ equity to
Tier 1 capital and Total qualifying capital is presented in thetable below.

Note 29 – Off–balance sheet lending-related
financial instruments, guarantees, and othercommitments

December 31, (in millions)

JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to meetthe financing needs of its customers. The contractual
amount of these financial instruments represents the
maximum possible credit risk to the Firm should thecounterparty draw upon the commitment or the Firm berequired to fulfill its obligation under the guarantee, andshould the counterparty subsequently fail to perform
according to the terms of the contract. Most of thesecommitments and guarantees expire without being drawn
or a default occurring. As a result, the total contractual
amount of these instruments is not, in the Firm’s view,
representative of its actual future credit exposure or
funding requirements.

2013

2012

$ 211,178$ 204,069(1,337)(4,198)

Qualifying hybrid securities andnoncontrolling interests(a)5,618

10,608Less: Goodwill(b)45,32045,663

Other intangible assets(b)

2,012

2,311

Fair value DVA on structured notes andderivative liabilities related to theFirm’s credit quality

1,300

1,577

Tier 1 capital
Total stockholders’ equity
Effect of certain items in AOCI excluded
from Tier 1 capital

Investments in certain subsidiaries and
other

1,164

926

165,663

160,002

Long-term debt and other instruments
qualifying as Tier 2

16,69518,061

Qualifying allowance for credit losses

16,96915,995

Total Tier 1 capital
Tier 2 capital

Other
Total Tier 2 capital
Total qualifying capital

(41)

(22)

33,62334,034$ 199,286$ 194,036(a) Primarily includes trust preferred securities of certain business trusts.
(b) Goodwill and other intangible assets are net of any associated deferred
tax liabilities.

318

To provide for probable credit losses inherent in consumer(excluding credit card) and wholesale lending commitments,
an allowance for credit losses on lending-related
commitments is maintained. See Note 15 on pages 284–
287 of this Annual Report for further discussion 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, 2013 and 2012. 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, without notice aspermitted by law. The Firm may reduce or close homeequity lines of credit when there are significant decreases inthe value of the underlying property, or when there has
been a demonstrable decline in the creditworthiness of theborrower. Also, the Firm typically closes credit card lines
when the borrower is 60 days or more past due.

JPMorgan Chase & Co./2013 Annual ReportOff–balance sheet lending-related financial instruments, guarantees and other commitments

By remaining maturity at December 31,(in millions)

Expires in
1 year or
less

Expiresafter
1 yearthrough
3 years

Contractual amount
2013
Expires
after
Expires
3 years
after 5throughyears
5 years

Lending-related
Consumer, excluding credit card:
Home equity – senior lien
$ 2,471 $ 4,411 $ 4,202 $Home equity – junior lien
3,918
6,908
4,865
Prime mortgage
4,817
—
—
Subprime mortgage
—
—
—
Auto
7,992
191
115
Business banking
10,282548
101
Student and other
108
111
4
Total consumer, excluding credit card
29,588
12,169
9,287
Credit card
529,383——
Total consumer
558,971
12,1699,287
Wholesale:
Other unfunded commitments to extend credit(a)(b)61,45979,51997,139Carrying value(g)
2013
2012

2012

Total

2,074 $ 13,158
2,146
17,837
—
4,817
—
—
11
8,309
320
11,251
462
685
5,013
56,057—529,383
5,013
585,440

Total$

15,18021,796
4,107
—
7,185
11,092796
60,156
533,018
593,174

$

— $
—
—
—
1
7
—
8
—
8

—
—
—
—
1
6
—
7
—
7

8,378

246,495

243,225

432

377

2,396

92,723

100,929

943

647

Unused advised lines of credit
88,443
12,411423
717
101,994
Other letters of credit(a)
4,176
722
107
15
5,020
Total wholesale
179,301
124,983
130,442
11,506446,232
Total lending-related$ 738,272 $ 137,152 $ 139,729 $ 16,519 $1,031,672
Other guarantees and commitments
Securities lending indemnification agreements andguarantees(d)$ 169,709 $— $— $— $ 169,709

85,087
5,573
434,814$1,027,988

Standby letters of credit and other financial
guarantees(a)(b)(c)

Derivatives qualifying as guarantees
Unsettled reverse repurchase and securities
borrowing agreements(e)Loan sale and securitization-related
indemnifications:
Mortgage repurchase liability
Loans sold with recourse
Other guarantees and commitments(f)25,22332,331

32,773

—
—
2
2
1,377
1,026
$ 1,385 $ 1,033$ 166,493

NA

NA

72 $

42

34,871

—

—

NA
9,305
6,780

681
131
(99)

2,811
141
(75)

1,922

765

16,061

37,52656,274

61,73838,211———

38,211

NA
NA
654

NA
NA
256

NA
NA
1,484

NA
NA
4,392

NA
7,692
6,786

$

(a) At December 31, 2013 and 2012, reflects the contractual amount net of risk participations totaling $476 million and $473 million, respectively, for otherunfunded commitments to extend credit; $14.8 billion and $16.6 billion, respectively, for standby letters of credit and other financial guarantees; and$622 million and $690 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown grossof risk participations.
(b) At December 31, 2013 and 2012, included credit enhancements and bond and commercial paper liquidity commitments to U.S. states and municipalities,
hospitals and other non-profit entities of $18.9 billion and $21.3 billion, respectively, within other unfunded commitments to extend credit; and $17.2
billion and $23.2 billion, respectively, within standby letters of credit and other financial guarantees. These commitments also include liquidity facilities tononconsolidated municipal bond VIEs; for further information, see Note 16 on pages 288–299 of this Annual Report.
(c) At December 31, 2013 and 2012, included unissued standby letters of credit commitments of $42.8 billion and $44.4 billion, respectively.
(d) At December 31, 2013 and 2012, collateral held by the Firm in support of securities lending indemnification agreements was $176.4 billion and$165.1 billion, respectively. Securities lending collateral comprises primarily cash and securities issued by governments that are members of theOrganisation for Economic Co-operation and Development (“OECD”) and U.S. government agencies.
(e) At December 31, 2013 and 2012, the amount of commitments related to forward-starting reverse repurchase agreements and securities borrowing
agreements were $9.9 billion and $13.2 billion, respectively. Commitments related to unsettled reverse repurchase agreements and securities borrowing
agreements with regular-way settlement periods were $28.3 billion and $21.7 billion, at December 31, 2013 and 2012, respectively.
(f) At December 31, 2013 and 2012, included unfunded commitments of $215 million and $370 million, respectively, to third-party private equity funds;
and $1.9 billion and $1.5 billion, respectively, to other equity investments. These commitments included $184 million and $333 million, respectively,
related to investments that are generally fair valued at net asset value as discussed in Note 3 on pages 195–215 of this Annual Report. In addition, at both
December 31, 2013 and 2012, included letters of credit hedged by derivative transactions and managed on a market risk basis of $4.5 billion.
(g) For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivativerelated products, the carrying value represents the fair value.

JPMorgan Chase & Co./2013 Annual Report319

Notes to consolidated financial statements
Other unfunded commitments to extend credit
Other unfunded commitments to extend credit generallycomprise 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.
Also included in other unfunded commitments to extend
credit are commitments to noninvestment-grade
counterparties in connection with leveraged and acquisition
finance activities, which were $18.3 billion at December 31,
2013. In the fourth quarter of 2013, the Firm implemented
prospectively interagency guidance that revised the Firm’s
definition of leveraged lending to include all Commercial
and Industrial borrowers, whether or not they are affiliatedwith financial sponsors, which meet certain leverage criteria
and use of proceeds purpose tests related to a buyout,acquisition or capital distribution. Prior to this change, theFirm defined leveraged lending as primarily being affiliatedwith a financial sponsor-related company and used internalrisk grades to identify the leveraged lending portfolio. For
further information, see Note 3 and Note 4 on pages 195–
215 and 215–218 respectively, of this Annual Report.
In addition, the Firm acts as a clearing and custody bank in
the U.S. tri-party repurchase transaction market. In its role
as clearing and custody bank, the Firm is exposed to intraday credit risk of the cash borrowers, usually brokerdealers; however, this exposure is secured by collateral andtypically extinguished through the settlement process by
the end of the day. Tri-party repurchase daily balances
averaged $307 billion and $370 billion for the years ended
December 31, 2013 and 2012, 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 financial
guarantees, securities lending indemnifications, certain

320

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, 2013 and 2012,
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 (“SBLC”) and other financial
guarantees are conditional lending commitments issued by
the Firm to guarantee the performance of a 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$945 million and $649 million at December 31, 2013 and2012, respectively, which were classified in accounts
payable and other liabilities on the Consolidated Balance
Sheets; these carrying values included $265 million and$284 million, respectively, for the allowance for lendingrelated commitments, and $680 million and $365 million,
respectively, for the guarantee liability and corresponding
asset.

JPMorgan Chase & Co./2013 Annual Report

The following table summarizes the types of facilities under which standby letters of credit and other letters of credit
arrangements are outstanding by the ratings profiles of the Firm’s customers, as of December 31, 2013 and 2012.
Standby letters of credit, other financial guarantees and other letters of credit
2013
December 31,(in millions)Standby letters ofcredit and other financial
guarantees

Investment-grade(a)$Noninvestment-grade(a)69,1092012
Other lettersof credit$

23,614

3,939

Standby letters ofcredit and other financial
guarantees
$

1,081

77,081Other lettersof credit$

23,848

3,998
1,575

Total contractual amount$

92,723

$

5,020

$

100,929$

5,573

Allowance for lending-related commitments

$

263

$

2

$

282

$

2

Commitments with collateral

40,4101,473

42,654

1,145(a) The ratings scale is based on the Firm’s internal ratings which generally correspond to ratings as defined by S&P and Moody’s.

Advised lines of credit
An advised line of credit is a revolving credit line which
specifies the maximum amount the Firm may makeavailable to an obligor, on a nonbinding basis. The borrower
receives written or oral advice of this facility. The Firm maycancel this facility at any time by providing the borrower
notice or, in some cases, without notice as permitted by law.
Securities lending indemnifications
Through the Firm’s securities lending program, customers’
securities, via custodial and non-custodial arrangements,
may be lent to third parties. As part of this program, theFirm provides an indemnification in the lending agreements
which protects the lender against the failure of theborrower to return the lent securities. To minimize its
liability under these indemnification agreements, the Firm
obtains cash or other highly liquid collateral with a market
value exceeding 100% of the value of the securities on loan
from the borrower. Collateral is marked to market daily tohelp assure that collateralization is adequate. Additional
collateral is called from the borrower if a shortfall exists, or
collateral may be released to the borrower in the event ofovercollateralization. If a borrower defaults, the Firm would
use the collateral held to purchase replacement securities in
the market or to credit the lending customer with the cash
equivalent thereof.
Derivatives qualifying as guarantees
In addition to the contracts described above, the Firm
transacts certain derivative contracts that have thecharacteristics 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.
Derivative guarantees also include contracts such as stablevalue derivatives that require the Firm to make a paymentof the difference between the market value and the bookvalue of a counterparty’s reference portfolio of assets in theevent that market value is less than book value and certain
other conditions have been met. Stable value derivatives,
commonly referred to as “stable value wraps”, areJPMorgan Chase & Co./2013 Annual Reporttransacted in order to allow investors to realize investment
returns with less volatility than an unprotected portfolio
and are typically longer-term or may have no statedmaturity, but allow the Firm to terminate the contract undercertain conditions.
Derivative guarantees are recorded on the Consolidated
Balance Sheets at fair value in trading assets and trading
liabilities. The total notional value of the derivatives that
the Firm deems to be guarantees was $56.3 billion and$61.7 billion at December 31, 2013 and 2012,
respectively. The notional amount generally represents the
Firm’s maximum exposure to derivatives qualifying as
guarantees. However, exposure to certain stable value
contracts is contractually limited to a substantially lower
percentage of the notional amount; the notional amount onthese stable value contracts was $27.0 billion and$26.5 billion at December 31, 2013 and 2012,
respectively, and the maximum exposure to loss was$2.8 billion at both December 31, 2013 and 2012. The fairvalues of the contracts reflect the probability of whether the
Firm will be required to perform under the contract. The
fair value related to derivatives that the Firm deems to beguarantees were derivative payables of $109 million and$122 million and derivative receivables of $37 million and$80 million at December 31, 2013 and 2012, respectively.
The Firm reduces exposures to these contracts by entering
into offsetting transactions, or by entering into contracts
that hedge the market risk related to the derivative
guarantees.
In addition to derivative contracts that meet 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 6 on pages 220–233 of this Annual Report.
Unsettled reverse repurchase and securities borrowing
agreements
In the normal course of business, the Firm enters into
reverse repurchase agreements and securities borrowing
agreements that settle at a future date. At settlement, thesecommitments require that the Firm advance cash to andaccept securities from the counterparty. These agreements
generally do not meet the definition of a derivative, and321

Notes to consolidated financial statements
therefore, are not recorded on the Consolidated Balance
Sheets until settlement date. At December 31, 2013 and2012, the amount of commitments related to forward
starting reverse repurchase agreements and securities
borrowing agreements were $9.9 billion and $13.2 billion,
respectively. Commitments related to unsettled reverse
repurchase agreements and securities borrowing
agreements with regular way settlement periods were$28.3 billion and $21.7 billion at December 31, 2013 and2012, respectively.

