A N N U A L REPORT 2014

Financial Highlights
As of or for the year ended December 31,(in millions, except per share, ratio data and headcount)		
2014			

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

2013

94,205 		
$61,274			
32,931			
3,139			21,762		
$96,60670,467
26,139225
17,923Per common share data
Net income per share:
Basic$
5.34		$
Diluted 		
5.29			Cash dividends declared 		
1.58			Book value 		57.07			Tangible book value(b) 		
44.69			

4.39
4.35
1.44
53.25
40.81

Selected ratios
Return on common equity 		
10%		9%Return on tangible common equity(b) 		
13			
11
Common equity Tier 1 (“CET1”) capital ratio(c) 		
10.2			10.7Tier 1 capital ratio(c)		
11.6			11.9Total capital ratio(c) 		
13.1			14.4Selected balance sheet data (period-end)
Loans$ 757,336		
$ 738,418
Total assets
2,573,126 		2,415,689
Deposits
1,363,427			1,287,765
Total stockholders’ equity 		 232,065			 211,178
Headcount		
241,359			 251,196(a) 	Results are presented in accordance with accounting principles generally accepted in the United States of America(U.S. GAAP), except where otherwise noted.
(b)	Non-GAAP financial measure. For further discussion, see “Explanation and Reconciliation of the Firm’s Use of
Non-GAAP Financial Measures” in this Annual Report.
(c)		Basel III Transitional rules became effective on January 1, 2014; prior period data is based on Basel I rules.
As of December 31, 2014, the ratios presented are calculated under the Basel III Advanced Transitional Approach.
CET1 capital under Basel III replaced Tier 1 common capital under Basel I. Prior to Basel III becoming effective,
Tier 1 common capital under Basel I was a non-GAAP financial measure. For further discussion, see “Regulatory
capital” in this Annual Report.

JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm withassets of $2.6 trillion and operations worldwide. The firm is a leader in investmentbanking, financial services for consumers and small businesses, commercial
banking, financial transaction processing and asset management. A componentof the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions ofconsumers in the United States and many of the world’s most prominent corporate,institutional and government clients under its J.P. Morgan and Chase brands.
Information about J.P. Morgan’s capabilities can be found at jpmorgan.com andabout Chase’s capabilities at chase.com. Information about JPMorgan Chase & Co.
is available at jpmorganchase.com.

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

Dear Fellow Shareholders,Jamie Dimon,
Chairman andChief Executive Officer

Seven years ago, the world was shaken by the global financial crisis. And since then,our company has been dealing with extraordinary challenges as a result of that crisis.
We have endured an unprecedented economic, political and social storm — the impactof which will continue to be felt for years and possibly decades to come. What ismost striking to me, in spite of all the turmoil, is that our company became safer andstronger — and it never stopped supporting clients, communities and the growth of
economies around the world.
I feel extraordinarily privileged to work for this great company with such talented
people. Our management team and our employees do outstanding work every single
day — sometimes under enormous pressure — while dealing with an extreme numberof complex business and regulatory issues. The way our people and our firm areable to address our challenges and admit our mistakes while continuing to grow ourbusinesses and support our clients fills me with pride.

2

Our company earned a record $21.8 billion in net income on revenue1 of $97.9 billion in
2014. In fact, we have delivered record results in the last four out of five years, and wehope to continue to deliver in the future. Our financial results reflected strong underlying
performance across our businesses. Over the course of last year, our four franchises
maintained — and even strengthened — our leadership positions and continued to gain
market share, improve customer satisfaction and foster innovation. We also continued
to deliver on our many commitments — including business simplification, regulatory
requirements, controls, expense discipline and capital requirements.

Earnings and Diluted Earnings per Share
2004–2014($ in billions, except diluted EPS)

$21.8

$21.3
$19.0

$17.9

$17.4
$14.4

$15.4


$11.7



$8.5

$4.00

$4.33
$5.6

$2.35



$4.5
$1.52
2004







$5.20

$5.29

$4.48



$4.35

$3.96








$2.26

$1.35
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

 Net income  Diluted EPS

Tangible Book Value per Share
2004–2014$44.69$38.75$27.091$15.35$16.452004

2005$18.882006$21.96$22.52

2007

2008

2009

$30.182010$40.81$33.69

2011

2012

2013

2014

Represents managed revenue

3

Bank One/JPMorgan Chase & Co. tangible book value per share performance vs. S&P 500
Bank One(A)

S&P 500(B)

Relative Results(A) — (B)

Performance since becoming CEO of Bank One(3/27/2000–12/31/2014)(a):Compounded annual gain

12.7%

5.3%

7.4%

Overall gain

434.9%

105.1%

329.8%

JPMorgan Chase & Co.
(A)

S&P 500(B)

Relative Results(A) — (B)

Performance since the Bank One
and JPMorgan Chase & Co. merger(7/1/2004–12/31/2014):

Compounded annual gain

14.1%

8.0%

6.1%

Overall gain

300.5%

124.5%

176.0%

Tangible book value over time captures the company’s use of capital, balance sheet and profitability. In this chart, we are looking at
heritage Bank One shareholders and JPMorgan Chase & Co. shareholders. The chart shows the increase in tangible book value per share;
it is an aftertax number assuming all dividends were retained vs. the S&P 500 (a pretax number with dividends reinvested).
(a)

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

We believe that, in 2014, we continued to deliver for our shareholders. The table aboveshows the growth in tangible book value per share, which we believe is a conservative
measure of value. You can see that the tangible book value per share has grown far
more than the Standard & Poor’s 500 Index (S&P 500) in both time periods. For Bank
One shareholders since March 27, 2000, the stock has performed far better than mostfinancial companies and the S&P 500. And since the JPMorgan Chase & Co. merger withBank One on July 1, 2004, we have performed well versus other financial companies
and slightly below the S&P 500. The details are shown in the table below.

Stock total return analysis
Bank OneS&P 500

S&P Financials Index

Performance since becoming CEO of Bank One(3/27/2000–12/31/2014)(a):Compounded annual gain

10.4%

4.0%

2.2%

Overall gain

328.3%

78.8%

37.4%

JPMorgan Chase & Co.

S&P 500

S&P Financials Index

7.5%

8.0%

0.9%

113.3%

124.5%

9.5%

Performance since the Bank One
and JPMorgan Chase & Co. merger(7/1/2004–12/31/2014):

Compounded annual gain
Overall gain

This chart shows actual returns of the stock, with dividends included, for heritage shareholders of Bank One and JPMorgan Chase & Co.
vs. the Standard & Poor’s 500 Index (S&P 500) and the Standard & Poor’s Financials Index (S&P Financials Index).
(a)4

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

However, our stock performance has not been particularly good in the last five years.
While the business franchise has become stronger, I believe that legal and regulatory
costs and future uncertainty regarding legal and regulatory costs have hurt ourcompany and the value of our stock and have led to a price/earnings ratio lower
than some of our competitors. We are determined to limit (we can never completely
eliminate them) our legal costs over time, and as we do, we expect that the strengthand quality of the underlying business will shine through.
JPMorgan Chase continued to support consumers and businesses and make asignificant positive impact on our communities. In 2014, the firm provided credit
and raised capital of more than $2.1 trillion for our clients. The firm also has hired
nearly 8,700 military veterans since 2011 as a proud founding member of the 100,000
Jobs Mission, which recently has increased the goal to 300,000 jobs. Our firm wasthere to help small businesses — we provided $19 billion of credit to U.S. small
businesses, which allowed them to develop new products, expand operations andhire more workers. In total, we provided $197 billion of credit to consumers. And
we provided credit and raised capital of more than $75 billion for nonprofit andgovernment entities, including states, municipalities, hospitals and universities.
Our strength allows us to be there for our clients and communities in good times —and, more important, in bad times. In the face of many difficult challenges, we neverstopped doing our job, and we demonstrated that the work we do matters. And we also
continue to build our business by investing in infrastructure, systems, technology andnew products and by adding bankers and branches around the world.
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

$1.5

$18

$20

$1.6
$17

$1.4

$583

$82

$92

‘11 to ‘12 ‘12 to ‘13 ‘13 to ‘14

$523

$108

$1.3
$91

$122

$131

$110

$185
$141

$165

$100
$127
$156

$191

 Corporate clients

(9)%

20%

7%

 Small business

18%

(8)%

5%

 Card & Auto

(10)%

12%

18%

 Commercial/
Middle market

11%

8%

41%

 Assetmanagement

41%

17%

(23)%

 Mortgage/
Home equity

22%

(7)%

(53)%

Total Consumer and 17%
Commercial Banking

5%

(10)%

$19

$177
$84

2011

2012

2013

2014

2011

2012

2013

2014
5

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

Assets
Entrusted
to Us by Our Clients
at December
31,
at December 31,

Deposits and client assets($ in billions)Year-over-year change$3,822$3,438$3,163

$464

$439
$824

$398

‘11 to ‘12 ‘12 to ‘13 ‘13 to ‘14$3,973$503$861

Deposits
 Consumer

10%

6%

8%

 Wholesale

3%

9%

4%

 Client assets(a)

10%

13%

3%

$755
$730

$2,0352011$2,2442012$2,534$2,6092013

2014

Assets under custody(b)($ in billions)$16,870$18,835$20,485(a)Represent assets under management aswell as custody, brokerage, administrationand deposit accounts(b)Represents activities associated with thesafekeeping and servicing of assets$20,549

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 have an outstanding franchise — our company has emerged as an endgame
winner, but we need to earn it every dayII.

We build for the long term — we manage through-the-cycle, and we always areprepared for the toughest of times

III. We will successfully navigate the new global financial architecture (and we are
well on our way to having fortress controls)
IV. We have a solid strategy and believe our future outlook is very good — but, as
usual, there still are a lot of things to think and worry aboutV.

6

We have a fully engaged board, an exceptional management team and a strong
corporate culture

I. W E H AV E A N OUTSTA N DI N G F R A N C HI S E — OUR
COM PA N Y H AS E ME R G E D A S A N E N DG A ME WI N N E R,
BUT W E N E E D TO E A R N I T EV E RY DAY

If you think back 10, 20 or 30 years ago, mypredecessors and I struggled to try to build
a great company, which we hoped would
emerge as an endgame winner. The ultimate
outcome was unclear – and many competitors
did not survive (this is true for most largescale consolidating industries). Even for thoseof us that did, it was quite a struggle. Today,
it is clear that our company is an endgame
winner – both in the United States and globally – which is invaluable in any industry. And
while we have had some difficult times since
the financial crisis, the power of the franchisehas shone through. We also know that future
success is not guaranteed – only consistently
good management over a long period of time
can ensure long-term success in any business.
But we certainly are in a very good place.

We have delivered good multi-year financial
results (strong margins and returns andlow volatility) and have shown a great
ability to adapt to changes — both from themarketplace and the regulatory environment
We always compare our margins and returns
with those of our best competitors in eachbusiness. The chart below, which is very
similar to a chart we showed at our Investor
Day, shows some of these numbers for 2014.
We believe that the right discipline is tocompare each of our businesses against its
best competitor. It is a mistake just to lookat the consolidated numbers and comparethem – every company has a different mix ofbusinesses. The chart below also shows how
our businesses compare in terms of margins,

JPMorgan Chase Is in Line with Best-in-Class Peers in Both Efficiency and Returns
Efficiency

Consumer &Community
Banking
Corporate &Investment
Bank

JPM 2014
overheadratiosBest-in-classpeer overheadratios2 weighted
by JPM
revenue mix

JPM target
overheadratios

58%

55%

~50%

JPM 2014
ROE

Best-in-classpeer ROTCE4
weighted by
JPM equity mix

JPM target
ROE

18%

16%

20%

WFC

62%1

60%

WFC

55%-60%

13%1

Citi

Commercial
Banking

39%

Asset
Management

71%

JPMorgan Chase

Returns

38%

35%

18%

59%1

13%

18%

PNC

≤70%

23%

UBS WM & BLK

60%1

13%

Citi

PNC

69%

14%

27%

25%+

BEN

55%+/-

13%3

13%

~15%3

1

	Excludes legal expense	Best-in-class overhead ratio represents implied expenses of comparable peer segments weighted by JPMorgan Chase (JPM) revenue: Wells Fargo
Community Banking (WFC), Citi Institutional Clients Group (Citi), PNC Corporate and Institutional Banking (PNC), UBS Wealth Management andWealth Management Americas (UBS WM) and BlackRock (BLK), and JPM Corporate segment
3	Represents ROTCE for total JPMorgan Chase. Goodwill is primarily related to the Bank One merger and prior acquisitions and is predominantly
retained by Corporate4	Best-in-class ROTCE represents implied net income minus preferred stock dividends of comparable peers weighted by JPM tangible common equity:
WFC, Citi, PNC, Franklin Templeton (BEN) and JPM Corporate segment
27

I. AN O U TSTA N D I N G F R AN C HI S E

our target margins in a normal environment
and, most important, our return on equity(ROE). On most of these measures, we arevery close to the best-in-class competitor.
A good company should be able to earncompetitive margins over an extended periodof time regardless of economic conditions while
investing and without taking excessive risk

Any company can improve earnings in the
short run by taking on additional risk or
cutting back on investments. Any company
can grow rapidly if it takes on too muchrisk – but that usually is the kind of growth
one comes to regret. Our margins have beenquite good, even as we have been investingfor the long run. These investment expenses
lower our short-term returns, but they
are “good” expenses. In addition to thetremendous amount that we invest annually in technology and infrastructure, someexamples of where we have invested overthe past five years are:
– 448 retail branches in the United States– 28 wholesale offices abroad– 2,498 Chase Private Client locations/branches, supported by 594 new Private
Client advisors– 20 Commercial Banking expansion cities,
including approximately 350 Commercial
Banking bankers– 205 small business bankers
A good company always should be investing
while it also is waste cutting; i.e., cuttingout any unnecessary expenses. However,I often have received bad advice on what
are unnecessary expenses. For example,
spending on important strategic off-sites,
research and development for innovation,marketing that has a positive return – thoseare good expenses. We take a bus trip annually to visit branches, operating centersand clients. It is both fun and enormously
productive – and it is not an unnecessary
expense – it makes us a better company.

8

Even our annual Retail National Sales
Conference with the top 5% of our branchbankers, loan officers and tellers is critical –we spend time working together, we learn
a lot and we get to thank these outstanding
employees at an awards recognition dinner.
While it is perfectly reasonable in toughtimes to dramatically reduce the cost of that
conference, it is unwise to cancel it. I havebeen to every single one of these events since
I started running Bank One, and I intend tocontinue that tradition.
We earned adequate returns while building an
increasingly stronger capital baseDuring these challenging years, our company
has confronted difficult markets, billions ofdollars of additional regulatory costs, billionsof dollars of costs due to changes in products and services, and, unfortunately, very
high legal costs. And we have had to holdan increasing amount of capital throughout
this time. While there is no question thatthese events did reduce our performance andreturns, we have been able to adapt, meet the
new rules and perform fairly well financially.

I. AN OUTSTANDING F RAN C H ISE

The chart below shows earnings, the capital
we returned to shareholders through dividends and stock buybacks, our returns
on tangible common equity and our highquality liquid assets (HQLA). High quality
liquid assets essentially are deposits heldat the Federal Reserve and central banks,
agency mortgage-backed securities andTreasuries, and they are the componentof our balance sheet that has grown mostdramatically. Only HQLA count for liquid
assets under banking regulators’ definition ofliquidity – and we currently have more thanis required by the regulators.

The chart below also shows that evenafter dramatically increasing capital andliquidity, both of which reduce returns on
capital, we were able to earn an adequate
return on tangible common equity, growour capital base as needed and still return
capital to shareholders.

Capital, Liquidity, Returns($ in billions, except ratios)Basel III common equity Tier 1 capital ratio (CET1)1
Glidepath3

11.0%
9.5%

11.5%

12.0%+

10.2%

8.7%
7.9%
7.0%

Earnings

2010

2011

2012

2013

2014
$ 22

$ 17

$ 19

$ 21

$ 18

Total capital returned2

4

13

6

10

11

HQLA

NA

NA

341

522

600

ROTCE

15%

15%

15%

11%

13%

2015

2016

2017+

1

	Basel III rules became effective on January 1, 2014. The ratios presented for 2010-2014 are calculated under the Basel III Advanced Fully
Phased-In Approach and, for 2010-2013, reflect the firm’s best estimate based on its understanding of the rules in the relevant period2	Represents common dividends plus stock buybacks, which are gross of employee issuance3	Reflects the firm’s Basel III CET1 ratio glidepath for 2015-2017+9

I. AN O U TSTA N D I N G F R AN C HI S E

Leading Client Franchises
Building exceptional client franchises
We have built our client franchises over time with substantial share gains and opportunity for more
2006

2014

3.6%1

7.5%

11 (25)16%2#33

15 (40)21%2#14

Corporate &Investment
Bank

Global Investment Banking fees5
Market share5
Total Markets6,7
Market share6,7
FICC6,7Market share6,7
Equities6,7
Market share6,7

#2
8.6%
#8
7.9%
#7
9.1%
#8
6.0%

#1
8.1%
#1
16.2%
#1
18.6%
#3
11.5%

22

30

Commercial
Banking# of states with Middle Market banking presence# of states with top 3 Middle Market banking
market share8
Multifamily lending9Gross Investment Banking revenue ($ in billions)% of North America Investment Banking fees

6
#28
$0.7
16%

10
#1
$2.0
35%

Asset
Management

Global active long-term open-end mutual fund
AUM flows10
		 AUM market share10
Overall Global Private Bank (Euromoney)
Client assets market share11
U.S. Hedge Fund Manager (Absolute Return)12
AUM market share12

#2
1.8%
#5
~1%
#1113
1.4%

#1
2.5%
#1
~2%
#2
3.4%

Consumer &Community
Banking

Deposits market share# of top 50 Chase markets where we are #1
		 (top 3) deposits
Card sales market share
Merchant processing volume

 Relationships with ~50% of U.S. households# 1 customer satisfaction among largest U.S. banks
for the third consecutive year14
 #1 primary banking relationship share in Chase footprint15
 #1 U.S. credit card issuer based on loans outstanding2
 ~50% of U.S. e-Commerce volume16
 >80% of Fortune 500 companies do business with us Top 3 in 15 product categories out of 1617
 #1 in both U.S. and EMEA Investment Banking fees18
 #1 in Global debt, equity and equity-related18
 #1 in Global long-term debt and Loan syndications18
 Top 3 Custodian globally with AUC of $20.5 trillion
 #1 USD clearinghouse with 19.2% share in 201419

 Average loans grew by 13% CAGR 2006-201420
 Industry-leading credit performance TTC — 8 consecutive
quarters of net recoveries or single-digit NCO rate Leveraging the firm’s platform — average ~9 products/client 84% of 10-year long-term mutual fund AUM in top 2
quartiles21
 23 consecutive quarters of positive long-term AUM flows Revenue growth >70% and long-term AUM growth >80%
since 2006
 Doubled Global Wealth Management client assets(2x industry rate) since 200622

For footnoted information, refer to slides 11 and 50 in the 2015 Firm Overview Investor Day presentation, which is available on JPMorgan Chase & Co.’s website at(http://investor.shareholder.com/jpmorganchase/presentations.cfm), under the heading Investor Relations, Investor Presentations, JPMorgan Chase 2015 Investor Day,
Firm Overview, and on Form 8-K as furnished to the SEC on February 24, 2015, which is available on the SEC’s website (www.sec.gov). Further, for footnote 20,
CAGR represents compound annual growth rate

Our businesses have been able to gain market
share, which only happens when we are
creating happy clients
Importantly, much of the growth has beenorganic. Please review some of the numbers in
the chart above – they speak for themselves.
If you had asked me back in 2006 if we could
have accomplished those kinds of market
share numbers, I would have been skeptical.
And, fortunately, we have plenty of areas
where we still can grow or do better – I willtalk about this in a later section of this letter.
Most of our businesses have exhibited improving
customer satisfaction

The chart on the next page shows the great
progress that our Consumer Bank has madein improving satisfaction scores. In fact,
10

American Customer Satisfaction Index
named Chase #1 in customer satisfaction
among large banks in 2014. We have received
even better scores than most of the regionalbanks and essentially are equal in ranking to
the midsized banks. (We still are not satisfied, however, and want to be even better.)
We believe that our customer satisfaction
has been going up for multiple reasons: error
rate reduction, better products and services,
good old-fashioned service with a smile, and,
importantly, innovations like deposit-friendly
ATMs and continual improvement in online
and mobile banking services. While the chartshows satisfaction in the Consumer Bank, we
also have had increasing customer satisfaction scores in our small business, mortgage,
auto finance and credit card franchises.

I. AN OUTSTANDING F RAN C H ISE

Consumer Satisfaction Score: 2010-2014 1
 Chase Big banks

2010

 Industry average Regional banks  Midsized banks

2011

2012

2013

2014

1

	Source: J.D. Power U.S. Retail Banking Satisfaction Study; Big Banks defined as Chase, Bank of America,
Wells Fargo, Citibank, U.S. Bank, PNC Bank

Our mix of businesses works for clients — andfor shareholders
All companies, including banks, have aslightly different mix of businesses, products
and services. The most critical question is,“Does what you do work for clients?” Ourfranchise does work for clients by virtue ofthe fact that we are gaining share in each of
our businesses, and it works for shareholders
by virtue of the fact that we are earning
decent returns – and some of our competitors are not.
Other considerations are whether yourcompany has “moats” – is it protected insome way from debilitating competition or
events? And has it performed consistently– in good times and in bad? We believe that
we have well-fortified moats in the form of
economies of scale, brand, expertise, technology and operations, and – importantly –competitive advantages created by our ability
to cross sell (more on this later in this letter).
In addition, we have performed fairly consistently in good times and in bad. Even in
2008, the worst year in perhaps 75 years forfinancial companies, we earned 6% returnon common tangible equity – not great but

not bad, all things considered. Additionally,
we have embedded strengths that are hard to
replicate – the knowledge and cohesivenessof our people, our long-standing client relationships, our technology and product capabilities, our fortress balance sheet and our
global presence in more than 100 countries.
Our mix of businesses leads to effective crosssell and substantial competitive advantages.
We are not a conglomerate of separate,unrelated businesses — we are an operatingcompany providing financial services to
consumers, companies and communities
A conglomerate is a group of unrelated businesses held under one umbrella holding
company. There is nothing wrong witha conglomerate, but we are not that. In
our case, whether you are an individual, acompany (large or small) or a government,
when you walk in the front door and talkwith our bankers, we provide you with essential financial products, services and advice.
We have a broad product offering and somedistinct capabilities, which, combined, createa mix of businesses that works well for eachof our client segments.
11

I. AN O U TSTA N D I N G F R AN C HI S EPart of our mix of businesses, however, is
not unique. While we divide our company
into four distinct businesses, the truthis that many regional banks do a lot ofwhat three of our four businesses do (i.e.,
Chase Consumer & Community Banking,Commercial Banking and Asset Management). The biggest difference between us
and regional banks is our global Corporate & Investment Bank (and the non-U.S.
part of our Asset Management business).

• We market Chase Paymentech, ourmerchant acquirer, through our branches
to small businesses, through the Commercial Bank to midsized companies andthrough our Corporate & Investment Bank
to large, multinational corporations.

Our broad product set and some of ourunique capabilities (some we inherited,and some we built carefully over time),
combined with effective cross sell, create
substantial competitive advantage. The
examples below make some of thoseadvantages clear:

America’s financial system still is the best
the world has ever seen, and it includes notjust banks but asset managers, private equity,
venture capital, individual and corporate
investors, non-bank financial companies,
and public and private markets. In fact, in
the United States, banks are a much smaller
part of the financial system and the economy
than in most other countries. And there is agreat need for the services of all banks, fromlarge global banks to smaller regional andcommunity banks.

• Commercial Banking now generates
35% of our U.S. investment banking
business. This means we are able tobring JPMorgan Chase’s exceptional
Investment Bank to serve hundredsof midsized corporations and institutions with the best global investmentbanking products and services in theindustry. We can do this because ourCommercial Bank is in hundreds oftowns across the country where we canserve clients locally – person to person– and also bring the best of JPMorgan
Chase to them.
• Around the world, we can bring exceptional private banking services to CEOsand company owners or help privatebanking clients with their global
commercial banking needs.
• Because of our international footprint,
we bring global banking services –from cash management to M&A – toapproximately 2,500 of our more than
20,000 Corporate Client Banking andMiddle Market Banking clients, who
are rapidly expanding overseas andwho need these services from someone
they know and can trust.

12

America’s financial system is still the best theworld has ever seen — it is large and diverse— and it serves the best economy the world
has ever seen, which also is large and diverse

Our large global Corporate & Investment Bank
does things that regional and community banks
simply cannot do. We offer unique capabili-ties to large corporations, large investors andgovernments, including federal institutions,states and cities. For example, we provide
extensive credit lines or raise capital for theseclients, often in multiple jurisdictions and in
multiple currencies. We essentially manage
the checking accounts for these large institutions, often in many different countries.
On the average day, JPMorgan Chase moves
approximately $6 trillion for these types of
institutions. On the average day, we raise orlend $6 billion for these institutions. On the
average day, we buy or sell approximately$800 billion of securities to serve investors
and issuers. In 2014, our Corporate & Investment Bank raised $61 billion for states, cities,
governments and universities, including
funds to renovate the historic Arthur Ashe
(Tennis) Stadium in New York City, revenue

I. AN OUTSTANDING F RAN C H ISE

bonds to assist municipalities and hospitals,
and green bonds to finance environmentally
beneficial projects such as green buildings,
clean water and renewable energy. As a firm,
we spend approximately $700 million a year
on research so that we can educate investors,
institutions and governments about economies, markets and companies. The needs ofthese clients will be met – one way or another– by large financial institutions that can bear
the costs and risks involved. Simply put, if
it is not done by a large American financial
institution, it will be done by a large nonAmerican financial institution.
Regional and community banks are criticalto their communities — in fact, we are a huge
supporter and their largest banking partner.

These banks are deeply embedded in theircommunities, many of which are not servedby larger banks. They have an intimate
knowledge of the local economy and local
small businesses, which allows them to costeffectively serve those clients. JPMorgan
Chase, as a traditional “money center bank”
and “bankers’ bank,” in fact, is the largest
banker in America to regional and community banks. We provide them with many
services so they can continue to serve theirclients. For example, we directly lend tothem, we process payments for them, we
finance some of their mortgage activities, weraise capital for them (both debt and equity),
we advise them on acquisitions, and we buy
and sell securities for them. We also provide
them with interest rate swaps and foreignexchange both for themselves – to help themhedge some of their exposures – and fortheir clients.
However, large does not necessarily mean
complex (and things should be complex only
for a good reason)
Many of the activities we do that are considered large are easy to understand. All of our
5,600 Chase consumer branches do essentially the same thing, and many of our large
global transactions are not any more complicated than a loan for a middle market client.

While we agree with the concept that you
should keep things as simple as possible,
some things, by their very nature, are more
complex. And that complexity cannot be
reduced by wishful thinking. In fact, basic
lending, whether to a large company ora midsized company, is one of the more
complex things we do because one must
understand the economy, the nature of
the business and often the types of collateral involved. There are many judgmental
factors to consider as well, which might
include the character of the borrower, thegrowth prospects of the business, and anunderstanding of the products and services
and technology of the business.
There are understandable questions about
the role that large financial institutions
play. Some of these questions make people
nervous, in part because they do not understand the larger picture. These are importantquestions, and we always are willing to help
explain what we do and why we do it. Taken
in small component pieces, these activities
generally are easier to understand. Whilesome may criticize a bank’s activities insteadof taking the time to understand them, thisdoes not contribute to a genuinely constructive dialogue around the role of banks.
People also should ask themselves one
basic question: Why do banks offer these
services? The fact is, almost everything we
do is because clients want and need ourvarious and sometimes complex services.
(We do many activities that are ancillary toclients’ direct needs, but we must do thesethings to provide clients with what theyneed. For example, in order to support ouroperation, we run global data centers, we
hedge our own exposures and we maintainliquid pools of investments.)
I would venture to say that banking is not
as complex as making airplanes, discovering
effective pharmaceuticals, building safe
cars, developing innovative electronics and,of course, understanding nuclear physics.
There are huge benefits to the complexity
involved in those other industries – but there
also are sometimes negative consequences.
The question for society is: Are we, in total,
13

I. AN O U TSTA N D I N G F R AN C HI S E

better off or worse off because of some of thegreat products and services that come withcomplexity? The answer in our opinion is a
resounding yes, though you should always
strive to minimize the risks. But we want toacknowledge that the difference with banks,
as pointed out by critics, is that if and when
they make mistakes, they can severely harmthe economy. This concern is legitimate, and I
will talk about it in a later section.
Larger does not necessarily mean more risky
For example, many large banks had no
problem navigating the financial crisis,
while many smaller banks went bankrupt.
Many of these smaller banks went bankrupt
because they were undiversified, meaningthat most of their lending took place in a
specific geography. A good example waswhen oil collapsed in the late 1980s. Texasbanks went bankrupt because of their direct
exposure to oil companies and also becauseof their exposure to real estate whose value
depended largely on the success of the oil
business. Since the crisis began seven years
ago, more than 500 smaller banks have gonebankrupt, and JPMorgan Chase has contributed approximately $8 billion to the Federal
Deposit Insurance Corporation to help pay
for the resolution of those banks.
And, yes, there are both costs and benefits tosize and complexity
The benefits of size are obvious: huge economies of scale, the ability to serve large clientsand make large investments, and safe diversification, among others. And, yes, there sometimes are clear negatives to size – usually inthe form of arrogance, greed, complacency
or lack of attention to detail. (There also aremany small businesses afflicted with these
diseases – they kill companies both large
and small.) Good companies get the benefitsof size and continuously are fighting off thenegatives. And there are lots of winners andlosers, particularly as industries consolidate.
In every industry, you will see companies
that benefit from size – and those that don’t.

14

Our size and strength allow us to create
benefits for society by helping economies
and communities around the world grow andprosper
We are able to do our part in supporting
communities and economies around theworld because we are strong, stable andpermanent. And because of this strengthand stability, we can continue to support ourclients in good times and, more important,in the toughest of times. The most important
thing we can do is keep our company healthyand vibrant so that we can serve the needsof customers, consumers and businesses andhelp local economies and the thousands ofcities and various communities around theworld where we operate to grow and prosper.
In addition, we strongly believe in being agood corporate citizen. We are one of themost philanthropic companies in the world(we give away more than $200 million ayear), but we are able to do much more thanprovide money. We bring the skills, resourcesand global knowledge of our entire firm
to support the economic growth and progress of communities across the globe. One
example is our research, such as studying
how our communities analyze labor market
conditions so they can get better at training
people for jobs or how cities can further
develop their economies. See Peter Scher’s
Corporate Responsibility letter on page 58
for more details on our efforts to support
cities and communities around the globe.
Following are three unique initiatives thatwe’d like to focus on:
JPMorgan Chase Institute. We will be offi-

cially launching an exciting new initiative
called the JPMorgan Chase Institute, which
is a global think tank dedicated to delivering data-rich analyses, expert insights
and thought leadership for the public good.
Drawing on the knowledge, market access,broad relationships and resources acrossthe firm, the JPMorgan Chase Institute will
help inform both business and policy decisions by grounding them with facts, data
and thoughtful analysis. Our aim is to help
decision makers – policymakers, businesses
and nonprofit leaders – appreciate the scale,I. AN OUTSTANDING F RAN C H ISE

granularity, diversity and interconnectedness of the global economic system to inform
smarter decisions and good policies that
advance global prosperity for consumers,
businesses and countries. The research
agenda will include groundbreaking analytic
work on the financial behavior of individuals, insights on the small business sector,
and expert profiling of global trade andcapital flows.
Detroit. We brought all of our resources tobear in a special, coordinated way, which wenever have done before, to try to help thecity of Detroit. We have been doing businessthere for more than 80 years and alreadyare the largest consumer, commercial andinvestment bank serving Detroit’s consumers
and companies. But we wanted to do more
to help kick-start the city’s recovery. Thiseffort is a $100 million commitment, which
includes investments, philanthropy andour people working in tandem with a setof city leaders who have come together towork toward a common purpose. Our initialinterest in undertaking this effort was madepossible because of our faith in the extraordinary work and talent of Mayor Duggan and
Gov. Snyder (and Kevyn Orr, who recently
left as Emergency Manager). Their dedication to coherently, comprehensively andpragmatically attacking the city’s enormous
problems made us want to do more. In fact,
everything we have done to help is the resultof asking a broad array of the city’s leaders
what they really needed and then working
with them to come up with some creative
solutions. Let me give just a few examples:• We expanded the city’s effort to systematically map every single parcel in Detroit
and provided the technology assistanceso that residents can use their phones tocontinually update the database.
• We helped provide financing for people
who wanted to purchase land or to buy
and renovate homes.

• We supported nonprofit organizations,
including Focus: HOPE, in their efforts to
help people gain skills from job training
programs.
• We helped small businesses get access tothe advice, training and other resources
needed to grow, including a new commercial kitchen at Eastern Market that willallow more food businesses to expand.
• We provided lending for development– both commercial development to letbusinesses like Global Titanium expand
jobs and residential development and new
construction of apartment buildings in
Detroit’s urban core and neighborhoods.
• We created the Detroit Service Corps tobring more than 50 of our top managers
to work full time with Detroit nonprofits
to help them analyze challenges, solve
problems and give them the best chancefor success.
Helping Detroit’s economy recover andthrive would be a shining example of American resilience and ingenuity at work.
Military and veterans. Another effort that wewant you to know about is what JPMorgan
Chase has done to help position military
members, veterans and their families for
success in their post-service lives throughemployment, housing and educational
programs. In 2011, JPMorgan Chase and 10
other companies launched the 100,000 Jobs
Mission, setting a goal of collectively hiring
100,000 veterans. The 100,000 Jobs Mission
now includes more than 190 companies thathave collectively hired more than 217,000
veterans since 2011 and has pledged tohire a total of 300,000 veterans. JPMorgan
Chase hired over 1,800 veterans in 2014,nearly a 40% year-over-year increase, for a
total of nearly 8,700 veterans hired since2011. Further, we expanded our employment programs to address the unique needsof women veterans and military spouses.
We hope that this makes you as proud of
JPMorgan Chase as it does for all of us.

15

II. WE B U IL D FO R T H E LON G T E R M — WE MA N AG E
TH RO U GH -T H E - CYC LE , A N D W E A LWAYS A R E
P REPARED FO R T H E TOUG H E ST OF T I ME S

Our paramount responsibility to society andto our clients is to be there in good times andbad times
We have a huge obligation to society – notonly must we never fail, but we need to be
steadfast. Never failing means having thefinancial strength, liquidity, margins, andstrong and diverse earnings where you canweather any storm. It also means having
the ability to adapt, survive and even thrive
through the cycles.
Steadfast means that you will be there no
matter what happens, and being there meansthat you can continue to properly serve yourclients even in tough times. In the toughestof times, it is not about making a profit.
It is about helping your clients survive. I
should point out that in the toughest oftimes, particularly in 2009, JPMorgan Chaserolled over and extended credit to small
and medium-sized businesses a total of $63
billion, to governments and nonprofits a
total of $110 billion, and to large corporations
a total of $1.1 trillion. I will talk more about
this later.
We extensively manage our risks so that
we can survive in any scenario. The Federal
Reserve’s stress test is a tough measure of
our survival capability — though our ability tosurvive is stronger than that test implies
We are fanatics about stress testing and risk
management. It is in our best interest to

protect this company – for the sake of ourshareholders, clients, employees and communities. If you went to our risk committee
meetings, you would see a number of professionals working to thoughtfully manage andreduce our risk – we don’t want a bunchof cowboys trying to increase it. We run
hundreds of stress tests a week, across ourglobal credit and trading operations, toensure our ability to withstand and survive
many bad scenarios. These scenarios include
events like what happened in 2008, other16

historically damaging events and also newsituations that might occur. Our stress tests
include analyzing extremely bad outcomes
relating to the Eurozone, Russia and the
Middle East.
Regarding the Eurozone, we must be prepared
for a potential exit by Greece. We continually stress test our company for possible
repercussions resulting from such an event(even though, in our opinion, after the initial
turmoil, it is quite possible that it would
prompt greater structural reform efforts bycountries that remain). Also regarding geopolitical crises, one of our firm’s great thinkers,
Michael Cembalest, reviewed all of the major
geopolitical crises going back to the Korean
War, which included multiple crises involving
the Soviet Union and countries in the Middle
East, among others. Only one of these events
derailed global financial markets: the 1973
war in the Middle East that resulted in an
oil embargo, caused oil prices to quadruple
and put much of the world into recession.
We stress test frequently virtually every
country and all credit, market and interest
rate exposures; and we analyze not only the
primary effects but the secondary and tertiary
consequences. And we stress test for extreme
moves – like the one you recently saw aroundoil prices. Rest assured, we extensively
manage our risks.
The Federal Reserve’s Comprehensive Capital
Analysis and Review (CCAR) stress test is another
tough measure of our survival capability. The

stress test is good for our industry in that itclearly demonstrates the ability of each andevery bank to be properly capitalized, evenafter an extremely difficult environment.
Specifically, the test is a nine-quarter scenario
where unemployment suddenly goes to
10.1%, home prices drop 25%, equities
plummet approximately 60%, credit losses
skyrocket and market-making loses a lot ofmoney (like in the Lehman Brothers crisis).

II. BUILT FOR THE LONG TERM

To make sure the test is severe enough, theFed essentially built into every bank’s results
some of the insufficient and poor decisions
that some banks made during the crisis.
While I don’t explicitly know, I believe that
the Fed makes the following assumptions:• We would quickly cut our dividend andstock buyback programs to conserve
capital. In fact, we reduced our dividend
dramatically in the first quarter of 2009and stopped all stock buybacks in the firstquarter of 2008.

• The stress test essentially assumes thatcertain models don’t work properly, particularly in credit (this clearly happened withmortgages in 2009).

• We would not let our balance sheet growquickly. And if we made an acquisition,
we would make sure we were properly
capitalized for it. When we bought Washington Mutual (WaMu) in September of
2008, we immediately raised $11.5 billion
in common equity to protect our capital
position. There is no way we would makean acquisition that would leave us in aprecarious capital position.

• The stress test assumes all of the negativesof market moves but none of the positives.
• The stress test assumes that all banks’ riskweighted assets would grow fairly significantly. (The Fed wants to make sure thata bank can continue to lend into a crisisand still pass the test.) This could clearly
happen to any one bank though it couldn’t
happen to all banks at the same time.
• The stress test does not allow a reduction
for stock buybacks and dividends. Again,
many banks did not do this until late in
the last crisis.
I believe the Fed is appropriately conservatively measuring the above-mentioned aspects
and wants to make sure that each and everybank has adequate capital in a crisis without
having to rely on good management decisions,perfect models and rapid responses.
We believe that we would perform far better
under the Fed’s stress scenario than the Fed’s
stress test implies. Let me be perfectly clear– I support the Fed’s stress test, and we at
JPMorgan Chase think that it is importantthat the Fed stress test each bank the way it
does. But it also is important for our shareholders to understand the difference between
the Fed’s stress test and what we think actually would happen. Here are a few examplesof where we are fairly sure we would do
better than the stress test would imply:• We would be far more aggressive on
cutting expenses, particularly compensation, than the stress test allows.

• And last, our trading losses would unlikely
be $20 billion as the stress test shows. The
stress test assumes that dramatic market
moves all take place on one day and that
there is very little recovery of values. In
the real world, prices drop over time,
and the volatility of prices causes bid/ask
spreads to widen – which helps marketmakers. In a real-world example, in the six
months after the Lehman Brothers crisis,
J.P. Morgan’s actual trading results were
$4 billion of losses – a significant portionof which related to the Bear Stearns acquisition – which would not be repeated. We
also believe that our trading exposures aremuch more conservative today than they
were during the crisis.
Finally, and this should give our shareholders
a strong measure of comfort: During theactual financial crisis of 2008 and 2009, we
never lost money in any quarter.
We hope that, over time, capital planningbecomes more predictable. We do not believethat banks are trying to “game” the system.
What we are trying to do is understand theregulatory goals and objectives so we canproperly embed them in our decision-making
process. It is critical for the banking systemthat the treatment of capital is coherent and17II. BUILT FO R T H E LO N G T ER M

consistent over time and is not in any way
capricious. Capital is precious, and it needs tobe deployed intelligently in the business orproperly returned to shareholders. If shareholders do not have a clear understanding of
capital management and have unreasonable
expectations, then that capital will be devalued.
This is a bad outcome for all involved.
While there always will be cycles, we need tokeep our eye on the important things, too —the outlook for long-term growth is excellent
The needs of countries, companies, investor
clients and individuals will continue to growover time. The chart below shows some of
the long-term growth that is expected insome critical areas, including the underlying
growth of gross domestic product and trade,investable/financial assets, infrastructure andcapital markets activities. This is the fuel thatwill drive our business in the future.

Therefore, we take a long-term perspective
on investing. How we currently view low net
interest margins is a good example of making
decisions for the long run
To capture our share of the growth in our
underlying businesses, we need to continually invest in bankers, branches and capabilities (research, products and technology) todrive down our costs and better serve ourclients. It is a lot of hard work that needs tobe supported by all of our critical functions,from finance and human resources to operations and controls. This kind of investingshould not be done in a stop-start way tomanage short-term profitability.
Quarterly earnings – even annual earnings– frequently are the result of actions takenover the past five or 10 years. Our company
continued to invest through the crisis – often
when others could not – in order to capture
future growth.

Global Macro Themes

World grossdomestic product

2014

2024

Growth

$ 78

$ 133

 5.5% CAGR

$ 22

$ 38

 1.7x

$ 263

$ 481

 6% CAGR 12% emerging
 4% developed$36 over last 18 years$57 over next 18 years 1.6x 2.6x emerging
 1.1x developed

8,000

15,0001 1.9x 3.8x emerging
 1.2x developed($ in trillions)

World exports($ in trillions)

Investable assets($ in trillions)

Infrastructure
spend($ in trillions)

Number ofcompanies with
$1+ billion revenue

Source: International Monetary Fund, World Bank, McKinsey, JPMorgan Chase analysis
12025 estimate

18

II. BUILT FOR THE LONG TERM

A very good current example of how weview investing and long-term decision
making is how we are dealing with thesqueeze on our net interest margins (NIM)
due to extremely low interest rates. The best
example of this is in our consumer business,where NIM has gone from 2.95% to 2.20%(from 2009 to 2014). This spread reduction
has reduced our net interest income by $2.5
billion, from $10 billion to $7.5 billion – orif you look at it per account, from $240 to$180. Since we strongly believe this is atemporary phenomenon and we did notwant to take more risk to increase our NIM(which we easily could have done), we
continued to open new accounts. Over those
years, we added 4.5 million accounts – and,in fact, very good sizable accounts. This has
reduced our operating margins from 36%
to 32%, but we don’t care. When normalinterest rates return, we believe this will add$3 billion to revenue and improve our operating margin to more than 40%.
Our long-term view means that we do not
manage to temporary P/E ratios — the tailshould not wag the dog
Price/earnings (P/E) ratios, like stock prices,
are temporary and volatile and should not
be used to run and build a business. We
have built one great franchise, our way,
which has been quite successful for sometime. As long as the business being built is areal franchise and can stand the test of time,
one should not overreact to Mr. Market.
This does not mean we should not listen towhat investors are saying – it just means
we should not overreact to their comments– particularly if their views reflect temporary factors. While the stock market over along period of time is the ultimate judge ofperformance, it is not a particularly good
judge over a short period of time. A moreconsistent measure of value is our tangible
book value, which has had healthy growthover time. Because of our conservative
accounting, tangible book value is a very
good measure of the growth of the valueof our company. In fact, when Mr. Market
gets very moody and depressed, we think it
might be a good time to buy back stock.

I often have received bad advice about what
we should do to earn a higher P/E ratio.
Before the crisis, I was told that we were
too conservatively financed and that moreleverage would help our earnings. Outsiders
said that one of our weaknesses in fixedincome trading was that we didn’t do enoughcollateralized debt obligations and structured
investment vehicles. And others said that we
couldn’t afford to invest in initiatives like ourown branded credit cards and the buildoutof our Chase Private Client franchise during
the crisis. Examples like these are exactly thereasons why one should not follow the herd.
While we acknowledge that our P/E ratio islower than many of our competitors’ ratio,
one must ask why. I believe our stock pricehas been hurt by higher legal and regulatory
costs and continues to be depressed due tofuture uncertainty regarding both.
We still face legal uncertainty though we aredetermined to reduce it over time. Though

we still face legal uncertainty (particularlyaround foreign exchange trading), we aredetermined to reduce it and believe it willdiminish over time. I should point out thatwhile we certainly have made our share of
costly mistakes, a large portion of our legal
expense over the last few years has comefrom issues that we acquired with Bear
Stearns and WaMu. These problems were far
in excess of our expectations. Virtually 70%
of all our mortgage legal costs, which havebeen extraordinary (they now total close to$19 billion), resulted from those two acquisitions. In the Bear Stearns case, we did not
anticipate that we would have to pay thepenalties we ultimately were required to pay.
And in the WaMu case, we thought we hadrobust indemnities from the Federal Deposit
Insurance Corporation and the WaMu receivership, but as part of our negotiations with
the Department of Justice that led to our big
mortgage settlement, we had to give thoseup. In case you were wondering: No, we
would not do something like Bear Stearns

19II. BUILT FO R T H E LO N G T ER M

again – in fact, I don’t think our Board would
let me take the call. The WaMu deal might
still make sense but at a much lower price tomake up for the ongoing legal uncertainty(including the government’s ability to takeaway our bargained-for indemnities). I did
not, and perhaps could not, have anticipatedsuch a turn of events. These are expensive
lessons that I will not forget.
Part of the issue around legal costs is thatbanks are now frequently paying penalties tofive or six different regulators (both domestic
and international) on exactly the same issue.
This is an unprecedented approach thatprobably warrants a serious policy discussion– especially if those regulators (as at least
some of them have acknowledged) don’t take
into account what is being paid to the others.
For now, it’s simply a reality for big banks,and certainly for us, that when one or more
employees do something wrong, we’ll hearfrom multiple regulators on the subject.
The good news is that our legal costs arecoming down and, we hope, will normalizeby 2016.
Uncertainty remains around regulatory requirements, though we believe this will diminish overtime, too. That uncertainty is particularly

acute around the extra capital that JPMorgan
Chase will have to hold because of the new
Global Systemically Important Bank (G-SIB)
rules, the ultimate impact of the Volcker
Rule, total loss-absorbing capacity, CCAR
and Recovery & Resolution. And it’s becauseof that uncertainty that a majority of thetime I spend with analysts and investors
these days is devoted to regulation. Verylittle time is spent talking about the actual
business, like client transactions, market

20

share gains or other business drivers. Many
questions still remain, and they are hard to
explain or are difficult to answer, including:Why did American regulators simply double
the G-SIB capital requirements for Americanbanks versus all other global banks? Will
higher capital requirements be added later?
Given that much uncertainty, which isgreater for JPMorgan Chase than for mostother banks, it is understandable that people
would pay less for our earnings than they
otherwise might pay.
Having said all this, the contours of all of
the new regulations have emerged, andwe believe that regulatory uncertainty willdiminish over time. And, we hope, so will
the drag on our P/E ratio.
Think like a long-term investor, manage likean operator
So our ultimate goal is to think like a longterm investor – build great franchises,
strengthen moats and have good throughthe-cycle financial results. Achieve thebenefits of scale and eliminate the negatives.
Develop great long-term achievable strategies. And manage the business relentlessly,
like a great operator. Finally, continue todevelop excellent management that keeps
it all going. As Thomas Edison said, “Vision
without execution is hallucination.”

III. W E W I L L S U CC E SS F ULLY N AV I G ATE THE N E W G LOBALF I N A N C I A L A R C HI T EC TUR E (A N D WE A R E WE LL ON
O UR WAY TO HAV I N G FORTR E SS CON TR OLS )We have meaningfully simplified the company
While I have said that it is good housekeeping
to keep our company as simple as possible,
we have done an extraordinary amount ofcleaning out this past year. More important,last year, we said that we would do it, andthis year we actually did it. The chart below
shows that we did it by shedding businesses,
reducing products and materially de-risking
by reducing certain types of clients that
simply create too much risk in the new world.
In total, we have reduced approximately $25
billion in assets through this effort. All of
this makes the work of our compliance andcontrol executives that much easier, as they
can focus more on what’s important.

We are well on our way to having fortresscontrols
The intense effort over the last few years
now is yielding real results and will go a longway in protecting the company in the future.
When we are done, we hope not just to have
met the heightened expectations of our regulators but to have exceeded them. In addition
to successfully completing CCAR (which wewill strive to do every year), there are otherexamples of tangible progress. Following aresome of our accomplishments:• Strengthened compliance. We have added
approximately 8,000 people across thefirm with a mission to strengthen ourcompliance capabilities. We have furtheraligned global leadership to drive focus
and consistency across key risk areas suchas AML/BSA (Anti-Money Laundering/

Executed Significant Business Simplification Agenda
Operating with fortress principles
Simplifying our business

Completed the spin-out of One Equity
üPartners and closed on the sale of a
portion of our Private Equity portfolio
ü Exited physical commodities business
Sold Global Special OpportunitiesüGroup portfolio
Exit in process of majority of Brokerü
Dealer Services businessTerminated transaction services for ~500
üForeign Correspondent Banking clients
ü Ceased originating student loans

Other meaningful business actions

nnounced exit of Sears Canada andü A

several smaller non-core card partnerships
nnounced exit of Internationalü A
Commercial Cardold interest in Carlson Wagonlit
ü S
Travel agency
ü Sold Retirement Plan Services unit
xited prepaid card and Order to Payü Ebusinessesü Sold health savings account business

Incremental financial impact1

1
2($ in billions)

2015

Revenue$1.6 

$0.7 

Expense$1.6 

$0.6 

S
implified Mortgage Banking productsüfrom 37 to 18 products as of 2014,
with a target of further reducing to 15
R
ationalized Global Investment
üManagement products: reduced U.S.
funds # by net 6%, Asia funds net 4%
and Europe funds net 2% in 2014
D
e-risking through client selectionü—discontinuing certain businesses withselect clients:
Exited ~8,000 clients in BusinessüBanking and Commercial Banking
Exited ~5,500 foreign Politicallyü
Exposed Person relationshipsS
old significant portion of CIB’s tradeü
finance EXIM/ECA2 portfolio

2016 and beyond

Does not include impact of the One Equity Partners and Private Equity portfolio sale
EXIM = Export–Import Bank; ECA = Export Credit Agency

21

III. A N E W GLO BA L F I N A N C I A L A R C H I T EC T U R EBank Secrecy Act), fiduciary risk, market
conduct risk, employee compliance andprivacy. We have enhanced our policies
and implemented new procedures andtechnology support.

the account to stop payday lenders fromtrying to take money from the account ona daily basis.) In addition, we are working
with NACHA to develop new standards
for the entire industry.

• New anti-money laundering systems deployed.
We have implemented Mantas, anindustry-leading transaction monitoring
platform, for all U.S. dollar paymenttransactions. This provides a significant improvement in our transaction
monitoring capabilities and allows us
to decommission multiple less effective
legacy systems. We also have upgraded
our processes and technology support in
AML investigations and sanctions. We
have more to do, but a strong foundation
is in place.

• Mortgage servicing improvements. As oneof the United States’ largest mortgage
lenders, some of our practices were notdesigned to handle the unprecedented
increase in volume that occurred as aresult of the financial crisis. Therefore, we
reviewed the areas that needed enhancement and took the appropriate actions.
We focused on improving our operating
model, we dedicated more than 10,000
employees to assist customers that were
having difficulty making payments, andwe improved our communications withcustomers to provide better counselingand more clarity about the options available. We also invested more than 280,000
hours of our technology employees’
time to improve our Mortgage Servicing
business, including enhancing the loan
modification application to improve thesystems that track and manage customer
complaints and responses.

• Foreign correspondent banking review. Given
the regulatory scrutiny around these
activities, we have exited many relationships with foreign correspondent banks
where we have risk-related concerns or
where we needed to simplify our business. In addition to the relationshipexits, we have improved our controls forforeign correspondent banking activities,
including enhancing our technology tobetter monitor U.S. dollar correspondentbank transactions – which allowed us to
implement 10 new transaction monitoring
scenarios to better track millions of transactions each day.
• Enhanced controls in connection with payday
lender practices. We reviewed our policies, systems and processes to decreasefinancial burdens on our customers andhinder payday lenders’ ability to engage inpredatory collection practices. And thenwe did the following: eliminated multiple
return item fees, enhanced our policy andsystems for stop payment requests, andallowed account closure with a pendingtransaction and/or a negative balance.
(NACHA rules originally did not allow abank to close an account with a pendingtransaction. Consumers wanted to close

22• Model review. More than 300 employees
are working in Model Risk and Development. In 2014, this highly specialized team completed over 500 model
reviews, implemented a system to assess
the ongoing performance of the 1,000+
most complex models in the firm, andcontinued to enhance capital and loss
models for our company.
Fortunately, most of our strategies stayessentially the same
Many banks will have to make some fairly
drastic changes to their strategies, andbecause various banks are facing different
overarching constraints, those strategies may
be dramatically dissimilar. We are fortunatethat our strategies will remain essentially thesame, which allows us to avoid the upheaval,
both internally and externally with clients,that often comes when strategies need to bechanged dramatically.

III. A NEW G LOBAL F INANCIAL ARCHITEC TU RE

However, a small percentage of our products
and services will require some surgery (moreon that later). In addition, because somecompanies are making large strategic moves,
we would expect to see an ongoing shift inmarket shares and pricing. It is possible that
we will benefit from both of these trends.

While uncertainty remains, the contours to
the new rules are largely known, and we havemade enormous progress adapting to them
The chart below describes the new rules andregulations with which we need to comply.
And remember, these new rules affect eachproduct, business, legal entity and client.
Every requirement has a few hundred2015 Financial Architecture
Description

CapitalLiquidity

Recovery & Resolution

Mortgages

Data reportingand management

Derivatives

Volcker

Selected requirements

Selected JPMorgan Chase actions

 Improving the banking sector’sability to absorb losses arising fromfinancial and economic stress 750+ requirements with 21
regulators involved ~27 different capital ratio
requirements

9 50+ people 20,000+ pages of supporting
documentation 225+ new models

 Ensuring banks hold sufficientliquid assets to survive acuteliquidity stress Prevent overreliance on
short-term wholesale funding 500+ requirements 15+ jurisdictional variations
expected 400+ peopleP rocess and store 1+ billion records
per day from 200+ feeds Ensuring the resiliency of firms
to prevent failure Preparing living wills Annual global recovery planA nnual resolution plans for 34
entities, with plans by businessand critical operations
1
 0+ jurisdictions issued or
proposed Recovery & Resolution
regulation, with more expected 1,000+ people 1+ million work hours devoted
annually Reforming the nation’s housing
finance system Expanding origination, servicing
and securitization regulation 90+ new, proposed or amended
rules, notices and regulations
contained within ~13,000 pagesof regulatory text ~2,000 pages of systemic reform
legislation introduced

 ~800,000 compliance traininghours
 ~1.4 million work hours
dedicated to systems and process
implementation

 E nhancing data-related capabilities
by increasing accountability
and transparency for data quality
 I mproving the firm’s ability tocollect, manage and report on datain order to facilitate greater market
and product transparency

1
 1 principles with 1,000+
requirements
3
 ,300+ pages of requirements,
principles and guidance 1,000+ people working across
43 business groups 120+ distinct programs with
1,400+ milestones

 Enhancing pre- and post-tradetransparency Promoting use of electronic trading
venues and central clearing Bolstering capital and margin
requirements 99 proposed or finalized
regulations (U.S.) and 237 final
articles (European Union)
3
 ,150+ pages of requirements andguidance

 700+ people 60 workstreams

 Restricting banks from undertaking
certain types of market activities Controlling risks associated withcertain trading and funds-related
activity 1,000+ pages covering 36
requirements, with 5 regulators
involved 300+ people 7 trading metrics reported
monthly across 15 businessareas

Note: This list of regulations is not comprehensive; estimates of resources are approximate

23

III. A N E W GLO BA L F I N A N C I A L A R C H I T EC T U R E

detailed rules around it to which we need toadapt. While it is a lot of work, we believe wewill be able to successfully accomplish all ofit. We have spoken about many of these rules
and requirements in the past so we won’t
go into greater detail here, other than on the
new G-SIB capital rules, which will have somematerial effects on some of our businesses.
Intense effort is going into understanding
and adapting to the new G-SIB capital rules.

Last year, we described how we had to
manage the company to satisfy several new
constraints (all of the liquidity, leverage,
capital and CCAR requirements). To dothis, we were pushing these new rules
and requirements all the way down to the
product and client levels. The G-SIB capitalrules are a new constraint that we also needto manage to, and for JPMorgan Chase, they
possibly are the most important constraint,
though this may change over time. Therefore, we also need to push the new G-SIB
rules to the product and client levels.
Unlike RWA, which lets one measure therisk embedded in each asset and, thus, thecapital needed to hold against it, G-SIB ismultivariate. G-SIB is not a simple calculation. It requires thousands of calculations,and it does not look at just assets – it looks
at products, services, assets, type of client(i.e., international and financial or corporate)and collateral type, among others in order todetermine capital levels.
G-SIB will have its highest impact on nonoperating deposits, gross derivatives, theclearing business in general and certain
clients, particularly financial institutions,
including central banks. At the end of theday, we believe that we can manage throughthis process and reduce our capital requirements while maintaining our core franchises. To the extent that these changes
materially impact clients, we will do itthoughtfully and carefully and help themfind appropriate alternatives.

24

G-SIB is not a direct measure of risk. The G-SIB

calculations show that JPMorgan Chase is themost Global Systemically Important Bank,
and, therefore, we have to hold more capitalthan any other bank in the world. Some ofour shareholders believe that this designation implies that before the additional capitalis held, we may be the riskiest institution,
too. But G-SIB is not a true measure of risk,
like RWA or CCAR. (And as shareholders
have mentioned to me, many of thesemeasures do not indicate how they would
look at risk; i.e., margins, earnings diversification and actual performance in toughtimes, in addition to criteria such as capitaland liquidity.)
In fact, parts of G-SIB are very risk insensitive – for example, it does not measure ouractual and largest risks in credit markets(still our largest exposures) – and it adds a
lot of capital for some activities that haveabsolutely no risk involved. One example
will suffice: We take non-operating deposits(deposits that are very short term in naturefrom investors so they can manage theirshort-term cash needs) from central banks
and large financial institutions. We haveapproximately $350 billion of non-operating
deposits, a large portion from financial
institutions, which we immediately turnaround and deposit at the Federal Reserve,
and this is risk-free to us. We mostly do thisas an accommodation to large institutions
that need to move extensive sums of moneyaround and we generate minimal earnings
from this activity. We recently announced
that we are going to reduce these deposits
by $100 billion, which in the context ofthe firm’s broader actions will reduce ourcommon equity requirements by approximately $3.5 billion. (Since these changes
involve some of the largest financial institutions in the world, we are doing this very
carefully and are trying to make sure thatclients have access to alternatives such asaccess to money market funds and directaccess to Federal Reserve facilities.)

III. A NEW G LOBAL F INANCIAL ARCHITEC TU RE

We hope to learn a lot more about the G-SIB
calculations. Many questions remain, which
we hope will be answered over time such as:

We must and will meet the regulators’
demands on Recovery & Resolution —whatever it takes• It is unclear (it has not been made transparent to us) how and why these calculations are supposed to reflect systemic risk.
In addition, they are relative calculations,which means that even if we and everybody else all reduced these exposures,
our surcharge would not change, while
presumably systemic risk would drop.

A critical part of eliminating “Too Big toFail” is meeting the regulators’ demands on
Recovery & Resolution. The Recovery Plan
is the first line of defense in a crisis situation and serves as the road map for how
to prevent the firm from actually failing. It
gives the regulators the comfort that the firm
has done sufficient upfront planning andanalysis and has an outline for how the firm
could recover if confronted with a severe
financial crisis. The plan essentially helps theregulators understand the comprehensive
set of alternatives and actions available toenable the firm to fully recover and prevent a
failure. Resolution Plans, on the other hand,
are the playbooks for how the company canbe restructured or unwound in an orderly
way in the event of a failure so that otherbanks and the general economy would not
suffer. The plans outline for the regulators a
set of strategies, necessary information anddetailed plans by legal entity. For instance,
JPMorgan Chase has reported that it has 34
legal entities and branches housing the vast
majority of the firm’s essential operations
and businesses. Each legal entity has to beunderstood by the regulators and must havedistinct intercompany agreements and acomprehensive plan in place to manage thelegal entity in the event that it needs to beresolved. We have taken these requirements
very seriously as evidenced by the more than
1,000 people working diligently on the extensive Recovery & Resolution requirements.
In addition, we are working to reduce thenumber of entities we have and to simplify
our structure and inter-entity arrangements.
We need to satisfy all of our regulators onthese plans, and we will do whatever it takes
to meet their expectations.

• It is unclear how these calculations take
into consideration the extensive numberof new rules and regulations that aresupposed to reduce systemic risk (i.e., total
loss-absorbing capacity, net stable funding
ratio, liquidity coverage ratio, supplementary leverage ratio and the new Recovery& Resolution rules).
• It is unclear why the U.S. regulators
doubled the calculations versus everyone
else in the world, particularly since theU.S. banking system, as a percentage of
the U.S. economy, is smaller than in mostother countries.
G-SIB is important, and we take it seriously. The

G-SIB capital surcharge, however calculated,
is an important part of our capital needs.
And since we are outsized, relative to ourcompetitors (our capital surcharge currently
is estimated as 4.5% of risk-weighted assets,
yet many of our competitors are between
2%-4% of risk-weighted assets), we will be
more comfortable when the surcharge isreduced. We already have begun to lower thesurcharge by 0.5%, and, over time, expect
to do more than that. Marianne Lake andDaniel Pinto gave details on this topic in
their Investor Day presentations. The regulators have made it clear that these are important measures of global systemic risk, andthey have given us a clear road map to how
we can reduce these exposures – and we aregoing to take that road.

There have been two critical developments
toward giving governments and regulators comfort on Recovery & Resolution,
which, according to some key regulators,
will effectively end Too Big to Fail and will

25

III. A N E W GLO BA L F I N A N C I A L A R C H I T EC T U R E

be completed in 2015. First, the regulators
have almost finished plans around total lossabsorbing capacity, which will require largebanks to hold a lot of additional long-term
debt, which could be converted to equity inthe event of a failure and thereby enable thefirm to remain open to serve customers andmarkets. Second, the industry agreed to put
in place specific rules and guidelines on how
to deal globally with derivatives contracts ofa failed institution. This gives regulators andgovernments the knowledge that, in a failure,
derivatives contracts can be properly managed
and will not make the situation worse.

26

The industry will be stronger and safer
because of all of the new regulations, and thefuture is bright for well-run banks
There is no question that, today, the global
banking system is safer and stronger –possibly more so than it has ever been.
That is not to say that the changes do
not create a whole range of challenges,
complexities and new risks (which we willtalk about in the next section). But at theend of the day, the system will be safer
and more stable than ever. I may sounda little like Voltaire’s optimistic character
Dr. Pangloss for saying this, but I am
hopeful that in the next five to 10 years,
high-quality banks will be thriving in theirwork to support economies and help society.

IV. W E H AV E A S OLI D STR ATEGY A N D BE LI EV E OURF UT UR E OUTLOOK I S V E RY G OOD — BUT, A S US UAL ,T H E R E ST I L L A R E A LOT OF T HI N G S TO THI N K A N D
WOR RY A B OUT

We already have spoken about the fact thatmost of our strategy will stay essentially thesame and that while some areas may require
a little surgery, we strongly believe we will beable to successfully navigate the new world.
Some of that surgery will slow down our
growth a little bit in certain areas, but we arequite optimistic that we can grow in others.
Most of our growth will be organic — we havebeen doing this successfully for a decade —and opportunities aboundWe are optimistic that all of our businesses
can grow, and, below, I describe some initiatives that are particularly exciting.
Chase Private Client started as a gleam in our eyeback in 2010. Chase Private Client branches

are dedicated to serving our affluent clients’investment needs. From one test branch(which didn’t go very well, but, fortunately,
we kept on trying), we now have more than
2,500 Chase Private Client offices. They now
manage investments and deposits of $190
billion. While the branch buildout is essentially complete, we think the potential for
growth remains large.
Small business. We are making our premier

1

Excludes legal expense

products and services work better together
for a more holistic experience for our small
business customers, whose time and attention
should be spent on running their business,
not going to the bank. We see a huge opportunity in this fragmented market – there is
no dominant bank for the 28 million small
businesses in the United States. At JPMorgan
Chase, we serve 3.9 million American small
businesses across Business Banking, Card
Services and Chase Commerce Solutions, andwe have successfully grown all of these businesses. We want to become the easiest bankto do business with, and we are working hardto speed applications, simplify forms and add
digital conveniences. For example, we want asmall business to fill out an application thatcan qualify it for Ink® (our small businesscredit card), Paymentech, deposits and loans
all at once. We believe that if we bundle theservices that small businesses really want
and also provide meaningful advice, we candramatically grow this business. Looking
ahead, we know small businesses becomelarge companies at a much more rapid pacethan in years past. Serving these companies well now can solidify long-term client
relationships that could span several lines ofbusiness in the future.
Excellent prospects for our Corporate &Investment Bank. Our Corporate & Investment

Bank is an example of a business that has
had exceptional relative multi-year performance. And even recently when it has been
under a lot of regulatory pressure due tohigher capital constraints and other regulatory demands, the business has been able
to earn a 13% return on equity1. It is an
endgame winner, and it benefits substantially from the rest of the company, whichhelps drive its best-in-class results.
However, in our current environment, wedon’t expect a lot of growth or robust returns
as we adjust to the new world. But we
continue to believe that the long run is quite
attractive. At Investor Day, we showed that
the Corporate & Investment Bank in 2006
was #1, #2 or #3 in eight of the 16 productcategories that we are in. Now we are #1, #2
or #3 in 15 of the 16 product categories that
we are in. But the exciting part is a programthat Daniel Pinto calls Path to #1, whichshows when you divide those 16 businesses
into sub-businesses and geographies, there
are lots of areas where we are not close to #1,#2 or #3, and, in most of those places, weshould be able to improve. So as the business goes through an inordinate amount ofchange, the underlying needs of our clients
continue to grow, and we will grow withthem and believe we can gain share, too.

27

IV. SO LI D ST R AT EGY A N D FU T U R E O U T LO O K

We are going to do a better job of coveringfamily and private offices in both the Private
Bank and the Investment Bank. Family offices

Retail banking presence still has room to grow.

have become larger, more sophisticated andmore global, and they actively buy minority
or whole stakes in businesses. More than
2,300 families across the globe had assets
of $1 billion or more in 2014. Together, they
control over $7 trillion in assets, a numberthat has grown in excess of 10% since 2011.
While J.P. Morgan already works with manyof these families as clients, we believe we
can do a far better job of providing the fullrange of products and services offered by ourPrivate Bank and Investment Bank.
Private banking will grow for years. In Mary

Erdoes’ Investor Day presentation, sheshowed that while we have the best privatebank in the United States, our business stillis rather small, and there is plenty of room
to grow. This is even truer in Asia Pacificand Latin America. The chart below shows
how strong our business is and illustrates
that there is plenty of room to grow ourmarket share internationally.

While we cannot acquire a retail bank in the
United States, we can – and intend to – enter
cities where we have never been. We willkeep those cities we might choose to enter asurprise – but we hope to begin doing thisin 2016. And remember, when we enter acity, we can bring the full force of JPMorgan
Chase to bear, from retail, small business andprivate banking to middle market and local
coverage of large corporations.
We particularly are excited about our payments
business in total. The combination of Chase

Paymentech, our merchant acquirer,
ChaseNet, our proprietary Visa-supported
network, and ChasePay, our proprietary
wallet, allows us to offer merchants –large and small – better deals in terms of
economics, simpler contracts, better data
and more effective marketing to their clients.
It also allows us to better serve consumer
clients with a wide variety of offers and easeof use. We are going to be very aggressive ingrowing this business, and we will be disappointed if we don’t announce some exciting
and potentially market-changing ventures.

Trusted Advisor
Advisor toto thethe World’s
World’s Most
Most SophisticatedSophisticated Clients
Clients
Trusted% client assets from clients with $10+ million (2013)86%

2006-2013 client asset CAGR

U.S.
>50% of JPM PB client
assets from clients with
$100+ million

Industry

36%
26%

MS1

BAC1
(ML)

Europe/Middle East/
AfricaAsia/
Pacific

4%
Industry8%
Industry

JPM PB
market share

4%

JPM PB

6%
Industry

47%

UBS

9%

15%

Latin America/
Caribbean

JPM
PB1

4%

JPM PB
market share

1%

JPM PB

8%

JPM PB
market share

JPM PB<1%

14%

JPM PB
market share

JPM PB

Every +10 basis points in market share internationally = $150+ million of revenue
1

PB = Private Bank; MS = Morgan Stanley; BAC = Bank of America (Merrill Lynch)

28

<1%

IV. S OLID STRATEGY AND F UTURE OUTLOOKBig, fast data. We continue to leverage the

Silicon Valley is coming. There are hundreds

data generated across JPMorgan Chase, as
well as data that we purchase to create intelligent solutions that support our internal
activities and allow us to provide value andinsights to our clients. For example, we aremonitoring our credit card and treasury
services transactions to catch fraudulent
activities before they impact our clients, weare helping our clients mitigate costs by optimizing the collateral they post in support ofderivatives contracts, and we are highlighting
insights to our merchant acquiring andco-brand partners.

of startups with a lot of brains and money
working on various alternatives to traditional banking. The ones you read aboutmost are in the lending business, whereby
the firms can lend to individuals and small
businesses very quickly and – these entities believe – effectively by using Big Data
to enhance credit underwriting. They arevery good at reducing the “pain points” inthat they can make loans in minutes, whichmight take banks weeks. We are going towork hard to make our services as seamless and competitive as theirs. And we also
are completely comfortable with partnering
where it makes sense.

There always will be new emerging
competitors that we need to keep an eye on
New competitors always will be emerging –and that is even truer today because of newtechnologies and large changes in regulations. The combination of these factors will
have a lot of people looking to competewith banks because they have fewer capitaland regulatory constraints and fewer legacy
systems. We also have a healthy fear of thepotential effects of an uneven playing field,
which may be developing. Below are someareas that we are keeping an eye on.
Large banks outside the United States arecoming. In terms of profitability, the top two

Chinese banks are almost twice our size.
Thirty years ago, Industrial and Commercial
Bank of China operated in only a handfulof countries, but it now has branches or
subsidiaries in more than 50 countries. It has
a huge home market and a strategic reason
to follow the large, rapidly growing global
Chinese multinationals overseas. It may take10 years, but we’d be foolish to discount theirambition and resources. We’re also seeing
world-class banks emerge and grow in places
like India and Brazil, and Japanese and Canadian banks are coming on strong, too. Manyof these banks are supported in their expansionary efforts by their government and will
not need to live by some of the same rulesthat we in the United States must adhere to,including capital requirements. We welcome
the competition, but we are worried that an
uneven playing field may hamper us many
years from now.

Competitors are coming in the payments area.

You all have read about Bitcoin, merchantsbuilding their own networks, PayPal and
PayPal look-alikes. Payments are a criticalbusiness for us – and we are quite good at it.
But there is much for us to learn in terms ofreal-time systems, better encryption techniques, and reduction of costs and “painpoints” for customers.
Some payments systems, particularly the
ACH system controlled by NACHA, cannot
function in real time and, worse, are continuously misused by free riders on the system.
There is a true cost to allowing people tomove money. For example, it costs retailers
50-70 basis points to use cash (due topreventing fraud and providing security,etc.). And retailers often will pay 1% to anintermediary to guarantee that a check isgood. A guaranteed check essentially is thesame as a debit card transaction for which
they want to pay 0%. For some competitors, free riding is the only thing that makes
their competition possible. Having said that,
we need to acknowledge our own flaws. We
need to build a real-time system that properly charges participants for usage, allows forgood customer service, and minimizes fraud
and bad behavior.
Rest assured, we analyze all of our competitors in excruciating detail – so we can learn
what they are doing and develop our own
strategies accordingly.
29

IV. SO LI D ST R AT EGY A N D FU T U R E O U T LO O K

Cybersecurity, fraud and privacy need
intensive investment on the part of yourentire company, and we must do it incollaboration with the government andregulators
Matt Zames describes on page 40 some ofthe efforts we are making on cyber. What
I want to emphasize to our shareholders isthe absolute, critical and immediate need tocombat cybersecurity threats and the related
issues of fighting fraud and protecting
privacy. In these areas, we will do whatever ittakes to protect the company and its clients.
Regarding privacy, I do not believe that mostpeople fully understand what no longer isprivate and how their information is beingbought, sold and used. As a bank, we areappropriately restricted in how we can use
our data, but we have found many examples of our data being misused by a third
party. We are going to be very aggressive in
limiting and controlling how third parties
can use JPMorgan Chase data.
It is critical that government and businessand regulators collaborate effectively andin real time. Cybersecurity is an area where
government and business have been working
well together, but there is much more to be
done. And if it is not done in a concerted
way, we all will pay a terrible price.
The banking system is far safer than it has
been in the past, but we need to be mindfulof the consequences of the myriad new
regulations and current monetary policyon the money markets and liquidity in themarketplace — particularly if we enter ahighly stressed environment
There are many new rules, and, in conjunction with current monetary policy, they
already are having a large effect on money
markets and liquidity in the marketplace.
One famous scientist once said, “A Rule ofThree (ART): A statistical specification withmore than three explanatory variables ismeaningless.” Simply put, it is impossible tofigure out the cumulative effect of all these30

changes even in a benign environment.
But what is far more important is what theeffect of these changes might be if we enter astressed environment. As a risk policy matter,
we need to make the assumption that there
will be unpredictable and unintended consequences – sometimes these are to good effect,
but what we need to worry about are thosethat have a potentially bad effect.
In the rest of this section, we will look at how
the table is set – what is going on that is thesame or different than in the past. Later inthis section, we will speculate on what might
happen differently if we enter a new crisis.
Most important, we will enter the next crisis
with a banking system that is stronger than it
has ever been

Each individual bank is safer than before,
and the banking sector overall is stronger
and sounder because, among other things:• Capital levels are far higher today than
before the crisis and, by some measures,
higher than they have ever been. For
example, a very basic measure of capital,
going back around 100 years, was a simple
ratio of equity to assets. In the last six
years, it’s back to high numbers not seen
since the late 1930s.
• Highly liquid assets held by banks probably are much higher than ever before.
• Many exotic and complex products aregone.
• Many standardized derivatives are moving
to clearinghouses.
• Both consumer and commercial loans areunderwritten to better standards than
before the crisis.
• Transparency to investors is far higher.
• Boards and regulators are far moreengaged.

IV. S OLID STRATEGY AND F UTURE OUTLOOK

But many things will be different — for example,
there will be far more risk residing in the central
clearinghouses, and non-bank competitors will
have become bigger lenders in the marketplace

Clearinghouses will be the repository of far
more risk than they were in the last crisis
because more derivatives will be clearedin central clearinghouses. It is importantto remember that clearinghouses consolidate – but don’t necessarily eliminate – risk.
That risk, however, is mitigated by proper
margining and collateral. We have long maintained that it is important to stress test central
clearinghouses in a similar way that banks arestress tested to make sure the central clearinghouses’ capital and resources are sufficient
for a highly stressed environment. Clearinghouses are a good thing but not if they are apoint of failure in the next crisis.
Non-bank competitors are increasingly
beginning to do basic lending in consumer,
small business and middle market. In middle
market syndicated lending, their share
recently has increased from 3% a few years
ago to 5% today, and many people estimate that it will continue to increase over
the years to come. There is nothing wrong
with having competitors, including nonbank competitors. However, they will act
differently from banks in the next stressed
environment. I will write about this later inthis section when we go through a thought
exercise of the next crisis.
There already is far less liquidity in the generalmarketplace: why this is important to issuers andinvestors

Liquidity in the marketplace is of value toboth issuers of securities and investors insecurities. For issuers, it reduces their cost of
issuance, and for investors, it reduces theircost when they buy or sell. Liquidity canbe even more important in a stressed time
because investors need to sell quickly, andwithout liquidity, prices can gap, fear cangrow and illiquidity can quickly spread –even in supposedly the most liquid markets.

Some investors take comfort in the fact thatspreads (i.e., the price between bid and ask)
have remained rather low and healthy. But
market depth is far lower than it was, and webelieve that is a precursor of liquidity. For
example, the market depth of 10-year Treasuries (defined as the average size of the best
three bids and offers) today is $125 million,
down from $500 million at its peak in 2007.
The likely explanation for the lower depth inalmost all bond markets is that inventories
of market-makers’ positions are dramatically lower than in the past. For instance, thetotal inventory of Treasuries readily available to market-makers today is $1.7 trillion,
down from $2.7 trillion at its peak in 2007.
Meanwhile, the Treasury market is $12.5 trillion; it was $4.4 trillion in 2007. The trend
in dealer positions of corporate bonds issimilar. Dealer positions in corporate securities are down by about 75% from their 2007
peak, while the amount of corporate bonds
outstanding has grown by 50% since then.
Inventories are lower – not because of one
new rule but because of the multiple newrules that affect market-making, including far
higher capital and liquidity requirements andthe pending implementation of the Volcker
Rule. There are other potential rules, which
also may be adding to this phenomenon. For
example, post-trade transparency makes it
harder to do sizable trades since the wholeworld will know one’s position, in short order.
Recent activity in the Treasury markets and thecurrency markets is a warning shot across the bow

Treasury markets were quite turbulent in
the spring and summer of 2013, when the
Fed hinted that it soon would slow its asset
purchases. Then on one day, October 15,
2014, Treasury securities moved 40 basis
points, statistically 7 to 8 standard deviations– an unprecedented move – an event thatis supposed to happen only once in every 3billion years or so (the Treasury market has
only been around for 200 years or so – ofcourse, this should make you question statistics to begin with). Some currencies recently
have had similar large moves. Importantly,
Treasuries and major country currencies are
considered the most standardized and liquid
financial instruments in the world.
31

IV. SO LI D ST R AT EGY A N D FU T U R E O U T LO O K

The good news is that almost no one wassignificantly hurt by this, which does show
good resilience in the system. But thishappened in what we still would considera fairly benign environment. If it were tohappen in a stressed environment, it could
have far worse consequences.
Some things never change — there will be
another crisis, and its impact will be felt by
the financial markets
The trigger to the next crisis will not be
the same as the trigger to the last one – butthere will be another crisis. Triggering events
could be geopolitical (the 1973 Middle East
crisis), a recession where the Fed rapidly
increases interest rates (the 1980-1982 recession), a commodities price collapse (oil in thelate 1980s), the commercial real estate crisis(in the early 1990s), the Asian crisis (in 1997),
so-called “bubbles” (the 2000 Internet bubble
and the 2008 mortgage/housing bubble),etc. While the past crises had different roots(you could spend a lot of time arguing thedegree to which geopolitical, economic orpurely financial factors caused each crisis),
they generally had a strong effect across thefinancial markets.
While crises look different, the anatomy
of how they play out does have common
threads. When a crisis starts, investors try toprotect themselves. First, they sell the assets
they believe are at the root of the problem.
Second, they generally look to put more of
their money in safe havens, commonly sellingriskier assets like credit and equities andbuying safer assets by putting deposits instrong banks, buying Treasuries or purchasing
very safe money market funds. Often at
one point in a crisis, investors can sell only
less risky assets if they need to raise cash
because, virtually, there may be no market
for the riskier ones. These investors include
individuals, corporations, mutual funds,
pension plans, hedge funds – pretty much
everyone – each individually doing the rightthing for themselves but, collectively, creating
the market disruption that we’ve witnessed
before. This is the “run-on-the-market”
phenomenon that you saw in the last crisis.
32

And now, a thought exercise of what might bedifferent in the next crisis
It sometimes is productive to conduct athought exercise – in effect trying to re-enact a“run on the market” but, in this case, applying
the new rules to see what effect they might
have. Even though we must necessarily be
prepared for a crisis at all times, we hope areal crisis is many years down the road. And
in the United States, we would be entering
the crisis with a banking system that is far
stronger than in the past, which, on its own,
could reduce the probability and severity of
the next crisis. We are not going to guess atthe potential cause of the crisis, but we willassume that, as usual, we will have the normal“run-on-the-market” type of behavior by investors. So let’s now turn to look at how a crisis
might affect the markets in the new world.
The money markets (deposits, repos, short-term
Treasuries) will behave differently in the next crisis• Banks are required to hold liquid assets
against 100% of potential cash outflows
in a crisis. Liquid assets essentially arecash held at central banks, Treasuries
and agency mortgage-backed securities.
Outflows are an estimate of how much
cash would leave the bank in the first
30 days of a crisis. This would include
things like deposit outflows, dependingon the type of deposit, and revolver takedowns, depending primarily on the typeof borrower. In my opinion, banks andtheir board of directors will be very reluctant to allow a liquidity coverage ratio
below 100% – even if the regulators say
it is okay. And, in particular, no bank will
want to be the first institution to report aliquidity coverage ratio below 100% forfear of looking weak.
• In a crisis, weak banks lose deposits, whilestrong banks usually gain them. In 2008,
JPMorgan Chase’s deposits went up morethan $100 billion. It is unlikely that wewould want to accept new deposits thenext time around because they would beconsidered non-operating deposits (shortterm in nature) and would require valuable capital under both the supplementary
leverage ratio and G-SIB.

IV. S OLID STRATEGY AND F UTURE OUTLOOK• In a crisis, everyone rushes into Treasuries to protect themselves. In the lastcrisis, many investors sold risky assets
and added more than $2 trillion to theirownership of Treasuries (by buying
Treasuries or government money market
funds). This will be even more true in thenext crisis. But it seems to us that there
is a greatly reduced supply of Treasuries
to go around – in effect, there may be ashortage of all forms of good collateral.
Currently, $13 trillion of Treasuries areoutstanding, but, according to our estimates, less than half of this amount iseffectively free to be sold. Approximately$6 trillion is accounted for by foreignexchange reserve holdings for foreigncountries that have a strong desire to
hold Treasuries in order to manage theircurrencies. The Federal Reserve owns $2.5
trillion in Treasuries, which it has said it
will not sell for now; and banks hold $0.5
trillion, which, for the most part, they are
required to hold due to liquidity requirements. Many people point out that thebanks now hold $2.7 trillion in “excess”
reserves at the Federal Reserve (JPMorgan
Chase alone has more than $450 billion
at the Fed). But in the new world, thesereserves are not “excess” sources ofliquidity at all, as they are required tomaintain a bank’s liquidity coverage ratio.
In a crisis, if banks turn away deposits,
most investors will have other options,which include:
1. Buying Treasuries directly.
2. Buying money market funds, which
own Treasuries.
3. Buying repos, which are collateralizedby Treasuries.
4. Investing directly at the Fed for alimited set of investors (governmentsponsored enterprises, money funds).
5. Purchasing credit instruments likecommercial paper.

Buyers of credit (loans, secured loans,
underwriting and investments) will be morereluctant to extend credit• In the crisis, many banks lent against
various forms of good collateral (but notnecessarily the highest quality collateral)
to help clients create liquidity and navigate through the crisis. The collateral oftencame with significant haircuts and was of
the type that banks thought they easily
could risk-manage, and, for the most part,
they did. In the last crisis, JPMorgan Chase
did tens of billions of this type of lending.
In the next crisis, banks will have a hardtime increasing this type of credit because
it will require capital and more liquidity.
• In a crisis, clients also draw down revolvers(for JPMorgan Chase alone, this peaked
at approximately $20 billion at one pointin 2009) – sometimes because they want
to be conservative and have cash on handand sometimes because they need themoney. As clients draw down revolvers,risk-weighted assets go up, as will thecapital needed to support the revolver. In
addition, under the advanced Basel rules,
we calculate that capital requirements can
go up more than 15% because, in a crisis,
assets are calculated to be even riskier. Thiscertainly is very procyclical and would
force banks to hoard capital.
• In addition, banks may have a decreasein capital because new regulatory capitalrules require losses on investment securities to reduce regulatory capital. This
would be particularly true if interest rates
were rising in the next crisis, which cannot
be ruled out. (Typically, Treasury yields
drop dramatically in a crisis, and thatpossibly could happen in this case, too,
especially as they would be in short supply.
But, again, one cannot rely on this.)• In the last crisis, some healthy banks usedtheir investment portfolios to buy andhold securities or loans. In the next crisis,banks will not be able to do that because
buying most types of securities or loans
would increase their RWA and reduce
their liquidity.
33

IV. SO LI D ST R AT EGY A N D FU T U R E O U T LO O K• In the last crisis, banks underwrote (forother banks) $110 billion of stock issuance through rights offerings. Banksmight be reluctant to do this again
because it utilizes precious capital andrequires more liquidity.
• It is my belief that in a crisis environment, non-bank lenders will not continue
rolling over loans or extending new
credit except at exorbitant prices thattake advantage of the crisis situation.
On the other hand, banks continued tolend at fair prices in the last crisis becauseof the long-term and total relationshipinvolved. Banks knew they had to lend
freely because effectively they are the“lender of last resort” to their clients as theFederal Reserve is to the banks. This is a
critical point: JPMorgan Chase and mostother banks understood their vital role inactively lending to clients. In 2008 and2009, JPMorgan Chase rolled over morethan $260 billion of loans and credit facilities to small businesses, middle market
companies and large companies, in addition
to $18 billion for states and municipalities,
hospitals and nonprofits. We rolled overthese capital and lending commitments to
support our clients and always maintained
fair (and not rapacious) pricing, reflecting
our long-term relationship with them.

The markets in general could be more volatile— this could lead to a more rapid reduction ofvaluations

The items mentioned above (low inventory,
reluctance to extend credit, etc.) make it more
likely that a crisis will cause more volatile
market movements with a rapid decline
in valuations even in what are very liquidmarkets. It will be harder for banks either as
lenders or market-makers to “stand against
the tide.”
But the American financial markets and, more
important, the American economy generally havebeen extraordinarily resilient

Banks may be less able to act positively inthe next crisis, but they also are far stronger
and unlikely, in our opinion, to create thenext crisis. Many other actors in the financial
system, from hedge funds to long-term investors, including corporations and large money
managers, will, at some point, step in and buy
assets. The government, of course, always isable to step in and play an important role.
In addition, regulators can improve theliquidity rules to allow banks to provide
liquidity on a more “graduated” basis against
more types of assets and give more flexibilityon the “margin” than is required. That is, they
can give themselves both gas and brakes; i.e.,change liquidity rules to fit the environment.
In addition, we should try to eliminate procyclical rules, which can exacerbate a crisis.
Fundamentally, as long as the economy is notcollapsing, financial markets generally recover.
Whatever the turn of events, JPMorgan Chasewill have the capability to play its role insupporting clients and communities in the
countries in which we operate.

34

V. WE HAVE A FULLY ENGAGED BOARD, AN EXCEPTIONAL
M A N AG E M E NT T E A M A N D A ST R ON G COR POR AT EC ULT UR E

We want to be a standard-bearer in theindustry when it comes to meeting theheightened standards demanded by our regulators – and not just because it’s required
but because we think it’s the right thing to
do for our shareholders, clients, employees
and communities. And we want to do thisacross all measures – from our controls
to board governance, the cultivating of astrong culture and how we are fighting cyberattacks to how we treat our clients. It starts
at the top – with the Board of Directors.
Your Board is fully engaged in all criticalmatters
The entire Board is fully engaged in the affairs of
the company. Board members are fully engaged

in the company, from setting the agenda of
the Board meetings to reviewing strategy anddemanding strong controls to determining
CEO compensation and succession planning.
Board members also are increasingly engaged
in regulatory and shareholder affairs. Severalof the Board members meet regularly with
our key regulators and major shareholders.
Management succession planning is a priority of
the Board. Regarding succession planning,

the Board always must be prepared for the“hit-by-the-bus” scenario (which, of course,
is not my preference), but ongoing succession planning for the medium and long termis the highest priority of the Board. Importantly, our Board members have complete
access to and relationships with the key
senior people and continually interact withthem, both formally and informally. Both theBoard members and I believe that, under all
scenarios, this company has several capable
potential successors.

have an open conversation about the CEO
and the company without feeling any pressure. The Board continues that practice
today. New rules mandate that directors meetat least once a year without the CEO – yet
our Board does so at every Board meeting;i.e., eight times a year. And usually at theend of the session, the Lead Director comesto see me to give feedback and guidance
about what the Board is thinking and what
it wants.
We have a strong corporate culture — but wemust continuously strengthen it
JPMorgan Chase has served its shareholders,customers and communities with distinction for more than 200 years. Since we were
founded, our company has been guided by asimple principle that perhaps was best articulated by J.P. Morgan, Jr., in 1933, when hesaid: “I should state that at all times, the ideaof doing only first-class business, and that ina first-class way, has been before our minds.”
We continue to strive to meet that principle.
Acknowledging mistakes — and learning fromthem — is part of the fabric of this company. We

also recognize that we have made a numberof mistakes – some of them quite painful
and costly – over the last several years. Oneof the things we learned was that we needed
to redouble our efforts around culture – notreinvent our culture but recommit to it andensure that it is an enduring strength of thisinstitution. While we have done an extensive
amount of work over the past year and a half
to make sure we get this right, we know thatit can’t be a one-time effort. It’s like keeping
physically fit – you can’t get in shape andexpect to stay that way if you stop exercising.

The full Board meets without the CEO at every
Board meeting. Going way back to Bank One’s

Board more than a decade ago and before
it was mandated, the Board would meetwithout the CEO (that’s me) because we all
thought it was best for Board members to35

V. A STR O N G CO R P O R ATE C U LT U R E

Our efforts around culture and conduct aresubstantial and include the following:
We will continuously reinforce our businessprinciples. Back in July 2004 at the close of

the JPMorgan Chase and Bank One merger,
we sent a small blue book to all employees
outlining the capabilities of the combined
firm, as well as our mission and businessprinciples. While much has changed overthe past decade, our commitment to theseprinciples remains the same. In July 2014, we
marked the 10-year anniversary of JPMorgan
Chase and Bank One coming together toform this exceptional company. It was fittingthat on this special occasion, we rededicatedourselves to those same business principles
by distributing the rearticulated businessprinciples on How We Do Business to every
person in the company. These core principles (which are written in plain English andinclude lots of specific examples) describe
how we want to conduct business, and they
will continue to guide us as we move forward.
What we are doing differently today is that
we are taking substantial actions to continuously inculcate our employees and our leadership on these principles:• We want to make the How We Do Business principles part of every major conversation at the company – from the hiring,onboarding and training of new recruits totown halls and management meetings.
• We conduct a substantial amount ofongoing training and certification, fromthe Code of Conduct for all employees
to the Code of Ethics for Finance Professionals that applies to the CEO, Chief
Financial Officer, Controller and all professionals of the firm worldwide serving in afinance, accounting, corporate treasury, tax
or investor relations role.
• We have enhanced our leadershiptraining. We have thousands of educational programs, and we have consistently
trained the top several hundred people on
leadership. But we did not train people
when they became first-time managers
or, importantly, managers of managers.
36

This will be another opportunity to drive
home our How We Do Business principles.
The heart of this training provides the
chance to teach our leadership how to do
the right thing – not the easy thing – andto continually reinforce the principle oftreating others in the way you would liketo be treated.
• We also developed a pilot program within
our Corporate & Investment Bank inEurope, the Middle East and Africa on
How We Do Business, which includes
focus groups and other efforts to analyze
cultural themes and address any concerns
around conduct and behavior. This year,
we have taken the learnings from that pilot
and will be rolling them out in a global,
firmwide Culture and Conduct Program.
These initiatives will make us a better
company. We hope they will reduce any bad
behavior. No human endeavor can ever be
perfect, but we are hopeful that as incidencesof bad behavior decline and as management’s
responses to bad behavior are vigorous,
governments and regulators will appreciate
the intensity of our efforts.
Compensation has been consistent andfair and is awarded with proper pay-forperformance
Our long-term success depends on the talentsof our employees. And our firm’s compensation system plays a significant role in ourability to attract, retain and motivate thehighest quality workforce. We design ourcompensation program to encompass bestpractices, support our business objectives
and enhance shareholder value. For example:• We do not have change-of-control agreements, special executive retirement plans,
golden parachutes or things like special
severance packages for senior executives.
• We do not pay bonuses for completing amerger, which we regard as part of the job.
(When a merger has proved successful,compensation might go up.)

V. A STRONG CORPORATE CULTURE• We virtually have no private “deals” ormulti-year contracts for senior management.
• We always have looked at financial performance as a critical factor, but not the only
factor, in pay-for-performance. We haveformulas (which always have been properly charged for capital usage) for how weaccrue compensation, but we do not pay it
out in a formulaic way to anyone. Financial performance alone is not a comprehensive picture of performance. Broader
contributions are important, like qualitative skills such as leadership attributes,
character and integrity, and management
ability. This also includes recruiting,coaching and training, building bettersystems and fostering innovation, just to
name a few.
• We also have invoked comprehensive
clawbacks of previously granted awards
and/or repayment of previously vested
awards when we thought it was appropriate. In 2014 alone, more than 200
employees had compensation reduced forrisk- and control-related events. Importantly, many more than that were terminated for poor performance or ethicallapses during the course of the year.
Compensation alone is not enough, and one
should not confuse good compensation with good
morale. Getting compensation right is crit-

ical – everyone wants to feel they are being
paid fairly, and most people have otheralternatives. But proper compensation alone
is not enough. I have seen many companies
try to make up for politics, bureaucracy andlow morale with high compensation – itdoes not work. When a company has been
doing poorly, or treats its customers badly,
the company should expect low morale.
What employees want to see is that thecompany faces its issues, reduces politics
and bureaucracy, and improves customer
service and satisfaction. Maintaining a
corporate culture where the right people
are promoted and everyone is treated withrespect is as important as compensation.
Then morale will improve, and employees
will be proud of where they work every day.

We need to operate like a partnership. If, forexample, a company’s largest, and perhaps
most important, business unit is underenormous stress and strain, unlikely to earnmoney regardless of who is in charge, amanager might ask his or her best leader totake on the job of running that business. Thismay be the toughest job in the company,
one that will take years to work throughbefore the ship has been righted. When the
manager asks a leader to take on the responsibility, she quite appropriately will want toknow whether she will be supported in the
toughest of times: “Will you make sure theorganization doesn’t desert me?” “Will you
stop the politics of people using my unit’s
poor performance against me?” “Will you
compensate me fairly?” My answer to thesequestions would be yes. And as long as I
thought she was doing the job well, I would
want to pay her like our best leaders, profits
aside. Conversely, we all know that a risingtide lifts all boats. When that’s the case,paying that leader too much possibly is theworst thing one can do – because it teaches
people the wrong lesson.
We still believe deeply in share ownership. We

would like all our senior managers to havea large portion of their net worth in thecompany. We believe this fosters partnership. While some make the argument that it
causes excessive risk taking – we disagree.
The first people to lose all of their money if
a company fails are the shareholders and the
management team. We want your management team to be good stewards of yourcapital and to treat it as they would theirown. It is formulaic compensation plans,
where people are paid solely on financial
performance, that can cause undue risky andbad behavior.
The entire Operating Committee gets involvedin compensation — it is not done in a back room.

One way we make sure we are fair andjust with compensation is that the entire
Operating Committee spends a substantial
amount of time reviewing the compensationof our top 500 people – this way, we have37

V. A STR O N G CO R P O R ATE C U LT U R E

internal justice, we can review someone’s
total performance across all measures,and we can understand how a manager
manages up, down and across the organization – not just up.
We want to have the best people, and competitive compensation is critical. We must

continue to pay our people properly,competitively and well for doing a good job.
It is imperative at JPMorgan Chase that we
continue to attract and retain the best.
We treat all of our people fairly. While wegenerally talk about compensation for themost senior managers, the compensationlevels of our entire employee population
are fairly similar to that of the U.S. population’s household income distribution. We
invest a significant amount of time andmoney to ensure that all of our employees
are properly compensated. We still havea defined benefit pension plan for mostof our employees that provides a fixedincome upon retirement to supplement
Social Security and any other savings they
have. We also provide a 401(k) plan withmatching dollars. In addition, we have excellent healthcare plans that incentivize people
to take care of themselves. For example,
premiums are lower if an employee getsan annual physical examination or stops
smoking. We also subsidize these healthcare plans more for lower paid employees(at 90%) versus our higher paid employees(who are at 50%). And each year, we arerecognized as a great place to work by
various groups, including Working Mother
100 Best Companies, Top 100 Military
Friendly Employers by G.I. Jobs magazine
and Best Employers for Healthy Lifestyles
by the National Business Group on Health,among many others.

As we centralize all risk functions, we also
must be certain that line of business CEOs
remain empowered to manage their businessend to end
We always have tried to be very thoughtful
about which functions are centralized or
decentralized at the company. We always
have centralized functions that can create
huge economies of scale like data centers or
utilities that are used by the entire company(like general ledgers and payroll) or criticalcontrol functions (like Corporate Legal,
firmwide accounting policies, etc.). We try
to decentralize where we can and when it
makes sense to do so. For example, while a
lot of finance functions reside at Corporate (like accounting policy), some financepeople are devoted to only one line ofbusiness, so we keep them within that lineof business. We do this to provide direct
accountability, speed up decision making
and minimize bureaucracy.
In the new world, in order to improve theconsistency of controls, regulators havedemanded that most risk and control functions be centralized, including Risk, Compliance, Finance, Oversight & Control, Audit
and Legal. In doing this, we have given hugeamounts of additional authority to functionsat our corporate headquarters. Corporate
headquarters can sometimes forget that itexists only because there is a banker in frontof a client somewhere. The Home Depot, oneof America’s great companies, does not call its
corporate headquarters the corporate headquarters – it’s called Store Support Center toremind employees every day why they are
there: to support the stores and the clients.
This still remains true at JPMorgan Chase– we at Corporate would not be here if we
didn’t have our bankers in front of clients.
We need to work hard to get the best of both
centralization and decentralization. And weneed to manage Corporate so the line of business CEOs and management teams are fully
responsible and empowered to manage theirbusinesses. Centralization should not mean
demoralizing bureaucracy or slowing down
services as multiple committees and layers
38

V. A STRONG CORPORATE CULTURE

sign off on every decision and stifle innovation. We have been managing through thisprocess with our eyes wide open. The Operating Committee members of the company
spend a considerable amount of time tomake sure we get this right.
We need to develop the right culture and avoid
creating a culture of finger-pointing. We needto analyze our mistakes because that is
the only way we can fix them and consistently improve. But we cannot allow this to
devolve into crippling bureaucratic activity
or create a culture of backstabbing andblame. We need to develop a safe environment where people can raise issues andadmit and analyze mistakes without fear of
retribution. We must treat people properly
and respectfully – even if we have to maketough decisions.

I believe this company currently has the best
management team with whom I have everbeen associated – and I mean their character,
culture and capabilities. I now ask questions
that I did not ask when I was a younger
manager: “Would I want to work for thesemanagers?” “Would I want my children towork for these managers?” My answer would
not always have been yes, but now it is. These
leaders have navigated the last several years
with fortitude and a smile, driving results,
making tough decisions and treating eachother as complete partners. They are thereason why both performance and moraleremain strong in this environment.

C LOS I N G COMME N TS

I feel enormously fortunate to be part of the remarkable 200-year
journey of this exceptional company.
I wish you all could see our employees and your management team atwork, particularly in these challenging times. If you did, I know thatyou, like me, would be bursting with appreciation and pride and havegreat comfort in knowing that our wonderful legacy will continue.

Jamie Dimon
Chairman and Chief Executive Officer
April 8, 201539

A Culture of Excellence
EXCEPTIONAL CLIENT SERVICEOPERATIONAL EXCELLENCE
A COMMITMENT TO INTEGRITY, FAIRNESSAND RESPONSIBILITYA GREAT TEAM AND WINNING CULTURE

We distributed the principles toour employees and regulators andfollowed up with a more extensive“How We Do Business – The
Report,” which is available on our
public website.

Matt Zames

Our firm has a rich, 200-year historyof serving its clients and customers
with integrity and establishing
relationships based on trust. It is
our responsibility to preserve andbuild upon the solid values on
which this firm was founded. The
tone we set as stewards of the firmis critical, and managing a cultureof excellence, as well as integrity,
requires us to have a sophisticatedand comprehensive infrastructure.
The Chief Operating Office is central
to delivering operational excellence.
It is responsible for many of thefirm’s corporate utilities, including
Treasury, the Chief Investment
Office, Global Technology, Operations,
Oversight & Control, Compliance,
Corporate Strategy, Global Real
Estate, Global Security & Military
Affairs and Regulatory Affairs,
among others. In 2014, we focused agreat deal on what it means to be a
Global Systemically Important Bank
(G-SIB) and how best to ensure we40

manage to the needs of our criticalstakeholders – shareholders, clients,
customers and employees – given oursignificance to worldwide markets
and the global economy. We continue
to respond to the changing regulatory
landscape, including requirements
for G-SIBs, and we are evaluating
the businesses we manage and the
products and services we offer in thecontext of these new requirements.
As an example, we announced thefirm is targeting up to a $100 billion
reduction in non-operating wholesale
deposits. At a minimum, we arecommitted to ensuring we remainsafely within the 4.5% G-SIB capitalsurcharge bucket and are looking
at additional actions to potentiallyreduce our surcharge by an incremental 50 basis points.
Last year, we published Business
Principles, key themes around which
we want to drive the firm. These principles are fundamental to our successand provide guidance for our identity
as a company while informing ourfirmwide strategic priorities.

