A N N U A L REPORT 2018

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

2018			2017			2016

Reported basis(a)Total net revenue$ 109,029 		
$ 100,705		
$
96,569Total noninterest expense 			63,394 			59,515 			56,672
Pre-provision profit 			45,635			41,190			39,897
Provision for credit losses 			
4,871			5,290			5,361
Net income$ 32,474		 $24,441		 $24,733Per common share data
Net income per share:
Basic$
Diluted 			Cash dividends declared 			Book value 			Tangible book value (TBVPS)(b) 			

9.04		$
6.35		 $6.249.00			6.31			6.19
2.72			2.12			1.88
70.35			67.04			64.06
56.33			53.56			51.44

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

13%		
10%		
10%
17			
12 			
13
12.0			12.1			12.2
13.7			13.8			13.9
15.5			15.7			15.2

Selected balance sheet data (period-end)
Loans$ 984,554		
$ 930,697		
$ 894,765
Total assets
2,622,532 		 2,533,600			 2,490,972
Deposits
		 1,470,666			1,443,982			1,375,179
Common stockholders’ equity
		 230,447			229,625			228,122
Total stockholders’ equity 			 256,515			255,693			254,190
Market data
Closing share priceMarket capitalization
Common shares at period-end

$
97.62
$
106.94		
$86.29
		 319,780 		366,301			307,295
		 3,275.8 		3,425.3			3,561.2

Headcount			

256,105			 252,539			 243,355(a) Results are presented in accordance with accounting principles generally accepted in the United States of America, except whereotherwise noted.
(b) TBVPS and ROTCE are each non-GAAP financial measures. For further discussion of these measures, refer to Explanation andReconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Financial Performance Measures on pages 57–59.
(c) The ratios presented are calculated under the Basel III Fully Phased-In Approach, and they are key regulatory capital measures.
For further discussion, refer to “Capital Risk Management” on pages 85-94.

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

89%

#1

YOU INVEST

TOP 10#1 in U.S. retaildeposit growth

89% of You Invest customers are
first-time investors with Chase

Ranked Top 10 on Fortune magazine’s
World’s Most Admired Companies list

FINANCING/AFFORDABLE
PROPERTIES#1#1

Financing for 20,000 affordable
properties for low-income individuals
across the U.S.

#1 most visited banking portal in the U.S.
• 49 million active digital customers• 33 million active mobile customers#1 U.S.
multifamily lender

20,000#1$1T OF M&A#1 in global investment banking fees
for the 10th consecutive year

Advisor on more than
$1 trillion of announced M&Atransactions

$500M

83%

FIRST

U.S. BANKWITH DIGITAL COIN
First U.S. bank witha digital coin

10%

ADVANCINGCITIES INITIATIVERANKED IN TOP TWO QUARTILES

WAGE INCREASE$500 million AdvancingCities initiative
to create economic opportunity in cities
around the world

83% of long-term mutual fund assets
under management ranked in the
top two quartiles over the 10-year period

10% wage increase,on average, to $15–$18 per hourfor 22,000 employees

Dear Fellow Shareholders,Jamie Dimon,
Chairman andChief Executive Officer

Once again, I begin this annual letter to shareholders with a sense of pride about
our company and our hundreds of thousands of employees around the world. As I
look back on the last decade — a period of profound political and economic change— it is remarkable how much we have accomplished, not only in terms of financial
performance but in our steadfast dedication to help clients, communities andcountries all around the world.
In 2018, we continued to accelerate investments in products, services andtechnology. For example, for the first time in nearly a decade, we extended ourpresence in several states with new Chase branches (we plan to open another 400
new branches in the next few years). In addition, we started a new digital investing
platform: You Invest; we launched our partnership with Amazon and Berkshire
Hathaway in healthcare; we broadened our commitment to create opportunities
for jobs and prosperity and reduce the wealth gap for black Americans with
Advancing Black Pathways (announced in February 2019); and we launched our2AdvancingCities initiative to support job and wage growth in communities mostin need of capital. While it is too soon to assess the impact of these efforts, we’reseeing terrific results so far.
2018 was another strong year for JPMorgan Chase, with the firm generating record
revenue and net income, even without the impact of tax reform. We earned$32.5 billion in net income on revenue1 of $111.5 billion, reflecting strong underlying
performance across our businesses. Adjusting for the enactment of the Tax Cuts
and Jobs Act, we now have delivered record results in eight of the last nine years,
and we have confidence that we will continue to deliver in the future. Each lineof business grew revenue and net income for the year while continuing to makesignificant investments in products, people and technology. We grew core loans
by 7%, increased deposits in total by 3% and generally grew market share acrossour businesses, all while maintaining credit discipline and a fortress balance
sheet. In total, we extended credit and raised capital of $2.5 trillion for businesses,
institutional clients and U.S. customers.
In last year’s letter, we emphasized how important a competitive global tax system
is for America. Over the last 20 years, as the world reduced its tax rates, America
did not. Our previous tax code was increasingly uncompetitive, overly complex, andloaded with special interest provisions that created winners and losers. This drove
down capital investment in the United States, which reduced domestic productivity
and wage growth. The new tax code establishes a business tax rate that will
make the United States competitive around the world and frees U.S. companies
to bring back profits earned overseas. The cumulative effect of capital retained
and reinvested over many years in the United States will help cultivate strong
businesses and ultimately create jobs and increase wages.
For JPMorgan Chase, all things being equal (which they are not), the new lower
tax rates added $3.7 billion to net income. For the long term, we expect thatsome or eventually most of that increase will be erased as companies compete
for customers on products, capabilities and prices. However, we did take thisopportunity in the short term to massively increase our investments in technology,
new branches and bankers, salaries (we now pay a minimum of $31,000 a year
for full time entry-level jobs in the United States), philanthropy and lending(specifically in lower income neighborhoods).
1

Represents managed revenue.

3

Earnings, Diluted Earnings per Share and Return on Tangible Common Equity
2004–2018($ in billions, except per share and ratio data)$32.5
Adjusted net income1

$26.9

24%


$21.3

22%


$19.0
$17.4



15%

$14.4



10%



$8.5

$4.00

10%

2004

$11.7


6%
$5.6

$2.35



$4.5
$1.52

15%










$15.4

$4.33

$21.7







15%





$5.19

11%



$4.48

$6.00

$6.19

$24.4

$9.00


$21.7

$17.9

15%

$24.4

$24.7

13%













$5.29

13%

13%

2014

2015

2016

$6.31




17%

12%

$4.34

$3.96


$2.26

$1.35
2005

2006

2007

2008

2009

2010

2011

2012

2013

2017

2018

 Net income  Diluted earnings per share  Return on tangible common equity (ROTCE)
1Adjusted results, a non-GAAP financial measure, exclude a $2.4 billion decrease to net income, for 2017, as a result of the enactment of the Tax Cuts and Jobs Act.

Tangible Book Value and Average Stock Price per Share
2004–2018

High: $119.33
Low: $ 91.11$110.72$92.01$58.17$38.70$43.93$15.35$16.45$18.88

2004

2005

2006

4

$65.62$51.88$47.75$39.83$36.07$63.83$21.96$22.52

2007

2008$35.49$27.092009$40.36$30.12

2010$39.36$33.62

2011$39.22$38.68$40.7220122013$44.602014$48.13

2015$51.44$53.5620162017$56.332018

Adjusted
ROTCE1 was
13.6%,
for 2017

As you know, we believe tangible book value per share is a good measure of thevalue we have created for our shareholders. If our asset and liability values areappropriate — and we believe they are — and if we can continue to deploy thiscapital profitably, we think we can continue to exceed 15% return on tangible
equity for the next several years (and potentially at or above 17% in the near term),
assuming there is not a significant downturn. If we can earn these types of returns,
our company should ultimately be worth considerably more than tangible bookvalue. The chart on the bottom of the opposite page shows that tangible book value“anchors” the stock price.
Bank One/JPMorgan Chase & Co. tangible book value per share performance vs. S&P 500 Index
Bank One(A)

S&P 500 Index(B)

Relative Results(A) — (B)

Performance since becoming CEO of Bank One(3/27/2000—12/31/2018)1

Compounded annual gain

11.6%

4.7%

6.9%

Overall gain

615.8%

136.4%

479.4%

JPMorgan Chase & Co.
(A)

S&P 500 Index(B)

Relative Results(A) — (B)

Performance since the Bank One
and JPMorgan Chase & Co. merger(7/1/2004—12/31/2018)

Compounded annual gain

12.4%

7.8%

4.6%

Overall gain

442.3%

196.8%

245.5%

Tangible book value over time captures the company’s use of capital, balance sheet and profitability. In this chart, we are looking at
heritage Bank One shareholders and JPMorgan Chase & Co. shareholders. The chart shows the increase in tangible book value per share;
it is an after-tax number that assumes all dividends were retained vs. the Standard & Poor’s 500 Index (S&P 500 Index), which is a
pre-tax number that includes reinvested dividends.
1

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

In the last five years, we have bought back almost $55 billion in stock orapproximately 660 million shares, which is nearly 20% of the company’s commonshares outstanding. In prior letters, I explained why buying back our stock at
tangible book value per share was a no-brainer. Seven years ago, we offered an
example of this: If we bought back a large block of stock at tangible book value,earnings and tangible book value per share would be substantially higher just four
years later than without the buyback. While we prefer buying back our stock at
tangible book value, we think it makes sense to do so even at or above two times
tangible book value for reasons similar to those we’ve expressed in the past. If webuy back a big block of stock this year, we would expect (using analysts’ earnings

5estimates) earnings per share in five years to be 2%–3% higher and tangible bookvalue to be virtually unchanged. We want to remind our shareholders that we muchprefer to use our capital to grow than to buy back stock. I discuss stock buybacks
later in this letter.
Stock total return analysis
Bank OneS&P 500 Index

S&P Financials Index

11.2%
638.9%

4.7%
136.4%

3.1%
76.3%

JPMorgan Chase & Co.

S&P 500 Index

S&P Financials Index

9.4%
268.0%

7.8%
196.8%

2.4%
40.5%(6.6)%
13.6%
14.5%(4.4)%
8.5%
13.1%(13.0)%
8.1%
10.9%

Performance since becoming CEO of Bank One(3/27/2000—12/31/2018)1

Compounded annual gain
Overall gain

			
			

Performance since the Bank One
and JPMorgan Chase & Co. merger(7/1/2004—12/31/2018)

Compounded annual gain
Overall gain
Performance for the period ended
December 31, 2018

Compounded annual gain/(loss)
One year
Five years
Ten years

These charts show actual returns of the stock, with dividends reinvested, for heritage shareholders of Bank One and JPMorgan Chase & Co.
vs. the Standard & Poor’s 500 Index (S&P 500 Index) and the Standard & Poor’s Financials Index (S&P Financials Index).
1

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

While we don’t run the company worrying about the stock price in the short run, in
the long run our stock price is a measure of the progress we have made over theyears. This progress is a function of continual investments, in good and bad times,
to build our capabilities — our people, systems and products. These importantinvestments drive the future prospects of our company and position it to growand prosper for decades. Whether looking back over five years, 10 years or since
the JPMorgan Chase/Bank One merger (approximately 14 years ago), our stock
has significantly outperformed the Standard & Poor’s 500 Index and the Standard& Poor’s Financials Index. And this growth came during a time of unprecedented
challenges for banks — both the Great Recession and the extraordinarily difficult
legal, regulatory and political environment that followed.

6

JPMorgan Chase stock is owned by large institutions, pension plans, mutual funds
and directly by individual investors. However, it is important to remember thatin almost all cases, the ultimate beneficiaries are individuals in our communities.
Well over 100 million people in the United States own stock, and a large
percentage of these individuals, in one way or another, own JPMorgan Chasestock. Many of these people are veterans, teachers, police officers, firefighters,
retirees, or those saving for a home, school or retirement. Your management
team goes to work every day recognizing the enormous responsibility that wehave to perform for our shareholders.
In the first section of this letter, I try to give a comprehensive understanding of
how we run our company, including how we think about building shareholder
value for the long run. In that section, I highlight our strong belief that building
shareholder value can only be done in conjunction with taking care of employees,
customers and communities. This is completely different from the commentary
often expressed about the sweeping ills of naked capitalism and institutions only
caring about shareholder value.
In the second section of this letter, I comment on important forward-looking issues.
While we remain optimistic about the long-term growth of the United States andthe world, the near-term economic and political backdrop is increasingly complex
and fraught with risks — both known and unknown. And we face a future with lessoverall confidence in virtually all institutions, from corporations to governments
to the media. The extremely volatile global markets in the fourth quarter of 2018
might be a harbinger of things to come — creating both risks for our company andopportunities to serve our clients.
The third section of this letter is about public policy, specifically American public
policy, which is a major concern for our country and, therefore, our company.
Again, I try to give a comprehensive, multi-year overview of what I see as some ofour problems and suggest a few ways they can be addressed. One consistent theme
is completely clear: Businesses, governments and communities need to work as
partners, collaboratively and constructively, to analyze and solve problems andhelp strengthen the economy for everyone’s benefit.

7

I.

JPMorgan Chase Principles and Strategies
1.

First and foremost, we look at our business from the point of view of thecustomer.

Page 102.

We endeavor to be the best at anything and everything we do.

Page 153.

We will maintain a fortress balance sheet — and fortress financial principles.

Page 164.

We lift up our communities.

Page 18

5.

We take care of our employees.

Page 226.

We always strive to learn more about management and leadership.

Page 24

7.

We do not worry about some issues.

Page 25

II. Comments on Current Critical Issues
1.

Page 26

We need to continue to restore trust in the strength of the U.S. banking system
and global systemically important financial institutions.

Page 26

2.

We have to remind ourselves that responsible banking is good and safe banking.

Page 293.

We believe in good regulation — both to help America grow and improvefinancial stability.

Page 31

We believe stock buybacks are an essential part of proper capital allocation
but secondary to long-term investing.

Page 33

5.

On the importance of the cloud and artificial intelligence, we are all in.

Page 34

6.

We remain devoted and diligent to protect privacy and stay cyber safe —we will do what it takes.

Page 35

We know there are risks on the horizon that will eventually demand
our attention.

Page 36

We are prepared for — though we are not predicting — a recession.

Page 40

4.

7.
8.

8

Page 10

III. Public Policy

Page 41

1.

The American Dream is alive — but fraying for many.

Page 412.

We must have a proper diagnosis of our problems — the issues are realand serious — if we want to have the proper prescription that leads toworkable solutions.

Page 42

All these issues are fixable, but that will happen only if we set aside partisan
politics and narrow self-interest — our country must come first.

Page 46

Governments must be better and more effective — we cannot succeed without
their help. The rest of us could do a better job, too.

Page 47

5.

CEOs: Your country needs you!

Page 50

6.

America’s global role and engagement are indispensable.

Page 513.
4.

9

I. J PM ORG AN CHA SE PR IN CIP L E S AND ST R AT EGI E S
In this section, I want to give the reader a comprehensive view of how we run the company.
We manage the company consistently with these principles in mind – and they have stood
the test of time. We also strive to satisfy, and even exceed, the requirements of our regulators and governments around the globe – and we think these principles are a criticalcomponent of that.
1. First and foremost, we look at our business from the point of view of the customer.
Customer needs are what gets our attention.
We believe that in a hyper-competitive world(from competitors known and unknown), thebest strategy – both offensive and defensive– is to give the customer more: something
better, faster or more efficiently. We arealways on a quest to improve our products
and services, and, for the most part, this isdone with enhancements in technology andthrough the continual training of our people.
Most fundamental of all is doing the rightthing for our customers – in all cases.

We energetically drive organic growth.

We continue to drive good and healthyorganic growth (meaning good customers,
products and services they need and wantat fair and reasonable prices), and while
we are happy with our progress, we recognize that we won’t meet every goal we set
for ourselves and can always do better. In
past letters, we have identified many areasof organic growth. Our achievements withthese initiatives are detailed in the CEO
letters in this Annual Report, but a few of
the critical strategies are highlighted in the
sidebar below.

ORGANIC GROWTH OPPORTUNITIES ACROSS OUR LINES OF BUSINESS

Consumer &Community
Banking• By 2022, we expect 93% of the U.S. population to be in our Chase footprint
as we expand our branch network to new markets with an integrated
physical and digital approach. In addition to entering the Washington, D.C.,
Philadelphia and Boston markets in 2018, we recently announced nine newmarkets for 2019, including Charlotte, Minneapolis, Nashville and St. Louis.
• The onboarding experience for new customers is being simplified.
Customers can open a new deposit account digitally in three to five minutes,
functionality that added approximately 1.5 million new accounts since its
February 2018 launch; we’re expanding this functionality inside ourbranches as well. We also recently announced Chase MyHome, our new
digitally enabled mortgage fulfillment process that prefills applications forour existing customers. It’s 20% faster than our paper-based process,allowing us to close a mortgage within three weeks. Our confidence in ourenhanced approach is reflected in our money-back guarantee.

10• Customers recently began receiving personalized merchant offers anddiscounts from ChaseOffersSM. This program ramped up rapidly, withcustomers activating 25+ million offers across 7 million cards in the initiative’s
first three months. CreditJourneySM, with more than 15 million users enrolled,
has also been a tremendously successful way to engage customers throughaccess to credit score information and identity protection.
• And later this year, we’ll make it easier for our credit card customers toborrow on their existing lines through two new products — My Chase PlanSM,
allowing customers to finance a specific purchase at a reasonable cost at
the point of sale; and My Chase LoanSM, letting customers borrow against
their unused credit limit and pay back their debt in fixed amounts at acompetitive rate. These products enable us to compete for the approximately$250 billion in card loans that our existing customers have with competitors.

Corporate &Investment Bank

• We have been #1 in investment banking for the past decade and finished2018 with 8.7% of global wallet share, the industry’s best. Still, we believe
we can increase our share over time as we continue to add bankers
selectively and leverage technology to provide better data and insights
to our clients.
• Our Treasury Services business grew revenue by 13% last year. As wefurther implement our wholesale payments model, which includes merchantservices, we will be able to deliver a unique value proposition to our clients.
We see opportunities in every customer segment from middle market andsmall businesses to large corporate clients and their business outside of
the United States.
• We have consistently grown share in Markets — including in businesses
where the wallet has shrunk. We are prioritizing investments in products
and technology to stay ahead of our clients’ needs. As companies expand
their businesses and acquire assets — increasingly across borders — ourglobal expertise in hedging risks and protecting capital can be as importantto them as the actual acquisition.
• Our Securities Services business has transformed itself into an industry
powerhouse, and it sits alongside the world’s leading trading businesses. As
asset managers face ongoing pressures from passive investing and margincompression in the coming years, we think we have a unique opportunity tohelp them become more efficient by outsourcing support functions andusing our innovative technology platforms.
• Our Corporate & Investment Bank is one of the few truly global businesses
in the financial services industry. As emerging countries take their place on
the global stage, we will be there to support them. The investments we aremaking in China and in other emerging markets today will result in ourinternational growth for years to come.

11

Commercial
Banking• Being able to deliver the broad-based capabilities of JPMorgan Chase at avery local level is a key competitive advantage. Since launching our Middle
Market expansion efforts, we are now local in 39 new markets and haveadded 2,800 clients, resulting in 22% compounded revenue growth over thelast three years. Our growth potential for Middle Market business isn’t justlimited to our expansion markets. Through data-driven analysis, we’ve
identified nearly 38,000 prospective clients nationally. Some of our most
exciting opportunities are within our legacy markets like New York, Chicago,
Dallas and Houston, where we have been for over a century.
• Chase’s retail branch expansion amplifies our opportunity to deepen
relationships with clients who already are in those markets by giving themaccess to branches and the additional resources that come with that access.
In addition, the expansion opens the opportunity to serve more public
sector customers in new U.S. markets through our Government Banking
business, deepening community engagement and broadening our work withcities, states, public universities and other municipal clients.
• Commercial Banking’s partnership with the Corporate & Investment Bank
continues to be highly successful and is a key growth driver for bothbusinesses. Being able to deliver the #1 investment bank locally enhances
our strategic dialogue with our clients and separates us from ourcompetitors. In 2018, 39% of the firm’s North America investment banking
fees came from Commercial Banking clients, totaling $2.5 billion in revenue,
up from $1 billion 10 years ago. We expect that number to continue to grow.

Asset & WealthManagement• We are using data and technology to transform how we interact with clients.
By integrating our human expertise with distinctive digital offerings like You
Invest, we have been able to attract new clients, 89% of whom are first-time
investors with Chase.
• We are expanding our footprint to capture more of the opportunity acrossthe U.S. wealth management spectrum — from mass affluent ($500,000 to$3 million) to high-net-worth ($3 million to $10 million) to ultra-high-networth ($10 million or greater). By the end of 2019, we expect to have 6,500
advisors globally on the ground where our clients need us most.
• We have continued to innovate our product lineup by adding 47 index funds
and exchange-traded funds (ETF) over the last three years.

12I. JPMORG AN CHAS E PRINCIPLES AND STRATEGIESThe charts below show JPMorgan Chase’s
fairly consistent growth over the years.
This kind of growth only comes fromhappy, repeat customers. They have plenty
of other choices.

Client Franchises Built Over the Long Term
2006

2017

2018

Deposits market share# of top 50 Chase markets
		 where we are #1 (top 3)
Average deposits growth rate
Active mobile customers growth rate
Credit card sales market share7
Merchant processing volume20 ($B)
# of branches
Client investment assets ($B)
Business Banking primary market share21

3.6%

8.7%

9.0%

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

16 (40)
9%
13%
22.0%
$1,192
5,130
$273
8.7%

16 (42)
5%
11%
22.3%
$1,366
5,036
$282
8.8%

Global investment banking fees10
Market share10
Total Markets revenue11
Market share11
FICC11
		Market share11
Equities11
		Market share11
Assets under custody ($T)

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

#1
8.1%
#1
10.7%
#1
11.1%
co–#1
9.9%
$23.5

#1
8.7%
#1
11.6%
#1
11.9%
co–#1
11.2%
$23.2

 >80% of Fortune 500 companies do business with us Presence in over 100 markets globally #1 in 16 businesses — compared to 8 in 201422
 #1 in global investment banking fees for the 10thconsecutive year10 Consistently ranked #1 in Markets revenue since 201211
 J.P. Morgan Research ranked as the #1 Global
Research Firm12
 #1 in USD payments volume13
 Top 3 custodian globally14

Commercial
Banking# of top 50 MSAs with dedicated teams
Bankers
New relationships (gross)
Average loans ($B)
Average deposits ($B)
Gross investment banking revenue ($B)16
Multifamily lending15

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

50
1,766
1,062
$198.1$177.0
$2.4
#1

50
1,922
1,232
$205.5$170.9$2.5#1 133 locations across the U.S.
 26 international locations 17 specialized industry coverage teams
 #1 traditional Middle Market Bookrunner17
 20,000 affordable housing units financed in 2018

Asset & WealthManagement

Ranking of 5-year cumulative net client
asset flows23
North America Private Bank (Euromoney)18
Client assets ($T)
Active AUM market share24
North America Private Bank client		 assets market share25
Average loans ($B)
# of Wealth Management client advisors

5

Consumer &Community
Banking

Corporate &Investment
Bank

NA
#1
$1.3
1.8%

#2
#1
$2.8
2.5%

#2
#1
$2.7
2.5%

3%
$26.5
1,506

4%
$123.52,605

4%$138.62,865

 Serve 62 million U.S. households, including 4 million
small businesses 49 million active digital customers1, including
33 million active mobile customers2
 99 million debit and credit card accounts3
 #1 in new primary bank relationships nationally4
 #1 U.S. credit card issuer based on sales andoutstandings6
 #2 jumbo mortgage originator9 Serve clients across the entire wealth spectrum Business with 55% of the world’s largest pension funds,
sovereign wealth funds and central banks
 Fiduciaries across all asset classes
 83% of 10-year long-term mutual fund assets undermanagement (AUM) performed above peer median19
 Revenue and long-term AUM balance growth ~90%
since 2006

For information on footnotes 1–19, refer to slides 32-33 in the JPMorgan Chase 2019 Investor Day — Firm Overview presentation, which is available on JPMorgan Chase & Co.’s
website (https://www.jpmorganchase.com/corporate/investor-relations/document/2019_firm_overview_ba56d0e8.pdf), under the heading Investor Relations, Events & Presentations,
JPMorgan Chase 2019 Investor Day, and on Form 8-K as furnished to the U.S. Securities and Exchange Commission (SEC) on February 26, 2019, which is available on the SEC’s
website (www.sec.gov).
20

2006 reflects First Data joint venture.

21

Source: Barlow Research Associates, Primary Bank Market Share Database as of 4Q18. Rolling eight quarter average of small businesses with revenue of $100,000 – <$25 million.

22

Source: Ranks for Banking – Dealogic as of January 1, 2019, and ranks for Markets, Treasury Services and Securities Services – Coalition, preliminary 2018 rank analysis based on
JPMorgan Chase’s business structure.

23

Source: Company filings and JPMorgan Chase estimates. Rankings reflect competitors in the peer group with publicly reported financials and 2018 client assets of at least $500B
as follows: Allianz Group, Bank of America Corporation, Bank of New York Mellon Corporation, BlackRock, Inc., Credit Suisse Group AG, Franklin Resources, Inc., The Goldman Sachs
Group, Inc., Invesco Ltd., Morgan Stanley, T. Rowe Price Group, Inc. and UBS Group AG. JPMorgan Chase’s ranking reflects AWM client assets, Chase Wealth Management investments
and new-to-firm Chase Private Client deposits.

24

Source: Strategic Insight as of February 2019. Reflects active long-term mutual funds and exchange-traded funds only. Excludes fund of funds and money market funds.

25

Source: Capgemini World Wealth Report 2018. Market share estimated based on 2017 data (latest available).

NM = Not meaningful
NA = Not available
FICC = Fixed Income, Currencies and Commodities
MSAs = Metropolitan statistical areas
USD = U.S. dollar

B = Billions
T = Trillions

13

I. JPMOR GA N CH A SE P R I N C I PL ES A N D ST R AT EG I ES

New and Renewed Credit and Capital for Our Clients$2,4962008–2018$2,357($ in billions)$2,102$1,866$1,567$312$167$1,494$243$136$1,577
$252

$252

$274

$1,820$2,144$197$265$2,044
$233

$309

$258

$430

$368

$222
$281

$167

$1,789$1,519$1,392$1,088$1,115$1,158

2008

2009

2010

$227

$480
$399

$326
$275

$2,3072011$1,6212013$1,619$1,443$1,2642012$1,693

2014

2015

2016

2017

2018

$4,227$4,211

$660

$679

$784

$792

$2,783$2,740

2017

2018

$23.5

$23.2

2017

2018

 Corporate clients  Commercial clients  Consumer

Assets Entrusted to Us by Our Clients
at December 31,

Deposits and client assets1($ in billions)$2,424$361$2,681$365$573$2,811$372$558$3,617$3,011$398$730$3,740$3,6332008$1,743$1,881$1,883

$503

$824

$861

$722

$2,329$2,376$2,353

2013

2014

2015

2016

$20.5

$20.5

$19.9

$20.5

2013

2014

2015

2016

$439
$755

2009

2010

2011

$2,061$618$464$3,255$558$648$1,415$3,802

2012$757$2,427

 Client assets  Wholesale deposits  Consumer deposits

Assets under custody2($ in trillions)

$13.2

2008
1
2

$14.9

2009

$16.1

$16.9

2010

2011

$18.8

2012

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

14

I. JPMORG AN CHAS E PRINCIPLES AND STRATEGIES

2. We endeavor to be the best at anything and everything we do.
While we never expect to be best-in-classevery year in every business, we normallycompare well with our best-in-class peers.

The chart below shows our performance
generally, by business, versus our competitors in terms of efficiency and returns.

JPMorgan Chase Is in Line with Best-in-Class Peers in Both Efficiency and Returns
Efficiency
JPM 2018
overheadratiosConsumer &Community
Banking

Returns
Best-in-classpeer overheadratios1

JPM medium-termtarget overheadratio

JPM 2018
ROTCE

47%

50%+/-

28%

53%

BAC–CB

Corporate &Investment
Bank

57%

54%

37%

Asset & WealthManagement

74%

42%

54%+/-

16%

33%

25%+

16%

~16%

BAC–GB & GM

35%+/-

20%

USB–C&CB

60%

JPM medium-termtarget ROTCE

BAC–CB

BAC–GB & GM

Commercial
Banking

Best-in-classpeer ROTCE2, 3

17%

~18%

FITB

70%+/-

31%

CS–PB & TROW

37%

25%+

MS–WM & TROW

JPMorgan Chase compared with peers4
Overhead ratios5
Target
~55%

ROTCE

JPM

57%

JPM

C

57%

BAC

BAC

58%

17%
16%

GS

14%

GS

64%

WFC

14%

WFC

64%

MS

14%

MS

72%

C

Target
~17%

11%

1

	 Best-in-class overhead ratio represents comparable JPMorgan Chase (JPM) peer business segments: Bank of America Consumer

Banking (BAC-CB), Bank of America Global Banking and Global Markets (BAC–GB & GM), U.S. Bancorp Corporate and Commercial
Banking (USB–C&CB), Credit Suisse Private Banking (CS–PB) and T. Rowe Price Group, Inc. (TROW).
2
Best-in-class ROTCE represents implied net income minus preferred stock dividends of comparable JPM peers and peer businesssegments when available: BAC–CB, BAC–GB & GM, Fifth Third Bancorp (FITB), Morgan Stanley Wealth Management (MS–WM) and TROW.
3
Given comparisons are at the business segment level, where available, allocation methodologies across peers may be inconsistent
with JPM’s.
4
Bank of America Corporation (BAC), Citigroup Inc. (C), The Goldman Sachs Group, Inc. (GS), Morgan Stanley (MS), Wells Fargo &Company (WFC).
5
Managed overhead ratio = total noninterest expense/managed revenue; revenue for GS and MS is reflected on a reported basis.
ROTCE = Return on tangible common equity

On an ongoing basis, we analyze andcompare ourselves with our competitors
at a very detailed level. The analysis we dois on more than 50 sub-lines of businessand hundreds of products, incorporating
not just financial data but also operationaldata, customer satisfaction and many othermeasures. Our management will always bevery critical of its own performance: Acknowledging our shortcomings and mistakes andstudying them intensely and learning fromthem make for a stronger company.
15

I. JPMOR GA N CH A SE P R I N C I PL ES A N D ST R AT EG I ES

We also never lose sight of the fact that wehave an extraordinary number of strong
competitors – we cannot be complacent.
There are many capable financial technology (fintech) companies in the UnitedStates and around the world – technology
always creates opportunities for disruption.
We have acknowledged that companies like
Square and PayPal have done things that we
could have done but did not. They looked atclients’ problems, improved straight throughprocessing, added data and analytics to products, and moved quickly. We recently sent
one of our senior teams to China to study
what’s being achieved there with artificial
intelligence (AI) and fintech, and it’s hard
not to be both impressed and a little worried
about the progress China has made – it madeour management team even more motivatedto move quickly. Suffice it to say, no matter
what our current performance is, we cannot
rest on our laurels.

3. We will maintain a fortress balance sheet — and fortress financial principles.
A fortress company starts with a fortressbalance sheet.

You can see in the chart below that ourbalance sheet is extraordinarily strong.

Our Fortress Balance Sheetat December 31,

2008

2018

CET1

7.0%2

+500 bps

12.0%4TCE/
Total assets1

4.0%+300 bps

7.0%

Tangiblecommon equity$84B+$101B$185B

Total assets$2.2T+$0.4T$2.6T

RWA$1.2T2+$0.3T$1.5T4

Liquidity~$300B+~$455B$755B

Fed funds purchased and securities loaned
or sold under repurchase agreements

$193B

–$11B

$182B

Long-term debt andpreferred stock$303B3

+$5B

$308B

1

Excludes goodwill and intangible assets.

B = Billions

2

CET1 reflects Tier 1 common; reflects Basel I measure.

T = Trillions

3

Includes trust preferred securities.

bps = basis points

4

Reflects Basel III Standardized measure which is the firm's current binding constraint.

5

Operational risk RWA is a component of RWA under Basel III Advanced measure.

6

Represents the amount of HQLA included in the liquidity coverage ratio.
For additional information, refer to LCR and HQLA on page 96.

CET1 = Common equity Tier 1 ratio. For additional information, refer to Regulatory capital on pages 86-91
TCE = Tangible common equity
RWA = Risk-weighted assets
Liquidity = HQLA plus unencumbered marketable securities, which includes excess liquidity at JPMorgan Chase Bank, N.A.
HQLA = High quality liquid assets. Predominantly includes cash on deposit at central banks and highly liquid securities including
U.S. agency mortgage-backed securities, U.S. Treasuries and sovereign bonds
LCR = Liquidity coverage ratio
TLAC = Total loss absorbing capacity
16

2018 Basel III
Advanced is 12.9%,
or 17.8% excluding$389B operationalrisk RWA52018 Basel III
Advanced is $1.4T
including $389B
operational risk
RWA5
Reported HQLA
is $529B6$197B eligible
for TLAC

I. JPMORG AN CHAS E PRINCIPLES AND STRATEGIESWe have an incredibly well-capitalized bankwith enormous liquidity.
But a fortress balance sheet isn’t enough.

To be a fortress company, we believe thatyou also need to have strong, properly diversified earnings and margins. It is capitaland liquidity combined with strong earnings and margins that provide the ability towithstand extreme stress. I want to remindshareholders that we run hundreds ofstress tests internally each month, some ofwhich are far more severe than the Federal
Reserve’s (the Fed) annual stress test. We
also believe that we should have strong
earnings after making investments for the
future – which may reduce earnings in the
short run. We are cost- and capital-efficient;
we rigorously allocate our capital; and wecontinually analyze our businesses, both tomaximize their individual performance andto make sure they are contributing to thehealth of the whole company.
We like to use our capital to grow.

We much prefer to use our capital to growthan to buy back stock. We believe buying
back stock should be considered only wheneither we cannot invest (sometimes as aresult of regulatory policies) or we are generating excess capital that we do not expect touse in the next few years. Buybacks should
not be done at the expense of investing
appropriately in our company. Investingfor the future should come first, and at
JPMorgan Chase, it does.
However, when you cannot see a clear use
for your excess capital over the short term,
buying back stock is an important capital
tool – as long as you are buying it back at
a reasonable price. And when companies
buy back stock (which we only do when it
is at a price that we think adds value to ourremaining shareholders), the capital is redistributed to investors who can put it to gooduse elsewhere. It does not disappear. We
currently have excess capital, but we hope in
the future to be able to invest more of it togrow our businesses.

Good financial management is also critical.

We have always believed that a deep anddetailed understanding of a company’s financial and operational statements, including
all assets and liabilities and all revenue andexpenses (without netting and regardless ofwhether they are on- or off-balance sheet), is
critical to running a safe and sound organization. However, accounting, and therefore
earnings, is not a perfect measure of performance or economics. I would like to discussa few reasons why:
• Accounting rules can be counterintuitive,
but you can’t make business decisions basedon them. While we are rigorous aboutproper accounting and disclosure, sometimes accounting can distort the actual
economics of a business. A few examples
will suffice. In credit card accounting, forinstance, new card customer costs are
expensed over the course of a year andinexplicably as a contra-revenue item
(i.e., as a reduction of revenue rather
than an expense). In addition, under
upcoming accounting rules, losses that are
expected over the life of the card balance
are accounted for upfront. Meanwhile,the earnings from the card are booked
over the life of the card, which averages
approximately seven years. In connection
with mortgage loans we don’t own but
instead service (i.e., by sending statements
and receiving payments on behalf ofthe mortgagor), the accounting standard
requires that we present-value expected
revenue and expenses and book everything upfront. But in cash management,
asset management and many other products that have a similar, somewhat predictable annuity-like revenue stream, the practice is different. The reason I am making
this point is that you need to understandthe economics of decisions. Accounting
can easily make people do silly things.

17

I. JPMOR GA N CH A SE P R I N C I PL ES A N D ST R AT EG I ES

• Conservative accounting is better. While wealways try to make intelligent economic
decisions, I do believe that appropriately
conservative accounting is a better way tomanage your business. For example, recognize problems early, write off softwarethat is not valuable, don’t book revenue
that is uncertain and so on. Aggressive
accounting leads to trouble, and while it
may help increase performance measuresin the short run, it will most certainly be
uncovered and reversed at precisely thewrong time.
• Earnings guidance can be very damaging.
Let’s be very clear: Transparency withshareholders, proper disclosures andguidance on certain revenue, expenseand balance sheet items all are good.
However, earnings themselves in any one
quarter are a function of decisions madeover many, many years. Quarterly earnings are dependent upon many factors,
like cost of goods sold and market prices,which often change, as well as unexpected events, the weather, and wage andgross domestic product (GDP) growth. No
CEO can predict all of those things, andany analyst with an earnings estimate
has made his or her own specific assumptions around them.

The real damage to an organization
comes from the cumulative corrosiveness of trying to “make” its numbers.
This can be exacerbated by compensation deals and models that can be
manipulated to change quarterly results.
It’s easy to change earnings in a quarterby doing stupid things that help earnings in the short term but are bad in
the long term. Examples include asking
customers to inappropriately buy moreproducts before the end of the quarter so
you can show revenue growth, reducing
marketing, not opening that new branchor not investing in technology that won’t
have a payback for a year or two. I could
go on and on. And this could spiralwithin a company, as loyal, well-meaning
employees do what they can to help acompany meet its “earnings goal.”
Importantly, in the next section, I speak
in detail about responsible banking, client
selection and intensive risk management.
Proper management is as critical as anythingelse we do, but I did not want to repeat themessages here.

4. We lift up our communities.
We will never forget that the most important
thing we do is to run a healthy and vibrantcompany that is here to constantly serve ourclients with responsible banking. But wewant our shareholders and all of our constituents to understand the tremendous amount
we do, in addition to traditional banking, tohelp the communities in which we operate.
Our effort is substantial, permanent andsupported by the whole company.

One of the reasons for JPMorgan Chase’s
enduring success is we have always recognized that long-term business successdepends on community success. When18

everyone has a fair shot at participating inand sharing in the rewards of growth, theeconomy will be stronger and our society
will be better. We are making significant,long-term, data-driven business and philanthropic investments aimed at opening doors
to opportunity for those being left behind.
Most people consider corporate responsibility to be enhanced philanthropy. While
we are devoted to philanthropy (we are on
our way to spending $350 million a year
on these efforts), corporate responsibility
is far more than just that. We finance morethan $2 billion in affordable housing each

I. JPMORG AN CHAS E PRINCIPLES AND STRATEGIES

year; we do extensive lending in low- andmoderate-income neighborhoods; we lend
to and finance small businesses aroundthe country; and we design products andservices in financial education for lower
income individuals. And importantly, these
efforts are supported by senior leadership,
managed by some of our best people (these
efforts are not an afterthought) and aresustainable. We try to be creative, but weanalyze everything, including philanthropy,
based on expected results.
We are huge supporters of regional andcommunity banks, which are critical to many
cities and small towns around the country.

In an op-ed published by The Wall Street
Journal in 2016, I wrote: “In this system,
regional and smaller community banks play
an indispensable role. They sit close to thecommunities they serve; their highestranking corporate officers live in the sameneighborhoods as their clients. They are able
to forge deep and long-standing relationships and bring a keen knowledge of thelocal economy and culture. They frequently
are able to provide high-touch and specialized banking services.” 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 bank approximately 530 ofAmerica’s 5,200 regional and community
banks. In 2018, we made loans to them orraised capital for them totaling $4 billion. In
addition, we process payments for them, we
finance some of their mortgage activities,
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
them hedge some of their exposures – andfor their clients.

Over the past five years, we have developed
and refined a model that may be a blueprint for urban revitalization and inclusive
growth. Our head of Corporate Responsibility describes our significant measures inmore detail in his letter, but I highlight a
few examples here, including the sidebar on
page 20 that describes our focused effort tosupport black advancement in a number ofthe communities we serve:• Detroit exemplifies the challenges many cities
wrestle with, as well as the strategies forsolving them. Since 2014, JPMorgan Chasehas been combining its philanthropy
and business expertise to address someof Detroit’s biggest economic hurdles,
ranging from catalyzing development,
building infrastructure and affordable
housing, and boosting small businessgrowth to revitalizing education andpreparing Detroiters with the skills tosecure well-paying jobs. We are deeply
proud of our $150 million commitment
and the impact we have made to date –the city has been the proving ground forour model for driving inclusive growth,which has made a real difference in
Detroit’s comeback and the lives of its
citizens. Over the past five years, we havetaken lessons learned and applied them toother cities facing similar challenges.
• The Entrepreneurs of Color Fund (EOCF) is
another example of how we are turning ourinsights into action. In 2015, JPMorgan

Chase helped launch the Entrepreneurs ofColor Fund in Detroit to provide underserved entrepreneurs with access tocapital and assistance needed to grow andthrive. From 2015 to 2018, the fund made orapproved loans totaling $6.6 million to 79
minority small businesses, resulting in over
830 new or preserved jobs. Since then, theDetroit fund has more than tripled in size
to over $22 million. Building on the successof Detroit’s EOCF, we expanded this model
to San Francisco, the South Bronx, theGreater Washington region and Chicago,
where it is also making a real impact. In
total, these funds are now approximately$40 million and growing.
19

ADVANCING BLACK PATHWAYS: from an op-ed that originally ran on CNN Business

Mellody Hobson and Jamie Dimon:

Black Americans are still worse off
financially. Businesses can help.
MELLODY HOBSONJAMIE DIMON

For all the positive economic trends in America, the racial wealthgap continues to prevent growth from benefiting everyone. While
this is not a new crisis, it is one we must urgently address so that
economic opportunity is equally extended to black Americans.
Racism, intolerance, and poverty strangle economic opportunity.
The racial wealth gap is stark: For single black Americans, themedian wealth is $200 to $300, compared to $15,000 to $28,000
for single white Americans. This divide undermines financial
stability for many black Americans.
Closing the racial wealth gap is good for Americans, and it
makes good business sense. We know employees from diverse
backgrounds offering different perspectives drive better
corporate outcomes. A recent study showed that businesses
with diverse leadership generate 19% more revenue thannon-diverse companies.
Diversity can also reduce turnover. Nearly seven in 10 millennials
reported they would continue to work at a company for five or
more years if it is diverse.
As leaders in business as well as the broader community, we know
we have a responsibility to society. Not to mention, as financial
services executives, we can help to foster widespread prosperity.

Our current initiative, Advancing Black Leaders, seeks to hire andpromote more black senior executives and junior-level employees
at JPMorgan Chase. We know investing in our employees is key
to our company’s future. In addition to recruiting more AfricanAmerican leaders, we also need to focus on retaining them. Since
2016, the firm has increased the number of black managing
directors by 41% and black executive directors by 53%. A goodstart — but just the beginning.
Advancing Black Pathways will create a dedicated talent pipelinethat will start young black professionals on an early career pathand foster a corporate culture that further encourages diversity
at all levels. We plan to hire more than 4,000 black students infull-time positions, apprenticeships, and internships over the
next five years. JPMorgan Chase will also help create job training
programs that are aligned with growing industries in the broader
communities we serve.
We are also investing in the financial success of black Americans
through a focus on savings, homeownership, and entrepreneurship. For example, the largest wealth gaps lie in racial disparities
among entrepreneurs. If people of color owned businesses at thesame rates as whites, 9 million more jobs and $300 billion inincome would be created.

To this end, we have both worked to empower black Americans
to achieve personal and professional success. For example, After
School Matters, a nonprofit founded in 2000, provides enrichment programs to thousands of inner-city high school students in
Chicago. Meanwhile, JPMorgan Chase’s Fellowship Initiative,
founded in 2010, offers hands-on college access and academic
support to young men of color in Los Angeles, New York, Chicago
and Dallas. The scale and success of these efforts are impressive— but not enough. There is much more work to be done.

As part of this effort, we are helping to create a $6.65 million
Entrepreneurs of Color Fund with local partners in the Washington, D.C. region to expand access to capital, improve businessservices, and streamline supplier diversity programs for small,minority-owned businesses. To date, we have launched similar
low-cost loan funds in four other U.S. cities, bringing otherinvestors to the table, and leveraging nearly $40 million to
support underserved entrepreneurs. Thus far, Entrepreneurs ofColor Funds have created or saved more than 1,200 jobs incritical neighborhoods lacking needed resources to grow.

Recently, we announced Advancing Black Pathways — a newprogram at JPMorgan Chase that seeks to build on existing
efforts to bridge the racial wealth divide and ultimately help
black families build wealth. We urge more businesses to join us
as we attempt to close this divide.

Businesses of every size have an important role to play inexpanding opportunity. By working together, we can give people
a fair and equal chance to succeed, no matter their zip code orskin color.

20

Reprinted with permission from CNN BusinessI. JPMORG AN CHAS E PRINCIPLES AND STRATEGIES• In 2018, we launched AdvancingCities,
JPMorgan Chase’s $500 million, five-year
initiative to drive inclusive growth in cities
around the world. Through this effort, weare combining our business and philanthropic resources and expertise to expand
opportunity for those being left behindin today’s economy. This is a global
program. Marking our firm’s 150th anniversary in France last year, we announced
a $30 million, five-year commitment –the first AdvancingCities investment – tosupport underserved small businesses
and provide skills training to residents
in Seine-Saint-Denis and other areas inGreater Paris with high levels of poverty
and unemployment.
• Our recent $350 million New Skills at Work
commitment is focused on how we prepare
people to succeed in our transformed workplaces and changing global economy. Over the

past five years, we have supported worker
education and training around the world– collaborating with nearly 750 partners
and nonprofits in 37 countries and 30
U.S. states, affecting 150,000 individuals.
We are now bolstering our strategy bypromoting better ways for business andeducation to collaborate, scaling the besteducation and job training programs.
While we know a fundamental disconnect
still remains between business and theaverage citizen, we also believe that the only
solution is to remain relentless in our efforts
to earn trust from every customer in every
community. We believe that is the best we
can do. As the largest financial institution in
the country, JPMorgan Chase understands
our responsibility to earn public trust witheveryone, every day.

When disaster strikes, we give special care to
our customers.

When disaster strikes – we are there for ourcustomers. After Hurricane Florence andHurricane Michael devastated the Carolinas and the Gulf Coast, respectively, after
wildfires destroyed large parts of California
and after a number of other tragic events,
we stepped up for our communities andour customers. We also provided relief tocustomers affected by the recent government
shutdown – and kept at it until they received
their back pay. Here’s a list of the kinds ofthings we did when disaster struck:• Re-entered damaged areas, often as thefirst bank, filling our ATMs and quickly
reopening our branches to give customers
access to cash, as well as crucial documents in their safe deposit box.
• Activated our special-care line withspecialists to quickly help customers.
• Refunded customers’ overdraft fees.
• Extended and deferred payments oncustomers’ car loans.
• Provided necessary relief on customers’
mortgage loans.
• Removed minimum payments on credit
cards, reducing cash payments andlimiting the impact on customer credit
reports.
• In addition, in 2018, donated more than $4
million to emergency assistance agencies
around the world, which included immediate help following the earthquake andtsunami in Indonesia, wildfires in Greece,and devastating floods and landslides inwestern Japan.
• Over the past five years, contributed morethan $22 million to support immediateand long-term recovery from disasters.

21

I. JPMOR GA N CH A SE P R I N C I PL ES A N D ST R AT EG I ES

5. We take care of our employees.
Our employees are fundamental to thevibrancy and success of our company. At
the end of the day, everything we do – fromoperations and technology to service andreputation – is completely based upon theabilities and character of our employees.
Inclusion and diversity• We have more than 256,000 employees
globally, with over 170,000 in the UnitedStates. Our commitment to creating an
inclusive organization is not only about
doing the right thing; it’s about doing
what makes our company stronger. In
2016, we introduced Advancing Black
Leaders, an expanded diversity strategy
focused on increased hiring, retention
and development of talent from within
the black community. We magnified thateffort in 2019 with our Advancing Black
Pathways initiative (which is outlinedin the sidebar on page 20). Now, in the
United States, 50% of our firm’s workforce
is ethnically diverse. That said, we know
we have work to do to increase the representation of ethnically diverse employees
at senior levels of the company.
• On gender diversity, women represent
30% of our firm’s senior leadership globally. These are women who run major
businesses and functions – several units
on their own would be among Fortune
1000 companies. Investing in the advancement of women is a key focus for ourcompany, and we have established a global
firmwide initiative called Women on theMove that empowers female employees,
clients and consumers to build theircareer, grow their businesses and improvetheir financial health.

22• To encourage diversity and inclusionin the workplace, we have 10 Business Resource Groups (BRG) across thecompany to connect approximately
100,000 participating employees aroundcommon interests, as well as foster
networking and camaraderie. Groups aredefined by shared affinities, including
race and cultural heritage, generation,
gender, sexual orientation, disability andmilitary status. For example, some of ourlargest BRGs are Adelante for Hispanicand Latino employees, Access Ability for
employees who have a disability, AsPIRE
for Asian and Pacific Islander employees,
NextGen for early career professionals,
PRIDE for our LGBT+ employees, BOLD
for black employees and Women on theMove, our largest group, which has morethan 30,000 members globally.
Wages• We have been raising wages for our
22,000 employees at the lower end of thepay range. For those earning between $12
and $16.50 an hour in the United States,
we have been increasing hourly wages tobetween $15 and $18, depending on thelocal cost of living. For employees making$40,000 a year or less in the United States,
our average pay increases are around$4,800. This is the right thing to do, andwe now offer well above the averagehourly wage for most markets. Remember,these jobs are often the first rung on theladder, and many of these employees soon
move on to higher paying positions.
• These increases are on top of the firm’s
comprehensive benefits package, with anaverage value of $12,000 for employees in
the lower wage tier.

I. JPMORG AN CHAS E PRINCIPLES AND STRATEGIES

401(k) — Retirement• We provide comprehensive retirement
benefits, including a competitive 401(k)plan and dollar-for-dollar match on 5%of pay. For 2018, the 401(k) plan match,
totaling approximately $482 million,
enhanced the retirement savings of
135,000 employees.
• We recognize that many employees
who earn under $60,000 a year often
do not invest in a 401(k) plan because
they cannot afford the lost cash flow
and, therefore, do not receive the match.
For these employees, we make a discretionary $750 Special Award to them. This
provided 56,000 U.S. employees with $40
million in additional retirement funds –and this money is granted whether or notthey make their own contribution to a401(k) plan.
Health benefits and wellness programs• We offer a comprehensive health benefits
package in the United States, including
a medical plan that covers over 296,000
individuals (138,000 employees, 106,000
children and 52,000 spouses/domestic
partners). In 2018, we covered $1.3 billion
in medical costs (net of employee payroll
contributions). We care very much about
our employees’ health.
• We subsidize the health benefit costs oflower wage earners up to 90% of thetotal cost – for higher paid employees,
we subsidize approximately 60%. In
addition, recognizing the hardshipthat deductibles cause for lower paid
employees, effective January 1, 2018, welowered the deductible in the medical
plan by $750 for employees earning lessthan $60,000. For these employees, if
they do their wellness screenings, theireffective deductible could be zero.
• Enrolled employees and spouses/
domestic partners earned collectively
about $100 million toward their Medical
Reimbursement Accounts in 2018, fundedby JPMorgan Chase, for completing wellness activities.

• Outside the United States, we provide
medical coverage to 80,000 employees
and their families under local medical
insurance plans.
• 62% of employees around the globe haveaccess to our 54 on-site Health & Wellness
Centers, which are staffed with doctors,
nurses, nurse practitioners and other
health professionals. These centers areextensively visited – in excess of 600,000
encounters a year. And over 100 visitswere potentially life-saving interventions(involving, for example, urgent cardiac or
respiratory issues).
Training• We extensively invest in employee benefits and training opportunities so that ourworkers can continue to increase theirskills and advance their career. Our total
direct investment in training and development is approximately $250 million
a year. What’s more important and hardto measure is the on-the-job training thatjust about every employee gets from their
manager – education that leads to deep
knowledge and promotion opportunities(and, unfortunately, lots of recruiting fromour competitors). In 2018, we delivered 9
million hours of training to our employees
worldwide, augmented by several new
digital learning innovations.
• Since inception of the program in 2015,
26,500 managers (approximately 60% of
all managers) have attended one or more
Leadership Edge programs. These offer
critical training in leadership and management. While this initiative is costly, weare starting to see results in terms of
reduced attrition, higher satisfaction from
employees and better management.
Volunteer and Employee Engagement Paid Time
Off policy• Effective January 1, 2019, we implemented
a new Volunteer and Employee Engagement Paid Time Off policy, which provides
up to eight hours of paid time off eachcalendar year for volunteer and otherfirm-sponsored activities.
23

I. JPMOR GA N CH A SE P R I N C I PL ES A N D ST R AT EG I ES

• The new policy increases opportunities for
employees to participate in volunteer activities and give back to our communities.
Parental Leave policy• In 2017, we increased paid parental leave
for the primary caregiver to 16 weeks, up
from 12 weeks, for eligible employees in
the United States. In 2018, we extended
the leave for non-primary parental caregivers to six weeks of paid time off (upfrom two weeks).
Supporting veterans• Our veteran-focused efforts are centeredon facilitating success in veterans’ postservice lives primarily through employment and retention. In 2011, JPMorgan
Chase and 10 other companies launchedthe 100,000 Jobs Mission, setting a goalof collectively hiring 100,000 veterans.
The initiative has resulted in the hiringof more than 500,000 veterans by over
200 member companies of the Veteran
Jobs Mission, with the ultimate goal of
employing 1 million veterans.

• JPMorgan Chase has hired more than
14,000 U.S. veterans since 2011 – including
over 1,100 in 2018 alone – with more than
50% coming from diverse backgrounds.
• We offer internship and rotational entry
programs to ease the transition frommilitary service to the financial services
industry. Once at our firm, veterans
can count on the support of our Officeof Military and Veterans Affairs, whichsponsors mentorship programs, acclimation and development initiatives, recognition events and other programs to help
bridge the gap between military andcorporate cultures.
• More than 1,000 mortgage-free homes havebeen awarded to military families throughnonprofit partners as part of our firm’s
Military Home Awards Program.
• We completely support the U.S. military.
We cannot understand how any U.S.
citizen does not support the extraordinary
sacrifice and hardship borne by the military to help protect this great nation.
Needless to say, our success is impossible
without our employees, and we strive
mightily to help them in both their professional and personal lives.

6. We always strive to learn more about management and leadership.
At the end of the day, everything we do isdone by human beings. In my annual letterto shareholders, I always enjoy sharing what
we have learned about management, leadership and organizations over time.
Great management is critical, though true
leadership requires more.

For any large organization, great management is critical to its long-term success. Great
management is disciplined and rigorous.
Facts, analysis, detail … facts, analysis, detail… repeat. You can never do enough, andit does not end. Complex activity requires
hard work and not guessing. Test, test, test24

and learn, learn, learn. And accept failure
as a “normal” recurring outcome. Develop
great models but know that they are not theanswer – judgment has to be involved inmatters related to human beings. You needto have good decision-making processes,with the right people in the room, the proper
dissemination of information and the appropriate follow-up – all to get to the right decision. Force urgency and kill complacency.
Know that there is competition everywhere,
all the time. But even if you do all of thiswell, it is not enough.

I. JPMORG AN CHAS E PRINCIPLES AND STRATEGIESReal leadership requires heart and humility.

It’s possible to be very good at the typeof management described above, but asmanagers rise in an organization, they
depend on others more and more. The teamis increasingly important – many teammembers know more than their managers
do about certain issues – a team working
together can get to a better outcome. I haveseen many senior managers ascend into
big new roles with a bad reaction to theirincreasing dependence on other people – byhoarding information, never allowing themselves to be embarrassed and demanding
personal loyalty versus loyalty to the organization and its principles. They don’t growinto the new job – they swell into it. I haveoften felt that dependency on their teams
makes these folks feel paranoid or insecure –leading to this bad behavior.
Good leaders have the humility to know thatthey don’t know everything. They foster anenvironment of openness and sharing. They
earn trust and respect. There are no “friendsof the boss” – everyone gets equal treatment.
The door is universally open to everybody.

Everyone knows that these leaders are only
trying to do the right thing for customers andclients. They share the credit when things gowell and take the blame when it does not.
And true leaders don’t just show they care
– they actually do care. While they demand
hard work and effort, they work as hard asanyone, and they have deep empathy for
their employees under any type of stress.
They are patriots not mercenaries; they havethe heart to wear the jersey every day.
You need to stay hungry and scrappy.

Competition is everywhere, but, often, very
successful companies are lulled into a false
sense of security. Having worked at a numberof companies not nearly as successful as ours
(I have to confess that I kind of liked being
the underdog), we fought every day to even
try to get to the major leagues. All companies
are subject to inertia, insipid bureaucracy andother flaws, which must be eradicated. If a
company isn’t staying on edge, maintaining
a fire in its belly and pushing forward, it will
eventually fail.

7. We do not worry about some issues.
Since we shared issues that are high priorities, it is almost as important to describe theissues we don’t worry about daily – and why.
A few are listed below:• We do not worry about loan growth. It
is most definitely an outcome of how wemanage credit and client decisions. We will
not stretch, ever, to show growth in loans.

• We do not worry about the stock price inthe short run. If you continue to build agreat company, the stock price will takecare of itself.

• While we fanatically manage ourcompany, we do not worry about missing
revenue or expense budgets for goodreasons. This is not a mixed message. We
want our leaders to do the right thing forthe long term and explain it if they havegood reasons to diverge from prior plans.

• We do not worry about quarterly earnings.
Build the company for the future, and you
will maximize earnings over the long run.
• While we worry extensively about allof the risks we bear, we essentially do
not worry about things like fluctuating
markets and short-term economic reports.
We simply manage through them.

• We do not worry about charge-offs
increasing in a recession – we fully expect
it, and we manage our business knowing
there will be good times and bad times.
Suffice it to say, we stay devoted to theseprinciples.

25II. COM M E NTS O N CUR R EN T CR I T I C AL I SS U E S
In this section, I review and analyze some of the current critical issues that affect our company.
1. We need to continue to restore trust in the strength of the U.S. banking system andglobal systemically important financial institutions.
An enormous amount has been accomplished in
the last decade.

The strength, stability and resiliency of thefinancial system have been fundamentally
improved over the course of the last 10 years.
While I don’t agree with all of the Wall Street
Reform and Consumer Protection Act (DoddFrank) regulations, the bill did give regulators
needed authority to fix our financial system’s
most critical flaws. These post-crisis reforms
have made banks much safer and sounderin the three most important areas: capital,
liquidity, and resolution and recovery.
Large banks, defined as global systemicallyimportant financial institutions, have morethan doubled their highest quality capital toprotect against losses, and they have tripled
their liquid assets to total assets ratio to protect
against unexpected net cash outflows. This
allows healthy banks to weather extreme stresswhile continuing to provide credit and support
to their clients (see message to employees on

pages 27-28 that describes many of the lessons
learned from the crisis and the extensive steps
we took to help our clients).
Here’s an eye-opening example of how muchcapital is now in the system: Under the Fed’s
most extreme stress-testing scenario, where 35of the largest American banks bear extreme
losses (as if each were the worst bank in thesystem), the combined losses are about 6% of
the total loss absorbing resources of those 35
banks. JPMorgan Chase alone has nearly threetimes the loss absorbing resources to cover
the projected losses of all of these 35 banks(see chart below).
In addition, resolution and recovery regulations have given regulators both the legal
authority and the tools to manage a failingor failed institution (see my comments inthe sidebar on page 29 about how Lehman
Brothers would have played out under
today’s new rules). This allows regulators tominimize the impact of a major failed institution on both taxpayers and the system.

Loss Absorbing Resources of U.S. SIFI Banks Combined($ in billions)$2,265$1,749$1,249%˜6$1,2742x
˜$1,016

20071

$396
$1392

$475
20181

 Loan loss reserves, preferred stock

35 CCAR banks 2018
projected pre-tax net losses(severely adverse scenario)

and TLAC long-term debt

 Tangible common equity
1	Includes only the 18 banks participating in CCAR in 2013, as well as Bear Stearns,
Countrywide, Merrill Lynch, National City, Wachovia and Washington Mutual.
Federal Reserve Dodd-Frank Act Stress Test 2018: Supervisory Stress Test Methodology
and Results, June 2018.

2	Source: SNL Financial; Federal Reserve Bank, February 2019
SIFI = Systemically important financial institution
CCAR = Comprehensive Capital Analysis and Review
TLAC = Total loss absorbing capacity

26

$211
$185
2018 JPMorgan Chase only

Looking back on
the financial crisis
September 2018 message to employees 10 years after the financial crisis

Dear Colleagues,
A decade has passed since the collapse of Lehman Brothers so now is a good time to reflect on the financial
crisis that was raging 10 years ago this month. A lot has been written — and far more is still to be written— on this crisis, but I would like to share a few thoughts with you on that extraordinary period of time andeverything that all of you at JPMorgan Chase did to try to help.
The gathering storm hit with a vengeance.
While the collapse of Lehman in September 2008 was the epicenter of the crisis, it was actually far more
complex than that — the roots go back to before 2006. By late 2006, we already saw problems in subprime
mortgages, leveraged lending and quantitative investing. With the onset of Basel II, leverage at investmentbanks (not commercial banks) more than doubled, as did shadow banking (think structured investment
vehicles, collateralized debt obligations, money market funds and so on). This was often funded by
unsecured, undependable short-term wholesale borrowing. Then the biggest problem of all presented
itself: It was not just subprime mortgages that were flawed — but all mortgages. This happened, in hindsight, by bad underwriting, government policy that fueled and fostered inappropriate mortgage lending(higher and higher loan-to-values, less and less cash down, weaker appraisals and insufficient income
certification), unscrupulous brokers and cavalier investors. The banks, though not the worst actors inmortgages, joined the party, too. When the world realized that $1 trillion would ultimately be lost in
mortgages, panic ensued. There were multiple failures — mortgage brokers, savings and loans (S&L),
including Washington Mutual (WaMu) and IndyMac, as well as Fannie Mae and Freddie Mac (which werethe largest financial failures of all time) — culminating in the dramatic failure of Lehman, followed by
the extraordinary bailouts of AIG and other major financial institutions.
JPMorgan Chase did everything it possibly could do to help during this time.
On March 16, 2008, we announced our acquisition of Bear Stearns, a company with $300 billion of assets,
which had collapsed and had fatal problems (we were essentially buying a house … but it was a house onfire). And we did this at the request of the U.S. government (thinking at the time that this could help head
off a terrible crisis). On September 25, 2008, 10 days after the collapse of Lehman Brothers, we bought thelargest S&L — WaMu — another company that had $300 billion of assets. We took other extraordinary actions— often at calculated but great risk to JPMorgan Chase — to support clients, including governments, and tosupport the markets in general. We loaned $70 billion in the global interbank market when it was needed
most. With markets in complete turmoil, we were the only bank willing to single-handedly lend $4 billion to
the state of California, $2 billion to the state of New Jersey and $1 billion to the state of Illinois. Additionally— and frequently — we loaned or raised for our clients $1.3 trillion at consistent and fair rates, in many cases
far below what the market would have demanded, and we provided more than $100 billion to local governments, municipalities, schools, hospitals and not-for-profits over the course of 2009. Many other banks did
the same. You probably will be surprised to find out that we lent a tremendous amount of money to Lehman
before the crisis — and even more after the crisis. In fact, at the request of the Federal Reserve, we took
extraordinary risk to lend more than $80 billion (on a secured basis) to Lehman after its bankruptcy to help
facilitate sales of assets in as orderly a way as possible to minimize disruption in the markets.
27This was a traumatic, historic period of time not just for the financial system but for the world as a whole.
We endured a once-in-a-generation economic, political and social storm, and because of you, we haveemerged 10 years after this crisis as a company of which we can all be proud.
The aftermath and lessons learned.
Many people still ask me about the Troubled Asset Relief Program (TARP), a government program thatprovided funding to banks in the midst of the crisis. JPMorgan Chase did not want or need TARP money,
but we recognized that if the healthy banks did not take it, no one else could — out of fear that the market
would lose confidence in them. And while it helped create the false rallying cry that all the banks needed
support, the government, both the Federal Reserve and the Treasury, was trying everything it could in
addition to TARP. And the Federal Reserve and the Treasury should be congratulated for the extraordinary
actions they took to stave off a far worse crisis. In hindsight, it is easy to criticize any specific action, but,in total, the government succeeded in avoiding a calamity.
There were many lessons learned from the crisis: the need for plenty of capital and liquidity, proper
underwriting and regulations that are constantly refined, fair and appropriate. In fact, regulators shouldtake a victory lap because Lehman, Bear Stearns, AIG and multiple other failures effectively could not
happen today because of the new rules and requirements.
We entered the crisis with the capital, liquidity, earnings, diversity of businesses, people and a risk
management culture that enabled us to avoid most — but, unfortunately, not all — of the issues exposed by
the crisis. These strengths also helped us to weather the economic crisis and to continue to play a central
role in supporting our clients and our communities and rebuilding the U.S. economy. Counter to what mostpeople think, many of the extreme actions we took were not done to make a profit: They were done tosupport our country and the financial system.
What stood out most was our character and capabilities — which make JPMorgan Chase what it is today.
When the global financial crisis unfolded in 2008, the people of JPMorgan Chase understood the vital role
our firm needed to play and felt a deep responsibility to those who rely on us. It was this sense of responsibility that enabled us to move beyond the challenges we were facing at that time and maintain a focus
on what really matters: Taking care of our clients, helping the communities in which we operate — all while
under extreme pressure from both the markets and the body politic — and protecting our company.
How we managed through the crisis is a testimony to the collective strength of character and commitmentof our people. During those chaotic days throughout the crisis and its aftermath, many of our people had
to work around the clock, seven days a week, for months on end. And they did it without complaint. The
biggest lesson of the crisis: The quality, character, culture and capabilities of your partners are paramount.
Looking back and then looking around at the company we are today, I am filled with awe and admiration.
For JPMorgan Chase, these past 10 years have been part of a challenging, yet defining, decade. Today,
JPMorgan Chase is among the leaders in most of our businesses. I can’t tell you how proud I am to be yourpartner and to witness your extraordinary performance. I can’t thank our current and former employees
enough for helping us get through those turbulent times and for the company we have become.

28

II. COMMENTS ON CURRENT CRITICAL ISSU ES

LEHMAN REDUX — IT SIMPLY WOULD NOT HAVE FAILED, BUT IT WOULD
HAVE BEEN EASILY MANAGEABLE IF IT DID FAIL
As I mentioned in my shareholder letter in 2016, it is instructive to look at what would happen
if Lehman were to fail in today’s regulatory regime. First of all, it is highly unlikely the firm
would fail because under today’s capital rules, Lehman’s equity capital would be approximately$45 billion instead of $23 billion, which it was in 2007. In addition, Lehman would have farstronger liquidity and “bail-inable” debt. And finally, the firm would be forced to raise capitalmuch earlier in the process. Lehman simply would not have failed.
However, if by the remotest, shooting-star possibility Lehman failed anyway, regulators would
now have the legal authority to put the firm in receivership (they did not have that ability
back in 2007-2008). At the moment of failure, unsecured debt of approximately $120 billion
would be immediately converted to equity. “New Lehman” would be the best-capitalizedbank in the world. In addition, derivatives contracts would not be triggered, and cash would
continue to move through the pipes of the financial system. Legislators and regulators should
be applauded for what they have done to solve the Too Big to Fail problem, though I should
point out that this was accomplished by putting some basic rules in place — not the thousandsof other rules layered atop them.

2. We have to remind ourselves that responsible banking is good and safe banking.
One of the critical responsibilities of banks is
to take a rigorous and disciplined approach
to allocating capital in the financial system –whether they do it directly through loans or
through public and private capital markets.
Banks need to do this knowing there will
be recessions and that they should plan tosupport their clients through their most difficult times. We did exactly that throughout
the 2008 crisis (again, see message toemployees on pages 27-28). While many
people focus on market making, which ofcourse entails risk (we buy and sell about $2
trillion a day of various securities around theworld), this risk taking is carefully monitored and largely hedged. To put risk taking
and market making a little bit in perspective– in the last five years, we have lost money
trading on only 11 days, and the loss wasusually small and never more than about

two times the average normal trading day
revenue. Overall, loans are still the biggest
risk that banks take. Our loan losses last year
were $5 billion, and in the worst year of theGreat Recession, our loan losses were approximately $24 billion.
Responsible banks cannot always give customers
what they want.