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

Loan sales- and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm’s mortgage loan sale andsecuritization activities with the GSEs and other mortgage
loan sale and private-label securitization transactions, as
described in Note 16 on pages 288–299 of this Annual
Report, the Firm has made representations and warranties
that the loans sold meet certain requirements. The Firm has
been, and may be, required to repurchase loans and/orindemnify the GSEs (e.g., with “make-whole” payments toreimburse the GSEs for their realized losses on liquidatedloans) and other investors for losses due to material
breaches of these representations and warranties. To theextent that repurchase demands that are received relate toloans that the Firm purchased from third parties thatremain viable, the Firm typically will have the right to seek arecovery of related repurchase losses from the third party.
Generally, the maximum amount of future payments theFirm 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 expense.
On October 25, 2013, the Firm announced that it hadreached a $1.1 billion agreement with the FHFA to resolve,
other than certain limited types of exposures, outstanding
and future mortgage repurchase demands associated withloans sold to the GSEs from 2000 to 2008 (“FHFA
Settlement Agreement”). The majority of the mortgage
repurchase demands that the Firm had received from the
GSEs related to loans originated from 2005 to 2008.
The Firm has recognized a mortgage repurchase liability of$681 million and $2.8 billion as of December 31, 2013 and2012, respectively. The amount of the mortgage
repurchase liability at December 31, 2013, relates torepurchase losses associated with loans sold in connection
with loan sale and securitization transactions with the GSEs
that are not covered by the FHFA Settlement Agreement(e.g., post-2008 loan sale and securitization transactions,mortgage insurance rescissions and certain mortgage
insurance settlement-related exposures, as well as certain
other specific exclusions).

322

Summary of changes in mortgage repurchase liability
Year ended December 31,(in millions)

2013

2012

2011

Repurchase liability at beginning of
period$ 2,811$ 3,557$ 3,285

Net realized losses(a)(b)(1,561)(1,158)(1,263)

Reclassification tolitigation reserve(c)

(179)

—

—

Provision for repurchase losses(d)

(390)

412

1,535

681

$ 2,811$ 3,557

Repurchase liability at end of
period$(a) Presented net of third-party recoveries and include principal losses
and accrued interest on repurchased loans, “make-whole” settlements,
settlements with claimants, and certain related expense. Make-whole
settlements were $414 million, $524 million and $640 million, for theyears ended December 31, 2013, 2012 and 2011, respectively.
(b) The 2013 amount includes $1.1 billion, for the FHFA Settlement
Agreement.
(c) Prior to December 31, 2013, in the absence of a repurchase demand
by a party to the relevant contracts, the Firm’s decision to repurchaseloans from private-label securitization trusts when it determined it had
an obligation to do so was recognized in the mortgage repurchaseliability. Pursuant to the terms of the RMBS Trust Settlement, all
repurchase obligations relating to the subject private-label
securitization trusts, whether resulting from a repurchase demand orotherwise, are now recognized in the Firm’s litigation reserves for thissettlement. The RMBS Trust Settlement is fully accrued as of December
31, 2013.
(d) Included a provision related to new loan sales of $20 million, $112
million and $52 million, for the years ended December 31, 2013,2012 and 2011, respectively.

Private label securitizations
The liability related to repurchase demands associated withprivate label securitizations is separately evaluated by the
Firm in establishing its litigation reserves.
On November 15, 2013, the Firm announced that it hadreached a $4.5 billion agreement with 21 major
institutional investors to make a binding offer to thetrustees of 330 residential mortgage-backed securities
trust issued by J.P.Morgan, Chase, and Bear Stearns (“RMBS
Trust Settlement”) to resolve all representation andwarranty claims, as well as all servicing claims, on all trust
issued by J.P.Morgan, Chase, and Bear Stearns between
2005 and 2008. The RMBS Trust Settlement may be subject
to court approval.
In addition, from 2005 to 2008, Washington Mutual madecertain loan level representations and warranties inconnection with approximately $165 billion of residential
mortgage loans that were originally sold or deposited into
private-label securitizations by Washington Mutual. Of the$165 billion, approximately $75 billion has been repaid. In
addition, approximately $47 billion of the principal amountof such loans has liquidated with an average loss severity of
59%. Accordingly, the remaining outstanding principalbalance of these loans as of December 31, 2013, wasapproximately $43 billion, of which $10 billion was 60 daysor more past due. The Firm believes that any repurchase

JPMorgan Chase & Co./2013 Annual Reportobligations related to these loans remain with the FDIC
receivership.
For additional information regarding litigation, see Note 31
on pages 326–332 of this Annual Report.
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, 2013 and 2012, theunpaid principal balance of loans sold with recourse totaled$7.7 billion and $9.3 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$131 million and $141 million at December 31, 2013 and2012, respectively.
Other off-balance sheet arrangements
Indemnification agreements – general
In connection with issuing securities to investors, the Firm
may enter into contractual arrangements with third parties
that require the Firm to make a payment to them in theevent of a change in tax law or an adverse interpretation of
tax law. In certain cases, the contract also may include atermination clause, which would allow the Firm to settle thecontract at its fair value in lieu of making a payment under
the indemnification clause. The Firm may also enter into
indemnification clauses in connection with the licensing 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.

JPMorgan Chase & Co./2013 Annual Report

Credit card charge-backs
Chase Paymentech Solutions, Card’s merchant services
business and a subsidiary of JPMorgan Chase Bank,
N.A., is a global leader in payment processing andmerchant acquiring.
Under the rules of Visa USA, Inc., and MasterCard
International, JPMorgan Chase Bank, N.A., is primarily liable
for the amount of each processed credit card sales
transaction that is the subject of a dispute between acardmember and a merchant. If a dispute is resolved in the
cardmember’s favor, Chase Paymentech will (through the
cardmember’s issuing bank) credit or refund the amount tothe cardmember and will charge back the transaction to themerchant. If Chase Paymentech is unable to collect theamount from the merchant, Chase Paymentech will bear theloss for the amount credited or refunded to the
cardmember. Chase Paymentech mitigates this risk by
withholding future settlements, retaining cash reserve
accounts or by obtaining other security. However, in theunlikely event that: (1) a merchant ceases operations and isunable to deliver products, services or a refund; (2) Chase
Paymentech does not have sufficient collateral from themerchant to provide customer refunds; and (3) Chase
Paymentech does not have sufficient financial resources toprovide customer refunds, JPMorgan Chase Bank, N.A.,
would recognize the loss.
Chase Paymentech incurred aggregate losses of $14
million, $16 million, and $13 million on $750.1 billion,$655.2 billion, and $553.7 billion of aggregate volume
processed for the years ended December 31, 2013, 2012
and 2011, respectively. Incurred losses from merchantcharge-backs are charged to Other expense, with the offset
recorded in a valuation allowance against Accrued interest
and accounts receivable on the Consolidated Balance
Sheets. The carrying value of the valuation allowance was$5 million and $6 million at December 31, 2013 and 2012,
respectively, which the Firm believes, based on historicalexperience and the collateral held by Chase Paymentech of$208 million and $203 million at December 31, 2013 and2012, respectively, is representative of the payment or
performance risk to the Firm related to charge-backs.
Clearing Services - Client Credit Risk
The Firm provides clearing services for clients entering into
securities purchases and sales and derivative transactions,with central counterparties (“CCPs”), including exchange
traded derivatives (“ETDs”) such as futures and options, aswell as cleared over-the-counter (“OTC-cleared”) derivative
contracts. As a clearing member, the Firm stands behind theperformance of its clients, collects cash and securities
collateral (margin) as well as any settlement amounts duefrom or to clients, and remits them to the relevant CCP or
client in whole or part. There are two types of margin.
Variation margin is posted on a daily basis based on thevalue of clients’ derivative contracts. Initial margin is posted
at inception of a derivative contract, generally on the basisof the potential changes in the variation margin
requirement for the contract.
323

Notes to consolidated financial statements
As clearing member, the Firm is exposed to the risk of nonperformance by its clients, but is not liable to clients for the
performance of the CCPs. Where possible, the Firm seeks tomitigate its risk to the client through the collection of
appropriate amounts of margin at inception and throughout
the life of the transactions and can also cease provision ofclearing services if clients do not adhere to their obligations
under the clearing agreement. In the event of nonperformance by a client, the Firm would close out 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 as
clearing member.

Guarantees of subsidiaries
In the normal course of business, JPMorgan Chase & Co.
(“Parent Company”) may provide counterparties withguarantees of certain of the trading and other obligations of
its subsidiaries on a contract-by-contract basis, as
negotiated with the Firm’s counterparties. The obligationsof the subsidiaries are included on the Firm’s Consolidated
Balance Sheets, or are reflected as off-balance sheet
commitments; therefore, the Parent Company has notrecognized a separate liability for these guarantees. The
Firm believes that the occurrence of any event that would
trigger payments by the Parent Company under theseguarantees is remote.

The Firm reflects its exposure to non-performance risk of
the client through the recognition of margin payables or
receivables to clients and CCPs, but does not reflect theclients underlying securities or derivative contracts in its
Consolidated Financial Statements.

The Parent Company has guaranteed certain debt of its
subsidiaries, including both long-term debt and structured
notes sold as part of the Firm’s market-making activities.
These guarantees are not included in the table on page 319
of this Note. For additional information, see Note 21 on
pages 306–308 of this Annual Report.

It is difficult to estimate the Firm’s maximum possible
exposure through its role as clearing member, as this would
require an assessment of transactions that clients may
execute in the future. However, based upon 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.
For information on the derivatives that the Firm executes
for its own account and records in its Consolidated Financial
Statements, see Note 6 on pages 220–233 of this Annual
Report.
Exchange & Clearing House Memberships
Through the provision of clearing services, the Firm is amember of several securities and derivative exchanges andclearinghouses, both in the U.S. and other countries.
Membership in some of these organizations requires theFirm to pay a pro rata share of the losses incurred by theorganization as a result of the default of another member.
Such obligations vary with different organizations. Theseobligations may be limited to members who dealt with thedefaulting member or to the amount (or a multiple of theamount) of the Firm’s contribution to the guarantee fund.
Alternatively, these obligations may be a full pro-rata shareof the residual losses after applying the guarantee fund. It isdifficult to estimate the Firm’s maximum possible exposure
under these membership agreements, since this would
require an assessment of future claims that may be madeagainst the Firm that have not yet occurred. However, basedon historical experience, management expects the risk ofloss to be remote.

324

JPMorgan Chase & Co./2013 Annual ReportNote 30 – Commitments, pledged assets andcollateral
Lease commitments
At December 31, 2013, JPMorgan Chase and its
subsidiaries were obligated under a number of
noncancelable operating leases for premises and equipmentused primarily for banking purposes, and for energy-related
tolling service agreements. Certain leases contain renewal
options or escalation clauses providing for increased rental
payments based on maintenance, utility and tax increases,or they require the Firm to perform restoration work onleased premises. No lease agreement imposes restrictions
on the Firm’s ability to pay dividends, engage in debt orequity financing transactions or enter into further leaseagreements.
The following table presents required future minimum
rental payments under operating leases with noncancelable
lease terms that expire after December 31, 2013.
Year ended December 31, (in millions)
2014
2015
2016
2017
2018
After 2018
Total minimum payments required(a)Less: Sublease rentals under noncancelable subleases
Net minimum payment required

$

$

1,936
1,845
1,687
1,529
1,267
6,002
14,266(2,595)
11,671

Pledged assets
At December 31, 2013, assets were pledged to maintainpotential borrowing capacity with central banks and forother purposes, including to secure borrowings and publicdeposits, and to collateralize repurchase and othersecurities financing agreements. Certain of these pledged
assets may be sold or repledged by the secured parties andare identified as financial instruments owned (pledged tovarious parties) on the Consolidated Balance Sheets. At
December 31, 2013 and 2012, the Firm had pledged assets
of $251.3 billion and $236.4 billion, respectively, atFederal Reserve Banks and FHLBs. In addition, as ofDecember 31, 2013 and 2012, the Firm had pledged $60.6
billion and $74.5 billion, respectively, of financial
instruments it owns that may not be sold or repledged by
the secured parties. The prior period amount (and thecorresponding pledged assets parenthetical disclosure forsecurities on the Consolidated Balance Sheets) have beenrevised to conform with the current period presentation.
Total assets pledged do not include assets of consolidated
VIEs; these assets are used to settle the liabilities of thoseentities. See Note 16 on pages 288–299 of this Annual
Report for additional information on assets and liabilities of
consolidated VIEs. For additional information on the Firm’s
securities financing activities and long-term debt, see Note
13 on pages 255–257, and Note 21 on pages 306–308,
respectively, of this Annual report. The significant
components of the Firm’s pledged assets were as follows.
December 31, (in billions)2013

Securities
Loans

230.3

207.2

Total rental expense was as follows.

Trading assets and other

145.2

155.5

Total assets pledged

Year ended December 31,(in millions)
Gross rental expense

2013
$

2,187

$

1,846

Sublease rental income
Net rental expense

2012
$

2,212

$

1,924

(341)

JPMorgan Chase & Co./2013 Annual Report

2011
$

2,228

$

1,825

(288)

(403)

$

$

68.1

2012

(a) Lease restoration obligations are accrued in accordance with U.S. GAAP, and are
not reported as a required minimum lease payment.