We recently launched a firmwide
Culture and Conduct Program tofurther reinforce the behavioral
standards implicit in these Business
Principles. The program is not about
reinventing our culture but recommitting to it. It considers our culture,business models, tone from senior
executives, governance and incentive structures; how they influence
daily decision making at all levels;and the impact of those decisions on
our clients, our reputation and theintegrity of the markets. Our objective is to instill in our employees astrong sense of personal accountability through broad, deep integration ofcommon standards across businesses
and geographies. In 2015, we willdevelop a suite of metrics to enable
management to keep a pulse on how
we are doing in regard to our company culture and with respect to specific conduct risks. We have committed, in 2015, that each line of businessand function will implement a
Culture and Conduct Program aligned
to the firmwide framework.
Execution against our principles
requires us to be ever mindful of
new opportunities to reduce complexity and improve efficiency. As
part of our business simplification
strategy, we spun off One Equity
Partners, the firm’s private equity

unit, which was completed in early
January 2015. We realized significant savings through the reshapingof our workforce and consolidationof jobs in the right locations, creating efficiencies in labor and realestate costs and promoting consistency in our control culture. We arecommitted to managing expenses
tightly, eliminating waste, andrunning the firm in a nimble andflexible manner.
We continue to look for additional
opportunities to do business insmarter ways. For example, overthe last few years, the firm made asignificant investment in telecommunications and collaboration tools
to facilitate alternatives to air
travel. We have rationalized the
population of vendors, in large partthrough the establishment of preferred vendors in categories such as
information technology (IT), realestate services, printing, and marketing and advertising. In addition,
we are in the process of rationalizing our population of law firms andphysical security vendors.
We will not compromise on the control environment and, to that end,
continue to tighten data controls forourselves, as well as for our third
parties. This involves fortifying ourdefenses to ensure all of our managers, employees and vendors are following the appropriate security andhygiene practices with regard to work
email, password protection, dataencryption, system entitlements andsocial media. We continue to carefully
monitor third-party systems and toincrease our oversight of all the vendors with whom we work to makesure their protections are adequate.

Liquidity and interest raterisk management continue tobe importantLiquidity and interest rate risk
management are fundamental to how
we manage the firm and take on
increasing importance for the firm asa G-SIB. As we advance our thinking
in response to an evolving set of regulatory requirements, we are drivinga coordinated approach to management of the firm’s balance sheet.
2014 featured final versions of important regulatory liquidity rules, notably the liquidity coverage ratio by
U.S. banking regulators and Basel’s
final rule on the net stable funding
ratio, with which we are compliant.
We devoted significant resources tounderstanding the potential liquidity
impact of changing Fed monetary
policy and rising rates, particularly
the impact on our wholesale deposit
base. As a direct result of this effort,
we further refined and improved ourinternal stress framework. We continue to be in compliance with ourinternal measures.

risk. In 2014, we further increased
the proportion of investment securities that we intend to hold to maturity to nearly $50 billion, which will
help to mitigate Basel III capital volatility in a rising rate environment.
The average yield of our investment
securities portfolio increased by 45
basis points from a yield of 2.32 in2013 to 2.77 in 2014 despite generally lower interest rates, and we
maintained an average portfolio
rating of AA+.
Cybersecurity remains a top priority
In 2014, we experienced cyberthreats of an unprecedented scale.
This included a data breach we
incurred last summer, which wevoluntarily disclosed. We continue
to discover and block new andunique malware, viruses and phishing attempts to obtain access to ourdata. Importantly, cyber attacks todate have not resulted in material
harm to our clients or customers
and have not had a material adverse
impact on our results or operations.

We progressed our technology buildout to enable more flexible andtimely liquidity stress testing for theenterprise and major legal entities.
We further evolved the Liquidity
Risk Oversight group, which provides
independent assessment, measurement, monitoring and control ofliquidity risk. We established a firmwide program to set up a best-in-classintraday liquidity management process and infrastructure in preparation
for a changing market environment
and emerging regulatory expectations.

To defend against these threats, wespent more than $250 million in2014 on our cyber capabilities. We
established three global Security
Operations Centers to monitor,
detect and defend the firm. We
organized cyber defense exercises
to test our capabilities and conducted an independent assessmentof our cybersecurity program to
identify actions for continual
improvement. We doubled thenumber of cybersecurity personnel
over the past two years and hired
top-notch security experts.

We continue to actively manage ourinvestment securities portfolio ofover $340 billion, the primary vehicle used to offset the firm’s loan anddeposit mismatch and moderate
firmwide structural interest rate

Over the next two years, we will
increase our cybersecurity spend by
nearly 80% and enhance our cyberdefense capabilities with robust
testing, advanced analytics and41

improved technology coverage. We
will strengthen our partnerships
with government agencies to understand the full spectrum of cyberrisks in the environment andincrease our response capabilities.
Technology is critical to ourcompetitive advantage and to
the protection of our clients andcustomers
Over the past six years, the firm hasinvested 8%-9% of its annual revenue to fund our global technology
capabilities, one of the largest investments we make at JPMorgan Chase.
Even as we are committed to expense
management, we will not compromise our investment opportunities
for the future, especially as they
relate to innovative and efficientdelivery to our clients and customers
and protection of their security.
Demand for technology continues togrow. IT supports 318,000 desktops,
66,000 servers in 32 strategic data
centers, 25,000 databases and 7,100
business applications. Our global
telecommunications network connects our presence in 60 countries
along with our 5,600 Chasebranches and 18,000 ATMs. We havemore than 35 million active online,
and over 19 million active mobile,clients and customers. We process
approximately $6 trillion of payments daily on behalf of the firm
and its clients and customers.

42

In 2015, approximately 50% of ourtechnology investment spend will bein support of our strategic businesspriorities, including:• Digital: End-to-end digital commerce across web, mobile andfuture channels and across ourbusinesses.
• Data & Analytics: Leveraging of
our firmwide data assets for operational stability, customer value,
revenue generation, and risk andsecurity.
• Mobile, Unified Communications:
Communications channel integration into business applications toenrich interaction among employees, clients and customers.
• Next Generation Cloud Infrastructure: Increased cloud footprint toenhance cost efficiency and flexibility using highly elastic, on-demand,
self-service infrastructure.
• Next Generation Development:
Increased developer productivity,
quality and pace of applicationdelivery.
• Security & Controls: Framework toaddress the increasing volume,
pace and sophistication of security
threats.
In addition, we will continue toinnovate in 2015 by improving
branch automation and efficiency,
extending our electronic trading
platforms, launching an advisor
workstation platform for AssetManagement and implementing a
new commercial real estate loan
originations system.

Our focus on the control agenda has
become “business as usual”
We have made substantial investments and transformative changes
to strengthen our control environment. Since the creation of Oversight& Control in 2012 to embed greater
focus and discipline on controls
within each business, the grouphas successfully integrated into
each business and function to makethe control agenda a core strategy
and priority.
Over the past few years, Oversight& Control has significantly enhanced
the quality of, and standard requirements for, our business selfassessment process, designed to
identify and assess key operating
risks in each area. We introduced
common control reporting on a
range of metrics and, in 2015, willfurther develop capabilities toanalyze trends and conduct impact
analysis across businesses. Of
the original 24 enterprise-wide
programs established in 2013 totackle top control issues, many now
are complete, and the work has
transitioned from projects tobusiness-as-usual operations. We
anticipate closing the lion’s shareof the programs in 2015.
The compliance agenda iscontinuously evolving
Our firm’s compliance capabilities
have improved significantly over the
past year. 2014 was focused on execution across the foundational components of the compliance program.
We enhanced standards and protocols
across core practices, strengthened
our employee compliance program,and continue to evolve and develop

trade and e-communications surveillance programs. Building a worldclass Anti-Money Laundering (AML)
program remains a top priority, anda significant amount of work has
been completed on the Bank Secrecy
Act/AML and Sanctions programs,
including a new, global set of KnowYour Customer standards.
This year, Compliance will focus on
enhancing standards for market conduct risk, fiduciary responsibilities,
employee compliance and regulatory reporting. Ongoing strategic
technology investments and process
improvements will position us tocontinue delivering in a heightened
regulatory environment.

Conclusion
We understand the importance of
operational excellence, effective risk
management across all risk categories, a fortress infrastructure, and aculture that is rooted in integrity,
fairness and responsibility. We haveaddressed new challenges by applying lessons learned more effectively,
and we are able to respond more
quickly owing to the talent of ourpeople and our investments ininfrastructure and controls.
We continue to strengthen ourclient- and customer-centeredculture and set high standards for
performance as we invest in targeted
growth opportunities and first-rate
systems and operations, simplify ourbusinesses and redouble expense
management efforts. Our Business
Principles will be our guidepost as

we make decisions each step of theway. We are indebted to our predecessors for the solid foundation we
inherited and will be vigilant in ourcommitment to maintaining theworld-class reputation we haveworked so hard to build. The company is well-positioned to help ourclients and customers to the fullest,with integrity, and that is what we
intend to do. To achieve our objectives, we must execute strategicallyand with urgency.

Matt Zames
Chief Operating Officer

2014 HIGHLIGHTS AND ACCOMPLISHMENTS• Evaluated business activities inlight of G-SIB; committed to operating at or below the 4.5% G-SIB
capital surcharge bucket• Targeted a $100 billion reduction
in non-operating wholesale
deposits• Launched a firmwide Culture andConduct Program to reinforce ourBusiness Principles across all
businesses and functions globally• Met liquidity regulatory requirements; advanced our own internalframework, including technology
capabilities and independent risk
oversight• Maintained AA+ average ratingin our investment securities portfolio; improved the average yieldof investment securities from2.32 in 2013 to 2.77 in 2014
despite low rate environment• Spun off One Equity Partners
as part of ongoing businesssimplification efforts• Managed expenses tightly
through, among other things,
creating economies of scale
through consolidation of jobs
in strategic locations and establishment of preferred vendors• Matured our efforts to further
strengthen controls, includingtransitioning many enterprise-wide
programs to business-as-usual• For the sixth consecutive year,
invested 8%-9% of the firm’s
annual revenue in global
technology capabilities anddigital innovation• Processed an average ofapproximately $6 trillion in
payments daily• Spent more than $250 million
in 2014 to protect the firmfrom cyber attacks and will
increase cyber spend by nearly
80% over the next two years

43Consumer & Community Banking
Building stronger relationships withcustomers has led to measurable
improvement in our leadership positions. This year, the Federal Deposit
Insurance Corporation (FDIC) named
us #1 in deposit growth among thelargest 50 U.S. banks. We are the #1
credit card issuer, #1 in total U.S.
credit and debit payments volume,the #2 mortgage originator andservicer, and the #3 non-captive auto
lender. Chase is #1 in ATMs and #2
in branches, and chase.com is the #1
online banking portal. Forrester
Research named us #1 in mobilebanking functionality for the third
consecutive year.
Gordon Smith

I’m proud to say that Consumer &Community Banking (CCB) has
grown stronger in 2014, adding morecustomers, building market shareand improving the customer experience across all of our channels.
Today, we’ve earned relationships
with nearly half of all U.S. households
and 3.9 million small businesses.
In 2014, we added approximately
600,000 new CCB households, bringing our total to almost 58 million.
As important, we’ve deepened therelationships with our existingcustomers. More people consider
Chase their primary bank than any
other bank in our footprint, andcustomer attrition has reachedhistoric lows. More customers are
doing business with Chase, and they
are staying with us for the long term.
Leading the industry
Our core strategy for CCB for the
past four years has been to build lifetime, engaged relationships with ourcustomers. That begins and ends
with a consistent and outstanding
customer experience across Chase. I
have yet to see any business that can

44grow over time without happy customers. And in our business, where
customers have extensive choices
across all of our products, that’s
acutely true.
We’re pleased with our progress. I
don’t think anyone can ever declarevictory on the customer experience,
but we can celebrate the success we’ve
had. One key measure that we track is
our Net Promoter Score (NPS), whichsimply is how many customers saythey would refer a friend to Chase.
Since mid-2011, our NPS has roughly
doubled in Consumer Banking andCard and tripled in Business Banking.
In fact, nearly all CCB businesses areat or close to all-time highs.
We also received validation fromrespected outside groups. The American Customer Satisfaction Index
named Chase #1 in customer satisfaction among large banks in 2014.
J.D. Power ranked us #3 in Highest
Customer Satisfaction in Mortgage
Originations (up from #12 in 2010)
and #2 in Mortgage Servicing (upfrom #13 in 2010). In Business Banking, we are #1 or #2 in every region(up from #22 in 2010).

With our combination of scale,leading products and outstanding
service, we wouldn’t trade ourfranchise for anyone’s.
2014 financial results
Across CCB, our businesses delivered
strong underlying results throughout
2014 despite market and industry
headwinds. Our net income was $9.2
billion, down from $11.1 billion in
2013. Our revenue of $44.4 billion
was down 5% from $46.5 billion in2013, primarily due to the smaller
mortgage originations market during
2014. In 2014, we also experienced
lower reserve releases across theMortgage and Credit Card businesses
and felt the continued impact oflower deposit margins. While credit
performance still is very strong, therate of improvement compared withlast year has slowed. Overall, weended the year with a strong returnon equity (ROE) of 18%, just under
our long-term target of 20% ROE.
We particularly are pleased that weachieved this positive momentum
while hitting our aggressive expense
target. Since 2012, we have taken

$3.2 billion of expense out of CCB,
and we are on track to reduce
expenses by an additional $2 billion
by the end of 2016. Staying disciplined and being as efficient as possible allow us to invest back into ourbusinesses and create strong returns
for all of you who have chosen toinvest in our company.
CCB demonstrated significant
growth in nearly every businessin 2014.
Here are some highlights fromour businesses:
Consumer & Business Banking

Consumer & Business Banking deposits were up 8% to nearly half a trillion
dollars by the end of the year. We
talked about customer attrition reaching historic lows – it is down 4%since 2010. To put this in perspective,that equates to 1 million Consumer
Banking households and an incremental $15 billion in deposits.
Chase Private Client (CPC) continues
to be a notable success. We havegrown to more than 325,000 CPC
clients, up 51% from 2013. Client
investment assets were up 13%. Since
2012, we’ve tripled our net new CPC
deposits and investments, with 60%
of new investments coming from
customers who are investing with
Chase for the first time. With 55%
of affluent households living within
two miles of a Chase branch or ATM,
we feel well-positioned to continuethat growth.
Business Banking loan originations
were up 28% in 2014. Loans wereup 6%, and deposits were up 12%.
And we are extremely proud that
we were the #1 Small Business
Administration lender for womenand minorities in the United States
for the third year in a row.

Mortgage

The 2014 mortgage market was oneof the most challenging we have
faced. We have been very focused ontransforming our Mortgage franchiseto a simpler, higher quality and lessvolatile business. In 2014, Mortgage
originations were down 53% from2013 due to the challenging rateenvironment. But we didn’t forget
the industry lessons learned overthe past several years and remained
disciplined. We ceded some market
share to focus on our strategy ofacquiring high-quality loans. And
we actively reduced our foreclosure
inventory from roughly 170,000 in2013 to 90,000 in 2014.
One of the lessons we learned fromthe industry crisis in Mortgage isthat complexity kills. We have
reduced the number of mortgage
products from 37 to 18, and by theend of 2015, it will be down to 15.
Yet those 15 products still will meet
97% of customers’ needs. I’m surethe 22 products we are exiting weredeveloped with good intentions to
help customers, but they createdunnecessary complexity for employees and more expense and execution
risk than we needed.
Mortgage Banking also has madetremendous progress in reducing
expenses. Mortgage expenses were
down 30% over 2013.
Credit Card and Payments

Card Services sales volume of $465.6
billion was up 11% year-over-year,
outperforming the industry for the
28th consecutive quarter. Credit
trends continue to improve, andcredit card net charge-offs were
down 12% from 2013. Our MerchantServices business processes nearly
half of the total e-commerce payment volume in the United States.
Our processing volume was $847.9
billion, up 13% year-over-year.

Payments is one of the most interesting areas in our business as consumers are adapting to new ways topay. We like our strategic positionas both a bank that issues cards for
consumers and a payment processor
for merchants. Through ChaseNet,
we also have our own network andcan complete every aspect of thepayment transaction.
One of the most exciting developments of the year was Apple PayTM.
Chase participated as both a consumer
issuer and a merchant acquirer.
Chase cardholders can register theircards in Apple PayTM and make digital payments simply by hitting a fingerprint button on their iPhone® 6.
Our merchant customers will be able
to use our software development kit
to enable payments online, in-app
and in-store. Tokenization will makethose payments safe and secure.
Auto

In Auto, we continue to grow while
maintaining our credit discipline. Ouroriginations volume of $27.5 billion
was up 5%, with our average loans up
4%. Here, too, we have stayed disciplined by retaining high credit standards. Our average FICO score on
loan originations was 32 points
higher than the industry average.
DigitalDigital is transforming our industry.
We’ve seen tremendous growth rates
in customer adoption of our digital
services. The number of customers
who are active on Chase mobile
went from 8.2 million in 2011 to
19.1 million in 2014. On average,
we added about 18,000 new mobile
users per day throughout 2014.

45

Quite simply, we plan to be the bankof choice for digitally savvy customers. Digital is core to our commitment to an outstanding customer
experience. We’re bringing digital
service to everything from routine
deposits to credit card applications,rewards redemptions and mortgage
application tracking.
Today’s customers expect to be able
to transact with us whenever andwherever they choose, whether that’s
through a superior digital experience, a convenient ATM or a neighborhood branch. Every experienceneeds to be personal, easy and fast.
With advances in technology, customers will be able to complete 90%of teller transactions at our smart
ATMs by the end of 2016. We havemade things easier by increasing
withdrawal limits and allowing customers to receive their cash in any
bill denomination they choose.
Mobile also is changing quickly.
Customers now can securely view
their balances without having to log
in and print statements directlyfrom their phone.
Customers aren’t choosing between
digital and branches – they are using
both. When our customers use digital, we see lower attrition, and we’remore likely to be their primary bank.
We know that our customers stillwant to come into the branch when
they need advice or support, but fora basic transaction, they increasingly
prefer to do it themselves.
Here are some of the indicators of
the rapid growth in digital in just
one year:• 19 million mobile app users, up 20%• 45 million Mobile QuickDepositSM
transactions, up 25%

46• 30 million Mobile Chase QuickPaySM
transactions, up 80%• 60 million in Mobile Bill Pay, up 30%• 200 million deposits made in a
Chase ATM, up 10%
Providing a best-in-class digital
experience also is more efficient forthe bank. It costs us 3 cents to accept
a deposit made from a smartphone
and 8 cents for one at an ATM. With
our new technologies, we have lowered our costs per deposit by ~50%
in 2014 versus 2007.
Our 5,600 branch network is one ofour most important assets for acquiring and deepening relationships. Last
year, our branches helped nearly
20,000 first-time homebuyers and
400,000 new small businesses andapproved more than 1 million credit
cards for customers. We’ve built afootprint that covers the highest
growth markets in the United States.
But now that our buildout is complete, we won’t open as many new
branches over the next few years. As
all effective retailers do, we continually review locations to determine
where we can consolidate and still
remain convenient for customers. As
a result, our overall branch count will
be down slightly from prior years.
Controls: Strengthen and simplify ourbusiness

Over the past two years, we havemade significant investments inimproving our controls. We hired
dedicated teams to focus on de-risking
the business and invested in technology to automate more processes andreduce manual errors. As one example, we have strengthened our AntiMoney Laundering (AML) procedureswith a technology fix. Employees must
fill out every data field before completing a new customer application.

Throughout 2014, we made excellent
progress on our control agenda.
We exited 5,000 Politically Exposed
Person relationships and 4,000 relationships with small businesses inhigh-risk geographies and industries.
And we closed more than 100,000
accounts through AML screening
and monitoring processes. We hopethat by the end of 2015, we will haveclosed most of our legacy issues andinvested in a stronger, simpler andsafer business for the long term.
As we move forward into 2015, ourcore strategy is focused on three key
areas: customers, controls and profitability. We will continue to focus ona great customer experience while
investing in the best mobile and digital capabilities in the industry. We
will continue to further simplify ourbusiness by reducing the number of
non-core products we have andinvesting in automation. And todeliver shareholder value, we willmeet our expense targets and driveout unnecessary costs while continuing to invest in our business.
Conclusion
Across CCB, we feel very wellpositioned for the future. The CCB
Leadership Team and I are so proud
to serve our customers and shareholders and to lead this exceptional
business. Thank you for your investment in our company.

Gordon Smith
CEO, Consumer & Community Banking

2014 HIGHLIGHTS AND ACCOMPLISHMENTS• Consumer relationships withalmost half of U.S. households• #1 in deposit growth among thelargest 50 U.S. banks by the FDIC

• #1 among large banks in the 2014
American Customer Satisfaction
Index survey for the third year ina row• Outpaced the industry in deposit
growth for the third consecutiveyear• #1 primary banking relationshipshare in our footprint

Net Promoter Scores1• #1 in deposit share in three of thelargest deposit markets• #1 most visited banking portal in
the United States — chase.com;#1 mobile banking functionality• #1 Small Business Administration
lender for women and minorities
in the United States for the thirdyear in a row• #1 credit card issuer in the UnitedStates based on loans outstanding• #1 wholly-owned merchantacquirer in the United States• #2 mortgage originator;#2 mortgage servicer• #3 non-captive auto lender• #1 U.S. co-brand credit card issuer• #1 in total U.S. credit and debit
payments volume
Household Attrition Rates2

Net Promoter Score1

Chase Household Attrition Rates3(6) PPT

2010 2014

63
61
60
53
(4) PPT

43
37

35

32
(1) PPT

15
12

 Consumer Banking  B usiness Banking  C ard  Mortgage Banking  Auto2
May-11

Nov-11

May-12

Nov-12

May-13

Nov-13May-14

Business Banking

Nov-14

Source: Internal data

Source: Internal data1

Note: Net Promoter Score (NPS) = % promoters minus % detractors

3

2

Auto NPS score tracked beginning in January 2012

Consumer Banking

Card	Includes households that close all Chase accounts; average of annualized
monthly attrition rates over 12 months for 2010 and 2014

PPT = Percentage points

The Branch of the Future is here today
In our branches, state-of-the-art smart ATMs allow
customers to self-serve for transactions. Today, 50%of all transactions can be made at an ATM. By the endof 2016, that number will be 90%.

47

Corporate & Investment Bank
In a year marked by uneven economic recovery in Europe, low market volatility and the implementationof additional capital standards, theability to embrace change and adapt
enabled the CIB to maintain its leading market share across all businesslines and generate strong returns on$34.6 billion in net revenue – thehighest among our corporate andinvestment bank peers.

Daniel Pinto

In 2014, the Corporate & Investment
Bank (CIB) continued to deliver forclients on the strength of its uniquescale, its complete range of offerings
and its global reach.
By any measure, the J.P. Morgan CIB
is an outstanding franchise. No otherfirm places so consistently among the
top ranks of products across Investment Banking, Markets and Investor
Services. Our 2014 performancestands as an example of our ability toadapt to new capital and regulatory
rules while optimizing our business,
capturing efficiencies and targeting
expense reductions – even as we
continued to invest for the future.
With a global roster of 7,200 clients,
counting more than 80% among the
Fortune 500, the CIB offers an inventory of integrated financial products
and services. To serve that client
base, the CIB has more than 51,000
employees and a presence in 60
countries. Our expertise runs thegamut across investment banking,market-making, investor services,
treasury services and research. The
work we accomplished in 2014 onbehalf of our clients is reflected in48

our top-tier rankings across the CIB’s
spectrum of products and services.
Last year, J.P. Morgan helped clientsraise $1.6 trillion in capital, a 7%
increase over the previous year. Of
that amount, $61 billion was raised
on behalf of states, local governments, hospitals, universities, school
districts and nonprofits. Those funds
were earmarked to build researchfacilities, construct children’s hospitals, finance clean water projects
through green bonds and extend
new rail lines in cities to alleviatetraffic congestion, among other public service projects. The CIB also was
the #1 firm in U.S. dollar clearing forclients with a 19% share on Fedwire
and the Clearing House Interbank
Payments System (CHIPS).

With an improving global economy
in 2015, I am confident that many of
the headwinds we encountered lastyear will turn into tailwinds. As therecovery spreads throughout regions,countries and industry sectors, weforesee CEOs gaining confidence topursue more opportunities. We
remain one of the few truly global
banks that can provide the complete
array of products and services to fuelcorporate growth, which, in turn,underpins economic expansion.
Earnings
For the year, the CIB reported net
income of $6.9 billion on net revenueof $34.6 billion with a reported returnon equity (ROE) of 10%. Excluding
legal expense, the CIB earned $8.7 billion with an ROE of 13%. Investment
Banking fees of $6.6 billion were up
4% from the year before. And since2010, the CIB’s Global Investment
Banking fees have risen by 25%
compared with 17% for the rest of
the industry, according to Dealogic.

It is a franchise that would be
extremely difficult to replicate, especially in the regulatory and economic
environment we encounter today.

Combined revenue in Treasury
Services and Securities Services roseby 15% during the past five years, faroutpacing the rest of the top players’
2% gain.

But we are not complacent. Nor do wetake our top rankings for granted. Inan evolving industry, we must be willing to anticipate and embrace change,
operate efficiently and be vigilant inensuring that our conduct doesn’t justmeet high standards – it sets them.

The Corporate & Investment Bank’s
broad range of products and services
has the positive effect of smoothingout business fluctuations in different
market and economic environments.
For example, since 2010, the CIB

experienced overall volatility inannual revenue of just 4% comparedwith 6% for its top competitors. Thatstability, across fixed income andequity markets, is rooted in our tradition of strong risk management.
What’s more, this year’s ROE is
calculated on $61 billion of allocatedcapital, which is $13.5 billion, or 28%,
greater today than it was in 2012.
But strong results going forward
depend upon our maintaining a
disciplined approach to expenses.
Since 2010, we have reduced front
office costs by more than $2 billion.
Although much of that reduction
has been offset by cost increases incontrols, litigation and regulatory fees,
we believe those areas are reaching apeak and will normalize over time.

capture cost savings from divestituresand simplification efforts alreadyundertaken in 2014.
Serving clients = gaining share
J.P. Morgan gained share and continued to hold top-tier positions across
our lines of business, a testament to
the firm’s client focus and resiliency.
In a difficult year, the CIB share of
Investment Banking fee revenue led
the industry at 8.1%, maintaining its#1 ranking for the sixth year in arow, according to Dealogic.

18% compared with the year before.
The power of our partnership with
Commercial Banking has been
an important factor in bolstering
J.P. Morgan’s market share, even as
the overall industry wallet has
declined in recent years.
In 2014, our client demographic
continued its shift toward international business. Since 2010, the CIB’s
combined revenue from Europe, theMiddle East and Africa (EMEA), Asia
Pacific and Latin America grew by
Optimizing the Businesses under
Multiple Constraints

Over the next three years, we havetargeted expense reductions of $2.8
billion, partly coming from more
end-to-end efficiencies in technology
and operations and a better allocationof resources according to the depth ofclient relationships. We also expect toAlso impressive is our ability to work
collaboratively across business lines,
making it easier for clients to realize
their strategic growth plans. For
instance, by collaborating across thefirm, the CIB once again was able tofacilitate client strategies through its
partnerships, notably with AssetManagement and Commercial
Banking. In fact, more Commercial
Banking business flowed to the
CIB during 2014 than ever before,
generating a record $2 billion in
Investment Banking revenue, up by

Net Revenue and Overhead Ratio1,2

Net Income1,2,3

ROE1,3 (%) and Capital($ in billions)($ in billions)($ in billions)5-year average: $8.9

5-year average: 17%

Profitability
constraints
CCAR
stresstest

Capital(e.g., SLR,
G–SIB)

Portfolio
optimization

Liquidity(e.g., LCR,NSFR)

Balancesheet

O/H ratio

1,3

64%

66%

61%

58%

$35.7

$36.7

62%

5-year average: $34.7

$33.4

$33.0

19%

18%

$34.6
$10.4
$9.3

$8.5

18%

15%
13%
$61.0

$8.7

$7.5



$56.5






$46.5

$47.0

$47.5

2010

2011

2012



2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

+$13.5(up 28%)

2013

2014

1

	Net revenue, net income, ROE and overhead (O/H) ratio, exclude FVA (effective 2013) and DVA, non-GAAP financial measures, for 2013 and prior years. These measures areused by management for assessment of the underlying performance of the business and for comparability with peers

2

All years have been revised for preferred dividends

3

All years exclude the impact of legal expense

DVA = debit valuation adjustment; FVA = funding valuation adjustment; GAAP = generally accepted accounting principles in the U.S.; LCR = liquidity coverage ratio;
NSFR = net stable funding ratio; SLR = supplementary leverage ratio4912%. In recent years, international
clients collectively have accounted
for half of our revenue. They areprogressively seeking a broader
range of our services and using moreof J.P. Morgan’s product lineup. As of2014, about half of our international
clients use five or more products,
while single-product client relationships have declined by 30%. Internationally, loans grew by 24%, assets
under custody are up 36% and crossborder revenue with corporate clients has grown by 13% since 2010.
In Investor Services, clients entrusted
J.P. Morgan with $20.5 trillion in
assets under custody, up from $16.1
trillion in 2010, driven by asset appreciation, as well as client inflows.
Treasury Services operating deposits
have nearly doubled since 2010.
In Markets, we now have an 11.5%
market share in equities due to a 7%
gain in revenue since 2010 comparedwith revenue for the rest of the top
10 banks, which is down collectively
by 7%. And in fixed income markets,
our share has consistently ranked #1
during the last five years.
Achieving completeness while
simplifying
Having a complete set of core products, accessible to clients across a
global network, does not mean we
intend to be all things to all people.
As a result of shifts in the regulatory
and market environments, we shedancillary businesses in 2014, including the Global Special Opportunities
Group investment portfolio, as wellas our physical commodities activities –­ though we kept our corefinancial commodities business.
No industry operates in a static environment, least of all ours, so we recognize the necessity of being adaptable

50

and nimble. The CIB has established asuccessful track record of optimizing
its business model while adjusting tomultiple regulatory and other constraints, among them leverage, liquidity, Comprehensive Capital Analysis
and Review stress testing, G-SIB andBasel rules. We push down to a very
granular level in the organization theachievement of strong risk-adjusted
returns in order to maximize longterm shareholder value. For our newest constraint, G-SIB, the CIB will
be optimizing capital usage acrossclients, products and G-SIB factors.
In implementing those efforts, alongwith others, we have simplified our
structure, improved our overall risk
profile, and focused our attention
on the business lines most valuable
to clients and the CIB. By selectively
narrowing our business, we also
improved our ability to invest in thetechnologies and services our clients
will require and demand in the
future while making us stronger forthe long term.
“How We Do Business — The Report”
During the course of last year, oneof our most important projects wasa self-examination leading to an
in-depth report called “How We Do
Business – The Report.” J.P. Morgan’s
culture and conduct must be basedon integrity, respect for our colleagues
and, above all, a commitment toalways act in our clients’ best interests. In putting the lessons we’ve
learned into practice, we are escalating issues promptly. We also havedeveloped enhanced training programs and are working with ourregulators around the world toimprove our communication andtransparency. When every one of ouremployees comes to work in themorning, the guiding principle shouldbe, and I believe it is, to do the rightthing for our clients at all times.

Drawing from the report, we have
rededicated ourselves to the principles
espoused by J.P. Morgan, Jr., in 1933
when he said: “I should state that at
all times, the idea of doing only firstclass business, and that in a first-classway, has been before our minds.”
Our strategies
We are continually looking for ways
to improve, be more efficient andserve our clients better. Efficiency is
not a code word for eliminating
worthwhile and beneficial products
and services. To us, it means cultivating and mining our business to findways we can provide our services
faster, better and more effectively.
Efficiency means making incremental investments to enhance andexpand what we offer, closing gaps
to increase our longer term profitability and embracing the raft ofchange that is sure to define ourindustry going forward. We also will
be looking to leverage a best-in-classinfrastructure across the CIB, retiring
duplicative platforms and participating in industry utilities to perform
non-proprietary functions across ourlines of business.
In our Global Investment Banking
business, we will build on ourleadership positions across advisory,investing in sectors and geographies
where we see areas of opportunityand continued growth.
At the same time, we are making thenecessary investments across ourMarkets businesses and are implementing trading technologies toensure we are operationally preparedto capture client flows in whichever
form our clients want to trade.
Already, we have seen gains throughour efforts to date. Equity e-commerce
volume is up by 22% in the UnitedStates and by 57% in EMEA, justin the last year. Recently, we haveconsistently captured share gains inforeign exchange e-commerce, andwe hold top-tier rankings on most of
the major multi-dealer platforms.
As an active market-maker, we canforesee the increasing complexitythat will define the Markets business.
Our strategy recognizes that change
is inevitable, even if its exact naturecannot be foretold. But in whatever
form our clients need us, the CIB will
be prepared to capture client flow inall its various forms. Whether it’s byvoice, electronic or direct market
access; whether we are acting on aprincipal basis or on an agency basis,
we will be there for our clients withthe products they want.
Our Treasury Services business will
focus on the needs of global multinationals to capture the cross-border
payments and foreign exchange
business associated with increasing
global trade flows. With our investments in electronic commerce, we
actively will pursue opportunities tomigrate clients to electronic solutions and look for more efficiencies
across our technology platforms.
Our Investor Services business, whichcontains some of our most importantbusinesses on behalf of institutional

investors and broker-dealers, hasmade great strides to improve theend-to-end client experience. We
want to make doing business withus as easy as possible – from sales
to onboarding to operations andtechnology to client service.
From a capital perspective, the CIB
will continue to be affected by rules
based on risk-weighted assets. We will
adjust our mix of capital-intensive
businesses accordingly and fine-tune
the platform as needed. We are intent
on reducing our capital-footprint andon keeping ourselves nimble whileremaining true to our reputation ofproviding liquidity and capital in any
market environment.
Looking ahead, the signals are positive for a global economy that is
gaining momentum. Increasing confidence among consumers and CEOsis expected to continue. That would
underpin strong corporate earnings
and healthy markets and sustain theactive level of merger and acquisition (M&A) activity that marked
2014. Our M&A practice particularly
was strong in 2014, with improved
wallet share on global industry-wide
volume that was up by 26% for theyear. We believe 2015 will be anotheractive period in which clients will

look to us for global advisory capabilities and cross-border expertise.
Our proven track record includes
advising on the largest, most complex deals, which, in many cases,
involved acquisition financing andstrategies to address shareholder
views and other marketplace forces.
Emerging markets economies are
becoming increasingly important inglobal commerce. Both as consumers
and as sources of new products andservices, multinational companies
are expanding their operations in
those economies and will require
the breadth of services J.P. Morgan
uniquely is able to provide.
In 2015, we will execute our strategy
in a way that optimizes capital, supports our clients and aids economic
growth. Global institutions turn to
J.P. Morgan because it has the talent,
expertise and portfolio of services
needed to conduct their business.
We look forward to continuing thattradition in 2015 and beyond.

Daniel Pinto
CEO, Corporate & Investment Bank

2014 HIGHLIGHTS AND ACCOMPLISHMENTS• The Corporate & Investment Bank•
delivered market-leading performancein 2014; $34.6 billion in net revenue
was the largest in the industry.
•• J.P. Morgan helped clients raise $1.6
trillion in capital — 7% more than in
the previous year. Of that amount,$61 billion was raised on behalf ofstates, local governments and public
institutions to finance educational
facilities, healthcare, environmental
projects and other similar purposes.

Clients entrusted J.P. Morgan with
$20.5 trillion in assets under custody, up from $16.1 trillion in 2010.
Treasury Services and Securities
Services revenue rose by 15%
during the past five years, faroutpacing the rest of the top
players’ 2% gain.

• The CIB has more than 51,000
employees with a presence in
60 countries, serving 7,200of the world’s most significant
corporates and financial
institutions, governments andnonprofit organizations.
• No other firm in 2014 placedso consistently among the top
ranks of products acrossInvestment Banking, Markets
and Investor Services.

• The CIB is targeting $2.8
billion in expense reductions
by 2017, including capturing
cost savings from divestituresand simplification efforts
already undertaken in 2014.
• The firm’s business mix
is increasingly becominginternational; since 2010, the
CIB’s combined revenue from
EMEA, Asia Pacific and Latin
America has grown by 12%.
51

Commercial Banking
term recovery plan and avoid dramatic job reductions. During thisstressful and challenging period, ourbeverage industry bankers consistently met with senior managers at
the company to provide advice andguidance while they developed theirplan. In 2014, the company successfully completed its turnaround. Staying with our clients through times
like this, and earning their trust andgratitude, is the reason we come towork each day. We pride ourselves on
our relationship focus and the loyal
support we provide our clients.
Real competitive advantages
Douglas Petno

Our commitment is to be the bestcommercial bank by helping ourclients succeed and by making a
positive difference in our communities. In 2014, this meant investing inour business and controls, remaining
focused on our clients, and continuing to execute our proven strategy
with discipline and patience.
For the year, Commercial Banking(CB) delivered strong results, earning$2.6 billion of net income on revenueof $6.9 billion. Our continued expense
discipline and exceptional credit
performance helped us achieve a
return on equity of 18%. We are quite
proud of these results as our business
continues to navigate changes in theregulatory landscape and adapt toshifting market pressures.
The drivers of our success remain
consistent over time: We have an
outstanding client franchise, realcompetitive advantages and a sustainable growth plan. I’m proud toconvey our progress for 2014 andshare our exciting plans for 2015.

52

Everything starts with our clients
Selecting the best clients is absolutely
critical to the value of our franchise
and is deeply embedded in our culture. We seek clients that are highly
reputable, share our risk philosophy,
have strong management teams andwork in preferred industries we truly
understand. We believe that we are
judged by the company we keep,
and, as such, our fantastic client
franchise is the foundation for our
entire business.
With our global reach and broadbased capabilities, we empower ourbankers to be there for our clientswith advice, capital and industry
insights. By knowing their business,
supporting their ambitions andunderstanding their challenges, weare able to best serve our clients andbuild strong relationships.
Trust and relationships are often reinforced in times of trouble. That was
the case for one of our clients, a large
beverage distributor based in the
Seattle area. A few years ago, an unexpected industry sales tax increasecaused the company to lose a significant portion of revenue within a shorttime period. The family-run businessneeded patience to execute a long-

Our clients rely on our industryleading capabilities and comprehensive services that no other commercial bank can provide. As part of
JPMorgan Chase, CB is uniquely
positioned with access to the #1
investment bank, a leading asset
management business, comprehensive payments and treasury services,
and an extensive branch footprint.
Today, our typical client uses nineof our products and services, and it
is common to see our longer-term
relationships use more than 20.
When our clients seek to make more
efficient payments, generate better
reporting, and securely process transactions from their own customers,
we leverage our market-leading commercial payments platforms. In 2014,less than 30% of our clients utilized
our commercial card and merchantservices capabilities. We believe we
can double the usage rates of bothof these products over time.
Collaborating with the Corporate &Investment Bank (CIB) enables us tobring differentiated advice and market
access to our clients. In 2014, CB relationships generated a record $2 billion
in investment banking revenue, representing 35% of the CIB’s North American investment banking revenue andreaching the revenue target we set in2011. We accomplished this by advising 75 clients on strategic transactions
and executing more than 1,200 capital
markets financings. As we expand ourcoverage, we believe we can do evenmore for our clients. We have set a
new, long-term goal of $3 billion in
investment banking revenue, and weare confident our partnership with the
CIB will enable us to deliver over time.
While our platform and capabilities
differentiate us, our success ultimately
hinges on our people. We have 7,300
employees, including 1,400 bankers
in 118 U.S. cities and 14 international
locations. These employees average
20 years of experience, have deepindustry expertise and are firmly
rooted in their local communities.
I’m incredibly proud of the quality
and integrity of our people. Theircontinuous focus on our clients andpositive impact in their communities
never cease to impress.
Sustainable growth
We continue to execute our disciplined, long-term growth plan, which
is designed to add new, high-quality
clients and deepen those relationships over time. We are growing ourcustomer base by selectively expanding our geographic footprint andfocusing on key growth industries.

In 2014, we continued to pursue ourmarket expansion strategy in the
United States, increasing our footprint to 34 new markets, where weserved nearly 1,700 clients and generated $327 million in revenue. We areon our way to reaching our long-term
revenue target of $1 billion fromthese expansion markets.
To enhance our long-standing industry leadership positions, we are adding
specialized bankers and underwriters
in many key industries such as technology, healthcare, and food and agriculture. Industry specialization allows
us to better deliver client-specific solutions, manage industry risks and demonstrate continuity across the industry
life cycle. We see real opportunities toexpand our relationships in these key
industries and have positioned ourteams to best serve these markets.
More and more of our Middle Market
Banking clients expect their international activity to increase and be ameaningful percentage of total sales
in the next few years. Our International Banking team is well-positioned
to help these clients grow and operate
in overseas markets. We’ve added
dedicated resources in 14 key international locations and have access to
JPMorgan Chase’s international footprint in 60 countries.

Commercial Banking Gross Investment Banking Revenue1($ in billions)$3.0
2 CAGR: 7%
verageclient co
IB
-C
B
C
Joint
: 13%
ue CAGRIB reven~2,500

$1.6

$1.0
$1.2

$1.3

~3,700$2.0$2.0

In our real estate businesses, we continue to see an excellent opportunity
to grow our loan portfolio. We believe
we can add high-quality assets
through the current market environment, as well as benefit from the$1 trillion of industry maturities thatare due over the next three years.
In addition, our lending platform is
unique in the market and has allowed
us to support new clients throughout
the life of their loans. We are wellpositioned to take advantage of thistremendous opportunity and be astable source of capital for clients.
Clear priorities
Our priorities for 2015 reflect our
mission. To help our clients succeed
and make a difference in our communities, we will continue to invest
in our business and hire the best
people in our markets. We will focus
on delivering individual customer
solutions to build deeper, stronger
relationships. We will continue tosafeguard our clients and our business by maintaining our fortress controls. This means understanding all
risks in our business and investingin process improvements as needed.
I am incredibly proud of the entire
Commercial Banking team. Becauseof its leadership and fortitude, we’vebeen able to successfully adapt tothe evolving regulatory environmentand remain disciplined in a competitive market. 2014 showed the real
power of our franchise, and I am
excited about what we will achieve
this year and beyond for our shareholders, clients and employees.

$1.7

$1.4

$1.0

2008

2009

2010

2011

2012

2013

2014

CIB partnership has resulted in differentiated client coverage
1

Represents the total revenue related to investment banking products sold to CB clients2

Commercial Banking clients and prospects jointly covered by the CIB

CAGR = Compound annual growth rate

New long-termtargetDouglas Petno
CEO, Commercial Banking

53

2014 HIGHLIGHTS AND ACCOMPLISHMENTS

Performance highlights

Business segment highlights

Firmwide contribution

Progress in key growth areas• Grew end-of-period loans 8%;
18 consecutive quarters ofloan growth• Middle Market Banking —Fifth consecutive year of loan
growth; added more than 550
new clients• Commercial Banking clients
accounted for 35% of total
North American investmentbanking fees 5• Middle Market expansion —Record revenue of $327 million;
19% CAGR 6 since 2012

• Generated return on equity of
18% on $14 billion of allocatedcapital• Corporate Client Banking —Record gross investmentbanking revenue 4• $2.4 billion in treasury
services revenue• Continued superior credit quality— net charge-off ratio of 0%• Commercial Term Lending —Record quarterly originations;full-year originations of nearly$13 billion• Revenue of $6.9 billion

Leadership positions• Real Estate Banking — Eighthconsecutive quarter of loan
growth with a record $10 billion
in originations• Top 3 traditional middle
market syndicated lender 1• #1 U.S. multifamily lender 2• Investment Banking — Record
gross revenue4 of $2 billion;
12% CAGR 6 since 2012

• Almost $120 billion in assets
under management from
Commercial Banking clients,
generating close to $500
million in investment management revenue• International Banking — Record
revenue 7 of $304 million; 13%
CAGR6 since 2012

• $490 million in Card Services
revenue 4• Community Development
Banking — Originated more than
$1 billion in new constructionloans, building 9,000 units ofaffordable housing in nearly 90
cities within our footprint• J.P. Morgan ACCESS Online
ranked the #1 cash management portal in North America
by Greenwich Associates 3

Non-performing Loans1

1

Thomson Reuters as of year-end 2014.
Traditional middle market is defined as
credit facilities of <$100 million fromclients with <$500 million in revenue

2

Federal Deposit Insurance Corporation
data as of 3Q 2014

3

Greenwich Associates 2014 Online Services
Benchmarking Study

4

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

5

Calculated based on gross domestic
investment banking revenue 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

Net Charge-offsCommercial Banking
Peer average2

Commercial Banking
Peer average2

TTC average3Peers: 0.98%
CB: 0.36%
CB target: <0.50%















2008

20094

20104

2011

2012

2013

2014

2008

20095

20105

2011

2012

2013

2014

Peers 2.1%
CB
0.9%

4.2%
2.9%

3.1%
2.0%

2.0%
0.9%

1.1%
0.5%

0.6%
0.4%

0.4%
0.2%

Peers 1.4%
CB
0.4%

2.2%
1.0%

2.0%
0.9%

0.8%
0.2%

0.3%
0.0%6

0.1%
0.0%6

0.1%
0.0%

1

Based on end-of-period loans

2Peer averages include CB-equivalent segments or wholesale portfolios at BAC, CMA, FITB, KEY, PNC, USB, WFC

3

Through-the-cycle (TTC), 2008-2014 average

4

Excluding pre-acquisition Washington Mutual (WaMu) originations, Chase represented 1.67% in 2009 and 1.02% in 2010

5

Excluding pre-acquisition WaMu originations, Chase represented 0.93% in 2009 and 0.74% in 2010

6

Commercial Banking net charge-offs for 2012 and 2013 were 0.03%

54

Asset Management
Our research-based approach has led
to 84% of our 10-year long-term
mutual fund assets under management (AUM) placing in the top two
performance quartiles and 228 of ourmutual funds being 4- or 5-star rated.
It is worth noting that our performance is not the result of strength in
one particular asset class or region. It
represents top-tier performance spanning asset classes around the world.
Client flows

Mary Callahan Erdoes

At J.P. Morgan Asset Management, we
take great pride in the fact that somany institutions and individuals
around the world entrust us to manage their money. Clients rely on our
advice, ideas and solutions for some of
their most meaningful life events,from saving for college or retirement
to securing their family’s future to supporting philanthropic and charitableendeavors. With a heritage dating backnearly 200 years, we know how important it is to earn clients’ trust, and we
recognize that it is our responsibility
to re-earn that trust every day.

clients. Our investment management
platform, for example, has a global
network of more than 600 portfolio
managers, 250 research analysts and30 market strategists.

% of 2014 Assets Under Management Over Peer Median1/Benchmark2(net of fees)

Success, both for our clients and ourbusiness, begins with our continuous
investment in research for our

3-Year

5-Year

10-Year

77%

87%

83%

66%

85%

92%

85%

86%

87%

95%

100%

Equity1

Our strong fiduciary culture enables
us to stay focused first and foremoston our top priority: long-term investment performance. This core principle of our business, combined withadvice-driven client coverage teams,
has enabled us to build a leading
global client franchise that delivers
superior investment strategies to ourclients and strong financial performance to our shareholders.
Consistently reporting strong
investment performance for clients

Clients around the globe vote with
their feet, and they continue toentrust us with more of their assets
every year. In 2014, our client assets
grew to $2.4 trillion as we received
an additional $100 billion in net
long-term client asset flows. In fact,
since 2010, we have averaged $100
billion per year in net long-termclient asset flows.

Fixed Income1
50%

Multi-Asset
Solutions1

Alternatives/
Absolute Return2¹ Represents the proportion of retail open-ended mutual fund assets that are ranked above peer category median2

 epresents the proportion of GIM assets in mutual funds, commingled funds and segregated portfolios that are exceedingR(net of management fees) their respective official benchmark. Excludes private equity, real assets and other longer-dated
or closed-end investment strategies
For footnoted information, refer to slides 23 and 24 in the 2015 Asset Management Investor Day presentation, which isavailable on JPMorgan Chase & Co.’s website at http://investor.shareholder.com/jpmorganchase/presentations.cfm, under theheading JPMorgan Chase 2015 Investor Day, Asset Management, and on Form 8-K as furnished to the SEC on February 24,
2015, which is available on the SEC’s website at www.sec.gov.

55

We also have achieved 23 consecutive quarters of positive long-term
AUM flows, a milestone that few, ifany, of our competitors can match.
Our active equity mutual fund flows
ranked #2 in the industry in 2014,
marking our third consecutive year
ranking in the top three. In fixedincome, we ranked #4 in long-term
active mutual fund AUM flows, and,
importantly, we are the only firmthat ranked in the top four in eachof the past five years.
Creating strong financial
performance for shareholders
We are proud of being able to deliver
such impactful results to our clients
while, at the same time, delivering
first-rate financial performance to ourshareholders. In 2014, we achieved
revenue growth of 5%, pre-tax income
growth of 5%, pre-tax margin of 29%
and return on equity of 23%.
Within the business, each of ourclient franchises – Global Investment
Management (GIM) and Global
Wealth Management (GWM) – continues to deliver impressive growth.
In 2014, both businesses achieved
record annual revenue and strong

pre-tax earnings growth. Given
the long-term approach we take torunning our business, we are evenprouder of our sustained performance over the past five years.
GIM
Since 2009, GIM has a compound
annual growth rate (CAGR) of 9% forrevenue and 7% for pre-tax earnings.
That success is due, in large part, toour core strengths of being insightdriven, taking a long-term approachand leveraging our global talent. Ourretail funds business has had impressive asset gains, with five-year growthof 120%. Our institutional business is
growing faster than the market in allclient channels – insurance, defined
contribution, U.S. endowments andfoundations, sovereign wealth funds
and defined benefit.
GWM
It is an equally powerful story in
GWM, where revenue and pre-tax
income have increased at a CAGR of
8% and 7%, respectively, since 2009.
We continue to differentiate ourselves in the marketplace as the firmthat can offer unparalleled insights
to help clients fulfill their vision. As
an example of our clients’ commit-

Revenue

Pre-tax Income($ in billions)($ in billions)

Global Wealth Management (GWM)
Global Investment Management (GIM)

$9.0

$9.6



$11.4

$12.0



ment to GWM, more than 50% of
our assets come from clients with atleast $100 million entrusted withthe firm. All of our clients, no matterthe size of their relationship withus, choose to work with J.P. Morgan
because we take the time to get toknow their personal needs, and we
can help them across both sides of
their balance sheet.
Continuously reinvesting for the
futureOur success would not be possible
without continued reinvestment in
the business – both to expand ouroffering and to maintain a strong control and risk environment. Our longterm commitment to building the best
possible franchise means that wealways are focused on ways to improve
our business across all market cycles.
Adding top advisors to cover moreclients
We continue to invest in bringing on
world-class talent. Over the last five
years, we hired and trained hundredsof new advisors. Expanding our client coverage teams enables us to help
more clients around the world whoneed investment expertise and long-

Pre-tax margin
Pre-tax income

$10.0

31%
29%

$8.0



28%



26%





$2.4

2009

56

2010

2011

2012

2013

2014

2009

$2.8

2010

$2.5

2011

$2.8

2012

29%

29%





$3.3

$3.5

2013

2014

term solutions. We have nearly
20,000 people serving clients in morethan 130 countries across the globe,
including 60% of the world’s largest
pension funds, sovereign wealthfunds and central banks; more than
3,000 global financial intermediaries;
and many of the world’s wealthiest
individuals and families.

SmartRetirement 2035 (S&P Target Date 2035)1




+2.4%

Industry average
J.P. Morgan

15.7%

7.6%
5.7%

1 YearHigh-growth multi-asset solutions
platform
In 2015, we are faced with global central bank policy divergence, regulatory changes, complex geopoliticalissues and increasing market volatility. Given this landscape, investors arelooking for solutions providers who
can act quickly and offer go-anywhere

11.4%

10.5%

+2.0%

Leader in Alternatives
We are one of the leading alternatives
providers, with $214 billion in alternatives/absolute return client assets
across our client franchises. That
places us ahead of nearly all of thelargest players in this space. Much of
our growth is due to our focus on
innovating to meet client needs. In
2014, we introduced more than 30
new strategies focusing on timely
themes that include private technology late-stage equity, emerging
markets growth equity, specialty
insurance and credit, liquid alternatives and infrastructure.

+0.9%

13.4%

3 Year

5 Year1

	Fund and index performance as of 12/31/14. Fund performance is net of fees. SmartRetirement performance is reflective of U.S.
select shares. S&P Target Date 2035 total return USD represents Total Return Index. Past performance is not indicative of future
performance, which may vary. Industry average source: Morningstar, Strategic Insight and eVestment

and absolute return-focused strategies
to complement their portfolios.
GIM’s multi-asset solutions businessis designed to help clients in thisregard. The business has seen tremendous growth over the past five years,
with a CAGR of 31%. That places us
firmly in front of the industry average of 13%. Our momentum includes
having our SmartRetirement offering
named 2014 U.S. Allocation FundManager of the Year by Morningstar,with seven of its nine vintages in the
top decile over the past five years.
A strong position with room to growWe are incredibly proud of how ourbusiness has evolved over the past
years, decades and centuries. We aredoing more for clients than everbefore, and our commitment to firstclass business in a first-class way has
created a franchise that would be
hard to replicate. It is a great privilege to be entrusted with so many client assets from around the world. In
return, we are committed to working
hard every day to continue to generate value for clients, shareholders
and employees.

Mary Callahan Erdoes
CEO, Asset Management

2014 HIGHLIGHTS AND ACCOMPLISHMENTS• Best Global WealthManager, Euromoney Global
Excellence Awards• #1 Equity and Fixed Income
Private Bank Portfolio Management,
Euromoney• #1 U.S. Large Cap Core
Equity Manager of the Year,
Institutional Investor• #1 Institutional Money Market FundManager Worldwide, iMoneyNet• #1 Global Active Long-Term Mutual
Fund Flows, Strategic Insight• 2014 U.S. Allocation FundManager of the Year, Morningstar• Best Asset Management
Company for Asia, The Asset• Top European Buyside Firm,
Thomson Reuters Extel• Best Private Bank for Asia
High-Net-Worth, The Asset• #1 Large Fund of Hedge
Funds Manager of the Year,
Institutional Investor
57

Corporate Responsibility
All of these challenges come together
in Detroit. In 2014, we made a $100
million, five-year commitment to thecity’s economic recovery that brings
together both business and philanthropic resources to support andaccelerate some of the most innovative efforts underway to revitalize
an iconic American city. But we’re
putting more than just our money
to work; our people have significant
expertise to offer, and, in 2014, wesent a dozen of our top managers
from around the world to Detroit
to work with local nonprofits. It’sa model we plan to replicate andexpand in the coming years.
Peter Scher

A common challenge facing communities around the world is the needfor greater economic growth andmore widely shared prosperity. Creating more jobs, starting and expanding businesses, and removing barriers
to opportunity will not only benefit
society but, by extension, our firm.
At the core of our business, JPMorgan
Chase is in a unique position to help
our clients navigate an ever more
complex global economy and spur
the growth that fuels their progress.
We not only understand the challenges clients are facing, we havethe skills, resources and expertise
to make a meaningful difference inhelping solve them.
Our corporate responsibility work
has the same objective – to use theskills, resources and expertise of ourfirm to support the economic growthand progress of our communities.
In recent years, we have sharpened
that focus. With millions of people
around the world migrating to urban
areas, cities are fast becoming the key
drivers of global economic growth –and essential linchpins in expanding
access to opportunity. So we have
refocused many of our efforts on
helping develop strategies to bolster58

the long-term economic vitality of theworld’s cities.
In 2014, we developed and expanded
our programs with a focus on three
distinct challenges:
First, we are helping metropolitan
regions compete more effectively in
the global economy. Through our
Global Cities Initiative with the Brookings Institution, we have expanded
our work to help cities in the UnitedStates, Europe, Asia and Latin America
develop strategies for increasing international trade and investment ties.
Second, we are helping cities aroundthe world address one of their biggest
challenges: the need for a better
trained workforce to fill the millions
of jobs left open due to a shortageof applicants with the right skills.
Through our New Skills at Workprogram, we are developing strategies that align workforce training
with the skills employers seek andare providing much-needed data tostrengthen workforce systems.
Finally, we are helping cities create
thriving small business sectors
centered around high-growth industries through our Small Business
Forward initiative.

Underpinning all of these efforts isthe belief that achieving meaningful
impact requires us to apply thesame standard to our philanthropic
investments as we do to our business
investments: a genuine commitment to accountability, transparency
and impact.
To that end, we recently formed afive-year partnership with the Urban
Institute, one of the most wellrespected nonprofit research organizations in the United States, to assess
our major philanthropic initiatives –to analyze our efforts, produce independent research and strengthen our
programs – further advancing ourcommitment to maximum impact
for our communities and accountability to our shareholders.
We are very proud of our work overthis past year and are committed tomaking our communities and ourfirm even stronger.

Peter Scher
Head of Corporate Responsibility

Invested in Detroit
JPMorgan Chase has roots in Detroit going backto the 1930s, supporting our clients and the community through the investments, loans and otherservices that are core to our business. And while
we recognize that the city’s challenges remain
significant, JPMorgan Chase believes that Detroit
has the ingredients and intrinsic strengths torebuild a vibrant, modern economy.
In 2014, JPMorgan Chase launched a $100 million,
five-year commitment to support and accelerate
the dynamic recovery that is underway in Detroit:

the world that demonstrate success working
with employers to articulate demand in growing
sectors and training workers in those highdemand areas. Here are some examples:• In Houston, we co-chaired a task force composed of businesses, training programs andeducational institutions that developed
UpSkill Houston, a five-year plan to raiseawareness of middle-skill job opportunities,
increase access to technical education andtraining, and improve the alignment between
employers and education/training providers.

• Community Development: We provided $40
million in responsive, long-term investment
capital to two leading community development financial institutions to finance vitalprojects that often lack access to traditionalsources of capital.

• Small Business Growth: We are partneringwith local nonprofits to help Detroit’s vibrantsmall businesses access the resources andexpertise needed to get their businesses off
the ground.
Detroit’s recovery will take time, but we are
excited by the progress we have seen so far.
We’re in the city for the long term, and we willcontinue to learn and adapt as we work with ourpartners to help tackle Detroit’s challenges.

New Skills at WorkIn December 2013, we launched New Skills at
Work, a $250 million, five-year workforce readiness initiative to close skills gaps in sectors
where employers struggle to fill vacancies andto help job seekers access the education andtraining required for these positions. A key
component of the program is focused on
research that provides actionable data to better
understand the dynamics of labor markets.
Based on those findings, we directed grants to
support innovative nonprofit programs aroundSupporting this new research, GCI held highprofile convenings around the world thatbrought together leaders from business, government and nonprofits to explore best practices
and catalyze local action. GCI held meetings inHong Kong, London, Louisville-Lexington,
Munich, Phoenix and Seattle — each of which
attracted hundreds of participants interested inunderstanding how their metropolitan area wasdeveloping trade and investment strategies.
To transform knowledge about global trade andinvestment into local action, GCI launched the
Global Cities Exchange (GCX) — an academy for
cities seeking to develop and implement actionable global strategies. By the end of 2014, GCX
had enrolled 28 cities, of which 12 had completed export strategies, and six were working
on FDI strategies.

• Stronger Neighborhoods: Our support of the
Detroit Land Bank Authority and our innovative partnership with a local community bankto provide rehabilitation loan financing areaccelerating the city’s ambitious efforts to
reduce blight and stabilize neighborhoods.
• Workforce Readiness: We are helping the citystrengthen its workforce system, build partnerships between employers and training
programs, and give residents access to training in the skills employers are seeking.

In 2014, GCI introduced innovative research,
including an analysis of the role foreign direct
investment (FDI) plays in rebuilding metro economies, a report on the economic contributionsof foreign students to U.S. cities, an analysis of
the changing patterns of London’s exports, andresearch on the global competitiveness ofMunich, Hong Kong and Mumbai.

• In Europe, we provided data-driven, countryspecific analyses that map the latest employment trends and identify barriers to full andinclusive employment in the United Kingdom,
Germany, Spain and France. In conjunction
with U.K.-based Institute for Public Policy
Research, we released a comprehensive
review of European jobs and skills.
• In New York City, we published a report that
identified high-growth employment sectors
for middle-skill jobs and outlined recommendations to address the skills gaps impeding
employment in these industries. We supported an innovative partnership among alarge employer, a social service organization
and a community college that helps young
adults in a low-income community acquire thecredentials needed to secure a job in the
expanding healthcare sector.

Global Cities Initiative
The Global Cities Initiative (GCI), a joint project
launched by the Brookings Institution and
JPMorgan Chase in 2012, equips metropolitan
leaders with the data, policy ideas and networks
needed to support the economic growth of metropolitan regions through trade and investment.

Small Business Forward
Small businesses act as vital engines driving job
creation and economic development, but many
entrepreneurs lack access to the resources
needed for growth. In 2014, JPMorgan Chaselaunched Small Business Forward, a $30 million,
five-year initiative to catalyze small businessdevelopment in cities around the world.
We know that having a good business idea isonly part of what it takes for entrepreneurs to
succeed. They also need access to investors,
training, facilities, customers and export opportunities. Research has shown that these supports become even more effective when theytarget clusters of small businesses working inthe same sector and geography. According to a
study conducted by the Initiative for a Competitive Inner City and supported by JPMorgan
Chase, businesses in well-established clusters
outpaced overall regional growth by more than
300% between 2003 and 2011.
Small Business Forward supports nonprofits
around the world that provide small business clusters with the critical resources they need to succeed. By helping regional economies build on theircore assets to develop thriving enterprises, we arestrengthening communities across the globe.
592014 HIGHLIGHTS AND ACCOMPLISHMENTS

Developing local economies
and communities• Provided $2.6 billion to low- andmoderate-income communities
through our community development lending and equity
investments to build or preserve
35,100 units of affordable housing, serve 5,000 students, create
nearly 2,200 manufacturing jobs
and serve 380,000 patients at
healthcare facilities.
• Implemented year one of thefirm’s New Skills at Work program, a $250 million, five-year
initiative to strengthen local
workforce systems by providing
real-time data and supporting
partners to align training with
employer and job seeker needs(see previous page).
• Committed $5 million over two
years to help underserved youth
across the United States obtainthe skills necessary to build lasting careers and partnered withother organizations to create
almost 50,000 summer jobs forteens and learning opportunities
for more than 54,000 young
people in 14 cities. In 2014, wereleased a report highlighting
best practices from our networkof nonprofit partners and identifying opportunities to advancesummer youth programs.

• Expanded The Fellowship Initiative, a JPMorgan Chase collegeaccess program for young men ofcolor that provides academic,
leadership and experiential learning opportunities for 120 student
Fellows in New York, Chicago and
Los Angeles to develop the knowledge, skills and networks needed
to complete high school andsucceed in college and beyond.
60• Expanded the impact of the
Global Cities Initiative beyond theUnited States and assessed theglobal competitiveness of European and Asian cities, convened
leaders from around the worldand broadened the reach of the
Global Cities Exchange networkof cities (see previous page).
• Exceeded 560,000 hours ofvolunteer service by JPMorgan
Chase employees globally andprovided $3.3 million of technicalassistance to nonprofits throughTechnology for Social Good, an
initiative utilizing our employees’skills to develop technology
solutions for the social sector.
Honoring U.S. military andveterans• Continued our leadership of
the 100,000 Jobs Mission, a
coalition of employers formed
in 2011 that collectively hired
more than 217,000 U.S. veterans and military spouses by
the end of 2014 and raised its
hiring goal to 300,000 hires.
From 2011 through March
2015, JPMorgan Chase has
hired nearly 8,700 veterans.
• Supported research conductedby RAND Corporation to capture
the lessons and experiencesfrom 100,000 Jobs Mission companies on integrating veterans
into the private sector workforce.
• Exceeded the first-year goal of
the firm’s $20 million, five-year
commitment by deploying $8
million to help U.S. military veterans and their families develop
in-demand job skills, retain quality employment, increase college
graduation rates and connect tostable housing opportunities.
• Awarded more than 750 newly
renovated, mortgage-freehomes worth over $125 million
to veterans and their families
since 2010.

Supporting small businessdevelopment• Provided $19 billion in new credit
to small businesses across theUnited States and was recognized
as the #1 lender by units towomen- and minority-owned businesses for the third consecutive
year by the U.S. Small Business
Administration.
• Launched Small Business Forward,
a $30 million, five-year commitment to support small businessclusters that provide comprehensive support services to entrepreneurs (see previous page).
• Awarded $3 million to support
small businesses making a positive impact in communities acrossthe United States through our Mission Main Street Grants® program.
Strengthening financial
capability

Promoting sustainable
investment• Underwrote more than $2.2
billion in green bonds — debt
issuances where proceeds are
directed toward environmentally
beneficial or climate-friendly
purposes — in 2014.
• Provided founding sponsorshipof NatureVest, an initiative of
The Nature Conservancy to
attract investment capital toconservation.
• Invested $5 million through a
new joint investment with the
U.K. government in Novastar
Ventures to develop early-stage
businesses that provide essential
basic services to underserved
communities in East Africa.
• Announced the first investments
through the Global HealthInvestment Fund, an innovative
financing vehicle structured by
JPMorgan Chase and the Bill &Melinda Gates Foundation, tosupport the final development
and distribution of a new treatment for cholera and a powerful
diagnostic for tuberculosis.
Increasing transparency withstakeholders• Launched the Financial Solutions
Lab, a $30 million, five-year
initiative to identify, test andexpand promising innovations to
help Americans increase savings,
improve credit and build assets.
The first Lab competition focuseson supporting solutions to help
consumers manage their household finances.
• Committed $35 million over two
years to support and expand
proven financial capability programs with nonprofits globally,
investing in the development oftechnology-driven products andservices designed to meet consumer needs, the infrastructure
to expand the availability of theseproducts and services, and theresearch to evaluate and share
best practices with the field.

• Convened senior business leaders and leading national policy
groups to foster open conversations about Chase products,
policies and public policy matters that impact, in particular,
low- and moderate-income communities, communities of color
and people with disabilities.
• Released an Environmental andSocial Policy Framework, after
extensive engagement with external stakeholders, to communicate
our approach to environmental
and social risks in our business.
• Collaborated with Ceres toengage a group of external
stakeholders in a dialogue
focused on sharing perspectives
and priorities to help us enhance
our approach to human rights.

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:

170

Management’s Report on Internal Control Over
Financial Reporting

171

Report of Independent Registered Public Accounting
Firm

64

Introduction

172

Consolidated Financial Statements

65

Executive Overview

177

Notes to Consolidated Financial Statements

68

Consolidated Results of Operations

72

Consolidated Balance Sheets Analysis

74

Off–Balance Sheet Arrangements and Contractual Cash
Obligations

76

Consolidated Cash Flows Analysis

77

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

Supplementary information:

79

Business Segment Results

307

Selected Quarterly Financial Data

105

Enterprise-wide Risk Management

309

Glossary of Terms

110

Credit Risk Management

131

Market Risk Management

137

Country Risk Management

139

Model Risk Management

140

Principal Risk Management

141

Operational Risk Management

144

Legal Risk Management & Compliance Risk
Management

145

Fiduciary Risk Management

145

Reputation Risk Management

146

Capital Management

156

Liquidity Risk Management

161

Critical Accounting Estimates Used by the Firm

166

Accounting and Reporting Developments

168

Nonexchange-Traded Commodity Derivative Contracts
at Fair Value

169

Forward-Looking Statements

JPMorgan Chase & Co./2014 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, headcount data and where otherwise noted)
Selected income statement data
Total net revenue
Total noninterest expense
Pre-provision profit
Provision for credit losses
Income before income tax expense
Income tax expense
Net income
Earnings per share data
Net income:
Basic
DilutedAverage shares: Basic
DilutedMarket and per common share data
Market capitalization
Common shares at period-end
Share price(a)
High
Low
Close
Book value per share
Tangible book value per share (“TBVPS”)(b)Cash dividends declared per share
Selected ratios and metrics
Return on common equity (“ROE”)
Return on tangible common equity (“ROTCE”)(b)Return on assets (“ROA”)
Overhead ratio
Loans-to-deposits ratio
High quality liquid assets (“HQLA“) (in billions)(c)Common equity tier 1 (“CET1”) capital ratio(d)Tier 1 capital ratio (d)Total capital ratio(d)Tier 1 leverage ratio(d)Selected balance sheet data (period-end)
Trading assets
Securities(e)LoansTotal assets
Deposits
Long-term debt(f)Common stockholders’ equity
Total stockholders’ equity
Headcount
Credit quality metrics
Allowance for credit losses
Allowance for loan losses to total retained loans
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(g)Nonperforming assets
Net charge-offs
Net charge-off rate

2014
$

2013

94,20561,27432,931
3,139
29,792
8,030
21,762

$

$

5.34
5.29
3,763.5
3,797.5

$

$

$

$

$

$

$

2012

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

$

$

4.39
4.35
3,782.4
3,814.9

232,472
3,714.8

$

63.49
52.97
62.58
57.07
44.69
1.58

$

$

10%
13
0.89
65
56
600 $
10.2%
11.6
13.1
7.6
398,988
348,004
757,336
2,573,126
1,363,427
276,836
212,002232,065
241,359$

14,807 $1.90%
1.55
7,967 $
4,759
0.65%

2011

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

$

$

5.22
5.20
3,809.4
3,822.2

219,657
3,756.1

$

58.55
44.20
58.48
53.25
40.81
1.44

$

$

9%
11
0.75
73
57
522 $
10.7%
11.9
14.4
7.1
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%

2010

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

$

$

4.50
4.48
3,900.4
3,920.3

$

3.98
3.96
3,956.3
3,976.9

167,260
3,804.0$

125,442
3,772.7$

165,875
3,910.3

46.49
30.83
43.97
51.27
38.75
1.20

$

48.36
27.85
33.25
46.59
33.69
1.00

$

48.20
35.16
42.42
43.04
30.18
0.20

$

11%
15
0.94
67
61
341
11.0%
12.6
15.3
7.1
450,028
371,152
733,7962,359,141
1,193,593
249,024
195,011204,069
258,753

$

11%
15
0.86
65
64
NA
10.1%
12.3
15.4
6.8
$

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

102,694
61,196
41,498
16,63924,8597,489
17,370

10%
15
0.85
60
74
NA
9.8%
12.1
15.5
7.0
$

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
23,673
3.39%(a) Share prices shown for JPMorgan Chase’s common stock are from the New York Stock Exchange. JPMorgan Chase’s common stock is also listed and traded on the London Stock Exchange andthe Tokyo Stock Exchange.
(b) TBVPS and ROTCE are non-GAAP financial measures. TBVPS represents the Firm’s tangible common equity divided by common shares at period-end. ROTCE measures the Firm’s annualized
earnings as a percentage of tangible common equity. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages
77–78.
(c) HQLA represents the Firm’s estimate of the amount of assets that qualify for inclusion in the liquidity coverage ratio under the final U.S. rule (“U.S. LCR”) as of December 31, 2014, and underthe Basel III liquidity coverage ratio (“Basel III LCR”) for prior periods. The Firm did not begin estimating HQLA until December 31, 2012. For additional information, see HQLA on page 157.
(d) Basel III Transitional rules became effective on January 1, 2014; prior period data is based on Basel I rules. As of December 31, 2014 the ratios presented are calculated under the Basel III
Advanced Transitional Approach. CET1 capital under Basel III replaced Tier 1 common capital under Basel I. Prior to Basel III becoming effective on January 1, 2014, Tier 1 common capital
under Basel I was a non-GAAP financial measure. See Regulatory capital on pages 146–153 for additional information on Basel III and non-GAAP financial measures of regulatory capital.
(e) Included held-to-maturity securities of $49.3 billion and $24.0 billion at December 31, 2014 and 2013, respectively. Held-to-maturity balances for the other periods were not material.
(f) Included unsecured long-term debt of $207.5 billion, $199.4 billion, $200.6 billion, $231.3 billion and $238.2 billion respectively, as of December 31, of each year presented.
(g) Excludes the impact of residential real estate purchased credit-impaired (“PCI”) loans. For further discussion, see Allowance for credit losses on pages 128–130.

62

JPMorgan Chase & Co./2014 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 85
financial companies, all of which are components of the S&P 500. The Firm is a component of all three industry indices.
The following table and graph assume simultaneous investments of $100 on December 31, 2009, in JPMorgan Chase common
stock and in each of the above indices. The comparison assumes that all dividends are reinvested.
December 31,(in dollars)

2009

2010

JPMorgan Chase$ 100.00$ 102.30

KBW Bank Index

100.00123.36

S&P Financial Index

100.00

S&P 500 Index

100.00

JPMorgan Chase & Co./2014 Annual Report

2011

2012

2013

2014

81.87

$ 111.49$ 152.42$ 167.48

94.75

125.91173.45

189.69112.1393.00

119.73

162.34186.98115.06117.48136.27180.39205.07$63

Management’s discussion and analysis
This section of JPMorgan Chase’s Annual Report for the year ended December 31, 2014 (“Annual Report”), provides Management’s
discussion and analysis (“MD&A”) of the financial condition and results of operations of JPMorgan Chase. See the Glossary of Terms
on pages 309–313 for definitions of terms used throughout this Annual Report. The MD&A included in this Annual Report contains
statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks 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 page169) and in JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2014 (“2014 Form 10-K”), in Part I,
Item 1A: Risk factors; reference is hereby made to both.

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 U.S., with operations worldwide; the Firm
had $2.6 trillion in assets and $232.1 billion instockholders’ equity as of December 31, 2014. The Firm isa leader in investment banking, financial services for
consumers and small businesses, commercial banking,financial transaction processing and asset management.
Under the J.P. Morgan and Chase brands, the Firm serves
millions of customers in the U.S. and many of the world’s
most prominent corporate, institutional and government
clients.

JPMorgan Chase’s activities are organized, for management
reporting purposes, into four major reportable businesssegments, as well as a Corporate segment. The Firm’s
consumer business is the Consumer & Community Banking(“CCB”) segment. The Corporate & Investment Bank (“CIB”),
Commercial Banking (“CB”), and Asset Management (“AM”)
segments comprise the Firm’s wholesale businesses. For a
description of the Firm’s business segments, and the
products and services they provide to their respective client
bases refer to Business Segment Results on pages 79–104,
and Note 33.

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

64

JPMorgan Chase & Co./2014 Annual Report

EXECUTIVE OVERVIEWThis executive overview of the MD&A highlights selected
information and may not contain all of the information that is
important to readers of this Annual Report. For a complete
description of 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.
Financial performance of JPMorgan Chase
Year ended December 31,(in millions, except per sharedata and ratios)

2014

2013

Selected income statement data
Total net revenue$ 94,205$ 96,606
Total noninterest expense
61,27470,467Pre-provision profit
32,931
26,139Provision for credit losses
3,139
225
Net income
21,762
17,923
Diluted earnings per share
5.29
4.35
Return on common equity
10%
9%
Capital ratios(a)
CET1
10.2
10.7
Tier 1 capital
11.6
11.9

Change
(2)%
(13)
26
NM
21
22

(a) Basel III Transitional rules became effective on January 1, 2014;
December 31, 2013 data is based on Basel I rules. As of December 31,
2014 the ratios presented are calculated under the Basel III Advanced
Transitional Approach. CET1 capital under Basel III replaced Tier 1
common capital under Basel I. Prior to Basel III becoming effective on
January 1, 2014, Tier 1 common capital under Basel I was a non-GAAP
financial measure. See Regulatory capital on pages 146–153 foradditional information on Basel III and non-GAAP financial measures ofregulatory capital.

Summary of 2014 Results
JPMorgan Chase reported record full-year 2014 net incomeof $21.8 billion, and record earnings per share of $5.29, on
net revenue of $94.2 billion. Net income increased by $3.8
billion, or 21%, compared with net income of $17.9 billion,
or $4.35 per share, in 2013. ROE for the year was 10%,compared with 9% for the prior year.
The increase in net income in 2014 was driven by lower
noninterest expense, largely offset by higher provision for
credit losses and lower net revenue. The decrease innoninterest expense was driven by lower legal expense as
well as lower compensation expense.
The provision for credit losses increased from the prior year
as result of a lower level of benefit from reductions in the
consumer allowance for loan losses, partially offset bylower net charge-offs. The decrease in the consumer
allowance for loan losses was predominantly the result ofcontinued improvement in home prices and delinquencies in
the residential real estate portfolio. The wholesale provisionreflected a continued favorable credit environment.
Total firmwide allowance for credit losses was $14.8 billion
resulting in a loan loss coverage ratio of 1.55%, excluding
the purchase credit-impaired (“PCI”) portfolio, comparedwith 1.80% in the prior year. The Firm’s allowance for loan
losses to nonperforming loans retained, excluding the PCI
JPMorgan Chase & Co./2014 Annual Report

portfolio and credit card, was 106% compared with 100%in 2013.
Firmwide, net charge-offs were $4.8 billion for the year,
down $1.0 billion, or 18% from 2013. Nonperforming
assets at year-end were $8.0 billion, down $1.7 billion, or
18%.
The Firm’s results reflected solid underlying performanceacross its four major reportable business segments, with
continued strong lending and deposit growth. Consumer &Community Banking was #1 in deposit growth for the third
consecutive year and Consumer & Business Banking within
Consumer & Community Banking was #1 in customer
satisfaction among the largest U.S. banks for the third
consecutive year as measured by The American Customer
Satisfaction Index (“ACSI”). Credit card sales volume(excluding Commercial Card) was up 11% for the year. The
Corporate & Investment Bank maintained its #1 ranking in
Global Investment Banking Fees and moved up to a #1
ranking in Europe, Middle East and Africa (“EMEA”),
according to Dealogic. Commercial Banking loans increased
to $149 billion, an 8% increase compared with the prioryear. Commercial Banking also had record gross investmentbanking revenue of $2.0 billion, up 18% compared with theprior year. Asset Management achieved twenty-threeconsecutive quarters of positive net long-term client flows
and increased average loan balances by 16% in 2014.
The Firm maintained its fortress balance sheet, ending theyear with an estimated Basel III Advanced Fully Phased-in
CET1 capital ratio of 10.2%, compared with 9.5% in theprior year. Total deposits increased to $1.4 trillion, up 6%
from the prior year. Total stockholders’ equity was $232
billion at December 31, 2014. (The Basel III Advanced Fully
Phased-in CET1 capital ratio is a non-GAAP financial
measure, which the Firm uses along with the other capital
measures, to assess and monitor its capital position. For
further discussion of the Firm’s capital ratios, seeRegulatory capital on pages 146–153.)
During 2014, the Firm continued to serve customers,
corporate clients and the communities in which it does
business. The Firm provided credit to and raised capital of$2.1 trillion for its clients during 2014; this included $19
billion lent to U.S. small businesses and $75 billion to
nonprofit and government entities, including states,
municipalities, hospitals and universities.
The discussion that follows highlights the performance ofeach business segment compared with the prior year andpresents results on a managed 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 77–78.
Consumer & Community Banking net income was $9.2
billion, a decrease of 17% compared with the prior year,
due to higher provision for credit losses and lower net
revenue, partially offset by lower noninterest expense. Net
interest income decreased, driven by spread compression
and lower mortgage warehouse balances, largely offset byhigher deposit balances in Consumer & Business Banking
65

Management’s discussion and analysis
and higher loan balances in Credit Card. Noninterest
revenue decreased, driven by lower mortgage fees andrelated income. The provision for credit losses was $3.5
billion, compared with $335 million in the prior year. The
current-year provision reflected a $1.3 billion reduction in
the allowance for loan losses and total net charge-offs of$4.8 billion. Noninterest expense decreased from the prioryear, driven by lower Mortgage Banking expense.
Corporate & Investment Bank net income was $6.9 billion,a decrease of 22% compared with the prior year, primarilyreflecting lower revenue as well as higher noninterest
expense. Banking revenues decreased from the prior year
primarily due to lower Lending revenues, driven by mark tomarket losses on securities received from restructuredloans, compared to gains in the prior year, partially offset
by higher investment banking fees. Markets & Investor
Services revenues increased slightly from the prior year as2013 included losses from FVA/DVA, primarily driven by
FVA implementation, while the current year reflected lower
Fixed Income Markets revenue. Credit Adjustments & Other
revenue was a loss of $272 million. Noninterest expense
increased compared with the prior year driven by higher
noncompensation expense, predominantly due to higher
legal expense and investment in controls. This was partially
offset by lower performance-based compensation expense.
Commercial Banking net income was $2.6 billion, flatcompared with the prior year, reflecting lower net revenue
and higher noninterest expense, predominantly offset by alower provision for credit losses. Net interest income
decreased from the prior year, reflecting yield compression,
the absence of proceeds received in the prior year from alending-related workout, and lower purchase discounts
recognized on loan repayments, partially offset by higher
loan balances. Noninterest revenue increased, reflecting
higher investment banking revenue, largely offset bybusiness simplification and lower lending fees. Noninterest
expense increased from the prior year, largely reflecting
higher investments in controls.
Asset Management net income was $2.2 billion, an
increase of 3% from the prior year, reflecting higher net
revenue and lower provision for credit losses,
predominantly offset by higher noninterest expense.
Noninterest revenue increased from the prior year, due to
net client inflows and the effect of higher market levels,
partially offset by lower valuations of seed capital
investments. Noninterest expense increased from the prioryear, as the business continues to invest in bothinfrastructure and controls.
Corporate net income was $864 million, an increase
compared with a loss in the prior year. The current year
included $821 million of legal expense, compared with
$10.2 billion of legal expense, which included reserves forlitigation and regulatory proceedings, in the prior year.

66

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 169 and the Risk Factors section on
pages 8–17.
Over the past few years, the Firm has been adapting to theregulatory environment while continuing to serve its clientsand customers, invest in its businesses, and deliver strong
returns to its shareholders. The Firm’s initiatives include
building a fortress control environment, de-risking andsimplification of the organization, a disciplined approach to
managing expense, evolving its capital assessment
framework as well as rigorous optimization of the Firm’sbalance sheet and funding.
The Firm has been devoting substantial resources to
execute on its control agenda. The Oversight and Control
function, established in 2012, has been working closely andextensively with the Firm’s other control disciplines,
including Compliance, Risk Management, Legal, Internal
Audit, and other functions, to address the Firm's controlrelated projects that are cross-line of business and thathave significant regulatory impact or respond to regulatory
actions. The Firm’s investment in the control agenda andinvestment in technology, are considered by management
to be essential to the Firm’s future.
The Firm has substantially completed executing its businesssimplification agenda. In 2013, the Firm ceased originating
student loans, exited certain high risk customers andbecame more selective about on-boarding certain
customers. Following on these initiatives, in 2014, the Firmexited several non-core credit card co-branded
relationships, sold the Retirement Plan Services businesswithin AM, exited certain prepaid card businesses, reduced
its offering of mortgage banking products, completed thesale of the CIB’s Global Special Opportunity Groupinvestment portfolio, and the sale and liquidation of asignificant part of CIB’s physical commodities business. In
January 2015, the Firm completed the “spin out” of the One
Equity Partners (“OEP”) private equity business (together
with a sale of a portion of the OEP portfolio to a group of
private equity firms). These actions will allow the Firm tofocus on core activities for its core clients and reduce risk to
the Firm. While it is anticipated that these exits will reducerevenues and expenses, they are not expected to have ameaningful impact on the Firm’s profitability.
The Firm’s simplification agenda, however, is more
extensive than exiting businesses, products or clients thatwere non-core, not at scale or not returning the appropriate
level of return. The Firm is also focused on operational andstructural simplicity, and streamlining and centralizing
certain operational functions and processes in order toattain more consistencies and efficiencies across the Firm.
To that end, the Firm is working on simplifying its legal
entity structure, simplifying its Global Technology function,

JPMorgan Chase & Co./2014 Annual Reportrationalizing its use of vendors, and optimizing its realestate location strategy.
As the Firm continues to experience an unprecedented
increase in regulation and supervision, it continues to
evolve its financial architecture to respond to this changing
landscape. In 2014, the Firm exceeded the minimum capitallevels required by the current rules and intends to continue
to build capital in response to the higher Global
Systemically Important Bank (“G-SIB”) capital surcharge
proposed by U.S. banking regulators. In addition, the Firm is
adapting its capital assessment framework to review
businesses and client relationships against G-SIB andapplicable capital requirements, and imposing internal
limits on business activities to align or optimize the Firm'sbalance sheet and RWA with regulatory requirements inorder to ensure that business activities generate
appropriate levels of shareholder value.
The Firm intends to balance return of capital toshareholders with achieving higher capital ratios over time.
The Firm expects the capital ratio calculated under the
Basel III Standardized Approach to become its binding
constraint by the end of 2015, or slightly thereafter. The
Firm anticipates reaching Basel III Fully Phased-In Advanced
and Standardized CET1 ratios of approximately 11% by theend of 2015 and is targeting a Basel III CET1 ratio of
approximately 12% by the end of 2018, assuming a 4.5%
G-SIB capital surcharge. If the Firm's G-SIB capital surcharge
is lower than 4.5%, the Firm will adjust its Basel III CET1
target accordingly.
Likewise, the Firm will be evolving its funding framework toensure it meets the current and proposed more stringent
regulatory liquidity rules, including those relating to theavailability of adequate Total Loss Absorbing Capacity(“TLAC”) at G-SIB organizations. The Firm estimated that it
had, as of December 31, 2014, approximately 15%
minimum TLAC as a percentage of Basel III Advanced Fully
Phased-in RWA, excluding capital buffers currently in effect,
based on its understanding of how the Financial Stability
Board's proposal may be implemented in the U.S. While theprecise composition and calibration of TLAC, as well as theconformance period, are yet to be defined by U.S. banking
regulators, the Firm expects the requirement will lead toincremental debt issuance by the Firm and higher funding
costs over the next few years.
The Firm expects it will continue to make appropriate
adjustments to its businesses and operations in the year
ahead in response to ongoing developments in the legal andregulatory, as well as business and economic, environment
in which it operates. The Firm intends to take a disciplined
approach to growing revenues and controlling expenses inlight of its capital and liquidity constraints. The Firm’s deepclient relationships and its investments in its businesses,
including branch optimization, new card relationships,
expansion into new markets, and hiring additional sales
staff and client advisors, are expected to generatesignificant revenue growth over the next several years. At
the same time, the Firm intends to leverage its scale andimprove its operating efficiencies so that it can fund thesegrowth initiatives, as well as maintain its control and
JPMorgan Chase & Co./2014 Annual Reporttechnology programs, without increasing its expenses. As aresult, the Firm anticipates achieving a managed overheadratio of approximately 55% over the next several years,
including the impact of revenue growth.
2015 Business Outlook
JPMorgan Chase’s outlook for the full-year 2015 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.
Management expects core loan growth of approximately
10% in 2015. The Firm continues to experience charge-offs
at levels lower than its through-the-cycle expectations; iffavorable credit trends continue, management expects the
Firm’s total net charge offs could remain low, at an amountmodestly over $4 billion in 2015, and expects a reductionin the consumer allowance for loan losses over the next two
years.
Firmwide adjusted expense in 2015 is expected to beapproximately $57 billion, excluding Firmwide legal
expenses and foreclosure-related matters.
In Consumer & Business Banking within CCB, management
expects continued spread compression in the deposit
margin and a modest decline in net interest income in thefirst quarter of 2015. In Mortgage Banking within CCB,
management expects quarterly servicing expense to decline
to below $500 million by the second quarter of 2015 asdefault volume continues to decline. In Card Services within
CCB, management expects the revenue rate in 2015 toremain at the low end of the target range of 12% to 12.5%.
In CIB, Markets revenue in the first quarter of 2015 will be
impacted by the Firm’s business simplification initiatives
completed in 2014, resulting in a decline of approximately$500 million, or 10%, in Markets revenue and a decline ofapproximately $300 million in expense, compared to theprior year first quarter. Based on strong performance todate, particularly in January, management currently expects
2015 first quarter Markets revenue to be higher than theprior year first quarter, even with the negative impact ofbusiness simplification; however, Markets revenue actual
results will depend on performance through the remainderof the quarter, which can be volatile.
Overall, the Firm expects the impact from its businesssimplification initiatives will be a reduction of
approximately $1.6 billion in revenue and a corresponding
reduction of approximately $1.6 billion in expense resulting
in no meaningful impact on the Firm’s 2015 anticipated net
income.

67

Management’s discussion and analysis
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,
2014. 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 161–165.

RevenueYear ended December 31,(in millions)

2014

Investment banking fees

$

6,542

2013
$

6,354

2012
$

5,808

Principal transactions(a)10,531

10,141

5,536

Lending- and deposit-related
fees

5,801

5,945

6,196

Asset management,
administration andcommissions
Securities gains

15,931

15,106

13,868

77

667

2,110

Mortgage fees and related
income

3,563

5,205

8,687

Card income

6,020

6,022

5,658

Other income

2,106

3,847

4,258

Noninterest revenue

50,57153,287

52,121

Net interest income

43,63443,31944,910Total net revenue$ 94,205(b)$

96,606$

97,031(a) Included funding valuation adjustments ((“FVA”) effective 2013)) anddebit valuation adjustments (“DVA”) on over-the-counter (“OTC”)
derivatives and structured notes, measured at fair value. FVA and DVA
gains/(losses) were $468 million and $(1.9) billion for the years
ended December 31, 2014 and 2013, respectively. DVA losses were($930) million for the year ended December 31, 2012.
(b) Included operating lease income of $1.7 billion, $1.5 billion and $1.3
billion for the years ended December 31, 2014, 2013 and 2012,
respectively.

2014 compared with 2013
Total net revenue for 2014 was down by $2.4 billion, or
2%, compared with the prior year, predominantly due tolower mortgage fees and related income, and lower otherincome. The decrease was partially offset by higher asset
management, administration and commissions revenue.
Investment banking fees increased compared with the prioryear, due to higher advisory and equity underwriting fees,
largely offset by lower debt underwriting fees. The increasein advisory fees was driven by the combined impact of agreater share of fees for completed transactions, andgrowth in industry-wide fee levels. The increase in equity
underwriting fees was driven by higher industry-wideissuance. The decrease in debt underwriting fees wasprimarily related to lower bond underwriting compared witha stronger prior year, and lower loan syndication fees onlower industry-wide fee levels. Investment banking fee
share and industry-wide data are sourced from Dealogic, anexternal vendor. For additional information on investment

68

banking fees, see CIB segment results on pages 92–96, CB
segment results on pages 97–99, and Note 7.
Principal transactions revenue, which consists of revenue
primarily from the Firm’s client-driven market-making andprivate equity investing activities, increased compared withthe prior year as the prior year included a $1.5 billion loss
related to the implementation of the FVA framework for OTC
derivatives and structured notes. The increase was also due
to higher private equity gains as a result of higher net gains
on sales. The increase was partially offset by lower fixedincome markets revenue in CIB, primarily driven by creditrelated and rates products, as well as the impact of businesssimplification initiatives. For additional information on
principal transactions revenue, see CIB and Corporate
segment results on pages 92–96 and pages 103–104,
respectively, and Note 7.
Lending- and deposit-related fees decreased compared withthe prior year, reflecting the impact of businesssimplification initiatives and lower trade finance revenue in
CIB. For additional information on lending- and depositrelated fees, see the segment results for CCB on pages 81–
91, CIB on pages 92–96 and CB on pages 97–99.
Asset management, administration and commissions
revenue increased compared with the prior year, reflecting
higher asset management fees driven by net client inflows
and the effect of higher market levels in AM and CCB. The
increase was offset partially by lower commissions andother fee revenue in CCB as a result of the exit of a non-coreproduct in the second half of 2013. For additional
information on these fees and commissions, see thesegment discussions of CCB on pages 81–91, AM on pages
100–102, and Note 7.
Securities gains decreased compared with the prior year,
reflecting lower repositioning activity related to the Firm’s
investment securities portfolio. For additional information,
see the Corporate segment discussion on pages 103–104
and Note 12.
Mortgage fees and related income decreased comparedwith the prior year. The decrease was predominantly due tolower net production revenue driven by lower volumes due
to higher levels of mortgage interest rates, and tighter
margins. The decline in net production revenue waspartially offset by a lower loss on the risk management ofmortgage servicing rights (“MSRs”). For additional
information, see the segment discussion of CCB on pages
85–87 and Note 17.
Card income remained relatively flat but included higher net
interchange income on credit and debit cards due to growthin sales volume, offset by higher amortization of new
account origination costs. For additional information on
credit card income, see CCB segment results on
pages 81–91.

JPMorgan Chase & Co./2014 Annual ReportOther income decreased from the prior year, predominantly
as a result of the absence of two significant items recordedin Corporate in 2013, namely: a $1.3 billion gain on thesale of Visa shares and a $493 million gain from the sale of
One Chase Manhattan Plaza. Lower valuations of seedcapital investments in AM and losses related to the exit of
non-core portfolios in Card also contributed to thedecrease. These items were partially offset by higher auto
lease income as a result of growth in auto lease volume, anda benefit from a tax settlement.
Net interest income increased slightly from the prior year,
predominantly reflecting higher yields on investment
securities, the impact of lower interest expense, and higher
average loan balances. The increase was partially offset bylower yields on loans due to the run-off of higher-yielding
loans and new originations of lower-yielding loans, andlower average interest-earning trading asset balances. The
Firm’s average interest-earning assets were $2.0 trillion,
and the net interest yield on these assets, on a fully taxableequivalent (“FTE”) basis, was 2.18%, a decrease of 5 basis
points from the prior year.
2013 compared with 2012
Total net revenue for 2013 was down by $425 million, orless than 1%. The 2013 results were driven by lower
mortgage fees and related income, net interest income, andsecurities gains, predominantly offset by higher principaltransactions revenue, and asset management,
administration and commissions 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 greater share of fees in equity capital markets
and loans. Advisory fees decreased, as industry-wide M&A
fee levels declined. Investment banking fee share andindustry-wide data are sourced from Dealogic, an externalvendor.
Principal transactions revenue increased compared with theprior year, reflecting CIB’s strong equity markets revenue,
partially offset by a $1.5 billion loss from implementing a
FVA framework for OTC derivatives and structured notes in
the fourth quarter of 2013, and a $452 million loss from
DVA on structured notes and derivative liabilities (comparedwith a $930 million loss from DVA in the prior year). The
prior year also included a $5.8 billion loss on the synthetic
credit portfolio incurred by CIO in the six months ended
June 30, 2012; a $449 million loss on the index credit
derivative positions retained by CIO in the three months
ended September 30, 2012; and additional modest losses
incurred by CIB from the synthetic credit portfolio in the last
six months of 2012. These losses were partially offset by a$665 million gain recognized in 2012 in Corporate,
representing the recovery on a Bear Stearns-related
subordinated loan.

JPMorgan Chase & Co./2014 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.
Asset management, administration and commissions
revenue increased from 2012, driven by higher investment
management fees in AM due to net client inflows, the effectof higher market levels, and higher performance fees, andto higher investment sales revenue in CCB.
Securities gains decreased compared with the prior-year
period, reflecting the results of repositioning the CIO
available-for-sale (“AFS”) portfolio.
Mortgage fees and related income decreased in 2013
compared with 2012, reflecting lower Mortgage Banking
net production and servicing revenue. The decrease in net
production revenue was due to lower margins and volumes.
The decrease in net servicing revenue was predominantly
due to lower MSR risk management results.
Card income increased compared with the prior year period,
driven by higher net interchange income on credit and debit
cards and higher merchant servicing revenue due to growthin sales volume.
Other income decreased in 2013 compared with the prioryear, predominantly reflecting lower revenues fromsignificant items recorded in Corporate. In 2013, the Firm
recognized a $1.3 billion gain on the sale of Visa shares, a$493 million gain from the sale of One Chase Manhattan
Plaza, and a modest loss related to the redemption of
TruPS. In 2012, the Firm recognized a $1.1 billion benefit
from the Washington Mutual bankruptcy settlement and an$888 million extinguishment gain related to the redemptionof 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 FTE basis, was
2.23%, a decrease of 25 basis points from the prior year.

69

Management’s discussion and analysis
Provision for credit losses

Noninterest expense

Year ended December 31,

Year ended December 31,(in millions)
Consumer, excluding credit card

2014
$

419

2013
$

(1,871) $2012(in millions)

302

Compensation expense

2014

2013

2012

$30,160$30,810$30,585

Credit card

3,079

2,179

3,444

Total consumer

3,498

308

3,746

Occupancy

3,909

3,693

3,925

Wholesale

(359)

(83)

(361)

Technology, communications andequipment

5,804

5,425

5,224

Professional and outside services

7,705

7,641

7,429

Marketing

2,550

2,500

2,577

Other(a)(b)11,146

20,39814,989Total noncompensation expense

31,11439,65734,144

Total noninterest expense$61,274$70,467$64,729

Total provision for credit losses $ 3,139

$

225

$

3,385

2014 compared with 2013
The provision for credit losses increased by $2.9 billion
from the prior year as result of a lower benefit fromreductions in the consumer allowance for loan losses,
partially offset by lower net charge-offs. The consumer
allowance release in 2014 was primarily related to theconsumer, excluding credit card portfolio, and reflected thecontinued improvement in home prices and delinquencies in
the residential real estate portfolio. The wholesale provisionreflected a continued favorable credit environment. For a
more detailed discussion of the credit portfolio and theallowance for credit losses, see the segment discussions of
CCB on pages 81–91, CIB on pages 92–96 and CB on pages
97–99, and the Allowance for credit losses section on pages
128–130.
2013 compared with 2012
The provision for credit losses decreased by $3.2 billion
compared with the prior year, due to a higher benefit fromreductions in the allowance for loan losses, as well as lower
net charge-offs partially due to incremental charge-offs
recorded in 2012 in accordance with regulatory guidanceon certain loans discharged under Chapter 7 bankruptcy.
The consumer allowance release in 2013 reflected theimprovement in home prices in the residential real estate
portfolio and improvement in delinquencies in theresidential real estate and credit card portfolios. The 2013
wholesale provision reflected a favorable credit
environment and stable credit quality trends.

Noncompensation expense:(a) Included firmwide legal expense of $2.9 billion, $11.1 billion and $5.0
billion for the years ended December 31, 2014, 2013 and 2012,
respectively.
(b) Included FDIC-related expense of $1.0 billion, $1.5 billion and $1.7
billion for the years ended December 31, 2014, 2013 and 2012,
respectively.

2014 compared with 2013
Total noninterest expense decreased by $9.2 billion, or13%, from the prior year, driven by lower other expense (inparticular, legal expense) and lower compensation expense.
Compensation expense decreased compared with the prioryear, predominantly driven by lower headcount in CCB’s
Mortgage Banking business, lower performance-based
compensation expense in CIB, and lower postretirement
benefit costs. The decrease was partially offset byinvestments in the businesses, including headcount, forcontrols.
Noncompensation expense decreased compared with theprior year, due to lower other expense, predominantly
reflecting lower legal expense. Lower expense forforeclosure-related matters and lower production andservicing-related expense in CCB’s Mortgage Banking
business, lower FDIC-related assessments, and lower
amortization expense due to the completion of theamortization of certain intangibles, also contributed to thedecline. The decrease was offset partially by investments inthe businesses, including for controls, and costs related tobusiness simplification initiatives across the Firm. For afurther discussion of legal expense, see Note 31. For a
discussion of amortization of intangibles, refer to Note 17.
2013 compared with 2012
Total noninterest expense was up by $5.7 billion, or 9%,
compared with the prior year, predominantly due to higher
legal expense.
Compensation expense increased in 2013 compared withthe prior year, due to the impact of investments across thebusinesses, including front office sales and support staff,
and costs related to the Firm’s control agenda; these werepartially offset by lower compensation expense in CIB andin CCB’s Mortgage Banking business, reflecting the effect oflower servicing headcount.

70

JPMorgan Chase & Co./2014 Annual Report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, representing additional
reserves for several litigation and regulatory proceedings,
compared with $5.0 billion of expense in the prior year.
Investments in the businesses, higher legal-related
professional services expense, and costs related to theFirm’s control agenda also contributed to the increase. The
increase was offset partially by lower mortgage servicing
expense in CCB and lower occupancy expense for the Firm,
which predominantly reflected the absence of charges
recognized in 2012 related to vacating excess space.

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

2014

2013

2012

Income before income tax expense $ 29,792$ 25,914$ 28,917

Income tax expense

8,030

7,991

7,633

Effective tax rate

27.0%

30.8%

26.4%

JPMorgan Chase & Co./2014 Annual Report2014 compared with 2013
The decrease in the effective tax rate from the prior year
was largely attributable to the effect of the lower level ofnondeductible legal-related penalties, partially offset byhigher 2014 pretax income, in combination with changes in
the mix of income and expense subject to U.S. federal, stateand local income taxes, and lower tax benefits associatedwith tax adjustments and the settlement of tax audits. For
additional information on income taxes, see Critical
Accounting Estimates Used by the Firm on pages 161–165
and Note 26.
2013 compared with 2012
The increase in the effective tax rate compared with theprior year was predominantly due to the effect of higher
nondeductible legal-related penalties in 2013. This waslargely offset by the impact of lower pretax income, in
combination with changes in the mix of income and expense
subject to U.S. federal, state and local taxes, business tax
credits, tax benefits associated with prior year tax
adjustments and audit resolutions.

71

Management’s discussion and analysis
CONSOLIDATED BALANCE SHEETS ANALYSIS
Selected Consolidated balance sheets data
December 31, (in millions)

2014

2013

ChangeAssetsCash and due from banks$

27,831$

39,771(30)%

Deposits with banks

484,477

316,051

53

Federal funds sold andsecurities purchased underresale agreements

215,803

248,116(13)

Securities borrowed

110,435

111,465(1)

Debt and equity
instruments

320,013308,905

4

Derivative receivables

78,97565,75920

Securities

348,004

354,003

(2)

Loans

757,336

738,418

3

Allowance for loan losses(14,185)(16,264)(13)

Loans, net of allowance forloan losses

743,151

722,1543

Accrued interest and accounts
receivable

70,07965,1608Premises and equipment

15,133

14,891

2

Goodwill

47,64748,081(1)

Mortgage servicing rights

7,436

9,614

(23)

Other intangible assets

1,192

1,618

(26)

Trading assets:

Other assets

102,950

110,101(6)

Total assets$ 2,573,126$ 2,415,689

7

6

Liabilities
Deposits$ 1,363,427$ 1,287,765

Federal funds purchased andsecurities loaned or soldunder repurchaseagreements

192,101

181,163

6

Commercial paper

66,344

57,84815

Other borrowed funds

30,222

27,9948

Debt and equity
instruments

81,69980,4302

Derivative payables

71,11657,31424

Accounts payable and otherliabilities

206,954

194,4916

Trading liabilities:

Beneficial interests issued byconsolidated VIEs

52,362

49,617

6

Long-term debt

276,836

267,8893

Total liabilities

2,341,061

2,204,511

6

232,065

211,17810$ 2,573,126$ 2,415,689

Stockholders’ equity
Total liabilities andstockholders’ equity

7%

Consolidated balance sheets overview
JPMorgan Chase’s total assets and total liabilities increased
by $157.4 billion and $136.6 billion, respectively, from
December 31, 2013.