Making bad and unworthy loans ultimately
is bad for both the bank and the customer.
Being a responsible bank means you can’t
always give customers what they want,and, therefore, it is unlikely that all of yourcustomers are going to like you. We arefundamentally not in the same positionas most businesses. If a customer has themoney, most businesses will sell their goods
and services to that customer. Banks can’t dothat. Sometimes we have to say no or enforce

29II. CO MME N TS O N CU R R E N T C R I T I C A L I SS U ES

rules that may be unpopular. I have always
believed that this necessary discipline withcustomers is one of the reasons that, historically, banks have not been popular.
Banks are under constant pressure, including
political pressure, to make loans (remember
subprime mortgages?) even when theyshould not. But when and if something goes
wrong with loans, even when proper andresponsible underwriting is done, banks will
come under a lot of legal, regulatory andpolitical scrutiny and should expect to be
blamed for potentially causing the problem.
These conflicting pressures – to make or not
make loans – will always exist and need to beproperly navigated by a good bank.
Client selection is critical.

Client selection is one of the most important
things we do. If one bank builds a book ofbusiness with clients of high character andanother bank builds its business with clientsof low character (who are usually pushingsound banking practices to the limit), it’s
clear which bank will succeed over time.
Therefore, turning down clients, which cansometimes be hard to do, is often the only
way to be a responsible bank.
Risk taking is a detailed, analytical process andincludes extensive risk mitigation.

Shareholders may be surprised to find out
that, fundamentally, we are not a risk-taking
but rather a risk-mitigating institution.
Risk mitigation is not guessing – it is athoughtful, detailed analytical process that
leads to measured decision making. Participants in our risk meetings can attest thatwhile we are adamant about serving clients,
we are also fanatic about understanding andmitigating some of the associated risks. So,
in addition to proper client selection, risks
are mitigated through simplification, diversification, hedging, syndication, covenants,
hard limits, continuous monitoring and fast
reaction to problems. We deeply analyze
everything so we can shoulder appropriate
risk for and with our clients. We are theirfinancial partner.

30

A recent example in the oil and gas sector shows
how we balance risk while serving clients intough times.

From 2014 to 2016, oil prices collapsed froma high of $108 per barrel to a low of $26
per barrel. We were carrying approximately
250 loans to smaller oil and gas companies(mostly based in Houston), referred to in
the industry as “reserve-based loans,” orRBLs. The proven oil and gas reserves in
the ground served as the collateral for theseloans, as reviewed by both J.P. Morgan’s
petroleum engineers and third-party engineering consultants. We had $3 billion in
outstanding loans under the RBL structure(and more to the oil industry as a whole).
While we made these loans conservatively,
we knew that low oil prices at the bottom of
the cycle put us at great risk of loan losses– maybe even as high as $500 million. Ourview was that we were going to work withthese borrowers; i.e., extend the loans andtry to help the companies survive this roughpatch. (Of course, we put up additional loan
loss reserves to account for possible losses.)
At one point, surprisingly, some regulators
made it clear that they did not want banks
to extend these loans because they were too
risky. But we thought it was important, evenat the risk of losing hundreds of millionsof dollars (something that we were positioned to be able to do), to help our clients
get through this tough time rather thandesert them when they needed us most. And
sticking with our clients is exactly what wedid. We thought regulators were overreacting– and, indeed, our losses, ultimately, were
miniscule. Because of these actions, we arestill welcome in Houston.

II. COMMENTS ON CURRENT CRITICAL ISSU ES

3. We believe in good regulation — both to help America grow and improve financial stability.
I want to be very clear that we do not advocate for the repeal of Dodd-Frank. We believethat the strength and resilience of the U.S.
financial system have benefited from thelaw. Ten years out from the crisis, however, it
is appropriate for policymakers to examine
areas of our regulatory framework thatare excessive, overlapping, inefficient or
duplicative. At the same time, they should
identify areas where banks can promoteeconomic growth without impacting the very
important progress we have made on safety
and soundness. In fact, a stronger economy,
by definition, is a safer economy. Our goal
should be to achieve a rational, calibrated
approach to regulation that strikes the rightbalance. This should be an ongoing andrigorous process that does not require any
significant piece of legislation and should not
be politicized.
Here are a few areas where we think recalibration would be good not only for banks, but for
consumers and the economy as a whole:• Carefully monitor the growing shadow banksystem. While we do not believe that therise in non-banks and shadow banking
has reached the point of systemic risk, thegrowth in non-bank mortgage lending,
student lending, leveraged lending andsome consumer lending is accelerating
and needs to be assiduously monitored.
(We do this monitoring regularly as partof our own business.) Growth in shadowbanking has been possible because rules
and regulations imposed upon banks
are not necessarily imposed upon these
non-bank lenders, which exemplifies therisk of not having the new rules properly calibrated. An additional risk is thatmany of these non-bank lenders will not
be able to continue lending in difficult
economic times – their borrowers will
become stranded. Banks traditionally try
to continue lending to their customers intough times.

• The country desperately needs mortgage
reform — it would add to America’s economic
growth. Reducing onerous and unneces-sary origination and servicing requirements (there are 3,000 federal and state
requirements today) and opening up thesecuritization markets for safe loans would
dramatically improve the cost and availability of mortgages to consumers – particularly the young, the self-employed andthose with prior defaults. And these would
not be subprime mortgages but mortgages
that we should be making. By taking thisstep, our economists believe that homeownership and economic growth would
increase by up to 0.2% a year.
In the early 2000s, bad mortgage laws
helped create the Great Recession of 2008.
Today, bad mortgage rules are hindering
the healthy growth of the U.S. economy.
Because there are so many regulators
involved in crafting the new rules, coupledwith political intervention that isn’t
always helpful, it is hard to achieve themuch-needed mortgage reform. This has
become a critical issue and one reason
why banks have been moving away fromsignificant parts of the mortgage business. That business, in particular, highlights one of the flaws of our complicatedcapital allocation regime. The best way torisk manage a bank is to use risk weightsthat are actually based on risk. However,since most banks are also constrained bystandardized capital (a capital measurethat does not risk-adjust for the lower riskof having a properly underwritten prime
mortgage), owning mortgages becomeshugely unprofitable.
Because of these significant issues, weare intensely reviewing our role in originating, servicing and holding mortgages.
The odds are increasing that we willneed to materially change our mortgage
strategy going forward.

31

II. CO MME N TS O N CU R R E N T C R I T I C A L I SS U ES

We also need to get the recalibration ofother regulatory requirements right, particularly around operational risk capital, theFed’s Comprehensive Capital Analysis andReview (CCAR) stress test and the additional allocation of capital to global systemically important banks (GSIB). If we don’t
do so, certain products and services willcontinue to be pushed outside the banking
system (where they are, fundamentally, notregulated), distorting markets and raising
the cost of credit for clients.
• Operational risk capital. We now holdnearly $400 billion of operational riskweighted assets, which means we holdmore than $40 billion of equity for assetsthat don’t exist. This was a new calculation added after the crisis to recognizethat banks also bear serious operationalrisk (stemming from lawsuits, processing
errors and other issues). I agree that allbanks bear operational risk, yet this isalso true for all companies. Most companies, including banks, have earnings to
pay for operational risk. And the calculation that gets us to $400 billion isquestionable and so complex that I am
not going to explain it here. Finally, mostof our operational risk assets stem from
Bear Stearns and WaMu subprime mortgage products that we don’t even offer
anymore. Tying up capital in perpetuity– looking for shadows on the wall – isprobably not the best idea for fostering
growth in America.
• Comprehensive Capital Analysis Review.
I deeply believe in stress testing, but I do
have issues with CCAR. First, it consistsof only a single test (there are manythings that can go wrong that should
be stress tested) – which is unlikely to
prepare anyone (banks or regulators)
adequately. There is an arbitrarinessto a single test. Moreover, I don’t think
CCAR accurately represents what a loss
would look like in the nine quarters
after a Lehman-type event (remember

32

that in the nine quarters following theactual Lehman collapse, JPMorgan Chaseearned $30 billion). One of the refrainsthat we hear about CCAR results is theyshow that most banks at the worst partof the stress cycle can barely cover theirrequired capital. This is fundamentally
inaccurate. The CCAR test can give thisfalse impression because it requires
banks to do unnatural things (such ascontinuing all stock buybacks – evenwhen it is completely obvious thatbanks wouldn’t or couldn’t do this). As aresult, we don’t rely solely on CCAR, andwe stress test hundreds of scenarios amonth, preparing ourselves for circumstances far worse than CCAR stress.
While CCAR losses may exceed whatbanks are likely to experience, they doappropriately include benefits that banksreceive from being diversified and fromhaving healthy profit margins. And
CCAR is an effective built-in countercyclical buffer because its whole purpose
is to ensure adequate capital at the worst
point of a major stress event. Capitalrequirements for GSIBs, however, arecompletely different.
• GSIB capital requirements. My biggest
issue is with GSIB capital requirements, and since they may be added
to the CCAR stress test, they become
even more important. Most of thefactors used in GSIB requirements
are not risk-adjusted – and many of
the calculations have no fundamental
underpinning or logical justification.
Their methodology irrationally multiplies certain factors over and over, andmany of the facts are simply unjustified on any basis. For example, oneof the risks is called “substitutability,”
which is supposed to measure the riskthat we won’t be able to replace certain
services of a large bank that fails or
retrenches during a crisis. The specificfactors used to calculate this risk aremarket share of equity and debt underwriting and market making. But whenII. COMMENTS ON CURRENT CRITICAL ISSU ES

Lehman failed, no one had a problem
in replacing any of these activities.
For another example, American regulators simply doubled thresholds for
American banks (versus international
competition) and have never adjusted
them, as they were supposed to do, foreconomic growth, for other new regulations like total loss absorbing capacity
and liquidity or for the fact that GSIB
banks have become a smaller part of
the financial system. Now regulators
are talking about adding GSIB requirements to CCAR, which is only logical if
the GSIB charge itself makes sense in
the first place. If GSIB regulation is tobecome this important, it needs thorough justification.

Later in this letter I discuss some possible
adverse consequences to the U.S. financial
system because of the interplay between
these factors in a downturn. One commentthat we continue to hear is that U.S. banks
are now doing quite well despite evidence
that GSIB requirements are tougher on
U.S. banks than on foreign banks. Butthat outperformance is not ordained fromabove and may not always be the case. We
should calculate data the right way, andU.S. banks, their employees, shareholders
and the communities they serve should not
be put at a permanent disadvantage.
Proper calibration of financial regulation
can enhance the growth and resiliency of
the U.S. economy, which actually reduces
systemic risk and helps banks safely serve
more clients.

4. We believe stock buybacks are an essential part of proper capital allocation but
secondary to long-term investing.
I have already noted that stock buybacks,
though sometimes misused, are an
important tool that businesses must haveto reallocate excess capital. To reiterate, thisshould be done only after proper investments for the future have been considered.
A recent complaint is that companies,
partially due to tax reform, have usedtheir excess capital to buy back more
stock instead of investing in their business. While this is true, you should keep inmind three things. First, as stock buybacks
increased in 2018, so did corporate capital
expenditures and research and development (R&D). In fact, contrary to popularbelief, capital expenditures as a percentage
of GDP are higher today than in the “goodold days” of the 1950s and 1960s. Second,
companies tend to buy back stock when
they don’t see a good use for capital in thenext year or two. We believe that as companies adjust to the new higher cash flows,
they will begin to reinvest more of thatmoney in the United States. The benefit oftax reform is the long-term (multi-year)
cumulative effect of capital retained andreinvested in the United States. And third,
the capital that was used to buy back stock
did not disappear – it was given to shareholders who then put it to a better andhigher use of their own choosing.
Here is one concluding comment on longterm investing: Many investors legitimately demand that companies think longterm and explain their strategies and policies. Meanwhile, these same investors, whodemand long-term thinking from companies, often invest in funds that are paid alot of money for how a stock performs in
one year. I hope these investors appreciate
the disconnect and hope they will consider
the pressures for short-term performance
they may have helped to create.

33II. CO MME N TS O N CU R R E N T C R I T I C A L I SS U ES

5. On the importance of the cloud and artificial intelligence, we are all in.
The power of the cloud is real.

We were a little slow in adopting the cloud,for which I am partially responsible. My
early thinking about the cloud was that it
was just another term for outsourcing. I held
firm to the view, which is somewhat still
true, that we can run our own data centers,
networks and applications as efficiently asanyone. But here’s the critical point: Cloudcapabilities are far more extensive, andwe are now full speed ahead. Let me cite acouple of examples:• The cloud gives us the ability to achieve
rapid scale and elasticity of computing
power exponentially beyond our own
capacity. This will be especially relevant as
we scale up our artificial intelligence efforts.
• The cloud platform is agile and flexible.
It offers access to data sets, advanced
analytics and machine learning capabilities beyond our own. It increases developers’ effectiveness by multiples – you
can almost “click and drop” new elements
into existing programs as opposed towriting extensive new code. For instance,
adding databases and/or machinelearning to an application can be done
almost instantaneously. And certain
tasks, such as testing code and provisioning compute power, are automated.
• The cloud provides a software development experience that is frictionless andallows our engineers to prototype quickly
and learn fast, as well as increase thespeed of delivering new capabilities to ourcustomers and clients.
It is important to note that the cloud has
matured to the point where it can meet thehigh expectations that are set by large enterprises that have fairly intense demands
around security, audit procedures, access tosystems, cyber security and business resiliency.
We will be rapidly “refactoring” most of ourapplications to take full advantage of cloudcomputing. We then can decide whether it ismore advantageous to run our applications
34

on the external cloud or the internal cloud(the internal cloud will have many of thebenefits of the external cloud’s scalable andefficient platforms).
One final but key issue: Agile platforms andcloud capabilities not only allow you to do
things much faster but also enable you toorganize teams differently. You can create
smaller teams of five to 20 people who canbe continually reimagining, reinventing androlling out new products and services in a
few days instead of months.
The power of artificial intelligence and machinelearning is real.

These technologies already are helping us
reduce risk and fraud, upgrade customer
service, improve underwriting and enhancemarketing across the firm. And this is justthe beginning. As our management teams
get better at understanding the power of AI
and machine learning, these tools are rapidly
being deployed across virtually everything we
do. We can also use artificial intelligence totry to achieve certain desired outcomes, suchas making mortgages even more available tominorities. A few examples will suffice:• In the Corporate & Investment Bank,
DeepX leverages machine learning toassist our equities algorithms globally to
execute transactions across 1,300 stocks aday, and this total is rising as we roll out
DeepX to new countries.
• Across our company, we will be deploying
virtual assistants (robots driven by artificial intelligence) to handle tasks such as
maintaining internal help desks, tracking
down errors and routing inquiries.
• In Consumer Marketing, we are better
able to customize insights and offerings
for individual customers, based on, forexample, their ability to save or invest,
their travel preferences or the availabilityof discounts on brands they like.
• Technological solutions help us do better
underwriting, expediting the mortgage or
automobile loan approval process, lettingII. COMMENTS ON CURRENT CRITICAL ISSU ES

the customer accept the loan in a coupleof clicks and then start shopping for ahome or car.

also curtail check fraud losses by analyzing
signatures, payee names and check featuresin real time.

• In our Consumer Operations, we are using
AI and machine learning techniques for
ATM cash management to optimize cash
in devices, reduce the cost of reloads andschedule ATM maintenance.

• Over time, AI will also dramatically
improve Anti-Money Laundering/Bank
Secrecy Act protocols and processes as wellas other complex compliance requirements.

• And our initial results from machinelearning fraud applications are expected
to drive approximately $150 million ofannual benefits and countless efficiencies.
For example, machine learning is helping
to deliver a better customer experience
while also prioritizing safety at the point ofsale, where fraud losses have been reduced
significantly, with automated decisions
on transactions made in milliseconds.
We are now able to approve 1 million
additional good customers (who would
have been declined for potential fraud)
and also decline approximately 1 million
additional fraudsters (who would havebeen approved). Machine learning will

We will try to retrain and redeploy our workforce
as AI reduces certain types of jobs.

We are evaluating all of our jobs to determine which are most susceptible to being
lost through AI. We will plan ahead so we
can retrain or deploy our employees bothfor other roles inside the company and, if
necessary, outside the company.
The combined power of virtually unlimited
computing strength, AI applied to almost
anything and the ability to use vast setsof data and rapidly change applications
is extraordinary – we have only begun totake advantage of the opportunities for thecompany and for our customers.

6. We remain devoted and diligent to protect privacy and stay cyber safe — we will do what
it takes.
The threat of cyber security may very well be thebiggest threat to the U.S. financial system.

I have written in previous letters about theenormous effort and resources we dedicate to protect ourselves and our clients– we spend nearly $600 million a year onthese efforts and have more than 3,000
employees deployed to this mission in someway. Indirectly, we also spend a lot of timeand effort trying to protect our company indifferent ways as part of the ordinary courseof running the business. But the financial
system is interconnected, and adversaries are
smart and relentless – so we must continue
to be vigilant. The good news is that theindustry (plus many other industries), alongwith the full power of the federal government, is increasingly being mobilized tocombat this threat.

The issues around privacy are real.

We have spoken frequently in the past about
the importance of safeguarding the privacyof our customers. We already do this extensively, and, in fact, we are inventing new
products to make it easier for our customers
to understand where we send their data(with their permission), as well as how tochange or restrict what we do with that data.
New laws in Europe stipulate that consumers
should be able to see what data companies
have on file about them and to correct ordelete this information if they choose. These
are the right principles, but they are very
complex to execute. It is imperative that the
U.S. government thoughtfully design policies
to protect its consumers and that these policies be national versus state-specific. Different

35II. CO MME N TS O N CU R R E N T C R I T I C A L I SS U ES

state laws around privacy rules would createa virtually impossible legal, compliance andregulatory-monitoring situation.
But maybe the most crucial privacy issue ofall relates to protecting our democracy. Our
First Amendment rights do not extend toforeign governments, entities or individuals.
The openness of the internet means thattrolls, foreign governments and others areaggressively using social media and otherplatforms to confuse and distort information.
They should not be allowed to secretly or
dishonestly advertise or even promote ideas
on media and social networks. We believe
there are ways to address this, and we will betalking more about this issue in the future.

7. We know there are risks on the horizon that will eventually demand our attention.
In spite of all the uncertainty, the U.S.
economy continues to grow in 2019, albeit
more slowly than in 2018. Employment andwages are going up, inflation is moderate,financial markets are healthy, and consumer
and business confidence remains strong,
although down from all-time highs. The
consumer balance sheet and credit are in
rather good shape, and housing, though notparticularly strong, is in short supply inmany U.S. cities, which should eventually
be a tailwind. Before I review some of theserious and possibly increasing risks that
we may confront in the years ahead, I do
want to review what happened in the fourth
quarter of 2018.
The fourth quarter of 2018 might be a harbingerof things to come.

Going into the final months of last year, optimism about the global economy prevailed,
and this was reflected in the stock andbond markets. But in the fourth quarter,
growth slowed in Germany; Italy repudiatedEuropean Union rules; Brexit uncertainty
remained; and fear spiked around America’s trade issues with China. Among othergeopolitical tensions, the U.S. government
shutdown began. In addition, more questions
arose about interest rate increases in the
United States and the effect of the reversal of
unprecedented quantitative easing, particularly in this country. These issues, which
reduced growth forecasts and increased
uncertainty, should legitimately cause stock
prices to drop and bond spreads to increase.
However, stock markets fell 20%, investment
grade bond spreads gapped out by 36% and36

certain markets (like initial public offeringsand high yield) virtually closed down. Evenat the time, these large swings seemed to
be an overreaction, but they highlight two
critical issues. One, which we never forget, isthat investor sentiment can veer widely from
optimism to pessimism based on little fundamental change. And second, for the fourthor fifth time in this recovery, there were
excessive moves in the market with rapidly
increasing volatility accompanied by steep
drops in liquidity.
Market reactions do not always accuratelyreflect the real economy, and, therefore, policymakers and even companies should not
overreact to them. But they do reflect market
participant views of changing probabilities
and possibilities of economic outcomes.
Thus, policymakers (and banks), particularly
the Fed, must necessarily (because they needto think forward) take an assessment of theseissues into account. With this backdrop, I
will discuss some of the serious issues on
people’s minds (with more on liquidity later).
There are legitimate concerns around China’s
economy (in addition to trade), but they are
manageable.

To fully understand China, you have to doa fair assessment of all of its strengths andweaknesses. Over the last 40 years, China hasdone a highly effective job of getting itself
to this point of economic development, but
in the next 40 years, the country will haveto confront serious issues. The Chinese lackenough food, water and energy; corruption
continues to be a problem; state-owned

II. COMMENTS ON CURRENT CRITICAL ISSU ES

enterprises are often inefficient; corporate
and government debt levels are growing
rapidly; financial markets lack depth, transparency and adequate rule of law; and Asia
is a very complex part of the world geopolitically speaking. Just as important, not enoughpeople participate in the nation’s politicalsystem. Chinese leadership is well aware ofthese issues and talks about many of themquite openly. I say none of this to be negative about China (indeed, I have enormous
respect for what the Chinese have accomplished in the economic realm) but just to
give a balanced view. And in spite of these
difficulties, we believe that China is well on
its way to becoming a fully developed nation,
though the future will probably entail more
uncertainty and moments of slower growth(like the rest of us) than in the past.
Disruption of trade is another risk for
China. The United States’ trade issues with
China are substantial and real. They include
the theft or forced transfer of intellectual
property; lack of bilateral investment rights,
giving ownership or control of investments;
onerous non-tariff barriers; unfair subsidies
or benefits for state-owned enterprises; andthe lack of rapid enforcement of any disagreements. The U.S. position is supported, though
in an uncoordinated way, by our Japaneseand European allies. We should only expect
China to do what is in its own self-interest,
but we believe that it should and will agree
to some of the United States’ trade demands
because, ultimately, the changes will createa stronger Chinese economy. We should
also point out that over the last 30 years,
the Chinese have been on a high-speed paththat includes increasing transparency andeconomic reform, and while the momentum
slows down periodically, they have continued
relentlessly on that path. We believe the odds
are high that a fair trade deal will eventually
be worked out – but if not, there could beserious repercussions.
China can deal with many serious situations because, unlike developed democraticnations, it can both macromanage andmicromanage its economy and move very
fast. Government officials can pull, in a coor-dinated way, fiscal, monetary and industrial
policy levers to maintain the growth andemployment they want, and they have thecontrol and wherewithal to do it. That being
said, the American public should understandthat China does not have a straight road tobecoming the dominant economic power.
The nation simply has too much to overcomein the foreseeable future. If China and theUnited States can maintain a healthy strategicand economic relationship (and that should
be our goal), it could greatly benefit bothcountries – as well as the rest of the world.
Debt levels are increasing around the world —although this debt is mitigated because muchof it is sovereign debt, which is different from
corporate and consumer debt.

If countries essentially owe debt to themselves, not to creditors outside their country,
they can generally manage their debt
(America’s total debt to GDP is just about
80%, while Japan’s is approaching 200%).
Such debt is not necessarily a good thing
because it can be politically destabilizing andovercomplicate policymaking; however, it
is generally manageable because if a nation
owes money to itself, it is essentially reallocating its income across various interest
groups within the country. If the country
can continue to grow, it can still create moreincome for its citizens.
America’s debt level is rapidly increasing
but is not at the danger level. While America
does owe in excess of $6 trillion (essentially
40% of its publicly held debt) to creditors
outside the country, U.S. companies andinvestors hold more than $25 trillion in total
claims on foreigners, including more than
$12 trillion of foreign portfolio holdings,
and the U.S. economy is worth more than$100 trillion. So we earn more on foreign
assets than we pay to foreign creditors. This
is not a major issue. However, our country’s
debt level over the next 30 years will start
to increase exponentially, and at a certain
point, this could cause concern in global
capital markets. We have time to address thisproblem, but we should start to deal with theissue well before it becomes a crisis.
37

II. CO MME N TS O N CU R R E N T C R I T I C A L I SS U ES

People also point to emerging market debt –both corporate and sovereign – as a potential
issue, but the emerging markets, both countries and companies, are much bigger andstronger than they were in the past. They
have more foreign exchange reserves andgenerally more effective risk management of
currency and interest rate mismatches.
Leveraged lending is increasing, particularly
through shadow banks.

Total leveraged lending in the UnitedStates is approximately $2.3 trillion. About
25% of the loans are owned by banks, themajority in more senior positions, and theremaining 75% are owned by shadow banks
or non-banks. Deconstructing that number abit, about $1.8 trillion is in U.S. institutional
leverage term loans – approximately 30%
of which are owned by banks. We estimatethat approximately $500 billion of directloans are owned exclusively by non-banks.
While leveraged lending is a growing issue
and one that we are monitoring, we don’t
think this is yet of the size or quality to cause
systemic issues in the financial system. This
does not mean it won’t create some issues.
When things get bad, invariably prices drop
dramatically, certain types of high-yield debt
cannot be refinanced, etc. – but at this level,
it is still a manageable issue.
There are growing geopolitical tensions — withless certainty around American global leadership.

Geopolitical tensions are always there – justreading the newspaper in any week in any
year since World War II would make anyone
pretty worried. But it does appear that geopolitical tensions are growing. Let me mention afew: Russian aggression, Middle East conflicts,
Venezuela, North Korea, Iran, Turkey, Brexit
and European politics generally.
It’s always difficult to understand the effectof geopolitical uncertainty. But it is now
heightened due to uncertainty around how
the United States intends to exercise global
leadership. This uncertainty may very wellbe the biggest new unknown factor affecting
critical geopolitical and economic issues.

38

The chance of bad policy errors is increasing.

In this risk section and in the next section
on public policy, I feel compelled to emphasize an obvious point: Bad public policy isa major risk. It could be central banks andmonetary policy, trade snafus or simply deep
political gridlock in an increasingly complex
world – but bad policymaking is definitely
an increasing risk for the global economy.
The confusion and uncertainty around liquidity
are causing some legitimate concerns.

Several times in the last few years, includingin the fourth quarter of 2018, markets
exhibited rapid losses of liquidity, althoughfortunately, and importantly, the markets
recovered in all cases – but that was in thecontext of a good environment. The ongoingdebate around liquidity and short-term lossesof liquidity in the market is an importantone. We consider it in two ways: traditionalliquidity and macro liquidity.
• Traditional liquidity. I call it micro liquidity
here, and it generally refers to the width of
the bid-ask spread, as well as the size andspeed with which securities can be bought
or sold without dramatically affecting
their price. There is no question that somemicro liquidity is more constrained thanin the past due to bank capital, liquidity
and Volcker Rule requirements. In addition, high-frequency traders generally
create some intraday liquidity (within aday), though even this is unreliable in a
downturn. Because they rarely take positions interday (day to day), traders do notcreate real liquidity, but my view is thatthey increase the volatility of liquidity
over time. There is no question that rules
and regulations also cause unwanted andunnecessary distortions in money market
vehicles, such as repos and swaps, particularly at quarter-end.
If you look at liquidity – from before thefinancial crisis to today – in fairly liquidmarkets like Treasuries, swaps and equities, there is a noticeable difference. In
good markets, liquidity is essentially highand is almost at the same level today as it

II. COMMENTS ON CURRENT CRITICAL ISSU ES

was before the crisis. But when markets
became volatile in the last several years,
liquidity dropped much further and fasterthan it did before the crisis. It is importantto remember that this happened in goodtimes. Therefore, it is reasonable to expectthat what we have been experiencing is
now the new normal of liquidity – andthat we should be prepared for it to beeven worse in truly difficult times.
• Macro liquidity. This describes a broader
view of financial conditions. For example,
is it easy to borrow and lend? Are banks
able to increase their lending? Is the cost of
borrowing going up? Is the Fed adding or
reducing liquidity in the system (essentiallyby buying or selling Treasuries)? There is
no doubt that new regulations, particularlybank liquidity requirements, dramaticallyreduce the ability of the Fed to increasebank lending today by shoring up bankreserves. In the old days, the central bankcould effectively create excess reserves bybuying Treasuries. These excess reserves
were lendable by the bank. Today, suchreserves are often not lendable due to new
liquidity rules. So bank lending as a function of deposits is, in effect, permanently
reduced. The notion of “money velocity”
and in fact the transmission of monetary
policy are, therefore, different from thepast, and it is hard to calculate the full
effect of all these changes. It is extremely
difficult for us, and probably even for theFed, to know when and at what level theremoval of cash (liquidity) from the systemstarts to significantly affect macro or microliquidity. We will, however, probably know
it when we see it.
There may be too much certainty that growth will
be slow and inflation subdued.

There is still global growth, and employment and wages continue to go up. However,this has been a very slow recovery, and it ispossible that the “normal” increase of inflation late in the cycle, due to wage demands
and limited supply, can still happen. We
don’t see it today, but I would not rule it out.
In addition, 10-year bond spreads have been
suppressed in some way by the extreme

quantitative easing around the world. If thatever reverses in a material way, how could
it not have an effect on the 10-year bond?
Finally, I would not look at the yield curveand its potential inversion as giving the same
signals as in the past. There has simply been
too much interference in the global markets
by central banks and regulators to understand its full effect on the yield curve.
Expect banks to be far more constrained going
into the next real downturn.

Today is nothing like 2008. There are fewer
leveraged financial assets in the system
now than a decade ago. In 2008, huge losses
in the mortgage market forced consumers
and companies to sell assets acquired byborrowing. Fundamentally, market panic
ensued. Now there is far less borrowing
against assets, and it is unlikely that there
will be a lot of forced selling as a result.
However, keep in mind that it is still possiblefor investors to sell lots of assets if any formof market panic takes place.
When the next real downturn begins, banks
will be constrained – both psychologicallyand by new regulations – from lending freely
into the marketplace, as many of us did in2008 and 2009. New regulations mean thatbanks will have to maintain more liquidity
going into a downturn, be prepared for the
impacts of even tougher stress tests andhold more capital because capital requirements are even more procyclical than in thepast. Effectively, some new rules will force
capital to the sidelines just when it might
be needed most by clients and the markets.
For example, in the next financial crisis,
JPMorgan Chase will simply be unable totake some of the actions we took in 2008, as
described in the sidebar on pages 27-28.
The Fed is still quite powerful and retains
numerous tools to deal with many of the issues
described above.

There is excessive focus on what the Fed says
and does in the short term. The Fed appropriately, and by necessity, needs to be data
dependent – how could it be otherwise? And,of course, while proper policy requires Fed
39

II. CO MME N TS O N CU R R E N T C R I T I C A L I SS U ES

officials to constantly think about the future(though it does not require them to makespecific forecasts public), they can’t knowwhat the future holds with any certainty. But
they are deeply knowledgeable, flexible andappropriately willing to change their minds.
And, counter to what you often hear today,
they retain a large number of tools at theirdisposal. They can change short-term rates atwill and, in fact, can effect change on longer
term rates if they want. With a few simple
words, they can change the future expectations of the interest rate curve. They can buy
or finance an extraordinary amount of assets,
and they can revise regulations, if necessary,
to improve liquidity or enhance lending.
They can often, simply by asking, get banks

to take certain actions that they want. It is a
mistake to think that they don’t have significant tools at their disposal.
Of course, we hyper-focus on today’s problems, and they often overshadow the progress we are making across the globe. We
should not overlook the positive signs. In
addition to the strong U.S. economy, theworld is still growing, trade issues may beproperly resolved and Brazil, among others,
has turned the corner economically.
If a downturn starts and leads to darker
scenarios, we will be prepared, and we also
believe the U.S. government will eventually
respond adequately.

8. We are prepared for — though we are not predicting — a recession.
The key point here is that a fairly healthy
U.S. economy will be confronting a wide
variety of issues in 2020 and 2021. It’s hard
to look at all the issues facing the world andnot think that the range of possible outcomesis broader and that the odds of bad outcomesmight be increasing. And certain factors, likeconfidence, which we know is important, canbe easily damaged by bad policy, unexpected
events or even high market volatility. The
next recession may not resemble prior recessions. Next time, the cause may be just the
cumulative effect of negative factors – theproverbial last straw on the camel’s back.

not stop investing in our future, investing intechnology or building new branches. We willcontinue to make markets for our clients. We
will not overreact to the credit cycle.

We are always prepared to deal with the next
recession.

Finally, we will be seeking out new ways
to grow and compete. Our experience isthat recessions do create opportunities forhealthy companies to enhance their franchises generally by serving clients whereother companies cannot.

We generally do not spend a lot of time
guessing about when the next recession will
be – we manage our business knowing that
there will be cycles.
First and foremost, we will continue to serve
our clients. From the prior parts of thisletter, you can see that we continued to makeresponsible loans to our clients during andafter the Great Recession when they needed
us most – and we will do that again. We will40

We will mitigate risk. We may reduce risk
by taking on fewer new clients or by syndicating or hedging risk. And we may reducerisk by managing our portfolio of securities and loans unrelated to clients. We will
exercise more of our muscle in terms ofmanaging expenses, monitoring headcountand creating more efficiencies. We will havespecial credit teams, created in advance, todeal with any problematic credits.

III. PUBLIC POL I CY

There are many critical issues roiling theUnited States and other countries aroundthe world today – just to name a few:
capitalism versus other economic systems,
the role of business in our society, how theUnited States intends to exercise global
leadership, income inequality, equal opportunity, access to healthcare, immigrationand diversity. Many people have lost faith
in government’s ability to solve these andother problems. In fact, almost all institutions – governments, schools, unions,media and businesses – have lost credibility
in the eyes of the public. In the meantime,
many of these problems have been aroundfor a long time and are not aging well. Politics is increasingly divisive, and a numberof policies are not working. This state ofaffairs is unlikely to get better without thorough diagnosis, thoughtful policy solutions
and a commitment to a common purpose.

In this section, I attempt to analyze andoffer some views on what has caused
this situation and then suggest somesolutions. Neither the diagnoses nor the
proposed cures are purely my own. Theseissues have been studied intensively bymany people with deep knowledge. And
given the space and other constraints ofthis letter, I may be about to violate theEinstein maxim, which I love: “Everythingshould be made as simple as possible, but
not simpler.” One of the main points I am
trying to make is that when you step backand take a comprehensive multi-year view,
looking at the situation in its totality, itis the cumulative effect of many of ourpolicies that has created many of our problems. And whatever the solutions, I thinkthey are unlikely to be achieved by government alone – civil society and businessneed to be part of the equation. To start,
we must understand our problems.

1. The American Dream is alive — but fraying for many.
Before I talk about our problems, I think it’s
important to put any negatives in context, so
first a paean to our nation. America is still
the most prosperous nation the world has
ever seen. We are blessed with the natural
gifts of land; all the food, water and energy
we need; the Atlantic and Pacific oceans as
natural borders; and wonderful neighbors
in Canada and Mexico. And we are blessedwith the extraordinary gifts from ourFounding Fathers, which are still unequaled:
freedom of speech, freedom of religion,
freedom of enterprise, and the promise ofequality and opportunity. These gifts have
led to the most dynamic economy the world
has ever seen, nurturing vibrant businesses

large and small, exceptional universities, anda welcoming environment for innovation,science and technology. America was an idea
borne on principles, not based upon historical relationships and tribal politics. It has
and will continue to be a beacon of hope forthe world and a magnet for the world’s best
and brightest.
Of course, America has always had its flaws.
Some of its more recent issues center onincome inequality, stagnant wages, lack ofequal opportunity, immigration and lackof access to healthcare. I make it a practice when hearing complaints to strive tounderstand where people might be rightor partially right instead of rejecting or
accepting their views reflexively.

41III. PUBLI C P O LI CY

Middle class incomes have been stagnant
for years. Income inequality has gotten
worse. Forty percent of American workers
earn less than $15 an hour, and about 5%of full-time American workers earn theminimum wage or less, which is certainly
not a living wage. In addition, 40% of
Americans don’t have $400 to deal with
unexpected expenses, such as medical
bills or car repairs. More than 28 million
Americans don’t have medical insurance
at all. And, surprisingly, 25% of thoseeligible for various types of federal assistance programs don’t get any help. No
one can claim that the promise of equal
opportunity is being offered to all Americans through our education systems, nor
are those who have run afoul of our justicesystem getting the second chance thatmany of them deserve. And we have been
debating immigration reform for 30 years.
Simply put, the social needs of far too
many of our citizens are not being met.

Over the last 10 years, the U.S. economy has
grown cumulatively about 20%. While thismay sound impressive, it must be put into
context: After a sharp downturn, economic
growth would have been 40% over 10 years
in a normal recovery. Twenty percent more
growth would have added $4 trillion toGDP, which certainly would have driven
wages higher and given us the wherewithal
to broadly build a better country. Keyquestions that keep arising – and remainunanswered are: Why have productivity
and economic growth been so anemic?
And why have income inequality and somany other things gotten worse? Included
among the common explanations is that
“secular stagnation” is the new normal. I’ve
also heard blame placed on institutional
greed and “short-termism,” bad corporate
governance, job displacement from newtechnologies, immigration or trade and alack of new productivity-enhancing technology. Another common refrain is that
capitalism and free enterprise have failed.
As you’ll see, I think some of these arguments miss the mark.

2. We must have a proper diagnosis of our problems — the issues are real and serious —if we want to have the proper prescription that leads to workable solutions.
Slogans are not policy, and, though simple
and sometimes virtuous-sounding, they often
lead to policies that fail. Well-intentioned but
poorly designed policies generally have large
and unintended negative consequences. Policy
should always be extremely well-designed.
In my view, too often we don’t perform thedeep analysis required to fully understandour problems. One of the reasons is that we
often have too short term an orientation;i.e., looking at how things have changed
year-over-year or even quarter-over-quarter.
We frequently fail to look at trends over a
multi-year period or over decades – we missthe forest for the trees. It’s also important topoint out that many economic models thatare used to design policy have a hard time

42

incorporating or accounting for the effect ofcertain factors that can be pivotal but are toocomplex or qualitative to model.
I have tried to come up with a list of criticalfactors that greatly affect the health of an
economy over many years (such as education, infrastructure, healthcare, etc.). The
list is below, and when you look at how wehave performed in these areas, it’s rather
condemning. Our shortcomings in theseareas clearly have impeded the prosperityof the U.S. economy and have failed manyof our fellow citizens over the past two
decades or so.

Our problems: What’s holding back our nation’s productivity andeconomic growth and reducing opportunity

INEFFECTIVE AND OUT-OF-TOUCHEDUCATION SYSTEMS
Many of our high schools, vocational schools and community
colleges do not properly prepare today’s younger generation
for available professional-level jobs, many of which pay a
multiple of the minimum wage. We used to be among the bestin the world at training our workforce for good jobs, but now
we are falling short. This is a huge reason for both inequality
and lack of opportunity. Our inner-city high schools are failingtheir communities and are leaving too many behind. In someinner-city schools, fewer than 60% of students graduate, andof those who do, a significant number are not prepared for
employment and are often relegated to a life of poverty.
Proper training and retraining would also help in our rapidlychanging technological world. Finally, skills training has
become increasingly important over time, and the negligenceof our education systems to be responsive to employers’
current needs has to have reduced GDP growth.

SOARING HEALTHCARE COSTS
These now represent almost 20% of GDP — more than twice thecost per person compared with most developed nations. While
we have some of the best healthcare in the world, our outcomesare not twice as good as those of the rest of the world. Somestudies say that gains in life expectancy in the last 50 years werea significant contributor to U.S. national wealth (and health),
possibly equal to half of GDP growth, as people were healthierand lived longer, which generally improved the quality of thelabor force and productivity. This may no longer be true. Obesity
costs our country $1.4 trillion a year because it drives so manyillnesses (i.e., heart disease, diabetes, cancer, stroke anddepression). Even worse, 70% of today’s youth (ages 17–24) arenot eligible for military service, essentially due to poor academic
skills (basic reading and writing) or health issues (often obesity
or diabetes). And out-of-pocket healthcare expenses for the
average American have skyrocketed over the last 20 years,
causing huge anxiety, particularly for low-income families who
have been hit with the highest increases in healthcare costs.

EXCESSIVE REGULATION AND
BUREAUCRACY
Excessive regulation for both large and small companies
has reduced growth and business formation without
making the economic system safer or better. The ease ofstarting a business in the United States has worsened, andboth small business formation and employment growth
have dropped to the lowest rates in 30 years. By someestimates, approximately $2 trillion is spent on federal
regulations annually, which is about $15,000 per household. We need good regulations, and we have to get betterat effectively implementing them — accomplishing thedesired good outcomes — while minimizing unnecessary
costs and bad unintended consequences.

INABILITY TO PLAN AND BUILDINFRASTRUCTURE
It took eight years to get a man to the moon (from idea tocompletion), but it now can take a decade to simply get thepermits to build a bridge or a new solar field. The country thatused to have the best infrastructure on the planet by mostmeasures is now not even ranked among the top 20 developed
nations, according to the World Economic Forum’s Basic
Requirement Index, which reflects infrastructure along withother criteria. We are falling behind on airports, bridges,
water, highways, aviation and more. One study examined theeffect of poor infrastructure on efficiency (for example, poorly
constructed highways, congested airports with antiquated air
traffic control systems, aging electrical grids and old water
pipes) and concluded this could all be costing us more than$200 billion a year. Philip K. Howard, who does some of thebest academic work on America’s infrastructure, estimates it
would cost $4 trillion to fix our aging infrastructure — and thisis less than it would cost not to fix it. In fact, a recent study by
Business Roundtable found that every dollar spent restoring
our infrastructure system to good repair and expanding its
capacity would produce nearly $4 in economic benefits. What
happened to that “can-do” nation of ours?

43

PREVIOUSLY UNCOMPETITIVE TAXSYSTEM FOR BUSINESSOver the last 20 years, as the world reduced its tax rates,
America did not. Our previous tax code was increasingly
uncompetitive, overly complex and loaded with special-interest
provisions that created winners and losers. This was driving
down capital investment in the United States and giving an
advantage to foreign companies, thereby reducing productivity
and causing wages to remain stagnant. The good news is therecent changes in the U.S. tax system include many of the key
ingredients to fuel economic expansion: a business tax rate thatwill make the United States competitive around the world alongwith provisions to free U.S. companies to bring back profits
earned overseas.

CAPRICIOUS AND WASTEFUL
LITIGATION SYSTEM
Our litigation system now costs 1.6% of GDP, 1% more thanwhat it costs in the average OECD (Organisation for Economic
Co-operation and Development) nation.

FRUSTRATING IMMIGRATIONPOLICIES AND REFORM
Forty percent of foreign students who receive advanced
degrees in science, technology and math (300,000 students
annually) have no legal way of staying here, although many
would choose to do so. Most students from countries outside
the United States pay full freight to attend our universities,
but many are forced to take the skills they learned here backhome. From my vantage point, that means one of our largest
exports is brainpower. We need more thoughtful, merit-based
immigration policies. In addition, most Americans would like apermanent solution to DACA (Deferred Action for Childhood
Arrivals) and a path to legal status for law-abiding, tax-paying
undocumented immigrants — this is tearing the body politic
apart. The Congressional Budget Office estimates the failure topass immigration reform earlier this decade is costing us 0.3%
of GDP a year.

44

INEFFICIENT MORTGAGE MARKETSThe inability to reform mortgage markets has dramaticallyreduced mortgage availability. In fact, our analysis shows that,conservatively, more than $1 trillion in additional mortgage loans
might have been made over a five-year period had we reformed
our mortgage system. J.P. Morgan analysis indicates that the costof not reforming the mortgage markets could be as high as 0.2%
of GDP a year.

DRAMATIC REDUCTION IN LABORFORCE PARTICIPATION
Wages for low-skilled work are no longer a living wage — theincentives to start work have been declining over time. Add tothis the education issues already mentioned above. Two othercontributing factors are that many former felons have a hardtime getting jobs, and an estimated 2 million Americans are
currently addicted to opioids (in 2017, a staggering 48,000
Americans died because of opioid overdoses). Some studies
show that addiction is one of the major reasons why many men
ages 25–54 are permanently out of work.

STUDENT LENDING (AND DEBT)
Irrational student lending, soaring college costs and the burden of
student loans have become a significant issue. The impact ofstudent debt is now affecting mortgage credit and household
formation — a $1,000 increase in student debt reduces subsequent
homeownership rates by 1.8%. Recent research shows that theburdens of student debt are now starting to affect the economy.

LACK OF PROPER FEDERAL
GOVERNMENT BUDGETING
AND PLANNING
This inevitably leads to waste, inefficiency and constraints on
multi-year planning. One striking example: It may cost the
military at least 20% of its spending power when budgets are
not approved on time and continuous spending resolutions are
imposed. And we don’t do some basic things well, like accountfor loans and guarantees properly and demand appropriate
funding of public pension plans.

III. PUBLIC POLICY

It is hard to look at these issues in their
totality and not conclude that they have asignificant negative effect on the great American economic engine. My view is if you add
it all up, this dysfunction could easily havebeen a 1% drag on our growth rate. Before I
talk about some ideas to address these issues,
I would like to discuss one major debate
currently in the echo chamber.
Is capitalism to blame? Is socialism better?

There is no question that capitalism has been
the most successful economic system theworld has ever seen. It has helped lift billions
of people out of poverty, and it has helped
enhance the wealth, health and education ofpeople around the world. Capitalism enables
competition, innovation and choice.
This is not to say that capitalism does nothave flaws, that it isn’t leaving people behindand that it shouldn’t be improved. It’s essential to have a strong social safety net – and all
countries should be striving for continuous
improvement in regulations as well as social
and welfare conditions.
Many countries are called social democracies, and they successfully combine market
economies with strong social safety nets.
This is completely different from traditionalsocialism. In a traditional socialist system,
the government controls the means of
production and decides what to produce andin what quantities, and, often, how and where
the citizens work rather than leaving thosedecisions in the hands of the private sector.
When governments control companies,
economic assets (companies, lenders andso on) over time are used to further political interests – leading to inefficient companies and markets, enormous favoritism andcorruption. As Margaret Thatcher said, “Theproblem with socialism is that eventually you
run out of other people’s money.” Socialism
inevitably produces stagnation, corruption
and often worse – such as authoritarian

government officials who often have an
increasing ability to interfere with both theeconomy and individual lives – which theyfrequently do to maintain power. This would
be as much a disaster for our country as it has
been in the other places it’s been tried.
I am not an advocate for unregulated, unvarnished, free-for-all capitalism. (Few people I
know are.) But we shouldn’t forget that true
freedom and free enterprise (capitalism) are,at some point, inexorably linked.
Successful economies will create large, successfulcompanies.

Show me a country without any large,
successful companies, and I will show you
an unsuccessful country – with too few
jobs and not enough opportunity as an
outcome. And no country would be better
off without its large, successful companies in
addition to its midsized and small companies. Private enterprise is the true engine of
growth in any country. Approximately 150
million people work in the United States:
130 million work in private enterprise andonly 20 million people in government. As
I pointed out earlier in this letter, large,
successful companies generally provide
good wages, even at the starting level, as
well as insurance for employees and theirfamilies, retirement plans, training andother benefits. Companies in a free enterprise system drive innovation throughcapital investments and R&D; they are huge
supporters of communities; and they often
are at the forefront of social policy. Are they
the reason for all of society’s ills? Absolutely
not. However, in many ways and without ill
intent, many companies were able to avoid –almost literally drive by – many of society’s
problems. Now they are being called upon to
do more – and they should.

45III. PUBLI C P O LI CY

3. All these issues are fixable, but that will happen only if we set aside partisan politics andnarrow self-interest — our country must come first.
We need to set aside partisan politics.

None of these issues is exclusively owned
by Democrats or Republicans. To thecontrary, it is clear that partisan politics is
stopping collaborative policy from being
implemented, particularly at the federal
level. This is not some special economic
malaise we are in. This is about our society.
We are unwilling to compromise. We areunwilling or unable to create good policy
based on deep analytics. And our government is unable to reorganize and keep pacein the new world. Plain and simple, this is acollective failure to put the needs of society
ahead of our personal, parochial andpartisan interests. If we do not fix these
problems, America’s moral, economic andmilitary dominance may cease to exist.
In my view, we need a Marshall Plan for
America. To do this, Democrats have toacknowledge that many of the things thathave been done as a nation – often in
the name of good – have sometimes notworked and need to be modified. Throwing
money at problems does not always work.
Recently, a report showed that the federal
government wasted nearly $1 billion on
charter schools due to mismanagement
and lack of adequate oversight – this wasmoney intended to help children. Democrats should acknowledge Republicans’legitimate concerns that sending money
to Washington tends to be simply seen as
waste, ultimately offering little value tolocal communities. Republicans need toacknowledge that America should and canafford to provide a proper safety net forour elderly, our sick and our poor, as well as
help create an environment that generates
more opportunities and more income formore Americans. And if we can demon-

46

strate that we are spending money wisely,
we should spend more – think infrastructure and education funding. And that
may very well mean taxing the wealthy
more. If that happens, the wealthy should
remember that if we improve our society
and our economy, then they, in effect, areamong the main winners.
Our nation requires strong politicalleaders to develop good, thoughtful policies, use their political skills to determine
what is doable and exercise their leadership skills to lead people toward commonsense solutions.
We need to set aside our narrow self-interest.

We live in an increasingly complex world
where companies, governments, unions
and special interest groups vie for time,attention and favorable circumstances fortheir respective institutions. While it is aconstitutional right to petition our government, and many organizations legitimately
fight for the interests of their constituents,
we all may have become too self-interested. I fear that this self-interest is part ofwhat is destroying the glue that holds oursociety together. We all share a collective
responsibility to improve our country.
I would like to give a few examples, which
represent the tip of the iceberg (it would
be easy to come up with thousands more).
• Governments, both federal and state,
fight to keep military bases open that
we don’t need and Veterans Affairs
hospitals that are broken – making themilitary more costly and less effective.
Our shortcomings are not just about
inefficiencies; they border on immoral.
In an incredibly depressing story,
former Secretary of Defense Bob Gates
describes how Congress took years
longer than it should have to approvethe building of U.S. Army personnel

III. PUBLIC POLICY

carriers that we needed in Iraq and
Afghanistan to protect our soldiers from
improvised explosive devices. While
we dallied, many of our soldiers died or
received terrible lifelong injuries.

say, industry gets its share of tax breaks
and forms of protection from legitimate competition. I could add hospitals,
schools and unions to this list – none of
our institutions is blameless.

Five states (California, Connecticut,
Illinois, New Jersey and New York) fightfor unlimited state and local tax deductions because those five states reap 46%of the benefit – even worse, knowingthat over 80% of the benefits fromthese deductions go to people who earnmore than $320,000 a year.

While leaders obviously fight for their
institutions, we all need to be able toadvocate for policies that are good forour organizations without being bad forour country. And as a general matter, we,
as citizens, should support policies thatare good for our country even if they
may not be good for us individually. For
too long, too many have fought to use
regulation and legislation to further theirinterests without appropriate regard forthe needs of the country.

• Businesses are equally guilty here.
Just start digging through the tax code
– buried in there are an extraordinary number of loopholes, credits andexemptions that aren’t about competitiveness or good tax policy. Suffice it to

4. Governments must be better and more effective — we cannot succeed without their help.
The rest of us could do a better job, too.
The U.S. federal government is becoming
less relevant to what is going on in people’s
lives. People have generally lost faith in theability of institutions to deliver on their
mission and meet societal needs. They aredemanding change, and we must recognizethat change is needed. We need dramaticreform of our global and federal institutions and how we attack our biggest societal challenges. There are signs of progress,
particularly in how local governments arestarting to attack pressing problems – theones that directly affect people’s lives, likeeducation, housing and employment. Lookat Detroit and see how excellent leadership is fixing a once failing city. We should
continue to empower local governments
to address the needs of our society, but weshould be asking our federal government
to do the same.

I have already commented about needing
real policies that include thoughtful plans
to increase growth and create more opportunity for everyone. Faster growth willraise incomes, generate opportunities andcreate the wherewithal to fund improvements in our social welfare programs.
(On pages 48-49, I describe some possible
solutions to the problems previously highlighted on pages 43-44.) These solutions
are not my own but are a synthesis ofsome of the best thoughts that we haveseen. Some of these solutions are simple,
and some are more complex. And obviously, if they were politically easy to put
into practice, that would have been done
by now. However, I am convinced that if
we could get ideas like these implemented,
economic growth and opportunity for all
would be greatly enhanced.

47

Some solutions to how we might drive growth, incomes and opportunity

EDUCATION
We know what to do. High schools and community colleges
should work with local businesses to create specific skills
training programs, internships and apprenticeships that
prepare graduating students to be job-ready — whether they
go on to earn a credential, to work or to attend college. With
7 million job openings and 6 million unemployed workers in
the United States, there is an opportunity for companies towork with local institutions, including community colleges andlocal apprenticeship programs. Business must be involvedin this process, and it needs to be done locally because thatis where the actual jobs are. Germany does an exceptional
job at apprenticeships. Germany has one of the strongest
education and training systems in the world, with about 1.5
million young people annually participating in apprenticeship programs that are paid opportunities to gain in-demandskills along with an education. The vocational schools andapprenticeship programs work directly with local businesses
to ensure students are connected to available jobs upon
graduation. Germany’s youth unemployment rate is one of thelowest in the world.
Some countries are now implementing mandatory preschoolfor children at three years of age. This is a wonderful policy. It
makes childcare less expensive and has proved to be extraordinarily good for student education short and long term.
Parents like it, too. Of course, the benefits may not be seen formany years, but this is precisely the type of long-term thinking
in policymaking that we need.

REGULATORY REFORM
Starting a small business today generally requires multiple licenses,
which take precious months to get. But it doesn’t end there. Talk
with any small business owner and that person will describe themountains of red tape, inefficient systems and a huge amount of
documentation involved to operate the business. We need to reduce
the number of licenses that are required to open and run a small
business. In addition, we should look at the excessive state and local
rules affecting small businesses, consolidating and eliminating
unnecessary rules and regulations where possible. And all
regulations should have a thorough cost-benefit analysis and beperiodically reviewed for current relevancy.

INFRASTRUCTURE INVESTMENT
The 2015 transportation spending bill, Fixing America’s Surface
Transportation Act (FAST Act), is intended to fund surface transportation programs — including highways — at over $305 billion through2020. Its aim is to improve mobility on America’s highways; create
jobs and support economic growth; decrease bureaucracy in getting
projects approved and completed — and we need to finish its
implementation. Again, experience from other countries may help.
We could learn from Germany and Canada, for example, whose
officials endorsed large infrastructure projects and sped throughpermitting in two to three years by forcing federal, state and local
approvers to simultaneously work through a single vetting process.
Significantly reducing the time of permitting also dramatically reduces
the cost and uncertainty around making major capital investments.

HEALTHCAREThis may be our toughest, most complicated problem, but we know
there are some things we can do to make the system work better.
Some of the solutions may include aligning incentives better; trying
to eliminate the extraordinary amount of money wasted on
bureaucracy, administration and fraud; empowering employees tomake better choices, with upfront transparency in employer plan
pricing and options and the actual cost of medical procedures;developing better corporate wellness programs, focusing particularly on obesity and smoking; creating better tools to shop aroundfor non-emergency care and manage healthcare expenses; andreducing the extraordinary expense for unwanted end-of-life care.
Another obvious thing to do is to start teaching wellness, nutrition,
health and exercise in K-12 classrooms nationwide.

48

TAX CREDITS AND BENEFITS
The business tax changes in the 2017 tax law made the United States
more competitive, benefiting American workers today and strengthening our economy for the long term. In 2018, nominal wages
increased 3.3% — the fastest rate of growth since 2008 — and job
openings exceeded the number of unemployed workers for the firsttime since the federal government started tracking these data in
2000. Beyond this important progress, there is still more thatpolicymakers could do to help working Americans. Of the 150 million
Americans working today, approximately 21 million earn between$7.25 an hour (the prevailing federal minimum wage) and $10.10 anhour. It is hard to live on $7-$10 an hour, particularly for families(even if two household members are working). While it would be
acceptable to increase minimum wages, this should be done locally

LABOR FORCE PARTICIPATION
and carefully so it does not increase unemployment. Perhaps amore effective step would be to expand the Earned Income Tax
Credit (EITC). Today, the EITC supplements low- to moderateincome working individuals and couples, particularly with children.
For example, a single mother with two children earning $9 an hour(approximately $20,000 a year) could receive a tax credit of morethan $5,000 at year’s end. Last year, the EITC program cost theUnited States about $63 billion, and 25 million individuals received
the credit. We should convert the EITC to make it more like anegative income payroll tax, which would spread the benefit,
reduce fraudulent and improper payments, and get it into more
people’s hands. Workers without children receive a very small tax
credit — this should be dramatically expanded, too.

LITIGATION
While the rule of law and the right of plaintiffs to get their day
in court are sacrosanct, there have to be ways to improve thissystem. One example, which works in many other countries, is tohave the loser pay in some circumstances. Clearly, this would haveto be done in such a way as to ensure that aggrieved parties are
not denied appropriate access to our justice system. But we needa way to reduce frivolous litigation designed principally to extract
fees for lawyers. We also need to reduce the time and the cost
necessary to achieve justice by adding more judges and creating
more specialty courts to deal with complex issues.

IMMIGRATION
There has been support for bipartisan comprehensive legislationthat provides substantial money for border security, creates moremerit-based immigration, makes DACA permanent and gives apath to legal status or citizenship for law-abiding, hard-working,undocumented immigrants. We know this is no easy feat, but weshould pass and enact legislation to resolve immigration.

MORTGAGE LENDING
Things can be done to reform mortgage markets, which would
increase mortgage availability — as I mentioned in the previous
sidebar on pages 43-44.

We have already mentioned two critical solutions that would help
improve labor force participation — make work pay more by
expanding the EITC and provide graduating students with work skills
that will lead to better paying jobs. Remember, jobs bring dignity.
That first job is often the first rung on the ladder. People like working,and studies show that once people start working, they continue
working. Jobs and living wages lead to better social outcomes — morehousehold formation, more marriages and children, and less crime,
as well as better health and overall well-being.
Reducing recidivism of those who have been incarcerated is not only
important to citizens with a criminal record and their families — but it
can also have profound positive implications for public safety. Last
year, we welcomed the Federal Deposit Insurance Corporation’s
proposed changes to allow banks more flexibility in hiring citizens
convicted of a crime. Our responsibility to recruit, hire, retain andtrain talented workers extends to this population, and we will support
re-entry programs and give convicted and/or formerly incarcerated
Americans a path to well-paying jobs. Finally, we should all be
gratified that the government now seems to be taking the opioid
problem very seriously.

STUDENT LENDING
We should have programs to ameliorate the burden of student loans
on some former students. We would be well-advised to have more
properly designed underwriting standards around the creation of
student loans. Direct government lending to students has grownalmost 500% over the last 10 years — and it has not all been
responsible lending. It would also be helpful for the government todisclose student lending programs as if they were accountable on
the same basis as a bank. Addressing these factors would lead tofar better, and healthier, student lending.

PROPER BUDGETING AND PLANNING
All levels of government should do proper budgeting and planning— and on a multi-year basis. It is particularly important that mostfederal programs — think military, infrastructure and education— have good long-term plans and be held accountable to executethem. When the government says it is going to spend money, it
should tell the American people what the expected outcome is andreport on it. It should account for loans the same way the private
sector does, and it should be required to do cost-benefit analysis.
49III. PUBLI C P O LI CY

Somehow we need to help reinvent government to make it more efficient and nimble
in the new world. While the federal government remains somewhat in a stalemate, wehave seen governors and mayors at the stateand local levels taking active control andframing effective solutions. They are helping
to create a laboratory of what works and areoften at the forefront with initiatives that
restore confidence in the ability of government to deliver. We also call upon CEOsand other leaders to step up and offer
non-parochial solutions.

One final thought: If I were king for a day,
I would always have a competitive businesstax system and invest in infrastructure andeducation as a sine qua non to maximize
the long-term health and growth of oureconomy and our citizens. I would not tradethese issues off – I would figure out a way toproperly pay for them.

5. CEOs: Your country needs you!
Despite the fact that CEOs are not generally
viewed with high levels of trust, surprisingly,
the 2019 Edelman Trust Barometer global
report – encompassing a general global
population of more than 33,000 respondents– shows that 76% think CEOs should takea stand on challenging issues and that 75%
actually trust their employer.

It’s not enough just for companies to meetthe letter and the spirit of the law. They canalso aggressively work to improve society.
They can take positions on public policythat they think are good for the country.
And they can decide, with proper policies
and regulatory oversight, with whom andhow they will do business.

We believe CEOs can and should get involved– particularly when they or their companies
can uniquely help design policies that aregood for America. At JPMorgan Chase, we arestrengthening our public policy teams to takeour advocacy and ideas to the next level. We
believe the best way to scale programs that
we have seen work in cities, states and countries around the globe is to develop actionable public policies that allow more people tobenefit from economic growth.

However, this does get complex. Whatcompanies cannot do is abridge the law of
the land or abrogate the rights of votersand their representatives to set the law of
the land. There are circumstances in which
JPMorgan Chase is called upon to do things
and/or set policies that should have been
set by the federal government – in effect,these are decisions that the voter must
decide. We work very hard to try to stay on
the right side of all these issues.

We can use our unique capabilities, data
and resources to help inform infrastructure policies, corporate governance policies,
affordable housing policies, financial education policies and inclusion policies, as wellas small business financing and formation,community and economic development, andothers. In addition, while almost all companies can help further job skills, training, anddiversity and inclusion efforts, each company
can also add value where it has distinct
capabilities, like expertise around healthcare,infrastructure or technology.

In any event, things have changed. In thepast, boards and advisors to boards advised
company CEOs to keep their head down
and stay out of the line of fire. Now the
opposite may be true. If companies andCEOs do not get involved in public policy
issues, making progress on all these problems may be more difficult.

50III. PUBLIC POLICY

6. America’s global role and engagement are indispensable.
One of the biggest uncertainties in theworld today is America’s role on the worldstage. A more secure and more prosperous
world is also good for the long-term security
and prosperity of the United States. And
America’s role in building that more secureworld has been and will likely continue tobe indispensable.
While there are many legitimate complaints
about international organizations (theNorth Atlantic Treaty Organization, theWorld Trade Organization and the United
Nations), the world is better off with these

institutions. America should engage andexercise its power and influence cautiously
and judiciously. We should all understandthat global laws, standards and norms will beestablished whether or not our nation participates in setting them. It is certain that wewill be happier with the evolution of global
standards if we help craft and implement
them. We should not abdicate this role. To
the contrary, it is critical that America help
develop the best global standards in trade,
immigration, corporate governance andmany other important issues.

I N C LO S I N G
While I have a deep and abiding faith in the United States of America
and its extraordinary resiliency and capabilities, we do not have a divineright to success. Our challenges are significant, and we should notassume they will take care of themselves. Let us all do what we can tostrengthen our exceptional union.
I would like to express my deep gratitude and appreciation for theemployees of JPMorgan Chase. From this letter, I hope shareholders
and all readers gain an appreciation for the tremendous character andcapabilities of our people and how they have helped communities
around the world. I hope you are as proud of them as I am.

Jamie Dimon
Chairman and Chief Executive Officer
April 4, 201951

Consumer & Community Banking
In 2018, the U.S. economy benefited
from continued low unemployment
and stable inflation. There have beenother economic periods like thissince the 1950s, but they have notlasted as long. The U.S. economy isstrong. Gross domestic productincreased at an annual rate of 2.9%;
unemployment in 2018 hit its lowest
level since December 1969; and wage
growth picked up, passing alongsome of the strength of the economic
expansion to the consumer – manyof whom are our customers. The
consumer debt burden is at manageable levels, both consumer and small
business optimism is at or near an
all-time high, and consumer credit
remains strong.
While the economy is performing
well, it is not working for everyone.
Across the firm, we recognize thisand want to do our part to remedy
that reality. As a company, we want
to help everyone make the most of
their money and seek opportunities
to connect with households we don’t
already serve.

2018 financial results
Consumer and Community Banking(CCB) had a remarkable 2018. We
delivered a 28% return on equity on
record net income of $14.9 billion and$52.1 billion in revenue, up 12% yearover-year. We grew our customer baseto nearly 62 million U.S. households,
including 4 million small businesses.
Among our consumer households,
25% have a relationship with two or
more Chase lines of business. This
performance is a direct result of thegrowth in our business drivers and asustained focus on investing for the
medium and long term.
In CCB, our four-year compound
annual growth rate for deposits has
been double that of the industry overall since 2014, and in 2018, we grewretail deposit share in 27 of our top
30 markets. Our average deposits of$670 billion were up 5%, and client
investment assets reached $282
billion, up 3% despite volatility inthe market. Since 2014, we havebrought in $215 billion of Consumer

Banking deposits and investment
balances. The incremental deposits
acquired over this time period alone
would be equivalent to the seventh
largest retail bank in the country.
Our customers spent more than
$1 trillion on 99 million debit andcredit card accounts in 2018, averaging 49 million transactions every day.
We also have the largest customer
base of active mobile users among
U.S. banks at 33 million.
We grew our business while reducing our overhead ratio and making
significant investments. These
include investing in the 400
branches we are opening in newmarkets to extend our reach to customers, as well as in other improvements to our customers’ experience.
We achieved our 2018 results with
continued focus on the same fourareas as in years past: customers,
profitability, people and controls.
Here are some of the highlights ofwhat we accomplished in each ofthese areas.
Customers#1#1 in total U.S. credit card sales
volume and outstandings

52#1#1 in U.S. retaildeposit growth

15

62M
62 million households

29%

#1

MOBILE LOGINSQUICKDEPOSITSM#1 most visited banking
portal in the U.S.

15 mobile logins
per active user per month

29% of check deposit
transactions throughQuickDepositSM

We are proud that Chase has a relationship with nearly half of all U.S.
households. A first step in reaching
more customers is making sure weare meeting their needs. Therefore,
we are introducing new products
and refreshing existing ones withthe features and benefits our customers value.
Another step taken this past year
was to open branches in new markets, specifically Washington, D.C.,
Philadelphia and Boston. When we
enter these communities, we bring
the full force of this great company– hiring, lending and helping customers save for their first home, starta business or retire with financial

Expanding into new markets
Last year, we announced plans to open up to 400
new retail branches and hire as many as 3,000
employees in new U.S. markets over the next five
years. This expansion is part of a $20 billion investment in our business and local economic growth. We
are committed to serving all communities, including
those with low- to moderate-income households, withthese new branches. We’ve opened 12 branches in
the Greater Washington region, Philadelphia and theDelaware Valley, and Boston — and will continue togrow in these regions.
We plan to add retail branches in nine more U.S.
markets this year, opening as many as 90 new
branches and hiring 700 employees, offering morecustomers access to our retail and business banking
services and providing jobs to these communities.

security. The reception in each market, by new and existing customers,has been wonderful. As part of themarket expansion, we also support
each local community directly withhelp from the JPMorgan Chase Foundation. In Washington, D.C., we committed $1.6 million in philanthropy.
In Boston, we committed $3 billion
for home and small business loans
and $1.1 million to support jobs andskills development.
We are always focused on improving
the customer experience. Across allof our products, we have made it
quicker and easier to become a Chasecustomer. Increasingly, that experience is digital, online or mobile. Morethan 1 million customers opened achecking or savings account digitallyin 2018. For existing customers who
were adding an account, it took lessthan three minutes. We have plans to
reduce that time even further.
Existing customers enjoyed a steadystream of improvements to theirexperience with us: the ability tolock and unlock a misplaced card,
more options on how to pay credit

Branch expansion 2018-2019

Existing footprint2018 expansion
2019 expansion

card bills, discounts and offers fromfavorite merchants, and, for those
who have multiple relationships withus, a clear understanding of the products they qualify for before applying.
Profitability

We prioritize long-term, profitable
growth when making decisions about
investing in the future of our consumer franchise. In 2018, we continued our progress to drive down structural expense, reducing our overheadratio to 53%, down from 56% theprior year. We’ve also made progress
reducing our cost to serve each household while our customer base andtotal transaction volume continue togrow. We’ve made investments thathave brought down our cost to serve
each household by 15% since 2014.
These investments allow us to reachmore customers at a lower cost andthrough the channels they prefer.
More and more often, that channel
is mobile.
Our active mobile customer basegrew 11% since 2017, averaging alogin rate of 15 times a month. And
we have made it easy for customers

who want to speak with someone byphone or in person.
Customers are doing more than 80%of their transactions on their own.
This simple experience means customers who use mobile and digitalchannels are happier with us, tend to
do more business with us and are
more profitable.
Consumer Banking customers who
have relationships with two or more
Chase lines of business generate twoand a half times more pre-tax income
for us. That is because they have
deeper relationships and also
because they are often servicing theiraccounts digitally, which is morecost-effective.
For those customers who rely on
branches, we are tailoring our physical network to match the service
activity of each location. We have
expanded into our new market locations using a combination of strategically placed full-service branches,
smaller format branches and standalone ATMs – which can now support 74% of the transactions thatonce required a teller.
53

#1 most visited banking
portal in the U.S.