443.7

$

$

110.1

472.8

CollateralAt December 31, 2013 and 2012, the Firm had accepted
assets as collateral that it could sell or repledge, deliver orotherwise use with a fair value of approximately $726.7
billion and $757.1 billion, respectively. This collateral was
generally obtained under resale agreements, securities
borrowing agreements, customer margin loans andderivative agreements. Of the collateral received,
approximately $543.5 billion and $545.0 billion,
respectively, were sold or repledged, generally as collateral
under repurchase agreements, securities lending
agreements or to cover short sales and to collateralize
deposits and derivative agreements.

325

Notes to consolidated financial statements
Note 31 – Litigation
Contingencies
As of December 31, 2013, the Firm and its subsidiaries are
defendants or putative defendants in numerous legal
proceedings, including private, civil litigations andregulatory/government investigations. The litigations range
from individual actions involving a single plaintiff to classaction lawsuits with potentially millions of class members.
Investigations involve both formal and informal
proceedings, by both governmental agencies and selfregulatory organizations. These legal proceedings are atvarying stages of adjudication, arbitration or investigation,and involve each of the Firm’s lines of business andgeographies and a wide variety of claims (includingcommon law tort and contract claims and statutory
antitrust, securities and consumer protection claims), someof 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 $5.0 billion at December 31, 2013. Thisestimated aggregate range of reasonably possible losses isbased upon currently available information for those
proceedings in which the Firm is involved, taking into
account the Firm’s best estimate of such losses for thosecases for which such estimate can be made. For certain
cases, the Firm does not believe that an estimate cancurrently be made. The Firm’s estimate involves significant
judgment, given the varying stages of the proceedings(including the fact that many are currently in preliminary
stages), the existence in many such proceedings of multiple
defendants (including the Firm) whose share of liability has
yet to be determined, the numerous yet-unresolved issues
in many of the proceedings (including issues regarding classcertification and the scope of many of the claims) and theattendant uncertainty of the various potential outcomes ofsuch proceedings. Accordingly, the Firm’s estimate willchange from time to time, and actual losses may vary.
Set forth below are descriptions of the Firm’s material legal
proceedings.
Bear Stearns Hedge Fund Matter. In September 2013, an
action brought by Bank of America and Banc of America
Securities LLC (together “BofA”) in the United States District
Court for the Southern District of New York against Bear
Stearns Asset Management, Inc. (“BSAM”) relating toalleged losses resulting from the failure of the Bear Stearns
High Grade Structured Credit Strategies Master Fund, Ltd.
and the Bear Stearns High Grade Structured Credit
Strategies Enhanced Leverage Master Fund, Ltd. wasdismissed after the court granted BSAM’s motion forsummary judgment. BofA has determined not to appeal thedismissal.
CIO Investigations and Litigation. The Firm is responding to a
consolidated shareholder purported class action, a
consolidated purported class action brought under the
Employee Retirement Income Security Act and shareholder
derivative actions that have been filed in New York state
court and the United States District Court for the Southern326

District of New York, as well as shareholder demands andgovernment investigations, relating to losses in thesynthetic credit portfolio managed by the Firm’s Chief
Investment Office (“CIO”). The Firm continues to cooperatewith ongoing government investigations, including by theUnited States Attorney’s Office for the Southern District of
New York and the State of Massachusetts. The purportedclass actions and shareholder derivative actions are in earlystages with defendants’ motions to dismiss pending.
Credit Default Swaps Investigations and Litigation. In July
2013, the European Commission (the “EC”) filed aStatement of Objections against the Firm (including various
subsidiaries) and other industry members in connection
with its ongoing investigation into the credit default swaps(“CDS”) marketplace. The EC asserts that between 2006
and 2009, a number of investment banks acted collectively
through the International Swaps and Derivatives
Association (“ISDA”) and Markit Group Limited (“Markit”)
to foreclose exchanges from the potential market for
exchange-traded credit derivatives by instructing Markit
and ISDA to license their respective data and index
benchmarks only for over-the-counter (“OTC”) trading and
not for exchange trading, allegedly to protect theinvestment banks’ revenues from the OTC market. The Firm
submitted a response to the Statement of Objections inJanuary 2014. The U.S. Department of Justice (the “DOJ”)
also has an ongoing investigation into the CDS marketplace,which was initiated in July 2009.
Separately, the Firm is a defendant in nine purported classactions (all consolidated in the United States District Court
for the Southern District of New York) filed on behalf ofpurchasers and sellers of CDS and asserting federal
antitrust law claims. Each of the complaints refers to theongoing investigations by the EC and DOJ into the CDS
market, and alleges that the defendant investment banks
and dealers, including the Firm, as well as Markit and/or
ISDA, collectively prevented new entrants into the CDS
market, in order to artificially inflate the defendants’ OTC
revenues.
Foreign Exchange Investigations and Litigation. The Firm hasreceived information requests, document production
notices and related inquiries from various U.S. and non-U.S.
government authorities regarding the Firm’s foreignexchange trading business. These investigations are in theearly stages and the Firm is cooperating with the relevant
authorities.
Since November 2013, a number of class actions have been
filed in the United Stated District Court for the Southern
District of New York against a number of foreign exchange
dealers, including the Firm, for alleged violations of federal
and state antitrust laws and unjust enrichment based on analleged conspiracy to manipulate foreign exchange rates
reported on the WM/Reuters service.

JPMorgan Chase & Co./2013 Annual ReportInterchange Litigation. A group of merchants and retailassociations filed a series of class action complaints relating
to interchange in several federal courts. The complaints
alleged that Visa and MasterCard, as well as certain banks,
conspired to set the price of credit and debit card
interchange fees, enacted respective rules in violation of
antitrust laws, and engaged in tying/bundling and exclusive
dealing. All cases were consolidated in the United States
District Court for the Eastern District of New York for
pretrial proceedings.
The parties have entered into an agreement to settle thosecases, for a cash payment of $6.05 billion to the classplaintiffs (of which the Firm’s share is approximately 20%)and an amount equal to ten basis points of credit card
interchange for a period of eight months to be measured
from a date within 60 days of the end of the opt-out period.
The agreement also provides for modifications to eachcredit card network’s rules, including those that prohibit
surcharging credit card transactions. The rule modifications
became effective in January 2013. In December 2013, theCourt issued a decision granting final approval of thesettlement. A number of merchants have filed notices ofappeal. Certain merchants that opted out of the classsettlement have filed actions against Visa and MasterCard,as well as against the Firm and other banks.
Investment Management Litigation. The Firm is defending
two pending cases that allege that investment portfolios
managed by J.P. Morgan Investment Management (“JPMIM”)
were inappropriately invested in securities backed byresidential real estate collateral. Plaintiffs Assured Guaranty(U.K.) and Ambac Assurance UK Limited claim that JPMIM is
liable for losses of more than $1 billion in market value ofthese securities. Discovery is proceeding.
Italian Proceedings.
City of Milan. In January 2009, the City of Milan, Italy (the“City”) issued civil proceedings against (among others)
JPMorgan Chase Bank, N.A. and J.P. Morgan Securities plc in
the District Court of Milan alleging a breach of advisoryobligations in connection with a bond issue by the City inJune 2005 and an associated swap transaction. The Firm
has entered into a settlement agreement with the City toresolve the City’s civil proceedings.
Four current and former JPMorgan Chase employees andJPMorgan Chase Bank, N.A. (as well as other individuals andthree other banks) were directed by a criminal judge toparticipate in a trial that started in May 2010. As it relates
to JPMorgan Chase individuals, two were acquitted and two
were found guilty of aggravated fraud with sanctions ofprison sentences, fines and a ban from dealing with Italianpublic bodies for one year. JPMorgan Chase (along withother banks involved) was found liable for breaches of
Italian administrative law, fined €1 million and ordered toforfeit the profit from the transaction (for JPMorgan Chase,
totaling €24.7 million). JPMorgan Chase and the individuals
are appealing the verdict, and none of the sanctions willtake effect until all appeal avenues have been exhausted.
The first appeal hearing took place in January 2014.

JPMorgan Chase & Co./2013 Annual Report

Parmalat. In 2003, following the bankruptcy of theParmalat group of companies (“Parmalat”), criminal
prosecutors in Italy investigated the activities of Parmalat,
its directors and the financial institutions that had dealings
with them following the collapse of the company. In March
2012, the criminal prosecutor served a notice indicating an
intention to pursue criminal proceedings against four
former employees of the Firm (but not against the Firm) on
charges of conspiracy to cause Parmalat’s insolvency byunderwriting bonds and continuing derivatives trading when
Parmalat’s balance sheet was false. A preliminary hearing isscheduled for February 2014, at which the judge will
determine whether to recommend that the matter go to afull trial.
In addition, the administrator of Parmalat commenced five
civil actions against JPMorgan Chase entities including: twoclaw-back actions; a claim relating to bonds issued byParmalat in which it is alleged that JPMorgan Chase kept
Parmalat “artificially” afloat and delayed the declaration of
insolvency; and similar allegations in two claims relating toderivatives transactions.
Lehman Brothers Bankruptcy Proceedings. In May 2010,
Lehman Brothers Holdings Inc. (“LBHI”) and its Official
Committee of Unsecured Creditors (the “Committee”) filed acomplaint (and later an amended complaint) against
JPMorgan Chase Bank, N.A. in the United States Bankruptcy
Court for the Southern District of New York that asserts
both federal bankruptcy law and state common law claims,
and seeks, among other relief, to recover $8.6 billion incollateral that was transferred to JPMorgan Chase Bank,
N.A. in the weeks preceding LBHI’s bankruptcy. The
amended complaint also seeks unspecified damages on the
grounds that JPMorgan Chase Bank, N.A.’s collateralrequests hastened LBHI’s bankruptcy. The Court dismissed
the counts of the amended complaint that sought to void
the allegedly constructively fraudulent and preferential
transfers made to the Firm during the months of August and
September 2008.
The Firm has also filed counterclaims against LBHI alleging
that LBHI fraudulently induced the Firm to make large
clearing advances to Lehman against inappropriate
collateral, which left the Firm with more than $25 billion inclaims (the “Clearing Claims”) against the estate of Lehman
Brothers Inc. (“LBI”), LBHI’s broker-dealer subsidiary. LBHI
and the Committee have filed an objection to the claims
asserted by JPMorgan Chase Bank, N.A. against LBHI withrespect to the Clearing Claims, principally on the grounds
that the Firm had not conducted the sale of the securities
collateral held for such claims in a commercially reasonable
manner. The Clearing Claims, together with approximately$3 billion of other claims of the Firm against Lehman
entities, have been paid in full, subject to the outcome ofthe objections filed by LBHI and the Committee. Discovery is
ongoing.
LBHI and several of its subsidiaries that had been Chapter
11 debtors have filed a separate complaint and objection toderivatives claims asserted by the Firm alleging that theamount of the derivatives claims had been overstated and327

Notes to consolidated financial statements
challenging certain set-offs taken by JPMorgan Chase
entities to recover on the claims. The Firm responded to thisseparate complaint and objection in February 2013.
Discovery is ongoing.
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
DOJ, the Commodity Futures Trading Commission (the“CFTC”), the Securities and Exchange Commission (the“SEC”) and various state attorneys general, as well as theEuropean Commission, the U.K. Financial Conduct Authority(the “FCA”), Canadian Competition Bureau, Swiss
Competition Commission and other regulatory authorities
and banking associations around the world relating
primarily to the process by which interest rates were
submitted to the British Bankers Association (“BBA”) in
connection with the setting of the BBA’s London Interbank
Offered Rate (“LIBOR”) for various currencies, principally in2007 and 2008. Some of the inquiries also relate to similar
processes by which information on rates is 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”) as
well as to other processes for the setting of other reference
rates in various parts of the world during similar time
periods. The Firm is cooperating with these inquiries. In
December 2013, JPMorgan Chase reached a settlementwith the European Commission regarding its Japanese Yen
LIBOR investigation and agreed to pay a fine of €79.9
million. Investigations by the European Commission withregard to other reference rates remain open. In January
2014, the Canadian Competition Bureau announced that it
has discontinued its investigation related to Yen LIBOR.
In addition, the Firm has been named as a defendant alongwith other banks in a series of individual and class actions
filed in various United States District Courts in whichplaintiffs make varying allegations that in various periods,
starting in 2000 or later, defendants either individually orcollectively manipulated the U.S. dollar LIBOR, Yen LIBOR
and/or Euroyen TIBOR rates by submitting rates that wereartificially low or high. Plaintiffs allege that they transacted
in loans, derivatives or other financial instruments whose
values are impacted by changes in U.S. dollar LIBOR, Yen
LIBOR, or Euroyen TIBOR and assert a variety of claims
including antitrust claims seeking treble damages.
The U.S. dollar LIBOR-related purported class actions havebeen consolidated for pre-trial purposes in the UnitedStates District Court for the Southern District of New York.
In March 2013, the Court granted in part and denied in partthe defendants’ motions to dismiss the claims, including
dismissal with prejudice of the antitrust claims, and theUnited States Court of Appeals for the Second Circuitdismissed the appeals for lack of jurisdiction. In September
2013, certain plaintiffs filed amended complaints andothers sought leave to amend their complaints to add
additional allegations. Defendants have moved to dismiss328