72

The following is a discussion of the significant changes in
the Consolidated balance sheets from December 31, 2013.
Cash and due from banks and deposits with banks
The net increase was attributable to higher levels of excess
funds primarily as a result of growth in deposits. The Firm’s
excess funds were placed with various central banks,
predominantly Federal Reserve Banks.
Federal funds sold and securities purchased under resaleagreements
The decrease in federal funds sold and securities purchased
under resale agreements was predominantly attributable toa shift in the deployment of the Firm’s excess cash by
Treasury to deposits with banks and to client activity,
including a decline in public deposits that require collateral.
Trading assets and liabilities–debt and equity instruments
The increase in trading assets and liabilities predominantly
related to client-driven market-making activities in CIB was
primarily driven by higher levels of debt securities andtrading loans. For additional information, refer to Note 3.
Trading assets and liabilities–derivative receivables andpayablesThe increase in both receivables and payables was
predominantly due to client-driven market-making activities
in CIB, specifically in interest rate derivatives as a result ofmarket movements; commodity derivatives predominantly
driven by the significant decline in oil prices; and foreignexchange derivatives reflecting the appreciation of the U.S.
dollar against certain currencies. The increases werepartially offset by a decline in equity derivatives. For
additional information, refer to Derivative contracts on
pages 125–127, and Notes 3 and 5.
Securities
The decrease was predominantly due to lower levels of nonU.S. residential mortgage-backed securities and U.S.
Treasuries, partially offset by higher levels of obligations of
U.S. states and municipalities and U.S. residential
mortgage-backed securities. For additional information
related to securities, refer to the discussion in the Corporate
segment on pages 103–104, and Notes 3 and 12.
Loans and allowance for loan losses
The increase in loans was attributable to higher consumer
and wholesale loans. The increase in consumer loans wasdue to prime mortgage originations in CCB and AM, as wellas credit card, business banking and auto loan originationsin CCB, partially offset by paydowns and charge-offs or
liquidation of delinquent loans. The increase in wholesaleloans was due to a favorable credit environment throughout
2014, which drove an increase in client activity.

JPMorgan Chase & Co./2014 Annual Report

The decrease in the allowance for loan losses was driven bya reduction in the consumer allowance, predominantly as aresult of continued improvement in home prices anddelinquencies in the residential real estate portfolio. For a
more detailed discussion of the loan portfolio and theallowance for loan losses, refer to Credit Risk Managementon pages 110–111, and Notes 3, 4, 14 and 15.
Accrued interest and accounts receivable
The increase was due to higher receivables from security
sales that did not settle, and higher client receivables
related to client-driven market-making activities in CIB.
Mortgage servicing rights
For additional information on MSRs, see Note 17.
Other assets
The decrease was driven by several factors, including lower
deferred tax assets; lower private equity investments due tosales, partially offset by unrealized gains; and lower realestate owned.
Deposits
The increase was attributable to higher consumer andwholesale deposits. The increase in consumer deposits
reflected a continuing positive growth trend, resulting fromstrong customer retention, maturing of recent branchbuilds, and net new business. The increase in wholesale
deposits was driven by client activity and business growth.
For more information on consumer deposits, refer to the
CCB segment discussion on pages 81–91; the Liquidity Risk
Management discussion on pages 156–160; and Notes 3
and 19. For more information on wholesale client deposits,refer to the AM, CB and CIB segment discussions on pages
100–102, pages 97–99 and pages 92–96, respectively, andthe Liquidity Risk Management discussion on pages 156–
160.
Federal funds purchased and securities loaned or soldunder repurchase agreements
The increase in federal funds purchased and securities
loaned or sold under repurchase agreements was
predominantly attributable to higher financing of the Firm’s
trading assets-debt and equity instruments. The increase
was partially offset by client activity in CIB. For additional
information on the Firm’s Liquidity Risk Management, seepages 156–160.

JPMorgan Chase & Co./2014 Annual Report

Commercial paper
The increase was due to commercial paper issuances in thewholesale markets consistent with Treasury’s liquidity andshort-term funding plans and, to a lesser extent, a higher
volume of liability balances related to CIB’s liquidity
management product whereby clients choose to sweep theirdeposits into commercial paper. For additional informationon the Firm’s other borrowed funds, see Liquidity Risk
Management on pages 156–160.
Accounts payable and other liabilities
The increase was attributable to higher client payables
related to client short positions, and higher payables fromsecurity purchases that did not settle, both in CIB. The
increase was partially offset by lower legal reserves, largely
reflecting the settlement of legal and regulatory matters.
Beneficial interests issued by consolidated VIEs
The increase was predominantly due to net new
consolidated credit card and municipal bond vehicles,
partially offset by a reduction in conduit commercial paperissued to third parties and the deconsolidation of certain
mortgage securitization trusts. For further information on
Firm-sponsored VIEs and loan securitization trusts, see OffBalance Sheet Arrangements on pages 74–75 and Note 16.
Long-term debt
The increase was due to net issuances, consistent with
Treasury’s long-term funding plans. For additional
information on the Firm’s long-term debt activities, see
Liquidity Risk Management on pages 156–160.
Stockholders’ equity
The increase was due to net income and preferred stock
issuances, partially offset by the declaration of cash
dividends on common and preferred stock, and repurchasesof common stock. For additional information on
accumulated other comprehensive income/(loss) (“AOCI”),
see Note 25; for the Firm’s capital actions, see Capitalactions on page 154.

73

Management’s discussion and analysis
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONSIn the normal course of business, the Firm enters into
various contractual obligations that may require future cash
payments. Certain obligations are recognized on-balance
sheet, while others are off-balance sheet under 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 for further information on these types 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 &74

Poor’s and Fitch, respectively. These liquidity commitments
support the issuance of asset-backed commercial paper by
Firm-administered consolidated SPEs. In the event of 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 ofcommercial paper outstanding held by third parties as ofDecember 31, 2014 and 2013, was $12.1 billion and$15.5 billion, respectively. The aggregate amounts ofcommercial paper outstanding could increase in future
periods should clients of the Firm-administeredconsolidated SPEs draw down on certain unfunded lendingrelated commitments. These unfunded lending-related
commitments were $9.9 billion and $9.2 billion at
December 31, 2014 and 2013, respectively. The Firm could
facilitate the refinancing of some of the clients’ assets inorder to reduce the funding obligation. For further
information, see the discussion of Firm-administered multiseller conduits in Note 16.
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 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 125 and Note 29.
For a discussion of liabilities associated with loan sales-andsecuritization-related indemnifications, see Note 29.

JPMorgan Chase & Co./2014 Annual ReportContractual cash obligations

The accompanying table summarizes, by remaining
maturity, JPMorgan Chase’s significant contractual cash
obligations at December 31, 2014. The contractual cash
obligations included in the table below reflect the minimum
contractual obligation under legally enforceable contracts
with terms that are both fixed and determinable. Excluded
from the below table are certain liabilities with variable
cash flows and/or no obligation to return a stated amountof principal at the maturity.

The carrying amount of on-balance sheet obligations on theConsolidated balance sheets may differ from the minimum
contractual amount of the obligations reported below. For a
discussion of mortgage repurchase liabilities and otherobligations, see Note 29.

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

2015

2014
2018-20192016-2017

After 2019

Total

2013
Total

On-balance sheet obligations
Deposits(a)$1,345,919 $

8,200 $

3,318 $

4,160 $

1,361,597 $

1,286,587

Federal funds purchased and securities loaned orsold under repurchase agreements

189,002

2,655

30

441

192,128

181,163

Commercial paper

66,344———

66,344

57,848Other borrowed funds(a)15,734———

15,734

15,655

Beneficial interests issued by consolidated VIEs(a)27,833

12,860

6,125

3,382

50,20047,621Long-term debt

33,982

86,62061,46880,818262,888

256,739

Other(b)

3,494

1,217

1,022

2,622

8,355

7,720

1,682,308

111,552

71,96391,423

1,957,246

1,853,333(a)Total on-balance sheet obligations
Off-balance sheet obligations
Unsettled reverse repurchase and securities
borrowing agreements(c)40,993———40,99338,211

Contractual interest payments(d)6,980

10,006

6,596

24,45648,03848,021

Operating leases(e)

1,722

3,216

2,402

5,101

12,441

14,266

454

92

50

512

1,108

2,119

Equity investment commitments(f)Contractual purchases and capital expenditures

1,216

970

366

280

2,832

3,425

Obligations under affinity and co-brand programs

906

1,262

96

39

2,303

3,283

—

—

—

—

—

11

52,271

15,5469,510

30,388

107,715

109,336

1,734,579 $

127,098 $

81,473 $

121,811 $2,064,961 $

1,962,669

Other
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.
(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 $2.2 billion and $2.6 billion at December 31, 2014 and 2013, respectively.
(f) At December 31, 2014 and 2013, included unfunded commitments of $147 million and $215 million, respectively, to third-party private equity funds;
and $961 million and $1.9 billion of unfunded commitments, respectively, to other equity investments.

JPMorgan Chase & Co./2014 Annual Report75Management’s discussion and analysis
CONSOLIDATED CASH FLOWS ANALYSIS
Year ended December 31,(in millions)

2014

2013

2012

Net cash provided by/(used in)Operating activities

36,593$ 107,953

Investing activities(165,636)(150,501)(119,825)

Financing activities

118,228

28,32487,707(1,125)

272

1,160

Effect of exchange ratechanges on cash
Net decrease in cash and duefrom banks$$$ (11,940) $ (13,952) $25,079(5,879)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. The Firm believes cash flows from operations,available cash balances and the Firm’s ability to generatecash through short- and long-term borrowings are sufficient
to fund the Firm’s operating liquidity needs.
Cash provided by operating activities in 2014
predominantly resulted from net income after noncash
operating adjustments and reflected higher net proceedsfrom loan securitizations and sales activities whencompared with 2013. In 2013 cash provided reflected adecrease in trading assets from client-driven market-making
activities in CIB, resulting in lower levels of debt securities.
Cash used in 2013 for loans originated and purchased withan initial intent to sell was slightly higher than the cash
proceeds received from sales and paydowns of loans andreflected significantly higher levels of activities over theprior-year period. Cash provided during 2012 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; partially offset by a decrease inaccounts payable and other liabilities predominantly due tolower CIB client balances.

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. Cash used in investing activities during 2014, 2013,
and 2012 resulted from increases in deposits with banks,
attributable to higher levels of excess funds; in 2014, cash
was used for growth in wholesale and consumer loans,while in 2013 and 2012 cash used reflected growth inwholesale loans. Partially offsetting these cash outflows in2014 and 2013 was a net decline in securities purchased
under resale agreements due to a shift in the deployment of
the Firm’s excess cash by Treasury, and a net decline in
consumer loans in 2013 and 2012 from paydowns andportfolio runoff or liquidation of delinquent loans. In 2012,
additional cash was used for securities purchased underresale agreements. All years reflected cash proceeds fromnet maturities and sales of investment securities.
Financing activities
The Firm’s financing activities includes cash from customer
deposits, and cash proceeds from issuing long-term debt,
and preferred and common stock. Cash provided byfinancing activities in 2014 predominantly resulted fromhigher consumer and wholesale deposits. The increase in
consumer deposits reflected a continuing positive growthtrend resulting from strong customer retention, maturing ofrecent branch builds, and net new business. The increase inwholesale deposits was driven by client activity and deposit
growth. Cash provided in 2013 was driven by growth inboth wholesale and consumer deposits, net proceeds fromlong-term borrowings, and net issuance of preferred stock;partially offset by a decrease in securities loaned or soldunder repurchase agreements, predominantly due tochanges in the mix of the Firm’s funding sources. Cashprovided in 2012 was due to growth in both consumer andwholesale deposits and an increase in federal funds
purchased and securities loaned or sold under repurchaseagreements due to higher secured financings of the Firm’s
assets. In all periods, cash proceeds were offset by
repurchases of common stock and cash dividends oncommon and preferred stock.
* * *For a further discussion of the activities affecting the Firm’s
cash flows, see Balance Sheet Analysis on pages 72–73.

76

JPMorgan Chase & Co./2014 Annual ReportEXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURESThe Firm prepares its Consolidated Financial Statements
using U.S. GAAP; these financial statements appear on
pages 172–176. That presentation, which is referred to as“reported” basis, provides the reader with 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.

comparable to taxable investments and securities. This nonGAAP financial measure allows management to assess thecomparability of revenue arising from both taxable and taxexempt 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 ofbusiness.

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 reportable businesssegments) on a FTE basis. Accordingly, revenue frominvestments that receive tax credits and tax-exempt
securities is presented in the managed results on a basis

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.

The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.
2014

2013

2012

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

$

$

$

$

$

$

$

$

$

2,106

2,733

4,839

3,847

2,495

6,342

4,258

2,116

6,374

Total noninterest revenue

50,571

2,733

53,30453,2872,495

55,782

52,121

2,116

54,237

Net interest income

43,634985

44,61943,319697

44,01644,910743

45,653

Total net revenue

94,205

3,718

97,92396,606

3,192

99,79897,031

2,859

99,890Pre-provision profit

32,931

3,718

36,64926,1393,192

29,33132,302

2,859

35,161

Income before income tax expense

29,792

3,718

33,51025,914

3,192

29,10628,9172,859

31,776

Income tax expense

8,030

3,718

11,748

7,991

3,192

11,183

7,633

2,859

10,492

Overhead ratio

65%

NM

63%

73%

NM

71%

67%

NM

65%

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

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

JPMorgan Chase & Co./2014 Annual Report

Tangible common equity (“TCE”), ROTCE and TBVPS areeach non-GAAP financial measures. TCE represents the
Firm’s common stockholders’ equity (i.e., total stockholders’equity less preferred stock) less goodwill and identifiableintangible assets (other than MSRs), net of related deferred
tax liabilities. ROTCE measures the Firm’s earnings as apercentage of average TCE. TBVPS represents the Firm’s TCE
at period-end divided by common shares at period-end.
TCE, ROTCE, and TBVPS are meaningful to the Firm, as wellas investors and analysts, in assessing the Firm’s use of
equity.
Additionally, certain credit and capital metrics and ratios
disclosed by the Firm are non-GAAP measures. For
additional information on these non-GAAP measures, see
Credit Risk Management on pages 110–111, and Regulatory
capital on pages 146–153.

77

Management’s discussion and analysis

Tangible common equity
Period-end
Dec 31,
2014(in millions, except per share and ratio data)

AverageYear ended December 31,

Dec 31,
2013

2014

2013

2012

212,002 $200,020$ 207,400$ 196,409$ 184,352

Less: Goodwill

47,64748,081

48,02948,102

48,176

Less: Certain identifiable intangible assets

1,192

1,618

1,378

1,950

2,833

Add: Deferred tax liabilities(a)

2,853

2,953

2,950

2,885

2,754

$

166,016 $

153,274$ 160,943$ 149,242$ 136,097

NA

NA

13%

11%

15%

$

44.69 $

40.81

NA

NA

NA

Common stockholders’ equity$

Tangible common equity
Return on tangible common equity
Tangible book value per share(a)Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted
against goodwill and other intangibles when calculating TCE.

Core net interest income
In addition to reviewing 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. These activities exclude the impact of CIB’s
market-based activities. The core data presented below are
non-GAAP financial measures due to the exclusion of CIB’s
market-based net interest income and related assets.
Management believes this exclusion provides investors andanalysts another measure by which to analyze the nonmarket-related business trends of the Firm and provides acomparable measure to other financial institutions that areprimarily focused on core lending, investing and depositraising activities.
Core net interest income data
Year ended December 31,(in millions, except rates)
Net interest income - managedbasis(a)(b)2014$

44,619$39,067

Less: Market-based net interest
income(c)Core net interest income(a)(c)Average interest-earning assets
Less: Average market-based
earning assets
Core average interest-earning
assets2013$

44,016$38,524

5,552

2012
$

45,653$39,430

5,492

6,223

$ 2,049,093$ 1,970,231$ 1,842,417

510,261504,218

499,339$ 1,538,832$ 1,466,013$ 1,343,078

Net interest yield on interestearning assets - managed basis

2.18%

2.23%

2.48%

Net interest yield on market-based
activities(c)

1.09

1.09

1.25

2.54%

2.63%

2.94%

Core net interest yieldon core averageinterest-earning assets(c)2014 compared with 2013
Core net interest income increased by $543 million in 2014
to $39.1 billion, and core average interest-earning assets
increased by $72.8 billion to $1.5 trillion. The increase in
net interest income in 2014 predominantly reflected higher
yields on investment securities, the impact of lower interest
expense, and higher average loan balances. The increase
was partially offset by lower yields on loans due to the runoff of higher-yielding loans and new originations of loweryielding loans. The increase in average interest-earning
assets largely reflected the impact of higher averagebalance of deposits with banks. These changes in net
interest income and interest-earning assets resulted in thecore net interest yield decreasing by 9 basis points to
2.54% for 2014.
2013 compared with 2012
Core net interest income decreased by $906 million in2013 to $38.5 billion, and core average interest-earning
assets increased by $122.9 billion to $1.5 trillion. The
decline in net interest income in 2013 primarily reflected
the impact of the runoff of higher-yielding loans andoriginations 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 2.63% 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.

(a) Interest includes the effect of related hedging derivatives. Taxable-equivalentamounts are used where applicable.
(b) For a reconciliation of net interest income on a reported and managed basis, seereconciliation from the Firm’s reported U.S. GAAP results to managed basis on
page 77.
(c) Effective with the fourth quarter of 2014, the Firm changed the methodology it
uses to allocate preferred stock dividends to the lines of business. Prior periodamounts were revised to conform with the current allocation methodology. The
Firm’s Consolidated balance sheets and consolidated results of operations were
not affected by this reporting change. For further discussion please see
Preferred stock dividend allocation reporting change on pages 79–80.

78

JPMorgan Chase & Co./2014 Annual ReportBUSINESS SEGMENT RESULTS
The Firm is managed on a line of business basis. There are
four major reportable business segments – Consumer &Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset Management. In addition,
there is a Corporate segment.

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. The allocation process is unique to each businesssegment and considers the interest rate risk, liquidity risk
and regulatory requirements of that segment as if it wereoperating independently, and as compared with its standalone peers. This process is overseen by senior
management and reviewed by the Firm’s Asset-Liability
Committee (“ALCO”).

JPMorgan Chase & Co./2014 Annual Report

The business segments are determined based on the
products and services provided, or the type of customer
served, and they reflect the manner in which financial
information is currently evaluated by management. Resultsof these lines of business are presented on a managedbasis. For a definition of managed basis, see Explanation
and Reconciliation of the Firm’s use of non-GAAP financial
measures, on pages 77–78.

Preferred stock dividend allocation reporting change
As part of its funds transfer pricing process, the Firm
allocates substantially all of the cost of its outstanding
preferred stock to its reportable business segments, while
retaining the balance of the cost in Corporate. Prior to thefourth quarter of 2014, this cost was allocated to the Firm’sreportable business segments as interest expense, with anoffset recorded as interest income in Corporate. Effectivewith the fourth quarter of 2014, this cost is no longer
included in interest income and interest expense in thesegments, but rather is now included in net income
applicable to common equity to be consistent with thepresentation of firmwide results. As a result of thisreporting change, net interest income and net income in thereportable business segments increases; however, there
was no impact to the segments’ return on common equity(“ROE”). The Firm’s net interest income, net income,Consolidated balance sheets and consolidated results ofoperations were not impacted by this reporting change, aspreferred stock dividends have been and continue to be
distributed from retained earnings and, accordingly, were
never reported as a component of the Firm’s consolidated
net interest income or net income. Prior period segment
and core net interest income amounts throughout thisAnnual Report have been revised to conform with thecurrent period presentation.

79

Management’s discussion and analysis
The following chart depicts how preferred stock dividends
were allocated to the business segments before and after
the aforementioned methodology change.

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 Advanced
Fully Phased-In) and economic risk measures. The amountof capital assigned to each business is referred to as equity.
On at least an annual basis, the Firm assesses the level ofcapital required for each line of business as well as theassumptions and methodologies used to allocate capital toits lines of business and updates the equity allocations to its
lines of business as refinements are implemented. For
further information about these capital changes, see Line ofbusiness equity on page 153.
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(a)The following table summarizes the business segment results for the periods indicated.
Year ended December 31,

Total noninterest expense

Pre-provision profit/(loss)

2014

Total net revenue
2013

2012

2014

2014

Consumer & Community Banking$ 44,368 $

46,537 $50,278$ 25,609 $Corporate & Investment Bank

34,63334,786

34,762

23,273

21,744

21,85011,36013,042

12,912

Commercial Banking

6,882

7,092

6,912

2,695

2,610

2,389

4,187

4,482

4,523

Asset Management

12,028

11,405

10,010

8,538

8,016

7,104

3,490

3,389

2,906

10,255

4,559(1,147)(10,277)(6,631)(in millions)

Corporate
Total

12$ 97,923 $(22)(2,072)

1,159

99,798 $99,890$ 61,274 $Year ended December 31,

Provision for credit losses(in millions, except ratios)

2014

2013

2012

3,520 $

335 $

3,774

Corporate & Investment Bank

(161)

(232)

Commercial Banking

(189)

85

Asset Management

4

Consumer & Community Banking$

Corporate
Total

$

2013

2012

27,842 $ 28,827

70,467 $ 64,729$ 36,649 $ 29,331 $ 35,161

Return on equity
2012

2014

2013

2012

9,185 $ 11,061 $ 10,791

18%

23%

25%

(479)

6,925

8,887

8,672

10

15

18

41

2,635

2,648

2,699

18

19

28

65

86

2,153

2,083

1,742

23

23

24

(35)

(28)

(37)

864

(6,756)(2,620)

NM

NM

NM

3,139 $

225 $

3,385

$ 21,762 $ 17,923 $ 21,284

10%

9%

11%

$

2013

2012

$ 18,759 $ 18,695 $ 21,451

Net income/(loss)
2014

2013

(a) Effective with the fourth quarter of 2014, the Firm changed the methodology it uses to allocate preferred stock dividends to the lines of business. Prior period amounts for net
revenue, pre-provision profit/(loss) and net income/(loss) for each of the business segments were revised to conform with the current allocation methodology. The Firm’s
Consolidated balance sheets and consolidated results of operations were not affected by this reporting change. For further discussion please see Preferred stock dividend
allocation reporting change in Business Segment Results on pages 79–80.

80

JPMorgan Chase & Co./2014 Annual ReportCONSUMER & COMMUNITY BANKING
Consumer & Community Banking serves consumers andbusinesses through personal service at bank branches
and through ATMs, online, mobile and telephonebanking. CCB is organized into Consumer & BusinessBanking, 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
Year ended December 31,(in millions, except ratios)

2014

2013

2012

Lending- and deposit-related fees $ 3,039$ 2,983$ 3,121

Revenue
Asset management,
administration and commissions

2,096

2,116

2,093

Mortgage fees and related
income

3,560

5,195

8,680

Card income

5,779

5,785

5,446

All other income

1,463

1,473

1,473

Noninterest revenue

15,937

17,552

20,813

Net interest income

28,431

28,98529,465

Total net revenue

44,36846,53750,278Provision for credit losses

3,520

335

3,774

Compensation expense

10,538

11,686

11,632

Noncompensation expense

15,071

16,156

17,195

Total noninterest expense

25,60927,842

28,827

Income before income tax
expense15,23918,36017,677

Income tax expense

6,054

7,299

6,886

$ 9,185$ 11,061$ 10,791

Noninterest expense

Net income
Financial ratios
Return on common equity

18%

23%

25%

Overhead ratio

58

60

57

Note: As discussed on pages 79–80, effective with the fourth quarter of2014 the Firm changed its methodology for allocating the cost of preferredstock to its reportable business segments. Prior periods have been revised toconform with the current period presentation.

JPMorgan Chase & Co./2014 Annual Report

Note: In the discussion and the tables which follow, CCB presents certain
financial measures which exclude the impact of PCI loans; these are nonGAAP financial measures. For additional information, see Explanation andReconciliation of the Firm’s Use of Non-GAAP Financial Measures.

2014 compared with 2013
Consumer & Community Banking net income was $9.2
billion, a decrease of $1.9 billion, or 17%, compared withthe prior year, due to higher provision for credit losses andlower net revenue, partially offset by lower noninterest
expense.
Net revenue was $44.4 billion, a decrease of $2.2 billion, or
5%, compared with the prior year. Net interest income was$28.4 billion, down $554 million, or 2%, driven by spreadcompression and lower mortgage warehouse balances,largely offset by higher deposit balances in Consumer &Business Banking and higher loan balances in Credit Card.
Noninterest revenue was $16.0 billion, a decrease of $1.6
billion, or 9%, driven by lower mortgage fees and related
income.
The provision for credit losses was $3.5 billion, comparedwith $335 million in the prior year. The current-year
provision reflected a $1.3 billion reduction in the allowance
for loan losses and total net charge-offs of $4.8 billion. The
prior-year provision reflected a $5.5 billion reduction in theallowance for loan losses and total net charge-offs of $5.8
billion. For more information, including net charge-off
amounts and rates, see Consumer Credit Portfolio.
Noninterest expense was $25.6 billion, a decrease of $2.2
billion, or 8%, from the prior year, driven by lower
Mortgage Banking expense.
2013 compared with 2012
Consumer & Community Banking net income was $11.1
billion, an increase of $270 million, or 3%, compared withthe prior year, due to lower provision for credit losses andlower noninterest expense, predominantly offset by lower
net revenue.
Net revenue was $46.5 billion, a decrease of $3.7 billion, or
7%, compared with the prior year. Net interest income was$29.0 billion, down $480 million, or 2%, driven by lower
deposit margins, lower loan balances due to net portfolio
runoff and spread compression in Credit Card, largely offset
by higher deposit balances. Noninterest revenue was $17.6
billion, a decrease of $3.3 billion, or 16%, driven by lower
mortgage fees and related income, partially offset by higher
card income.
The provision for credit losses was $335 million, 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 113–119.

81

Management’s discussion and analysis
Noninterest expense was $27.8 billion, a decrease of $985
million, or 3%, from the prior year, driven by lower
mortgage servicing expense, partially offset by investments
in Chase Private Client expansion, higher non-MBS related
legal expense in Mortgage Production, higher auto leasedepreciation, and costs related to the control agenda.
Selected metrics

2014

2013

2012

$ 455,634$ 452,929$ 467,282

8,423

6,832

18,801

Selected balance sheet
data (period-end)
Total assets
Trading assets - loans(a)Loans:
Loans retained

396,288393,351

402,963

3,416

940

—

Total loans

399,704

394,291

402,963

Deposits

502,520

464,412438,517Equity(b)51,00046,00043,000Loans held-for-saleSelected balance sheet
data (average)
Total assets$ 447,750$ 456,468$ 467,641

8,040

15,603

17,573389,967

392,797

408,559

917

209

433

Total loans$ 390,884$ 393,006$ 408,992

Deposits

486,919453,304

413,948

Equity(b)51,00046,00043,000

Headcount

137,186

151,333

164,391

Trading assets - loans(a)Loans:
Loans retained
Loans held-for-sale(a) Predominantly consists of prime mortgages originated with the intent to sell thatare accounted for at fair value.
(b) 2014 includes $3.0 billion of capital held at the CCB level related to legacy
mortgage servicing matters.

82

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

2014

2013

2012

Credit data and quality statistics
Net charge-offs(a)(b)Nonaccrual loans(c)(d)$Nonperforming assets(c)(d)(e)Allowance for loan losses(a)Net charge-off rate(a)(b)
Net charge-off rate, excluding PCI
loans(b)As of or for the year ended
December 31,(in millions, except
headcount)Selected metrics

Allowance for loan losses toperiod-end loans retained
Allowance for loan losses toperiod-end loans retained,
excluding PCI loans(f)Allowance for loan losses tononaccrual loans retained,
excluding credit card(c)(f)Nonaccrual loans to total periodend loans, excluding
credit card(e)Nonaccrual loans to total periodend loans, excluding credit cardand PCI loans(c)(e)Business metrics
Number of:
Branches
ATMs(g)
Active online customers (inthousands)
Active mobile customers (inthousands)

4,773
6,401

$

5,826
7,455

$

9,280
9,114

6,872
10,404
1.22%

8,109
12,201
1.48%

9,791
17,752
2.27%

1.40

1.73

2.68

2.63

3.10

4.41

2.02

2.36

3.51

58

57

72

2.38

2.80

3.31

2.88

3.49

4.23

5,602
18,056

5,630
20,2905,614
19,06236,39633,742

31,11419,084

15,62912,359(a) Net charge-offs and the net charge-off rates excluded $533 million and $53
million of write-offs in the PCI portfolio for the years ended December 31, 2014
and 2013, respectively. These write-offs decreased the allowance for loan losses
for PCI loans. For further information on PCI write-offs, see Allowance for Credit
Losses on pages 128–130.
(b) Net charge-offs and net charge-off rates for the year ended December 31, 2012,
included $800 million of charge-offs, recorded in accordance with regulatory
guidance on certain loans discharged under Chapter 7 bankruptcy and not
reaffirmed by the borrower (“Chapter 7 loans”) to be charged off to the net
realizable value of the collateral and to be considered nonaccrual, regardless of
their delinquency status. Excluding these charges-offs, net charge-offs for theyear ended December 31, 2012, would have been $8.5 billion and excludingthese charge-offs and PCI loans, the net charge-off rate for the year ended
December 31, 2012, would have been 2.45%.
(c) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as they are all performing.
(d) At December 31, 2014, 2013 and 2012, nonperforming assets excluded: (1)mortgage loans insured by U.S. government agencies of $7.8 billion, $8.4 billion
and $10.6 billion, respectively, that are 90 or more days past due; (2) student
loans insured by U.S. government agencies under the Federal Family Education
Loan Program (“FFELP”) of $367 million, $428 million and $525 million
respectively, that are 90 or more days past due; (3) real estate owned (“REO”)
insured by U.S. government agencies of $462 million, $2.0 billion and $1.6
billion, respectively. These amounts have been excluded based upon thegovernment guarantee.
(e) Prior periods were revised to conform with the current presentation.
(f) The allowance for loan losses for PCI loans of $3.3 billion, $4.2 billion and $5.7
billion at December 31, 2014, December 31, 2013, and December 31, 2012,
respectively; these amounts were also excluded from the applicable ratios.
(g) Includes eATMs, formerly Express Banking Kiosks (“EBK”). Prior periods wererevised to conform with the current presentation.

JPMorgan Chase & Co./2014 Annual ReportConsumer & Business Banking

Noninterest expense was $12.2 billion, up 6% from theprior year, reflecting continued investments in the business,and costs related to the control agenda.

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

2014

2013

2012

$ 3,010$ 2,942$ 3,068

Revenue
Lending- and deposit-related
fees
Asset management,
administration andcommissions

2,025

1,815

1,638

Card income

1,605

1,495

1,353

All other income

534

492

498

7,174

6,744

6,557

Net interest income

11,052

10,668

10,629Total net revenue

18,226

17,412

17,186

305

347

311

Noninterest expense

12,14912,162

11,490

Income before income tax
expense

5,772

4,903

5,385

$ 3,443$ 2,943$ 3,224

Net income

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

2014

2013

2012

Business metrics

Noninterest revenue

Provision for credit losses

Selected metrics

Business banking
origination volume$

Period-end loans

6,599

$

5,148

$

6,542

21,20019,416

18,883Checking

213,049

187,182

170,354

Savings

255,148

238,223

216,422

Time and other

21,34926,02231,753

Total period-end
deposits

489,546

451,427

418,529

Average loans

20,152

18,844

18,104Checking

198,996

176,005

153,422
204,449

Period-end deposits:

Average deposits:

Return on common equity

31%

26%

36%

Savings

249,281229,341

Overhead ratio

67

70

67

Time and other

24,05729,22734,224Equity (period-end and average) $ 11,000$ 11,000$ 9,000

472,334

434,573

392,095

Total average deposits
Deposit margin

2.21%

2014 compared with 2013
Consumer & Business Banking net income was $3.4 billion,
an increase of $500 million, or 17%, compared with theprior year, due to higher net revenue.

Average assets

Net revenue was $18.2 billion, up 5% compared with theprior year. Net interest income was $11.1 billion, up $384
million, or 4% compared with the prior year, driven byhigher deposit balances, largely offset by deposit spreadcompression. Noninterest revenue was $7.2 billion, up $430
million, or 6%, driven by higher investment revenue,
reflecting record client investment assets, higher debit card
revenue, reflecting an increase in transaction volume, andhigher deposit-related fees as a result of an increase incustomer accounts.

(in millions, except ratios andwhere otherwise noted)

Noninterest expense was $12.1 billion, flat from the prioryear, reflecting lower costs driven by efficiencies
implemented in the business, offset by the increased cost ofcontrols.
2013 compared with 2012
Consumer & Business Banking net income was $2.9 billion,a decrease of $281 million, or 9%, compared with the prioryear, due to higher noninterest expense, partially offset byhigher noninterest revenue.
Net revenue was $17.4 billion, up 1% compared with theprior year. Net interest income was $10.7 billion, flatcompared with the prior year, driven by higher deposit
balances, offset by lower deposit margin. Noninterest
revenue was $6.7 billion, an increase of 3%, driven byhigher investment sales revenue and debit card revenue,
partially offset by lower deposit-related fees.
JPMorgan Chase & Co./2014 Annual Report$

38,2982.32%$

37,174

2.57%$

34,431

Selected metrics
As of or for the year ended
December 31,
2014

2013

2012

Credit data and quality statistics
Net charge-offs$

Net charge-off rate
Allowance for loan losses

305

$

1.51%
$

Nonperforming assets

703

337

$

1.79%
$

707

411
2.27%

$

698

286

391

488

Net new investment assets$ 16,088$ 16,006$ 11,128

Client investment assets

213,459

188,840

158,502

Retail branch business metrics% managed accounts

39%

36%

29%

Number of:
Chase Private Client
locations

2,514

2,149

1,218

Personal bankers

21,03923,58823,674

Sales specialists

3,994

5,740

6,076

Client advisors

3,090

3,044

2,963

Chase Private Clients

325,653

215,888

105,700

Accounts (in thousands)(a)30,481

29,43728,073

Households (in millions)

25.7

25.0

24.1

(a) Includes checking accounts and Chase Liquid cards.
®

83

Management’s discussion and analysis
Mortgage Banking
Selected Financial statement data
As of or for the year ended
December 31,(in millions, except ratios)

2014

2013

2012

$ 3,560$ 5,195$ 8,680

RevenueMortgage fees and related
incomeAll other income

37

283

475

Noninterest revenue

3,597

5,478

9,155

Net interest income

4,229

4,758

5,016

Total net revenue

7,826

10,236

14,171

Provision for credit losses(217)(2,681)(490)

Noninterest expense

5,284

7,602

9,121

Income before income tax
expenseNet income

2,759

5,315

5,540

$ 1,668$ 3,211$ 3,468

Return on common equity

9%

16%

19%

Overhead ratio

68

74

64

$ 18,000$ 19,500$ 17,500

Equity (period-end andaverage)2013 compared with 2012
Mortgage Banking net income was $3.2 billion, a decreaseof $257 million, or 7%, 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 $10.2 billion, a decrease of $3.9 billion, or28%, compared with the prior year. Net interest income
was $4.8 billion, a decrease of $258 million, or 5%, driven
by lower loan balances due to net portfolio runoff.
Noninterest revenue was $5.5 billion, a decrease of $3.7
billion, driven by lower mortgage fees and related income.
The provision for credit losses was a benefit of $2.7 billion,
compared with a benefit of $490 million in the prior year.
The current year reflected a $3.8 billion reduction in 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.

2014 compared with 2013
Mortgage Banking net income was $1.7 billion, a decreaseof $1.5 billion, or 48%, from the prior year, driven by alower benefit from the provision for credit losses and lower
net revenue, partially offset by lower noninterest expense.
Net revenue was $7.8 billion, a decrease of $2.4 billion, or24%, compared with the prior year. Net interest income
was $4.2 billion, a decrease of $529 million, or 11%,driven by spread compression and lower loan balances due
to portfolio runoff and lower warehouse balances.
Noninterest revenue was $3.6 billion, a decrease of $1.9
billion, or 34%, driven by lower mortgage fees and related
income.
The provision for credit losses was a benefit of $217
million, compared with a benefit of $2.7 billion in the prioryear. The current year reflected a $700 million reduction in
the allowance for loan losses, reflecting continued
improvement in home prices and delinquencies. The prioryear included a $3.8 billion reduction in the allowance forloan losses. Net charge-offs were $483 million, comparedwith $1.1 billion in the prior year.
Noninterest expense was $5.3 billion, a decrease of $2.3
billion, or 30%, from the prior year, due to lower expense inproduction and servicing reflecting lower headcount-related
expense, the absence of non-MBS related legal expense andlower expense on foreclosure-related matters.

84

JPMorgan Chase & Co./2014 Annual Report

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

2014

2013

2012

Production revenue and other
Income(a)$ 1,060$ 2,973$ 5,877

Production-related net interest
income(a)

422

635

705

Production-related revenue,
excluding repurchase(losses)/benefits

1,482

3,608

6,582

1,646

3,088

2,747

Income, excluding
repurchase (losses)/
benefits

(164)

520

3,835

Repurchase (losses)/benefits

458

331

(272)

Income before income tax
expense

294

851

3,563

3,294

3,744

4,110

Mortgage Production

Production expense(b)Mortgage Servicing
Loan servicing revenue andother income(a)Servicing-related net interest
income(a)

314

253

93

Servicing-related revenue

3,608

3,997

4,203

Changes in MSR asset fair value
due to collection/realization of
expected cash flows(905)(1,094)(1,222)

Net servicing-related
revenue

2,703

2,903

2,981

Default servicing expense

1,406

2,069

3,707

Core servicing expense

865

904

1,033

Servicing Expense

2,271

2,973

4,740

(b)

Income/(loss), excluding MSR
risk management

432

(70)

(1,759)MSR risk management,
including related net interest
income/(expense)

(28)

(268)

616

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

404

(338)

(1,143)

Real Estate Portfolios
Noninterest revenue

(282)

(209)

43

Net interest income

3,493

3,871

4,221

Total net revenue

3,211

3,662

4,264

Provision for credit losses(223)(2,693)(509)

Noninterest expense

1,373

1,553

1,653

2,061

4,802

3,120

Mortgage Banking income before
income tax expense$ 2,759$ 5,315$ 5,540Mortgage Banking net income$ 3,211$ 3,468

Income before income tax
expense$ 1,668

Overhead ratios
Mortgage Production

85%

78%

43%

Mortgage Servicing

85

113

132

Real Estate Portfolios

43

42

39

(a) Prior periods were revised to conform with the current presentation.
(b) Includes provision for credit losses.

JPMorgan Chase & Co./2014 Annual Report2014 compared with 2013
Mortgage Production pretax income was $294 million, adecrease of $557 million, or 65%, from the prior year,
reflecting lower revenue, largely offset by lower expenseand higher benefit from repurchase losses. Mortgage
production-related revenue, excluding repurchase losses,
was $1.5 billion, a decrease of $2.1 billion, from the prioryear, driven by lower volumes due to higher levels ofmortgage interest rates and tighter margins. Production
expense was $1.6 billion, a decrease of $1.4 billion, or
47%, from the prior year, driven by lower headcountrelated expense and the absence of non-MBS related legal
expense.
Mortgage Servicing pretax income was $404 million,
compared with a loss of $338 million in the prior year,
reflecting lower expenses and lower MSR risk management
loss, partially offset by lower net revenue. Mortgage net
servicing-related revenue was $2.7 billion, a decrease of$200 million, or 7%, from the prior year, driven by lower
average third-party loans serviced and lower revenue froman exited non-core product, partially offset by lower MSR
asset amortization expense as a result of lower MSR asset
value. MSR risk management was a loss of $28 million,
compared with a loss of $268 million in the prior year. See
Note 17 for further information regarding changes in valueof the MSR asset and related hedges. Servicing expense was$2.3 billion, a decrease of $702 million, or 24%, from theprior year, reflecting lower headcount-related expense andlower expense for foreclosure related matters.
Real Estate Portfolios pretax income was $2.1 billion,
down $2.7 billion, or 57%, from the prior year, due to alower benefit from the provision for credit losses and lower
net revenue, partially offset by lower noninterest expense.
Net revenue was $3.2 billion, a decrease of $451 million, or12%, from the prior year, driven by lower net interest
income as a result of spread compression and lower loanbalances due to portfolio runoff. The provision for credit
losses was a benefit of $223 million, compared with abenefit of $2.7 billion in the prior year. The current-year
provision reflected a $700 million reduction in theallowance for loan losses, $400 million from the non creditimpaired allowance and $300 million from the purchased
credit-impaired allowance, due to continued improvement
in home prices and delinquencies. The prior-year provisionreflected a $3.8 billion reduction in the allowance for loan
losses, $2.3 billion from the non credit-impaired allowance
and $1.5 billion from the purchased credit-impaired
allowance. Net charge-offs were $477 million, comparedwith $1.1 billion in the prior year. See Consumer Credit
Portfolio on pages 113–119 for the net charge-off amounts
and rates. Noninterest expense was $1.4 billion, a decreaseof $180 million, or 12%, compared with the prior year,
driven by lower FDIC-related expense and lower foreclosed
asset expense due to lower foreclosure inventory.

85

Management’s discussion and analysis
2013 compared with 2012
Mortgage Production pretax income was $851 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, or 12%, from the prior year, due
to higher non-MBS related legal expense and higher
compensation-related expense. Repurchase losses for thecurrent year reflected a benefit of $331 million, comparedwith repurchase losses of $272 million in the prior year. The
current year reflected a reduction in the repurchase liability
largely as a result of the settlement with the GSEs.
Mortgage Servicing pretax loss was $338 million,
compared with a pretax loss of $1.1 billion in the prior year,
driven by lower expense, partially offset by a MSR risk
management loss. Mortgage net servicing-related revenue
was $2.9 billion, a decrease of $78 million. MSR risk
management was a loss of $268 million, compared withincome of $616 million in the prior year, driven by the net
impact of various changes in model inputs and assumptions.
See Note 17 for further information regarding changes invalue of the MSR asset and related hedges. Servicing
expense was $3.0 billion, a decrease of $1.8 billion, or
37%, from the prior year, reflecting lower costs associatedwith the Independent Foreclosure Review and lower
servicing headcount.
Real Estate Portfolios pretax income was $4.8 billion, up$1.7 billion from the prior year, or 54%, due to a higher
benefit from the provision for credit losses, partially offset
by lower net revenue. Net revenue was $3.7 billion, adecrease of $602 million, or 14%, from the prior year. Thisdecrease was due to lower net interest income, resulting
from lower loan balances due to net portfolio runoff, andlower 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. Noninterest
expense was $1.6 billion, a decrease of $100 million, or
6%, compared with the prior year, driven by lower
foreclosed asset expense due to lower foreclosure
inventory, largely offset by higher FDIC-related expense.
86

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

2014

2013

2012

$ 8,423$ 6,832$ 18,801$ 13,557$15,136$ 17,290

314

614

—

8,040

15,603

17,573

14,993

16,495

17,335

Selected balance sheet data
(Period-end)
Trading assets - loans(a)Loans:
Prime mortgage, including
option ARMs(b)Loans held-for-saleSelected balance sheet data
(average)
Trading assets - loans(a)Loans:
Prime mortgage, including
option ARMs(b)Loans held-for-sale
Average assets
Repurchase liability (periodend)

394

114

—

42,456

57,131

59,837

249

651

2,530

6

12

19

0.04%

0.07%

0.11%

Credit data and quality
statistics
Net charge-offs:
Prime mortgage, including
option ARMs
Net charge-off rate:
Prime mortgage, including
option ARMs
30+ day delinquency rate

2.06

(c)

Nonperforming assets(d)(e)

$

389

2.75
$

519

3.05
$

599

(a) Predominantly consists of prime mortgages originated with the intent
to sell that are accounted for at fair value.
(b) Predominantly represents prime mortgage loans repurchased from
Government National Mortgage Association (“Ginnie Mae”) pools,
which are insured by U.S. government agencies.
(c) At December 31, 2014, 2013 and 2012, excluded mortgage loans
insured by U.S. government agencies of $9.7 billion, $9.6 billion and$11.8 billion respectively, that are 30 or more days past due. Theseamounts have been excluded based upon the government guarantee.
For further discussion, see Note 14 which summarizes loandelinquency information.
(d) At December 31, 2014, 2013 and 2012, nonperforming assets
excluded: (1) mortgage loans insured by U.S. government agencies of$7.8 billion, $8.4 billion and $10.6 billion respectively, that are 90 or
more days past due; and (2) REO insured by U.S. government
agencies of $462 million, $2.0 billion and $1.6 billion, respectively.
These amounts have been excluded based upon the government
guarantee.
(e) Prior periods were revised to conform with the current presentation.

JPMorgan Chase & Co./2014 Annual ReportSelected metrics

Real Estate Portfolios

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

Selected metrics
2014

2013

2012

Business metrics
Mortgage origination volume bychannel
Retail(in millions)

Correspondent(a)Total mortgage application
volumeThird-party mortgage loans
serviced (period-end)
Third-party mortgage loans
serviced (average)
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)

2014

2013

2012

Loans, excluding PCI$Correspondent(a)Total mortgage origination
volume(b)Mortgage application volume bychannel
RetailAs of or for the year ended
December 31,

$

$

29.5

$ 77.0$ 101.4

48.5

88.5

79.4

78.0

$ 165.5$ 180.8

Period-end loans owned:
Home equity$ 50,899$ 57,863$ 67,385

Prime mortgage, including
option ARMs

66,54349,46341,316

Subprime mortgage

5,083

7,104

8,255

477

551

633

$123,002$114,981$117,589

Other

55.6

$ 108.0$ 164.5

63.2

89.2

101.2

$ 118.8$ 197.2$ 265.7

Home equity$ 54,410$ 62,369$ 72,674$ 859.4

Prime mortgage, including
option ARMs

56,10444,98842,311

Subprime mortgage

6,257

7,687

8,947

511

588

675

$117,282$115,632$124,607$ 17,095$ 18,927$ 20,971

Prime mortgage

10,22012,03813,674

Subprime mortgage

3,673

4,175

4,626

Option ARMs

15,70817,915

20,466$ 46,696$ 53,055$ 59,737$ 751.5$ 815.5

784.6

837.3

847.0

7.4

9.6

7.6

Total period-end loans owned
Average loans owned:

Other
Total average loans owned
PCI loans

0.98%

1.18%

0.88%

0.36

0.40

0.46

2.72x

2.95x

1.91x

(a) Includes rural housing loans sourced through correspondents, andprior to November 2013, through both brokers and correspondents,
which are underwritten and closed with pre-funding loan approval
from the U.S. Department of Agriculture Rural Development, whichacts as the guarantor in the transaction.
(b) Firmwide mortgage origination volume was $83.3 billion, $176.4
billion and $189.9 billion for the years ended December 31, 2014,2013 and 2012, respectively.
(c) Represents the ratio of MSR carrying value (period-end) to thirdparty mortgage loans serviced (period-end) divided by the ratio of
loan servicing-related revenue to third-party mortgage loans serviced(average).

Period-end loans owned:
Home equity

Total period-end loans owned
Average loans owned:
Home equity$ 18,030$ 19,950$ 21,840

Prime mortgage

11,257

12,90914,400Subprime mortgage

3,921

4,416

4,777

Option ARMs
Total average loans owned

16,794

19,236

21,545$ 50,002$ 56,511$ 62,562

Total Real Estate Portfolios
Period-end loans owned:
Home equity$ 67,994$ 76,790$ 88,356

Prime mortgage, including
option ARMs

92,471

79,41675,456

Subprime mortgage

8,756

11,27912,881

477

551

633

$169,698$168,036$177,326

Other
Total period-end loans owned
Average loans owned:
Home equity$ 72,440$ 82,319$ 94,514

Prime mortgage, including
option ARMs

84,155

77,13378,256

Subprime mortgage

10,178

12,103

13,724

511

588

675

$167,284$172,143$187,169$164,387$163,898$175,712

3,102

2,124

1,420

Other
Total average loans owned
Average assets
Home equity origination volume

JPMorgan Chase & Co./2014 Annual Report87Management’s discussion and analysis

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

2014

2013

2012

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

473

$

966

$

2,385

Home equity
Prime mortgage, including
option ARMs
Subprime mortgage
Other
Total net charge-off/(recovery) rate, excluding
PCI loans

0.87%

1.55%

3.28%

0.04

0.09

1.07

(0.43)
1.76

1.17
1.70

5.43
2.37

0.41

0.96

2.68

0.65%

1.17%

2.52%

22

41

454

(27)
9

90
10

486
16

477

$

1,107

$

3,341

Net charge-off/(recovery)
rate – reported:(a)(b)Home equity
Prime mortgage, including
option ARMs
Subprime mortgage
Other
Total net charge-off/(recovery) 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)Allowance for loan losses toperiod-end loans retained
Allowance for loan losses toperiod-end loans retained,
excluding PCI loans

0.03

0.05

0.58

(0.27)
1.76

0.74
1.70

3.54
2.37

0.29

0.64

1.79

2.67%

3.66%

5.03%

$

2,168

$

3,325
5,493
5,786

$

2,568

$

$

4,158
6,726
6,919

4,868

5,711
$ 10,579
8,439

3.24%

4.00%

5.97%

1.76

2.23

4.14

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 entered into various Consent Orders andsettlements with federal and state governmental agencies
and private parties related to mortgage servicing,origination, and residential mortgage-backed securities
activities. The requirements of these Consent Orders andsettlements vary, but in the aggregate, include cash
compensatory payments (in addition to fines) and/or“borrower relief,” which may include principal reduction,refinancing, short sale assistance, and other specified typesof borrower relief. Other obligations required under certain
Consent Orders and settlements, as well as under new
regulatory requirements, include enhanced mortgage
servicing and foreclosure standards and processes. The
Firm has satisfied or is committed to satisfying theseobligations within the mandated timeframes.
The mortgage servicing Consent Orders and settlements are
subject to ongoing oversight by the Mortgage Compliance
Committee of the Firm’s Board of Directors. In addition,certain of the Consent Orders and settlements are thesubject of ongoing reporting to various regulators andindependent overseers.
The Firm’s compliance with the Global Settlement and the
RMBS Settlement are detailed in periodic reports publishedby the independent overseers.

(a) Net charge-offs and the net charge-off rates excluded $533 million and$53 million of write-offs in the PCI portfolio for the years ended
December 31, 2014 and 2013, respectively. These write-offs decreased
the allowance for loan losses for PCI loans. For further information on PCI
write-offs, see Allowance for Credit Losses on pages 128–130.
(b) Net charge-offs and net charge-off rates for the year ended December 31,
2012, included $744 million of charge-offs related to regulatory
guidance. Excluding these charges-offs, net charge-offs for the year ended
December 31, 2012, would have been $1.8 billion, $410 million and$416 million for the home equity, prime mortgage, including option
ARMs, and subprime mortgage portfolios, respectively. Net charge-off
rates for the same period, excluding these charge-offs and PCI loans,would have been 2.41%, 0.97% and 4.65% for the home equity, prime
mortgage, including option ARMs, and subprime mortgage portfolios,
respectively.
(c) The 30+ day delinquency rate for PCI loans was 13.33% 15.31% and20.14% at December 31, 2014, 2013 and 2012, respectively.
(d) Excludes PCI loans. The Firm is recognizing interest income on each poolof PCI loans as they are all performing.

88

JPMorgan Chase & Co./2014 Annual Report

Card, Merchant Services & Auto
Selected income statement data
As of or for the year
ended December 31,(in millions, except ratios)
Revenue
Card income
All other income
Noninterest revenue
Net interest income
Total net revenue

2014

2013

2012

$ 4,173993
5,166
13,15018,316$ 4,289
1,041
5,330
13,55918,889$ 4,092
1,009
5,101
13,82018,921

Provision for credit losses

3,432

2,669

3,953

Noninterest expense
Income before income tax
expenseNet income

8,176

8,078

8,216

6,708

8,142

6,752

$ 4,074$ 4,907$ 4,099(a)

Return on common equity
Overhead ratio
Equity (period-end andaverage)21%
45$ 19,000

31%43$ 15,500

24%
43$ 16,500(a) Included operating lease depreciation expense of $1.2 billion, $972
million and $817 million for the years ended December 31, 2014,2013 and 2012, respectively.

2014 compared with 2013
Card net income was $4.1 billion, a decrease of $833
million, or 17%, compared with the prior year,
predominantly driven by higher provision for credit losses
and lower net revenue.
Net revenue was $18.3 billion, down $573 million or 3%compared with the prior year. Net interest income was$13.2 billion, a decrease of $409 million, or 3%, from theprior year primarily driven by spread compression in Credit
Card and Auto, partially offset by higher average loanbalances. Noninterest revenue was $5.2 billion, down $164
million, or 3%, from the prior year. The decrease wasprimarily driven by higher amortization of new accountorigination costs and the impact of non-core portfolio exits,
largely offset by higher auto lease income and net
interchange income from higher sales volume.
The provision for credit losses was $3.4 billion, comparedwith $2.7 billion in the prior year. The current-year
provision reflected lower net charge-offs and a $554
million reduction in the allowance for loan losses. The
reduction in the allowance for loan losses was primarily
related to a decrease in the asset-specific allowance
resulting from increased granularity of the impairment
estimates and lower balances related to credit card loans
modified in TDRs, runoff in the student loan portfolio, andlower estimated losses in auto loans. The prior-year
provision included a $1.7 billion reduction in the allowance
for loan losses.

JPMorgan Chase & Co./2014 Annual Report

Noninterest expense was $8.2 billion, up $98 million, or
1% from the prior year primarily driven by higher auto
lease depreciation expense and higher investment incontrols, predominantly offset by lower intangible
amortization and lower remediation costs.
2013 compared with 2012
Card net income was $4.9 billion, an increase of $808
million, or 20%, compared with the prior year, driven bylower provision for credit losses.
Net revenue was $18.9 billion, flat compared with the prioryear. Net interest income was $13.6 billion, down $261
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.
Noninterest expense was $8.1 billion, a decrease of $138
million, or 2%, from the prior year. This decrease was due
to one-time expense items recognized in the prior year
related to the exit of a non-core product and the write-off 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.

89

Management’s discussion and analysis
Selected metrics

Selected metrics

As of or for the year
ended December 31,(in millions, except ratios
and where otherwise
noted)
Selected balance sheet
data (period-end)

As of or for the year
ended December 31,(in millions, except ratios)$ 131,048$ 127,791$ 127,993

Auto(a)

181

158

188

54,53652,75749,913Student

375

333

377

9,351

10,541

11,558$ 194,935$ 191,089$ 189,464

Selected balance sheet
data (average)$ 202,609$ 198,265$ 197,661

Loans:
Credit Card

125,113

123,613

125,464

Auto

52,96150,74848,413Student

9,987

11,04912,507$ 188,061$ 185,410$ 186,384

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

Open accounts

$

419.5
7.3

$

51%

847.9
38.1

27.5

$

750.1

$

655.2

35.6

26.1

29.5

23.4

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 processes transactions for merchants.
Total transactions – Number of transactions andauthorizations 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, netof returns.
Open accounts – Cardmember accounts with charging
privileges.
Auto origination volume – Dollar amount of auto loans andleases originated.

90

4,370

$

$

4,944

5,509

2.75%

3.14%

3.95%

0.34

0.31

0.39

Student

3.75

3.01

3.01

Total net charge-off rate

2.12

2.36

2.96

Credit Card(c)

1.44

1.67

2.10

Auto

1.23

1.15

1.25

Student(d)

2.35

2.56

2.13

Total 30+ day
delinquency rate

1.42

1.58

1.87

Delinquency rates
30+ day delinquency rate:

0.70
$

0.80

1.02

411

$

280

$

265

$ 3,439

$

3,795

$

5,501

Allowance for loan losses:
Credit Card
Auto & Student
Total allowance for loan
losses

$

$

3,879

Auto(a)Nonperforming assets(e)55%$ 3,985$

Credit Card(b)

64.5
30.6

$ 3,429

Net charge-off rate:

90+ day delinquency rate –Credit Card(c)

32.3

56%

Total net charge-offs

381.1
6.7

65.3

34.0

% of accounts acquired
onlineMerchant Services (Chase
Paymentech Solutions)

Origination volume(in billions)

465.6
8.8
64.6

Accounts with sales
activity

Merchant processing
volume (in billions)
Total transactions(in billions)Auto

Credit data and quality
statistics
Net charge-offs:
Credit Card

Student

Total assets

2012

2012

Auto
Total loans

2013

2013

Loans:
Credit Card

2014

2014

749
$ 4,188

953
$

4,748

954
$

6,455

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

2.69%

2.98%

4.30%

Auto & Student

1.17

1.51

1.55

Total allowance for loan
losses to period-end
loans

2.18

2.49

3.41

(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%.
(b) Average credit card loans included loans held-for-sale of $509 million, $95
million and $433 million for the years ended December 31, 2014, 2013
and 2012, respectively. These amounts are excluded when calculating thenet charge-off rate.
(c) Period-end credit card loans included loans held-for-sale of $3.0 billion and$326 million at December 31, 2014 and 2013, respectively. There were noloans held-for-sale at December 31, 2012. These amounts are excluded
when calculating delinquency rates and the allowance for loan losses toperiod-end loans.
(d) Excluded student loans insured by U.S. government agencies under the
FFELP of $654 million, $737 million and $894 million at December 31,
2014, 2013 and 2012, respectively, that are 30 or more days past due.
These amounts have been excluded based upon the government guarantee.
(e) Nonperforming assets excluded student loans insured by U.S. government
agencies under the FFELP of $367 million, $428 million and $525 million
at December 31, 2014, 2013 and 2012, respectively, that are 90 or moredays past due. These amounts have been excluded from nonaccrual loans
based upon the government guarantee.

JPMorgan Chase & Co./2014 Annual Report

Card Services supplemental information
Year ended December 31,(in millions, except ratios)

2014

2013

2012

Noninterest revenue$ 3,593$ 3,977

Net interest income

11,462

11,638

11,745

Total net revenue

15,055

15,615

15,632

Provision for credit losses

3,079

2,179

3,444

Noninterest expense

6,152

6,245

6,566

Revenue

Income before income tax
expenseNet income

5,824

7,191

$ 3,547$ 4,340

$

3,887

5,622
$

3,426

Percentage of average loans:
Noninterest revenue

2.87%

3.22%

Net interest income

9.16

9.41

9.36

Total net revenue

12.03

12.63

12.46

JPMorgan Chase & Co./2014 Annual Report

3.10%

91

Management’s discussion and analysis
CORPORATE & INVESTMENT BANKThe Corporate & Investment Bank, comprised of
Banking and Markets & Investor Services, offers abroad suite of investment banking, market-making,prime brokerage, and treasury and securities products
and services to a global client base of corporations,investors, financial institutions, government andmunicipal entities. 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 includes
custody, fund accounting and administration, andsecurities lending products sold principally to asset
managers, insurance companies and public and private
investment funds.
Selected income statement data
Year ended December 31,

$

2013

2012

6,570

$

6,331

$

5,769

Principal transactions

8,947

9,289

9,510

Lending- and deposit-related fees

1,742

1,884

1,948

Asset management,
administration and commissions

4,687

4,713

4,693

All other income

1,512

1,593

1,184

Noninterest revenue

23,45823,81023,104

Net interest income

11,175

10,976

11,658

Total net revenue

34,63334,786

34,762

(161)

(232)

(479)

Compensation expense

10,44910,835

11,313

Noncompensation expense

12,824

10,90910,537

Total noninterest expense

23,273

21,744

21,850

Income before income tax
expense11,521

13,274

13,391

Income tax expense

4,596

4,387

4,719

(a)

(b)

Provision for credit losses
Noninterest expense

$

6,925

$

8,887

$

8,672

Note: As discussed on pages 79–80, effective with the fourth quarter of2014 the Firm changed its methodology for allocating the cost of preferredstock to its reportable business segments. Prior periods have been revised toconform with the current period presentation.
92

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

2014

2013

2012

Financial ratios
Return on common equity(a)

10%

15%

18%

Overhead ratio

67

63

63

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

30

31

33

(b)

Advisory$ 1,627$ 1,315$ 1,491

Equity underwriting

1,571

1,499

1,026

Debt underwriting

3,372

3,517

3,252

Total investment banking fees

6,570

6,331

5,769

Treasury Services

4,145

4,171

4,249

Lending

1,130

1,669

1,389

Total Banking

11,845

12,171

11,407

Fixed Income Markets(d)13,84815,832

15,701Equity Markets

4,861

4,803

4,448

Securities Services

4,351

4,100

4,000

(272)

(2,120)(794)

Credit Adjustments & Other
2014

Revenue

Net income

Selected income statement data(e)(in millions)

Investment banking fees(a) Included FVA (effective 2013) and DVA on OTC derivatives and structured notes,
measured at fair value. FVA and DVA gains/(losses) were $468 million and$(1.9) billion for the years ended December 31, 2014 and 2013, respectively.
DVA losses were ($930) million for the year ended December 31, 2012.
(b) Included tax-equivalent adjustments, predominantly due to income tax credits
related to affordable housing and alternative energy investments, as well as taxexempt income from municipal bond investments, of $2.5 billion, $2.3 billion
and $2.0 billion for the years ended December 31, 2014, 2013 and 2012,
respectively.

Total Markets & Investor
Services

22,78822,61523,355

Total net revenue$ 34,633$ 34,786$ 34,762(a) Return on equity excluding FVA (effective 2013) and DVA, a non-GAAP financial
measure, was 17% and 19% for the years ended December 31, 2013 and 2012,
respectively.
(b) Overhead ratio excluding FVA (effective 2013) and DVA, a non-GAAP financial
measure, was 59% and 61% for the years ended December 31, 2013 and 2012,
respectively.
(c) Compensation expense as a percentage of total net revenue excluding FVA(effective 2013) and DVA, a non-GAAP financial measure, was 30% and 32% for
the years ended December 31, 2013 and 2012, respectively.
(d) Includes results of the synthetic credit portfolio that was transferred from the
CIO effective July 2, 2012.
(e) Consists primarily of credit valuation adjustments (“CVA”) managed by the credit
portfolio group, and FVA (effective 2013) and DVA on OTC derivatives andstructured notes. Results are presented net of associated hedging activities andnet of CVA and FVA amounts allocated to Fixed Income Markets and Equity
Markets.

Prior to January 1, 2014, CIB provided several non-GAAP
financial measures excluding the impact of implementing the
FVA framework (effective 2013) and DVA on: net revenue, net
income, compensation ratio, overhead ratio, and return on
equity. Beginning in the first quarter 2014, the Firm did not
exclude FVA and DVA from its assessment of businessperformance; however, the Firm continues to present these
non-GAAP measures for the periods prior to January 1, 2014,
as they reflected how management assessed the underlying
business performance of the CIB in those prior periods. In
addition, the ratio for the allowance for loan losses to end-ofperiod loans, also a non-GAAP financial measure, isJPMorgan Chase & Co./2014 Annual Reportcalculated excluding the impact of consolidated Firmadministered multi-seller conduits and trade finance, toprovide a more meaningful assessment of CIB’s allowancecoverage ratio. These measures are used by management toassess the underlying performance of the business and forcomparability with peers.
2014 compared with 2013
Net income was $6.9 billion, down 22% compared with
$8.9 billion in the prior year. These results primarilyreflected lower revenue as well as higher noninterest
expense. Net revenue was $34.6 billion, flat compared withthe prior year.
Banking revenue was $11.8 billion, down 3% from the prioryear. Investment banking fees were $6.6 billion, up 4%
from the prior year. The increase was driven by higher
advisory and equity underwriting fees, partially offset bylower debt underwriting fees. Advisory fees were $1.6
billion up 24% on stronger share of fees for completed
transactions as well as growth in the industry-wide feelevels, according to Dealogic. Equity underwriting fees were$1.6 billion up 5%, driven by higher industry wide issuance.
Debt underwriting fees were $3.4 billion, down 4%,
primarily related to lower loan syndication fees on lower
industry-wide fee levels and lower bond underwriting fees.
The Firm also ranked #1 globally in fees and volumes share
across high grade, high yield and loan products. The Firm
maintained its #2 ranking for M&A, and improved share offees both globally and in the U.S. compared to the prioryear. Treasury Services revenue was $4.1 billion, down 1%
compared with the prior year, primarily driven by lower
trade finance revenue as well as the impact of businesssimplification initiatives, largely offset by higher net
interest income from increased deposits. Lending revenue
was $1.1 billion, down from $1.7 billion in the prior year,
driven by losses, compared with gains in the prior periods,
on securities received from restructured loans, as well as
lower net interest income.
Markets & Investor Services revenue was $22.8 billion, up
1% from the prior year. Fixed Income Markets revenue was$13.8 billion down 13% from the prior year driven by lower
revenues in Fixed Income primarily from credit-related andrates products as well as the impact of businesssimplification. Equity Markets revenue was $4.9 billion up
1% as higher prime services revenue was partially offset bylower equity derivatives revenue. Securities Services
revenue was $4.4 billion, up 6% from the prior year,
primarily driven by higher net interest income on increased
deposits and higher fees and commissions. Credit
Adjustments & Other revenue was a loss of $272 million
driven by net CVA losses partially offset by gains, net ofhedges, related to FVA/DVA. The prior year was a loss of$2.1 billion (including the FVA implementation loss of $1.5
billion and DVA losses of $452 million).
Noninterest expense was $23.3 billion, up 7% compared tothe prior year as a result of higher legal expense andinvestment in controls. This was partially offset by lower
performance-based compensation expense as well as theimpact of business simplification, including the sale or
liquidation of a significant part of the physical commodities
JPMorgan Chase & Co./2014 Annual Reportbusiness. The compensation expense to net revenue ratio
was 30%.
Return on equity was 10% on $61.0 billion of average
allocated capital.
2013 compared with 2012
Net income was $8.9 billion, up 2% compared with theprior year.
Net revenue was $34.8 billion, flat compared with the prioryear. Net revenue in 2013 included a $1.5 billion loss as aresult of implementing a FVA framework for OTC derivatives
and structured 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 2013 was a one-time adjustment arising on
implementation of the new FVA framework.
Net revenue in 2013 also included a $452 million loss from
DVA on structured notes and derivative liabilities, comparedwith a loss of $930 million in the prior year. Excluding theimpact of FVA and DVA, net revenue was $36.7 billion andnet income was $10.1 billion, compared with $35.7 billion
and $9.2 billion, respectively in the prior year.
Banking revenue was $12.2 billion, compared with $11.4
billion in the prior year. Investment banking fees were $6.3
billion, up 10% from the prior year, driven by higher equity
underwriting fees of $1.5 billion (up 46%) and record debt
underwriting fees of $3.5 billion (up 8%), partially offset
by lower advisory fees of $1.3 billion (down 12%). Equity
underwriting results were driven by higher industry-wideissuance and an increase in share of fees compared with theprior year, according to Dealogic. Industry-wide loan
syndication volumes and fees increased as the low-rateenvironment continued to fuel refinancing activity. The Firm
also ranked #1 in industry-wide fee shares across highgrade, high yield and loan products. Advisory fees werelower compared with the prior year as industry-wide
completed M&A industry-wide fee levels declined 13%. The
Firm maintained its #2 ranking and improved share for bothannounced and completed volumes during the year.
Treasury Services revenue was $4.2 billion, down 2%
compared with the prior year, primarily reflecting lower
trade finance spreads, partially offset by higher net interest
income on higher deposit balances. Lending revenue was$1.7 billion, up from $1.4 billion, in the prior year
reflecting net interest income on retained loans, fees on
lending-related commitments, and gains on securities
received from restructured loans.
Markets and Investor Services revenue was $22.6 billion
compared to $23.4 billion in the prior year. Combined Fixed
Income and Equity Markets revenue was $20.6 billion, up
from $20.1 billion the prior year. Fixed Income Markets
revenue was $15.8 billion slightly higher reflecting
consistently strong client revenue and lower losses from thesynthetic credit portfolio, which was partially offset bylower rates-related revenue given an uncertain rate outlook
and low spread environment. Equities Markets revenue was93Management’s discussion and analysis$4.8 billion up 8% compared with the prior year driven byhigher revenue in derivatives and cash equities products
and Prime Services primarily on higher balances. Securities
Services revenue was $4.1 billion compared with $4.0
billion in the prior year on higher custody and fund services
revenue primarily driven by higher assets under custody of$20.5 trillion. Credit Adjustments & Other was a loss of$2.1 billion predominantly driven by FVA (effective 2013)and DVA.

Selected metrics

The provision for credit losses was a benefit of $232
million, compared with a benefit of $479 million in theprior year. The 2013 benefit reflected lower recoveries ascompared with 2012 as the prior year benefited from therestructuring 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.

Nonaccrual loans:

Noninterest expense was $21.7 billion slightly down
compared with the prior year, driven by lower compensation
expense, offset by higher noncompensation expense related
to higher litigation expense as compared with the prioryear. The compensation ratio, excluding the impact of DVA
and FVA (effective 2013), was 30% and 32% for 2013 and2012, respectively.

Total nonperforming
assets2013$ 861,819$ 843,577

Net charge-offs/(recoveries)

$

(12)

$

(78)

$

(284)

Nonperforming assets:
Nonaccrual loans
retained(a)(b)

11

180

254

Total nonaccrual loans

121

343

789

Derivative receivables

275

415

239

Assets acquired in loansatisfactions

67

80

64

463

838

1,092

1,034

1,096

1,300

Allowance for lendingrelated commitments

439

525

473

Total allowance for credit
losses

1,473

1,621

1,773

Net charge-off/(recovery)rate(a)(0.01)%(0.07)%(0.26)%

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

1.07

1.15

1.19

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

1.82

2.02

2.52

$ 876,107

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

940

672

243

Nonaccrual loans to total
period-end loans

0.12

0.32

0.68

2012

Loans retained(a)96,40995,627

109,501

Loans held-for-sale andloans at fair value

5,567

11,913

5,749

101,976

107,540

115,250

61,00056,50047,500Total loans

Credit data and quality
statistics

535

Loans:

Equity2012163

Selected balance sheet data(period-end)
Assets2013

110

Selected metrics
2014

2014

Nonaccrual loans heldfor-sale and loans atfair value

Return on equity was 15% on $56.5 billion of average
allocated capital and 17% excluding FVA (effective 2013)and DVA.

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

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

Allowance for credit losses:
Allowance for loan
losses(a) Loans retained includes credit portfolio loans, trade finance loans, other heldfor-investment loans and overdrafts.
(b) Allowance for loan losses of $18 million, $51 million and $153 million were held
against these nonaccrual loans at December 31, 2014, 2013 and 2012,
respectively.

Selected balance sheet data
(average)
Assets$ 854,712$ 859,071$ 854,670

Trading assets-debt and equity
instruments

317,535

321,585

312,944

Trading assets-derivative
receivables

64,83370,35374,874

95,764

104,864

110,100

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

7,599

5,158

3,502

103,363

110,022

113,602

Equity61,00056,50047,500

Headcount

51,12952,25052,022

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

94

JPMorgan Chase & Co./2014 Annual Report

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

2014

Market risk-related revenue –trading loss days(a)

2013

2012

9

0

7

$ 12,328$ 11,903$ 11,745

Equity

6,524

6,913

5,637

Other(b)

1,697

1,669

1,453

$ 20,549$ 20,485$ 18,835$417,369$383,667$355,766

25,71330,75235,783

Assets under custody (“AUC”) byasset class (period-end) inbillions:
Fixed Income

Total AUC
Client deposits and other third
party liabilities (average)(c)Trade finance loans (period-end)(a) Market risk-related revenue is defined as the change in value of: principaltransactions revenue; trading-related net interest income; brokeragecommissions, underwriting fees or other revenue; and revenue from syndicatedlending facilities that the Firm intends to distribute; gains and losses from DVA
and FVA are excluded. Market risk-related revenue – trading loss days represent
the number of days for which the CIB posted losses under this measure. The loss
days determined under this measure differ from the loss days that are
determined based on the disclosure of market risk-related gains and losses for
the Firm in the VaR back-testing discussion on pages 134–135.
(b) Consists of mutual funds, unit investment trusts, currencies, annuities, insurance
contracts, options and other contracts.
(c) Client deposits and other third party liabilities pertain to the Treasury Services
and Securities Services businesses, and include deposits, as well as deposits thatare swept to on-balance sheet liabilities (e.g., commercial paper, federal funds
purchased and securities loaned or sold under repurchase agreements) as partof their client cash management program.

League table results – IB Fee Share(a)2014Year ended
December 31,

Fee
Share

League table results – volumes(e)2013

Rankings

Fee
Share

2012

Rankings

Fee
Share

Rankings

Debt, equity andequity-relatedYear ended
December 31,

2014

2013

2012

MarketShare Rankings

MarketShare Rankings

MarketShare Rankings

Debt, equity andequity-related

Global

7.6%

#1

8.3%

#1

7.8%

#1

Global

6.8%

#1

7.3%

#1

7.2%

#1

U.S.

10.7

1

11.5

1

11.1

1

U.S.

11.8

1

12.0

1

11.5

1

Long-term debt

Long-term debt

(b)

(b)

Global

8.0

1

8.2

1

8.3

1

Global

6.7

1

7.2

1

7.1

1

U.S.

11.6

1

11.6

1

11.7

1

U.S.

11.3

1

11.7

1

11.6

1

Equity and equityrelated

Equity and equityrelated

Global(c)

7.1

3

8.4

2

7.1

1

Global(c)

7.6

3

8.2

2

7.8

4

U.S.

9.6

2

11.3

2

10.1

2

U.S.

11.0

2

12.1

2

10.4

5

M&A(d)

M&A announced(d)Global

8.2

2

7.6

2

6.5

2

Global

21.6

2

23.5

2

20.0

2

U.S.

10.0

2

8.8

2

7.7

2

U.S.

27.8

2

36.4

2

24.3

2

Loan syndications

Loan syndications

Global

9.5

1

9.9

1

8.2

2

Global

12.4

1

11.6

1

11.6

1

U.S.

13.3

1

13.8

1

11.2

2

U.S.

19.4

1

17.8

1

18.2

1

8.1%

#1

8.5%

#1

7.5%

#1

Global Investment
Banking fees(a) Source: Dealogic. Reflects the ranking and share of Global Investment Banking fees(b) Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities (“ABS”) and mortgage-backed
securities; and exclude money market, short-term debt, and U.S. municipal securities.
(c) Global equity and equity-related rankings include rights offerings and Chinese A-Shares.
(d) M&A and Announced M&A rankings reflect the removal of any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S. U.S.
announced M&A volumes represents any U.S. involvement ranking.
(e) Source: Dealogic. Reflects transaction volume and market share. Global announced M&A is based on transaction value at announcement; because of joint M&A
assignments, M&A market share of all participants will add up to more than 100%. All other transaction volume-based rankings are based on proceeds, with full credit toeach book manager/equal if joint.

JPMorgan Chase & Co./2014 Annual Report95Management’s discussion and analysis
International metrics
Year ended December 31,(in millions)

2014

2013

2012

Total net revenue(a)Europe/Middle East/Africa$ 11,598$ 10,689$ 10,787

Asia/Pacific

4,698

4,736

4,128

Latin America/Caribbean

1,179

1,340

1,533

Total international net revenue

17,475

16,765

16,448

North America

17,15818,021

18,314$ 34,633$ 34,786$ 34,762$ 27,155$ 29,392$ 30,266

Asia/Pacific

19,992

22,151

27,193Latin America/Caribbean

8,950

8,362

10,220Total international loans

56,09759,90567,679North America

40,31235,722

41,822

Total loans$ 96,409$ 95,627$ 109,501$ 152,712$ 143,807$ 127,326

66,93354,42851,180Total 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
Total international
North America
Total client deposits and otherthird-party liabilities

22,36015,301

11,052$ 242,005$ 213,536$ 189,558

175,364

170,131

166,208$ 417,369$ 383,667$ 355,766$ 11,987$ 11,299$ 10,504

8,562

9,186

8,331

$ 20,549$ 20,485$ 18,835

AUC (period-end) (in billions)(a)North America
All other regions
Total AUC(a) Total net revenue is based predominantly on the domicile of the 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.

96

JPMorgan Chase & Co./2014 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)
Revenue
Lending- and deposit-related fees
Asset management, administrationand commissions
All other income(a)Noninterest revenue
Net interest income
Total net revenue(b)Provision for credit losses
Noninterest expense
Compensation expense
Noncompensation expense
Total noninterest expense
Income before income tax expense
Income tax expense
Net income

2014

2013

2012

$ 978

$ 1,033$ 1,072

92

116

130

1,279
2,349
4,533
6,882
(189)

1,149
2,298
4,794
7,092
85

1,081
2,283
4,629
6,912
41

1,203
1,492
2,695
4,376
1,741
$ 2,635

1,115
1,495
2,610
4,397
1,749
$ 2,648

1,014
1,375
2,389
4,482
1,783
$ 2,699

Revenue by productLending
Treasury services
Investment banking
Other
Total Commercial Banking net
revenue$ 3,576
2,448
684
174

$ 3,945
2,429
575
143

$ 3,762
2,428
545
177

$ 6,882$ 7,092$ 6,912Investment banking revenue, gross$ 1,986$ 1,676$ 1,597

Revenue by client segment
Middle Market Banking
Corporate Client Banking
Commercial Term Lending
Real Estate Banking
Other
Total Commercial Banking net
revenue$ 2,838
1,935
1,252
495
362

$ 3,075
1,851
1,239
561
366

$ 3,010
1,843
1,206
450
403

$ 6,882$ 7,092$ 6,912Financial ratios
Return on common equity
Overhead ratio

18%
39

19%
37

(a) Includes revenue from investment banking products and commercial cardtransactions.
(b) Total net revenue included tax-equivalent adjustments from income tax
credits related to equity investments in designated community
development entities that provide loans to qualified businesses in lowincome communities, as well as tax-exempt income from municipal bondactivity of $462 million, $407 million and $381 million for the years ended
December 31, 2014, 2013 and 2012, respectively.

2014 compared with 2013
Net income was $2.6 billion, flat compared with the prioryear, reflecting lower net revenue and higher noninterest
expense, predominantly offset by a lower provision for
credit losses.
Net revenue was $6.9 billion, a decrease of $210 million, or
3%, compared with the prior year. Net interest income was$4.5 billion, a decrease of $261 million, or 5%, reflecting
yield compression, the absence of proceeds received in theprior year from a lending-related workout, and lower
purchase discounts recognized on loan repayments,
partially offset by higher loan balances. Noninterest
revenue was $2.3 billion, up $51 million, or 2%, reflecting
higher investment banking revenue largely offset bybusiness simplification and lower lending fees.
Noninterest expense was $2.7 billion, an increase of $85
million, or 3%, from the prior year, largely reflecting higher
investments in controls.
2013 compared with 2012
Net income was $2.6 billion, a decrease of $51 million, or
2%, from the prior year, driven by an increase innoninterest expense and the provision for credit losses,
partially offset by an increase in net revenue.
Net revenue was a record $7.1 billion, an increase of $180
million, or 3%, from the prior year. Net interest income was$4.8 billion, up by $165 million, or 4%, driven by higher
loan balances and proceeds from a lending-related workout,partially offset by lower purchase discounts recognized onloan repayments. Noninterest revenue was $2.3 billion, flatcompared with the prior year.
Noninterest expense was $2.6 billion, an increase of $221
million, or 9%, from the prior year, reflecting higher
product- and headcount-related expense.

28%
35

Note: As discussed on pages 79–80, effective with the fourth quarter of2014 the Firm changed its methodology for allocating the cost of preferredstock to its reportable business segments. Prior periods have been revised toconform with the current period presentation.
JPMorgan Chase & Co./2014 Annual Report97Management’s discussion and analysis
CB revenue comprises the following:

Selected metrics

Lending includes a variety of financing alternatives, which
are predominantly secured by receivables, inventory,
equipment, real estate or other assets. Products include
term loans, revolving lines of credit, bridge financing, assetbased structures, leases, commercial card products andstandby letters of credit.

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

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.

Loans:

Investment banking includes revenue from a range of
products that provide 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 used by CB clients is also included.
Investment banking revenue, gross, represents total
revenue related to investment banking products sold to
CB clients.
Other product revenue primarily includes tax-equivalentadjustments generated from Community Development
Banking activities and certain income derived from principaltransactions.
CB is divided into four primary client segments: Middle
Market Banking, Corporate Client Banking, Commercial
Term Lending, and Real Estate Banking.
Middle Market Banking covers corporate, municipal andnonprofit clients, with annual revenue generally ranging
between $20 million and $500 million.
Corporate Client Banking covers clients with annual
revenue generally ranging between $500 million and $2
billion and focuses on clients that have broader investmentbanking needs.
Commercial Term Lending primarily provides term
financing to real estate investors/owners for multifamily
properties as well as office, retail and industrial properties.
Real Estate Banking provides full-service banking toinvestors and developers of institutional-grade real estate
investment properties.
Other primarily includes lending and investment activities
within the Community Development Banking and Chase
Capital businesses.

Total assets

2013

2012

$ 195,267$ 190,782$ 181,502

147,661

135,750

126,996Loans retained
Loans held-for-sale andloans at fair value
Total loans

845

1,388

1,212

$ 148,506$ 137,138$ 128,208

14,00013,5009,500

EquityPeriod-end loans by client
segment
Middle Market Banking$

53,635$52,289$50,552

Corporate Client Banking

22,69520,92521,707

Commercial Term Lending

54,03848,92543,512

Real Estate Banking

13,29811,024

8,552

Other

4,840

3,975

3,885

$ 148,506$ 137,138$ 128,208$ 191,857$ 185,776$ 165,111

140,982

131,100

119,218

782

930

882

Total Commercial Banking
loans
Selected balance sheet data
(average)
Total assets
Loans:
Loans retained
Loans held-for-sale andloans at fair value
Total loans$ 141,764$ 132,030$ 120,100

Client deposits and otherthird-party liabilities

204,017

198,356

195,912Equity14,00013,5009,500

Average loans by client
segment
Middle Market Banking$

52,444$

51,830$47,009Corporate Client Banking

21,60820,91819,572

Commercial Term Lending

51,12045,98940,872

Real Estate Banking

12,080

9,582

8,562

Other

4,512

3,711

4,085

$ 141,764$ 132,030$ 120,100

7,262

6,848

6,117

Total Commercial Banking
loans
Headcount

98

2014

Selected balance sheet data(period-end)

JPMorgan Chase & Co./2014 Annual ReportSelected metrics (continued)
As of or for the year ended
December 31, (in millions,
except ratios)

2014

2013

2012

Credit data and quality
statistics
Net charge-offs/(recoveries)

$

(7)

$

43

$

35

Nonperforming assets
Nonaccrual loans:
Nonaccrual loans retained(a)Nonaccrual loans held-for-saleand loans at fair value
Total nonaccrual loans

317

471

644

14

43

29

331

514

673

Assets acquired in loansatisfactions

10

15

14

Total nonperforming assets

341

529

687

2,466

2,669

2,610

165

142

183

2,631

2,811

2,793

0.03%

0.03%

Allowance for credit losses:
Allowance for loan losses
Allowance for lending-related
commitments
Total allowance for credit
lossesNet charge-off/(recovery) rate(b)—%Allowance for loan losses toperiod-end loans retained

1.67

1.97

2.06

Allowance for loan losses tononaccrual loans retained(a)

778

567

405

Nonaccrual loans to total periodend loans

0.22

0.37

0.52

(a) An allowance for loan losses of $45 million, $81 million and $107
million was held against nonaccrual loans retained at December 31,
2014, 2013 and 2012, respectively.
(b) Loans held-for-sale and loans at fair value were excluded whencalculating the net charge-off/(recovery) rate.

JPMorgan Chase & Co./2014 Annual Report99Management’s discussion and analysis
ASSET MANAGEMENT
Asset Management, with client assets of $2.4 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 for a broad range ofclients’ investment needs. For Global WealthManagement clients, AM also provides retirement
products and services, brokerage and banking services
including trusts and estates, loans, mortgages anddeposits. The majority of AM’s client assets are in
actively managed portfolios.
Selected income statement data
Year ended December 31,(in millions, except ratiosand headcount)
Revenue
Asset management, administrationand commissions
All other income
Noninterest revenue
Net interest income
Total net revenue

2014

2013

2012

$ 9,024$ 8,232$ 7,041

564
9,588
2,440
12,028

797
9,029
2,376
11,405

806
7,847
2,163
10,010

Provision for credit losses

4

65

86

Noninterest expense
Compensation expense
Noncompensation expense
Total noninterest expense

5,082
3,456
8,538

4,875
3,141
8,016

4,405
2,699
7,104

Income before income tax expense
3,486
Income tax expense
1,333
Net income$ 2,153

3,324
1,241
$ 2,083

2,820
1,078
$ 1,742

Revenue by line of business
Global Investment Management
Global Wealth Management
Total net revenue$ 5,951
5,454$ 11,405$ 5,141
4,869$ 10,010

Financial ratios
Return on common equity
Overhead ratio
Pretax margin ratio:
Global Investment Management
Global Wealth Management
Asset Management$ 6,327
5,701$12,028

23%
71

23%
70

24%
71

31
27
29

32
26
29

30
26
28

Headcount

19,73520,04818,645

Number of client advisors

2,836

2,962

2,821

2014 compared with 2013
Net income was $2.2 billion, an increase of $70 million, or
3%, from the prior year, reflecting higher net revenue andlower provision for credit losses, predominantly offset byhigher noninterest expense.
Net revenue was $12.0 billion, an increase of $623 million,
or 5%, from the prior year. Noninterest revenue was $9.6
billion, up $559 million, or 6%, from the prior year, due to
net client inflows and the effect of higher market levels,
partially offset by lower valuations of seed capital
investments. Net interest income was $2.4 billion, up $64
million, or 3%, from the prior year, due to higher loan anddeposit balances, largely offset by spread compression.
Revenue from Global Investment Management was $6.3
billion, up 6% due to net client inflows and the effect ofhigher market levels, partially offset by lower valuations ofseed capital investments. Revenue from Global WealthManagement was $5.7 billion, up 5% from the prior year
due to higher net interest income from loan and deposit
balances and net client inflows, partially offset by spreadcompression and lower brokerage revenue.
Noninterest expense was $8.5 billion, an increase of $522
million, or 7%, from the prior year, as the business
continues to invest in both infrastructure and controls.
2013 compared with 2012
Net income was $2.1 billion, an increase of $341 million, or20%, from the prior year, reflecting higher net revenue,largely offset by higher noninterest expense.
Net revenue was $11.4 billion, an increase of $1.4 billion,or 14%, from the prior year. Noninterest revenue was $9.0
billion, up $1.2 billion, or 15%, from the prior year, due to
net client inflows, the effect of higher market levels andhigher performance fees. Net interest income was $2.4
billion, up $213 million, or 10%, from the prior year, due tohigher loan and deposit balances, partially offset bynarrower loan and deposit spreads.
Revenue from Global Investment Management was $6.0
billion, up 16% due to net client inflows, the effect ofhigher market levels and higher performance fees. Revenue
from Global Wealth Management was $5.5 billion, up 12%
from the prior year due to higher net interest income fromloan and deposit balances and higher brokerage revenue.
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.

Note: As discussed on pages 79–80, effective with the fourth quarter of2014 the Firm changed its methodology for allocating the cost of preferredstock to its reportable business segments. Prior periods have been revised toconform with the current period presentation.

100

JPMorgan Chase & Co./2014 Annual Report

AM’s lines of business comprise the following:

Selected metrics

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

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

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

2014% of JPM mutual fund assets
rated as 4- or 5-star(a)

2013

2012

52%

49%

47%

1 year72

68

67

AM’s client segments comprise the following:

3 years

72

68

74

Private Banking clients include high- and ultra-high-net-worth
individuals, families, money managers, business owners and small
corporations worldwide.

5 years

76

69

76

Institutional clients include both corporate and public institutions,endowments, foundations, nonprofit organizations and governments
worldwide.
Retail clients include financial intermediaries and individual investors.

J.P. Morgan Asset Management has two high-levelmeasures of its overall fund performance.
• Percentage of mutual fund assets under management in funds
rated 4- or 5-star: Mutual fund rating services rank funds based on
their risk-adjusted performance over various periods. A 5-star ratingis the best rating and represents the top 10% of industry-wide ranked
funds. A 4-star rating represents the next 22.5% of industry-wide
ranked funds. A 3-star rating represents the next 35% of industrywide ranked funds. A 2-star rating represents the next 22.5% ofindustry-wide ranked funds. A 1-star rating is the worst rating andrepresents the bottom 10% of industry-wide ranked funds. The“overall Morningstar rating” is derived from a weighted average of theperformance figures associated with a fund’s three-, five- and ten-year(if applicable) Morningstar Rating metrics. For U.S. domiciled funds,
separate star ratings are given at the individual share class level. The
Nomura “star rating” is based on three-year risk-adjusted
performance only. Funds with fewer than three years of history are
not rated and hence excluded from this analysis. All ratings, theassigned peer categories and the asset values used to derive thisanalysis are sourced from these fund rating providers as mentioned infootnote (a). The data providers re-denominate the asset values into
USD. This % of AUM is based on star ratings at the share class levelfor U.S. domiciled funds, and at a “primary share class” level torepresent the star rating of all other funds except for Japan where
Nomura provides ratings at the fund level. The “primary share class”,
as defined by Morningstar, denotes the share class recommended as
being the best proxy for the portfolio and in most cases will be themost retail version (based upon annual management charge,
minimum investment, currency and other factors). Past performance
is not indicative of future results.
• Percentage of mutual fund assets under management in funds
ranked in the 1st or 2nd quartile (one, three and five years): All
quartile rankings, the assigned peer categories and the asset values
used to derive this analysis are sourced from the fund ranking
providers mentioned in footnote (b). Quartile rankings are done on
the net-of-fee absolute return of each fund. The data providers redenominate the asset values into USD. This % of AUM is based onfund performance and associated peer rankings at the share classlevel for U.S. domiciled funds, at a “primary share class” level torepresent the quartile ranking of Luxembourg, U.K. and Hong Kong
funds and at the fund level for all other funds. The “primary shareclass”, as defined by Morningstar, denotes the share classrecommended as being the best proxy for the portfolio and in mostcases will be the most retail version (based upon annual management
charge, minimum investment, currency and other factors). Where
peer group rankings given for a fund are in more than one “primaryshare class” territory both rankings are included to reflect local
market competitiveness (applies to “Offshore Territories” and “HK SFC
Authorized” funds only). Past performance is not indicative of future
results.

JPMorgan Chase & Co./2014 Annual Report% of JPM mutual fund assets
ranked in 1st or 2nd quartile:(b)Selected balance sheet data(period-end)
Total assets$ 128,701$ 122,414$ 108,999

Loans(c)104,279

95,44580,216

Deposits

155,247

146,183

144,579

Equity

9,000

9,000

7,000

$ 97,447

Selected balance sheet data
(average)
Total assets$ 126,440$ 113,198

Loans

99,80586,066

68,719Deposits

150,121

139,707129,208

Equity

9,000

9,000

7,000

Credit data and quality
statistics
Net charge-offs
Nonaccrual loans

$

6

$

40

$

64

218

167

250

271

278

248

5

5

5

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

276

283

253

Net charge-off rate

0.01%

0.05%

0.09%

Allowance for loan losses toperiod-end loans

0.26

0.29

0.31

Allowance for loan losses tononaccrual loans

124

166

99

Nonaccrual loans to period-end
loans

0.21

0.17

0.31

(a) Represents the “overall star rating” derived from Morningstar for the U.S., theU.K., Luxembourg, Hong Kong and Taiwan domiciled funds; and Nomura ’star
rating’ for Japan domiciled funds. Includes only retail open ended mutual funds
that have a rating. Excludes money market funds, Undiscovered Managers Fund,and Brazil and India domiciled funds.
(b) Quartile ranking sourced from: Lipper for the U.S. and Taiwan domiciled funds;
Morningstar for the U.K., Luxembourg and Hong Kong domiciled funds; Nomura
for Japan domiciled funds and FundDoctor for South Korea domiciled funds.
Includes only retail open ended mutual funds that are ranked by the
aforementioned sources. Excludes money market funds, Undiscovered Managers
Fund, and Brazil and India domiciled funds.
(c) Included $22.1 billion, $18.9 billion and $10.9 billion of prime mortgage loans
reported in the Consumer, excluding credit card, loan portfolio at December 31,
2014, 2013 and 2012, respectively. For the same periods, excluded $2.7 billion,$3.7 billion and $6.7 billion, respectively, of prime mortgage loans reported in
the CIO portfolio within the Corporate segment.

101

Management’s discussion and analysis
Client assets

Client assets (continued)

2014 compared with 2013
Client assets were $2.4 trillion, an increase of $44 billion,
or 2%, compared with the prior year. Excluding the sale ofRetirement Plan Services, client assets were up 8%
compared with the prior year. Assets under management
were $1.7 trillion, an increase of $146 billion, or 9%, fromthe prior year, due to net inflows to long-term products andthe effect of higher market levels.

Year ended December 31,(in billions)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.
Client assets

2014

Beginning balance$

1,598 $

1,426 $

1,336

Liquidity

18

(4)

(41)

Fixed income

33

8

27

Equity5348Multi-asset and alternatives

42

48

23

48

86

73

$

1,744 $

1,598 $

1,426$

2,343 $

2,095 $

1,921

118

80

60

Net asset flows:

Market/performance/other impacts
Ending balance, December 31
Client assets rollforward
Beginning balance
Net asset flows
Market/performance/other impacts
Ending balance, December 31

2014

2013

2012

461 $

451 $

458

Year ended December 31,(in billions,
except where otherwise noted)
Total net revenue (in millions)(a)Fixed income

359

330

330

Europe/Middle East/Africa

Equity

375

370

277

Asia/PacificMulti-asset and alternatives

549

447

361

Latin America/Caribbean

Total assets under management

1,744

1,598

1,426

Custody/brokerage/administration/
deposits

643

745

669

2,387 $

2,343 $

2,095

Assets by asset class

Total client assets$$

Alternatives client assets(a)

166

158

142

Assets by client segment

(74)

168

114

2,387 $

2,343 $

2,095

2014

North America
Total net revenue

$

361 $

318

Institutional

827

777

741

Retail

489

460

367

2012

2,080 $

1,881 $

1,641

1,199

1,133

958

841

879

773

7,908

7,512

6,638

Assets under management
$

329 $

305 $

258

Asia/Pacific

126

132

114

Latin America/Caribbean

46

47

45

1,243

1,114

1,009

$

1,744 $

1,598 $

1,426$

Total assets under management
Client assets

391 $

367 $

317

Asia/Pacific

174

180

160

877

Latin America/Caribbean

115

117

110

777

741

North America

1,707

1,679

1,508

495

589

477

Total client assets

2,387 $

2,343 $

2,095

2,387 $

2,343 $

2,095

Total assets under management$

1,744 $

1,598 $

1,426

Private Banking$

1,057 $

977 $Institutional

835

Retail$2013$ 12,028 $ 11,405 $ 10,010

North America
428 $Total client assets$$

Europe/Middle East/Africa

Memo:

Private Banking

2012

International metrics

December 31,(in billions)
Liquidity

2013

Assets under management
rollforward

Europe/Middle East/Africa$(a) Regional revenue is based on the domicile of the client.

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

102

JPMorgan Chase & Co./2014 Annual ReportCORPORATEThe Corporate 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 and structural interest rate andforeign exchange risks, as well as executing the Firm’s
capital plan. The major Other Corporate units include
Real Estate, Enterprise Technology, Legal, Compliance,
Finance, Human Resources, Internal Audit, Risk
Management, Oversight & Control, Corporate
Responsibility and various Other Corporate groups.
Other centrally managed expense includes the Firm’s
occupancy and pension-related expenses that are
subject to allocation to the businesses.
Selected income statement data
Year ended December 31,(in millions, except headcount)
RevenuePrincipal transactions
Securities gains
All other income
Noninterest revenue
Net interest income
Total net revenue(a)$Provision for credit losses
Noninterest expense
Compensation expense
Noncompensation expense(b)Subtotal
Net expense allocated to otherbusinesses
Total noninterest expense
Income/(loss) before income
tax expense/(benefit)
Income tax expense/(benefit)
Net income/(loss)
Total net revenue
Private equity
Treasury and CIO
Other Corporate
Total net revenue
Net income/(loss)
Private equity
Treasury and CIO
Other Corporate
Total net income/(loss)
Total assets (period-end)
Headcount

2014

2013

2012

1,197 $
71
704
1,972
(1,960)
12

563 $
666
1,864
3,093
(3,115)(22)(4,268)
2,024
2,434
190
(2,262)(2,072)

(35)

(28)

(37)

2,888
4,589
7,477

2,299
13,20815,507

2,221
6,972
9,193

(6,318)(5,252)(4,634)

1,159

10,255

4,559(1,112)(10,249)(6,594)(1,976)$864 $(3,493)(6,756) $(3,974)(2,620)$589 $(2,068)1,457(22) $

645(4,089)1,372(2,072)

1,118 $
(1,317)
211
$
12 $
$

400 $
285 $
319
(1,165)(1,454)(2,718)
1,629(5,587)(221)$
864 $ (6,756) $ (2,620)$931,705 $ 805,987 $ 725,251
26,047
20,717
17,758

Note: As discussed on pages 79–80, effective with the fourth quarter of2014 the Firm changed its methodology for allocating the cost of preferredstock to its reportable business segments. Prior periods have been revised toconform with the current period presentation.

JPMorgan Chase & Co./2014 Annual Report(a) Included tax-equivalent adjustments, predominantly due to tax-exempt
income from municipal bond investments of $730 million, $480
million and $443 million for the years ended December 31, 2014,2013 and 2012, respectively.
(b) Included legal expense of $821 million, $10.2 billion and $3.7 billion
for the years ended December 31, 2014, 2013 and 2012,
respectively.

2014 compared with 2013
Net income was $864 million, compared with a net loss of$6.8 billion in the prior year.
Private Equity reported net income of $400 million,
compared with net income of $285 million in the prior year,
primarily due to higher net gains on sales, largely offset byhigher noninterest expense related to goodwill impairment.
Treasury and CIO reported a net loss of $1.2 billion,
compared with a net loss of $1.5 billion in the prior year.
Net revenue was a loss of $1.3 billion, compared with a lossof $2.1 billion in the prior year. Current year net interest
income was a loss of $1.7 billion compared with a loss of$2.7 billion in the prior year, primarily reflecting higher
yields on investment securities. Securities gains were $71
million, compared to $659 million in the prior year,
reflecting lower repositioning activity of the investment
securities portfolio in the current period.
Other Corporate reported net income of $1.6 billion,
compared with a net loss of $5.6 billion in the prior year.
Current year noninterest revenue was $353 million
compared with $1.8 billion in the prior year. Prior year
noninterest revenue included gains of $1.3 billion and $493
million on the sales of Visa shares and One Chase
Manhattan Plaza, respectively. The current year included$821 million of legal expense, compared with $10.2 billion,
which included reserves for litigation and regulatory
proceedings, in the prior year.
2013 compared with 2012
Net loss was $6.8 billion, compared with a net loss of $2.6
billion in the prior year.
Private Equity reported net income of $285 million,
compared with net income of $319 million in the prior year.
Net revenue was of $589 million, compared with $645
million in the prior year.
Treasury and CIO reported a net loss of $1.5 billion,
compared with a net loss of $2.7 billion in the prior year.
Net revenue was a loss of $2.1 billion, compared with a lossof $4.1 billion in the prior year. Net revenue in 2013
included $659 million of net securities gains from sales ofavailable-for-sale investment securities, compared withsecurities gains of $2.0 billion; and $888 million of pretax
extinguishment gains related to the redemption of trust
preferred securities in the prior year. The extinguishment
gains were related to adjustments applied to the cost basisof the trust preferred securities during the period they werein 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 theretained index credit derivative positions for the three103

Management’s discussion and analysis
months ended September 30, 2012. Net interest income in2013 was a loss of $2.7 billion compared with a loss of$1.7 billion in the prior year, primarily due to low interest
rates and limited reinvestment opportunities. Net interest
income improved in the fourth quarter of 2013 due tohigher interest rates and better reinvestment opportunities.
Other Corporate reported a net loss of $5.6 billion,
compared with a net loss of $221 million in the prior year.
Noninterest revenue in 2013 was $1.8 billion, down 2%
compared with the prior year. In 2013, noninterest revenue
included gains of $1.3 billion and $493 million on the salesof Visa shares and One Chase Manhattan Plaza, respectively.
Noninterest revenue in the prior year included a $1.1 billion
benefit for the Washington Mutual bankruptcy settlement
and a $665 million gain from the recovery on a Bear
Stearns-related subordinated loan. Noninterest expense of$9.7 billion was up $5.9 billion compared with the prioryear. Included in 2013 noninterest expense was $10.2
billion of legal expense, including reserves for litigation andregulatory proceedings, compared with $3.7 billion of
expense for additional litigation reserves, largely formortgage-related matters, in the prior year.

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.
Treasury and CIO achieve the Firm’s asset-liability
management objectives generally by investing in highquality securities that are managed for the longer-term aspart of the Firm’s investment securities portfolio. Treasury
and CIO also use derivatives to meet the Firm’s assetliability management objectives. For further information onderivatives, see Note 6. The investment securities portfolio
primarily consists of U.S. and non-U.S. government
securities, agency and nonagency mortgage-backed
securities, other asset-backed securities, corporate debt
securities and obligations of U.S. states and municipalities.
At December 31, 2014, the investment securities portfolio
was $343.1 billion, and the average credit rating of the
securities comprising the portfolio was AA+ (based upon
external ratings where available and where not available,
based primarily upon internal ratings that correspond to
ratings as defined by S&P and Moody’s). See Note 12 forfurther 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 156–160. For
information on interest rate, foreign exchange and otherrisks, Treasury and CIO Value-at-risk (“VaR”) and the Firm’s
structural interest rate-sensitive revenue at risk, see Market
Risk Management on pages 131–136.