80+ %15 mobile logins
per active user per month

29% of check deposit
transactions throughQuickDepositSM

SELF-SERVICED

ACTIVE DIGITAL CUSTOMERS

49M

$1+T

More than 80% oftransactions self-serviced

49 million active digital
customers

More than $1 trillion
in credit and debit cardsales volume

YOU INVEST

1.5M

ACTIVE MOBILE CUSTOMERSYou Invest digital trading
platform launched

1.5 million deposit accounts
opened digitally

33 million active mobile
customers

We are committed to serving all
households with these new branches,
including ones with low to moderate
incomes.
PeopleWe are so proud of our team, 135,0001
strong. In the same way we focus
on making experiences great for ourcustomers, we also strive to do thesame for our employees.
We have always believed our company has a role to play in society,leading by example in areas such as
diversity. It’s important to us that ouremployees represent the customers
we serve. More than 57% of ouremployees are women, and more thanhalf are minorities. Our employees
who work directly with customers inour branches and call centers havehigher minority representation thanour senior executive positions, and weare working to correct that balance.
But we don’t stop with our employees. We are leading initiatives to drive
inclusive growth across the country,
such as Women on the Move – whichhelps women overcome barriers they
face at work and helps further female
1

Includes employees and contractors

54

33M

DIGITAL PLATFORM

DIGITAL DEPOSITACCOUNTS

representation – and, most recently,
Advancing Black Pathways, our effort
to promote greater opportunities
for black Americans to participate ineconomic success.
We are also mindful that the natureof our work is changing as we invest
in technology that allows customers
to manage their own needs. While
we have hired 2,000+ more people intechnology and digital roles, we have
7,000 fewer employees working inoperational positions since 2014.
We are committed to offering otheropportunities and training to those
employees who might need to find a
new role – here at Chase or somewhere else.
Controls

Our customers rely on us to protect
their data and their money. We takethat responsibility very seriously.
Therefore, we deploy many safeguards, checks and balances to makesure we do our work as effectively as
possible. This helps us adhere to themany regulations and requirementsthat govern us. Upgrading and rigorously maintaining these controls is
an ongoing discipline; we are proudof the work we do and will continue
to improve.

Looking ahead — 2019
Becoming a customer

As we continue to focus on customers’ needs in 2019, we will make iteven easier to become a Chase customer and grow with us during a lifetime. Earlier this year, we created a
product to meet the needs of the millions of U.S. households outside of thebanking system – Chase Secure Banking. For a fee of $4.95 a month, people
receive access to our branches, ATMs
and mobile banking to make payments, deposit checks and sendmoney, and they cannot overdraft.
We will also continue to expand to
new markets. We expect 93% of the
U.S. population to be in our Chasefootprint by the end of 2022.
Paying with Chase

Our customers make more than
$2 trillion in payments each year –whether they are shopping with oneof our cards, paying a bill or paying
another person. No matter the
method, we want them to be able to
do so with ease and confidence, as
well as to realize the value of paying
with Chase. In addition to the newcustomer-friendly features I mentioned earlier, we are upgrading ourcard chips to be “tap to pay”-enabled.
We announced two new features forour credit card customers coming
later this year – My Chase PlanSM andMy Chase LoanSM – to provide more
ways to borrow using existing Chasecredit card lines. When customers
need to pay their Chase bills, they
can set a fixed amount to pay automatically or pay at our ATMs.
Growing wealth

We want to help everyone make themost of their money, whether theyneed to build emergency savings tocover unexpected expenses, save for ahome or invest. In January 2019, during National Savings Month, we introduced Auto Save, which allows ourcustomers to set rules for how muchto save based on milestones likereceiving a paycheck or spending at a
certain merchant. And every week, on
average, we welcome 5,000 new customers to You Invest, our self-directeddigital investing product.
Owning a home

We have made it simpler and fasterfor customers who want to work with
us to buy their home. Our digitallyenabled fulfillment process is moreconvenient than the paper process;it’s 20% faster, can be completed
online from anywhere and allows
customers to monitor their progress
through the process. Customer satisfaction is at record highs, but there is
still room to simplify and improve.
Owning a car

Of the 62 million households withwhom we have a relationship,roughly 1 million of them will buy orlease a car with Chase each year. We
think we can do better than that bymaking the experience easier andadding value to the process – for ourcustomers and for our dealer andmanufacturer partners.

Growing businesses

As a firm, JPMorgan Chase can domore to support businesses than justabout any other financial services
firm. From sole proprietors, family-,female- and minority-owned businesses all the way to the largest global,
multinational corporations, we help
businesses manage the spectrum ofneeds, whether making day-to-day
payments or financing growth. No
matter the business, we are focusedon ways to bring unique value to customers who do more business with us.

speed at which companies function.
Those we visited are using machinelearning to open accounts in seconds
or pay out claims based on smartphone images within hours. Seeing
these capabilities only inspired us tomove more quickly and push theboundaries of what we think we canaccomplish for our customers andour shareholders.

For our customers who process payments with Chase, we can offer sameday funding if they deposit thosesales into a Chase Business Checking
account. For a small business owner,
same-day access to your sales canmake a real difference.
Closing
I have never been more optimistic
about our future. We are committed
to making our business even betterby serving more customers. The key
to doing that is moving faster. We
have made progress improving upon
the pace we became accustomed to,
but we still need to do better.
Members of my leadership teamand I traveled to China at the end of
2018, and we were impressed by the

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

2018 HIGHLIGHTS AND ACCOMPLISHMENTS• #1 in overall customer satisfaction among national banks(J.D. Power)• #1 in primary bank relationships
within our Chase footprint• The most frequently added newbank among small businesses
that added another financial
institution in the past year
(Barlow Research)1• Retail deposit volume growth at a
rate more than twice the industry
average since 2014

• #1 most visited banking portal in
the U.S. — chase.com• #1 U.S. credit card issuer• Relief provided to customers
affected by the California wildfires and the federal government
shutdown• #1 U.S. co-brand credit card
issuer• #1 in total U.S. credit and debit
payments volume

1

1Q17-4Q18 data, small businesses withrevenue $100,000 to $25 million

55

Corporate & Investment Bank
2018 performance and backdrop
The Corporate & Investment Bank
(CIB) had a record year in 2018, setting a new benchmark for earnings
of $11.8 billion on $36.4 billion ofrevenue, resulting in a return on
equity (ROE) of 16%.
We are now 10 years removed fromthe financial crisis of 2008, when
J.P. Morgan was a safe haven forclients in chaotic markets. We
remain that safe haven while wedrive the industry forward throughinnovation and technology.
The standout performances of ourbusinesses last year and over the past
decade are the result of hard work,
continuous investment and a belief
that a complete, global offering helps
clients meet their evolving financial
objectives. As our clients grow in sizeand complexity, they require a financial partner who can provide thefinancing solutions they need, wherever they need them and however
they want them delivered.
Last year was especially active formergers and acquisitions (M&A) andequity markets. We advised on morethan $1 trillion in announced M&A1
in 2018, including significant deals

such as Takeda’s $82 billion acquisition of Shire, IBM’s $34 billion purchase of Red Hat and Walmart’s $16
billion acquisition of Flipkart, India’s
largest online retailer.
We ranked #1 in wallet share forboth debt and equity capital markets
and raised more than $475 billion
for clients around the world. We led
prominent initial public offerings(IPO), including for AXA Equitable
Holdings, the largest U.S. insurance
IPO since 2002, and for Siemens
Healthineers, the largest healthcare
IPO ever in EMEA2.
As a result of our worldwide investment banking work for clients, we
generated $7.5 billion in fees andsolidified our #1 standing in market
share for the 10th consecutive year. In
fact, amid heavy competition in a relatively healthy economic environment, our share of global investmentbanking business stood at 8.7%, thehighest of any bank since 2009.
Despite volatile trading markets at theend of the year, we continued to be aleading provider of trading liquidity
to institutional investors, reporting
full-year Markets revenue of $19.6 billion, up 6% from 2017. In Equities, weachieved record full-year revenue of$6.9 billion, up 21%. Our Cash Equities, Equity Derivatives and Prime
Finance businesses each gained
market share, and each generated
double-digit revenue growth during
the year. The investments we havemade in people and technology have
led to stronger execution capabilities
and significant growth in both clientbalances and volumes. Over the past
five years, our Equities business has
gained more wallet share than our top
three competitors combined.
Even with the fourth quarter’s turbulent markets, stronger performances
during the year in areas such as
Currencies & Emerging Markets andCommodities contributed to $12.7
billion of Fixed Income Markets
revenue in 2018, nearly matching our2017 result. Once again, we gained
share as the industry wallet declined.
In Treasury Services, we continued
to outpace competitors, growing
firmwide revenue to approximately$9 billion. Our performance washelped by higher interest rates andoperating deposits, which havegrown by 9% since 2016.
Looking ahead, Treasury Services
will benefit from our recent decision to integrate its operations with

Strong Returns on Higher Capital 3($ in billions)
2014

2015

2016

2017

2018

CIB ROE

10%

12%

16%

14%

16%

Capital

$61

$62

$64

$70

$70

$34.7

$33.7

$35.3

$34.7

 Net income

$6.9

$8.1

$10.8

$10.8

$11.8

Overhead ratio

67%

64%

54%

56%

57%

$36.4

 Revenue

1

Dealogic as of January 1, 2019

2

EMEA = Europe/Middle East/Africa

3

Reported results for 2014 and 2015 have been revised to reflect the adoption in 2018 of the new revenue recognition guidance

#1$1T OF M&A#1 in global investmentbanking fees forthe 10th consecutive year

Advisor on more than
$1 trillion of announced M&Atransactions

Chase Merchant Services, the largest
merchant acquirer in the U.S. andEurope. Together, these businesses
form the biggest wholesale payments
network in the world, processing
more than $6 trillion payments daily.
Top Global
It serves 1.6 million small businesscustomers and more thanResearch
80% ofFirm
Fortune 500 companies. By combining units, we will be able to reduce
legacy platform costs, accelerate theexpansion of our merchant acquisition business into Latin America andAsia Pacific, and continue to innovate
across networks using blockchain
TO OFFER
technology.
REAL-TIME PAYMENTS$475+ B

#1

OF CAPITAL

More than $475 billion raisedfor clients in the capital markets

We expect to see periods of volatility
in the future, and we are committed
to managing risk in a dynamic way
no matter what market conditions
BLOCKCHAIN-BASED
weface. That requires us to be disciWHOLESALE PAYMENTS
PAYMENT NETWORKThat focus has generated results forplined and not overextend ourselves,
our shareholders,too. In addition to$6 trillion of wholesaleFirst to createa strengths and doing
trusting
in ourearning an
industry-leading
payments
processed daily return on blockchain-based payment
what is right.
information network
equity, our market share among the
CIB’s largest competitors grew theAround the world
most year-over-year, even after outpacing the group between 2014 and 2017, Investors always assess geopoliticalrisks, and 2018 provided no shortage
according to data from Coalition.
of them. For our part, we constantly
We know that profitability stems
monitor and stress test our positions.
from serving clients
We take a long-term view of client
U.S. BANKwell, and the
UNDER CUSTODY
COINtoday always ASSETS
choices we WITH
are DIGITAL
makingrelationships
and investments whilestart with the same two-part quesmaintaining
disciplineon underwritSecurities Services continued
First to offertoreal-timeFirst U.S. bank with
$23.2 trillion client assets
tion:
Is
this
the
right
thing
to
do
for
ing
standards
andrisk
concentrations
payments
in U.S.
dollars, euros
a digital coin
under custodygrow and transformin 2018
while
and British pounds sterling our clients and for the long term?
across clients, countries and products.
benefiting from higher
interest rates

#1

FIRST

and client balances. The businesstook on an unprecedented amount of
new client business while at thesame time streamlining infrastructure and upgrading systems.
In addition to onboarding more than
$1 trillion in assets from BlackRock,
there were many other significant successes. New business wins globally
have led to a growth in assets undercustody of approximately $2.7 trillion
since the start of 2017. Such mandates
helped drive revenue up 8% in 2018
to $4.2 billion, while we maintained
industry-leading operating margins
and high client satisfaction scores.
Although our overall results are
impressive, it’s important for us tostay hungry and focused on ourclients, anticipate changes and neverlapse into complacency. We embrace
disruption – even as the market

leader – and continually invest indigital technologies to provide clientswith data and insights when andwhere they want them.

$6T

FIRST

FIRST

$23.2T#1 Global
Trading House

The economic cycle
From an economic perspective, fundamental growth continues to support the longest postwar expansion
in history. Corporate earnings andbalance sheets are healthy, U.S.
unemployment is near record lows
and we are not seeing signs of deteriorating credit quality.
That said, I believe we are closer tothe end of the expansionary cycle
than the beginning. My sense is thatthe market volatility in the fourth
quarter of 2018 was partly due
to fear among investors that the
downturn was coming sooner than
expected. Meanwhile, “flash crashes”
are becoming more frequent. These
are a function of a number of factors,
including thinner liquidity acrossasset classes, fewer participants inthe market and a growing percentage
of automated trading volumes.

Potential opportunities in Asia
Pacific, particularly China, remain
significant. Last year, we announced
major growth plans for China,
including the appointment of a new
country chief executive officer alongwith a formal application to Chinese
regulators to establish a new, majority-owned securities company.
In Europe, our attention remains on
Brexit. Despite the uncertainty of the
U.K.’s future relationship with theEuropean Union, J.P. Morgan has
been planning for the worst while
hoping for the best. Regardless of
Brexit’s ultimate consequences,
J.P. Morgan will be able to serve
clients in any scenario. We’re fortunate to have branches, offices andtalented people across Europe, ensuring seamless client service before,
during and after Brexit.

57

#1

WHOLESALE PAYMENTS

Top Global
Research Firm

$6 trillion of wholesale
payments processed daily

FIRST

FIRST

FIRST

#1

BLOCKCHAIN-BASEDPAYMENT NETWORKFirst to create ablockchain-based payment
information network$23.2TTO OFFER
REAL-TIME PAYMENTS

U.S. BANKWITH DIGITAL COINASSETS UNDER CUSTODYFirst to offer real-time
payments in U.S. dollars, euros
and British pounds

First U.S. bank witha digital coin$23.2 trillion client assets
under custodyTechnology
We’ve learned the hard way that it isincredibly costly to lose a leadership
position due to a failure to embracechange. Our firm was a leader in foreign exchange in the late 1990s, but
by resisting rather than embracing
electronic trading, we lost market
share. It took many years and millions of dollars of investment torecapture our leadership – illustrating
the crippling effect that short-term
thinking can have on a business.
That lesson is one of the many reasons we continue to reinvest suchsignificant sums – now more than
$11.5 billion per year – into technology across the firm.
As electronification of the trading
markets continues across asset
classes, we are building sophisticatedtrading platforms, such as Algo
Central, enabling clients to use predictive analytics to tailor orders andeven change the speed and execution
style while the trade is live.
In Securities Services, which safeguards more than $23 trillion inclient assets, we extended ourInvestment Analytics Platform tomore than 200 large investor clients,
58$6T#1 Fixed Income Trading
market share#1
Co #1 Equity Trading
market sharegiving them clearer insight into theirown portfolios and helping them better manage the risks and concentrations associated with their positions.

dashboard. This transparency only
strengthens relationships and provides even more value to companies
that look to us for strategic advice.

In wholesale payments, more than
180 international banks have signed
on to be part of J.P. Morgan’s Interbank Information Network, whichuses blockchain technology toinstantly transfer global payment
information among correspondentbanks, allowing funds to reach beneficiaries faster and with fewer steps.
We are also the first bank to offer
real-time payments in U.S. dollars,
euros and British pounds, and thefirst U.S. bank to create and test a
digital coin for instantaneous crossborder payments using blockchain.

There is also a large opportunity to
improve efficiencies internally using
technology. About 40% of time inglobal operations is spent on servicing
client accounts, including answering
queries. As we develop systems to better direct those requests, we will spend
less time searching for answers andmore time responding to client needs.

In investment banking, we are using
technology to empower bankers andstrengthen connections with clients.
With access to a wealth of information about M&A and the capital markets, bankers can sit side by side withclients, review trends and evaluate
timely capital raises or even model
what might happen to their stock in
an activist situation. Treasurers canview our top-ranked research, evaluate various financial metrics and create custom reports on an easy-to-use

With our scale, global footprint andleadership, we have the ability to analyze data and generate insights like noother financial services company inthe world. We increasingly see ourbusiness as a platform to which clients can connect for whatever financial products and services they need.
Most exciting, perhaps, is the innovative spirit surging through the bank.
Last September, we kicked off a competition in which teams of analysts
and associates across the CIB wereinvited to submit their best ideas formaking the company faster, smarterand better. In a span of several weeks,
the teams submitted 469 ideas, manyof which we are already taking for-

ward with funding. The competition
showcased the amazing talent emerging within the organization and fueled
optimism about our bank’s future.
Communities and partnerships
Being part of a firm that has four
best-in-class franchises is extraordinary. The talent and resources we
can mobilize for a client, a government, an industry or a new market
are unmatched. Our work in Detroit
is well-known: We have partneredwith local officials and organizations,investing $150 million in the city’s
economic recovery. This effort goesbeyond a financial commitment.
Through the JPMorgan Chase Service Corps, teams of our colleagues
are working on-site at local nonprofit
partners to solve specific challenges.
I’m proud to say that the firm isextending its resources to other cities
and communities, such as Greater
Paris and Chicago. As a global bankwith clients and employees aroundthe world, we believe we can add
value by partnering with local
governments and organizations to
expand access to jobs and skills foryoung people and adults and help
regional businesses grow.

We are also working with colleagues
across the bank to support different
segments of the economy. The CIB’s
integration with Chase Merchant Services is aimed at making international
payments seamless for both consumers and e-commerce companies. Similarly, being able to offer best-in-classadvice and capital markets expertise
to 19,000 midsized companies on
Commercial Banking’s roster helped
yield $2.5 billion of North America
investment banking revenue during
2018 – a record. Our bankers are planning to gradually extend efforts to
midsized companies in Europe andLatin America as well. We’re also
working with the Private Bank to
expand our coverage of family offices
across the U.S. and around the world.

vibrant, energetic employees, is propelling our company to the forefrontof digital banking and is positioning
us to serve our clients with the innovative, effective financial strategies
they will need in the years to come.

Conclusion
We have worked hard over many
years to earn our place as an industry leader – in market share, financial
strength and reputation. As we transform our business for the future, wewill build on our legacy of success bytaking advantage of strategic growth
opportunities while maintaining dayto-day discipline. Our experienced
and talented CIB leadership team,bolstered by the next generation ofDaniel E. Pinto
Co-President and Chief Operating
Officer, JPMorgan Chase & Co., andCEO, Corporate & Investment Bank

2018 HIGHLIGHTS AND ACCOMPLISHMENTS• The CIB had earnings of $11.8 billion
on $36.4 billion of revenue, producing a best-in-class ROE of 16%.
• J.P. Morgan ranked #1 in global
investment banking fees for the 10thconsecutive year, ending 2018 withan 8.7% market share, the highest
share of any bank since 2009.
• J.P. Morgan ranked #1 in walletshare for both debt and equity capital markets, raising more than $475
billion for clients around the world.

• J.P. Morgan advised on 10 of the
top 20 M&A transactions in 2018
and generated a full-year recordin M&A revenue.

• Overall Markets revenue of $19.6 • With $23.2 trillion in assets
billion was up 6%, led by record
under custody, our Securities
revenue in Equities trading, which
Services business continued to
was up 21%.
win more client mandates acrossthe globe, helping to drive rev• J.P. Morgan ranked as the #1• Firmwide revenue in Treasury
enue up 8% in 2018.
Global Research Firm in InstituServices grew to nearly $9 billion
tional Investor magazine’s annual
in 2018. Our decision to integrate • More than 180 international banks
investor survey. We also ranked
the business with our Merchant
have signed on to be part of#1 in both All-America and AllServices offering now provides
J.P. Morgan’s Interbank InformaEurope Fixed Income, #1 in Allclients with access to the largest
tion Network, which uses blockAmerica Equity Research, and #2
wholesale payments network in
chain technology to instantly
in All-Europe Equity Research andthe world.
transfer global payment informaLatin America Research.
tion among correspondent banks.
59

Commercial Banking
In Commercial Banking (CB), we
continue to execute our long-term,
disciplined strategy, focused on helping our clients succeed and making a
positive difference in our communities. Across our business, we havebeen steadily investing to deliver
more value to our clients. I’m excitedabout what we’ve accomplished so
far and the tremendous opportunity
ahead of us. As you consider the
future for CB, it’s useful to reflect on
our progress over the last decade:• This 10-year perspective provides athrough-the-cycle lens, which is thebest way to measure the outcome ofour efforts, as well as the tremendous potential for CB. At every stepalong the way, we have been building with patience, selecting thebest clients and maintaining ourfortress principles.
• During this time, we commenced
our Middle Market expansion
efforts, focusing on delivering ourbroad-based capabilities to moreclients across the U.S. To date, wehave opened 67 new locations,
added 650 new bankers and set asolid foundation for continued
organic growth.
• In 2008, we acquired our Commercial Term Lending (CTL) franchisefrom Washington Mutual. Since
then, CTL has become the #1 multifamily lender in the U.S., as wehave made significant investments
to better serve our clients.
I’m incredibly proud of how ourteam is executing and the market
leadership positions we’ve established. You can see the outcome ofthis hard work and discipline in our
performance – over the past decade,
we’ve added high-quality loans anddeposits, nearly doubled revenue andtripled net income.
While we’re pleased with theseresults, we are not standing still. We
see enormous potential for our franchise and are building for the next
10 years and beyond. In this letter,I share highlights from our 2018
performance, the progress we aremaking on our strategic priorities
and the investments underway thatwill drive continued success for ourclients and CB.

Ten-Year Retrospective — Consistent Investment and Disciplined Growth($ in billions)
2008

2018

10-year CAGR

$9.1
$4.8

7%

Revenue$4.2

Net income

11%

$1.4

$206

Average loans

$82

$103

10%

$171

Average deposits 1
1

Deposits herein represent average client deposits and other third-party liabilities
CAGR = Compound annual growth rate

60

5%Record performance in 2018
In 2018, CB delivered outstanding
financial results. We generated record
revenue of $9.1 billion, up 5% yearover-year, and net income grew 20%
to a record $4.2 billion. We haveremained highly selective in growing
our loan portfolio, and our net chargeoffs were just 3 basis points for theyear. Our continued credit, expenseand capital discipline led to an industryleading overhead ratio of 37% and astrong return on equity of 20%.
Clients are at the center of everything
we do, and we’re delivering meaningful advice, solutions and capital tohelp them succeed. In 2018, we hired
more than 150 new bankers andmade nearly 30,000 more client calls.
Through these efforts, we added over
1,200 new relationships, grew loans
by $7.4 billion across our businessand ended the year with $206 billion
in average loan balances.
Being able to deliver our leading
investment banking capabilities
locally separates us from our competitors. Our partnership with the
Corporate & Investment Bank (CIB) is
outstanding and allows us to deepen
our strategic dialogue with clients.
Even while investment banking activity is market dependent, we havegrown revenue every year since the
JPMorgan Chase/Bank One merger in
2004. 2018 was no exception, as we
generated a record $2.5 billion in
Investment Banking (IB) revenue,
accounting for 39% of CIB’s North
America investment banking fees.
Growing our client franchise
Across all of our businesses, we havea tremendous opportunity to add
more great clients and deepen thoserelationships over time. Since launching our Middle Market expansion
efforts, we are local and active in 39
new metropolitan statistical areasand have added close to 2,800 new
clients. When we move into a newmarket, we are truly engaged in ourcommunities and deliver the fullpower and platform of our entire
firm. Client by client, banker bybanker, we have organically created anice-sized bank from scratch, building a $15 billion loan portfolio andan $11 billion deposit franchise. The
foundational investments we makeupfront, essentially our operating
infrastructure, are meaningful andare now largely in place. As our presence matures, these newer markets
will drive revenue growth, margins
and returns for many years to come.

Middle Market Banking and Specialized Industries — Market Opportunity

The growth potential for our Middle
Market business isn’t limited to our
expansion markets. Through datadriven analysis, we’ve identified andprioritized 38,000 prospective clients
nationally. Some of our most exciting opportunities are within our legacy markets, such as New York, Chicago, Dallas and Houston, where wehave been for over a century.

MMBSI = Middle Market Banking and Specialized Industries

Overall, we now have banking teams
in 116 locations across the U.S. These
markets account for roughly 70% of
the country’s gross domestic product,and our success will continue to be
driven by our exceptional teams, ourcomprehensive capabilities delivered
locally and CB’s ability to grow withclients over time.
Positioning for long-term success inCommercial Real Estate
Our Commercial Real Estate (CRE)
businesses are designed to thrive
through the cycle, and growth has
been highly selective and disciplined.
We are pleased with our performancein 2018, generating loan growth of 4%
and $24 billion in loan originations.
As we move into 2019, we will continue to target cycle-resistant seg-

Prospect density1
MMBSI footprint
1

Size of circle indicates relative number of prospects in a given city

ments and asset classes, watch market
conditions closely and maintain ourstrict underwriting criteria. By staying
true to these fundamentals, we
believe we can thoughtfully continue
to grow our CRE loan portfolio.
Enhancing our capabilities to deliver
more value
Recognizing that clients are in various stages of development and indifferent industries, we know they
have unique needs and priorities.
We also know that expectations are
shifting and that we need to continually raise the bar to deliver morevalue. As such, CB has dedicated,client-focused design teams working
to integrate, simplify and create
new functionality. These teams aredeveloping exciting new capabilities
that will deliver powerful solutions
while substantially improving theoverall client experience.
We are making significant investments in our digital and payments
capabilities, and this work is criticalto our value proposition. It will
enable our clients to connect with us
in the simplest way possible,

whether through application programming interfaces or an open
banking solution, and allow clientsto accept and collect payments fromanywhere in the world, in any currency. Finally, our ability to deliver
real-time data and insights will help
clients optimize and simplify theiroperations. The value we deliver
through these capabilities allows us
to build incredibly close client relationships and is the foundation forgathering and retaining long-term,
stable operating deposits.
Similarly, we are transforming how
we provide credit to our clients. As
an example, in CTL, speed and certainty of execution are critical. To
address this, we developed our proprietary loan origination platform,
CREOS. Today, we use CREOS to process 100% of our CTL volume andare seeing terrific results with morethan 40% of our loans closing in lessthan 30 days. This platform allows
our clients to focus on running theirbusiness and lets us deliver a superior client experience rather thancompete on pricing, terms and credit.

61

Making a positive difference in thecommunities we serve
In CB, we embrace our obligation to
be a positive force in our communities and are well-positioned to support the firm’s commitment to making a difference. In 2018, we financed
the development of more than 20,000
housing units for low-income individuals, and, notably, our Community
Development Banking team provided$188 million in capital to the nation’slargest Community Development
Financial Institutions. In addition, CB
supported local businesses, states andmunicipalities, school districts, nonprofits and higher education institutions with over $56 billion in capitalto help them deliver their criticalservices. Equally important to serving
our communities, last year CB
employees volunteered more than
20,000 hours at local organizations.

Looking forward
I hope you can see why I’m incredibly
proud of our franchise and excitedabout the opportunities ahead. CB’s
performance over the last 10 years
has set the standard for us going
forward. We have an exceptionalteam, outstanding capabilities andenormous market opportunities.
We believe we are well-prepared forwhatever market conditions areahead, and the investments we aremaking today will drive success for
decades to come.
All of this comes down to our clients. We are grateful for our longstanding relationships and appreciate the trust and confidence theyplace in JPMorgan Chase. I also wantto thank the entire CB team for making our business better every day
and their ongoing commitment toserving clients.

Douglas B. Petno
CEO, Commercial Banking

2018 HIGHLIGHTS AND ACCOMPLISHMENTS
Performance highlights

Business segment highlights• Delivered record revenue of$9.1 billion and record earnings
of $4.2 billion• Middle Market Banking — Record
gross Investment Banking
revenue4; added five new offices• Generated return on equity of 20%
on $20 billion of allocated capital• Corporate Client Banking —Record revenue, with strong
investment banking growth andrecord average loans• Continued superior credit quality— net charge-off ratio of 0.03%• Delivered an industry-leading
overhead ratio of 37%
Leadership positions• #1 U.S. multifamily lender1• #1 Traditional Middle Market
Bookrunner2• Winner of Greenwich Best Brand
Awards in Middle Market Banking— Overall, Loans and Lines ofCredit, Cash Management, International Products and Services3
62• Commercial Term Lending —Completed rollout of new CREOS
platform across the business,
resulting in more than 40% of newloans originated with normalized
controllable cycle times of lessthan 30 days
• Real Estate Banking — Record
net income, with revenue up 13%
from 2017• Community Development Banking —Provided over $1.5 billion in capitalfor affordable housing properties
and supported the firm’s AdvancingCities initiative with banking andcommunity engagement expertise• Investment banking — Record
gross revenue of $2.5 billion5;
8% CAGR since 2013
• International banking —Revenue6 of $400 million;
10% CAGR since 2013

Firmwide contribution• Commercial Banking clients
accounted for 39%5 of total North
America investment banking fees
• Over $145 billion in assets undermanagement from Commercial
Banking clients, generating approximately $500 million in investment
management revenue• $513 million in Card Services revenue4• $4.1 billion in Treasury Services
revenue
Progress in key growth areas• Middle Market expansion — Record
revenue of $649 million; 17% CAGR
since 2013

1 Rank based on S&P Global Market

Intelligence as of December 31, 2018
2 Refinitiv LPC, FY18
3 Greenwich Associates Commercial Banking

Study, 2018
4 Investment Banking and Card Services

revenue represents gross revenue generatedby CB clients
5 Represents the percentage and amount of

CIB’s North America investment banking
fees generated by CB clients, excluding feesfrom fixed income and equity markets,
which is included in CB gross IB revenue
6 Non-U.S. revenue from U.S. multinational

clients
CAGR = Compound annual growth rate

Asset & Wealth Management
In 2018, we marked the 10-year anniversary of the global financial crisis,emanating from the U.S., thatshocked financial markets all aroundthe world. Investors with the fortitude to remain steadfast on theirlong-term investing journey andwithstand the tremendous volatility
have been highly rewarded. But for
many others in the decade since2008, it has been difficult to endure
the severe drawdowns and evenmore challenging to ever fully re-risk.
2018 didn’t enhance confidence inmarkets either – for the first time inthis century, cash was the only major
publicly traded U.S. asset class to generate a positive return for investors.
Fiduciaries since 1881
Reflecting over the past decade, I am
proud of how our teams have helped
clients – from those with a small
savings account to the world’s largest
pension and sovereign wealth funds– navigate this volatile period. As
stewards of wealth, we measure success by our ability to drive positive
client outcomes over time, and we
recognize the responsibility andprivilege that come with serving asa fiduciary. Since launching our firstinvestment product in 1881 – onethat is still available today – our
J.P. Morgan culture has remainedcommitted each and every day todelivering to clients the strongest
risk-adjusted investment returns
we can uncover in the markets.

SMART RETIREMENT
Upgraded to Gold,ranked top quintile over 10 years

Strong investment performance
2018 marked another impressive
year in investment performance versus our competitors, with more than
83% of our mutual fund assets
under management (AUM) aroundthe world outperforming the peer
median over the 10-year period.
In 2018, we were recognized by
Morningstar with five important ratings upgrades, representing almost$70 billion in client assets. SmartRetirement was upgraded to Gold,making it the only active target datemanager in the industry with a Goldrating. Global Allocation, Small Cap
Equity and Growth & Income allwere upgraded to Silver. Core Plus
Bond was upgraded to Bronze.
Our impressive investment performance attracted $25 billion of net
new asset flows in 2018, marking
83%
our 10th consecutive year of net
longterm inflows and bringing the total
assets entrusted to us to $2.7 trillion.

Upgraded to Silver,
ranked top decile over 5 years

Upgraded to Silver,
ranked top decile over 5, 10 & 15 years

Upgraded to Silver,83%
ranked top quintile over 5 & 10 years

Created by Fahmi
from the Noun Project

Upgraded to Bronze,
ranked top quartile
over 5 & 10 years
93%

2018 % of J.P. Morgan Asset Management Long-Term Mutual Fund AUM
Outperforming Peer Median over 10 years 1 83%(net of fees)

1

93%

59%

Total J.P. Morgan
Asset Management

EquityFixed Income

Multi-Asset Solutions& Alternatives

83%

93%

59%

85%

For footnoted information, refer to slide 16 in the 2019 Asset & Wealth Management Investor Day presentation,
which is available at jpmorganchase.com/corporate/investor-relations/event-calendar.htm

AUM = Assets under management

93%

59%

85%

63

Importantly, our flows are not concentrated in any one asset class, region
or channel but come from a welldiversified set of global businesses.
Consistent financial performance
When we focus on client outcomes,
our own financial success follows.
Record revenue of $14.1 billion andrecord net income of $2.9 billion
enabled us to deliver a healthy 31%
return on equity for our shareholders. As we continue to invest
in the business for the future, ourdeeply embedded culture of risk
management allowed us to do sowhile holding our net charge-off
ratio to a very low 0.01%.
Top talent
Top talent is our single most important asset. We consistently attract,
train and cultivate many of the top
investment managers and advisors
in our industry, proudly retaining

more than 95% of our top talentover the last several years. In the
Wealth Management space, we
continue to broaden our coverage
and are approaching nearly 6,500
advisors, located all around theworld and close to where ourclients need us most. We willcontinue to expand our footprint
across the U.S. and other highgrowth areas such as China, where
we can import our firm’s expertise,
as well as welcome new local talent
into the J.P. Morgan family.
Product innovation
To help ensure we continue providing our clients with the solutions
they need today and into the
future, we are laser focused on
innovating new products everywhere we do business. There’s
nothing we can’t achieve when
we put the resources of this firm
behind an initiative, and theseare only a few examples:• Beta/ETFs: Just two years ago, we
started building our Beta business. Today, we offer beta capabilities and exchange-traded funds(ETF) ranging from active tostrategic beta and passive, with$43 billion in AUM. In 2018, our
U.S. ETF business ranked #4 inindustry flows, competing head
to head with firms that have long
led the rankings and were considered unassailable.
• You Invest: Launched in 2018, You
Invest has transformed the landscape for our retail clients. The
easy-to-navigate user interface andthe ability to access investments on
the go have attracted a new generation of clients, 89% of whom are
first-time investors with Chase.
And that’s only the beginning –later this year, we’ll be rolling out
our digital advice platform called
You Invest Portfolios.

JPMorgan Chase Total Client Asset Flows: 2014-2018 1
Fixed Income
ASSET CLASS/PRODUCT

EquityAUM

Multi-Asset
Alternatives

Assets=
AUM+AUS

Liquidity
Brokerage
AUS

Custody
Deposits

CHANNEL

Wealth Management
AssetsRetailInstitutional

REGIONU.S.
Assets

LatAm
EMEA
Asia

2014

2015

2016

2017

2018



























































































≥$0 <$0
1

For footnoted information, refer to slide 17 in the 2019 Asset & Wealth Management Investor Day presentation,
which is available at jpmorganchase.com/corporate/investor-relations/event-calendar.htm

AUM = Assets under management
AUS = Assets under supervision64

• Digital everything: Our ability toconnect with clients – however,wherever and whenever they needus – is paramount to our future
success. Our goal is to deliver
J.P. Morgan’s expertise 24/7, worldwide. One example of a recent
application we launched is Digital
Portfolio Insights. This cutting-edge
tool allows external financial advisors to access J.P. Morgan’s proprietary risk management analytics
to generate sophisticated andcustomized insights. In 2018, theseadvisors used the tool to help thembuild better portfolios for over
20,000 of their clients.

while delivering almost 280 modern
technology applications straight toour clients and advisors. Our relentless focus on product and system
optimization and continuous emphasis on cutting waste allow us to continuously reinvest in our future.

Simplify for growth

We have a proud legacy of doing
first-class business in a first-class way,
and we have extended that promise
to institutions, central banks, sovereign wealth funds and individuals.
It’s our history and our expertise thatgive us the fortitude and vision to
help our clients thrive in today’s
evolving market. No matter the
speed or scale of change, our fundamental mission remains the same:
We are relentlessly focused on

Our ability to innovate and to sustain
our growth requires us to have rigorous discipline around business simplification. Over the past few years, wehave merged or closed 229 funds
while launching 125 new products; wehave closed 21 front office locations inorder to open 17 new state-of-the-art
facilities; and we have decommissioned nearly 230 legacy system tools

driving toward the best client outcomes, and we believe that focus is
the engine of our continued success.
I couldn’t be more proud of what wehave delivered for our clients and ourshareholders, and I have never been
more excited for what is to come.

Fortitude
In this time of rapid change andcompetition, we are fortunate to bepart of the broader JPMorgan Chaseorganization, where we all constantly
challenge one another to use ourexpertise, scale and invaluable clientbase to continuously reimagine thefuture of how we serve our clients.

Mary Callahan Erdoes
CEO, Asset & Wealth Management

2018 HIGHLIGHTS AND ACCOMPLISHMENTS
Business highlightsth• 10 consecutive year of net
long-term inflows• Record revenue of $14.1 billion• Record net income of $2.9 billion• Record average loan balancesof $139 billion• Record average mortgagebalances of $41.5 billion• More than 83% of our longterm mutual fund AUM
outperformed the peer medianover the 10-year period• Retention rate of over 95%
for top talent

Leadership positions• Best Global Provider of
Short-Term Investments/
Money Market Funds(Global Finance, March 2019)• Best Tech Innovation in
Data Globally(The Banker, August 2018)• North America Asset Managerof the Year
(Reactions, November 2018)• Asset Manager of the Year for
Asia (AsianInvestor, June 2018)• Leading Pan-European FundManagement Firm (Thomson
Reuters/Extel, June 2018)• Retirement Leader of the Year
(Fund Action, June 2018)• ETF Issuer of the Year
(ETF.com, March 2019)• Best Private Bank for Research &Asset Allocation Globally(Euromoney, February 2019)• Best Private Bank for
Ultra-High-Net-Worth Globally(FT/PWM magazine, November 2018)65

Corporate Responsibility
In an era characterized by deepsocial divisions and widening economic disparity all over the world,companies like ours have a responsibility to be leaders in finding solutions. This is not simply about beinga good corporate citizen; it is a business imperative. The success of ourfirm is inextricably linked to thesuccess of our communities.

age our firm’s expertise: building job
skills, expanding small businesses,
revitalizing neighborhoods andpromoting financial health.
Over the last five years, we haverefined this model in Detroit, where
we made a $150 million commitment
to the city’s economic recovery. The
results have exceeded our expectations. People are moving back. The
unemployment rate is down from
20% in 2013 to less than 9% today.
For the first time in 17 years, home

Many of today’s challenges stemfrom the reality that, despite a growing economy, people are working“

Business has an obligation and a vested interest in
ensuring our system delivers on its unrivaled potential
to create widely shared economic opportunity.

”
harder but are unable to get ahead.
The average American family has
seen its net worth move backward
over a generation. Meanwhile, forevery $100 in white family wealthtoday, black families hold just about$5. For far too many people, thesystem is not working.
Business has an obligation and avested interest in ensuring oursystem delivers on its unrivaled
potential to create widely sharedeconomic opportunity. That’s why
JPMorgan Chase is applying thesame capabilities and resources thatenable us to deliver Return on Investment for our shareholders to generate
what we call ‘Return on Community.’This means we are making intentional, long-term investments aimed
at lifting those who are being left
behind, focused where we can lever66

values have risen and mortgage
lending is up. While much work
remains to be done, there is a senseof optimism once again, particularly
among young people who now seea future for themselves in their city.
In 2018, we took a major step to
expand the number of people andplaces we reach by launching
AdvancingCities, our firm’s $500
million initiative to drive inclusive
growth around the world. While
many cities are experiencing growing economies, vibrant downtown
cores often obscure large pockets ofconcentrated poverty. At the sametime, cities offer the opportunity
to drive large-scale innovation andimpact. Through AdvancingCities,
we are combining our businessand philanthropic resources to doexactly that.

These efforts underscore the degree
to which our mission to drive inclusive growth has become a fundamental tenet of our culture. Through ourmarket expansion, kicked off in 2018,
we are bringing the full force of ourfirm to advance this mission. We are
opening 400 new Chase branches,enabling us to lend to more customers, offer more good jobs and further
invest in neighborhoods. The firstof these branches are now open in
Boston, Philadelphia and Washington, D.C., where we are pairing themwith expanded lending and philanthropic commitments, focused inlow- and moderate-income areas.
And we are actively working to hire
locally while raising wages for ourentry-level employees.
Opening doors to opportunity
transforms lives, lifts entire communities and strengthens the global
economy. It is also the best way torepair the societal fractures that
increasingly divide us – and that’s
the right thing to do for our firm
and for our shareholders.

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

Generating Return on Community
JPMorgan Chase believes that companies mustdo even more to help solve today’s biggest
challenges and create economic opportunity
for more people. To do so, they must invest incommunities the same way they invest in theirown businesses. As announced in early 2018,
our firm will deploy $1.75 billion by 2023 todrive inclusive growth in communities aroundthe world. Generating Return on Community
is one of our core objectives because we knowthat the future of our company depends on thewell-being of our communities.
To create and sustain lasting positive change,
JPMorgan Chase is investing in four key driversof opportunity, areas that are aligned with ourbusiness expertise: jobs and skills, small business expansion, neighborhood revitalizationand financial health. We are putting this model
into action through significant, long-term anddata-driven investments that leverage ourfirm’s expertise, capital, data, technology andglobal presence.

Building branches, strengthening ourcommunities

Unlocking the power of data for publicgood

As we expand our consumer business, we arealso increasing our philanthropic commitment
to our communities. For example, in 2018, weannounced plans to open 70 new branches in
the Greater Washington region and hire 700
new employees, the first major branch expansion as part of our firm’s $20 billion, five-year
investment in our business and local economic
growth. To fuel the economy of this region, we
committed $4 billion in lending for home mortgages and small business and $500 million to
support affordable housing. In addition,roughly 20% of our branches in the region willreside in low- and moderate-income communities. We also doubled our philanthropic investment, committing $25 million to create economic opportunity for residents at risk of being
left behind in today’s economy.

We are harnessing our scale and scope to shedlight on the inner workings of today’s global
economy. The JPMorgan Chase Institute seeks
to help decision makers — policymakers, businesses and nonprofit leaders — use timely data
and thoughtful analyses to make informed
decisions that advance inclusive growth aroundthe world. Drawing on our firm’s unique proprietary data, expertise and market access, theInstitute develops analyses and insights on the
inner workings of the global economy, frames
critical problems, and convenes stakeholders
and leading thinkers around solutions. Our
firm’s data informs all of our strategic investments in communities around the world.

• Local commerce activity, leveraging 4 billion
credit and debit card transactions fromnearly 7.7 million customers to provide an
unprecedented view of the online U.S. economy, examining how online commerce hasgrown, who has driven that growth, and how
it has impacted brick-and-mortar merchants;

AdvancingCities — Expanding opportunity
at scale
Our model for impact has yielded real results so
we are doubling down on our commitment todrive inclusive growth and expanding the number of people and places we reach. JPMorgan
Chase launched AdvancingCities — our largest,
most comprehensive corporate responsibility initiative to date to invest in solutions that bolster
the world’s cities and the people within them.
This initiative will allow us to deepen our workin cities in two ways: through targeted commitments in key markets where the conditions
exist for large-scale investments and throughan annual Challenge that will accelerate collaborative, innovative solutions designed by local
leaders and residents to break down barriers
to opportunity.
To catalyze sustainable growth, we are combining our firm’s philanthropic efforts with ourlending and investing expertise to deploy up
to $250 million as low-cost, long-term loan
capital. We expect our investment to attract
an additional $1 billion in outside capital.
In 2018, marking our 150th anniversary inFrance, JPMorgan Chase announced its
first AdvancingCities commitment — a $30
million, five-year philanthropic investment
to provide underserved residents and local
entrepreneurs across Greater Paris accessto economic opportunity.

In 2018, the Institute shared valuable analyses
and insights on:• Families’ out-of-pocket healthcare spending
trends from 2014 to 2017;

One such investment is the $6 million we committed in 2018 to prepare Greater Washingtonarea students for local, in-demand technology
jobs. As an employer, we hear from so many of
our clients and employers about their struggle
to find workers with the right skills. In 2017,
only 3,000 individuals obtained associatedegrees and other sub-baccalaureate credentials in digital skills and technology, while there
were 15,000 jobs that needed those credentials
in the region. Demand for tech workers withless than a four-year degree increased by 42%
in the region between 2014 and 2017.
As part of our firm’s global New Skills for Youthinitiative, our investment will support fiveschool districts in Virginia, Washington, D.C.,
and Maryland and enable them to partner withlocal colleges and universities to build career
pathways for students that lead to well-paying
technology jobs.

• Growth and evolution of the Online Platform
Economy, exploring its scale, key segments,characteristics and how earnings from platforms figure into family income;• Challenges, opportunities and life cyclesof America’s small businesses by analyzing
revenue and cash flows of 1.3 million small
businesses;• Institutional investor trading behavior inforeign exchange markets around three
events that led to the largest one-day moves
in the relevant currencies in the last 20
years: Brexit, the 2016 U.S. presidential election and the decision by the Swiss National
Bank to remove the Swiss franc floor; and• Americans’ tax refunds by income and otherdemographic characteristics, as well as theimpact of tax refunds on healthcare spending.

672018 HIGHLIGHTS AND ACCOMPLISHMENTS

Awards and recognition• Ranked Top 10 on Fortune magazine’s
World’s Most Admired Companies list
• Named to Fortune magazine’s Change theWorld list for the second year in a row• Named to The Chronicle of Philanthropy’s
Top 20 Corporate Givers list
• Named recipient of the International Medical
Corps’ Global Citizen Award• Harvard Business School (in a 2018 case study)
profiled the firm’s model for impact in Detroit
and how it’s being applied in other cities• Named to the Military Times’ Best for Vets
Employers list
• Named an ENERGY STAR® Partner of theYear, recognized by the U.S. Environmental
Protection Agency and U.S. Departmentof Energy

received services to improve their financial health; 1,246 jobs were created orretained; and 1,319 small businesses
received capital or technical assistance• Greater Washington region: One year into
our $25 million commitment:— 590 units of affordable housing were created or preserved; 312 jobs were createdor retained; 722 small businesses received
capital or technical assistance• Through New Skills at Work, over the past
five years, we have helped nearly 150,000
people receive skills training for well-paying
jobs in growing industries by partnering with
about 740 nonprofits, investing $250 million
in job training and career education initiatives in 37 countries, as well as 30 U.S.
states and Washington, D.C.

• Named to Black Enterprise’s 50 Best
Companies for Diversity list

Generating Return on Community through ourcomprehensive, multimillion-dollar commitments to Detroit, Chicago and the Greater
Washington region:— 13,573 people participated in workforce
programs; 1,632 units of affordable housing were created or preserved; 13,180
people received services to improve theirfinancial health; 2,067 jobs were createdor retained; 4,387 small businesses
received capital or technical assistance• In 2018, provided $3.2 billion for windand solar projects in the U.S. Since 2003,
JPMorgan Chase has committed or arranged
more than $21 billion in financing for wind,solar and geothermal projects in the U.S.
• Awarded our 1,000th mortgage-free home toa U.S. military veteran, reaching all fivebranches of service in communities across
44 states.
• Engaged our employees to serve ourcommunities:

Accomplishments• Detroit: Five years into our $150 million
commitment:• To date, hosted five Partnerships for Raising
Opportunity in Neighborhoods (PRO Neighborhoods) competitions, awarding morethan $98 million to over 70 Community
Development Financial Institutions acrossthe U.S. After our $68 million commitment,
the winners of the first three competitions
raised an additional $713 million in outside
capital, issued over 21,000 loans to low- andmoderate-income customers, and created orpreserved more than 3,000 affordable housing units and 11,000 quality jobs.

• Through our global commitment to promote
financial health:— Announced eight financial services innovators as winners of the Financial Solutions Lab (FinLab) 2018 Challenge,
focused on improving consumer financial
health in the U.S. To date, FinLab has
supported more than 30 innovative financial technology (fintech) companies thathave raised over $500 million in capital
since joining the program, saving U.S.
residents more than $1 billion.

— Nearly 59,000 employees volunteered
more than 389,000 hours in 2018. This
includes 218 employee volunteers fromoffices in 15 countries who contributed
18,500 hours working on-site with 49of our nonprofit partners through the
JPMorgan Chase Service Corps.
— Within the first three months of the firm’s
Board Match program — which doubles
the impact of eligible employees’ donations to nonprofits on whose boards they
serve — 271 employees contributed,
resulting in the firm matching more than
$1.3 million to those organizations.

— Launched the Financial Inclusion Lab inIndia, applying insights from the Lab in
the U.S. to help scale early-stage fintech
startups that are focused on helping
India’s underserved communities.

• Chicago’s South and West sides: One year
into our $40 million commitment:— 2,857 people participated in workforce
programs; 176 units of housing werecreated or preserved; 5,341 people
68• Expanded the Entrepreneurs of Color Fund(EOCF) from Detroit to Chicago, the SouthBronx and the Bay Area, providing minority
entrepreneurs with access to capital, education and other resources to build and growtheir businesses. Through 2018, JPMorgan
Chase has committed $13.6 million throughEOCF, resulting in 210 loans totaling $9.5
million that created or retained 1,200 jobs.

— In 2018, our firm and employees donatedmore than $4 million to assist disaster
relief efforts around the globe.

Table of contents

Financial:
40

Five-Year Summary of Consolidated Financial
Highlights

Audited financial statements:

41

Five-Year Stock Performance

148

Management’s Report on Internal Control Over
Financial Reporting

149

Report of Independent Registered Public Accounting
Firm

Management’s discussion and analysis:
42

Introduction

150

Consolidated Financial Statements

43

Executive Overview

155

Notes to Consolidated Financial Statements

48

Consolidated Results of Operations

52

Consolidated Balance Sheets and Cash Flows Analysis

55

Off–Balance Sheet Arrangements and ContractualCash Obligations

57

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

Supplementary information:

60

Business Segment Results

287

Selected quarterly financial data (unaudited)

79

Enterprise-wide Risk Management

288

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

84

Strategic Risk Management

293

Glossary of Terms and Acronyms

102

Credit and Investment Risk Management

124

Market Risk Management

132

Country Risk Management

134

Operational Risk Management

141

Critical Accounting Estimates Used by the Firm

Note:

144

Accounting and Reporting Developments

147

Forward-Looking Statements

The following pages from JPMorgan Chase & Co.’s 2018
Form 10-K are not included herein: 1-38, 300-311

JPMorgan Chase & Co./2018 Form 10-K

39

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
Book value per share
Tangible book value per share (“TBVPS”)(a)Cash dividends declared per share
Selected ratios and metrics
Return on common equity (“ROE”)
Return on tangible common equity (“ROTCE”)(a)Return on assets (“ROA”)
Overhead ratio
Loans-to-deposits ratio
Liquidity coverage ratio (“LCR”) (average)(b)Common equity tier 1 (“CET1”) capital ratio(c)Tier 1 capital ratio(c)Total capital ratio(c)Tier 1 leverage ratio(c)Supplementary leverage ratio (“SLR”)(d)Selected balance sheet data (period-end)
Trading assets
Investment securities
Loans
Core Loans
Average core loans
Total assets
Deposits
Long-term debt
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(e)Nonperforming assets
Net charge-offs
Net charge-off rate

2018

2017

$ 109,029
63,39445,635
4,871
40,7648,290$ 32,474$ 100,705
59,51541,1905,290
35,90011,459$ 24,441

$

$

9.04
9.00
3,396.4
3,414.0$ 319,780
3,275.8
70.35
56.33
2.72

$ 366,301
3,425.3
67.04
53.56
2.12

13%
17
1.24
58
67
113
12.0
13.7
15.5
8.1
6.4%
$ 413,714
261,828
984,554931,856885,2212,622,532
1,470,666
282,031
230,447
256,515
256,105

6.35
6.31
3,551.6
3,576.8

2016
$

(f)

$
$

$ 381,844
249,958
930,697
863,683
829,558
2,533,600
1,443,982
284,080
229,625
255,693
252,539

96,56956,67239,897
5,361
34,536
9,803
24,733

$

6.24
6.19
3,658.8
3,690.0$$ 307,295
3,561.2
64.06
51.44
1.88

10%
12
0.96
59
64
119
12.2
13.9
15.9
8.3
6.5%

2015

$

$ 372,130
289,059
894,765
806,152
769,385
2,490,972
1,375,179
295,245
228,122254,190
243,355

94,44059,911
34,5293,827
30,702
6,260
24,442

$

6.05
6.00
3,741.2
3,773.6$$ 241,899
3,663.5
60.46
48.13
1.72

10%
13
1.00
59
65
N/A
12.3
14.0
15.5
8.4
6.5%

2014

$

5.33
5.29
3,808.3
3,842.3$ 232,472
3,714.8
56.98
44.60
1.58

11%
13
0.99
63
65
N/A
11.8
13.5
15.1
8.5
6.5%
$ 343,839
290,827
837,299
732,093
670,757
2,351,698
1,279,715
288,651
221,505
247,573234,598

95,994
62,156
33,8383,139
30,6998,954
21,745

10%
13
0.89
65
56
N/A
10.2
11.6
13.1
7.6
N/A
$ 398,988
348,004
757,336
628,785596,823
2,572,274
1,363,427
276,379
211,664
231,727
241,359$

14,500 $
1.39%
1.23

14,672
1.47%
1.27

$

14,854 $
1.55%
1.34

14,341 $
1.63%
1.37

14,807
1.90%
1.55

$

5,190 $
4,856
0.52%

6,426
$
5,387
0.60% (g)7,535 $
4,692
0.54%

7,034 $
4,086
0.52%

7,967
4,759
0.65%

Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, priorperiod amounts were revised. For additional information, refer to Note 1.
(a) TBVPS and ROTCE are non-GAAP financial measures. For a further discussion of these measures, refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP
Financial Measures and Key Performance Measures on pages 57-59.
(b) For the years ended December 31, 2018 and 2017, the percentage represents the Firm’s reported average LCR for the three months ended December 31, 2018 and 2017,
per the U.S. LCR public disclosure requirements which became effective April 1, 2017. Refer to Liquidity Risk Management on pages 95–100 for additional information on
the Firm’s LCR.
(c) Ratios presented are calculated under the Basel III Transitional capital rules and for the capital ratios represent the lower of the Standardized or Advanced approach. As of
December 31, 2018, the Firm’s capital ratios were equivalent whether calculated on a transitional or fully phased-in basis. Refer to Capital Risk Management on pages
85-94 for additional information on Basel III.
(d) Effective January 1, 2018, the SLR was fully phased-in under Basel III. The SLR is defined as Tier 1 capital divided by the Firm’s total leverage exposure. Ratios prior to2018 were calculated under the Basel III Transitional rules, per the SLR public disclosure requirements which became effective January 1, 2015.
(e) Excluded the impact of residential real estate purchased credit-impaired (“PCI”) loans, a non-GAAP financial measure. For further discussion of these measures, refer toExplanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 57-59, and the Allowance for credit losses on
pages 120–122.
(f) On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law. The Firm’s results for the year ended December 31, 2017 included a $2.4 billion decrease
to net income as a result of the enactment of the TCJA. For additional information related to the impact of the TCJA, refer to Note 24.
(g) Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for the year ended December 31, 2017 would have been 0.55%.

40

JPMorgan Chase & Co./2018 Form 10-K

FIVE-YEAR STOCK PERFORMANCE
The following table and graph compare the five-year cumulative total return for JPMorgan Chase & Co. (“JPMorgan Chase” or
the “Firm”) common stock with the cumulative return of the S&P 500 Index, the KBW Bank Index and the S&P Financial Index.
The S&P 500 Index is a commonly referenced equity benchmark in the United States of America (“U.S.”), consisting of leading
companies from different economic sectors. The KBW Bank Index seeks to reflect the performance of banks and thrifts that are
publicly traded in the U.S. and is composed of leading national money center and regional banks and thrifts. The S&P Financial
Index is an index of financial companies, all of which are components of the S&P 500. The Firm is a component of all threeindustry indices.
The following table and graph assume simultaneous investments of $100 on December 31, 2013, in JPMorgan Chase common
stock and in each of the above indices. The comparison assumes that all dividends are reinvested.
December 31,(in dollars)

2013

2014

2015

2016

2017

2018

JPMorgan Chase$ 100.00$ 109.88$ 119.07$ 160.23$ 203.07$ 189.57

KBW Bank Index

100.00109.36109.90141.23167.49137.82

S&P Financial Index

100.00115.18113.38139.17169.98147.82

S&P 500 Index

100.00113.68115.24129.02

157.17150.27

December 31,(in dollars)

JPMorgan Chase & Co./2018 Form 10-K

41

Management’s discussion and analysis
The following is Management’s discussion and analysis of the financial condition and results of operations (“MD&A”) of JPMorgan
Chase for the year ended December 31, 2018. The MD&A is included in both JPMorgan Chase’s Annual Report for the year ended
December 31, 2018 (“Annual Report”) and its Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form
10-K”) filed with the Securities and Exchange Commission (“SEC”). Refer to the Glossary of terms and acronyms on pages 293–299
for definitions of terms and acronyms used throughout the Annual Report and the 2018 Form 10-K.
The MD&A contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of1995. These statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject tosignificant risks and uncertainties. For a discussion of certain of those risks and uncertainties and the factors that could cause
JPMorgan Chase’s actual results to differ materially because of those risks and uncertainties, refer to Forward-looking Statements
on page 147) and Part I, Item 1A: Risk factors in the 2018 Form 10-K.

INTRODUCTION
JPMorgan Chase & Co. (NYSE: JPM), a financial holding
company incorporated under Delaware law in 1968, is aleading global financial services firm and one of the largest
banking institutions in the United States of America(“U.S.”), with operations worldwide; JPMorgan Chase had$2.6 trillion in assets and $256.5 billion in stockholders’equity as of December 31, 2018. The Firm is a leader ininvestment banking, financial services for consumers andsmall businesses, commercial banking, financial transaction
processing and asset management. Under the J.P. Morgan
and Chase brands, the Firm serves millions of customers in
the U.S. and globally many of the world’s most prominent
corporate, institutional and government clients.

For management reporting purposes, the Firm’s activities
are organized into four major reportable businesssegments, as well as a Corporate segment. The Firm’s
consumer business is the Consumer & Community Banking(“CCB”) segment. The Firm’s wholesale business segments
are Corporate & Investment Bank (“CIB”), Commercial
Banking (“CB”), and Asset & Wealth Management (“AWM”).
For a description of the Firm’s business segments, and the
products and services they provide to their respective client
bases, refer to Business Segment Results on pages 60-78,
and Note 31.

JPMorgan Chase’s principal bank subsidiaries are JPMorgan
Chase Bank, National Association (“JPMorgan Chase Bank,
N.A.”), a national banking association with U.S. branches in
27 states and the District of Columbia as of December 31,
2018, and Chase Bank USA, National Association (“Chase
Bank USA, N.A.”), a national banking association that is the
Firm’s principal credit card-issuing bank. In January 2019,
the OCC approved an application of merger which was filed
by JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. in
December 2018 and which contemplates that Chase Bank
USA, N.A. will merge with and into JPMorgan Chase Bank,
N.A., with JPMorgan Chase Bank, N.A. as the surviving bank.
For additional information refer to Supervision andRegulation on pages 1-6 in the 2018 Form 10-K. JPMorgan
Chase’s principal nonbank subsidiary is J.P. Morgan
Securities LLC (“J.P. Morgan Securities”), a U.S. brokerdealer. The bank and non-bank subsidiaries of JPMorgan
Chase operate nationally as well as through overseas
branches and subsidiaries, representative offices andsubsidiary foreign banks. The Firm’s principal operating
subsidiary in the U.K. is J.P. Morgan Securities plc, asubsidiary of JPMorgan Chase Bank, N.A.

42

JPMorgan Chase & Co./2018 Form 10-K

EXECUTIVE OVERVIEWThis executive overview of the MD&A highlights selected
information and does not contain all of the information that is
important to readers of this 2018 Form 10-K. For a complete
description of the trends and uncertainties, as well as therisks and critical accounting estimates affecting the Firm andits various lines of business, this 2018 Form 10-K should beread in its entirety.
Effective January 1, 2018, the Firm adopted several new
accounting standards, of which the most significant to theFirm was the guidance related to revenue recognition, andrecognition and measurement of financial assets. The
revenue recognition guidance requires gross presentation ofcertain costs that were previously offset against revenue.
This change was adopted retrospectively and, accordingly,
prior period amounts were revised, resulting in both total
net revenue and total noninterest expense increasing with no
impact to net income. The adoption of the recognition andmeasurement guidance resulted in $505 million of fair value
gains in the first quarter of 2018, recorded in total net
revenue, on certain equity investments that were previously
held at cost. For additional information, refer to Note 1.
Financial performance of JPMorgan Chase
Year ended December 31,(in millions, except per share data
and ratios)

2018

2017

ChangeSelected income statement data
Total net revenue$109,029$100,705

Total noninterest expense

63,39459,5158%7Pre-provision profit

45,63541,19011

Provision for credit losses

4,871

5,290

(8)

Net income

32,47424,441

33

9.00

6.31

43

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

13%

Return on tangible common equity

17

Book value per share

$

12
67.04

5

56.33

53.56

5

CET1

12.0%

12.2%

Tier 1 capital

13.7

13.9

Total capital

15.5

15.9

Tangible book value per share
Capital ratios

70.35

10%
$

(a)

(a) Ratios presented are calculated under the Basel III Transitional rules. As of
December 31, 2018, the Firm’s capital ratios were equivalent whether
calculated on a transitional or fully phased-in basis. Refer to Capital Risk
Management on pages 85-94 for additional information on Basel III.

Comparisons noted in the sections below are for the full year of2018 versus the full year of 2017, unless otherwise specified.
Firmwide overview
JPMorgan Chase reported strong results for 2018, with record
net income and EPS of $32.5 billion and $9.00 per share,respectively, on net revenue of $109.0 billion. Excluding theimpact of the Tax Cuts & Jobs Acts (“TCJA”), net income and
EPS were still records for a full year. The Firm reported ROE of
13% and ROTCE of 17%. For additional information related tothe impact of the TCJA, refer to the Consolidated Results ofOperations on pages 48–51 and Note 24.
JPMorgan Chase & Co./2018 Form 10-K

• Net income increased 33%, reflecting higher net revenue
and the impact of the lower U.S. federal statutory income
tax rate as a result of the TCJA, partially offset by anincrease in noninterest expense.
• Total net revenue increased 8%. Net interest income was$55.1 billion, up 10%, driven by the impact of higher rates,
loan growth and Card margin expansion, partially offset bylower CIB Markets net interest income. Noninterest revenue
was $54.0 billion, up 7%, largely driven by higher CIB
Markets noninterest revenue and auto lease income,partially offset by markdowns on certain legacy private
equity investments and the impact of higher funding spreads
on derivatives.
• Noninterest expense was $63.4 billion, up 7%,
predominantly driven by investments in the business,
including technology, marketing, higher compensation
expense on increased headcount, and real estate, as well as
higher revenue-related costs, including auto leasedepreciation and volume-related transaction costs.
• The provision for credit losses was $4.9 billion, down from
$5.3 billion in the prior year, reflecting a decrease in the
consumer provision driven by a lower addition to the credit
card allowance for credit losses and lower net charge-offs.
The lower net charge-offs were primarily driven byrecoveries from loan sales in the residential real estate
portfolio, predominantly offset by higher net charge-offs in
the credit card portfolio, as anticipated. The prior year also
included a net $218 million write-down recorded inconnection with the sale of the student loan portfolio. The
decrease in the consumer provision was partially offset by
an increase in the wholesale provision, reflecting additions
to the allowance for loan losses from select client
downgrades.
• The total allowance for credit losses was $14.5 billion at
December 31, 2018, and the Firm had a loan loss coverage
ratio, excluding the PCI portfolio, of 1.23%, compared with
1.27% in the prior year. The Firm’s nonperforming assets
totaled $5.2 billion at December 31, 2018, a decrease from
$6.4 billion in the prior year, reflecting improved credit
performance in the consumer portfolio, and reductions in
the wholesale portfolio including repayments and loan sales.
• Firmwide average core loans and core loans excluding CIB
both increased 7%.
Selected capital-related metrics• The Firm’s Basel III Fully Phased-In CET1 capital was $183.5
billion, and the Standardized and Advanced CET1 ratios were12.0% and 12.9%, respectively.
• The Firm’s Fully Phased-In supplementary leverage ratio(“SLR”) was 6.4%.
• The Firm continued to grow tangible book value per share(“TBVPS”), ending 2018 at $56.33, up 5%.
ROTCE and TBVPS are each non-GAAP financial measures. Coreloans and each of the Fully Phased-In capital and certain
leverage measures are all considered key performancemeasures. For a further discussion of each of these measures,refer to Explanation and Reconciliation of the Firm’s Use of
Non-GAAP Financial Measures and Key Performance Measures
on pages 57-59, and Capital Risk Management on pages
85-94.
43

Management’s discussion and analysis
Lines of business highlights
Selected business metrics for each of the Firm’s four lines ofbusiness are presented below for the full year of 2018.

CCB
ROE 28%CIB
ROE 16%CB
ROE 20%AWM
ROE 31%• Revenue of $52.1 billion, up 12%; record
net income of $14.9 billion, up 58%• Average core loans up 6%; averagedeposits of $670 billion, up 5%• Client investment assets of $282 billion, up
3%• Credit card sales volume up 11% andmerchant processing volume up 15%• Record revenue of $36.4 billion, up 5%;
record net income of $11.8 billion, up 9%• Maintained #1 ranking for Global
Investment Banking fees with 8.7% walletshare• Record Equity Markets revenue of $6.9
billion, up 21%• Investment Banking revenue up 2%;
Treasury Services revenue up 13%; andSecurities Services revenue up 8%• Record revenue of $9.1 billion, up 5%;
record net income of $4.2 billion, up 20%• Average loan balances of $205.5 billion, up
4%• Strong credit quality with net charge-offs of
3 bps

Credit provided and capital raised
JPMorgan Chase continues to support consumers,
businesses and communities around the globe. The Firm
provided credit and raised capital for wholesale andconsumer clients during 2018, consisting of:$2.5
trillion

Total credit provided and capital raised$227
billionCredit for consumers$24
billionCredit for U.S. small businesses$937
billionCredit for corporations$1.3
trillion

Capital raised for corporate clients andnon-U.S. government entities$57
billionCredit and capital raised for U.S.
governments and nonprofit entities(a)(a) Includes states, municipalities, hospitals and universities.

• Record revenue of $14.1 billion, up 2%;
record net income of $2.9 billion, up 22%• Average loan balances of $139 billion, up
12%• Assets under management (“AUM”) of $2.0
trillion, down 2%

For a detailed discussion of results by line of business, referto the Business Segment Results on pages 60–61.

44

JPMorgan Chase & Co./2018 Form 10-K

2019 outlook
These current expectations are forward-looking statements
within the meaning of the Private Securities Litigation ReformAct of 1995. Such forward-looking statements are based on
the current beliefs and expectations of JPMorgan Chase’s
management and are subject to significant risks anduncertainties. For a further discussion of certain of those risks
and uncertainties and the other factors that could cause
JPMorgan Chase’s actual results to differ materially because of
those risks and uncertainties, refer to Forward-Looking
Statements on page 147 and the Risk Factors section on
pages 7–28 . There is no assurance that actual results in 2019will be in line with the outlook set forth below, and the Firm
does not undertake to update any forward-looking statements.
JPMorgan Chase’s outlook for 2019 should be viewed against
the backdrop of the global and U.S. economies, financial
markets activity, the geopolitical environment, thecompetitive environment, client and customer activity levels,and regulatory and legislative developments in the U.S. andother countries where the Firm does business. Each of thesefactors will affect the performance of the Firm and its linesof business. The Firm expects that it will continue to makeappropriate adjustments to its businesses and operations in
response to ongoing developments in the legal, regulatory,
business and economic environments in which it operates.