the amended complaints and have opposed the requests toamend. Those motions remain pending.
The Firm has also been named as a defendant in apurported class action filed in the United States District
Court for the Southern District of New York on behalf ofplaintiffs who purchased or sold exchange-traded Euroyen
futures and options contracts. The action alleges
manipulation of Yen LIBOR. Defendants have filed a motion
to dismiss.
The Firm has also been named as a nominal defendant in a
derivative action in the Supreme Court of New York in theCounty of New York against certain current and former
members of the Firm’s board of directors for alleged breachof fiduciary duty in connection with the Firm’s purportedrole in manipulating LIBOR. The defendants have filed amotion to dismiss.
Madoff Litigation and Investigations. In January 2014,
certain of the Firm’s bank subsidiaries entered into
settlements with various governmental agencies inresolution of investigations relating to Bernard L. Madoff
Investment Securities LLC (“BLMIS”). The Firm and certainof its subsidiaries also entered into settlements with several
private parties in resolution of civil litigation relating to
BLMIS.
JPMorgan Chase Bank, N.A. entered into a Deferred
Prosecution Agreement (the “DPA”) with the United States
Attorney’s Office for the Southern District of New York (the“U.S. Attorney”) in which it agreed to forfeit $1.7 billion to
the United States as a non-tax-deductible payment.
JPMorgan Chase Bank, N.A. also consented, subject to theterms and conditions of the DPA, to the filing by the U.S.
Attorney of an Information charging the bank with failure to
maintain an adequate anti-money laundering program, anda failure to file a suspicious activity report in the UnitedStates in October 2008 with respect to BLMIS, in violationof the Bank Secrecy Act. Pursuant to the DPA, the U.S.
Attorney will defer any prosecution of JPMorgan Chase
Bank, N.A. for a two-year period and will dismiss theInformation with prejudice at the end of that time if thebank is in compliance with its obligations under the DPA.
The DPA has been approved by the court.
JPMorgan Chase Bank, N.A., JPMorgan Bank and Trust
Company, N.A. and Chase Bank USA, N.A., have also
consented to the assessment of a $350 million Civil Money
Penalty by the Office of the Comptroller of the Currency(“OCC”) in connection with various Bank Secrecy Act/AntiMoney Laundering deficiencies, including in relation to the
BLMIS fraud. In addition, JPMorgan Chase Bank, N.A. hasagreed to the assessment of a $461 million Civil Money
Penalty by the Financial Crimes Enforcement Network(“FinCEN”) for failure to detect and adequately reportsuspicious transactions relating to BLMIS. The FinCEN
penalty, but not the OCC penalty, has been deemed satisfied
by the forfeiture payment to the U.S. Attorney.
Additionally, the Firm and certain subsidiaries, including
JPMorgan Chase Bank, N.A., have agreed to enter into
settlements with the court-appointed trustee for BLMIS (the“Trustee”) and with plaintiffs representing a class of former
JPMorgan Chase & Co./2013 Annual ReportBLMIS customers who lost all or a portion of their principal
investments with BLMIS. As part of these settlements, theFirm and the bank have agreed to pay the Trustee a total of$325 million. Separately, the Firm and the bank haveagreed to pay the class action plaintiffs $218 million, as
well as attorneys’ fees, in exchange for a release of alldamages claims relating to BLMIS. The settlements with theTrustee and the class action plaintiffs are subject to court
approval. BLMIS customers who did not suffer losses on
their principal investments are not eligible to participate in
the class action settlement, and certain customers in thatcategory have stated that they intend to pursue claims
against the Firm.
Also, various subsidiaries of the Firm, including J.P. Morgan
Securities plc, have been named as defendants in lawsuits
filed in Bankruptcy Court in New York arising out of theliquidation proceedings of Fairfield Sentry Limited andFairfield Sigma Limited (together, “Fairfield”), so-called
Madoff feeder funds. These actions seek to recover
payments made by the funds to defendants totaling
approximately $155 million. Pursuant to an agreement with
the Trustee, the liquidators of Fairfield have voluntarily
dismissed their action against J.P. Morgan Securities plc
without prejudice to re-filing. The other actions remain
outstanding.
In addition, a purported class action was brought byinvestors in certain feeder funds against JPMorgan Chase in
the United States District Court for the Southern District of
New York, as was a motion by separate potential classplaintiffs to add claims against the Firm and certain
subsidiaries to an already pending purported class action in
the same court. The allegations in these complaints largely
track those raised by the Trustee. The Court dismissed thesecomplaints and plaintiffs have appealed. In September
2013, the United States Court of Appeals for the Second
Circuit affirmed the District Court’s decision. The plaintiffs
have petitioned the entire Court for a rehearing of theappeal and the Court has deferred decision pending a rulingby the United States Supreme Court on a potentially related
issue.
The Firm is a defendant in five other Madoff-related
investor actions pending in New York state court. The
allegations in all of these actions are essentially identical,
and involve claims against the Firm for, among other things,
aiding and abetting breach of fiduciary duty, conversion andunjust enrichment. The Firm has moved to dismiss theseactions.
Additionally, a shareholder derivative action has been filedin New York state court against the Firm, as nominal
defendant, and certain of its current and former Board
members, alleging breach of fiduciary duty for failure to
maintain effective internal controls to detect fraudulent
transactions.
MF Global. The Firm has responded to inquiries from the
CFTC relating to the Firm’s banking and other business
relationships with MF Global, including as a depository for
MF Global’s customer segregated accounts.

JPMorgan Chase & Co./2013 Annual Report

J.P. Morgan Securities LLC has been named as one of several
defendants in a number of purported class actions filed bypurchasers of MF Global’s publicly traded securities
asserting violations of federal securities laws and alleging
that the offering documents contained materially false andmisleading statements and omissions regarding MF Global.
The actions have been consolidated before the UnitedStates District Court for the Southern District of New York.
Discovery is ongoing.
Mortgage-Backed Securities and Repurchase Litigation and
Related Regulatory Investigations. JPMorgan Chase andaffiliates (together, “JPMC”), Bear Stearns and affiliates(together, “Bear Stearns”) and Washington Mutual affiliates(together, “Washington Mutual”) have been named as
defendants in a number of cases in their various roles inofferings of mortgage-backed securities (“MBS”). These
cases include purported class action suits on behalf of MBS
purchasers, actions by individual MBS purchasers andactions by monoline insurance companies that guaranteed
payments of principal and interest for particular tranches of
MBS offerings. Following the settlements referred to under“Repurchase Litigation” and “Government Enforcement
Investigations and Litigation” below, there are currently
pending and tolled investor and monoline insurer claims
involving MBS with an original principal balance ofapproximately $74 billion, of which $67 billion involves
JPMC, Bear Stearns or Washington Mutual as issuer and $7
billion involves JPMC, Bear Stearns or Washington Mutual
solely as underwriter. The Firm and certain of its current
and former officers and Board members have also beensued in shareholder derivative actions relating to the Firm’s
MBS activities, and trustees have asserted or havethreatened to assert claims that loans in securitization
trusts should be repurchased.
Issuer Litigation – Class Actions. The Firm is a defendant inthree purported class actions brought against JPMC and
Bear Stearns as MBS issuers (and, in some cases, also as
underwriters of their own MBS offerings) in the UnitedStates District Courts for the Eastern and Southern Districtsof New York. The Firm has reached an agreement inprinciple to settle one of these purported class actions,pending in the United States District Court for the Eastern
District of New York. Motions to dismiss have largely beendenied in the remaining two cases pending in the UnitedStates District Court for the Southern District of New York,
which are in various stages of litigation.
Issuer Litigation – Individual Purchaser Actions. In addition
to class actions, the Firm is defending individual actions
brought against JPMC, Bear Stearns and Washington Mutual
as MBS issuers (and, in some cases, also as underwriters of
their own MBS offerings). These actions are pending infederal and state courts across the United States and are invarious stages of litigation.
Monoline Insurer Litigation. The Firm is defending fivepending actions relating to monoline insurers’ guarantees
of principal and interest on certain classes of 14 different
Bear Stearns MBS offerings. These actions are pending in

329

Notes to consolidated financial statements
federal and state courts in New York and are in various
stages of litigation.
Underwriter Actions. In actions against the Firm solely as anunderwriter of other issuers’ MBS offerings, the Firm has
contractual rights to indemnification from the issuers.
However, those indemnity rights may prove effectively
unenforceable in various situations, such as where theissuers are now defunct. There are currently such actions
pending against the Firm in federal and state courts invarious stages of litigation.
Repurchase Litigation. The Firm is defending a number ofactions brought by trustees or master servicers of various
MBS trusts and others on behalf of purchasers of securities
issued by those trusts. These cases generally allege
breaches of various representations and warranties
regarding securitized loans and seek repurchase of thoseloans or equivalent monetary relief, as well as
indemnification of attorneys’ fees and costs and otherremedies. Deutsche Bank National Trust Company, acting as
trustee for various MBS trusts, has filed such a suit against
JPMC, Washington Mutual and the FDIC in connection with asignificant number of MBS issued by Washington Mutual;that case is described in the Washington Mutual Litigations
section below. Other repurchase actions, each specific to
one or more MBS transactions issued by JPMC and/or Bear
Stearns, are in various stages of litigation.
In addition, the Firm received demands by securitization
trustees that threaten litigation, as well as demands byinvestors directing or threatening to direct trustees toinvestigate claims or bring litigation, based on purported
obligations to repurchase loans out of securitization trusts
and alleged servicing deficiencies. These include but are notlimited to a demand from a law firm, as counsel to a groupof 21 institutional MBS investors, to various trustees toinvestigate potential repurchase and servicing claims. These
investors purported to have 25% or more of the voting
rights in as many as 191 different trusts sponsored by the
Firm or its affiliates with an original principal balance ofmore than $174 billion (excluding 52 trusts sponsored by
Washington Mutual, with an original principal balance ofmore than $58 billion). Pursuant to a settlement agreementwith the group of institutional investors, JPMC and theinvestor group have made a binding offer to the trustees of
MBS issued by JPMC and Bear Stearns that provides for thepayment of $4.5 billion and the implementation of certain
servicing changes to mortgage loans serviced by JPMC, toresolve all repurchase and servicing claims that have beenasserted or could have been asserted with respect to the
330 MBS trusts. The offer, which is subject to acceptance by
the trustees, and potentially a judicial approval process,does not resolve claims relating to WaMu MBS. JPMC andthe trustees have agreed to toll and forbear from asserting
repurchase and servicing claims with respect to most of the
JPMC and Bear Stearns trusts subject to the settlement
during the pendency of the settlement approval process.
There are additional repurchase and servicing claims madeagainst trustees not affiliated with the Firm, but involving
trusts that the Firm sponsored, which have been tolled.

330

Derivative Actions. Seven shareholder derivative actions
relating to the Firm’s MBS activities have been filed to dateagainst the Firm, as nominal defendant, and certain of its
current and former officers and members of its Board of
Directors, in New York state court and California federal
court. In one of the actions, the Firm’s motion to dismiss
was granted and the dismissal was affirmed on
appeal. Defendants have filed, or intend to file, motions to
dismiss the remaining actions.
Government Enforcement Investigations and Litigation. The
Firm resolved actual and potential civil claims by the DOJ
and several State Attorneys General relating to residential
mortgage-backed securities activities by JPMC, Bear Stearns
and Washington Mutual, in addition to resolving litigation by
the Federal Housing Finance Agency, the Federal Deposit
Insurance Corporation and the National Credit Union
Administration. The Firm paid a total of $9.0 billion, whichis comprised of a $2.0 billion civil monetary penalty and$7.0 billion in compensatory payments (including $4.0
billion to resolve the Federal Housing Finance Agency
litigation) and made a commitment to provide $4.0 billion
in borrower relief before the end of 2017. In connection
with this settlement, including the resolution of litigation by
the Federal Housing Finance Agency, the Federal Deposit
Insurance Corporation and the National Credit Union
Administration, the Firm agreed to waive its right to seek
indemnification from the Federal Deposit Insurance
Corporation, in its capacity as receiver for Washington
Mutual Bank and in its corporate capacity, with respect toany portion of this settlement relating to residential
mortgage-backed securities activities of Washington Mutual
Bank. The Firm retained its rights to seek indemnificationfrom the Federal Deposit Insurance Corporation for all otherliabilities relating to the residential mortgage-backed
securities activities of Washington Mutual Bank.
Simultaneously with the resolution of litigation by theFederal Housing Finance Agency, the Firm also agreed toresolve Fannie Mae’s and Freddie Mac’s repurchase claims
associated with whole loan purchases from 2000 to 2008,
for $1.1 billion.
The Firm is responding to an ongoing investigation being
conducted by the Criminal Division of the United States
Attorney’s Office for the Eastern District of California
relating to MBS offerings securitized and sold by the Firm
and its subsidiaries. The Firm has also received othersubpoenas and informal requests for information fromfederal and state authorities concerning the issuance andunderwriting of MBS-related matters. The Firm continues to
respond to these MBS-related regulatory inquiries.
In addition, the Firm is responding to and cooperating withrequests for information from the U.S. Attorney’s Office forthe District of Connecticut, subpoenas and requests fromthe SEC Division of Enforcement, and a request from the
Office of the Special Inspector General for the Troubled
Asset Relief Program to conduct a review of certain
activities, all of which relate to, among other matters,
communications with counterparties in connection withcertain secondary market trading in MBS.