104

Selected income statement and balance sheet data
As of or for the year ended
December 31, (in millions)
Securities gains
Investment securities portfolio(average)
Investment securities portfolio(period–end)(a)Mortgage loans (average)
Mortgage loans (period-end)

2014
$

71

2013
$

659

2012
$

2,028

349,285353,712358,029

343,146

347,562

365,421

3,308
2,834

5,145
3,779

10,241
7,037(a) Period-end investment securities included held-to-maturity securities of $49.3
billion and $24.0 billion at December 31, 2014, and 2013, respectively. Held-tomaturity securities as of December 31, 2012, were not material.

Private Equity portfolio
Selected income statement and balance sheet data
Year ended December 31,(in millions)
Private equity gains/(losses)
Realized gains$
Unrealized gains/(losses)(a)Total direct investments
Third-party fund investments
Total private equity gains/(losses)(b) $

2014
1,164
43
1,207
34
1,241

$

$

2013

2012

(170) $
734
564
137
701 $

17
639
656
134
790

(a) Includes reversals of unrealized gains and losses that were recognized in priorperiods and have now been realized.
(b) Included in principal transactions revenue in the Consolidated statements ofincome.

Private equity portfolio information(a)December 31, (in millions)Publicly held securities
Carrying value
Cost
Quoted public value
Privately held direct securities
Carrying value
Cost
Third-party fund investments(b)Carrying value
Cost
Total private equity portfolio
Carrying value
Cost

2014
$

$

878
583
893

2013
$

1,035
672
1,077

2012
$

578
350
578

4,555
5,275

5,065
6,022

5,379
6,584

433
423

1,768
1,797

2,117
1,963

5,866
6,281

$

7,868
8,491

$

8,074
8,897

(a) For more information on the Firm’s methodologies regarding the valuation of thePrivate Equity portfolio, see Note 3. For information on the sale of a portion of
the Private Equity business in January 2015, see Note 2.
(b) Unfunded commitments to third-party private equity funds were $147 million,$215 million and $370 million at December 31, 2014, 2013 and 2012,
respectively.

2014 compared with 2013
The carrying value of the private equity portfolio at
December 31, 2014 was $5.9 billion, down from $7.9
billion at December 31, 2013. The decrease in the portfolio
was predominantly driven by sales of investments, partially
offset by unrealized gains.
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.
JPMorgan Chase & Co./2014 Annual Report

ENTERPRISE-WIDE RISK MANAGEMENT
Risk is an inherent part of JPMorgan Chase’s businessactivities. When the Firm extends a consumer or wholesaleloan, advises customers on their investment decisions,
makes markets in securities, or conducts any number ofother services or activities, the Firm takes on some degreeof risk. The Firm’s overall objective in managing risk is toprotect the safety and soundness of the Firm, avoid
excessive risk taking, and manage and balance risk in amanner that serves the interest of our clients, customers
and shareholders.
The Firm’s approach to risk management covers a broad
spectrum of risk areas, such as credit, market, liquidity,
model, structural interest rate, principal, country,
operational, fiduciary and reputation risk.
The Firm believes that effective risk management requires:• Acceptance of responsibility, including identification andescalation of risk issues, by all individuals within the
Firm;• Ownership of risk management within each line ofbusiness and corporate functions; and• Firmwide structures for risk governance.

JPMorgan Chase & Co./2014 Annual Report

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
Firm’s risk management framework is intended to create aculture of transparency, awareness and personal
responsibility through reporting, collaboration, discussion,
escalation and sharing of information. The CEO, CFO, CRO
and COO are ultimately responsible and accountable to theFirm’s Board of Directors.
The Firm’s risk culture strives for continual improvement
through ongoing employee training and development, as
well as talent retention. The Firm also approaches its
incentive compensation arrangements through an
integrated risk, compensation and financial management
framework to encourage a culture of risk awareness andpersonal accountability.

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

Definition

Key risk management metrics

Page
references

Capital risk

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

Risk-based capital ratios, Supplementary Leverageratio

146-155

Compliancerisk

The risk of fines or sanctions or of financial damage or loss due to the failure tocomply with laws, rules, and regulations.

Not Applicable

144

Country risk The risk that a sovereign event or action alters the value or terms of contractual
obligations of obligors, counterparties and issuers or adversely affects markets
related to a particular country.

Default exposure at 0% recovery, Stress137-138

Credit risk

The risk of loss arising from the default of a customer, client or counterparty.

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

110-130

Fiduciaryrisk

The risk of a failure to exercise the applicable high standard of care, to act in the bestinterests of clients or to treat clients fairly, as required under applicable law or
regulation.

Not Applicable

145

Legal risk

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

Not Applicable

144

Liquidityrisk

The risk that the Firm will not have the appropriate amount, composition and tenor of LCR; Stressfunding and liquidity in support of its assets, and that the Firm will be unable to meetits contractual and contingent obligations through normal economic cycles andmarket stress events.

156-160

Market risk

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

131-136

Model risk

The risk of the potential for adverse consequences from decisions based on incorrector misused model outputs and reports.

Model Status, Model Tier

139

Non-USD FX The risk arising from capital investments, forecasted expense and revenue,
risk
investment securities portfolio or issuing debt in denominations other than the U.S.
dollar.

FX Net Open Position (“NOP”)

203,
211-213

Operational The risk of loss resulting from inadequate or failed processes or systems or due toriskexternal events that are neither market nor credit-related.

Firm-specific loss experience; industry loss
experience; business environment and internal
control factors (“BEICF”)

140-143

Principal
risk

The risk of an adverse change in the value of privately-held financial assets andCarrying Value, Stress
instruments, typically representing an ownership or junior capital position. These
positions have unique risks due to their illiquidity or for which there is less observable
market or valuation data.

140

Reputation
risk

The risk that an action, transaction, investment or event will reduce the trust thatclients, shareholders, employees or the broader public has in the Firm’s integrity orcompetence.

Not Applicable

145

Structuralinterest
rate risk

The risk resulting from the Firm’s traditional banking activities (both on- and offbalance sheet positions) arising from the extension of loans and credit facilities,
taking deposits and issuing debt (collectively referred to as “non-trading activities”),
and also the impact from the CIO investment securities portfolio and other related
CIO, Treasury activities.

Earnings-at-risk

136

Risk organization
The LOBs are responsible for managing the risks inherent intheir respective business activities. The Risk organization
operates independently from the revenue-generating
businesses, providing a credible challenge to them. The CRO
is the head of the Risk organization and is responsible forthe overall direction of Risk oversight. The CRO is supported
by individuals and organizations that align to lines ofbusiness and corporate functions, as well as others thatalign to specific risk types.

106

The Firm’s Risk Management Organization and otherFirmwide functions with risk-related responsibilities (i.e.,
Regulatory Capital Management Office (“RCMO”), Firmwide
Oversight and Control Group, Valuation Control Group(“VCG”), Legal and Compliance) provide independent
oversight of the monitoring, evaluation and escalation of
risk.
Risk governance
The independent stature of the Risk organization is
supported by a governance structure that provides for
escalation of risk issues up to senior management and theBoard of Directors.

JPMorgan Chase & Co./2014 Annual Report

The chart below illustrates the governance structure and certain senior management level committees and forums that areprimarily responsible for key risk-related functions. There are additional committees and forums not represented in the chartthat are also responsible for management and oversight of risk.

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. Each committee of the Board oversees
reputation risk issues within its scope of responsibility.
The Directors’ Risk Policy Committee approves andperiodically reviews the primary risk management policiesof the Firm’s global operations and oversees the operationof the Firm’s global risk management framework. The
committee’s responsibilities include oversight ofmanagement’s exercise of its responsibility to assess andmanage: (i) credit risk, market risk, liquidity risk, model
risk, structural interest rate risk, principal risk and country
risk; (ii) the governance frameworks or policies for
operational, fiduciary, reputational risks and the New
Business Initiative Approval (“NBIA”) process; and (iii)
capital and liquidity planning and analysis. The DRPC
JPMorgan Chase & Co./2014 Annual Report

reviews the firmwide value-at-risk and market stress
tolerances, as well as any other parameter tolerances
established by management in accordance with the Firm’s
Risk Appetite Policy. It reviews reports of significant issues
identified by risk management officers, including reports
describing the Firm’s credit risk profile, and information
about concentrations and country risks. The Firm’s CRO, LOB
CROs, LOB CEOs, heads of risk for Country Risk, Market Risk,
Structural Interest Rate Risk, Liquidity Risk, Principal Risk,
Wholesale Credit Risk, Consumer Credit Risk, Model Risk,
Risk Management Policy, Reputation Risk Governance,
Fiduciary Risk Governance, and Operational Risk
Governance (all referred to as Firmwide Risk Executives)
meet with and provide updates to the DRPC. Additionally,breaches in risk appetite tolerances, liquidity issues that
may have a material adverse impact on the Firm and othersignificant matters as determined by the CRO or Firmwide
functions with risk responsibility are escalated to the DRPC.
107

Management’s discussion and analysis
The Audit Committee has primary responsibility for assisting
the Board in its oversight of the system of controls designed
to reasonably assure the quality and integrity of the Firm’s
financial statements and that are relied upon to provide
reasonable assurance of the Firm’s management ofoperational risk. The Audit Committee also assists the Board
in its oversight of legal and compliance risk. Internal Audit,
an independent function within the Firm that provides
independent and objective assessments of the control
environment, reports directly to the Audit Committee 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
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 ofpractices that encourage excessive risk taking. The
Committee reviews and approves the terms ofcompensation award programs, including recovery
provisions, vesting periods, and restrictive covenants, taking
into account regulatory requirements. The Committee also
reviews and approves the Firm’s overall incentive
compensation pools and reviews those of each of the Firm’slines of business and the Corporate segment. The
Committee reviews the goals relevant to compensation for
the Firm’s Operating Committee, reviews Operating
Committee members’ performance against such goals, andapproves their compensation awards. The Committee
recommends to the full Board’s independent directors, for
ratification, the CEO’s compensation. In addition, theCommittee periodically reviews the Firm’s management
development and succession planning, as well as the Firm’s
diversity programs.
Among the Firm’s senior management level committees thatare primarily responsible for key risk-related functions are:
The Firmwide Risk Committee (“FRC”) is the Firm’s highest
management-level Risk Committee. It provides oversight of
the risks inherent in the Firm’s businesses, including credit
risk, market risk, liquidity risk, model risk, structuralinterest rate risk, principal risk and country risk. It also
provides oversight of the governance frameworks for
operational, fiduciary and reputational risks. The Committee
is co-chaired by the Firm’s CEO and CRO. Members of thecommittee include the Firm’s COO, the Firm’s CFO, LOB
CEOs, LOB CROs, General Counsel, and other senior
managers from risk and control functions. This committee
serves as an escalation point for risk topics and issues
raised by its members, the Line of Business Risk
Committees, Firmwide Control Committee, Firmwide
108

Fiduciary Risk Committee, Reputation Risk committees andregional Risk Committees. The committee escalates
significant issues to the Board of Directors, as appropriate.
The Firmwide Control Committee (“FCC”) is a forum to review
and discuss firmwide operational risk, metrics andmanagement, including existing and emerging issues, andexecution against the operational risk management
framework. The committee is co-chaired by the Firm’s Chief
Control Officer and the head of Firmwide Operational Risk
Governance/Model Risk and Development. It serves as an
escalation point for the line of business, function andregional Control Committees and escalates significant issues
to the Firmwide Risk Committee, as appropriate.
The Firmwide Fiduciary Risk Committee (“FFRC”) is a forum
for risk matters related to the Firm’s fiduciary activities andoversees the firmwide fiduciary risk governance framework,
which supports the consistent identification and escalationof fiduciary risk matters by the relevant lines of business or
corporate functions responsible for managing fiduciary
activities. The committee escalates significant issues to the
Firmwide Risk Committee and any other committee
considered appropriate.
The Firmwide Reputation Risk Governance group seeks topromote consistent management of reputational risk acrossthe Firm. Its objectives are to increase visibility of
reputation risk governance; promote and maintain a
globally consistent governance model for reputation risk
across lines of business; promote early self-identification ofpotential reputation risks to the Firm; and provide thought
leadership on cross-line of business reputation risk issues.
Each line of business has a separate reputation risk
governance structure which includes, in most cases, one ormore dedicated reputation risk committees.
Line of business, corporate function, and regional risk andcontrol committees:
Risk committees oversee the inherent risks in the respective
line of business, function or region, including the review,
assessment and decision making relating to specific risks,risk strategy, policy and controls. These committees
escalate issues to the Firmwide Risk Committee, as
appropriate.
Control committees oversee the operational risks andcontrol environment of the respective line of business,function or region. These committees escalate operationalrisk issues to their respective line of business, function or
regional Risk committee and also escalate significant risk
issues (and/or risk issues with potential firmwide impact) to
the Firmwide Control Committee.
The Asset-Liability Committee (“ALCO”), chaired by the
Corporate Treasurer under the direction of the COO,
monitors the Firm’s overall balance sheet, liquidity risk andinterest rate risk. ALCO is responsible for reviewing andapproving the Firm’s funds transfer pricing policy (throughwhich lines of business “transfer” interest rate and foreignexchange risk to Treasury). ALCO is responsible forreviewing the Firm’s Liquidity Risk Management and
JPMorgan Chase & Co./2014 Annual ReportOversight Policy and contingency funding plan. ALCO also
reviews the Firm’s overall structural interest rate risk
position, funding requirements and strategy, and the Firm’s
securitization programs (and any required liquidity support
by the Firm of such programs).
The Capital Governance Committee, chaired by the Head ofRegulatory Capital Management Office (under the directionof the Firm’s CFO) is responsible for reviewing the Firm’s
Capital Management Policy and the principles underlying
capital issuance and distribution alternatives. The
Committee is also responsible for governing the capital
adequacy assessment process, including overall design,
assumptions and risk streams and ensuring that capitalstress test programs are designed to adequately capture theidiosyncratic risks across the Firm’s businesses.
Other corporate functions and forums with risk
management-related responsibilities include:
The Firmwide 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, Consumer & Community
Banking, Commercial Banking, Asset Management andcertain corporate functions, including Treasury and CIO.

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.
Risk appetite
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.
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.
Risk identification for large exposures
The Firm has certain potential low-probability but plausible
and material, idiosyncratic risks not well captured by its
other existing risk analysis and reporting for credit, market,
and other risks. These idiosyncratic risks may arise in a
number of forms, e.g. changes in legislation, an unusual
combination of market events, or specific counterparty
events. These identified risks are grouped under the term
Risk Identification for Large Exposures (“RIFLEs”). The
identified and monitored RIFLEs allow the Firm to monitor
earnings vulnerability that is not adequately covered by its
other standard risk measurements.

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.

JPMorgan Chase & Co./2014 Annual Report109Management’s discussion and analysis
CREDIT RISK MANAGEMENT
Credit risk is the risk of loss arising from the default of acustomer, client or counterparty. The Firm provides credit
to a variety of customers, ranging from large corporate andinstitutional clients to individual consumers and small
businesses. In its consumer businesses, the Firm is exposedto credit risk primarily through its residential real estate,credit card, auto, business banking and student lending
businesses. Originated mortgage loans are retained in themortgage portfolio, or securitized or sold to U.S.
government agencies and U.S. government-sponsoredenterprises; other types of consumer loans are typicallyretained on the balance sheet. In its wholesale businesses,
the Firm is exposed to credit risk through its underwriting,lending and derivatives activities with and for clients andcounterparties, 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 asignificant percentage of originations into the market and is
an important component of portfolio management.
Credit risk organization
Credit risk management is overseen by the Firm’s CRO. The
Firm’s credit risk management governance consists of 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
The Credit Risk Management function identifies, measures,
limits, manages and monitors credit risk across ourbusinesses. To measure credit risk, the Firm employs
several methodologies for estimating the likelihood of
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
portfolios are reflected in the allowance for loan losses, and110

probable 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. In addition, potential and unexpected credit losses arereflected in the allocation of credit risk capital andrepresent the potential volatility of actual losses relative tothe established allowances for loan losses and lendingrelated commitments. The analyses for these losses include
stress testing (considering alternative economic scenarios)
as described in the Stress testing section below.
The methodologies used to estimate credit losses dependon the characteristics of the credit exposure, as described
below.
Scored exposure
The scored portfolio is generally held in CCB andpredominantly includes residential real estate loans, credit
card loans, certain auto and business banking loans, andstudent loans. For the scored portfolio, credit loss estimatesare based on statistical analysis of credit losses overdiscrete periods of time and are estimated using portfolio
modeling, credit scoring, and decision-support tools, which
consider loan-level factors such as delinquency status,
credit scores, collateral values, and other risk factors. Credit
loss analyses also consider, as appropriate, uncertainties
and other factors, including those related to current
macroeconomic and political conditions, the quality ofunderwriting standards, and other internal and external
factors. The factors and analysis are updated on a quarterly
basis or more frequently as market conditions dictate.
Risk-rated exposure
Risk-rated portfolios are generally held in CIB, CB and AM,
but also include certain business banking and auto dealer
loans held in CCB that are risk-rated because they havecharacteristics similar to commercial loans. For the riskrated portfolio, credit loss estimates are based on estimatesof the probability of default (“PD”) and loss severity given adefault. The estimation process begins with risk-ratings thatare assigned to each loan facility to differentiate risk within
the portfolio. These risk ratings are reviewed regularly byCredit Risk management and revised as needed to reflect
the borrower’s current financial position, risk profile andrelated collateral. The probability of default is the likelihoodthat a loan will default and not be fully repaid by theborrower. The loss given default (“LGD”) is the estimatedloss on the loan that would be realized upon the default of
the borrower and takes into consideration collateral andstructural support for each credit facility. The probability ofdefault is estimated for each borrower, and a loss given
default is estimated for each credit facility. The calculations
and assumptions are based on historic experience andmanagement judgment and are reviewed regularly.

JPMorgan Chase & Co./2014 Annual ReportStress testing
Stress testing is important in measuring and managing
credit risk in the Firm’s credit portfolio. The 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, are articulated in terms ofmacroeconomic factors, and applied across the businesses.
The stress test results may indicate credit migration,changes in delinquency trends and potential losses in thecredit portfolio. In addition to the periodic stress testingprocesses, management also considers additional stresses
outside these scenarios, as necessary. The Firm uses stresstesting to inform decisions on setting risk appetite both at a
Firm and LOB level, as well as to assess the impact of stresson industry concentrations.
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.
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. Historical and forecasted trends
are incorporated into the modeling of estimated consumer
credit losses and are part of the monitoring of the credit
risk profile of the portfolio. Under the Firm’s model risk
policy, new significant risk management models, as well as
major changes to such models, are required to be reviewed
and approved by the Model Review Group prior to
implementation into the operating environment. Internal
Audit also periodically tests the internal controls around themodeling process including the integrity of the data utilized.
For a discussion of the Model Review Group, see page 139.
For further discussion of consumer loans, see Note 14.

JPMorgan Chase & Co./2014 Annual Report

Wholesale credit risk is monitored regularly at an aggregate
portfolio, industry and individual client and counterparty
level with established concentration limits that are reviewed
and revised as deemed appropriate by management,
typically on an annual basis. Industry and counterparty
limits, as measured in terms of exposure and economic
credit risk capital, are subject to stress-based loss
constraints.
Management of the Firm’s wholesale credit risk exposure isaccomplished through a number of means, including:
•
•
•
•
•
•

Loan underwriting and credit approval process
Loan syndications and participations
Loan sales and securitizations
Credit derivatives
Master netting agreements
Collateral and other risk-reduction techniques

In addition to 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:••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.

111Management’s discussion and analysis
CREDIT PORTFOLIO
2014 Credit Risk Overview
In 2014, the consumer credit environment continued to
improve and the wholesale credit environment remained
favorable. Over the course of the year, the Firm continued
to actively manage its underperforming and nonaccrualloans and reduce such exposures through loan
restructurings, loan sales and workouts. The Firm saw
decreased downgrade, default and charge-off activity andimproved consumer delinquency trends. The Firm increased
its overall lending activity in both wholesale and consumer
businesses. The combination of these factors resulted in an
improvement in the credit quality of the portfolio comparedwith 2013 and contributed to the Firm’s reduction in theallowance for credit losses. For further discussion of theconsumer credit environment and consumer loans, seeConsumer Credit Portfolio on pages 113–119 and Note 14.
For further discussion of wholesale credit environment andwholesale loans, see Wholesale Credit Portfolio on pages
120–127 and Note 14.
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 and Note 4. For additional information on
the Firm’s loans and derivative receivables, including the
Firm’s accounting policies, see Note 14 and Note 6.
For further information regarding the credit risk inherent in
the Firm’s investment securities portfolio, see Note 12.

Total credit portfolio
Credit exposure

December 31,(in millions)
Loans retained

2014

Nonperforming(b)(c)(d)

2013

2014

$ 747,508 $ 724,177

$

2013

7,017 $

8,317

Loans held-for-sale

7,217

12,23095

26Loans at fair value

2,611

2,011

21

197

Total loans – reported

757,336

738,418

7,133

8,540

Derivative receivables

78,97565,759275

415

Receivables from
customers and other

29,08026,883——

Total credit-related
assets865,391

831,060

7,408

8,955

Real estate owned

NA

NA

515

710

Other

NA

NA

44

41

Assets acquired in loansatisfactions

Total assets acquired inloan satisfactions

NA

NA

559

751

865,391

831,060

7,967

9,706

Lending-related
commitments

1,056,172

1,031,672

103

206

Total credit portfolio$1,921,563 $1,862,732$

8,070 $

9,912

Credit Portfolio
Management derivatives
notional, net(a)

$

$

— $

(5)

NA

NA

Total assets

Liquid securities and othercash collateral held
against derivatives(26,703) $(27,996)(19,604)(14,435)

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

2014

Net charge-offs

$

4,759

2013
$

5,802

Average retained loans
Loans – reported

729,876

720,152

Loans – reported, excluding
residential real estate PCI loans

679,869

663,629

Net charge-off rates
Loans – reported

0.65%

0.81%

Loans – reported, excluding PCI

0.70

0.87

(a) Represents the net notional amount of protection purchased and sold throughcredit derivatives used to manage both performing and nonperforming wholesalecredit exposures; these derivatives do not qualify for hedge accounting under
U.S. GAAP. For additional information, see Credit derivatives on page 127 andNote 6.
(b) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as they are all performing.
(c) At December 31, 2014 and 2013, nonperforming assets excluded: (1) mortgage
loans insured by U.S. government agencies of $7.8 billion and $8.4 billion,
respectively, that are 90 or more days past due; (2) student loans insured by U.S.
government agencies under the FFELP of $367 million and $428 million,
respectively, that are 90 or more days past due; and (3) real estate owned(“REO”) insured by U.S. government agencies of $462 million and $2.0 billion,
respectively. These amounts have been excluded based upon the government
guarantee. In addition, the Firm’s policy is generally to exempt credit card loans
from being placed on nonaccrual status as permitted by regulatory guidanceissued by the Federal Financial Institutions Examination Council (“FFIEC”).
(d) At December 31, 2014 and 2013, total nonaccrual loans represented 0.94%
and 1.16%, respectively, of total loans.

112

JPMorgan Chase & Co./2014 Annual ReportCONSUMER CREDIT PORTFOLIO
guaranteed loans, declined from December 31, 2013.
Although late-stage delinquencies declined, they remain
elevated due to loss-mitigation activities and to elongatedforeclosure processing timelines. Losses related to theseloans continue to be recognized in accordance with the
Firm’s standard charge-off practices, but some delinquentloans that would otherwise have been foreclosed uponremain in the mortgage and home equity loan portfolios.
The Credit Card 30+ day delinquency rate remains near
historic lows.

The Firm’s consumer portfolio consists primarily of
residential real estate loans, credit card loans, auto loans,business banking loans, and student loans. The Firm’s focus
is on serving the prime segment of the consumer credit
market. For further information on consumer loans, seeNote 14.
The credit performance of the consumer portfolio continues
to benefit from the improvement in the economy and homeprices. Both early-stage delinquencies (30–89 days
delinquent) and late-stage delinquencies (150+ days
delinquent) for residential real estate, excluding government

The following table presents consumer credit-related information with respect to the credit portfolio held by CCB, prime
mortgage and home equity loans held by AM, and prime mortgage loans held by Corporate. For further information about the
Firm’s nonaccrual and charge-off accounting policies, see Note 14.
Consumer credit portfolio
Credit exposure

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

2014

Nonaccrual loans

2013

2014

Average annual net
charge-off/(recovery)rate(h)(i)Net charge-offs/(recoveries)(h)(f)(g)

2013

2014

2013

2014

2013

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

82 $

132

0.50%

0.72%

Home equity – junior lien$

36,37540,750

1,590

1,876

391

834

1.03

1.90

Prime mortgage, including option ARMs

104,921

87,162

2,190

2,666

39

59

0.04

0.07

Subprime mortgage

5,056

7,104

1,036

1,390

(27)

90

(0.43)

1.17

Auto(a)54,53652,757

115

161

181

158

0.34

0.31

Business banking

20,05818,951

279

385

305

337

1.58

1.81

Student and other

10,97011,557

270

86

347

297

3.07

2.51

248,283

235,394

6,418

7,496

1,318

1,907

0.55

0.82

Home equity

17,09518,927

NA

NA

NA

NA

NA

NA

Prime mortgage

10,22012,038

NA

NA

NA

NA

NA

NA

Subprime mortgage

3,673

4,175

NA

NA

NA

NA

NA

NA

Option ARMs

15,70817,915

NA

NA

NA

NA

NA

NA

Total loans – PCI

46,69653,055

NA

NA

NA

NA

NA

NA

Total loans – retained

294,979

288,449

6,418

7,496

1,318

1,907

0.46

0.66

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

16,367$

17,113

$

938 $

932

$

Loans – PCI

Loans held-for-sale

395

614

91

—

—

—

—

—

6,509

7,496

1,318

1,907

0.46

0.66

127,465

—

—

3,429

3,879

2.75

3.14

326

—

—

—

—

—

—

131,048

127,791

—

—

3,429

3,879

2.75

3.14

525,963

529,383(e)Total consumer, excluding credit card loans

295,374

289,063

Lending-related commitments(b)58,15356,057

Receivables from customers(c)

108

139

353,635

345,259

Loans retained(d)128,027

Loans held-for-sale

3,021

Total credit card loans
Lending-related commitments(b)Total consumer exposure, excluding credit card(e)

Credit Card

Total credit card exposure

657,011657,174

Total consumer credit portfolio$ 1,010,646$ 1,002,433$ 6,509 $7,496$ 4,747 $

5,786

1.15%

1.40%

Memo: Total consumer credit portfolio, excluding PCI$$$ 6,509 $7,496$ 4,747 $

5,786

1.30%

1.62%

963,950

949,378(a) At December 31, 2014 and 2013, excluded operating lease-related assets of $6.7 billion and $5.5 billion, respectively.
(b) Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, 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 as permitted by law, without notice.
(c) Receivables from customers represent margin loans to retail brokerage customers, and are included in accrued interest and accounts receivable on theConsolidated balance sheets.
JPMorgan Chase & Co./2014 Annual Report113Management’s discussion and analysis(d) Includes accrued interest and fees net of an allowance for the uncollectible portion of accrued interest and fee income.
(e) Predominantly represents prime mortgage loans held-for-sale.
(f) At December 31, 2014 and 2013, nonaccrual loans excluded: (1) mortgage loans insured by U.S. government agencies of $7.8 billion and $8.4 billion,
respectively, that are 90 or more days past due; and (2) student loans insured by U.S. government agencies under the FFELP of $367 million and $428
million, respectively, that are 90 or more days past due. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In
addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.
(g) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing.
(h) Net charge-offs and net charge-off rates excluded $533 million and $53 million of write-offs of prime mortgages in the PCI portfolio for the years ended
December 31, 2014 and 2013. These write-offs decreased the allowance for loan losses for PCI loans. See Allowance for Credit Losses on pages 128–130 for
further details.
(i) Average consumer loans held-for-sale were $917 million and $209 million, respectively, for the years ended December 31, 2014 and 2013. These amounts
were excluded when calculating net charge-off rates.

Consumer, excluding credit card
Portfolio analysis
Consumer loan balances increased during the year ended
December 31, 2014, due to prime mortgage, businessbanking and auto loan originations, partially offset by
paydowns and the charge-off or liquidation of delinquentloans. Credit performance has improved across mostportfolios but delinquent residential real estate loans andhome equity charge-offs remain elevated compared withpre-recessionary levels.
In the following discussion of loan and lending-related
categories, PCI loans are excluded from individual loan
product discussions and are addressed separately below.
For further information about the Firm’s consumer
portfolio, including information about delinquencies, loan
modifications and other credit quality indicators, seeNote 14.
Home equity: The home equity portfolio declined from
December 31, 2013 primarily reflecting loan paydowns andcharge-offs. Early-stage delinquencies showed improvementfrom December 31, 2013. Late-stage delinquencies
continue to be elevated as improvement in the number ofloans becoming severely delinquent was offset by a higher
number of loans remaining in late-stage delinquency due tohigher average carrying values on these delinquent loans,reflecting improving collateral values. Senior lien
nonaccrual loans were flat compared with the prior year
while junior lien nonaccrual loans decreased in 2014. Net
charge-offs for both senior and junior lien home equity
loans declined when compared with the prior year as aresult of improvement in home prices and delinquencies.
Approximately 15% 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
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 an
114

interest-only loan with a balloon payment at the end of theloan’s term.
The unpaid principal balance of non-PCI HELOCs
outstanding was $47 billion at December 31, 2014. Of the$47 billion, approximately $29 billion have recently recast
or are scheduled to recast from interest-only to fully
amortizing payments, with $3 billion having recast in 2014;$6 billion, $7 billion, and $6 billion are scheduled to recast
in 2015, 2016, and 2017, respectively; and $7 billion isscheduled to recast after 2017. However, of the total $26
billion still remaining to recast, $18 billion are expected toactually recast; and the remaining $8 billion represents
loans to borrowers who are expected either to pre-pay or
charge-off prior to recast. In the third quarter of 2014, theFirm refined its approach for estimating the number of
HELOCs expected to voluntarily pre-pay prior to recast.
Based on the refined methodology, the number of loans
expected to pre-pay declined, resulting in an increase in thenumber of loans expected to recast. The Firm has
considered this payment recast risk in its allowance for loan
losses based upon the estimated amount of payment shock(i.e., the excess of the fully-amortizing payment over theinterest-only payment in effect prior to recast) expected tooccur at the payment recast date, along with thecorresponding estimated probability of default and loss
severity assumptions. Certain factors, such as future
developments in both unemployment rates and homeprices, could have a significant impact on the performanceof these loans.
The Firm manages the risk of HELOCs during their revolving
period by closing or reducing the undrawn line to the extent
permitted by law when borrowers are exhibiting a material
deterioration in their credit risk profile. The Firm 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.
High-risk seconds are loans where the borrower has a firstmortgage loan that is either delinquent or has been
modified. Such loans are considered to pose a higher risk ofdefault than junior lien loans for which the senior lien isneither delinquent nor modified. At December 31, 2014,
the Firm estimated that its home equity portfolio contained
approximately $1.8 billion of current high-risk seconds,
compared with $2.3 billion at December 31, 2013. The
Firm estimates the balance of its total exposure to high-risk
seconds on a quarterly basis using internal data and loan
JPMorgan Chase & Co./2014 Annual Reportlevel 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 seconds
December 31, (in billions)

2014

2013

Junior liens subordinate to:Modified current senior lien$

0.7

Senior lien 30 – 89 days delinquent

0.5

Senior lien 90 days or more delinquent(a)0.6

Total current high-risk seconds

$

1.8

$

0.9
0.6
0.8

$

2.3

(a) Junior liens subordinate to senior liens that are 90 days or more past
due are classified as nonaccrual loans. At December 31, 2014 and2013, excluded approximately $50 million and approximately $100
million, respectively, of junior liens that are performing but not
current, which were placed on nonaccrual in accordance with theregulatory guidance.

Of the estimated $1.8 billion of current high-risk seconds at
December 31, 2014, the Firm owns approximately 10%
and services approximately 25% of the related senior lienloans 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: Prime mortgages, including option adjustablerate mortgages (“ARMs”) and loans held-for-sale, increased
from December 31, 2013 due to higher retained
originations partially offset by 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,
2013. Nonaccrual loans decreased from the prior year but
remain elevated primarily due to loss mitigation activities
and elongated foreclosure processing timelines. Net chargeoffs remain low, reflecting continued improvement in homeprices and delinquencies.
At December 31, 2014 and 2013, the Firm’s prime
mortgage portfolio included $12.4 billion and $14.3 billion,
respectively, of mortgage loans insured and/or guaranteedby U.S. government agencies, of which $9.7 billion and $9.6
billion, respectively, were 30 days or more past due (ofthese past due loans, $7.8 billion and $8.4 billion,
respectively, were 90 days or more past due). The Firm hasentered into a settlement regarding loans insured underfederal mortgage insurance programs overseen by the FHA,
HUD, and VA; the Firm will continue to monitor exposure on
future claim payments for government insured loans, but
any financial impact related to exposure on future claims is
not expected to be significant and was considered inestimating the allowance for loan losses. For further
discussion of the settlement, see Note 31.

JPMorgan Chase & Co./2014 Annual Report

At December 31, 2014 and 2013, the Firm’s prime
mortgage portfolio included $16.3 billion and $15.6 billion,
respectively, of interest-only loans, which represented 15%
and 18%, respectively, of the prime mortgage portfolio.
These loans have an interest-only payment period generally
followed by an adjustable-rate or fixed-rate fully amortizing
payment period to maturity and are typically originated as
higher-balance loans to higher-income borrowers. To date,losses on this portfolio generally have been consistent withthe broader prime mortgage portfolio and the Firm’s
expectations. The Firm continues to monitor the risks
associated with these loans.
Subprime mortgages continued to decrease due to portfolio
runoff. Early-stage and late-stage delinquencies have
improved from December 31, 2013, but remain at elevatedlevels. Net charge-offs continued to improve as a result of
improvement in home prices and delinquencies.
Auto: Auto loans increased from December 31, 2013 as
new originations outpaced paydowns and payoffs.
Nonaccrual loans improved compared with December 31,
2013. Net charge-offs for the year ended December 31,
2014 increased compared with the prior year, reflecting
higher average loss per default as national used car
valuations declined from historically strong levels. The auto
loan portfolio reflects a high concentration of prime-quality
credits.
Business banking: Business banking loans increased from
December 31, 2013 due to an increase in loan originations.
Nonaccrual loans improved compared with December 31,
2013. Net charge-offs for the year ended December 31,
2014 decreased from the prior year.
Student and other: Student and other loans decreased from
December 31, 2013 due primarily to the run-off of thestudent loan portfolio. Student nonaccrual loans increased
from December 31, 2013 due to a modification program
began in May 2014 that extended the deferment period for
up to 24 months for certain student loans, which resulted inextending the maturity of these loans at their originalcontractual interest rates.
Purchased credit-impaired loans: PCI loans acquired in the
Washington Mutual transaction decreased as the portfolio
continues to run off.
As of December 31, 2014, approximately 16% of theoption ARM PCI loans were delinquent and approximately
57% of the portfolio has been modified into fixed-rate, fully
amortizing loans. Substantially all of the remaining loans
are making amortizing payments, although such payments
are not necessarily fully amortizing. This latter group ofloans is subject to the risk of payment shock due to future
payment recast. Default rates generally increase on option
ARM loans when payment recast results in a payment
increase. The expected increase in default rates is
considered in the Firm’s quarterly impairment assessment.

115

Management’s discussion and analysis
The following table provides a summary of lifetime principal
loss estimates included in either the nonaccretabledifference or the allowance for loan losses.
Summary of lifetime principal loss estimates
December 31,(in billions)Home equity
Prime mortgage
Subprime mortgage
Option ARMs
Total

Lifetime loss
estimates(a)2014$ 14.63.8
3.3
9.9$ 31.62013$ 14.73.8
3.3
10.2$ 32.0LTD liquidation
losses(b)2014$ 12.43.5
2.8
9.3$ 28.02013$ 12.1
3.3
2.6
8.8$ 26.8(a) Includes the original nonaccretable difference established in purchaseaccounting of $30.5 billion for principal losses plus additional principal
losses recognized subsequent to acquisition through the provision andallowance for loan losses. The remaining nonaccretable difference forprincipal losses was $2.3 billion and $3.8 billion at December 31, 2014
and 2013, respectively.
(b) Life-to-date (“LTD”) liquidation losses represent both realization of loss
upon loan resolution and any principal forgiven upon modification.

Lifetime principal loss estimates declined from
December 31, 2013, to December 31, 2014, reflecting
improvement in home prices and delinquencies. The decline
in lifetime principal loss estimates during the year ended
December 31, 2014, resulted in a $300 million reduction of
the PCI allowance for loan losses related to option ARMloans. In addition, for the year ended December 31, 2014,
PCI write-offs of $533 million were recorded against theprime mortgage allowance for loan losses. For further
information on the Firm’s PCI loans, including write-offs, seeNote 14.

Geographic composition of residential real estate loans

At December 31, 2014, $94.3 billion, or 63% of total retained residential real estate loan portfolio, excluding mortgage loans
insured by U.S. government agencies and PCI loans, were concentrated in California, New York, Illinois, Florida and Texas,
compared with $85.9 billion, or 62%, at December 31, 2013. California had the greatest concentration of these loans with
26% at December 31, 2014, compared with 25% at December 31, 2013. The unpaid principal balance of PCI loans
concentrated in these five states represented 74% of total PCI loans at both December 31, 2014 and December 31, 2013. For
further information on the geographic composition of the Firm’s residential real estate loans, see Note 14.

Current estimated LTVs of residential real estateloans

The current estimated average loan-to-value (“LTV”) ratio
for residential real estate loans retained, excluding
mortgage loans insured by U.S. government agencies and
PCI loans, was 71% at December 31, 2014, compared with
75% at December 31, 2013.

116

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 greater equity inthe collateral. While a large portion of the loans withcurrent estimated LTV ratios greater than 100% continue
to pay and are current, the continued willingness and abilityof these borrowers to pay remains a risk.

JPMorgan Chase & Co./2014 Annual Report

The following table presents the current estimated LTV ratios for PCI loans, as well as the ratios of the carrying value of 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
2014
December 31,(in millions,
except ratios)
Home equity
Prime mortgage
Subprime mortgage
Option ARMs

Unpaidprincipal
balance$

17,740
10,2494,652
16,496

Current
estimated
LTV ratio(a)83% (b) $
76
82
74

Net
carrying
value(c)2013
Ratio of net
carrying value
to current estimatedcollateral value(c)15,337
9,027
3,493
15,514

72%
67
62
70

Unpaidprincipal
balance$

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

Net
carrying
value(c)17,16910,312
3,995
17,421

Ratio of net
carrying value
to current estimatedcollateral value(c)
78%
72
66
74

(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, 2014 and 2013 of $1.2 billion and $1.7 billion for prime mortgage, $194 million and $494 million for
option ARMs, respectively, and $1.8 billion for home equity and $180 million for subprime mortgage for both periods.

The current estimated average LTV ratios were 77% and
88% for California and Florida PCI loans, respectively, at
December 31, 2014, compared with 85% and 103%,
respectively, at December 31, 2013. Average LTV ratios
have declined consistent with recent improvements in homeprices. Although home prices have improved, home prices inmost areas of California and Florida are still lower than at
the peak of the housing market; this continues to negatively
contribute to current estimated average LTV ratios and theratio of net carrying value to current estimated collateralvalue for loans in the PCI portfolio. Of the total PCI portfolio,
15% had a current estimated LTV ratio greater than 100%,and 3% had a current LTV ratio of greater than 125% at
December 31, 2014, compared with 26% and 7%,
respectively, at December 31, 2013.
While the current estimated collateral value is greater than
the net carrying value of PCI loans, the ultimate
performance of this portfolio is highly dependent 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 current estimated LTVs ofresidential real estate loans, see Note 14.
Loan modification activities – residential real estate loans
The performance of modified loans generally differs by
product type due to differences in both the credit quality
and the types of modifications provided. Performance
metrics for the residential real estate portfolio, excluding
PCI loans, that have been modified and seasoned more thansix months show weighted-average redefault rates of 20%
for senior lien home equity, 22% for junior lien homeequity, 16% for prime mortgages including option ARMs,
and 29% for subprime mortgages. The cumulative
performance metrics for the PCI residential real estate
JPMorgan Chase & Co./2014 Annual Report

portfolio modified and seasoned more than six months
show weighted average redefault rates of 20% for homeequity, 17% for prime mortgages, 15% for option ARMs
and 32% for subprime mortgages. The favorable
performance of the PCI option ARM modifications is theresult of a targeted proactive program which fixed theborrower’s payment to the amount at the point ofmodification. The cumulative redefault rates reflect theperformance of modifications completed under both theHome Affordable Modification Program (“HAMP”) and the
Firm’s proprietary modification programs (primarily the
Firm’s modification program that was modeled after HAMP)
from October 1, 2009, through December 31, 2014.
Certain loans that were modified under HAMP and the
Firm’s proprietary modification programs have interest rate
reset provisions (“step-rate modifications”). Interest rates
on these loans will generally increase beginning in 2014 by
1% per year until the rate reaches a specified cap, typicallyat a prevailing market interest rate for a fixed-rate loan asof the modification date. The carrying value of non-PCI
loans modified in step-rate modifications was $5 billion at
December 31, 2014, with $1 billion scheduled toexperience the initial interest rate increase in each of 2015
and 2016. The unpaid principal balance of PCI loans
modified in step-rate modifications was $10 billion at
December 31, 2014, with $2 billion and $3 billion
scheduled to experience the initial interest rate increase in2015 and 2016, respectively. The impact of these potential
interest rate increases is considered in the Firm’s allowance
for loan losses. The Firm will continue to monitor this risk
exposure to ensure that it is appropriately considered in the
Firm’s allowance for loan losses.

117

Management’s discussion and analysis
The following table presents information as ofDecember 31, 2014 and 2013, relating to modified
retained residential real estate loans for which concessions
have been granted to borrowers experiencing financial
difficulty. Modifications of PCI loans continue to 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 modifications for theyears ended December 31, 2014 and 2013, see Note 14.
Modified residential real estate loans
2014
December 31,(in millions)On–balance
sheet
loans

2013

Nonaccrualon–balancesheetloans(d)On–balance
sheet
loans

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

$ 1,101 $628$ 1,146 $641

Home equity –junior lien

1,304

632

1,319

666

Prime mortgage,including option
ARMs

6,145

1,559

7,004

1,737

Subprime mortgage

2,878

931

3,698

1,127

Total modified
residential realestate loans,
excluding PCI
loans$ 11,428 $3,750$ 13,167 $4,171$ 2,580NA$ 2,619

NA

6,309

NA

6,977

NA

Subprime mortgage

3,647

NA

4,168

NA

Option ARMs

11,711NA

13,131NA$ 24,247NA$ 26,895

NA

Modified PCI loans(c)Home equity
Prime mortgage

Total modified PCI
loans(a) Amounts represent the carrying value of modified residential realestate loans.
(b) At December 31, 2014 and 2013, $4.9 billion and $7.6 billion,
respectively, of loans modified subsequent to repurchase from Ginnie
Mae in accordance with the standards of the appropriate government
agency (i.e., FHA, VA, RHS) are not included in the table above. Whensuch 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 toforeclosure. For additional information about sales of loans insecuritization transactions with Ginnie Mae, see Note 16.
(c) Amounts represent the unpaid principal balance of modified PCI loans.
(d) As of December 31, 2014 and 2013, nonaccrual loans included $2.9
billion and $3.0 billion, respectively, of TDRs for which the borrowers
were less than 90 days past due. For additional information aboutloans modified in a TDR that are on nonaccrual status, see Note 14.

Nonperforming assets
The following table presents information as ofDecember 31, 2014 and 2013, about consumer, excluding
credit card, nonperforming assets.

118

Nonperforming assets(a)December 31, (in millions)Nonaccrual loans(b)Residential real estate
Other consumer
Total nonaccrual loans
Assets acquired in loan satisfactions
Real estate owned
Other
Total assets acquired in loan satisfactions
Total nonperforming assets

2014$ 5,845
664
6,509
437
36
473
$ 6,982

2013
$

$

6,864
632
7,496
614
41
655
8,151

(a) At December 31, 2014 and 2013, nonperforming assets excluded: (1)mortgage loans insured by U.S. government agencies of $7.8 billion
and $8.4 billion, respectively, that are 90 or more days past due; (2)student loans insured by U.S. government agencies under the FFELP of$367 million and $428 million, respectively, that are 90 or more days
past due; and (3) real estate owned insured by U.S. government
agencies of $462 million and $2.0 billion, respectively. These amounts
have been excluded based upon the government guarantee.
(b) Excludes PCI loans that were acquired as part of the Washington
Mutual transaction, which are accounted for on a pool basis. Since
each pool is accounted for as a single asset with a single composite
interest rate and an aggregate expectation of cash flows, the past-due
status of the pools, or that of individual loans within the pools, is notmeaningful. Because the Firm is recognizing interest income on eachpool of loans, they are all considered to be performing.

Nonaccrual loans in the residential real estate portfolio
totaled $5.8 billion and $6.9 billion at December 31, 2014and December 31, 2013, respectively, of which 32% and34%, respectively, were greater than 150 days past due. In
the aggregate, the unpaid principal balance of residential
real estate loans greater than 150 days past due wascharged down by approximately 50% to the estimated net
realizable value of the collateral at both December 31,
2014 and 2013. The elongated foreclosure processing
timelines are expected to continue to result in elevatedlevels of nonaccrual loans in the residential real estate
portfolios.
Active and suspended foreclosure: For information onloans that were in the process of active or suspended
foreclosure, see Note 14.
Nonaccrual loans: The following table presents changes in
the consumer, excluding credit card, nonaccrual loans forthe years ended December 31, 2014 and 2013.
Nonaccrual loans
Year ended December 31,(in millions)
Beginning balance
Additions
Reductions:
Principal payments and other(a)Charge-offs
Returned to performing status
Foreclosures and other liquidations
Total reductions
Net additions/(reductions)Ending balance

$

$

2014
2013
7,496 $
9,174
4,905
6,618
1,859
1,306
2,083
644
5,892
(987)
6,509 $

1,559
1,869
3,793
1,075
8,296
(1,678)7,496(a) Other reductions includes loan sales.

JPMorgan Chase & Co./2014 Annual ReportCredit Card

Loans outstanding in the top five states of California, Texas,
New York, Illinois and Florida consisted of $54.9 billion inreceivables, or 43% of the retained loan portfolio, at
December 31, 2014, compared with $52.7 billion, or 41%,
at December 31, 2013. The greatest geographic
concentration of credit card retained loans is in California,
which represented 14% and 13% of total retained loans at
December 31, 2014 and 2013, respectively. For further
information on the geographic composition of the Firm’s
credit card loans, see Note 14.

Modifications of credit card loans
At December 31, 2014 and 2013, the Firm had $2.0 billion
and $3.1 billion, respectively, of credit card loans
outstanding that have been modified in TDRs. 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, 2013, was attributable to a
reduction in new modifications as well as ongoing payments
and charge-offs on previously modified credit card loans.

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.

Total credit card loans increased from December 31, 2013
due to higher new account originations and increased credit
card sales volume. The 30+ day delinquency rate decreased
to 1.44% at December 31, 2014, from 1.67% at
December 31, 2013. For the years ended December 31,
2014 and 2013, the net charge-off rates were 2.75% and3.14%, respectively. Charge-offs have improved comparedwith a year ago as a result of improvement in delinquentloans. The credit card portfolio continues to reflect a wellseasoned, largely rewards-based portfolio that has good
U.S. geographic diversification.

JPMorgan Chase & Co./2014 Annual Report

For additional information about loan modification
programs to borrowers, see Note 14.

119Management’s discussion and analysis
WHOLESALE CREDIT PORTFOLIOThe Firm’s wholesale businesses are exposed to credit risk
through underwriting, lending and trading activities withand for clients and counterparties, as well as throughvarious operating services such as cash management andclearing activities. A portion of the loans originated or
acquired by the Firm’s wholesale businesses is generally
retained on the balance sheet. The Firm distributes asignificant percentage of the loans it originates into themarket as part of its syndicated loan business and to
manage portfolio concentrations and credit risk.
The wholesale credit environment remained favorable
throughout 2014 driving an increase in client activity.
Growth in loans retained was driven primarily by activity inCommercial Banking, while growth in lending-related
commitments reflected increased activity in both the
Corporate & Investment Bank and Commercial Banking.
Discipline in underwriting across all areas of lending
continues to remain a key point of focus, consistent withevolving market conditions and the Firm’s risk management
activities. The wholesale portfolio is actively managed, inpart by conducting ongoing, in-depth reviews of client credit
quality and transaction structure, inclusive of collateral
where applicable; and of industry, product and client
concentrations. During the year, wholesale criticized assets
decreased from 2013, including a reduction in nonaccrualloans by 40%.

120

Wholesale credit portfolio
December 31,(in millions)
Loans retained
Loans held-for-sale

Credit exposure
2014

2013

$324,502 $308,263
3,801

Nonperforming(d)2014$

11,290

2013

599 $

821

4

26

Loans at fair value

2,611

2,011

21

197

Loans – reported

330,914321,564

624

1,044

Derivative receivables

78,97565,759275

415

Receivables from
customers and other(a)28,972

26,744——

Total wholesale creditrelated assets

438,861

414,067

899

1,459

Lending-related
commitments(b)472,056446,232

103

206

Total wholesale credit
exposure$910,917 $860,299$ 1,002 $ 1,665

Credit Portfolio
Management derivatives
notional, net(c)$ (26,703) $ (27,996) $

— $

(5)

Liquid securities andother cash collateral
held against derivatives

NANA(19,604)(14,435)(a) Receivables from customers and other include $28.8 billion and $26.5
billion of margin loans at December 31, 2014 and 2013, respectively,
to prime and retail brokerage customers; these are classified in
accrued interest and accounts receivable on the Consolidated balance
sheets.
(b) Includes unused advised lines of credit of $105.2 billion and $102.0
billion as of December 31, 2014 and 2013, respectively. An advisedline of credit is a revolving credit line which specifies the maximum
amount the Firm may make available to an obligor, on a nonbinding
basis. The borrower receives written or oral advice of this facility. The
Firm may cancel this facility at any time by providing the borrower
notice or, in some cases, without notice as permitted by law.
(c) Represents the net notional amount of protection purchased and soldthrough credit derivatives used to manage both performing andnonperforming wholesale credit exposures; these derivatives do not
qualify for hedge accounting under U.S. GAAP. For additional
information, see Credit derivatives on page 127, and Note 6.
(d) Excludes assets acquired in loan satisfactions.

JPMorgan Chase & Co./2014 Annual Report

The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of December 31, 2014 and2013. 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)(in millions, except ratios)

Due after 1
year
Due in 1
through 5
year or lessyears

Loans retained$ 112,411 $ 134,277 $December 31, 2014

Due after 5
years

Ratings profile

Total

77,814 $ 324,502

Derivative receivables$

Investmentgrade

Noninvestment-grade

AAA/Aaa to
BBB-/Baa3

BB+/Ba1 &
below

241,666$

Total

82,836$ 324,502

78,975

Less: Liquid securities and other cash collateral
held against derivatives

Total %
of IG
74%

78,975(19,604)(19,604)

Total derivative receivables, net of all collateral

20,032

16,13023,20959,371

52,1507,221

59,371

88

Lending-related commitments

185,451

276,793

9,812

472,056

379,214

92,842472,05680

Subtotal

317,894

427,200

110,835

855,929

673,030

182,899855,929

79

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

6,412

6,412

Receivables from customers and other

28,972

28,972$ 891,313$ 891,313

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)$(2,050) $ (18,653) $(6,000) $ (26,703)$(23,571)$

Maturity profile(e)December 31, 2013

Due after 1
year
through 5
years(in millions, except ratios)

Due in 1
year or lessDue after 5
years

Loans retained$ 108,392 $ 124,111 $$ (26,703)

Total
$

Investmentgrade

Noninvestmentgrade

AAA/Aaa to
BBB-/Baa3

BB+/Ba1 &
below

226,070$

Total

82,193$ 308,263

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

88%

Ratings profile

75,760 $ 308,263

Derivative receivables(3,132)

Total %
of IG
73%

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

Total derivative receivables, net of all collateral

13,55015,935

21,83951,324

41,104

10,22051,324

80

Lending-related commitments

179,301

255,426

11,505446,232

353,974

92,258446,232

79

Subtotal

301,243

395,472

109,104

805,819

621,148

184,671805,819

77

(f)

(f)

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)$(24,649)$(3,347)$ (27,996)

88%(a) Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value.
(b) These derivatives do not quality for hedge accounting under U.S. GAAP.
(c) The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference entity on which
protection has been purchased.
(d) 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.
(e) The maturity profile of retained loans, lending-related commitments and derivative receivables is based on remaining contractual maturity. Derivative contracts that are in a
receivable position at December 31, 2014, may become a payable prior to maturity based on their cash flow profile or changes in market conditions.
(f) The prior period amounts have been revised to conform with the current period 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 16% to $10.2 billion at December 31, 2014,
from $12.2 billion at December 31, 2013.
JPMorgan Chase & Co./2014 Annual Report121Management’s discussion and analysis
Below are summaries of the top 25 industry exposures as of December 31, 2014 and 2013. For additional information on industry
concentrations, see Note 5.
Selected metrics
Noninvestment-grade

As of or for the year ended December
31, 2014(in millions)Creditexposure(d)Investmentgrade

Noncriticized

Criticized
performing

Criticized
nonperforming

30 days ormore past
due andaccruing
loans

Net chargeoffs/(recoveries)

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

Top 25 industries(a)Real Estate

107,386 $

80,219 $25,558 $1,356 $

253 $

309 $

(9) $

Banks & Finance Cos$

68,20358,360

9,266

508

69

46

(4)

Healthcare

57,70749,361

7,816

488

42

193

Oil & Gas

48,31533,547

14,68582

1

15Consumer Products

37,81826,07011,081650

17

Asset Managers

36,37431,880

4,436

57

1

State & Municipal Govt(b)31,85830,919837

102

Retail & Consumer Services

28,25818,233

9,023

971

Utilities

28,06024,058

3,747

255

Central Govt

21,081

20,868155

58

Technology

20,977

13,7596,557

Machinery & Equipment Mfg

20,57312,094

8,229

Transportation

16,365

11,444

4,835

86

Business Services

16,201

8,450

7,512

224

Metals/Mining

15,911

8,845

6,562

504

Media

14,534

9,131

5,107

266

Building Materials/Construction

13,672

6,721

6,271

Insurance

13,637

10,7902,605

Automotive

13,586

8,647

Chemicals/Plastics

13,5459,800

Telecom Services

13,136

Securities Firms & Exchanges

8,936

Agriculture/Paper Mfg
Aerospace/Defense(36) $(27)(1,232)(9,369)

17

(94)

(244)

2

(144)

(161)

21

—

(20)

(2)

38

(12)

(9)

(4,545)

—

69

24

(148)

(130)

31

56

4

(47)

(1)

—

198

(3)

(155)

(193)

—

—

—

(11,297)(1,071)

641

20

24

(3)

(225)

—

250

—

5

(2)

(157)

(19)

—

5

(3)

(34)

(107)

15

10

5

(9)

—

—

—

18

(377)

(19)

30

1

(1)

(69)

(6)

674

6

12

2

(104)

—

80

162

—

—

(52)

(2,372)

4,778

161

—

1

(1)

(140)

—

3,716

29

—

1

(2)

(14)

—

8,277

4,303

546

10

—

(2)

(813)

(6)

6,198

2,726

10

2

20

4

(102)

(216)

7,242

4,890

2,224

122

6

36

(1)

(4)

(4)

6,070

5,088

958

24

—

—

—

(71)

—

Leisure

5,562

2,937

2,023

478

124

6

—

(5)

(23)

All other(c)210,526

190,135

19,581

622

188

1,235

(21)

(11,345)(1,089)875,533 $690,721 $174,591 $9,244 $

977 $

2,301 $

12 $ (26,703) $Subtotal$

Loans held-for-sale and loans at fair
value

6,412

Receivables from customers and other

28,972

Total

122

$

(19,604)

910,917

JPMorgan Chase & Co./2014 Annual ReportSelected metrics
Noninvestment-grade

As of or for the year ended
December 31, 2013
(in millions)CreditInvestmentexposure(d)grade

Noncriticized

Criticized
performing

$

$

$

Criticized
nonperforming

30 days ormore past
due andaccruing
loans

Net chargeoffs/(recoveries)

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

Top 25 industries(a)Real Estate

87,102 $62,964

Banks & Finance Cos

66,881

56,675

Healthcare

45,910

Oil & Gas

46,934

Consumer Products
Asset Managers

21,5052,286 $

347 $

178 $

9,707

431

68

14

37,635

7,952

317

6

34,708

11,779436

1134,145

21,10012,505537

33,50626,991

6,477

38

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

826

157

120

Retail & Consumer Services

25,068

16,101

8,453

492

22

Utilities

28,98325,521

3,045

411

Central Govt

21,04920,633345

71

Technology

21,403

13,787

6,771

825

20

Machinery & Equipment Mfg

19,078

11,154

7,549

368

7

Transportation

13,975

9,683

4,165

100

27

Business Services

14,601

7,838

6,447

286

30

Metals/Mining

17,434

9,266

7,508

594

Media

13,858

7,783

5,658

315

Building Materials/Construction

12,901

5,701

6,354

839

7

Insurance

13,761

10,681

2,757

84

239

Automotive

12,532

7,881

4,490

159

Chemicals/Plastics

10,637

7,189

3,211

222

Telecom Services

13,906

9,130

482

10

—

7

(272)

(8)

Securities Firms & Exchanges

10,035

4,208

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)

4,284
5,806

(f)

(f)

6 $

(66) $

(125)

(22)

(2,692)(6,227)

49

3

(198)

(195)

34

13

(227)

(67)

3

4

11

(149)

(1)

—

217

(7)

(5)

(3,191)

40

1

(161)

(144)

6

—

(91)

—

6

2

28

(445)

(306)

—

—

—

(10,088)(1,541)

—

—

(512)

—

20

(18)

(257)

(8)

10

8

(68)

—

9

10

(10)

(2)

66

1

16

(621)

(36)

102

6

36

(26)

(5)

15

3

(132)

—

—

(2)

(98)

(1,935)

2

3

(3)

(472)

—

15

—

—

(13)

(83)

Leisure

5,331

2,950

1,797

495

89

5

—

(10)

(14)

All other(c)201,298

180,460

19,911

692

235

1,249

(6)

(7,068)(367)

10,733 $1,442 $

1,894 $

16 $ (27,996) $Subtotal
Loans held-for-sale and loans at fairvalue
Receivables from customers and otherTotal$ 820,254 $ 634,287$

173,792$(14,435)

13,301
26,744$ 860,299(a) The industry rankings presented in the table as of December 31, 2013, are based on the industry rankings of the corresponding exposures at
December 31, 2014, not actual rankings of such exposures at December 31, 2013.
(b) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2014 and 2013, noted above, theFirm held: $10.6 billion and $7.9 billion, respectively, of trading securities; $30.1 billion and $29.5 billion, respectively, of AFS securities; and $10.2
billion and $920 million, respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, see Note 3 and Note 12.
(c) All other includes: individuals, private education and civic organizations; SPEs; and holding companies, representing approximately 68%, 21% and 5%,
respectively, at December 31, 2014, and 64%, 22% and 5%, respectively, at December 31, 2013.
(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) 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.
(f) The prior period amounts have been revised to conform with the current period presentation.

JPMorgan Chase & Co./2014 Annual Report123Management’s discussion and analysis
Presented below is a discussion of several industries towhich the Firm has significant exposure and/or present
actual or potential credit concerns. The Firm is actively
monitoring these exposures. For additional information,refer to the tables on the previous pages.
Real Estate: Exposure to this industry increased by$20.3 billion or 23%, in 2014 to $107.4 billion. The
increase was largely driven by growth in multifamily
exposure in the CB. The credit quality of this industry
improved as the investment-grade portion of the
exposures to this industry increased to 75% in 2014
from 72% in 2013. The ratio of nonaccrual retainedloans to total retained loans decreased to 0.32% at
December 31, 2014 from 0.50% at December 31,
2013. For further information on commercial real estateloans, see Note 14.

••

Oil & Gas: Exposure to this industry increased by $1.4
billion in 2014 to $48.3 billion, of which $15.6 billion
was drawn at year-end. The portfolio largely consisted of
exposure in North America, and was concentrated in the
Exploration and Production subsector. The Oil & Gas
portfolio was comprised of 69% investment-grade
exposure, and was approximately 5% of the Firm’s total
wholesale credit exposure as of December 31, 2014.
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.
The Firm actively manages its wholesale credit exposure.
One way of managing credit risk is through secondary
market sales of loans and lending-related commitments.
During the years ended December 31, 2014 and 2013, theFirm sold $22.8 billion and $16.3 billion, respectively, ofloans and lending-related commitments.

124

The following table presents the change in the nonaccrualloan portfolio for the years ended December 31, 2014 and2013.
Wholesale nonaccrual loan activity
Year ended December 31, (in millions)
Beginning balance

2014
$

2013

1,044 $

1,717

882

1,293

Paydowns and other

756

1,075

Gross charge-offs

148

241

Returned to performing status

303

279

Sales

95

371

Total reductions

1,302

1,966

Net reductions

(420)

(673)

624 $

1,044

Additions
Reductions:Ending balance$

The following table presents net charge-offs, which aredefined as gross charge-offs less recoveries, for the years
ended December 31, 2014 and 2013. The amounts in thetable below do not include gains or losses from sales of
nonaccrual loans.
Wholesale net charge-offs
Year ended December 31,(in millions, except ratios)

2014

2013

$ 316,060$ 307,340

Loans – reported
Average loans retained
Gross charge-offs

151

241

Gross recoveries

(139)

(225)

Net charge-offs

12

16

Net charge-off rate

—%

0.01%

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.

JPMorgan Chase & Co./2014 Annual Report

Lending-related commitments
The Firm uses lending-related financial instruments, such ascommitments (including revolving credit facilities) andguarantees, to meet the financing needs of its customers.
The contractual amounts of these financial instruments
represent the maximum possible credit risk should thecounterparties draw down on these commitments or the
Firm fulfills its obligations under these guarantees, and thecounterparties subsequently fail to perform according to
the terms of these contracts.

The following table summarizes the net derivative
receivables for the periods presented.

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 $229.6 billion and $218.9 billion
as of December 31, 2014 and 2013, respectively.
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.
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 OTC derivatives theFirm is exposed to the credit risk of the derivative
counterparty. For exchange-traded derivatives (“ETD”) suchas futures and options, and “cleared” over-the-counter(“OTC-cleared”) derivatives, the Firm is generally exposedto the credit risk of the relevant CCP. Where possible, theFirm seeks to mitigate its credit risk exposures arising fromderivative transactions through the use of legally
enforceable master netting arrangements and collateralagreements. For further discussion of derivative contracts,
counterparties and settlement types, see Note 6.

JPMorgan Chase & Co./2014 Annual Report

Derivative receivables
December 31, (in millions)Interest rate

2014
$

2013

33,725 $25,782Credit derivatives

1,838

1,516

Foreign exchange

21,253

16,790Equity8,17712,227

Commodity

13,982

9,444

Total, net of cash collateral

78,97565,759(19,604)(14,435)

59,371 $

51,324

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

Derivative receivables reported on the Consolidated balance
sheets were $79.0 billion and $65.8 billion at
December 31, 2014 and 2013, respectively. These amounts
represent the fair value of the derivative contracts, after
giving effect to legally enforceable master netting
agreements and cash collateral held by the Firm. However,in management’s view, the appropriate measure of current
credit risk should also take into consideration additionalliquid securities (primarily U.S. government and agency
securities and other G7 government bonds) and other cash
collateral held by the Firm aggregating $19.6 billion and$14.4 billion at December 31, 2014 and 2013,
respectively, that may be used as security when the 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. Although this collateral does not
reduce the balances and is not included in the table above,it is available as security against potential exposure that
could arise should the fair value of the client’s derivativetransactions move in the Firm’s favor. As of December 31,
2014 and 2013, the Firm held $48.6 billion and $50.8
billion, respectively, of this additional collateral. The priorperiod amount has been revised to conform with thecurrent period presentation. The derivative receivables fairvalue, 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.

125

Management’s discussion and analysis
While useful as a current view of credit exposure, the net
fair value of the derivative receivables does not capture thepotential future variability of that credit exposure. To
capture the potential future variability of credit exposure,
the Firm calculates, on a client-by-client basis, threemeasures of potential derivatives-related credit loss: Peak,
Derivative Risk Equivalent (“DRE”), and Average exposure(“AVG”). These measures all incorporate netting andcollateral benefits, where applicable.
Peak 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.
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 $37.5 billion and $35.4 billion at
December 31, 2014 and 2013, respectively, compared with
derivative receivables, net of all collateral, of $59.4 billion
and $51.3 billion at December 31, 2014 and 2013,
respectively.

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 to theFirm’s current derivatives portfolio over the next 10 years
as calculated by the DRE and AVG metrics. The two
measures generally show that exposure will decline after
the first year, if no new trades are added to the portfolio.

The following table summarizes the ratings profile by derivative counterparty of the Firm’s derivative receivables, including credit
derivatives, net of other liquid securities collateral, for the dates indicated. The ratings scale is based on the Firm’s internal ratings,
which generally correspond to the ratings as defined by S&P and Moody’s.
Ratings profile of derivative receivables
Rating equivalent

2014

December 31,(in millions, except ratios)

Exposure net of
all collateral

AAA/Aaa to AA-/Aa3$

2013(a)% of exposure
net of all
collateral

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

19,20232% $

12,953

25%

A+/A1 to A-/A3

13,94024

12,93025

BBB+/Baa1 to BBB-/Baa3

19,00832

15,22030

BB+/Ba1 to B-/B3

6,384

11

6,806

13

837

1

3,415

7

59,371

100% $

51,324100%

CCC+/Caa1 and below
Total

$

(a) The prior period amounts have been revised to conform with the current period presentation.

126

JPMorgan Chase & Co./2014 Annual ReportAs previously noted, 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 88% as of December 31, 2014,
largely unchanged compared with 86% as of December 31,
2013.
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.
Credit portfolio management activities
Included in the Firm’s end-user activities are credit
derivatives used to mitigate the credit risk associated withtraditional lending activities (loans and unfunded
commitments) and derivatives counterparty exposure in the
Firm’s wholesale businesses (collectively, “credit portfolio
management” activities). Information on credit portfolio
management activities is provided in the table below. For
further information on derivatives used in credit portfolio
management activities, see Credit derivatives in Note 6.
The Firm also uses credit derivatives as an end-user tomanage other exposures, including credit risk arising fromcertain securities held in the Firm’s market-making
businesses. These credit derivatives are not included in
credit portfolio management activities; for further
information on these credit derivatives as well as credit
derivatives used in the Firm’s capacity as a market maker incredit derivatives, see Credit derivatives in Note 6.

JPMorgan Chase & Co./2014 Annual Report

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

2014

2013

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

$

2,047

$

2,764

24,65625,32826,70328,092—

96

26,703$27,996(a) Amounts are presented net, considering the Firm’s net protection
purchased or sold with respect to each underlying reference entity or index.

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.
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); the contractual
terms of the CDS (which may have a defined credit eventthat does not align with an actual loss realized by the Firm);
and the maturity of the Firm’s CDS protection (which insome cases may be shorter than the Firm’s exposures).
However, the Firm generally seeks to purchase credit
protection with a maturity date that is the same or similar
to the maturity date of the exposure for which theprotection was purchased, and remaining differences inmaturity are actively monitored and managed by the Firm.

127

Management’s discussion and analysis
ALLOWANCE FOR CREDIT LOSSES
JPMorgan Chase’s allowance for loan losses covers both 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 161–165 and Note 15.
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 DRPC and Audit Committees of the Board of Directors of
the Firm. As of December 31, 2014, JPMorgan Chase
deemed the allowance for credit losses to be appropriate
and sufficient to absorb probable credit losses inherent in
the portfolio.
The allowance for credit losses was $14.8 billion at
December 31, 2014, a decrease of $2.2 billion from $17.0
billion at December 31, 2013.

128

The consumer, excluding credit card, allowance for loan
losses reflected a reduction from December 31, 2013,
primarily due to the continued improvement in home prices
and delinquencies in the residential real estate portfolio
and the run-off of the student loan portfolio. For additional
information about delinquencies and nonaccrual loans in
the consumer, excluding credit card, loan portfolio, seeConsumer Credit Portfolio on pages 113–119 and Note 14.
The credit card allowance for loan losses reflected a
reduction from December 31, 2013, primarily related to adecrease in the asset-specific allowance resulting fromincreased granularity of the impairment estimates andlower balances related to credit card loans modified in
TDRs. For additional information about delinquencies in thecredit card loan portfolio, see Consumer Credit Portfolio on
pages 113–119 and Note 14.
The wholesale allowance for credit losses decreased from
December 31, 2013, reflecting a continued favorable credit
environment as evidenced by low charge-off rates, anddeclining nonaccrual balances and other portfolio activity.

JPMorgan Chase & Co./2014 Annual ReportSummary of changes in the allowance for credit losses
2014
Year ended December 31,(in millions, except ratios)

2013

Consumer,
excludingcredit card

Credit card

Wholesale

$

$

$

Total

Consumer,
excludingcredit card

Credit card

Wholesale

$

$

Total

Allowance for loan losses
Beginning balance at January 1,

16,264$ 12,292

Gross charge-offs

8,456
2,132

3,795
3,831

4,013
151

$

6,114

2,754

5,501
4,472

4,143
241

$ 21,936
7,467

Gross recoveries

(814)

(402)

(139)

(1,355)

(847)

(593)

(225)

(1,665)

Net charge-offs

5,802

1,318

3,429

12

4,759

1,907

3,879

16

Write-offs of PCI loans(a)

533

—

—

533

53

—

—

53

Provision for loan losses

414

3,079

(269)

3,224

(1,872)

2,179

(119)

188

Other
Ending balance at December 31,

31
$

(6)

7,050

$

539

$

(36)

3,439

$

500

$

(11)

(4)

3,696

$

14,185

$

87

$

1,126

$

(6)

8,456

$

601

$

3,795

$

971

$

5

(5)

4,013

$ 16,264

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

3,186

PCI
Total allowance for loan losses

2,939

3,325

3,609

—

9,734

—

3,697

3,325

2,824

4,158

181

$

3,832

—

1,753
10,353

—

4,158

$

7,050

$

3,439

$

3,696

$

14,185

$

8,456

$

3,795

$

4,013

$ 16,264

$

8

$

—

$

697

$

705

$

7

$

—

$

661

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

5

—

(90)

(85)

1

—

36

Other

—

—

2

2

—

—

—

Ending balance at December 31,

$

13

$

—

$

—

$

—

$

609

$

60

$

622

$

8

$

—

$

60

$

—

$

—

$

$

668
37
—

697

$

60

$

705

Impairment methodology
Asset-specific$

Formula-based

13

—

549

562

8

—

637

60
645

Total allowance for lending-related
commitments(c)

$

13

$

—

$

609

$

622

$

8

$

—

$

697

Total allowance for credit losses

$

7,063

$

3,439

$

4,305

$

14,807

$

8,464

$

3,795

$

4,710

$ 16,969

$

705

Memo:
Retained loans, end of period$ 294,979$ 128,027$ 324,502$ 747,508$ 288,449$ 127,465$ 308,263$ 724,177

Retained loans, average289,212

124,604

316,060

729,876

289,294

123,518

307,340

720,152

PCI loans, end of period

46,696—

4

46,70053,055—

6

53,061Credit ratios
Allowance for loan losses to retained loans

2.39%

2.69%

1.14%

1.90%

2.93%

2.98%

1.30%

2.25%

Allowance for loan losses to retained nonaccrualloans(d)

110

NM

617

202

113

NM

489

196

Allowance for loan losses to retained nonaccrualloans excluding credit card

110

NM

617

153

113

NM

489

150

Net charge-off rates

0.46

2.75

—

0.65

0.66

3.14

0.01

0.81

Allowance for loan losses toretained loans

1.50

2.69

1.14

1.55

1.83

2.98

1.30

1.80

Allowance for loan losses toretained nonaccrual loans(d)

58

NM

617

155

57

NM

489

146

58

NM

617

0.55%

2.75%

Credit ratios, excluding residential real estate
PCI loans

Allowance for loan losses toretained nonaccrual loans excluding credit
card
Net charge-off rates

—%

106

57

NM

489

100

0.70%

0.82%

3.14%

0.01%

0.87%

Note: In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures. For additional information, see
Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 77–78.
(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. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g.,
upon liquidation). During the fourth quarter of 2014, the Firm recorded a $291 million adjustment to reduce the PCI allowance and the recorded
investment in the Firm’s PCI loan portfolio, primarily reflecting the cumulative effect of interest forgiveness modifications. This adjustment had no impact
to the Firm’s Consolidated statements of income.
(b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
(c) The allowance for lending-related commitments is reported in other liabilities on the Consolidated balance sheets.
(d) 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./2014 Annual Report129Management’s discussion and analysis
Provision for credit losses
For the year ended December 31, 2014, the provision for
credit losses was $3.1 billion, compared with $225 million
for the year ended December 31, 2013.

reduction in the allowance for loan losses, as noted above in
the Allowance for Credit Losses discussion, which was lower
than the $1.7 billion reduction in the prior year. The lower
allowance reduction was partially offset by lower net
charge-offs in 2014.

The increase in consumer, excluding credit card, provision
for credit losses for the year ended December 31, 2014reflected a $904 million reduction in the allowance for loan
losses, as noted above in the Allowance for Credit Losses
discussion, which was lower than the $3.8 billion reductionin the prior year. The lower allowance reduction waspartially offset by lower net charge-offs in 2014.

The wholesale provision for credit losses for the year ended
December 31, 2014 reflected a continued favorable credit
environment as evidenced by low charge-off rates, anddeclining nonaccrual balances and other portfolio activity.
For further information on the provision for credit losses,
see the Consolidated Results of Operations on pages 68–71.

The increase in credit card provision for credit losses for theyear ended December 31, 2014 reflected a $350 million
Year ended December 31,

Provision for loan losses(in millions)2014

Consumer, excluding credit card$

414 $ (1,872) $Credit card

3,079

Total consumer
Wholesale
Total

130

$

2013

Provision for
lending-related commitments

2012
302

2014
$

2013

2014

1 $

—

—

—

3,079

2,179

3,444

1

—

3,498

308

3,746

36

(2)

(359)

(83)

(361)

(2) $

3,139 $

225 $

3,385

3,493

307

3,746

5

(269)

(119)

(359)

(90)

3,224 $

188 $

3,387

(85) $

37 $419 $ (1,871) $

2012

5 $

3,444

$

2013

—

2,179

$

Total provision for credit losses

2012

302

JPMorgan Chase & Co./2014 Annual Report

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 identifies and monitors market risks throughout the
Firm and defines market risk policies and procedures. The
Market Risk function reports to the Firm’s CRO.
Market Risk 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• Performance of stress testing and qualitative risk
assessments
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:

Risk monitoring and control
Market 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 set within the lines ofbusiness, as well at the portfolio or legal entity level.
Limits are set by Market Risk and are regularly reviewed
and updated as appropriate, with any changes approved bylines of business management and Market Risk. Senior
management, including the Firm’s CEO and CRO, areresponsible for reviewing and approving certain of theserisk limits on an ongoing basis. All limits that have not beenreviewed within specified time periods by Market Risk are
escalated to senior management. The lines of business are
responsible for adhering to established limits against which
exposures are monitored and reported.
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 breach. Certain Firm or line of business-level
limits that have been breached for three business days or
longer, or by more than 30%, are escalated to senior
management and the Firmwide Risk Committee.

• VaR• Economic-value stress testing• Nonstatistical risk measures• Loss advisories• Profit and loss drawdowns• Earnings-at-risk

JPMorgan Chase & Co./2014 Annual Report131Management’s discussion and analysis
The following table summarizes by LOB the predominant business activities that give rise to market risk, and the market risk
management tools utilized to manage those risks; CB is not presented in the table below as it does not give rise to significant
market risk.
Risk identification and classification for business activities
Predominant business activities andrelated market risks

Positions included in Risk
Management VaR

Positions included in other risk
measures (Not included in Risk
Management VaR)

CIB

• Makes markets and services clients
across fixed income, foreignexchange, equities and commodities• Market risk arising from apotential decline in net income asa result of changes in market
prices; e.g. rates and credit
spreads• Market risk(a) related to:• Trading assets/liabilities - debt
and equity instruments, andderivatives, including hedges of
the retained loan portfolio and
CVA• Certain securities purchased
under resale agreements andsecurities borrowed• Certain securities loaned or soldunder repurchase agreements• Structured notes• Derivative CVA

•
•
•
•

CCB

• Originates and services mortgageloans• Complex, non-linear interest rate
and basis risk
• Non-linear risk arises primarily
from prepayment options
embedded in mortgages andchanges in the probability of
newly originated mortgage
commitments actually closing• Basis risk results 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• Manages the Firm’s liquidity,
funding, structural interest rate andforeign exchange risks arising from
activities undertaken by the Firm’s
four major reportable businesssegments

Treasury and CIO• Primarily derivative positions
measured at fair value throughearnings, classified as derivatives• Private equity and other related
investments• 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,
managed by AM• Initial seed capital investments andrelated hedges classified as
derivatives• Capital invested alongside thirdparty investors, typically in privately
distributed collective vehicles
managed by AM (i.e., coInvestments)• Retained loan portfolio• Deposits

LOB

Principal investing activities
Retained loan portfolio
Deposits
DVA and FVA on derivatives andstructured notes(a) Market risk for derivatives is generally measured after consideration of DVA and FVA on those positions; market risk for structured notes is generally
measured without consideration to such adjustments.

132

JPMorgan Chase & Co./2014 Annual Report

Value-at-risk
JPMorgan Chase utilizes VaR, a statistical risk measure, toestimate the potential loss from adverse market moves in anormal market environment. The Firm has a single
overarching VaR model framework used for calculating Risk
Management VaR and Regulatory VaR.
The framework is employed across the Firm using historicalsimulation based on data for the previous 12 months. The
framework’s approach assumes that historical changes inmarket values are representative of the distribution ofpotential outcomes in the immediate future. The Firm
believes the use of Risk Management VaR provides a stablemeasure of VaR that closely aligns to the day-to-day risk
management decisions made by the lines of business andprovides necessary/appropriate information to respond torisk 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 Valuation process in Note 3 for further
information on the Firm’s valuation process). VaR model
calculations require daily data and a consistent source forvaluation and therefore it is not practical to use the datacollected in the VCG monthly valuation process.

JPMorgan Chase & Co./2014 Annual Report

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. The Firm therefore considers
other measures in addition to VaR, such as stress testing, tocapture and manage its market risk positions.
In addition, for certain products, specific risk parameters
are not captured in VaR due to the lack of inherent liquidity
and availability of appropriate historical data. The Firm uses
proxies to estimate the VaR for these and other products
when daily time series are not available. It is likely 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 andnonstatistical measures as described further below.
The Firm’s VaR model calculations are periodicallyevaluated and enhanced in response to changes in thecomposition of the Firm’s portfolios, changes in market
conditions, improvements in the Firm’s modeling 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 139.
Separately, the Firm calculates a daily aggregated VaR in
accordance with regulatory rules (“Regulatory VaR”), which
is used to derive the Firm’s regulatory VaR-based capitalrequirements under Basel III. This Regulatory VaR model
framework currently assumes a ten business-day holding
period and an expected tail loss methodology whichapproximates a 99% confidence level. Regulatory VaR isapplied to “covered” positions as defined by Basel III, which
may be different than the positions included in the Firm’s
Risk Management VaR. For example, credit derivative
hedges of accrual loans are included in the Firm’s Risk
Management VaR, while Regulatory VaR excludes these
credit derivative hedges. In addition, in contrast to theFirm’s Risk Management VaR, Regulatory VaR currently
excludes the diversification benefit for certain VaR models.

133

Management’s discussion and analysis
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

Basel III Pillar 3 Regulatory Capital Disclosures reports,
which are available on the Firm’s website (http://
investor.shareholder.com/jpmorganchase/basel.cfm).

The table below shows the results of the Firm’s Risk Management VaR measure using a 95% confidence level.
Total VaR
As of or for the year ended December 31,(in millions)
CIB trading VaR by risk type
Fixed income
Foreign exchange
Equities
Commodities and other
Diversification benefit to CIB trading VaR
CIB trading VaR
Credit portfolio VaRDiversification benefit to CIB VaR

Avg.

2014
Min

34
8
15
8
(a)
(30)
35
13
(8) (a)

$ 23
4
10
5
NM
24
8
NM

CIB VaR

40

29

56

Mortgage Banking VaR
Treasury and CIO VaR (c)Asset Management VaR
Diversification benefit to other VaR
Other VaR
Diversification benefit to CIB and other VaR
Total VaR
$

7
4
3
(a)
(4)
10
(a)
(7)
43

2
3
2
NM
5
NM
$ 30

28
6
4
NM
27
NM
$ 70

$

Max
$

(b)

(b)

(b)

(b)

45
25
23
14
NM
49
18
NM

Avg.
$

(b)

(b)

(b)

(b)

$

2013
Min

43
7
13
14
(a)
(34)
43
13
(9) (a)

$ 23
5
9
11
NM
21
10
NM

47

25
4
3
2
NM
6
NM
$ 29

12
6
4
(a)
(8)
14
(a)
(9)
52

At December 31,
2014
2013

Max
$

(b)

(b)

(b)

(b)

$

62
11
21
18
NM
66
18
NM

$

34
8
22
6
(a)
(32)
38
16
(9) (a)

$ 36
9
14
13
(a)
(36)
36
11
(5) (a)

74

45

42

24
14
5
NM
28
NM
87

3
4
2
(a)
(3)
6
(a)
(5)
46

(b)

(b)

(b)

(b)

$

5
4
3
(a)
(5)
7
(a)
(5)
$ 44

(a) Average portfolio VaR and period-end portfolio VaR were less than the sum of the VaR of the components described above, which is due to portfolio diversification.
The diversification effect reflects the fact that risks are not perfectly correlated.
(b) Designated as not meaningful (“NM”), because the minimum and maximum may occur on different days for distinct risk components, and hence it is not meaningful
to compute a portfolio-diversification effect.
(c) The Treasury and CIO VaR includes Treasury VaR as of the third quarter of 2013.

As presented in the table above, average Total VaR andaverage CIB VaR decreased during 2014, compared with2013. The decrease in Total VaR was primarily due to risk
reduction in CIB and Mortgage Banking as well as lower
volatility in the historical one-year look-back period during
2014 versus 2013.
Average CIB trading VaR decreased during 2014 primarily
due to lower VaR in Fixed Income (driven by unwinding ofrisk and redemptions in the synthetic credit portfolio, andlower volatility in the historical one-year look-back period)
and to reduced risk positions in commodities.
Average Mortgage Banking VaR decreased during 2014 as aresult of reduced exposures due to lower loan originations.
Average Treasury and CIO VaR decreased during 2014,
compared with 2013. The decrease predominantly reflected
the unwind and roll-off of certain marked to market
positions, and lower market volatility in the historical oneyear look-back period.

134

The Firm’s average Total VaR diversification benefit was $7
million or 16% of the sum for 2014, compared with $9
million or 17% of the sum for 2013. In general, over thecourse of the year, VaR exposure can vary significantly as
positions change, market volatility fluctuates anddiversification benefits change.
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.
The Firm’s definition of market risk-related gains and losses
is consistent with the definition used by the banking
regulators under Basel III. Under this definition market riskrelated gains and losses are defined as: profits and losseson the Firm’s Risk Management positions, excluding fees,
commissions, certain valuation adjustments (e.g., liquidity
and DVA), net interest income, and gains and losses arisingfrom intraday trading.

JPMorgan Chase & Co./2014 Annual Report

The following chart compares the daily market risk-related
gains and losses on the Firm’s Risk Management positions
for the year ended December 31, 2014. As the chart
presents market risk-related gains and losses related tothose positions included in the Firm’s Risk Management
VaR, the results in the table below differ from the results ofbacktesting disclosed in the Market Risk section of the

Firm’s Basel III Pillar 3 Regulatory Capital Disclosures
reports, which are based on Regulatory VaR applied tocovered positions. The chart shows that for the year ended
December 31, 2014, the Firm observed five VaR bandbreaks and posted gains on 157 of the 260 days in thisperiod.

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.

JPMorgan Chase & Co./2014 Annual Report

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. The Firm’s stress testing
framework is utilized in calculating results under scenarios
mandated by the Federal Reserve’s CCAR and ICAAP(“Internal Capital Adequacy Assessment Process”)
processes.

135

Management’s discussion and analysis
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.
Earnings-at-risk
The VaR and stress-test measures described above illustrate
the total economic sensitivity of the Firm’s Consolidatedbalance sheets to changes in market variables. The effect ofinterest rate exposure on the Firm’s reported net income isalso important as interest rate risk represents one of the
Firm’s significant market risks. Interest rate risk arises not
only from trading activities but also from the Firm’s
traditional banking activities, which include extension ofloans and credit facilities, taking deposits and issuing debt.
The Firm evaluates its structural interest rate risk exposure
through earnings-at-risk, which measures the extent towhich changes in interest rates will affect the Firm’s core
net interest income (see page 78 for further discussion ofcore net interest income) and interest rate-sensitive fees.
Earnings-at-risk excludes the impact of trading activities
and MSR, as these sensitivities are captured under VaR.
The CIO, Treasury and Corporate (“CTC”) Risk Committee
establishes the Firm’s structural interest rate risk policies
and market risk limits, which are subject to approval by the
Risk Policy Committee of the Firm’s Board of Directors. CIO,
working in partnership with the lines of business, calculates
the Firm’s structural interest rate risk profile and reviews itwith senior management including the CTC Risk Committee
and the Firm’s ALCO. In addition, oversight of structuralinterest rate risk is managed through a dedicated riskfunction reporting to the CTC CRO. This risk function is
responsible for providing independent oversight andgovernance around assumptions; and establishing andmonitoring limits for structural interest rate risk.
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).

136• 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.
The Firm manages structural interest rate risk generally
through its investment securities portfolio and related
derivatives.
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(in millions)+200 bps+100 bps

December 31, 2014

$ 4,667$ 2,864-100 bps
NM(a)-200 bpsNM(a)(a) Downward 100- and 200-basis-points parallel shocks result in afederal funds target rate of zero and negative three- and six-month
U.S. Treasury rates. The earnings-at-risk results of such a lowprobability scenario are not meaningful.

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 $566 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.

JPMorgan Chase & Co./2014 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 affects
markets related to a particular country. The Firm has acomprehensive country risk management framework forassessing country risks, determining risk tolerance, andmeasuring and monitoring direct country exposures in theFirm. The Country Risk Management group is responsiblefor developing guidelines and policies for managing country
risk in both emerging and developed countries. The Country
Risk Management group actively monitors the various
portfolios giving rise to country risk to ensure the Firm’s
country risk exposures are diversified and that exposurelevels are appropriate given the Firm’s strategy and risk
tolerance relative to a country.
Country risk organization
The Country Risk Management group is an independent risk
management function which works in close partnership 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

JPMorgan Chase & Co./2014 Annual ReportCountry 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.
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 ismeasured at the derivative’s fair value, net of the fairvalue of the related collateral. Counterparty exposure onderivatives can change significantly because of market
movements.
• Credit derivatives protection purchased and sold isreported based on the underlying reference entity and ismeasured at the notional amount of protection purchased
or sold, net of the fair value of the recognized derivative
receivable or payable. Credit derivatives protection
purchased and sold in the Firm’s market-making activities
is measured on a net basis, as such activities often result
in selling and purchasing protection related to the sameunderlying reference entity; this reflects the manner inwhich the Firm manages these exposures.

137

Management’s discussion and analysis
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 the Federal Financial Institutions
Examination Council (“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 325.

Country risk reporting
The following table presents the Firm’s top 20 exposures bycountry (excluding the U.S.) as of December 31, 2014. The
selection of countries is based solely on the Firm’s largest
total exposures by country, based on the Firm’s internalcountry risk management approach, and does not represent
the Firm’s view of any actual or potentially adverse credit
conditions. Country exposures may fluctuate from periodto-period due to normal client activity and market flows.
Top 20 country exposures
December 31, 2014

(in billions)Lending(a)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.

United Kingdom$

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.

Trading andinvesting(b)(c)

Total
exposure

Other(d)25.8 $

31.1 $

1.4 $

58.3

Germany

23.5

21.6

0.2

45.3

Netherlands

6.1

19.2

2.1

27.4

France

11.4

15.2

0.2

26.8

China

10.8

7.0

0.5

18.3

Japan

11.5

5.5

0.4

17.4

Australia

6.4

10.8

—

17.2

Canada

12.4

4.2

0.3

16.9

Switzerland

9.3

1.7

2.3

13.3

India

5.8

6.2

0.6

12.6

Brazil

6.3

6.3

—

12.6

Korea

5.1

5.2

0.1

10.4

Spain

3.4

3.5

—

6.9

Hong Kong

1.7

4.1

1.0

6.8

Italy

2.4

3.4

0.2

6.0

Belgium

3.1

2.6

0.1

5.8

Taiwan

2.2

3.5

—

5.7

Singapore

3.1

1.9

0.5

5.5

Mexico

2.5

3.0

—

5.5

Luxembourg

3.5

0.3

1.1

4.9

(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,
counterparty exposure on derivative and securities financings net ofcollateral and hedging.
(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.

The Firm’s country exposure to Russia was $4.2 billion at
December 31, 2014. The Firm is closely monitoring eventsin the region, and assessing the impact of falling oil prices,a weakening currency, ongoing sanctions and potential
countermeasures such as capital controls. The Firm is also
focused on possible contagion effects, via trade, financial orpolitical channels.

138

JPMorgan Chase & Co./2014 Annual Report

MODEL RISK MANAGEMENT
Model risk
Model risk is the potential for adverse consequences fromdecisions based on incorrect or misused model outputs andreports.
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 that cannot otherwise bevalued 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 review and governance functions are
independent of the model owners and they review andapprove a wide range of models, including risk
management, valuation and regulatory capital models usedby the Firm. The Model Risk review and governancefunctions are part of the Firm’s Model Risk andDevelopment unit, and the Firmwide Model Risk andDevelopment Executive reports to the Firm’s CRO.

Models are tiered based on an internal standard according
to their complexity, the exposure associated with the modeland the Firm’s reliance on the model. This tiering is subject
to the approval of the Model Risk function. A model review
conducted by the Model Risk function considers the model’s
suitability for the specific uses to which it will be put. The
factors considered in reviewing a model include whether themodel accurately reflects the characteristics of the productand its significant risks, the selection and reliability ofmodel inputs, consistency with models for similar products,
the appropriateness of any model-related adjustments, andsensitivity to input parameters and assumptions that cannot
be observed from the market. When reviewing a model, theModel Risk function analyzes and challenges the model
methodology and the reasonableness of model assumptions
and may perform or require additional testing, including
back-testing of model outcomes. Model reviews areapproved by the appropriate level of management within
the Model Risk function based on the relevant 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. In certain circumstances, exceptions to theFirm’s model risk policy may be granted by the head of theModel Risk function to allow a model to be used prior toreview or approval.
For a summary of valuations based on models, see Critical
Accounting Estimates Used by the Firm and Note 3.

JPMorgan Chase & Co./2014 Annual Report139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 are
typically intended to be held over extended investment
periods and, accordingly, the Firm has no expectation for
short-term gain with respect to these investments. Principal
investments cover multiple asset classes and are madeeither in stand-alone investing businesses or as part of abroader business platform. Asset classes include taxoriented investments including affordable housing andalternative energy investments, private equity, andmezzanine/junior debt investments.

The Firm’s principal investments are managed undervarious lines of business and are captured within therespective LOB’s financial results. The Firm’s approach to
managing principal risk is consistent with the Firm’s generalrisk governance structure. A Firmwide risk policy framework
exists for all principal investing activities. All investments
are approved by investment committees that include
executives who are independent from the investing
businesses. The Firm’s independent control functions are
responsible for reviewing the appropriateness of thecarrying value of principal investments in accordance with
relevant policies. Targeted levels for total and annual
investments are established in order to manage the overall
size of the portfolios. Industry, geographic, and positionlevel concentration limits are in place 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 has taken steps to reduce its exposure to principal
investments, selling portions of Corporate’s One Equity
Partners private equity portfolio and the CIB’s Global
Special Opportunities Group equity and mezzanine
financing portfolio.

140

JPMorgan Chase & Co./2014 Annual ReportOPERATIONAL RISK MANAGEMENT
Operational risk is the risk of loss resulting from inadequate
or failed processes or systems or due to external events
that are neither market nor credit-related. Operational risk
is inherent in the Firm’s activities and can manifest itself invarious ways, including fraudulent acts, businessinterruptions, inappropriate behavior of employees, failure
to comply with applicable laws and regulations or failure ofvendors to perform in accordance with their arrangements.
These events could result in financial losses, litigation andregulatory fines, as well as other damage to the Firm. The
goal is to keep operational risk at appropriate levels, in lightof 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.
Overview
To monitor and control operational risk, the Firm maintains
an overall Operational Risk Management Framework(“ORMF”) which comprises governance oversight, risk
assessment, capital measurement, and reporting andmonitoring. The ORMF is intended to enable the Firm tofunction with a sound and well-controlled operational
environment.
Risk Management is responsible for prescribing the ORMF to
the lines of business and corporate functions and to provide
independent oversight of its implementation. In 2014,
Operational Risk Officers (“OROs”) were appointed acrosseach line of business and corporate function to provide thisindependent oversight.
The lines of business and corporate functions are
responsible for implementing the ORMF. The Firmwide
Oversight and Control Group, comprised of dedicatedcontrol officers within each of the lines of business andcorporate functional areas, as well as a central oversightteam, is responsible for day to day review and monitoring of
ORMF execution.
Operational risk management framework
The components of the Operational Risk Management
Framework are:
Oversight and governanceControl committees oversee the operational risks andcontrol environment of the respective line of business,function or region. These committees escalate operationalrisk issues to their respective line of business, function or
regional Risk committee and also escalate significant risk
issues (and/or risk issues with potential Firmwide impact)
to the Firmwide Control Committee (“FCC”). The FCC
provides a monthly forum for reviewing and discussing
Firmwide operational risk metrics and management,
including existing and emerging issues, and reviews
execution against the ORMF. It escalates significant issues to
the Firmwide Risk Committee, as appropriate. For additional
information on the Firmwide Control Committee, see Risk
Governance on pages 106–109.
JPMorgan Chase & Co./2014 Annual Report

Risk self-assessment
In order to evaluate and monitor operational risk, the linesof business and functions utilize the Firm’s standard risk
and control self-assessment (“RCSA”) process andsupporting architecture. The RCSA process requires
management to identify material inherent operational risks,assess the design and operating effectiveness of relevant
controls in place to mitigate such risks, and evaluate
residual risk. Action plans are developed for control issues
that are identified, and businesses are held accountable fortracking and resolving issues on a timely basis. Commencing
in 2015, Risk Management will perform sample
independent challenge of the RCSA program.
Risk reporting and monitoring
Operational risk management and control reports provide
information, including actual operational loss levels, selfassessment results and the status of issue resolution to thelines of business and senior management. The purpose of
these reports is to enable management to maintain
operational risk at appropriate levels within each line ofbusiness, to escalate issues and to provide consistent data
aggregation across the Firm’s businesses and functions.
The Firm has a process for capturing, tracking andmonitoring operational risk events. The Firm analyzes
errors and losses and identifies trends. Such analysis
enables identification of the causes associated with risk
events faced by the lines of business.
Capital measurement
Operational risk capital is measured primarily using astatistical model based on the Loss Distribution Approach(“LDA”). The operational risk capital model uses actual
losses (internal and external to the Firm), an inventory ofmaterial forward-looking potential loss scenarios andadjustments to reflect changes in the quality of the control
environment in determining Firmwide operational risk
capital. This methodology is designed to comply with theAdvanced Measurement rules under the Basel framework.
The Firm’s capital methodology incorporates four requiredelements of the Advanced Measurement Approach (“AMA”):••••

Internal losses,
External losses,
Scenario analysis, andBusiness environment and internal control factors(“BEICF”).

The primary component of the operational risk capital
estimate is the result of a statistical model, the LDA, which
simulates the frequency and severity of future operationalrisk losses based on historical data. The LDA model is used
to estimate an aggregate operational loss over a one-yeartime horizon, at a 99.9% confidence level. The LDA model
incorporates actual operational losses in the quarter
following the period in which those losses were realized,
141

Management’s discussion and analysis
and the calculation generally continues to reflect suchlosses even after the issues or business activities giving riseto the losses have been remediated or reduced.
The LDA is supplemented by both management’s view ofplausible tail risk, which is captured as part of the Scenario
Analysis process, and evaluation of key LOB internal control
metrics (BEICF). The Firm may further supplement suchanalysis to incorporate management judgment andfeedback from its bank regulators. For information related
to operational risk RWA, see Regulatory capital on pages
146–153.
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 RCSA process, and the loss datacollection and reporting activities.
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.
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 unauthorized parties to obtain accessto confidential information, destroy data, disrupt or
degrade service, sabotage systems or cause other damage.
In 2014, the Firm spent more than $250 million, and had
approximately 1,000 people focused on cybersecurity
efforts, and these efforts are expected to grow significantly
over the coming years.
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. In addition, customers with which or whom theFirm does business can also be sources of cybersecurity risk
to the Firm, particularly when their activities and systems
are beyond the Firm’s own security and control systems.
Customers will generally be responsible for losses incurred
due to their own failure to maintain the security of theirown systems and processes.
142

The Firm and several other U.S. financial institutions haveexperienced significant distributed denial-of-service attacks
from technically sophisticated and well-resourced
unauthorized parties which are intended to disrupt online
banking services. The Firm and its clients are also regularly
targeted by unauthorized parties using malicious code andviruses.
On September 10, 2014, the Firm disclosed that acyberattack against the Firm had occurred. On October 2,
2014, the Firm updated that information and disclosed
that, while user contact information (name, address, phone
number and email address) and internal JPMorgan Chase
information relating to such users had been compromised,
there had been no evidence that account information forsuch affected customers -- account numbers, passwords,
user IDs, dates of birth or Social Security numbers -- wascompromised during the attack. The Firm continues tovigilantly monitor the situation. In addition, as of theOctober 2, 2014 announcement, as well as of the date ofthis Annual Report, the Firm has not seen any unusual
customer fraud related to this incident. The Firm iscooperating with government agencies in connection with
their investigation of the incident. The Firm also notified its
customers that they were not liable for unauthorizedtransactions in their accounts attributable to this attack thatthey promptly alerted the Firm about.
The Firm has established, and continues to establish,
defenses on an ongoing basis to mitigate this and otherpossible future attacks. The cyberattacks experienced todate have not resulted in any material disruption to theFirm’s operations or had a material adverse effect on the
Firm’s results of operations. The Board of Directors and the
Audit Committee are regularly apprised regarding the
cybersecurity policies and practices of the Firm as well as
the Firm’s efforts regarding this attack and other significant
cybersecurity events.
Cybersecurity attacks, like the one experienced by the Firm,
highlight the need for continued and increased cooperation
among businesses and the government, and the Firm
continues to work with the appropriate government and law
enforcement agencies and other businesses, including the
Firm’s third-party service providers, to continue to enhance
defenses and improve resiliency to cybersecurity threats.
Business and Technology 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 aimed toensure that risks are properly identified, assessed, andmanaged.

JPMorgan Chase & Co./2014 Annual Report

The Firm has established comprehensive tracking andreporting of resiliency plans in order to proactively
anticipate and manage various potential disruptive
circumstances such as severe weather, technology andcommunications outages, flooding, mass transit shutdowns
and terrorist threats, among others. The resiliency
measures utilized by the Firm include backup infrastructure
for data centers, a geographically distributed workforce,
dedicated recovery facilities, providing technologicalcapabilities to support remote work capacity for displaced
staff and accommodation of employees at alternate
locations. JPMorgan Chase continues to coordinate its
global resiliency program across the Firm and mitigate
business continuity risks by reviewing and testing recovery
procedures. The strength and proficiency of the Firm’s
global resiliency program has played an integral role inmaintaining the Firm’s business operations during andquickly after various events in 2014 that have resulted inbusiness interruptions, such as severe winter weather in the
U.S., tropical storms in the Philippines, and geopoliticalevents in Brazil and Hong Kong.

JPMorgan Chase & Co./2014 Annual Report143Management’s discussion and analysis
LEGAL RISK MANAGEMENTCOMPLIANCE RISK MANAGEMENT

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

Compliance risk is the risk fines or sanctions or of financial
damage or loss due to the failure to comply with laws, rules,
and regulations.

Overview
In addition to providing legal services and advice to theFirm, and communicating and helping the lines businessadjust to the legal and regulatory changes they face,
including the heightened scrutiny and expectations of the
Firm’s regulators, the global Legal function is responsible
for working with the businesses and corporate functions tofully understand and assess their adherence to laws andregulations, as well as potential exposures on key litigationand transactional matters. In particular, Legal assists
Oversight & Control, Risk, Finance, Compliance and Internal
Audit in their efforts to ensure compliance with allapplicable laws and regulations and the Firm’s corporate
standards for doing business. The Firm’s lawyers also advise
the Firm on potential legal exposures on key litigation andtransactional matters, and perform a significant defense
and advocacy role by defending the Firm against claims andpotential claims and, when needed, pursuing claims against
others.
Governance and Oversight
The Firm’s General Counsel reports to the CEO and is amember of the Operating Committee, the Firmwide Risk
Committee and the Firmwide Control Committee. The
General Counsel’s leadership team includes a GeneralCounsel for each line of business, the heads of the Litigation
and Corporate & Regulatory practices, as well as the Firm’s
Corporate Secretary. Each region (e.g., Latin America, Asia
Pacific) has a General Counsel who is responsible formanaging legal risk across all lines of business andfunctions in the region.
Legal works with various committees (including new
business initiative and reputation risk committees) and the
Firm’s businesses to protect the Firm’s reputation beyond
any particular legal requirements. In addition, the Firm’s
Conflicts Office examines the Firm’s wholesale transactions
that may have the potential to create conflicts of interestfor the Firm.