JPMorgan Chase & Co./2018 Form 10-K

Firmwide• Management expects full-year 2019 net interest income, ona managed basis, to be in excess of $58 billion, reflecting
the annualized impact of 2018 interest rate increases, aswell as expected loan and deposit growth.
• The Firm takes a disciplined approach to managing its
expenses, while investing for growth and innovation. As aresult, management expects Firmwide adjusted expense forthe full-year 2019 to be less than $66 billion.
• The Firm continues to experience charge-off rates at very
low levels, reflecting favorable credit trends across theconsumer and wholesale portfolios. Management expects
full-year 2019 net charge-offs to be less than $5.5 billion,
higher than 2018, driven by growth.

First-quarter 2019
• Management expects the first-quarter 2019 net interest
income, on a managed basis, to be approximately flatcompared with the fourth-quarter of 2018.
• Firmwide adjusted expense for the first-quarter 2019 is
expected to be up mid-single digits compared with the firstquarter of 2018.
• Markets revenue for the first-quarter 2019 is expected to belower when compared with the prior-year quarter by highteens percentage points on a reported basis, and by low
double-digit percentage points excluding the impact of therecognition and measurement accounting standard in thefirst quarter of 2018, depending on market conditions.

45

Management’s discussion and analysis
Business Developments
Expected departure of the U.K. from the EU
In 2016, the U.K. voted to withdraw from the European
Union (“EU”), and in March 2017, the U.K. invoked Article
50 of the Lisbon Treaty, which commenced withdrawal
negotiations with the EU. As a result, the U.K. is scheduled
to depart from the EU on March 29, 2019. Negotiations
regarding the terms of the U.K.’s withdrawal continue
between the U.K. and the EU, although the situation
remains highly uncertain.
The Firm has a long-standing presence in the U.K., whichcurrently serves as the regional headquarters of the Firm’s
operations in over 30 countries across Europe, the Middle
East, and Africa (“EMEA”). In the region, the Firm servesclients and customers across its business segments. The
Firm has approximately 16,000 employees in the U.K., ofwhich approximately two-thirds are in London, with
operational and technology support centers in locations
such as Bournemouth, Glasgow and Edinburgh.
The Firm has been preparing for and continues to makesignificant progress in its readiness for the U.K.’s expected
withdrawal from the EU, which is commonly referred to as“Brexit.” JPMorgan Chase established a Firmwide Brexit
Implementation program in 2017. The program covers
strategic implementation across all impacted businesses
and functions. The program’s objective is to deliver the
Firm’s capabilities on “day one” of the U.K.’s withdrawal
across all impacted legal entities. The program includes anongoing assessment of implementation risks including
political, legal and regulatory risks and plans for addressing
and mitigating those risks. The Firm is also monitoring the
expected macroeconomic developments associated with ano-deal scenario and has undertaken stress testing covering
credit and market risk to assess potential impacts.
Significant uncertainty remains around the U.K.’s expected
departure from the EU, including the possibility that the
U.K. departs without any agreement being reached on how
U.K. financial services firms will conduct business within the
EU (i.e., “a no-deal scenario”).
The Firm is planning for a U.K. withdrawal in the event thatan agreement is reached, as well as for a no-deal scenario.
Significant uncertainties exist under either potential
outcome. For example, in planning for the U.K. withdrawal
from the EU under a no-deal scenario, the Firm is focusedon the following key areas to ensure continuation of service
to its EU clients: regulatory and legal entity readiness; client
readiness; and business and operational readiness.
Regulatory and legal entity readiness
The Firm intends to leverage its existing EU legal entities, inGermany, Luxembourg and Ireland to conduct broader
financial service activities. These legal entities are inadvanced stages of readiness, including governance,

46

infrastructure, capital, local regulatory licenses and branchauthorizations, as needed. The Firm anticipates that its EU
legal entities will be ready to service its EU clients in March
2019, if required. There are some dependencies on final
authorizations from the European Central Bank andjurisdictional National Competent Authorities to carry out
new activity in the EU legal entities.
Client readiness
Where required, agreements with the Firm’s EU clients arebeing re-documented from current U.K. legal entities toexisting EU legal entities to ensure continuation of service.
This process involves establishing new agreements such as
ISDA master agreements between clients and the relevant
EU legal entity. There is a risk that not all clients will havethe appropriate legal and operational arrangements inplace upon the U.K.’s withdrawal from the EU. The Firm
continues to actively engage with its clients to ensure
preparedness and, to the extent possible, minimize
operational disruption.
Business and operational readiness
The Firm is expecting to add several hundred employee
positions in its various EU locations, including individuals
who the Firm expects to relocate from the U.K. The Firm ispreparing to be operational in the EU across all in-scopebusinesses and functions, including the build-out oftechnology, processes and controls, and the necessary
resourcing in the EU locations across first, second and thirdline of defense functions.
The Firm and its EU legal entities’ access to market
infrastructures such as trading venues, central
counterparties (“CCPs”) and central settlement systems(“CSDs”) will need to be adjusted to comply with the
evolving regulatory framework. Some uncertainty remains
with respect to the readiness of the overall market
ecosystem and connectivity between participants. The Firm
continues to monitor the regulatory landscape and ispreparing to take mitigating action, as needed, specificallyin areas such as “contract continuity” that would allow U.K.
entities to continue servicing trade lifecycle events.
In the event that the U.K.’s withdrawal from the EU isdelayed through a transition deal or another mechanism,
the Firm would have the required operational capabilities to
conduct business from its EU legal entities, but the timing of
any changes would be re-assessed to ensure that a strategic
approach is taken. The Firm continues to closely monitor all
negotiations and legislative developments and has
developed an implementation plan that allows for flexibility
given the continued uncertainty.

JPMorgan Chase & Co./2018 Form 10-K

LIBOR transition
The Financial Stability Board (“FSB”) and the Financial
Stability Oversight Council (“FSOC”) have observed that thesecular decline in interbank short-term funding poses
structural risks for unsecured benchmark interest rates
such as Interbank Offered Rates (“IBORs”), and therefore
regulators and market participants in various jurisdictions
have been working to identify alternative reference rates
that are compliant with the International Organization of
Securities Commission’s standards for transaction-based
benchmarks. In the U.S., the Alternative Reference Rates
Committee (the “ARRC”), a group of market and official
sector participants, identified the Secured Overnight
Financing Rate (“SOFR”) as its recommended alternative
benchmark rate. Other alternative reference rates havebeen recommended in other jurisdictions.
IBORs are referenced in approximately $370 trillion ofwholesale and consumer transactions globally spanning abroad range of financial products and contracts. Without
advance transition planning for alternative benchmarks,
sudden cessation of those broadly referenced rates could
cause significant disruptions to gross flows of floating-rate
payments and receipts. An abrupt cessation could also
impair the normal functioning of a variety of markets,
including commercial and consumer lending.
JPMorgan Chase established a Firmwide LIBOR Transition
program in early 2018. The Firmwide CFO and the CEO of
the CIB oversee the program as senior sponsors. Whenassessing risks associated with IBOR transition, the program
considers three possible scenarios: disorderly transition,measured/regulated transition, and IBOR in continuity.
These risks will continue to be monitored, along with any
new risks that emerge as the program progresses. Plans to
mitigate the risks associated with IBOR transition have been
identified, with some already in the early stages of
implementation. Model risk, for example, will be mitigatedby the identification and migration of swap curves based on
IBORs to new alternative reference rates.

JPMorgan Chase & Co./2018 Form 10-K

Market participants are working closely with public sector
representation as part of National Working Groups(“NWGs”) towards the common goal of facilitating anorderly transition from IBORs. Current NWG efforts include
the development of cash and derivative markets referencing
alternative reference rates, as well as the development ofindustry consensus for fallback language that would
determine the rates to use in various IBOR-indexed
contracts when a particular IBOR ceases to be produced.
The Firm is encouraging its clients to actively participate inindustry consultations on fallback language in order toensure the broadest possible industry engagement in andunderstanding of IBOR transition. The Firm continues tomonitor the transition by clients from the current IBORreferencing products to products referencing the newalternative reference rates.
NWGs are also working with accounting standard setters tomanage the accounting implications of amending existing
contracts to add fallback language and to change reference
rates. Current efforts include the identification of potential
accounting impacts and potential alternatives to mitigate
those impacts through interpretation of existing accounting
rules, or through transition relief from FASB and IASB
standard setting.
The Firm continues to develop and implement plans toappropriately mitigate the risks associated with IBOR
discontinuation as identified alternative reference rates
develop, and liquidity in the markets referencing themincreases. The Firm will continue to engage with regulators
as the transition progresses.

47

Management’s discussion and analysis
CONSOLIDATED RESULTS OF OPERATIONSThis section provides a comparative discussion of JPMorgan
Chase’s Consolidated Results of Operations on a reported
basis for the three-year period ended December 31, 2018,
unless otherwise specified. Factors that relate primarily to asingle business segment are discussed in more detail withinthat business segment. For a discussion of the Critical
Accounting Estimates Used by the Firm that affect theConsolidated Results of Operations, refer to pages 141-143.
Effective January 1, 2018, the Firm adopted several new
accounting standards. Certain of the new accounting
standards were applied retrospectively and, accordingly,
prior period amounts were revised. For additional
information, refer to Note 1.
RevenueYear ended December 31,(in millions)
Investment banking fees

2018
$

7,550

2017
$

7,412

2016
$

6,572

Principal transactions

12,05911,347

11,566

Lending- and deposit-related fees

6,052

5,933

5,774

17,11816,287

15,364

Asset management,
administration and commissions
Investment securities gains/(losses)Mortgage fees and related income

(395)

(66)

141

1,254

1,616

2,491

Card income

4,989

4,433

4,779

Other income(a)

5,343

3,646

3,799

Noninterest revenue

53,97050,60850,486

Net interest income

55,05950,097

Total net revenue$ 109,029$ 100,705

46,083$96,569(a) Included operating lease income of $4.5 billion, $3.6 billion and $2.7
billion for the years ended December 31, 2018, 2017 and 2016,
respectively.

2018 compared with 2017
Investment banking fees increased from a strong prioryear, with overall share gains, reflecting:• higher advisory fees driven by a higher number of large
completed transactions, and• higher equity underwriting fees driven by a higher shareof fees, reflecting strong performance across products
predominantly offset by• lower debt underwriting fees primarily driven by declines
in industry-wide fee levels.
For additional information, refer to CIB segment results on
pages 66-70 and Note 6.
Principal transactions revenue increased primarilyreflecting higher revenue in CIB driven by:• Equity Markets with strength across products, primarily inderivatives and prime brokerage, reflecting strong client
activity, and• Fixed Income Markets reflecting strong performance inCurrencies & Emerging Markets, and higher revenue in
Commodities compared to a challenging prior year,
largely offset by lower revenue in Credit,48• the results also reflect a loss in Credit Adjustments &Other, largely driven by higher funding spreads onderivatives.
The increase in CIB was partially offset by private equity
losses reflecting markdowns on certain legacy private
equity investments compared with gains in the prior year in
Corporate.
For additional information, refer to CIB and Corporate
segment results on pages 66-70 and pages 77–78,
respectively, and Note 6.
Asset management, administration and commissions
revenue increased reflecting:• higher asset management fees in AWM and CCB driven byhigher average market levels and the cumulative impact
of net inflows. For AWM, these were partially offset by fee
compression and lower performance fees
• higher brokerage commissions driven by higher volumes
in CIB and AWM, and higher asset-based fees in CIB.
For additional information, refer to AWM, CCB and CIB
segment results on pages 74–76, pages 62–65 and pages
66-70, respectively, and Note 6.
For information on lending- and deposit-related fees, referto the segment results for CCB on pages 62–65, CIB on
pages 66-70, and CB on pages 71-73 and Note 6; on
securities gains, refer to the Corporate segment discussion
on pages 77–78.
Investment securities losses increased due to sales related
to repositioning the investment securities portfolio.
Mortgage fees and related income decreased driven by:• lower net production revenue reflecting lower production
margins and volumes, as well as the impact of a loan sale,partially offset by• higher net mortgage servicing revenue reflecting higher
MSR risk management results, predominantly offset bylower servicing revenue on a lower level of third-partyloans serviced.
For further information, refer to CCB segment results on
pages 62–65, Note 6 and 15.
Card income increased driven by:• lower new account origination costs, and higher merchantprocessing fees on higher volumes,
largely offset by• lower net interchange income reflecting higher rewards
costs and partner payments, largely offset by higher cardsales volumes. The rewards costs included an adjustment
to the credit card rewards liability of approximately $330
million, recorded in the second quarter of 2018, driven
by an increase in redemption rate assumptions.
For further information, refer to CCB segment results on
pages 62–65 and Note 6.

JPMorgan Chase & Co./2018 Form 10-K

Other income increased reflecting:• higher operating lease income from growth in auto
operating lease volume in CCB• fair value gains of $505 million recognized in the firstquarter of 2018 related to the adoption of the newrecognition and measurement accounting guidance forcertain equity investments previously held at cost
• the absence of the impact related to the enactment of the
TCJA, which reduced the value of certain of CIB’s taxoriented investments by $520 million in the prior year
partially offset by• lower investment valuations in AWM, and• the absence of a legal benefit of $645 million that wasrecorded in the prior year in Corporate related to asettlement with the FDIC receivership for Washington
Mutual and with Deutsche Bank as trustee of certain
Washington Mutual trusts.
For further information, refer to Note 6.
Net interest income increased driven by the impact ofhigher rates, loan growth across the businesses, and Cardmargin expansion, partially offset by lower CIB Markets net
interest income. The Firm’s average interest-earning assets
were $2.2 trillion, up $49 billion from the prior year, andthe net interest yield on these assets, on an FTE basis, was
2.50%, an increase of 14 basis points from the prior year.
The net interest yield excluding CIB Markets was 3.25%, anincrease of 40 basis points. Net interest yield excluding CIB
markets is a non-GAAP financial measure. For a further
discussion of this measure, refer to Explanation andReconciliation of the Firm’s Use of Non-GAAP Financial
Measures and Key Performance Measures on pages 57-59.
2017 compared with 2016
Investment banking fees increased reflecting higher debt
and equity underwriting fees in CIB. The increase in debt
underwriting fees was driven by a higher share of fees andan overall increase in industry-wide fees; and the increasein equity underwriting fees was driven by growth inindustry-wide issuance, including a strong initial public
offering (“IPO”) market.
Principal transactions revenue decreased compared with astrong prior year in CIB, primarily reflecting:• lower Fixed Income-related revenue driven by sustained
low volatility and tighter credit spreads
partially offset by• higher Equity-related revenue primarily in Prime
Services, and• higher Lending-related revenue reflecting lower fair value
losses on hedges of accrual loans.

JPMorgan Chase & Co./2018 Form 10-K

Asset management, administration and commissions
revenue increased as a result of higher asset management
fees in AWM and CCB, and higher asset-based fees in CIB,
both driven by higher market levels
Mortgage fees and related income decreased driven bylower MSR risk management results, lower net production
revenue on lower margins and volumes, and lower servicing
revenue on lower average third-party loans serviced.
Card income decreased predominantly driven by higher
credit card new account origination costs, largely offset
by higher card-related fees, primarily annual fees.
Other income decreased primarily due to:• lower other income in CIB largely driven by a $520
million impact related to the enactment of the TCJA,
which reduced the value of certain of CIB’s tax-oriented
investments, and• the absence in the current year of gains from– the sale of Visa Europe interests in CCB,
– the redemption of guaranteed capital debt securities(“trust preferred securities”), and– the disposal of an asset in AWM
partially offset by• higher operating lease income reflecting growth in auto
operating lease volume in CCB, and• a legal benefit of $645 million recorded in the second
quarter of 2017 in Corporate related to a settlement with
the FDIC receivership for Washington Mutual and with
Deutsche Bank as trustee of certain Washington Mutual
trusts.
Net interest income increased primarily driven by the net
impact of higher rates and loan growth across thebusinesses, partially offset by declines in Markets net
interest income in CIB. The Firm’s average interest-earning
assets were $2.2 trillion, up $79 billion from the prior year,
and the net interest yield on these assets, on a fully taxable
equivalent (“FTE”) basis, was 2.36%, an increase of 11
basis points from the prior year. The net interest yieldexcluding CIB Markets was 2.85%, an increase of 26 basis
points from the prior year.

49Management’s discussion and analysis
Provision for credit losses
Year ended December 31,(in millions)
Consumer, excluding credit card
Credit card
Total consumer
Wholesale
Total provision for credit losses

2018(63) $
4,818
4,755
116
$ 4,871 $
$

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

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

2018 compared with 2017
The provision for credit losses decreased as a result of adecline in the consumer provision, partially offset by anincrease in the wholesale provision• the decrease in the consumer, excluding credit card
portfolio in CCB was due to– lower net charge-offs in the residential real estate
portfolio, largely driven by recoveries from loan sales,and– lower net charge-offs in the auto portfolio
partially offset by– a $250 million reduction in the allowance for loan
losses in the residential real estate portfolio — PCI,
reflecting continued improvement in home prices andlower delinquencies; the reduction was $75 million
lower than the prior year for the residential real estate
portfolio — non credit-impaired• the prior year also included a net $218 million writedown recorded in connection with the sale of the student
loan portfolio, and• the decrease in the credit card portfolio was due to– a $300 million addition to the allowance for loan
losses, reflecting loan growth and higher loss rates, as
anticipated; the addition was $550 million lower thanthe prior year,
largely offset by– higher net charge-offs due to seasoning of more recent
vintages, as anticipated, and• in wholesale, the current period expense of $116 million
reflected additions to the allowance for loan losses fromselect client downgrades,
largely offset by– other net portfolio activity, including a reduction in theallowance for loan losses related to a single name in
the Oil & Gas portfolio in the first quarter of 2018,
compared to a net benefit of $303 million in the prioryear. The prior year benefit reflected a reduction in theallowance for loan losses on credit quality
improvements in the Oil & Gas, Natural Gas Pipelines,
and Metals and Mining portfolios.
For a more detailed discussion of the credit portfolio and theallowance for credit losses, refer to the segment discussions of
CCB on pages 62–65, CIB on pages 66-70, CB on pages 71-73,
the Allowance for Credit Losses on pages 120–122 and Note13.
2017 compared with 2016
The provision for credit losses decreased as a result of:• a net $422 million reduction in the wholesale allowance for
credit losses, reflecting credit quality improvements in the
Oil & Gas, Natural Gas Pipelines, and Metals & Mining
portfolios, compared with an addition of $511 million in theprior year driven by downgrades in the same portfolios
predominantly offset by• a higher consumer provision driven by– $450 million of higher net charge-offs, primarily in thecredit card portfolio due to growth in newer vintages
which, as anticipated, have higher loss rates than the
more seasoned portion of the portfolio, partially offset bya decrease in net charge-offs in the residential real estate
portfolio reflecting continued improvement in homeprices and delinquencies,– a $416 million higher addition to the allowance for credit
losses related to the credit card portfolio driven by higher
loss rates and loan growth, and a lower reduction in theallowance for the residential real estate portfolio
predominantly driven by continued improvement in homeprices and delinquencies, and– a net $218 million write-down recorded in connection
with the sale of the student loan portfolio.

50

JPMorgan Chase & Co./2018 Form 10-K

Noninterest expense
Year ended December 31,(in millions)Compensation expense
Noncompensation expense:
Occupancy
Technology, communications andequipment
Professional and outside services
Marketing
Other(a)(b)Total noncompensation expense
Total noninterest expense

2018$33,1172017$31,2082016$30,203

3,952

3,723

3,638

8,802

7,715

6,853

8,502
3,290
5,731
30,277$63,394

7,890
2,900
6,079
28,307$59,515

7,526
2,897
5,555
26,469$56,672

Noncompensation expense increased as a result of:• higher depreciation expense from growth in auto
operating lease volume in CCB• contributions to the Firm’s Foundation• a lower legal net benefit compared to the prior year
• higher FDIC-related expense, and• an impairment in CB on certain leased equipment, themajority of which was sold subsequent to year-end
partially offset by• the absence in the current year of two items totaling$175 million in CCB related to liabilities from a merchantin bankruptcy and mortgage servicing reserves(a) Included Firmwide legal expense/(benefit) of $72 million, $(35) million
and $(317) million for the years ended December 31, 2018, 2017 and2016, respectively.
(b) Included FDIC-related expense of $1.2 billion, $1.5 billion and $1.3 billion
for the years ended December 31, 2018, 2017 and 2016, respectively.

For a discussion of legal expense, refer to Note 29.

2018 compared with 2017
Compensation expense increased driven by investments inheadcount across the businesses, including bankers andadvisors, as well as technology and other support staff, andhigher revenue-related compensation expense largely in
CIB.
Noncompensation expense increased as a result of:• higher depreciation expense due to growth in auto
operating lease volume in CCB• higher outside services expense primarily due to higher
volume-related transaction costs in CIB and higher
external fees on revenue growth in AWM• higher investments in technology in the businesses andmarketing in CCB• a loss of $174 million on the liquidation of a legal entity,
recorded in other expense in Corporate, in the second
quarter of 2018, and• higher legal expense, with a net benefit in the prior year
partially offset by• lower FDIC-related expense as a result of the eliminationof the surcharge at the end of the third quarter of 2018,
and• the absence of an impairment in CB on certain leased
equipment
For additional information on the liquidation of a legal
entity, refer to Note 23.

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

2018

2017

2016

Income before income tax
expense2017 compared with 2016
Compensation expense increased predominantly driven by
investments in headcount in most businesses, including
bankers and business-related support staff, and higher
performance-based compensation expense, predominantly
in AWM.

JPMorgan Chase & Co./2018 Form 10-K

Income tax expense$40,764$ 35,900$ 34,536

Income tax expense

8,290

11,4599,803

Effective tax rate

20.3%

31.9%

28.4%

2018 compared with 2017
The effective tax rate decreased in 2018 driven by• the impact of the TCJA, including the reduction in the U.S.
federal statutory income tax rate, a $302 million net
tax benefit resulting from changes in the prior year
estimates related to the remeasurement of certain
deferred taxes and the deemed repatriation tax on nonU.S. earnings, and the absence of the initial $1.9 billion
impact from the TCJA’s enactment in December 2017
the reduction in the effective tax rate was partially offset by• the impact of higher pre-tax income, and the change inmix of income and expense subject to U.S. federal, stateand local taxes. For further information, refer to Note 24.
2017 compared with 2016
The effective tax rate increased in 2017 driven by:• a $1.9 billion increase to income tax expense
representing the initial impact of the enactment of the
TCJA. The increase was driven by the deemed repatriationof the Firm’s unremitted non-U.S. earnings andadjustments to the value of certain tax-oriented
investments, partially offset by a benefit from therevaluation of the Firm’s net deferred tax liability. The
incremental expense resulted in a 5.4 percentage point
increase in the Firm’s effective tax ratepartially offset by• benefits resulting from the vesting of employee sharebased awards related to the appreciation of the Firm’s
stock price upon vesting above their original grant price,and the release of a valuation allowance.

51

Management’s discussion and analysis
CONSOLIDATED BALANCE SHEETS AND CASH FLOWS ANALYSIS
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards wereapplied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.

Consolidated balance sheets analysis

The following is a discussion of the significant changes between December 31, 2018 and 2017.
Selected Consolidated balance sheets data
December 31, (in millions)

2018

2017

ChangeAssetsCash and due from banks

25,898(14)%

Deposits with banks$

256,469

405,406(37)

Federal funds sold and securities purchased under resale agreements

321,588

198,42262

Securities borrowed

111,995

105,1127

Trading assets

413,714

381,844

8

Investment securities

261,828

249,9585

Loans

984,554930,697

6

Allowance for loan losses(13,445)(13,604)(1)

Loans, net of allowance for loan losses

971,109917,0936

Accrued interest and accounts receivable

73,20067,7298

Premises and equipment

14,934

14,1595

Goodwill, MSRs and other intangible assets

54,34954,392—

113,58772,533,600

4%

Other assets
Total assets

Cash and due from banks and deposits with banks
decreased primarily as a result of a shift in the deploymentof excess cash in Treasury and Chief Investment Office(“CIO”) from deposits with Federal Reserve Banks to othershort-term instruments (as noted below), based on market
opportunities. Deposits with banks reflect the Firm’s
placements of its excess cash with various central banks,
including the Federal Reserve Banks.
Federal funds sold and securities purchased under resaleagreements increased primarily due to a shift in the
deployment of excess cash in Treasury and CIO from
deposits with banks to securities purchased under resaleagreements, and higher client-driven market-making
activities in CIB. For additional information on the Firm’s
Liquidity Risk Management, refer to pages 95–100.
Securities borrowed increased driven by higher demand for
securities to cover short positions related to client-driven
market-making activities in CIB.
Trading assets increased as a result of a shift in the
deployment of excess cash in Treasury and CIO from
deposits with banks into short-term instruments as well as
client-driven market-making activities in CIB. For additional
information, refer to Derivative contracts on pages 117–
118, and Notes 2 and 5.
Investment securities increased primarily due to purchasesof U.S. Treasury Bills, reflecting a shift in the deployment ofexcess cash in Treasury and CIO from deposits with banks.
The increase was partially offset by net sales, paydowns andmaturities largely of obligations of U.S. states andmunicipalities, commercial MBS and non-U.S. government
debt securities. For additional information on investment
52

22,324$

121,022$2,622,532$

securities, refer to Corporate segment results on pages 77–
78, Investment Portfolio Risk Management on page 123
and Notes 2 and 10.
Loans increased reflecting:• higher loans across the wholesale businesses, primarily
driven by commercial and industrial and financial
institution clients in CIB and Wealth Management clients
globally in AWM, and• higher consumer loans driven by retention of originatedhigh-quality prime mortgages in CCB and AWM, andgrowth in credit card loans. These were predominantly
offset by mortgage paydowns and loan sales, lower homeequity loans, run-off of PCI loans, and lower auto loans.
The allowance for loan losses decreased driven by:• a reduction in the consumer allowance due to a $250
million reduction in the CCB allowance for loan losses in
the residential real estate PCI portfolio, reflecting
continued improvement in home prices and lower
delinquencies, as well as a $187 million reduction in theallowance for write-offs of PCI loans partially due to loan
sales. These reductions were largely offset by a $300
million addition to the allowance in the credit card
portfolio, due to loan growth and higher loss rates, as
anticipated.
For a more detailed discussion of loans and the allowance
for loan losses, refer to Credit and Investment Risk
Management on pages 102-123, and Notes 2, 3, 12 and
13.

JPMorgan Chase & Co./2018 Form 10-K

Accrued interest and accounts receivable increased
primarily reflecting higher client receivables related toclient-driven activities in CIB.

Other assets increased reflecting higher auto operatinglease assets from growth in business volume in CCB andhigher alternative energy investments in CIB.
For information on Goodwill and MSRs, refer to Note 15.

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

2018

2017

ChangeLiabilities
Deposits$

Federal funds purchased and securities loaned or sold under repurchase agreements

1,470,666$

182,320

1,443,982

2

158,916

15

Short-term borrowings

69,27651,802

34

Trading liabilities

144,773

123,66317

Accounts payable and other liabilities

196,710

189,3834

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

20,241

26,081(22)(1)

Long-term debt

282,031284,080

Total liabilities

2,366,017

2,277,907

4

256,515

255,693—2,533,600

4%Stockholders’ equity
Total liabilities and stockholders’ equity

Deposits increased in CIB and CCB, largely offset bydecreases in AWM and CB.
• The increase in CIB was predominantly driven by growthin operating deposits related to client activity in CIB’s
Treasury Services business, and in CCB reflecting thecontinuation of growth from new accounts.
• The decrease in AWM was driven by balance migration
predominantly into the Firm’s higher-yielding investmentrelated products. The decrease in CB was driven by areduction in non-operating deposits.
For more information, refer to the Liquidity Risk
Management discussion on pages 95–100; and Notes 2
and 17.
Federal funds purchased and securities loaned or soldunder repurchase agreements increased reflecting higher
client-driven market-making activities and higher secured
financing of trading assets-debt and equity instruments in
CIB.
Short-term borrowings increased reflecting short-term
advances from Federal Home Loan Banks (“FHLBs”) and thenet issuance of commercial paper in Treasury and CIO
primarily for short-term liquidity management. For
additional information, refer to Liquidity Risk Managementon pages 95–100.

JPMorgan Chase & Co./2018 Form 10-K$

2,622,532$

Trading liabilities increased predominantly as a result ofclient-driven market-making activities in CIB, which resulted
in higher levels of short positions in equity instruments in
Equity Markets, including prime brokerage. For additional
information, refer to Derivative contracts on pages 117–
118, and Notes 2 and 5.
Accounts payable and other liabilities increased partly as aresult of higher client payables related to prime brokerage
activities in CIB.
Beneficial interests issued by consolidated VIEs decreased
due to net maturities of credit card securitizations. For
further information on Firm-sponsored VIEs and loan
securitization trusts, refer to Off-Balance Sheet
Arrangements on pages 55–56 and Note 14 and 27.
Long-term debt decreased primarily driven by lower FHLB
advances, predominantly offset by net issuance ofstructured notes in CIB, as well as net issuance of seniordebt in Treasury and CIO. For additional information on the
Firm’s long-term debt activities, refer to Liquidity Risk
Management on pages 95–100 and Note 19.
For information on changes in stockholders’ equity, refer topage 153, and on the Firm’s capital actions, refer to Capitalactions on pages 91-92.

53

Management’s discussion and analysis
Consolidated cash flows analysis

The following is a discussion of cash flow activities during
the years ended December 31, 2018, 2017 and 2016.
Year ended December 31,(in millions)

2018

2017

2016

Net cash provided by/(used in)Operating activities$ 14,187$ (10,827) $21,884

Investing activities(197,993)

28,249(89,202)

Financing activities

34,158

14,642

98,271

Effect of exchange ratechanges on cash

(2,863)

8,086(1,482)

Net increase/(decrease) incash and due from banks$(152,511) $ 40,150$

29,471

Operating activities
JPMorgan Chase’s operating assets and liabilities primarily
support the Firm’s lending and capital markets activities.
These assets and liabilities can vary significantly in thenormal course of business due to the amount and timing of
cash flows, which are affected by client-driven and risk
management activities and market conditions. The Firm
believes cash flows from operations, available cash andother liquidity sources, and its capacity to generate cash
through secured and unsecured sources are sufficient tomeet its operating liquidity needs.
• In 2018, cash provided primarily reflected net income
excluding noncash adjustments, increased trading
liabilities and accounts payable and other liabilities,
partially offset by an increase in trading assets, net
originations of loans held-for-sale, and higher securities
borrowed and other assets.
• In 2017, cash used primarily reflected a decrease in
trading liabilities and accounts payable and otherliabilities, and an increase in accrued interest andaccounts receivable, partially offset by net income
excluding noncash adjustments and a decrease in trading
assets.
• In 2016, cash provided primarily reflected net income
excluding noncash adjustments, partially offset by anincrease in trading assets.

54

Investing activities
The Firm’s investing activities predominantly include
originating held-for-investment loans and investing in the
securities portfolio and other short-term instruments.
• In 2018, cash used reflected an increase in securities
purchased under resale agreements, higher net
originations of loans and net purchases of investment
securities.
• In 2017, cash provided reflected net proceeds frompaydowns, maturities, sales and purchases of investment
securities and a decrease in securities purchased underresale agreements, partially offset by net originations ofloans.
• In 2016, cash used reflected net originations of loans,
and an increase in securities purchased under resaleagreements.
Financing activities
The Firm’s financing activities include acquiring customer
deposits and issuing long-term debt, as well as preferredand common stock.
• In 2018, cash provided reflected higher deposits, shortterm borrowings, and securities loaned or sold under
repurchase agreements.
• In 2017, cash provided reflected higher deposits andshort-term borrowings, partially offset by a net decreasein long-term borrowings.
• In 2016, cash provided reflected higher deposits, netproceeds from long-term borrowings, and an increase in
securities loaned or sold under repurchase agreements.
• For all periods, cash was used for repurchases of common
stock and cash dividends on common and preferred stock.
* * *For a further discussion of the activities affecting the Firm’s
cash flows, refer to Consolidated Balance Sheets Analysis on
pages 52–53 , Capital Risk Management on pages 85-94,
and Liquidity Risk Management on pages 95–100.

JPMorgan Chase & Co./2018 Form 10-K

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONSIn the normal course of business, the Firm enters into
various off-balance sheet arrangements and contractual
obligations that may require future cash payments. Certain
obligations are recognized on-balance sheet, while others
are off-balance sheet under accounting principles generally
accepted in the U.S. (“U.S. GAAP”).

Special-purpose entities

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).

The Firm holds capital, as deemed appropriate, against all
SPE-related transactions and related exposures, such asderivative contracts and lending-related commitments andguarantees.
The Firm has no commitments to issue its own stock tosupport any SPE transaction, and its policies require thattransactions with SPEs be conducted at arm’s length andreflect market pricing. Consistent with this policy, no
JPMorgan Chase employee is permitted to invest in SPEs
with which the Firm is involved where such investment
would violate the Firm’s Code of Conduct.

The table below provides an index of where in this 2018 Form 10-K a discussion of the Firm’s various off-balance sheet
arrangements can be found. In addition, refer to Note 1 for information about the Firm’s consolidation policies.
Type of off-balance sheet arrangement

Location of disclosure

Page references

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

Refer to Note 14

244–251

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

Refer to Note 27

271–276

JPMorgan Chase & Co./2018 Form 10-K

55

Management’s discussion and analysis
Contractual cash obligations

The accompanying table summarizes, by remaining
maturity, JPMorgan Chase’s significant contractual cash
obligations at December 31, 2018. The contractual cash
obligations included in the table below reflect the minimum
contractual obligation under legally enforceable contracts
with terms that are both fixed and determinable. Excluded
from the below table are certain liabilities with variable
cash flows and/or no obligation to return a stated amountof principal at maturity.

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

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

2019

2018
2022-2023

2020-2021

After 2023

Total

2017
Total

On-balance sheet obligations
Deposits(a)1,447,407 $

8,958 $

6,227 $

5,439 $

1,468,031 $

1,437,464

Federal funds purchased and securities loaned orsold under repurchase agreements$

181,491

458

—

371

182,320

158,916

Short-term borrowings(a)62,393———62,393

42,664

Beneficial interests issued by consolidated VIEs

13,502

5,075

1,400

281

20,25826,036Long-term debt(a)26,88975,81637,171

118,782258,658

260,895

Other(b)(c)
Total on-balance sheet obligations

5,592

1,687

1,669

2,846

11,794

13,613

1,737,274

91,994

46,467

127,719

2,003,454

1,939,588

Off-balance sheet obligations
Unsettled resale and securities borrowed
agreements(d)102,008———

102,008

76,859Contractual interest payments(e)10,96011,501

8,295

27,49658,252

54,103Operating leases(f)

1,561

2,840

2,111

4,480

10,9929,877

Equity investment commitments(c)(g)

Contractual purchases and capital expenditures(c)

262

2

—

7

271

117

1,948

1,048

543

60

3,599

3,743

Obligations under co-brand programs

356

728

566

287

1,937

1,434

Total off-balance sheet obligations

117,095

16,11911,51532,330177,059

146,133

1,854,369 $

108,113 $57,982 $160,049 $2,180,513 $

2,085,721

Total contractual cash obligations$(a) Excludes structured notes on which the Firm is not obligated to return a stated amount of principal at the maturity of the notes, but is obligated to return
an amount based on the performance of the structured notes.
(b) Primarily includes dividends declared on preferred and common stock, deferred annuity contracts, pension and other postretirement employee benefit
obligations, insurance liabilities and income taxes payable associated with the deemed repatriation under the TCJA.
(c) The prior period amounts have been revised to conform with the current period presentation.
(d) For further information, refer to unsettled resale and securities borrowed agreements in Note 27.
(e) Includes accrued interest and future contractual interest obligations. Excludes interest related to structured notes for which the Firm’s payment obligation
is based on the performance of certain benchmarks.
(f) Includes noncancelable operating leases for premises and equipment used primarily for banking purposes. Excludes the benefit of noncancelable subleaserentals of $825 million and $1.0 billion at December 31, 2018 and 2017, respectively. Refer to Note 28 for more information on lease commitments.
(g) Included unfunded commitments of $40 million at both December 31, 2018 and 2017, to third-party private equity funds, and $231 million and $77
million of unfunded commitments at December 31, 2018 and 2017, respectively, to other equity investments.

56

JPMorgan Chase & Co./2018 Form 10-K

EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES AND KEY
PERFORMANCE MEASURES
Non-GAAP financial measures
The Firm prepares its Consolidated Financial Statements inaccordance with U.S. GAAP; these financial statements
appear on pages 150-154. That presentation, which isreferred to as “reported” basis, provides the reader with anunderstanding of the Firm’s results that can be tracked
consistently from year-to-year and enables a comparison of
the Firm’s performance with other companies’ U.S. GAAP
financial statements.

financial measures allow management to assess thecomparability of revenue from year-to-year arising fromboth taxable and tax-exempt sources. The corresponding
income tax impact related to tax-exempt items is recorded
within income tax expense. These adjustments have no
impact on net income as reported by the Firm as a whole orby the lines of business.
Management also uses certain non-GAAP financial
measures at the Firm and business-segment level, because
these other non-GAAP financial measures provide
information to investors about the underlying operational
performance and trends of the Firm or of the particularbusiness segment, as the case may be, and, therefore,
facilitate a comparison of the Firm or the business segmentwith the performance of its relevant competitors. For
additional information on these non-GAAP measures, refer
to Business Segment Results on pages 60-78. Non-GAAP
financial measures used by the Firm may not be comparable
to similarly named non-GAAP financial measures used byother companies.

In addition to analyzing the Firm’s results on a reported
basis, management reviews Firmwide results, including theoverhead ratio, on a “managed” basis; these Firmwide
managed basis results are non-GAAP financial measures.
The Firm also reviews the results of the lines of business on
a managed basis. The Firm’s definition of managed basis
starts, in each case, with the reported U.S. GAAP results andincludes certain reclassifications to present total net
revenue for the Firm (and each of the reportable businesssegments) on an FTE basis. Accordingly, revenue frominvestments that receive tax credits and tax-exempt
securities is presented in the managed results on a basis
comparable to taxable investments and securities. These

The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.
2018
Year ended
December 31,(in millions, except ratios)

Reported
Results

Fully taxableequivalentadjustments(a)Other income$$

Total noninterest revenue

5,343
53,970

1,877

2017

(b)

1,877

2016

Managedbasis

Reported
Results

Fully taxableequivalentadjustments(a)Managedbasis

Reported
Results

Fully taxableequivalentadjustments(a)Managed
basis

$

$

$

$

$

$

$

7,220
55,847

3,646

2,704

50,608

2,704

6,350

3,799

2,265

53,31250,486

2,265

6,064
52,751

Net interest income

55,059628

55,68750,097

1,313

51,41046,083

1,209

47,292

Total net revenue

109,0292,505

111,534

100,705

4,017

104,722

96,5693,474

100,043

Pre-provision profit

45,635

2,505

48,14041,1904,017

45,20739,8973,474

43,371

40,7642,505

43,26935,9004,017

39,91734,536

3,474

38,010

8,290

2,505

10,795

11,4594,017

15,476

9,803

3,474

13,277

Income before income tax
expenseIncome tax expense
Overhead ratio

58%

NM

(b)

(b)

57%

59%

NM

57%

59%

NM

57%

Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and,accordingly, prior period amounts were revised. For additional information, refer to Note 1.
(a) Predominantly recognized in CIB and CB business segments and Corporate.
(b) The decrease in fully taxable-equivalent adjustments for the year ended December 31, 2018, reflects the impact of the TCJA.

JPMorgan Chase & Co./2018 Form 10-K

57

Management’s discussion and analysis
Net interest income and net yield excluding CIB’s Markets
businesses
In addition to reviewing net interest income and the netinterest yield on a managed basis, management also
reviews these metrics excluding CIB’s Markets businesses,
as shown below; these metrics, which exclude CIB’s Markets
businesses, are non-GAAP financial measures. Management
reviews these metrics to assess the performance of the
Firm’s lending, investing (including asset-liability
management) and deposit-raising activities. The resulting
metrics that exclude CIB’s Markets businesses are referred
to as non-markets-related net interest income and net yield.
CIB’s Markets businesses are Fixed Income Markets andEquity Markets. Management believes that disclosure of
non-markets-related net interest income and net yieldprovides investors and analysts with other measures bywhich to analyze the non-markets-related business trendsof the Firm and provides a comparable measure to otherfinancial institutions that are primarily focused on lending,investing and deposit-raising activities.
Year ended December 31,(in millions, except rates)
Net interest income –managed basis(a)(b)2018$

Less: CIB Markets net
interest income(c)55,687

2017
$

3,087

Net interest income
excluding CIB Markets(a) $52,60051,410

2016
$

4,630
$

46,78047,292
6,334$

40,958Average interest-earning
assets$2,229,188$2,180,592$ 2,101,604

Less: Average CIB Markets
interest-earning assets(c)609,635

540,835

520,307

Average interest-earning
assets excluding CIB
Markets$1,619,553$1,639,757$ 1,581,297

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

2.50%

2.36%

2.25%

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

0.51

0.86

1.22

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

3.25%

2.85%

2.59%

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

The Firm also reviews adjusted expense, which isnoninterest expense excluding Firmwide legal expense andis therefore a non-GAAP financial measure. Additionally,certain credit metrics and ratios disclosed by the Firm
exclude PCI loans, and are therefore non-GAAP measures.
Management believes these measures help investors
understand the effect of these items on reported results
and provide an alternate presentation of the Firm’s
performance. For additional information on credit metrics
and ratios excluding PCI loans, refer to Credit andInvestment Risk Management on pages 102-123.

(a) Interest includes the effect of related hedges. Taxable-equivalentamounts are used where applicable.
(b) For a reconciliation of net interest income on a reported and managedbasis, refer to reconciliation from the Firm’s reported U.S. GAAP results
to managed basis on page 57.
(c) For further information on CIB’s Markets businesses, refer to page 69.

58

JPMorgan Chase & Co./2018 Form 10-K

Tangible common equity, ROTCE and TBVPS
Tangible common equity (“TCE”), ROTCE and TBVPS are each non-GAAP financial measures. TCE represents the Firm’s common
stockholders’ equity (i.e., total stockholders’ equity less preferred stock) less goodwill and identifiable intangible assets (otherthan MSRs), net of related deferred tax liabilities. ROTCE measures the Firm’s net income applicable to common equity as apercentage of average TCE. TBVPS represents the Firm’s TCE at period-end divided by common shares at period-end. TCE,
ROTCE and TBVPS are utilized by the Firm, as well as investors and analysts, in assessing the Firm’s use of equity.
The following summary table provides a reconciliation from the Firm’s common stockholders’ equity to TCE.
Period-end
Dec 31,
2018(in millions, except per share and ratio data)
Common stockholders’ equity

2018

2017

2016

229,625$ 229,222$ 230,350$ 224,631

47,47147,50747,49147,31747,310

748

855

807

832

922

2,280

2,204

2,231

3,116

3,212

$

184,508 $

183,467$ 183,155$ 185,317$ 179,611

NA

NA

17%

12%

13%

$

56.33 $

53.56

NA

NA

NA

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

Dec 31,
2017

230,447 $$Less: Goodwill

Tangible common equity

AverageYear ended December 31,(a) Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted
against goodwill and other intangibles when calculating TCE.
(b) Amounts presented for December 31, 2017 and later periods include the effect from revaluation of the Firm’s net deferred tax liability as a result of the
TCJA.

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

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

For additional information on these measures, refer toCapital Risk Management on pages 85-94.

JPMorgan Chase & Co./2018 Form 10-K

59

Management’s discussion and analysis
BUSINESS SEGMENT RESULTS
The Firm is managed on a line of business basis. There are
four major reportable business segments – Consumer &Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset & Wealth Management. In
addition, there is a Corporate segment.

The business segments are determined based on the
products and services provided, or the type of customer
served, and they reflect the manner in which financial
information is currently evaluated by the Firm’s Operating
Committee. Segment results are presented on a managedbasis. For a definition of managed basis, refer toExplanation and Reconciliation of the Firm’s use of NonGAAP Financial Measures and Key Performance Measures,on pages 57-59.

JPMorgan Chase
Consumer Businesses

Wholesale Businesses

Consumer & Community Banking
Consumer &Business Banking• Consumer
Banking/
Chase
WealthManagement• BusinessBankingHome Lending• HomeLending
Production• HomeLendingServicing• Real Estate
Portfolios

Card, MerchantServices & Auto
• CardServices– Credit Card
– MerchantServices• AutoCommercial
Banking

Asset & WealthManagement

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

Corporate & Investment Bank

Banking• Investment
Banking• Treasury
Services• LendingDescription of business segment reporting methodology
Results of the business segments are intended to present
each segment as if it were essentially a stand-alone
business. The management reporting process that derives
business segment results includes the allocation of certain
income and expense items described in more detail below.
The Firm also assesses the level of capital required for eachline of business on at least an annual basis. The Firm
periodically assesses the assumptions, methodologies andreporting classifications used for segment reporting, andfurther refinements may be implemented in future periods.

• Wealth
Management• Real Estate
Banking

Funds transfer pricing
Funds transfer pricing is the process by which the Firm
allocates interest income and expense to each businesssegment and transfers the primary interest rate risk andliquidity risk exposures to Treasury and CIO within
Corporate. The funds transfer pricing process considers theinterest rate risk, liquidity risk and regulatory requirementsof a business segment as if it were operating independently.
This process is overseen by senior management andreviewed by the Firm’s Treasurer Committee.

Revenue sharing
When business segments join efforts to sell products andservices to the Firm’s clients, the participating businesssegments may agree to share revenue from thosetransactions. Revenue is recognized in the segment
responsible for the related product or service on a grossbasis, with an allocation to the other segment(s) involved in
the transaction. The segment results reflect these revenuesharing agreements.

60

JPMorgan Chase & Co./2018 Form 10-K

Debt expense and preferred stock dividend allocation
As part of the funds transfer pricing process, almost all of
the cost of the credit spread component of outstanding
unsecured long-term debt and preferred stock dividends isallocated to the reportable business segments, while thebalance of the cost is retained in Corporate. The
methodology to allocate the cost of unsecured long-term
debt and preferred stock dividends to the businesssegments is aligned with the Firm’s process to allocate
capital. The allocated cost of unsecured long-term debt isincluded in a business segment’s net interest income, andnet income is reduced by preferred stock dividends to arrive
at a business segment’s net income applicable to common
equity.

Expense allocation
Where business segments use services provided bycorporate support units, or another business segment, thecosts of those services are allocated to the respective
business segments. The expense is generally
allocated based on the actual cost and use of services
provided. In contrast, certain other costs related tocorporate support units, or to certain technology andoperations, are not allocated to the business segments andare retained in Corporate. Expense retained in Corporate
generally includes parent company costs that would not be
incurred if the segments were stand-alone businesses;
adjustments to align corporate support units; and otheritems not aligned with a particular business segment.

Business segment capital allocation
The amount of capital assigned to each business is referred
to as equity. On at least an annual basis, the assumptions
and methodologies used in capital allocation are assessed
and as a result, the capital allocated to lines of businessmay change. For additional information on businesssegment capital allocation, refer to Line of business equity
on page 91.

Segment Results – Managed Basis
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards wereapplied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.
Net income in 2018 for each of the business segments reflects the favorable impact of the reduction in the U.S. federal
statutory income tax rate as a result of the TCJA.
The following tables summarize the Firm’s results by segment for the periods indicated.
Year ended December 31,

Consumer & Community Banking(in millions, except ratios)

Corporate & Investment Bank

Commercial Banking

2018

2017

2016

2018

2017

2016

$ 52,079$ 46,485$ 44,915$ 36,448$ 34,657$ 35,340

Total noninterest expense

27,835

26,062

24,905

20,91819,407

19,116

3,386

3,327

2,934

Pre-provision profit/(loss)

24,244

20,42320,01015,53015,25016,224

5,673

5,278

4,519

Provision for credit losses

4,753

5,572

4,494

(60)

(45)

563

129

(276)

282

Net income/(loss)

14,852

9,395

9,714

11,773

10,813

10,815

4,237

3,539

2,657

28%

17%

18%

16%

14%

16%

20%

17%

16%

2016

2018

2017

2016

Total net revenue

Return on equity (“ROE”)
Year ended December 31,

Asset & Wealth Management(in millions, except ratios)

2018

2017

2016

Total net revenue

2018
$

9,059

Corporate
$

2018

2017

2017
$

8,605

2016
$

7,453

Total

$ 14,076$ 13,835$ 12,822(128)$ 1,140(487)$111,534$104,722$100,043

Total noninterest expense

10,353

10,218

9,255

902

501

$

462

63,39459,51556,672Pre-provision profit/(loss)

3,723

3,617

3,567

(1,030)

639

(949)

48,14045,20743,371

Provision for credit losses

53

39

26

(4)

—

(4)

4,871

5,290

5,361

Net income/(loss)

2,853

2,337

2,251

(1,241)(1,643)(704)

32,47424,441

24,733Return on equity (“ROE”)

31%

25%

24%

NM

NM

NM

13%

10%

10%

The following sections provide a comparative discussion of the Firms results by segment as of or for the years ended
December 31, 2018, 2017 and 2016.

JPMorgan Chase & Co./2018 Form 10-K

61

Management’s discussion and analysis
CONSUMER & COMMUNITY BANKING
Consumer & Community Banking offers services to
consumers and businesses through bank branches,
ATMs, digital (including online and mobile) andtelephone banking. CCB is organized into Consumer &Business Banking (including Consumer Banking/Chase
Wealth Management and Business Banking), Home
Lending (including Home Lending Production, Home
Lending Servicing and Real Estate Portfolios) and Card,
Merchant Services & Auto. Consumer & BusinessBanking offers deposit and investment products andservices to consumers, and lending, deposit, and cash
management and payment solutions to small
businesses. Home Lending includes mortgage
origination and servicing activities, as well as
portfolios consisting of residential mortgages andhome equity loans. Card, Merchant Services & Autoissues credit cards to consumers and small businesses,
offers payment processing services to merchants, andoriginates and services auto loans and leases.

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

2018

2017

2016

Lending- and deposit-related fees $ 3,624$ 3,431$ 3,231

Revenue
Asset management,
administration andcommissions

2,402

2,212

2,093

Mortgage fees and related
income

1,252

1,613

2,490

Card income

4,554

4,024

4,364

All other income

4,428

3,430

3,077

Noninterest revenue

16,26014,71015,255

Net interest income

35,81931,77529,660Total net revenue

52,07946,48544,915

Provision for credit losses

4,753

5,572

4,494

10,534

10,1339,697

Noncompensation expense

17,301

15,92915,208

Total noninterest expense

27,835

26,062

24,905

Income before income tax
expense19,491

14,851

15,516

Income tax expense

4,639

5,456

5,802

$ 14,852$ 9,395$ 9,714

Noninterest expense
Compensation expense(a)(a)(b)Net income
Revenue by line of business
Consumer & Business Banking$ 24,805$ 21,104$ 18,659

Home Lending

5,484

5,955

7,361

Card, Merchant Services & Auto

21,79019,426

18,895

Net production revenue

268

636

853

Net mortgage servicing
revenue(c)

984

977

1,637

$ 1,252$ 1,613$ 2,490Mortgage fees and related
income details:

Mortgage fees and related
incomeFinancial ratios
Return on equity

28%

17%

18%

Overhead ratio

53

56

55

Note: In the discussion and the tables which follow, CCB presents certain
financial measures which exclude the impact of PCI loans; these are non-GAAP
financial measures.
(a) Effective in the first quarter of 2018, certain operations staff weretransferred from CCB to CB. The prior period amounts have been revised toconform with the current period presentation. For a further discussion ofthis transfer, refer to CB segment results on page 71.
(b) Included operating lease depreciation expense of $3.4 billion, $2.7 billion
and $1.9 billion for the years ended December 31, 2018, 2017 and 2016,
respectively.
(c) Included MSR risk management results of $(111) million, $(242) million
and $217 million for the years ended December 31, 2018, 2017 and2016, respectively.

62

JPMorgan Chase & Co./2018 Form 10-K

2018 compared with 2017
Net income was $14.9 billion, an increase of 58%.
Net revenue was $52.1 billion, an increase of 12%.
Net interest income was $35.8 billion, up 13%, driven by:• higher deposit margins and growth in deposit balances in
CBB, as well as margin expansion and higher loan balancesin Card,partially offset by• higher rates driving loan spread compression in Home
Lending and Auto.
Noninterest revenue was $16.3 billion, up 11%, driven by:• higher auto lease volume,• higher card income due to– lower new account origination costs, and higher merchantprocessing fees on higher volumes,
largely offset by– lower net interchange income reflecting higher rewards
costs and partner payments, largely offset by higher cardsales volumes. The rewards costs included an adjustment
to the credit card rewards liability of approximately $330
million in the second quarter of 2018, driven by anincrease in redemption rate assumptions• higher deposit-related fees, as well as higher asset
management fees reflecting an increase in client investment
assets,partially offset by• lower net production revenue reflecting lower mortgage
production margins and volumes, as well as the impact of aloan sale.
Refer to Note 15 for further information regarding changes invalue of the MSR asset and related hedges, and mortgage feesand related income.
Noninterest expense was $27.8 billion, up 7%, driven by:• investments in technology and marketing, and• higher auto lease depreciation.
The provision for credit losses was $4.8 billion, a decrease of
15%, reflecting:• a decrease in the consumer, excluding credit card portfolio
due to– lower net charge-offs in the residential real estate
portfolio, largely driven by recoveries from loan sales, and– lower net charge-offs in the auto portfolio
partially offset by– a $250 million reduction in the allowance for loan losses
in the residential real estate portfolio — PCI, reflecting
continued improvement in home prices and lower
delinquencies; the reduction was $75 million lower thanthe prior year for the residential real estate portfolio —non credit-impaired• the prior year included a net $218 million write-downrecorded in connection with the sale of the student loan
portfolio, and• a decrease in the credit card portfolio due to– a $300 million addition to the allowance for loan losses,
reflecting loan growth and higher loss rates, as
anticipated; the addition was $550 million lower than theprior year,
largely offset by– higher net charge-offs due to seasoning of more recent
vintages, as anticipated.
JPMorgan Chase & Co./2018 Form 10-K

2017 compared with 2016
Net income was $9.4 billion, a decrease of 3%.
Net revenue was $46.5 billion, an increase of 3%.
Net interest income was $31.8 billion, up 7%, driven by:• growth in deposit balances and higher deposit margins in
CBB, as well as higher loan balances in Card,
partially offset by• loan spread compression from higher rates, including theimpact of higher funding costs in Home Lending and Auto,and• the impact of the sale of the student loan portfolio.
Noninterest revenue was $14.7 billion, down 4%, driven by:• higher new account origination costs in Card,• lower MSR risk management results,• the absence in the current year of a gain on the sale of Visa
Europe interests,• lower net production revenue reflecting lower mortgage
production margins and volumes, and• lower mortgage servicing revenue as a result of a lower levelof third-party loans serviced
largely offset by• higher auto lease volume and• higher card- and deposit-related fees.
Noninterest expense was $26.1 billion, up 5%, driven by:• higher auto lease depreciation, and• continued business growthpartially offset by• two items totaling $175 million included in the prior year
related to liabilities from a merchant bankruptcy andmortgage servicing reserves.
The provision for credit losses was $5.6 billion, an increase of
24%, reflecting:• $445 million of higher net charge-offs, primarily in thecredit card portfolio due to growth in newer vintages which,as anticipated, have higher loss rates than the moreseasoned portion of the portfolio, partially offset by adecrease in net charge-offs in the residential real estate
portfolio reflecting continued improvement in home prices
and delinquencies,• a $415 million higher addition to the allowance for credit
losses related to the credit card portfolio driven by higher
loss rates and loan growth, and a lower reduction in theallowance for the residential real estate portfolio
predominantly driven by continued improvement in homeprices and delinquencies, and• a net $218 million impact in connection with the sale of thestudent loan portfolio.
The sale of the student loan portfolio during 2017 did not havea material impact on the Firm’s Consolidated Financial
Statements.

63

Management’s discussion and analysis
Selected metrics

Selected metrics

As of or for the year ended
December 31,

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

2018

2017

2016

Selected balance sheet data(period-end)
Total assets$ 557,441$ 552,601$ 535,310

2017

2016

Nonaccrual loans(a)(b)$ 3,339$ 4,084$ 4,708

236

257

257
184

Net charge-offs/(recoveries)(c)Consumer & Business Banking

26,61225,78924,307

Home equity

36,01342,75150,296

Residential mortgage

203,859

197,339

181,196

Home Lending

239,872

240,090

231,492

Card

156,632

149,511

141,816

Auto

63,573

66,24265,814

—

—

7,057

Total loans

486,689481,632

470,486

Core loans

434,466

415,167

382,608

Deposits

678,854659,885

618,337

Equity51,00051,00051,000

Selected balance sheet data
(average)
Total assets

2018

Credit data and quality
statistics

Loans:

Student(in millions, except ratio data)$ 547,368$ 532,756$ 516,354

Loans:

Consumer & BusinessBankingHome equity

(7)

63

Residential mortgage

(287)

(16)

14

Home Lending

(294)

47

198

Card

4,518

4,123

3,442

Auto

243

331

Student

—

498

(g)

162

$ 4,703$ 5,256(g)$ 4,344

Total net charge-offs/(recoveries)

285

Net charge-off/(recovery)rate(c)Consumer & BusinessBanking

0.90%

1.03 %

1.10%

Home equity(d)(0.02)

0.18

0.45

Residential mortgage(d)(0.16)(0.01)

0.01

Home Lending(0.14)

0.02

0.10

Card

3.10

2.95

2.63

Auto

0.38

0.51

0.45

Student

—

NM

2.13

1.04

1.21

Consumer & Business Banking

26,197

24,87523,431

Home equity

39,133

46,39854,545Residential mortgage

202,624

190,242

177,010

Home Lending

241,757

236,640

231,555

Card

145,652

140,024

131,165

Auto

64,67565,39563,573

Total net charge-offs/(recovery) rate(d)

—

2,880

7,623

30+ day delinquency rate478,281469,814457,347

Home Lending(e)(f)

0.77%

1.19%

1.23%

1.83

1.80

1.61

Student
Total loans

(d)

1.04

(g)

419,066

393,598

361,316Card

Deposits

670,388

640,219586,637

Auto

0.93

0.89

1.19

Equity51,00051,00051,000Student

—

—

1.60

Headcount(a)(b)129,518

133,721

132,384

0.92

0.92

0.81

Core loans(a) Effective in the first quarter of 2018, certain operations staff weretransferred from CCB to CB. The prior period amounts have been revised toconform with the current period presentation. For a further discussion ofthis transfer, refer to CB segment results on page 71.
(b) During the third quarter of 2018, approximately 1,200 employeestransferred from CCB to CIB as part of the reorganization of the Commercial
Card business.

90+ day delinquency rate Card(h)

Allowance for loan losses
Consumer & BusinessBanking

$

796

$

796

$

753

Home Lending, excluding
PCI loans

1,003

1,003

1,328

Home Lending — PCI loans(c)

1,788

2,225

2,311

Card

5,184

4,884

4,034

Auto

464

464

474

Student——249$ 9,235$ 9,372$ 9,149

Total allowance for loan
losses(c)(a) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as each of the pools is performing.
(b) At December 31, 2018, 2017 and 2016, nonaccrual loans excluded mortgage
loans 90 or more days past due and insured by U.S. government agencies of $2.6
billion, $4.3 billion and $5.0 billion, respectively. At December 31, 2016,
nonaccrual loans also excluded student loans insured by U.S. government
agencies under the Federal Family Education Loan Program (“FFELP”) of $263
million. These amounts have been excluded based upon the government
guarantee.
(c) Net charge-offs/(recoveries) and the net charge-off/(recovery) rates for theyears ended December 31, 2018, 2017 and 2016, excluded $187 million, $86
million and $156 million, respectively, of write-offs in the PCI portfolio. These
write-offs decreased the allowance for loan losses for PCI loans. For further

64

JPMorgan Chase & Co./2018 Form 10-K

information on PCI write-offs, refer to Summary of changes in the allowance for
credit losses on page 121.
(d) Excludes the impact of PCI loans. For the years ended December 31, 2018, 2017and 2016, the net charge-off/(recovery) rates including the impact of PCI loans
were as follows: (1) home equity of (0.02)%, 0.14% and 0.34%, respectively;(2) residential mortgage of (0.14)%, (0.01)% and 0.01%, respectively; (3)Home Lending of (0.12)%, 0.02% and 0.09%, respectively; and (4) total CCB of
0.98%, 1.12% and 0.95%, respectively.
(e) At December 31, 2018, 2017 and 2016, excluded mortgage loans insured by
U.S. government agencies of $4.1 billion, $6.2 billion and $7.0 billion,
respectively, that are 30 or more days past due. These amounts have been
excluded based upon the government guarantee.
(f) Excludes PCI loans. The 30+ day delinquency rate for PCI loans was 9.16%,
10.13% and 9.82% at December 31, 2018, 2017 and 2016, respectively.
(g) Excluding net charge-offs of $467 million related to the student loan portfoliotransfer, the total net charge-off rates for the full year 2017 would have been
1.10%.
(h) Excluded student loans insured by U.S. government agencies under FFELP of$468 million at December 31, 2016 that are 30 or more days past due. This
amount has been excluded based upon the government guarantee.

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

2018

2017

2016

61.1
5,130

60.5
5,258

46,694

43,83630,056

26,536

Business Metrics
CCB households (in millions)(a)61.7
Number of branches
5,036
Active digital customers
49,254(in thousands)(b)Active mobile customers
33,260(in thousands)(c)Debit and credit card sales$ 1,016.9
volume

$

916.9

$

821.6

$

625.6

$

570.8

Consumer & Business Banking
Average deposits$

Deposit margin

656.5
2.38%

Business banking origination
volumeClient investment assets

$

6.7

1.98%
$

282.5

7.3

1.81%
$

273.3

7.3
234.5

Home Lending
Mortgage origination volume
by channel
Retail$Correspondent

38.3

$

41.1

Total mortgage
origination volume(d)Total loans serviced(period-end)

40.3

$

57.3

44.3
59.3

$

79.4

$

97.6

$

103.6

$

789.8

$

816.1

$

846.6

Third-party mortgage loans
serviced (period-end)
MSR carrying value(period-end)

519.6

553.5

591.5

6.1

6.0

6.1

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

1.17%

1.08%

1.03%

MSR revenue multiple

3.34x

3.09x

2.94x

(e)

Card, excluding Commercial Card
Credit card sales volume$

New accounts opened(in millions)

692.4

$

622.2

$

545.4

7.8

8.4

10.4

11.27%

10.57%

11.29%

Card Services
Net revenue rate
Merchant Services
Merchant processing volume$ 1,366.1$ 1,191.7$ 1,063.4

$

$

$

Auto
Loan and lease origination
volumeAverage Auto operating leaseassets

31.8
18.8

33.3
15.2

35.4
11.0

(a) The prior period amounts have been revised to conform with the current period
presentation.
(b) Users of all web and/or mobile platforms who have logged in within the past 90
days.
(c) Users of all mobile platforms who have logged in within the past 90 days.
(d) Firmwide mortgage origination volume was $86.9 billion, $107.6 billion and$117.4 billion for the years ended December 31, 2018, 2017 and 2016,
respectively.
(e) Represents the ratio of MSR carrying value (period-end) to third-party mortgage
loans serviced (period-end) divided by the ratio of loan servicing-related revenue
to third-party mortgage loans serviced (average).

JPMorgan Chase & Co./2018 Form 10-K

65

Management’s discussion and analysis
CORPORATE & INVESTMENT BANKThe Corporate & Investment Bank, which consists of
Banking and Markets & Investor Services, offers abroad suite of investment banking, market-making,prime brokerage, and treasury and securities products
and services to a global client base of corporations,investors, financial institutions, government andmunicipal entities. Banking offers a full range ofinvestment banking products and services in all major
capital markets, including advising on corporate
strategy and structure, capital-raising in equity anddebt markets, as well as loan origination andsyndication. Banking also includes Treasury Services,which provides transaction services, consisting of cash
management and liquidity solutions. Markets &Investor Services is a global market-maker in cash
securities and derivative instruments, and also offers
sophisticated risk management solutions, prime
brokerage, and research. Markets & Investor Services
also includes Securities Services, a leading global
custodian which provides custody, fund accounting andadministration, and securities lending products
principally for asset managers, insurance companies
and public and private investment funds.
Effective January 1, 2018, the Firm adopted several new
accounting standards; the guidance which had the mostsignificant impact on the CIB segment results was revenue
recognition, and recognition and measurement of financial
assets. The revenue recognition guidance was applied
retrospectively and, accordingly, prior period amounts wererevised. For additional information, refer to Note 1.
Selected income statement data
Year ended December 31,(in millions)
2018
Revenue
Investment banking fees
$ 7,473
Principal transactions
12,271
Lending- and deposit-related fees
1,497
Asset management,
administration and commissions
4,488

2017
$

7,356
10,873
1,531
4,207

2016
$

6,548
11,0891,581
4,062

All other income

1,239

572

1,169

Noninterest revenue

26,96824,53924,449Net interest income

9,480

10,118

10,891

Total net revenue(a)(b)36,44834,65735,340

(60)

(45)

563

Compensation expense

10,215

9,531

9,540

Noncompensation expense

10,703

9,876

9,576

Total noninterest expense

20,91819,407

19,116

Income before income tax
expense15,59015,295

15,661

Provision for credit losses
Noninterest expense

Income tax expense
Net income(a)

66

3,817

4,482

4,846

$ 11,773$ 10,813$ 10,815(a) The full year 2017 results reflect the impact of the enactment of the TCJA
including a decrease to net revenue of $259 million and a benefit to net
income of $141 million. For additional information related to the impact of
the TCJA, refer to Note 24.
(b) Included tax-equivalent adjustments, predominantly due to income tax
credits related to alternative energy investments; income tax credits andamortization of the cost of investments in affordable housing projects; andtax-exempt income from municipal bonds of $1.7 billion, $2.4 billion and$2.0 billion for the years ended December 31, 2018, 2017 and 2016,
respectively.

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

2018

2017

2016

Financial ratios
Return on equity

16%

14%

16%

Overhead ratio

57

56

54

Compensation expense as
percentage of total net
revenue
Revenue by business

28

28

27

Investment Banking$ 6,987$ 6,852$ 6,074

Treasury Services

4,697

4,172

3,643

Lending

1,298

1,429

1,208

Total Banking

12,982

12,453

10,925

Fixed Income Markets

12,706

12,812

15,259Equity Markets

6,888

5,703

5,740

Securities Services

4,245

3,917

3,591

Credit Adjustments & Other(a)

(373)

(228)

(175)

Total Markets & Investor
Services

23,46622,204

24,415

Total net revenue$36,448$34,657$ 35,340(a) Consists primarily of credit valuation adjustments (“CVA”) managed
centrally within CIB and funding valuation adjustments (“FVA”) on
derivatives. Results are primarily reported in principal transactions
revenue. Results are presented net of associated hedging activities and net
of CVA and FVA amounts allocated to Fixed Income Markets and Equity
Markets. For additional information, refer to Notes 2, 3 and 23.