JPMorgan Chase & Co./2013 Annual Report

The Firm has entered into agreements with a number ofentities that purchased MBS that toll applicable limitations
periods with respect to their claims, and has settled, and in
the future may settle, tolled claims. There is no assurance
that the Firm will not be named as a defendant in additional
MBS-related litigation.
Mortgage-Related Investigations and Litigation. The Attorney
General of Massachusetts filed an action against the Firm,other servicers and a mortgage recording company,
asserting claims for various alleged wrongdoings relating tomortgage assignments and use of the industry’s electronic
mortgage registry. The court granted in part and denied inpart the defendants’ motion to dismiss the action, which
remains pending.
The Firm is named as a defendant in a purported classaction lawsuit relating to its mortgage foreclosure
procedures. The plaintiffs have moved for classcertification.
Two shareholder derivative actions have been filed in New
York Supreme Court against the Firm’s Board of Directors
alleging that the Board failed to exercise adequate
oversight as to wrongful conduct by the Firm regarding
mortgage servicing. These actions seek declaratory relief
and damages. In October 2012, the Court consolidated theactions and stayed all proceedings pending the plaintiffs’
decision whether to file a consolidated complaint after the
Firm completes its response to a demand submitted by oneof the plaintiffs under Section 220 of the Delaware General
Corporation Law.
In February 2014, the Firm entered into a settlement with
the United States Attorney’s Office for the Southern Districtof New York, the Federal Housing Administration (“FHA”),
the United States Department of Housing and Urban
Development (“HUD”) and the United States Department of
Veterans Affairs (“VA”) resolving claims relating to theFirm’s participation in federal mortgage insurance
programs overseen by FHA, HUD and VA. Under thesettlement, JPMorgan Chase will pay $614 million andagree to enhance its quality control program for loans thatare submitted in the future to FHA’s Direct Endorsement
Lender program. This settlement releases the Firm from
False Claims Act, FIRREA and other civil and administrative
liability for FHA and VA insurance claims that have been
paid to JPMorgan Chase since 2002 through the date of thesettlement.
The Civil Division of the United States Attorney’s Office for
the Southern District of New York is conducting an
investigation concerning the Firm’s compliance with the Fair
Housing Act (“FHA”) and Equal Credit Opportunity Act(“ECOA”) in connection with its mortgage lending
practices. In addition, two municipalities are pursuinginvestigations into the impact, if any, of alleged violations of
the FHA and ECOA on their respective communities. The
Firm is cooperating in these investigations.
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.
JPMorgan Chase & Co./2013 Annual Report

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 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”), have been named as defendants in several actions
filed in connection with the receivership and bankruptcy
proceedings pertaining to Thomas J. Petters and certain
affiliated entities (collectively, “Petters”) and the Polaroid
Corporation. The principal actions against JPMorgan Chaseand its affiliates have been brought by a court-appointed
receiver for Petters and the trustees in bankruptcy
proceedings for three Petters entities. These actions
generally seek to avoid certain purported transfers inconnection with (i) the 2005 acquisition by Petters of
Polaroid, which at the time was majority-owned by OEP; (ii)
two credit facilities that JPMorgan Chase and other financial
institutions entered into with Polaroid; and (iii) a credit line
and investment accounts held by Petters. The actions
collectively seek recovery of approximately $450 million.
Defendants have moved to dismiss the complaints in theactions filed by the Petters bankruptcy trustees.
Power Matters. The United States Attorney’s Office for theSouthern District of New York is investigating mattersrelating to the bidding activities that were the subject of theJuly 2013 settlement between J.P. Morgan Ventures Energy
Corp. and the Federal Energy Regulatory Commission. The
Firm is cooperating with the investigation.
Referral Hiring Practices Investigations. The SEC and DOJ are
investigating, among other things, the Firm’s compliancewith the Foreign Corrupt Practices Act and other laws withrespect to the Firm’s hiring practices related to candidates
referred by clients, potential clients and government
officials, and its engagement of consultants in the Asia
Pacific region. The Firm is cooperating with theseinvestigations. Separate inquiries on these or similar topics
have been made by other authorities, including authorities
in other jurisdictions, and the Firm is responding to thoseinquiries.

331

Notes to consolidated financial statements
Sworn Documents, Debt Sales and Collection Litigation
Practices. The Firm has been responding to formal andinformal inquiries from various state and federal regulators
regarding practices involving credit card collections
litigation (including with respect to sworn documents), thesale of consumer credit card debt and securities backed bycredit card receivables. In September 2013, JPMorgan
Chase Bank, N.A., Chase Bank USA, N.A. and JPMorgan Bankand Trust Company, N.A. (collectively, the “Banks”) enteredinto a consent order with the OCC regarding collections
litigation processes pursuant to which the Banks agreed totake certain corrective actions in connection with certain of
JPMorgan Chase’s credit card, student loan, auto loan,business banking and commercial banking customers who
defaulted on their loan or contract.
Separately, the Consumer Financial Protection Bureau andmultiple state Attorneys General are conducting
investigations into the Firm’s collection and sale ofconsumer credit card debt. The California and Mississippi
Attorneys General have filed separate civil actions against
JPMorgan Chase & Co., Chase Bank USA, N.A. and Chase
BankCard Services, Inc. alleging violations of law relating to
debt collection practices.
Washington Mutual Litigations. Proceedings related to
Washington Mutual’s failure are pending before the UnitedStates District Court for the District of Columbia and include
a lawsuit brought by Deutsche Bank National Trust
Company, initially against the FDIC, asserting an estimated$6 billion to $10 billion in damages based upon alleged
breach of various mortgage securitization agreements andalleged violation of certain representations and warranties
given by certain Washington Mutual, Inc. (“WMI”)
subsidiaries in connection with those securitizationagreements. The case includes assertions that JPMorgan
Chase may have assumed liabilities for the alleged breachesof representations and warranties in the mortgage
securitization agreements. The District Court denied aspremature motions by the Firm and the FDIC that sought aruling on whether the FDIC retained liability for DeutscheBank’s claims. Discovery is underway.
An action filed by certain holders of Washington MutualBank debt against JPMorgan Chase, which alleged that
JPMorgan Chase acquired substantially all of the assets ofWashington Mutual Bank from the FDIC at a price that wasallegedly too low, remains pending. JPMorgan Chase andthe FDIC moved to dismiss this action and the District Court
dismissed the case except as to the plaintiffs’ claim that the
Firm tortiously interfered with the plaintiffs’ bond contracts
with Washington Mutual Bank prior to its closure. Discovery
is ongoing.

332

JPMorgan Chase has also filed a complaint in the UnitedStates District Court for the District of Columbia against the
FDIC in its capacity as receiver for Washington Mutual Bankand in its corporate capacity asserting multiple claims forindemnification under the terms of the Purchase &Assumption Agreement between JPMorgan Chase and the
FDIC relating to JPMorgan Chase’s purchase of most of theassets and certain liabilities of Washington Mutual Bank.
***

In addition to the various legal proceedings discussed
above, JPMorgan Chase and its subsidiaries are named as
defendants or are otherwise involved in a substantial
number of other legal proceedings. The Firm believes it has
meritorious defenses to the claims asserted against it in its
currently outstanding legal proceedings and it intends to
defend itself vigorously in all such matters. Additional legal
proceedings may be initiated from time to time in the
future.
The Firm has established reserves for several hundred of its
currently outstanding legal proceedings. The Firm accrues
for potential liability arising from such proceedings when it
is probable that such liability has been incurred and theamount of the loss can be reasonably estimated. The Firmevaluates its outstanding legal proceedings each quarter toassess its litigation reserves, and makes adjustments insuch reserves, upwards or downwards, as appropriate,based on management’s best judgment after consultation
with counsel. During the years ended December 31, 2013,2012 and 2011, the Firm incurred $11.1 billion, $5.0
billion and $4.9 billion, respectively, of legal expense. Thereis no assurance that the Firm’s litigation reserves will notneed 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 or impact
related to those matters. JPMorgan Chase believes, based
upon its current knowledge, after consultation with counsel
and after taking into account its current litigation reserves,that the legal proceedings currently pending against it
should not have a material adverse effect on the Firm’s
consolidated financial condition. The Firm notes, however,that in light of the uncertainties involved in suchproceedings, there is no assurance the ultimate resolutionof these matters will not significantly exceed the reserves it
has currently accrued; as a result, the outcome of aparticular matter may be material to JPMorgan Chase’s
operating results for a particular period, depending on,among other factors, the size of the loss or liability imposed
and the level of JPMorgan Chase’s income for that period.

JPMorgan Chase & Co./2013 Annual ReportNote 32 – International operations
The following table presents income statement-related andbalance sheet-related information for JPMorgan Chase bymajor international 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 33 on pages 334–337 of this Annual
Report.
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 United States.

Revenue

Expense(b)(c)

Income before
income tax
expenseNet income

Total assets

2013
Europe/Middle East and Africa$

Asia and Pacific

15,585

$

6,168

9,069

$

4,248

6,516

$

1,920

4,842

$

1,254

514,747
145,999

Latin America and the Caribbean

2,251

1,626

625

381

41,473

Total international

24,004

14,943

9,061

6,477

702,219

North America(a)Total

72,60255,74916,853(d)

11,446

1,713,470$

96,606$

70,692$

25,914$

17,923$2,415,689$

10,522

$

9,326

$

1,196

$

1,508

$

553,147

2012
Europe/Middle East and Africa
Asia and Pacific

5,605

3,952

1,653

1,048

167,955

Latin America and the Caribbean

2,328

1,580

748

454

53,984

Total international

18,455

14,858

3,597

3,010

775,086

North America(a)78,57653,25625,32018,274

1,584,055

Total

$

97,031$

68,114$28,917$

21,284$2,359,141$

16,212

$

9,157

$

7,055

$

4,844

$

566,866(d)2011
Europe/Middle East and Africa
Asia and Pacific

5,992

3,802

2,190

1,380

Latin America and the Caribbean

2,273

1,711

562

340

51,481

Total international

24,477

14,670

9,807

6,564

774,758

North America(a)Total

72,757$

97,23455,815$70,485

16,942$

26,749156,411

12,412$

18,976(d)

1,491,034$

2,265,792(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 $451 billion, $498 billion, and $510 billion at December 31, 2013, 2012 and 2011, respectively.

JPMorgan Chase & Co./2013 Annual Report333Notes to consolidated financial statements
Note 33 – 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 Management. In addition,
there is a Corporate/Private Equity 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 adefinition of managed basis, see Explanation andReconciliation of the Firm’s use of non-GAAP financial
measures, on pages 82–83 of this Annual Report. For afurther discussion concerning JPMorgan Chase’s businesssegments, see Business Segment Results on pages 84–85 of
this Annual Report.
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 serves consumers and businesses through personal
service at bank branches and through ATMs, online, mobile
and telephone banking. CCB is organized into Consumer &Business Banking, Mortgage Banking (including Mortgage
Production, Mortgage Servicing and Real Estate Portfolios)
and Card. Consumer & Business Banking offers deposit andinvestment products and services to consumers, andlending, deposit, and cash management and payment
solutions to small businesses. Mortgage Banking includes
mortgage origination and servicing activities, as well as
portfolios comprised of residential mortgages and homeequity loans, including the PCI portfolio acquired in the
Washington Mutual transaction. Card issues credit cards toconsumers and small businesses, provides payment services
to corporate and public sector clients through its
commercial card products, offers payment processing
services to merchants, and provides auto and student loan
services.

334

Corporate & Investment BankCIB offers a broad suite of investment banking, marketmaking, prime brokerage, and treasury and securities
products and services to a global client base of
corporations, investors, financial institutions, government
and municipal entities. Within Banking, the CIB offers a fullrange of investment banking products and services in all
major capital markets, including advising on corporate
strategy and structure, capital-raising in equity and debt
markets, as well as loan origination and syndication. Also
included in Banking is Treasury Services, which includes
transaction services, comprised primarily of cash
management and liquidity solutions, and trade financeproducts. The Markets & Investor Services segment of the
CIB is a global market-maker in cash securities andderivative instruments, and also offers sophisticated risk
management solutions, prime brokerage, andresearch. Markets & Investor Services also includes the
Securities Services business, a leading global custodian
which holds, values, clears and services securities, cash andalternative investments for investors and broker-dealers,and manages depositary receipt programs globally.
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 non-profit entities with annual revenue generally
ranging from$20 million to $2.0 billion. CB provides
financing to real estate investors and owners. Partneringwith 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.

JPMorgan Chase & Co./2013 Annual ReportAsset Management
AM, with client assets of $2.3 trillion, is a global leader ininvestment and wealth management. AM clients include
institutions, high-net-worth individuals and retail investorsin every major market throughout the world. AM offers
investment management across all major asset classes
including equities, fixed income, alternatives and money
market funds. AM also offers multi-asset investment
management, providing solutions to a broad range ofclients’ investment needs. For individual investors, AM also
provides retirement products and services, brokerage andbanking services including trusts and estates, loans,mortgages and deposits. The majority of AM’s client assets
are in actively managed portfolios.

JPMorgan Chase & Co./2013 Annual Report

Corporate/Private Equity
The Corporate/Private Equity segment comprises Private
Equity, Treasury and CIO, and Other Corporate, which
includes corporate staff units and expense that is centrally
managed. Treasury and CIO are predominantly responsible
for measuring, monitoring, reporting and managing the
Firm’s liquidity, funding and structural interest rate andforeign exchange risks, as well as executing the Firm’s
capital plan. The major Other Corporate units include Real
Estate, Central Technology, Legal, Compliance, Finance,
Human Resources, Internal Audit, Risk Management,
Oversight & Control, Corporate Responsibility and various
Other Corporate groups. Other centrally managed expense
includes the Firm’s occupancy and pension-related expensethat are subject to allocation to the businesses.