144

Overview
Global Compliance Risk Management’s (“Compliance”) role
is to identify, measure, monitor, and report on and provide
oversight regarding compliance risks arising from business
operations, and provide guidance on how the Firm canmitigate these risks.
While each line of business is accountable for managing its
compliance risk, the Firm’s Compliance teams work closelywith the Operating Committee and senior management toprovide independent review and oversight of the lines ofbusiness operations, with a focus on compliance withapplicable global, regional and local laws and regulations.
In recent years, the Firm has experienced heightened
scrutiny by its regulators of its compliance with regulations,and with respect to its controls and operational processes.
The Firm expects such regulatory scrutiny will continue.
Governance and OversightCompliance operates independent of the lines of business,and is led by the Chief Compliance Officer (“CCO”) who
reports directly to the Firm’s COO. The Firm maintains
oversight and coordination in its Compliance Risk
Management practices globally through ongoing dialog andreporting between the lines of business, Regional Chief
Compliance Officers and the CCO regarding significant
compliance and regulatory management matters, as well as
implementation of the Compliance program across the linesof business and Regions.
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.

JPMorgan Chase & Co./2014 Annual ReportFIDUCIARY RISK MANAGEMENTREPUTATION RISK MANAGEMENT

Fiduciary risk is the risk of a failure to exercise theapplicable high standard of care, to act in the best interestsof clients or to treat clients fairly, as required underapplicable law or regulation.

Reputation risk is the risk that an action, transaction,
investment or event will reduce the trust that clients,
shareholders, employees or the broader public has in the
Firm’s integrity or competence. Maintaining the Firm’s
reputation is the responsibility of each individual employeeof the Firm. The Firm’s Reputation Risk policy explicitly
vests each employee with the responsibility to consider the
reputation of the Firm when engaging in any activity. Since
the types of events that could harm the Firm’s reputation
are so varied across the Firm’s lines of business, each line ofbusiness has a separate reputation risk governanceinfrastructure in place, which comprises three key elements:
clear, documented escalation criteria appropriate to thebusiness footprint; a designated primary discussion forum –in most cases, one or more dedicated reputation risk
committees; and a list of designated contacts. Line ofbusiness reputation risk governance is overseen by a
Firmwide Reputation Risk Governance function, which
provides oversight of the governance infrastructure andprocess to support the consistent identification, escalation,
management and reporting of reputation risk issues
firmwide.

Depending on the fiduciary activity and capacity in which
the Firm is acting, federal and state statutes andregulations, and common law require the Firm to adhere to
specific duties in which the Firm must always place theclient’s interests above its own.
Fiduciary risk governance
Fiduciary Risk Management is the responsibility of therelevant LOB risk and/or other governance committees.
Senior business, legal, risk and compliance managers, whohave particular responsibility for fiduciary matters, workwith the relevant LOB risk committees with the goal of
ensuring that businesses providing investment, trusts andestates, or other fiduciary products or services that give rise
to fiduciary duties to clients perform at the appropriate
standard relative to their fiduciary relationship with a client.
Each LOB and its respective risk and/or other 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’s responsibilities to a client, including
performance and service requirements and expectations;client suitability determinations; and disclosure obligations
and communications. In this way, the relevant LOB risk and/or other governance committees provide oversight of the
Firm’s efforts to monitor, measure and control theperformance and delivery of the products or services toclients that may give rise to such fiduciary duties, as well as
the Firm’s fiduciary responsibilities with respect to theFirm’s employee benefit plans.
The Firmwide Fiduciary Risk Committee (“FFRC”) is a forum
for risk matters related to the Firm’s fiduciary activities andoversees the firmwide fiduciary risk governance framework.
It supports the consistent identification and escalation of
fiduciary risk matters by the relevant lines of business or
corporate functions responsible for managing fiduciary
activities. The committee escalates significant issues to the
Firmwide Risk Committee and any other committee
considered appropriate.

JPMorgan Chase & Co./2014 Annual Report145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, in conjunction with the Board and its
subcommittees, establish principles and guidelines forcapital planning, capital issuance, usage and distributions,and establish capital targets for the level and compositionof capital in both business-as-usual and highly stressed
environments.
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 responsible146

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. RCMO, which reports to the Firm’s CFO, is
responsible for reviewing, approving and monitoring theimplementation of the Firm’s capital policies and strategies,
as well as its capital adequacy assessment process. The
DRPC assesses the Firm’s capital adequacy process and its
components. This review determines the effectiveness ofthe capital adequacy process, the appropriateness of therisk tolerance levels, and the strength of the control
infrastructure. For additional discussion on the DRPC, seeEnterprise-wide Risk Management on pages 105–109.
Capital disciplines
In its capital management, the Firm uses three primary
disciplines, which are further described below:• Regulatory capital• Economic capital• Line of business equity
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.
The U.S. capital requirements follow the Capital Accord of
the Basel Committee, as amended from time to time. Prior
to January 1, 2014, the Firm and its banking subsidiaries
were subject to the capital requirements of Basel I andBasel 2.5. Effective January 1, 2014, the Firm became
subject to Basel III (which incorporates Basel 2.5).
Basel III overview
Basel III, for U.S. bank holding companies and banks,
revises, among other things, the definition of capital andintroduces a new common equity Tier 1 capital (“CET1capital”) requirement; presents two comprehensive
methodologies for calculating risk-weighted assets (“RWA”),
a general (Standardized) approach, which replaces Basel I
RWA (“Basel III Standardized”) and an advanced approach,which replaces Basel II RWA (“Basel III Advanced”); and setsout minimum capital ratios and overall capital adequacy
standards. Certain of the requirements of Basel III are
subject to phase-in periods that began January 1, 2014 andcontinue through the end of 2018 (“Transitional period”)
as described below. Both Basel III Standardized and Basel III
Advanced became effective commencing January 1, 2014
for large and internationally active U.S. bank holding
companies and banks, including the Firm and its insured
depository institution (“IDI”) subsidiaries.

JPMorgan Chase & Co./2014 Annual Report

Prior to the implementation of Basel III Advanced, the Firm
was required to complete a qualification period (“parallelrun”) during which it needed to demonstrate that it met therequirements of the rule to the satisfaction of its U.S.
banking regulators. On February 21, 2014, the Federal
Reserve and the OCC informed the Firm and its nationalbank subsidiaries that they had satisfactorily completed theparallel run requirements and were approved to calculate
capital under Basel III Advanced, in addition to Basel III
Standardized, as of April 1, 2014. In conjunction with its
exit from the parallel run, the capital adequacy of the Firm
and its national bank subsidiaries is evaluated against theBasel III approach (Standardized or Advanced) which
results, for each quarter beginning with the second quarterof 2014, in the lower ratio (the “Collins Floor”), as requiredby the Collins Amendment of the Dodd-Frank Act.
Definition of capitalBasel III revises Basel I and II by narrowing the definition ofcapital and increasing the capital requirements for specificexposures. Under Basel III, CET1 capital predominantly
includes common stockholders’ equity (including capital for
AOCI related to debt and equity securities classified as AFS
as well as for defined benefit pension and other postretirement employee benefit (“OPEB”) plans), less certain
deductions for goodwill, MSRs and deferred tax assets thatarise from net operating loss (“NOL”) and tax credit
carryforwards. Tier 1 capital is predominantly comprised of
CET1 capital as well as perpetual preferred stock. Tier 2
capital includes long-term debt qualifying as Tier 2 andqualifying allowance for credit losses. Total capital is Tier 1
capital plus Tier 2 capital. The revisions to CET1 capital,
Tier 1 capital and Tier 2 capital are subject to phase-in
periods that began January 1, 2014, and continue throughthe end of 2018, and during that period, CET1 capital, Tier
1 capital and Tier 2 capital represent Basel III Transitional
capital.

JPMorgan Chase & Co./2014 Annual Report

Risk-weighted assets
Basel III establishes two comprehensive methodologies forcalculating RWA (a Standardized approach and an
Advanced approach) which include capital requirements for
credit risk, market risk, and in the case of Basel III
Advanced, also operational risk. Key differences in thecalculation of credit risk RWA between the Standardized
and Advanced approaches are that for Basel III Advanced,
credit risk RWA is based on risk-sensitive approaches whichlargely rely on the use of internal credit models andparameters, whereas for Basel III Standardized, credit risk
RWA is generally based on supervisory risk-weightings
which vary primarily by counterparty type and asset class.
Market risk RWA is calculated on a generally consistentbasis between Basel III Standardized and Basel III
Advanced, both of which incorporate the requirements set
forth in Basel 2.5. In addition to the RWA calculated underthese methodologies, the Firm may supplement suchamounts to incorporate management judgment andfeedback from its bank regulators.
Supplementary leverage ratio (“SLR”)
Basel III also includes a requirement for Advanced
Approach banking organizations, including the Firm, tocalculate a SLR. The SLR, a non-GAAP financial measure, isdefined as Tier 1 capital under Basel III divided by the
Firm’s total leverage exposure. Total leverage exposure is
calculated by taking the Firm’s total average on-balance
sheet assets, less amounts permitted to be deducted forTier 1 capital, and adding certain off-balance sheet
exposures, such as undrawn commitments and derivatives
potential future exposure.
On September 3, 2014, the U.S. banking regulators
adopted a final rule for the calculation of the SLR. The U.S.
final rule requires public disclosure of the SLR beginningwith the first quarter of 2015, and also requires U.S. bankholding companies, including the Firm, to have a minimum
SLR of at least 5% and IDI subsidiaries, including JPMorgan
Chase Bank, N.A. and Chase Bank USA, N.A., to have aminimum SLR of at least 6%, both beginning January 1,
2018.

147

Management’s discussion and analysis
Capital ratios
The basis to calculate the Firm’s capital ratios (both risk-based and leverage) under Basel III during the transitional period andwhen fully phased-in are shown in the table below.
Transitional period
2014
Capital (Numerator)

RWA (Denominator)

Leverage (Denominator)(c)Standardized
ApproachBasel I with 2.5(b)

2018

2019+
Basel III CapitalBasel III Standardized

Advanced
ApproachBasel III Advanced

Tier 1 Leverage

Adjusted average assets(c)Adjusted average assets(c) + off-balance sheet exposures

Trust preferred securities (“TruPS”) are being phased out from inclusion in Basel III capital commencing January 1, 2014, continuing through the end of 2021.
Defined as Basel III Standardized Transitional for 2014. Beginning January 1, 2015, Basel III Standardized RWA is calculated under the Basel III definition of the Standardized
Approach.
Adjusted average assets, for purposes of calculating the leverage ratio and SLR, includes total quarterly average assets adjusted for unrealized gains/(losses) on securities,
less deductions for disallowed goodwill and other intangible assets, investments in certain subsidiaries, and the total adjusted carrying value of nonfinancial equity
investments that are subject to deductions from Tier 1 capital.

Risk-based capital regulatory minimums
The Basel III rules include minimum capital ratio
requirements that are also subject to phase-in periods
through January 1, 2019.
In addition to the regulatory minimum capitalrequirements, certain banking organizations, including theFirm, will be required to hold an additional 2.5% of CET1
capital to serve as a “capital conservation buffer.” Thecapital conservation buffer is intended to be used to absorb
potential losses in times of financial or economic stress; if
not maintained, the Firm could be limited in the amount of
capital that may be distributed, including dividends andcommon equity repurchases. The capital conservationbuffer will be phased-in beginning January 1, 2016.
Moreover, G-SIBs will be required to maintain, in addition to
the capital conservation buffer, further amounts of capital
ranging from 1% to 2.5% across all tiers of regulatory
capital. In November 2014, based upon data as ofDecember 31, 2013, the Financial Stability Board (“FSB”)
indicated that certain G-SIBs, including the Firm, would be
required to hold the additional 2.5% of capital; therequirement will be phased-in beginning January 1, 2016.

1482015 – 2017
Basel III Transitional Capital(a)Supplementary
leverage(a)(b)

Fully Phased-In

The Basel Committee has stated that G-SIBs could in the
future be required to hold 3.5% or more of additional
capital if their relative systemic importance were toincrease. Currently, no G-SIB is required to hold more than
the additional 2.5% of capital.
Consequently, based upon the final rules currently in effect,
the minimum Basel III CET1 capital ratio requirement for
the Firm is expected to be 9.5%, comprised of theminimum ratio of 4.5% plus the 2.5% capital conservationbuffer and the 2.5% G-SIB requirement both beginning
January 1, 2019.
Basel III also establishes a minimum 6.5% CET1 standard
for the definition of “well capitalized” under the Prompt
Corrective Action (“PCA”) requirements of the FDIC
Improvement Act (“FDICIA”). The CET1 standard is effective
beginning with the first quarter of 2015.

JPMorgan Chase & Co./2014 Annual Report

The following chart presents the Basel III minimum CET1 capital ratio during the transitional periods and on a fully phased-in
basis under the Basel III rules currently in effect. It is the Firm’s current expectation that its Basel III CET1 ratio will exceed theregulatory minimums, both during the transition period and upon full implementation in 2019 and thereafter.

On December 9, 2014, the Federal Reserve issued a Noticeof Proposed Rulemaking (“NPR”) that would establish a
new capital surcharge across all tiers of regulatory capitalfor G-SIBs in the U.S., including the Firm. The Firm
estimates its fully phased-in G-SIB surcharge (based upon
data as of December 31, 2013) would be 4.5% under the
NPR, compared to a fully phased-in G-SIB surcharge of
2.5% as estimated under the Basel III rules currently ineffect.
Basel III Advanced Fully Phased-In
Based on the U.S. capital rules currently in effect, Basel III
capital rules will become fully phased-in on January 1,
2019, at which point the Firm will continue to calculate its
capital ratios under both the Basel III Standardized andAdvanced Approaches, and the Firm will continue to haveits capital adequacy evaluated against the approach that
results in the lower ratio. While the Firm has recently
imposed Basel III Standardized Fully Phased-In RWA limits
on the lines of business in adapting its capital framework,
the Firm currently expects to manage each of thebusinesses (including line of business equity allocations), as
well as the corporate functions, primarily on a Basel III
Advanced Fully Phased-In basis.
The Firm’s capital, RWA and capital ratios that arepresented under Basel III Advanced Fully Phased-In (andCET1 under Basel I as of December 31, 2013), are nonGAAP financial measures. However, such measures are usedby bank regulators, investors and analysts to assess the
Firm’s capital position and to compare the Firm’s capital tothat of other financial services companies.
The Firm’s estimates of its Basel III Advanced Fully PhasedIn capital, RWA and capital ratios and of the Firm’s,
JPMorgan Chase Bank, N.A.’s, and Chase Bank USA, N.A.’s
SLRs reflect management’s current understanding of the
U.S. Basel III rules based on the current published rules andJPMorgan Chase & Co./2014 Annual Reporton the application of such rules to the Firm’s businesses as
currently conducted. The actual impact on the Firm’s capitalratios and SLR as of the effective date of the rules may
differ from the Firm’s current estimates depending onchanges the Firm may make to its businesses in the future,
further implementation guidance from the regulators, andregulatory approval of certain of the Firm’s internal risk
models (or, alternatively, regulatory disapproval of the
Firm’s internal risk models that have previously been
conditionally approved).
The following table presents the estimated Basel III
Advanced Fully Phased-In Capital ratios for JPMorgan Chaseat December 31, 2014. Also included in the table are theregulatory minimum ratios currently expected to be ineffect beginning January 1, 2019.
Basel III
Advanced Fully
Phased-In
December 31,
2014

Fully phased-in Fully phased-inminimum
well-capitalized
capital ratios(a)ratios(b)Risk-based capitalratios:CET1 capital

10.2%

9.5%

Tier 1 capital

11.4

11.0

6.5%
8.0

Total capital

12.8

13.0

10.0

Tier 1

7.5

4.0

5.0

SLR

5.6

3.0

5.0

Leverage ratio:(a) Represents the minimum capital ratios applicable to the Firm underfully phased-in Basel III rules currently in effect.
(b) Represents the minimum Basel III Fully Phased-In capital ratios
applicable to the Firm under the PCA requirements of FDICIA.

149

Management’s discussion and analysis
A reconciliation of total stockholders’ equity to Basel III
Advanced Fully Phased-In CET1 capital, Tier 1 capital andTotal qualifying capital is presented in the table below.

Capital rollforward
The following table presents the changes in CET1 capital,
Tier 1 capital and Tier 2 capital for the year ended
December 31, 2014. Under Basel I CET1 represents Tier 1
common capital.

Risk-based capital components and assets
Basel III Advanced
Fully Phased-In(in millions)Year ended December 31, (in millions)

December 31, 2014

Basel I CET1 capital at December 31, 20132014
$ 148,887

232,065

Effect of rule changes(a)Less: Preferred stock

20,063

Common stockholders’ equity

212,002

Basel III Advanced Fully Phased-In CET1 capital at
December 31, 2013

151,202

Net income applicable to common equity

20,637

Dividends declared on common stock(6,078)Net purchases of treasury stock(3,009)Total stockholders’ equity

$

Less:
Goodwill(a)44,925

Other intangible assets(a)1,062Other CET1 capital adjustments

1,163

CET1 capital

164,852

Preferred stock

20,063Less:
Other Tier 1 adjustments

5

Total Tier 1 capital

184,910Long-term debt and other instruments
qualifying as Tier 2 capital

17,504

Qualifying allowance for credit losses

4,266

Other

(86)

Total Tier 2 capital

2,315

Changes in additional paid-in capital(558)

Changes related to AOCI

1,327

Adjustment related to FVA/DVA

580

Other

751

Increase in CET1 capital

13,650Basel III Advanced Fully Phased-In CET1 capital at
December 31, 2014

$ 164,852

Basel I Tier 1 capital at December 31, 2013

$ 165,663

Effect of rule changes(3,295)(b)

21,684Basel III Advanced Fully Phased-In Tier 1 capital at
December 31, 2013

162,368

206,594

Change in CET1 capital

13,650Net issuance of noncumulative perpetual preferred stock

8,905

Total capital$

Credit risk RWA$ 1,040,087

Market risk RWA

179,200

Other

Operational risk RWA

400,000

Increase in Tier 1 capital

Total RWA

$ 1,619,287

SLR leverage exposure$ 3,320,404(a) Goodwill and other intangible assets are net of any associated deferred
tax liabilities.

(13)
22,542

Basel III Advanced Fully Phased-In Tier 1 capital at
December 31, 2014

$ 184,910

Basel I Tier 2 capital at December 31, 2013$

33,623

Effect of rule changes(c)(11,644)

Basel III Advanced Fully Phased-In Tier 2 capital at
December 31, 2013

21,979Change in long-term debt and other instruments qualifying
as Tier 2

809

Change in allowance for credit losses(1,063)

Other

(41)

Decrease in Tier 2 capital(295)

Basel III Advanced Fully Phased-In Tier 2 capital at
December 31, 2014$

Basel III Advanced Fully Phased-In Total capital at
December 31, 2014

$ 206,594

21,684(a) Predominantly represents: (1) the addition of certain exposures, whichwere deducted from capital under Basel I, that are risk-weighted under
Basel III; (2) adjustments related to AOCI for AFS securities anddefined benefit pension and OPEB plans; and (3) a deduction fordeferred tax assets related to NOL carryforwards.
(b) Predominantly represents the exclusion of TruPS from Tier 1 capital
under Basel III.
(c) Predominantly represents a change in the calculation of qualifying
allowance for credit losses under Basel III.

150

JPMorgan Chase & Co./2014 Annual Report

RWA rollforward
The following table presents changes in the components of
RWA under Basel III Advanced Fully Phased-In for the year
ended December 31, 2014. The amounts in the rollforward
categories are estimates, based on the predominant driverof the change.
Year ended December 31, (in millions)(in billions)Creditrisk
RWA

Marketrisk
RWA

Operationalrisk RWA

Total
RWA

Basel I RWA at December
31, 2013$1,223$ 165

NA$1,388

Effect of rule changes(a)

(168)

(4)

375

203

Basel III Advanced Fully
Phased-In RWA at
December 31, 2013
Model & data changes(b)

1,055

161

375

1,591

Basel III Transitional
Basel III Transitional capital requirements became effective
on January 1, 2014, and will become fully phased-in on
January 1, 2019. The following table presents areconciliation of the Firm’s Basel III Advanced Transitional
capital and RWA to the Firm’s estimated Basel III Advanced
Fully Phased-In capital and RWA as of December 31, 2014.
December 31, 2014
(in millions)Basel III Advanced Transitional CET1 capital
AOCI phase-in$

164,7642,249(a)CET1 capital deduction phased-in(b)(1,212)Intangibles deduction phase-in(c)(850)

Other adjustments to CET1 capital(d)(99)

Basel III Advanced Fully Phased-In CET1 capital$

164,852$

21,868

56

36

25

117

Portfolio runoff(c)

(22)

(22)

—

(44)

Movement in portfolio
levels(d)Basel III Advanced Transitional Additional Tier 1
capital

(49)

4

—

(45)

Non-qualifying instruments phase-out(2,670)Changes in RWA

(15)

18

25

28

Tier 1 capital deduction phased-out(b)1,212Other adjustments to Tier 1 capital(d)(352)

Basel III Advanced Fully
Phased-In RWA at
December 31, 2014

$1,040

$ 179

$

400

$1,619(a) Effect of rule changes refers to movements in levels of RWA as a resultof changing to calculating RWA under the Basel III Advanced Fully
Phased-In rules. See Risk-weighted assets on page 147 for additional
information on the calculation of RWA under Basel III.
(b) Model & data changes refer to movements in levels of RWA as a resultof revised methodologies and/or treatment per regulatory guidance(exclusive of rule changes).
(c) Portfolio runoff for credit risk RWA reflects lower loan balances in
Mortgage Banking and reduced risk from position rolloffs in legacy
portfolios, and for market risk RWA reflects reduced risk from position
rolloffs in legacy portfolios.
(d) Movement in portfolio levels for credit risk RWA refers to changes inbook size, composition, credit quality, and market movements; and formarket risk RWA, refers to changes in position and market movements.

Basel III Advanced Fully Phased-In Additional Tier 1
capital$

20,058Basel III Advanced Fully Phased-In Tier 1 capital$

184,910Basel III Advanced Transitional Tier 2 capital$

24,390

Non-qualifying instruments phase-out(2,670)

Other adjustments to Tier 2 capital(e)(36)

Basel III Advanced Fully Phased-In Tier 2 capital$

21,684Basel III Advanced Fully Phased-In Total capital$

206,594

Basel III Advanced Transitional RWA$

1,608,240

Adjustment related to change in risk-weighting(f)Basel III Advanced Fully Phased-In RWA

11,047$

1,619,287(a) Includes the remaining balance of AOCI related to AFS debt securities
and defined benefit pension and OPEB plans that will qualify as Basel
III CET1 capital upon full phase-in.
(b) Predominantly includes regulatory adjustments related to changes in
FVA/DVA, as well as CET1 deductions for defined benefit pension plan
assets and DTA related to net operating loss carryforwards.
(c) Relates to intangible assets, other than goodwill and MSRs, that are
required to be deducted from CET1 capital upon full phase-in.
(d) Includes minority interest and the Firm’s investments in its own CET1
capital instruments.
(e) Includes the Firm’s investments in its own Tier 2 capital instruments
and unrealized gains on AFS equity securities.
(f) Primarily relates to the risk-weighting of items not subject to capital
deduction thresholds including MSRs.

JPMorgan Chase & Co./2014 Annual Report151Management’s discussion and analysis
The following table presents the regulatory capital ratios asof December 31 2014, under Basel III Standardized
Transitional and Basel III Advanced Transitional. Also
included in the table are the regulatory minimum ratios in
effect as of December 31, 2014.

On March 26, 2014, the Federal Reserve informed the Firmthat it did not object, on either a quantitative or qualitativebasis, to the Firm’s 2014 capital plan. For information on
actions taken by the Firm’s Board of Directors following the2014 CCAR results, see Capital actions on page 154.
On January 5, 2015, the Firm submitted its 2015 capitalplan to the Federal Reserve under the Federal Reserve’s
2015 CCAR process. The Firm expects to receive the Federal
Reserve’s final response to its plan no later than March 31,
2015.

December 31, 2014
Basel III
Standardized
Transitional

Basel III
Advanced
Transitional

Minimum
Wellcapital capitalized(b)ratiosratios(c)CET1 capital

11.2%

10.2%

4.0%

Tier 1 capital

12.7

11.6

5.5

6.0%

Total capital

15.0

13.1

8.0

10.0

7.6

7.6

4.0

5.0

Risk-based
capital ratios(a):NA

Leverage ratio:
Tier 1 leverage(a) For each of the risk-based capital ratios the lower of the Standardized
Transitional or Advanced Transitional ratio represents the Collins Floor.
(b) Represents the minimum capital ratios for 2014 currently applicable to theFirm under Basel III.
(c) Represents the minimum capital ratios for 2014 currently applicable to theFirm under the PCA requirements of the FDICIA.
(d) The CET1 capital ratio became a relevant measure of capital under the
prompt corrective action requirements on January 1, 2015.

At December 31, 2014, JPMorgan Chase maintained Basel
III Standardized Transitional and Basel III Advanced
Transitional capital ratios in excess of the well-capitalized
standards established by the Federal Reserve.
Additional information regarding the Firm’s capital ratios
and the U.S. federal regulatory capital standards to which
the Firm is subject is presented in Note 28. For further
information on the Firm’s Basel III measures, see the Firm’s
consolidated Pillar 3 Regulatory Capital Disclosures reports,
which are available on the Firm’s website (http://
investor.shareholder.com/jpmorganchase/basel.cfm).
Supplementary leverage ratio
The Firm estimates that if the U.S. SLR final rule were ineffect at December 31, 2014, the Firm’s SLR would havebeen approximately 5.6% and JPMorgan Chase Bank, N.A.’s
and Chase Bank USA, N.A.’s SLRs would have been
approximately 5.9% and 8.1%, respectively, at that date.
Comprehensive Capital Analysis and Review (“CCAR”)
The Federal Reserve requires large bank holding
companies, including the Firm, to submit a capital plan on
an annual basis. The Federal Reserve uses the CCAR andDodd-Frank Act stress test processes to ensure that largebank holding companies have sufficient capital during
periods of economic and financial stress, and have robust,forward-looking capital assessment and planning processes
in place that address each BHC’s unique risks to enable
them to have the ability to absorb losses under certain
stress scenarios. Through the CCAR, the Federal Reserve
evaluates each BHC’s capital adequacy and internal capital
adequacy assessment processes, as well as its plans tomake capital distributions, such as dividend payments orstock repurchases.

152

(d)

The Firm’s CCAR process is integrated into and employs thesame methodologies utilized in the Firm’s Internal Capital
Adequacy Assessment Process (“ICAAP”) process, as
discussed below.
Internal Capital Adequacy Assessment Process
Semiannually, the Firm completes the ICAAP, which
provides management with a view of the impact of severe
and unexpected events on earnings, balance sheet
positions, reserves and capital. The Firm’s ICAAP integrates
stress testing 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.
Minimum Total Loss Absorbing Capacity (“TLAC”)
In November 2014, the FSB, in consultation with the BaselCommittee on Banking Supervision, issued a consultative
document proposing that, in order for G-SIBs to havesufficient loss absorbing and recapitalization capacity tosupport an orderly resolution, they would be required tohave outstanding a sufficient amount and type of debt andcapital instruments. This amount and type of debt andcapital instruments (or “total loss absorbing capacity” or
TLAC) is intended to effectively absorb losses, as necessary,
upon a failure of a G-SIB, without imposing such losses on
taxpayers of the relevant jurisdiction or causing severe
systemic disruptions, and thereby ensuring the continuity of
the G-SIBs critical functions. The document identifies
specific criteria that must be met for instruments to beconsidered eligible under TLAC and sets out minimum
requirements that include existing Basel III minimum capitalrequirements, excluding capital buffers. The FSB’s proposed
range for a common minimum TLAC requirement is16-20% of the financial institution’s RWA and at least twice
its Basel III Tier 1 leverage ratio. The Firm estimated that it
has approximately 15% minimum TLAC as a percentage of
JPMorgan Chase & Co./2014 Annual ReportBasel III Advanced Fully Phased-in RWA, excluding capital
buffers currently in effect, at year end 2014 based on its
understanding of how the FSB proposal may be
implemented in the United States. The FSB is expected torevise its proposal following a period of public consultationand findings from a quantitative impact study and market
survey to be conducted in the first quarter of 2015. The
final proposal is expected to be submitted to the G-20 inadvance of the G-20 Summit scheduled for fourth quarterof 2015. U.S. banking regulators are expected to issue an
NPR that would outline TLAC requirements specific to U.S.
banks.
Regulatory capital outlook
The Firm expects to continue to accrete capital in the nearterm and believes its current capital levels enable it toretain market access, continue its strategy to invest in andgrow its businesses and maintain flexibility to distributeexcess capital. The Firm intends to balance return of capitalto shareholders with achieving higher capital ratios overtime. Additionally, the Firm expects the capital ratio
calculated under the Basel III Standardized Fully Phased-In
Approach to become its binding constraint by the end of
2015, or slightly thereafter. As a result, the Firm expects toreach Basel III Advanced and Standardized Fully Phased-In
CET1 ratios of approximately 11% by the end of 2015 andis targeting reaching a Basel III CET1 ratio of approximately
12% by the end of 2018.
The Firm’s capital targets take into consideration thecurrent U.S. Basel III requirements and contemplate therequirements under the U.S. G-SIB proposal issued on
December 9, 2014 and therefore, assume a 4.5% G-SIB
capital surcharge. These targets are subject to revision in
the future as a result of changes that may be introduced bybanking regulators to the required minimum ratios to which
the Firm is subject. In particular, if the Firm’s G-SIB capitalsurcharge is determined to be lower than 4.5%, the capitaltargets would be adjusted accordingly. The Firm intends tomanage its capital so that it achieves the required capitallevels and composition in line with or in advance of therequired timetables of current and proposed rules.
Economic risk capital
Economic risk capital is another of the disciplines the Firm
uses to assess the capital required to support its
businesses. Economic risk capital is a measure of the 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 continues to enhance its economicrisk capital framework.
JPMorgan Chase & Co./2014 Annual ReportLine 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 Advanced Fully Phased-In) and economic risk
measures. Capital is also allocated to each line of business
for, among other things, goodwill and other intangibles
associated with acquisitions effected by the line of business.
ROE is measured and internal targets for expected returns
are established as key measures of a business segment’s
performance.
Line of business equity

Yearly average

Year ended December 31,(in billions)2014

Consumer & Community Banking

$

2013

51.0

$

46.0

2012
$

43.0

Corporate & Investment Bank

61.0

56.5

47.5

Commercial Banking

14.0

13.5

9.5

Asset Management

9.0

9.0

7.0

Corporate

72.4

71.4

77.4

$ 207.4$ 196.4$ 184.4

Total common stockholders’ equity

Effective January 1, 2013, the Firm refined the capital
allocation framework to align it with the revised line ofbusiness structure that became effective in the fourth
quarter of 2012. The change in equity levels for the lines ofbusinesses was largely driven by the evolving regulatory
requirements and higher capital targets the Firm hadestablished under the Basel III Advanced Approach.
On at least an annual basis, the Firm assesses the level ofcapital required for each line of business as well as theassumptions and methodologies used to allocate capital toits lines of business and updates the equity allocations to its
lines of business as refinements are implemented.
Line of business equity

January 1,(in billions)
Consumer & Community Banking

December 31,

2015(a)
$

51.0

2014
$

51.0

2013
$

46.0

Corporate & Investment Bank

62.0

61.0

56.5

Commercial Banking

14.0

14.0

13.5

Asset Management

9.0

9.0

9.0

Corporate

76.0

77.0

75.0

212.0

$ 212.0

Total common stockholders’equity

$

$

200.0

(a) Reflects refined capital allocations effective January 1, 2015.

153

Management’s discussion and analysis
Capital actions
Dividends
The Firm’s common stock dividend policy reflects JPMorgan
Chase’s earnings outlook, desired dividend payout ratio,
capital objectives, and alternative investment opportunities.
The Firm’s current expectation is to continue to target apayout ratio of approximately 30% of normalized earnings
over time. Following the Federal Reserve’s non-objection to
the Firm’s 2014 capital plan, the Board of Directors
increased the quarterly common stock dividend on May 20,
2014, from $0.38 to $0.40 per share, effective beginningwith the dividend paid on July 31, 2014, to stockholders ofrecord on July 3, 2014.
For information regarding dividend restrictions, see Note 22
and Note 27.
The following table shows the common dividend payout
ratio based on reported net income.
Year ended December 31,

2014

2013

2012

Common dividend payout ratio

29%

33%

23%

Preferred stock
During the year ended December 31, 2014, the Firm issued$8.9 billion of noncumulative preferred stock. Preferredstock dividends declared were $1.1 billion for the year
ended December 31, 2014. Assuming all preferred stock
issuances were outstanding for the entire year andquarterly dividends were declared on such issuances,preferred stock dividends would have been $1.3 billion forthe year ended December 31, 2014. For additional
information on the Firm’s preferred stock, see Note 22.
Redemption of outstanding trust preferred securities
On May 8, 2013, the Firm redeemed approximately$5.0 billion, or 100% of the liquidation amount, of 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.
Common equity
On March 13, 2012, the Board of Directors authorized a$15.0 billion common equity (i.e., common stock andwarrants) repurchase program. As of December 31, 2014,$3.8 billion (on a trade-date basis) of authorized
repurchase capacity remained under the program. The
amount of equity that may be repurchased by the Firm isalso subject to the amount that is set forth in the Firm’s
annual capital plan submitted to the Federal Reserve aspart of the CCAR process. In conjunction with the Federal
Reserve’s release of its 2014 CCAR results, the Firm’s Boardof Directors has authorized the Firm to repurchase $6.5
billion of common equity between April 1, 2014, and March
31, 2015. As of December 31, 2014, $2.1 billion (on atrade-date basis) of such repurchase capacity remains. Thisauthorization includes shares repurchased to offset
issuances under the Firm’s equity-based compensationplans.
154

The following table sets forth the Firm’s repurchases ofcommon equity for the years ended December 31, 2014,2013 and 2012, on a trade-date basis. There were no
warrants repurchased during the years ended December
31, 2014, and 2013.
Year ended December 31, (in millions)2014

Total number of shares of common stock
repurchased

2013

2012

83.4

96.1

30.9

Aggregate purchase price of common
stock repurchases$ 4,834$ 4,789$ 1,329

Total number of warrants repurchased

—

—

18.5

Aggregate purchase price of warrant
repurchases

$

—

$

—

$

238

The Firm may, from time to time, enter into written trading
plans under Rule 10b5-1 of the Securities Exchange Act of1934 to facilitate repurchases in accordance with thecommon equity repurchase program. A Rule 10b5-1
repurchase plan allows the Firm to repurchase its equity
during periods when it would not otherwise be repurchasing
common equity — for example, during internal trading“blackout periods.” All purchases under a Rule 10b5-1 plan
must be made according to a predefined plan establishedwhen the Firm is not aware of material nonpublic
information.
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 18–19.

JPMorgan Chase & Co./2014 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, 2014,
JPMorgan Securities’ net capital, as defined by the Net
Capital Rule, was $12.8 billion, exceeding the minimum
requirement by $10.6 billion, and JPMorgan Clearing’s net
capital was $7.5 billion, exceeding the minimum
requirement by $5.6 billion.
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,
2014, JPMorgan Securities had tentative net capital inexcess of the minimum and notification requirements.
J.P. Morgan Securities plc is a wholly owned subsidiary of
JPMorgan Chase Bank, N.A. and is the Firm’s principal
operating subsidiary in the U.K. It has authority to engage inbanking, investment banking and broker-dealer activities.
J.P. Morgan Securities plc is jointly regulated by the U.K.
Prudential Regulation Authority (“PRA”) and Financial
Conduct Authority (“FCA”). Commencing January 1, 2014,
J.P. Morgan Securities plc became subject to the U.K. BaselIII capital rules.
At December 31, 2014, J.P. Morgan Securities plc had
estimated total capital of $30.1 billion; its estimated CET1
capital ratio was 10.7% and its estimated Total capital ratio
was 14.1%. Both ratios exceeded the minimum transitional
standards (4.0% and 8.0% for the CET1 ratio and Total
capital ratio, respectively) as established by the Capital
Requirements Directive and Regulation (the European
Union (“EU”) implementation of Basel III) as well as
additional minimum requirements specified by the
Prudential Regulatory Authority as Individual Capital
Guidance and PRA Buffer requirements.

JPMorgan Chase & Co./2014 Annual Report155Management’s discussion and analysis

LIQUIDITY RISK MANAGEMENT
Liquidity risk is the risk that the Firm will be unable to meetits contractual and contingent obligations. Liquidity risk
management is intended to ensure that the Firm has theappropriate amount, composition and tenor of funding andliquidity in support of its assets.

availability of liquidity sources. The Firm manages liquidityand funding using a centralized, global approach in order to
optimize liquidity sources and uses.
In the context of the Firm’s liquidity management, Treasuryis responsible for:Liquidity Risk Oversight
The Firm has an independent liquidity risk oversightfunction whose primary objective is to provide assessment,
measurement, monitoring, and control of liquidity risk
across the Firm. Liquidity risk oversight is managed througha dedicated firmwide Liquidity Risk Oversight groupreporting into the CIO, Treasury, and Corporate (“CTC”)
Chief Risk Officer (“CRO”). The CTC CRO has responsibility
for firmwide Liquidity Risk Oversight and reports to theFirm’s CRO. Liquidity Risk Oversight’s responsibilities
include but are not limited to:• Establishing and monitoring limits, indicators, andthresholds, including liquidity appetite tolerances;• Defining and monitoring internal Firmwide and legal
entity stress tests and regulatory defined stress testing;• Reporting and monitoring liquidity positions, balance
sheet variances and funding activities;• Conducting ad hoc analysis to identify potential
emerging liquidity risks.

• Analyzing and understanding the liquidity
characteristics of the Firm, lines of business and legal
entities’ assets and liabilities, taking into account legal,
regulatory, and operational restrictions;• Defining and monitoring firmwide and legal entity
liquidity strategies, policies, guidelines, and contingency
funding plans;• Managing liquidity within approved liquidity risk
appetite tolerances and limits;• Setting transfer pricing in accordance with underlying
liquidity characteristics of balance sheet assets andliabilities as well as certain off-balance sheet items.
Contingency funding plan
The Firm’s contingency funding plan (“CFP”), which isreviewed by ALCO and approved by the DRPC, is acompilation of procedures and action plans for managing
liquidity through stress events. The CFP incorporates thelimits and indicators set by the Liquidity Risk Oversightgroup. These limits and indicators are reviewed regularly toidentify the emergence of risks or vulnerabilities in the
Firm’s liquidity position. The CFP identifies the alternative
contingent liquidity resources available to the Firm in a
stress event.
Parent holding company and subsidiary funding
The parent holding company acts as a source of funding to
its subsidiaries. The Firm’s liquidity management isintended to maintain liquidity at the parent holding
company, in addition to funding and liquidity raised at thesubsidiary operating level, 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. The parent holding company currently holds
more than 18 months of pre-funding assuming no access towholesale funding markets.

Risk Governance and Measurement
Specific committees responsible for liquidity governanceinclude firmwide ALCO as well as lines of business andregional ALCOs, and the CTC Risk Committee. For further
discussion of the risk and risk-related committees, seeEnterprise-wide Risk Management on pages 105–109.
Internal 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 contemplateboth market and idiosyncratic stress. Standard stress tests
are performed on a regular basis and ad hoc stress tests are
performed in response to specific market events orconcerns. In addition, stress scenarios are produced for theparent holding company and the Firm’s major subsidiaries.
Liquidity stress tests assume all of the Firm’s contractual
obligations are met and then take into consideration
varying levels of access to unsecured and secured funding
markets. Additionally, assumptions with respect to potential
non-contractual and contingent outflows are contemplated.
Liquidity Management
Treasury is responsible for liquidity management. The
primary objectives of effective liquidity management are toensure that the Firm’s core businesses are able to operate
in support of client needs, meet contractual and contingent
obligations through normal economic cycles as well as
during stress events, ensure funding mix optimization, and156

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%.

JPMorgan Chase & Co./2014 Annual ReportOn September 3, 2014, the U.S. banking regulators
approved the final LCR rule (“U.S. LCR”), which became
effective on January 1, 2015. Under the final rules, the LCR
is required to be 80% at January 1, 2015, increasing by
10% each year until reaching 100% at January 1, 2017. At
December 31, 2014, the Firm was compliant with the fully
phased-in U.S. LCR based on its current understanding of
the final rule. The Firm’s LCR may fluctuate from period-toperiod due to normal flows from client activity.
On October 31, 2014, the Basel Committee issued the final
standard for the NSFR which will become a minimum
standard by January 1, 2018. At December 31, 2014, theFirm was compliant with the NSFR based on its current
understanding of the final Basel rule. The U.S. Banking
Regulators are expected to issue a proposal on the NSFR
that would outline requirements specific to U.S. banks.
HQLA
HQLA is the estimated amount of assets that qualify forinclusion in the U.S. LCR. HQLA primarily consists of cash
and certain unencumbered high quality liquid assets as
defined in the rule.
As of December 31, 2014, HQLA was estimated to beapproximately $600 billion, as determined under the U.S.
LCR final rule, compared with $522 billion as of December
31, 2013, which was calculated using the BaselCommittee’s definition of HQLA. The increase in HQLA wasdue to higher cash balances largely driven by higher deposit
balances, partially offset by the impact of the application of
the U.S. LCR rule which excludes certain types of securities
that are permitted under the Basel Rules. HQLA may
fluctuate from period-to-period primarily due to normal
flows from client activity.
The following table presents the estimated HQLA includedin the U.S. LCR broken out by HQLA-eligible cash and HQLAeligible securities as of December 31, 2014.
(in billions)

December 31, 2014

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

454
146

$

600

(a) Predominantly cash on deposit at central banks.
(b) Predominantly includes U.S. agency mortgage-backed securities, U.S.
Treasuries, and sovereign bonds.

In addition to HQLA, as of December 31, 2014, the Firm hasapproximately $321 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 Federal Home Loan Banks (“FHLBs”), the Federal
Reserve Bank discount window and various other central
banks as a result of collateral pledged by the Firm to suchbanks. Although available, the Firm does not view theborrowing capacity at the Federal Reserve Bank discount

JPMorgan Chase & Co./2014 Annual Reportwindow and the various other central banks as a primarysource of liquidity. As of December 31, 2014, the Firm’s
remaining borrowing capacity at various FHLBs and theFederal Reserve Bank discount window was approximately$143 billion. This borrowing capacity excludes the benefitof securities included above in HQLA or otherunencumbered securities held at the Federal Reserve Bank
discount window for which the Firm has not drawn liquidity.

Funding
Sources of funds
Management believes that the Firm’s unsecured andsecured funding capacity is sufficient to meet its on- andoff-balance sheet obligations.
The Firm funds its global balance sheet through diverse
sources of funding including a stable deposit franchise as
well as secured and unsecured funding in the capital
markets. The Firm’s loan portfolio (aggregating
approximately $757.3 billion at December 31, 2014), is
funded with a portion of the Firm’s deposits (aggregating
approximately $1,363.4 billion at December 31, 2014)
and through securitizations and, with respect to a portion of
the Firm’s real estate-related loans, with secured
borrowings from the FHLBs. Deposits in excess of theamount utilized to fund loans are primarily invested in the
Firm’s investment securities portfolio or deployed in cash orother short-term liquid investments based on their interest
rate and liquidity risk characteristics. Capital markets
secured financing assets and trading assets are primarily
funded by the Firm’s capital markets secured financing
liabilities, trading liabilities and a portion of the Firm’s longterm debt and stockholders’ equity.
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, 2014,
the Firm’s loans-to-deposits ratio was 56%, compared with
57% at December 31, 2013.
As of December 31, 2014, total deposits for the Firm were$1,363.4 billion, compared with $1,287.8 billion at
December 31, 2013 (58% of total liabilities at both
December 31, 2014 and 2013). The increase was due togrowth in both wholesale and consumer deposits. For
further information, see Balance Sheet Analysis on pages
72–73.

157

Management’s discussion and analysis

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, 2014 and 2013.
Deposits

Year ended December 31,

As of or for the period ended December 31,

Average(in millions)2014

Consumer & Community Banking

$

2013

2013

502,520 $464,412486,919 $453,304

Corporate & Investment Bank

468,423446,237

417,517384,289

Commercial Banking

213,682

206,127

190,425

184,409

Asset Management

155,247

146,183

150,121

139,707

Corporate
Total Firm$

23,55524,806

1,363,427 $

1,287,765

$

2014

$

19,31927,433

1,264,301 $

1,189,142

A significant portion of the Firm’s deposits are consumer deposits (37% and 36% at December 31, 2014 and 2013,
respectively), which are considered particularly stable as they are less sensitive to interest rate changes or market volatility.
Additionally, the majority of the Firm’s institutional deposits are also considered to be stable sources of funding since they are
generated from customers that maintain operating service relationships with the Firm. For further discussions of deposit andliability balance trends, see the discussion of the results for the Firm’s business segments and the Balance Sheet Analysis on
pages 79–104 and pages 72–73, respectively.
The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2014 and 2013,
and average balances for the years ended December 31, 2014 and 2013. For additional information, see the Balance Sheet
Analysis on pages 72–73 and Note 21.
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

2014$

Average

2013

2014

2013
17,78535,93253,717

17,24940,59957,848$$24,052 $42,292
66,344 $$19,442 $40,474
59,916 $Obligations of Firm-administered multi-seller conduits$

12,047 $14,892$

10,427 $

15,504

Other borrowed funds$

30,222 $27,994$31,721 $

30,449$$167,077 $
21,798
188,875 $

155,808
19,509175,317$ 181,186 $ 207,106
22,586
26,068$ 203,772 $ 233,174$$ 139,707 $ 137,662(a)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(b)(c)(d)Total senior notes

142,480 $

135,754

Trust preferred securities

5,496

5,445

5,471

7,178

Subordinated debt

29,472

29,57829,082

27,955Structured notes

30,021

28,60330,311

29,517

Total long-term unsecured funding$

207,469 $199,380$ 204,571 $ 202,312

Credit card securitization$

31,239 $26,580$

Other securitizations(e)

FHLB advances
Other long-term secured funding(f)28,935 $27,834

2,008

3,253

2,734

3,501

64,99461,876

60,66755,487

4,373

6,633

102,614 $

98,342

Total long-term secured funding$

Preferred stock(g)$20,063 $Common stockholders’ equity(g)$212,002 $

5,031

6,284

97,367 $93,106

11,15817,018 $10,960200,020

207,400 $ 196,409$(a) Included in beneficial interests issued by consolidated variable interest entities on the Firm’s Consolidated balance sheets.
(b) Excludes federal funds purchased.
(c) Excluded long-term structured repurchase agreements of $2.7 billion and $4.6 billion as of December 31, 2014 and 2013, respectively, and averagebalance of $4.2 billion for the years ended December 31, 2014 and 2013.

158

JPMorgan Chase & Co./2014 Annual Report(d) Excluded long-term securities loaned of $483 million as of December 31, 2013, and average balance of $24 million and $414 million for the years ended
December 31, 2014 and 2013, respectively. There were no long-term securities loaned as of December 31, 2014.
(e) Other securitizations includes securitizations of residential mortgages and student loans. The Firm’s wholesale businesses also securitize loans for 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.
(f) Includes long-term structured notes which are secured.
(g) For additional information on preferred stock and common stockholders’ equity see Capital Management on pages 146–155, Consolidated statements ofchanges in stockholders’ equity, Note 22 and Note 23.

Short-term funding
A significant portion of the Firm’s total commercial paper
liabilities, approximately 64% as of December 31, 2014,
were not sourced from wholesale funding markets, but 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
portion of the federal funds purchased and securities
loaned or sold under purchase agreements. The amounts of
securities loaned or sold under agreements to repurchaseat December 31, 2014, increased predominantly due to achange in the mix of the Firm’s funding sources. The
decrease in average balances for the year ended
December 31, 2014, compared with December 31, 2013,
was predominantly due to less secured financing of the
Firm’s investment securities portfolio, and a change in themix of the Firm’s funding sources. The balances associatedwith securities loaned or sold under agreements torepurchase fluctuate over time due to customers’
investment and financing activities; the Firm’s demand forfinancing; the ongoing management of the mix of the Firm’s
liabilities, including its secured and unsecured financing(for both the investment securities and market-making
portfolios); and other market and portfolio factors.
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, liquidity
considerations, and regulatory requirements. Long-term
funding objectives include maintaining diversification,
maximizing market access and optimizing funding costs, aswell as maintaining a certain level of pre-funding at theparent holding company. The Firm evaluates various
funding markets, tenors and currencies in creating its
optimal long-term funding plan.
The significant majority of the Firm’s long-term unsecured
funding is issued by the parent holding company to provide
maximum flexibility in support of both bank and nonbank
subsidiary funding. The following table summarizes longterm unsecured issuance and maturities or redemptions forthe years ended December 31, 2014 and 2013. For
additional information, see Note 21.

JPMorgan Chase & Co./2014 Annual Report

Long-term unsecured funding
Year ended December 31,(in millions)

2014

2013

16,373 $19,835Issuance
Senior notes issued in the U.S. market$

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

11,221

8,843

27,594

28,678Subordinated debt

4,979

3,232

Structured notes

19,806

16,979$52,379 $48,889$21,169 $18,418—

5,052

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

4,487

2,418

Structured notes

18,554

17,78544,210 $43,673

Total long-term unsecured funding –maturities/redemptions$

In addition, from January 1, 2015, through February 24,
2015, the Firm issued $10.1 billion of senior notes.
The Firm raises secured long-term funding 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.
The following table summarizes the securitization issuanceand FHLB advances and their respective maturities orredemption for the years ended December 31, 2014 and2013.
Long-term secured funding
Year ended
December 31,

Issuance(in millions)Credit card
securitization

2014

Maturities/Redemptions

2013

2014

$ 8,350 $ 8,434

Other securitizations(a)FHLB advances

3,774 $

11,853

—

—

309

427

15,20023,65012,0793,815

Other long-term
secured funding$

Total long-term
secured funding$ 24,352 $ 32,835

802 $

751

$

2013

$

3,076 $

159

$ 19,238 $

16,254(a) Other securitizations includes securitizations of residential mortgages
and student loans.

159

Management’s discussion and analysis
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.

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 74, and Credit risk,
liquidity risk and credit-related contingent features inNote 6.

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

The credit ratings of the parent holding company and the Firm’s principal bank and nonbank subsidiaries as of December 31,
2014, were as follows.
JPMorgan Chase & Co.

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

J.P. Morgan Securities LLC

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

Moody’s Investor Services

A3

P-2

StableAa3

P-1

StableAa3

P-1

StableStandard & Poor’s

A

A-1

NegativeA+

A-1

StableA+

A-1

StableFitch Ratings

A+

F1

StableA+

F1

StableA+

F1

StableDecember 31, 2014

Downgrades of the Firm’s long-term ratings by one or two
notches could result in a downgrade of the Firm’s shortterm ratings. If this were to occur, the Firm believes its costof funds could increase and access to certain funding
markets could be reduced as noted above. The nature andmagnitude of the impact of ratings downgrades depends on
numerous contractual and behavioral factors (which the
Firm believes are incorporated in its liquidity risk and stresstesting metrics). The Firm believes it maintains sufficientliquidity to withstand a potential decrease in funding
capacity due to ratings downgrades.
JPMorgan Chase’s unsecured debt does not containrequirements that would call for an acceleration of
payments, maturities or changes in the structure of theexisting debt, provide any limitations on future borrowings
or require additional collateral, based on unfavorable
changes in the Firm’s credit ratings, financial ratios,
earnings, or stock price.
Critical factors in maintaining high credit ratings include astable and diverse earnings stream, strong capital ratios,
strong credit quality and risk management controls, diverse
funding sources, and disciplined liquidity monitoringprocedures. Rating agencies continue to evaluate economic
and geopolitical trends, regulatory developments, rating
uplift assumptions surrounding government support, future
profitability, risk management practices, and litigation
matters, as well as their broader ratings methodologies.
Changes in any of these factors could lead to changes in the
Firm’s credit ratings.

160

On September 18, 2014, S&P revised its ratings
methodology for hybrid capital securities issued by financial
institutions, and on September 29, 2014, the ratings of the
Firm’s hybrid capital securities (including trust preferred
securities and preferred stock) were lowered by 1 notchfrom BBB to BBB-, reflecting the new methodology.
Furthermore, S&P has announced a Request for Comment
on a proposed change to rating criteria related to additionalloss absorbing capacity. In addition, Moody’s and Fitch arein the process of reviewing their ratings methodologies:
Moody’s has announced a Request for Comment on therevision to its Bank Rating Methodology and Fitch hasannounced a review of the ratings differential that it applies
between bank holding companies and their banksubsidiaries.
Although the Firm closely monitors and endeavors tomanage, to the extent it is able, factors influencing its credit
ratings, there is no assurance that its credit ratings will not
be changed in the future.

JPMorgan Chase & Co./2014 Annual Report

CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM
JPMorgan Chase’s accounting policies and use of estimates
are integral to understanding its reported results. The
Firm’s most complex accounting estimates require
management’s judgment to ascertain the appropriate
carrying value of assets and liabilities. The Firm hasestablished policies and control procedures intended toensure that estimation methods, including any judgments
made as part of such methods, are well-controlled,
independently reviewed and applied consistently fromperiod to period. The methods used and judgments madereflect, among other factors, the nature of the assets or
liabilities and the related business and risk management
strategies, which may vary across the Firm’s businesses andportfolios. In addition, the policies and procedures areintended to ensure that the process for changing
methodologies occurs in an appropriate manner. The Firm
believes its estimates for determining the carrying value of
its assets and liabilities are appropriate. The following is abrief description of the Firm’s critical accounting estimates
involving significant judgments.
Allowance for credit losses
JPMorgan Chase’s allowance for credit losses covers theretained consumer and wholesale loan portfolios, as well as
the Firm’s 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.
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
rely upon estimates such as redefault rates, loss severities,
the amounts and timing of prepayments and other factorsthat are reflective of current and expected future market
conditions. These estimates are, in turn, dependent on
factors such as the level of future home prices, the durationof current overall economic conditions, and othermacroeconomic and portfolio-specific factors. All of theseestimates and assumptions require significant management
judgment and certain assumptions are highly subjective.
JPMorgan Chase & Co./2014 Annual Report

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
not yet 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 theadjustment. The application of different inputs into thestatistical calculation, and the assumptions used bymanagement to adjust the statistical calculation, aresubject to management judgment, and emphasizing one
input or assumption over another, or considering other
inputs or assumptions, could affect the estimate of theallowance 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.,161

Management’s discussion and analysis
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.

PD estimates are based on observable external throughthe-cycle data, using credit rating agency default statistics.
A LGD estimate is assigned to each loan or lending-related
commitment. The estimate represents the amount of
economic loss if the obligor were to default. The type ofobligor, quality of collateral, and the seniority of the Firm’sloans in the obligor’s capital structure affect LGD. LGD
estimates are based on the Firm’s history of actual credit
losses over more than one credit cycle. Changes to the time
period used for PD and LGD estimates (for example, pointin-time loss versus longer views of the credit cycle) could
also affect the allowance for credit losses.

PCI loans
In connection with the Washington Mutual transaction,
JPMorgan Chase acquired certain PCI loans, which areaccounted for as described in Note 14. The allowance forloan losses for the PCI portfolio is based on quarterly
estimates of the amount of principal and interest cash flows
expected to be collected over the estimated remaining livesof the loans.

The Firm applies judgment in estimating PD and LGD 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, but differences in loan characteristics between
the Firm’s specific loan portfolio and those reflected inexternal and Firm-specific historical data could affect loss
estimates. Estimates of PD and LGD are subject to periodic
refinement based on any changes to underlying externaland Firm-specific historical data. The use of different inputs
would change the amount of the allowance for credit losses
determined appropriate by the Firm.

These cash flow projections are based on estimates
regarding default rates (including redefault rates on
modified loans), loss severities, the amounts and timing of
prepayments and other factors that are reflective of current
and expected future market conditions. These estimates are
dependent on assumptions regarding the level of futurehome price declines, and the duration of current overall
economic conditions, among other factors. These estimatesand 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 formula-based component of theallowance calculation for wholesale loans and lendingrelated components is the product of an estimated PD andestimated LGD. These factors are determined based on thecredit quality and specific attributes of the Firm’s loans andlending-related commitments to each obligor.
The Firm uses a risk rating system to determine the credit
quality of its wholesale loans and lending-related
commitments. In assessing the risk rating of a particularloan or lending-related commitment, among the factors
considered are the obligor’s debt capacity and financial
flexibility, the level of the obligor’s earnings, the amountand 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 informationand 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.
162

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 LGD and PD are consideredwhen estimating these adjustments. Factors related toconcentrated and deteriorating industries also areincorporated where relevant. These estimates are based on
management’s view of uncertainties that relate to current
macroeconomic and political conditions, quality ofunderwriting standards and other relevant internal andexternal factors affecting the credit 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, changes in the inputs below would have thefollowing effects on the Firm’s modeled loss estimates as ofDecember 31, 2014, without consideration of any
offsetting or correlated effects of other inputs in the Firm’s
allowance for loan losses:••

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 $1.2 billion.
For the residential real estate portfolio, excluding PCI
loans, a combined 5% decline in housing prices and a
1% increase in unemployment from current levels could
JPMorgan Chase & Co./2014 Annual Report

•

•

•

imply an increase to modeled annual loss estimates ofapproximately $100 million.
A 50 basis point deterioration in forecasted credit card
loss rates could imply an increase to modeled
annualized credit card loan loss estimates 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 $1.8 billion.
A 100 basis point increase in estimated loss given
default for the Firm’s entire wholesale loan portfolio
could imply an increase in the Firm’s modeled loss
estimates of approximately $140 million.

The purpose of these sensitivity analyses is to provide anindication of the isolated impacts of hypotheticalalternative assumptions on modeled loss estimates. Thechanges in the inputs presented above are not intended to
imply management’s expectation of future deterioration of
those risk factors. In addition, these analyses are notintended to estimate changes in the overall allowance forloan losses, which would also be influenced by the judgment
management applies to the modeled loss estimates toreflect the uncertainty and imprecision of these modeled
loss estimates based on then current circumstances andconditions.
It is difficult to estimate how potential changes in specificfactors might affect the overall allowance for credit losses
because management considers a variety of factors andinputs in estimating the allowance for credit losses.
Changes in these factors and inputs may not occur at thesame rate and may not be consistent across all geographies
or product types, and changes in factors may bedirectionally inconsistent, such that improvement in one
factor may offset deterioration in other factors. In addition,
it is difficult to predict how changes in specific economic
conditions or assumptions could affect borrower behavior
or other factors considered by management in estimating
the allowance for credit losses. Given the process the Firm
follows and the judgments made in evaluating the risk
factors related to its loans and credit card loss estimates,
management believes that its current estimate of theallowance 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.

JPMorgan Chase & Co./2014 Annual Report

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.
December 31, 2014
(in billions, except ratio data)
Trading debt and equity instruments
Derivative receivables
Trading assets
AFS securities
Loans
MSRs
Private equity investments(a)OtherTotal 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$ 320.0$ 22.5
79.0
12.6
399.0
35.1
298.8
1.0
2.6
2.5
7.4
7.4
5.7
2.5
36.2
2.4
749.7

50.9

4.5
$ 754.2$ 2,573.1

3.2
$

54.1

2.1%
7.2%

(a) Private equity instruments represent investments within the Corporateline of business.

Valuation
Details of the Firm’s processes for determining fair value
are set out in Note 3. Estimating fair value requires theapplication of judgment. The type and level of judgment
required is largely dependent on the amount of observable
market information available to the Firm. For instruments
valued using internally developed 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.
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, seeNote 3.
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, market funding rates, liquidity
considerations, unobservable parameters, and for portfoliosthat meet specified criteria, the size of the net open risk
163

Management’s discussion and analysis
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. For further discussion of valuation adjustments
applied by the Firm see Note 3.
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.
Goodwill impairment
Under U.S. GAAP, goodwill must be allocated to reporting
units and tested for impairment at least annually. The Firm’s
process and methodology used to conduct goodwill
impairment testing is described in Note 17.
Management applies significant judgment when estimating
the fair value of its reporting units. Estimates of fair value
are dependent upon estimates of (a) the future earnings
potential of the Firm’s reporting units, including 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.
During 2014, the Firm recognized an impairment of thePrivate Equity business’ goodwill totaling $276 million.
Remaining goodwill of $101 million at December 31, 2014
associated with the Private Equity business was disposed ofas part of the Private Equity sale completed in January
2015. For further information on the Private Equity sale,see Note 2.
Based upon the updated valuations for all of its reporting
units, the Firm concluded that the goodwill allocated to its
other reporting units was not impaired at December 31,
2014. The fair values of these reporting units exceeded
their carrying values. Except for the Firm’s mortgage
banking business, the excess fair value as a percentage ofcarrying value ranged from approximately 20-210% for theother reporting units and did not indicate a significant riskof goodwill impairment based on current projections andvaluations. The fair value of the Firm’s Mortgage Banking
business exceeded its carrying value by less than 5% andaccordingly, the associated goodwill of approximately $2
billion remains at an elevated risk for goodwill impairment.

164

The projections for all of the Firm’s reporting units are
consistent with the short-term assumptions discussed in theBusiness outlook on pages 66–67, and in the longer term,
incorporate a set of macroeconomic assumptions and the
Firm’s best estimates of long-term growth and returns of its
businesses. Where possible, the Firm uses third-party andpeer data to benchmark its assumptions and estimates.
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 Banking business, such declines could
result from increases in primary mortgage interest rates,
lower mortgage origination volume, higher costs to resolve
foreclosure-related matters or from deterioration ineconomic conditions, including decreases in home pricesthat result in increased credit losses. Declines in businessperformance, increases in equity capital requirements, orincreases in the estimated cost of equity, could cause theestimated fair values of the Firm’s reporting units or theirassociated goodwill to decline in the future, which could
result in a material impairment charge to earnings in a
future period related to some portion of the associatedgoodwill.
For additional information on goodwill, see Note 17.
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

JPMorgan Chase & Co./2014 Annual Reporttaxes may materially affect the Firm’s results of operationsin any reporting period.
The Firm’s provision for income taxes is composed ofcurrent and deferred taxes. Deferred taxes arise fromdifferences between assets and liabilities measured forfinancial reporting versus income tax return purposes.
Deferred tax assets are recognized if, in management’s
judgment, their realizability is determined to be more likely
than not. The Firm has also recognized deferred tax assets
in connection with certain NOLs. The Firm performs regularreviews to ascertain whether deferred tax assets are
realizable. These reviews include management’s estimatesand assumptions regarding future taxable income, which
also incorporates various tax planning strategies, including
strategies that may be available to utilize NOLs before they
expire. In connection with these reviews, if it is determinedthat a deferred tax asset is not realizable, a valuation
allowance is established. The valuation allowance may bereversed in a subsequent reporting period if the Firm
determines that, based on revised estimates of futuretaxable income or changes in tax planning strategies, it ismore likely than not that all or part of the deferred tax
asset will become realizable. As of December 31, 2014,
management has determined it is more likely than not that
the Firm will realize its deferred tax assets, net of theexisting valuation allowance.

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.
Litigation reserves
For a description of the significant estimates and judgments
associated with establishing litigation reserves, seeNote 31.

JPMorgan Chase does not record U.S. federal income taxes
on the undistributed earnings of certain non-U.S.
subsidiaries, to the extent that such earnings have been
reinvested abroad for an indefinite period of time. Changes
to the income tax rates applicable to these non-U.S.
subsidiaries may have a material impact on the effective tax
rate in a future period if such changes were to occur.

JPMorgan Chase & Co./2014 Annual Report165Management’s discussion and analysis

ACCOUNTING AND REPORTING DEVELOPMENTS
Amendments to the consolidation analysis
In February 2015, the Financial Accounting Standards
Board (“FASB”) issued guidance regarding consolidation oflegal entities such as limited partnerships, limited liability
corporations, and securitization structures. The guidance
eliminates the deferral issued by the FASB in February2010 of the accounting guidance for VIEs for certain
investment funds, including mutual funds, private equity
funds and hedge funds. In addition, the guidance amends
the evaluation of fees paid to a decision maker or a service
provider, and exempts certain money market funds fromconsolidation. The guidance will be effective in the firstquarter of 2016 with early adoption permitted. The Firm iscurrently evaluating the potential impact on theConsolidated Financial Statements.
Reclassification of residential real estate collateralized
consumer mortgage loans upon foreclosure andclassification of certain government-guaranteedmortgage loans upon foreclosure
In January 2014, the FASB issued guidance which clarified
the timing of when a creditor is considered to have taken
physical possession of residential real estate collateral for a
consumer mortgage loan, resulting in the reclassification of
the loan receivable to real estate owned. The final standard
also requires disclosure of outstanding foreclosed
residential real estate and the amount of the recorded
investment in residential real estate mortgage loans in theprocess of foreclosure. In August 2014, the FASB issued
separate guidance clarifying the classification andmeasurement of certain foreclosed government-guaranteedmortgage loans. Under the final standard, certain
foreclosed government-insured mortgage loan amounts
were reclassified on the balance sheet as a receivable fromthe guarantor at the guaranteed amount. The Firm early
adopted both of these new standards in the third quarter of2014 with a cumulative-effect adjustment as of January 1,
2014; the adoption of these standards (and related
reclassification adjustment) had no material impact on the
Firm’s Consolidated Financial Statements.
Measuring the financial assets and financial liabilities of aconsolidated collateralized financing entity
In August 2014, the FASB issued guidance to address
diversity in the accounting for differences in themeasurement of the fair values of financial assets andliabilities of consolidated financing VIEs. The new guidance
provides an alternative for consolidated financing VIEs toelect: (1) to measure their financial assets and liabilities
separately under existing U.S. GAAP for fair value
measurement with any differences in such fair values
reflected in earnings; or (2) to measure both their financial
assets and liabilities using the more observable of the fairvalue of the financial assets or the fair value of the financial
liabilities. The guidance will become effective in the firstquarter of 2016, with early adoption permitted. The
166

adoption of this guidance is not expected to have a material
impact on the Firm’s Consolidated Financial Statements.
Repurchase agreements and similar transactions
In June 2014, the FASB issued guidance that amends theaccounting for certain secured financing transactions, andrequires enhanced disclosures with respect to transactions
recognized as sales in which exposure to the derecognizedasset is retained through a separate agreement with thecounterparty. In addition, the guidance requires enhanced
disclosures with respect to the types and quality of financial
assets pledged in secured financing transactions. The
guidance will become effective in the first quarter of 2015,
except for the disclosures regarding the types and quality offinancial assets pledged, which will become effective in thesecond quarter of 2015. The adoption of this guidance is
not expected to have a material impact on the Firm’s
Consolidated Financial Statements.
Revenue recognition – revenue from contracts withcustomers
In May 2014, the FASB issued revenue recognition guidance
that is intended to create greater consistency with respect
to how and when revenue from contracts with customers isshown in the statements of income. The guidance requiresthat revenue from contracts with customers be recognized
upon delivery of a good or service based on the amount ofconsideration expected to be received, and requires
additional disclosures about revenue. The guidance will beeffective in the first quarter of 2017 and early adoption isprohibited. The Firm is currently evaluating the potential
impact on the Consolidated Financial Statements.
Reporting discontinued operations and disclosures ofdisposals of components of an entity
In April 2014, the FASB issued guidance regarding thereporting of discontinued operations. The guidance changes
the criteria for determining whether a disposition qualifies
for discontinued operations presentation. It also requires
enhanced disclosures about discontinued operations andsignificant dispositions that do not qualify to be presented
as discontinued operations. The guidance will become
effective in the first quarter of 2015. The adoption of thisguidance is not expected to have a material impact on the
Firm’s Consolidated Financial Statements.

JPMorgan Chase & Co./2014 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 initial cost of its investments in proportion to
the tax credits and other benefits received if certain criteria
are met, and to present the amortization as a component ofincome tax expense. The guidance will become effective inthe first quarter of 2015 and is required to be applied
retrospectively, such that the Firm’s results of operations
for prior periods will be revised to reflect the guidance.
The Firm intends to adopt the guidance for all qualifying
investments. The adoption of this guidance is estimated toreduce retained earnings by approximately $230 million.
The Firm expects that reported other income and income
tax expense will each increase as a result of presenting theamortization of the initial cost of its investments ascomponent of income tax expense. The amount of thisincrease in each period depends on the size andcharacteristics of the Firm’s portfolio of affordable housing
investments; the estimated increase for 2014 isapproximately $900 million. The effect of this guidance on
the Firm’s net income is not expected to be material.

JPMorgan Chase & Co./2014 Annual Report167

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, 2014.
Year ended December 31, 2014
(in millions)
Net fair value of contracts outstanding at January 1,
2014

Asset
position$

Effect of legally enforceable master netting
agreements

Liability
position

8,128$

15,082

9,929

23,21025,247

Contracts realized or otherwise settled(14,451)(15,557)

Fair value of new contracts

13,954

15,664——

Other changes in fair value

1,440

1,783

Gross fair value of contracts outstanding at
December 31, 201424,15327,137

Effect of legally enforceable master netting
agreements(14,327)(13,211)

Net fair value of contracts outstanding at
December 31, 2014

168

$

9,826

Asset
position

December 31, 2014 (in millions)
Maturity less than 1 year$

15,635

Liability
position$

16,376

Maturity 1–3 years

6,561

8,459

Maturity 4–5 years

1,230

1,790

727

512

Gross fair value of contracts outstanding at
December 31, 201424,15327,137

Effect of legally enforceable master netting
agreements(14,327)(13,211)

Maturity in excess of 5 years

Net fair value of contracts outstanding at
December 31, 2014

$

9,826

$

13,92615,318Gross fair value of contracts outstanding at
January 1, 2014

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, 2014.

$

13,926

JPMorgan Chase & Co./2014 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 investors, analysts, 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;• 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;• The success of the Firm’s business simplification
initiatives and the effectiveness of its control agenda;• 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./2014 Annual Report• Ability of the Firm to address enhanced regulatory
requirements affecting its consumer businesses;• 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 qualified
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;• 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, 2014.
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.

169

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,
2014. In making the assessment, management used theframework in “Internal Control - Integrated Framework(2013)” promulgated by the Committee of Sponsoring
Organizations of the Treadway Commission, commonlyreferred to as the “COSO” criteria.

170

Based upon the assessment performed, management
concluded that as of December 31, 2014, JPMorgan Chase’s
internal control over financial reporting was effective based
upon the COSO 2013 criteria. Additionally, based upon
management’s assessment, the Firm determined that there
were no material weaknesses in its internal control overfinancial reporting as of December 31, 2014.
The effectiveness of the Firm’s internal control overfinancial reporting as of December 31, 2014, 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 24, 2015

JPMorgan Chase & Co./2014 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, 2014 and 2013
and the results of their operations and their cash flows foreach of the three years in the period ended December 31,
2014 in conformity with accounting principles generally
accepted in the United States of America. Also in our
opinion, the Firm maintained, in all material respects,
effective internal control over financial reporting as ofDecember 31, 2014 based on criteria established inInternal Control - Integrated Framework (2013) 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 thePricewaterhouseCoopers LLP

300 Madison Avenue

JPMorgan Chase & Co./2014 Annual Reportdesign 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 themaintenance 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 24, 2015

New York, NY 10017
171

Consolidated statements of income

Year ended December 31, (in millions, except per share data)

2014

2013

2012

Revenue
Investment banking fees

$

6,542

$

6,354

$

5,808

Principal transactions

10,531

10,141

5,536

Lending- and deposit-related fees

5,801

5,945

6,196

Asset management, administration and commissions

15,931

15,106

13,868

77

667

2,110

Mortgage fees and related income

3,563

5,205

8,687

Card income

6,020

6,022

5,658

Securities gains(a)Other income

2,106

3,847

4,258

Noninterest revenue

50,57153,287

52,121

Interest income

51,531

52,66955,953

Interest expense

7,897

9,350

11,043

Net interest income

43,63443,31944,910Total net revenue

94,20596,606

97,031

Provision for credit losses

3,139

225

3,385

Compensation expense

30,16030,81030,585

Occupancy expense

3,909

3,693

3,925

Technology, communications and equipment expense

5,804

5,425

5,224

Professional and outside services

7,705

7,641

7,429

Marketing

2,550

2,500

2,577

Other expense

11,146

20,39814,989Total noninterest expense

61,27470,46764,729

Income before income tax expense

29,792

25,91428,917

Income tax expense

8,030

7,991

Noninterest expense

7,633

Net income$

21,762$

17,923$

21,284

Net income applicable to common stockholders$

20,093$

16,593$

19,877

$

5.34

$

4.39

$

5.22

Net income per common share data
Basic earnings per share
Diluted earnings per share

5.29

4.35

5.20

Weighted-average basic shares

3,763.5

3,782.4

3,809.4

Weighted-average diluted shares

3,797.5

3,814.9

Cash dividends declared per common share

$

1.58

$

1.44

3,822.2$

1.20(a) The following other-than-temporary impairment losses are included in securities gains for the periods presented.
Year ended December 31, (in millions)

2014

2013

2012

Debt securities the Firm does not intend to sell that have credit losses
Total other-than-temporary impairment losses

$

(2)

$

(1)

$

(113)

Losses recorded in/(reclassified from) accumulated other comprehensive income

—

—

85

Total credit losses recognized in income

(2)

(1)

(28)

Securities the Firm intends to sell
Total other-than-temporary impairment losses recognized in income

(2)
$

(4)

(20)
$

(21)

(15)
$

(43)

The Notes to Consolidated Financial Statements are an integral part of these statements.

172

JPMorgan Chase & Co./2014 Annual ReportConsolidated statements of comprehensive income
Year ended December 31, (in millions)
Net income

2014$

21,762

2013$

17,923

2012$

21,284

Other comprehensive income/(loss), after–tax
Unrealized gains/(losses) on investment securities

1,975(4,070)3,303

Translation adjustments, net of hedges

(11)

(41)

(69)

Cash flow hedges

44

(259)

69

Defined benefit pension and OPEB plans
Total other comprehensive income/(loss), after–tax
Comprehensive income$(1,018)

1,467

(145)

990

(2,903)

3,158

22,752$

15,020$24,442The Notes to Consolidated Financial Statements are an integral part of these statements.

JPMorgan Chase & Co./2014 Annual Report173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 $28,585 and $25,135 at fair value)
Securities borrowed (included $992 and $3,739 at fair value)
Trading assets (included assets pledged of $125,034 and $116,499)
Securities (included $298,752 and $329,977 at fair value and assets pledged of $24,912 and $23,446)
Loans (included $2,611 and $2,011 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 $12,366 and $15,187 at fair value and assets pledged of $1,396 and $2,066)
Total assets(a)$Liabilities
Deposits (included $8,807 and $6,624 at fair value)$
Federal funds purchased and securities loaned or sold under repurchase agreements (included $2,979 and $5,426 at fairvalue)
Commercial paper
Other borrowed funds (included $14,739 and $13,306 at fair value)
Trading liabilities
Accounts payable and other liabilities (included $36 and $25 at fair value)
Beneficial interests issued by consolidated variable interest entities (included $2,162 and $1,996 at fair value)
Long-term debt (included $30,226 and $28,878 at fair value)
Total liabilities(a)Commitments and contingencies (see Notes 29, 30 and 31)
Stockholders’ equity
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 2,006,250 and 1,115,750 shares)
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Shares held in RSU trust, at cost (472,953 and 476,642 shares)
Treasury stock, at cost (390,144,630 and 348,825,583 shares)
Total stockholders’ equity
Total liabilities and stockholders’ equity

$

2014

2013

27,831 $484,477
215,803
110,435
398,988
348,004
757,336(14,185)
743,151
70,07915,13347,647
7,436
1,192
102,950
2,573,126 $

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

1,363,427

1,287,765$

192,101

181,163

66,34430,222
152,815
206,954
52,362276,836
2,341,061

57,84827,994
137,744
194,491
49,617
267,889
2,204,511

20,063
4,105
93,270130,3152,189(21)(17,856)
232,065
2,573,126 $

11,1584,105
93,828
115,756
1,199(21)(14,847)
211,178
2,415,689(a) The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at December 31, 2014 and 2013. The difference between total
VIE assets and liabilities represents the Firm’s interests in those entities, which were eliminated in consolidation.
December 31, (in millions)2014

AssetsTrading assets

$

Loans

2013
9,090

$

68,880All other assets

1,815

Total assets

6,366
70,072
2,168$

79,785$78,606$52,362$

49,617$50,678

Liabilities
Beneficial interests issued by consolidated variable interest entities
All other liabilities
Total liabilities

949$

53,311

1,061

The assets of the consolidated VIEs are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general credit of JPMorgan
Chase. At December 31, 2014 and 2013, the Firm provided limited program-wide credit enhancement of $2.0 billion and $2.6 billion, respectively, related to its Firm-administeredmulti-seller conduits, which are eliminated in consolidation. For further discussion, see Note 16.

The Notes to Consolidated Financial Statements are an integral part of these statements.

174

JPMorgan Chase & Co./2014 Annual ReportConsolidated statements of changes in stockholders’ equity
Year ended December 31, (in millions, except per share data)

2014

2013

2012

Preferred stock
Balance at January 1$

Issuance of preferred stock

11,158

$

9,058

$

7,800

8,905

3,900

—

(1,800)—20,063

11,158

9,058

4,105

4,105

4,105

93,82894,604

95,602

Shares issued and commitments to issue common stock for employee stock-based compensation awards, andrelated tax effects

(508)

(752)

(736)

Other

(50)

(24)

(262)

93,27093,82894,604

Balance at January 1

115,756

104,223

88,315

Net income

21,762

17,923

21,284(1,125)

(805)

(647)

Redemption of preferred stock
Balance at December 31

1,258

Common stock
Balance at January 1 and December 31
Additional paid-in capital
Balance at January 1

Balance at December 31
Retained earnings

Dividends declared:
Preferred stock
Common stock ($1.58, $1.44 and $1.20 per share for 2014, 2013 and 2012, respectively)
Balance at December 31(6,078)(5,585)(4,729)130,315

115,756

104,223

1,199

4,102

944

Accumulated other comprehensive income/(loss)
Balance at January 1
Other comprehensive income/(loss)
Balance at December 31

990(2,903)

3,158

2,189

1,199

4,102

(21)

(21)

(38)

Shares held in RSU Trust, at cost
Balance at January 1
Reissuance from RSU Trust

—

—

17

Balance at December 31

(21)

(21)

(21)

Balance at January 1(14,847)(12,002)(13,155)

Purchase of treasury stock(4,760)(4,789)(1,415)

Reissuance from treasury stock

1,751

1,944

2,574

—

—

(6)

Balance at December 31(17,856)(14,847)(12,002)

Total stockholders’ equity$ 232,065$ 211,178$ 204,069

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./2014 Annual Report175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
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 received from/(used in) 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
Payments of long-term borrowings
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 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

2014$21,762

2013$

17,923

2012$

21,284

3,139
4,759
4,210
(77)
2,190
(67,525)
71,407

225
5,306
8,003
(667)
2,219
(75,928)
73,566

3,385
5,147
1,130
(2,110)2,545(34,026)
33,202(24,814)
1,020(3,637)(9,166)
26,8186,065
442
36,593

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)25,079(168,426)
30,848(194,363)
47,726(36,595)(60,821)

4,169(10,345)189(24,214)

4—

90,664
38,411(121,504)
20,115(51,749)
843
1,338(165,636)

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)

89,346
10,9059,242(834)
78,515(65,275)
407
8,847
—
(4,760)(6,990)(1,175)
118,228(1,125)(11,940)
39,771$ 27,831
$
8,194
1,392

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

The Notes to Consolidated Financial Statements are an integral part of these statements.

176

JPMorgan Chase & Co./2014 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 and asset management. Fora discussion of the Firm’s business segments, see Note 33.
The accounting and financial reporting policies of JPMorgan
Chase and its subsidiaries conform to accounting principles
generally accepted in the U.S. (“U.S. GAAP”). Additionally,
where applicable, the policies conform to the accounting
and reporting guidelines prescribed by regulatory
authorities.
Certain amounts reported in prior periods have been
reclassified to conform with the current presentation.
Consolidation
The Consolidated Financial Statements include the accountsof JPMorgan Chase and other entities in which the Firm has
a controlling financial interest. All material intercompany
balances and transactions have been eliminated.
Assets held for clients in an agency or fiduciary capacity by
the Firm are not assets of JPMorgan Chase and are notincluded on the Consolidated balance sheets.
The Firm determines whether it has a controlling financial
interest in an entity by first evaluating whether the entity isa voting interest entity or a variable interest entity (“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-affiliated
JPMorgan Chase & Co./2014 Annual Report

partners or members have the ability to remove the Firm as
the general partner or managing member without cause(i.e., kick-out rights), based on a simple majority vote, 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 have investments in bothpublicly-held and privately-held entities, including
investments in buyouts, growth equity and venture
opportunities. These investments are accounted for underinvestment company guidelines and accordingly,
irrespective of the percentage of equity ownership interests
held, are carried on the Consolidated balance sheets at fairvalue, and are recorded in other assets.
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 most177

Notes to consolidated financial statements
significant decisions affecting the VIE (such as asset
managers, collateral managers, servicers, or owners of call
options or liquidation rights over the VIE’s assets) or havethe right to unilaterally remove those decision-makers are
deemed to have the power to direct the activities of a VIE.
To assess whether the Firm has the obligation to absorb
losses of the VIE or the right to receive benefits from the
VIE that could potentially be significant to the VIE, the Firm
considers all of its economic interests, including debt andequity investments, servicing fees, and 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 theFirm.
The Firm performs on-going reassessments of: (1) whether
entities previously evaluated under the majority votinginterest framework have become VIEs, based on certain
events, and 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 February 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.
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.

178

Foreign currency translation
JPMorgan Chase revalues assets, liabilities, revenue andexpense denominated in non-U.S. currencies into U.S.
dollars using applicable exchange rates.
Gains and losses relating to translating functional currency
financial statements for U.S. reporting are included in 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.
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./2014 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.

Note 2 – Business changes and developments
Subsequent events

As part of the Firm’s business simplification agenda, thesale of a portion of the Private Equity Business (“Private
Equity sale”) was completed on January 9, 2015.
Concurrent with the sale, a new independent managementcompany was formed by the former One Equity Partners(“OEP”) investment professionals. The new managementcompany will provide investment management services tothe acquirer of the investments sold in the Private Equity
sale and for the portion of private equity investments
retained by the Firm. Upon closing, this transaction did nothave a material impact on the Firm’s Consolidated balance
sheets or its results of operations.

For further discussion of the Firm’s derivative instruments,
see Note 6. For further discussion of the Firm’s repurchaseand reverse repurchase agreements, and securities
borrowing and lending agreements, see Note 13.
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.
Significant accounting policies
The following table identifies JPMorgan Chase’s othersignificant accounting policies and the Note and page wherea detailed description of each policy can be found.
Fair value measurement

Note 3

Page 180

Fair value option

Note 4

Page 199

Derivative instruments

Note 6

Page 203

Noninterest revenue

Note 7

Page 216

Interest income and interest expense

Note 8Page 218

Pension and other postretirement
employee benefit plans

Note 9Page 218

Employee stock-based incentives

Note 10

Page 228

Securities

Note 12Page 230

Securities financing activities

Note 13

Page 235

Loans

Note 14

Page 238

Allowance for credit losses

Note 15

Page 258

Variable interest entities

Note 16

Page 262

Goodwill and other intangible assets

Note 17

Page 271

Premises and equipment

Note 18

Page 276

Long-term debt

Note 21

Page 277

Income taxes

Note 26

Page 282

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

Note 29

Page 287

Litigation

Note 31

Page 295

JPMorgan Chase & Co./2014 Annual Report179Notes to consolidated financial statements
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.
The level of precision in estimating unobservable market
inputs or other factors can affect the amount of gain or loss
recorded for a particular position. Furthermore, while theFirm believes its valuation methods are appropriate andconsistent with those of other market participants, themethods and assumptions used reflect management
judgment and may vary across the Firm’s businesses andportfolios.

Consumer & Community Banking) and certain corporate
functions including Treasury and Chief Investment Office(“CIO”).
The valuation control function verifies fair value estimatesprovided by the risk-taking functions by leveraging
independently derived prices, valuation inputs and othermarket data, where available. Where independent prices orinputs are not available, additional review is performed by
the valuation control function to ensure the reasonablenessof the estimates, and may include: evaluating the limited
market activity including client unwinds; benchmarking ofvaluation 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 levelsof management review for more significant or complex
positions.
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 where an
observable external price or valuation parameter exists
but is of lower reliability, potentially due to lower market
activity. Liquidity valuation adjustments are applied anddetermined based on current market conditions. Factorsthat may be considered in determining the liquidity
adjustment include analysis of: (1) the estimated bidoffer spread for the instrument being traded; (2)alternative pricing points for similar instruments inactive markets; and (3) the range of reasonable values
that the price or parameter could take.

•

The Firm manages certain portfolios of financial
instruments on the basis of net open risk exposure and,as permitted by U.S. GAAP, has elected to estimate thefair value of such portfolios on the basis of a transfer ofthe entire net open risk position in an orderlytransaction. Where this is the case, valuation
adjustments may be necessary to reflect the cost of
exiting a larger-than-normal market-size net open risk
position. Where applied, such adjustments are based on
factors that a relevant market participant would
consider in the transfer of the net open risk position
including the size of the adverse market move that is
likely to occur during the period required to reduce thenet open risk position to a normal market-size.

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.
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”) comprised of senior finance andrisk executives to oversee the management of risks arisingfrom valuation activities conducted across the Firm. The
VGF is chaired by the Firmwide head of the valuation control
function, and also includes sub-forums for the Corporate &Investment Bank (“CIB”), Mortgage Banking, (part of180

JPMorgan Chase & Co./2014 Annual Report•

Unobservable parameter valuation adjustments may bemade when positions are valued using prices or input
parameters to valuation models that are unobservable
due to a lack of market activity or because they cannot
be implied from observable market data. Such prices orparameters must be estimated and are, therefore,
subject to management judgment. Unobservableparameter valuation adjustments are applied to reflect
the uncertainty inherent in the resulting valuation
estimate.

Where appropriate, the Firm also applies adjustments to its
estimates of fair value in order to appropriately reflect
counterparty credit quality, the Firm’s own creditworthinessand the impact of funding, applying a consistent frameworkacross the Firm. For more information on such adjustments
see Credit and funding adjustments on pages 196–197 of
this Note.
Valuation model review and approval
If prices or quotes are not available for an instrument or asimilar instrument, fair value is generally determined using
valuation models that consider relevant transaction datasuch as maturity and use as inputs market-based or
independently sourced parameters. Where this is the casethe price verification process described above is applied tothe inputs to those models.

Valuation hierarchy
A three-level valuation hierarchy has been establishedunder U.S. GAAP for disclosure of fair value measurements.
The valuation hierarchy is based on the transparency of
inputs to the valuation of an asset or liability as of themeasurement date. The three levels are defined as follows.
•

Level 1 – inputs to the valuation methodology arequoted prices (unadjusted) for identical assets or
liabilities in active markets.

•

Level 2 – inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially thefull term of the financial instrument.

•

Level 3 – one or more inputs to the valuation
methodology are unobservable and significant to the fairvalue measurement.

A financial instrument’s categorization within the valuation
hierarchy is based on the lowest level of input that issignificant to the fair value measurement.

The Model Risk function is independent of the model owners
and reviews and approves a wide range of models, including
risk management, valuation and certain regulatory capitalmodels used by the Firm. The Model Risk function is part of
the Firm’s Model Risk and Development unit, and the
Firmwide Model Risk and Development Executive reports to
the Firm’s CRO. When reviewing a model, the Model Risk
function analyzes and challenges the model methodology
and the reasonableness of model assumptions and may
perform or require additional testing, including back-testingof model outcomes.
New significant valuation models, as well as materialchanges to existing valuation models, are reviewed andapproved prior to implementation except where specified
conditions are met. The Model Risk function performs anannual firmwide model risk assessment wheredevelopments in the product or market are considered indetermining whether valuation models which have alreadybeen reviewed need to be reviewed and approved again.

JPMorgan Chase & Co./2014 Annual Report181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 infrequent)• 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 credit default swaps
commitments(“CDS”); or benchmark credit curves developed by the Firm, byindustry and credit rating, and which take into account thedifference 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.
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 (e.g., unemployment rates))• Estimated prepayments• Servicing costs• Market liquidity
For information regarding the valuation of loans measured atcollateral value, see Note 14.

Held for investment credit card Valuations are based on discounted cash flows, which consider:receivables• Projected interest income and late fee revenue, servicing andcredit costs, and loan repayment rates• Estimated life of receivables (based on projected loan payment
rates)

Level 3• Discount rate - based on cost of funding and 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
residential mortgage loans
expected to be sold182

Fair value is based upon observable prices for mortgage-backed
securities with similar collateral and incorporates adjustments tothese prices to account for differences between the securities and thevalue of the underlying loans, which include credit characteristics,
portfolio composition, and liquidity.

Predominantly level 2

JPMorgan Chase & Co./2014 Annual Report

Classifications in the valuation
hierarchy

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.

Level 1
Level 2 or 3

Derivatives that are valued using models such as the Black-Scholes
option pricing model, simulation models, or a combination of models,that 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 and volatility• 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:

Level 2 or 3

Physical commodities
Derivatives

Predominantly Level 1 and 2
Level 1

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 foreign exchange (“FX”) exotic options specificinputs 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
Additionally, adjustments are made to reflect counterparty credit quality(credit valuation adjustments or “CVA”), the Firm’s own creditworthiness(debit valuation adjustments or “DVA”), and funding valuation
adjustment (“FVA”) to incorporate the impact of funding. See pages
196–197 of this Note.
JPMorgan Chase & Co./2014 Annual Report183Notes to consolidated financial statements
Product/instrument

Valuation methodology, inputs and assumptions

Classification in the valuation
hierarchy

Mortgage servicing rights
Level 3
See Mortgage servicing rights in Note 17.
(“MSRs”)
Private equity direct investments Private equity direct investments
Level 2 or 3
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
Level 1 or 2
• 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.,
Level 1
private equity funds, hedge
purchases and sales)
funds, and real estate funds)• Adjustments to the NAV as required, for restrictions on
Level 2 or 3
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
Level 2 or 3
consolidated VIEs
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:
Predominantly level 2
fair value• Market rates for respective maturity• The Firm’s own creditworthiness (DVA). See pages 196-197 of this
Note.
Structured notes (included in• Valuations are based on discounted cash flow analyses that
Level 2 or 3
deposits, other borrowed funds
consider the embedded derivative and the terms and payment
and long-term debt)
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 creditworthiness(DVA) and to incorporate the impact of funding (FVA). See pages
196–197 of this Note.

184

JPMorgan Chase & Co./2014 Annual Report

The following table presents the asset and liabilities reported at fair value as of December 31, 2014 and 2013, by major
product category and fair value hierarchy.
Assets and liabilities measured at fair value on a recurring basis
Fair value hierarchy
December 31, 2014 (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./2014 Annual Report$$$

Level 2— $—Derivative netting
adjustments

Level 328,585
992

$

—
—

$

Total fair value— $—28,585
992

14
—
—
14
17,816——25,854———
43,684
104,890

31,904
1,381
927
34,212
8,460
9,298
1,429
27,29428,09923,0803,088
134,960
748

922
663
306
1,891
—
1,273
—
302
2,989
13,2871,264
21,006
431

—
—
—
—
—
—
—
—
—
—
—
—
—

32,8402,044
1,233
36,117
26,276
10,571
1,429
53,45031,08836,367
4,352
199,650
106,069

2,739—
151,313

1,741
8,762
146,2112
1,050
22,489

—
—
—

4,482
9,812
320,013473—
758

951,901
73,853205,887

4,149
2,989
2,276

(922,798)(75,004)(187,668)

33,725
1,838
21,253—247
1,478
152,791

44,24042,807
1,318,688
1,464,899

2,552
599
12,56535,054(38,615)(29,671)(1,253,756)(1,253,756)

8,177
13,982
78,975398,988————
13,591——
24,074—65,31950,86521,009137,19354
30,068
1,103
28,66918,532

—
30
99
129
—
—
—
—
—

—
—
—
—
—
—
—
—
—

65,31950,895
21,108137,322
13,64530,068
1,103
52,743
18,532——
2,530
40,195——29,402
12,499—257,520
70
—

792
116
—
1,037
2,541
7,436

—
—
—
—
—
—

30,194
12,6152,530
298,752
2,611
7,436

648
4,018
4,666
197,652 $
— $

2,624
230
2,854
1,754,920
5,948

2,475
2,371
4,846
50,914
2,859

(g)

$
$

(g)

$
$

—
—
—
(1,253,756) $
— $

5,747
6,619
12,366
749,730
8,807

—
—

2,979
13,286

—
1,453

—
—

2,979
14,73962,914

18,71372—

81,699920,623
73,095
214,800
46,22844,3181,299,064
1,317,777—
1,016
18,3491,359,355

3,523
2,800
2,802
4,337
1,164
14,626
14,69836
1,146
11,87732,069

499
—
746
—
141
1,386
64,300———64,300 $$$(906,900)(74,302)(195,378)(38,825)(28,555)(1,243,960)(1,243,960)———(1,243,960) $17,745
1,593
22,97011,74017,068
71,116
152,81536
2,162
30,226
211,764185

Notes to consolidated financial statements
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(h)Loans(b)Asset-backed securities
Total debt instruments
Equity securities
Physical commodities(c)OtherTotal debt and equity instruments(d)Derivative receivables:
Interest rate
CreditForeign exchange
EquityCommodity
Total derivative receivables(e)Total trading assets
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

Level 1$$$$

Level 2— $—Derivative netting
adjustments

Level 325,135
3,739

$

—
—

$

Total fair value— $—25,135
3,739

4
—
—
4
14,933——25,762———
40,699107,667
4,968—
153,334

25,582
1,749
871
28,202
10,547
6,538
3,071
22,37924,802
17,331
3,647
116,517
954
5,217
5,659
128,347

1,005
726
432
2,163
—
1,382
—
143
5,920
13,455
1,272
24,335885
42,000
27,224

—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—

26,5912,475
1,303
30,36925,4807,920
3,071
48,28430,72230,786
4,919
181,551
109,506
10,1897,659
308,905

419

848,862

5,398(828,897)

25,782

—
434
—
320
1,173
154,50779,754
151,52145,892
34,696
1,160,725
1,289,072

3,766
1,644
7,039
722
18,56945,793(82,004)(136,809)(40,704)(26,294)(1,114,708)(1,114,708)

1,516
16,79012,2279,444
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
5,426
11,232

6,474
3,176
9,650
69,310
2,255
—
2,074

61,262

19,055

113

822,01478,731
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 $

(g)

$
$

$

(g)

$
$

—
—
—
(1,114,708) $
— $
—
—
—

$

(812,071)(80,121)(144,178)(39,935)(26,530)(1,102,835)(1,102,835)———(1,102,835) $

7,509
7,678
15,187760,327
6,624
5,426
13,30680,43013,283
2,281
15,947
14,71911,08457,314
137,74425
1,996
28,878
193,999(a) At December 31, 2014 and 2013, included total U.S. government-sponsored enterprise obligations of $84.1 billion and $91.5 billion, respectively, which were predominantly
mortgage-related.
(b) At December 31, 2014 and 2013, included within trading loans were $17.0 billion and $14.8 billion, respectively, of residential first-lien mortgages, and $5.8 billion and $2.1
billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell to U.S. government
agencies of $7.7 billion and $6.0 billion, respectively, and reverse mortgages of $3.4 billion and $3.6 billion, respectively.

186

JPMorgan Chase & Co./2014 Annual Report

(c) Physical commodities inventories are generally accounted for at the lower of cost or market. “Market” is a term defined in U.S. GAAP as not exceeding fair value less costs to sell(“transaction costs”). Transaction costs for the Firm’s physical commodities inventories are either not applicable or immaterial to the value of the inventory. Therefore, market
approximates fair value for the Firm’s physical commodities inventories. When fair value hedging has been applied (or when market is below cost), the carrying value of 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. To provide consistent fair value disclosure information, all physical commodities inventories have been included in each period presented.
(d) Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).
(e) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally
enforceable master netting agreement exists. For purposes of the tables above, the Firm does not reduce derivative receivables and derivative payables balances for this netting
adjustment, either within or across the levels of the fair value hierarchy, as such netting is not relevant to a presentation based on the transparency of inputs to the valuation 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 $2.5 billion and $7.6 billion at December 31, 2014 and 2013,
respectively; this is exclusive of the netting benefit associated with cash collateral, which would further reduce the level 3 balances.
(f) Private equity instruments represent investments within the Corporate line of business. The cost basis of the private equity investment portfolio totaled $6.0 billion and $8.0
billion at December 31, 2014 and 2013, respectively.
(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, 2014 and 2013, the fair values of these investments were $1.8 billion and $3.2 billion, respectively, of
which $337 million and $899 million, respectively were classified in level 2, and $1.4 billion and $2.3 billion, respectively, in level 3.

Transfers between levels for instruments carried at fairvalue on a recurring basis
For the year ended December 31, 2014 and 2013, there
were no significant transfers between levels 1 and 2.
During the year ended December 31, 2014, transfers fromlevel 3 to level 2 included the following:•$4.3 billion and $4.4 billion of gross equity derivative
receivables and payables, respectively, due to increased
observability of certain equity option valuation inputs;•$2.7 billion of trading loans, $2.6 billion of marginloans, $2.3 billion of private equity investments, $2.0
billion of corporate debt, and $1.3 billion of long-term
debt, based on increased liquidity and pricetransparency.

For the year ended December 31, 2012, there were no
significant transfers from level 2 into level 3. For the year
ended December 31, 2012, transfers from level 3 into level
2 included $1.2 billion of derivative payables based onincreased observability of certain structured equity
derivatives; and $1.8 billion of long-term debt due toincreased observability of certain equity structured notes.
All transfers are assumed to occur at the beginning of thequarterly reporting period in which they occur.

Transfers from level 2 into level 3 included $1.1 billion ofother borrowed funds, $1.1 billion of trading loans and$1.0 billion of long-term debt, based on a decrease inobservability of valuation inputs and price transparency.
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.

JPMorgan Chase & Co./2014 Annual Report187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
181–184 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.
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) inaddition 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

188

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. Where provided, the weighted
averages of the input values presented in the table arecalculated based on the fair value of the instruments thatthe input is being used to value.
In the Firm’s view, the input range and the weighted
average value do not reflect the degree of input uncertainty
or an assessment of the reasonableness of the Firm’s
estimates and assumptions. Rather, they reflect thecharacteristics of the various instruments held by the Firm
and the relative distribution of instruments within the rangeof characteristics. For example, two option contracts may
have similar levels of market risk exposure and valuation
uncertainty, but may have significantly different implied
volatility levels because the option contracts have different
underlyings, tenors, or strike prices. The input range andweighted average values will therefore vary from period-toperiod and parameter to parameter based on thecharacteristics of the instruments held by the Firm at eachbalance sheet date.
For the Firm’s derivatives and structured notes positionsclassified within level 3, 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 and the foreign exchange
correlation inputs were concentrated at the lower end of
the range presented. The equity volatility is concentrated in
the lower half end of the range. The forward commodity
prices used in estimating the fair value of commodity
derivatives were concentrated within the lower end of therange presented.

JPMorgan Chase & Co./2014 Annual Report

Level 3 inputs(a)December 31, 2014 (in millions, except for ratios and basis points)
Product/Instrument

Fair
value

Principal valuation
technique

Residential mortgage-backed
securities and loans$ 8,917

Discounted cash flows

Commercial mortgage-backed
securities and loans(b)5,319Discounted cash flows

Corporate debt securities, obligationsof U.S. states and municipalities, andother(c)6,387Discounted cash flows

Net interest rate derivatives

6,629
626

Market comparables
Option pricing

Net credit derivatives(b)(c)
Net foreign exchange derivatives

189 Discounted cash flows(526) Option pricing

Net equity derivatives
Net commodity derivatives
Collateralized loan obligations(1,785) Option pricing(565) Discounted cash flows
792 Discounted cash flows

Unobservable inputs

Range of input values

Yield
1% - 25%
Prepayment speed
0% - 18%
Conditional default rate
0% - 100%
Loss severity
0% - 90%
Yield
2% - 32%
Conditional default rate
0% - 100%
Loss severity
0% - 50%
Credit spread
53 bps - 270 bps
Yield
1% - 22%Price$—- $131
Interest rate correlation(75)% - 95%
Interest rate spread volatility
0% - 60%
Credit correlation
Foreign exchange correlation

393

Market comparables

Mortgage servicing rights

7,436

Discounted cash flows

Refer to Note 17

Private equity direct investments

2,054

Market comparables

Private equity fund investments
Long-term debt, other borrowed funds,
and deposits(d)421
15,069Net asset value
Option pricing

EBITDA multiple
Liquidity adjustment
Net asset value(e)Interest rate correlation
Interest rate spread volatility(75)% - 95%
0% - 60%

Foreign exchange correlation

0% - 60%

Discounted cash flows

Equity correlation
Credit correlation

5%
6%
22%
27%
5%
8%
29%
140 bps
7%$90

47% - 90%0% - 60%

Equity volatility
Forward commodity price
Credit spread
Prepayment speed
Conditional default rate
Loss severity
Price

1,120

Weighted
average

15% - 65%50
- $90 per barrel
260 bps - 675 bps
279 bps
20%
20%
2%
2%
40%
40%
$
—
- $146$79$

6x - 12.4x
0% - 15%9.1x7%(55)% - 85%
47% - 90%(a) The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidatedbalance sheets.
(b) The unobservable inputs and associated input ranges for approximately $491 million of credit derivative receivables and $433 million of credit derivative
payables with underlying commercial mortgage risk have been included in the inputs and ranges provided for commercial mortgage-backed securities andloans.
(c) The unobservable inputs and associated input ranges for approximately $795 million of credit derivative receivables and $715 million of credit derivative
payables with underlying asset-backed securities risk have been included in the inputs and ranges provided for corporate debt securities, obligations of
U.S. states and municipalities and other.
(d) Long-term debt, other borrowed funds and deposits include structured notes issued by the Firm that are predominantly financial instruments containing
embedded derivatives. The estimation of the fair value of structured notes is predominantly based on the derivative features embedded within the
instruments. The significant unobservable inputs are broadly consistent with those presented for derivative receivables.
(e) The range has not been disclosed due to the wide range of possible values given the diverse nature of the underlying investments.