2018 compared with 2017
Net income was $11.8 billion, up 9%.
Net revenue was $36.4 billion, up 5%.
Banking revenue was $13.0 billion, up 4%. Investment
Banking revenue was $7.0 billion, up 2% compared to astrong prior year, predominantly driven by higher advisoryand equity underwriting fees, predominantly offset by lower
debt underwriting fees. The Firm maintained its #1 ranking
for Global Investment Banking fees with overall share gains,according to Dealogic. Advisory fees were $2.5 billion, up
17%, driven by a higher number of large completed
transactions. Equity underwriting fees were $1.7 billion, up
15% driven by a higher share of fees reflecting strong
performance across products. Debt underwriting fees were
$3.3 billion, down 12%, compared to a strong prior year,
primarily driven by declines in industry-wide fee levels.
Treasury Services revenue was $4.7 billion, up 13%, driven
by the impact of higher interest rates and growth inoperating deposits as well as higher fees on increased
payments volume. Lending revenue was $1.3 billion, down
JPMorgan Chase & Co./2018 Form 10-K

9%, driven by lower net interest income primarily reflecting
a change in the portfolio mix and overall spreadcompression, and higher gains in the prior year on
securities received from restructurings.
Markets & Investor Services revenue was $23.5 billion, up
6%. The results included a reduction of approximately$620 million in tax-equivalent adjustments as a result of
the TCJA, and approximately $500 million of fair value
gains in the first quarter of 2018 related to the adoption of
the new recognition and measurement accounting guidancefor certain equity investments previously held at cost. Prior
year results included a reduction of $259 million resulting
from the enactment of the TCJA. Fixed Income Markets
revenue was $12.7 billion, down 1%. Excluding the impactof the TCJA and fair value gains mentioned above, Fixed
Income Markets revenue was down 2%. Rates and Credit
revenue declined reflecting challenging market conditionsin the fourth quarter of 2018 while lower revenue in Fixed
Income Financing was driven by compressed margins. Thisdecline was predominantly offset by strong performance
including higher client activity in Currencies & Emerging
Markets, and higher Commodities revenue compared to achallenging prior year. Equity Markets revenue was $6.9
billion, up 21%, or up 18% excluding the fair value loss of$143 million on a margin loan to a single client in the prioryear, driven by strength across derivatives, prime brokerageand cash equities, reflecting strong client activity. Securities
Services revenue was $4.2 billion, up 8%, driven by fee
growth, higher interest rates and operating deposit growthpartially offset by the impact of a business exit. Credit
Adjustments & Other was a loss of $373 million, largely
driven by higher funding spreads on derivatives.
The provision for credit losses was a benefit of $60 million,
driven by a reduction in the allowance for credit losses in
the first quarter of 2018 related to a single name in the Oil& Gas portfolio, predominantly offset by other net portfolio
activity, which includes additions to the allowance for credit
losses from select client downgrades. The prior year was abenefit of $45 million primarily driven by a net reduction in
the allowance for credit losses in the Oil & Gas and Metals &Mining portfolios partially offset by a net increase in theallowance for credit losses for a single client.
Noninterest expense was $20.9 billion, up 8%,
predominantly driven by investments in technology andbankers, higher performance-related compensation
expense, volume-related transaction costs, and legal
expense.

2017 compared with 2016
Net income was $10.8 billion, flat compared with the prioryear, reflecting lower net revenue and higher noninterest
expense, offset by a lower provision for credit losses, and a
tax benefit resulting from the vesting of employee sharebased awards. The current year included a $141 million
benefit to net income as a result of the enactment of the
TCJA.
Net revenue was $34.7 billion, down 2%.
Banking revenue was $12.5 billion, up 14% compared withthe prior year. Investment banking revenue was $6.9 billion,
up 13% from the prior year, driven by higher debt andequity underwriting fees. The Firm maintained its #1
ranking for Global Investment Banking fees, according to
Dealogic. Debt underwriting fees were $3.7 billion, up 16%
driven by a higher share of fees and an overall increase inindustry-wide fees; the Firm maintained its #1 ranking
globally in fees across high-grade, high-yield, and loan
products. Equity underwriting fees were $1.5 billion, up
21% driven by growth in industry-wide issuance including astrong IPO market; the Firm ranked #2 in equity
underwriting fees globally. Advisory fees were $2.2 billion,
up 2%; the Firm maintained its #2 ranking for M&A.
Treasury Services revenue was $4.2 billion, up 15%, driven
by the impact of higher interest rates and growth inoperating deposits. Lending revenue was $1.4 billion, up
18% from the prior year, reflecting lower fair value losses
on hedges of accrual loans.
Markets & Investor Services revenue was $22.2 billion,
down 9% from the prior year. Fixed Income Markets
revenue was $12.8 billion, down 16%, as lower revenue
across products was driven by sustained low volatility,
tighter credit spreads, and the impact from the TCJA on taxoriented investments of $259 million, against a strong prioryear. Equity Markets revenue was $5.7 billion, down 1%
from the prior year, and included a fair value loss of $143
million on a margin loan to a single client. Excluding the fairvalue loss, Equity Markets revenue was higher driven byhigher revenue in Prime Services and cash equities,
partially offset by lower revenue in derivatives. Securities
Services revenue was $3.9 billion, up 9%, driven by the
impact of higher interest rates and deposit growth, as wellas higher asset-based fees driven by higher market levels.
Credit Adjustments & Other was a loss of $228 million,
driven by valuation adjustments.
The provision for credit losses was a benefit of $45 million,
which included a net reduction in the allowance for credit
losses driven by the Oil & Gas and Metals & Mining
portfolios partially offset by a net increase in the allowancefor credit losses for a single client. The prior year was an
expense of $563 million, which included an addition to theallowance for credit losses driven by the Oil & Gas andMetals & Mining portfolios.
Noninterest expense was $19.4 billion, up 2% comparedwith the prior year.

JPMorgan Chase & Co./2018 Form 10-K

67

Management’s discussion and analysis
Selected metrics

Selected metrics

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

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

2018

2017

2016

Selected balance sheet data(period-end)
Assets$ 903,051$ 826,384$ 803,511

Loans retained(a)129,389

108,765

111,872

Loans held-for-sale andloans at fair value

13,050

4,321

3,781

Total loans

142,439

113,086

115,653Core loans

142,122

112,754

115,243

70,00070,00064,000Net charge-offs/(recoveries)

Loans:

Equity

$

2016

467

220

—

109

Total nonaccrual loans

663

812

576

Derivative receivables

60

130

223

Assets acquired in loansatisfactions

57

85

79

780

1,027

878

342,124

300,606

Trading assets-derivative
receivables

60,552

56,466

63,387

Allowance for credit losses:

114,417108,368

111,082

Allowance for loan
lossesTotal nonperforming
assetsLoans:

3,812

Total loans

120,829

113,363

114,894

Core loans

120,560

113,006

114,455

70,00070,00064,000Equity54,480(b)

51,181

168

812

349,169

4,995

$

443

Trading assets-debt and equity
instruments

6,412

71

Nonaccrual loans heldfor-sale and loans atfair value$ 815,321

Loans held-for-sale andloans at fair value$

Nonaccrual loans
retained(a)$ 857,060

Loans retained(a)93

Nonaccrual loans:$ 922,758

Headcount

2017

Nonperforming assets:

Selected balance sheet data
(average)
Assets2018

Credit data and quality
statistics

48,748(a) Loans retained includes credit portfolio loans, loans held byconsolidated Firm-administered multi-seller conduits, trade financeloans, other held-for-investment loans and overdrafts.
(b) During the third quarter of 2018 approximately 1,200 employeestransferred from CCB to CIB as part of the reorganization of theCommercial Card business.

1,199

1,379

1,420

Allowance for lendingrelated commitments

754

727

801

Total allowance for credit
losses

1,953

2,106

2,221

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

0.08%

0.07%

0.15%

Allowance for loan losses toperiod-end loans
retained

0.93

1.27

1.27

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

1.24

1.92

1.86

Allowance for loan losses tononaccrual loans
retained(a)

271

170

304

Nonaccrual loans to total
period-end loans

0.47

0.72

0.50

(a) Allowance for loan losses of $174 million, $316 million and $113
million were held against these nonaccrual loans at December 31,
2018, 2017 and 2016, respectively.
(b) Loans held-for-sale and loans at fair value were excluded whencalculating the net charge-off/(recovery) rate.
(c) Management uses allowance for loan losses to period-end loans
retained, excluding trade finance and conduits, a non-GAAP financial
measure, to provide a more meaningful assessment of CIB’s allowancecoverage ratio.

Investment banking feesYear ended December 31,(in millions)

2018

Advisory$

Equity underwriting

$

1,684

Debt underwriting

$

7,473

2016
2,150

$

1,468

3,280

(a)

Total investment banking fees

2017
2,509

1,213

3,738
$

7,356

2,110
3,225

$

6,548

(a) Includes loan syndications.

68

JPMorgan Chase & Co./2018 Form 10-K

League table results – wallet share
2018Year ended
December 31,

2017

2016

Rank

Share

Rank

Share

Rank

Share

#1
1

7.3%
11.2

#1
2

7.8%
11.1

#1
1

6.8%
11.1

1
1

9.1
12.3

2
1

7.1
11.6

1
1

7.4
13.4

2
2

8.9
9.1

2
2

8.4
9.1

2
2

8.3
9.8

1
1
#1

9.5
12.1
8.7%

1
1
#1

9.3
11.0
8.1%

1
2
#1

9.3
11.9
7.9%

Based on fees(a)Long-term debt(b)GlobalU.S.
Equity and equity-related
Global(c)U.S.
M&A(d)
GlobalU.S.
Loan syndications
GlobalU.S.
Global investment banking fees (e)(a) Source: Dealogic as of January 1, 2019. Reflects the ranking of revenue wallet and market share.
(b) Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities (“ABS”) and mortgagebacked securities (“MBS”); and exclude money market, short-term debt, and U.S. municipal securities.
(c) Global equity and equity-related ranking includes rights offerings and Chinese A-Shares.
(d) Global M&A reflects the removal of any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S.
(e) Global investment banking fees exclude money market, short-term debt and shelf deals.

Markets revenue
The following table summarizes select income statement
data for the Markets businesses. Markets includes both
Fixed Income Markets and Equity Markets. Markets revenue
comprises principal transactions, fees, commissions andother income, as well as net interest income. The Firm
assesses its Markets business performance on a total
revenue basis, as offsets may occur across revenue line
items. For example, securities that generate net interest
income may be risk-managed by derivatives that arerecorded in principal transactions revenue. For a
description of the composition of these income statement
line items, refer to Notes 6 and 7.

Firm has been holding in anticipation of, or in response to,client demand, and changes in the fair value of instruments
used by the Firm to actively manage the risk exposure
arising from such inventory. Principal transactions revenue
recognized upon executing new transactions with market
participants is driven by many factors including the level ofclient activity, the bid-offer spread (which is the difference
between the price at which a market participant is willing tosell an instrument to the Firm and the price at whichanother market participant is willing to buy it from theFirm, and vice versa), market liquidity and volatility. These
factors are interrelated and sensitive to the same factorsthat drive inventory-related revenue, which include generalmarket conditions, such as interest rates, foreign exchange
rates, credit spreads, and equity and commodity prices, aswell as other macroeconomic conditions.

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

2018

2017

2016

Fixed
EquityTotal
IncomeMarkets
Markets
Markets$
7,560 $
5,566 $ 13,126
197
6
203

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

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

$

410

1,794

2,204

390

1,635

2,025

388

1,551

1,939

952
9,119
3,587
12,706 $

22
7,388
(500)
6,888 $

974
16,507
3,087
19,594
5

436
8,410
4,402
12,812 $

(21)
5,475
228
5,703 $

415
13,885
4,630
18,515
4

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

13
4,696
1,044
5,740 $

1,027
14,665
6,334
20,9990$$(a) Declines in Markets net interest income in 2018 and 2017 were driven by higher funding costs.
(b) Loss days represent the number of days for which Markets posted losses. The loss days determined under this measure differ from the disclosure of daily
market risk-related gains and losses for the Firm in the value-at-risk (“VaR”) back-testing discussion on pages 126-128.

JPMorgan Chase & Co./2018 Form 10-K

69

Management’s discussion and analysis
Selected metrics
As of or for the year ended
December 31,(in millions, except where otherwise noted)
Assets under custody (“AUC”) by asset class (period-end) (in billions):
Fixed Income

2018
$

2017
12,440$2016
13,043Equity

8,078

7,863

Other(a)

2,699

2,563

Total AUC
Client deposits and other third party liabilities (average)(b)$12,166
6,428
1,926

$

23,217$23,469$20,520$434,422$408,911$376,287(a) Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts.
(b) Client deposits and other third party liabilities pertain to the Treasury Services and Securities Services businesses.

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

2018

2017

2016

$ 12,102$ 11,328$ 10,786

Asia/Pacific

5,219

4,525

4,915

Latin America/Caribbean

1,394

1,125

1,225

Total international net revenue

18,715

16,97816,926

North America

17,733

17,67918,414$ 36,448$ 34,657$ 35,340$ 26,524$ 25,931$ 26,696

16,77815,24814,508

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

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

5,060

6,546

7,607

Total international loans

48,36247,725

48,811

North America
Total loans retained

81,02761,04063,061$129,389$108,765$ 111,872

Client deposits and other thirdparty liabilities (average)(a)(b)Europe/Middle East/Africa$162,846$154,582$ 135,979

Asia/Pacific

82,86776,744

68,110Latin America/Caribbean

26,66825,41922,914

Total international$272,381$256,745$ 227,003

North America

162,041

152,166

149,284

Total client deposits and otherthird-party liabilities$434,422$408,911$ 376,287$ 14,359$ 13,971$ 12,290

8,858

9,498

8,230

$ 23,217$ 23,469$ 20,520

AUC (period-end)(a)(in billions)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.
(b) Client deposits and other third party liabilities pertain to the Treasury
Services and Securities Services businesses.

70

JPMorgan Chase & Co./2018 Form 10-K

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

2018
$

870

2017
$

919

2016
$

917

73

68

69

1,400
2,343
6,716
9,059

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

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

Provision for credit losses

129

(276)

282

Noninterest expense
Compensation expense(c)Noncompensation expense(c)Total noninterest expense

1,694
1,692
3,386

1,534
1,793
3,327

1,396
1,538
2,934

5,544
1,307
$ 4,237

5,554
2,015
$ 3,539

4,237
1,580
$ 2,657

Income before income tax expense
Income tax expense
Net income(a) Includes revenue from investment banking products and commercial
card transactions.
(b) Total net revenue included tax-equivalent adjustments from income tax
credits related to equity investments in designated community
development entities that provide loans to qualified businesses in lowincome communities, as well as tax-exempt income related tomunicipal financing activities of $444 million, $699 million and $505
million for the years ended December 31, 2018, 2017 and 2016,
respectively. The decrease in taxable-equivalent adjustments reflects
the impact of TCJA.
(c) Effective in the first quarter of 2018, certain Operations andCompliance staff were transferred from CCB and Corporate,
respectively, to CB. As a result, expense for this staff is now reflected in
CB’s compensation expense with a corresponding adjustment for
expense allocations reflected in noncompensation expense. CB’s,
Corporate’s and CCB’s previously reported headcount, compensation
expense and noncompensation expense have been revised to reflect
this transfer.

JPMorgan Chase & Co./2018 Form 10-K

2018 compared with 2017
Net income was $4.2 billion, an increase of 20%.
Net revenue was $9.1 billion, an increase of 5%. Net
interest income was $6.7 billion, an increase of 10%,reflecting higher deposit margins and loan growth, partially
offset by lower loan spreads. Noninterest revenue was $2.3
billion, a decrease of 7%, reflecting lower Community
Development Banking revenue, which was also impacted by
the absence of the TCJA benefit in the prior year, and lower
deposit fees, partially offset by higher investment banking
revenue.
Noninterest expense was $3.4 billion, an increase of 2%,
with continued investments in banker coverage andtechnology in the current year predominantly offset by theabsence of an impairment on certain leased equipment in
the prior year.
The provision for credit losses was an expense of $129
million, driven by select client downgrades. The prior year
provision for credit losses was a benefit of $276 million.
2017 compared with 2016
Net income was $3.5 billion, an increase of 33%, driven byhigher net revenue and a lower provision for credit losses,
partially offset by higher noninterest expense.
Net revenue was $8.6 billion, an increase of 15%. Net
interest income was $6.1 billion, an increase of 19%,driven by higher deposit spreads and loan growth.
Noninterest revenue was $2.5 billion, an increase of 9%,
predominantly driven by higher Community Development
Banking revenue, including a $115 million benefit for the
impact of the TCJA on certain investments, and higher
investment banking revenue.
Noninterest expense was $3.3 billion, an increase of 13%
driven by hiring of bankers and business-related support
staff, investments in technology, and an impairment ofapproximately $130 million on certain leased equipment,
the majority of which was sold subsequent to year-end.
The provision for credit losses was a benefit of $276
million, driven by net reductions in the allowance for credit
losses, including in the Oil & Gas, Natural Gas Pipelines andMetals & Mining portfolios. The prior year provision for
credit losses was $282 million driven by downgrades in the
Oil & Gas portfolio and select client downgrades in otherindustries.

71

Management’s discussion and analysis
CB product revenue consists of the following:

Selected income statement data (continued)

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

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

Treasury services includes revenue from a broad range of
products and services that enable CB clients to manage
payments and receipts, as well as invest and manage funds.
Investment banking includes revenue from a range of
products providing CB clients with sophisticated capitalraising alternatives, as well as balance sheet and risk
management tools through advisory, equity underwriting,and loan syndications. Revenue from Fixed Income andEquity Markets products used by CB clients is also included.
Other product revenue primarily includes tax-equivalentadjustments generated from Community Development
Banking activities and certain income derived from principaltransactions.

2018

2017

2016

$ 4,049
4,074
852
84

$ 4,094
3,444
805
262

$ 3,795
2,797
785
76

$ 9,059$ 8,605$ 7,453

Investment banking revenue, gross(b) $ 2,491$ 2,385$ 2,331

Revenue by client segment
Middle Market Banking
Corporate Client Banking
Commercial Term Lending
Real Estate Banking
Other
Total Commercial Banking net
revenue$ 3,708
2,984
1,366
681
320

$ 3,341
2,727
1,454
604
479

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

$ 9,059$ 8,605$ 7,453

Revenue by productLending
Treasury services
Investment banking(a)Other
Total Commercial Banking net
revenue

CB is divided into four primary client segments: Middle
Market Banking, Corporate Client Banking, Commercial
Term Lending, and Real Estate Banking.

Financial ratios
Return on equity
Overhead ratio

Middle Market Banking covers corporate, municipal andnonprofit clients, with annual revenue generally ranging
between $20 million and $500 million.

(a) Includes total Firm revenue from investment banking products sold to
CB clients, net of revenue sharing with the CIB.
(b) Represents total Firm revenue from investment banking products soldto CB clients. As a result of the adoption of the revenue recognition
guidance, prior period amounts have been revised to conform with thecurrent period presentation. For additional information, refer to Note1.

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.

20%
37

17%
39

16%
39

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-related
activities within the Community Development Banking
business.

72

JPMorgan Chase & Co./2018 Form 10-K

Selected metrics

Selected metrics

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

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

2018

2017

2016

Selected balance sheet data(period-end)
Total assets$ 220,229$ 221,228$ 214,341

204,219

202,400

188,261

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

1,978

1,286

734

Total loans$ 206,197$ 203,686$ 188,995

Core loans

206,039

203,469

188,673

20,00020,00016,000Equity$56,656$56,965$53,929

2016

$

39

$

163

Nonperforming assets
Nonaccrual loans:
Nonaccrual loans retained(a)

511

617

1,149

Nonaccrual loans held-for-saleand loans at fair value

—

—

—

Total nonaccrual loans

511

617

1,149

Assets acquired in loansatisfactions

2

3

1

513

620

1,150

Allowance for credit losses:
2,925

71,249

254

300

248

17,796

14,722

Total allowance for credit losses

2,936

2,858

3,173

7,061

6,068

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

0.03%

0.02%

0.09%

$ 203,686$ 188,995

Allowance for loan losses toperiod-end loans retained

1.31

1.26

1.55

Allowance for loan losses tononaccrual loans retained(a)

525

415

255

Nonaccrual loans to period-end
total loans

0.25

0.30

0.61

43,027

Commercial Term Lending

76,72074,901

Real Estate Banking

17,563

Other

6,915
$ 206,197

Selected balance sheet data
(average)$ 218,259$ 217,047$ 207,532

204,243

197,203178,670

Loans held-for-sale andloans at fair value

53

2,558

46,963Loans retained

$

2,682

48,343

Total assets
Loans:

2017

Allowance for lending-related
commitments

Corporate Client Banking

Total Commercial Banking
loans

Net charge-offs/(recoveries)

Total nonperforming assets

Period-end loans by client
segment
Middle Market Banking

2018

Credit data and quality statistics

1,258

909

723

Total loans$ 205,501$ 198,112$ 179,393

Core loans

205,320

197,846

178,875

Client deposits and otherthird-party liabilities

170,901

177,018

174,396

Equity20,00020,00016,000Allowance for loan losses(a) Allowance for loan losses of $92 million, $92 million and $155 million
was held against nonaccrual loans retained at December 31, 2018,2017 and 2016, respectively.
(b) Loans held-for-sale and loans at fair value were excluded whencalculating the net charge-off/(recovery) rate.

Average loans by client
segment
Middle Market Banking$

57,092$55,474$52,242

Corporate Client Banking

47,78046,03741,756

Commercial Term Lending

75,69473,42866,700Real Estate Banking

17,808

16,525

13,063

Other

7,127

6,648

5,632

$ 205,501$ 198,112$ 179,393

11,042

10,061

9,352

Total Commercial Banking
loans
Headcount(a)(a) Effective in the first quarter of 2018, certain Operations andCompliance staff were transferred from CCB and Corporate,
respectively, to CB. The prior period amounts have been revised toconform with the current period presentation. For a further discussionof this transfer, refer to page 71, Selected income statement data,footnote (c).

JPMorgan Chase & Co./2018 Form 10-K

73

Management’s discussion and analysis
ASSET & WEALTH MANAGEMENT
Asset & Wealth Management, with client assets of $2.7
trillion, is a global leader in investment and wealthmanagement. AWM clients include institutions, highnet-worth individuals and retail investors in many
major markets throughout the world. AWM offers
investment management across most major asset
classes including equities, fixed income, alternatives
and money market funds. AWM also offers multi-asset
investment management, providing solutions for abroad range of clients’ investment needs. For WealthManagement clients, AWM also provides retirement
products and services, brokerage and banking services
including trusts and estates, loans, mortgages anddeposits. The majority of AWM’s client assets are in
actively managed portfolios.
Effective January 1, 2018, the Firm adopted several new
accounting standards; the guidance which had the mostsignificant impact on the AWM segment results was revenue
recognition. The revenue recognition guidance was applied
retrospectively and, accordingly, prior period amounts wererevised. For additional information, refer to Note 1.
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

2018

2017

2016

$10,171$ 9,856$ 9,187368
10,5393,537
14,076600
10,456
3,379
13,835

602
9,789
3,033
12,822

Provision for credit losses

53

39

26

Noninterest expense
Compensation expense
Noncompensation expense
Total noninterest expense

5,495
4,858
10,353

5,317
4,901
10,218

5,063
4,192
9,255

Income before income tax expense
3,670
Income tax expense
817
Net income$ 2,853

3,578
1,241
$ 2,337

3,541
1,290
$ 2,251

Revenue by line of business
Asset Management
Wealth Management
Total net revenue$ 7,257
6,578$ 13,835$ 6,747
6,075$ 12,822

Financial ratios
Return on common equity
Overhead ratio
Pre-tax margin ratio:
Asset Management
Wealth Management
Asset & Wealth Management$ 7,163
6,913$14,076
31%
74

25%
74

24%
72

26
26
26

22
30
26

27
28
28

Headcount

23,92022,97521,082

Number of Wealth Management
client advisors

2,865

2,605

2,504

74

2018 compared with 2017
Net income was $2.9 billion, an increase of 22%.
Net revenue was $14.1 billion, an increase of 2%. Net
interest income was $3.5 billion, up 5%, driven by deposit
margin expansion and loan growth. Noninterest revenue
was $10.5 billion, up 1%, driven by higher management
fees on higher average market levels and the cumulative
impact of net inflows, predominantly offset by fee
compression, lower investment valuations and lower
performance fees.
Revenue from Asset Management was $7.2 billion, down
1%, driven by lower investment valuations, fee
compression and lower performance fees, predominantly
offset by higher management fees on higher average
market levels and the cumulative impact of net inflows.
Revenue from Wealth Management was $6.9 billion, up 5%,
reflecting higher management fees on the cumulative
impact of net inflows and higher average market levels aswell as higher net interest income from deposit margin
expansion and continued loan growth, partially offset by fee
compression.
Noninterest expense was $10.4 billion, an increase of 1%,
driven by investments in advisors and technology andhigher external fees on revenue growth, largely offset bylower legal expense.
2017 compared with 2016
Net income was $2.3 billion, an increase of 4% comparedwith the prior year, reflecting higher revenue and a tax
benefit resulting from the vesting of employee share-based
awards, offset by higher noninterest expense.
Net revenue was $13.8 billion, an increase of 8%. Net
interest income was $3.4 billion, up 11%, driven by higher
deposit spreads. Noninterest revenue was $10.5 billion, up
7%, driven by higher market levels, partially offset by theabsence of a gain in the prior year on the disposal of anasset.
Revenue from Asset Management was $7.3 billion, up 8%
from the prior year, driven by higher market levels, partially
offset by the absence of a gain in prior year on the disposalof an asset.
Revenue from Wealth Management was $6.6 billion, up 8%
from the prior year, reflecting higher net interest income
from higher deposit spreads.
Noninterest expense was $10.2 billion, an increase of 10%,
predominantly driven by higher legal expense andcompensation expense on higher revenue and headcount.

JPMorgan Chase & Co./2018 Form 10-K

AWM’s lines of business consist of the following:

Selected metrics

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

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

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

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

58%

60%

63%

% of JPM mutual fund assets
ranked in 1st or 2nd
quartile:(b)1 year68

64

54

3 years

73

75

72

5 years

85

83

79

$ 170,024$ 151,909$ 138,384

147,632

130,640

118,039

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

2018

2017

2016

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

Selected balance sheet data(period-end)

Retail clients include financial intermediaries and individual investors.

Loans

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

147,632

130,640

118,039

Deposits

138,546

146,407

161,577

Equity

9,000

9,000

9,000

$ 160,269$ 144,206$ 132,875

138,622

123,464

112,876• Percentage of mutual fund assets under management in funds
rated 4- or 5-star: Mutual fund rating services rank funds based on
their risk-adjusted performance over various periods. A 5-star ratingis the best rating and represents the top 10% of industry-wide ranked
funds. A 4-star rating represents the next 22.5% of industry-wide
ranked funds. A 3-star rating represents the next 35% of industrywide ranked funds. A 2-star rating represents the next 22.5% ofindustry-wide ranked funds. A 1-star rating is the worst rating andrepresents the bottom 10% of industry-wide ranked funds. The“overall Morningstar rating” is derived from a weighted average of theperformance associated with a fund’s three-, five- and ten-year (ifapplicable) Morningstar Rating metrics. For U.S. domiciled funds,
separate star ratings are given at the individual share class level. The
Nomura “star rating” is based on three-year risk-adjusted
performance only. Funds with fewer than three years of history are
not rated and hence excluded from this analysis. All ratings, theassigned peer categories and the asset values used to derive thisanalysis are sourced from these fund rating providers mentioned infootnote (a). The data providers re-denominate the asset values into
U.S. dollars. This % of AUM is based on star ratings at the share classlevel for U.S. domiciled funds, and at a “primary share class” level torepresent the star rating of all other funds except for Japan where
Nomura provides ratings at the fund level. The “primary share class”,
as defined by Morningstar, denotes the share class recommended as
being the best proxy for the portfolio and in most cases will be themost retail version (based upon annual management charge,
minimum investment, currency and other factors). The performancedata could have been different if all funds/accounts would have been
included. Past performance is not indicative of future results.
• Percentage of mutual fund assets under management in funds
ranked in the 1st or 2nd quartile (one, three and five years): All
quartile rankings, the assigned peer categories and the asset values
used to derive this analysis are sourced from the fund ranking
providers mentioned in footnote (b). Quartile rankings are done on
the net-of-fee absolute return of each fund. The data providers redenominate the asset values into U.S. dollars. This % of AUM is basedon fund performance and associated peer rankings at the share classlevel for U.S. domiciled funds, at a “primary share class” level torepresent the quartile ranking of the U.K., Luxembourg and Hong
Kong funds and at the fund level for all other funds. The “primaryshare class”, as defined by Morningstar, denotes the share classrecommended as being the best proxy for the portfolio and in mostcases will be the most retail version (based upon annual management
charge, minimum investment, currency and other factors). Where
peer group rankings given for a fund are in more than one “primaryshare class” territory both rankings are included to reflect local
market competitiveness (applies to “Offshore Territories” and “HK
SFC Authorized” funds only). The performance data could have beendifferent if all funds/accounts would have been included. Past
performance is not indicative of future results.
JPMorgan Chase & Co./2018 Form 10-K

Total assets
Core loans

Selected balance sheet data
(average)
Total assets
Loans

138,622

123,464

112,876

Deposits

Core loans

137,272

148,982

153,334

Equity

9,000

9,000

9,000

Credit data and quality
statistics
Net charge-offs
Nonaccrual loans

$

10

$

14

$

16

263

375

390

Allowance for loan losses

326

290

274

Allowance for lendingrelated commitments

16

10

4

Total allowance for credit
losses

342

300

278

Net charge-off rate

0.01%

0.01%

0.01%

Allowance for loan losses toperiod-end loans

0.22

0.22

0.23

Allowance for loan losses tononaccrual loans

124

77

70

Nonaccrual loans to periodend loans

0.18

0.29

0.33

Allowance for credit losses:(a) Represents the “overall star rating” derived from Morningstar for the
U.S., the U.K., Luxembourg, Hong Kong and Taiwan domiciled funds;
and Nomura “star rating” for Japan domiciled funds. Includes only
Asset Management retail open-ended mutual funds that have a rating.
Excludes money market funds, Undiscovered Managers Fund, andBrazil domiciled funds.
(b) Quartile ranking sourced from: Lipper for the U.S. and Taiwan
domiciled funds; Morningstar for the U.K., Luxembourg and Hong Kongdomiciled funds; Nomura for Japan domiciled funds and Fund Doctor
for South Korea domiciled funds. Includes only Asset Management
retail open-ended mutual funds that are ranked by the aforementioned
sources. Excludes money market funds, Undiscovered Managers Fund,and Brazil domiciled funds.

75

Management’s discussion and analysis
Client assets

Client assets (continued)

2018 compared with 2017
Client assets were $2.7 trillion, a decrease of 2%. Assets
under management were $2.0 trillion, a decrease of 2%
reflecting lower spot market levels, largely offset by net
inflows into liquidity and long-term products.

Year ended December 31,(in billions)2017 compared with 2016
Client assets were $2.8 trillion, an increase of 14%
compared with the prior year. Assets under management
were $2.0 trillion, an increase of 15% from the prior year
reflecting higher market levels, and net inflows into longterm and liquidity products.
Client assets

2018

Beginning balance

$

1,723

31

9

24

Fixed income

(1)

36

30

Equity

2

(11)

(29)

Multi-asset and alternatives

24

43

22

Market/performance/other impacts
Ending balance, December 31

2018

2017

2016

Beginning balance

Liquidity

480 $

459 $

436

Market/performance/other impacts

Fixed income

464

474

420

Ending balance, December 31

Equity

384

428

351

Multi-asset and alternatives

659

673

564

1,987

2,034

1,771

746

755

682

2,733 $

2,789 $

2,453$

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

(103)

186

$

1,987 $

2,034 $

1,771$

2,789 $

2,453 $

2,350

88

93

63

(144)

243

40

2,733 $

2,789 $

2,453

$

1

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

Memo:
$

171 $

166 $

154

$

552 $

526 $

435

926

968

869

2018
$

Asia/Pacific
Latin America/Caribbean
Total international net revenue

Assets by client segment
Institutional
Retail

509

540

467

Total assets under management$

1,987 $

2,034 $

1,771

Private Banking$

1,274 $

1,256 $

1,098

Institutional

946

990

886

Retail

513

543

469

2,733 $

2,789 $

2,453

Total client assets

1,771 $

Liquidity

Net asset flows

Private Banking

2,034 $Net asset flows:

Assets by asset class

Alternatives client assets(a)2016Client assets rollforward

December 31,(in billions)

Total client assets

2017

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

North America
Total net revenue

2017

2016

2,721 $

2,715 $

2,425

1,518

1,385

1,278

904

844

726

5,143

4,944

4,429

8,933

8,891

8,393

$ 14,076 $ 13,835 $ 12,822

Assets under management
Europe/Middle East/Africa

355 $

384 $

309

Asia/Pacific

$

162

160

123

Latin America/Caribbean

63

61

45

Total international assets undermanagement

580

605

477

North America
Total assets under management

1,407

1,429

1,294

$

1,987 $

2,034 $

1,771$

Client assets
Europe/Middle East/Africa

414 $

441 $

359

Asia/Pacific

222

225

177

Latin America/Caribbean

155

154

114

Total international client assets

791

820

650

1,942

1,969

1,803

2,733 $

2,789 $

2,453

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

76

JPMorgan Chase & Co./2018 Form 10-K

CORPORATEThe Corporate segment consists of Treasury and Chief
Investment Office and Other Corporate, which includes
corporate staff functions and expense that is centrally
managed. Treasury and CIO is predominantly
responsible for measuring, monitoring, reporting andmanaging the Firm’s liquidity, funding, capital,
structural interest rate and foreign exchange risks. The
major Other Corporate functions include Real Estate,
Technology, Legal, Corporate Finance, Human
Resources, Internal Audit, Risk Management,
Compliance, Control Management, Corporate
Responsibility and various Other Corporate groups.

Selected income statement and balance sheet data
Year ended December 31,(in millions, except headcount)
RevenuePrincipal transactions
Securities gains/(losses)
All other income/(loss)(a)Noninterest revenue
Net interest income
Total net revenue(b)

2018
$

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

(4)

—

(4)

902

501

462

(1,026)

639

(945)

215
$ (1,241) $2,282(1,643) $

(241)
(704)

566
574
1,140

$

(787)
300
(487)

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

(715)
11
(704)

(c)

Total assets (period-end)
Loans (period-end)Core loans(d)Headcount(e)2016(426) $
(395)
558
(263)
135
(128)

Provision for credit losses
Noninterest expense
Income/(loss) before income
tax benefit
Income tax expense/(benefit)
Net income/(loss)
Total net revenue
Treasury and CIO
Other Corporate
Total net revenue
Net income/(loss)
Treasury and CIO
Other Corporate
Total net income/(loss)

2017

$

510
(638)
(128) $

(69)
(1,172)$ (1,241) $$771,787
1,597
1,597
37,145$ 781,478
1,653
1,653
34,601

210
140
588
938
(1,425)(487)$ 799,426
1,592
1,589
31,7892018 compared with 2017
Net loss was $1.2 billion.
Net revenue was a loss of $128 million, compared with net
revenue of $1.1 billion in the prior year. The current year
includes markdowns on certain legacy private equity
investments and investment securities losses related to therepositioning of the investment securities portfolio, partially
offset by higher net interest income primarily driven byhigher rates. The prior year included a $645 million benefit
from a legal settlement.
Noninterest expense of $902 million includes a pre-tax lossof $174 million on the liquidation of a legal entity recordedin the second quarter of 2018, as well as investments intechnology and real estate.
Current period income tax expense reflects a net benefit of$302 million resulting from changes in estimates under the
TCJA related to the remeasurement of certain deferredtaxes and the deemed repatriation tax on non-U.S. earnings.
This amount was more than offset by changes to certain tax
reserves and other tax adjustments. The prior year income
tax expense included a $2.7 billion expense related to theimpact of the TCJA.
2017 compared with 2016
Net loss was $1.6 billion, compared with a net loss of $704
million in the prior year. The current year net loss included
a $2.7 billion increase to income tax expense related to theimpact of the TCJA.
Net revenue was $1.1 billion, compared with a loss of $487
million in the prior year. The increase in current year net
revenue was driven by a $645 million benefit from a legal
settlement with the FDIC receivership for Washington
Mutual and with Deutsche Bank as trustee of certain
Washington Mutual trusts and by the net impact of higher
interest rates.
Net interest income was $55 million, compared with a lossof $1.4 billion in the prior year. The gain in the current year
was primarily driven by higher interest income on deposits
with banks due to higher interest rates and balances,
partially offset by higher interest expense on long-term
debt primarily driven by higher interest rates.

(a) Included revenue related to a legal settlement of $645 million for the year
ended December 31, 2017.
(b) Included tax-equivalent adjustments, driven by tax-exempt income frommunicipal bond investments, of $382 million, $905 million and $885
million for the years ended December 31, 2018, 2017 and 2016,
respectively. The decrease in taxable-equivalent adjustments reflects theimpact of the TCJA.
(c) Included legal expense/(benefit) of $(241) million, $(593) million and$(385) million for the years ended December 31, 2018, 2017 and 2016,
respectively.
(d) Average core loans were $1.7 billion, $1.6 billion and $1.9 billion for theyears ended December 31, 2018, 2017 and 2016, respectively.
(e) Effective in the first quarter of 2018, certain Compliance staff weretransferred from Corporate to CB. The prior period amounts have been revised
to conform with the current period presentation. For a further discussion ofthis transfer, refer to CB segment results on page 71.

JPMorgan Chase & Co./2018 Form 10-K

77

Management’s discussion and analysis
Treasury and CIO overview
Treasury and CIO is predominantly responsible formeasuring, monitoring, reporting and managing the Firm’s
liquidity, funding, capital, structural interest rate andforeign exchange risks. The risks managed by Treasury and
CIO arise from the activities undertaken by the Firm’s four
major reportable business segments to serve theirrespective client bases, which generate both on- and offbalance sheet assets and liabilities.
Treasury and CIO seek to achieve the Firm’s asset-liability
management objectives generally by investing in highquality securities that are managed for the longer-term aspart of the Firm’s investment securities portfolio. Treasury
and CIO also use derivatives to meet the Firm’s assetliability management objectives. For further information onderivatives, refer to Note 5. In addition, Treasury and CIO
manage the Firm’s cash position primarily throughdepositing at central banks and investing in short-term
instruments. For further information on liquidity andfunding risk, refer to Liquidity Risk Management on pages
95–100. For information on interest rate, foreign exchange
and other risks, refer to Market Risk Management on pages
124–131.

Selected income statement and balance sheet data
As of or for the year ended
December 31, (in millions)
Investment securities gains/(losses)

2018$(395) $

2017(78) $

2016
132

Available-for-sale (“AFS”)
investment securities(average)

203,449

219,345

226,892

Held-to-maturity (“HTM”)
investment securities(average)

31,74747,92751,358Investment securities portfolio(average)

235,197

267,272

278,250

228,681200,247

236,670

31,43447,73350,168260,115

247,980

286,838

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

As permitted by the new hedge accounting guidance, the Firm elected totransfer certain investment securities from HTM to AFS in the first quarterof 2018. For additional information, refer to Notes 1 and 10.

The investment securities portfolio primarily consists ofagency and nonagency mortgage-backed securities, U.S.
and non-U.S. government securities, obligations of U.S.
states and municipalities, other ABS and corporate debt
securities. At December 31, 2018, the investment securities
portfolio was $260.1 billion, and the average credit ratingof the securities comprising the portfolio was AA+ (based
upon external ratings where available and, where notavailable, based primarily upon internal ratings that
correspond to ratings as defined by S&P and Moody’s).
Refer to Note 10 for further information on the Firm’s
investment securities portfolio.

78

JPMorgan Chase & Co./2018 Form 10-K

ENTERPRISE-WIDE RISK MANAGEMENT
Risk is an inherent part of JPMorgan Chase’s businessactivities. When the Firm extends a consumer or wholesaleloan, advises customers on their investment decisions,
makes markets in securities, or offers other products orservices, the Firm takes on some degree of risk. The Firm’s
overall objective is to manage its businesses, and theassociated risks, in a manner that balances serving theinterests of its clients, customers and investors and protects
the safety and soundness of the Firm.
The Firm believes that effective risk management requires:•

Acceptance of responsibility, including identification andescalation of risk issues, by all individuals within the
Firm;

•

Ownership of risk identification, assessment, data andmanagement within each of the lines of business andCorporate; and•Firmwide structures for risk governance.

The Firm strives for continual improvement through efforts
to enhance controls, ongoing employee training anddevelopment, talent retention, and other measures. The
Firm follows a disciplined and balanced compensation
framework with strong internal governance andindependent Board oversight. The impact of risk and control
issues are carefully considered in the Firm’s performance
evaluation and incentive compensation processes.
Firmwide Risk Management is overseen and managed on an
enterprise-wide basis. The Firm’s risk management
governance and oversight framework involves
understanding drivers of risks, types of risks, and impacts ofrisks.

Drivers of Risks
Drivers of risks include, but are not limited to, the economic
environment, regulatory or government policy, competitor
or market evolution, business decisions, process or
judgment error, deliberate wrongdoing, dysfunctional
markets, and natural disasters.

JPMorgan Chase & Co./2018 Form 10-K

Types of Risks
The Firm’s risks are generally categorized in the following
four risk types:• Strategic risk is the risk associated with the Firm’scurrent and future business plans and objectives,
including capital risk, liquidity risk, and the impact to
the Firm’s reputation.
• Credit and investment risk is the risk associated with thedefault or change in credit profile of a client,counterparty or customer; or loss of principal or areduction in expected returns on investments, including
consumer credit risk, wholesale credit risk, andinvestment portfolio risk.
• Market risk is the risk associated with the effect ofchanges in market factors, such as interest and foreignexchange rates, equity and commodity prices, credit
spreads or implied volatilities, on the value of assets andliabilities held for both the short and long term.
• Operational risk is the risk associated with inadequate or
failed internal processes, people and systems, or fromexternal events and includes compliance risk, conductrisk, legal risk, and estimations and model risk.
Impacts of Risks
There may be many consequences of risks manifesting,including quantitative impacts such as reduction in earnings
and capital, liquidity outflows, and fines or penalties, or
qualitative impacts, such as reputation damage, loss ofclients, and regulatory and enforcement actions.
Governance and Oversight Functions
The Firm manages its risk through risk governance andoversight functions. The scope of a particular function may
include one or more drivers, types and/or impacts of risk.
For example, Country Risk Management oversees country
risk which may be a driver of risk or an aggregation of
exposures that could give rise to multiple risk types such as
credit or market risk.
The following sections discusses the risk governance andoversight functions in place to manage the risks inherent in
the Firms business activities.
Risk governance and oversight functions
Strategic risk
Capital risk
Liquidity risk
Reputation risk
Consumer credit risk
Wholesale credit risk
Investment portfolio risk
Market risk
Country risk
Operational risk
Compliance risk
Conduct risk
Legal risk
Estimations and Model risk

Page
84
85–94
95–100101
106-111
112-119123
124-131
132–133
134-136
137
138
139
140
79

Management’s discussion and analysis
Governance and oversight
The Firm’s overall appetite for risk is governed by a “Risk
Appetite” framework. The framework and the Firm’s risk
appetite are set and approved by the Firm’s Chief Executive
Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief
Risk Officer (“CRO”). LOB-level risk appetite is set by therespective LOB CEO, CFO and CRO and is approved by the
Firm’s CEO, CFO and CRO. Quantitative parameters andqualitative factors are used to monitor and measure theFirm’s capacity to take risk consistent with its stated risk
appetite. Quantitative parameters have been established toassess select strategic risks, credit risks and market risks.
Qualitative factors have been established to assess selectoperational risks, and impact to the Firm’s reputation. Risk
Appetite results are reported quarterly to the Board of
Directors’ Risk Policy Committee (“DRPC”).
The Firm has an Independent Risk Management (“IRM”)
function, which consists of the Risk Management andCompliance organizations. The CEO appoints, subject to
DRPC approval, the Firm’s CRO to lead the IRM organizationand manage the risk governance structure of the Firm. The
framework is subject to approval by the DRPC in the form of
the primary risk management policies. The Firm’s CRO
oversees and delegates authorities to LOB CROs, Firmwide
Risk Executives (“FREs”), and the Firm’s Chief Compliance
Officer (“CCO”). The CCO oversees and delegates authorities
to the LOB CCOs, and is responsible for the creation andeffective execution of the Global Compliance Program.

The Firm places reliance on each of its LOBs and otherfunctional areas giving rise to risk to operate within theparameters identified by the IRM function, and within its
own management-identified risk and control standards.
Each LOB and Treasury and CIO, inclusive of their aligned
Operations, Technology and Control Management areconsidered the “first line of defense” and owns theidentification of risks, as well as the design and execution ofcontrols, inclusive of IRM-specified controls, to manage
those risks. The first line of defense is responsible foradherence to applicable laws, rules, and regulations and forthe implementation of the risk management structure(which may include policy, standards, limits, thresholds andcontrols) established by IRM.
The IRM function is independent of the businesses and is“the second line of defense”. The IRM function sets andoversees the risk management structure for firmwide risk
governance, and independently assesses and challenges thefirst line of defense risk management practices. IRM is also
responsible for its own adherence to applicable laws, rules,
regulations and for the implementation of policies andstandards established by IRM with respect to its own
processes.
The Internal Audit function operates independently fromother parts of the Firm and performs independent testingand evaluation of processes and controls across the entire
enterprise as the Firm’s “third line of defense”. The Internal
Audit Function is headed by the General Auditor, whoreports to the Audit Committee.
In addition, there are other functions that contribute to thefirmwide control environment including Finance, Human
Resources, Legal, and Control Management.

80

JPMorgan Chase & Co./2018 Form 10-K

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

The Firm’s Operating Committee, which consists of the
Firm’s CEO, CRO, CFO and other senior executives, isaccountable to and may refer matters to the Firm’s Board of
Directors. The Operating Committee is responsible toescalate to the Board the information necessary to facilitate
the Board’s exercise of its duties.
The Board of Directors provides oversight of risk. The DRPC
is the principal committee that oversees risk matters. The
Audit Committee oversees the control environment, and theCompensation & Management Development Committee
oversees compensation and other management-related
matters. Each committee of the Board oversees reputation
risk and/or conduct risk issues within its scope of
responsibility.

JPMorgan Chase & Co./2018 Form 10-K

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

81

Management’s discussion and analysis
The Audit Committee of the Board assists the Board in its
oversight of management’s responsibilities to assure that
there is an effective system of controls reasonably designed
to safeguard the assets and income of the Firm, assure theintegrity of the Firm’s financial statements and maintaincompliance with the Firm’s ethical standards, policies, plansand procedures, and with laws and regulations. In addition,
the Audit Committee assists the Board in its oversight of the
Firm’s independent registered public accounting firm’s
qualifications, independence and performance, and of theperformance of the Firm’s Internal Audit function.
The Compensation & Management Development Committee(“CMDC”) of the Board assists the Board in its oversight of
the Firm’s compensation programs and reviews andapproves the Firm’s overall compensation philosophy,
incentive compensation pools, and compensation practices
consistent with key business objectives and safety andsoundness. The CMDC reviews Operating Committee
members’ performance against their goals, and approves
their compensation awards. The CMDC also periodicallyreviews the Firm’s diversity programs and management
development and succession planning, and provides
oversight of the Firm’s culture, including reviewing
management updates regarding significant conduct issues
and any related employee actions, including but not limited
to compensation actions.
The Public Responsibility Committee of the Board assists theBoard in its oversight of the Firm's positions and practices
on public responsibility matters such as community
investment, fair lending, sustainability, consumer practices
and other public policy issues that reflect the Firm's values
and character and impact the Firm's reputation among all of
its stakeholders. The Committee also provides guidance onthese matters to management and the Board as
appropriate.
Among the Firm’s senior management-level committees thatare primarily responsible for key risk-related functions are:
The Firmwide Risk Committee (“FRC”) is the Firm’s highest
management-level risk committee. It provides oversight of
the risks inherent in the Firm’s businesses. The FRC is cochaired by the Firm’s CEO and CRO. The FRC serves as an
escalation point for risk topics and issues raised by its
members, the Line of Business Risk Committees, Firmwide
Control Committee, Firmwide Fiduciary Risk GovernanceCommittee, Firmwide Estimations Risk Committee, Conduct
Risk Steering Committee and Regional Risk Committees, as
appropriate. The FRC escalates significant issues to the
DRPC, as appropriate.
The Firmwide Control Committee (“FCC”) provides a forum
for senior management to review and discuss firmwide
operational risks, including existing and emerging issues
and operational risk metrics, and to review operational risk
management execution in the context of the Operational
Risk Management Framework (“ORMF”). The ORMF provides
the framework for the governance, risk identification andassessment, measurement, monitoring and reporting of82

operational risk. The FCC is co-chaired by the Chief Control
Manager and the Firmwide Risk Executive for Operational
Risk Management. The FCC relies on the prompt escalationof operational risk and control issues from businesses andfunctions as the primary owners of the operational risk.
Operational risk and control issues may be escalated bybusiness or function control committees to the FCC, which inturn, may escalate to the FRC, as appropriate.
The Firmwide Fiduciary Risk Governance Committee(“FFRGC”) is a forum for risk matters related to the Firm’s
fiduciary activities. The FFRGC oversees the governanceframework for fiduciary risk inherent in each of the Firm’s
LOBs. The governance framework supports the consistentidentification and escalation of fiduciary risk or fiduciary
related conflict of interest risk. The FFRGC approves risk orcompliance policy exceptions and reviews periodic reports
from the LOBs and control functions including fiduciary
metrics and control trends. The FFRGC is co-chaired by the
Wealth Management CEO and the Asset & WealthManagement CRO. The FFRGC escalates significant fiduciaryissues to the FRC, the DRPC and the Audit Committee, as
appropriate.
The Firmwide Estimations Risk Committee (“FERC”) reviews
and oversees governance and execution activities related toquantitative and qualitative estimations, such as those usedin risk management, budget forecasting and capitalplanning and analysis. The FERC is chaired by the Firmwide
Risk Executive for Model Risk Governance and Review. The
FERC serves as an escalation channel for relevant topics andissues raised by its members and the Line of Business
Estimation Risk Committees. The FERC escalates significant
issues to the FRC, as appropriate.
The Conduct Risk Steering Committee (“CRSC”) provides
oversight of the Firm’s conduct initiatives to develop a more
holistic view of conduct risks and to connect key programs
across the Firm to identify opportunities and emerging
areas of focus. The CRSC is co-chaired by the Conduct Risk
Compliance Executive and the Human Resources Chief
Administrative Officer. The CRSC may escalate systemic
conduct risk issues to the FRC and as appropriate to the
DRPC.
Line of Business and Regional Risk Committees review theways in which the particular line of business or the business
operating in a particular region could be exposed to adverse
outcomes with a focus on identifying, accepting, escalating
and/or requiring remediation of matters brought to thesecommittees. These committees may escalate matters to the
FRC, as appropriate. LOB risk committees are co-chaired by
the LOB CEO and the LOB CRO. Each LOB risk committee
may create sub-committees with requirements for
escalation. The regional committees are establishedsimilarly, as appropriate, for the region.
Line of Business and Corporate Control Committees oversee
the control environment of their respective business orfunction. As part of that mandate, they are responsible forreviewing data that indicates the quality and stability of the
JPMorgan Chase & Co./2018 Form 10-K

processes in a business or function, addressing key
operational risk issues, focusing on processes with control
concerns and overseeing control remediation. These
committees escalate issues to the FCC, as appropriate.
The Firmwide Asset and Liability Committee (“ALCO”), chairedby the Firm’s Treasurer and Chief Investment Officer, is
responsible for overseeing the Firm’s asset and liability
management (“ALM”) activities and the management ofliquidity risk, balance sheet, interest rate risk, and capitalrisk. The ALCO is supported by the Treasurer Committee andthe Capital Governance Committee. The Treasurer
Committee is responsible for monitoring the Firm’s overallbalance sheet, liquidity risk and interest rate risk. The
Capital Governance Committee is responsible for overseeing
the Firm’s strategic end-to-end capital management andgovernance framework, including capital planning, capital
strategy, and the implementation of regulatory capitalrequirements.
The Firmwide Valuation Governance Forum (“VGF”) is
composed of senior finance and risk executives and is
responsible for overseeing the management of fair value
risks arising from valuation activities conducted across theFirm. The VGF is chaired by the Firmwide head of theValuation Control Group (“VCG”) under the direction of the
Firm’s Controller, and includes sub-forums covering the
Corporate & Investment Bank, Consumer & Community
Banking, Commercial Banking, Asset & Wealth Management
and Corporate, including Treasury and CIO.

JPMorgan Chase & Co./2018 Form 10-K

In addition, the JPMorgan Chase Bank, N.A. Board of
Directors is responsible for the oversight of management of
the bank. The JPMorgan Chase Bank, N.A. Board
accomplishes this function acting directly and through theprincipal standing committees of the Firm’s Board of
Directors. Risk and control oversight on behalf of JPMorgan
Chase Bank N.A. is primarily the responsibility of the DRPC
and the Audit Committee of the Firm’s Board of Directors,
respectively, and, with respect to compensation and othermanagement-related matters, the Compensation &Management Development Committee of the Firm’s Boardof Directors.
Risk Identification
The Firm has a Risk Identification process designed tofacilitate the first line of defense’s responsibility to identify
material risks inherent to the Firm, catalog them in acentral repository and review the most material risks on aregular basis. The second line of defense reviews andchallenges the first line’s identification of risks, maintains
the central repository and provides the consolidated
Firmwide results to the FRC and DRPC.

83

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

The Firm’s balance sheet strategy, which focuses on riskadjusted returns, strong capital and robust liquidity, is key
to management of strategic risk. For further information on
capital risk, refer to Capital Risk Management on pages
85-94. For further information on liquidity risk, refer toLiquidity Risk Management on pages 95–100
For further information on reputation risk, refer to
Reputation Risk Management on page 101.
Governance and oversight
On at least an annual basis, the Firm’s Operating Committee
defines the most significant strategic priorities andinitiatives, including those of the Firm, the LOBs andCorporate, for the coming year and evaluates performanceagainst the prior year. As part of the strategic planning
process, IRM conducts a qualitative assessment of thosesignificant initiatives to determine the impact on the risk
profile of the Firm. The Firm’s priorities, initiatives andIRM’s assessment are provided to the Board for its review.
As part of its ongoing oversight and management of risk
across the Firm, IRM is regularly engaged in significant
discussions and decision-making across the Firm, including
decisions to pursue new business opportunities or modify
or exit existing businesses.

These strategic priorities and initiatives are thenincorporated in the Firm’s budget, and are reviewed by the
Board of Directors.
In the process of developing the strategic initiatives, line ofbusiness and Corporate leadership identify the strategicrisks associated with their strategic initiatives and thoserisks are incorporated into the Firmwide Risk Identification
process and monitored and assessed as part of the
Firmwide Risk Appetite framework. For further information
on Risk Identification, refer to Enterprise-Wide Risk
Management on page 79. For further information on the
Risk Appetite framework, refer to Enterprise-Wide Risk
Management on page 80.

84

JPMorgan Chase & Co./2018 Form 10-K

CAPITAL RISK MANAGEMENT
Capital risk is the risk the Firm has an insufficient level andcomposition of capital to support the Firm’s businessactivities and associated risks during normal economic
environments and under stressed conditions.
A strong capital position is essential to the Firm’s businessstrategy and competitive position. Maintaining a strong
balance sheet to manage through economic volatility is
considered a strategic imperative of the Firm’s Board of
Directors, CEO and Operating Committee. The Firm’s
fortress balance sheet philosophy focuses on risk-adjusted
returns, strong capital and robust liquidity. The Firm’s
capital risk management strategy focuses on maintaining
long-term stability to enable it to build and invest in
market-leading businesses, even in a highly stressed
environment. Senior management considers theimplications on the Firm’s capital prior to making any
significant decisions that could impact future businessactivities. In addition to considering the Firm’s earnings
outlook, senior management evaluates all sources and usesof capital with a view to ensuring the Firm’s capitalstrength.
Capital management
Treasury & CIO assumed responsibility for capitalmanagement in March 2018.
The primary objectives of effective capital management areto:• Maintain sufficient capital in order to continue to build
and invest in the Firm’s businesses through the cycle andin stressed environments;• Retain flexibility to take advantage of future investment
opportunities;• Promote the Firm’s ability to serve as a source ofstrength to its subsidiaries;• Ensure the Firm operates above the minimum regulatory
capital ratios as well as maintain “well-capitalized”
status for the Firm and its insured depository institution(“IDI”) subsidiaries at all times under applicableregulatory capital requirements;• Meet capital distribution objectives; and• Maintain sufficient capital resources to operate
throughout a resolution period in accordance with the
Firm’s preferred resolution strategy.
The Firm meets these objectives through the establishmentof internal minimum capital requirements and a strong
capital management governance framework, both inbusiness as usual conditions and in the event of stress.
Capital risk management is intended to be flexible in orderto react to a range of potential events. In its management of
capital, the Firm takes into consideration economic risk andall applicable regulatory capital requirements to determine
the level of capital needed.
The Firm’s minimum capital levels are based on the mostbinding of three pillars: an internal assessment of the Firm’s
JPMorgan Chase & Co./2018 Form 10-K

capital needs; an estimate of required capital under the
CCAR and other stress testing requirements; and Basel III
Fully Phased-In regulatory minimums. Where necessary,each pillar may include a management-established buffer.
The capital governance framework requires regularmonitoring of the Firm’s capital positions, stress testing anddefining escalation protocols, both at the Firm and material
legal entity levels.
Contingency capital plan
The Firm’s contingency capital plan, which is approved by
the firmwide ALCO and the DRPC, establishes the capitalmanagement framework for the Firm and specifies theprinciples underlying the Firm’s approach towards capitalmanagement in normal economic times and during stress.
The contingency capital plan defines how the Firm
calibrates its targeted capital levels and meets minimum
capital requirements, monitors the ongoing appropriatenessof planned distributions, and sets out the capital
contingency actions that must be taken or considered atvarious levels of capital depletion during a period of stress.
Capital planning and stress testingComprehensive Capital Analysis and Review
The Federal Reserve requires large bank holding
companies, including the Firm, to submit on an annual basis
a capital plan that has been reviewed and approved by the
Board of Directors. The Federal Reserve uses the CCAR andother stress testing processes to ensure that large BHCs
have sufficient capital during periods of economic andfinancial stress, and have robust, forward-looking capitalassessment and planning processes in place that addresseach BHC’s unique risks to enable it to absorb losses undercertain stress scenarios. Through CCAR, the Federal Reserve
evaluates each BHC’s capital adequacy and internal capital
adequacy assessment processes (“ICAAP”), as well as its
plans to make capital distributions, such as dividend
payments or stock repurchases.
On June 28, 2018, the Federal Reserve informed the Firmthat it did not object, on either a quantitative or qualitativebasis, to the Firm’s 2018 capital plan. For information on
actions taken by the Firm’s Board of Directors following the2018 CCAR results, refer to Capital actions on pages 91-92.
Internal Capital Adequacy Assessment Process
Annually, the Firm prepares the ICAAP, which informs theBoard of Directors of the ongoing assessment of the Firm’s
processes for managing the sources and uses of capital aswell as compliance with supervisory expectations for capitalplanning and capital adequacy. The Firm’s ICAAP integrates
stress testing protocols with capital planning. The Firm’s
Audit Committee is responsible for reviewing and approving
the capital stress testing control framework.
The CCAR and other stress testing processes assess thepotential impact of alternative economic and businessscenarios on the Firm’s earnings and capital. Economic
scenarios, and the parameters underlying those scenarios,
are defined centrally and applied uniformly across the85Management’s discussion and analysis
businesses. These scenarios are articulated in terms ofmacroeconomic factors, which are key drivers of businessresults; global market shocks, which generate short-term
but severe trading losses; and idiosyncratic operational risk
events. The scenarios are intended to capture and stress
key vulnerabilities and idiosyncratic risks facing the Firm.
However, when defining a broad range of scenarios, actual
events can always be worse. Accordingly, management
considers additional stresses outside these scenarios, asnecessary. These results are reviewed by management andthe Board of Directors.
Capital management oversightWith the reorganization of the Capital Management group
into the Treasury and CIO organization, the Firm establisheda Capital Management oversight function within the CTC riskfunction. The CTC CRO, who reports to the Firm’s CRO, is
responsible for Firmwide Capital Management Oversight.
Capital Management’s Oversight responsibilities include:• Establishing, calibrating and monitoring capital risk
limits and indicators, including capital risk appetite
tolerances;• Performing independent assessment of the Firm’s capitalmanagement activities; and• Monitoring the Firm’s capital position and balance sheet
activities
In addition, the Basel Independent Review function (“BIR”),
which is now a part of the IRM function, conducts
independent assessments of the Firm’s regulatory capitalframework. These assessments are intended to ensurecompliance with the applicable regulatory capital rules insupport of senior management’s responsibility for
managing capital and for the DRPC’s oversight ofmanagement in executing that responsibility.
GovernanceCommittees responsible for overseeing the Firm’s capitalmanagement include the Capital Governance Committee,
the Treasurer Committee and the ALCO. Capitalmanagement oversight is governed through the CTC risk
committee. In addition, the DRPC approves the Firm’s
capital management oversight policy and reviews andrecommends to the Board of Directors, for formal approval,
the Firm’s capital risk tolerances. For additional discussion
on the DRPC and the ALCO, refer to Enterprise-wide Risk
Management on pages 79-140.

86

Regulatory capital
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
minimum capital requirements for the Firm’s nationalbanks, including JPMorgan Chase Bank, N.A. andChase Bank USA, N.A. The U.S. capital requirements
generally follow the Capital Accord of the Basel Committee,
as amended from time to time.
Basel III Overview
Capital rules under Basel III establish minimum capitalratios and overall capital adequacy standards for large andinternationally active U.S. bank holding companies (“BHC”)
and banks, including the Firm and its IDI subsidiaries. Basel
III sets forth two comprehensive approaches for calculating
RWA: a standardized approach (“Basel III Standardized”),
and an advanced approach (“Basel III Advanced”). Certainof the requirements of Basel III were subject to phase-in
periods that began on January 1, 2014 and continued
through the end of 2018 (“transitional period”). While therequired capital remained subject to the transitional rules
during 2018, the Firm’s capital ratios as of December 31,
2018 were equivalent whether calculated on a transitionalor fully phased-in basis.
Basel III establishes capital requirements for calculating
credit risk RWA and market risk RWA, and in the case of
Basel III Advanced, operational risk RWA. Key differences in
the calculation of credit risk RWA between the Standardized
and Advanced approaches are that for Basel III Advanced,
credit risk RWA is based on risk-sensitive approaches whichlargely rely on the use of internal credit models andparameters, whereas for Basel III Standardized, credit risk
RWA is generally based on supervisory risk-weightings
which vary primarily by counterparty type and asset class.
Market risk RWA is calculated on a generally consistentbasis between Basel III Standardized and Basel III
Advanced. In addition to the RWA calculated under thesemethodologies, the Firm may supplement such amounts toincorporate management judgment and feedback from its
regulators.
Basel III also includes a requirement for Advanced
Approach banking organizations, including the Firm, tocalculate the SLR. For additional information on the SLR,
refer to page 91.
Key Regulatory Developments
Banking supervisors globally continue to consider
refinements and enhancements to the Basel III capitalframework for financial institutions, and in December 2017,
the Basel Committee issued Basel III: Finalizing post-crisis
reforms (“Basel III Reforms”). The Basel Committee expects
national regulatory authorities to implement the Basel III
Reforms in the laws of their respective jurisdictions and torequire banking organizations subject to such laws to meetmost of the revised requirements by January 1, 2022, withcertain elements being phased in through January 1, 2027.

JPMorgan Chase & Co./2018 Form 10-K

In April 2018, the Federal Reserve proposed theintroduction of a stress buffer framework that would createa single, integrated set of capital requirements bycombining the supervisory stress test results of the CCAR
assessment and those under the Dodd-Frank Act withcurrent point-in-time capital requirements. The U.S. banking
regulators will be proposing final requirements applicable
to U.S. financial institutions.

Also in April 2018, the Federal Reserve and the OCC
released a proposal to revise the enhanced supplementary
leverage ratio (“eSLR”) requirements applicable to the U.S.
global systemically important banks (“GSIBs”) and their IDIs
and to make conforming changes to the rules which areapplicable to U.S. GSIBs relating to TLAC and external longterm debt that must satisfy certain eligibility criteria.

Risk-based Capital Regulatory Minimums
The following chart presents the Basel III minimum CET1 capital ratio during the transitional periods and on a fully phased-in
basis under the Basel III rules currently in effect.

The capital adequacy of the Firm and its IDI subsidiaries,
both during the transitional period and upon full phase-in,
is evaluated against the Basel III approach (Standardized or
Advanced) which, for each quarter, results in the lower
ratio. The Firm’s Basel III Standardized Fully Phased-In riskbased ratios are currently more binding than the Basel III
Advanced Fully Phased-In risk-based ratios, and the Firm
expects that this will remain the case for the foreseeable
future.
Additional information regarding the Firm’s capital ratios, aswell as the U.S. federal regulatory capital standards towhich the Firm is subject, is presented in Note 26. For
further information on the Firm’s Basel III measures, referto the Firm’s Pillar 3 Regulatory Capital Disclosures reports,
which are available on the Firm’s website (https://jpmorganchaseco.gcs-web.com/financial-information/baselpillar-3-us-lcr-disclosures).
All banking institutions are currently required to have aminimum CET1 capital ratio of 4.5% of risk weighted
assets. Certain banking organizations, including the Firm,
are required to hold additional amounts of capital to serve
as a “capital conservation buffer”. The capital conservationbuffer is intended to be used to absorb potential losses intimes of financial or economic stress. The capitalconservation buffer was subject to a phase-in period that

JPMorgan Chase & Co./2018 Form 10-K

began January 1, 2016 and continued through the end of
2018.
As an expansion of the capital conservation buffer, the Firmis also required to hold additional levels of capital in theform of a GSIB surcharge and a countercyclical capital
buffer.
Under the Federal Reserve’s final rule, the Firm is required
to calculate its GSIB surcharge on an annual basis under two
separately prescribed methods, and is subject to the higherof the two. The first (“Method 1”), reflects the GSIB
surcharge as prescribed by the Basel Committee’s
assessment methodology, and is calculated across fivecriteria: size, cross-jurisdictional activity,interconnectedness, complexity and substitutability. The
second (“Method 2”), modifies the Method 1 requirements
to include a measure of short-term wholesale funding inplace of substitutability, and introduces a GSIB score“multiplication factor”. The following table represents the
Firm’s GSIB surcharge.
2018

2017

Fully Phased-In:
Method 1
Method 2

2.50%
3.50%

2.50%
3.50%

Transitional(a)2.625%

1.75%(a) The GSIB surcharge is subject to transition provisions (in 25% increments)
through the end of 2018.

87

Management’s discussion and analysis
The Firm’s effective GSIB surcharge as calculated under
Method 2 for 2019 is anticipated to be 3.5%.
The Federal Reserve's framework for setting thecountercyclical capital buffer takes into account the macrofinancial environment in which large, internationally active
banks function. As of December 31, 2018, the U.S.
countercyclical capital buffer remained at 0%. The Federal
Reserve will continue to review the buffer at least annually.
The buffer can be increased if the Federal Reserve, FDIC and
OCC determine that credit growth in the economy has
become excessive and can be calibrated up to an additional
2.5% of RWA subject to a 12-month implementation period.
Failure to maintain regulatory capital equal to or in excessof the risk-based regulatory capital minimum plus thecapital conservation buffer (inclusive of the GSIB surcharge)
and any countercyclical buffer may result in limitations to
the amount of capital that the Firm may distribute, such as
through dividends and common equity repurchases.

88

Leverage-based Capital Regulatory Minimums
Supplementary leverage ratio
The SLR is defined as Tier 1 capital under Basel III divided
by the Firm’s total leverage exposure. Total leverage
exposure is calculated by taking the Firm’s total average onbalance sheet assets, less amounts permitted to be
deducted for Tier 1 capital, and adding certain off-balance
sheet exposures, such as undrawn commitments andderivatives potential future exposure.
Failure to maintain an SLR ratio equal to or greater than theregulatory minimum may result in limitations on theamount of capital that the Firm may distribute.
In addition to meeting the capital ratio requirements ofBasel III, the Firm and its IDI subsidiaries also must
maintain minimum capital and leverage ratios in order to be“well-capitalized” under the regulations issued by theFederal Reserve and the Prompt Corrective Action (“PCA”)
requirements of the FDIC Improvement Act (“FDICIA”),
respectively. For additional information, refer to Note 26.