335

Notes to consolidated financial statements
Segment results
The following tables provide a summary of the Firm’s segment results for 2013, 2012 and 2011 on a managed basis. Total net
revenue (noninterest revenue and net interest income) for each of the segments is presented on a fully taxable-equivalent(“FTE”) basis. Accordingly, revenue from investments that receive tax credits and tax-exempt securities is presented on a basis
comparable to taxable investments and securities; this non-GAAP financial measure allows management to assess thecomparability of revenue arising from both taxable and tax-exempt sources. The corresponding income tax impact related totax-exempt items is recorded within income tax expense/(benefit).
The increase in equity levels for the lines of businesses since December 31, 2012, is largely driven by the evolving regulatory
requirements and higher capital targets the firm has established under Basel III Advanced approach.
Segment results and reconciliation(a)As of or the year ended
December 31,(in millions, except ratios)

Consumer & Community Banking(b)Corporate & Investment Bank

Commercial Banking

2013

2012

2011

2013

2012

Noninterest revenue$ 17,552$ 20,813$ 15,314$ 23,810$ 23,104

Net interest income

28,47429,07130,305

10,415

11,222

11,461

4,675

4,542

4,223

Total net revenue

46,02649,88445,61934,22534,32633,984

6,973

6,825

6,418

Provision for credit losses

2011
$

2013

22,523

$

2,298

2012
$

2,283

2011
$

2,195

335

3,774

7,620

(232)

(479)

(285)

85

41

208

Noninterest expense

27,842

28,827

27,637

21,744

21,85021,979

2,610

2,389

2,278

Income/(loss) before income tax expense/(benefit)

17,84917,283

10,362

12,713

12,955

12,290

4,278

4,395

3,932

Income tax expense/(benefit)

7,100

6,732

4,257

4,167

4,549

4,297

1,703

1,749

1,565

Net income/(loss)$ 10,749$ 10,551

$

8,406

$

7,993

$

2,575

$

2,646

$

Average common equity$ 46,000$ 43,000$ 41,000$ 56,500$ 47,500$

47,000$ 13,500

$

9,500

$

452,929467,282

486,697

843,577

876,107845,095

190,782

Total assets

6,105

$

8,546

$

181,502

2,367
8,000
158,040Return on average common equity

23%

25%

15%

15%

18%

17%

19%

28%

30%

Overhead ratio

60

58

61

64

64

65

37

35

35

(a)
(b)
(c)

336

Managed basis starts with the reported U.S. GAAP results and includes certain reclassifications as discussed below that do not have any impact on net income as reported by
the lines of business or by the Firm as a whole.
The 2012 and 2011 data for certain income statement line items (predominantly net interest income, compensation and noncompensation expense) and balance sheet items
were revised to reflect the transfer of certain technology and operations, as well as real estate-related functions and staff, from Corporate/Private Equity to CCB, effective
January 1, 2013.
Segment managed results reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/(benefit). These adjustments are
eliminated in reconciling items to arrive at the Firm’s reported U.S. GAAP results.

JPMorgan Chase & Co./2013 Annual Report

(table continued from previous page)

Asset Management
2013
$

9,029

2012
$

7,847

Corporate/Private Equity(b)

2011
$

7,895

2013
$

3,093 $

2012
190 $

Reconciling Items(c)

2011
3,621

2013
$

2012

(2,495) $

Total
2011

(2,116) $2013(2,003)$

2012

53,287$

52,121

2011$

49,545

2,291

2,099

1,648

(1,839)(1,281)

582

(697)

(743)

(530)

43,31944,91047,68911,320

9,946

9,543

1,254

(1,091)

4,203(3,192)(2,859)(2,533)96,606

97,031

97,234

65

86

67

(28)

(37)

(36)

—

—

—

225

3,385

7,574

8,016

7,104

7,002

10,255

4,559

4,015

—

—

—

70,46764,72962,911

3,239

2,756

2,474

(8,973)(5,613)224(3,192)(2,859)(2,533)25,91428,917

26,749

1,208

1,053

882

(2,995)(3,591)(695)(3,192)(2,859)(2,533)

7,991

7,633

2,031

$

1,703

$

1,592

$

(5,978) $(2,022) $

919

$

— $

— $

—

$

$

9,000

$

7,000

$

6,500

$

71,409 $77,352 $70,766

$

— $

— $

—

$ 196,409$ 184,352$ 173,266

2,415,689

2,359,141

2,265,792

122,414108,999

86,242

17,923$

21,284

7,773

$

$

18,976805,987

725,251

689,718

NA

NA

NA

23%

24%

25%

NM

NM

NM

NM

NM

NM

9%

11%

11%

71

71

73

NM

NM

NM

NM

NM

NM

73

67

65

JPMorgan Chase & Co./2013 Annual Report337

Notes to consolidated financial statements
Note 34 – Parent company

Parent company – Statements of cash flows

Parent company – Statements of income and comprehensive income
Year ended December 31,
2013
2012
2011
(in millions)
IncomeDividends from subsidiaries andaffiliates:
Bank and bank holding company
Nonbank(a)Interest income from subsidiaries
Other interest income
Other income from subsidiaries,
primarily fees:
Bank and bank holding company
Nonbank
Other income/(loss)
Total income
ExpenseInterest expense to subsidiaries andaffiliates(a)Other interest expense
Other noninterest expense
Total expense
Income (loss) before income tax
benefit and undistributed net
income of subsidiaries
Income tax benefit
Equity in undistributed net incomeof subsidiaries
Net income
Other comprehensive income, net
Comprehensive income$ 1,175
876
757
303

318
2,065
(1,380)4,114$ 4,828
1,972
1,041
293

$ 10,852
2,651
1,099
384

939
1,207
579
10,859809
92(85)
15,802

309

836

1,121

4,031
9,597
13,937

4,679
2,399
7,914

4,447
649
6,217

(9,823)

2,945

9,585

4,301

1,665

1,089

23,445

16,6748,302$ 17,923 $ 21,284(2,903)
3,158$ 15,020 $ 24,442$ 18,976(57)$ 18,919

Parent company – Balance sheets
December 31, (in millions)
AssetsCash and due from banks
Deposits with banking subsidiaries
Trading assets
Available-for-sale securities
Loans
Advances to, and receivables from,subsidiaries:
Bank and bank holding company
Nonbank
Investments (at equity) in subsidiaries andaffiliates:(b)Bank and bank holding company
Nonbank(a)Other assets
Total assets
Liabilities and stockholders’ equity
Borrowings from, and payables to,
subsidiaries and affiliates(a)Other borrowed funds, primarily commercial
paper
Other liabilities
Long-term debt(c)(d)Total liabilities(d)Total stockholders’ equity
Total liabilities and stockholders’ equity

2013
$

264
64,843
13,727
15,228
2,829

2012
$

216
75,521
8,128
3,541
2,101

21,69368,78839,77386,904

196,950
50,996
18,877$ 454,195

170,297
46,302
16,481$ 449,264$ 14,328$ 16,744

55,45462,01011,367
161,868
243,017
211,178$ 454,195

8,208
158,233
245,195
204,069$ 449,264

Year ended December 31,(in millions)Operating activities
Net income
Less: Net income of subsidiaries
and affiliates(a)Parent company net loss
Cash dividends from subsidiaries
and affiliates(a)Other operating adjustments
Net cash (used in)/provided byoperating activities(b)Investing activities
Net change in:
Deposits with banking
subsidiaries
Available-for-sale securities:
Proceeds from paydowns andmaturities
Purchases
Other changes in loans, net
Advances to subsidiaries, net
Investments (at equity) in
subsidiaries and affiliates, net(a)All other investing activities, net(b)

2013

2012

2011

$ 17,923$ 21,284$ 18,976

25,49623,47421,805(7,573)(2,190)(2,829)

1,917

6,798

13,414

3,180

2,376

860

(2,476)

6,984

11,445

10,67916,10020,866

(b)

61

621

886

(12,009)(713)
13,769

(364)
(350)
5,951

(1,109)153(28,105)

700

3,546

(1,530)

22

25

29

12,50925,529(8,810)Borrowings from subsidiaries andaffiliates(a)(2,715)(14,038)

2,827

Other borrowed funds(7,297)

3,736

16,268Net cash provided by/(used in)investing activities(b)Financing activities
Net change in:Proceeds from the issuance oflong-term debt
Payments of long-term debt
Excess tax benefits related tostock-based compensation
Proceeds from issuance ofpreferred stock
Redemption of preferred stock
Treasury stock and warrants
repurchased
Dividends paid
All other financing activities, net
Net cash used in financing
activities
Net increase in cash and due frombanks
Cash and due from banks at the
beginning of the year, primarily
with bank subsidiaries
Cash and due from banks at theend of the year, primarily withbank subsidiaries
Cash interest paid
Cash income taxes paid, net

31,30328,17233,566(21,510)(44,240)(41,747)

137

255

867

$

3,873

1,234

—

(1,800)——(4,789)(1,653)(8,863)(6,056)(1,131)(5,194)(701)(3,895)(1,622)(9,985)(32,429)(2,599)

48

84

36

216

132

96

264

$ 4,409
2,390

$

216

$ 5,690
3,080

$

132

$ 5,800
5,885(a) Affiliates include trusts that issued guaranteed capital debt securities (“issuer trusts”). The Parent received dividends of $5 million, $12 million and $13 million from the issuer trusts in
2013, 2012 and 2011, respectively. For further discussion on these issuer trusts, see Note 21 on pages 306–308 of this Annual Report.
(b) Prior periods were revised to conform with the current presentation.
(c) At December 31, 2013, long-term debt that contractually matures in 2014 through 2018 totaled $26.4 billion, $23.8 billion, $22.5 billion, $16.6 billion and $18.7 billion, respectively.
(d) For information regarding the Firm’s guarantees of its subsidiaries’ obligations, see Note 21 and Note 29 on pages 306–308 and 318–324, respectively, of this Annual Report.

338

JPMorgan Chase & Co./2013 Annual ReportSupplementary information

Selected quarterly financial data (unaudited)(Table continued on next page)
As of or for the period ended(in millions, except per share, ratio andheadcount data)

2013

2012

4th quarter3rd quarter2nd quarter

1st quarter

4th quarter3rd quarter2nd quarter

1st quarter

$

$

$

$

$

$

$

$

Selected income statement data
Total net revenue

23,15623,11725,211

25,122

23,65325,14622,18026,052

Total noninterest expense

15,552

23,626

15,866

15,423

16,047

15,371

14,966

18,345Pre-provision profit/(loss)

7,604

(509)

9,345

9,699

7,606

9,775

7,214

7,707

Provision for credit losses

104

(543)

47

617

656

1,789

214

726

7,500

34

9,298

9,082

6,950

7,986

7,000

6,981

Income before income tax expense
Income tax expense

2,222

Net income/(loss)

414

2,802

2,553

1,258

2,278

2,040

2,057

$

5,278

$

(380)

$

6,496

$

6,529

$

5,692

$

5,708

$

4,960

$

4,924

$

1.31

$

(0.17)

$

1.61

$

1.61

$

1.40

$

1.41

$

1.22

$

1.20

Per common share data
Net income/(loss) per share: Basic
Diluted1.30(0.17)

1.60

1.59

1.39

1.40

1.21

Cash dividends declared per share

0.38

0.38

0.38

0.30

0.30

0.30

0.30

1.19
0.30

Book value per share

53.25

52.01

52.48

52.02

51.27

50.17

48.40

47.48

Tangible book value per share (“TBVS”)(a)

40.81

39.51

39.97

39.54

38.75

37.53

35.71

34.79

Average: Basic

3,762.1

3,767.0

3,782.4

3,818.2

3,806.7

3,803.3

3,808.9

3,818.8

Diluted

3,797.1

3,767.0

3,814.3

3,847.0

3,820.9

3,813.9

3,820.5

3,833.4

3,756.1

3,759.2

3,769.0

3,789.8

3,804.0

3,799.6

3,796.8

3,822.0

Common shares outstanding

Common shares at period-end
Share price(b)
High

$

58.55

$

56.93

$

55.90

$

51.00

$

44.54

$

42.09

$

46.35

$

46.49

Low

50.25

50.06

46.05

44.20

38.83

33.10

30.83

Close

58.48

51.69

52.79

47.46

43.97

40.48

35.73

45.98

219,657

194,312

198,966

179,863

167,260

153,806

135,661

175,737

Market capitalization

34.01

Selected ratios
Return on common equity (“ROE”)

10%

(1)%

13%

13%

11%

12%

11%

Return on tangible common equity (“ROTCE”)(a)

14

(2)

17

17

15

16

15

11%
15

Return on assets (“ROA”)

0.87(0.06)

1.09

1.14

0.98

1.01

0.88

0.88

Return on risk-weighted assets(c)(d)1.52(0.11)

1.85

1.88

1.76

1.74

1.52

1.57

Overhead ratio

67

102

63

61

68

61

67

70

Loans-to-deposits ratio

57

57

60

61

61

63

65

64

341

NA

NA

NA

High Quality Liquid Assets (“HQLA”)(in billions)(e)