JPMorgan Chase & Co./2014 Annual Report

189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; whererelationships exist between two unobservable inputs, thoserelationships 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.

190

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
has high prepayment speeds will tend to have lower
conditional default rates. An increase in conditional default
rates would generally be accompanied by an increase in loss
severity and an increase in credit spreads. An increase in
the conditional default rate, in isolation, would result in 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 lien on the property andvarious other instrument-specific factors.

JPMorgan Chase & Co./2014 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. The range of correlation inputs between
risks within the same asset class are generally narrower
than those between underlying risks across asset classes. In
addition, the ranges of credit correlation inputs tend to be
narrower than those affecting other asset classes.
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 sheets 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, 2014, 2013 and 2012. 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 or 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./2014 Annual Report

191Notes to consolidated financial statements
Fair value measurements using significant unobservable inputs

Year ended
December 31, 2014
(in millions)

Fair value
at January
1, 2014

Total
realized/unrealized
gains/(losses)

Purchases(g)SalesTransfers into
and/or out oflevel 3(h)Settlements

Fair value
at Dec.
31, 2014

Change inunrealized gains/(losses) related
to financial
instruments heldat Dec. 31, 2014

Assets:Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies

1,005 $

(97)

351 $

(186)

(121) $

(30) $

922

Residential – nonagency

$

726

66

$

827

(761)

$

(41)

(154)

663

$

(92)

Commercial – nonagency

432

17

980

(914)

(60)

(149)

306

(12)

Total mortgage-backed securities

2,163

(14)

2,158

(1,861)

(222)

(333)

1,891

(119)

Obligations of U.S. states andmunicipalities

1,382

90

298

(358)

(139)

—

1,273

(27)

(15)

Non-U.S. government debt
securities

143

24

719

(617)

(3)

36

302

10

Corporate debt securities

5,920

210

5,854

(3,372)(4,531)(1,092)

2,989

379

Loans

13,455387

13,551(7,917)(4,623)(1,566)

13,287123

Asset-backed securities

1,272

19

2,240

(2,126)

(283)

142

1,264

(30)

Total debt instruments

24,335716

24,820(16,251)(9,801)(2,813)21,006336

Equity securities

885

112

248

(272)

(290)

(252)

431

46

4

(1)

—

—

(1)

—

2

—

2,000

239

1,426

(276)

(201)

(2,138)

1,050

329

27,224

1,066

26,494(16,799)(10,293)(5,203)22,489711

Physical commodities
Other
Total trading assets – debt andequity instruments

(c)

(c)

Net derivative receivables:(a)Interest rate

2,379

184

198

(256)

(1,771)

(108)

626

(853)

95

(149)

272

(47)

92

(74)

189

(107)

Foreign exchange(1,200)

(137)

139

(27)

668

31

(526)

(62)

Equity(1,063)

154

2,044

(2,863)10(67)(1,785)

583

115

(465)

1

(113)

(109)

6

(565)

(186)

326

(413) (c)2,654

(3,306)(1,110)(212)(2,061)(625) (c)Asset-backed securities

1,088

(41)

275

(2)

(101)

(311)

908

(40)

Other

1,234

(19)

122

—

(223)

(985)

129

(2)

Total available-for-sale securities

2,322(60) (d)

397

(2)

(324)

(1,296)1,037(42) (d)

Loans

1,931

(254) (c)

3,258

(845)

(1,549)—2,541(234) (c)Mortgage servicing rights

9,614(1,826) (e)

768

(209)

(911)

—

7,436

(1,826) (e)Private equity investments

6,474

443

(c)

164

(1,967)(360)(2,279)

2,475

26

(c)

All other

3,176

33

(f)

190

(451)

(577)

—

2,371

11

(f)

CreditCommodity
Total net derivative receivables
Available-for-sale securities:

Other assets:

Fair value measurements using significant unobservable inputs

Year ended
December 31, 2014
(in millions)

Fair value
at January
1, 2014

Total
realized/unrealized(gains)/lossesPurchases(g)Sales

Issuances

Transfers into
and/or out oflevel 3(h)Settlements

Fair value
at Dec.
31, 2014

Change inunrealized(gains)/losses
related tofinancial
instruments heldat Dec. 31, 2014

Liabilities:(b)Deposits— $— $1,578 $(926) $

2,859

2,074

(596) (c)

—

—

5,377

(6,127)

725

1,453

(415) (c)Trading liabilities – debt and equity
instruments

113(5) (c)

(305)

323

—

(5)

(49)

72

2

(c)

Accounts payable and other liabilities

25

27

(f)

—

—

—

(16)

—

36

—

(f)

Other borrowed funds$

2,255 $ 149(c)$(197) $

$

130

(c)

Beneficial interests issued byconsolidated VIEs

1,240(4) (c)

—

—

775

(763)

(102)

1,146

(22) (c)Long-term debt

10,008

(40)

—

—

7,421

(5,231)(281)

11,877(9) (c)192(c)

JPMorgan Chase & Co./2014 Annual Report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

Sales

(g)

Settlements

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(100) $

— $

1,005

Residential – nonagency$

498 $ 169
663

407

$

819
780

$

(1,028)

(381)

$

(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)

Equity(1,806)

2,528

254

816

1,893

2,904

Commodity
Total net derivative receivables

3

(4)

683

(31)

(1,200)(110)(2,111) (i)(1,353)374(1,063)

872

105

(3)

(1,107)

50

115

410

1,872

(2,350)(4,525)532326(170) (c)

1,305

(i)

(c)

(i)

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)(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)

Beneficial interests issued byconsolidated VIEs

925

174

(c)

—

—

353

(212)

—

1,240

167

8,476

(435)

(c)

—

—

6,830

(4,362)(501)

10,008(85) (c)Other borrowed funds

Long-term debt$

JPMorgan Chase & Co./2014 Annual Report

$

—

$

—

$

1,248 $

(222) $$

(88) (c)
(c)

(c)

193

Notes to consolidated financial statements
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)

Residential – nonagency

$

796

151

417

(533)

(145)

(23)

663

74

Commercial – nonagency

1,758

(159)

287

(475)

(104)

(100)

1,207

(145)

2,640

(52)

1,279

(1,111)

(265)

(123)

2,368

(92)

1,619

37

336

(552)

(4)

—

1,436

(15)

Total mortgage-backed
securities
Obligations of U.S. states andmunicipalities

$

575

$

(103)

$

(16) $

— $

498

$

(21)

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)

(957)

Equity(3,105)

160

(687)

(673)

6,238

1,130

24,958528

Total available-for-sale securities

25,486

190

Loans

1,647

695

Mortgage servicing rights

7,223

Commodity
Total net derivative receivables

112

(184)

436

(51)

(1,750)(2,174) (i)

899

1,135

(1,806)

580

74

64

1,278

198

254

(160)

1,995

(2,572)(5,874)

976

1,893

(2,903) (c)

135

9,280

(3,361)(3,104)116

28,024

118

55

667

(113)

(245)

—

892

59

(d)

9,947

(3,474)(3,349)116

28,916

177

(d)

(c)

1,536

(22)

(1,718)

144

2,282

12

(c)

(635) (e)

2,833

(579)

(1,228)—7,614(635) (e)

1,279

(i)

(c)

(i)

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)(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)Fair value at
Dec. 31,2012

Change inunrealized(gains)/losses
related tofinancial
instruments heldat Dec. 31, 2012

Liabilities:(b)Deposits
Other borrowed funds$

1,418 $ 212

(c)

1,507

(c)

—

—

1,646

148

$

—

$

1,236 $

(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(a) All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty.
(b) Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis) were 15%, 18% and
18% at December 31, 2014, 2013 and 2012, respectively.
(c) Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans, lending-related commitments originated with the intent tosell, and mortgage loan purchase commitments, which are reported in mortgage fees and related income.

194

JPMorgan Chase & Co./2014 Annual Report(d) Realized gains/(losses) on AFS securities, as well as other-than-temporary impairment losses that are recorded in earnings, are reported in securities gains. Unrealized gains/(losses) are reported in Other Comprehensive Income (“OCI”). Realized gains/(losses) and foreign exchange remeasurement adjustments recorded in income on AFS securities
were $(43) million, $17 million, and $145 million for the years ended December 31, 2014, 2013 and 2012, respectively. Unrealized gains/(losses) recorded on AFS securities
in OCI were $(16) million, $13 million and $45 million for the years ended December 31, 2014, 2013 and 2012, respectively.
(e) Changes in fair value for CCB mortgage servicing rights are reported in mortgage fees and related income.
(f) Predominantly reported in other income.
(g) Loan originations are included in purchases.
(h) All transfers into and/or out of level 3 are assumed to occur at the beginning of the quarterly reporting period in which they occur.
(i) The prior period amounts have been revised. The revision had no impact on the Firm’s Consolidated balance sheets or its results of operations.

Level 3 analysis
Consolidated balance sheets changes
Level 3 assets (including assets measured at fair value on anonrecurring basis) were 2.1% of total Firm assets at
December 31, 2014. The following describes significant
changes to level 3 assets since December 31, 2013, 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 197.
For the year ended December 31, 2014
Level 3 assets were $50.9 billion at December 31, 2014,reflecting a decrease of $18.4 billion from December 31,
2013, due to the following:
•

•

•

•

$6.0 billion decrease in gross derivative receivables due
to a $4.5 billion decrease in equity derivative
receivables due to expirations and a transfer from level3 into level 2 as a result of an increase in observabilityof certain equity option valuation inputs; and a$1.2 billion decrease in interest rate derivatives due tomarket movements;$4.7 billion decrease in trading assets - debt and equity
instruments is largely due to a decrease of $2.9 billion
in corporate debt securities. The decrease in corporate
debt securities is driven by transfers from level 3 to level2 as a result of an increase in observability of certain
valuation inputs, as well as net sales and maturities;$4.0 billion decrease in private equity investments
predominantly driven by $2.0 billion in sales and $2.3
billion of transfers into level 2 based on an increase inobservability and price transparency;$2.2 billion decrease in MSRs. For further discussion of
the change, refer to Note 17.

JPMorgan Chase & Co./2014 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 December 31, 2014, 2013 and 2012. For further
information on these instruments, see Changes in level 3
recurring fair value measurements rollforward tables on
pages 191–195.
2014• $1.8 billion of losses on MSRs. For further discussion of
the change, refer to Note 17;•$1.1 billion of net gains on trading assets - debt andequity instruments, largely driven by market movements
and client-driven financing transactions.

2013• $2.9 billion of net gains on derivatives, largely driven by$2.5 billion of gains on equity derivatives, primarily
related to client-driven market-making activity and a risein equity markets; and $1.4 billion of gains,
predominantly on interest rate lock and mortgage loanpurchase commitments; partially offset by $1.7 billion
of losses on credit derivatives from the impact oftightening reference 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.
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
lock commitments due to increased volumes and lower
interest rates, partially offset by $4.5 billion of net
losses on credit derivatives largely as a result oftightening of reference entity credit spreads.

195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 counterparty credit quality, theFirm’s own creditworthiness, and the impact of funding:• Credit valuation adjustments (“CVA”) are taken to reflect
the credit quality of a counterparty in the valuation ofderivatives. CVA are necessary when the market price (orparameter) is not indicative of the credit quality of thecounterparty. As few classes of derivative contracts arelisted on an exchange, derivative positions are
predominantly valued using models that use as their basis
observable market parameters. An adjustment therefore
may be necessary to reflect the credit quality of each
derivative counterparty to arrive at fair value.
The 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 CDS spreads; and (iii) estimatedrecovery rates implied by CDS, adjusted to consider thedifferences in recovery rates as a derivative creditor
relative to those reflected in CDS spreads, which generally
reflect senior unsecured creditor risk. As such, the Firm
estimates derivatives CVA relative to the relevantbenchmark interest rate.
• DVA is taken to reflect the credit quality of the Firm in thevaluation of liabilities measured at fair value. The DVA
calculation methodology is generally consistent with the
CVA methodology described above and incorporates
JPMorgan Chase’s credit spread as observed through the
CDS market to estimate the probability of default and loss
given default as a result of a systemic event affecting theFirm. Structured notes DVA is estimated using the current
fair value of the structured note as the exposure amount,and is otherwise consistent with the derivative DVA
methodology.

the-counter (“OTC”) derivatives and structured notes. The
Firm’s FVA framework leverages its existing CVA and DVA
calculation methodologies, and considers the fact that the
Firm’s own credit risk is a significant component offunding costs. The key inputs are: (i) the expected funding
requirements arising from the Firm’s positions with eachcounterparty and collateral arrangements; (ii) for assets,
the estimated market funding cost in the principal
market; and (iii) for liabilities, the hypothetical market
funding cost for a transfer to a market participant with asimilar credit standing as the Firm.
Upon the implementation of the FVA framework in 2013,
the Firm recorded a one time $1.5 billion loss in principaltransactions revenue that was recorded in the CIB. While the
FVA framework applies to both assets and liabilities, theloss on implementation largely related to uncollateralized
derivative receivables given that the impact of the Firm’s
own credit risk, which is a significant component of funding
costs, was already incorporated in the valuation of liabilities
through the application of DVA.
The following table provides the credit and funding
adjustments, excluding the effect of any associated hedging
activities, reflected within the Consolidated balance sheets
as of the dates indicated.
December 31, (in millions)2014

Derivative receivables balance(a)$78,975

2013$

65,759Derivative payables balance(a)71,11657,314

Derivatives CVA(b)Derivatives DVA and FVA(b)(c)
Structured notes balance (a)(d)(2,674)(380)
53,772(2,352)(322)
48,808Structured notes DVA and FVA(b)(e)

1,152

952

(a) Balances are presented net of applicable CVA and DVA/FVA.
(b) Positive CVA and DVA/FVA represent amounts that increased
receivable balances or decreased payable balances; negative CVA andDVA/FVA represent amounts that decreased receivable balances orincreased payable balances.
(c) At December 31, 2014 and 2013, included derivatives DVA of $714
million and $715 million, respectively.
(d) Structured notes are predominantly financial instruments containing
embedded derivatives that are measured at fair value based on the
Firm’s election under the fair value option. At December 31, 2014 and2013, included $943 million and $1.1 billion, respectively, of financial
instruments with no embedded derivative for which the fair value
option has also been elected. For further information on theseelections, see Note 4.
(e) At December 31, 2014 and 2013, included structured notes DVA of$1.4 billion and $1.4 billion, respectively.

• 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 ina transfer of the instrument. As a result, the fair value ofcollateralized derivatives is estimated by discounting
expected future cash flows at the relevant overnightindexed swap (“OIS”) rate given the underlying collateralagreement with the counterparty. Effective in 2013, theFirm implemented a FVA framework to incorporate theimpact of funding into its valuation estimates foruncollateralized (including partially collateralized) over196

JPMorgan Chase & Co./2014 Annual Report

The following table provides the impact of credit andfunding adjustments on Principal transactions revenue inthe respective periods, excluding the effect of any
associated hedging activities.
Year ended December 31,(in millions)

2014

2013

2012

Credit adjustments:
Derivatives CVA$(322) $ 1,886$ 2,698

Derivatives DVA and FVA(a)(58)(1,152)(590)

Structured notes DVA and FVA(b)

200

(760)

(340)

(a) Included derivatives DVA of $(1) million, $(115) million and $(590)
million for the years ended December 31, 2014, 2013 and 2012,
respectively.
(b) Included structured notes DVA of $20 million, $(337) million and$(340) million for the years ended December 31, 2014, 2013 and2012, respectively.

Assets and liabilities measured at fair value on anonrecurring basis
At December 31, 2014 and 2013, assets measured at fairvalue on a nonrecurring basis were $4.5 billion and $6.2
billion, respectively, comprised predominantly of loans that
had fair value adjustments for the year ended December
31, 2014. At December 31, 2014, $1.3 billion and $3.2
billion of these assets were classified in levels 2 and 3 of thefair value hierarchy, respectively. At December 31, 2013,$339 million and $5.8 billion of these assets were classified
in levels 2 and 3 of the fair value hierarchy, respectively.
Liabilities measured at fair value on a nonrecurring basis
were not significant at December 31, 2014 and 2013. For
the years ended December 31, 2014, 2013 and 2012,
there were no significant transfers between levels 1, 2
and 3.
Of the $3.2 billion of the level 3 assets measured at fairvalue on a nonrecurring basis as of December 31, 2014:••$1.6 billion related to consumer loans that werereclassified to held-for-sale during the fourth quarter of2014 subject to a lower of cost or fair value adjustment.
These loans were classified as level 3, as they are valued
based on the Firm’s internal valuation methodology;$809 million related to residential real estate loans
carried at the net realizable value of the underlying
collateral (i.e., collateral-dependent loans and otherloans charged off in accordance with regulatory
guidance). These amounts are classified as level 3, as
they are valued using a broker’s price opinion anddiscounted based upon the Firm’s experience with actual
liquidation values. These discounts to the broker priceopinions ranged from 8% to 66%, with a weighted
average of 26%.

JPMorgan Chase & Co./2014 Annual Report

The total change in the recorded value of assets andliabilities for which a fair value adjustment has been
included in the Consolidated statements of income for theyears ended December 31, 2014, 2013 and 2012, related
to financial instruments held at those dates were losses of$992 million, $789 million and $1.6 billion, respectively;
these reductions were predominantly associated with loans.
For further information about the measurement of impaired
collateral-dependent loans, and other loans where 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.
Additional disclosures about the fair value of financial
instruments that are not carried on the Consolidatedbalance sheets at fair value
U.S. GAAP requires disclosure of the estimated fair value ofcertain financial instruments, and the methods andsignificant assumptions used to estimate their fair value.
Financial instruments within the scope of these disclosure
requirements are included in the following table. However,certain financial instruments and all nonfinancial
instruments are excluded from the scope of these disclosure
requirements. Accordingly, the fair value disclosuresprovided in the following table include only a partial
estimate of the fair value of JPMorgan Chase’s assets andliabilities. For example, the Firm has developed long-term
relationships with its customers through its deposit baseand credit card accounts, commonly referred to as core
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.

197Notes to consolidated financial statements
The following table presents by fair value hierarchy classification the carrying values and estimated fair values at
December 31, 2014 and 2013, of financial assets and liabilities, excluding financial instruments which are carried at fair value
on a recurring basis. For additional information regarding the financial instruments within the scope of this disclosure, and themethods and significant assumptions used to estimate their fair value, see pages 181–184 of this Note.
December 31, 2014

December 31, 2013

Estimated fair value hierarchy(in billions)

Carrying
value

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$

27.8 $

27.8 $

Deposits with banks

484.5

480.4

Accrued interest and accounts
receivable

70.1

Federal funds sold andsecurities purchased underresale agreements
Securities borrowed

— $

— $

27.8

4.1

—

—

70.0

187.2

—

109.4

—

Securities, held-to-maturity(a)49.3Loans, net of allowance forloan losses(b)Other(c)$39.8 $

39.8 $

484.5

316.1

309.7

0.1

70.1

65.2

187.2

—

187.2

109.4

—

109.4

—

51.2

—

740.5

—

21.8

58.1

—

55.7

— $

— $

39.8

6.4

—

316.1

—

64.9

0.3

65.2

223.0

—

223.0

—

223.0

107.7

—

107.7

—

107.7

51.2

24.0

—

23.7

—

23.7

723.1

744.9

720.1

—

23.0

697.2

720.2

7.1

62.8

58.2

—

54.5

7.4

61.9

Financial liabilities
Deposits$ 1,354.6 $— $ 1,353.6 $1.2 $ 1,354.8$ 1,281.1 $— $ 1,280.3 $1.2 $ 1,281.5

Federal funds purchased andsecurities loaned or soldunder repurchase agreements
Commercial paper

189.1

—

189.1

—

189.1

175.7

—

175.7

—

175.7

66.3

—

66.3

—

66.3

57.8

—

57.8

—

57.8

Other borrowed funds

15.5

15.5

—

15.5

14.7

—

14.7

—

14.7

Accounts payable and otherliabilities

176.7

—

173.7

2.8

176.5

160.2

—

158.2

1.8

160.0

Beneficial interests issued byconsolidated VIEs

50.2

—

48.2

2.0

50.2

47.6

—

44.3

3.2

47.5

Long-term debt and juniorsubordinated deferrable
interest debentures(d)

246.6

—

251.6

3.8

255.4

239.0

—

240.8

6.0

246.8

(a)
(b)

(c)
(d)

198

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 181–184.
Current period amounts have been updated to include certain nonmarketable equity securities. Prior period amounts have been revised to conform tothe current presentation.
Carrying value includes unamortized original issue discount and other valuation adjustments.

JPMorgan Chase & Co./2014 Annual Report

The majority of the Firm’s lending-related commitments are not carried at fair value on a recurring basis on the Consolidatedbalance 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.

(in billions)

Carrying
value(a)Wholesale lendingrelated commitments$(a)December 31, 2014

December 31, 2013

Estimated fair value hierarchy

Estimated fair value hierarchy

Level 1

0.6 $Level 2
— $Level 3— $Totalestimated
fair value

1.6 $

1.6

Carrying
value(a)$Level 1

0.7 $Level 2
— $Level 3— $Totalestimated
fair value

1.0 $

1.0

Represents the allowance for wholesale lending-related commitments. Excludes the current carrying values of the guarantee liability and the offsetting
asset, each of which are recognized at fair value at the inception of guarantees.

The Firm does not estimate the fair value of consumer
lending-related commitments. In many cases, the Firm canreduce or cancel these commitments by providing theborrower notice or, in some cases as permitted by law,
without notice. For a further discussion of the valuation oflending-related commitments, see page 182 of this Note.
Trading assets and liabilities
Trading assets include debt and equity instruments owned
by JPMorgan Chase (“long” positions) that are held 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$

2014
327,259
67,12384,70754,758$2013
340,449
72,62977,70664,553$

2012
349,337
85,74469,001
76,162(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.
The Firm has elected to measure certain instruments at fairvalue in order 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./2014 Annual Report

The Firm has elected to measure the following instruments
at fair value:• Loans purchased or originated as part of securitization
warehousing activity, subject to bifurcation accounting,or managed on a fair value basis.
• Securities financing arrangements with an embedded
derivative and/or a maturity of greater than one year.
• Owned beneficial interests in securitized financial 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.
199

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, 2014, 2013 and 2012, for items for which the fair value option was elected. The profit and loss information
presented below only includes the financial instruments that were elected to be measured at fair value; related risk
management instruments, which are required to be measured at fair value, are not included in the table.
2014

December 31, (in millions)

Principaltransactions

Federal funds sold and securities
purchased under resaleagreements$

Securities borrowed
Trading assets:
Debt and equity instruments,
excluding loans
Loans reported as trading
assets:Changes in instrumentspecific credit risk
Other changes in fair value
Loans:
Changes in instrument-specificcredit risk
Other changes in fair value
Other assets
Deposits(a)Federal funds purchased andsecurities loaned or sold under
repurchase agreements
Other borrowed funds(a)Trading liabilities
Beneficial interests issued byconsolidated VIEs
Other liabilities
Long-term debt:
Changes in instrument-specificcredit risk(a)Other changes in fair value(b)2013

All otherincomeTotalchangesin fair
value
recorded$Principaltransactions(15) $

2012

All otherincomeTotalchangesin fair
value
recorded

All otherincome(15) $—(454) $—

(454) $

161 $

—

(10)

—

(10)

10

—

10
—

10

—

10
—

639

—

639

582

7

589

513

7

520

885

29

(c)

914

1,161

23

(c)

1,184

1,489

81

(c)

1,570

352

1,353

(c)

(133) 1,833

(c)

1,700

(183) 7,670

(c)

7,487

40

—

40

36

—

36

(14)

—

(14)

34
24
(287)

—
(122) (d)
—

34
(98)
(287)

17
32
260

—
(29) (d)
—

17
3
260

676
—
(188)

—
(339) (d)
—

676
(339)
(188)

1,705

$

Principaltransactions

Totalchangesin fair
value
recorded
$

161

(33)

—

(33)

73

—

73

(25)

—

(25)

(891)
(17)

—
—

(891)
(17)

(399)
(46)

—
—

(399)
(46)

494
(41)

—
—

494
(41)

(233)

—

(233)

(278)

—

(278)

(166)

—

(166)

(27)

—

(27)

—

2

2

—

—

—

101

—

101

(271)

—

(271)

(835)

—

(835)

(615)

—

(615)

1,280

—

1,280

(1,025)—(1,025)(a) Total changes in instrument-specific credit risk (DVA) related to structured notes were $20 million, $(337) million and $(340) million for the years ended
December 31, 2014, 2013 and 2012, respectively. These totals include such changes for structured notes classified within deposits and other borrowed funds, aswell as long-term debt.
(b) Structured notes are predominantly financial instruments containing embedded derivatives. Where present, the embedded derivative is the primary driver of risk.
Although the risk associated with the structured notes is actively managed, the gains/(losses) reported in this table do not include the income statement impact of
the risk management instruments used to manage such risk.
(c) Reported in mortgage fees and related income.
(d) Reported in other income.

Determination of instrument-specific credit risk for items
for which a fair value election was madeThe following describes how the gains and losses included inearnings that are attributable to changes in instrumentspecific credit risk, were determined.
• Loans and lending-related commitments: For floatingrate instruments, all changes in value are attributed to
instrument-specific credit risk. For fixed-rate
instruments, an allocation of the changes in value for theperiod is made between those changes in value that areinterest rate-related and changes in value that are
credit-related. Allocations are generally based on an
analysis of borrower-specific credit spread and recovery
200

•

•

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.
JPMorgan Chase & Co./2014 Annual Report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, 2014 and 2013, for loans, long-term debt and long-term beneficial interests forwhich the fair value option has been elected.
2014

December 31, (in millions)2013

Contractual
principal
outstanding

Fair value$$

Fair value
over/(under)contractual
principal
outstanding

Contractual
principal
outstanding

Fair value
over/(under)contractual
principal
outstanding

Fair value

Loans

(a)

Nonaccrual loans
Loans reported as trading assets

905 $(2,942) $5,156

1,491 $

(3,665)

Loans

3,847
7

7

—

209

$

154

(55)

Subtotal

3,854

912

(2,942)

5,365

1,645

(3,720)Loans reported as trading assets

37,60835,462(2,146)33,06929,295(3,774)

Loans

2,397

2,389

(8)

1,618

1,563

(55)

$

38,763 $(5,096) $40,052$32,503 $(7,549)$15,484 $824

15,797$

15,909 $112

14,742NANA

12,969NA

All other performing loans

Total loans$

43,859$14,660Long-term debt
Principal-protected debt

(c)

$

(c)

Nonprincipal-protected debt(b)NATotal long-term debt

NA$30,226NANA$

28,878NA

Nonprincipal-protected debt(b)

NA

$

2,162

NA

NA

$

1,996

NA

Total long-term beneficial interests

NA

$

2,162

NA

NA

$

1,996

NA

Long-term beneficial interests(a) There were no performing loans that were ninety days or more past due as of December 31, 2014 and 2013, respectively.
(b) Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is
obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return astated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in thenote. However, investors are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal protected notes.
(c) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflected as the remaining contractual principal is the final principal
payment at maturity.

At December 31, 2014 and 2013, the contractual amount of letters of credit for which the fair value option was elected was$4.5 billion and $4.5 billion, respectively, with a corresponding fair value of $(147) million and $(99) million, respectively. For
further information regarding off-balance sheet lending-related financial instruments, see Note 29.
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, 2014
(in millions)

Other
Long-term borrowed
debt
funds

Deposits

December 31, 2013
Total

Other
Long-term borrowed
debt
funds

Deposits

Total

Risk exposure
Interest rate

9,516 $

615 $Credit

4,023

450

—

4,473

4,248

13

—

4,261

Foreign exchange

2,150

211

17

2,378

2,321

194

27

2,542

Equity12,34812,412

4,415

29,175

11,082

11,936

3,736

26,754

710

644

2,012

3,366

1,260

310

1,133

2,703

Commodity
Total structured notes

JPMorgan Chase & Co./2014 Annual Report$ 10,858 $460 $ 2,119 $ 13,437$ 30,089 $ 14,177 $ 8,563 $ 52,829$$ 28,427 $ 13,068 $

1,270 $ 11,401

6,166 $ 47,661

201

Notes to consolidated financial statements
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. The Firm’s wholesale
exposure is managed through loan syndications andparticipations, loan sales, securitizations, credit derivatives,
master netting agreements, and collateral and other riskreduction techniques. For additional information on loans,see Note 14.
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.

The table below presents both on–balance sheet and off–balance sheet consumer and wholesale-related credit exposure by the
Firm’s three credit portfolio segments as of December 31, 2014 and 2013.

December 31, (in millions)
Total consumer, excluding credit card
Total credit card
Total consumer
Wholesale-related
Real Estate
Banks & Finance Cos
Healthcare
Oil & Gas
Consumer Products
Asset Managers
State & Municipal Govt
Retail & Consumer Services
Utilities
Central Govt
Technology
Machinery & Equipment Mfg
Transportation
Business Services
Metals/Mining
All other(a)Subtotal
Loans held-for-sale and loans at fair value
Receivables from customers and other(b)Total wholesale-related
Total exposure(c)2014
On-balance sheet
Off-balance
sheet(d)Loans
Derivatives$ 353,635 $ 295,374 $— $58,153657,011
131,048—525,963
1,010,646
426,422—584,116
Creditexposure

107,386
68,20357,70748,31537,81836,37431,85828,25828,06021,081
20,977
20,573
16,365
16,201
15,911
320,446875,533
6,412
28,972910,917

79,11324,244
13,793
15,616
10,646
8,043
7,593
7,752
4,843
1,081
4,727
6,537
9,107
4,867
5,628
120,912324,502
6,412—
330,914333
22,057
4,630
1,872
593
9,569
4,079
361
2,317
11,819
1,341
553
699
456
601
17,69578,975——78,97527,94021,90239,28430,827
26,57918,762
20,18620,14520,9008,181
14,90913,483
6,559
10,878
9,682
181,839
472,056——
472,056$ 1,921,563 $

757,336 $

78,975 $ 1,056,172

2013
On-balance sheet
Off-balance
sheet(d)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
26,744860,299

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—
321,564460
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——65,75917,491
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——
446,232$ 1,862,732 $

738,418 $

65,759 $ 1,031,672(a) For more information on exposures to SPEs included within All other, see Note 16.
(b) Primarily consists of margin loans to prime brokerage customers that are generally over-collateralized through a pledge of assets maintained in clients’brokerage accounts and are subject to daily minimum collateral requirements. As a result of the Firm’s credit risk mitigation practices, the Firm did not hold
any reserves for credit impairment on these receivables.
(c) For further information regarding on–balance sheet credit concentrations by major product and/or geography, see Note 6 and Note 14. For information
regarding concentrations of off–balance sheet lending-related financial instruments by major product, see Note 29.
(d) Represents lending-related financial instruments.

202

JPMorgan Chase & Co./2014 Annual Report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.

JPMorgan Chase & Co./2014 Annual Report

Commodities contracts are used to manage the price risk ofcertain commodities inventories. Gains or losses on thesederivative instruments are expected to substantially offset
the depreciation or appreciation of the related inventory.
Credit derivatives are used to manage the counterparty
credit risk associated with loans and lending-related
commitments. Credit derivatives compensate the purchaser
when the entity referenced in the contract experiences acredit event, such as bankruptcy or a failure to pay an
obligation when due. Credit derivatives primarily consist of
credit default swaps. For a further discussion of credit
derivatives, see the discussion in the Credit derivatives
section on pages 213–215 of this Note.
For more information about risk management derivatives,
see the risk management derivatives gains and losses tableon page 213 of this Note, and the hedge accounting gains
and losses tables on pages 211–213 of this Note.
Derivative counterparties and settlement types
The Firm enters into OTC derivatives, which are negotiatedand settled bilaterally with the derivative counterparty. The
Firm also enters into, as principal, certain exchange-tradedderivatives (“ETD”) such as futures and options, and“cleared” over-the-counter (“OTC-cleared”) derivative
contracts with central counterparties (“CCPs”). ETD
contracts are generally standardized contracts traded on an
exchange and cleared by the CCP, which is the counterparty
from the inception of the transactions. OTC-cleared
derivatives are traded on a bilateral basis and then novatedto the CCP for clearing.
Derivative Clearing Services
The Firm provides clearing services for clients where theFirm acts as a clearing member with respect to certain
derivative exchanges and clearinghouses. The Firm does notreflect the clients’ derivative contracts in its Consolidated
Financial Statements. For further information on the Firm’s
clearing services, see Note 29.
Accounting for derivatives
All free-standing derivatives that the Firm executes for its
own account are required to be recorded on theConsolidated balance sheets at fair value.
As permitted under U.S. GAAP, the Firm nets derivative
assets and liabilities, and the related cash collateral
receivables and payables, when a legally enforceable
master netting agreement exists between the Firm and thederivative counterparty. For further discussion of theoffsetting of assets and liabilities, see Note 1. The
accounting for changes in value of a derivative depends onwhether or not the transaction has been designated andqualifies for hedge accounting. Derivatives that are notdesignated as hedges are reported and measured at fairvalue through earnings. The tabular disclosures on pages
207–213 of this Note provide additional information on theamount of, and reporting for, derivative assets, liabilities,
gains and losses. For further discussion of derivatives
embedded in structured notes, see Notes 3 and 4.
203

Notes to consolidated financial statements
Derivatives designated as hedges
The Firm applies hedge accounting to certain derivatives
executed for risk management purposes – generally interest
rate, foreign exchange and commodity derivatives. However,
JPMorgan Chase does not seek to apply hedge accounting to
all of the derivatives involved in the Firm’s risk management
activities. For example, the Firm does not apply hedge
accounting to purchased 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.

204

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 notexpected to 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.

JPMorgan Chase & Co./2014 Annual Report

The following table outlines the Firm’s primary uses of derivatives and the related hedge accounting designation or disclosure
category.
Type of Derivative

Use of Derivative

Affected
Designation and disclosure segment or unit

Page
referenceManage specifically identified risk exposures in qualifying hedge accounting relationships:
Hedge fixed rate assets and liabilities

Fair value hedge

Corporate

211

Hedge floating rate assets and liabilities

Cash flow hedge

Corporate

212

Foreign exchange

Hedge foreign currency-denominated assets and liabilities

Fair value hedge

Corporate

211

Foreign exchange

Hedge forecasted revenue and expense

Cash flow hedge

Corporate

212

Foreign exchange

Hedge the value of the Firm’s investments in non-U.S. subsidiaries

Net investment hedge

Corporate

213

Commodity

Hedge commodity inventory

Fair value hedge

CIB

211

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

213

CreditManage the credit risk of wholesale lending exposures

Specified risk management

CIB

213

Commodity

Manage the risk of certain commodities-related contracts andinvestments

Specified risk management

CIB

213

Interest rate andforeign exchangeManage the risk of certain other specified assets and liabilities

Specified risk management

Corporate

213

Market-making derivatives and other activities:• Various

Market-making and related risk management

Market-making and other

CIB

213

• Various

Other derivatives(a)Market-making and other

CIB, Corporate

213(a) Other derivatives included the synthetic credit portfolio. The synthetic credit portfolio was a portfolio of index credit derivatives, including short and longpositions, that was originally held by CIO. On July 2, 2012, CIO transferred the synthetic credit portfolio, other than a portion that aggregated to a notionalamount of approximately $12 billion, to CIB; these retained positions were effectively closed out during the third quarter of 2012. CIB effectively sold thepositions that had been transferred to it by the end of 2014. The results of the synthetic credit portfolio, including the portion transferred to CIB, havebeen included in the gains and losses on derivatives related to market-making activities and other derivatives category discussed on page 213 of this Note.

JPMorgan Chase & Co./2014 Annual Report205Notes to consolidated financial statements
Notional amount of derivative contracts
The following table summarizes the notional amount ofderivative contracts outstanding as of December 31, 2014
and 2013.
Notional amounts(c)December 31, (in billions)

2014

2013

29,734 $35,221

Futures and forwards

10,18911,238

Written options(a)

3,903

4,059

Purchased options

4,259

4,187

Total interest rate contracts

48,08554,705Credit derivatives(a)(b)

4,249

5,331

Cross-currency swaps

3,346

3,488

Spot, futures and forwards

4,669

3,773

Written options

790

659

Purchased options

780

652

9,585

8,572

Swaps(a)206

187

Futures and forwards(a)50

50Written options

432

425

Purchased options

375

380

Total equity contracts

1,063

1,042

Swaps

126

124

Spot, futures and forwards

193

234

Written options

181

202

Purchased options

180

203

Total commodity contracts

680

763

63,662 $70,413

Interest rate contracts
Swaps

$
(a)

Foreign exchange contracts

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) For more information on volumes and types of credit derivative
contracts, see the Credit derivatives discussion on pages 213–215 ofthis 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.

206

JPMorgan Chase & Co./2014 Annual ReportImpact of derivatives on the Consolidated balance sheets
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) thatare reflected on the Firm’s Consolidated balance sheets as of December 31, 2014 and 2013, by accounting designation (e.g.,whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
Free-standing derivative receivables and payables(a)Gross derivative receivables
December 31, 2014
(in millions)Not
designatedas hedges

Designatedas hedges

Gross derivative payables

Total
derivative
receivables

Net
derivative
receivables(b)Notdesignatedas hedges$$$

Designatedas hedges

Total
derivative
payablesNet
derivative
payables(b)Trading assets and liabilities
Interest rate

921,634 $3,011 $

924,645

Credit$951,151 $
76,842

5,372—

956,523
76,842

1,838

75,895—75,895

1,593

Foreign exchange

205,271

3,650

208,921

21,253

217,722626

218,348

22,970Equity46,792—

46,792

8,177

50,565—50,565

11,740Commodity

43,151502

43,653

13,98245,455

168

45,623

17,068

Total fair value of trading
assets and liabilities$ 1,323,207 $9,524$ 1,332,731

78,975$ 1,311,271 $December 31, 2013
(in millions)Not
designatedas hedges$

33,725Gross derivative receivables
Designatedas hedges

3,805 $ 1,315,076$$

17,745

71,116Gross derivative payables

Total
derivative
receivables

Net
derivative
receivables(b)Notdesignatedas hedges$$$

Designatedas hedges

Total
derivative
payablesNet
derivative
payables(b)Trading assets and liabilities
Interest rate$

851,189 $3,490

854,679

25,782820,811 $4,543 $

825,354$

13,283Credit83,520—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$ 1,174,224 $6,243$ 1,180,467

65,759$ 1,154,200 $Total fair value of trading
assets and liabilities$

5,949 $ 1,160,149$

57,314(a) Balances exclude structured notes for which the fair value option has been elected. See Note 4 for further information.
(b) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables andpayables when a legally enforceable master netting agreement exists.

JPMorgan Chase & Co./2014 Annual Report207Notes to consolidated financial statements
The following table presents, as of December 31, 2014 and 2013, the gross and net derivative receivables by contract andsettlement type. Derivative receivables have been netted on the Consolidated balance sheets against derivative payables andcash collateral payables to the same counterparty with respect to derivative contracts for which the Firm has obtained an
appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either soughtor obtained, the receivables are not eligible under U.S. GAAP for netting on the Consolidated balance sheets, and are shown
separately in the table below.

Grossderivative
receivables

December 31, (in millions)

2014

2013

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:
OTC$

548,373 $(521,180)

486,449 $(466,493)

401,656(401,618)

38

362,426(362,404)

—

—

—

—

—

—

950,029(922,798)

27,231

848,875(828,897)

19,978OTC

66,636(65,720)916

66,269(65,725)

544

OTC–cleared

9,320(9,284)36

16,841(16,279)562

75,956(75,004)

952

83,110(82,004)

1,106

OTC–cleared
Exchange-traded(a)Total interest rate contracts$

27,193$$

19,95622

Credit contracts:

Total credit contracts
Foreign exchange contracts:
OTC

202,537(187,634)

14,903

148,953(136,763)

12,190OTC–cleared

36

(34)

2

46

(46)

—

Exchange-traded(a)

—

—

—

—

—

—

202,573(187,668)

14,905

148,999(136,809)

12,19023,258(22,826)432

31,870(29,289)

2,581

—

—

—

—

—

—

Exchange-traded

18,143(15,789)

2,354

17,732(11,415)

6,317

Total equity contracts

41,401(38,615)2,786

49,602(40,704)

8,898

22,555(14,327)

8,228

21,619(15,082)

6,537

Total foreign exchange contracts
Equity contracts:
OTC
OTC–cleared(a)Commodity contracts:
OTC
OTC–cleared
Exchange-traded(a)Total commodity contracts
Derivative receivables with appropriate legal
opinion$Derivative receivables where an appropriate
legal opinion has not been either sought orobtained
Total derivative receivables recognized on theConsolidated balance sheets

—

—

—

—

—

—

19,500(15,344)

4,156

12,528(11,212)1,316

42,055(29,671)

12,38434,147(26,294)

7,853

1,312,014 $ (1,253,756) (b) $20,717$

1,332,731

58,258$20,717$78,975

1,164,733 $ (1,114,708) (b) $15,734$

1,180,467

50,025

15,734$65,759(a) Exchange-traded derivative amounts that relate to futures contracts are settled daily.
(b) Included cash collateral netted of $74.0 billion and $63.9 billion at December 31, 2014, and 2013, respectively.

208

JPMorgan Chase & Co./2014 Annual Report

The following table presents, as of December 31, 2014 and 2013, the gross and net derivative payables by contract andsettlement type. Derivative payables have been netted on the Consolidated balance sheets against derivative receivables andcash collateral receivables from the same counterparty with respect to derivative contracts for which the Firm has obtained an
appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either soughtor obtained, the payables are not eligible under U.S. GAAP for netting on the Consolidated balance sheets, and are shown
separately in the table below.

Grossderivative
payablesDecember 31, (in millions)

2014

2013

Amounts nettedon theConsolidatedbalance sheets

Amounts nettedon theConsolidatedbalance sheets

Grossderivative
payablesNet derivative
payablesNet derivative
payablesU.S. GAAP nettable derivative payables
Interest rate contracts:
OTC$

522,170 $(509,650)

467,850 $(458,081)

398,518(397,250)

1,268

354,698(353,990)

—

—

—

—

—

—

920,688(906,900)

13,788

822,548(812,071)

10,477OTC

65,432(64,904)528

65,223(63,671)

1,552

OTC–cleared

9,398(9,398)—16,506(16,450)56

74,830(74,302)528

81,729(80,121)

1,608
10,991OTC–cleared
Exchange-traded(a)Total interest rate contracts$

12,520

$

$

9,769
708

Credit contracts:

Total credit contracts
Foreign exchange contracts:
OTC

211,732(195,312)

16,420155,110(144,119)

OTC–cleared

66

(66)

—

61

(59)

2

Exchange-traded(a)

—

—

—

—

—

—

211,798(195,378)

16,420155,171(144,178)

10,99327,908(23,036)

4,872

33,295(28,520)

4,775

—

—

—

—

—

—

Exchange-traded

17,167(15,789)

1,378

17,349(11,415)

5,934

Total equity contracts

45,075(38,825)

6,250

50,644(39,935)

10,70925,129(13,211)

11,91821,993(15,318)

6,675

Total foreign exchange contracts
Equity contracts:
OTC
OTC–cleared(a)Commodity contracts:
OTC
OTC–cleared
Exchange-traded(a)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

—

—

—

—

—

—

18,486(15,344)

3,142

12,367(11,212)1,155

43,615(28,555)

15,06034,360(26,530)

7,830

1,296,006 $ (1,243,960) (b) $19,070$1,315,076

52,046$

19,070$71,116

1,144,452 $ (1,102,835) (b) $15,697$

1,160,149

41,617

15,697$57,314(a) Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b) Included cash collateral netted of $64.2 billion and $52.1 billion related to OTC and OTC-cleared derivatives at December 31, 2014, and 2013,
respectively.

In addition to the cash collateral received and 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 comprised of

JPMorgan Chase & Co./2014 Annual Reportnon-cash financial instruments (generally U.S. government
and agency securities and other G7 government bonds), (b)the amount of collateral held or transferred exceeds the 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.

209

Notes to consolidated financial statements
The following tables present information regarding certain financial instrument collateral received and transferred as ofDecember 31, 2014 and 2013, that is not eligible for net presentation under U.S. GAAP. The collateral included in these tables
relates only to the derivative instruments for which appropriate legal opinions have been obtained; excluded are (i) additional
collateral that exceeds the fair value exposure and (ii) all collateral related to derivative instruments where an appropriate
legal opinion has not been either sought or obtained.
Derivative receivable collateral

December 31, (in millions)

Net derivative
receivables

Derivative receivables with appropriate legal opinions $

2014

2013

Collateral notnettable on theConsolidatedbalance sheets

Collateral notnettable on theConsolidatedbalance sheets

58,258 $Net
exposure(16,194) (a) $ 42,064

Net derivative
receivables$

50,025 $Net
exposure(12,414) (a) $ 37,611

Derivative payable collateral(b)December 31, (in millions)

Net derivative
payablesDerivative payables with appropriate legal opinions

$

2014

2013

Collateral notnettable on theConsolidatedbalance sheets

Collateral notnettable on theConsolidatedbalance sheets

52,046 $Net
amount(c)(10,505) (a) $ 41,541

Net derivative
payables$

41,617 $Net
amount(c)(6,873) (a) $ 34,744(a) Represents liquid security collateral as well as cash collateral held at third party custodians. For some counterparties, the collateral amounts of financial instruments may
exceed the derivative receivables and derivative payables balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net
derivative payables balances with that counterparty.
(b) Derivative payable collateral relates only to OTC and OTC-cleared derivative instruments. Amounts exclude collateral transferred related to exchange-traded derivative
instruments.
(c) Net amount represents exposure of counterparties to the Firm.

Liquidity risk and credit-related contingent features
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.
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 valueof 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, 2014 and 2013.

210

OTC and OTC-cleared derivative payables containing
downgrade triggers
December 31, (in millions)2014

Aggregate fair value of net derivative
payablesCollateral posted

$

2013

32,303 $24,631

27,585

20,346

The following table shows the impact of a single-notch andtwo-notch downgrade of the long-term issuer ratings of
JPMorgan Chase & Co. and its subsidiaries, predominantly
JPMorgan Chase Bank, National Association (“JPMorgan
Chase Bank, N.A.”), at December 31, 2014 and 2013,
related to OTC and OTC-cleared derivative contracts with
contingent collateral or termination features that may betriggered upon a ratings downgrade. Derivatives contracts
generally require additional collateral to be posted or
terminations to be triggered when the predefined thresholdrating is breached. A downgrade by a single rating agency
that does not result in a rating lower than a preexistingcorresponding 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 iscalculated based upon a downgrade below the lowest
current rating of the rating agencies referred to in thederivative contract.

JPMorgan Chase & Co./2014 Annual ReportLiquidity impact of downgrade triggers on OTC andOTC-cleared derivatives
2014
December 31, (in millions)Single-notch
downgradeAmount of additional collateral to be posted upon downgrade(a)$2013
Two-notch
downgrade

Single-notch
downgrade

1,046 $

3,331

366

1,388

Amount required to settle contracts with termination triggers upon downgrade(b)$Two-notch
downgrade

952 $

3,244

540

876

(a) Includes the additional collateral to be posted for initial margin.
(b) Amounts represent fair value of derivative payables, and do not reflect collateral posted.

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, 2014,2013 and 2012, 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, 2014 (in millions)

Derivatives

Income statement impact due to:Hedged items

Total income
statement
impactHedge
ineffectiveness(d)Excludedcomponents(e)

$

$

$

$

Contract typeInterest rate(a)$Foreign exchange(b)Commodity(c)
Total

$

2,106

(801)

1,305

8,279

(8,532)

(253)

—

49

145

194

42

10,434$(9,188)$

1,246

Gains/(losses) recorded in income
Year ended December 31, 2013 (in millions)

131

$

173

1,174
(253)
152

$

1,073

Income statement impact due to:

Derivatives Hedged items

Total income
statement
impactHedge
ineffectiveness(d)Excludedcomponents(e)(3,469)$$$Contract typeInterest rate(a)$Foreign exchange(b)Commodity(c)
Total

$

$

4,851

1,382

(1,096)

864

(232)

—

485

(1,304)(819)

38(4,080)

$

4,411

$

331

Gains/(losses) recorded in income
Year ended December 31, 2012 (in millions)

(132)

$

(94)

1,514
(232)
(857)

$

425

Income statement impact due to:

Derivatives Hedged items

Total income
statement
impactHedge
ineffectiveness(d)Excludedcomponents(e)(1,238)$$$Contract typeInterest rate(a)

$

$

1,879

641

(28)

669

Foreign exchange(3,027)

2,925

(102)

—

(102)

Commodity(c)(2,530)1,131(1,399)107(1,506)

(b)

Total

$

(6,795)

$

5,935

$

(860) $

79

$

(939)

(a) Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate (“LIBOR”)) interest rate risk of fixed-rate long-term debt and AFS
securities. Gains and losses were recorded in net interest income. The current presentation excludes accrued interest.
(b) Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses
related to the derivatives and the hedged items, due to changes in foreign currency rates, were recorded in principal transactions revenue and net interest
income.
(c) Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or market (market approximatesfair value). Gains and losses were recorded in principal transactions revenue.
(d) Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on thehedged item attributable to the hedged risk.
(e) The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward
points on foreign exchange forward contracts and time values.

JPMorgan Chase & Co./2014 Annual Report211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, 2014, 2013 and 2012, respectively.
The Firm includes the gain/(loss) on the hedging derivative and the change in cash flows on the hedged item in the same line
item in the Consolidated statements of income.
Gains/(losses) recorded in income and other comprehensive income/(loss)(c)Year ended December 31, 2014
(in millions)

Derivatives –effective portion
reclassified fromAOCI to income

Hedge
ineffectivenessrecorded directly inincome(d)Total income
statement impact

Derivatives –effective
portionrecorded in OCI

Total change
in OCI
for period$$

Contract typeInterest rate(a)$Foreign exchange(b)
Total

(54)

$

—

78
$

$

(54)

—

24

$

78

—

$

189
(91)

24

$

243
(169)

98

$

74

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
in income(d)Total income
statement impact

Derivatives –effective
portionrecorded in OCI

Total change
in OCI
for period

Contract typeInterest rate(a)$Foreign exchange(b)
Total

(108)

$

7
$

(101)

—

$

—
$

—

(108)

$

7
$

(101)

(565)

$

(457)

$

(424)

40
$

(525)

33

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
in income(d)Total income
statement impact

Derivatives –effective
portionrecorded in OCI

Total change
in OCI
for period

Contract typeInterest rate(a)$Foreign exchange
Total

(3)

$

31

(b)

$

28

5

$

—
$

5

2

$

31
$

33

13

$

16

$

113

128
$

141

97

(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, 2014, 2013 or 2012.
(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 $33 million (after-tax) of net losses recorded in AOCI at December 31, 2014,
related to cash flow hedges will be recognized in income. The maximum length of time over which forecasted transactions arehedged is 9 years, and such transactions primarily relate to core lending and borrowing activities.

212

JPMorgan Chase & Co./2014 Annual ReportNet investment hedge gains and losses
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting
relationships, and the pretax gains/(losses) recorded on such instruments for the years ended December 31, 2014, 2013 and2012.
Gains/(losses) recorded in income and other comprehensive income/(loss)
2014
2013
2012
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)
Foreign exchange derivatives$(448)$1,698$(383)$773$(306)$(82)(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 significant ineffectiveness fornet investment hedge accounting relationships during 2014, 2013 and 2012.

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

$

$

2014

2013

2012

2,308 $
(58)
(7)
156
2,399 $

617 $
(142)
1
178
654 $

5,353
(175)
47
94
5,319

(a) Primarily represents interest rate derivatives used to hedge theinterest rate risk inherent in the mortgage pipeline, warehouse loans
and MSRs, as well as written commitments to originate warehouseloans. Gains and losses were recorded predominantly in mortgage feesand related income.
(b) Relates to credit derivatives used to mitigate credit risk associatedwith lending exposures in the Firm’s wholesale businesses. These
derivatives do not include credit derivatives used to mitigate
counterparty credit risk arising from derivative receivables, which isincluded in gains and losses on derivatives related to market-making
activities and other derivatives. Gains and losses were recorded inprincipal transactions revenue.
(c) Primarily relates to hedges of the foreign exchange risk of specified
foreign currency-denominated assets and liabilities. Gains and losses
were recorded in principal transactions revenue.
(d) Primarily relates to commodity derivatives used to mitigate energy
price risk associated with energy-related contracts and investments.
Gains and losses were recorded in principal transactions revenue.

JPMorgan Chase & Co./2014 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. All derivatives notincluded in the hedge accounting or specified risk
management categories above are included in this category.
Gains and losses on these derivatives are primarily recorded
in principal transactions revenue. See Note 7 for
information on principal transactions revenue.
Credit derivatives
Credit derivatives are financial instruments whose value isderived from the credit risk associated with the debt of athird-party issuer (the reference entity) and which allow
one party (the protection purchaser) to transfer that risk toanother party (the protection seller). Credit derivatives
expose the protection purchaser to the creditworthiness ofthe protection seller, as the protection seller is required tomake payments under the contract when the reference
entity experiences a credit event, such as a bankruptcy, afailure to pay its obligation or a restructuring. The seller ofcredit protection receives a premium for providing
protection but has the risk that the underlying instrument
referenced in the contract will be subject to a credit event.
The Firm is both a purchaser and seller of protection in thecredit derivatives market and uses these derivatives for two
primary purposes. First, in its capacity as a market-maker,
the Firm actively manages a portfolio of credit derivatives
by purchasing and selling credit protection, predominantly
on corporate debt obligations, to meet the needs ofcustomers. Second, as an end-user, the Firm uses credit
derivatives to manage credit risk associated with lending
exposures (loans and unfunded commitments) and
derivatives counterparty exposures in the Firm’s wholesale
businesses, and to manage the credit risk arising fromcertain financial instruments in the Firm’s market-making
businesses. Following is a summary of various types ofcredit derivatives.

213

Notes to consolidated financial statements
Credit default swaps
Credit derivatives may reference the credit of either a single
reference entity (“single-name”) or a broad-based index.
The Firm purchases and sells protection on both singlename and index-reference obligations. Single-name CDS andindex CDS contracts are 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.

214

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.
The following tables present a summary of the notionalamounts of credit derivatives and credit-related notes theFirm sold and purchased as of December 31, 2014 and2013. 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./2014 Annual Report

The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives,because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery 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, 2014 (in millions)Net
protection(sold)/
purchased(d)Protection purchasedwith identicalunderlyings(c)Protection sold

Other
protection
purchased(e)Credit derivatives
Credit default swaps

21,114 $18,631Other credit derivatives(a)$ (2,056,982)(43,281)

32,048(11,233)

19,475

Total credit derivatives(2,100,263)

2,110,144

9,881

38,106

(40)

—

(40)

3,704

9,841 $

41,810Credit-related notes
Total

$

$ (2,100,303)

2,078,096$$

2,110,144$

Maximum payout/Notional amount

December 31, 2013 (in millions)Net
protection(sold)/
purchased(d)Protection purchasedwith identicalunderlyings(c)Protection sold

Other
protection
purchased(e)Credit derivatives
Credit default swaps
Other credit derivatives$ (2,601,581)

8,617 $

8,722

45,921

1,784

20,480(2,645,718)

2,656,119

10,401

29,202

(130)

—

(130)

2,720

10,271 $

31,922(44,137)(a)Total credit derivatives
Credit-related notes
Total

$

2,610,198(b)$ (2,645,848)$$

2,656,119$(b)(a) Other credit derivatives predominantly consists of credit swap options.
(b) The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated balance sheets or its results of operations.
(c) Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on protection sold; the notionalamount of protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold.
(d) Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to thebuyer of protection in determining settlement value.
(e) Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on the identical reference
instrument.

The following tables summarize the notional amounts by the ratings and maturity profile, and the total fair value, of credit
derivatives as of December 31, 2014 and 2013, where JPMorgan Chase is the seller of protection. The maturity profile isbased on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the rating of thereference entity on which the credit derivative contract is based. The ratings and maturity profile of credit derivatives andcredit-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, 2014
(in millions)<1 year

1–5 years>5 years

Total notionalamountFair value of
receivables(c)Fair value of
payables(c)Net fairvalue$ (323,398)$ (1,118,293)$ (79,486)$ (1,521,177)$$$ 19,453(157,281)(396,798)(25,047)(579,126)$ (480,679)$ (1,515,091)$ (104,533)$ (2,100,303)$<1 year

1–5 years>5 years

Total notionalamountFair value of
receivables(c)Risk rating of reference entity
Investment-grade
Noninvestment-grade
Total
December 31, 2013
(in millions)

25,767
20,67746,444(6,314)(22,455)(1,778)(28,769)$ 17,675

Fair value of
payables(c)Net fairvalue$

Risk rating of reference entity
Investment-grade
Noninvestment-grade
Total$ (368,712) (b) $ (1,469,773) (b) $ (93,209) (b) $ (1,931,694) (b) $(140,540)(544,671)(28,943)(714,154)$ (509,252)$ (2,014,444)$ (122,152)$ (2,645,848)

31,730(b)$

27,426$59,156$(5,664) (b) $ 26,066(16,674)

10,752(22,338)$ 36,818(a) The ratings scale is primarily based on external credit ratings defined by S&P and Moody’s.
(b) The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated balance sheets or its results of operations.
(c) Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral received by the Firm.

JPMorgan Chase & Co./2014 Annual Report

215

(b)

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)

2014

2013

2012

Equity$ 1,571$ 1,499

Debt

3,340

3,537

3,290

Total underwriting

4,911

5,036

4,316

Advisory

1,631

1,318

1,492

$ 6,542$ 6,354

Underwriting

Total investment banking fees

$

$

1,026

5,808

Principal transactions
Principal transactions revenue consists of realized andunrealized gains and losses on derivatives and other
instruments (including those accounted for under the fairvalue option) used in client-driven market-making activities
and on private equity investments. In connection with its
client-driven market-making activities, the Firm transacts indebt and equity instruments, derivatives and commodities(including physical commodities inventories and financial
instruments that reference commodities).
Principal transactions revenue also includes realized andunrealized gains and losses related to hedge accounting andspecified risk-management activities, including: (a) certain
derivatives designated in qualifying hedge accounting
relationships (primarily fair value hedges of commodity andforeign exchange risk), (b) certain derivatives used forspecific risk management purposes, primarily to mitigate
credit risk, foreign exchange risk and commodity risk, and(c) other derivatives, including the synthetic credit
portfolio. For further information on the income statementclassification of gains and losses from derivatives activities,
see Note 6.
In the financial commodity markets, the Firm transacts in
OTC derivatives (e.g., swaps, forwards, options) andexchange-traded derivatives that reference a wide range ofunderlying commodities. In the physical commodity
markets, the Firm primarily purchases and sells precious
and base metals and may hold other commodities
inventories under financing and other arrangements withclients. Prior to the 2014 sale of certain parts of its physicalcommodity business, the Firm also engaged in the216

purchase, sale, transport and storage of power, gas,liquefied natural gas, coal, crude oil and refined products.
Physical commodities inventories are generally carried at
the lower of cost or market (market approximates fairvalue) subject to any applicable fair value hedge accounting
adjustments, with realized gains and losses and unrealized
losses recorded in principal transactions revenue.
The following table presents all realized and unrealized
gains and losses recorded in principal transactions revenue.
This table excludes interest income and interest expense on
trading assets and liabilities, which are an integral part ofthe overall performance of the Firm’s client-driven marketmaking activities. See Note 8 for further information oninterest income and interest expense. Trading revenue ispresented primarily by instrument type. The Firm’s clientdriven market-making businesses generally utilize a variety
of instrument types in connection with their market-making
and related risk-management activities; accordingly, thetrading revenue presented in the table below is not
representative of the total revenue of any individual line ofbusiness.
Year ended December 31,(in millions)

2014

Trading revenue by instrument
type (a)Interest rate(b)Credit

$

1,362

2013

$

284

2012

$

4,002

1,880

2,654

Foreign exchange

1,556

1,801

918

Equity

2,563

2,517

2,455

1,663

2,083

2,365

Total trading revenue

9,024

9,339

4,765

Private equity gains(f)

1,507

802

Principal transactions$ 10,531$ 10,141(c)Commodity(d)(e)(4,975)

771
$

5,536

(a) Prior to the second quarter of 2014, trading revenue was presented bymajor underlying type of risk exposure, generally determined based upon
the business primarily responsible for managing that risk exposure. Prior
period amounts have been revised to conform with the current period
presentation. This revision had no impact on the Firm’s Consolidatedbalance sheets or results of operations.
(b) Includes a pretax gain of $665 million for the year ended December 31,
2012, reflecting the recovery on a Bear Stearns-related subordinated loan.
(c) Includes $5.8 billion of losses incurred by CIO from the synthetic credit
portfolio for the six months ended June 30, 2012, and $449 million oflosses 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.
(d) Commodity derivatives are frequently used to manage the Firm’s risk
exposure to its physical commodities inventories. For gains/(losses) related
to commodity fair value hedges, see Note 6.
(e) During 2013, the Firm implemented a FVA framework in order toincorporate the impact of funding into its valuation estimates for OTC
derivatives and structured notes. As a result, the Firm recorded a $1.5
billion loss in principal transactions revenue in 2013, reported in the CIB.
This reflected an industry migration towards incorporating the cost of
unsecured funding in the valuation of such instruments.
(f) Includes revenue on private equity investments held in the Private Equity
business within Corporate, as well as those held in other businesssegments.

JPMorgan Chase & Co./2014 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)

2014

2013

2012

Asset management fees
Investment management fees(a)9,169$ 8,044

477

505

357

Total asset management fees

9,646

8,549

7,101

Total administration fees

2,179

2,101

2,135

Brokerage commissions

2,270

2,321

2,331

All other commissions and fees

1,836

2,135

2,301

Total commissions and fees

4,106

4,456

4,632

All other asset management fees(b)

(c)

$

$

6,744

Commissions and other fees

Total asset management,
administration andcommissions
(a)
(b)
(c)

$ 15,931$ 15,106$ 13,868

Represents fees earned from managing assets on behalf of Firm clients,
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 ofmutual 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.
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. Cost related to rewards programs isrecorded when the rewards are earned by the customer andpresented as a reduction to interchange income. Annual
fees and direct loan origination costs are deferred andrecognized on a straight-line basis over a 12-month period.
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 sales 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 $1.7
billion, $1.5 billion and $1.3 billion for the years ended
December 31, 2014, 2013 and 2012, respectively.
Additionally, included in other income for the year ended
December 31, 2013, is a net pretax gain of approximately$1.3 billion, from the sale of Visa B Shares.

JPMorgan Chase & Co./2014 Annual Report217

Notes to consolidated financial statements
Note 8 – Interest income and Interest expense

Note 9 – Pension and other postretirement
employee benefit plans

Interest income and interest expense are 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.

The Firm’s defined benefit pension plans and its otherpostretirement employee benefit (“OPEB”) plans areaccounted for in accordance with U.S. GAAP for retirement
benefits.

Details of interest income and interest expense were as
follows.
Year ended December 31,(in millions)

2014

2013

2012

Interest income
Loans

$

32,218$33,489$35,832

Taxable securities

7,617

6,916

7,231

Non-taxable securities(a)

1,423

896

708

Total securities

9,040

7,812

7,939

Trading assets(b)

7,312

8,099

8,929

Federal funds sold andsecurities purchased
under resale agreements

1,642

1,940

2,442

Securities borrowed (c)

(501)

(127)

(3)

Deposits with banks

1,157

918

555

663

538

259

51,531

52,66955,953

Interest-bearing deposits

1,633

2,067

2,655

Short-term and otherliabilities(b)(e)

1,450

1,798

1,678

Long-term debt

4,409

5,007

6,062

405

478

648

Other assets(d)Total interest income(b)Interest expense

Beneficial interests issuedby consolidated VIEs
Total interest expense

7,897

9,350

11,043

Net interest income

43,63443,31944,910

Provision for credit losses

3,139

225

3,385

(b)

Net interest income after
provision for credit
losses$40,495$43,094$

41,525(a) Represents securities which are tax exempt for U.S. Federal Income Tax
purposes.
(b) Prior period amounts have been reclassified to conform with thecurrent period presentation.
(c) Negative interest income for the years ended December 31, 2014,2013 and 2012, is a result of increased client-driven demand forcertain securities combined with the impact of low interest rates; theoffset of this matched book activity is reflected as lower net interest
expense reported within short-term and other liabilities.
(d) Largely margin loans.
(e) Includes brokerage customer payables.

218

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 years ofservice and eligible compensation (generally base pay
capped at $100,000 annually; effective January 1, 2015, in
addition to base pay, eligible compensation will include
certain other types of variable incentive compensation
capped at $100,000 annually). Employees begin to accrue
plan benefits after completing one year of service, andbenefits 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 basedon factors such as eligible compensation, age and/or yearsof service.
It is the Firm’s policy to fund the pension plans in amounts
sufficient to meet the requirements under applicable laws.
The Firm does not anticipate at this time any contribution to
the U.S. defined benefit pension plan in 2015. The 2015
contributions to the non-U.S. defined benefit pension plans
are expected to be $47 million of which $31 million 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 (“PBO”)
in the amount of $257 million and $245 million, at
December 31, 2014 and 2013, respectively.
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.
Employees can contribute to the 401(k) Savings Plan on apretax and/or Roth 401(k) after-tax basis. The JPMorgan
Chase Common Stock Fund, which is an investment option
under the 401(k) Savings Plan, is a nonleveraged employee
stock ownership plan.

JPMorgan Chase & Co./2014 Annual Report

The Firm matches eligible employee contributions up to 5%of eligible compensation (generally base pay; effective
January 1, 2015, in addition to base pay, eligible
compensation will include certain other types of variable
incentive compensation) on an annual basis. Employees
begin to receive matching contributions after completing a
one-year-of-service requirement. Employees with total
annual cash compensation of $250,000 or more are noteligible for matching contributions. Matching contributions
vest after three years of service for employees hired on orafter 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 United Kingdom (“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.

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.

2014

2013

2014

OPEB plans(d)
2013

2014

2013

Change in benefit obligation
Benefit obligation, beginning of year

$ (10,776)$(11,478)

Benefits earned during the year

(281)

(314)

(33)

(34)

—

(1)

Interest cost on benefit obligations

(534)

(447)

(137)

(125)

(38)

(35)

Plan amendments

(53)

—

—

—

—

—

Special termination benefits

—

—

(1)

—

—

—

Curtailments

—

—

—

—

(3)

—

Employee contributions$(3,433)$(3,243)

$

(826)

$

(990)

NA

NA

(7)

(7)

(62)

(72)

Net gain/(loss)(1,669)

794

(408)

(62)

(58)

138

Benefits paid

777

669

119

106

145

144

Expected Medicare Part D subsidy receipts

NA

NA

NA

NA

(2)

(10)

Foreign exchange impact and otherBenefit obligation, end of year——

$ (12,536)$(10,776)$(3,640)260$(3,433)(68)$

2$ 14,354$ 13,012

$

3,532

$

3,330

$ 1,757$ 1,563
211

(842)

—
$

(826)

Change in plan assets
Fair value of plan assets, beginning of year
Actual return on plan assets

1,010

1,979

518

187

159

Firm contributions

36

32

46

45

3

2

Employee contributions

—

—

7

7

—

—

(777)

(669)

(119)

(106)

(16)

(19)

Benefits paid
Foreign exchange impact and other——

Fair value of plan assets, end of year

$ 14,623$ 14,354

Net funded status(a)

$

2,087

$ 3,578

Accumulated benefit obligation, end of year

$ (12,375)$(10,685)(266)(b)(c)

$

69

—

—

3,532

$ 1,903$ 1,757$99$ 1,061$$(3,406)

NA

3,718

$

$

78

$

(3,615)931
NA(a) Represents plans with an aggregate overfunded balance of $3.9 billion and $5.1 billion at December 31, 2014 and 2013, respectively, and plans with anaggregate underfunded balance of $708 million and $540 million at December 31, 2014 and 2013, respectively.
(b) At December 31, 2014 and 2013, approximately $336 million and $429 million, respectively, of U.S. plan assets included participation rights underparticipating annuity contracts.
(c) At December 31, 2014 and 2013, defined benefit pension plan amounts not measured at fair value included $106 million and $96 million, respectively, ofaccrued receivables, and $257 million and $104 million, respectively, of accrued liabilities, for U.S. plans.
(d) Includes an unfunded accumulated postretirement benefit obligation of $37 million and $34 million at December 31, 2014 and 2013, respectively, for the
U.K. plan.

JPMorgan Chase & Co./2014 Annual Report219

Notes to consolidated financial statements
Gains and losses
For the Firm’s defined benefit pension plans, fair value isused to determine the expected return on plan assets.
Amortization of net gains and losses is included in annual
net periodic benefit cost if, as of the beginning of the year,
the net gain or loss exceeds 10% of the greater of the PBO
or the fair value of the plan assets. Any excess is amortizedover the average future service period of defined benefit
pension plan participants, which for the U.S. defined benefit
pension plan is currently seven years. In addition, priorservice costs are amortized over the average remaining
service period of active employees expected to receive
benefits under the plan when the prior service cost is firstrecognized. The average remaining amortization period for
current prior service costs is five years.

For the Firm’s OPEB plans, a calculated value thatrecognizes changes in fair value over a five-year period isused to determine the expected return on plan assets. Thisvalue is referred to as the market related value of assets.
Amortization of net gains and losses, adjusted for gains andlosses not yet recognized, is included in annual net periodic
benefit cost if, as of the beginning of the year, the net gainor loss exceeds 10% of the greater of the accumulated
postretirement benefit obligation or the market related
value of assets. Any excess net gain or loss is amortizedover the average expected lifetime of retired participants,
which is currently twelve years; however, prior service costs
resulting from plan changes are amortized over the average
years of service remaining to full eligibility age, which iscurrently two years.

The following table presents pretax pension and OPEB amounts recorded in AOCI.
Defined benefit pension plans
December 31,

U.S.

(in millions)
Net gain/(loss)

$
$

2014

OPEB plans

2013(3,346) $(1,726) $(628) $

(658) $

130

102

196

11

14

—

(3,244) $(1,530) $(617) $

(644) $

130

Prior service credit/(cost)
Accumulated other comprehensive income/(loss), pretax, end of year

Non-U.S.

2014

2013

2014

2013
$

125
1

$

126

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)

Non-U.S.

2014

2013

2012

2014

OPEB plans

2013

2012

2014

2013

2012

Components of net periodic benefit cost
Benefits earned during the year

281 $314 $ 272

— $

1 $

1

Interest cost on benefit obligations

$

534

447

466

$

137

33

$

125

34

$

126

41

$

38

35

44

Expected return on plan assets(985)(956) (861)

(172)

(142)

(137)

(101)

(92)

(90)
(1)

Amortization:
Net (gain)/loss

25

271

289

47

49

36

—

1

Prior service cost/(credit)

(41)

(41)

(41)

(2)

(2)

—

(1)

—

—

Net periodic defined benefit cost

(186)

35

125

43

64

66

(64)

(55)

(46)

14

15

15

6

14

8

NA

NA

NA

Other defined benefit pension plans(a)Total defined benefit plans

(172)

50

140

49

78

74

(64)

(55)

(46)

Total defined contribution plans

438

447

409

329

321

302

NA

NA

NA

266 $

497 $ 549

$ 378

$ 399

$ 376

$ (64) $ (55) $

(46)

$

$

$

(43)

Total pension and OPEB cost included in compensation
expense$Changes in plan assets and benefit obligations
recognized in other comprehensive income
Net (gain)/loss arising during the year

$ 1,645 $ (1,817) $ 434

19

$ 146

—

—

—

(6)

—

—

(271) (289)

(47)

(49)

(36)

—

(1)

1

41

2

2

—

1

—

—

—

(39) (a)14——

Prior service credit arising during the year

53—

Amortization of net loss

(25)

Amortization of prior service (cost)/credit

41

41Foreign exchange impact and other

—

—

57

(a)

22

(a)

(5) $ (257) $—(1)

Total recognized in other comprehensive income$ 1,714 $ (2,047) $ 186$ (27)$ (14)$ 126$(4) $ (258) $(43)

Total recognized in net periodic benefit cost and othercomprehensive income$ 1,528 $ (2,012) $ 311

$

$

$ 192

$ (68) $ (313) $

(89)

16

50

(a) Includes various defined benefit pension plans which are individually immaterial.

220

JPMorgan Chase & Co./2014 Annual Report

The estimated pretax amounts that will be amortized from AOCI into net periodic benefit cost in 2015 are as follows.
Defined benefit pension plans(in millions)U.S.

Net loss/(gain)$

257

Prior service cost/(credit)

$

$

223

U.S.
37

(34)

Total

OPEB plans

Non-U.S.
$

(2)
$

35

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.

2014

2013

2012

2014

2013

2012

Defined benefit pension plans

7.29%

15.95%

12.66%

5.62 - 17.69%

3.74 - 23.80%

7.21 - 11.72%

OPEB plans

9.84

13.88

10.10

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.
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

JPMorgan Chase & Co./2014 Annual Report

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 rateof appropriate duration from the analysis of yield curves
provided by our actuaries.
In 2014, the Society of Actuaries (“SOA”) completed acomprehensive review of mortality experience of uninsured
private retirement plans in the U.S. In October 2014, the
SOA published new mortality tables and a new mortality
improvement scale that reflects improved life expectancies
and an expectation that this trend will continue. The Firm
has adopted the SOA’s tables and projection scale, resulting
in an estimated increase in PBO of $533 million.
At December 31, 2014, the Firm decreased the discountrates used to determine its benefit obligations for the U.S.
defined benefit pension and OPEB plans in light of current
market interest rates, which will result in an increase in
expense of approximately $139 million for 2015. The 2015
expected long-term rate of return on U.S. defined benefit
pension plan assets and U.S. OPEB plan assets are 6.50%
and 6.00%, respectively. For 2015, the initial health carebenefit obligation trend assumption has been set at 6.00%,
and the ultimate health care trend assumption and the year
to reach the ultimate rate remains at 5.00% and 2017,
respectively, unchanged from 2014. As of December 31,
2014, the interest crediting rate assumption and theassumed rate of compensation increase remained at 5.00%
and 3.50%, respectively.
The following tables present the weighted-averageannualized actuarial assumptions for the projected andaccumulated postretirement benefit obligations, and thecomponents of net periodic benefit costs, for the Firm’s
significant U.S. and non-U.S. defined benefit pension and
OPEB plans, as of and for the periods indicated.

221

Notes to consolidated financial statements
Weighted-average assumptions used to determine benefit obligations
U.S.
December 31,

Non-U.S.

2014

2013

2014

2013

Defined benefit pension plans

4.00%

5.00%

1.00 - 3.60%

1.10 - 4.40%

OPEB plans

4.10

4.90

—

—

3.50

3.50

2.75 - 4.20

2.75 - 4.60

Assumed for next year

6.00

6.50

—

—

Ultimate

5.00

5.00

—

—

Year when rate will reach ultimate

2017

2017

—

—

Discount rate:

Rate of compensation increase
Health care cost trend rate:

Weighted-average assumptions used to determine net periodic benefit costs
U.S.
Year ended December 31,

Non-U.S.

2014

2013

2012

2014

2013

2012

Defined benefit pension plans

5.00%

3.90%

4.60%

1.10 - 4.40%

1.40 - 4.40%

1.50 - 4.80%

OPEB plans

4.90

3.90

4.70

—

—

—

Defined benefit pension plans

7.00

7.50

7.50

1.20 - 5.30

2.40 - 4.90

2.50 - 4.60

OPEB plans

6.25

6.25

6.25

NA

NA

NA

3.50

4.00

4.00

2.75 - 4.60

2.75 - 4.10

2.75 - 4.20

Assumed for next year

6.50

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 accumulated postretirement benefit
obligation. As of December 31, 2014, there was no material
effect on total service and interest cost.
Year ended December 31, 2014
(in millions)

1-Percentage
point
increase

1-Percentage
point
decrease

Effect on accumulated postretirement
benefit obligation

$

$

222

9

(8)

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 $40
million in 2015 U.S. defined benefit pension and OPEB plan
expense. A 25-basis point decline in the discount rate for
the U.S. plans would result in an increase in 2015 U.S.
defined benefit pension and OPEB plan expense of
approximately an aggregate $36 million and an increase in
the related benefit obligations of approximately anaggregate $333 million. A 25-basis point decrease in theinterest crediting rate for the U.S. defined benefit pension
plan would result in a decrease in 2015 U.S. defined benefit
pension expense of approximately $36 million and adecrease in the related PBO of approximately $148 million.
A 25-basis point decline in the discount rates for the nonU.S. plans would result in an increase in the 2015 non-U.S.
defined benefit pension plan expense of approximately $19
million.

JPMorgan Chase & Co./2014 Annual Report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 of an insurancecompany and are allocated to investments intended toreplicate equity and fixed income indices.

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.
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 investment policy for the Firm’s U.S. defined benefit
pension plan assets is to optimize the risk-return
relationship as appropriate to the needs and goals of theplan using a global portfolio of various asset classes
diversified by market segment, economic sector, and issuer.
Assets are managed by a combination of internal andexternal investment managers. Periodically the Firm
performs a comprehensive analysis on the U.S. defined
benefit pension plan asset allocations, incorporating
projected asset and liability data, which focuses on the
short- and long-term impact of the asset allocation on
cumulative pension expense, economic cost, present valueof contributions and funded status. As the U.S. defined
benefit pension plan is overfunded, the investment strategy
for this plan was adjusted in 2013 to provide for greaterliquidity. Currently, approved asset allocation ranges are:
U.S. equity 0% to 45%, international equity 0% to 40%,debt securities 0% to 80%, hedge funds 0% to 5%, realestate 0% to 10%, real assets 0% to 10% and private
equity 0% to 20%. Asset allocations are not managed to a
specific target but seek to shift asset class allocations withinthese stated ranges. Investment strategies incorporate theeconomic outlook and the anticipated implications of theInvestments 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,
2014, assets held by the Firm’s U.S. and non-U.S. defined
benefit pension and OPEB plans do not include JPMorgan
Chase common stock, except through indirect 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$3.7 billion and $2.9 billion for U.S. plans and $1.4 billion
and $242 million for non-U.S. plans, as of December 31,
2014 and 2013, respectively.

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

2014

2013

Allocation

2014

2013

Allocation

2014

2013

Asset category
Debt securities(a)

0-80%

31%

25%

62%

61%

63%

30-70%

50%

50%

Equity securities

0-85

46

48

37

38

36

30-70

50

50

Real estate

0-10

4

4

—

—

—

—

—

—

Alternatives
Total
(a)
(b)
(c)

(b)

0-35

19

23

1

1

1

—

—

—

100%

100%

100%

100%

100%

100%

100%

100%

100%

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./2014 Annual Report223

Notes to consolidated financial statements
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.
Pension and OPEB plan assets and liabilities measured at fair value
U.S. defined benefit pension plans

Non-U.S. defined benefit pension plans(i)December 31, 2014
(in millions)Level 1

Level 2

Level 3

Total fairvalue

Cash and cash equivalents

$

$

$

$

87

—

—

Level 1

87$

Total fairvalue

Level 2

128

$

1

$

129

Equity securities:
Capital equipment

1,249

—

—

1,249

96

24

120

Consumer goods

1,198

8

—

1,206

250

32

282

Banks and finance companies

778

7

—

785

279

31

310

Business services

458

—

—

458

277

18

295

Energy

267

—

—

267

50

15

65

Materials

319

1

—

320

40

9

49

Real Estate

46

—

—

46

1

—

1

Other

971

4

4

979

26

40

66

5,286

20

4

5,310

1,019

169

1,188

345

1,277

8

1,630

112

251

363

Hedge funds

—

26

77

103

—

—

—

Private equity

—

—

2,208

2,208

—

—

—

Real estate

—

—

533

533

—

—

—

Real assets(c)

70

—

202

272

—

—

—

Total limited partnerships

70

26

3,020

3,116

—

—

—

—

1,454

9

1,463

—

724

724

446

161

—

607

235

540

775

1

73

1

75

2

77

79
258

Total equity securities
Common/collective trust funds(a)Limited partnerships:(b)Corporate debt securities(d)U.S. federal, state, local and non-U.S. government debt
securities
Mortgage-backed securities
Derivative receivables

—

114

—

114

—

258

2,031

27

337

2,395

283

58

Total assets measured at fair value(f)$ 8,266$ 3,152$ 3,379$ 14,797

Derivative payables

$

—

$

(23) $—$(23)

Total liabilities measured at fair value

$

—

$

(23) $—$(23)

Other(e)

224

(g)

(h)

341

$

1,779

$

2,078

$

3,857

$

—

$

(139) $

(139)

$

—

$

(139) $

(139)

JPMorgan Chase & Co./2014 Annual Report

U.S. defined benefit pension plans

Non-U.S. defined benefit pension plans(i)December 31, 2013
(in millions)Level 1

Level 2

Level 3

Total fairvalue

Cash and cash equivalents

$

$

$

$

62

—

—

Level 162$

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

—

—

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

Derivative receivables

—

30

—

30

—

302

302

Common/collective trust funds(a)Limited partnerships:

(b)

(c)

Corporate debt securities(d)Other(e)

1,214

41

430

1,685

Total assets measured at fair value(f)$ 7,083$ 3,324$ 3,961$ 14,368

Derivative payables

$

—

$

(6) $

—

$

Total liabilities measured at fair value

$

—

$

(6) $

—

$

148

52

200

$

1,418

$

2,412

$

3,830

(6)

$

—

$

(298) $

(298)

(6) (h)$—$(298) $

(298)

(g)

(a) At December 31, 2014 and 2013, common/collective trust funds primarily included a mix of short-term investment funds, domestic and international
equity investments (including index) and real estate funds.
(b) Unfunded commitments to purchase limited partnership investments for the plans were $1.2 billion and $1.6 billion for 2014 and 2013, respectively.
(c) Real assets include investments in productive assets such as agriculture, energy rights, mining and timber properties and exclude raw land to be
developed for real estate purposes.
(d) Corporate debt securities include debt securities of U.S. and non-U.S. corporations.
(e) 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.
(f) At December 31, 2014 and 2013, the fair value of investments valued at NAV were $2.1 billion and $2.7 billion, respectively, which were classified within
the valuation hierarchy as follows: $500 million and $100 million in level 1, $1.6 billion and $1.9 billion in level 2, zero and $700 million in level 3.
(g) At December 31, 2014 and 2013, excluded U.S. defined benefit pension plan receivables for investments sold and dividends and interest receivables of$106 million and $96 million, respectively.
(h) At December 31, 2014 and 2013, excluded $241 million and $102 million, respectively, of U.S. defined benefit pension plan payables for investmentspurchased; and $16 million and $2 million, respectively, of other liabilities.
(i) There were no assets or liabilities classified as level 3 for the non-U.S. defined benefit pension plans as of December 31, 2014 and 2013.

The Firm’s U.S. OPEB plan was partially funded with COLI policies of $1.9 billion and $1.7 billion at December 31, 2014 and2013, respectively, which were classified in level 3 of the valuation hierarchy.

JPMorgan Chase & Co./2014 Annual Report225Notes to consolidated financial statements
Changes in level 3 fair value measurements using significant unobservable inputs
Actual return on plan assets

Fair value,
January 1,
2014

Year ended December 31, 2014
(in millions)

Realized
gains/(losses)

Unrealized
gains/(losses)

Purchases, sales
and settlements,
net

Transfers in
and/or outof level 3

Fair value,
December 31,
2014

$

$

$

$

$

U.S. defined benefit pension plans
Equities$

4

Common/collective trust funds

—

—

—

—
—

4

4

—

1

3

8

Hedge funds

718

193

(180)

(662)

8

77

Private equity

1,969

192

173

(126)

—

2,208

Real estate

558

29

36

(90)

—

533

Limited partnerships:

Real assets

271

27

(6)

(90)

—

202

3,516

441

23

(968)

8

3,020

Corporate debt securities

7

(2)

2

4

(2)

9

Mortgage-backed securities

—

—

—

1

—

1

Total limited partnerships

Other
Total U.S. defined benefit pension plans

430

—

(93)

—

—

(960) $

6

$

3,379

$

—

$

—

$

1,903

$

—

$

—

$

1,903

$

3,961

$

439

$

(67) $

COLI

$

1,749

$

—

$

154

Total OPEB plans

$

1,749

$

—

$

154

337

OPEB plans

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

—

—

—

—

4

199

59

(32)

(222)

—

4

Hedge funds

1,166

137

14

(593)

(6)

718

Private equity

1,743

108

170

(4)

(48)

1,969

Real estate

467

21

44

26

—

558

Real assets

311

4

12

(98)

42

271

3,687

270

240

(669)

(12)

3,516

Corporate debt securities

1

—

—

—

6

7

Mortgage-backed securities

—

—

—

—

—

—

Limited partnerships:

Total limited partnerships

Other
Total U.S. defined benefit pension plans

420

—

10

—

—

$

4,311

$

329

$

218

$

(891) $

COLI

$

1,554

$

—

$

195

$

—

Total OPEB plans

$

1,554

$

—

$

195

$

—

430

(6) $

3,961

$

—

$

1,749

$

—

$

1,749

OPEB plans

226

JPMorgan Chase & Co./2014 Annual Report

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$

1

Common/collective trust funds

—

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

—

—

—

—

—

—

427

—

(7)

—

—

420

Total limited partnerships
Corporate debt securities
Mortgage-backed securities
Other
Total U.S. defined benefit pension plans

$

3,608

$

78

$

150

$

471

$

4

$

4,311

COLI

$

1,427

$

—

$

127

$

—

$

—

$

1,554

Total OPEB plans

$

1,427

$

—

$

127

$

—

$

—

$

1,554

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)2015

U.S. defined benefit
pension plans$

712

OPEB before
Medicare Part D
subsidy

Non-U.S. defined
benefit pension plans
$

110

$

Medicare Part D
subsidy
73

$

1

2016

765

113

71

1

2017

899

118

70

1

2018

926

128

68

1

2019

966

132

66

1

4,357

746

293

5

Years 2020–2024

JPMorgan Chase & Co./2014 Annual Report227Notes to consolidated financial statements
Note 10 – Employee stock-based incentives
Employee stock-based awards
In 2014, 2013 and 2012, 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, 2014, 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.
Under the LTI Plans, stock options and stock appreciationrights (“SARs”) have generally been granted with an
exercise price equal to the fair value of JPMorgan Chase’scommon stock on the grant date. The Firm periodicallygrants employee stock options to individual employees.
There were no material grants of stock options or SARs
in 2014. Grants of SARs in 2013 and 2012 become
exercisable ratably over five years (i.e., 20% per year)
and contain clawback provisions similar to RSUs. The
2013 and 2012 grants of SARs contain full-career
eligibility provisions. SARs generally expire ten years
after the grant date.

228

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
2014, 2013 and 2012, the Firm settled all of its employee
stock-based awards by issuing treasury shares.
In January 2008, the Firm awarded to its Chairman andChief Executive Officer up to 2 million SARs. The terms ofthis award are distinct from, and more restrictive than,other equity grants regularly awarded by the Firm. On July
15, 2014, the Compensation Committee and Board of
Directors determined that all requirements for the vestingof the 2 million SAR awards had been met and thus, theawards became exercisable. The SARs, which will expire in
January 2018, have an exercise price of $39.83 (the priceof JPMorgan Chase common stock on the date of grant). The
expense related to this award was dependent on changes infair value of the SARs through July 15, 2014 (the date whenthe vested number of SARs were determined), and thecumulative expense was recognized ratably over the service
period, which was initially assumed to be five years but,effective in the first quarter of 2013, had been extended to
six and one-half years. The Firm recognized $3 million,$14 million and $5 million in compensation expense in2014, 2013 and 2012, respectively, for this award.

JPMorgan Chase & Co./2014 Annual Report

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 2014.
RSUs
Year ended December 31, 2014
(in thousands, except weighted-average data, andwhere otherwise stated)
Outstanding, January 1
GrantedExercised or vested
Forfeited
Canceled
Outstanding, December 31
Exercisable, December 31

Options/SARs

Weightedaverage grant
date fair value

Number ofshares121,241 $
37,817(54,265)(4,225)NA
100,568 $
NA

41.47
57.88
40.67
47.32
NA
47.81
NA

Number ofawards87,075
101(24,950)(2,059)(972)
59,19537,171

Weightedaverage
exercise
price
$

$

Weighted-averageremaining
contractual life
(in years)

44.24
59.18
36.59
41.90
200.8645.00
46.46

Aggregate
intrinsic
value

5.2 $ 1,313,939
4.3
862,374

The total fair value of RSUs that vested during the years ended December 31, 2014, 2013 and 2012, was $3.2 billion, $2.9
billion and $2.8 billion, respectively. There were no material grants of stock options or SARs in 2014. The weighted-average
grant date per share fair value of stock options and SARs granted during the years ended December 31, 2013 and 2012, was$9.58 and $8.89, respectively. The total intrinsic value of options exercised during the years ended December 31, 2014, 2013
and 2012, was $539 million, $507 million and $283 million, respectively.
Compensation expense
The Firm recognized the following noncash compensation
expense related to its various employee stock-based
incentive plans in its Consolidated statements of income.
Year ended December 31, (in millions)
Cost of prior grants of RSUs and SARs
that are amortized over theirapplicable vesting periods

2014

2013

2012

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.
Year ended December 31, (in millions)$ 1,371$ 1,440$ 1,810

Accrual of estimated costs of stockbased awards to be granted in future
periods including those to full-career
eligible employees

819

779

735

Total noncash compensation expense
related to employee stock-based
incentive plans$ 2,190$ 2,219$ 2,545At December 31, 2014, approximately $758 million(pretax) of compensation cost related to unvested awards
had not yet been charged to net income. That cost is
expected to be amortized into compensation expense over 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,
2014, 2013 and 2012, were $854 million, $865 million
and $1.0 billion, respectively.

Cash received for options exercised
Tax benefit realized(a)

$

2014

2013

2012

63

$ 166

$ 333

104

42

53

(a) The tax benefit realized from dividends or dividend equivalents paid on
equity-classified share-based payment awards that are charged to retained
earnings are recorded as an increase to additional paid-in capital andincluded in the pool of excess tax benefits available to absorb tax
deficiencies on share-based payment awards.

Valuation assumptions
The following table presents the assumptions used to value
employee stock options and SARs granted during the years
ended December 31, 2013 and 2012, under the BlackScholes valuation model. There were no material grants ofstock options or SARs for the year ended December 31,
2014.
Year ended December 31,
Weighted-average annualized valuation
assumptions
Risk-free interest rate
Expected dividend yield
Expected common stock price volatility
Expected life (in years)

2013

2012

1.18%
2.66
28
6.6

1.19%
3.15
35
6.6

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./2014 Annual Report229

Notes to consolidated financial statements
Note 11 – Noninterest expense
The following table presents the components of noninterest
expense.
Year ended December 31,(in millions)

2014

2013

2012

$ 30,160$ 30,810$ 30,585

Occupancy

3,909

3,693

3,925

Technology, communications
and equipment

5,804

5,425

5,224

Professional and outsideservices

7,705

7,641

7,429

Marketing

2,550

2,500

2,577

Other

11,146

20,39814,98931,11439,65734,144$ 61,274$ 70,467$ 64,729

Compensation expense
Noncompensation expense:(a)(b)

Total noncompensation
expenseTotal noninterest expense(a) Included firmwide legal expense of $2.9 billion, $11.1 billion and $5.0
billion and for the years ended December 31, 2014, 2013 and 2012,
respectively.
(b) Included FDIC-related expense of $1.0 billion, $1.5 billion and $1.7 billion
for the years ended December 31, 2014, 2013 and 2012, respectively.

Note 12 – Securities
Securities are classified as trading, AFS or held-to-maturity(“HTM”). Securities classified as trading assets are
discussed in Note 3. Predominantly all of the Firm’s AFS andHTM investment securities (the “investment securities
portfolio”) are held by CIO in connection with its assetliability management objectives. At December 31, 2014,
the average credit rating of the debt securities comprising
the investment securities portfolio was AA+ (based upon
external ratings where available, and where not available,
based primarily upon internal ratings which correspond to
ratings as defined by S&P and Moody’s). AFS securities arecarried at fair value on the Consolidated balance sheets.
Unrealized gains and losses, after any applicable hedge
accounting adjustments, are reported as net increases ordecreases to accumulated other comprehensive income/(loss). The specific identification method is used todetermine realized gains and losses on AFS securities,
which are included in securities gains/(losses) on theConsolidated statements of income. HTM debt securities,
which management has the intent and ability to hold until
maturity, are carried at amortized cost on the Consolidatedbalance sheets. For both AFS and HTM debt securities,
purchase discounts or premiums are generally amortized
into interest income over the contractual life of the security.
During the first quarter of 2014, the Firm transferred U.S.
government agency mortgage-backed securities andobligations of U.S. states and municipalities with a fair valueof $19.3 billion from AFS to HTM. These securities weretransferred at fair value, and the transfer was a non-cash
transaction. AOCI included net pretax unrealized losses of$9 million on the securities at the date of transfer. The
transfer reflected the Firm’s intent to hold the securities tomaturity in order to reduce the impact of price volatility on
AOCI and certain capital measures under Basel III.

230

Other-than-temporary impairment
AFS debt and equity securities and HTM debt securities in
unrealized loss positions are analyzed as part of the Firm’s
ongoing assessment of other-than-temporary impairment(“OTTI”). For most types of debt securities, the Firm
considers a decline in fair value to be other-than-temporary
when the Firm does not expect to recover the entire
amortized cost basis of the security. For beneficial interests
in securitizations that are rated below “AA” at 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 cost basis.
Potential OTTI is considered using a variety of factors,
including the length of time and extent to which the market
value has been less than cost; adverse conditions
specifically related to the industry, geographic area or
financial condition of the issuer or underlying collateral of asecurity; payment structure of the security; changes to therating of the security by a rating agency; the volatility of thefair value changes; and the Firm’s intent and ability to holdthe security until recovery.
For AFS debt securities, the Firm recognizes OTTI losses inearnings if the Firm has the intent to sell the debt security,
or if it is more likely than not that the Firm will be required
to sell the debt security before recovery of its amortizedcost basis. In these circumstances the impairment loss isequal to the full difference between the amortized costbasis and the fair value of the securities. For debt securities
in an unrealized loss position that the Firm has the intent
and ability to hold, the expected cash flows to be received
from the securities are evaluated to determine if a credit
loss exists. In the event of a credit loss, only the amount of
impairment associated with the credit loss is recognized inincome. 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.

JPMorgan Chase & Co./2014 Annual ReportFor equity securities, OTTI losses are recognized in earnings
if the Firm intends to sell the security. In other cases theFirm considers the relevant factors noted above, as well as
the Firm’s intent and ability to retain its investment for aperiod of time sufficient to allow for any anticipated
recovery in market value, and whether evidence exists to
support a realizable value equal to or greater than the costbasis. Any impairment loss on an equity security is equal to
the full difference between the cost basis and the fair valueof the security.

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)

2014

2013

2012

Realized gains$ 314$1,302$2,610Realized losses

(233)

(614)

(457)

81

688

2,153

Net realized gains
OTTI losses
Credit-related

(2)

(1)

(28)

Securities the Firm intends to sell(a)

(2)

(20)

(15)

(4)

(21)

(43)

77

$ 667

$2,110Total OTTI losses recognized inincomeNet securities gains$(a) Excludes realized losses on securities sold of $3 million, $12 million and$24 million for the years ended December 31, 2014, 2013 and 2012,
respectively that had been previously reported as an OTTI loss due to theintention to sell the securities.

The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
2014
December 31, (in millions)

Amortized
cost

Gross
unrealized
gains

2013

Gross
unrealized
lossesFair
value

Amortized
cost

65,319$Grossunrealized
gains

Gross
unrealized
lossesFair
value

Available-for-sale debt securities
Mortgage-backed securities:
U.S. government agencies(a)$63,089 $2,302 $

72$

76,428 $2,364 $

977$

77,815Residential:
Prime and Alt-A

5,595

78

29

5,644

2,744

61

27

Subprime

677

14

—

691

908

23

1

2,778
930

Non-U.S.

43,5501,010—

44,56057,4481,314

158,761

Commercial

20,687438

1721,10815,891560

26

16,425

Total mortgage-backed securities

133,598

3,842

118

137,322

153,419

4,322

1,032

156,709

U.S. Treasury and government agencies(a)13,60356

14

13,64521,310385

306

21,389Obligations of U.S. states and municipalities

27,8412,243

16

30,06829,741707

987

29,461

Certificates of deposit

1,103

1

1

1,103

1,041

1

1

1,041

Non-U.S. government debt securities

51,492

1,272

21

52,74355,507863

122

56,248

Corporate debt securities

18,158398

24

18,532

21,043498

29

21,51230,229147

182

30,19428,130236

136

28,230Asset-backed securities:
Collateralized loan obligations
Other
Total available-for-sale debt securities

12,442

184

11

12,615

12,062186

312,245

288,466

8,143

387

296,222322,253

7,198

2,616

326,835

17

—

3,142

7,215 $ 2,616$ 329,977

Available-for-sale equity securities

2,513

17

—

2,530

Total available-for-sale securities$ 290,979 $

8,160 $

387

$ 298,752$ 325,378 $Total held-to-maturity securities(b)$1,902 $—$$

49,252 $51,154

3,125
24,026 $

22 $

317

$

23,731(a) Includes total U.S. government-sponsored enterprise obligations with fair values of $59.3 billion and $67.0 billion at December 31, 2014 and 2013, respectively,
which were predominantly mortgage-related.
(b) As of December 31, 2014, consists of MBS issued by U.S. government-sponsored enterprises with an amortized cost of $35.3 billion, MBS issued by U.S. government
agencies with an amortized cost of $3.7 billion and obligations of U.S. states and municipalities with an amortized cost of $10.2 billion. As of December 31, 2013,
consists of MBS issued by U.S. government-sponsored enterprises with an amortized cost of $23.1 billion and obligations of U.S. states and municipalities with anamortized cost of $920 million.

JPMorgan Chase & Co./2014 Annual Report231Notes to consolidated financial statements
Securities impairment
The following tables present the fair value and gross unrealized losses for the investment securities portfolio by aging category
at December 31, 2014 and 2013.
Securities with gross unrealized losses
Less than 12 months
December 31, 2014 (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$

1,118 $

5

1,840

Subprime
Non-U.S.
Commercial$

4,989 $

67 $

6,107 $

72

10

405

19

2,245

29

—

—

—

—

—

—

—

—

—

—

—

—

4,803

15

92

2

4,895

17

Total mortgage-backed securities

7,761

30

5,486

88

13,247

118

U.S. Treasury and government agencies

8,412

14

—

—

8,412

14

Obligations of U.S. states and municipalities

1,405

15

130

1

1,535

16

Certificates of deposit

1,050

1

—

—

1,050

1

Non-U.S. government debt securities

4,433

4

906

17

5,339

21

Corporate debt securities

2,492

22

80

2

2,572

24

Collateralized loan obligations

13,909

76

9,012

106

22,921

182

Other

2,258

11

—

—

2,258

11

Residential:
Prime and Alt-A

Asset-backed securities:

Total available-for-sale debt securities

41,720173

15,614

214

57,334387

Available-for-sale equity securities

—

—

—

—

—

—

Held-to-maturity securities

—

—

—

—

—

—

41,720 $173

15,614 $214 $57,334 $387

Total securities with gross unrealized losses$$

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 $895$

1,150 $

82 $

21,443 $977

Residential:
Prime and Alt-A

1,061

27

—

—

1,061

27

Subprime

152

1

—

—

152

1

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

15,442987

Total mortgage-backed securities

Certificates of deposit

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

—

—

—

—

—

—

Asset-backed securities:

Total available-for-sale debt securities
Available-for-sale equity securities
Held-to-maturity securities
Total securities with gross unrealized losses
232$

20,745317

101,248 $

2,755

$

—

—

20,745317

3,319 $

178 $

104,567 $2,933

JPMorgan Chase & Co./2014 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)

2014

2013

2012

(1)

$ (113)

Debt securities the Firm does
not intend to sell that havecredit losses
Total OTTI(a)

$

(2)

$

Year ended December 31, (in millions)
Balance, beginning of period

Losses recorded in/(reclassified from) AOCI

—

—

85

Total credit losses
recognized in income

(2)

(1)

(28)

Securities the Firm intends tosell(b)

(2)

(20)

(15)

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, 2014, 2013 and 2012, 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.

$(4)$ (21)$(43)(a) For initial OTTI, represents the excess of the amortized cost over the fairvalue of AFS debt securities. For subsequent impairments of the same
security, represents additional declines in fair value subsequent topreviously recorded OTTI, if applicable.
(b) Excludes realized losses on securities sold of $3 million, $12 million and$24 million for the years ended December 31, 2014, 2013 and 2012,
respectively that had been previously reported as an OTTI loss due to theintention to sell the securities.

JPMorgan Chase & Co./2014 Annual Report

2014
$

1 $

2013

2012

522 $ 708

Additions:
Newly credit-impaired securities

2

1

21

Losses reclassified from othercomprehensive income on previously
credit-impaired securities

—

—

7

—

(522)

(214)

Reductions:
Sales and redemptions of creditimpaired securities
Balance, end of period$3 $1 $ 522

Gross unrealized losses
Gross unrealized losses have generally decreased since
December 31, 2013. Though losses on securities that havebeen in an unrealized loss position for 12 months or more
have increased, the increase is not material. The Firm hasrecognized the unrealized losses on securities it intends tosell. As of December 31, 2014, 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, 2014.