JPMorgan Chase & Co./2018 Form 10-K

The following tables present the Firm’s Transitional and Fully Phased-In risk-based and leverage-based capital metrics underboth the Basel III Standardized and Advanced Approaches. The Firm’s Basel III ratios exceeded both the Transitional and Fully
Phased-In regulatory minimums as of December 31, 2018 and 2017.
Transitional/Fully Phased-In(c)December 31, 2018
(in millions, except ratios)Standardized

Advanced

Transitional

Fully Phased-In

Minimum capital ratios

Minimum capital ratios

Risk-based capital metrics:
CET1 capital$

183,474$

183,474

Tier 1 capital

209,093

Total capital

237,511

227,435

1,528,916

1,421,205

Risk-weighted assets

209,093

CET1 capital ratio

12.0%

12.9%

9.0%

10.5%

Tier 1 capital ratio

13.7

14.7

10.5

12.0

Total capital ratio

15.5

16.0

12.5

14.0

4.0%

4.0%

NA

5.0%

Leverage-based capital metrics:
Adjusted average assets(a)$2,589,887

Tier 1 leverage ratio

8.1%

Total leverage exposure

NA

SLR(b)

NA$

2,589,887$

3,269,988

8.1%
6.4%

Transitional
December 31, 2017
(in millions, except ratios)Standardized

Advanced(b)

Fully Phased-In
Minimum
capital ratios

Standardized

Advanced

Minimum
capital ratios

Risk-based capital metrics:
CET1 capital$

183,300$

183,300$

183,244$

183,244

Tier 1 capital

208,644

208,644

208,564

Total capital

238,395

227,933

237,960

227,498

1,499,506

1,435,825

1,509,762

1,446,696

Risk-weighted assets

208,564

CET1 capital ratio

12.2%

12.8%

7.50%

12.1%

12.7%

10.5%

Tier 1 capital ratio

13.9

14.5

9.00

13.8

14.4

12.0

Total capital ratio

15.9

15.9

11.00

15.8

15.7

14.0

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

Leverage based capital metrics:
Adjusted average assets(a)Tier 1 leverage ratio

8.3%

Total leverage exposure

NA

SLR

NA

8.3%

4.0%

$ 3,204,463
6.5%

8.3%
NA

NA

NA

8.3%

4.0%

$ 3,205,015
6.5%

5.0%

(b)

(a) Adjusted average assets, for purposes of calculating the Tier 1 leverage ratio, includes total quarterly average assets adjusted for on-balance sheet assets that are
subject to deduction from Tier 1 capital, predominantly goodwill and other intangible assets.
(b) Effective January 1, 2018, the SLR was fully phased-in under Basel III. The December 31, 2017 amounts were calculated under the Basel III Transitional rules.
(c) The Firm’s capital ratios as of December 31, 2018 were equivalent whether calculated on a transitional or fully phased-in basis.

The Firm believes that it will operate with a Basel III CET1 capital ratio between 11% and 12% over the medium term.
For additional information on the Firm, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A.’s capital, RWA and capital ratios
under Basel III Standardized and Advanced Fully Phased-In rules and the SLR calculated under the Basel III Advanced Fully
Phased-In rules, all of which are considered key regulatory capital measures, refer to Explanation and Reconciliation of the
Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 57-59.

JPMorgan Chase & Co./2018 Form 10-K

89

Management’s discussion and analysis
Capital components
The following table presents reconciliations of total
stockholders’ equity to Basel III Fully Phased-In CET1
capital, Tier 1 capital and Basel III Advanced andStandardized Fully Phased-In Total capital as of December
31, 2018 and 2017.
(in millions)
Total stockholders’ equity

December 31, December 31,
2018
2017
$
256,515 $
255,693

Capital rollforward
The following table presents the changes in Basel III Fully
Phased-In CET1 capital, Tier 1 capital and Tier 2 capital forthe year ended December 31, 2018.
Year Ended December 31, (in millions)

2018

Standardized/Advanced CET1 capital at December 31, 2017 $ 183,244
Net income applicable to common equity

30,923

Dividends declared on common stock(9,214)

Net purchase of treasury stock(17,899)(1,417)

Less: Preferred stock

26,06826,068

Common stockholders’ equity

230,447

229,625

Changes in additional paid-in capital
Changes related to AOCI

(1,203)47,47147,507

Adjustment related to DVA(a)(1,165)748

855

Other CET1 capital adjustments

1,034

223

Deferred tax liabilities(a)

2,280

2,204

Standardized/Advanced Fully PhasedIn CET1 capital

183,474

Preferred stock

26,068Less:
Goodwill
Other intangible assets

205

Increase in Standardized/Advanced CET1 capital

230

Standardized/Advanced CET1 capital at
December 31, 2018

183,474

183,244

Standardized/Advanced Tier 1 capital at
December 31, 2017

208,564

26,068Change in CET1 capital

Add:

Less:

230

Net issuance of noncumulative perpetual preferred stock

Other Tier 1 adjustments

449

748

Standardized/Advanced Fully PhasedIn Tier 1 capital

209,093

208,564

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

13,772

14,827

Qualifying allowance for credit losses

14,50014,672146(103)

28,41829,396

Other
Standardized Fully Phased-In Tier 2
capitalStandardized Fully Phased-in Total
capital237,511

237,960

Adjustment in qualifying allowance for
credit losses for Advanced Tier 2
capital(10,076)(10,462)

Advanced Fully Phased-In Tier 2
capital18,342

18,934

227,435 $

227,498

Advanced Fully Phased-In Total capital

Changes related to other CET1 capital adjustments$(a) Represents certain deferred tax liabilities related to tax-deductible
goodwill and identifiable intangibles created in nontaxable
transactions, which are netted against goodwill and other intangibles
when calculating TCE.

—

Other

299

Increase in Standardized/Advanced Tier 1 capital

529

Standardized/Advanced Tier 1 capital at
December 31, 2018

209,093

Standardized Tier 2 capital at December 31, 2017

29,396

Change in long-term debt and other instruments qualifying
as Tier 2(1,055)

Change in qualifying allowance for credit losses

(172)

Other

249

Decrease in Standardized Tier 2 capital(978)

Standardized Tier 2 capital at December 31, 2018

28,418

Standardized Total capital at December 31, 2018237,511

Advanced Tier 2 capital at December 31, 201718,934

Change in long-term debt and other instruments qualifying
as Tier 2(1,055)

Change in qualifying allowance for credit losses

214

Other

249

Decrease in Advanced Tier 2 capital(592)

Advanced Tier 2 capital at December 31, 2018

18,342

Advanced Total capital at December 31, 2018

$ 227,435(a) Includes DVA related to structured notes recorded in AOCI.

90

JPMorgan Chase & Co./2018 Form 10-K

RWA rollforward
The following table presents changes in the components of RWA under Basel III Standardized and Advanced Fully Phased-In forthe year ended December 31, 2018. The amounts in the rollforward categories are estimates, based on the predominant
driver of the change.
Standardized
Year ended December 31, 2018
Market risk
Credit risk RWA
Total RWA
(in millions)
RWA
December 31, 2017
$ 1,386,060 $
123,702 $ 1,509,762
Model & data changes(a)(10,431)(13,191)(23,622)
Portfolio runoff(b)(8,381)—(8,381)
Movement in portfolio levels(c)55,805(4,648)51,157
Changes in RWA
36,993(17,839)
19,154
December 31, 2018
$ 1,423,053 $
105,863 $ 1,528,916

Advanced
Market risk
Operational
Credit risk RWA
Total RWA
RWA
risk
$
922,905 $123,791 $400,000 $ 1,446,696
3,750(13,191)—(9,441)(10,161)——(10,161)
10,153(4,624)(11,418)(5,889)3,742(17,815)(11,418)(25,491)$926,647 $105,976 $388,582 $ 1,421,205(a) Model & data changes refer to material movements in levels of RWA as a result of revised methodologies and/or treatment per regulatory guidance (exclusive of rulechanges).
(b) Portfolio runoff for credit risk RWA primarily reflects reduced risk from position rolloffs in legacy portfolios in Home Lending.
(c) Movement in portfolio levels (inclusive of rule changes) refers to: changes in book size, composition, credit quality, and market movements for credit risk RWA;
changes in position and market movements for market risk RWA; and updates to cumulative losses for operational risk RWA.

Supplementary leverage ratio
The following table presents the components of the Firm’s
Fully Phased-In SLR as of December 31, 2018 and 2017.
(in millions, except ratio)
Tier 1 capital
Total average assets
Less: Adjustments for deductions
from Tier 1 capital
Total adjusted average assets
Off-balance sheet exposures(b)Total leverage exposure
SLR

December 31,
December 31,
2018
2017
$
209,093 $
208,564
2,636,505 $ 2,562,155(a)$

46,61847,3332,589,887
680,101
3,269,988 $
6.4%

2,514,822
690,193
3,205,015
6.5%(a) Adjusted average assets, for purposes of calculating the SLR, includes
total quarterly average assets adjusted for on-balance sheet assetsthat are subject to deduction from Tier 1 capital, predominantly
goodwill and other intangible assets.
(b) Off-balance sheet exposures are calculated as the average of the threemonth-end spot balances during the reporting quarter.

For JPMorgan Chase Bank, N.A.’s and Chase Bank USA,
N.A.’s SLR ratios, refer to Note 26.
Line of business equity
Each business segment is allocated capital by taking into
consideration capital levels of similarly rated peers andapplicable regulatory capital requirements. ROE ismeasured and internal targets for expected returns are
established as key measures of a business segment’s
performance.
The Firm’s allocation methodology incorporates Basel III
Standardized RWA, Basel III Advanced RWA, leverage, theGSIB surcharge, and a simulation of capital in a severe
stress environment. On at least an annual basis, theassumptions and methodologies used in capital allocation
are assessed and as a result, the capital allocated to lines ofbusiness may change. As of January 1, 2019, line ofbusiness capital allocations have increased due to a
combination of changes in the relative weights toward
Standardized RWA and stress, a higher capitalization rate,
updated stress simulations, and general business growth.
JPMorgan Chase & Co./2018 Form 10-K

The table below presents the Firm’s assessed level of capital
allocated to each line of business as of the dates indicated.
Line of business equity (Allocated capital)
December 31,(in billions)January 1,
2019

Consumer & Community Banking

$

52.0

$

2018

2017

51.0 $

51.0

Corporate & Investment Bank

80.0

70.0

70.0

Commercial Banking

22.0

20.0

20.0

Asset & Wealth Management

10.5

9.0

9.0

Corporate

65.9

80.4

79.6

Total common stockholders’ equity $230.4$ 230.4 $ 229.6

Capital actions
Preferred stock
Preferred stock dividends declared were $1.6 billion for theyear ended December 31, 2018.
On January 24, 2019, the Firm issued $1.85 billion of
6.00% non-cumulative preferred stock, Series EE, and on
January 30, 2019, the Firm announced that it will redeem
all $925 million of its outstanding 6.70% non-cumulative
preferred stock, Series T, on March 1, 2019. On September
21, 2018, the Firm issued $1.7 billion of 5.75% noncumulative preferred stock, Series DD. On October 30,
2018, the Firm redeemed $1.7 billion of its fixed-tofloating rate non-cumulative perpetual preferred stock,
Series I.
On October 20, 2017, the Firm issued $1.3 billion of fixedto-floating rate non-cumulative preferred stock, Series CC,
with an initial dividend rate of 4.625%. On December 1,
2017, the Firm redeemed all $1.3 billion of its outstanding
5.50% non-cumulative preferred stock, Series O.
For additional information on the Firm’s preferred stock,refer to Note 20.

91Management’s discussion and analysis
Trust preferred securities
On September 10, 2018, the Firm’s last remaining issuer ofoutstanding trust preferred securities (“issuer trust”) was
liquidated, resulting in $475 million of trust preferred
securities and $15 million of trust common securities
originally issued by the issuer trust being cancelled.
On December 18, 2017, the Delaware trusts that issued
seven series of outstanding trust preferred securities wereliquidated, and $1.6 billion of trust preferred and $56
million of trust common securities originally issued by thosetrusts were cancelled.
For additional information, refer to Note 19.
Common stock dividends
The Firm’s common stock dividends are planned as part of
the Capital Management governance framework in line with
the Firm’s capital management objectives.
On September 18, 2018, the Firm announced that its Boardof Directors increased the quarterly common stock dividend
from $0.56 per share to $0.80 per share, effective with thedividend paid on October 31, 2018. The Firm’s dividends
are subject to the Board of Directors’ approval on aquarterly basis.
For information regarding dividend restrictions, refer toNote 20 and Note 25.
The following table shows the common dividend payout
ratio based on net income applicable to common equity.
Year ended December 31,

2018

2017

2016

Common dividend payout ratio

30%

33%

30%

Common equity
During the year ended December 31, 2018, warrant
holders exercised their right to purchase 14.9 million
shares of the Firm’s common stock. The Firm issued fromtreasury stock 9.4 million shares of its common stock as aresult of these exercises. There were no warrants
outstanding at December 31, 2018, as any warrants thatwere not exercised on or before October 29, 2018, have
expired. At December 31, 2017, the Firm had 15.0 million
warrants outstanding.

The following table sets forth the Firm’s repurchases ofcommon equity for the years ended December 31, 2018,2017 and 2016. There were no repurchases of warrants
during the years ended December 31, 2018, 2017 and2016.
Year ended December 31, (in millions)

2018

2017

2016

Total number of shares of common stock
repurchased

181.5

166.6

140.4

Aggregate purchase price of common
stock repurchases$19,983$15,410$ 9,082

The Firm from time to time enters into written trading plans
under Rule 10b5-1 of the Securities Exchange Act of 1934
to facilitate repurchases in accordance with the common
equity repurchase program. A Rule 10b5-1 repurchase plan
allows the Firm to repurchase its equity during periods
when it would not otherwise be repurchasing common
equity — for example, during internal trading blackout
periods. All purchases under Rule 10b5-1 plans must be
made according to predefined schedules established when
the Firm is not aware of material nonpublic information.
The authorization to repurchase common equity will beutilized at management’s discretion, and the timing ofpurchases and the exact amount of common equity that
may be repurchased is subject to various factors, including
market conditions; legal and regulatory considerations
affecting the amount and timing of repurchase activity; theFirm’s capital position (taking into account goodwill andintangibles); internal capital generation; and alternative
investment opportunities. The repurchase program does notinclude specific price targets or timetables; may be
executed through open market purchases or privately
negotiated transactions, or utilizing Rule 10b5-1 plans; andmay be suspended by management at any time.
For additional information regarding repurchases of the
Firm’s equity securities, refer to Part II, Item 5: Market for
Registrant’s Common Equity, Related Stockholder Mattersand Issuer Purchases of Equity Securities on page 30.

Effective June 28, 2018, the Firm’s Board of Directors
authorized the repurchase of up to $20.7 billion of common
equity between July 1, 2018 and June 30, 2019, as part ofits annual capital plan. As of December 31, 2018, $10.4
billion of authorized repurchase capacity remained under
the common equity repurchase program.

92

JPMorgan Chase & Co./2018 Form 10-K

Other capital requirements
Total Loss-Absorbing Capacity (“TLAC”)
On December 15, 2016, the Federal Reserve issued its final
TLAC rule which requires the top-tier holding companies ofeight U.S. GSIB holding companies, including the Firm, tomaintain minimum levels of external TLAC and external
long-term debt that satisfies certain eligibility criteria(“eligible LTD”), effective January 1, 2019.
The minimum external TLAC and the minimum level of
eligible long-term debt requirements are shown below:

The following table presents the eligible external TLAC andLTD amounts, as well as a representation of the amounts asa percentage of the Firm’s total RWA and total leverage
exposure.
December 31, 2018
(in billions, except ratio)

EligibleExternal TLAC

Total eligible TLAC & LTD

$

380.5

Eligible LTD
$

160.5

% of RWA

24.9%

10.5%

Minimum requirement

23.0

9.5

Surplus/(shortfall)

$

28.9

% of total leverage exposure

11.6%

Minimum requirement(a)9.5

Surplus/(shortfall)

$

69.9

$

15.3
4.9%
4.5

$

13.4

For information on the financial consequences to holders of
the Firm’s debt and equity securities in a resolution
scenario, refer to Part I, Item 1A: Risk Factors on pages
7-28 of the Firm’s 2018 Form 10-K.

(a) RWA is the greater of Standardized and Advanced.

Failure to maintain TLAC equal to or in excess of theregulatory minimum plus applicable buffers may result in
limitations to the amount of capital that the Firm may
distribute, such as through dividends and common equity
repurchases.
The final TLAC rule permanently grandfathered all longterm debt issued before December 31, 2016, to the extent
these securities would be ineligible because they contained
impermissible acceleration rights or were governed by nonU.S. law. As of December 31, 2018, the Firm exceeded theminimum requirements under the rule to which it became
subject to on January 1, 2019.

JPMorgan Chase & Co./2018 Form 10-K

93

Management’s discussion and analysis
Broker-dealer regulatory capital
J.P. Morgan Securities
JPMorgan Chase’s principal U.S. broker-dealer subsidiary is
J.P. Morgan Securities. J.P. Morgan Securities is subject toRule 15c3-1 under the Securities Exchange Act of 1934
(the “Net Capital Rule”). J.P. Morgan Securities is also
registered as a futures commission merchant and subject toRule 1.17 of the CFTC.
J.P. Morgan Securities has elected to compute its minimum
net capital requirements in accordance with the “Alternative
Net Capital Requirements” of the Net Capital Rule.

Under the market and credit risk standards of Appendix E of
the Net Capital Rule, J.P. Morgan Securities is eligible to use
the alternative method of computing net capital if, inaddition to meeting its minimum net capital requirements,
it maintains tentative net capital of at least $1.0 billion. J.P.
Morgan Securities is required to notify the SEC in the eventthat tentative net capital is less than $5.0 billion. As of
December 31, 2018, J.P. Morgan Securities maintained
tentative net capital in excess of the minimum andnotification requirements.
The following table presents J.P.Morgan Securities’ net
capital information:
December 31, 2018

Net capital(in millions)
J.P. Morgan Securities$

ActualMinimum

16,648 $3,069

J.P. Morgan Securities plc
J.P. Morgan Securities plc is a wholly-owned subsidiary of JPMorgan Chase Bank, N.A. and is the Firm’s principal operating
subsidiary in the U.K. It has authority to engage in banking, investment banking and broker-dealer activities.
J.P. Morgan Securities plc is jointly regulated by the PRA and the FCA. J.P. Morgan Securities plc is subject to the European
Union Capital Requirements Regulation and the PRA capital rules, each of which implemented Basel III and thereby subject J.P.
Morgan Securities plc to its requirements.
The following table presents J.P. Morgan Securities plc’s capital information:
December 31, 2018

Total capital(a)(in millions, except ratios)

Estimated

J.P. Morgan Securities plc$

53,086

CET1 ratio
Estimated
17.4%

Total capital ratio

Minimum

Estimated

4.5%

22.5%

Minimum
8.0%(a) Includes the tier 2 qualifying subordinated debt securities issued to meet the MREL requirements to which J.P. Morgan Securities plc became subject to on
January 1, 2019. For additional information on MREL, refer to Supervision & Regulation on pages 1-6

94

JPMorgan Chase & Co./2018 Form 10-K

LIQUIDITY RISK MANAGEMENT
Liquidity risk is the risk that the Firm will be unable to meetits contractual and contingent financial obligations as theyarise or that it does not have the appropriate amount,composition and tenor of funding and liquidity to support
its assets and liabilities.
Liquidity risk oversight
The Firm has a liquidity risk oversight function whose
primary objective is to provide assessment, measurement,
monitoring, and control of liquidity risk across the Firm.
Liquidity risk oversight is managed through a dedicatedfirmwide Liquidity Risk Oversight group. The CTC CRO, whoreports to the Firm’s CRO, is responsible for firmwide
Liquidity Risk Oversight. Liquidity Risk Oversight’s
responsibilities include:• Establishing and monitoring limits and indicators,
including liquidity risk appetite tolerances;• Monitoring and reporting internal firmwide and legal
entity liquidity stress tests as well as regulatory defined
liquidity stress tests;• Approving or escalating for review new or updated
liquidity stress assumptions;• Monitoring liquidity positions, balance sheet variancesand funding activities;• Conducting ad hoc analysis to identify potential
emerging liquidity risks; and•Performing independent review of liquidity risk
management processes.

Liquidity management
Treasury and CIO is responsible for liquidity management.
The primary objectives of effective liquidity management
are to:• Ensure that the Firm’s core businesses and material legal
entities are able to operate in support of client needs
and meet contractual and contingent financial
obligations through normal economic cycles as well as
during stress events, and• Manage an optimal funding mix and availability ofliquidity sources.
As part of the Firm’s overall liquidity management strategy,
the Firm manages liquidity and funding using a centralized,
global approach in order to:• Optimize liquidity sources and uses;• Monitor exposures;• Identify constraints on the transfer of liquidity between
the Firm’s legal entities; and• Maintain the appropriate amount of surplus liquidity ata firmwide and legal entity level, where relevant.
In the context of the Firm’s liquidity management, Treasury
and CIO is responsible for:• Analyzing and understanding the liquidity characteristicsof the assets and liabilities of the Firm, lines of business
JPMorgan Chase & Co./2018 Form 10-K

•
•

•
•
•

and legal entities, taking into account legal, regulatory,
and operational restrictions;
Developing internal liquidity stress testing assumptions;Defining and monitoring firmwide and legal entityspecific liquidity strategies, policies, reporting andcontingency funding plans;Managing liquidity within the Firm’s approved liquidity
risk appetite tolerances and limits;
Managing compliance with regulatory requirements
related to funding and liquidity risk; andSetting transfer pricing in accordance with underlying
liquidity characteristics of balance sheet assets andliabilities as well as certain off-balance sheet items.

Risk governanceCommittees responsible for liquidity governance include thefirmwide ALCO as well as line of business and regional
ALCOs, the Treasurer Committee, and the CTC Risk
Committee. In addition, the DRPC reviews and recommends
to the Board of Directors, for formal approval, the Firm’s
liquidity risk tolerances, liquidity strategy, and liquidity
policy at least annually. For further discussion of ALCO andother risk-related committees, refer to Enterprise-wide Risk
Management on pages 79–140.
Internal stress testing
Liquidity stress tests are intended to ensure that the Firm
has sufficient liquidity under a variety of adverse scenarios,
including scenarios analyzed as part of the Firm’s resolution
and recovery planning. Stress scenarios are produced for
JPMorgan Chase & Co. (“Parent Company”) and the Firm’smaterial legal entities on a regular basis, and ad hoc stresstests are performed, as needed, in response to specificmarket events or concerns. Liquidity stress tests assume allof the Firm’s contractual financial obligations are met andtake into consideration:• Varying levels of access to unsecured and secured
funding markets,• Estimated non-contractual and contingent cash outflows,and• Potential impediments to the availability andtransferability of liquidity between jurisdictions andmaterial legal entities such as regulatory, legal or otherrestrictions.
Liquidity outflow assumptions are modeled across a rangeof time horizons and currency dimensions and contemplateboth market and idiosyncratic stresses.
Results of stress tests are considered in the formulation of
the Firm’s funding plan and assessment of its liquidity
position. The Parent Company acts as a source of funding
for the Firm through equity and long-term debt issuances,and the IHC provides funding support to the ongoing
operations of the Parent Company and its subsidiaries, asnecessary. The Firm maintains liquidity at the Parent
Company and the IHC, in addition to liquidity held at the95

Management’s discussion and analysis
operating subsidiaries, at levels sufficient to comply withliquidity risk tolerances and minimum liquidity
requirements, and to manage through periods of stresswhere access to normal funding sources is disrupted.
Contingency funding plan
The Firm’s contingency funding plan (“CFP”), which isapproved by the firmwide ALCO and the DRPC, is acompilation of procedures and action plans for managing
liquidity through stress events. The CFP incorporates thelimits and indicators set by the Liquidity Risk Oversightgroup. These limits and indicators are reviewed regularly toidentify emerging risks or vulnerabilities in the Firm’s
liquidity position. The CFP identifies the alternative
contingent funding and liquidity resources available to theFirm and its legal entities in a period of stress.
Liquidity Coverage Ratio
The LCR rule requires the Firm to maintain an amount of
unencumbered High Quality Liquid Assets (“HQLA”) that is
sufficient to meet its estimated total net cash outflows overa prospective 30 calendar-day period of significant stress.
HQLA is the amount of liquid assets that qualify forinclusion in the LCR. HQLA primarily consist of
unencumbered cash and certain high quality liquid
securities as defined in the LCR rule.
Under the LCR rule, the amounts of HQLA held by JPMorgan
Chase Bank N.A. and Chase Bank USA, N.A that are in excessof each entity’s standalone 100% minimum LCR
requirement, and that are not transferable to non-bankaffiliates, must be excluded from the Firm’s reported HQLA.
The LCR is required to be a minimum of 100%.
The following table summarizes the Firm’s average LCR for
the three months ended December 31, 2018, September
30, 2018 and December 31, 2017 based on the Firm’scurrent interpretation of the finalized LCR framework.
Three months ended
Average amount(in millions)

December 31,
2018

September
30, 2018

December 31,
2017

HQLA
Eligible cash(a)$Eligible securities(b)(c)297,069$

232,201

344,660$

190,349

370,126
189,955

Total HQLA(d)$529,270$535,009$560,081

Net cash outflows$

467,704$

466,803$

472,078$

88,003LCR
Net excess HQLA (d)113%$

61,566

115%$

68,206

there was a decrease in the amount of HQLA in JPMorgan
Chase Bank, N.A. and Chase Bank USA, N.A. that wasdetermined to be transferable to non-bank affiliates. Thisdecrease was based on a change in the Firm’s interpretationof amounts available for transfer.
The Firm’s average LCR decreased for the three months
ended December 31, 2018, compared with the prior year
period, due to a reduction in average HQLA primarily drivenby (a) long-term debt maturities and CIB activities, and (b)a decrease in the amount of HQLA in JPMorgan Chase Bank,
N.A. and Chase Bank USA, N.A that was determined to betransferable to non-bank affiliates based on a change in the
Firm’s interpretation of amounts available for transfer.
The Firm’s average LCR may fluctuate from period to period,
due to changes in its HQLA and estimated net cash outflows
under the LCR as a result of ongoing business activity. The
Firm’s HQLA are expected to be available to meet its
liquidity needs in a time of stress. For a further discussionof the Firm’s LCR, refer to the Firm’s US LCR Disclosure
reports, which are available on the Firm’s website at:(https://jpmorganchaseco.gcs-web.com/financialinformation/basel-pillar-3-us-lcr-disclosures).
Other liquidity sources
As of December 31, 2018, in addition to assets reported in
the Firm’s HQLA under the LCR rule, the Firm had
approximately $226 billion of unencumbered marketablesecurities, such as equity securities and fixed income debt
securities, available to raise liquidity, if required. This
includes HQLA-eligible securities included as part of theexcess liquidity at JPMorgan Chase Bank, N.A. that are nottransferable to non-bank affiliates.
As of December 31, 2018, the Firm also had approximately$276 billion of available borrowing capacity at various
FHLBs, discount windows at the Federal Reserve Banks andvarious other central banks as a result of collateral pledgedby the Firm to such banks. This borrowing capacity excludes
the benefit of securities reported in the Firm’s HQLA orother unencumbered securities that are currently pledgedat the Federal Reserve Bank discount windows. Althoughavailable, the Firm does not view the borrowing capacity atFederal Reserve Bank discount windows and the various
other central banks as a primary source of liquidity.

119%(a) Represents cash on deposit at central banks, primarily Federal Reserve

Banks.
(b) Predominantly U.S. Treasuries, U.S. Agency MBS, and sovereign bonds
net of applicable haircuts under the LCR rules.
(c) HQLA eligible securities may be reported in securities borrowed orpurchased under resale agreements, trading assets, or investment
securities on the Firm’s Consolidated balance sheets.
(d) Excludes average excess HQLA at JPMorgan Chase Bank, N.A. andChase Bank USA, N.A. that are not transferable to non-bank affiliates.

The Firm’s average LCR decreased during the three months
ended December 31, 2018, compared with the three month
period ended September 30, 2018 due to a decrease in the
average amount of reportable HQLA. Although HQLA
increased in JPMorgan Chase Bank, N.A. during the period,
96

JPMorgan Chase & Co./2018 Form 10-K

Funding
Sources of funds
Management believes that the Firm’s unsecured andsecured funding capacity is sufficient to meet its on- andoff-balance sheet obligations.
The Firm funds its global balance sheet through diverse
sources of funding including a stable deposit franchise as
well as secured and unsecured funding in the capital
markets. The Firm’s loan portfolio is funded with a portionof the Firm’s deposits, through securitizations and, withrespect to a portion of the Firm’s real estate-related loans,with secured borrowings from the FHLBs. Deposits in excessof the amount utilized to fund loans are primarily invested
by Treasury and CIO in the Firm’s investment securities
portfolio or deployed in cash or other short-term liquid
investments based on their interest rate and liquidity risk

characteristics. Securities borrowed or purchased underresale agreements and trading assets-debt and equity
instruments are primarily funded by the Firm’s securities
loaned or sold under agreements to repurchase, trading
liabilities–debt and equity instruments, and a portion of the
Firm’s long-term debt and stockholders’ equity. In addition
to funding securities borrowed or purchased under resaleagreements and trading assets-debt and equity
instruments, proceeds from the Firm’s debt and equity
issuances are used to fund certain loans and other financial
and non-financial assets, or may be invested in the Firm’s
investment securities portfolio. Refer to the discussion
below for additional information relating to Deposits, Shortterm funding, and Long-term funding and issuance.

Deposits
The table below summarizes, by line of business, the period-end and average deposit balances as of and for the years ended
December 31, 2018 and 2017.
Deposits

Year ended December 31,

As of or for the year ended December 31,

Average(in millions)

2018

Consumer & Community Banking

$

2017

2017

678,854 $

659,885

670,388 $640,219

Corporate & Investment Bank

482,084

455,883

477,250447,697

Commercial Banking

170,859

181,512

170,822

176,884

Asset & Wealth Management

138,546

146,407137,272

148,982

Corporate

323

Total Firm$

A key strength of the Firm is its diversified deposit
franchise, through each of its lines of business, which
provides a stable source of funding and limits reliance on
the wholesale funding markets. A significant portion of the
Firm’s deposits are consumer and wholesale operating
deposits, which are both considered to be stable sources ofliquidity. Wholesale operating deposits are considered to bestable sources of liquidity because they are generated from
customers that maintain operating service relationships
with the Firm.
The table below shows the loan and deposit balances, theloans-to-deposits ratios, and deposits as a percentage of
total liabilities, as of December 31, 2018 and 2017.
As of December 31,(in billions except ratios)
Deposits
Deposits as a % of total liabilities
Loans
Loans-to-deposits ratio$

2018
1,470.7 $
62%
984.6
67%

2017
1,444.0
63%
930.7
64%

1,470,666 $

$

2018

295
1,443,982

729$

1,456,461 $

3,604
1,417,386

Average deposits increased for the year ended December
31, 2018 in CCB and CIB, partially offset by decreases in
AWM, CB and Corporate.
••

The increase in CCB reflects the continuation of growthfrom new accounts, and in CIB reflects growth inoperating deposits in both Treasury Services andSecurities Services driven by growth in client activity.
The decrease in AWM was driven by balance migration
predominantly into the Firm’s investment-related
products. The decrease in CB was driven by a reduction
in non-operating deposits. The decrease in Corporate
was predominantly due to maturities of wholesale nonoperating deposits, consistent with the Firm’s efforts to
reduce such deposits.

For further information on deposit and liability balance
trends, refer to the discussion of the Firm’s Business
Segment Results and the Consolidated Balance Sheets
Analysis on pages 60-78 and pages 52–53, respectively.

The Firm believes that average deposit balances are
generally more representative of deposit trends thanperiod-end deposit balances.

JPMorgan Chase & Co./2018 Form 10-K

97

Management’s discussion and analysis
The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2018 and 2017,and average balances for the years ended December 31, 2018 and 2017. For additional information, refer to the Consolidated
Balance Sheets Analysis on pages 52–53 and Note 19.
Sources of funds (excluding deposits)
As of or for the year ended December 31,(in millions)
Commercial paper
Other borrowed funds(a)Total short-term unsecured funding(a)$$Securities sold under agreements to repurchase
Securities loaned(a)(b)Other borrowed funds(a)(c)
Obligations of Firm-administered multi-seller conduits(d)Total short-term secured funding(a)$Senior notes(a)(b)

20182017
30,059 $ 24,186
8,789
10,727
38,848 $ 34,913

$
$
$

$

171,975 $147,713
9,481
9,211
30,42816,8894,843
3,045
216,727 $176,858$

162,733 $155,852

Average20182017
27,834 $19,92011,36910,75539,203 $30,675$

177,629 $10,692
24,3203,396
216,037 $

173,450
12,79815,8573,206
205,311$

153,162 $

154,352

—

690

471

2,276

Subordinated debt

16,743

16,553

16,17818,832

Structured notes(e)53,09045,72749,64042,918Trust preferred securities

Total long-term unsecured funding$

232,566 $218,822$

219,451 $

218,378

Credit card securitization(d)$13,404 $ 21,278$

15,900 $25,933

Other securitizations(d)(f)

Federal Home Loan Bank (“FHLB”) advances
Other long-term secured funding(g)Total long-term secured funding$

Preferred stock(h)Common stockholders’ equity(h)

—

—

—

626

44,45560,617

52,121

69,916

5,010

4,641

4,842

3,195

72,863 $99,67062,869 $ 86,536$$

26,068 $ 26,068$

26,249 $26,212$

230,447 $229,625$

229,222 $

230,350(a) The prior period amounts have been revised to conform with the current period presentation.
(b) Primarily consists of short-term securities loaned or sold under agreements to repurchase.
(c) Includes FHLB advances with original maturities of less than one year of $11.4 billion as of December 31, 2018; there were no FHLB advances with original
maturities of less than one year as of December 31, 2017.
(d) Included in beneficial interests issued by consolidated variable interest entities on the Firm’s Consolidated balance sheets.
(e) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
(f) Other securitizations includes securitizations of student loans. The Firm deconsolidated the student loan securitization entities in the second quarter of 2017 as it nolonger had a controlling financial interest in these entities as a result of the sale of the student loan portfolio. The Firm’s wholesale businesses also securitize loans
for client-driven transactions, which are not considered to be a source of funding for the Firm and are not included in the table.
(g) Includes long-term structured notes which are secured.
(h) For additional information on preferred stock and common stockholders’ equity refer to Capital Risk Management on pages 85-94, Consolidated statements ofchanges in stockholders’ equity, Note 20 and Note 21.

Short-term funding
The Firm’s sources of short-term secured funding primarily
consist of securities loaned or sold under agreements torepurchase. These instruments are secured predominantly
by high-quality securities collateral, including governmentissued debt and agency MBS, and constitute a significant
portion of the federal funds purchased and securities
loaned or sold under repurchase agreements on theConsolidated balance sheets. The increase at December 31,
2018, compared to December 31, 2017, was primarily due
to higher client-driven market-making activities and higher
secured financing of trading assets-debt and equity
instruments in CIB. The balances associated with securities
loaned or sold under agreements to repurchase fluctuate
over time due to customers’ investment and financing
activities; the Firm’s demand for financing; the ongoing
management of the mix of the Firm’s liabilities, including its
secured and unsecured financing (for both the investment

98

securities and market-making portfolios); and other market
and portfolio factors.
The Firm’s sources of short-term unsecured funding
primarily consist of issuance of wholesale commercial
paper. The increase in commercial paper was due to higher
net issuance primarily for short-term liquidity management.
Long-term funding and issuanceLong-term funding provides additional sources of stable
funding and liquidity for the Firm. The Firm’s long-term
funding plan is driven primarily by expected client activity,liquidity considerations, and regulatory requirements,
including TLAC. Long-term funding objectives include
maintaining diversification, maximizing market access andoptimizing funding costs. The Firm evaluates various
funding markets, tenors and currencies in creating its
optimal long-term funding plan.

JPMorgan Chase & Co./2018 Form 10-K

The significant majority of the Firm’s long-term unsecured funding is issued by the Parent Company to provide maximum
flexibility in support of both bank and non-bank subsidiary funding needs. The Parent Company advances substantially all net
funding proceeds to its subsidiary, the IHC. The IHC does not issue debt to external counterparties. The following tablesummarizes long-term unsecured issuance and maturities or redemptions for the years ended December 31, 2018 and 2017.
For additional information, refer to Note 19.
Long-term unsecured funding
Year ended December 31,

2018

2017

(Notional in millions)

Parent Company

2018

2017

Subsidiaries(b)(b)

Issuance
Senior notes issued in the U.S. market$

22,000 $21,250

1,502

2,220

23,502

23,470

9,562

62

2,444

2,516

25,41026,524$25,946 $25,986$

34,972 $26,586$$

4,466 $

1,366

Senior notes issued in non-U.S. markets
Total senior notes
Structured notes(a)Total long-term unsecured funding – issuance$

9,562 $

62——

Maturities/redemptions
Senior notes

19,141 $20,971

Subordinated debt

136

3,401

—

3,500

Structured notes

2,678

5,440

15,04917,141

21,955 $29,812

19,515 $22,007

Total long-term unsecured funding – maturities/redemptions$$(a) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
(b) The prior period amounts have been revised to conform with the current period presentation.

The Firm raises secured long-term funding through securitization of consumer credit card loans and advances from the FHLBs.
The following table summarizes the securitization issuance and FHLB advances and their respective maturities or redemptions
for the years ended December 31, 2018 and 2017.
Long-term secured funding
Year ended December 31,

Issuance(in millions)Credit card securitization

2018$

Other securitizations(a)FHLB advances
Other long-term secured funding(b)Total long-term secured funding$

Maturities/Redemptions
2017

1,396 $

2018

1,545

$

2017

9,250 $

11,470

—

—

—

55

9,000

—

25,15918,900

377

2,354

289

731

10,773 $3,899

34,698 $31,156$(a) Other securitizations includes securitizations of student loans. The Firm deconsolidated the student loan securitization entities in the second quarter of2017 as it no longer had a controlling financial interest in these entities as a result of the sale of the student loan portfolio.
(b) Includes long-term structured notes which are secured.

The Firm’s wholesale businesses also securitize loans for client-driven transactions; those client-driven loan securitizations are
not considered to be a source of funding for the Firm and are not included in the table above. For further description of theclient-driven loan securitizations, refer to Note 14.

JPMorgan Chase & Co./2018 Form 10-K

99

Management’s discussion and analysis
Credit ratings
The cost and availability of financing are influenced bycredit ratings. Reductions in these ratings could have an
adverse effect on the Firm’s access to liquidity sources,
increase the cost of funds, trigger additional collateral or
funding requirements and decrease the number of investors
and counterparties willing to lend to the Firm. Additionally,
the Firm’s funding requirements for VIEs and other third-

party commitments may be adversely affected by a decline
in credit ratings. For additional information on the impact ofa credit ratings downgrade on the funding requirements for
VIEs, and on derivatives and collateral agreements, refer toSPEs on page 55, and liquidity risk and credit-related
contingent features in Note 5.

The credit ratings of the Parent Company and the Firm’s principal bank and non-bank subsidiaries as of December 31, 2018,
were as follows.
JPMorgan Chase & Co.

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

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

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

Moody’s Investors Service

A2

P-1

StableAa2

P-1

StableAa3

P-1

StableStandard & Poor’s

A-

A-2

StableA+

A-1

StableA+

A-1

StableFitch Ratings

AA-

F1+

StableAA

F1+StableAA

F1+StableDecember 31, 2018

On October 25, 2018, Moody’s upgraded the Parent
Company’s long-term issuer rating to A2 (previously A3)
and short-term issuer rating to P-1 (previously P-2). The
long-term issuer ratings were also upgraded for JPMorgan
Chase Bank, N.A. and Chase Bank USA, N.A. to Aa2(previously Aa3), and for J.P. Morgan Securities LLC and J.P.
Morgan Securities plc to Aa3 (previously A1).
On June 21, 2018, Fitch upgraded the Parent Company’s
long-term issuer rating to AA- (previously A+) and shortterm issuer rating to F1+ (previously F1). The long-term
issuer ratings were also upgraded to AA for JPMorgan Chase
Bank, N.A, Chase Bank USA, N.A., J.P. Morgan Securities LLC
and J.P. Morgan Securities plc (all previously AA-).
Downgrades of the Firm’s long-term ratings by one or two
notches could result in an increase in its cost of funds, andaccess to certain funding markets could be reduced. The
nature and magnitude of the impact of ratings downgrades
depends on numerous contractual and behavioral factors
which the Firm believes are incorporated in its liquidity risk
and stress testing metrics. The Firm believes that it100

maintains sufficient liquidity 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 andliquidity ratios, strong credit quality and risk management
controls, and diverse funding sources. Rating agencies
continue to evaluate economic and geopolitical trends,
regulatory developments, future profitability, risk
management practices, and litigation matters, as well as
their broader ratings methodologies. Changes in any ofthese factors could lead to changes in the Firm’s credit
ratings.

JPMorgan Chase & Co./2018 Form 10-K

REPUTATION RISK MANAGEMENT
Reputation risk is the potential that an action, inaction,transaction, investment or event will reduce trust in the
Firm’s integrity or competence by its various constituents,
including clients, counterparties, customers, investors,
regulators, employees, communities or the broader public.
Organization and management
Reputation Risk Management is an independent risk
management function that establishes the governanceframework for managing reputation risk across the Firm.
The Firmwide Risk Executive for Reputation Risk reports to
the Firm’s CRO.
The Firm’s reputation risk management function includes
the following activities:• Establishing a firmwide Reputation Risk Governancepolicy and standards•

Managing the governance infrastructure and processes
that support consistent identification, escalation,
management and monitoring of reputation risk issues
firmwide•

Providing oversight to LOB Reputation Risk Offices(“RRO”) on certain situations that have the potential todamage the reputation of the LOB or the Firm

The types of events that give rise to reputation risk arebroad and could be introduced in various ways, including by
the Firm’s employees and the clients, customers andcounterparties with which the Firm does business. These
events could result in financial losses, litigation andregulatory fines, as well as other damages to the Firm. As
reputation risk is inherently difficult to identify, manage,and quantify, an independent reputation risk management
governance function is critical.

JPMorgan Chase & Co./2018 Form 10-K

Governance and oversight
The Firm’s Reputation Risk Governance policy establishes
the principles for managing reputation risk for the Firm, andis approved annually by the Directors’ Risk Policy
Committee. It is the responsibility of employees in each LOB
and Corporate to consider the reputation of the Firm when
deciding whether to offer a new product, engage in atransaction or client relationship, enter a new jurisdiction,
initiate a business process or other matters. Increasingly,
sustainability, social responsibility and environmental
impacts are important considerations in assessing the
Firm’s reputation risk, and are considered as part of
reputation risk governance.
The Firm’s reputation risk governance framework applies toeach LOB and Corporate. Each LOB RRO advises theirbusiness on potential reputation risk issues and provides
oversight of policy and standards created to guide theidentification and assessment of reputation risk. LOB
Reputation Risk Committees and forums review and assess
reputation risk for their respective businesses. Eachfunction also applies appropriate diligence to reputation
risk arising from their day-to-day activities. Reputation risk
issues deemed significant are escalated to the appropriate
LOB Risk Committee and/or to the Firmwide Risk
Committee.

101

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

102

Risk identification and measurement
The Credit Risk Management function monitors, measures,
manages and limits credit risk across the Firm’s businesses.
To measure credit risk, the Firm employs several
methodologies for estimating the likelihood of obligor orcounterparty default. Methodologies for measuring credit
risk vary depending on several factors, including type of
asset (e.g., consumer versus wholesale), risk measurement
parameters (e.g., delinquency status and borrower’s creditscore versus wholesale risk-rating) and risk management
and collection processes (e.g., retail collection center versus
centrally managed workout groups). Credit risk
measurement is based on the probability of default of an
obligor or counterparty, the loss severity given a default
event and the exposure at default.
Based on these factors and related market-based inputs,
the Firm estimates credit losses for its exposures. Probablecredit losses inherent in the consumer and wholesale heldfor-investment loan portfolios are reflected in the allowance
for loan losses, and probable credit losses inherent in
lending-related commitments are reflected in the allowance
for lending-related commitments. These losses are
estimated using statistical analyses and other factors as
described in Note 13. In addition, potential and unexpectedcredit losses are reflected in the allocation of credit risk
capital and represent the potential volatility of actual losses
relative to the established allowances for loan losses andlending-related commitments. The analyses for these losses
include stress testing that considers alternative economic
scenarios as described in the Stress testing section below.
For further information, refer to Critical Accounting
Estimates used by the Firm on pages 141-143.
The methodologies used to estimate credit losses dependon the characteristics of the credit exposure, as described
below.
Scored exposure
The scored portfolio is generally held in CCB andpredominantly includes residential real estate loans, credit
card loans, and certain auto and business banking loans.
For the scored portfolio, credit loss estimates are based on
statistical analysis of credit losses over discrete periods oftime. The statistical analysis uses portfolio modeling, credit
scoring, and decision-support tools, which consider loanlevel factors such as delinquency status, credit scores,
collateral values, and other risk factors. Credit loss analyses
also consider, as appropriate, uncertainties and otherfactors, including those related to current macroeconomic
and political conditions, the quality of underwriting
standards, and other internal and external factors. The
factors and analysis are updated on a quarterly basis ormore frequently as market conditions dictate.

JPMorgan Chase & Co./2018 Form 10-K

Risk-rated exposure
Risk-rated portfolios are generally held in CIB, CB and AWM,
but also include certain business banking and auto dealer
loans held in CCB that are risk-rated because they havecharacteristics similar to commercial loans. For the riskrated portfolio, credit loss estimates are based on estimatesof the probability of default (“PD”) and loss severity given adefault. The probability of default is the likelihood that aborrower will default on its obligation; the loss given default(“LGD”) is the estimated loss on the loan that would be
realized upon default and takes into consideration collateraland structural support for each credit facility. The
estimation process includes assigning risk ratings to eachborrower and credit facility to differentiate risk within theportfolio. These risk ratings are reviewed regularly by Credit
Risk Management and revised as needed to reflect theborrower’s current financial position, risk profile andrelated collateral. The calculations and assumptions are
based on both internal and external historical experienceand management judgment and are reviewed regularly.
Stress testing
Stress testing is important in measuring and managing
credit risk in the Firm’s credit portfolio. The processassesses the potential impact of alternative economic andbusiness scenarios on estimated credit losses for the Firm.
Economic scenarios and the underlying parameters aredefined centrally, articulated in terms of macroeconomic
factors and applied across the businesses. The stress test
results may indicate credit migration, changes indelinquency trends and potential losses in the credit
portfolio. In addition to the periodic stress testingprocesses, management also considers additional stresses
outside these scenarios, including industry and countryspecific stress scenarios, as necessary. The Firm uses stresstesting to inform decisions on setting risk appetite both at a
Firm and LOB level, as well as to assess the impact of stresson individual counterparties.

Risk monitoring and management
The Firm has developed policies and practices that aredesigned to preserve the independence and integrity of theapproval and decision-making process of extending credit toensure credit risks are assessed accurately, approved
properly, monitored regularly and managed actively at boththe transaction and portfolio levels. The policy framework
establishes credit approval authorities, concentration limits,risk-rating methodologies, portfolio review parameters andguidelines for management of distressed exposures. In
addition, certain models, assumptions and inputs used in
evaluating and monitoring credit risk are independently
validated by groups that are separate from the line ofbusinesses.
Consumer credit risk is monitored for delinquency and other
trends, including any concentrations at the portfolio level,
as certain of these trends can be modified through changes
in underwriting policies and portfolio guidelines. Consumer
Risk Management evaluates delinquency and other trends
against business expectations, current and forecasted
economic conditions, and industry benchmarks. Historicaland forecasted economic performance and trends areincorporated into the modeling of estimated consumer
credit losses and are part of the monitoring of the credit
risk profile of the portfolio.
Wholesale credit risk is monitored regularly at an aggregate
portfolio, industry, and individual client and counterparty
level with established concentration limits that are reviewed
and revised as deemed appropriate by management,
typically on an annual basis. Industry and counterparty
limits, as measured in terms of exposure and economic risk
appetite, are subject to stress-based loss constraints. In
addition, wrong-way risk — the risk that exposure to a
counterparty is positively correlated with the impact of a
default by the same counterparty, which could cause
exposure to increase at the same time as the counterparty’s
capacity to meet its obligations is decreasing — is actively
monitored as this risk could result in greater exposure atdefault compared with a transaction with anothercounterparty that does not have this risk.
Management of the Firm’s wholesale credit risk exposure isaccomplished through a number of means, including:• Loan underwriting and credit approval process• Loan syndications and participations• Loan sales and securitizations• Credit derivatives• Master netting agreements• Collateral and other risk-reduction techniques

JPMorgan Chase & Co./2018 Form 10-K

103

Management’s discussion and analysis
In addition to Credit Risk Management, an independent
Credit Review function is responsible for:• Independently validating or changing the risk grades
assigned to exposures in the Firm’s wholesale andcommercial-oriented retail credit portfolios, andassessing the timeliness of risk grade changes initiated byresponsible business units; and• Evaluating the effectiveness of business units’ credit
management processes, including the adequacy of credit
analyses and risk grading/LGD rationales, propermonitoring and management of credit exposures, andcompliance with applicable grading policies andunderwriting guidelines.
For further discussion of consumer and wholesale loans,refer to Note 12.

104

Risk reporting
To enable monitoring of credit risk and effective decisionmaking, aggregate credit exposure, credit quality forecasts,
concentration levels and risk profile changes are reported
regularly to senior members of Credit Risk Management.
Detailed portfolio reporting of industry; clients,
counterparties and customers; product and geographic
concentrations occurs monthly, and the appropriateness of
the allowance for credit losses is reviewed by senior
management at least on a quarterly basis. Through the risk
reporting and governance structure, credit risk trends andlimit exceptions are provided regularly to, and discussed
with, risk committees, senior management and the Board of
Directors as appropriate.

JPMorgan Chase & Co./2018 Form 10-K

CREDIT PORTFOLIO
Credit risk is the risk associated with the default or change
in credit profile of a client, counterparty or customer.
In the following tables, reported loans include loans
retained (i.e., held-for-investment); loans held-for-sale; andcertain loans accounted for at fair value. The following
tables do not include loans which the Firm accounts for atfair value and classifies as trading assets. For further
information regarding these loans, refer to Notes 2 and 3.
For additional information on the Firm’s loans, lendingrelated commitments and derivative receivables, including
the Firm’s accounting policies, refer to Notes 12, 27, and 5,
respectively.
For further information regarding the credit risk inherent in
the Firm’s cash placed with banks, refer to Wholesale credit
exposure – industry exposures on pages 113–115 ; for
information regarding the credit risk inherent in the Firm’s
investment securities portfolio, refer to Note 10; and for
information regarding credit risk inherent in the securities
financing portfolio, refer to Note 11.
For a further discussion of the consumer credit environmentand consumer loans, refer to Consumer Credit Portfolio on
pages 106–111 and Note 12. For a further discussion of thewholesale credit environment and wholesale loans, refer toWholesale Credit Portfolio on pages 112–119 and Note 12.

Total credit portfolio
Credit exposure

December 31,(in millions)

Nonperforming(d)(e)

2018

2017

969,415 $

924,838

Loans held-for-sale11,9883,351—

Loans at fair value

3,151

2,508

220

—

Total loans – reported

984,554930,697

4,831

5,943

Derivative receivables

54,21356,52360130Receivables from
customers and other(a)30,217

26,272——

1,068,984

1,013,492

4,891

6,073

Real estate owned

NA

NA

269

311

Other

NA

NA

30

42

Total assets acquired inloan satisfactions

NA

NA

299

353

1,039,258

991,482

Loans retained$

Total credit-related
assets

2018
$

2017

4,611 $

5,943—

Assets acquired in loansatisfactions

Lending-related
commitments

469

731

Total credit portfolio$ 2,108,242 $ 2,004,974$

5,659 $

7,157

Credit derivatives usedin credit portfolio
management
activities(b)

$

$

— $

—

NA

NA

Liquid securities andother cash collateral
held against
derivatives(c)(12,682) $(17,609)(15,322)(16,108)

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

2018
$

4,856

2017
$

5,387

Average retained loans
Loans

936,829

898,979

Loans – reported, excluding
residential real estate PCI loans

909,386

865,887

Net charge-off rates(f)
Loans

0.52%

0.60%

Loans – excluding PCI

0.53

0.62

(a) Receivables from customers and other primarily represents held-forinvestment margin loans to brokerage customers.
(b) Represents the net notional amount of protection purchased and soldthrough credit derivatives used to manage both performing andnonperforming wholesale credit exposures; these derivatives do not
qualify for hedge accounting under U.S. GAAP. For additional
information, refer to Credit derivatives on page 119 and Note 5.
(c) Includes collateral related to derivative instruments where an
appropriate legal opinion has not been either sought or obtained.
(d) Excludes PCI loans. The Firm is recognizing interest income on eachpool of PCI loans as each of the pools is performing.
(e) At December 31, 2018 and 2017, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $2.6 billion and $4.3 billion, respectively, andreal estate owned (“REO”) insured by U.S. government agencies of $75
million and $95 million, respectively. These amounts have been
excluded based upon the government guarantee. In addition, theFirm’s policy is generally to exempt credit card loans from being placedon nonaccrual status as permitted by regulatory guidance issued by
the Federal Financial Institutions Examination Council (“FFIEC”).
(f) For the year ended December 31, 2017, excluding net charge-offs of$467 million related to the student loan portfolio transfer, the net
charge-off rate for loans would have been 0.55% and for loans excluding PCI would have been 0.57%.

JPMorgan Chase & Co./2018 Form 10-K

105

Management’s discussion and analysis
CONSUMER CREDIT PORTFOLIOThe Firm’s retained consumer portfolio consists primarily of
residential real estate loans, credit card loans, auto loans,and business banking loans, as well as associated lendingrelated commitments. The Firm’s focus is on serving
primarily the prime segment of the consumer credit market.
Originated mortgage loans are retained in the mortgage
portfolio, securitized or sold to U.S. government agencies
and U.S. government-sponsored enterprises; other types ofconsumer loans are typically retained on the balance sheet.
The credit performance of the consumer portfolio continues
to benefit from discipline in credit underwriting as well as
improvement in the economy driven by low unemployment
and increasing home prices. The total amount of residential
real estate loans delinquent 30+ days, excluding government
guaranteed and purchased credit-impaired loans, decreased
from December 31, 2017 due to improved credit
performance and the impact of loans that were delinquent in2017 due to hurricanes. The Credit Card 30+ day
delinquency rate and the net charge-off rate increased fromthe prior year, in line with expectations. For further
information on consumer loans, refer to Note 12. For further
information on lending-related commitments, refer to Note
27.

106

JPMorgan Chase & Co./2018 Form 10-K

The following table presents consumer credit-related information with respect to the credit portfolio held by CCB, prime
mortgage and home equity loans held by AWM, and prime mortgage loans held by Corporate. For further information about the
Firm’s nonaccrual and charge-off accounting policies, refer to Note 12.
Consumer credit portfolio
Credit exposure

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

2018

Nonaccrual loans(i)(j)Net charge-offs/(recoveries)(d)(k)Net charge-off/(recovery) rate(d)(k)(l)

2018

2018

2018

2017

2017

2017

2017

Consumer, excluding credit card
Loans, excluding PCI loans and loans held-for-sale
Residential mortgage

1,765 $

2,175

(291) $

(10)

(0.13)%

Home equity$

28,34033,450

1,323

1,610

(5)

69

(0.02)

0.19

Auto(a)(b)63,573

66,242

128

141

243

331

0.38

0.51

Consumer & Business Banking(b)(c)26,61225,789

245

283

236

257

0.90

1.03

—

—

—

—

—

498

—

NM

349,603341,977

3,461

4,209

183

1,145

0.05

0.34

Home equity

8,963

10,799

NA

NA

NA

NA

NA

NA

Prime mortgage

4,690

6,479

NA

NA

NA

NA

NA

NA

Subprime mortgage

1,945

2,609

NA

NA

NA

NA

NA

NA

Option ARMs(e)8,436

10,689

NA

NA

NA

NA

NA

NA

Total loans – PCI

24,03430,576

NA

NA

NA

NA

NA

Total loans – retained

373,637

372,553

3,461

4,209

183

1,145

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

231,078$

216,496$$—%Loans – PCI

Loans held-for-sale

0.05

NA
0.31

95

128

—

—

—

—

—

—

Total consumer, excluding credit card loans

373,732

372,681

3,461

4,209

183

1,145

0.05

0.31

Lending-related commitments(f)46,06648,553

Receivables from customers(g)

154

133

419,952

421,367

156,616

149,387

—

—

4,518

4,123

3.10

2.95

16

124

—

—

—

—

—

—

Total credit card loans

156,632

149,511

—

—

4,518

4,123

3.10

2.95

Lending-related commitments(f)605,379

572,831

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

Total credit card exposure

762,011722,342

Total consumer credit portfolio$

1,181,963$

1,143,709$

3,461 $

4,209$

4,701 $

5,268

0.90 %

1.04%

Memo: Total consumer credit portfolio, excluding PCI$

1,157,929$

1,113,133$

3,461 $

4,209$

4,701 $

5,268

0.95 %

1.11%(a) At December 31, 2018 and 2017, excluded operating lease assets of $20.5 billion and $17.1 billion, respectively. These operating lease assets are included
in other assets on the Firm’s Consolidated balance sheets. The risk of loss on these assets relates to the residual value of the leased vehicles, which ismanaged through projection of the lease residual value at lease origination, periodic review of residual values, and through arrangements with certain auto
manufacturers that mitigates this risk.
(b) Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses; theseloans are managed by CCB, and therefore, for consistency in presentation, are included within the consumer portfolio.
(c) Predominantly includes Business Banking loans.
(d) For the year ended December 31, 2017, excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for Total
consumer, excluding credit card and PCI loans and loans held-for-sale would have been 0.20%; Total consumer - retained excluding credit card loans would
have been 0.18%; Total consumer credit portfolio would have been 0.95%; and Total consumer credit portfolio, excluding PCI loans would have been 1.01%.
(e) At December 31, 2018 and 2017, approximately 69% and 68%, respectively, of the PCI option adjustable rate mortgages (“ARMs”) portfolio has been
modified into fixed-rate, fully amortizing loans.
(f) 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 commitments, and if certain conditions are met, homeequity commitments, the Firm can reduce or cancel these lines of credit by providing the borrower notice or, in some cases as permitted by law, without
notice. For further information, refer to Note 27.
(g) Receivables from customers represent held-for-investment margin loans to brokerage customers that are collateralized through assets maintained in theclients’ brokerage accounts. These receivables are reported within accrued interest and accounts receivable on the Firm’s Consolidated balance sheets.
(h) Includes billed interest and fees net of an allowance for uncollectible interest and fees.
(i) At December 31, 2018 and 2017, nonaccrual loans excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $2.6
billion and $4.3 billion, respectively. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In addition, the Firm’s
policy is generally to exempt credit card loans from being placed on nonaccrual status, as permitted by regulatory guidance issued by the FFIEC.
(j) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as each of the pools is performing.
(k) Net charge-offs/(recoveries) and net charge-off/(recovery) rates excluded write-offs in the PCI portfolio of $187 million and $86 million for the years ended
December 31, 2018 and 2017, respectively. These write-offs decreased the allowance for loan losses for PCI loans. Refer to Allowance for Credit Losses on
pages 120–122 for further information.
(l) Average consumer loans held-for-sale were $387 million and $1.5 billion for the years ended December 31, 2018 and 2017, respectively. These amounts
were excluded when calculating net charge-off/(recovery) rates.
JPMorgan Chase & Co./2018 Form 10-K

107

Management’s discussion and analysis
Consumer, excluding credit card
Portfolio analysis
Consumer loan balances increased from December 31,
2017 predominantly due to originations of high-quality
prime mortgage loans that have been retained on thebalance sheet, largely offset by paydowns and the chargeoff or liquidation of delinquent loans.
PCI loans are excluded from the following discussions ofindividual loan products and are addressed separately
below. For further information about the Firm’s consumer
portfolio, including information about delinquencies, loan
modifications and other credit quality indicators, refer toNote 12.
Residential mortgage: The residential mortgage portfolio,
including loans held-for-sale, predominantly consists ofhigh-quality prime mortgage loans with approximately 1%
consisting of subprime mortgage loans, which continue torun off. The residential mortgage portfolio increased from
December 31, 2017 driven by the retention of originatedhigh-quality prime mortgage loans, which exceeded
paydowns and mortgage loan sales. Residential mortgage
30+ day delinquencies decreased from December 31, 2017.
Nonaccrual loans decreased from December 31, 2017 due
to lower delinquencies. Net recoveries for the year ended
December 31, 2018 improved when compared with theprior year, reflecting loan sales and continued improvement
in home prices and delinquencies.
At December 31, 2018 and 2017, the Firm’s residential
mortgage portfolio included $21.6 billion and $20.2 billion,
respectively, of interest-only loans. These loans have aninterest-only payment period generally followed by anadjustable-rate or fixed-rate fully amortizing payment
period to maturity and are typically originated as higherbalance loans to higher-income borrowers. Performance of
this portfolio for the year ended December 31, 2018 was inline with the performance of the broader residential
mortgage portfolio for the same period. The Firm continues
to monitor the risks associated with these loans.

108

The following table provides a summary of the Firm’s
residential mortgage portfolio insured and/or guaranteedby U.S. government agencies, including loans held-for-sale.
The Firm monitors its exposure to certain potential
unrecoverable claim payments related to government
insured loans and considers this exposure in estimating theallowance for loan losses.
December 31,
2018(in millions)
Current$

December 31,
20172,884 $

2,401

30-89 days past due

1,528

1,958

90 or more days past due

2,600

4,264

7,012 $

8,623

Total government guaranteed loans$

Home equity: The home equity portfolio declined from
December 31, 2017 primarily reflecting loan paydowns.
The amount of 30+ day delinquencies decreased from
December 31, 2017. Nonaccrual loans decreased from
December 31, 2017 due to lower delinquencies. There wasa net recovery for the year ended December 31, 2018
compared to a net charge-off for the prior year, as a resultof continued improvement in home prices and lower
delinquencies.
At December 31, 2018, approximately 90% of the Firm’s
home equity portfolio consists of home equity lines of credit(“HELOCs”) and the remainder consisted of home equity
loans (“HELOANs”). HELOANs are generally fixed-rate,
closed-end, amortizing loans, with terms ranging from 3–30
years. In general, HELOCs originated by the Firm are
revolving loans for a 10-year period, after which time the
HELOC recasts into a loan with a 20-year amortization
period.
The carrying value of HELOCs outstanding was $26 billion at
December 31, 2018. This amount included $12 billion of
HELOCs that have recast from interest-only to fully
amortizing payments or have been modified and $4 billionof interest-only balloon HELOCs, which primarily mature
after 2030. The Firm manages the risk of HELOCs during
their revolving period by closing or reducing the undrawn
line to the extent permitted by law when borrowers are
exhibiting a material deterioration in their credit risk
profile.

JPMorgan Chase & Co./2018 Form 10-K

The Firm monitors risks associated with junior lien loans
where the borrower has a senior lien loan that is either
delinquent or has been modified. These loans are
considered “high-risk seconds” and are classified as
nonaccrual as they are considered to pose a higher risk ofdefault than other junior lien loans. At December 31, 2018,
the Firm estimated that the carrying value of its homeequity portfolio contained approximately $550 million ofcurrent junior lien loans that were considered high-risk
seconds, compared with approximately $725 million at
December 31, 2017.
Auto: The auto loan portfolio, which predominantly consistsof prime-quality loans, declined when compared with
December 31, 2017, as paydowns and the charge-off orliquidation of delinquent loans were predominantly offset
by new originations. Nonaccrual loans decreased from
December 31, 2017. Net charge-offs for the year ended
December 31, 2018 declined when compared with the prioryear primarily as a result of an incremental adjustment
recorded in 2017 in accordance with regulatory guidance
regarding the timing of loss recognition for certain loans inbankruptcy and loans where assets were acquired in loansatisfactions.

Consumer & Business banking: Consumer & BusinessBanking loans increased when compared with
December 31, 2017 due to loan originations,predominantly offset by paydowns and charge-offs ofdelinquent loans. Nonaccrual loans and net charge-offs
decreased when compared with the prior year.
Purchased credit-impaired loans: PCI loans represent
certain loans that were acquired and deemed to be creditimpaired on the acquisition date. PCI loans decreased from
December 31, 2017 due to portfolio run off and loan sales.
As of December 31, 2018, approximately 10% of theoption ARM PCI loans were delinquent and approximately
69% of the portfolio had been modified into fixed-rate, fully
amortizing loans. The borrowers for substantially all of theremaining option ARM loans are making amortizing
payments, although such payments are not necessarily fully
amortizing. This latter group of loans is subject to the risk of
payment shock due to future payment recast. Default rates
generally increase on option ARM loans when payment
recast results in a payment increase. The expected increasein default rates is considered in the Firm’s quarterly
impairment assessment.

The following table provides a summary of lifetime principal loss estimates included in either the nonaccretable difference or
the allowance for loan losses.
Summary of PCI loans lifetime principal loss estimates
December 31, (in billions)Home equity
Prime mortgage
Subprime mortgage
Option ARMs
Total

$

$

Lifetime loss estimates(a)
2018
2017
14.1 $
14.2
4.1
4.0
3.3
3.3
10.3
10.0
31.8 $
31.5

Life-to-date liquidation losses(b)
2018
2017
$
13.0 $
12.9
3.9
3.8
3.2
3.1
9.9
9.7
$
30.0 $
29.5(a) Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses plus additional principal losses

recognized subsequent to acquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses was$512 million and $842 million at December 31, 2018 and 2017, respectively.
(b) Represents both realization of loss upon loan resolution and any principal forgiven upon modification.

For further information on the Firm’s PCI loans, including write-offs, refer to Note 12.
Geographic composition of residential real estate loans
At December 31, 2018, $160.3 billion, or 63% of the total
retained residential real estate loan portfolio, excluding
mortgage loans insured by U.S. government agencies and
PCI loans, were concentrated in California, New York,
Illinois, Texas and Florida, compared with $152.8 billion, or63%, at December 31, 2017. For additional information on
the geographic composition of the Firm’s residential realestate loans, refer to Note 12.
Current estimated loan-to-values of residential realestate loans
Average current estimated loan-to-value (“LTV”) ratios havedeclined consistent with improvements in home prices,
customer pay downs, and charge-offs or liquidations ofhigher LTV loans. For further information on current
estimated LTVs of residential real estate loans, refer to Note
12.
JPMorgan Chase & Co./2018 Form 10-K

Loan modification activities for residential real estateloans
The performance of modified loans generally differs by
product type due to differences in both the credit quality
and the types of modifications provided. Performance
metrics for modifications to the residential real estate
portfolio, excluding PCI loans, that have been seasoned
more than six months show weighted-average redefault
rates of 22% for residential mortgages and 20% for homeequity. Performance metrics for modifications to the PCI
residential real estate portfolio that have been seasoned
more than six months show weighted average redefault
rates of 19% for home equity, 18% for prime mortgages,
16% for option ARMs and 32% for subprime mortgages.
The cumulative redefault rates reflect the performance ofmodifications completed from October 1, 2009 throughDecember 31, 2018.
109

Management’s discussion and analysis
Certain modified loans have interest rate reset provisions(“step-rate modifications”) where the interest rates onthese loans generally began to increase commencing in2014 by 1% per year, and will continue to do so until therate reaches a specified cap. The cap on these loans istypically at a prevailing market interest rate for a fixed-rate
mortgage loan as of the modification date. At December 31,
2018, the carrying value of non-PCI loans and the unpaid
principal balance of PCI loans modified in step-rate
modifications, which have not yet met their specified caps,
were $2 billion and $3 billion, respectively. The Firm
continues to monitor this risk exposure and the impact ofthese potential interest rate increases is considered in the
Firm’s allowance for loan losses.
The following table presents information as ofDecember 31, 2018 and 2017, relating to modified
retained residential real estate loans for which concessions
have been granted to borrowers experiencing financial
difficulty. For further information on modifications for theyears ended December 31, 2018 and 2017, refer to Note
12.
Modified residential real estate loans
2018
December 31,(in millions)

Modified residential
real estate loans,
excluding PCI loans(a)(b)Residential mortgage$ 4,565 $Home equity
Total modified
residential real estateloans, excluding PCI
loans
Modified PCI loans(c)Home equity

2017

Nonaccrual
Nonaccrual
Retained retained Retained retained
(d)
loans
loans
loans
loans(d)2,012

1,459 $ 5,620 $
955

2,118

1,743
1,032

$ 6,577 $2,414 $ 7,738 $2,775$ 2,086

NA $ 2,277

NA

Prime mortgage

3,179

NA

4,490

NA

Subprime mortgage

2,041

NA

2,678

NA

Option ARMs

6,410

NA

8,276

NA

NA $17,721

NA

Total modified PCI loans $13,716(a) Amounts represent the carrying value of modified residential realestate loans.
(b) At December 31, 2018 and 2017, $4.1 billion and $3.8 billion,
respectively, of loans modified subsequent to repurchase from Ginnie
Mae in accordance with the standards of the appropriate government
agency (i.e., Federal Housing Administration (“FHA”), U.S. Department
of Veterans Affairs (“VA”), Rural Housing Service of the U.S.
Department of Agriculture (“RHS”)) are not included in the table
above. When such loans perform subsequent to modification inaccordance with Ginnie Mae guidelines, they are generally sold backinto Ginnie Mae loan pools. Modified loans that do not re-perform
become subject to foreclosure. For additional information about salesof loans in securitization transactions with Ginnie Mae, refer to Note
14.
(c) Amounts represent the unpaid principal balance of modified PCI loans.
(d) As of December 31, 2018 and 2017, nonaccrual loans included $2.0
billion and $2.2 billion, respectively, of troubled debt restructurings(“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 Note 12.