$

522

$

538

$

454

$

413

$

Tier 1 capital ratio(d)11.9%

11.7 %

11.6%

11.6%

12.6%

11.9%

11.3%

11.9%

Total capital ratio(d)

14.3

14.3

14.1

14.1

15.3

14.7

14.0

14.9

Tier 1 leverage ratio

7.1

6.9

7.0

7.3

7.1

7.1

6.7

7.1

Tier 1 common capital ratio(d)(f)

10.7

10.5

10.4

10.2

11.0

10.4

9.9

9.8

Trading assets$ 374,664$ 383,348

430,991$ 450,028$ 447,053$ 417,324$ 455,633

Securities(g)354,003356,556

354,725

365,744

371,152

365,901

354,595

381,742Loans

738,418

728,679

725,586

728,886

733,796

721,947

727,571

720,967

Total assets

2,415,689

2,463,309

2,439,494

2,389,349

2,359,141

2,321,284

2,290,146

2,320,164

Deposits

Selected balance sheet data (period-end)$

401,470$

1,287,765

1,281,102

1,202,950

1,202,507

1,193,593

1,139,611

1,115,886

1,128,512

Long-term debt(h)267,889

263,372

266,212268,361

249,024

241,140

239,539

255,831

Common stockholders’ equity

200,020

195,512

197,781

197,128

195,011

190,635

183,772

181,469

Total stockholders’ equity

211,178

206,670

209,239

207,086

204,069

199,639

191,572

189,269

Headcount(i)251,196

255,041

254,063

255,898

258,753

259,144

260,398

261,169

JPMorgan Chase & Co./2013 Annual Report339Supplementary information(Table continued from previous page)
As of or for the period ended(in millions, except ratio data)

2013

2012

4th quarter3rd quarter2nd quarter

1st quarter

4th quarter3rd quarter2nd quarter

1st quarter

$

$

$

$

$

$

$

$

Credit quality metrics
Allowance for credit losses
Allowance for loan losses to total retained
loans

2.25%

Allowance for loan losses to retained loans
excluding purchased credit-impaired loans(j)Nonperforming assets

16,969

2.43%

1.80
$

9,706

18,248

2.69%

1.89
$

10,38020,137

2.88%

2.06
$

11,041

21,496

3.02%

2.27
$

11,73922,604

3.18%

2.43
$

11,90623,576

3.29%

2.61
$

12,481

24,555

3.63%

2.74
$

11,397

26,621

3.11$

11,953

Net charge-offs

1,328

1,346

1,403

1,725

1,628

2,770

2,278

2,387

Net charge-off rate

0.73%

0.74%

0.78%

0.97%

0.90%

1.53%

1.27%

1.35%

(a)
(b)
(c)
(d)

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

340

TBVS and ROTCE are non-GAAP financial measures. Tangible book value per share represents the Firm’s tangible common equity divided by period-end
common shares. ROTCE measures the Firm’s annualized earnings as a percentage of tangible common equity. For further discussion of these measures,
see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 82–83 of this Annual Report.
Share prices shown for JPMorgan Chase’s common stock are from the New York Stock Exchange. JPMorgan Chase’s common stock is also listed and tradedon the London Stock Exchange and the Tokyo Stock Exchange.
Return on Basel I risk-weighted assets is the annualized earnings of the Firm divided by its average RWA.
Basel 2.5 rules became effective for the Firm on January 1, 2013. The implementation of these rules in the first quarter of 2013 resulted in an increaseof approximately $150 billion in RWA compared with the Basel I rules. The implementation of these rules also resulted in decreases of the Firm’s Tier 1
capital, Total capital and Tier 1 common capital ratios by 140 basis points, 160 basis points and 120 basis points, respectively, at March 31, 2013. For
further discussion of Basel 2.5, see Regulatory capital on pages 161–165 of this Annual Report.
The Firm began estimating its total HQLA as of December 31, 2012, based on its current understanding of the Basel III LCR rules. See HQLA on page 172of this Annual Report.
Basel I Tier 1 common capital ratio (“Tier 1 common ratio”) is Tier 1 common capital (“Tier 1 common”) divided by risk-weighted assets. The Firm uses
Tier 1 common capital along with the other capital measures to assess and monitor its capital position. For further discussion of the Tier 1 common ratio,see Regulatory capital on pages 161–165 of this Annual Report.
Included held-to-maturity securities of $24.0 billion and $4.5 billion at December 31, 2013 and September 30, 2013. Held-to-maturity balances for theother periods were not material.
Included unsecured long-term debt of $199.4 billion, $199.2 billion, $199.1 billion, $206.1 billion, $200.6 billion, $207.3 billion and $213.4 billion,
and $235.4 billion, respectively, for the periods presented.
Effective January 1, 2013, interns are excluded from the firmwide and business segment headcount metrics. Prior periods were revised to conform withthis presentation.
Excludes the impact of residential real estate PCI loans. For further discussion, see Allowance for credit losses on pages 139–141 of this Annual Report.

JPMorgan Chase & Co./2013 Annual ReportGlossary of Terms
Active foreclosures: Loans referred to foreclosure whereformal foreclosure proceedings are ongoing. Includes bothjudicial and non-judicial states.
Active online customers: Users of all internet browsers andmobile platforms who have logged in within the past 90
days.
Active mobile customers: Users of all mobile platforms,
which include: SMS, mobile smartphone and tablet, whohave logged in within the past 90 days.
Allowance for loan losses to total loans: Represents
period-end allowance for loan losses divided by retainedloans.
Assets under management: Represent assets actively
managed by AM on behalf of its Private Banking,Institutional and Retail clients. Includes “Committed capital
not Called,” on which AM earns fees. Excludes assets
managed by American Century Companies, Inc., in which
the Firm sold its ownership interest on August 31, 2011.
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.
Chase LiquidSM cards - Refers to a prepaid, reloadable card
product.
Client advisors: Investment product specialists, including
private client advisors, financial advisors, financial advisor
associates, senior financial advisors, independent financial
advisors and financial advisor associate trainees, whoadvise clients on investment options, including annuities,
mutual funds, stock trading services, etc., sold by the Firm
or by third-party vendors through retail branches, Chase
Private Client locations and other channels.
Client assets: Represent assets under management as wellas custody, brokerage, administration and deposit accounts.
Client investment managed accounts: Assets actively
managed by Chase Wealth Management on behalf of clients.
The percentage of managed accounts is calculated by
dividing managed account assets by total client investment
assets.
Credit cycle: A period of time over which credit quality
improves, deteriorates and then improves again (or viceversa). The duration of a credit cycle can vary from a coupleof years to several years.

JPMorgan Chase & Co./2013 Annual Report

CUSIP number: A CUSIP (i.e., Committee on Uniform
Securities Identification Procedures) number consists ofnine characters (including letters and numbers) thatuniquely identify a company or issuer and the type of
security and is assigned by the American Bankers
Association and operated by Standard & Poor’s. This systemfacilitates the clearing and settlement process of securities.
A similar system is used to identify non-U.S. securities(CUSIP International Numbering System).
Deposit margin/deposit spread: Represents net interest
income expressed as a percentage of average deposits.
Exchange traded derivatives: Derivative contracts that are
executed on an exchange and settled via a central clearing
house.
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.
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.
Group of Seven (“G7”) nations: Countries in the G7 are
Canada, France, Germany, Italy, Japan, the United Kingdom
and the United States.
G7 government bonds: Bonds issued by the government of
one of the G7 nations.
Headcount-related expense: Includes salary and benefits(excluding performance-based incentives), and othernoncompensation costs related to employees.
Home equity - senior lien: Represents loans andcommitments where JP Morgan Chase holds the first
security interest on the property.
Home equity - junior lien: Represents loans andcommitments where JP Morgan Chase holds a security
interest that is subordinate in rank to other liens.
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.

341

Glossary of Terms
LLC: Limited Liability Company.

Mortgage product types:

Loan-to-value (“LTV”) ratio: For residential real estateloans, the relationship, expressed as a percentage, between
the principal amount of a loan and the appraised value ofthe collateral (i.e., residential real estate) securing the loan.

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 combined
loan-to-value (“CLTV”) ratio; (iii) loans secured by nonowner occupied properties; or (iv) a debt-to-income ratio
above normal limits. A substantial proportion of the Firm’s
Alt-A loans are those where a borrower does not provide
complete documentation of his or her assets or the amountor source of his or her income.

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 comprise
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 lien positions related to theproperty. Combined LTV ratios are used for junior lien homeequity 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 andtrends of the particular business segment and facilitates acomparison of the business segment with the performanceof competitors.
Master netting agreement: An agreement between two
counterparties who have multiple derivative contracts witheach other that provides for the net settlement of allcontracts, as well as cash collateral, through a single
payment, in a single currency, in the event of default on or
termination of any one contract.

342

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
upon meeting specified loan balance and anniversary datetriggers.
Prime
Prime mortgage loans are made to borrowers with good
credit records and a monthly income at least three to fourtimes greater than their monthly housing expense(mortgage payments plus taxes and other debt payments).
These borrowers provide full documentation and generally
have reliable payment histories.
Subprime
Subprime loans are loans to customers with one or morehigh risk characteristics, including but not limited to: (i)unreliable or poor payment histories; (ii) a high LTV ratio ofgreater than 80% (without borrower-paid mortgage
insurance); (iii) a high debt-to-income ratio; (iv) an
occupancy type for the loan is other than the borrower’s
primary residence; or (v) a history of delinquencies or latepayments on the loan.

JPMorgan Chase & Co./2013 Annual ReportGlossary of Terms
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.
Net charge-off/(recovery) rate: Represents net chargeoffs/(recoveries) (annualized) divided by average retainedloans for the reporting 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.
Over-the-counter derivatives (“OTC”): 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 derivatives (“OTC cleared”):
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.
Participating securities: Represents unvested stock-based
compensation awards containing nonforfeitable rights todividends or dividend equivalents (collectively, “dividends”),
which are included in the earnings per share calculation
using the two-class method. JPMorgan Chase grants
restricted stock and RSUs to certain employees under its
stock-based compensation programs, which entitle therecipients to receive nonforfeitable dividends during thevesting period on a basis equivalent to the dividends paid toholders of common stock. These unvested awards meet thedefinition of participating securities. Under the two-classmethod, all earnings (distributed and undistributed) areallocated to each class of common stock and participating
securities, based on their respective rights to receive
dividends.
Personal bankers: Retail branch office personnel who
acquire, retain and expand new and existing customer
relationships by assessing customer needs andrecommending and selling appropriate banking products
and services.

JPMorgan Chase & Co./2013 Annual Report

Portfolio activity: Describes changes to the risk profile ofexisting lending-related exposures and their impact on theallowance for credit losses from changes in customer
profiles and inputs used to estimate the allowances.
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 AM against theperformance of their respective competitors.
Principal transactions revenue: Principal transactions
revenue includes realized and unrealized gains and losses
recorded on derivatives, other financial instruments, private
equity investments, and physical commodities used inmarket making and client-driven activities. In addition,
Principal transactions revenue also includes certain realized
and unrealized gains and losses related to hedge accounting
and specified risk management activities including: (a)certain derivatives designated in qualifying hedge
accounting relationships (primarily fair value hedges ofcommodity and foreign exchange risk), (b) certain
derivatives used for specified risk management purposes,
primarily to mitigate credit risk, foreign exchange risk andcommodity risk, and (c) other derivatives, including thesynthetic credit portfolio.
Purchased credit-impaired (“PCI”) loans: Represents loansthat were acquired in the Washington Mutual transaction
and deemed to be credit-impaired on the acquisition date inaccordance with the guidance of the Financial AccountingStandards Board (“FASB”). The guidance allows purchasers
to aggregate credit-impaired loans acquired in the same
fiscal quarter into one or more pools, provided that theloans have common risk characteristics (e.g., product type,
LTV ratios, FICO scores, past due status, geographic
location). A pool is then accounted for as a single asset witha single composite interest rate and an aggregate
expectation of cash flows.
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.

343

Glossary of Terms
Real estate investment trust (“REIT”): 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 publiclyor privately-held and they also qualify for certain favorable
tax considerations.

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.

Receivables from customers: Primarily represents marginloans to prime and retail brokerage customers which areincluded in accrued interest and accounts receivable on theConsolidated Balance Sheets.

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.

Reported basis: Financial statements prepared under U.S.
GAAP, which excludes the impact of taxable-equivalentadjustments.

Taxable-equivalent basis: In presenting managed results,
the total net revenue for each of the business segments andthe Firm is presented on a tax-equivalent basis. Accordingly,
revenue from investments that receive tax credits and taxexempt securities is presented in the managed results on abasis comparable to taxable investments and securities; thecorresponding income tax impact related to tax-exempt
items is recorded within income tax expense.

Retained loans: Loans that are held-for-investment (i.e.
excludes loans held-for-sale and loans at fair value).
Risk-weighted assets (“RWA”): Risk-weighted assets consistof on- and off-balance sheet assets that are assigned to oneof several broad risk categories and weighted by factors
representing their risk and potential for default. On-balance
sheet assets are risk-weighted based on the estimatedcredit risk associated with the obligor or counterparty, thenature of any collateral, and the guarantor, if any. Offbalance sheet assets such as lending-related commitments,
guarantees, derivatives and other applicable off-balance
sheet positions are risk-weighted by multiplying thecontractual amount by the appropriate credit conversion
factor to determine the on-balance sheet credit equivalentamount, which is then risk-weighted based on the same
factors used for on-balance sheet assets. Risk-weighted
assets also incorporate a measure for market risk related toapplicable trading assets-debt and equity instruments, andforeign exchange and commodity derivatives. The resulting
risk-weighted values for each of the risk categories are thenaggregated to determine total risk-weighted assets.
Sales specialists: Retail branch office and field personnel,
including relationship managers and loan officers, who
specialize in marketing and sales of various businessbanking products (i.e., business loans, letters of credit,
deposit accounts, Chase Paymentech, etc.) and mortgage
products to existing and new clients.
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.