233

Notes to consolidated financial statements
Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at December 31, 2014, of JPMorgan Chase’s
investment securities portfolio by contractual maturity.
By remaining maturity
December 31, 2014
(in millions)
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

$

996 $
1,003
2.65%

14,132 $14,4671.85%

5,768 $
5,974
3.12%

112,702 $115,878
2.93%

133,598
137,3222.82%$

2,209 $
2,215
0.80%

— $
—
—%

10,284 $10,2750.62%

1,110 $
1,155
0.35%

13,603
13,645
0.63%

$

65 $
66
2.13%

498 $
515
4.00%

1,432 $
1,508
4.93%

25,846 $27,9796.78%

27,84130,0686.63%$

1,052 $
1,050
0.84%

51 $
53
3.28%

— $
—
—%

— $
—
—%

1,103
1,103
0.95%

$

13,559 $13,5883.31%

14,276 $14,6102.04%

21,220 $21,9571.04%

2,437 $
2,588
1.19%

51,492
52,7431.90%$

3,830 $
3,845
2.39%

9,619 $
9,852
2.40%

4,523 $
4,651
2.56%

186 $
184
3.43%

18,15818,532
2.45%

$

— $
—
—%

2,240 $
2,254
1.66%

17,439 $17,541
1.75%

22,992 $23,014
1.73%

42,67142,8091.73%$

21,711 $21,7672.74%

40,816 $41,751
2.06%

60,666 $61,906
1.58%

165,273 $
170,798
3.32%

288,466
296,222
2.73%

$

— $
—
—%

— $
—
—%

— $
—
—%

2,513 $
2,530
0.25%

2,513
2,530
0.25%

$

21,711 $21,7672.74%

40,816 $41,751
2.06%

60,666 $61,906
1.58%

167,786 $173,3283.28%

290,979
298,752
2.71%

$

— $
—
—%

54 $
54
4.33%

487 $
512
4.81%

48,711 $
50,588
3.98%

49,252
51,154
3.98%(a) U.S. government-sponsored enterprises were the only issuers whose securities exceeded 10% of JPMorgan Chase’s total stockholders’ equity at
December 31, 2014.
(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, is approximately five
years for agency residential mortgage-backed securities, three years for agency residential collateralized mortgage obligations and four years fornonagency residential collateralized mortgage obligations.

234

JPMorgan Chase & Co./2014 Annual ReportNote 13 – Securities financing activities

and paid in connection with securities financing agreements
are recorded 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. The securities
financing agreements for which the fair value option has
been elected are reported within securities purchased
under resale agreements; securities loaned or sold under
repurchase agreements; and securities borrowed on theConsolidated balance sheets. Generally, for agreements
carried at fair value, current-period interest accruals arerecorded within interest income and interest expense, withchanges in fair value reported in principal transactions
revenue. However, for financial instruments containing
embedded derivatives that would be separately accounted
for in accordance with accounting guidance for hybrid
instruments, all changes in fair value, including any interest
elements, are reported in principal transactions revenue.

Securities financing agreements are treated ascollateralized financings on the Firm’s Consolidated balance
sheets. Resale and repurchase agreements are generally
carried at the amounts at which the securities will be
subsequently sold or repurchased. Securities borrowed andsecurities loaned transactions are generally carried at theamount of cash collateral advanced or received. Where
appropriate under applicable accounting guidance, resale
and repurchase agreements with the same counterparty arereported on a net basis. For further discussion of theoffsetting of assets and liabilities, see Note 1. Fees received

The following table presents as of December 31, 2014 and 2013, the gross and net securities purchased under resaleagreements and securities borrowed. Securities purchased under resale agreements have been presented on the Consolidatedbalance 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

2014

2013

Amounts
netted on theConsolidatedbalancesheetsAmounts
netted on theConsolidatedbalancesheetsNet 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

341,989 $(142,719) $15,751

Total securities purchased under resaleagreements$

357,740 $Securities borrowed$

110,435

199,270$

15,751

354,814 $(115,408) $8,279(142,719) $215,021(a)$363,093 $N/A $110,435(b)(c)$

111,465

239,406

8,279(115,408) $247,685

(a)

N/A $

111,465(b)(c)(a) At December 31, 2014 and 2013, included securities purchased under resale agreements of $28.6 billion and $25.1 billion, respectively, accounted for atfair value.
(b) At December 31, 2014 and 2013, included securities borrowed of $992 million and $3.7 billion, respectively, accounted for at fair value.
(c) Included $28.0 billion and $26.9 billion at December 31, 2014 and 2013, respectively, of securities borrowed where an appropriate legal opinion has notbeen either sought or obtained with respect to the master netting agreement.

JPMorgan Chase & Co./2014 Annual Report235

Notes to consolidated financial statements
The following table presents information as of December 31, 2014 and 2013, 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.
2014

2013

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$ 199,270$(196,136) $(232) $

2,902

$ 239,406$(234,495) $(98) $

4,813

Securities borrowed$$(80,267) $

— $

2,197

$

$

(81,127) $

— $

3,404

82,464

Cashcollateral

Net asset
balance

Net exposure

Financial
instruments(b)84,531

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, 2014 and 2013, the gross and net securities sold under repurchaseagreements and securities loaned. Securities sold under repurchase agreements have been presented on the Consolidatedbalance 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.
2014
Gross
liability
balance

December 31, (in millions)

2013

Amounts
netted on theConsolidatedbalancesheetsAmounts
netted on theConsolidatedbalancesheetsGrossliability
balance

Net liability
balance

Net liability
balanceSecurities sold under repurchase agreements
Securities sold under repurchase agreementswith an appropriate legal opinion$ 289,619 $ (142,719) $ 146,900

Securities sold under repurchase agreements
where an appropriate legal opinion has notbeen either sought or obtained(a)22,906$ 257,630(f)$ (115,408) $ 142,222(f)

18,143(f)

18,143(f)$ (115,408) $ 160,365

(c)

N/A $

(d)(e)

22,906

Total securities sold under repurchaseagreements$ 312,525 $ (142,719) $ 169,806(c)$ 275,773

Securities loaned$(d)(e)$(b)

25,927

N/A $25,92725,76925,769(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 $4.1 billion and $5.8 billion at December 31, 2014 and 2013, respectively, whenacting as lender and as presented within other liabilities in the Consolidated balance sheets.
(c) At December 31, 2014 and 2013, included securities sold under repurchase agreements of $3.0 billion and $4.9 billion, respectively, accounted for at fairvalue.
(d) At December 31, 2013, included securities loaned of $483 million accounted for at fair value; there were no securities loaned accounted for at fair value
at December 31, 2014.
(e) Included $537 million and $397 million at December 31, 2014 and 2013, respectively, of securities loaned where an appropriate legal opinion has notbeen either sought or obtained with respect to the master netting agreement.
(f) The prior period amounts have been revised with a corresponding impact in the table below. This revision had no impact on the Firm’s Consolidatedbalance sheets or its results of operations.

236

JPMorgan Chase & Co./2014 Annual Report

The following table presents information as of December 31, 2014 and 2013, regarding the securities sold under 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.

December 31, (in millions)

Net liability
balance

2014

2013

Amounts not nettable on
the Consolidated balance
sheets(a)Amounts not nettable on theConsolidated balance sheets(a)Financial
instruments(b)Cashcollateral

Net amount(c)Securities sold under
repurchase agreementswith an appropriate legal
opinion$ 146,900$(143,985) $(363) $

2,552

Securities loaned$(25,040) $

— $

350

$

25,390Net liability
balance$ 142,222$

25,372Financial
instruments(b)

(d)

Cash
collateral$(139,051) (d) $$(25,125)$

Net amount(c)(450) $

2,721

— $

247

(a) For some counterparties the sum of the financial instruments and cash collateral not nettable on the Consolidated balance sheets may exceed the net
liability balance. Where this is the case the total amounts reported in these two columns are limited to the balance of the net repurchase agreement or
securities loaned liability with that counterparty.
(b) Includes financial instrument collateral transferred, reverse repurchase assets and securities borrowed assets with an appropriate legal opinion 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.
(d) The prior period amounts have been revised with a corresponding impact in the table above. This revision had no impact on the Firm’s Consolidatedbalance sheets or its results of operations.

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, 2014 and2013.

Transfers not qualifying for sale accounting
In addition, at December 31, 2014 and 2013, the Firm held
$13.8 billion and $14.6 billion, respectively, of financial
assets for which the rights have been transferred to third
parties; however, the transfers did not qualify as a sale 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 are
predominantly recorded in other borrowed funds on theConsolidated balance sheets.

For further information regarding assets pledged andcollateral received in securities financing agreements, seeNote 30.

JPMorgan Chase & Co./2014 Annual Report237

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, or when principal and interest has been indefault for a period of 90 days or more, unless the loan isboth well-secured and in the process of collection. A loan isdetermined to be past due when the minimum payment is
not received from the borrower by the contractuallyspecified due date or for certain loans (e.g., residential realestate loans), when a monthly payment is due and unpaid
for 30 days or more. Finally, collateral-dependent loans are
typically maintained on nonaccrual status.

238

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 for further information on the Firm’s
accounting policies for the allowance for loan losses.
Charge-offs
Consumer loans, other than risk-rated business banking,risk-rated auto and PCI loans, are generally charged off or
charged down to the net realizable value of the underlying
collateral (i.e., fair value less costs to sell), with an offset 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 2013, 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./2014 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./2014 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 orloss 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.

239

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 for further information on the Firm’s elections offair value accounting under the fair value option. See Note 3
and Note 4 for further information on loans carried at fairvalue and classified as trading assets.
PCI loans
PCI loans held-for-investment are initially measured at fairvalue. PCI loans have evidence of credit deterioration since
the loan’s origination date and therefore it is probable, atacquisition, that all contractually required payments will not
be collected. Because PCI loans are initially measured at fairvalue, which includes an estimate of future credit losses, noallowance for loan losses related to PCI loans is recorded at
the acquisition date. See page 251 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; non-credit related losses such as those due tochanges in interest rates or foreign currency exchange rates
are recognized in noninterest revenue.
In the event that management decides to retain a loan in
the held-for-sale portfolio, the loan is transferred to theheld-for-investment portfolio at the lower of cost or fairvalue on the date of transfer. These loans are subsequently
assessed for impairment based on the Firm’s allowancemethodology. For a further discussion of the methodologies
used in establishing the Firm’s allowance for loan losses,
see Note 15.

240

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.

JPMorgan Chase & Co./2014 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 Consolidatedbalance sheets and initially recognized at fair value lesscosts to sell. Each quarter the fair value of the acquired
property is reviewed and adjusted, if necessary, to the lowerof cost or fair value. Subsequent adjustments to fair value
are charged/credited to noninterest revenue. Operating
expense, such as real estate taxes and maintenance, arecharged to other expense.

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, prime mortgage and home equity loans held in AM and prime mortgage loans held in Corporate.
(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, AM and Corporate. Excludes prime mortgage and home equity loans held in AM and prime mortgage loans held in
Corporate. Classes are internally defined and may not align with regulatory definitions.
(d) Other primarily includes loans to SPEs and loans to private banking clients. See Note 1 for additional information on SPEs.

JPMorgan Chase & Co./2014 Annual Report241Notes to consolidated financial statements
The following tables summarize the Firm’s loan balances by portfolio segment.
December 31, 2014
(in millions)
Retained
Held-for-saleAt fair value
Total

Consumer, excluding
credit card

December 31, 2013
(in millions)
Retained
Held-for-saleAt fair value
Total

Consumer, excluding
credit card

$

$

$

$

Credit card(a)294,979395—
295,374$

Wholesale

128,027
3,021—
131,048$$$

Credit card(a)288,449614—
289,063$$

747,508
7,217
2,611
757,336$

Wholesale

127,465326—
127,791$

Total

324,502
3,801
2,611
330,914$

Total

308,263
11,2902,011
321,564$(b)$

724,177
12,2302,011
738,418$(b)(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 $1.3 billion and $1.9 billion at December 31, 2014 and 2013, respectively.

The following tables provide 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.
2014Year ended December 31,(in millions)

Consumer, excluding
credit card

Purchases
Sales
Retained loans reclassified to held-for-sale

$

7,434
6,655
1,190

Credit card(a)(b)$

Wholesale

—
291
3,039

$

Total

885
7,381
581

$

8,319
14,327
4,810

2013
Year ended December 31,(in millions)

Consumer, excluding
credit card

Purchases
Sales
Retained loans reclassified to held-for-sale

$

7,616
4,845
1,261

Year ended December 31,(in millions)

Consumer, excluding
credit card

Purchases
Sales
Retained loans reclassified to held-for-sale$

Credit card(a)(b)$

Wholesale

328
—
309

$

Total

697
4,232
5,641

$

8,641
9,077
7,211

2012

6,601
1,852
—

Credit card(a)(b)$

Wholesale

—
—
1,043

$

Total

827
3,423
504

$

7,428
5,275
1,547

(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$15.1 billion, $5.7 billion and $1.4 billion for the years ended December 31, 2014, 2013 and 2012, respectively.

The following table provides information about gains and losses, including lower of cost or fair value adjustments, on loan sales
by portfolio segment.
Year ended December 31, (in millions)

2014

2013

2012

Net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)(a)Consumer, excluding credit card

$

341 $

313 $

122

Credit card

(241)

3

(9)

Wholesale

101

(76)

180

201 $

240 $

293

Total net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)$(a) Excludes sales related to loans accounted for at fair value.

242

JPMorgan Chase & Co./2014 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)

2014

2013

16,367 $17,11336,37540,750104,921

87,162

5,056

7,104

Auto

54,53652,757

Business banking

20,05818,951Student and other

10,97011,557

Home equity

17,09518,927

Prime mortgage

10,22012,038Subprime mortgage

3,673

4,175

15,70817,915Residential real estate – excluding PCIHome equity:
Senior lien
Junior lien$

Mortgages:
Prime, including option ARMs
Subprime
Other consumer loans

Residential real estate – PCI

Option ARMs
Total retained loans$ 294,979 $ 288,449

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./2014 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 255 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.

243

Notes to consolidated financial statements
Residential real estate – excluding PCI loans
Home equity
Senior lien

December 31,(in millions, except ratios)

Mortgages
Prime, including option
ARMs

Junior lien

Total residential real estate– excluding PCI

Subprime

2014

2013

2014

2013

2014

2013

2014

2013

2014

2013

Loan delinquency(a)Current$ 15,730$ 16,470$ 35,575$ 39,864$ 93,951$ 76,108$ 4,296$ 5,956$ 149,552$ 138,398

30–149 days past due

275

298

533

662

4,091

3,155

489

646

5,388

4,761

150 or more days past due

362

345

267

224

6,879

7,899

271

502

7,779

8,970

$ 16,367$ 17,113$ 36,375$ 40,750$ 104,921$ 87,162$ 5,056$ 7,104$ 162,719$ 152,129

Total retained loans% of 30+ days past due to total
retained loans(b)90 or more days past due and still
accruing

3.89%$

90 or more days past due andgovernment guaranteed(c)Nonaccrual loans

—

3.76%
$

—

2.20%
$

—

2.17%
$

—

1.42%
$

—

2.32%
$

—

15.03%$—

16.16%
$

—

2.27%
$

—

3.09%
$

—

—

—

—

—

7,544

7,823

—

—

7,544

7,823

938

932

1,590

1,876

2,190

2,666

1,036

1,390

5,754

6,864

Current estimated LTV ratios(d)(e)(f)(g)Greater than 125% and refreshed
FICO scores:
Equal to or greater than 660$

Less than 660

21

$

40

$

467

$

1,101

$

120

$

236

$

10

$

52

$

618

$

1,429

10

22

138

346

103

281

51

197

302

846

Equal to or greater than 660

134

212

3,149

4,645

648

1,210

118

249

4,049

6,316

Less than 660

69

107

923

1,407

340

679

298

597

1,630

2,790

Equal to or greater than 660

633

858

6,481

7,995

3,863

4,749

432

614

11,40914,216

Less than 660

226

326

1,780

2,128

1,026

1,590

770

1,141

3,802

5,185

Equal to or greater than 660

13,04813,186

20,03019,73281,80559,634

1,586

1,961

116,469

94,513

Less than 660

2,226

2,362

3,407

3,396

4,906

5,071

1,791

2,293

12,33013,122————

12,11013,712——

12,11013,712$ 16,367$ 17,113$ 36,375$ 40,750$ 104,921$ 87,162$ 5,056$ 7,104$ 162,719$ 152,129

$

$

$

$

$

$

$

101% to 125% and refreshed
FICO scores:

80% to 100% and refreshed FICO
scores:Less than 80% and refreshed FICO
scores:U.S. government-guaranteed
Total retained loans
Geographic region
California

9,240$ 28,133$ 21,876

718$ 1,069

New York

2,805

2,732

7,685

8,429

16,55014,085677

942

27,717

26,188Illinois

1,306

1,248

2,605

2,815

6,654

5,216

207

280

10,772

9,559

Florida

861

847

1,923

2,167

5,106

4,598

632

885

8,522

8,497

Texas

1,845

2,044

1,087

1,199

4,935

3,565

177

220

8,044

7,028

New Jersey

654

630

2,233

2,442

3,361

2,679

227

339

6,475

6,090

Arizona

927

1,019

1,595

1,827

1,805

1,385

112

144

4,439

4,375

Washington

506

555

1,216

1,378

2,410

1,951

109

150

4,241

4,034

Michigan

736

799

848

976

1,203

998

121

178

2,908

2,951

Ohio

1,150

1,298

778

907

615

466

112

161

2,655

2,832

All other(h)

3,345

3,544

8,261

9,370

34,14930,343

1,964

2,736

47,71945,993$ 16,367$ 17,113$ 36,375$ 40,750$ 104,921$ 87,162$ 5,056$ 7,104$ 162,719$ 152,129

Total retained loans

2,232

2,397

8,144

39,227

34,582(a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $2.6 billion and $4.7 billion; 30–149 days past due included$3.5 billion and $2.4 billion; and 150 or more days past due included $6.0 billion and $6.6 billion at December 31, 2014 and 2013, respectively.
(b) At December 31, 2014 and 2013, Prime, including option ARMs loans excluded mortgage loans insured by U.S. government agencies of $9.5 billion and $9.0 billion, respectively. Theseamounts have been excluded from nonaccrual loans based upon the government guarantee.
(c) These balances, which are 90 days or more past due but insured by U.S. government agencies, are excluded from nonaccrual loans. In predominantly all cases, 100% of the principal balanceof the loans is insured and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. These amounts have been excluded from nonaccrualloans based upon the government guarantee. At December 31, 2014 and 2013, these balances included $4.2 billion and $4.7 billion, respectively, of loans that are no longer accruinginterest because interest has been curtailed by the U.S. government agencies although, in predominantly all cases, 100% of the principal is still insured. For the remaining balance, interest
is being accrued at the guaranteed reimbursement rate.
(d) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on homevaluation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not available.
These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates.
(e) Junior lien represents combined LTV, which considers all available lien positions, as well as unused lines, related to the property. All other products are presented without consideration ofsubordinate liens on the property.
(f) Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(g) The prior period prime, including option ARMs have been revised. This revision had no impact on the Firm’s Consolidated balance sheets or its results of operations.
(h) At December 31, 2014 and 2013, included mortgage loans insured by U.S. government agencies of $12.1 billion and $13.7 billion, respectively.

244

JPMorgan Chase & Co./2014 Annual Report

The following tables represent the Firm’s delinquency statistics for junior lien home equity loans and lines as of December 31,
2014 and 2013.
Delinquencies
December 31, 2014

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)$233

Beyond the revolving period
HELOANs
Total

$

$

69

$

141

$

25,252

1.75%

108

37

107

7,979

3.16

66

20

19

3,144

3.34

36,375

2.20%

407

$

126

$

267

$

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)$Beyond the revolving period
HELOANs
Total

$

341

$

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

$

(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 areexperiencing 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

JPMorgan Chase & Co./2014 Annual Reportavailable 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.

245

Notes to consolidated financial statements
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.
Home equity
Senior lien

December 31,(in millions)
Impaired loans
With an allowance
Without an allowance(a)Total impaired loans(b)(c)
Allowance for loan losses
related to impaired loans
Unpaid principal balance ofimpaired loans(d)Impaired loans on
nonaccrual status(e)2014$Mortgages
Prime, including
option ARMs

Junior lien

2013

2014

567
579
1,146

$

$

552 $
549
1,101 $

$

84 $

94

2013

2014

727
592
1,319

$

$

722 $
582
1,304 $

$

147 $

162

2013

Subprime

2014

5,871
1,133
7,004

$

$

4,949 $
1,196
6,145 $

$

127 $

144

Total residential
real estate– excluding PCI

2013

2014

2,989
709
3,698

$

$

2,239 $
639
2,878 $

$

64 $

94

$

2013

8,462 $ 10,154
2,966
3,013
$ 11,428 $ 13,167
422 $

494

1,451

1,515

2,603

2,625

7,813

8,990

4,200

5,461

16,067

18,591

628

641

632

666

1,559

1,737

931

1,127

3,750

4,171

(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, inaccordance with regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower(“Chapter 7 loans”) as collateral-dependent nonaccrual TDRs, regardless of their delinquency status. At December 31, 2014, Chapter 7 residential real estate loans
included approximately 19% of senior lien home equity, 12% of junior lien home equity, 25% of prime mortgages, including option ARMs, and 18% of subprime
mortgages that were 30 days or more past due.
(b) At December 31, 2014 and 2013, $4.9 billion and $7.6 billion, respectively, of loans modified subsequent to repurchase from Government National Mortgage
Association (“Ginnie Mae”) in accordance with the standards of the appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. Whensuch loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loansthat do not re-perform become subject to foreclosure.
(c) Predominantly all residential real estate impaired loans, excluding PCI loans, are in the U.S.
(d) Represents the contractual amount of principal owed at December 31, 2014 and 2013. The unpaid principal balance differs from the impaired loan balances due tovarious factors, including charge-offs, net deferred loan fees or costs; and unamortized discounts or premiums on purchased loans.
(e) As of December 31, 2014 and 2013, nonaccrual loans included $2.9 billion and $3.0 billion, respectively, of TDRs for which the borrowers were less than 90 days
past due. For additional information about loans modified in a TDR that are on nonaccrual status refer to the Loan accounting framework on pages 238–240 of thisNote.

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)
2014
2013
2012
Home equity
Senior lien
$ 1,122 $ 1,151 $610
Junior lien
1,313
1,297
848
Mortgages
Prime, including option ARMs
6,730
7,214
5,989
Subprime
3,444
3,798
3,494
Total residential real estate – excluding PCI $ 12,609 $ 13,460 $ 10,941

2014
$

$

2013

Interest income on impairedloans on a cash basis(a)
2012

55 $
82

59 $
82

27
42

262
182
581 $

280
200
621 $

238
183
490

2014
$

$

2013

2012

37 $
53

40 $
55

12
16

54
51
195 $

59
55
209 $

28
31
87

(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.

246

JPMorgan Chase & Co./2014 Annual ReportLoan modifications
The Firm is required to provide borrower relief under theterms of certain Consent Orders and settlements enteredinto by the Firm related to its mortgage servicing,originations and residential mortgage-backed securities
activities. This borrower relief includes reductions ofprincipal and forbearance.
Modifications of residential real estate loans, excluding PCI
loans, are generally accounted for and reported as TDRs.
There were no additional commitments to lend toborrowers whose residential real estate loans, excluding PCI
loans, have been modified in TDRs.

The following table presents new TDRs reported by the
Firm.
Year ended December 31,(in millions)

2014

2013

2012

Home equity:
Senior lien

$

110 $

210 $

835

211

388

711

Prime, including option ARMs

287

770

2,918

Subprime

124

319

1,043

Junior lien
Mortgages:

Total residential real estate –excluding PCI$

732 $ 1,687 $ 5,507

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, term or payment
extensions and deferral of principal and/or interest payments that would otherwise have been required under the terms of theoriginal 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.
Home equity

Mortgages

Senior lien

Prime, including
option ARMs

Junior lien

Total residential real estate- excluding PCI

Subprime

Year ended
Dec. 31,

2014

2013

2012

2014

2013

2012

2014

2013

2012

2014

2013

2012

2014

2013

2012

Numberof loans
approved
for a trial
modification

939

1,719

1,695

626

884

918

1,052

2,846

3,895

2,056

4,233

4,841

4,673

9,682

11,349Numberof loans
permanently
modified

1,171

1,765

4,385

2,813

5,040

7,430

2,507

4,356

9,043

3,141

5,364

9,964

9,632

16,52530,822Concession
granted:(a)Interest rate
reduction

53%

70%

83%

84%

88%

88%

43%

73%

74%

47%

72%

69%

58%

77%

77%

Term orpayment
extension

67

76

47

83

80

76

51

73

57

53

56

41

63

70

55

Principal
and/orinterest
deferred

16

12

6

23

24

17

19

30

16

12

13

7

18

21

12

Principal
forgiveness

36

38

11

22

32

23

51

38

29

53

48

42

41

39

29

Other(b)

—

—

—

—

—

—

10

23

29

10

14

8

6

11

11

(a) Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages exceeds
100% because predominantly all of the modifications include more than one type of concession. A significant portion of trial modifications include interest rate
reductions and/or term or payment extensions.
(b) Represents variable interest rate to fixed interest rate modifications.

JPMorgan Chase & Co./2014 Annual Report247

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 table presents only thefinancial effects of permanent modifications. This table also excludes Chapter 7 loans where the sole concession granted is thedischarge of debt.
Year ended
December 31,(in millions, except
weighted-averagedata and numberof loans)

2014

Weighted-averageinterest rate ofloans withinterest rate
reductions –before TDR

Home equity
Senior lien

Junior lien
2014

2013

2012

2014

6.38% 6.35% 7.20%

4.81%

5.05%

5.45%

Weighted-averageinterest rate ofloans withinterest rate
reductions – after
TDR

3.03

3.23

4.61

2.00

2.14

Weighted-averageremaining
contractual term(in years) ofloans with termor payment
extensions –before TDR

17

19

18

19

Weighted-averageremaining
contractual term(in years) ofloans with termor payment
extensions – after
TDR

30

31

28

35

Charge-offs
recognized upon
permanent
modification

$

2

2013

Mortgages
Prime, including
option ARMs

$

7

2012

$

8

$

2014

2013

2012

2014

2013

2012

4.82% 5.28%

6.14%

7.16%

7.33%

7.73%

5.61%

5.88%

6.57%

1.94

2.69

2.77

3.67

3.37

3.52

4.14

2.78

2.92

3.69

20

20

25

25

25

24

24

24

23

23

24

34

32

37

37

36

36

35

32

36

36

34

9

$ 16

98

$ 137

5

7

4

11

24

23

39

129

133

19

43

43

74

203

203

Principal forgiven

14

30

20

21

51

58

83

206

249

89

218

324

207

505

651

Balance of loansthat redefaulted
within one year of
permanent$ 19
modification(a)

$ 26

$ 30

46

$ 121

$ 164

$ 255

93

$ 106

$ 156

$ 243

$ 316

$ 487

10

$

2012

Principal deferred

$

25

$

70

20

$

$

65

$

2013

Total residential real estate– excluding PCI

Subprime

$

35

$

$

3

$

5

$

29

$

39

$

(a) Represents loans permanently modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred within
one year of the modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which such loans defaulted. For
residential real estate loans modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments past due. In the event that amodified loan redefaults, it is probable that the loan will ultimately be liquidated through foreclosure or another similar type of liquidation transaction. Redefaults ofloans modified within the last 12 months may not be representative of ultimate redefault levels.

At December 31, 2014, the weighted-average estimatedremaining lives of residential real estate loans, excluding
PCI loans, permanently modified in TDRs were 6 years forsenior lien home equity, 8 years for junior lien home equity,
9 years for prime mortgages, including option ARMs, and 8
years for subprime mortgage. The estimated remaining
lives of these loans reflect estimated prepayments, bothvoluntary and involuntary (i.e., foreclosures and otherforced liquidations).

248

Active and suspended foreclosure
At December 31, 2014 and 2013, the Firm had non-PCIresidential real estate loans, excluding those insured by U.S.
government agencies, with a carrying value of $1.5 billion
and $2.1 billion, respectively, that were not included in
REO, but were in the process of active or suspended
foreclosure.

JPMorgan Chase & Co./2014 Annual Report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

2014

2013

2014

2013

2014

2013

2014

2013

Current
30–119 days past due
120 or more days past due$ 53,866
663
7$ 52,152599
6$ 19,710
208
140$ 18,511
280
160$ 10,080
576
314$ 10,529
660
368$ 83,656
1,447
461$ 81,192
1,539
534

Total retained loans$ 54,536$ 52,757$ 20,058$ 18,951$ 10,970$ 11,557$ 85,564$ 83,265

Loan delinquency(a)% of 30+ days past due to total
retained loans
90 or more days past due andstill accruing (b)Nonaccrual loans

1.23%
$

—

1.15%
$

—

1.73%
$

—

2.32%
$

—

2.15% (d)$367

2.52% (d)$428

1.47% (d)$367

1.60% (d)
$

428

115

161

279

385

270

86

664

632

$ 6,294
3,662
3,175
2,301
5,608
1,945
2,003
1,019
1,633

$ 5,615
3,898
2,917
2,012
5,310
2,014
1,855
950
1,902

$ 3,008
3,187
1,373
827
2,626
451
1,083
258
1,375

$ 2,374
3,084
1,341
646
2,646
392
1,046
234
1,383

$ 1,143
1,259
729
521
868
378
239
235
466

$ 1,112
1,218
740
539
878
397
252
227
513

$ 10,445
8,108
5,277
3,649
9,102
2,774
3,325
1,512
3,474

$ 9,101
8,200
4,998
3,197
8,834
2,803
3,153
1,411
3,798

Geographic region
California
New York
Illinois
FloridaTexas
New Jersey
Arizona
Washington
Michigan
Ohio

2,157

2,229

1,354

1,316

629

708

4,140

4,253

All other

24,73924,055

4,516

4,489

4,503

4,973

33,75833,517

Total retained loans$ 54,536$ 52,757$ 20,058$ 18,951$ 10,970$ 11,557$ 85,564$ 83,265$ 9,82235—$ 9,968
54
38$ 14,619708
213$ 13,622
711
316

NA
NA
NA

NA
NA
NA

$ 24,441
743
213$ 23,590
765
354

Loans by risk ratings(c)Noncriticized
Criticized performing
Criticized nonaccrual
(a)
(b)
(c)
(d)

Individual delinquency classifications included loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”) as follows:
current included $4.3 billion and $4.9 billion; 30-119 days past due included $364 million and $387 million; and 120 or more days past due included $290
million and $350 million at December 31, 2014 and 2013, respectively.
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.
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, 2014 and 2013, excluded loans 30 days or more past due and still accruing, which are insured by U.S. government agencies under the FFELP, of$654 million and $737 million, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally.

JPMorgan Chase & Co./2014 Annual Report249

Notes to consolidated financial statements
Other consumer impaired loans and loan
modifications
The table below sets forth information about the Firm’sother 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.

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.

(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) Predominantly all other consumer impaired loans are in the U.S.
(c) Other consumer average impaired loans were $599 million, $648 million
and $733 million for the years ended December 31, 2014, 2013 and2012, respectively. The related interest income on impaired loans,including those on a cash basis, was not material for the years ended
December 31, 2014, 2013 and 2012.
(d) Represents the contractual amount of principal owed at December 31,
2014 and 2013. The unpaid principal balance differs from the impaired
loan balances due to various factors, including charge-offs; interest
payments received and applied to the principal balance; net deferred loan
fees or costs; and unamortized discounts or premiums on purchased loans.

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 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 $25 million, $43 million and $42 million,
during the years ended December 31, 2014, 2013 and2012, 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 $43 million, $54 million, and $46
million, during the years ended December 31, 2014, 2013,
and 2012, respectively. A payment default is deemed tooccur as follows: (1) for scored auto and business banking
loans, when the loan is two payments past due; and (2) forrisk-rated business banking loans and auto loans, when the
borrower has not made a loan payment by its scheduled
due date after giving effect to the contractual grace period,
if any.

Loan modifications
The following table provides information about the Firm’sother consumer loans modified in TDRs. All of these TDRs
are reported as impaired loans in the tables above.

In May 2014 the Firm began extending the deferment
period for up to 24 months for certain student loans, which
resulted in extending the maturity of the loans at their
original contractual interest rates. These modified loans are
considered TDRs and placed on nonaccrual status.

December 31,(in millions)

2014

2013

Impaired loans
With an allowance$

Without an allowance(a)

557 $

571

35

47

Total impaired loans

$

592 $

618

Allowance for loan losses related to
impaired loans$(b)(c)

117 $107

Unpaid principal balance of impairedloans(d)719

788

Impaired loans on nonaccrual status

456

441

December 31,(in millions)
Loans modified in troubled debt
restructurings(a)(b)
TDRs on nonaccrual status

2014
$

2013

442 $

378

306

201

(a) The impact of these modifications was not material to the Firm for theyears ended December 31, 2014 and 2013.
(b) Additional commitments to lend to borrowers whose loans have been
modified in TDRs as of December 31, 2014 and 2013 were immaterial.

Other consumer new TDRs were $291 million, $156
million, and $249 million for the years ended
December 31, 2014, 2013 and 2012, respectively.

250

JPMorgan Chase & Co./2014 Annual ReportPurchased credit-impaired loans
PCI loans are initially recorded at fair value at acquisition.
PCI loans acquired in the same fiscal quarter may be
aggregated into one or more pools, provided that the loans
have common risk characteristics. A pool is then accounted
for as a single asset with a single composite interest rate
and an aggregate expectation of cash flows. With respect 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.

JPMorgan Chase & Co./2014 Annual Report

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. Beginning in the fourth quarter of 2014, writeoffs of PCI loans also include other adjustments, primarily
related to interest forgiveness modifications. Because theFirm’s PCI loans are accounted for at a pool level, the Firm
does not recognize charge-offs of PCI loans when theyreach specified stages of delinquency (i.e., unlike non-PCI
consumer loans, these loans are not charged off based on
FFIEC standards).
The PCI portfolio affects the Firm’s results of operations
primarily through: (i) contribution to net interest margin;(ii) expense related to defaults and servicing resulting fromthe liquidation of the loans; and (iii) any provision for loan
losses. The PCI loans acquired in the Washington Mutualtransaction were funded based on the interest ratecharacteristics of the loans. For example, variable-rateloans were funded with variable-rate liabilities and fixedrate loans were funded with fixed-rate liabilities with asimilar maturity profile. A net spread will be earned on the
declining balance of the portfolio, which is estimated as ofDecember 31, 2014, to have a remaining weighted-average
life of 8 years.

251Notes to consolidated financial statements
Residential real estate – PCI loans
The table below sets forth information about the Firm’s consumer, excluding credit card, PCI loans.
Home equity

December 31,(in millions, except ratios)
Carrying value(a)Prime mortgage

Subprime mortgage

Option ARMs

Total PCI

2014

2013

2014

2013

2014

2013

2014

2013

2014

2013

$17,095$18,927$10,220$12,038$ 3,673$ 4,175$15,708$17,915$46,696$53,055

1,758

1,758

1,193

1,726

180

180

194

494

3,325

4,158

$16,295$18,135$ 8,912$10,118$ 3,565$ 4,012$13,814$15,501$42,586$47,766

445

583

500

589

536

662

858

1,006

2,339

2,840

1,000

1,112

837

1,169

551

797

1,824

2,716

4,212

5,794

$17,740$19,830$10,249$11,876$ 4,652$ 5,471$16,496$19,223$49,137$56,400

Related allowance for loan losses(b)Loan delinquency (based on unpaid principalbalance)
Current
30–149 days past due
150 or more days past due
Total loans% of 30+ days past due to total loans

8.15%

8.55%

13.05%

14.80%

23.37%

26.67%

16.26%

19.36%

13.33%

15.31%

Current estimated LTV ratios (based on unpaid
principal balance)(c)(d)Greater than 125% and refreshed FICO scores:
Equal to or greater than 660

513$ 1,168681$ 1,824

273

662

97

290

160

459

150

575

680

1,986

Equal to or greater than 660

2,245

3,248

456

1,017

215

316

575

1,164

3,491

5,745

Less than 660

1,073

1,541

402

884

509

919

771

1,563

2,755

4,907

Equal to or greater than 660

4,171

4,473

2,154

2,787

519

544

2,418

3,311

9,262

11,115Less than 660

1,647

1,782

1,316

1,699

1,006

1,197

1,996

2,769

5,965

7,447

Equal to or greater than 660

5,824

5,077

3,663

2,897

719

521

6,593

5,671

16,79914,166

Less than 660

1,994

1,879

2,116

2,062

1,490

1,400

3,904

3,869

9,504

9,210

$17,740$19,830$10,249$11,876$ 4,652$ 5,471$16,496$19,223$49,137$56,400

California$10,671$11,937$ 5,965$ 6,845$ 1,138$ 1,293$ 9,190$10,419$26,964$30,494

New York

876

962

672

807

463

563

933

1,196

2,944

3,528

Illinois

405

451

301

353

229

283

397

481

1,332

1,568

Florida

1,696

1,865

689

826

432

526

1,440

1,817

4,257

5,034

Texas

273

327

92

106

281

328

85

100

731

861

New Jersey

348

381

279

334

165

213

553

701

1,345

1,629

Arizona

323

361

167

187

85

95

227

264

802

907

Washington

959

1,072

225

266

95

112

395

463

1,674

1,913

Michigan

53

62

166

189

130

145

182

206

531

602

Ohio

20

23

48

55

72

84

69

75

209

237

2,116

2,389

1,645

1,908

1,562

1,829

3,025

3,501

8,348

9,627

$17,740$19,830$10,249$11,876$ 4,652$ 5,471$16,496$19,223$49,137$56,400

Less than 660

$

$

45

$

240

$

34

$

115

$

89

$

301

$

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 principalbalance)

All other
Total unpaid principal balance(a) Carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition.
(b) Management concluded as part of the Firm’s regular assessment of the PCI loan pools that it was probable that higher expected credit losses would result in adecrease in expected cash flows. As a result, an allowance for loan losses for impairment of these pools has been recognized.
(c) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum,
quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available andforecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios
are necessarily imprecise and should be viewed as estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions,as well as unused lines, related to the property.
(d) Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.

252

JPMorgan Chase & Co./2014 Annual ReportApproximately 20% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANs or
HELOCs. The following tables set forth delinquency statistics for PCI junior lien home equity loans and lines of credit based on
unpaid principal balance as of December 31, 2014 and 2013.
Delinquencies
December 31, 2014

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

$

155

8,972

6.42%

76

24

166

4,143

6.42

20

7

38

736

8.83

13,851

6.55%

251

$

50

$

81

$

371

$

575

$

$

Delinquencies
December 31, 2013

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)

$

88

54

HELOANs
Total

243
24

$

321

$

526

21
11
$

120

$

82

12,670

6.76%

2,336

6.72

908

8.15

15,914

6.84%

39
$

647

$

(a) In general, these HELOCs are revolving loans for a 10-year period, after which time the HELOC converts to an interest-only loan with a balloon payment at the end of
the loan’s term.
(b) Substantially all undrawn HELOCs within the revolving period have been closed.
(c) Includes loans modified into fixed-rate amortizing loans.

The table below sets forth the accretable yield activity for the Firm’s PCI consumer loans for the years ended December 31,
2014, 2013 and 2012, and represents the Firm’s estimate of gross interest income expected to be earned over the remaining
life of the PCI loan portfolios. The table excludes the cost to fund the PCI portfolios, and therefore the accretable yield does not
represent net interest income expected to be earned on these portfolios.
Total PCI

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

2014$

Accretion into interest income

2013

16,167$

2012

18,457$

19,072(1,934)(2,201)

Changes in interest rates on variable-rate loans

(174)

(287)

(449)

Other changes in expected cash flows(a)

533

198

2,325

Balance at December 31
Accretable yield percentage$

14,592
4.19%$

16,1674.31%(2,491)$

18,457
4.38%(a) Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model and periodically updates model
assumptions. For the year ended December 31, 2014, other changes in expected cash flows were driven by changes in prepayment assumptions. For the year ended
December 31, 2013, other changes in expected cash flows were due to refining the expected interest cash flows on HELOCs with balloon payments, partially offset
by changes in prepayment assumptions. For the year ended December 31, 2012, other changes in expected cash flows were principally driven by the impact ofmodifications, 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 yieldpercentage, but not the amount of cash expected to bereceived (i.e., the accretable yield balance). While extended
JPMorgan Chase & Co./2014 Annual Reportloan 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.
Active and suspended foreclosure
At December 31, 2014 and 2013, the Firm had PCI
residential real estate loans with an unpaid principalbalance of $3.2 billion and $4.8 billion, respectively, thatwere not included in REO, but were in the process of active
or suspended foreclosure.

253

Notes to consolidated financial statements
Credit card loan portfolio

The credit card portfolio segment includes credit card loans
originated and purchased by the Firm. Delinquency rates
are the primary credit quality indicator for credit card loans
as they provide an early warning that borrowers may be
experiencing difficulties (30 days past due); information on
those borrowers that have been delinquent for a longer
period of time (90 days past due) is also considered. In
addition to delinquency rates, the geographic distribution of
the loans provides insight as to the credit quality of theportfolio based on the regional economy.
While the borrower’s credit score is another generalindicator of credit quality, the Firm does not view creditscores as a primary indicator of credit quality because theborrower’s credit score tends to be a lagging indicator.
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.

254

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
Texas
New York
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

2014

2013

3,429 $
2.75%

3,879
3.14%

$ 126,189$ 125,335

943
895
—
$ 128,027

1,108
1,022
—
$ 127,465

1.44%

1.67%

0.70

0.80

$ 17,940
11,088
10,940
7,497
7,398
5,750
4,707
4,489
3,552
3,263
51,403$ 128,027$ 17,194
10,40010,497
7,412
7,178
5,554
4,881
4,462
3,618
3,239
53,030$ 127,465

85.7%
14.3

85.1%
14.9

JPMorgan Chase & Co./2014 Annual ReportCredit card impaired loans and loan modifications
The table below sets forth information about the Firm’s
impaired credit card loans. All of these loans are considered
to be impaired as they have been modified in TDRs.
December 31, (in millions)2014

Impaired credit card loans with anallowance(a)(b)Credit card loans with modified payment
terms(c)Modified credit card loans that havereverted to pre-modification payment
terms(d)Total impaired credit card loans(e)Allowance for loan losses related to
impaired credit card loans

2013

$

1,775 $

2,746

254

369

$

2,029 $

3,115

$

500 $

971

(a) The carrying value and the unpaid principal balance are the same for credit
card impaired loans.
(b) There were no impaired loans without an allowance.
(c) Represents credit card loans outstanding to borrowers enrolled in a credit
card modification program as of the date presented.
(d) Represents credit card loans that were modified in TDRs but that havesubsequently reverted back to the loans’ pre-modification payment terms.
At December 31, 2014 and 2013, $159 million and $226 million,
respectively, of loans have reverted back to the pre-modification payment
terms of the loans due to noncompliance with the terms of the modified
loans. The remaining $95 million and $143 million at December 31, 2014
and 2013, respectively, of these loans are to borrowers who havesuccessfully completed a short-term modification program. The Firm
continues to report these loans as TDRs since the borrowers’ credit lines
remain closed.
(e) Predominantly all impaired credit card loans are in the U.S.

The following table presents average balances of impaired
credit card loans and interest income recognized on thoseloans.
Year ended December 31,(in millions)2014

Average impaired credit card loans$ 2,503 $ 3,882 $ 5,893

Interest income on
impaired credit card loans

123

2013

198

2012

308

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.
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,
JPMorgan Chase & Co./2014 Annual Reportthen 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 these loan modification programs forthe years ended December 31, 2014, 2013 and 2012, were$807 million, $1.2 billion and $1.7 billion, respectively.
Financial effects of modifications and redefaults
The following table provides information about the financial
effects of the concessions granted on credit card loans
modified in TDRs and redefaults for the periods presented.
Year ended December 31,(in millions, except
weighted-average data)

2014

2013

2012

Weighted-average interest rateof loans – before TDR

14.96%

15.37%

15.67%

Weighted-average interest rateof loans – after TDR

4.40

4.38

5.19

Loans that redefaulted within
one year of modification(a)

$

119

$

167

$

309

(a) Represents loans modified in TDRs that experienced a payment default in
the periods presented, and for which the payment default occurred within
one year of the modification. The amounts presented represent the balanceof such loans as of the end of the quarter in which they defaulted.

For credit card loans modified in TDRs, 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 for credit cardloans modified was expected to be 27.91%, 30.72% and38.23% as of December 31, 2014, 2013 and 2012,
respectively.

Wholesale loan portfolio

Wholesale loans include loans made to a variety ofcustomers, ranging from large corporate and institutional
clients to high-net-worth individuals.
The primary credit quality indicator for wholesale loans is
the risk rating assigned each loan. Risk ratings are used to
identify the credit quality of loans and differentiate risk
within the portfolio. Risk ratings on loans consider the
probability of default (“PD”) and the loss given default(“LGD”). The PD is the likelihood that a loan will default andnot be fully repaid by the borrower. The LGD is theestimated loss on the loan that would be realized upon thedefault of the borrower and takes into consideration
collateral and structural support for each credit facility.
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 defined255Notes to consolidated financial statements
by S&P and Moody’s. Investment-grade ratings range from
“AAA/Aaa” to “BBB-/Baa3.” Noninvestment-grade ratings
are classified as noncriticized (“BB+/Ba1 and B-/B3”) 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.

updated information affecting the obligor’s ability to fulfill
its obligations.
As noted above, the risk rating of a loan considers theindustry in which the obligor conducts its operations. As
part of the overall credit risk management framework, theFirm focuses on the management and diversification of its
industry and client exposures, with particular attention paid
to industries with actual or potential credit concern. See
Note 5 for further detail on industry concentrations.

Risk ratings are reviewed on a regular and ongoing basis by
Credit Risk Management and are adjusted as necessary for
The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment.
As of or for the year
ended December 31,(in millions, except
ratios)Loans by risk ratings

Commercial
and industrial

Financial
institutions

Real estate

Government
agencies

Total
retained loans

Other(d)

2014

2013

2014

2013

2014

2013

2014

2013

2014

2013

2014

2013

$ 63,069$ 57,690$ 61,006$ 52,195$ 27,111$ 26,712$8,393$ 9,979$ 82,087$79,494$241,666$226,070

Noncriticized

44,11743,477

16,541

14,381

7,085

6,674

300

440

10,075

10,992

78,11875,964

Criticized performing

2,251

2,385

1,313

2,229

316

272

3

42

236

480

4,119

5,408

Criticized nonaccrual

188

294

253

346

18

25

—

1

140

155

599

821

Investment grade
Noninvestment grade:

Total noninvestment
grade

46,556

46,15618,107

16,956

7,419

6,971

303

483

10,451

11,627

82,83682,193

Total retained loans$109,625$103,846$ 79,113$ 69,151$ 34,530$ 33,683$8,696$10,462$ 92,538$91,121$324,502$308,263% of total criticized tototal retained loans

2.22%

2.58%

1.98 %

3.72%

0.97 %

0.88 %

0.03%

0.41%

0.41 %

0.70%

1.45%

2.02%

% of nonaccrual loans
to total retained loans

0.17

0.28

0.32

0.50

0.05

0.07

—

0.01

0.15

0.17

0.18

0.27

$ 33,739$ 34,440$ 2,099$ 1,369$ 20,944$ 22,726$1,122$ 2,146$ 42,961$43,376$100,865$104,057

75,886

69,40677,01467,782

13,586

10,957

7,574

8,316

49,57747,745

223,637

204,206

Total retained loans$109,625$103,846$ 79,113$ 69,151$ 34,530$ 33,683$8,696$10,462$ 92,538$91,121$324,502$308,263

Net charge-offs/(recoveries)

$

$

$

$

$

$

$

$

$

$

$

$

Loans by geographic
distribution(a)Total non-U.S.
Total U.S.

% of net charge-offs/(recoveries) to end-ofperiod retained loans

22
0.02%

99
0.10%

(9)
(0.01)%

6
0.01%

(12)
(0.04)%(99)(0.29)%

25
0.29%

1
0.01%

(14)
(0.02)%

9
0.01%

12
—%

16
0.01%

Loan delinquency(b)Current and less than 30days past due and still$108,857
accruing
30–89 days past due
566
and still accruing$103,357$ 78,552$ 68,627$ 34,408$ 33,426$8,627$10,421$ 91,168$89,717$321,612$305,548

181

275

164

104

226

69

40

1,201

1,233

2,215

1,844

90 or more days past
due and still accruing(c)

14

14

33

14

—

6

—

—

29

16

76

50

Criticized nonaccrual

188

294

253

346

18

25

—

1

140

155

599

821

Total retained loans$109,625$103,846$ 79,113$ 69,151$ 34,530$ 33,683$8,696$10,462$ 92,538$91,121$324,502$308,263(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 pages 255–256 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 for additional information on SPEs.

256

JPMorgan Chase & Co./2014 Annual Report

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
2014

2013

2014

2013

Real estate retained loans$ 51,049$ 44,389$ 17,438$ 15,949

652

1,142

841

1,323

Criticized% of criticized to total real estateretained loans

1.28%

Criticized nonaccrual$% of criticized nonaccrual to total
real estate retained loans

126

2.57%
$

191

0.25%

Commercial construction
and development

Commercial lessors

December 31,(in millions, except ratios)

4.82%
$

110

0.43%

2014
$

4,264

0.63%

$

143

—

0.90%

$

6,362

81

0.98%
$

2014

3,674

42

8.30%
$

Other

2013

—%

2014

2013

5,139

$ 79,113$ 69,151

29

1,566

2,575

31

2.20%
$

$

Total real estate loans
2013

0.49%

3

$

17

0.08%

0.56%
$

1.98%

9

0.27%

$

3.72%

253

0.18%

$

346

0.32%

0.50%

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.
The table below sets forth information about the Firm’s wholesale impaired loans.
Commercial
and industrial

December 31,(in millions)2014

Financial
institutions

Real estate

2013

2014

2013

2014

Government
agencies

2013

2014

Total
retained loans

Other

2013

2014

2013

2014

2013

Impaired loans
With an allowance$

Without an allowance(a)

174 $

236

24

58

$

193 $

258

87

109

$

15 $

17

3

8

$

— $

1

—

—

$

89 $

85

52

73

$

471

Total impaired loans

$

198 $

294

$

280 $

367

$

18 $

25

$

— $

1

$

141 $

158

$

637

Allowance for loan losses
related to impaired loans

$

34 $

75

$

36 $

63

$

4 $

16

$

— $

—

$

13 $

27

$

87

266

448

345

454

22

24

—

1

202

241

Unpaid principal balance ofimpaired loans(b)

$

166

835

597
248

(c)

$

845

$

181

(c)

1,168

(a) When the discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This typicallyoccurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied to the loan balance.
(b) Represents the contractual amount of principal owed at December 31, 2014 and 2013. The unpaid principal balance differs from the impaired loan balances due to various
factors, including charge-offs; interest payments received and applied to the carrying value; net deferred loan fees or costs; and unamortized discount or premiums onpurchased loans.
(c) Based upon the domicile of the borrower, predominantly all wholesale impaired loans are in the U.S.

The following table presents the Firm’s average impaired loans for the years ended 2014, 2013 and 2012.
Year ended December 31, (in millions)
Commercial and industrial

2014
$

2013

2012

243 $

412 $

873

Real estate

297

484

784

Financial institutions

20

17

17

Government agencies

—

—

9

155

211

277

715 $

1,124 $

1,960

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, 2014, 2013 and2012.

Certain loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing
financial difficulty. All TDRs are reported as impaired loans in the tables above. TDRs were not material as of December 31,
2014 and 2013.

JPMorgan Chase & Co./2014 Annual Report257

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 2014, the Firm
did not make any significant changes to the methodologies
or policies used to determine its allowance for credit losses;
such policies are described in the following paragraphs.
The asset-specific component of the allowance relates 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 are other impaired loans. See Note 14
for more information about charge-offs and collateraldependent loans.

258

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 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./2014 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. Estimates of PD and LGD are subject to periodic
refinement based on changes to underlying external andFirm-specific historical data.

JPMorgan Chase & Co./2014 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 are
made in part by analyzing the historical loss experience foreach 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 take into consideration model
imprecision, deteriorating conditions within an industry,
product or portfolio type, geographic location, credit
concentration, and current economic events that haveoccurred but that are not yet reflected in the factors used toderive the statistical calculation.
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, 2014, JPMorgan Chase deemed theallowance for credit losses to be appropriate (i.e., sufficient
to absorb probable credit losses inherent in the portfolio).

259

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.
2014
Consumer,
excludingcredit card

Year ended December 31,(in millions)Credit card

Wholesale

Total

Allowance for loan losses
Beginning balance at January 1,

$

8,456

$

3,795

$

4,013

$

16,264Gross charge-offs

2,132

3,831

151

6,114

Gross recoveries

(814)

(402)

(139)

(1,355)

Net charge-offs/(recoveries)

4,759

1,318

3,429

12

Write-offs of PCI loans(a)

533

—

—

533

Provision for loan losses

414

3,079

(269)

3,224

Other

31

(6)

(36)

(11)

Ending balance at December 31,

$

7,050

$

3,439

$

539

$

500

$

3,696

$

14,185

87

$

1,126

Allowance for loan losses by impairment methodology
Asset-specific(b)(c)$

Formula-based

3,186

2,939

3,609

PCI

3,325

—

—

Total allowance for loan losses

9,734
3,325

$

7,050

$

3,439

$

3,696

$

14,185$

12,020

$

2,029

$

637

$

14,686Loans by impairment methodology
Asset-specific
Formula-based

236,263

125,998

323,861

PCI

46,696—

4

Total retained loans$

294,979$

128,027

$

133

$

—

$

686,12246,700324,502$21$

747,508

Impaired collateral-dependent loans
Net charge-offs$

Loans measured at fair value of collateral less cost to sell

3,025

—

326

154
3,351

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

$

8

$

—

$

697

Provision for lending-related commitments

5

—

(90)

Other

—

—

2

Ending balance at December 31,

$

13

$

—

$

—

$

—

$

$

705
(85)
2

609

$

60

$

622

Allowance for lending-related commitments by impairment methodology
Asset-specific$

Formula-based
Total allowance for lending-related commitments

13
$

—

13

$

—

$

549

—

$

—

$

60
562

609

$

103

$

622

Lending-related commitments by impairment methodology
Asset-specific$

Formula-based
Total lending-related commitments

58,153$58,153525,963$

525,963

471,953$472,056103
1,056,069$

1,056,172(a) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting
adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g., upon liquidation). During the fourth quarterof 2014, the Firm recorded a $291 million adjustment to reduce the PCI allowance and the recorded investment in the Firm’s PCI loan portfolio, primarily reflecting the
cumulative effect of interest forgiveness modifications. This adjustment had no impact to the Firm’s Consolidated statements of income.
(b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
(c) The asset-specific credit card allowance for loan losses is related to loans that have been modified in a TDR; such allowance is calculated based on the loans’ original contractualinterest rates and does not consider any incremental penalty rates.

260

JPMorgan Chase & Co./2014 Annual Report

(table continued from previous page)2013
Consumer,
excludingcredit card$

Credit card

12,292$

2,754

Wholesale

5,501

4,143 $

21,936

241

7,467

$

Credit card

16,294$4,805

Wholesale

6,999

$

Total

4,316 $

27,6095,755

346

10,906

(847)

(593)

(225)

(1,665)

(508)

(811)

(524)

(1,843)

1,907

3,879

16

5,802

4,297

4,944

(178)

9,063

53

—

—

53

—

—

—

—

(1,872)

2,179

(119)

188

302

3,444

(359)

3,387

(4)

(6)

8,456

$

3,795

$

601

$

971

$

$

Total

4,472

$

$

2012
Consumer,
excludingcredit card

5

(c)

(5)

(7)

2

$

4,013 $

16,264$

12,292

$

5,501

$

181 $

1,753

$

729

$

1,681

8
$

(c)

$

4,143 $

319 $

3
21,936

2,729

3,697

2,824

3,832

10,353

5,852

3,820

3,824

13,496

4,158

—

—

4,158

5,711

—

—

5,711

4,013 $

16,264$

4,143 $

21,936

17,745

$

8,456

$

13,785$

221,609

3,795

$

3,115

$

124,350

53,055845 $
307,412—$

13,938$218,945

$

4,762

$

123,23119

59,756

127,465$

308,263 $

724,177$

292,620$

127,993$306,222 $

726,835

$

235

$

—

$

37 $

272

$

973

$

—

$

77 $

1,050

445

3,717

$

7

$

—

$

3,467

—

20,175646,904$362

59,737

1,475 $
304,728

288,449—

53,061

5,501

$

3,105

6

653,371

12,292

3,272

$

7

—

661 $

668

666 $

673

1

—

36

37

—

$

—
—

$

(2)

(2)

—

—

—

—

—

—

(3)

(3)

$

8

$

—

$

697 $

705

$

7

$

—

$

661 $

668

$

—

$

—

$

60 $

60

$

—

$

—

$

97 $

97

637

645

564

571

697 $

705

$

661 $

668

206

$

8
$

$

—

8

$

—

$

56,057$56,057—$—$529,383$

529,383$

JPMorgan Chase & Co./2014 Annual Report206 $446,026

1,031,466

446,232 $

1,031,672

7

—

7

$

—

$

60,156$60,156—$—$

533,018$

533,018

$

355 $

355

434,459

1,027,633

434,814 $1,027,988

261

Notes to consolidated financial statements
Note 16 – Variable interest entities
For a further description of JPMorgan Chase’s accounting policies regarding consolidation of VIEs, see Note 1.
The following table summarizes the most significant types of Firm-sponsored VIEs by business segment. The Firm considers a“sponsored” VIE to include any entity where: (1) JPMorgan Chase is the principal beneficiary of the structure; (2) the VIE 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

Mortgage securitization trusts

Securitization of originated and purchased
residential mortgages

263-265

Other securitization trusts

Securitization of originated student loans

263-265

Mortgage and other securitization trusts

Securitization of both originated and purchased
residential and commercial mortgages, automobile
and student loans

263-265

Multi-seller conduits

Assist clients in accessing the financial markets in a
cost-efficient manner and structures transactions tomeet investor needs

265-267

CIB

Investor intermediation activities:
Municipal bond vehicles
Credit-related note and asset swap vehicles

262

265-266
267

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: The Private Equity business, within Corporate, may be involved with entities that are deemed VIEs. However,the Firm’s private equity business is subject to specialized investment company accounting, which does not require theconsolidation 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 268of this Note.
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.

262

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.
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, 2014 and 2013, the Firm held undivided
interests in Firm-sponsored credit card securitization trustsof $10.9 billion and $14.3 billion, respectively. The Firm
maintained an average undivided interest in principal
receivables owned by those trusts of approximately 22%
and 30% for the years ended December 31, 2014 and2013, respectively. The Firm also retained $40 million and$130 million of senior securities and $5.3 billion and $5.5
billion of subordinated securities in certain of its credit card
securitization trusts as of December 31, 2014 and 2013,
respectively. The Firm’s undivided interests in the credit
card trusts and securities retained are eliminated inconsolidation.
JPMorgan Chase & Co./2014 Annual Report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 CCB and CIB businesses.

Depending on the particular transaction, as well as the lineof business involved, the Firm may act as the servicer of theloans and/or retain certain beneficial interests in the
securitization trusts.

The following table presents the total unpaid principal amount of assets held in Firm-sponsored private-label securitization
entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing
involvement includes servicing the loans; holding senior interests or subordinated interests; recourse or guarantee
arrangements; and derivative transactions. In certain instances, the Firm’s only continuing involvement is servicing the loans.
See Securitization activity on page 269 of this Note for further information regarding the Firm’s cash flows with and interests
retained in nonconsolidated VIEs, and pages 269–270 of this Note for information on the Firm’s loan sales to U.S. government
agencies.
JPMorgan Chase interest in securitized
assets in nonconsolidated VIEs(c)(d)(e)Principal amount outstanding

December 31, 2014 (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

$

96.3 $

2.7 $

78.3

0.5 $

0.7 $

1.2

28.4

0.8

25.7

$

0.1

—

0.1

129.6

0.2

94.4

0.4

3.5

3.9

254.3 $

3.7 $

198.4

1.0 $

4.2 $

5.2

$

JPMorgan Chase interest in securitized
assets in nonconsolidated VIEs(c)(d)(e)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

0.5 $

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

$

(a) Excludes U.S. government agency securitizations. See pages 269–270 of this Note for information on the Firm’s loan sales to U.S. government agencies.
(b) Consists of securities backed by commercial loans (predominantly real estate) and non-mortgage-related consumer receivables purchased from third
parties. The Firm generally does not retain a residual interest in its sponsored commercial mortgage securitization transactions.
(c) The table above excludes the following: retained servicing (see Note 17 for a discussion of MSRs); securities retained from loan sales to U.S. government
agencies; interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities (SeeNote 6 for further information on derivatives); senior and subordinated securities of $136 million and $34 million, respectively, at December 31, 2014,
and $151 million and $30 million, respectively, at December 31, 2013, which the Firm purchased in connection with CIB’s secondary market-making
activities.
(d) Includes interests held in re-securitization transactions.
(e) As of December 31, 2014 and 2013, 77% and 69%, respectively, of the Firm’s retained securitization interests, which are carried at fair value, were riskrated “A” or better, on an S&P-equivalent basis. The retained interests in prime residential mortgages consisted of $1.1 billion and $551 million of
investment-grade and $185 million and $260 million of noninvestment-grade retained interests at December 31, 2014 and 2013, respectively. The
retained interests in commercial and other securitizations trusts consisted of $3.7 billion and $3.9 billion of investment-grade and $194 million and $80
million of noninvestment-grade retained interests at December 31, 2014 and 2013, respectively.

JPMorgan Chase & Co./2014 Annual Report263

Notes to consolidated financial statements
Residential mortgage
The Firm securitizes residential mortgage loans originatedby CCB, as well as residential mortgage loans purchasedfrom third parties by either CCB or CIB. CCB generally
retains servicing for all residential mortgage loans
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 268 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,
2014 and 2013, 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 268 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.
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 268 of this Note for more information on the
consolidated commercial mortgage securitizations,and the table on the previous page of this Note for further
information on interests held in nonconsolidated
securitizations.
264

The Firm retains servicing responsibilities for certain
student loan securitizations. The Firm has the power todirect the activities of these VIEs through these servicing
responsibilities. See the table on page 268 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,
2014, 2013 and 2012, the Firm transferred $22.7 billion,$25.3 billion and $10.0 billion, respectively, of securities toagency VIEs, and $1.1 billion, $55 million and $286
million, respectively, of securities to private-label VIEs.
Most re-securitizations with which the Firm is involved areclient-driven transactions in which a specific client or groupof clients is seeking a specific return or risk profile. For
these transactions, the Firm has concluded that thedecision-making power of the entity is shared between the
Firm and its clients, considering the joint effort anddecisions in establishing the re-securitization trust and its
assets, as well as the significant economic interest the client
holds in the re-securitization trust; therefore the Firm does
not consolidate the re-securitization VIE.
In more limited circumstances, the Firm creates 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 was not involved in the initial design of thetrust, or the Firm is involved with an independent thirdparty sponsor and demonstrates shared power over thecreation of the trust; therefore, the Firm does notconsolidate the re-securitization VIE.
As of December 31, 2014 and 2013, the Firm did notconsolidate any agency re-securitizations. As of
December 31, 2014 and 2013, the Firm consolidated
assets of $77 million and $86 million, respectively, andliabilities of $21 million and $23 million, respectively, ofJPMorgan Chase & Co./2014 Annual Reportprivate-label re-securitizations. See the table on page 268of this Note for more information on the consolidated resecuritization transactions.
As of December 31, 2014 and 2013, 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 $2.9 billion and $2.8 billion, respectively.
At December 31, 2014 and 2013, the Firm held
approximately $2.4 billion and $1.3 billion, respectively, ofinterests in nonconsolidated agency re-securitization
entities, and $36 million and $6 million, respectively, of
senior and subordinated interests in nonconsolidated
private-label re-securitization entities. See the table on
page 263 of this Note for further information on interests
held in nonconsolidated securitizations.
Multi-seller conduits
Multi-seller conduit entities are separate bankruptcy
remote entities that purchase interests in, and make loans
secured by, pools of receivables and other financial assets
pursuant to agreements with customers of the Firm. The
conduits fund their purchases and loans through 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 and
JPMorgan Chase & Co./2014 Annual Reportprogram-wide credit enhancement provider, as well as thepotential exposure created by the liquidity and credit
enhancement facilities provided to the conduits. See page268 of this Note for further information on consolidated VIE
assets and liabilities.
In the normal course of business, JPMorgan Chase makes
markets in and invests in commercial paper issued by the
Firm-administered multi-seller conduits. The Firm held $5.7
billion and $4.1 billion of the commercial paper issued by
the Firm-administered multi-seller conduits at
December 31, 2014 and 2013, respectively. The Firm’s
investments reflect the Firm’s funding needs and capacity
and were not driven by market illiquidity. The Firm is not
obligated under any agreement to purchase the commercial
paper issued by the Firm-administered multi-seller
conduits.
Deal-specific liquidity facilities, program-wide liquidity 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 $9.9 billion and $9.1 billion at
December 31, 2014 and 2013, respectively, and arereported as off-balance sheet lending-related commitments.
For more information on off-balance sheet lending-related
commitments, see Note 29.
VIEs associated with investor intermediation activities
As a financial intermediary, the Firm creates certain 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 from265

Notes to consolidated financial statements
the sale of the underlying municipal bonds would first repay
any funded liquidity facility or outstanding floating-rate
certificates and the remaining amount, if any, would be paid
to the residual interests. If the proceeds from the sale of theunderlying municipal bonds are not sufficient to repay theliquidity 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.

floating-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, 2014 and 2013, the Firm held $55 million
and $262 million, respectively, of these certificates on its
Consolidated balance sheets. The largest amount held by
the Firm at any end of day during 2014 was $250 million,
or 3.0%, of the municipal bond vehicles’ aggregate
outstanding puttable floating-rate certificates. The Firm did
not have and continues not to have any intent to protect any
residual interest holder from potential losses on any of themunicipal bond holdings.

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 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 268 of this Note forfurther information on consolidated municipal bondvehicles.

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 puttable

The Firm’s exposure to nonconsolidated municipal bond VIEs at December 31, 2014 and 2013, including the ratings profile of
the VIEs’ assets, was as follows.
December 31,(in billions)

Fair value of assets
held by VIEs

Liquidity facilities

Excess/(deficit)(a)Maximum
exposure

Nonconsolidated municipal bond vehicles
2014

$

2013

11.5 $

6.3 $

5.2 $

6.3

11.8

6.9

4.9

6.9

Ratings profile of VIE assets(b)Noninvestmentgrade

Investment-grade
December 31,(in billions, except where otherwise noted)
2014
2013

AAA toAAA$

AA+ to AA-

A+ to A-

BBB+ toBBB-

BB+ and below

2.7 $

8.4 $

0.4 $

—

2.7

8.9

0.2

—

$

Fair value of
assets heldby VIEs

Wt. avg.
expected lifeof assets(years)

— $

11.5

4.9

— $

11.8

7.2

(a) Represents the excess/(deficit) of the fair values of municipal bond assets available to repay the liquidity facilities, if drawn.
(b) The ratings scale is presented on an S&P-equivalent basis.

266

JPMorgan Chase & Co./2014 Annual ReportCredit-related note and asset swap vehicles
Credit-related note vehicles
The Firm structures transactions with credit-related notevehicles in which the VIE purchases highly rated assets(generally investment-grade), such as government bonds,
corporate bonds or asset-backed securities, and enters intoa credit derivative contract with the Firm to obtain exposure
to a referenced credit which the VIE otherwise does nothold. The VIE then issues credit-linked notes (“CLNs”) totransfer the risk of the referenced credit to the VIE’s
investors. Clients and investors often prefer using a CLN
vehicle since they may be of the view that the CLNs issued
by the VIE is of a higher credit quality than equivalent notes
issued directly by JPMorgan Chase. The Firm divides its
credit-related note structures broadly into two types: staticand managed. In a static credit-related note structure, the
CLNs and associated credit derivative contract either
reference a single credit (e.g., a multi-national corporation),or all or part of a fixed portfolio of credits. In a managed
credit-related note structure, the CLNs and associated credit
derivative generally reference all or part of an actively
managed portfolio of credits.
The Firm’s involvement with CLN vehicles is generally
limited to being a derivative counterparty and it does not
act as a portfolio manager for managed CLN VIEs. The Firm
does not provide any additional contractual financial
support to the VIE over and above its contractual
obligations as derivative counterparty, but may also make amarket in the CLNs issued by such VIEs, although it is under
no obligation to do so. The Firm has not historicallyprovided any financial support to the CLN vehicles over andabove its contractual obligations. As a derivative
counterparty the assets held by the VIE serve as collateral
for any derivatives receivables. As such the collateralrepresents the maximum exposure the Firm has to thesevehicles, which was $5.9 billion and $8.7 billion as ofDecember 31, 2014 and 2013, respectively. The Firm’s
maximum exposure arises through the derivatives executedwith the VIEs; the exposure varies over time with changes in
the fair value of the derivatives. The Firm relies on thecollateral held by the VIEs to pay any amounts due under
the derivatives; the vehicles are structured at inception sothat the par value of the collateral is expected to be
sufficient to pay amounts due under the derivative
contracts
Since each CLN is established to the specifications of theinvestors, the investors have the power over the activities ofthat VIE that most significantly affect the performance of
the CLN. The Firm consolidates credit-related note entities
only in limited circumstances where it holds positions inthese entities that provided the Firm with control over theentity. The Firm consolidated credit-related note vehicles
with collateral fair values of $163 million and $311 million,
at December 31, 2014 and 2013, respectively. These
consolidated VIEs included some that were structured by
the Firm where the Firm provides the credit derivative, andJPMorgan Chase & Co./2014 Annual Report

some that have been structured by third parties where theFirm is not the credit derivative provider.
The Firm reports derivatives with unconsolidated CLN
vehicles as well as any CLNs that it holds as market-makeron its Consolidated balance sheets at fair value withchanges in fair value reported in principal transactions
revenue. The Firm’s exposure to non-consolidated CLN VIEs
as of December 31, 2014 and 2013 was not material.
Asset swap vehicles
The Firm structures transactions with asset swap vehicles
on behalf of investors. In such transactions, the VIEpurchases a specific asset or assets (substantially all ofwhich are investment-grade) and then enters into a
derivative with the Firm in order to tailor the interest rateor foreign exchange currency risk, or both, according toinvestors’ requirements. Investors typically invest in thenotes issued by such VIEs in order to obtain exposure to thecredit risk of the specific assets, as well as exposure toforeign exchange and interest rate risk that is tailored totheir specific needs.
The Firm’s involvement with asset swap vehicles is generally
limited to being an interest rate or foreign exchange
derivative counterparty. The Firm does not provide any
additional contractual financial support to the VIE over andabove its contractual obligations as derivative counterparty,
but may also make a market in the notes issued by such
VIEs, although it is under no obligation to do so. The Firm
has not historically provided any financial support to asset
swap vehicles over and above its contractual obligations. As
a derivative counterparty the assets held by the VIE serveas collateral for any derivatives receivables. As such thecollateral represents the maximum exposure the Firm has
to these vehicles, which was $5.7 billion and $7.7 billion asof December 31, 2014 and 2013, respectively. The Firm’s
maximum exposure arises through the derivatives executedwith the VIEs; the exposure varies over time with changes in
the fair value of the derivatives. The Firm relies on thecollateral held by the VIEs to pay any amounts due under
the derivatives; the vehicles are structured at inception sothat the par value of the collateral is expected to be
sufficient to pay amounts due under the derivative
contracts
Since each asset swap vehicle is established to thespecifications of the investors, the investors have the powerover the activities of that VIE that most significantly affectthe performance of the entity. Accordingly, the Firm does
not generally consolidate these asset swap vehicles and did
not consolidate any asset swap vehicles at December 31,
2014 and 2013.
The Firm reports derivatives with unconsolidated asset
swap vehicles that it holds as market-maker on its
Consolidated balance sheets at fair value with changes infair value reported in principal transactions revenue. The
Firm’s exposure to non-consolidated asset swap VIEs as ofDecember 31, 2014 and 2013 was not material.
267

Notes to consolidated financial statements
VIEs sponsored by third parties
The Firm enters into transactions with VIEs structured byother parties. These include, for example, acting as a
derivative counterparty, liquidity provider, investor,
underwriter, placement agent, trustee or custodian. Thesetransactions are conducted at arm’s-length, and individual
credit decisions are based on the analysis of the specific
VIE, taking into consideration the quality of the underlying
assets. Where the Firm does not have the power to direct

the activities of the VIE that most significantly impact the
VIE’s economic performance, or a variable interest that
could potentially be significant, the Firm records andreports these positions on its Consolidated balance sheets
similarly to the way it would record and report positions in
respect of any other third-party transaction.

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,
2014 and 2013.
AssetsTrading
assets

December 31, 2014 (in billions)(a)
VIE program typeFirm-sponsored credit card trusts
Firm-administered multi-seller conduits
Municipal bond vehicles
Mortgage securitization entities(b)Student loan securitization entities
Other
Total

$

$

— $
—
5.3
3.3
0.2
0.3
9.1 $

Loans

Liabilities

Other(c)48.3 $
17.7
—
0.7
2.2
—
68.9 $

0.7 $
0.1
—
—
—
1.0
1.8 $

Total
assets(d)
49.0
17.8
5.3
4.0
2.4
1.3
79.8

Beneficial
interests in
VIE assets(e)$$31.2 $
12.0
4.9
2.1
2.1
0.1
52.4 $

AssetsTrading
assets

December 31, 2013 (in billions)(a)
VIE program typeFirm-sponsored credit card trusts
Firm-administered multi-seller conduits
Municipal bond vehicles
Mortgage securitization entities(b)Student loan securitization entities
Other
Total

$

$

— $
—
3.4
2.3
—
0.7
6.4 $

Loans
46.9 $
19.0
—
1.7
2.4
0.1
70.1 $

Other(f)
— $
—
—
0.8
—
0.1
0.9 $

Total
liabilities
31.2
12.0
4.9
2.9
2.1
0.2
53.3

Liabilities

Other(c)
1.1 $
0.1
—
—
0.1
0.9
2.2 $

Total
assets(d)
48.0
19.1
3.4
4.0
2.5
1.7
78.7

Beneficial
interests in
VIE assets(e)$$26.6 $
14.9
2.9
2.9
2.2
0.1
49.6 $

Other(f)
— $
—
—
0.9
—
0.2
1.1 $

Total
liabilities
26.6
14.9
2.9
3.8
2.2
0.3
50.7

(a) Excludes intercompany transactions, which were eliminated in consolidation.
(b) Includes residential and commercial mortgage securitizations as well as re-securitizations.
(c) Includes assets classified as cash, derivative receivables, AFS securities, and other assets within the Consolidated balance sheets.
(d) The assets of the consolidated VIEs included in the program types above are used to settle the liabilities of those entities. The difference between total
assets and total liabilities recognized for consolidated VIEs represents the Firm’s interest in the consolidated VIEs for each program type.
(e) The interest-bearing beneficial interest liabilities issued by consolidated VIEs are classified in the line item on the Consolidated balance sheets titled,“Beneficial interests issued by consolidated variable interest entities.” The holders of these beneficial interests do not have recourse to the general creditof JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $35.4 billion and $31.8 billion at December 31,
2014 and 2013, respectively. The maturities of the long-term beneficial interests as of December 31, 2014, were as follows: $10.9 billion under one year,$19.0 billion between one and five years, and $5.5 billion over five years, all respectively.
(f) Includes liabilities classified as accounts payable and other liabilities in the Consolidated balance sheets.

268

JPMorgan Chase & Co./2014 Annual Report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 table provides information related to the Firm’s securitization activities for the years ended December 31, 2014,2013 and 2012, related to assets held in JPMorgan Chase-sponsored securitization entities that were not consolidated by theFirm, and where sale accounting was achieved based on the accounting rules in effect at the time of the securitization.
2014
Year ended December 31,(in millions, except rates)(a)Residential
mortgage(d)(e)Principal securitized
All cash flows during the period:$

2,558 $

Proceeds from new securitizations(b)$2,569 $

Servicing fees collected

557

Purchases of previously transferred financial assets(or the underlying collateral)(c)Cash flows received on interests

2013

Commercial
and other(e)(f)2012

Residential
Commercial
mortgage(d)(e) and other(e)(f)Residential
mortgage(d)(e)11,911$

1,404 $

11,318

$

— $

5,421

12,079$1,410 $

11,507

$

— $

5,705

4

576

121

—

179

578

Commercial
and other(e)(f)

5

662

4

294

—

222

—

156

325

185

163

(a) Excludes re-securitization transactions.
(b) Proceeds from residential mortgage securitizations were received in the form of securities. During 2014, $2.4 billion of residential mortgage
securitizations were received as securities and classified in level 2, and $185 million were in level 3 of the fair value hierarchy. During 2013, $1.4 billionof residential mortgage securitizations were received as securities and classified in level 2 of the fair value hierarchy. Proceeds from commercial mortgage
securitizations were received as securities and cash. During 2014, $11.4 billion of proceeds from commercial mortgage securitizations were received as
securities and classified in level 2, and $130 million of proceeds were classified as level 3 of the fair value hierarchy; and $568 million of proceeds fromcommercial mortgage securitizations were received as cash. During 2013, $11.3 billion of commercial mortgage securitizations were classified in level 2of the fair value hierarchy, and $207 million of proceeds from commercial mortgage securitizations were received as cash. During 2012, $5.7 billion ofcommercial mortgage securitizations were classified in level 2 of the fair value hierarchy.
(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 certain loan securitization transactions entered into with Ginnie Mae, Fannie Mae and Freddie
Mac.
(e) Key assumptions used to measure residential mortgage retained interests originated during the year included weighted-average life (in years) of
5.9 and 3.9 for the years ended December 31, 2014 and 2013, respectively, and weighted-average discount rate of 3.4% and 2.5% for the years ended
December 31, 2014 and 2013, respectively. There were no residential mortgage securitizations during 2012. Key assumptions used to measurecommercial and other retained interests originated during the year included weighted-average life (in years) of 6.5, 8.3 and 8.8 for the years ended
December 31, 2014, 2013, and 2012, respectively, and weighted-average discount rate of 4.8%, 3.2% and 3.6% for the years ended December 31,
2014, 2013 and 2012, respectively.
(f) Includes commercial and student loan securitizations.

Loans and excess MSRs sold to the GSEs, loans insecuritization transactions pursuant to Ginnie Mae
guidelines, and other third-party-sponsoredsecuritization entities
In addition to the amounts reported in the securitization
activity tables above, the Firm, in the normal course ofbusiness, sells originated and purchased mortgage loans
and certain originated excess MSRs on a nonrecourse basis,
predominantly to Fannie Mae and Freddie Mac (the “GSEs”).
These loans and excess MSRs are sold primarily for the
purpose of securitization by the GSEs, who provide certain
JPMorgan Chase & Co./2014 Annual Reportguarantee provisions (e.g., credit enhancement of theloans). The Firm also sells loans into securitizationtransactions pursuant to Ginnie Mae guidelines; these loans
are typically insured or guaranteed by another U.S.
government agency. The Firm does not consolidate thesecuritization vehicles underlying these transactions as it is
not the primary beneficiary. For a limited number of loan
sales, the Firm is obligated to share a portion of the credit
risk associated with the sold loans with the purchaser. See
Note 29 for additional information about the Firm’s loan
sales- and securitization-related indemnifications.
269

Notes to consolidated financial statements
See Note 17 for additional information about the impact of
the Firm’s sale of certain excess mortgage servicing rights.
The following table summarizes the activities related toloans sold to the GSEs, loans in securitization transactions
pursuant to Ginnie Mae guidelines, and other third-partysponsored securitization entities.
Year ended December 31,(in millions)

2014

Carrying value of loans sold$Proceeds received from loan
sales as cash$(a)Proceeds from loans sales as
securities(b)$Gains on loan sales(d)

$

2012

55,802 $ 166,028 $ 179,008
260 $
55,117

Total proceeds received fromloan sales(c)

2013

782 $
163,373

195
176,592

55,377 $ 164,155 $ 176,787
316 $

302 $

141

(a) Predominantly to the GSEs and in securitization transactions pursuant
to Ginnie Mae guidelines.
(b) Predominantly includes securities from the GSEs and Ginnie Mae thatare generally sold shortly after receipt.
(c) Excludes the value of MSRs retained upon the sale of loans. Gains onloans sales include the value of MSRs.
(d) The carrying value of the loans accounted for at fair value
approximated the proceeds received upon loan sale.

Options to repurchase delinquent loans
In addition to the Firm’s obligation to repurchase certain
loans due to material breaches of representations andwarranties as discussed in Note 29, the Firm also has theoption to repurchase delinquent loans that it services for
Ginnie Mae loan pools, as well as for other U.S. government
agencies under certain arrangements. The Firm typicallyelects to repurchase delinquent loans from Ginnie Mae loanpools as it continues to service them and/or manage theforeclosure process in accordance with the applicablerequirements, and such loans continue to be insured or
guaranteed. When the Firm’s repurchase option becomes
exercisable, such loans must be reported on theConsolidated balance sheets as a loan with a corresponding
liability. As of December 31, 2014 and 2013, the Firm hadrecorded on its Consolidated balance sheets $12.4 billion
and $14.3 billion, respectively, of loans that either had
been repurchased or for which the Firm had an option to
repurchase. Predominantly all of these amounts relate toloans that have been repurchased from Ginnie Mae loanpools. Additionally, real estate owned resulting fromvoluntary repurchases of loans was $464 million and $2.0
billion as of December 31, 2014 and 2013, respectively.
Substantially all of these loans and real estate owned are
insured or guaranteed by U.S. government agencies. For
additional information, refer to Note 14.

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, 2014 and 2013.
As of or for the year ended December 31, (in millions)
Securitized loans(a)Residential mortgage:
Prime/ Alt-A & Option ARMs

Securitized assets
2014
2013

90 days past due
2014
2013

$ 78,294 $ 90,381$ 11,363 $ 14,882

Liquidation losses
2014
2013

2,166 $

4,688

Subprime mortgage

25,65928,008

6,473

7,726

1,931

2,420

Commercial and other

94,43898,018

1,522

2,350

1,267

1,003

5,364 $

8,111

Total loans securitized(b)$ 198,391 $ 216,407$ 19,358 $ 24,958$$(a) Total assets held in securitization-related SPEs were $254.3 billion and $271.7 billion, respectively, at December 31, 2014 and 2013. The $198.4 billion
and $216.4 billion, respectively, of loans securitized at December 31, 2014 and 2013, excludes: $52.2 billion and $50.8 billion, respectively, of
securitized loans in which the Firm has no continuing involvement, and $3.7 billion and $4.5 billion, respectively, of loan securitizations consolidated on
the Firm’s Consolidated balance sheets at December 31, 2014 and 2013.
(b) Includes securitized loans that were previously recorded at fair value and classified as trading assets.

270

JPMorgan Chase & Co./2014 Annual ReportNote 17 – Goodwill and other intangible assets
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(a)Total goodwill

2014

2013

2012

$ 30,941 $ 30,985 $ 31,048
6,780
6,888
6,895
2,861
2,862
2,863
6,964
6,969
6,992
101
377
377
$ 47,647 $ 48,081 $ 48,175(a) The remaining $101 million of Private Equity goodwill was disposed ofas part of the Private Equity sale completed in January 2015. For
further information on the Private Equity sale, see Note 2.

The following table presents changes in the carrying
amount of goodwill.
Year ended December 31,(in millions)
Balance at beginning of period
Changes during the period from:
Business combinations
Dispositions
Other(a)Balance at December 31,

2014

2013

2012

$ 48,081$ 48,175$ 48,188

43
64
43
(80)
(5)
(4)
(397)
(153)
(52)
$ 47,647 $ 48,081 $ 48,175(a) Includes foreign currency translation adjustments, other tax-related
adjustments, and, during 2014, goodwill impairment associated with
the Firm’s Private Equity business of $276 million.

Impairment testing
During 2014, the Firm recognized impairments of thePrivate Equity business’ goodwill totaling $276 million.
The Firm’s remaining goodwill was not impaired at
December 31, 2014. Further, the Firm’s goodwill was not
impaired at December 31, 2013 nor was any goodwill
written off due to impairment during 2013 or 2012.
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 the
JPMorgan Chase & Co./2014 Annual Reportfair 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.
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 senior
management of the Firm. The discount rate used for eachreporting unit represents an estimate of the cost of equity
for that reporting unit and is determined considering the
Firm’s overall estimated cost of equity (estimated using theCapital 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 fair
271

Notes to consolidated financial statements
values, although precise conclusions generally cannot be
drawn due to the differences that naturally exist between
the Firm’s businesses and competitor institutions.
Management also takes into consideration a comparison
between the aggregate fair value of the Firm’s reporting
units and JPMorgan Chase’s market capitalization. In
evaluating this comparison, management considers several
factors, including (a) a control premium that would exist ina market transaction, (b) factors related to the level ofexecution risk that would exist at the firmwide level that do
not exist at the reporting unit level and (c) short-term
market volatility and other factors that do not directly
affect the value of individual reporting units.
Deterioration in economic market conditions, increased
estimates of the effects of regulatory or legislative changes,
or additional regulatory or legislative changes may result in
declines in projected business performance beyond
management’s current expectations. For example, in the
Firm’s Mortgage Banking business, such declines could
result from increases in primary mortgage interest rates,
lower mortgage origination volume, higher costs to resolve
foreclosure-related matters or from deterioration ineconomic conditions, including decreases in home pricesthat result in increased credit losses. Declines in businessperformance, increases in equity capital requirements, orincreases in the estimated cost of equity, could cause theestimated fair values of the Firm’s reporting units or theirassociated goodwill to decline in the future, which could
result in a material impairment charge to earnings in a
future period related to some portion of the associatedgoodwill.

272

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 has elected to accountfor its MSRs at fair value. The Firm treats its MSRs as asingle class of servicing assets based on the availability ofmarket inputs used to measure the fair value of its MSR
asset and its treatment of MSRs as one aggregate pool forrisk management purposes. The Firm estimates the fairvalue of MSRs using an option-adjusted spread (“OAS”)
model, which projects MSR cash flows over multiple interest
rate scenarios in conjunction with the Firm’s prepayment
model, and then discounts these cash flows at risk-adjusted
rates. The model considers portfolio characteristics,
contractually specified servicing fees, prepayment
assumptions, delinquency rates, costs to service, latecharges and other ancillary revenue, and other economic
factors. The Firm compares fair value estimates andassumptions to observable market data where available,
and also considers recent market activity and actual
portfolio experience.

JPMorgan Chase & Co./2014 Annual Report

The fair value of MSRs is sensitive to changes in interest
rates, including their effect on prepayment speeds. MSRs
typically decrease in value when interest rates decline
because declining interest rates tend to increase
prepayments and therefore reduce the expected life of the
net servicing cash flows that comprise the MSR asset.
Conversely, securities (e.g., mortgage-backed securities),
principal-only certificates and certain derivatives (i.e.,

those for which the Firm receives fixed-rate interest
payments) increase in value when interest rates decline.
JPMorgan Chase uses combinations of derivatives 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, 2014, 2013 and 2012.
As of or for the year ended December 31, (in millions, except where otherwise noted)

2014

Fair value at beginning of period

$

2013

9,614

$

7,614

2012
$

7,223

MSR activity:
Originations of MSRs

757

Purchase of MSRs

2,214

2,376

11

1

457

Disposition of MSRs(a)

(209)

(725)

(579)

Net additions

559

1,490

2,254

(911)

(1,102)(1,228)(1,608)

2,122

(589)

109

(452)

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)133Discount rates(459)

Prepayment model changes and other(e)108Total changes in valuation due to other inputs and assumptions

(h)

(218)

(78)

(98)

(541)

504

(510)

(46)

Total changes in valuation due to inputs and assumptions(b)$(1,826)

$

1,612

$

(635)

Fair value at December 31,(f)

$

7,436

$

9,614

$

7,614

Change in unrealized gains/(losses) included in income related to MSRs
held at December 31,$(1,826)

$

1,612

$

(635)

Contractual service fees, late fees and other ancillary fees included in income

$

2,884

$

3,309

$

3,783

$

756

$

822

$

867

$

8.5

$

9.6

$

10.9

Third-party mortgage loans serviced at December 31, (in billions)
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 the remaining 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 $(7) million, $(5) million and $(8) million for the years ended December 31, 2014, 2013 and 2012,
respectively.
(c) Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and expected
prepayments.
(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 delinquentloans.
(e) Represents changes in prepayments other than those attributable to changes in market interest rates. For the year ended December 31, 2013, the decrease wasdriven by changes in the inputs and assumptions used to derive prepayment speeds, primarily increases in home prices.
(f) Included $11 million, $18 million and $23 million related to commercial real estate at December 31, 2014, 2013, and 2012, 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 be reimbursed within ashort period of time after the advance from future cash flows from the trust or the underlying loans. The Firm’s credit risk associated with these advances is minimal
because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right to stop payment to investors if
the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if they were not made in accordance withapplicable rules and agreements.
(h) For the year ending December 31, 2014, the decrease was primarily related to higher capital allocated to the Mortgage Servicing business, which, in turn, resulted
in an increase in the option adjusted spread (“OAS”). The resulting OAS assumption continues to be consistent with capital and return requirements that the Firm
believes a market participant would consider, taking into account factors such as the current operating risk environment and regulatory and economic capitalrequirements.

JPMorgan Chase & Co./2014 Annual Report273

Notes to consolidated financial statements
The following table presents the components of mortgage
fees and related income (including the impact of MSR risk
management activities) for the years ended December 31,
2014, 2013 and 2012.
Year ended December 31,(in millions)

2014

2013

2012

CCB mortgage fees and related
incomeRepurchase (losses)/benefits
Net production revenue$ 732$ 2,673$5,783

458

331

(272)

1,190

3,004

5,511

Net mortgage servicing revenue
Operating revenue:
Loan servicing revenue
Changes in MSR asset fair value
due to collection/realization of
expected cash flows
Total operating revenue

3,303

3,552

3,772

Total risk management
Total CCB net mortgage servicing
revenue
All otherMortgage fees and related income(905)(1,094)(1,222)

2,398

2,458

2,550

(1,606)

2,119

(587)

(218)

(511)

(46)

1,796

(1,875)

1,252

(28)

(267)

619

2,370

2,191

3,169

3

10

7

$3,563$ 5,205$8,687(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.

274

2014

Impact on fair value of 10% adversechange

2013

9.80%
$

(337)

8.07%
$

(362)

Impact on fair value of 20% adversechange

(652)

(705)

Weighted-average option adjusted spread

9.43%

7.77%

Impact on fair value of 100 basis points
adverse change
Impact on fair value of 200 basis points
adverse change

Risk management:
Changes in MSR asset fair value
due to market interest rates andother(a)Other changes in MSR asset fairvalue due to other inputs andassumptions in model(b)Change in derivative fair value andotherDecember 31,(in millions, except rates)
Weighted-average prepayment speed
assumption (“CPR”)

Net production revenue:
Production revenue

The table below outlines the key economic assumptions
used to determine the fair value of the Firm’s MSRs at
December 31, 2014 and 2013, and outlines thesensitivities of those fair values to immediate adversechanges in those assumptions, as defined below.

$

(300)
(578)

$

(389)
(750)

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.
Other intangible assets
Other intangible assets are recorded at their fair value uponcompletion 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 otherintangible assets, are amortized over their useful lives in amanner that best reflects the economic benefits of theintangible asset. The $426 million decrease in otherintangible assets during 2014 was predominantly due to$380 million in amortization.

JPMorgan Chase & Co./2014 Annual Report

The components of credit card relationships, core deposits and other intangible assets were as follows.
2014
Gross amount(a)December 31, (in millions)Purchased credit card relationships
Other credit card-related intangibles
Core deposit intangibles
Other intangibles(b)Total other intangible assets

$

$

2013

Accumulated
amortization(a)

200 $
497
814
1,880
3,391 $

166
378
757
898
2,199

Net
carrying value
$
$
$
$
$

34
119
57
982
1,192

Gross amount$$

Accumulated
amortization

3,540 $
542
4,133
2,374
10,589 $

3,409
369
3,974
1,219
8,971

Net
carrying value
$
$
$
$
$

131
173
159
1,155
1,618

(a) The decrease in the gross amount and accumulated amortization from December 31, 2013, was due to the removal of fully amortized assets,
predominantly related to intangible assets acquired in the 2004 merger with Bank One Corporation (“Bank One”).
(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

2014

Other credit card-related intangibles
Core deposit intangibles
Other intangibles
Total amortization expense(a)

2013

$

97

$

51
102
130
380

2012

$

195

$

58
196
188
637

$

309

$

265
239
144
957

(a) The decline in amortization expense during 2014 predominantly related to intangible assets acquired in the 2004 merger with Bank One, most of whichbecame fully amortized during the second quarter of 2014.

Future amortization expense
The following table presents estimated future amortization expense related to credit card relationships, core deposits andother intangible assets at December 31, 2014.
Purchased credit
card relationships

Year ended December 31, (in millions)
2015
2016
2017
2018
2019

$

Other credit
card-related intangibles

13 $
6
5
3
2

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.

JPMorgan Chase & Co./2014 Annual Report

38 $
33
28
20
—

Core deposit
intangibles

Other
intangibles
26 $
14
7
5
3

Total
89 $
73
70
50
37

166
126
110
78
42

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.

275

Notes to consolidated financial statements
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 capitalizes certain costs associated withthe acquisition or development of internal-use software.
Once the software is ready for its intended use, these costs
are amortized on a straight-line basis over the software’s
expected useful life and reviewed for impairment on an
ongoing basis.

Note 19 – Deposits
At December 31, 2014 and 2013, 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 $7,501 and $5,995 atfair value)(c)Total interest-bearing deposits
Total deposits in U.S. offices
Non-U.S. offices
Noninterest-bearing
Interest-bearing
DemandSavings
Time (included $1,306 and $629 atfair value)(c)Total interest-bearing deposits
Total deposits in non-U.S. offices
Total deposits

2014$

437,558

2013$

389,863

90,319466,730

84,631
450,405

86,301

91,356643,350
1,080,908

626,392
1,016,255

19,07817,611

217,0112,673

214,391
1,083

43,75738,425

263,441
282,519$ 1,363,427

253,899
271,510$ 1,287,765

At December 31, 2014 and 2013, time deposits indenominations of $100,000 or more were as follows.
December 31, (in millions)
U.S. offices
Non-U.S. offices
Total

2014

2013

$ 71,630$ 74,804

43,74338,412$115,373$113,216

At December 31, 2014, the maturities of interest-bearing
time deposits were as follows.
December 31, 2014
(in millions)
2015
2016
2017
2018
2019
After 5 years
Total

U.S.
$ 70,929
6,511
1,480
1,750
1,423
4,208
$ 86,301

Non-U.S.
$ 43,031
424
61
75
166
—
$ 43,757

Total$ 113,960
6,935
1,541
1,825
1,589
4,208
$ 130,058

Note 20 – Accounts payable and other liabilities

Accounts payable and other liabilities consist of payables tocustomers; payables to brokers, dealers and clearingorganizations; payables from security purchases that did
not settle; income taxes payables; accrued expense,
including interest-bearing liabilities; and all other liabilities,
including litigation reserves and obligations to returnsecurities 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

2014
$ 134,467
72,487$ 206,954

2013$ 116,391
78,100$ 194,491(a) Includes payables to customers, brokers, dealers and clearingorganizations, and payables from security purchases that did notsettle.
(b) Includes $36 million and $25 million accounted for at fair value at
December 31, 2014 and 2013, 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.

276

JPMorgan Chase & Co./2014 Annual Report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, 2014.
By remaining maturity at
December 31,

2014(in millions, except rates)

Under 1 year2013

1-5 years

After 5 years

Total

Total

Parent company
Senior debt:

Fixed rate$

Variable rate
Interest rates(a)Subordinated debt:

Fixed rate$

Variable rate
Interest rates(a)Subtotal $13,214$

46,275$49,300$108,789$

101,074

7,196

28,482

6,572

42,25041,0300.33-6.75%

0.27-7.25%

0.18-6.40%

0.18-7.25%

0.19-7.25%

2,581

$

2,373

$

11,763$

16,717$

15,198

1,446

2,000

9

3,455

4,566

0.48-5.25%

1.06-8.53%

3.38-8.00%

0.48-8.53%

0.63-8.53%

24,437

$

2,006

$

79,130$32$

67,644$

166$

171,211

$

2,204

$

161,868

Subsidiaries
Federal Home Loan Banks(“FHLB”) advances:

Fixed rate$

Variable rate

7,800

Interest rates(a)Senior debt:

Fixed rate

0.27-2.04%$

Variable rate
Interest rates(a)Subordinated debt:

Fixed rate

$

334

1,493

0.39%
$

3,924

0.11-2.04%
$

$

5,428
23,4580.36-0.48%

0.26-8.00%

1.30-7.28%

0.26-8.00%

0.12-8.00%

—

$

5,289

$

1,647

$

6,936

$

7,286

2,364

—

2,364

2,528

0.57-6.00%

4.38-8.25%

0.57-8.25%

0.57-8.25%

13,945$76,360

$

9,824

$

100,129$

100,576

—

$

—

$

2,226

$

2,226

$

2,176

Variable rate——

Interest rates(a)

—%

—%

3,270

3,270

3,269

0.73-8.75%

0.73-8.75%

0.74-8.75%

Subtotal $

—

$

—

$

5,496

$

5,496

$

38,382$

155,490$

82,964$

276,836

Fixed rate $

4,650

$

7,924

$

1,398

$

13,972

Total long-term debt

0.16-2.04%

5,751
20,084—%(b)(c)(d)3,236
58,6402,587Interest rates(a)$0.11-0.43%$

62,79013,692—

Fixed rate

1,500

3,805

Variable rate
Subtotal $Junior subordinated debt:

53,490(f)(g)

$

5,445

$

267,889$

10,958Long-term beneficial interests:
Variable rate

6,230

11,0794,128

21,437

20,872

Interest rates

0.18-1.36%

0.20-5.23%

0.05-15.93%

0.05-15.93%

0.04-15.93%

$

$

$

Total long-term beneficial
interests(e)
(a)

(b)
(c)
(d)
(e)
(f)
(g)

$

10,880$19,003

5,526

35,40931,830The 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 theeffects of the associated derivative instruments used in hedge accounting relationships, if applicable. The use of these derivative instruments modifies the Firm’s
exposure to the contractual interest rates disclosed in the table above. Including the effects of the hedge accounting derivatives, the range of modified rates in
effect at December 31, 2014, for total long-term debt was (0.10)% to 8.55%, versus the contractual range of 0.11% to 8.75% presented in the table above. Theinterest rate ranges shown exclude structured notes accounted for at fair value.
Included long-term debt of $69.2 billion and $68.4 billion secured by assets totaling $156.7 billion and $131.3 billion at December 31, 2014 and 2013,
respectively. The amount of long-term debt secured by assets does not include amounts related to hybrid instruments.
Included $30.2 billion and $28.9 billion of long-term debt accounted for at fair value at December 31, 2014 and 2013, respectively.
Included $2.9 billion and $2.7 billion of outstanding zero-coupon notes at December 31, 2014 and 2013, respectively. The aggregate principal amount of thesenotes at their respective maturities is $7.5 billion and $4.5 billion, respectively.
Included on the Consolidated balance sheets in beneficial interests issued by consolidated VIEs. Also included $2.2 billion and $2.0 billion of outstanding structured
notes accounted for at fair value at December 31, 2014 and 2013, respectively. Excluded short-term commercial paper and other short-term beneficial interests of$17.0 billion and $17.8 billion at December 31, 2014 and 2013, respectively.
At December 31, 2014, long-term debt in the aggregate of $23.5 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior to maturity,
based on the terms specified in the respective notes.
The aggregate carrying values of debt that matures in each of the five years subsequent to 2014 is $38.4 billion in 2015, $50.0 billion in 2016, $42.0 billion in2017, $35.3 billion in 2018 and $28.2 billion in 2019.

JPMorgan Chase & Co./2014 Annual Report277

Notes to consolidated financial statements
The weighted-average contractual interest rates for total
long-term debt excluding structured notes accounted for atfair value were 2.43% and 2.56% as of December 31,
2014 and 2013, respectively. In order to modify exposure
to interest rate and currency exchange rate movements,
JPMorgan Chase utilizes derivative instruments, primarily
interest rate and cross-currency interest rate swaps, 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 1.50% and 1.54% asof December 31, 2014 and 2013, respectively.

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.

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 $352 million and $478 million
at December 31, 2014 and 2013, 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
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. OtherAt December 31, 2014, the Firm had outstanding ninewholly owned Delaware statutory business trusts (“issuer
trusts”) that had issued guaranteed capital debt securities.
The junior subordinated deferrable interest debentures
issued by the Firm to the issuer trusts, totaling $5.5 billion
and $5.4 billion at December 31, 2014 and 2013,
respectively, were reflected on the Firm’s Consolidatedbalance 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, 2014 and 2013. Beginning in 2014, thedebentures issued to the issuer trusts by the Firm, less thecommon capital securities of the issuer trusts, began being
phased out from inclusion as Tier 1 capital under Basel III.
As of December 31, 2014, $2.7 billion of these debentures
qualified as Tier 1 capital, while $2.7 billion qualified asTier 2 capital. As of December 31, 2013, under Basel I, theentire balance of these debentures qualified as Tier 1
capital.

The following is a summary of the outstanding trust preferred securities, including unamortized original issue discount, issued
by each trust, and the junior subordinated deferrable interest debenture issued to each trust, as of December 31, 2014.