110

Nonperforming assets
The following table presents information as ofDecember 31, 2018 and 2017, about consumer, excluding
credit card, nonperforming assets.
Nonperforming assets(a)December 31, (in millions)Nonaccrual loans(b)Residential real estate
Other consumer
Total nonaccrual loans
Assets acquired in loan satisfactions
Real estate owned
Other
Total assets acquired in loan satisfactions
Total nonperforming assets

2018$ 3,088
373
3,461
210
30
240
$ 3,701

2017
$

$

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

(a) At December 31, 2018 and 2017, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $2.6 billion and $4.3 billion, respectively, andreal estate owned (“REO”) insured by U.S. government agencies of $75
million and $95 million, respectively. These amounts have been
excluded based upon the government guarantee.
(b) Excludes PCI loans which are accounted for on a pool basis. Since eachpool 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. The Firm is recognizing interest income on each pool ofloans as each of the pools is performing.

Nonaccrual loans in the residential real estate portfolio at
December 31, 2018 decreased to $3.1 billion from $3.8
billion at December 31, 2017, of which 24% and 26% weregreater than 150 days past due, respectively. In theaggregate, the unpaid principal balance of residential realestate loans greater than 150 days past due was charged
down by approximately 32% and 40% to the estimated net
realizable value of the collateral at December 31, 2018 and2017, respectively.
Nonaccrual loans: The following table presents changes in
the consumer, excluding credit card, nonaccrual loans forthe years ended December 31, 2018 and 2017.
Nonaccrual loan activity
Year ended December 31,(in millions)
Beginning balance
Additions
Reductions:
Principal payments and other(a)Charge-offs
Returned to performing status
Foreclosures and other liquidations
Total reductions
Net changes
Ending balance

$

$

2018
4,209 $
2,799

2017
4,820
3,525

1,407
468
1,399
273
3,547
(748)
3,461 $

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

(a) Other reductions includes loan sales.

Active and suspended foreclosure: For information onloans that were in the process of active or suspended
foreclosure, refer to Note 12.

JPMorgan Chase & Co./2018 Form 10-K

Credit card

Total credit card loans increased from December 31, 2017
due to new account growth and higher sales volume. The
December 31, 2018 30+ day delinquency rate increased to
1.83% from 1.80% at December 31, 2017, but theDecember 31, 2018 90+ day delinquency rate of 0.92%
was flat compared to December 31, 2017. Net charge-offs
increased for the year ended December 31, 2018 whencompared with the prior year, primarily due to theseasoning of more recent vintages with higher loss rates, as
anticipated given underwriting standards at the time oforigination.
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 reduces interest income, for theestimated uncollectible portion of accrued and billedinterest and fee income.
Geographic and FICO composition of credit card loans
At December 31, 2018, $71.2 billion, or 45% of the total
retained credit card loan portfolio, were concentrated in
California, Texas, New York, Florida and Illinois, comparedwith $67.2 billion, or 45%, at December 31, 2017. For
additional information on the geographic and FICO
composition of the Firm’s credit card loans, refer to Note
12.
Modifications of credit card loans
At December 31, 2018 and 2017, the Firm had $1.3 billion
and $1.2 billion, respectively, of credit card loans
outstanding that have been modified in TDRs. For additional
information about loan modification programs toborrowers, refer to Note 12.

JPMorgan Chase & Co./2018 Form 10-K

111

Management’s discussion and analysis
WHOLESALE CREDIT PORTFOLIO
In its wholesale businesses, the Firm is exposed to credit
risk primarily through its underwriting, lending, marketmaking, and hedging activities with and for clients andcounterparties, as well as through various operating
services (such as cash management and clearing activities),
securities financing activities and cash placed with banks. A
portion of the loans originated or acquired by the Firm’s
wholesale businesses is generally retained on the balance
sheet. The Firm distributes a significant percentage of theloans that it originates into the market as part of its
syndicated loan business and to manage portfolio
concentrations and credit risk.
The credit quality of the wholesale portfolio was stable forthe year ended December 31, 2018, characterized by low
levels of criticized exposure, nonaccrual loans and chargeoffs. Refer to the industry discussion on pages 113–115 forfurther information. Retained loans increased across allwholesale lines of business, primarily driven by commercial
and industrial and financial institution clients in CIB, andWealth Management clients globally in AWM. The wholesale
portfolio is actively managed, in part by conducting
ongoing, in-depth reviews of client credit quality andtransaction structure inclusive of collateral whereapplicable, and of industry, product and client
concentrations.

112

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

Credit exposure
2018

2017

$439,162 $402,898
11,877

Nonperforming(c)
2018

2017

$ 1,150 $ 1,734

3,099

—

—

Loans at fair value

3,151

2,508

220

—

Loans – reported

454,190

408,505

1,370

1,734

Derivative receivables

54,21356,52360130Receivables from
customers and other(a)30,063

26,139——Total wholesale creditrelated assets

538,466

491,167

1,430

1,864

Lending-related
commitments

387,813370,098

469

731

Total wholesale credit
exposure$926,279 $861,265$ 1,899 $ 2,595

Credit derivatives usedin credit portfolio
management activities(b) $ (12,682) $ (17,609) $— $—Liquid securities andother cash collateral
held against derivatives

NANA(15,322)(16,108)(a) Receivables from customers and other include $30.1 billion and $26.0
billion of held-for-investment margin loans at December 31, 2018 and2017, respectively, to prime brokerage customers in CIB and AWM;
these are classified in accrued interest and accounts receivable on theConsolidated balance sheets.
(b) Represents the net notional amount of protection purchased and soldthrough credit derivatives used to manage both performing andnonperforming wholesale credit exposures; these derivatives do not
qualify for hedge accounting under U.S. GAAP. For additional
information, refer to Credit derivatives on page 119, and Note 5.
(c) Excludes assets acquired in loan satisfactions.

JPMorgan Chase & Co./2018 Form 10-K

The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of December 31, 2018 and2017. The ratings scale is based on the Firm’s internal risk ratings, which generally correspond to the ratings assigned by S&P
and Moody’s. For additional information on wholesale loan portfolio risk ratings, refer to Note 12.
Wholesale credit exposure – maturity and ratings profile
Maturity profile(d)December 31, 2018
(in millions, except ratios)

Due in 1
year or less

Loans retained$ 138,458 $Due after
1 yearthrough
5 years

Ratings profile

Due after 5
years

196,974 $ 103,730 $Derivative receivables

Investmentgrade

Noninvestmentgrade

Total

AAA/Aaa to
BBB-/Baa3

BB+/Ba1 &below

439,162$

339,729$

99,433Total$ 439,162

54,213

Less: Liquid securities and other cash collateral
held against derivatives

Total %
of IG
77%

54,213(15,322)(15,322)

Total derivative receivables, net of all collateral

11,0389,169

18,68438,891

31,794

7,097

38,891

82

Lending-related commitments

79,400294,855

13,558387,813288,724

99,089387,81374

Subtotal

228,896

500,998

135,972

865,866

660,247

205,619

865,866

76

Loans held-for-sale and loans at fair value(a)15,02815,028

Receivables from customers and other

30,06330,063$910,957$ 910,957(2,917) $(12,682)

Total exposure – net of liquid securities and othercash collateral held against derivatives
Credit derivatives used in credit portfolio
management activities(b)(c)$(447) $

(9,318) $$(11,213)$

Maturity profile(d)December 31, 2017
(in millions, except ratios)

Due in 1
year or less

Loans retained$ 121,643 $Due after
1 yearthrough
5 years(1,469)$(12,682)

88%

Ratings profile

Due after 5
years

177,033 $ 104,222 $Derivative receivables

Investmentgrade

Noninvestmentgrade

Total

AAA/Aaa to
BBB-/Baa3

BB+/Ba1 &
below

402,898$

311,681$

91,217

Total$ 402,898

56,523

Less: Liquid securities and other cash collateral
held against derivatives

Total %
of IG
77%

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

Total derivative receivables, net of all collateral

9,882

10,46320,07040,41532,373

8,042

40,415

80

Lending-related commitments

80,273

275,317

14,508370,098

274,127

95,971

370,098

74

Subtotal

211,798

462,813

138,800

813,411618,181

195,230

813,41176

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

5,607

5,607

Receivables from customers and other

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

Total exposure – net of liquid securities and othercash collateral held against derivatives
Credit derivatives used in credit portfolio
management activities (b)(c)$(1,807) $(11,011) $$(14,984)$(2,625)$(17,609)85%(a) Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value.
(b) These derivatives do not qualify for hedge accounting under U.S. GAAP.
(c) The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference
entity on which protection has been purchased. Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection usedin credit portfolio management activities are executed with investment-grade counterparties.
(d) The maturity profile of retained loans, lending-related commitments and derivative receivables is based on remaining contractual maturity. Derivative
contracts that are in a receivable position at December 31, 2018, may become payable prior to maturity based on their cash flow profile or changes inmarket conditions.

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

JPMorgan Chase & Co./2018 Form 10-K

categories. The total criticized component of the portfolio,
excluding loans held-for-sale and loans at fair value, was$12.1 billion at December 31, 2018, compared with $15.6
billion at December 31, 2017. The decrease was driven by
Oil & Gas, including credit quality improvements in theportfolio, and a loan sale in the first quarter of 2018.

113

Management’s discussion and analysis

Below are summaries of the Firm’s exposures as of December 31, 2018 and 2017. The industry of risk category is generally
based on the client or counterparty’s primary business activity. For additional information on industry concentrations, refer toNote 4.
As a result of continued growth and the relative size of the portfolio, exposure to “Individuals,” which was previously disclosed
in “All Other,” is now separately disclosed in the table below as “Individuals and Individual Entities.” This category
predominantly consists of Wealth Management clients within AWM and includes exposure to personal investment companies
and personal and testamentary trusts. Predominantly all of this exposure is secured, largely by cash and marketable securities.
In the table below, prior period amounts have been revised to conform with the current period presentation.
Wholesale credit exposure – industries(a)Selected metrics
Noninvestment-grade

As of or for the year ended
December 31, 2018
(in millions)Creditexposure(f)Real Estate$

Investmentgrade

Noncriticized

Criticized
performing

Criticized
nonperforming

30 days ormore past
due andaccruing
loans

Net chargeoffs/(recoveries)

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

143,316 $117,988 $24,174 $1,019 $

135 $

70 $

(20) $(2) $(1)

Individuals and Individual Entities(b)97,07786,581

10,164

174

158

703

12

—

(915)

Consumer & Retail

94,81560,67831,901

2,033

203

43

55

(248)

(14)

Technology, Media &Telecommunications

72,646

46,33424,081

2,170

61

8

12

(1,011)(12)

Industrials

58,52838,487

18,594

1,311

136

171

20

(207)

(29)

Banks & Finance Cos

49,92034,12015,496

299

5

11

—

(575)

(2,290)

Healthcare

48,142

36,687

10,625

761

69

23

(5)

(150)

(133)

Asset Managers

42,80736,722

6,067

4

14

10

—

—

(5,829)

Oil & Gas

42,60023,356

17,451

1,158

635

6

36

(248)

—

Utilities

28,172

23,558

4,326

138

150

—

38

(142)

(60)

State & Municipal Govt(c)27,351

26,746

603

2

—

18

(1)

—

(42)

Central Govt

18,456

18,251

124

81

—

4

—

(7,994)(2,130)Automotive

17,339

9,637

7,310

392

—

1

—

(125)

—

Chemicals & Plastics

16,035

11,490

4,427

118

—

4

—

—

—

Transportation

15,66010,508

4,699

393

60

21

6

(31)

(112)

Metals & Mining

15,359

8,188

6,767

385

19

1

—

(174)

(22)

Insurance

12,639

9,777

2,830

—

32

—

—

(36)

(2,080)Financial Markets Infrastructure

7,484

6,746

738

—

—

—

—

—

(26)

Securities Firms

4,558

3,099

1,459

—

—

—

—

(158)

(823)

2

(1,581)

All other(d)Subtotal$

Loans held-for-sale and loans at fair
value

114

64,664

3,606

12

2

2

673,617 $

195,442 $

10,450 $1,679 $

1,096 $

155 $ (12,682) $(804)(15,322)

15,028

Receivables from customers and otherTotal(e)68,284
881,188 $30,063$926,279

JPMorgan Chase & Co./2018 Form 10-K

Selected metrics
Noninvestment-grade

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

Investmentgrade

Noncriticized

Criticized
performing

Criticized
nonperforming

30 days ormore past
due andaccruing
loans

Net chargeoffs/(recoveries)

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

139,409 $115,401 $23,012 $

859 $

137 $

254 $

(4) $

— $

(2)

Individuals and Individual Entities(b)87,371

77,02910,024

80

238

899

10

—

(762)

Consumer & Retail

87,67955,737

29,619

1,791

532

30

34

(275)

(9)

Technology, Media &Telecommunications

59,27436,51020,453

2,258

53

14

(12)

(910)

(19)

Industrials

55,272

37,198

16,770

1,159

145

150

(1)

(196)

(21)

Banks & Finance Cos

49,03734,654

13,767

612

4

1

6

(1,216)(3,174)

Healthcare

55,99742,643

12,731

585

38

82

(1)

—

(207)

Asset Managers

32,531

28,029

4,484

4

14

27

—

—

(5,290)

Oil & Gas

41,317

21,43014,854

4,046

987

22

71

(747)

(1)

Utilities

29,31724,486

4,383

227

221

—

11

(160)

(56)

State & Municipal Govt(c)28,633

27,977

656

—

—

12

5

(130)

(524)

Central Govt

19,182

18,741

376

65

—

4

—

(10,095)(2,520)Automotive

14,820

9,321

5,278

221

—

10

1

(284)

—

Chemicals & Plastics

15,945

11,107

4,764

74

—

4

—

—

—

Transportation

15,797

9,870

5,302

527

98

9

14

(32)

(131)

Metals & Mining

14,171

6,989

6,822

321

39

3

(13)

(316)

(1)

Insurance

14,08911,028

2,981

—

80

1

—

(157)

(2,195)

Financial Markets Infrastructure

5,036

4,775

261

—

—

—

—

—

(23)

Securities Firms

4,113

2,559

1,553

1

—

—

—

(274)

(335)

All other(d)60,52957,081

3,259

180

9

2

(2)

(2,817)(838)

829,519 $632,565 $

181,349 $13,010 $2,595 $

1,524 $

Subtotal$

Loans held-for-sale and loans at fair
value

5,607

Receivables from customers and other

26,139Total(e)$119 $ (17,609) $(16,108)

861,265(a) The industry rankings presented in the table as of December 31, 2017, are based on the industry rankings of the corresponding exposures at
December 31, 2018, not actual rankings of such exposures at December 31, 2017.
(b) Individuals and Individual Entities predominantly consists of Wealth Management clients within AWM and includes exposure to personal investmentcompanies and personal and testamentary trusts.
(c) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2018 and 2017, noted above, theFirm held: $7.8 billion and $9.8 billion, respectively, of trading securities; $37.7 billion and $32.3 billion, respectively, of AFS securities; and $4.8 billion
and $14.4 billion, respectively, of held-to-maturity (“HTM”) securities, issued by U.S. state and municipal governments. For further information, refer toNote 2 and Note 10.
(d) All other includes: SPEs and Private education and civic organizations, representing approximately 92% and 8%, respectively, at December 31, 2018 and
90% and 10%, respectively, at December 31, 2017.
(e) Excludes cash placed with banks of $268.1 billion and $421.0 billion, at December 31, 2018 and 2017, respectively, which is predominantly placed withvarious central banks, primarily Federal Reserve Banks.
(f) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against
derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(g) Represents 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.

JPMorgan Chase & Co./2018 Form 10-K

115

Management’s discussion and analysis
Real Estate
Presented below is additional information on the Real Estate industry to which the Firm has significant exposure.
Real Estate exposure increased $3.9 billion to $143.3 billion during the year ended December 31, 2018, while the investmentgrade percentage of the portfolio remained relatively flat at 82%. For further information on Real Estate loans, refer to Note12.
December 31, 2018
(in millions, except ratios)
Multifamily(a)Other
Total Real Estate Exposure(b)Loans andLending-related
Commitments

Derivative
Receivables$$

85,683
57,469143,152

33
131
164

Creditexposure$

85,71657,600143,316%
Investmentgrade% Drawn(c)

89%
72
82

92%
63
81

%
Investmentgrade% Drawn(c)

89%
74
83

92%
66
82

December 31, 2017
Loans andLending-related
Commitments(in millions, except ratios)
Multifamily
Other
Total Real Estate Exposure(b)$(a)

84,63554,620139,255

Derivative
Receivables
$

34
120
154

Creditexposure$

84,66954,740139,409(a) Multifamily exposure is largely in California.
(b) Real Estate exposure is predominantly secured; unsecured exposure is predominantly investment-grade.
(c) Represents drawn exposure as a percentage of credit exposure.

Loans
In the normal course of its wholesale business, the Firm
provides loans to a variety of clients, ranging from large
corporate and institutional clients to high-net-worth
individuals. For a further discussion on loans, including
information on credit quality indicators and sales of loans,refer to Note 12.

The following table presents net charge-offs/recoveries,
which are defined as gross charge-offs less recoveries, forthe years ended December 31, 2018 and 2017. The
amounts in the table below do not include gains or losses
from sales of nonaccrual loans.

The following table presents the change in the nonaccrualloan portfolio for the years ended December 31, 2018 and2017.

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

2018
$

2017

1,734 $

2,063

1,188

1,482

Paydowns and other

692

1,137

Gross charge-offs

299

200

Returned to performing status

234

189

Sales

327

285

Total reductions

1,552

1,811

Net changes

(364)

(329)

1,370 $

1,734

Additions
Reductions:Ending balance

116

$

2018

2017

Loans – reported
Average loans retained

Wholesale nonaccrual loan activity
Beginning balance

Wholesale net charge-offs/(recoveries)$ 416,828$ 392,263

Gross charge-offs

313

212

Gross recoveries

(158)

(93)

Net charge-offs

155

119

Net charge-off rate

0.04%

0.03%

JPMorgan Chase & Co./2018 Form 10-K

Lending-related commitments
The Firm uses lending-related financial instruments, such ascommitments (including revolving credit facilities) andguarantees, to address the financing needs of its clients.
The contractual amounts of these financial instruments
represent the maximum possible credit risk should theclients draw down on these commitments or the Firm fulfill
its obligations under these guarantees, and the clients
subsequently fail to perform according to the terms of thesecontracts. Most of these commitments and guarantees arerefinanced, extended, cancelled, or expire without being
drawn upon or a default occurring. In the Firm’s view, thetotal contractual amount of these wholesale lending-related
commitments is not representative of the Firm’s expected
future credit exposure or funding requirements. For further
information on wholesale lending-related commitments,
refer to Note 27.
Clearing services
The Firm provides clearing services for clients entering into
certain securities and derivative contracts. 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 CCPs. Where possible, the Firm
seeks to mitigate its credit risk to its clients through thecollection of adequate margin at inception and throughout
the life of the transactions and can also cease provision ofclearing services if clients do not adhere to their obligations
under the clearing agreement. For further discussion ofclearing services, refer to Note 27.
Derivative contracts
Derivatives enable clients and counterparties to manage
risks including credit risk and risks arising from fluctuationsin interest rates, foreign exchange, equities, andcommodities. The Firm makes markets in derivatives inorder to meet these needs and uses derivatives to manage
certain risks associated with net open risk positions from its
market-making activities, including the counterparty credit
risk arising from derivative receivables. The Firm also uses
derivative instruments to manage its own credit and othermarket risk 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”),
such as 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 contracts through the use of legally enforceable
master netting arrangements and collateral agreements.
For a further discussion of derivative contracts,
counterparties and settlement types, refer to Note 5.
The following table summarizes the net derivative
receivables for the periods presented.

JPMorgan Chase & Co./2018 Form 10-K

Derivative receivables
December 31, (in millions)
Total, net of cash collateral2018$

Liquid securities and other cash collateral
held against derivative receivables(a)Total, net of all collateral

$

2017

54,213 $56,523(15,322)(16,108)

38,891 $40,415(a) Includes collateral related to derivative instruments where appropriate
legal opinions have not been either sought or obtained with respect tomaster netting agreements.

The fair value of derivative receivables reported on theConsolidated balance sheets were $54.2 billion and $56.5
billion at December 31, 2018 and 2017, respectively.
Derivative receivables represent the fair value of thederivative contracts after giving effect to legally enforceable
master netting agreements and cash collateral held by theFirm. However, in management’s view, the appropriate
measure of current credit risk should also take into
consideration additional liquid securities (primarily U.S.
government and agency securities and other group of sevennations (“G7”) government securities) and other cash
collateral held by the Firm aggregating $15.3 billion and$16.1 billion at December 31, 2018 and 2017,
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 derivative
contracts move in the Firm’s favor. The derivative
receivables fair value, net of all collateral, also does notinclude other credit enhancements, such as letters of credit.
For additional information on the Firm’s use of collateralagreements, refer to Note 5.
While useful as a current view of credit exposure, the net
fair value of the derivative receivables does not capture thepotential future variability of that credit exposure. To
capture the potential future variability of credit exposure,
the Firm calculates, on a client-by-client basis, threemeasures of potential derivatives-related credit loss: Peak,
Derivative Risk Equivalent (“DRE”), and Average exposure(“AVG”). These measures all incorporate netting andcollateral benefits, where applicable.
Peak represents a conservative measure of potential
exposure to a counterparty calculated in a manner that is
broadly equivalent to a 97.5% confidence level over the lifeof the transaction. Peak is the primary measure used by the
Firm for setting of credit limits for derivative contracts,
senior management reporting and derivatives exposure
management. DRE exposure is a measure that expresses therisk of derivative exposure on a basis intended to be117

Management’s discussion and analysis
equivalent to the risk of loan exposures. DRE is a lessextreme measure of potential credit loss than Peak and isused as an input for aggregating derivative credit risk
exposures with loans and other credit risk.

credit derivative contracts, as well as interest rate, foreignexchange, equity and commodity derivative contracts.
The accompanying graph shows exposure profiles to theFirm’s current derivatives portfolio over the next 10 years
as calculated by the Peak, DRE and AVG metrics. The threemeasures generally show that exposure will decline after
the first year, if no new trades are added to the portfolio.

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 over the total life of
the derivative contract is used as the primary metric for
pricing purposes and is used to calculate credit risk capitaland the CVA, as further described below.

Exposure profile of derivatives measures
December 31, 2018
(in billions)

The fair value of the Firm’s derivative receivables
incorporates CVA to reflect the credit quality ofcounterparties. CVA is based on the Firm’s AVG to a
counterparty and the counterparty’s credit spread in thecredit derivatives market. The Firm believes that active risk
management is essential to controlling the dynamic credit
risk in the derivatives portfolio. In addition, the Firm’s risk
management process takes into consideration the potential
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
The following table summarizes the ratings profile of the Firm’s derivative receivables, including credit derivatives, net of all
collateral, at the dates indicated. The ratings scale is based on the Firm’s internal ratings, which generally correspond to theratings as assigned by S&P and Moody’s.
Ratings profile of derivative receivables
Rating equivalent

2018

December 31,(in millions, except ratios)

Exposure net of
all collateral

AAA/Aaa to AA-/Aa3
A+/A1 to A-/A3
BBB+/Baa1 to BBB-/Baa3
BB+/Ba1 to B-/B3
CCC+/Caa1 and below
Total

$

$

11,831
7,428
12,536
6,373
723
38,8912017% of exposure netof all collateral

Exposure net of
all collateral

31% $
19
32
16
2
100% $

11,5296,919
13,925
7,397
645
40,415% of exposure netof all collateral
29%
17
34
18
2
100%

As previously noted, the Firm uses collateral agreements tomitigate counterparty credit risk. The percentage of the
Firm’s over-the-counter derivative transactions subject tocollateral agreements — excluding foreign exchange spot
trades, which are not typically covered by collateralagreements due to their short maturity and centrally
cleared trades that are settled daily — was approximately
90% at both December 31, 2018, and December 31, 2017.

118

JPMorgan Chase & Co./2018 Form 10-K

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, refer to Credit derivatives in Note 5.
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, refer to Credit derivatives in Note 5.
The Firm also uses credit derivatives as an end-user tomanage other exposures, including credit risk arising fromcertain securities held in the Firm’s market-making
businesses. These credit derivatives are not included in
credit portfolio management activities; for further
information on these credit derivatives as well as credit
derivatives used in the Firm’s capacity as a market-maker incredit derivatives, refer to Credit derivatives in Note 5.

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

2018

2017

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

Derivative receivables
Credit derivatives used in credit portfolio
management activities

1,272

$

11,410$12,682

1,867
15,742$

17,609(a) Amounts are presented net, considering the Firm’s net protection
purchased or sold with respect to each underlying reference entity orindex.

The credit derivatives used in credit portfolio management
activities do not qualify for hedge accounting under U.S.
GAAP; these derivatives are reported at fair value, withgains and losses recognized in principal transactions
revenue. In contrast, the loans and lending-related
commitments being risk-managed are accounted for on an
accrual basis. This asymmetry in accounting treatment,
between loans and lending-related commitments and thecredit derivatives used in credit portfolio management
activities, causes earnings volatility that is not
representative, in the Firm’s view, of the true changes invalue of the Firm’s overall credit exposure.
The effectiveness of credit default swaps (“CDS”) as a hedge
against the Firm’s exposures may vary depending on anumber of factors, including the named reference entity(i.e., the Firm may experience losses on specific exposuresthat are different than the named reference entities in thepurchased CDS); the contractual terms of the CDS (which
may have a defined credit event that does not align with anactual loss realized by the Firm); and the maturity of the
Firm’s CDS protection (which in some cases may be shorter
than the Firm’s exposures). However, the Firm generally
seeks to purchase credit protection with a maturity datethat is the same or similar to the maturity date of the
exposure for which the protection was purchased, andremaining differences in maturity are actively monitored
and managed by the Firm.

JPMorgan Chase & Co./2018 Form 10-K

119

Management’s discussion and analysis
ALLOWANCE FOR CREDIT LOSSESThe Firm’s allowance for credit losses covers the retained
consumer and wholesale loan portfolios, as well as the
Firm’s wholesale and certain consumer lending-related
commitments.
For further information on the components of the allowancefor credit losses and related management judgments, refer
to Critical Accounting Estimates Used by the Firm on pages
141-143 and Note 13.
At least quarterly, the allowance for credit losses isreviewed by the CRO, the CFO and the Controller of theFirm. As of December 31, 2018, JPMorgan Chase deemed
the allowance for credit losses to be appropriate andsufficient to absorb probable credit losses inherent in theportfolio.

120

The allowance for credit losses decreased compared with
December 31, 2017 driven by:• a reduction in the consumer allowance due to a $250
million reduction in the CCB allowance for loan losses in
the residential real estate PCI portfolio, reflecting
continued improvement in home prices and lower
delinquencies, as well as a $187 million reduction in theallowance for write-offs of PCI loans partially due to loan
sales. These reductions were largely offset by a $300
million addition to the allowance in the credit card
portfolio, due to loan growth and higher loss rates, as
anticipated.
For additional information on the consumer and wholesalecredit portfolios, refer to Consumer Credit Portfolio on
pages 106–111, Wholesale Credit Portfolio on pages 112–
119 and Note 12.

JPMorgan Chase & Co./2018 Form 10-K

Summary of changes in the allowance for credit losses
2018
Year ended December 31,(in millions, except ratios)

2017

Consumer,
excludingcredit card

Credit card

Wholesale

$

$

$

Total

Consumer,
excludingcredit card

Credit card

Wholesale

13,604

$

$

$

Total

Allowance for loan losses
Beginning balance at January 1,

4,579

4,884

4,141

$

5,198

4,034

4,544

$ 13,776

Gross charge-offs

1,025

5,011

313

6,349

1,779

4,521

212

6,512

Gross recoveries

(842)

(493)

(158)

(1,493)

(634)

(398)

(93)

(1,125)

Net charge-offs(a)

183

4,518

155

4,856

1,145

4,123

119

5,387

Write-offs of PCI loans(b)

187

—

—

187

86

—

—

86

Provision for loan losses

(63)

4,818

130

4,885

613

4,973

(286)

5,300

Other

—

Ending balance at December 31,

$

—

4,146

$

196

$

(1)

5,184

$

440

$

(1)

4,115

$

297

$

(1)

13,445

$

933

$

—

4,579

$

246

$

4,884

$

383

$

2

1

4,141

$ 13,604

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

2,162

PCI

4,744

1,788

Total allowance for loan losses

3,818

—

10,724

—

2,108

1,788

4,501

2,225

461

$

3,680

—

1,090
10,289

—

2,225

$

4,146

$

5,184

$

4,115

$

13,445

$

4,579

$

4,884

$

4,141

$ 13,604

$

33

$

—

$

1,035

$

1,068

$

26

$

—

$

1,052

$

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

—

—

(14)

(14)

7

—

(17)

Other

—

—

1

1

—

—

—

Ending balance at December 31,

$

33

$

—

$

—

$

—

$

1,022

$

99

$

1,055

$

99

$

1,078
(10)
—

33

$

—

$

1,035

$

1,068

—

$

—

$

187

$

187

Impairment methodology
Asset-specific$

Formula-based

33

—

923

956

33

—

848

881

Total allowance for lending-related
commitments(d)

$

33

$

—

$

1,022

$

1,055

$

33

$

—

$

1,035

$

Total allowance for credit losses

$

4,179

$

5,184

$

5,137

$

14,500

$

4,612

$

4,884

$

5,176

$ 14,672

1,068

Memo:
Retained loans, end of period$ 373,637$ 156,616$ 439,162$ 969,415$ 372,553$ 149,387$ 402,898$ 924,838

Retained loans, average

374,395

145,606

416,828

936,829366,798

139,918

392,263

898,979

PCI loans, end of period

24,034—

3

24,03730,576—

3

30,579Credit ratios
Allowance for loan losses to retained loans

1.11%

3.31%

0.94%

1.39%

1.23%

3.27%

1.03%

1.47%

Allowance for loan losses to retained nonaccrualloans(e)

120

NM

358

292

109

NM

239

229

Allowance for loan losses to retained nonaccrualloans excluding credit card

120

NM

358

179

109

NM

239

147

Net charge-off rates(a)

0.05

3.10

0.04

0.52

0.31

2.95

0.03

0.60

0.67

3.31

0.94

1.23

0.69

3.27

1.03

1.27

Allowance for loan losses to retained
nonaccrual loans(e)

68

NM

358

253

56

NM

239

191

Allowance for loan losses to retained nonaccrualloans excluding credit card

68

NM

358

140

56

NM

239

109

0.05%

3.10%

0.04%

0.53%

0.34%

2.95%

0.03%

0.62%

Credit ratios, excluding residential real estate
PCI loans
Allowance for loan losses toretained loans

Net charge-off rates(a)Note: In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures.
(a) For the year ended December 31, 2017, excluding net charge-offs of $467 million related to the student loan portfolio transfer, the net charge-off rate forConsumer, excluding credit card would have been 0.18%; total Firm would have been 0.55%; Consumer, excluding credit card and PCI loans would havebeen 0.20%; and total Firm, excluding PCI would have been 0.57%.
(b) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded aspurchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool.
(c) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. The asset-specific credit card allowance
for loan losses modified in a TDR is calculated based on the loans’ original contractual interest rates and does not consider any incremental penalty rates.
(d) The allowance for lending-related commitments is reported in accounts payable and other liabilities on the Consolidated balance sheets.
(e) The Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.

JPMorgan Chase & Co./2018 Form 10-K

121

Management’s discussion and analysis
Provision for credit losses
The following table presents the components of the Firm’s provision for credit losses:

Consumer, excluding credit card

Provision for
lending-related commitments

Provision for loan losses

Year ended December 31,(in millions)

2018$(63) $

2017

2016

613 $

467

2018
$

2017

Total provision for credit losses

2016

2018
$

(63) $

2017
620 $

2016

— $

7 $

—

—

—

—

4,818

4,973

4,042

467
4,509

Credit card

4,818

4,973

4,042

Total consumer

4,755

5,586

4,509

—

7

—

4,755

5,593

130

(286)

571

(14)

(17)

281

116

(303)

852

4,885 $

5,300 $

5,080

(14) $(10) $

281

4,871 $

5,290 $

5,361

Wholesale
Total$

Provision for credit losses
The provision for credit losses decreased for the year
ended December 31, 2018 as a result of a decline in the
consumer provision, partially offset by an increase in thewholesale provision• the decrease in the consumer, excluding credit card
portfolio in CCB was due to– lower net charge-offs in the residential real estate
portfolio, largely driven by recoveries from loan sales,and– lower net charge-offs in the auto portfolio
partially offset by– a $250 million reduction in the allowance for loan
losses in the residential real estate portfolio — PCI,
reflecting continued improvement in home prices andlower delinquencies; the reduction was $75 million
lower than the prior year for the residential real estate
portfolio — non credit-impaired• the prior year also included a net $218 million writedown recorded in connection with the sale of the student
loan portfolio, and• the decrease in the credit card portfolio was due to– a $300 million addition to the allowance for loan
losses, reflecting loan growth and higher loss rates, as
anticipated; the addition was $550 million lower thanthe prior year,
largely offset by– higher net charge-offs due to seasoning of more recent
vintages, as anticipated, and

122

$

$

• in wholesale, the current period expense of $116 million
reflected additions to the allowance for loan losses fromselect client downgrades,
largely offset by– other net portfolio activity, including a reduction in theallowance for loan losses related to a single name in
the Oil & Gas portfolio in the first quarter of 2018,
compared to a net benefit of $303 million in the prioryear. The prior year benefit reflected a reduction in theallowance for loan losses on credit quality
improvements in the Oil & Gas, Natural Gas Pipelines,
and Metals and Mining portfolios.

JPMorgan Chase & Co./2018 Form 10-K

INVESTMENT PORTFOLIO RISK MANAGEMENT
Investment portfolio risk is the risk associated with the lossof principal or a reduction in expected returns on
investments arising from the investment securities portfolio
held predominantly by Treasury and CIO in connection with
the Firm’s balance sheet or asset-liability management
objectives or from principal investments managed invarious LOBs and Corporate in predominantly privately-held
financial instruments. Investments are typically intended tobe held over extended periods and, accordingly, the Firm
has no expectation for short-term realized gains withrespect to these investments.
Investment securities risk
Investment securities risk includes the exposure associatedwith a default in the payment of principal and interest. Thisrisk is minimized given that Treasury and CIO substantiallyinvest in high-quality securities. At December 31, 2018, theinvestment securities portfolio was $260.1 billion, and theaverage credit rating of the securities comprising theportfolio was AA+ (based upon external ratings whereavailable and where not available, based primarily uponinternal ratings that correspond to ratings as defined by
S&P and Moody’s). For further information on theinvestment securities portfolio, refer to Corporate segment
results on pages 77–78 and Note 10. For further
information on the market risk inherent in the portfolio,
refer to Market Risk Management on pages 124–131. For
further information on related liquidity risk, refer toLiquidity Risk on pages 95–100.
Governance and oversight
Investment securities risks are governed by the Firm’s Risk
Appetite framework, and discussed at the CIO, Treasury andCorporate (CTC) Risk Committee with regular updates to the
DRPC.
The Firm’s independent control functions are responsible
for reviewing the appropriateness of the carrying value ofinvestment securities in accordance with relevant policies.
Approved levels for investment securities are establishedfor each risk category, including capital and credit risks.

JPMorgan Chase & Co./2018 Form 10-K

Principal investment risk
Principal investments are typically private non-tradedfinancial instruments representing ownership or otherforms of junior capital. Principal investments cover multiple
asset classes and are made either in stand-alone investing
businesses or as part of a broader business platform. In
general, new principal investments include tax-oriented
investments, as well as investments made to enhance or
accelerate LOB and Corporate strategic business initiatives.
The Firm’s principal investments are managed by thevarious LOBs and Corporate and are reflected within theirrespective financial results. Effective January 1, 2018, theFirm adopted new accounting guidance related to therecognition and measurement of financial assets, which
requires fair value adjustments upon observable pricechanges to certain equity investments previously held atcost in the principal investment portfolios. For additional
information, refer to Notes 1 and 2.
As of December 31, 2018 and 2017, the aggregate
carrying values of the principal investment portfolios were$22.2 billion and $19.5 billion, respectively, which included
tax-oriented investments (e.g., affordable housing andalternative energy investments) of $16.6 billion and $14.0
billion, respectively, and private equity, various debt andequity instruments, and real assets of $5.6 billion and $5.5
billion, respectively.
Governance and oversight
The Firm’s approach to managing principal risk is consistent
with the Firm’s general risk governance structure. A
Firmwide risk policy framework exists for all principal
investing activities. All investments are approved byinvestment committees that include executives who are
independent from the investing businesses.
The Firm’s independent control functions are responsible
for reviewing the appropriateness of the carrying value ofinvestments in accordance with relevant policies. As part of
the risk governance structure, approved levels forinvestments are established and monitored for eachrelevant business or segment in order to manage the overall
size of the portfolios. The Firm also conducts stress testingon these portfolios using specific scenarios that estimate
losses based on significant market moves and/or other risk
events.

123

Management’s discussion and analysis
MARKET RISK MANAGEMENT
Market risk is the risk associated with the effect of changes
in market factors such as interest and foreign exchange
rates, equity and commodity prices, credit spreads or
implied volatilities, on the value of assets and liabilities held
for both the short and long term.
Market Risk Management
Market Risk Management monitors market risks throughout
the Firm and defines market risk policies and procedures.
The Market Risk Management function reports to the Firm’sCRO.
Market Risk Management seeks to manage risk, facilitate
efficient risk/return decisions, reduce volatility in operating
performance and provide transparency into the Firm’s
market risk profile for senior management, the Board of
Directors and regulators. Market Risk Management is
responsible for the following functions:• Establishment of a market risk policy framework• Independent measurement, monitoring and control ofline of business, Corporate, and firmwide market risk
• Definition, approval and monitoring of limits• Performance of stress testing and qualitative risk
assessments

Risk measurement
Measures used to capture market risk
There is no single measure to capture market risk andtherefore the Firm uses various metrics, both statistical andnonstatistical, to assess risk including:• Value-at-risk (VaR)• Stress testing• Profit and loss drawdowns• Earnings-at-risk• Other sensitivity-based measures

124

Risk monitoring and control
Market risk exposure is managed primarily through a seriesof limits set in the context of the market environment andbusiness strategy. In setting limits, the Firm takes into
consideration factors such as market volatility, productliquidity, accommodation of client business, andmanagement experience. The Firm maintains different
levels of limits. Firm level limits include VaR and stresslimits. Similarly, line of business and Corporate limits
include VaR and stress limits and may be supplemented bycertain nonstatistical risk measures such as profit and loss
drawdowns. Limits may also be set within the lines ofbusiness and Corporate, as well as at the portfolio and/or
legal entity level.
Market Risk Management sets limits and regularly reviews
and updates them as appropriate, with any changes
approved by line of business or Corporate management andMarket Risk Management. Senior management, including
the Firm’s CEO and CRO, are responsible for reviewing andapproving certain of these risk limits on an ongoing basis.
Limits that have not been reviewed within specified time
periods by Market Risk Management are escalated to senior
management. The lines of business and Corporate areresponsible for adhering to established limits against which
exposures are monitored and reported.
Limit breaches are required to be reported in a timely
manner to limit approvers, which include Market Risk
Management and senior management. In the event of abreach, Market Risk Management consults with senior
management of the Firm and of the line of business or
Corporate to determine the appropriate course of action
required to return the applicable positions to compliance,
which may include a reduction in risk in order to remedy thebreach or granting a temporary increase in limits toaccommodate an expected increase in client activity and/or
market volatility. Certain Firm, Corporate or line ofbusiness-level limits that have been breached are escalated
to senior management, the LOB Risk Committee, and/or the
Firmwide Risk Committee.

JPMorgan Chase & Co./2018 Form 10-K

The following table summarizes, by line of business and Corporate, the predominant business activities that give rise to market
risks, and certain measures used to capture those risks.
Predominant business activities that give rise to market risk by line of business and Corporate
LOBs andCorporate

Predominant businessactivities(a)Related market risks

Positions included in Risk
Management VaR

CCB• Services mortgage
loans• Originates loans andtakes deposits• Non-linear risk primarily
from prepayment options
embedded in mortgages
and changes in theprobability of newly
originated mortgage
commitments actuallyclosing• Basis risk fromdifferences in the relative
movements of the rate
indices underlying
mortgage exposure andother interest rates• Mortgage pipeline loans,• Retained loan portfolio
classified as derivatives• Deposits• Warehouse loans, classified
as trading assets – debt
instruments• MSRs• Hedges of pipeline loans,
warehouse loans and MSRs,
classified as derivatives• Interest-only securities,classified as trading assets
debt instruments, andrelated hedges, classified as
derivatives

CIB• Makes markets andservices clients acrossfixed income, foreignexchange, equities andcommodities• Originates loans andtakes deposits• Risk of loss from adverse
movements in market
prices across interest
rate, credit, currency,
commodity and equity
risk factors• Trading assets/liabilities –• Retained loan portfolio
debt and marketable equity • Deposits
instruments, andderivatives, including
hedges of the retained loan
portfolio• Certain securities
purchased, loaned or soldunder resale agreements
and securities borrowed• Fair value option electedliabilities• Derivative CVA andassociated hedges• Marketable equity
investments

CB• Originates loans andtakes deposits• Interest rate risk andprepayment risk

• Retained loan portfolio• Deposits

AWM• Provides initial capital
investments in
products such as
mutual funds andcapital invested
alongside third-party
investors• Originates loans andtakes deposits• Risk from changes in• Debt securities held inmarket factors (e.g., rates
advance of distribution toand credit spreads)
clients, classified as trading
assets - debt instruments(b)• Retained loan portfolio• Deposits• Initial seed capital
investments and related
hedges, classified as
derivatives• Capital invested alongside
third-party investors,
typically in privately
distributed collective
vehicles managed by AWM(i.e., co-investments)

Corporate• Manages the Firm’s
liquidity, funding,capital, structuralinterest rate andforeign exchange risks• Structural interest raterisk from the Firm’s
traditional banking
activities• Structural non-USD
foreign exchange risks• Deposits with banks• Investment securities
portfolio and related
interest rate hedges• Long-term debt andrelated interest rate
hedges• Privately held equity andother investments
measured at fair value• Foreign exchange exposure
related to Firm-issued nonUSD long-term debt (“LTD”)
and related hedges• Derivative positions
measured at fair value
through noninterest
revenue in earnings• Marketable equity
investments

Positions included inearnings-at-risk

Positions included in othersensitivity-based measures• Privately held equity andother investments
measured at fair value• Derivatives FVA and fairvalue option electedliabilities DVA(a) In addition to the predominant business activities, each of the LOBs and Corporate may engage in principal investing activities. To the extent principal investments are
deemed market risk sensitive, they are reflected in relevant risk measures (i.e., VaR or Other sensitivity-based measures) and captured in the table above. For additional
discussion on principal investments refer to Investment Portfolio Risk Management on page 123.
(b) The AWM contribution to Firmwide average VaR was not material for the year ended December 31, 2018 and 2017.

JPMorgan Chase & Co./2018 Form 10-K

125

Management’s discussion and analysis
Value-at-risk
JPMorgan Chase utilizes VaR, a statistical risk measure, toestimate the potential loss from adverse market moves in
the current market environment. The Firm has a single VaR
framework used as a basis for calculating Risk Management
VaR and Regulatory VaR.
The framework is employed across the Firm using 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 daily
measure of risk that is closely aligned to risk management
decisions made by the lines of business and Corporate, andprovides the appropriate information needed to respond torisk events.
The Firm’s Risk Management VaR is calculated assuming a
one-day holding period and an expected tail-loss
methodology which approximates a 95% confidence level.
Risk Management VaR provides a consistent framework tomeasure risk profiles and levels of diversification acrossproduct types and is used for aggregating risks andmonitoring limits across businesses. VaR results arereported to senior management, the Board of Directors andregulators.
Under the Firm’s Risk Management VaR methodology,
assuming current changes in market values are consistent
with the historical changes used in the simulation, the Firm
would expect to incur VaR “back-testing exceptions,”
defined as losses greater than that predicted by VaRestimates, an average of five times every 100 trading days.
The number of VaR back-testing exceptions observed candiffer from the statistically expected number of back-testing
exceptions if the current level of market volatility ismaterially different from the level of market volatility
during the 12 months of historical data used in the VaR
calculation.
Underlying the overall VaR model framework are individual
VaR models that simulate historical market returns forindividual risk factors and/or product types. To capturematerial market risks as part of the Firm’s risk management
framework, comprehensive VaR model calculations are
performed daily for businesses whose activities give rise tomarket risk. These VaR models are granular and incorporate
numerous risk factors and inputs to simulate daily changes
in market values over the historical period; inputs are
selected based on the risk profile of each portfolio, assensitivities and historical time series used to generate daily
market values may be different across product types or risk
management systems. The VaR model results across all
portfolios are aggregated at the Firm level.

126

As VaR is based on historical data, it is an imperfectmeasure of market risk exposure and potential future
losses. In addition, based on their reliance on available
historical data, limited time horizons, and other factors, VaR
measures are inherently limited in their ability to measurecertain risks and to predict losses, particularly those
associated with market illiquidity and sudden or severe
shifts in market conditions.
For certain products, specific risk parameters are notcaptured in VaR due to the lack of inherent liquidity andavailability of appropriate historical data. The Firm uses
proxies to estimate the VaR for these and other products
when daily time series are not available. It is likely thatusing an actual price-based time series for these products,
if available, would affect the VaR results presented. The
Firm therefore considers other nonstatistical measures suchas stress testing, in addition to VaR, to capture and manage
its market risk positions.
The daily market data used in VaR models may be different
than the independent third-party data collected for VCG
price testing in its monthly valuation process. For example,
in cases where market prices are not observable, or whereproxies are used in VaR historical time series, the data
sources may differ. For further information on the Firm’svaluation process, refer to Valuation process in Note 2.
Because VaR model calculations require daily data and aconsistent source for valuation, it may not be practical touse the data collected in the VCG monthly valuation process
for VaR model calculations.
The Firm’s VaR model calculations are periodicallyevaluated and enhanced in response to changes in thecomposition of the Firm’s portfolios, changes in market
conditions, improvements in the Firm’s modeling techniquesand measurements, and other factors. Such changes may
affect historical comparisons of VaR results. For information
regarding model reviews and approvals, refer to Estimations
and Model Risk Management on page 140.
The Firm calculates separately a daily aggregated VaR in
accordance with regulatory rules (“Regulatory VaR”), which
is used to derive the Firm’s regulatory VaR-based capitalrequirements under Basel III. This Regulatory VaR model
framework currently assumes a ten business-day holding
period and an expected tail loss methodology whichapproximates a 99% confidence level. Regulatory VaR isapplied to “covered” positions as defined by Basel III, which
may be different than the positions included in the Firm’s
Risk Management VaR. For example, credit derivative
hedges of accrual loans are included in the Firm’s Risk
Management VaR, while Regulatory VaR excludes these
credit derivative hedges. In addition, in contrast to theFirm’s Risk Management VaR, Regulatory VaR currently
excludes the diversification benefit for certain VaR models.

JPMorgan Chase & Co./2018 Form 10-K

For additional information on Regulatory VaR and the othercomponents of market risk regulatory capital for the Firm(e.g., VaR-based measure, stressed VaR-based measure andthe respective backtesting), refer to JPMorgan Chase’s Basel

III Pillar 3 Regulatory Capital Disclosures reports, which areavailable on the Firm’s website at: (http://
investor.shareholder.com/jpmorganchase/basel.cfm).

The table below shows the results of the Firm’s Risk Management VaR measure using a 95% confidence level.
Total VaR
As of or for the year ended December 31,(in millions)
CIB trading VaR by risk type
Fixed income
Foreign exchange
Equities
Commodities and other
Diversification benefit to CIB trading VaR
CIB trading VaR
Credit portfolio VaRDiversification benefit to CIB VaR
CIB VaR
CCB VaR
Corporate VaR
Diversification benefit to other VaR
Other VaR
Diversification benefit to CIB and other VaR
Total VaR

2018
Min

Avg.
$

33
6
17
8

$

(26) (a)

Max

25
3
13
4

$

NM

(b)

38
3
(2) (a)
39

26
3
NM
26

(b)

1
12
(1) (a)12(10) (a)
$ 41
$

—
9
NM
9
NM
28

(b)
(b)

(b)
(b)
(b)
(b)

46
15
26
13

$

NM

(b)

58
4
NM
59

(b)

3
14
NM
14
NM
$ 62

2017
Min

Avg.

(30) (a)

(b)
(b)

(b)
(b)
(b)
(b)

28
10
12
7

$

$

Max

20
4
8
4

$

40
20
19
10

NM

(b)

NM

(b)

27
7
(6) (a)
28

14
3
NM
17

(b)

38
12
NM
39

(b)

2
4
(1) (a)5(4) (a)
29

1
1
NM
2
NM
$ 17

(b)
(b)

(b)
(b)
(b)
(b)

4
16
NM
16
NM
$ 42

(b)
(b)

(b)
(b)
(b)
(b)

(a) Average portfolio VaR is less than the sum of the VaR of the components described above, which is due to portfolio diversification. The diversification
effect reflects that the risks are not perfectly correlated.
(b) Diversification benefit represents the difference between the total VaR and each reported level and the sum of its individual components. Diversification
benefit reflects the non-additive nature of VaR due to imperfect correlation across lines of business, Corporate, and risk types. The maximum andminimum VaR for each portfolio may have occurred on different trading days than the components and consequently diversification benefit is notmeaningful.

Average Total VaR increased $12 million for the year-ended
December 31, 2018 as compared with the prior year.
The increase was primarily due to changes in the risk profile
for Fixed Income and Equities risk types, the inclusion ofcertain CIB marketable equity investments and a Corporate
private equity position that became publicly traded in the
fourth quarter of 2017, as well as increased volatility in the
one-year historical look-back period.
In addition, average Credit Portfolio VaR has declined by $4
million, reflecting the sale of select positions in the prioryear.
VaR can vary significantly over time as positions change,market volatility fluctuates, and diversification benefitschange.

JPMorgan Chase & Co./2018 Form 10-K

VaR back-testing
The Firm evaluates the effectiveness of its VaR methodology
by back-testing, which compares the daily Risk Management
VaR results with the daily gains and losses actually
recognized on market-risk related revenue.
The Firm’s definition of market risk-related gains and losses
is consistent with the definition used by the banking
regulators under Basel III. Under this definition, market
risk-related gains and losses are defined as: gains andlosses on the positions included in the Firm’s Risk
Management VaR, excluding fees, commissions, certain
valuation adjustments, net interest income, and gains andlosses arising from intraday trading.

127

Management’s discussion and analysis
The following chart compares actual daily market risk-related gains and losses with the Firm’s Risk Management VaR for theyear ended December 31, 2018. As the chart presents market risk-related gains and losses related to those positions includedin the Firm’s Risk Management VaR, the results in the table below differ from the results of back-testing disclosed in the Market
Risk section of the Firm’s Basel III Pillar 3 Regulatory Capital Disclosures reports, which are based on Regulatory VaR applied tocovered positions. The chart shows that for the year ended December 31, 2018 the Firm observed ten VaR back-testing
exceptions and posted gains on 128 of the 259 days.
Daily Market Risk-Related Gains and Losses
vs. Risk Management VaR (1-day, 95% Confidence level)
Year ended December 31, 2018
Market Risk-Related Gains and Losses

First Quarter
2018

128

Second Quarter
2018

Risk Management VaR

Third Quarter
2018

Fourth Quarter
2018

JPMorgan Chase & Co./2018 Form 10-K

Other risk measures
Stress testing
Along with VaR, stress testing is an important tool used toassess risk. While VaR reflects the risk of loss due toadverse changes in markets using recent historical market
behavior, stress testing reflects the risk of loss fromhypothetical changes in the value of market risk sensitive
positions applied simultaneously. Stress testing measures
the Firm’s vulnerability to losses under a range of stressed
but possible economic and market scenarios. The results
are used to understand the exposures responsible for thosepotential losses and are measured against limits.
The Firm’s stress framework covers Corporate and all linesof business with market risk sensitive positions. The
framework is used to calculate multiple magnitudes ofpotential stress for both market rallies and market sell-offs,
assuming significant changes in market factors such as
credit spreads, equity prices, interest rates, currency rates
and commodity prices, and combines them in multiple ways
to capture an array of hypothetical economic and market
scenarios.
The Firm generates a number of scenarios that focus on tailevents in specific asset classes and geographies, including
how the event may impact multiple market factors
simultaneously. Scenarios also incorporate specificidiosyncratic risks and stress basis risk between different
products. The flexibility in the stress framework allows theFirm to construct new scenarios that can test the outcomesagainst possible future stress events. Stress testing results
are reported on a regular basis to the respective LOBs,
Corporate and the Firm’s senior management.
Stress scenarios are governed by an overall stressframework and are subject to the standards outlined in the
Firm’s policies related to model risk management.
Significant changes to the framework are reviewed by therelevant LOB Risk Committees on an annual basis or aschanging market conditions warrant and may be redefined
to reflect current or expected market conditions.

Profit and loss drawdowns
Profit and loss drawdowns are used to highlight trading
losses above certain levels of risk tolerance. Profit and loss
drawdowns are defined as the decline in net profit and loss
since the year-to-date peak revenue level.
Earnings-at-risk
The VaR and sensitivity measures illustrate the economic
sensitivity of the Firm’s Consolidated balance sheets tochanges in market variables.
The effect of interest rate exposure on the Firm’s reported
net income is also important as interest rate risk represents
one of the Firm’s significant market risks. Interest rate riskarises not only from trading activities but also from the
Firm’s traditional banking activities, which include extensionof loans and credit facilities, taking deposits and issuingdebt. The Firm evaluates its structural interest rate risk
exposure through earnings-at-risk, which measures theextent to which changes in interest rates will affect the
Firm’s net interest income and interest rate-sensitive fees.
For a summary by line of business and Corporate,
identifying positions included in earnings-at-risk, refer tothe table on page 125.
The CTC Risk Committee establishes the Firm’s structuralinterest rate risk policy and related limits, which are subject
to approval by the DRPC. Treasury and CIO, working in
partnership with the lines of business, calculates the Firm’s
structural interest rate risk profile and reviews it with senior
management, including the CTC Risk Committee. In addition,
oversight of structural interest rate risk is managed througha dedicated risk function reporting to the CTC CRO. This riskfunction is responsible for providing independent oversightand governance around assumptions and establishing andmonitoring limits for structural interest rate risk. The Firm
manages structural interest rate risk generally through its
investment securities portfolio and interest rate derivatives.

The Firm’s stress testing framework is utilized in calculating
the Firm’s CCAR and other stress test results, which arereported to the Board of Directors. In addition, stresstesting results are incorporated into the Firm’s Risk Appetite
framework, and are reported quarterly to the DRPC.

JPMorgan Chase & Co./2018 Form 10-K

129

Management’s discussion and analysis
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)

assumed rates paid which may differ from actual rates paid
due to timing lags and other factors. The Firm’s earnings-atrisk scenarios are periodically evaluated and enhanced in
response to changes in the composition of the Firm’sbalance sheet, changes in market conditions, improvementsin the Firm’s simulation and other factors.
The Firm’s U.S. dollar sensitivities are presented in the tablebelow.
December 31,(in billions)• The impact of changes in the maturity of various assets,
liabilities or off-balance sheet instruments as interest
rates change

Parallel shift:

The Firm manages interest rate exposure related to its
assets and liabilities on a consolidated, firmwide basis.
Business units transfer their interest rate risk to Treasury
and CIO through funds transfer pricing, which takes into
account the elements of interest rate exposure that can be
risk-managed in financial markets. These elements include
asset and liability balances and contractual rates of interest,
contractual principal payment schedules, expected
prepayment experience, interest rate reset dates andmaturities, rate indices used for repricing, and any interest
rate ceilings or floors for adjustable rate products. Alltransfer-pricing assumptions are dynamically reviewed.

Steeper yield curve:

The Firm generates a baseline for net interest income andcertain interest rate-sensitive fees, and then conducts
simulations of changes for interest rate-sensitive assets andliabilities denominated in U.S. dollars and other currencies(“non-U.S. dollar” currencies). This simulation primarily
includes retained loans, deposits, deposits with banks,
investment securities, long term debt and any related
interest rate hedges, and excludes other positions in risk
management VaR and other sensitivity-based measures as
described on page 125.
Earnings-at-risk scenarios estimate the potential change inthis baseline, over the following 12 months utilizing
multiple assumptions. These scenarios include a parallel
shift involving changes to both short-term and long-term
rates by an equal amount; a steeper yield curve involving
holding short-term rates constant and increasing long-term
rates or decreasing short-term rates and holding long-term
rates constant; and a flatter yield curve involving holding
short-term rates constant and decreasing long-term rates orincreasing short-term rates and holding long-term rates
constant. These scenarios consider the impact on exposures
as a result of changes in interest rates from baseline rates,
as well as pricing sensitivities of deposits, optionality andchanges in product mix. The scenarios include forecasted
balance sheet changes, as well as modeled prepayment andreinvestment behavior, but do not include assumptions
about actions that could be taken by the Firm in response to
any such instantaneous rate changes. Mortgage prepayment
assumptions are based on the interest rates used in the
scenarios compared with underlying contractual rates, thetime since origination, and other factors which are updated
periodically based on historical experience. The pricing
sensitivity of deposits in the baseline and scenarios use
130

2018

+100 bps shift in rates

$

2017
0.9

-100 bps shift in rates

$

1.7

(2.1)

(3.6)

+100 bps shift in long-term rates

0.5

0.7

-100 bps shift in short-term rates

(1.2)

(2.2)

Flatter yield curve:+100 bps shift in short-term rates

0.4

1.0

-100 bps shift in long-term rates

(0.9)

(1.4)

The Firm’s sensitivity to rates is largely a result of assets
repricing at a faster pace than deposits.
The Firm’s net U.S. dollar sensitivities as of December 31,
2018 decreased when compared to December 31, 2017
primarily as a result of updating the Firm’s baseline toreflect higher interest rates. As higher interest rates are
now reflected in the Firm’s baselines, sensitivities tochanges in rates are expected to be less significant.
The Firm’s non-U.S. dollar sensitivities are presented in thetable below.
December 31,(in billions)

2018

2017

Parallel shift:+100 bps shift in rates

$

0.5

$

0.5

Flatter yield curve:+100 bps shift in short-term rates

0.5

0.5

The results of the non-U.S. dollar interest rate scenario
involving a steeper yield curve with long-term rates risingby 100 basis points and short-term rates staying at current
levels were not material to the Firm’s earnings-at-risk at
December 31, 2018 and 2017.

JPMorgan Chase & Co./2018 Form 10-K

Non-U.S. dollar foreign exchange risk
Non-U.S. dollar FX risk is the risk that changes in foreignexchange rates affect the value of the Firm’s assets or
liabilities or future results. The Firm has structural non-U.S.
dollar FX exposures arising from capital investments,
forecasted expense and revenue, the investment securities

portfolio and non-U.S. dollar-denominated debt issuance.
Treasury and CIO, working in partnership with the lines ofbusiness, primarily manage these risks on behalf of theFirm. Treasury and CIO may hedge certain of these risks
using derivatives within risk limits governed by the CTC Risk
Committee.

Other sensitivity-based measures
The Firm quantifies the market risk of certain investment and funding activities by assessing the potential impact on net
revenue and OCI due to changes in relevant market variables. For additional information on the positions captured in othersensitivity-based measures, refer to the table Predominant business activities that give rise to market risk on page 125.
The table below represents the potential impact to net revenue or OCI for market risk sensitive instruments that are notincluded in VaR or earnings-at-risk. Where appropriate, instruments used for hedging purposes are reported along with thepositions being hedged. The sensitivities disclosed in the table below may not be representative of the actual gain or loss thatwould have been realized at December 31, 2018 and 2017, as the movement in market parameters across maturities mayvary and are not intended to imply management’s expectation of future deterioration in these sensitivities.
Year ended December 31,
Gain/(loss) (in millions)
Activity

Description

Sensitivity measure

Investment management activities

Consists of seed capital and related hedges;
and fund co-investments

10% decline in market
value

Other investments

Consists of privately held equity and otherinvestments held at fair value

Non-USD LTD cross-currency basis

2018

2017

Investment activities(a)$(102) $

(110)

10% decline in market
value

(218)

(338)

Represents the basis risk on derivatives
used to hedge the foreign exchange risk on
the non-USD LTD(b)1 basis point paralleltightening of cross currency
basis

(13)

(10)

Non-USD LTD hedges foreign currency(“FX”) exposure

Primarily represents the foreign exchange
revaluation on the fair value of thederivative hedges(b)10% depreciation ofcurrency

17(13)

Derivatives – funding spread risk

Impact of changes in the spread related toderivatives FVA

1 basis point parallel
increase in spread

(4)

(6)

Fair value option elected liabilities –
funding spread risk

Impact of changes in the spread related tofair value option elected liabilities DVA(b)1 basis point parallel
increase in spread30

22

Fair value option elected liabilities –interest rate sensitivity

Interest rate sensitivity on fair value option
liabilities resulting from a change in the
Firm’s own credit spread(b)1 basis point parallel
increase in spread

1(1)

Funding activities(a) Excludes equity securities without readily determinable fair values that are measured under the measurement alternative. Refer to Note 2 for additional
information.
(b) Impact recognized through OCI.

JPMorgan Chase & Co./2018 Form 10-K

131

Management’s discussion and analysis
COUNTRY RISK MANAGEMENTThe Firm, through its lines of business and Corporate, may
be exposed to country risk resulting from financial,economic, political or other significant developments which
adversely affect the value of the Firm’s exposures related toa particular country or set of countries. The Country Risk
Management group actively monitors the various portfolios
which may be impacted by these developments andmeasures the extent to which the Firm’s exposures arediversified given the Firm’s strategy and risk tolerance
relative to a country.
Organization and management
Country Risk Management is an independent risk
management function that assesses, manages and monitors
country risk originated across the Firm. The Firmwide Risk
Executive for Country Risk reports to the Firm’s CRO.
The Firm’s country risk management function includes thefollowing activities:• Establishing policies, procedures and standards
consistent with a comprehensive country risk framework• Assigning sovereign ratings, assessing country risks andestablishing risk tolerance relative to a country• Measuring and monitoring country risk exposure andstress across the Firm
• Managing and approving country limits and reporting
trends and limit breaches to senior management• Developing surveillance tools, such as signaling models
and ratings indicators, for early identification ofpotential country risk concerns• Providing country risk scenario analysis
Sources and measurement
The Firm is exposed to country risk through its lending anddeposits, investing, and market-making activities, whether
cross-border or locally funded. Country exposure includes
activity with both government and private-sector entities ina country. Under the Firm’s internal country risk
management approach, attribution of exposure to a specificcountry is based on the country where the largest
proportion of the assets of the counterparty, issuer, obligor
or guarantor are located or where the largest proportion of
its revenue is derived, which may be different than the
domicile (i.e. legal residence) or country of incorporation of
the counterparty, issuer, obligor or guarantor. Country
exposures are generally measured by considering the Firm’s
risk to an immediate default of the counterparty, issuer,obligor or guarantor, with zero recovery. Assumptions are
sometimes required in determining the measurement andallocation of country exposure, particularly in the case ofcertain non-linear or index exposures. The use of different
measurement approaches or assumptions could affect theamount of reported country exposure.

132

During the fourth quarter of 2018, the Firm refined its
country exposure measurement approach to exclude capital
invested in local entities. With this change, country
exposure more directly measures the Firm’s risk to an
immediate default of a counterparty, issuer, obligor or
guarantor. The risk associated with capital invested in local
entities will continue to be examined in tailored stressscenarios, depending on the vulnerabilities being tested.
For more on the Firm’s country risk stress testing, refer topage 133.
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 eligible cash and marketable securities
collateral received• Deposits are measured as the cash balances placed withcentral and commercial banks• Securities financing exposures are measured at theirreceivable balance, net of eligible 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 eligible collateral received• Credit derivatives protection purchased and sold isreported based on the underlying reference entity and ismeasured at the notional amount of protection
purchased or sold, net of the fair value of the recognizedderivative receivable or payable. Credit derivatives
protection purchased and sold in the Firm’s marketmaking activities is measured on a net basis, as suchactivities often result in selling and purchasingprotection related to the same underlying reference
entity; this reflects the manner in which the Firm
manages these exposures
Some activities may create contingent or indirect exposure
related to a country (for example, providing clearing
services or secondary exposure to collateral on securities
financing receivables). These exposures are managed in thenormal course of business through the Firm’s credit,
market, and operational risk governance, rather than
through Country Risk Management.
The Firm’s internal country risk reporting differs from thereporting provided under the FFIEC bank regulatory
requirements. For further information on the FFIEC’sreporting methodology, refer to Cross-border outstandings
on page 306 of the 2018 Form 10-K.

JPMorgan Chase & Co./2018 Form 10-K

Stress testing
Stress testing is an important component of the Firm’s
country risk management framework, which aims toestimate and limit losses arising from a country crisis bymeasuring the impact of adverse asset price movements toa country based on market shocks combined withcounterparty specific assumptions. Country Risk
Management periodically designs and runs tailored stressscenarios to test vulnerabilities to individual countries orsets of countries in response to specific or potential market
events, sector performance concerns, sovereign actions andgeopolitical risks. These tailored stress results are used to
inform potential risk reduction across the Firm, as
necessary.

Top 20 country exposures (excluding the U.S.)(a)Risk reporting
To enable effective risk management of country risk to theFirm, country exposure and stress are measured andreported weekly, and used by Country Risk Management to
identify trends, and monitor high usages and breaches
against limits.
The following table presents the Firm’s top 20 exposures bycountry (excluding the U.S.) as of December 31, 2018, andtheir comparative exposures as of December 31, 2017. The
selection of countries represents the Firm’s largest total
exposures by country, based on the Firm’s internal country
risk management approach, and does not represent the
Firm’s view of any actual or potentially adverse credit
conditions. Country exposures may fluctuate from period toperiod due to client activity and market flows.
As discussed on page 132, during the fourth quarter of2018 the Firm refined its country exposure measurement
approach to exclude capital invested in local entities. While
this change did not have a material impact to country
exposure, prior period amounts have been revised within
the following table to conform with the current period
presentation.