344

Structural Interest Rate Risk: Represents interest rate riskof the non-trading assets and liabilities of the firm.

Trade-date and settlement-date: For financial instruments,
the trade-date is the date that an order to purchase, sell orotherwise acquire an instrument is executed in the market.
The trade-date may differ from the settlement-date, whichis the date on which the actual transfer of a financial
instrument between two parties is executed. The amount oftime that passes between the trade-date and thesettlement-date differs depending on the financial
instrument. For repurchases under the common equity
repurchase program, except where the trade-date is
specified, the amounts disclosed are presented on asettlement-date basis. In the Capital Management section
on pages 160–167, of this Form 10-K, and where otherwise
specified, repurchases under the common equity
repurchase program are presented on a trade-date basis
because the trade-date is used to calculate the Firm’s
regulatory capital.
Troubled debt restructuring (“TDR”): A TDR is deemed tooccur when the Firm modifies the original terms of a loan
agreement by granting a concession to a borrower that is
experiencing financial difficulty.
Unaudited: Financial statements and information that havenot been subjected to auditing procedures sufficient topermit an independent certified public accountant toexpress an opinion.
U.S. GAAP: Accounting principles generally accepted in the
United States of America.

JPMorgan Chase & Co./2013 Annual ReportGlossary of Terms
U.S. government-sponsored enterprise obligations:
Obligations of agencies originally established or charteredby the U.S. government to serve public purposes as
specified by the U.S. Congress; these obligations are notexplicitly guaranteed as to the timely payment of principal
and interest by the full faith and credit of the U.S.
government.
U.S. Treasury: U.S. Department of the Treasury.
Value-at-risk (“VaR”): A measure of the dollar amount ofpotential loss from adverse market moves in an ordinary
market environment.
Wallet: Proportion of fee revenues based on estimates ofinvestment banking fees generated across the industry (i.e.
the revenue wallet) from investment banking transactions
in M&A, equity and debt underwriting, and loan
syndications. Source: Dealogic, a third party provider ofinvestment banking competitive analysis and volume-basedleague tables for the above noted industry products.
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.

JPMorgan Chase & Co./2013 Annual Report345

Board of Directors
Linda B. Bammann 4, 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 ofGeneral Electric Company
and Retired Chairman
and Chief Executive Officer
of GE Capital(Industrial and financial services)

1 Audit Committee

James A. Bell 1
Retired Executive Vice President
The Boeing Company(Aerospace)

Crandall C. Bowles 1, 4
Chairman
The Springs Company(Diversified investments)

Stephen B. Burke 2, 3
Chief Executive Officer
NBCUniversal, LLC(Television and entertainment)

Jamie Dimon
Chairman andChief Executive Officer
JPMorgan Chase & Co.

Timothy P. Flynn

4, 5

Retired Chairman
KPMG International(Professional services)

Lee R. Raymond 2, 3
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 Risk Policy Committee

William C. Weldon 2, 3
Laban P. Jackson, Jr. 1
Chairman and Chief Executive Officer
Clear Creek Properties, Inc.
(Real estate development)

Retired Chairman andChief Executive Officer
Johnson & Johnson(Health care products)

Operating Committee
Jamie DimonJohn L. Donnelly

Daniel E. Pinto

Chairman andChief Executive Officer

Head of Human Resources

CEO, Corporate & Investment Bank
and CEO, EMEA

Ashley Bacon

Mary Callahan Erdoes
CEO, Asset Management

Chief Risk Officer

Stephen M. Cutler

Gordon A. Smith
CEO, Consumer & Community Banking

Marianne Lake
Chief Financial Officer

General Counsel

Matthew E. Zames
Chief Operating Officer

Douglas B. Petno
CEO, Commercial Banking

Other Corporate Officers
Joseph M. Evangelisti

Mark W. O’Donovan

Sarah M. Youngwood

Corporate Communications

Controller

Investor Relations

Anthony J. Horan

Lauren M. Tyler

Secretary

General Auditor

346

JPMorgan Chase & Co./2013 Annual Report

Regional Chief Executive Officers
Asia Pacific

Europe, Middle East, Africa

Latin America

Nicolas Aguzin

Daniel E. Pinto

Martin G. Marron

Robert C. Priestley, ASEAN CEO

Emilio Saracho, Deputy CEO

Gregory L. Guyett, Greater
China CEOSenior Country Officers
Asia Pacific

EuropeASEAN

Benelux/Nordics
Jake Donavan

Australia/New Zealand
Robert C. PriestleyIndonesia
Haryanto T. Budiman
Malaysia
Steve R. Clayton
Philippines
Roberto L. Panlilio
Singapore
Edmund Y. Lee
Thailand
M.L. Chayotid Kridakon
VietnamVan Bich Phan
GREATER CHINA
China
Zili Shao
Hong Kong
Andrew Butcher
TaiwanCarl K. Chien

Central & Eastern Europe
Walter Schuster
France/Francophone North
AfricaKyril Courboin
Germany
Martin Weismann
Ireland
Carin Bryans
IsraelRoy Navon
Italy
Francesco Rossi Ferrini

Middle East, North Africa

Latin America

Bahrain/Egypt/Lebanon
Ali MoosaAndean/Central America/
Caribbean
Moises Mainster

Middle East/North Africa
Sjoerd Leenart
Saudi Arabia
Rayan Fayez
Sub-Saharan Africa
Nigeria
Tosin T. Adewuyi
Sub-Saharan Africa
John J. Coulter

Argentina/Uruguay/Bolivia/
Paraguay
Facundo D. Gomes Minujin
BrazilJose Berenguer
Chile
Alfonso Eyzaguirre
MexicoEduardo F. Cepeda
North America
CanadaRussia/Central Asia
Yan Tavrovsky

David E. Rawlings

Spain/Portugal
Enrique Casanueva Nardiz
Switzerland
Niklaus Bossart
Turkey/Azerbaijan
Emre Derman

India
Kalpana Morparia
Japan
Steve Teru Rinoie
Korea
Steve Lim

JPMorgan Chase Vice Chairmen
Douglas L. Braunstein

Walter A. Gubert

Mel R. Martinez

Phyllis J. Campbell

James B. Lee, Jr.

David Mayhew

Jacob A. Frenkel

Todd Maclin

Glenn Tilton

JPMorgan Chase & Co./2013 Annual Report347

J.P. Morgan International Council

As of March 31, 2014

Rt. Hon. Tony Blair

Herman Gref

Patrice Motsepe

Ex-Officio Members

Chairman of the Council
Quartet Representative andFormer Prime Minister of Great Britain
and Northern Ireland
London, United Kingdom

Chairman of the Board
and Chief Executive Officer
Sberbank
Moscow, Russia

Founder and Executive Chairman
African Rainbow Minerals Limited
Chislehurston, Sandton, South Africa

Jamie Dimon

Jürgen Grossmann
Khalid A. Al-Falih
President and Chief Executive Officer
Saudi Aramco
Dhahran, Saudi Arabia

Alberto Baillères
Presidente del Consejo de Administración
Grupo Bal
México D.F., Mexico

Franco Bernabé

Owner
Georgsmarienhütte Holding GmbH
Hamburg, Germany

William B. Harrison, Jr.
Former Chairman andChief Executive Officer
JPMorgan Chase & Co.
New York, New York

Hon. Carla A. Hills

Chairman
FB GroupRome, Italy

Chairman and Chief Executive Officer
Hills & Company International
Consultants
Washington, District of Columbia

Paul Bulcke

Hon. John Howard OM AC

Chief Executive Officer
Nestlé S.A.
Vevey, Switzerland

Former Prime Minister of Australia
Sydney, Australia

Michael A. Chaney
ChairmanNational Australia Bank Limited
Perth, Western Australia

Hon. Richard M. Daley

Hon. Henry A. Kissinger
Chairman
Kissinger Associates, Inc.
New York, New York

Mustafa V. Koç

Former Mayor of Chicago
Chicago, Illinois

Chairman of the Board of Directors
Koç Holding A.Ş.
Istanbul, Turkey

Martin Feldstein

Jorge Paulo Lemann

Professor of Economics
Harvard University
Cambridge, Massachusetts

Board Member
Anheuser-Busch InBev
São Paulo, Brazil

Gao Xi-Qing

Gérard Mestrallet

Vice Chairman and President
China Investment Corporation
Beijing, The People’s Republic of China

Chairman and Chief Executive Officer
GDF SUEZ
Paris la Défense, France

Hon. Robert M. Gates

Akio MimuraPartner
RiceHadleyGates LLC
Washington, District of Columbia

Senior Advisor
Nippon Steel & Sumitomo Metal
Corporation
Tokyo, Japan

348

Michael Pram Rasmussen
Chairman of the Board
A.P. Møller-Maersk Group
Copenhagen, Denmark

Chairman and Chief Executive Officer
JPMorgan Chase & Co.
New York, New York

Arminio Fraga Neto

Partner
RiceHadleyGates LLC
Palo Alto, California

Founding Partner
Gávea Investimentos Ltda.
JPMorgan Chase & Co.
Chairman of the Board
BM&F Bovespa
Rio de Janeiro, Brazil

Ratan Naval Tata

Dr. Jacob A. Frenkel

Chairman
Tata Trusts
Mumbai, India

Chairman, International
JPMorgan Chase & Co.
New York, New York

Hon. Tung Chee Hwa GBM

Walter A. GubertVice Chairman
National Committee of the Chinese
People’s Political
Consultative Conference
Hong Kong, The People’s Republicof China

Vice Chairman and Chairman, EMEA
JPMorgan Chase & Co.
Brussels, Belgium

Hon. Condoleezza Rice

Cees J.A. van LedeDavid Mayhew, CBE
Vice Chairman
J.P. Morgan
London, United Kingdom

Former Chairman and Chief Executive
Officer, Board of Management
Akzo Nobel
Arnhem, The Netherlands

Douglas A. Warner III
Former Chairman of the Board
JPMorgan Chase & Co.
New York, New YorkJohn S. Watson
Chairman of the Board andChief Executive Officer
Chevron Corporation
San Ramon, California

Jaime Augusto Zobel de Ayala
Chairman and Chief Executive Officer
Ayala Corporation
Makati City, Philippines

JPMorgan Chase & Co./2013 Annual Report

JPMorgan Chase & Co.
Corporate headquarters
270 Park Avenue
New York, NY 10017-2070
Telephone: 212-270-6000
jpmorganchase.com
Principal subsidiaries
JPMorgan Chase Bank,
National Association
Chase Bank USA,
National Association
J.P. Morgan Securities LLC
J.P. Morgan Securities plc
Annual Report on Form 10-K
The Annual Report on Form 10-K of
JPMorgan Chase & Co. as filed with the
U.S. Securities and Exchange Commission
will be made available without charge
upon request to:
Office of the Secretary
JPMorgan Chase & Co.
270 Park Avenue
New York, NY 10017-2070
Stock listing
New York Stock Exchange
London Stock ExchangeTokyo Stock Exchange
The New York Stock Exchange ticker
symbol for the common stock of
JPMorgan Chase & Co. is JPM.
Financial information about JPMorgan
Chase & Co. can be accessed by visiting
the Investor Relations website atjpmorganchase.com. Additionalquestions should be addressed to:Investor Relations
JPMorgan Chase & Co.
270 Park Avenue
New York, NY 10017-2070
Telephone: 212-270-6000“JPMorgan Chase,” “J.P. Morgan,” “Chase,”
the Octagon symbol and other words
or symbols in this report that identify
JPMorgan Chase services are service marksof JPMorgan Chase & Co. Other words orsymbols in this report that identify otherparties’ goods or services may be
trademarks or service marks of thoseother parties.

Directors
To contact any of the Board members orcommittee chairs, the Lead Independent
Director or the Non-management Directors
as a group, please mail correspondence to:
JPMorgan Chase & Co.
Attention (Board member(s))
Office of the Secretary
270 Park Avenue
New York, NY 10017-2070
The Corporate Governance Principles of
the Board, the charters of the principal
Board committees, the Code of Conduct,
the Code of Ethics for Finance Professionals
and other governance information canbe accessed by visiting our website atjpmorganchase.com and clicking on“Governance” under the “About us” tab.
Transfer agent and registrar
Computershare
480 Washington Boulevard
Jersey City, NJ 07310-2053
Telephone: 800-758-4651
computershare.com
Investor Services Program
JPMorgan Chase & Co.’s Investor Services
Program offers a variety of convenient,
low-cost services to make it easier toreinvest dividends and buy and sell sharesof JPMorgan Chase & Co. common stock.
A brochure and enrollment materials may
be obtained by contacting the Program
Administrator, Computershare, by calling
800-758-4651, by writing to the address
indicated above or by visiting its website at
www-us.computershare.com/investor.
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For information about direct depositof dividends, please contact
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From all other locations:201-680-6862 (collect)
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