December 31, 2014
(in millions)

Amount of trust
preferred
securities
issued by trust(a)Principal
amount ofdebenture
issued to trust(b)Bank One Capital III$$

Earliest
redemption
dateInterest rate oftrust preferred
securities anddebentures

Interest
payment/
distribution
dates

726

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

242

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

466

480

2004

2034

Any time

LIBOR + 0.95%

Quarterly

JPMorgan Chase Capital XXI

836

838

2007

2037

Any time

LIBOR + 0.95%

Quarterly

JPMorgan Chase Capital XXIII

643

643

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)

278

$

474

Issue
date

Stated maturityof trust
preferred
securities anddebentures

5,188

$

5,496

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./2014 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, 2014 and 2013, JPMorgan Chase wasauthorized to issue 200 million shares of preferred stock, in
one or more series, with a par value of $1.00 per share.

The following is a summary of JPMorgan Chase’s non-cumulative preferred stock outstanding as of December 31, 2014 and2013.
Shares at December 31,(represented bydepositary shares)(a)
2014

2013

2014

Series O

125,750

125,750

Series P

90,000

Series T

92,500

Series W

2013

Date atwhich
dividend
rate
becomesfloating

Issue date

Contractualrate
in effect at
Earliest
December 31, redemption
2014
date

8/27/2012

5.500% 9/1/2017

NA

NA

Carrying value(in millions)at December 31,

Floating annual
rate ofthree-month
LIBOR plus:

Fixed-rate:$

1,258 $

1,258

90,000900

900

2/5/2013

5.450

3/1/2018

NA

NA

—

925

—

1/30/2014

6.700

3/1/2019

NANA

88,000—880—

6/23/2014

6.300

9/1/2019

NA

NA

Series I

600,000

600,000

6,000

6,000

4/23/2008

7.900% 4/30/2018 4/30/2018 LIBOR + 3.47 %Series Q

150,000

150,000

1,500

1,500

4/23/2013

5.150

5/1/2023

5/1/2023

LIBOR + 3.25

Series R

150,000

150,000

1,500

1,500

7/29/2013

6.000

8/1/2023

8/1/2023

LIBOR + 3.30

Series S

200,000

—

2,000

—

1/22/2014

6.750

2/1/2024

2/1/2024

LIBOR + 3.78

Series U

100,000

—

1,000

—

3/10/2014

6.125

4/30/2024 4/30/2024 LIBOR + 3.33

Series V

250,000

—

2,500

—

6/9/2014

5.000

7/1/2019

Series X

160,000

—

1,600

—

9/23/2014

6.100

10/1/2024 10/1/2024 LIBOR + 3.33

2,006,250

1,115,750

Fixed-to-floating rate:

Total preferred stock(a)

7/1/2019

LIBOR + 3.32

$ 20,063 $ 11,158

Represented by depositary shares.

Each series of preferred stock has a liquidation value andredemption price per share of $10,000, plus any accrued
but unpaid dividends.
Dividends on fixed-rate preferred stock are payable
quarterly. Dividends on fixed-to-floating rate preferredstock are payable semiannually while at a fixed rate, andwill become payable quarterly after converting to a floating
rate.

Note 23 – Common stock
At December 31, 2014 and 2013, 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, 2014, 2013 and 2012 were as follows.

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.

Year ended December 31,(in millions)

Redemption rights
Each series of the Firm’s preferred stock may be redeemedon any dividend payment date on or after the earliest
redemption date for that series. All outstanding preferredstock series except Series I may also be redeemed following
a capital treatment event, as described in the terms of eachseries. Any redemption of the Firm’s preferred stock issubject to non-objection from the Federal Reserve.

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

Subsequent events
Issuance of preferred stock
On February 12, 2015, the Firm issued $1.4 billion of
noncumulative preferred stock.

JPMorgan Chase & Co./2014 Annual Report

Total issued – balance atJanuary 1 and December 31

(a)

2014

2013

2012

4,104.9

4,104.9

4,104.9(348.8)(82.3)(300.9)(96.1)(332.2)(33.5)

—

—

(0.2)

39.8

47.1

63.7

1.2
41.0

1.1
48.2

1.3
65.0

(390.1)(348.8)(300.9)3,714.8

3,756.1

3,804.0

Participants in the Firm’s stock-based incentive plans may haveshares withheld to cover income taxes.

279

Notes to consolidated financial statements
At each of December 31, 2014, 2013, and 2012,
respectively, the Firm had 59.8 million warrants
outstanding to purchase shares of common stock (the“Warrants”). The Warrants are currently traded on the New
York Stock Exchange, and they are exercisable, in whole orin part, at any time and from time to time until October 28,
2018. The original warrant exercise price was $42.42 pershare. The number of shares issuable upon the exercise ofeach warrant and the warrant exercise price is subject toadjustment upon the occurrence of certain events,
including, but not limited to, the extent regular quarterly
cash dividends exceed $0.38 per share. As a result of theincrease in the Firm’s quarterly common stock dividend to$0.40 per share commencing with the second quarter of2014, the exercise price of the Warrants was adjusted eachsubsequent quarter, and was $42.391 as of December 31,
2014. There has been no change in the number of sharesissuable upon exercise.
On March 13, 2012, the Board of Directors authorized a$15.0 billion common equity (i.e., common stock andwarrants) repurchase program. As of December 31, 2014,$3.8 billion (on a trade-date basis) of authorized
repurchase capacity remained under the program. The
amount of equity that may be repurchased by the Firm isalso subject to the amount that is set forth in the Firm’s
annual capital plan that is submitted to the Federal Reserveas part of the Comprehensive Capital Analysis and Review(“CCAR”) process.
The following table sets forth the Firm’s repurchases ofcommon equity for the years ended December 31, 2014,2013 and 2012, on a trade-date basis. There were no
warrants repurchased during the years ended
December 31, 2014, and 2013.
Year ended December 31, (in millions)2014

Total number of shares of common stock
repurchased

2013

2012

83.4

96.1

30.9

Aggregate purchase price of common
stock repurchases$ 4,834$ 4,789$ 1,329

Total number of Warrants repurchased

—

—

18.5

Aggregate purchase price of Warrant
repurchases

$

—

$

—

$

238

The Firm may, from time to time, enter into written trading
plans under Rule 10b5-1 of the Securities Exchange Act of1934 to facilitate repurchases in accordance with thecommon equity repurchase program. A Rule 10b5-1
repurchase plan allows the Firm to repurchase its equity
during periods when it would not otherwise be repurchasing
common equity — for example, during internal trading“blackout periods.” All purchases under a Rule 10b5-1 plan
must be made according to a predefined plan establishedwhen the Firm is not aware of material nonpublic
information. For additional information regarding
repurchases of the Firm’s equity securities, see Part II, Item
5: Market for registrant’s common equity, related
stockholder matters and issuer purchases of equity
securities, on pages 18–19.

280

As of December 31, 2014, approximately 240 million
unissued shares of common stock were reserved forissuance under various employee incentive, compensation,
option and stock purchase plans, director compensationplans, and the Warrants, as discussed above.

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, 2014, 2013
and 2012.
Year ended December 31,(in millions,
except per share amounts)

2014

2013

2012

Basic earnings per share
Net income$ 21,762 $ 17,923 $ 21,284

Less: Preferred stock dividends

1,125

805

653

Net income applicable to common
equity20,637

17,11820,631

Less: Dividends and undistributed
earnings allocated to participating
securities
Net income applicable to common
stockholders

544

525

754

$ 20,093 $ 16,593 $ 19,877

Total weighted-average basic
shares outstanding
Net income per share

3,763.5$

5.34 $

3,782.4
4.39 $

3,809.4
5.22

Diluted earnings per share
Net income applicable to common
stockholders$ 20,093 $ 16,593 $ 19,877

Total weighted-average basic shares
outstanding

3,763.5

3,782.4

3,809.4

Add: Employee stock options, SARs
and warrants(a)

34.0

32.5

12.8

3,797.5

3,814.9

3,822.2

Total weighted-average diluted
shares outstanding(b)Net income per share$

5.29 $

4.35 $

5.20(a) Excluded from the computation of diluted EPS (due to the antidilutive effect)
were certain options issued under employee benefit plans and the Warrants. The
aggregate number of shares issuable upon the exercise of such options andWarrants was 1 million, 6 million and 148 million for the years ended
December 31, 2014, 2013 and 2012, 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./2014 Annual ReportNote 25 – Accumulated other comprehensive income/(loss)
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation
adjustments (including the impact of related derivatives), cash flow hedging activities, and net loss and prior service costs/(credit) related to the Firm’s defined benefit pension and OPEB plans.
Year ended December 31,(in millions)
Balance at December 31, 2011
Net change
Balance at December 31, 2012
Net change
Balance at December 31, 2013
Net change
Balance at December 31, 2014

Unrealized gains/(losses) on
investment
securities(a)$ 3,565 (b)3,303$ 6,868 (b)(4,070)$ 2,798 (b)1,975$ 4,773 (b)Translation
adjustments,
net of hedges
$
$
$
$

(26)
(69)
(95)
(41)
(136)
(11)
(147)

Cash flow
hedges$$$$Defined benefit pension
and OPEB plans

51
69
120
(259)
(139)
44
(95)

$

(2,646)(145)(2,791)
1,467(1,324)(1,018)(2,342)$$$

Accumulated
othercomprehensive
income/(loss)
$
944
3,158
$ 4,102(2,903)$ 1,199990$ 2,189(a) Represents the after-tax difference between the fair value and amortized cost of securities accounted for as AFS including, as of the date of transfer during
the first quarter of 2014, $9 million of net unrealized losses related to AFS securities that were transferred to HTM. Subsequent to transfer, includes any
net unamortized unrealized gains and losses related to the transferred securities.
(b) At December 31, 2011, included after-tax non-credit related unrealized losses of $56 million on debt securities for which credit losses have beenrecognized in income. There were no such losses for the other periods presented.

The following table presents the before- and after-tax changes in the components of other comprehensive income/(loss).

Year ended December 31, (in millions)

Pretax2014
Taxeffect$ 3,193$ (1,170) $ 2,023

Aftertax

Pretax2013
TaxeffectAftertax

Pretax2012
TaxeffectAftertax

Unrealized gains/(losses) on investment
securities:
Net unrealized gains/(losses) arising during theperiodReclassification adjustment for realized (gains)/
losses included in net income(a)Net change
Translation adjustments:
Translation(b)Hedges(b)Net change
Cash flow hedges:
Net unrealized gains/(losses) arising during theperiodReclassification adjustment for realized (gains)/
losses included in net income(c)Net change
Defined benefit pension and OPEB plans:$ (5,987) $ 2,323$ (3,664) $ 7,521$ (2,930) $ 4,591

(77)

29

(48)

(667)

261

(406)

(2,110)822(1,288)3,116(1,141)

1,975(6,654)2,584(4,070)5,411(2,108)3,303(1,638)
1,698
60

588
(659)
(71)

(1,050)
1,039
(11)

(807)
773
(34)

295
(302)
(7)

(512)
471
(41)

(26)
(82)
(108)

8
31
39

(18)
(51)
(69)

98

(39)

59

(525)

206

(319)

141

(55)

86

(24)

9

(15)

101

(41)

60

(28)

11

(17)

74

(30)

44

(424)

165

(259)

113

(44)

69

Prior service credits arising during the period
Net gains/(losses) arising during the period
Reclassification adjustments included in
net income(d):(53)(1,697)

21
688

(32)
(1,009)

—
2,055

—
(750)

—
1,305

6
(537)

(2)
228

4
(309)

Amortization of net loss
Prior service costs/(credits)
Foreign exchange and otherNet change
Total other comprehensive income/(loss)

72
(44)
39
(1,683)$ 1,567 $

(29)
43
321
(124)
197
324
(126)
198
17
(27)
(43)
17
(26)
(41)
16
(25)
(32)
7
(14)
5
(9)
(21)
8
(13)
665
(1,018)
2,319
(852)
1,467
(269)
124
(145)
(577) $ 990 $ (4,793) $ 1,890 $ (2,903) $ 5,147 $ (1,989) $ 3,158(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/expense in the Consolidated
statements of income. The amounts were not material for the periods presented.
(c) The pretax amount is reported in the same line as the hedged items, which are predominantly recorded in net interest income in the Consolidated
statements of income.
(d) The pretax amount is reported in compensation expense in the Consolidated statements of income.

JPMorgan Chase & Co./2014 Annual Report281

Notes to consolidated financial statements
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, 2014, 2013 and 2012, is presented in thefollowing table.
Effective tax rate
Year ended December 31,

2014

2013

2012

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

2.7

2.2

1.6

Tax-exempt income

(3.1)

(3.1)

(2.9)

Non-U.S. subsidiary earnings(a)

(2.0)

(4.9)

(2.4)

Business tax credits

(5.4)

(5.4)

(4.2)

Nondeductible legal expense

2.4

8.0

(0.2)

Other, net

(2.6)

(1.0)

(0.5)

Effective tax rate

27.0%

30.8%

26.4%

(a) Predominantly includes earnings of U.K. subsidiaries that are deemed
to be reinvested indefinitely.

282

The components of income tax expense/(benefit) includedin the Consolidated statements of income were as follows
for each of the years ended December 31, 2014, 2013, and2012.
Income tax expense/(benefit)
Year ended December 31,(in millions)

2014

2013

2012

Current income tax expense/(benefit)
U.S. federal$ 1,610

Non-U.S.

1,353

1,308

1,782

857

(4)

1,496

3,820

(12)

6,503

U.S. federal

3,738

7,080

2,238

Non-U.S.

71

10

(327)

U.S. state and local

401

913

(781)

4,210

8,003

1,130

$ 8,030$ 7,991$ 7,633

U.S. state and local
Total current income tax expense/(benefit)$ (1,316) $ 3,225

Deferred income tax expense/(benefit)

Total deferred income tax expense/(benefit)
Total income tax expense

Total income tax expense includes $451 million, $531
million and $200 million of tax benefits recorded in 2014,2013, and 2012, respectively, as a result of tax audit
resolutions. In 2013, the relationship between current anddeferred income tax expense was largely driven by thereversal of significant deferred tax assets as well as prioryear tax adjustments and 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 a decrease of $140 million in 2014, anincrease of $2.1 billion in 2013, and a decrease of $1.9
billion in 2012.
U.S. federal income taxes have not been provided on 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 2014,pretax earnings of $2.6 billion were generated and will beindefinitely reinvested in these subsidiaries. At
December 31, 2014, the cumulative amount of
undistributed pretax earnings in these subsidiaries were$31.1 billion. If the Firm were to record a deferred tax
liability associated with these undistributed earnings, theamount would be $7.0 billion at December 31, 2014.
JPMorgan Chase & Co./2014 Annual Report

These undistributed earnings are related to subsidiaries
located predominantly in the U.K. where the 2014 statutory
tax rate was 21.5%.
Tax expense applicable to securities gains and losses for theyears 2014, 2013 and 2012 was $30 million, $261 million,
and $822 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, 2014 and 2013.
Deferred taxes
December 31, (in millions)

2014

2013

Deferred tax assets
Allowance for loan losses

$

5,756

$

6,593

Employee benefits

3,378

4,468

Accrued expenses and other

8,637

9,179

Non-U.S. operations

5,106

5,493

Tax attribute carryforwards

570

748

Gross deferred tax assets

23,447

26,481

(820)

(724)

$

22,627$25,757

The following table presents a reconciliation of the
beginning and ending amount of unrecognized tax benefits
for the years ended December 31, 2014, 2013 and 2012.

$

3,073

$

3,196

Unrecognized tax benefits

Valuation allowance
Deferred tax assets, net of valuation
allowance

At December 31, 2014, 2013 and 2012, JPMorgan Chase’s
unrecognized tax benefits, excluding related interest
expense and penalties, were $4.9 billion, $5.5 billion and$7.2 billion, respectively, of which $3.5 billion, $3.7 billion
and $4.2 billion, respectively, if recognized, would reduce
the annual effective tax rate. Included in the amount of
unrecognized tax benefits are certain items that would 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 these examinations could
result in a reduction in the gross balance of unrecognizedtax benefits in the range of $0 to approximately $2 billion.
Upon settlement of an audit, the gross unrecognized tax
benefits would decline either because of tax payments or
the recognition of tax benefits.

Deferred tax liabilities
Depreciation and amortization
Mortgage servicing rights, net ofhedges
Leasing transactions

5,533

5,882

Year ended December 31,(in millions)

2,495

2,352

Balance at January 1,

Non-U.S. operations

4,444

4,705

Other, net

4,891

3,459

Gross deferred tax liabilities

20,436

19,594

Net deferred tax assets

$

2,191

$

6,163

JPMorgan Chase has recorded deferred tax assets of $570
million at December 31, 2014, in connection with U.S.
federal net operating loss (“NOL”) carryforwards. At
December 31, 2014, total U.S. federal NOL carryforwards
were approximately $1.6 billion. If not utilized, the U.S.
federal NOL carryforwards will expire between 2025 and2034.
The valuation allowance at December 31, 2014, was due tolosses associated with non-U.S. subsidiaries.

JPMorgan Chase & Co./2014 Annual Report

2014

2013

2012

$ 5,535$ 7,158$ 7,189

Increases based on tax positions
related to the current period

810

542

680

Increases based on tax positions
related to prior periods

477

88

234

Decreases based on tax positions
related to prior periods(1,902)(2,200)(853)

Decreases related to settlements withtaxing authorities

(9)

(53)

(50)

Decreases related to a lapse of
applicable statute of limitations

—

—

(42)

$ 4,911$ 5,535$ 7,158

Balance at December 31,

After-tax interest expense/(benefit) and penalties related toincome tax liabilities recognized in income tax expense were
$17 million, $(184) million and $147 million in 2014,2013 and 2012, respectively.
At both December 31, 2014 and 2013, in addition to theliability for unrecognized tax benefits, the Firm had accrued$1.2 billion for income tax-related interest and penalties.

283

Notes to consolidated financial statements
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, 2014.
Tax examination status
Periods under
examination

Status

JPMorgan Chase – U.S.

2003 - 2005

Field examination
completed; atAppellate level

JPMorgan Chase – U.S.

2006 - 2010

Field examination

JPMorgan Chase – U.K.

2006 – 2012

Field examination ofcertain select entities

JPMorgan Chase – NewYork State and City

2005 – 2007

Field examination

JPMorgan Chase –California

2006 – 2010

Field examination

December 31, 2014

The following table presents the U.S. and non-U.S.
components of income before income tax expense for theyears ended December 31, 2014, 2013 and 2012.
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

2014

2013

2012

$ 22,515$ 17,229$ 24,895

7,277

8,685

4,022

$ 29,792$ 25,914$ 28,917(a) For purposes of this table, non-U.S. income is defined as income
generated from operations located outside the U.S.

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 $10.6 billion and $5.3 billion in 2014 and2013, 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 Office of the Comptroller of theCurrency (“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 theysupervise, including JPMorgan Chase and its subsidiaries
that are banks or bank holding companies, if, in the banking
regulator’s opinion, payment of a dividend would constitutean unsafe or unsound practice in light of the financial
condition of the banking organization.
At January 1, 2015, JPMorgan Chase’s banking subsidiaries
could pay, in the aggregate, approximately $31 billion in
dividends to their respective bank holding companies
without the prior approval of their relevant banking
regulators. The capacity to pay dividends in 2015 will be
supplemented by the banking subsidiaries’ earnings during
the year.
In compliance with rules and regulations established by U.S.
and non-U.S. regulators, as of December 31, 2014 and2013, cash in the amount of $16.8 billion and $17.2
billion, respectively, and securities with a fair value of$10.1 billion and $1.5 billion, respectively, were segregatedin special bank accounts for the benefit of securities andfutures brokerage customers. In addition, as ofDecember 31, 2014 and 2013, the Firm had otherrestricted cash of $3.3 billion and $3.9 billion, respectively,
primarily representing cash reserves held at non-U.S.
central banks and held for other general purposes.

284

JPMorgan Chase & Co./2014 Annual Report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. andChase Bank USA, N.A.
Basel III rules under the transitional Standardized andAdvanced Approaches (“Basel III Standardized Transitional”
and “Basel III Advanced Transitional,” respectively) became
effective on January 1, 2014; December 31, 2013 data isbased on Basel I rules. Basel III establishes twocomprehensive methodologies for calculating RWA (aStandardized approach and an Advanced approach) which
include capital requirements for credit risk, market risk, andin the case of Basel III Advanced, also operational risk. Key
differences in the calculation of credit risk RWA between theStandardized and Advanced approaches are that for Basel
III Advanced, credit risk RWA is based on risk-sensitive
approaches which largely rely on the use of internal credit
models and parameters, whereas for Basel III Standardized,
credit risk RWA is generally based on supervisory riskweightings which vary primarily by counterparty type andasset class. Market risk RWA is calculated mostly consistentacross Basel III Standardized and Basel III Advanced, both ofwhich incorporate the requirements set forth in Basel 2.5.
For 2014, Basel III Standardized Transitional 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.
Beginning in 2014, there are three categories of risk-based
capital under the Basel III Transitional rules: Common
Equity Tier 1 capital (“CET1 capital”), as well as Tier 1
capital and Tier 2 capital. CET1 capital predominantly
includes common stockholders’ equity (including capital for
AOCI related to debt and equity securities classified as AFS
as well as for defined benefit pension and OPEB plans), lesscertain deductions for goodwill, MSRs and deferred tax
assets that arise from NOL and tax credit carryforwards.
Tier 1 capital is predominantly comprised of CET1 capital aswell as perpetual preferred stock. Tier 2 capital includes
long-term debt qualifying as Tier 2 and qualifying allowancefor credit losses. Total capital is Tier 1 capital plus Tier 2
capital.
On February 21, 2014, the Federal Reserve and the OCC
informed the Firm and its national bank subsidiaries thatthey had satisfactorily completed the parallel run
requirements and were approved to calculate capital under
Basel III Advanced, in addition to Basel III Standardized, as
of April 1, 2014. In conjunction with its exit from theparallel run, the capital adequacy of the Firm and its
national bank subsidiaries is evaluated against the Basel III
approach (Standardized or Advanced) which results, foreach quarter beginning with the second quarter of 2014, inthe lower ratio (the “Collins Floor”), as required by the
Collins Amendment of the Dodd-Frank Act.
JPMorgan Chase & Co./2014 Annual Report

The following tables present the regulatory capital, assets
and risk-based capital ratios for JPMorgan Chase and its
significant national bank subsidiaries under both Basel III
Standardized Transitional and Basel III Advanced
Transitional at December 31, 2014, and under Basel I at
December 31, 2013.
JPMorgan Chase & Co.(d)Basel III
Standardized
Transitional

Basel III
Advanced
Transitional

Basel IDec 31,2014

Dec 31,2014

Dec 31,
2013(in millions,
except ratios)
Regulatory capital
CET1 capital

164,764NA

Tier 1 capital(a)$164,764
186,632$

186,632$ 165,663

Total capital

221,563

211,022

199,286

Risk-weighted

1,472,602

1,608,240

1,387,863

Adjusted average(b)2,465,414

2,465,414

2,343,713

AssetsCapital ratios(c)
CET1

11.2%

10.2%

NA

Tier 1(a)

12.7

11.6

11.9%

Total

15.0

13.1

14.4

Tier 1 leverage

7.6

7.6

7.1

JPMorgan Chase Bank, N.A.(d)Basel III
Standardized
Transitional

Basel III
Advanced
Transitional

Basel IDec 31,2014

Dec 31,2014

Dec 31,
2013(in millions,
except ratios)
Regulatory capital
CET1 capital

156,898

NA

Tier 1 capital(a)$156,898
157,222$

157,222$ 139,727

Total capital

173,659

166,662

165,496

1,230,358

1,330,175

1,171,574

1,968,131

1,968,131

1,900,770

AssetsRisk-weighted
Adjusted average(b)Capital ratios(c)
CET1

12.8%

11.8%

NA

Tier 1(a)

12.8

11.8

11.9%

Total

14.1

12.5

14.1

Tier 1 leverage

8.0

8.0

7.4

285

Notes to consolidated financial statements
Chase Bank USA, N.A.(d)Basel III
Standardized
Transitional

Basel III
Advanced
Transitional

Basel IDec 31,2014

Dec 31,2014

Dec 31,
2013(in millions,
except ratios)
Regulatory capital
CET1 capital$

14,556$

14,556NA

Tier 1 capital(a)14,556

14,556$

12,956

Total capital

20,517

19,206

16,389Risk-weighted

103,468

157,565

100,990

Adjusted average(b)128,111

128,111

109,731

AssetsCapital ratios(c)
CET1

14.1%

9.2%

NA

Tier 1(a)

14.1

9.2

12.8%

Total

19.8

12.2

16.2

Tier 1 leverage

11.4

11.4

11.8

(a)

(b)

(c)
(d)

At December 31, 2014, trust preferred securities included in Basel III Tier
1 capital were $2.7 billion and $300 million for JPMorgan Chase andJPMorgan Chase Bank, N.A., respectively. At December 31, 2014, Chase
Bank USA, N.A. had no trust preferred securities.
Adjusted average assets, for purposes of calculating the leverage ratio,
includes total quarterly average assets adjusted for unrealized gains/(losses) on securities, less deductions for disallowed goodwill and otherintangible assets, investments in certain subsidiaries, and the total
adjusted carrying value of nonfinancial equity investments that are
subject to deductions from Tier 1 capital.
For each of the risk-based capital ratios the lower of the Standardized
Transitional or Advanced Transitional ratio represents the Collins Floor.
Asset and capital amounts for JPMorgan Chase’s banking subsidiaries
reflect intercompany transactions; whereas the respective amounts for
JPMorgan Chase reflect the elimination of intercompany transactions.

Under the risk-based capital guidelines of the Federal
Reserve, JPMorgan Chase is required to maintain minimum
ratios of Tier 1 and Total capital to risk-weighted assets,
as well as minimum leverage ratios (which are defined asTier 1 capital divided by adjusted quarterly average assets).
Failure to meet these minimum requirements could cause
the Federal Reserve to take action. Bank subsidiaries also
are subject to these capital requirements by their respective
primary regulators. The following table presents theminimum ratios to which the Firm and its national banksubsidiaries are subject as of December 31, 2014.
Minimum
capitalratios(a)Capital ratios
CET1
Tier 1
Total
Tier 1 leverage
(a)
(b)

4.0%
5.5
8.0
4.0

Wellcapitalized
ratios(a)
NA
6.0%
10.0
5.0 (b)As defined by the regulations issued by the Federal Reserve, OCC and
FDIC. The CET1 capital ratio became a relevant measure of capital under
the prompt corrective action requirements on January 1, 2015.
Represents requirements for bank subsidiaries pursuant to regulations
issued under the FDIC Improvement Act. There is no Tier 1 leveragecomponent in the definition of a well-capitalized bank holding company.

As of December 31, 2014, and 2013, JPMorgan Chase andall of its banking subsidiaries were well-capitalized and met
all capital requirements to which each was subject.

Note: Rating agencies allow measures of capital to be adjusted upward fordeferred tax liabilities, which have resulted from both non-taxablebusiness combinations and from tax-deductible goodwill. The Firm had
deferred tax liabilities resulting from non-taxable business combinations
totaling $130 million and $192 million at December 31, 2014, andDecember 31, 2013, respectively; and deferred tax liabilities resulting
from tax-deductible goodwill of $2.7 billion and $2.8 billion at December
31, 2014, and December 31, 2013, respectively.

286

JPMorgan Chase & Co./2014 Annual ReportNote 29 – Off–balance sheet lending-related
financial instruments, guarantees, and othercommitments
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.
To provide for probable credit losses inherent in consumer(excluding credit card) and wholesale lending commitments,
an allowance for credit losses on lending-related

JPMorgan Chase & Co./2014 Annual Reportcommitments is maintained. See Note 15 for further
discussion regarding the allowance for credit losses on
lending-related commitments. The following tablesummarizes the contractual amounts and carrying values ofoff-balance sheet lending-related financial instruments,
guarantees and other commitments at December 31, 2014
and 2013. The amounts in the table below for credit cardand home equity lending-related commitments represent
the total available credit for these products. The Firm has
not experienced, and does not anticipate, that all available
lines of credit for these products will be utilized at the sametime. The Firm can reduce or cancel credit card lines ofcredit by providing the borrower notice or, in some cases aspermitted by law, without notice. The Firm may reduce orclose home equity lines of credit when there are significant
decreases in the value of the underlying property, or when
there has been a demonstrable decline in thecreditworthiness of the borrower. Also, the Firm typicallycloses credit card lines when the borrower is 60 days ormore past due.

287

Notes to consolidated financial statements
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
2014
Expires
after
Expires
3 years
after 5throughyears
5 years

Lending-related
Consumer, excluding credit card:
Home equity – senior lien$
2,166 $ 4,389 $
1,841 $
Home equity – junior lien
3,469
5,920
2,141
Prime mortgage(a)
8,579
—
—
Subprime mortgage
—
—
—
Auto
9,302
921
192
Business banking
10,557807
117
Student and other97
8—
Total consumer, excluding credit card
34,17012,045
4,291
Credit card
525,963——
Total consumer(b)560,133
12,045
4,291
Wholesale:
Other unfunded commitments to extend credit(c)(d)68,68883,877112,992
Standby letters of credit and other financial
guarantees(c)(d)(e)29,75334,982

Total

3,411 $
11,8073,329
14,859
—
8,579
—
—
47
10,462413
11,894
447
552
7,647
58,153—525,9637,647
584,116
7,119

272,676

2,555

Total

$

13,158
17,837
4,817
—
8,309
11,251
685
56,057529,383
585,440

$

— $
—
—
—
2
11
—
13
—
13

—
—
—
—
1
7
—
8
—
8

246,495

374

432

788

943

89,87492,723

Unused advised lines of credit
90,816
13,702
519
Other letters of credit(c)
3,363
877
91
Total wholesale(f)185,451
128,209148,584
Total lending-related$ 745,584 $ 140,254 $ 152,875 $Other guarantees and commitments
Securities lending indemnification agreements andguarantees(g)$ 171,059 $
— $
— $

138
105,175
—
4,331
9,812
472,056
17,459 $ 1,056,172

101,994
5,020
446,232$1,031,672

—
—
1
2
1,163
1,377
$ 1,176 $ 1,385— $ 171,059$ 169,709$

Derivatives qualifying as guarantees
Unsettled reverse repurchase and securities
borrowing agreements
Loan sale and securitization-related
indemnifications:
Mortgage repurchase liability
Loans sold with recourse
Other guarantees and commitments(h)22,584

Carrying value(i)
2014
2013

2013

— $

—

3,009

167

12,313

38,10053,58956,27480

72

40,993———40,99338,211

—

—

NA
NA
487

NA
NA
506

NA
NA
3,391

NA
NA
1,336

NA
6,063
5,720

NA
7,692
6,786

275
102
(121)

681
131
(99)

(a) Includes certain commitments to purchase loans from correspondents.
(b) Predominantly all consumer lending-related commitments are in the U.S.
(c) At December 31, 2014 and 2013, reflects the contractual amount net of risk participations totaling $243 million and $476 million, respectively, for otherunfunded commitments to extend credit; $13.0 billion and $14.8 billion, respectively, for standby letters of credit and other financial guarantees; and$469 million and $622 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown grossof risk participations.
(d) At December 31, 2014 and 2013, included credit enhancements and bond and commercial paper liquidity commitments to U.S. states and municipalities,
hospitals and other non-profit entities of $14.8 billion and $18.9 billion, respectively, within other unfunded commitments to extend credit; and $13.3
billion and $17.2 billion, respectively, within standby letters of credit and other financial guarantees. Other unfunded commitments to extend credit also
include liquidity facilities to nonconsolidated municipal bond VIEs; see Note 16.
(e) At December 31, 2014 and 2013, included unissued standby letters of credit commitments of $45.6 billion and $42.8 billion, respectively.
(f) At December 31, 2014 and 2013, the U.S. portion of the contractual amount of total wholesale lending-related commitments was 65% and 68%,
respectively.
(g) At December 31, 2014 and 2013, collateral held by the Firm in support of securities lending indemnification agreements was $177.1 billion and $176.4
billion, respectively. Securities lending collateral comprises primarily cash and securities issued by governments that are members of the Organisation for
Economic Co-operation and Development (“OECD”) and U.S. government agencies.
(h) At December 31, 2014 and 2013, included unfunded commitments of $147 million and $215 million, respectively, to third-party private equity funds;
and $961 million and $1.9 billion, respectively, to other equity investments. These commitments included $150 million and $184 million, respectively,
related to investments that are generally fair valued at net asset value as discussed in Note 3. In addition, at both December 31, 2014 and 2013, included
letters of credit hedged by derivative transactions and managed on a market risk basis of $4.5 billion.
(i) For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivativerelated products, the carrying value represents the fair value.

288

JPMorgan Chase & Co./2014 Annual Report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 financeactivities, which were $23.7 billion and $18.3 billion at
December 31, 2014 and 2013, respectively. For further
information, see Note 3 and Note 4.
The Firm acts as a settlement and custody bank in the U.S.
tri-party repurchase transaction market. In its role assettlement and custody bank, the Firm is exposed to theintra-day credit risk of its cash borrower clients, usuallybroker-dealers. This exposure is secured by collateral andtypically extinguished by the end of the day. During 2014,
the Firm extended secured clearance advance facilities to
its clients (i.e. cash borrowers); these facilities contractuallylimit the Firm’s intra-day credit risk to the facility amountand must be repaid by the end of the day. Through thesefacilities, the Firm has reduced its intra-day credit risk
substantially; the average daily tri-party repo balance was$253 billion during the year ended December 31, 2013,
and as of December 31, 2014, the secured clearance
advance facility maximum outstanding commitment amount
was $12.6 billion.
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
indemnification agreements included within third-party
contractual arrangements and certain derivative contracts.

JPMorgan Chase & Co./2014 Annual Report

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, 2014 and 2013,
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$789 million and $945 million at December 31, 2014 and2013, respectively, which were classified in accounts
payable and other liabilities on the Consolidated balance
sheets; these carrying values included $235 million and$265 million, respectively, for the allowance for lendingrelated commitments, and $554 million and $680 million,
respectively, for the guarantee liability and corresponding
asset.

289

Notes to consolidated financial statements
The following table summarizes the types of facilities under which standby letters of credit and other letters of credit
arrangements are outstanding by the ratings profiles of the Firm’s customers, as of December 31, 2014 and 2013.
Standby letters of credit, other financial guarantees and other letters of credit

December 31,(in millions)
Investment-grade(a)

2014

2013

Standby letters ofcredit and otherfinancial guarantees

Standby letters ofcredit and otherfinancial guarantees$

Noninvestment-grade(a)66,856

Other lettersof credit$

23,018

3,476

$

855

69,109Other lettersof credit$

23,614

3,939
1,081

Total contractual amount$

89,874

$

4,331

$

92,723$

5,020

Allowance for lending-related commitments

$

234

$

1

$

263

$

2

Commitments with collateral

39,726

1,509

40,4101,473(a) The ratings scale is based on the Firm’s internal ratings, which generally correspond to ratings as defined by S&P and Moody’s.

Advised lines of credit
An advised line of credit is a revolving credit line which
specifies the maximum amount the Firm may 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.
Derivatives deemed to be guarantees also include contracts
such as stable value derivatives that require the Firm to
make a payment of the difference between the market
value and the book value of a counterparty’s reference
portfolio of assets in the event that market value is lessthan book value and certain other conditions have been
met. Stable value derivatives, commonly referred to as
290“stable value wraps”, are transacted in order to allow
investors to realize investment returns with less volatility
than an unprotected portfolio and are typically longer-termor may have no stated maturity, but allow the Firm toterminate the contract under certain conditions.
Derivatives deemed to be guarantees are recorded on theConsolidated balance sheets at fair value in trading assets
and trading liabilities. The total notional value of thederivatives that the Firm deems to be guarantees was$53.6 billion and $56.3 billion at December 31, 2014 and2013, 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; thenotional amount on these stable value contracts was$27.5 billion and $27.0 billion at December 31, 2014 and2013, respectively, and the maximum exposure to loss was$2.9 billion and $2.8 billion at both December 31, 2014
and 2013. The fair values of the contracts reflect theprobability of whether the Firm will be required to perform
under the contract. The fair value of derivatives that the
Firm deems to be guarantees were derivative payables of$102 million and $109 million and derivative receivables of$22 million and $37 million at December 31, 2014 and2013, respectively. The Firm reduces exposures to thesecontracts by entering into offsetting transactions, or byentering into contracts that hedge the market risk related tothe 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.
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, andJPMorgan Chase & Co./2014 Annual Reporttherefore, are not recorded on the Consolidated balance
sheets until settlement date. The unsettled reverse
repurchase agreements and securities borrowing
agreements predominantly consist of agreements withregular-way settlement periods.

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

Loan sales- and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm’s mortgage loan sale andsecuritization activities with the GSEs, as described in Note
16, the Firm has made representations and warranties thatthe 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). To the extent that repurchase demands that arereceived relate to loans that the Firm purchased from third
parties that remain viable, the Firm typically will have theright to seek a recovery of related repurchase losses fromthe third party. Generally, the maximum amount of future
payments the Firm would be required to make for breachesof these representations and warranties would be equal tothe unpaid principal balance of such loans that are deemed
to have defects that were sold to purchasers (including
securitization-related SPEs) plus, in certain circumstances,accrued interest on such loans and certain expense.
The following table summarizes the change in the mortgage
repurchase liability for each of the periods presented.
Summary of changes in mortgage repurchase liability(a)Year ended December 31,(in millions)

2014

2013

2012

681

$ 2,811$ 3,557

Net realized gains/(losses)

53(1,561)(1,158)

Reclassification to litigation reserve

—

(179)

—

(Benefit)/provision for repurchase(c)

(459)

(390)

412

681

$ 2,811

Repurchase liability at beginning of
period$(b)

Repurchase liability at end of
period$275$(a) On October 25, 2013, the Firm announced that it had reached a $1.1
billion agreement with the FHFA to resolve, other than certain limited
types of exposures, outstanding and future mortgage repurchasedemands associated with loans sold to the GSEs from 2000 to 2008.
(b) Presented net of third-party recoveries and included principal losses
and accrued interest on repurchased loans, “make-whole” settlements,
settlements with claimants, and certain related expense. Make-whole
settlements were $11 million, $414 million and $524 million, for theyears ended December 31, 2014, 2013 and 2012, respectively.
(c) Included a provision related to new loan sales of $4 million, $20
million and $112 million, for the years ended December 31, 2014,2013 and 2012, respectively.

JPMorgan Chase & Co./2014 Annual Report

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
trusts 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 trusts
issued by J.P. Morgan, Chase, and Bear Stearns between
2005 and 2008. The seven trustees (or separate andsuccessor trustees) for this group of 330 trusts haveaccepted the RMBS Trust Settlement for 319 trusts in whole
or in part and excluded from the settlement 16 trusts inwhole or in part. The trustees’ acceptance is subject to a
judicial approval proceeding initiated by the trustees, whichis pending in New York state court.
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 $78 billion has been repaid. In
addition, approximately $49 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, 2014, wasapproximately $38 billion, of which $8 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 litigation, see Note 31.
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, 2014 and 2013, theunpaid principal balance of loans sold with recourse totaled$6.1 billion and $7.7 billion, respectively. The carrying
value of the related liability that the Firm has recorded,
which is representative of the Firm’s view of the likelihood it
291

Notes to consolidated financial statements
will have to perform under its recourse obligations, was$102 million and $131 million at December 31, 2014 and2013, 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.
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.

292

Chase Paymentech incurred aggregate losses of $10
million, $14 million, and $16 million on $847.9 billion,$750.1 billion, and $655.2 billion of aggregate volume
processed for the years ended December 31, 2014, 2013
and 2012, respectively. Incurred losses from 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$4 million and $5 million at December 31, 2014 and 2013,
respectively, which the Firm believes, based on historicalexperience and the collateral held by Chase Paymentech of$174 million and $208 million at December 31, 2014 and2013, 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 exchangetraded derivatives (“ETDs”) such as futures and options, aswell as OTC-cleared derivative contracts. As a clearing
member, the Firm stands behind the performance of its
clients, collects cash and securities collateral (margin) as
well as any settlement amounts due from or to clients, andremits them to the relevant CCP or client in whole or part.
There are two types of margin. Variation margin is posted
on a daily basis based on the value of clients’ derivative
contracts. Initial margin is posted at inception of a
derivative contract, generally on the basis of the potentialchanges in the variation margin requirement for thecontract.
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. The Firm can also ceaseprovision of clearing services if clients do not adhere to
their obligations under the clearing agreement. In the eventof non-performance by a client, the Firm would close out
the client’s positions and access available margin. The CCP
would utilize any margin it holds to make itself whole, withany remaining shortfalls required to be paid by the Firm as
clearing member.
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.
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

JPMorgan Chase & Co./2014 Annual Report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.
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 fundmaintained by a clearing house or exchange as part of theresources available to cover any losses in the event of amember default. Alternatively, these obligations may be afull pro-rata share of the residual losses after applying theguarantee fund. Additionally, certain clearinghouses require
the Firm as a member to pay a pro rata share of losses
resulting from the clearinghouse’s investment of guarantee
fund contributions and initial margin, unrelated to andindependent of the default of another member. Generally apayment would only be required should such losses exceed
the resources of the clearing house or exchange that arecontractually required to absorb the losses in the first
instance. It is difficult to estimate the Firm’s maximum
possible exposure under these membership agreements,
since this would require an assessment of future claims that
may be made against the Firm that have not yet occurred.
However, based on historical experience, management
expects the risk of loss to be remote.

JPMorgan Chase & Co./2014 Annual Report

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 Consolidatedbalance 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 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 288of this Note. For additional information, see Note 21.

293

Notes to consolidated financial statements
Note 30 – Commitments, pledged assets andcollateral
Lease commitments
At December 31, 2014, 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, 2014.
Year ended December 31, (in millions)
2015
2016
2017
2018
2019
After 2019
Total minimum payments required(a)Less: Sublease rentals under noncancelable subleases
Net minimum payment required

$

$

1,722
1,682
1,534
1,281
1,121
5,101
12,441(2,238)
10,203(a) Lease restoration obligations are accrued in accordance with U.S. GAAP, and are
not reported as a required minimum lease payment.

Total rental expense was as follows.
Year ended December 31,(in millions)
Gross rental expense

2014$

Sublease rental income
Net rental expense

2,255

2013
$

(383)
$

1,872

2,187

2012
$

2,212

$

1,924

(341)
$

1,846

(288)

Pledged assets
Financial assets are pledged to maintain potential
borrowing capacity with central banks and for otherpurposes, 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, 2014 and 2013, the Firm had pledged assets
of $324.5 billion and $251.3 billion, respectively, atFederal Reserve Banks and FHLBs. In addition, as ofDecember 31, 2014 and 2013, the Firm had pledged tothird parties $60.1 billion and $68.4 billion, respectively, offinancial instruments it owns that may not be sold or
repledged by such secured parties. Total assets pledged do
not include assets of consolidated VIEs; these assets areused to settle the liabilities of those entities. See Note 16
for additional information on assets and liabilities of
consolidated VIEs. For additional information on the Firm’s
securities financing activities and long-term debt, see Note
13 and Note 21, respectively. The significant components of
the Firm’s pledged assets were as follows.
December 31, (in billions)
Securities2014$ 118.7

2013
$

68.1

Loans

248.2

230.3

Trading assets and other

169.0

163.3

$ 535.9$ 461.7

Total assets pledged

CollateralAt December 31, 2014 and 2013, the Firm had accepted
assets as collateral that it could sell or repledge, deliver orotherwise use with a fair value of approximately $761.7
billion and $725.0 billion, respectively. This collateral was
generally obtained under resale agreements, securities
borrowing agreements, customer margin loans andderivative agreements. Of the collateral received,
approximately $596.8 billion and $520.1 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.
Certain prior period amounts for both collateral, as well as
pledged assets (including the corresponding pledged assets
parenthetical disclosure for trading assets on theConsolidated balance sheets) have been revised to conformwith the current period presentation.

294

JPMorgan Chase & Co./2014 Annual ReportNote 31 – Litigation
Contingencies
As of December 31, 2014, 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 $5.8 billion at December 31, 2014. 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, particularly proceedings that could result
from government investigations. Accordingly, the Firm’s
estimate will change from time to time, and actual losses
may vary.
Set forth below are descriptions of the Firm’s material legal
proceedings.
Auto Dealer Regulatory Matter. The Firm is engaged in
discussions with the U.S. Department of Justice (“DOJ”)
about potential statistical disparities in markups charged todifferent races and ethnicities by automobile dealers onloans originated by those dealers and purchased by the
Firm.
CIO Litigation. The Firm has been sued in a consolidated
shareholder putative class action, a consolidated putativeclass action brought under the Employee Retirement
Income Security Act (“ERISA”) and seven shareholder
derivative actions brought in Delaware state court and in
New York federal and state courts relating to 2012 losses inthe synthetic credit portfolio managed by the Firm’s Chief
Investment Office (“CIO”). Four of the shareholder
derivative actions have been dismissed, and plaintiffs in
JPMorgan Chase & Co./2014 Annual Report

three of those actions have appealed those dismissals.
Motions to dismiss have also been filed in two othershareholder derivative actions.
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-tradedcredit derivatives. The Firm submitted a response to theStatement of Objections in January 2014, and the EC held ahearing in May 2014. DOJ also has an ongoing investigation
into the CDS marketplace, which was initiated in July 2009.
Separately, the Firm and other industry members are
defendants in a consolidated putative class action filed in
the United States District Court for the Southern District of
New York on behalf of purchasers and sellers of CDS. The
complaint refers to the ongoing investigations by the EC and
DOJ into the CDS market, and alleges that the defendantinvestment banks and dealers, including the Firm, as well as
Markit and/or ISDA, collectively prevented new entrants into
the market for exchange-traded CDS products. Defendants
moved to dismiss this action, and in September 2014, theCourt granted defendants’ motion in part, dismissing claims
for damages based on transactions effected before theAutumn of 2008, as well as certain other claims.
Foreign Exchange Investigations and Litigation. In November
2014, JPMorgan Chase Bank, N.A. reached separate
settlements with the U.K. Financial Conduct Authority(“FCA”), the U.S. Commodity Futures Trading Commission(“CFTC”) and the U.S. Office of the Comptroller of theCurrency (“OCC”) to resolve the agencies’ respective civil
enforcement claims relating to the Bank’s foreign exchange(“FX”) trading business (collectively, the “Settlement
Agreements”). Under the Settlement Agreements, JPMorgan
Chase Bank, N.A. agreed to take certain remedial measuresand paid penalties of £222 million to the FCA, $310 million
to the CFTC and $350 million to the OCC.
In December 2014, the Hong Kong Monetary Authority(“HKMA”) announced the conclusion of its FX-related
investigation regarding JPMorgan Chase Bank, N.A. andseveral other banks. The HKMA required the banks,
including JPMorgan Chase Bank, N.A., to take certain
remedial measures.
Other FX-related regulatory investigations of the Firm areongoing, including a criminal investigation by DOJ. These
investigations are focused on the Firm’s spot FX trading andsales activities as well as controls applicable to those
activities. The Firm continues to cooperate with theseinvestigations. The Firm is also engaged in discussions
regarding potential resolution with DOJ.

295

Notes to consolidated financial statements
Since November 2013, a number of class actions have been
filed in the United States District Court for the Southern
District of New York against a number of foreign exchange
dealers, including the Firm, for alleged violations of federal
and state antitrust laws and unjust enrichment based on analleged conspiracy to manipulate foreign exchange rates
reported on the WM/Reuters service. In March 2014,
plaintiffs filed a consolidated amended U.S. class action
complaint; two other class actions were brought by nonU.S.-based plaintiffs. The Court denied defendants’ motion
to dismiss the U.S. class action and granted the motion todismiss the two non-U.S. class actions. In January 2015, theFirm settled the U.S. class action, and this settlement issubject to court approval.
General Motors Litigation. JPMorgan Chase Bank, N.A.
participated in, and was the Administrative Agent on behalfof a syndicate of lenders on, a $1.5 billion syndicated Term
Loan facility (“Term Loan”) for General Motors Corporation(“GM”). In July 2009, in connection with the GM bankruptcy
proceedings, the Official Committee of Unsecured Creditorsof Motors Liquidation Company (“Creditors Committee”)
filed a lawsuit against JPMorgan Chase Bank, N.A., in its
individual capacity and as Administrative Agent for other
lenders on the Term Loan, seeking to hold the underlying
lien invalid. In March 2013, the Bankruptcy Court granted
JPMorgan Chase Bank, N.A.’s motion for summary judgment
and dismissed the Creditors Committee’s complaint on the
grounds that JPMorgan Chase Bank, N.A. did not authorize
the filing of the UCC-3 termination statement at issue. The
Creditors Committee appealed the Bankruptcy Court’s
dismissal of its claim to the United States Court of Appeals
for the Second Circuit. In January 2015, the Court ofAppeals reversed the Bankruptcy Court’s dismissal of theCreditors Committee’s claim and remanded the case to the
Bankruptcy Court with instructions to enter partial
summary judgment for the Creditors Committee as to thetermination statement. JPMorgan Chase Bank, N.A. has filed
a petition requesting that the full Court of Appeals rehear
the case en banc. In the event that the request for rehearing
is denied, continued proceedings in the Bankruptcy Court
are anticipated with respect to, among other things,
additional defenses asserted by JPMorgan Chase Bank, N.A.
and the value of additional collateral on the Term Loan,
which was not the subject of the termination statement.
Interchange Litigation. A group of merchants and retailassociations filed a series of class action complaints alleging
that Visa and MasterCard, as well as certain banks,
conspired to set the price of credit and debit card
interchange fees, enacted respective rules in violation of
antitrust laws, and engaged in tying/bundling and exclusive
dealing. The parties have entered into an agreement tosettle the cases for a cash payment of $6.1 billion to theclass plaintiffs (of which the Firm’s share is approximately
20%) and an amount equal to ten basis points of credit
card interchange for a period of eight months to bemeasured from a date within 60 days of the end of the optout period. The agreement also provides for modifications
to each credit card network’s rules, including those that296

prohibit surcharging credit card transactions. In December
2013, the Court issued a decision granting final approval of
the settlement. A number of merchants have appealed.
Certain merchants that opted out of the class settlement
have filed actions against Visa and MasterCard, as well as
against the Firm and other banks. Defendants’ motion todismiss the actions was denied in July 2014.
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.
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 $7.9 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 filed counterclaims against
LBHI alleging that LBHI fraudulently induced the Firm to
make large extensions of credit against inappropriate
collateral in connection with the Firm’s role as the clearing
bank for Lehman Brothers Inc. (“LBI”), LBHI’s broker-dealer
subsidiary. These extensions of credit left the Firm withmore than $25 billion in claims against the estate of LBI.
The case has been transferred from the Bankruptcy Court to
the District Court, and the Firm has moved for summary
judgment seeking the dismissal of all of LBHI’s claims. LBHI
has also moved for summary judgment on certain of its
claims and seeking the dismissal of the Firm’s
counterclaims.
In the Bankruptcy Court proceedings, LBHI and several of its
subsidiaries that had been Chapter 11 debtors have filed aseparate complaint and objection to derivatives claims
asserted by the Firm alleging that the amount of thederivatives claims had been overstated and challenging
certain set-offs taken by JPMorgan Chase entities to recoveron the claims. The Firm responded to this separate
complaint and objection in February 2013. LBHI and theCommittee have also filed an objection to the claims
asserted by JPMorgan Chase Bank, N.A. against LBHI withrespect to clearing advances made to LBI, principally on the
grounds that the Firm had not conducted the sale of the
securities collateral held for its claims in a commerciallyreasonable manner. Discovery regarding both objections is
JPMorgan Chase & Co./2014 Annual Reportongoing. In January 2015, LBHI filed additional objections
relating to a variety of claims that the Firm had filed in the
Bankruptcy Court proceedings. The bankruptcy claims andother claims of the Firm against Lehman entities have been
paid in full, subject to potential adjustment depending on
the outcome of the objections filed by LBHI and theCommittee.
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 DOJ,
the CFTC, the Securities and Exchange Commission (the“SEC”) and various state attorneys general, as well as theEC, the FCA, the Canadian Competition Bureau, the Swiss
Competition Commission and other regulatory authorities
and banking associations around the world relating
primarily to the process by which interest rates were
submitted to the British Bankers Association (“BBA”) in
connection with the setting of the BBA’s London Interbank
Offered Rate (“LIBOR”) for various currencies, principally 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 responding to and continuing tocooperate with these inquiries. In December 2013,
JPMorgan Chase reached a settlement with the EC regarding
its Japanese Yen LIBOR investigation and agreed to pay afine of €80 million. In January 2014, the CanadianCompetition Bureau announced that it has discontinued its
investigation related to Yen LIBOR. In May 2014, the EC
issued a Statement of Objections outlining its case against
the Firm (and others) as to EURIBOR, to which the Firm has
filed a response. In October 2014, JPMorgan Chase reacheda settlement with the EC regarding the EC’s Swiss franc
LIBOR investigation and agreed to pay a fine of €72 million.
In January 2015, the FCA informed JPMorgan Chase that it
has discontinued its investigation of the Firm concerning
LIBOR and EURIBOR.
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,
Swiss franc LIBOR, Euroyen TIBOR and/or EURIBOR rates bysubmitting rates that were artificially low or high. Plaintiffs
allege that they transacted in loans, derivatives or otherfinancial instruments whose values are affected by changes
in U.S. dollar LIBOR, Yen LIBOR, Swiss franc LIBOR, Euroyen
TIBOR or EURIBOR and assert a variety of claims including
antitrust claims seeking treble damages.
The U.S. dollar LIBOR-related putative class actions wereconsolidated for pre-trial purposes in the United States
JPMorgan Chase & Co./2014 Annual Report

District Court for the Southern District of New York. The
Court stayed all related cases while motions to dismiss thethree lead class actions were pending. In March 2013, theCourt granted in part and denied in part the defendants’
motions to dismiss the claims in the three lead class actions,
including dismissal with prejudice of the antitrust claims. In
relation to the Firm, the Court has permitted certain claims
under the Commodity Exchange Act and common law claims
to proceed. In September 2013, class plaintiffs in two of thethree lead class actions filed amended complaints, which
defendants moved to dismiss. Plaintiffs in the third classaction appealed the dismissal of the antitrust claims and theUnited States Court of Appeals for the Second Circuitdismissed the appeal for lack of jurisdiction. In January
2015, the United States Supreme Court reversed thedecision of the Court of Appeals, holding that plaintiffs havethe jurisdictional right to appeal and remanding the case to
the Court of Appeals for further proceedings. In February
2015, the District Court entered a judgment on certain
other plaintiffs’ antitrust claims so that those plaintiffs
could also participate in the appeal. Motions to dismiss are
pending in the remaining previously stayed individual
actions and class actions.
The Firm is one of the defendants in a putative class action
alleging manipulation of Euroyen TIBOR and Yen LIBOR
which was filed in the United States District Court for theSouthern District of New York on behalf of plaintiffs whopurchased or sold exchange-traded Euroyen futures andoptions contracts. In March 2014, the Court granted in partand denied in part the defendants’ motions to dismiss,including dismissal of plaintiff’s antitrust and unjust
enrichment claims.
The Firm is one of the defendants in a putative class action
filed in the United States District Court for the Southern
District of New York relating to the interest rate benchmark
EURIBOR. The case is currently stayed.
The Firm is also one of the defendants in a number ofputative class actions alleging that defendant banks and
ICAP conspired to manipulate the U.S. dollar ISDAFIX rates.
Plaintiffs primarily assert claims under the federal antitrust
laws and Commodities Exchange Act. In December 2014,
defendants filed a motion to dismiss.
Madoff Litigation. Various subsidiaries of the Firm, including
J.P. Morgan Securities plc, have been named as defendants
in lawsuits filed in Bankruptcy Court in New York arising outof the liquidation proceedings of Fairfield Sentry Limited
and Fairfield Sigma Limited, so-called Madoff feeder funds.
These actions seek to recover payments made by the funds
to defendants totaling approximately $155 million. All but
two of these actions have been dismissed.
In addition, a putative class action was brought by investors
in certain feeder funds against JPMorgan Chase in the
United States District Court for the Southern District of New
York, as was a motion by separate potential class plaintiffs
to add claims against the Firm and certain subsidiaries to an
already pending putative class action in the same court. The
allegations in these complaints largely track those297

Notes to consolidated financial statements
previously raised by the court-appointed trustee forBernard L. Madoff Investment Securities LLC. The District
Court dismissed these complaints and the United States
Court of Appeals for the Second Circuit affirmed the District
Court’s decision. Plaintiffs have petitioned the United States
Supreme Court for a writ of certiorari.
The Firm is a defendant in five other Madoff-related
individual investor actions pending in New York state court.
The allegations in all of these actions are essentially
identical, and involve claims against the Firm for, among
other things, aiding and abetting breach of fiduciary duty,
conversion and unjust enrichment. In August 2014, theCourt dismissed all claims against the Firm. Plaintiffs have
filed a notice of appeal.
A putative class action has been filed in the United States
District Court for the District of New Jersey by investors who
were net winners (i.e., Madoff customers who had taken
more money out of their accounts than had been invested)in Madoff’s Ponzi scheme and were not included in theprevious class action settlement. These plaintiffs allege
violations of the federal securities law, federal and state
racketeering statutes and multiple common law andstatutory claims including breach of trust, aiding andabetting embezzlement, unjust enrichment, conversion andcommercial bad faith. A similar action has been filed in the
United States District Court for the Middle District ofFlorida, although it is not styled as a class action, andincludes a claim pursuant to a Florida statute. The Firm has
moved to transfer these cases to the United States District
Court for the Southern District of New York.
Three shareholder derivative actions have also been filed in
New York federal and state court against the Firm, as
nominal defendant, and certain of its current and former
Board members, alleging breach of fiduciary duty inconnection with the Firm’s relationship with Bernard Madoff
and the alleged failure to maintain effective internal
controls to detect fraudulent transactions. The actions seek
declaratory relief and damages. In July 2014, the federal
court granted defendants’ motions to dismiss two of theactions. One plaintiff chose not to appeal and the other filed
a motion for reconsideration which was denied in November
2014. The latter plaintiff has filed an appeal. In theremaining state court action, a hearing on defendants’
motion to dismiss was held in October 2014, and the court
reserved decision.
MF Global. J.P. Morgan Securities LLC has been named as
one of several defendants in a number of putative classactions filed by purchasers of MF Global’s publicly tradedsecurities asserting violations of federal securities laws andalleging that the offering documents contained materiallyfalse and misleading statements and omissions regarding
MF Global. These actions have been settled, subject to final
approval by the court. The Firm also has responded toinquiries from the CFTC relating to the Firm’s banking andother business relationships with MF Global, including as adepository for MF Global’s customer segregated accounts.

298

Mortgage-Backed Securities and Repurchase Litigation and
Related Regulatory Investigations. JPMorgan Chase andaffiliates (together, “JPMC”), Bear Stearns and affiliates(together, “Bear Stearns”) and certain Washington Mutual
affiliates (together, “Washington Mutual”) have been named
as defendants in a number of cases in their various roles inofferings of mortgage-backed securities (“MBS”). These
cases include 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 $41 billion, of which $38 billion involves
JPMC, Bear Stearns or Washington Mutual as issuer and $3
billion involves JPMC, Bear Stearns or Washington Mutual
solely as underwriter. The Firm and certain of its current
and former officers and Board members have also 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. Two class actions remain
pending against JPMC and Bear Stearns as MBS issuers in
the United States District Court for the Southern District of
New York. In the action concerning JPMC, plaintiffs’ motion
for class certification has been granted with respect toliability but denied without prejudice as to damages. In theaction concerning Bear Stearns, the parties have reached asettlement in principle, which is subject to court approval.
The Firm is also defending a class action brought against
Bear Stearns in the United States District Court for theDistrict of Massachusetts, in which the court’s decision on
defendants’ motion to dismiss is pending.
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 U.S. and are in various
stages of litigation.
Monoline Insurer Litigation. The Firm is defending two
pending actions relating to the same monoline insurer’s
guarantees of principal and interest on certain classes of 11
different Bear Stearns MBS offerings. These actions are
pending in state court in New York and are in various stagesof 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 actions of thistype pending against the Firm in federal and state courts in
JPMorgan Chase & Co./2014 Annual Reportvarious stages of litigation. One such class action has been
settled, subject to final approval by the court.

matters. The Firm continues to respond to these MBSrelated regulatory inquiries.

Repurchase Litigation. The Firm is defending a number ofactions brought by trustees, securities administrators or
master servicers of various MBS trusts and others on behalfof purchasers of securities issued by those trusts. These
cases generally allege breaches of various representations
and warranties regarding securitized loans and seek
repurchase of those loans or equivalent monetary relief, as
well as indemnification of attorneys’ fees and costs andother remedies. Deutsche Bank National Trust Company,
acting as trustee for various MBS trusts, has filed such a suitagainst JPMorgan Chase Bank, N.A. and the Federal Deposit
Insurance Corporation (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 continues to cooperate withinvestigations by DOJ, including the U.S. Attorney’s Officefor the District of Connecticut, the SEC Division of
Enforcement and the Office of the Special Inspector Generalfor the Troubled Asset Relief Program, all of which relate to,among other matters, communications with counterparties
in connection with certain secondary market trading inresidential and commercial MBS.

In addition, the Firm and a group of 21 institutional MBS
investors made a binding offer to the trustees of MBS issuedby JPMC and Bear Stearns providing for the payment of$4.5 billion and the implementation of certain servicing
changes by JPMC, to resolve all repurchase and servicing
claims that have been asserted or could have been assertedwith respect to the 330 MBS trusts issued between 2005
and 2008. The offer does not resolve claims relating toWashington Mutual MBS. The seven trustees (or separate
and successor trustees) for this group of 330 trusts has
accepted the settlement for 319 trusts in whole or in partand excluded from the settlement 16 trusts in whole or inpart. The trustees’ acceptance is subject to a judicial
approval proceeding initiated by the trustees and pendingin New York state court. Certain investors in some of thetrusts for which the settlement has been accepted haveintervened in the judicial approval proceeding, challenging
the trustees’ acceptance of the settlement.
Additional actions have been filed against third-party
trustees that relate to loan repurchase and servicing claims
involving trusts that the Firm sponsored.
Derivative Actions. Shareholder derivative actions relating
to the Firm’s MBS activities have been filed against the Firm,
as nominal defendant, and certain of its current and former
officers and members of its Board of Directors, in New Yorkstate court and California federal court. Two of the New
York actions have been dismissed and one is on appeal. A
consolidated action in California federal court has been
dismissed without prejudice for lack of personal jurisdiction
and plaintiffs are pursuing discovery.
Government Enforcement Investigations and Litigation. The
Firm is responding to an ongoing investigation being
conducted by the Criminal Division of the United States
Attorney’s Office for the Eastern District of California
relating to MBS offerings securitized and sold by the Firm
and its subsidiaries. The Firm has also received subpoenas
and informal requests for information from state authorities
concerning the issuance and underwriting of MBS-related
JPMorgan Chase & Co./2014 Annual Report

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. In January 2015, the Firm entered into asettlement resolving this action.
The Firm entered into a settlement resolving a putativeclass action lawsuit relating to its filing of affidavits or otherdocuments in connection with mortgage foreclosure
proceedings, and the court granted final approval of thesettlement in January 2015.
One shareholder derivative action has been filed in New
York Supreme Court against the Firm’s Board of Directors
alleging that the Board failed to exercise adequate
oversight as to wrongful conduct by the Firm regarding
mortgage servicing. In December 2014, the court granted
defendants’ motion to dismiss the complaint.
The Civil Division of the United States Attorney’s Office for
the Southern District of New York is conducting an
investigation concerning the Firm’s compliance with the Fair
Housing Act (“FHA”) and Equal Credit Opportunity Act(“ECOA”) in connection with its mortgage lending
practices. In addition, three municipalities and a school
district have commenced litigation against the Firm alleging
violations of an unfair competition law and of the FHA andECOA and seeking statutory damages for the unfair
competition claim, and, for the FHA and ECOA claims,
damages in the form of lost tax revenue and increased
municipal costs associated with foreclosed properties. The
court denied a motion to dismiss in one of the municipal
actions, the school district action was dismissed withprejudice, another municipal action was recently served,
and motions to dismiss are pending in the remaining
actions.
JPMorgan Chase Bank, N.A. is responding to inquiries by the
Executive Office of the U.S. Bankruptcy Trustee and various
regional U.S. Bankruptcy Trustees relating to mortgage
payment change notices and escrow statements inbankruptcy proceedings.
299

Notes to consolidated financial statements
Municipal Derivatives Litigation. Several civil actions werecommenced in New York and Alabama courts against the
Firm relating to certain Jefferson County, Alabama (the“County”) warrant underwritings and swap transactions.
The claims in the civil actions generally alleged that the
Firm made payments to certain third parties in exchange forbeing chosen to underwrite more than $3 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.
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,in which the judge will determine whether to recommendthat the matter go to a full trial, is ongoing. The final
hearings have been scheduled for March 2015.
In addition, the administrator of Parmalat commenced five
civil actions against JPMorgan Chase entities including: 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.
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 putative transfers in
300

connection with (i) the 2005 acquisition by Petters of
Polaroid, which at the time was majority-owned by OEP; (ii)
two credit facilities that JPMorgan Chase and other financial
institutions entered into with Polaroid; and (iii) a credit line
and investment accounts held by Petters. The actions
collectively seek recovery of approximately $450 million.
Defendants have moved to dismiss the complaints in 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 responding to and cooperating with theinvestigation.
Referral Hiring Practices Investigations. Various regulators
are investigating, among other things, the Firm’s
compliance with the Foreign Corrupt Practices Act and otherlaws with respect to the Firm’s hiring practices related to
candidates referred by clients, potential clients andgovernment officials, and its engagement of consultants in
the Asia Pacific region. The Firm is responding to andcontinuing to cooperate with these investigations.
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.
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 and amended to include
JPMorgan Chase Bank, N.A. as a defendant, asserting an
estimated $6 billion to $10 billion in damages based uponalleged breach of various mortgage securitizationagreements and alleged violation of certain representations
and warranties given by certain Washington Mutual
affiliates in connection with those securitizationagreements. The case includes assertions that JPMorgan
Chase Bank, N.A. may have assumed liabilities for the
alleged breaches of representations and warranties in themortgage securitization agreements. The Firm and the FDIC
have filed opposing motions, each seeking a ruling that theliabilities at issue are borne by the other.
Certain holders of Washington Mutual Bank debt filed an
action against JPMorgan Chase which alleged that by
JPMorgan Chase & Co./2014 Annual Reportacquiring substantially all of the assets of Washington
Mutual Bank from the FDIC, JPMorgan Chase Bank, N.A.
caused Washington Mutual Bank to default on its bondobligations. JPMorgan Chase and the FDIC moved to dismiss
this action and the District Court dismissed the case except
as to the plaintiffs’ claim that JPMorgan Chase tortiouslyinterfered with the plaintiffs’ bond contracts with
Washington Mutual Bank prior to its closure. Discovery is
ongoing.
JPMorgan Chase has also filed a complaint in the 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.

parties or are in early stages of discovery, the Firm cannot
state with confidence what will be the eventual outcomes of
the currently pending matters, the timing of their ultimate
resolution or the eventual losses, fines, penalties or impact
related to those matters. JPMorgan Chase believes, based
upon its current knowledge, after consultation with counsel
and after taking into account its current litigation reserves,that the legal proceedings currently pending against it
should not have a material adverse effect on the Firm’s
consolidated financial condition. The Firm notes, however,that in light of the uncertainties involved in 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.

* * *In addition to the various legal proceedings discussed
above, JPMorgan Chase and its subsidiaries are named as
defendants or are otherwise involved in a substantial
number of other legal proceedings. The Firm believes it has
meritorious defenses to the claims asserted against it in its
currently outstanding legal proceedings and it intends to
defend itself vigorously in all such matters. Additional legal
proceedings may be initiated from time to time in the
future.
The Firm has established reserves for several hundred of its
currently outstanding legal proceedings. In accordance withthe provisions of U.S. GAAP for contingencies, the Firm
accrues for a litigation-related liability when it is probablethat such a liability has been incurred and the amount of
the loss can be reasonably estimated. The Firm evaluates its
outstanding legal proceedings each quarter to assess its
litigation reserves, and makes adjustments in such reserves,
upwards or downward, as appropriate, based on
management’s best judgment after consultation withcounsel. During the years ended December 31, 2014, 2013
and 2012, the Firm incurred $2.9 billion, $11.1 billion and$5.0 billion, respectively, of legal expense. There is no
assurance that the Firm’s litigation reserves will not need tobe 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 of

JPMorgan Chase & Co./2014 Annual Report301Notes to consolidated financial statements
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.
The Firm’s long-lived assets for the periods presented are
not considered by management to be significant in relation
to total assets. The majority of the Firm’s long-lived assets
are located in the U.S.

Revenue(b)Expense(c)Income before
income tax
expenseNet income

Total assets

2014
Europe/Middle East and Africa$

16,013$

10,123

$

5,890

$

3,935

$

481,328

Asia and Pacific

6,083

4,478

1,605

1,051

147,357

Latin America and the Caribbean

2,047

1,626

421

269

44,567

Total international

24,143

16,227

7,916

5,255

673,252

North America(a)70,062

48,186

21,876

16,507

1,899,874

Total

$

94,205$64,413$29,792$

21,762$

2,573,126$

15,585

$

9,069

$

6,516

$

4,842

$

514,747(d)

2013
Europe/Middle East and Africa
Asia and Pacific

6,168

4,248

1,920

1,254

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)145,999

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

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(d)

167,955$

2,359,141(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 $434 billion, $451 billion, and $498 billion at December 31, 2014, 2013 and 2012, respectively.

302

JPMorgan Chase & Co./2014 Annual Report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 segment. The business segments are
determined based on the products and services provided, or
the type of customer served, and they reflect the manner inwhich financial information is currently evaluated bymanagement. Results of these lines of business arepresented on a managed basis. For a definition of managedbasis, see Explanation and Reconciliation of the Firm’s useof non-GAAP financial measures, on pages 77–78. For afurther discussion concerning JPMorgan Chase’s businesssegments, see Business Segment Results on pages 79–80.
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
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 the
PCI portfolio acquired in the Washington Mutualtransaction. Card issues credit cards to consumers andsmall businesses, provides payment services to corporate
and public sector clients through its commercial card
products, offers payment processing services to merchants,
and provides auto and student loan services.
Corporate & Investment 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
JPMorgan Chase & Co./2014 Annual Reportbrokerage, 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 multinational clients, including corporations,municipalities, financial institutions and non-profit entities
with annual revenue generally ranging from $20 million to$2 billion. CB provides financing to real estate investors 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.
Asset Management
Asset Management (“AM”), with client assets of $2.4
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 for a broad range of clients’ investment needs. For
Global Wealth Management clients, AM also provides
retirement products and services, brokerage and banking
services including trusts and estates, loans, mortgages anddeposits. The majority of AM’s client assets are in actively
managed portfolios.
Corporate
The Corporate segment comprises Private Equity, Treasury
and Chief Investment Office (“CIO”), and Other Corporate,
which includes corporate staff units and expense that iscentrally managed. Treasury and CIO are predominantly
responsible for measuring, monitoring, reporting andmanaging the Firm’s liquidity, funding and structuralinterest rate and foreign exchange risks, as well as
executing the Firm’s capital plan. The major Other
Corporate units include Real Estate, Enterprise Technology,
Legal, Compliance, Finance, Human Resources, Internal
Audit, Risk Management, Oversight & Control, Corporate
Responsibility and various Other Corporate groups. Other
centrally managed expense includes the Firm’s occupancy
and pension-related expense that are subject to allocation
to the businesses.

303

Notes to consolidated financial statements
Segment results
The following tables provide a summary of the Firm’s
segment results as of or for the years ended December 31,
2014, 2013 and 2012 on a managed basis. Total net
revenue (noninterest revenue and net interest income) for
each of the segments is presented on a fully taxableequivalent (“FTE”) basis. Accordingly, revenue frominvestments that receive tax credits and tax-exempt
securities is presented in the managed results on a basis
comparable to taxable investments and securities. This nonGAAP financial measure allows management to assess thecomparability of revenue arising from both taxable and tax-

exempt sources. The corresponding income tax impact
related to tax-exempt items is recorded within income tax
expense/(benefit).
Business segment capital allocation changes
Effective January 1, 2013, the Firm refined the capital
allocation framework to align it with the revised line ofbusiness structure that became effective in the fourth
quarter of 2012. The change in equity levels for the lines ofbusinesses was largely driven by the evolving regulatory
requirements and higher capital targets the Firm hadestablished under the Basel III Advanced Approach.

Segment results and reconciliation
Consumer & Community Banking

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

Corporate & Investment Bank

Commercial Banking

2014

2013

2012

2014

2013

Noninterest revenue$ 15,937$ 17,552$ 20,813$ 23,458$ 23,810

Net interest income

28,431

28,98529,465

11,175

10,976

11,658

4,533

4,794

4,629

Total net revenue

44,36846,53750,27834,63334,786

34,762

6,882

7,092

6,912

Provision for credit losses

3,520

335

3,774

(161)

(232)

(479)

(189)

85

41

Noninterest expense

25,60927,842

28,827

23,273

21,744

21,850

2,695

2,610

2,389

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

15,23918,36017,677

11,521

13,274

13,391

4,376

4,397

4,482

Income tax expense/(benefit)

6,054

7,299

6,886

4,596

4,387

4,719

1,741

1,749

Net income/(loss)

$

9,185

$ 11,061$ 10,791$

Average common equity$ 51,000$ 46,000$ 43,000

455,634

452,929467,282

Total assets

6,925

$

2012
$

23,104

2014
$

8,887

$

8,672

$

$ 61,000$ 56,500$

47,500861,819

843,577

876,107

2,349

2,635

2013
$

$

2,298

2012
$

2,283

1,783

2,648

$

2,699

$ 14,000$ 13,500$

9,500

195,267

190,782

181,502

Return on common equity

18%

23%

25%

10%

15%

18%

18%

19%

28%

Overhead ratio

58

60

57

67

63

63

39

37

35

(a) Segment managed results reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/(benefit). These adjustments are
eliminated in reconciling items to arrive at the Firm’s reported U.S. GAAP results.

304

JPMorgan Chase & Co./2014 Annual ReportOn at least an annual basis, the Firm assesses the level ofcapital required for each line of business as well as theassumptions and methodologies used to allocate capital toits lines of business and updates equity allocations to its
lines of business as refinements are implemented.

segments, but rather is now included in net income
applicable to common equity to be consistent with thepresentation of firmwide results. As a result of thisreporting change, net interest income and net income in thereportable business segments increases; however, there
was no impact to the segments’ return on common equity(“ROE”). The Firm’s net interest income, net income,Consolidated balance sheets and consolidated results ofoperations were not impacted by this reporting change, aspreferred stock dividends have been and continue to be
distributed from retained earnings and, accordingly, were
never reported as a component of the Firm’s consolidated
net interest income or net income. Prior period segment
amounts have been revised to conform with the current
period presentation.

Preferred stock dividend allocation reporting change
As part of its funds transfer pricing process, the Firm
allocates substantially all of the cost of its outstanding
preferred stock to its reportable business segments, while
retaining the balance of the cost in Corporate. Prior to thefourth quarter of 2014, this cost was allocated to the Firm’sreportable business segments as interest expense, with anoffset recorded as interest income in Corporate. Effectivewith the fourth quarter of 2014, this cost is no longer
included in interest income and interest expense in the(table continued from previous page)
Asset Management
2014
$

2013

9,588

$

9,029

Corporate

2012
$

7,847

2014
$

2013

1,972 $

3,093 $

Reconciling Items(a)
2012
190

2014
$

2013

Total

2012

2014

(2,733) $(2,495) $(2,116)$50,571

2013
$

2012

53,287$

52,121

2,440

2,376

2,163

(1,960)(3,115)(2,262)

(985)

(697)

(743)

43,63443,31944,91012,028

11,405

10,01012(22)(2,072)(3,718)(3,192)(2,859)94,20596,606

97,031

4

65

86

(35)

(28)

(37)

—

—

—

3,139

225

3,385

8,538

8,016

7,104

1,159

10,255

4,559

—

—

—

61,27470,46764,729

3,486

3,324

2,820

(1,112)(10,249)(6,594)(3,718)(3,192)(2,859)29,792

25,91428,917

1,333

1,241

1,078

(1,976)(3,493)(3,974)(3,718)(3,192)(2,859)

8,030

7,991

7,633

$

2,153

$

2,083

$

1,742

$

864 $

(6,756) $(2,620)

$

— $

— $

—

$

$

9,000

$

9,000

$

7,000

$

72,400 $71,409 $77,352

$

— $

— $

—

$ 207,400$ 196,409$ 184,352

2,573,126

2,415,689

2,359,141

128,701

122,414108,999

21,762$

17,923$

21,284

931,705

805,987

725,251

NA

NA

NA

23%

23%

24%

NM

NM

NM

NM

NM

NM

10%

9%

11%

71

70

71

NM

NM

NM

NM

NM

NM

65

73

67

JPMorgan Chase & Co./2014 Annual Report305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,
2014
2013
2012
(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$—
14,716
378
284

779
52
508
16,717$ 4,828
1,972
1,041
293

318
2,065
(1,380)
4,114

939
1,207
579
10,859

169

309

836

3,645
827
4,641

4,031
9,597
13,937

4,679
2,399
7,914

12,076(9,823)

2,945

1,430

4,301

1,665

23,445

16,6748,256$ 21,762
990$ 22,752

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:
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(b)(c)
Total liabilities(c)Total stockholders’ equity
Total liabilities and stockholders’ equity306$ 1,175
876
757
303

$ 17,923 $ 21,284(2,903)
3,158$ 15,020 $ 24,442

2014
$

211
95,884
18,2223,321
2,260
33,81052,6262013$

264
64,843
13,727
15,2282,829
21,69368,788216,070
41,17318,645$ 482,222

196,950
50,996
18,877$ 454,195$ 17,442$ 14,328

49,58655,454

11,918171,211250,157
232,065$ 482,222

11,367
161,868
243,017
211,178$ 454,195

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 provided by/(used in)operating activities
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 and investments in
subsidiaries and affiliates, net
All other investing activities, net

2014

2013

2012

$ 21,762$ 17,923$ 21,284

22,97225,49623,474(1,210)(7,573)(2,190)14,714

1,917

6,798

(1,698)

3,180

2,376

11,806(2,476)

6,984(31,040)

10,67916,10012,076

61

621

—
(319)

(12,009)
(713)

(364)
(350)

3,306

14,469

9,497

32

22

25

(15,945)

12,50925,529Borrowings from subsidiaries andaffiliates(a)4,454(2,715)(14,038)

Other borrowed funds(5,778)(7,297)

3,736

Net cash provided by/(used in)investing activities
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 provided by/(used in)financing activities
Net increase/(decrease) in cash
and due from banks
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

40,28431,30328,172(31,050)(21,510)(44,240)

407

137

255

8,847

3,873

1,234

—

(1,800)—(4,760)(4,789)(1,653)(6,990)(1,328)(6,056)(1,131)(5,194)
(701)

4,086

(9,985)(32,429)

(53)

48

84

264

216

132

$

211

$ 3,921
200

$

264

$ 4,409
2,390

$

216

$ 5,690
3,080(a) Affiliates include trusts that issued guaranteed capital debt securities (“issuer trusts”).
The Parent received dividends of $2 million, $5 million and $12 million from the issuer
trusts in 2014, 2013 and 2012, respectively. For further discussion on these issuer
trusts, see Note 21.
(b) At December 31, 2014, long-term debt that contractually matures in 2015 through2019 totaled $24.4 billion, $25.5 billion, $23.0 billion, $19.3 billion and $11.3
billion, respectively.
(c) For information regarding the Firm’s guarantees of its subsidiaries’ obligations, seeNote 21 and Note 29.

JPMorgan Chase & Co./2014 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, headcountdata and where otherwise noted)

2014

2013

4th quarter3rd quarter2nd quarter

1st quarter

4th quarter3rd quarter2nd quarter

1st quarter

$

$

$

$

$

$

$

$

Selected income statement data
Total net revenue

22,512

24,24624,45422,99323,15623,11725,211

25,122

Total noninterest expense

15,40915,79815,431

14,636

15,552

23,626

15,866

15,423Pre-provision profit/(loss)

7,103

8,448

9,023

8,357

7,604

(509)

9,345

9,699

Provision for credit losses

840

757

692

850

104

(543)

47

617

6,263

7,691

8,331

7,507

7,500

34

9,298

9,082

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

1,332

2,119

2,346

2,233

2,222

414

2,802

2,553

$

4,931

$

5,572

$

5,985

$

5,274

$

5,278

$

(380)

$

6,496

$

6,529

$

1.20

$

1.37

$

1.47

$

1.29

$

1.31

$

(0.17)

$

1.61

$

1.61

Per common share data
Net income/(loss): Basic
Diluted

1.19

1.36

1.46

1.28

1.30

(0.17)

1.60

1.59

Basic

3,730.9

3,755.4

3,780.6

3,787.2

3,762.1

3,767.0

3,782.4

3,818.2

Diluted

3,765.2

3,788.7

3,812.5

3,823.6

3,797.1

3,767.0

3,814.3

3,847.0

229,770$ 219,657$ 194,312$ 198,966$ 179,863

3,784.7

3,756.1

3,759.2

3,769.0

3,789.8

Average shares:

Market and per common share data
Market capitalization$ 232,472

Common shares at period-end$

3,714.8

225,188$3,738.2

216,725$

3,761.3

Share price(a):
High

$

63.49

$

61.85

$

61.29

$

61.48

$

58.55

$

56.93

$

55.90

$

51.00

Low

54.26

54.96

52.97

54.20

50.25

50.06

46.05

44.20

Close

62.58

60.24

57.62

60.71

58.48

51.69

52.79

47.46

Book value per share

57.07

56.50

55.53

54.05

53.25

52.01

52.48

52.02

Tangible book value per share (“TBVPS”)(b)

44.69

44.13

43.17

41.73

40.81

39.51

39.97

39.54

Cash dividends declared per share

0.40

0.40

0.40

0.38

0.38

0.38

0.38

0.30

Selected ratios and metrics
Return on common equity (“ROE”)

9%

10%

11%

10%

10%

(1)%

13%

Return on tangible common equity (“ROTCE”)(b)

11

13

14

13

14

(2)

17

17

0.78

0.90

0.99

0.89

0.87

(0.06)

1.09

1.14

Overhead ratio

68

65

63

64

67

102

63

61

Loans-to-deposits ratio

56

56

57

57

57

57

60

Return on assets (“ROA”)

High quality liquid assets (“HQLA”)(in billions)(c)

$

600

$

572

$

576

$

538

$

522

$

538

$

454

13%

61
$

413

Common equity tier 1 (“CET1”) capital ratio(d)

10.2%

10.2%

9.8%

10.9%

10.7%

10.5 %

10.4%

10.2%

Tier 1 capital ratio(d)

11.6

11.5

11.1

12.1

11.9

11.7

11.6

11.6

Total capital ratio(d)

13.1

12.8

12.5

14.5

14.3

14.3

14.1

14.1

Tier 1 leverage ratio

7.6

7.6

7.6

7.4

7.1

6.9

7.0

7.3

Selected balance sheet data (period-end)
Trading assets$ 398,988

375,204$ 374,664$ 383,348$ 401,470$ 430,991

Securities(e)348,004$

410,657
366,358$

392,543
361,918$

351,850

354,003356,556

354,725

365,744Loans

757,336

743,257

746,983

730,971

738,418

728,679

725,586

728,886

Total assets

2,573,126

2,527,005

2,520,336

2,476,986

2,415,689

2,463,309

2,439,494

2,389,349

Deposits

1,363,427

1,334,534

1,319,751

1,282,705

1,287,765

1,281,102

1,202,950

1,202,507

Long-term debt(f)276,836

268,721269,929

274,512

267,889

263,372

266,212268,361

Common stockholders’ equity

212,002211,214

208,851

204,572

200,020

195,512

197,781

197,128

Total stockholders’ equity

232,065

231,277

227,314219,655

211,178

206,670

209,239

207,086

Headcount

241,359242,388245,192

246,994

251,196

255,041

254,063

255,898

JPMorgan Chase & Co./2014 Annual Report307Supplementary information(Table continued from previous page)
As of or for the period ended(in millions, except ratio data)

2014

2013

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

1.90%

Allowance for loan losses to retained loans
excluding purchased credit-impaired loans(g)Nonperforming assets

14,807

2.02%

1.55
$

7,967

15,526

2.08%

1.63
$

8,390

15,974

2.20%

1.69
$

9,017

16,485

2.25%

1.75
$

9,473

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

2.27$

11,739Net charge-offs

1,218

1,114

1,158

1,269

1,328

1,346

1,403

1,725

Net charge-off rate

0.65%

0.60%

0.64%

0.71%

0.73%

0.74%

0.78%

0.97%

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

(e)
(f)
(g)

308

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.
TBVPS and ROTCE are non-GAAP financial measures. TBVPS represents the Firm’s tangible common equity divided by common shares at period-end.
ROTCE measures the Firm’s annualized earnings as a percentage of tangible common equity. For further discussion of these measures, see Explanation
and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 77–78.
HQLA represents the Firm’s estimate of the amount of assets that qualify for inclusion in the liquidity coverage ratio under the final U.S. rule (“U.S. LCR”)
as of December 31, 2014, and under the Basel III liquidity coverage ratio (“Basel III LCR”) for prior periods. For additional information, see HQLA on page
157.
Basel III Transitional rules became effective on January 1, 2014; December 31, 2013 data is based on Basel I rules. As of December 31, 2014,
September 30, 2014, and June 30, 2014, the ratios presented are calculated under the Basel III Advanced Transitional Approach. As of March 31, 2014,
the ratios presented are calculated under the Basel III Standardized Transitional Approach. CET1 capital under Basel III replaced Tier 1 common capital
under Basel I. Prior to Basel III becoming effective on January 1, 2014, Tier 1 common capital under Basel I was a non-GAAP financial measure. See
Regulatory capital on pages 146–153 for additional information on Basel III and non-GAAP financial measures of regulatory capital.
Included held-to-maturity securities of $49.3 billion, $48.8 billion, $47.8 billion, $47.3 billion, $24.0 billion and $4.5 billion at December 31, 2014,
September 30, 2014, June 30, 2014, March 31, 2014, December 31, 2013 and September 30, 2013, respectively. Held-to-maturity balances for theother periods were not material.
Included unsecured long-term debt of $207.5 billion, $204.7 billion, $205.6 billion, $206.1 billion, $199.4 billion, $199.2 billion, $199.1 billion and$206.1 billion, respectively, for the periods presented.
Excludes the impact of residential real estate PCI loans. For further discussion, see Allowance for credit losses on pages 128–130.

JPMorgan Chase & Co./2014 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.
Alternative assets - The following types of assets constitutealternative investments - hedge funds, currency, real estate,
private equity and other investment funds designed to focus
on nontraditional strategies.
Assets under management: Represent assets actively
managed by AM on behalf of its Private Banking,Institutional and Retail clients. Includes “Committed capital
not Called,” on which AM earns fees.
Beneficial interests issued by consolidated VIEs:
Represents the interest of third-party holders of debt,
equity securities, or other obligations, issued by VIEs that
JPMorgan Chase consolidates.
Benefit obligation: Refers to the projected benefit
obligation for pension plans and the accumulated
postretirement benefit obligation for OPEB plans.
Central counterparty (“CCP”): A CCP is a clearing housethat interposes itself between counterparties to contracts
traded in one or more financial markets, becoming thebuyer to every seller and the seller to every buyer andthereby ensuring the future performance of open contracts.
A CCP becomes counterparty to trades with market
participants through novation, an open offer system, or
another legally binding arrangement.
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.

JPMorgan Chase & Co./2014 Annual Report

Client deposits and other third party liabilities: Deposits,
as well as deposits that are swept to on-balance sheet
liabilities (e.g., commercial paper, federal funds purchased
and securities loaned or sold under repurchaseagreements) as part of client cash management programs.
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.
Credit derivatives: Financial instruments whose value isderived from the credit risk associated with the debt of athird party issuer (the reference entity) which allow one
party (the protection purchaser) to transfer that risk toanother party (the protection seller). Upon the occurrenceof a credit event by the reference entity, which may include,
among other events, the bankruptcy or failure to pay its
obligations, or certain restructurings of the debt of thereference entity, neither party has recourse to the reference
entity. The protection purchaser has recourse to theprotection seller for the difference between the face valueof the CDS contract and the fair value at the time of settling
the credit derivative contract. The determination as towhether a credit event has occurred is generally made by
the relevant International Swaps and Derivatives
Association (“ISDA”) Determinations Committee.
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.
Distributed denial-of-service attack: The use of a large
number of remote computer systems to electronically senda high volume of traffic to a target website to create aservice outage at the target. This is a form of cyberattack.
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.
309

Glossary of Terms
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 U.K. and the U.S.
G7 government bonds: Bonds issued by the government of
one of the G7 nations.

price index measured at the metropolitan statistical area(“MSA”) level. These MSA-level home price indices comprise
actual data to the extent available and forecasted data
where actual data is not available. As a result, the 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

Headcount-related expense: Includes salary and benefits(excluding performance-based incentives), and othernoncompensation costs related to employees.

The LTV ratio considering all available lien positions, as wellas unused lines, related to the property. Combined LTV
ratios are used for junior lien home equity products.

Home equity - senior lien: Represents loans andcommitments where JPMorgan Chase holds the first
security interest on the property.

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.

Home equity - junior lien: Represents loans andcommitments where JPMorgan Chase holds a security
interest that is subordinate in rank to other liens.
Impaired loan: Impaired loans are loans measured atamortized cost, for which it is probable that the Firm will be
unable to collect all amounts due, including principal andinterest, according to the contractual terms of theagreement. Impaired loans include the following:• All wholesale nonaccrual loans• All TDRs (both wholesale and consumer), including ones
that have returned to accrual status
Interchange income: A fee paid to a credit card issuer inthe clearing and settlement of a sales or cash advancetransaction.
Investment-grade: An indication of credit quality based on
JPMorgan Chase’s internal risk assessment system.
“Investment grade” generally represents a risk profile
similar to a rating of a “BBB-”/“Baa3” or better, as definedby independent rating agencies.
LLC: Limited Liability Company.
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.
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 home
310

Master netting agreement: An agreement between two
counterparties who have multiple contracts with each otherthat provides for the net settlement of all contracts, as wellas cash collateral, through a single payment, in a single
currency, in the event of default on or termination of any
one contract.
Mortgage origination channels:
Retail - Borrowers who buy or refinance a home throughdirect contact with a mortgage banker employed by the
Firm using a branch office, the Internet or by phone.
Borrowers are frequently referred to a mortgage banker bya banker in a Chase branch, real estate brokers, homebuilders or other third parties.
Correspondent - Banks, thrifts, other mortgage banks andother financial institutions that sell closed loans to the Firm.
Mortgage product types:
Alt-A
Alt-A loans are generally higher in credit quality thansubprime loans but have characteristics that would
disqualify the borrower from a traditional prime loan. Alt-A
lending characteristics may include one or more of thefollowing: (i) limited documentation; (ii) a high 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.

JPMorgan Chase & Co./2014 Annual ReportGlossary of Terms
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.
Multi-asset: Any fund or account that allocates assets undermanagement to more than one asset class.
N/A: 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 production revenue: Includes net gains or losses on
originations and sales of mortgage loans, other productionrelated fees and losses related to the repurchase ofpreviously-sold loans.

JPMorgan Chase & Co./2014 Annual Report

Net mortgage servicing revenue includes the following
components:
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 tothe collection or realization of expected cash flows.
Risk management represents the components ofMortgage Servicing’s MSR asset that are subject toongoing risk management activities, together with
derivatives and other instruments used in those risk
management activities.
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.
Nonaccrual loans: Loans for which interest income is notrecognized on an accrual basis. Loans (other than credit
card loans and certain consumer loans insured by U.S.
government agencies) are placed on nonaccrual statuswhen full payment of principal and interest is not expectedor when principal and interest has been in default for aperiod of 90 days or more unless the loan is both wellsecured and in the process of collection. Collateraldependent loans are typically maintained on nonaccrual
status.
Nonperforming assets: Nonperforming assets include
nonaccrual loans, nonperforming derivatives and certain
assets acquired in loan satisfaction, predominantly realestate owned and other commercial and personal property.
Over-the-counter (“OTC”) derivatives: Derivative contracts
that are negotiated, executed and settled bilaterally
between two derivative counterparties, where one or bothcounterparties is a derivatives dealer.
Over-the-counter cleared (“OTC-cleared”) derivatives:
Derivative contracts that are negotiated and executedbilaterally, but subsequently settled via a central clearing
house, such that each derivative counterparty is only
exposed to the default of that clearing house.
Overhead ratio: Noninterest expense as a percentage of
total net revenue.
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
311

Glossary of Terms
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.
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.
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 with312

a 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.
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.
Receivables from customers: Primarily represents marginloans to prime and retail brokerage customers which areincluded in accrued interest and accounts receivable on theConsolidated balance sheets.
Reported basis: Financial statements prepared under U.S.
GAAP, which excludes the impact of taxable-equivalentadjustments.
Retained loans: Loans that are held-for-investment (i.e.
excludes loans held-for-sale and loans at fair value).
Revenue wallet: Proportion of fee revenues based on
estimates of investment banking fees generated across theindustry (i.e. the revenue wallet) from investment banking
transactions in M&A, equity and debt underwriting, andloan syndications. Source: Dealogic, a third party provider
of investment banking competitive analysis and volumebased league tables for the above noted industry products.
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 perceived credit
risk associated with the obligor or counterparty, the natureof any collateral, and the guarantor, if any. Off-balance
sheet assets such as lending-related commitments,
guarantees, derivatives and other applicable off-balance
sheet positions are risk-weighted by multiplying 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 business
JPMorgan Chase & Co./2014 Annual ReportGlossary of Terms
banking 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.
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.
Structured notes: Structured notes are predominantly
financial instruments containing embedded derivatives.
Where present, the embedded derivative is the primary
driver of risk.
Suspended foreclosures: Loans referred to foreclosure
where formal foreclosure proceedings have started but are
currently on hold, which could be due to bankruptcy or loss
mitigation. Includes both judicial and non-judicial states.
Taxable-equivalent basis: In presenting 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.

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 theU.S.
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.
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.

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 146–155, and where otherwise specified,
repurchases under the common equity repurchase program
are presented on a trade-date basis because the trade-dateis used to calculate the Firm’s regulatory capital.

JPMorgan Chase & Co./2014 Annual Report313

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
General Electric Company
and Retired Chairman
and Chief Executive Officer
GE Capital(Industrial and financial services)

1 Audit Committee

Jamie Dimon
James A. Bell 1
Retired Executive Vice President
The Boeing Company(Aerospace)

Chairman andChief Executive Officer
JPMorgan Chase & Co.

Timothy P. Flynn 4, 5
Crandall C. Bowles 1, 4
Chairman
The Springs Company(Diversified investments)

Retired Chairman andChief Executive Officer
KPMG(Professional services)

Stephen B. Burke 2, 3

Laban P. Jackson, Jr. 1

Chief Executive Officer
NBCUniversal, LLC(Television and entertainment)

Chairman and Chief Executive Officer
Clear Creek Properties, Inc.
(Real estate development)

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
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

Mary Callahan Erdoes
Ashley Bacon

CEO, Asset Management

Chief Risk Officer

Gordon A. Smith
CEO, Consumer & Community Banking

Marianne Lake
Stephen M. Cutler

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

James R. Vallone

Corporate Communications

Controller

General Auditor

Anthony J. HoranPeter Scher

Sarah M. Youngwood

Secretary

Corporate Responsibility

Investor Relations

314

JPMorgan Chase & Co./2014 Annual Report

Regional Chief Executive Officers
Asia Pacific

Europe/Middle East/Africa

Latin America/Canada

Nicolas Aguzin

Daniel E. Pinto

Martin G. Marron

Emilio Saracho, Deputy CEO

Senior Country Officers
Asia Pacific

EuropeMiddle East/Africa/Turkey

Latin America

ASEAN

Austria

Middle East/Africa/Turkey

Andean/Central America/
Caribbean

Australia/New Zealand/Southeast Asia

Robert C. PriestleyIndonesia

Haryanto T. Budiman
Malaysia

Anton Ulmer
Benelux/Nordics

Sjoerd Leenart

Jake Donavan

Bahrain/Egypt/Lebanon
Ali MoosaCentral & Eastern Europe

Nigeria

Walter Schuster

Steve R. Clayton

France/Francophone North
AfricaPhilippines

Kyril Courboin

Roberto L. Panlilio

Germany

Singapore

Martin Wiesmann

Edmund Y. Lee

IrelandThailandCarin Bryans

M.L. Chayotid Kridakon

IsraelVietnam

Roy Navon

Van Bich Phan

Italy

Tosin T. Adewuyi
Saudi Arabia

Rayan Fayez
Sub-Saharan Africa

Marc Hussey & Brian Smith
Turkey/Azerbaijan

Mustafa Bagriacik

Russia/Central Asia

China

Yan Tavrovsky

David Li
Hong Kong

Andrew Butcher
TaiwanCarl K. Chien

Argentina/Uruguay/Bolivia/
Paraguay

Facundo D. Gomez Minujin
BrazilJose Berenguer
Chile

Alfonso Eyzaguirre
MexicoEduardo F. Cepeda
North America
CanadaDavid E. Rawlings

Francesco Rossi Ferrini
GREATER CHINA

Moises Mainster

Spain/Portugal

Enrique Casanueva Nardiz
Switzerland

Niklaus Bossart

India

Kalpana Morparia
Japan

Steve Teru Rinoie
Korea

Steve Lim

JPMorgan Chase Vice Chairmen
Melissa Bean

Walter A. Gubert

Mel R. Martinez

Phyllis J. Campbell

James B. Lee, Jr.

David Mayhew

Jacob A. Frenkel

Todd MaclinPeter Scher

JPMorgan Chase & Co./2014 Annual Report315

J.P. Morgan International Council

As of March 31, 2015

Rt. Hon. Tony Blair

Martin Feldstein

Hon. Henry A. Kissinger

Ratan Naval Tata

Chairman of the Council
Quartet Representative andFormer Prime Minister of Great Britain
and Northern Ireland
London, United Kingdom

Professor of Economics
Harvard University
Cambridge, Massachusetts

Chairman
Kissinger Associates, Inc.
New York, New York

Chairman
Tata Trusts
Mumbai, India

Hon. Robert M. Gates

Mustafa Vehbi Koç

Hon. Tung Chee Hwa GBM

Partner
RiceHadleyGates LLC
Washington, District of Columbia

Chairman of the Board of Directors
Koç Holding A.Ş.
Istanbul, Turkey

Herman Gref

Jorge Paulo Lemann

Vice Chairman
National Committee of the Chinese
People’s Political Consultative Conference
Hong Kong, The People’s Republicof China

Chairman of the Board
and Chief Executive Officer
Sberbank
Moscow, Russia

Director
H.J. Heinz Company
Pittsburgh, Pennsylvania

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

Paul Bulcke
Chief Executive Officer
Nestlé S.A.
Vevey, Switzerland

Gérard Mestrallet
Jürgen Grossmann
Owner
Georgsmarienhütte Holding GmbH
Hamburg, Germany

Akio Mimura
William B. Harrison, Jr.

Former President of Brazil
São Paulo, Brazil

Former Chairman andChief Executive Officer
JPMorgan Chase & Co.
New York, New York

Jamie Dimon 1

Hon. Carla A. Hills

Chairman and Chief Executive Officer
JPMorgan Chase & Co.
New York, New York

Chairman and Chief Executive Officer
Hills & Company International
Consultants
Washington, District of Columbia

Fernando Henrique Cardoso

Chairman and Chief Executive Officer
GDF SUEZ
Paris la Défense, France

Senior Advisor
Nippon Steel & Sumitomo Metal
Corporation
Tokyo, Japan

Patrice Motsepe

Hon. John Howard OM AC
Former Prime Minister of Australia
Sydney, Australia

Founder and Executive Chairman
African Rainbow Minerals Limited
Chislehurston, Sandton, South Africa

Michael Pram Rasmussen
Chairman of the Board
A.P. Møller-Maersk Group
Copenhagen, Denmark

Cees J.A. van Lede
Former Chairman and Chief Executive
Officer, Board of Management
Akzo Nobel
Amsterdam, The Netherlands

Douglas A. Warner III
Former Chairman of the Board
JPMorgan Chase & Co.
New York, New 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

Hon. Condoleezza RiceJoe Kaeser
President and Chief Executive Officer
Siemens AG
Munich, Germany

Partner
RiceHadleyGates LLC
Stanford, California

1 Ex-officio

316

JPMorgan Chase & Co./2014 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 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.
Direct deposit of dividends
For information about direct depositof dividends, please contact
Computershare.

Stockholder inquiries
Contact Computershare:

By telephone:
Within the United States, Canada andPuerto Rico: 800-758-4651(toll free)
From all other locations:201-680-6862 (collect)
TDD service for the hearing impaired
within the United States, Canada andPuerto Rico: 800-231-5469(toll free)
All other locations:201-680-6610 (collect)
By regular mail:Computershare
P.O. Box 30170
College Station, TX 77842
United States
By overnight delivery:
Computershare
211 Quality Circle
Suite 210
College Station, TX 77845
United States
Duplicate mailings
If you receive duplicate mailings because
you have more than one account listingand you wish to consolidate youraccounts, please write to Computershareat the address above.
Independent registered public
accounting firm
PricewaterhouseCoopers LLP
300 Madison Avenue
New York, NY 10017-6204

As of the beginning of 2009, JPMorgan Chase & Co.
has distributed shareholder information under the
U.S. Securities and Exchange Commission “Notice andAccess” rule. As a result, the firm prints 700,000
fewer Annual Reports and Proxy Statements, whichsaves on an annual basis approximately 6,400 trees
and 800 metric tons of CO2 emissions.
This Annual Report is printed on paper made fromwell-managed forests and other controlled sources.
The paper is independently certified by BVQI to theForest Stewardship Council (FSC) standards. The
paper contains a minimum of 20% post-consumer
waste recycled fibers.

©2015 JPMorgan Chase & Co.
All rights reserved. Printed in the U.S.A.

jpmorganchase.com