JPMorgan Chase & Co./2018 Form 10-K

December 31,(in billions)2018
LendingandTrading anddeposits(b) investing(c)(d)Germany

Other(e)Totalexposure

Total
exposure

53.7 $

8.1 $

0.3 $

62.1

28.0

10.1

2.6

40.7

44.9

25.4

3.3

0.4

29.1

30.8

China

9.5

7.1

2.7

19.3

16.3

France

10.8

6.5

0.6

17.9

19.4

Canada

10.8

3.4

0.1

14.3

14.9

Australia

7.2

5.4

0.4

13.0

11.4

Switzerland

9.1

0.6

3.1

12.8

13.9

India

6.1

4.0

1.7

11.8

12.3

Luxembourg

10.5

0.5

—

11.0

9.5

South Korea

4.2

3.2

0.2

7.6

6.8

Brazil

4.4

2.9

—

7.3

4.6

Singapore

3.9

1.4

1.5

6.8

6.3

Italy

2.4

3.8

0.2

6.4

6.7

Netherlands

5.0

0.4

0.4

5.8

8.0

Mexico

3.7

1.8

—

5.5

5.2

Hong Kong

2.4

1.1

1.9

5.4

4.2

Saudi Arabia

4.7

0.6

—

5.3

4.5

Spain

3.8

1.3

—

5.1

6.8

Malaysia

1.8

1.1

1.4

4.3

3.0

UnitedKingdomJapan$

2017(f)$

57.4(a) Country exposures presented in the table reflect 87% and 86% of
total firmwide non-U.S. exposure, where exposure is attributed to a
specific country, for the periods ending December 31, 2018 and 2017,
respectively.
(b) Lending and deposits includes loans and accrued interest receivable(net of eligible collateral and the allowance for loan losses), deposits
with banks (including central banks), acceptances, other monetary
assets, issued letters of credit net of participations, and unused
commitments to extend credit. Excludes intra-day and operating
exposures, such as those from settlement and clearing activities.
(c) Includes market-making inventory, AFS securities, and counterparty
exposure on derivative and securities financings net of eligible
collateral and hedging.
(d) Includes single reference entity (“single-name”), index and othermultiple reference entity transactions for which one or more of theunderlying reference entities is in a country listed in the above table.
(e) Predominantly includes physical commodity inventory.
(f) The country rankings presented in the table as of December 31, 2017,
are based on the country rankings of the corresponding exposures at
December 31, 2018, not actual rankings of such exposures at
December 31, 2017.

133

Management’s discussion and analysis
OPERATIONAL RISK MANAGEMENT
Operational risk is the risk associated with inadequate or
failed internal processes, people and systems, or fromexternal events and includes compliance risk, conduct risk,
legal risk, and estimations and model risk. Operational risk
is inherent in the Firm’s activities and can manifest itself invarious ways, including fraudulent acts, businessinterruptions, cybersecurity attacks, inappropriate
employee behavior, failure to comply with applicable laws
and regulations or failure of vendors to perform inaccordance with their agreements. These events could
result in financial losses, litigation and regulatory fines, aswell as other damages to the Firm. The goal is to keep
operational risk at appropriate levels in light of the Firm’s
financial position, the characteristics of its businesses, andthe markets and regulatory environments in which it
operates.
Operational Risk Management Framework
To monitor and control operational risk, the Firm has an
Operational Risk Management Framework (“ORMF”) which
is designed to enable the Firm to maintain a sound andwell-controlled operational environment. The ORMF hasfour main components: Governance, Operational Risk
Identification and Assessment, Operational Risk
Measurement, and Operational Risk Monitoring andReporting.
Governance
The lines of business and Corporate are responsible for
applying the ORMF in order to manage the operational riskthat arises from their activities. The Control Management
organization, which consists of control managers withineach line of business and Corporate, is responsible for the
day-to-day execution of the ORMF.
Line of business and Corporate control committees are
responsible for reviewing data that indicates the quality andstability of processes, addressing key operational risk
issues, focusing on processes with control concerns, andoverseeing control remediation. These committees escalate
operational risk issues to the FCC, as appropriate. For
additional information on the FCC, refer to Enterprise-wide
Risk Management on pages 79–140.
The Firmwide Risk Executive for Operational Risk
Management (“ORM”), a direct report to the CRO, is
responsible for defining the ORMF and establishingminimum standards for its execution. Operational Risk
Officers report to both the line of business CROs and to the
Firmwide Risk Executive for ORM, and are independent of
the respective businesses or corporate functions they
oversee.
The Firm’s Operational Risk Management Policy is approvedby the DRPC. This policy establishes the Operational Risk
Management Framework for the Firm.

134

Operational Risk identification and assessment
The Firm utilizes a structured risk and control selfassessment process which is executed by the lines ofbusiness and Corporate in accordance with the minimum
standards established by ORM, to identify, assess, mitigate
and manage its operational risk. As part of this process,lines of business and Corporate identify key operationalrisks inherent in their activities, address gaps or
deficiencies identified, and define actions to reduce residual
risk. Action plans are developed for identified control issues
and lines of business and Corporate are held accountable
for tracking and resolving issues in a timely manner.
Operational Risk Officers independently challenge theexecution of the self-assessment and evaluate theappropriateness of the residual risk results.
In addition to the self-assessment process, the Firm tracks
and monitors events that have led to or could lead to actual
operational risk losses, including litigation-related events.
Responsible lines of business and Corporate analyze theirlosses to evaluate the effectiveness of their control
environment to assess where controls have failed, and to
determine where targeted remediation efforts may berequired. ORM provides oversight of these activities andmay also perform independent assessments of significant
operational risk events and areas of concentrated or
emerging risk.
Operational Risk Measurement
In addition to the level of actual operational risk losses,
operational risk measurement includes operational riskbased capital and operational risk loss projections underboth baseline and stressed conditions.
The primary component of the operational risk capital
estimate is the Loss Distribution Approach (“LDA”)
statistical model, which simulates the frequency andseverity of future operational risk loss projections based on
historical data. The LDA model is used to estimate anaggregate operational risk loss over a one-year time
horizon, at a 99.9% confidence level. The LDA model
incorporates actual internal operational risk losses in thequarter following the period in which those losses wererealized, and the calculation generally continues to reflect
such losses even after the issues or business activities
giving rise to the losses have been remediated or reduced.
As required under the Basel III capital framework, the Firm’s
operational risk-based capital methodology, which uses theAdvanced Measurement Approach (“AMA”), incorporates
internal and external losses as well as management’s viewof tail risk captured through operational risk scenario
analysis, and evaluation of key business environment andinternal control metrics. The Firm does not reflect the
impact of insurance in its AMA estimate of operational risk
capital.

JPMorgan Chase & Co./2018 Form 10-K

The Firm considers the impact of stressed economic
conditions on operational risk losses and develops aforward looking view of material operational risk events
that may occur in a stressed environment. The Firm’s
operational risk stress testing framework is utilized in
calculating results for the Firm’s CCAR and other stresstesting processes.
For information related to operational risk RWA, CCAR or
ICAAP, refer to Capital Risk Management section, pages
85-94.
Operational Risk Monitoring and reporting
ORM has established standards for consistent operationalrisk monitoring and reporting. Operational risk reports areproduced on a firmwide basis as well as by line of business
and Corporate. Reporting includes the evaluation of key
risk indicators against established thresholds as well as theassessment of different types of operational risk against
stated risk appetite. The standards reinforce escalation
protocols to senior management and to the Board of
Directors.
Subcategories and examples of operational risks
Operational risk can manifest itself in various ways.
Operational risk subcategories such as Compliance risk,
Conduct risk, Legal risk and Estimations and Model risk, aswell as other operational risks, can lead to losses which arecaptured through the Firm’s operational risk measurement
processes. For more information on Compliance risk,
Conduct risk, Legal risk and Estimations and Model risk,refer to pages 137, 138, 139 and 140, respectively. Details
on other select examples of operational risks are provided
below.
Cybersecurity risk
Cybersecurity risk is an important, continuous and evolving
focus for the Firm. The Firm devotes significant resources toprotecting and continuing to improve the security of the
Firm’s computer systems, software, networks and othertechnology assets. The Firm’s security efforts are designed
to protect against, among other things, cybersecurity
attacks by unauthorized parties attempting to obtain accessto confidential information, destroy data, disrupt or
degrade service, sabotage systems or cause other damage.
The Firm continues to make significant investments inenhancing its cyberdefense capabilities and to strengthen
its partnerships with the appropriate government and law
enforcement agencies and other businesses in order tounderstand the full spectrum of cybersecurity risks in theoperating environment, enhance defenses and improve
resiliency against cybersecurity threats. The Firm actively
participates in discussions of cybersecurity risks with law
enforcement, government officials, peer and industry
groups, and has significantly increased efforts to educate
employees and certain clients on the topic.
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 of
JPMorgan Chase & Co./2018 Form 10-K

cybersecurity risk to the Firm. Third party cybersecurity
incidents such as system breakdowns or failures,
misconduct by the employees of such parties, orcyberattacks could affect their ability to deliver a product orservice to the Firm or result in lost or compromised
information of the Firm or its clients. Clients can also be
sources of cybersecurity risk to the Firm, particularly when
their activities and systems are beyond the Firm’s own
security and control systems. As a result, the Firm engages
in regular and ongoing discussions with certain vendors andclients regarding cybersecurity risks and opportunities toimprove security. However, where cybersecurity incidents
are due to client failure to maintain the security of theirown systems and processes, clients will generally be
responsible for losses incurred.
To protect the confidentiality, integrity and availability of
the Firm’s infrastructure, resources and information, theFirm maintains a cybersecurity program to prevent, detect,and respond to cyberattacks. The Global Chief Information
Officer, Chief Technology Control Officer, and Chief
Information Security Officer (“CISO”) update the Audit
Committee of the Board of Directors at least annually on the
Firm’s Information Security Program, recommended
changes, cybersecurity policies and practices, ongoing
efforts to improve security, as well as its efforts regarding
significant cybersecurity events. In addition, the Firm has adetailed cybersecurity incident response plan (“IRP”)
designed to enable the Firm to respond to attempted
cybersecurity incidents, coordinate such responses with law
enforcement and other government agencies, and notify
clients and customers. Among other key focus areas, the
IRP is designed to mitigate the risk of insider trading
connected to a cybersecurity incident, and includes various
escalation points in this regard including Compliance andthe Legal Department.
The Cybersecurity and Technology Control functions are
responsible for governance and oversight of the Firm’s
Information Security Program. In partnership with the
Firm’s lines of business, the Cybersecurity and Technology
Control organization identifies information security risk
issues and champions programs for the technologicalprotection of the Firm’s information resources including
applications, infrastructure as well as confidential andpersonal information related to the Firm’s customers. The
Cybersecurity and Technology Control organization
comprises Governance and Control, Assessments, Assurance
and Training, Cybersecurity Operations, business aligned
control officers, Identity and Access Management, andresiliency functions that execute the Information Security
Program.
The Global Cybersecurity and Technology Control
governance structure is designed to identify, escalate, andmitigate information security risks. This structure uses key
governance forums to disseminate information and monitor
technology efforts. These forums are established at
multiple levels throughout the Firm and include
representatives from each line of business and Corporate.
135

Management’s discussion and analysis
Reports containing overviews of key technology risks andefforts to enhance related controls are produced for theseforums, and are reviewed by management at multiple levels
including technology management, Firmwide management
and the Operating Committee. The forums are used to
escalate information security risks or other matters as
appropriate to the FCC.
IRM provides oversight of the activities which identify,
assess, manage and mitigate cybersecurity risk. As integral
participants in cybersecurity governance forums, the IRM
organization actively monitors and oversees the
Cybersecurity and Technology Control functions.
The Firm’s Security Awareness Program includes trainingthat reinforces the Firm's Information Technology Risk andSecurity Management policies, standards and practices, aswell as the expectation that employees comply with thesepolicies. The Security Awareness Program engages
personnel through training on how to identify potential
cybersecurity risks and protect the Firm’s resources andinformation. This training is mandatory for all employees
globally on an annual basis, and it is supplemented byfirmwide testing initiatives, including quarterly phishingtests. Finally, the Firm’s Global Privacy Program requires all
employees to take annual awareness training on data
privacy. This privacy-focused training includes information
about confidentiality and security, as well as responding tounauthorized access to or use of information.
Business and technology resiliency risk
Business disruptions can occur due to forces beyond the
Firm’s control such as severe weather, power ortelecommunications loss, flooding, transit strikes, terrorist
threats or infectious disease. The safety of the Firm’s
employees and customers is of the highest priority. The
Firm’s global resiliency program is intended to enable theFirm to recover its critical business functions andsupporting assets (i.e., staff, technology and facilities) inthe event of a business interruption. The program includes
corporate governance, awareness training, and testing ofrecovery strategies, as well as strategic and tactical
initiatives to identify, assess, and manage businessinterruption and public safety risks.

136

The strength and proficiency of the Firm’s global resiliency
program has played an integral role in maintaining the
Firm’s business operations during and after various events.
Payment fraud risk
Payment fraud risk is the risk of external and internal
parties unlawfully obtaining personal monetary benefit
through misdirected or otherwise improper payment. Overthe past year, the risk of payment fraud remained at aheightened level across the industry. The complexities ofthese incidents and the strategies used by perpetrators
continue to evolve. A Payments Control Program including
the LOBs and Corporate develop methods for managing therisk, implementing controls and providing employee andclient education and awareness training. The Firm’s
monitoring of customer behavior is periodically evaluatedand enhanced in an effort to detect and mitigate newstrategies implemented by fraud perpetrators. The Firm’s
consumer and wholesale businesses collaborate closely todeploy risk mitigation controls across their businesses.
Third-party outsourcing risk
To identify and manage the operational risk inherent in its
outsourcing activities, the Firm has a Third-Party Oversight(“TPO”) framework to assist the lines of business andCorporate in selecting, documenting, onboarding,monitoring and managing their supplier relationships. The
objective of the TPO framework is to hold third parties tothe same high level of operational performance as is
expected of the Firm’s internal operations. The Corporate
Third-Party Oversight group is responsible for Firmwide TPO
training, monitoring, reporting and standards.
Insurance
One of the ways in which operational risk may be mitigatedis through insurance maintained by the Firm. The Firmpurchases insurance from commercial insurers and utilizes
a wholly-owned captive insurer, Park Assurance Company,
as needed to comply with local laws and regulations (e.g.,workers compensation), as well as to serve other needs(e.g., property loss and public liability). Insurance may also
be required by third parties with whom the Firm does
business. The insurance purchased is reviewed andapproved by senior management.

JPMorgan Chase & Co./2018 Form 10-K

COMPLIANCE RISK MANAGEMENT
Compliance risk, a subcategory of operational risk, is therisk of failure to comply with legal or regulatory obligations
or codes of conduct and standards of self-regulatoryorganizations applicable to the business activities of the
Firm.
Overview
Each line of business and Corporate hold primary ownershipof and accountability for managing compliance risk. The
Firm’s Compliance Organization (“Compliance”), which is
independent of the lines of business, works closely withsenior management to provide independent review,monitoring and oversight of business operations with afocus on compliance with the legal and regulatory
obligations applicable to the delivery of the Firm’s products
and services to clients and customers.
These compliance risks relate to a wide variety of legal andregulatory obligations, depending on the line of businessand the jurisdiction, and include those related to financial
products and services, relationships and interactions withclients and customers, and employee activities. For
example, compliance risks include those associated with
anti-money laundering compliance, trading activities,
market conduct, and complying with the rules andregulations related to the offering of products and services
across jurisdictional borders, among others. Compliancerisk is also inherent in the Firm’s fiduciary activities,
including the failure to exercise the applicable standard ofcare (such as the duties of loyalty or care), to act in the bestinterest of clients and customers or to treat clients andcustomers fairly.
Other Functions provide oversight of significant regulatory
obligations that are specific to their respective areas of
responsibility.
Compliance implements various practices designed to
identify and mitigate compliance risk by establishingpolicies and standards, testing, monitoring, training andproviding guidance.

JPMorgan Chase & Co./2018 Form 10-K

Governance and oversightCompliance is led by the Firms’ CCO who reports to theFirm’s CRO.
The Firm maintains oversight and coordination of its
Compliance Risk Management practices through the Firm’s
CCO, lines of business CCOs and regional CCOs to implement
the Compliance program globally across the lines ofbusiness and regions. The Firm’s CCO is a member of the
FCC and the FRC. The Firm’s CCO also provides regular
updates to the Audit Committee and DRPC. In addition,certain Special Purpose Committees of the Board have been
established to oversee the Firm’s compliance withregulatory Consent Orders.
The Firm has a Code of Conduct (the “Code”). Each
employee is given annual training on the Code and isrequired annually to affirm his or her compliance with theCode. All new hires must complete Code training shortly
after their start date with the Firm. The Code sets forth the
Firm’s expectation that employees will conduct themselveswith integrity at all times and provides the principles thatgovern employee conduct with clients, customers,
shareholders and one another, as well as with the markets
and communities in which the Firm does business. The Coderequires employees to promptly report any known orsuspected violation of the Code, any internal Firm policy, or
any law or regulation applicable to the Firm’s business. It
also requires employees to report any illegal conduct, or
conduct that violates the underlying principles of the Code,by any of the Firm’s employees, customers, suppliers,
contract workers, business partners, or agents. The Codeprohibits retaliation against anyone who raises an issue orconcern in good faith. Specified compliance officers are
specially trained and designated as “code specialists” whoact as a resource to employees on questions related to theCode. Employees can report any known or suspectedviolations of the Code through the Code Reporting Hotline
by phone or the internet. The Hotline is anonymous, except
in certain non-U.S. jurisdictions where laws prohibit
anonymous reporting, and is available 24/7 globally, withtranslation services. It is maintained by an outside service
provider. Annually, the Audit Committee receives a reporton the Code of Conduct program, including an update on theemployee completion rate for Code of Conduct training andaffirmation.

137

Management’s discussion and analysis
CONDUCT RISK MANAGEMENT
Conduct risk, a subcategory of operational risk, is the riskthat any action or inaction by an employee or employees
could lead to unfair client or customer outcomes, impact
the integrity of the markets in which the Firm operates, orcompromise the Firm’s reputation.
Overview
Each line of business and Corporate is accountable for
identifying and managing its conduct risk to provide
appropriate engagement, ownership and sustainability of aculture consistent with the Firm’s How We Do Business
Principles (the “Principles”). The Principles serve as a guidefor how employees are expected to conduct themselves.
With the Principles serving as a guide, the Firm’s Code sets
out the Firm’s expectations for each employee and provides
information and resources to help employees conductbusiness ethically and in compliance with the law
everywhere the Firm operates. For further discussion of theCode, refer to Compliance Risk Management on page 137.
Governance and oversight
The Conduct Risk Program is governed by a Board-levelapproved Conduct Risk Governance Policy. The Conduct Risk
Governance Policy establishes the framework forownership, assessment, managing and escalating conduct
risk in the Firm.

138

The CRSC provides oversight of the Firm’s conduct initiatives
to develop a more holistic view of conduct risks and toconnect key programs across the Firm in order to identify
opportunities and emerging areas of focus.
The CRSC may escalate systemic conduct risk issues to the
FRC and as appropriate to the DRPC. The misconduct(actual or potential) of individuals involved in material risk
and control issues are escalated to the HR Control Forum.
Certain committees of the Board oversee conduct risk issues
within the scope of their responsibilities.
Conduct risk management encompasses various aspects ofpeople management practices throughout the employee life
cycle, including recruiting, onboarding, training anddevelopment, performance management, promotion andcompensation processes. Each LOB, Treasury and CIO, anddesignated corporate function completes an assessment ofconduct risk quarterly, reviews metrics and issues which
may involve conduct risk, and provides business conduct
training as appropriate.

JPMorgan Chase & Co./2018 Form 10-K

LEGAL RISK MANAGEMENT
Legal risk, a subcategory of operational risk, is the risk ofloss primarily caused by the actual or alleged failure tomeet legal obligations that arise from the rule of law injurisdictions in which the Firm operates, agreements withclients and customers, and products and services offered by
the Firm.
Overview
The global Legal function (“Legal”) provides legal services
and advice to the Firm. Legal is responsible for managing
the Firm’s exposure to Legal risk by:• managing actual and potential litigation andenforcement matters, including internal reviews andinvestigations related to such matters• advising on products and services, including contract
negotiation and documentation• advising on offering and marketing documents and new
business initiatives• managing dispute resolution• interpreting existing laws, rules and regulations, andadvising on changes thereto• advising on advocacy in connection with contemplated
and proposed laws, rules and regulations, and• providing legal advice to the LOBs and Corporate, inalignment with the lines of defense described underEnterprise-wide Risk Management.

JPMorgan Chase & Co./2018 Form 10-K

Legal selects, engages and manages outside counsel for the
Firm on all matters in which outside counsel is engaged. In
addition, Legal advises the Firm’s Conflicts Office which
reviews the Firm’s wholesale transactions that may have thepotential to create conflicts of interest for the Firm.
Governance and oversight
The Firm’s General Counsel reports to the CEO and is amember of the Operating Committee, the Firmwide Risk
Committee and the Firmwide Control Committee. The
General Counsel’s leadership team includes a GeneralCounsel for each line of business, the heads of the Litigation
and Corporate & Regulatory practices, as well as the Firm’s
Corporate Secretary. Each region (e.g., Latin America, Asia
Pacific) has a General Counsel who is responsible formanaging legal risk across all lines of business andfunctions in the region.
The Firm’s General Counsel and other members of Legal
report on significant legal matters at each meeting of the
Firm’s Board of Directors, at least quarterly to the Audit
Committee, and periodically to the DRPC.
Legal serves on and advises various committees (including
new business initiative and reputation risk committees) andadvises the Firm’s businesses to protect the Firm’s
reputation beyond any particular legal requirements.

139

Management’s discussion and analysis
ESTIMATIONS AND MODEL RISK MANAGEMENT
Estimations and Model risk, a subcategory of operationalrisk, is the potential for adverse consequences fromdecisions based on incorrect or misused estimation outputs.
The Firm uses models and other analytical and judgmentbased estimations across various businesses and functions.
The estimation methods are of varying levels of
sophistication and are used for many purposes, such as thevaluation of positions and measurement of risk, assessing
regulatory capital requirements, conducting stress testing,and making business decisions. A dedicated independentfunction, Model Risk Governance and Review (“MRGR”),
defines and governs the Firm’s model risk management
policies and certain analytical and judgment-based
estimations, such as those used in risk management, budget
forecasting and capital planning and analysis. MRGR reports
to the Firm’s CRO.
The governance of analytical and judgment-based
estimations within MRGR’s scope follows a consistent
approach to the approach used for models, which is
described in detail below.
Model risks are owned by the users of the models within the
Firm based on the specific purposes of such models. Usersand developers of models are responsible for developing,
implementing and testing their models, as well as referringmodels to the Model Risk function for review and approval.
Once models have been approved, model users anddevelopers are responsible for maintaining a robust
operating environment, and must monitor and evaluate theperformance of the models on an ongoing basis. Model
users and developers may seek to enhance models in
response to changes in the portfolios and in product andmarket developments, as well as to capture improvements
in available modeling techniques and systems capabilities.

140

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. In its review of amodel, the Model Risk function considers whether themodel is suitable for the specific purposes for which it will
be used. The factors considered in reviewing a model
include whether the model accurately reflects thecharacteristics of the product and its significant risks, theselection and reliability of model inputs, consistency withmodels for similar products, the appropriateness of any
model-related adjustments, and sensitivity to input
parameters and assumptions that cannot be observed fromthe market. When reviewing a model, the Model Risk
function analyzes and challenges the model methodology
and the reasonableness of model assumptions and may
perform or require additional testing, including back-testingof model outcomes. Model reviews are approved by theappropriate level of management within the Model Risk
function based on the relevant model tier.
Under the Firm’s Estimations and Model Risk Management
Policy, the Model Risk function reviews and approves newmodels, as well as material changes to existing models,prior to implementation in the operating environment. In
certain circumstances, the head of the Model Risk function
may grant exceptions to the Firm’s policy to allow a model
to be used prior to review or approval. The Model Risk
function may also require the user to take appropriate
actions to mitigate the model risk if it is to be used in theinterim. These actions will depend on the model and may
include, for example, limitation of trading activity.
For a summary of model-based valuations and othervaluation techniques, refer to Critical Accounting Estimates
Used by the Firm on pages 141-143 and Note 2.

JPMorgan Chase & Co./2018 Form 10-K

CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM
JPMorgan Chase’s accounting policies and use of estimates
are integral to understanding its reported results. The
Firm’s most complex accounting estimates require
management’s judgment to ascertain the appropriate
carrying value of assets and liabilities. The Firm hasestablished policies and control procedures intended toensure that estimation methods, including any judgments
made as part of such methods, are well-controlled,
independently reviewed and applied consistently fromperiod to period. The methods used and judgments madereflect, among other factors, the nature of the assets or
liabilities and the related business and risk management
strategies, which may vary across the Firm’s businesses andportfolios. In addition, the policies and procedures areintended to ensure that the process for changing
methodologies occurs in an appropriate manner. The Firm
believes its estimates for determining the carrying value of
its assets and liabilities are appropriate. The following is abrief description of the Firm’s critical accounting estimates
involving significant judgments.
Allowance for credit losses
JPMorgan Chase’s allowance for credit losses covers theretained consumer and wholesale loan portfolios, as well as
the Firm’s wholesale and certain consumer lending-related
commitments. The allowance for loan losses is intended toadjust the carrying value of the Firm’s loan assets to reflect
probable credit losses inherent in the loan portfolio as of
the balance sheet date. Similarly, the allowance for lendingrelated commitments is established to cover probable credit
losses inherent in the lending-related commitments
portfolio as of the balance sheet date.
The allowance for credit losses includes a formula-based
component, an asset-specific component, and a component
related to PCI loans. The determination of each of thesecomponents involves significant judgment on a number ofmatters. For further information on these components,
areas of judgment and methodologies used in establishing
the Firm’s allowance for credit losses, refer to Allowance for
credit losses on pages 120–122 and Note 13.
Allowance for credit losses sensitivity
The Firm’s allowance for credit losses is sensitive tonumerous factors, which may differ depending on theportfolio. Changes in economic conditions or in the Firm’s
assumptions and estimates could affect its estimate ofprobable credit losses inherent in the portfolio at thebalance sheet date. The Firm uses its best judgment toassess these economic conditions and loss data inestimating the allowance for credit losses and theseestimates are subject to periodic refinement based onchanges to underlying external or Firm-specific historical
data. Refer to Note 13 for further discussion.
To illustrate the potential magnitude of certain alternate
judgments, the Firm estimates that changes in the following
inputs would have the following effects on the Firm’s
modeled credit loss estimates as of December 31, 2018,
without consideration of any offsetting or correlated effects
of other inputs in the Firm’s allowance for loan losses:

JPMorgan Chase & Co./2018 Form 10-K

•

•

•

•

A combined 5% decline in housing prices and a 100
basis point increase in unemployment rates from current
levels could imply:
an increase to modeled credit loss estimates ofapproximately $425 million for PCI loans.
an increase to modeled annual credit loss estimatesof approximately $50 million for residential realestate loans, excluding PCI loans.
For credit card loans, a 100 basis point increase in
unemployment rates from current levels could imply an
increase to modeled annual credit loss estimates ofapproximately $875 million.
An increase in probability of default (“PD”) factors
consistent with 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 modeledcredit loss estimates of approximately $1.6 billion.
A 100 basis point increase in estimated loss given
default (“LGD”) for the Firm’s entire wholesale loan
portfolio could imply an increase in the Firm’s modeledcredit loss estimates of approximately $175 million.

The purpose of these sensitivity analyses is to provide anindication of the isolated impacts of hypotheticalalternative assumptions on modeled loss estimates. Thechanges in the inputs presented above are not intended to
imply management’s expectation of future deterioration of
those risk factors. In addition, these analyses are notintended to estimate changes in the overall allowance forloan losses, which would also be influenced by the judgment
management applies to the modeled loss estimates toreflect the uncertainty and imprecision of these modeled
loss estimates based on then-current circumstances andconditions.
It is difficult to estimate how potential changes in specificfactors might affect the overall allowance for credit losses
because management considers a variety of factors andinputs in estimating the allowance for credit losses.
Changes in these factors and inputs may not occur at thesame rate and may not be consistent across all geographies
or product types, and changes in factors may bedirectionally inconsistent, such that improvement in one
factor may offset deterioration in other factors. In addition,
it is difficult to predict how changes in specific economic
conditions or assumptions could affect borrower behavior
or other factors considered by management in estimating
the allowance for credit losses. Given the process the Firm
follows and the judgments made in evaluating the risk
factors related to its loss estimates, management believes
that its current estimate of the allowance for credit losses isappropriate.
Fair value
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, including,derivatives and structured note products. Certain assets
and liabilities are measured at fair value on a nonrecurring
basis, including certain mortgage, home equity and other141

Management’s discussion and analysis
loans, where the carrying value is based on the fair value ofthe underlying collateral.
Assets measured at fair value
The following table includes the Firm’s assets measured atfair value and the portion of such assets that are classified
within level 3 of the valuation hierarchy. For further
information, refer to Note 2.
December 31, 2018
(in billions, except ratios)
Trading debt and equity instruments
Derivative receivables(a)Trading assets
AFS securities
Loans
MSRs
Other
Total assets measured at fair value on
a recurring basis
Total assets measured at fair value on anonrecurring basis
Total assets measured at fair value
Total Firm assets
Level 3 assets as a percentage of total
Firm assets(a)Level 3 assets as a percentage of total
Firm assets at fair value(a)Total assets atfair value
$
359.5
54.2
413.7
230.4
3.2
6.1
27.2

$
$

Total level3 assets
$
4.2
5.8
10.0
—
0.1
6.1
1.0

680.6

17.2

1.4

1.1

682.0
2,622.5

$

18.3

0.7%
2.7%

(a) For purposes of the table above, the derivative receivables total reflects the impact
of netting adjustments; however, the $5.8 billion of derivative receivables classified
as level 3 does not reflect the netting adjustment as such netting is not relevant toa presentation based on the transparency of inputs to the valuation of an asset.
The level 3 balances would be reduced if netting were applied, including the netting
benefit associated with cash collateral.

Valuation
Details of the Firm’s processes for determining fair value
are set out in Note 2. Estimating fair value requires theapplication of judgment. The type and level of judgment
required is largely dependent on the amount of observable
market information available to the Firm. For instruments
valued using internally developed valuation models andother valuation techniques that use significant
unobservable inputs and are therefore classified within
level 3 of the valuation hierarchy, judgments used toestimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine theappropriate valuation technique to use. Second, the lack ofobservability of certain significant inputs requires
management to assess all relevant empirical data inderiving valuation inputs including, for example, transaction
details, yield curves, interest rates, prepayment rates,
default rates, volatilities, correlations, equity or debt prices,valuations of comparable instruments, foreign exchange
rates and credit curves. For further discussion of thevaluation of level 3 instruments, including unobservable
inputs used, refer to Note 2.
For instruments classified in levels 2 and 3, management
judgment must be applied to assess the appropriate level ofvaluation adjustments to reflect counterparty credit quality,
142

the Firm’s creditworthiness, market funding rates, liquidity
considerations, unobservable parameters, and for
portfolios that meet specified criteria, the size of the net
open risk position. The judgments made are typicallyaffected by the type of product and its specific contractual
terms, and the level of liquidity for the product or within themarket as a whole. For a further discussion of valuation
adjustments applied by the Firm, refer to Note 2.
Imprecision in estimating unobservable market inputs orother factors can affect the amount of gain or loss recorded
for a particular position. Furthermore, while the Firm
believes its valuation methods are appropriate andconsistent with those of other market participants, themethods and assumptions used reflect management
judgment and may vary across the Firm’s businesses andportfolios.
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of methodologies
or assumptions different than those used by the Firm could
result in a different estimate of fair value at the reporting
date. For a detailed discussion of the Firm’s valuation
process and hierarchy, and its determination of fair value
for individual financial instruments, refer to Note 2.
Goodwill impairment
Under U.S. GAAP, goodwill must be allocated to reporting
units and tested for impairment at least annually. The Firm’s
process and methodology used to conduct goodwill
impairment testing is described in Note 15.
Management applies significant judgment when testing
goodwill for impairment. The goodwill associated with eachbusiness combination is allocated to the related reporting
units for goodwill impairment testing.
For the year ended December 31, 2018, the Firm reviewed
current economic conditions, business performance,
estimated market cost of equity, and projections of businessperformance for all its businesses. Based upon such reviews,
the Firm concluded that the goodwill allocated to its
reporting units was not impaired as of December 31, 2018.
The fair values of these reporting units exceeded theircarrying values by approximately 20% or higher and did notindicate a significant risk of goodwill impairment based on
current projections and valuations.
The projections for all of the Firm’s reporting units are
consistent with management’s current short-term businessoutlook assumptions, and in the longer term, incorporate a
set of macroeconomic assumptions and the Firm’s best
estimates of long-term growth and returns on equity of its
businesses. Where possible, the Firm uses third-party andpeer data to benchmark its assumptions and estimates.
Declines in business performance, increases in credit losses,
increases in capital requirements, as well as deterioration ineconomic or market conditions, adverse regulatory or
legislative changes or increases in the estimated market costof equity, could cause the estimated fair values of the Firm’sreporting units or their associated goodwill to decline in the
future, which could result in a material impairment charge toearnings in a future period related to some portion of theassociated goodwill.
For additional information on goodwill, refer to Note 15.
JPMorgan Chase & Co./2018 Form 10-K

Credit card rewards liability
JPMorgan Chase offers credit cards with various rewards
programs which allow cardholders to earn rewards points
based on their account activity and the terms andconditions of the rewards program. Generally, there are no
limits on the points that an eligible cardholder can earn, nor
do they expire, and these points can be redeemed for avariety of rewards, including cash (predominantly in theform of account credits), gift cards and travel. The Firm
maintains a rewards liability which represents the estimatedcost of rewards points earned and expected to be redeemedby cardholders. The rewards liability is sensitive to various
assumptions, including cost per point and redemption rates
for each of the various rewards programs, which areevaluated periodically. The liability is accrued as the
cardholder earns the benefit and is reduced when the
cardholder redeems points. This liability was $5.8 billion
and $4.9 billion at December 31, 2018 and 2017,
respectively, and is recorded in accounts payable and otherliabilities on the Consolidated balance sheets.
Income taxes
JPMorgan Chase is subject to the income tax laws of thevarious jurisdictions in which it operates, including U.S.
federal, state and local, and non-U.S. jurisdictions. Theselaws are often complex and may be subject to different
interpretations. To determine the financial statement
impact of accounting for income taxes, including theprovision for income tax expense and unrecognized tax
benefits, JPMorgan Chase must make assumptions andjudgments about how to interpret and apply these complex
tax laws to numerous transactions and business events, aswell as make judgments regarding the timing of whencertain items may affect taxable income in the U.S. andnon-U.S. tax jurisdictions.
JPMorgan Chase’s interpretations of tax laws around theworld are subject to review and examination by the various
taxing authorities in the jurisdictions where the Firm
operates, and disputes may occur regarding its view on atax position. These disputes over interpretations with thevarious taxing authorities may be settled by audit,
administrative appeals or adjudication in the court systemsof the tax jurisdictions in which the Firm operates.
JPMorgan Chase regularly reviews whether it may beassessed additional income taxes as a result of theresolution of these matters, and the Firm records additional
reserves as appropriate. In addition, the Firm may revise its
estimate of income taxes due to changes in income tax
laws, legal interpretations, and business strategies. It is
possible that revisions in the Firm’s estimate of income
taxes may materially affect the Firm’s results of operationsin any reporting period.

management’s estimates and assumptions regarding futuretaxable income, which also incorporates various tax
planning strategies, including strategies that may beavailable to utilize NOLs before they expire. In connection
with these reviews, if it is determined that a deferred tax
asset is not realizable, a valuation allowance is established.
The valuation allowance may be reversed in a subsequent
reporting period if the Firm determines that, based onrevised estimates of future taxable income or changes intax planning strategies, it is more likely than not that all orpart of the deferred tax asset will become realizable. As of
December 31, 2018, management has determined it ismore likely than not that the Firm will realize its deferred
tax assets, net of the existing valuation allowance.
Prior to December 31, 2017, U.S. federal income taxes had
not been provided on the undistributed earnings of certain
non-U.S. subsidiaries, to the extent that such earnings had
been reinvested abroad for an indefinite period of time. The
Firm is no longer maintaining the indefinite reinvestment
assertion on the undistributed earnings of those non-U.S.
subsidiaries in light of the enactment of the TCJA. The U.S.
federal and state and local income taxes associated with theundistributed and previously untaxed earnings of those
non-U.S. subsidiaries was included in the deemed
repatriation charge recorded as of December 31, 2017. The
Firm will recognize any taxes it may incur on global
intangible low tax income as income tax expense in the
period in which the tax is incurred.
The Firm adjusts its unrecognized tax benefits as necessary
when additional information becomes available. Uncertain
tax positions that meet the more-likely-than-not recognition
threshold are measured to determine the amount of benefit
to recognize. An uncertain tax position is measured at thelargest amount of benefit that management believes ismore likely than not to be realized upon settlement. It is
possible that the reassessment of JPMorgan Chase’s
unrecognized tax benefits may have a material impact on its
effective income tax rate in the period in which thereassessment occurs.
The income tax expense for the current year includes achange in estimate recorded under SEC Staff Accounting
Bulletin No. 118 (SAB 118) resulting from the enactment of
the TCJA. The accounting under SAB 118 is complete.
For additional information on income taxes, refer to Note24.
Litigation reserves
For a description of the significant estimates and judgments
associated with establishing litigation reserves, refer toNote 29.

The Firm’s provision for income taxes is composed ofcurrent and deferred taxes. Deferred taxes arise fromdifferences between assets and liabilities measured forfinancial reporting versus income tax return purposes.
Deferred tax assets are recognized if, in management’s
judgment, their realizability is determined to be more likely
than not. The Firm has also recognized deferred tax assets
in connection with certain tax attributes, including NOLs.
The Firm performs regular reviews to ascertain whether its
deferred tax assets are realizable. These reviews include
JPMorgan Chase & Co./2018 Form 10-K

143

Management’s discussion and analysis

ACCOUNTING AND REPORTING DEVELOPMENTS
Financial Accounting Standards Board (“FASB”) Standards Adopted during 2018
Standard

Summary of guidance

Effects on financial statements

Revenuerecognition –revenue fromcontracts withcustomers• Requires that revenue fromcontracts with customers berecognized upon transfer ofcontrol of a good or service in theamount of consideration expected
to be received.

• Adopted January 1, 2018.
• For further information, refer to Note 1.

Issued May 2014

Recognition andmeasurement offinancial assets
and financial
liabilities
Issued January
2016

Classification ofcertain cash
receipts and cash
payments in thestatement of cash
flows
Issued August
2016
Treatment of
restricted cash on
the statement ofcash flows
Issued November
2016

144

• Changes the accounting for
certain contract costs, including
whether they may be offset
against revenue in theConsolidated statements ofincome, and requires additional
disclosures about revenue andcontract costs.
• Requires that certain equity
instruments be measured at fairvalue, with changes in fair value
recognized in earnings.

• Adopted January 1, 2018.
• For further information, refer to Note 1.

• Provides a measurement
alternative for equity securities
without readily determinable fairvalues to be measured at cost less
impairment (if any), plus or minus
observable price changes from an
identical or similar investment of
the same issuer. Any such pricechanges are reflected in earnings
beginning in the period of
adoption.
• Provides targeted amendments tothe classification of certain cash
flows, including the treatment ofsettlement payments for zero
coupon debt instruments anddistributions received from equity
method investments.

• Adopted January 1, 2018.

• Requires restricted cash to be
combined with unrestricted cash
when reconciling the beginningand ending cash balances on theConsolidated statements of cash
flows.

• Adopted January 1, 2018

• The adoption of the guidance had no material impact as the Firm waseither in compliance with the amendments or the amounts to which it wasapplied were immaterial.

• For further information, refer to Note 1.

• Requires additional disclosures tosupplement the Consolidated
statements of cash flows.

JPMorgan Chase & Co./2018 Form 10-K

FASB Standards Adopted during 2018 (continued)
Standard

Summary of guidance

Effects on financial statements

Definition of abusiness• Narrows the definition of abusiness and clarifies that, to beconsidered a business,
substantially all of the fair value ofthe gross assets acquired (ordisposed of) may not be
concentrated in a single
identifiable asset or a group ofsimilar assets.

• Adopted January 1, 2018.

Issued January
2017• The adoption of the guidance had no impact because it is applied
prospectively. Subsequent to adoption, fewer transactions will be treatedas acquisitions or dispositions of a business.

• In addition, a business must now
include, at a minimum, an input
and a substantive process thattogether significantly contributeto the ability to create outputs.
Presentation of net
periodic pension
cost and net
periodic
postretirement
benefit cost
Issued March 2017
Premiumamortization onpurchased callable
debt securities• Requires the service cost
component of net periodic
pension and postretirement
benefit cost to be reported
separately in the Consolidated
statements of income from theother cost components.

• Adopted January 1, 2018.

• Requires amortization ofpremiums to the earliest call dateon certain debt securities.

• Adopted January 1, 2018.
• For further information, refer to Note 1.

• Aligns the accounting with theeconomics of the risk
management activities.

• Adopted January 1, 2018.
• For further information, refer to Note 1.

• For further information, refer to Note 1.

Issued March 2017
Hedge accounting
Issued August
2017• Expands the ability for certain
hedges of interest rate risk toqualify for hedge accounting.
• Allows recognition of
ineffectiveness in cash flow
hedges and net investment hedges
in OCI.
• Permits an election at adoption totransfer certain investment
securities classified as held-tomaturity to available-for-sale.
• Simplifies hedge documentation
requirements.

Reclassification ofcertain tax effects
from AOCI
Issued February
2018• Permits reclassification of theincome tax effects of the TCJA on
items within AOCI to retained
earnings so that the tax effects ofitems within AOCI reflect theappropriate tax rate.

JPMorgan Chase & Co./2018 Form 10-K

• Adopted January 1, 2018.
• For further information, refer to Note 1.

145

Management’s discussion and analysis

FASB Standards Issued but not adopted as of December 31, 2018
Standard

Summary of guidance

Effects on financial statements

Leases• Requires lessees to recognize allleases longer than twelve months
on the Consolidated balance
sheets as a lease liability with acorresponding right-of-use asset.
• Requires lessees and lessors toclassify most leases using
principles similar to existing leaseaccounting, but eliminates the“bright line” classification tests.
• Expands qualitative andquantitative leasing disclosures.

• Adopted January 1, 2019.
• The Firm elected the practical expedient to adopt and implement the newlease guidance as of January 1, 2019 through a cumulative-effectadjustment without revising prior comparative periods. Upon adoption,
the Firm recognized lease right-of-use (“ROU”) assets and lease liabilities
on the Consolidated balance sheet of $8.1 billion and $8.2 billion,
respectively. The impact to the Firm’s CET1 capital ratio was a reductionof approximately 6 bps. The adoption of the new lease guidance did nothave a material impact on the Firm’s Consolidated statement of income.
• The Firm elected the available practical expedients to not reassess
whether existing contracts contain a lease or whether classification or
unamortized initial lease costs would be different under the new leaseguidance.

• Replaces existing incurred loss
impairment guidance andestablishes a single allowanceframework for financial assets
carried at amortized cost, which
will reflect management’s
estimate of credit losses over thefull remaining expected life of thefinancial assets and will consider
expected future changes inmacroeconomic conditions.

• Required effective date: January 1, 2020.(a)Issued February
2016

Financial
instruments –credit losses
Issued June 2016

• Eliminates existing guidance for
PCI loans, and requires
recognition of the nonaccretabledifference as an increase to theallowance for expected credit
losses on financial assets
purchased with more thaninsignificant credit deterioration
since origination, which will be
offset by an increase in therecorded investment of therelated loans.

• The Firm has established a Firmwide, cross-discipline governancestructure, which provides implementation oversight. The Firm continues
to test and refine its current expected credit loss models that satisfy therequirements of the new standard. This review and testing, as well as
efforts to meet expanded disclosure requirements, will extend throughthe remainder of 2019.
• The Firm expects that the allowance related to the Firm’s loans andcommitments will increase as it will cover credit losses over the fullremaining expected life of the portfolios. The Firm currently intends toestimate losses over a two-year forecast period using the weightedaverage of a range of macroeconomic scenarios (established on a
Firmwide basis), and then revert to longer term historical loss experienceto estimate losses over more extended periods.
• The Firm currently expects the increase in the allowance to be in therange of $4-6 billion, primarily driven by Card. This estimate is subject tofurther refinement based on continuing reviews and approvals of models,
methodologies and judgments. The ultimate impact will depend upon thenature and characteristics of the Firm’s portfolio at the adoption date, themacroeconomic conditions and forecasts at that date, and othermanagement judgments.
• The Firm plans to adopt the new guidance on January 1, 2020.

• Amends existing impairment
guidance for AFS securities toincorporate an allowance, which
will allow for reversals of credit
impairments in the event that thecredit of an issuer improves.
• Requires a cumulative-effectadjustment to retained earnings
as of the beginning of thereporting period of adoption.
Goodwill
Issued January
2017• Requires an impairment loss to berecognized when the estimatedfair value of a reporting unit falls
below its carrying value.
• Eliminates the second condition in
the current guidance that requires
an impairment loss to berecognized only if the estimatedimplied fair value of the goodwill
is below its carrying value.

• Required effective date: January 1, 2020.(a)• Based on current impairment test results, the Firm does not expect amaterial effect on the Consolidated Financial Statements. However, theimpact of the new accounting guidance will depend on the performance ofthe reporting units and the market conditions at the time of adoption.
• After adoption, the guidance may result in more frequent goodwill
impairment losses due to the removal of the second condition.
• The Firm plans to adopt the new guidance on January 1, 2020.

(a) Early adoption is permitted.
146

JPMorgan Chase & Co./2018 Form 10-K

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 2018 Form 10-K
contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. The
Firm also may make forward-looking statements in its otherdocuments filed or furnished with the SEC. In addition, theFirm’s senior management may make forward-looking
statements orally to investors, analysts, representatives ofthe media and others.

••

All forward-looking statements are, by their nature, subject
to risks and uncertainties, many of which are beyond the
Firm’s control. JPMorgan Chase’s actual future results may
differ materially from those set forth in its forward-looking
statements. While there is no assurance that any list of risks
and uncertainties or risk factors is complete, below arecertain factors which could cause actual results to differ
from those in the forward-looking statements:

•

•
•

•

•
•
•
•
•

•
•
•

•
•

Local, regional and global business, economic andpolitical conditions and geopolitical events;
Changes in laws and regulatory requirements, including
capital and liquidity requirements affecting the Firm’s
businesses, and the ability of the Firm to address thoserequirements;
Heightened regulatory and governmental oversight andscrutiny of JPMorgan Chase’s business practices,
including dealings with retail customers;
Changes in trade, monetary and fiscal policies and laws;
Changes in income tax laws and regulations;
Securities and capital markets behavior, includingchanges in market liquidity and volatility;
Changes in investor sentiment or consumer spending or
savings behavior;
Ability of the Firm to manage effectively its capital andliquidity, including approval of its capital plans bybanking regulators;
Changes in credit ratings assigned to the Firm or its
subsidiaries;
Damage to the Firm’s reputation;
Ability of the Firm to appropriately address social andenvironmental concerns that may arise from its businessactivities;
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;

JPMorgan Chase & Co./2018 Form 10-K

•

•
•
•
•

•
•
•
•

•

•

•

•

The effectiveness of the Firm’s control agenda;
Ability of the Firm to develop or discontinue products
and services, and the extent to which products orservices previously sold by the Firm (including but notlimited to mortgages and asset-backed securities)
require the Firm to incur liabilities or absorb losses notcontemplated at their initiation or origination;
Acceptance of the Firm’s new and existing products andservices by the marketplace and the ability of the Firm
to innovate and to increase market share;
Ability of the Firm to attract and retain qualified
employees;
Ability of the Firm to control expenses;
Competitive pressures;
Changes in the credit quality of the Firm’s customers
and counterparties;
Adequacy of the Firm’s risk management framework,
disclosure controls and procedures and internal control
over financial reporting;Adverse judicial or regulatory proceedings;
Changes in applicable accounting policies, including the
introduction of new accounting standards;
Ability of the Firm to determine accurate values ofcertain assets and liabilities;
Occurrence of natural or man-made disasters orcalamities or conflicts and the Firm’s ability to deal
effectively with disruptions caused by the foregoing;
Ability of the Firm to maintain the security of its
financial, accounting, technology, data processing andother operational systems and facilities;
Ability of the Firm to withstand disruptions that may becaused by any failure of its operational systems or thoseof third parties;
Ability of the Firm to effectively defend itself against
cyberattacks and other attempts by unauthorizedparties to access information of the Firm or its
customers or to disrupt the Firm’s systems; andThe other risks and uncertainties detailed in Part I, Item
1A: Risk Factors in the Firm’s 2018 Form 10-K.

Any forward-looking statements made by or on behalf of
the Firm speak only as of the date they are made, andJPMorgan Chase does not undertake to update forwardlooking statements. The reader should, however, consult
any further disclosures of a forward-looking nature theFirm may make in any subsequent Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, or Current Reports
on Form 8-K.

147

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,
2018. In making the assessment, management used the“Internal Control — Integrated Framework” (“COSO 2013”)
promulgated by the Committee of Sponsoring Organizationsof the Treadway Commission (“COSO”).

Based upon the assessment performed, management
concluded that as of December 31, 2018, JPMorgan Chase’s
internal control over financial reporting was effective based
upon the COSO 2013 framework. Additionally, based upon
management’s assessment, the Firm determined that there
were no material weaknesses in its internal control overfinancial reporting as of December 31, 2018.
The effectiveness of the Firm’s internal control overfinancial reporting as of December 31, 2018, 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 26, 2019

148

JPMorgan Chase & Co./2018 Form 10-K

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of JPMorgan
Chase & Co.:
Opinions on the Financial Statements and Internal Control
over Financial Reporting
We have audited the accompanying consolidated balance
sheets of JPMorgan Chase & Co. and its subsidiaries (the“Firm”) as of December 31, 2018 and 2017, and the related
consolidated statements of income, comprehensive income,changes in stockholders’ equity and cash flows for each of thethree years in the period ended December 31, 2018,
including the related notes (collectively referred to as the“consolidated financial statements”). We also have audited
the Firm’s internal control over financial reporting as ofDecember 31, 2018, based on criteria established in Internal
Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway
Commission (COSO).
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Firm as of December 31, 2018 and 2017, andthe results of its operations and its cash flows for each of thethree years in the period ended December 31, 2018 inconformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the Firm
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2018, based on
criteria established in Internal Control – Integrated Framework(2013) issued by the COSO.
Basis for Opinions
The Firm’s management is responsible for these consolidated
financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of theeffectiveness of internal control over financial reporting,included in the accompanying Management’s report oninternal control over financial reporting. Our responsibility is
to express opinions on the Firm’s consolidated financial
statements and on the Firm’s internal control over financial
reporting based on our audits. We are a public accounting
firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to
be independent with respect to the Firm in accordance with
the U.S. federal securities laws and the applicable rules andregulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of
the PCAOB. Those standards require that we plan andperform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free ofmaterial misstatement, whether due to error or fraud, andwhether effective internal control over financial reporting
was maintained in all material respects.

PricewaterhouseCoopers LLP

JPMorgan Chase & Co./2018 Form 10-K

300 Madison Avenue

Our audits of the consolidated financial statements included
performing procedures to assess the risks of material
misstatement of the consolidated financial statements,
whether due to error or fraud, and performing proceduresthat respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles usedand significant estimates made by management, as well as
evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control overfinancial reporting included obtaining an understanding ofinternal control over financial reporting, assessing the riskthat a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included
performing such other procedures as we considerednecessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial
Reporting
A company’s internal control over financial reporting is aprocess designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s
internal control over financial reporting includes thosepolicies and procedures that (i) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of thecompany; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of thecompany are being made only in accordance withauthorizations of management and directors of the company;and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have amaterial effect on the financial statements.
Because of its inherent limitations, internal control overfinancial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may
deteriorate.

February 26, 2019
We have served as the Firm’s auditor since 1965.

New York, NY 10017

149

Consolidated statements of income

Year ended December 31, (in millions, except per share data)

2018

2017

2016

Revenue
Investment banking fees

$

7,550

$

7,412

$

6,572

Principal transactions

12,05911,347

11,566

Lending- and deposit-related fees

6,052

5,933

5,774

Asset management, administration and commissions

15,364

17,11816,287

Investment securities gains/(losses)

(395)

(66)

141

Mortgage fees and related income

1,254

1,616

2,491

Card income

4,989

4,433

4,779

Other income

5,343

3,646

3,799

Noninterest revenue

53,97050,60850,486

Interest income

77,44264,372

55,901

Interest expense

22,383

14,275

9,818

Net interest income

55,05950,09746,083

Total net revenue

109,029

100,705

96,569

4,871

5,290

5,361

Compensation expense

33,117

31,20830,203

Occupancy expense

3,952

3,723

3,638

Technology, communications and equipment expense

8,802

7,715

6,853

Professional and outside services

8,502

7,890

7,526

Marketing

3,290

2,900

2,897

Other expense

5,731

6,079

5,555

Total noninterest expense

63,39459,51556,672

Income before income tax expense

40,76435,90034,536

Income tax expense

8,290

11,459Provision for credit losses
Noninterest expense

9,803

Net income$

32,474$24,441$

24,733

Net income applicable to common stockholders$

30,709$22,567$

22,834

$

9.04

$

6.35

$

6.24

Net income per common share data
Basic earnings per share
Diluted earnings per share

9.00

6.31

6.19

Weighted-average basic shares

3,396.4

3,551.6

3,658.8

Weighted-average diluted shares

3,414.0

3,576.8

3,690.0

Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and,accordingly, prior period amounts were revised. For additional information, refer to Note 1.

The Notes to Consolidated Financial Statements are an integral part of these statements.

150

JPMorgan Chase & Co./2018 Form 10-K

Consolidated statements of comprehensive income

Year ended December 31, (in millions)
Net income

2018$

32,4742017$

24,441

2016$

24,733

Other comprehensive income/(loss), after–tax
Unrealized gains/(losses) on investment securities
Translation adjustments, net of hedges(1,858)640(1,105)

20

(306)

(2)

Fair value hedges

(107)

NA

NA

Cash flow hedges

(201)

176

(56)

Defined benefit pension and OPEB plans

(373)

738

(28)

DVA on fair value option elected liabilities

1,043

(192)

(330)

Total other comprehensive income/(loss), after–tax
Comprehensive income(1,476)$30,998

1,056$

25,497(1,521)$

23,212

Effective January 1, 2018, the Firm adopted several new accounting standards. For additional information, refer to Note 1.

The Notes to Consolidated Financial Statements are an integral part of these statements.

JPMorgan Chase & Co./2018 Form 10-K

151

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 13,235 and $14,732 at fair value)
Securities borrowed (included $5,105 and $3,049 at fair value)
Trading assets (included assets pledged of $89,073 and $109,887)
Investment securities (included $230,394 and $202,225 at fair value and assets pledged of $11,432 and $17,969)
Loans (included $3,151 and $2,508 at fair value)
Allowance for loan losses
Loans, net of allowance for loan losses
Accrued interest and accounts receivable
Premises and equipment
Goodwill, MSRs and other intangible assets
Other assets (included $9,630 and $16,128 at fair value and assets pledged of $3,457 and $7,980)
Total assets(a)Liabilities
Deposits (included $23,217 and $21,321 at fair value)
Federal funds purchased and securities loaned or sold under repurchase agreements (included $935 and $697 at fairvalue)

2018

2017

$

22,324 $256,469
321,588
111,995
413,714
261,828
984,554(13,445)
971,10973,20014,93454,349121,0222,622,532 $

25,898405,406
198,422
105,112
381,844249,958
930,697(13,604)
917,093
67,72914,15954,392
113,587
2,533,600$

1,470,666

1,443,982$

Short-term borrowings (included $7,130 and $9,191 at fair value)
Trading liabilities
Accounts payable and other liabilities (included $3,269 and $9,208 at fair value)
Beneficial interests issued by consolidated VIEs (included $28 and $45 at fair value)
Long-term debt (included $54,886 and $47,519 at fair value)
Total liabilities(a)Commitments and contingencies (refer to Notes 27, 28 and 29)
Stockholders’ equity
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 2,606,750 shares)
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Shares held in restricted stock units (“RSU”) trust, at cost (472,953 shares)
Treasury stock, at cost (829,167,674 and 679,635,064 shares)
Total stockholders’ equity
Total liabilities and stockholders’ equity$$

182,320

158,916

69,276
144,773
196,710
20,241
282,0312,366,017

51,802
123,663
189,383
26,081
284,080
2,277,907

26,0684,105
89,162
199,202(1,507)(21)(60,494)
256,515
2,622,532 $

26,068
4,105
90,579177,676(119)(21)(42,595)
255,6932,533,600

Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and,accordingly, prior period amounts were revised. For additional information, refer to Note 1.
(a) The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at December 31, 2018 and 2017. 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 generalcredit of JPMorgan Chase. The assets and liabilities in the table below include third-party assets and liabilities of consolidated VIEs and exclude intercompany
balances that eliminate in consolidation. For a further discussion, refer to Note 14.
December 31, (in millions)2018

AssetsTrading assets

$

Loans

2017
1,966

$

59,456All other assets

1,013

Total assets

1,449
68,9952,674$

62,435$

73,118$20,241$

26,081$

26,430Liabilities
Beneficial interests issued by consolidated VIEs
All other liabilities
Total liabilities

312$

20,553349

The Notes to Consolidated Financial Statements are an integral part of these statements.

152

JPMorgan Chase & Co./2018 Form 10-K

Consolidated statements of changes in stockholders’ equity
Year ended December 31, (in millions, except per share data)

2018

2017

2016

Preferred stock
Balance at January 1$

Issuance

26,068$

1,696

26,0681,258$

26,068—

Redemption(1,696)(1,258)—

Balance at December 31

26,06826,06826,068

4,105

4,105

4,105

Common stock
Balance at January 1 and December 31
Additional paid-in capital
Balance at January 1

90,57991,62792,500Shares issued and commitments to issue common stock for employee share-based compensation awards, andrelated tax effects

(738)

(734)

(334)

Other

(679)

(314)

(539)

89,162

90,57991,627

177,676

162,440

146,420

(183)

—

(154)

32,47424,441

24,733Preferred stock(1,551)(1,663)(1,647)

Common stock ($2.72, $2.12 and $1.88 per share for 2018, 2017 and 2016, respectively)(9,214)(7,542)(6,912)

199,202

177,676

162,440(119)(1,175)

192

88

—

154

Other comprehensive income/(loss), after-tax(1,476)

1,056(1,521)

Balance at December 31(1,507)(119)(1,175)

(21)

(21)

(21)

Balance at January 1(42,595)(28,854)(21,691)

Repurchase(19,983)(15,410)(9,082)

Reissuance

2,084

1,669

1,919

Balance at December 31
Retained earnings
Balance at January 1
Cumulative effect of change in accounting principles
Net income
Dividends declared:

Balance at December 31
Accumulated other comprehensive income
Balance at January 1
Cumulative effect of change in accounting principles

Shares held in RSU Trust, at cost
Balance at January 1 and December 31
Treasury stock, at cost

Balance at December 31(60,494)(42,595)(28,854)

Total stockholders’ equity$ 256,515$ 255,693$ 254,190

Effective January 1, 2018, the Firm adopted several new accounting standards. For additional information, refer to Note 1.

The Notes to Consolidated Financial Statements are an integral part of these statements.

JPMorgan Chase & Co./2018 Form 10-K

153

Consolidated statements of cash flows
Year ended December 31, (in millions)

2018

2017

2016

Operating activities
Net income$

32,474$24,441$

24,733Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Provision for credit losses

4,871

5,290

5,361

Depreciation and amortization

7,791

6,179

5,478

Deferred tax expense

1,721

2,312

4,651

Other

2,717

2,136

1,799

(102,141)(94,628)(61,107)

93,453

93,27060,196(20,007)

Originations and purchases of loans held-for-sale
Proceeds from sales, securitizations and paydowns of loans held-for-saleNet change in:Trading assets(38,371)

5,673

Securities borrowed(6,861)(8,653)

2,313

Accrued interest and accounts receivable(5,849)(15,868)(5,815)

Other assets(8,833)

3,982(4,176)

Trading liabilities

18,290(26,256)

5,198

Accounts payable and other liabilities

14,630(16,508)

5,087

295

7,803

(1,827)

14,187(10,827)

21,884(123,201)

31,448(17,468)

Other operating adjustments
Net cash provided by/(used in) operating activities
Investing activities
Net change in:Federal funds sold and securities purchased under resale agreements
Held-to-maturity securities:
Proceeds from paydowns and maturities

2,945

4,563

6,218

Purchases(9,368)(2,349)(143)

Proceeds from paydowns and maturities

37,401

56,11765,950

Proceeds from sales

46,067

90,201

48,592

Purchases(95,091)(105,309)(123,959)

Available-for-sale securities:

Proceeds from sales and securitizations of loans held-for-investment

29,826

15,791

15,429Other changes in loans, net(81,586)(61,650)(80,996)

All other investing activities, net(4,986)(563)(2,825)(197,993)

28,249(89,202)

Deposits

26,72857,022

97,336

Federal funds purchased and securities loaned or sold under repurchase agreements

23,415(6,739)13,007

Short-term borrowings

18,476

16,540(2,461)

Beneficial interests issued by consolidated VIEs

1,712

(1,377)(5,707)

Proceeds from long-term borrowings

71,66256,271

83,070

Payments of long-term borrowings

Net cash provided by/(used in) investing activities
Financing activities
Net change in:(76,313)(83,079)(68,949)

Proceeds from issuance of preferred stock

1,696

1,258

—

Redemption of preferred stock(1,696)(1,258)—Treasury stock repurchased(19,983)(15,410)(9,082)

Dividends paid

(10,109)(8,993)(8,476)All other financing activities, net(1,430)

407

(467)

Net cash provided by financing activities

34,158

14,642

98,271

Effect of exchange rate changes on cash and due from banks and deposits with banks
Net increase/(decrease) in cash and due from banks and deposits with banks(2,863)

8,086(1,482)(152,511)

40,15029,471

Cash and due from banks and deposits with banks at the beginning of the period

431,304

391,154361,683

Cash and due from banks and deposits with banks at the end of the period$ 278,793$ 431,304$ 391,154

Cash interest paid

$

$

$

Cash income taxes paid, net

21,152
3,542

14,153
4,325

9,508
2,405

Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and,accordingly, prior period amounts were revised. For additional information, refer to Note 1.

The Notes to Consolidated Financial Statements are an integral part of these statements.

154

JPMorgan Chase & Co./2018 Form 10-K

Note 1 – Basis of presentation
JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”), a
financial holding company incorporated under Delaware law
in 1968, is a leading global financial services firm and oneof the largest banking institutions in the U.S. with
operations worldwide. The Firm is a leader in investmentbanking, financial services for consumers and small
business, commercial banking, financial transaction
processing and asset management. For a discussion of the
Firm’s business segments, refer to Note 31.

(i.e., kick-out rights), based on a simple majority vote, orthe non-affiliated partners or members have rights toparticipate in important decisions. Accordingly, the Firm
does not consolidate these voting interest entities. However,in the limited cases where the non-managing partners or
members do not have substantive kick-out or participatingrights, the Firm evaluates the funds as VIEs andconsolidates the funds if the Firm is the general partner ormanaging member and has a potentially significant interest.

The accounting and financial reporting policies of JPMorgan
Chase and its subsidiaries conform to U.S. GAAP.
Additionally, where applicable, the policies conform to theaccounting and reporting guidelines prescribed byregulatory authorities.

The Firm’s investment companies and asset management
funds have investments in both publicly-held and privatelyheld entities, including investments in buyouts, growthequity and venture opportunities. These investments areaccounted for under investment company guidelines and,accordingly, irrespective of the percentage of equity
ownership interests held, are carried on the Consolidatedbalance sheets at fair value, and are recorded in otherassets, with income or loss included in noninterest revenue.
If consolidated, the Firm retains such specialized investmentcompany guidelines.

Certain amounts reported in prior periods have been
reclassified to conform with the current presentation.
Consolidation
The Consolidated Financial Statements include the accountsof JPMorgan Chase and other entities in which the Firm has
a controlling financial interest. All material intercompany
balances and transactions have been eliminated.
Assets held for clients in an agency or fiduciary capacity by
the Firm are not assets of JPMorgan Chase and are notincluded on the Consolidated balance sheets.
The Firm determines whether it has a controlling financial
interest in an entity by first evaluating whether the entity isa voting interest entity or a variable interest entity.
Voting interest entities
Voting interest entities are entities that have sufficient
equity and provide the equity investors voting rights thatenable them to make significant decisions relating to theentity’s operations. For these types of entities, the Firm’s
determination of whether it has a controlling interest is
primarily based on the amount of voting equity interests
held. Entities in which the Firm has a controlling financial
interest, through ownership of the majority of the entities’
voting equity interests, or through other contractual rightsthat give the Firm control, are consolidated by the Firm.
Investments in companies in which the Firm has significant
influence over operating and financing decisions (but does
not own a majority of the voting equity interests) areaccounted for (i) in accordance with the equity method of
accounting (which requires the Firm to recognize its
proportionate share of the entity’s net earnings), or (ii) at
fair value if the fair value option was elected. These
investments are generally included in other assets, withincome or loss included in noninterest revenue.
Certain Firm-sponsored asset management funds are
structured as limited partnerships or certain limited liability
companies. For many of these entities, the Firm is thegeneral partner or managing member, but the non-affiliatedpartners or members have the ability to remove the Firm as
the general partner or managing member without cause
JPMorgan Chase & Co./2018 Form 10-K

Variable interest entities
VIEs are entities that, by design, either (1) lack sufficient
equity to permit the entity to finance its activities without
additional subordinated financial support from otherparties, or (2) have equity investors that do not have theability to make significant decisions relating to the entity’s
operations through voting rights, or do not have theobligation to absorb the expected losses, or do not have theright to receive the residual returns of the entity.
The most common type of VIE is an SPE. SPEs are commonlyused in securitization transactions in order to isolate certain
assets and distribute the cash flows from those assets toinvestors. The basic SPE structure involves a company
selling assets to the SPE; the SPE funds the purchase of
those assets by issuing securities to investors. The legal
documents that govern the transaction specify how the cash
earned on the assets must be allocated to the SPE’s
investors and other parties that have rights to those cash
flows. SPEs are generally structured to insulate investors
from claims on the SPE’s assets by creditors of otherentities, including the creditors of the seller of the assets.
The primary beneficiary of a VIE (i.e., the party that has acontrolling financial interest) is required to consolidate theassets and liabilities of the VIE. The primary beneficiary is
the party that has both (1) the power to direct the activitiesof the VIE that most significantly impact the VIE’s economic
performance; and (2) through its interests in the VIE, theobligation to absorb losses or the right to receive benefits
from the VIE that could potentially be significant to the VIE.
To assess whether the Firm has the power to direct theactivities of a VIE that most significantly impact the VIE’s
economic performance, the Firm considers all the facts andcircumstances, including its role in establishing the VIE and
its ongoing rights and responsibilities. This assessment
155Notes to consolidated financial statements
includes, first, identifying the activities that mostsignificantly impact the VIE’s economic performance; andsecond, identifying which party, if any, has power over those
activities. In general, the parties that make the mostsignificant decisions affecting the VIE (such as asset
managers, collateral managers, servicers, or owners of call
options or liquidation rights over the VIE’s assets) or havethe right to unilaterally remove those decision-makers are
deemed to have the power to direct the activities of a VIE.
To assess whether the Firm has the obligation to absorb
losses of the VIE or the right to receive benefits from the
VIE that could potentially be significant to the VIE, the Firm
considers all of its economic interests, including debt andequity investments, servicing fees, and derivatives or otherarrangements deemed to be variable interests in the VIE.
This assessment requires that the Firm apply judgment indetermining whether these interests, in the aggregate, areconsidered potentially significant to the VIE. Factors
considered in assessing significance include: the design of
the VIE, including its capitalization structure; subordinationof interests; payment priority; relative share of interests
held across various classes within the VIE’s capital
structure; and the reasons why the interests are held by theFirm.
The Firm performs on-going reassessments of: (1) whether
entities previously evaluated under the majority votinginterest framework have become VIEs, based on certain
events, and are therefore subject to the VIE consolidation
framework; and (2) whether changes in the facts andcircumstances regarding the Firm’s involvement with a VIE
cause the Firm’s consolidation conclusion to change.
Revenue recognition
Interest income
The Firm records interest income on loans, debt securities,
and other debt instruments, generally on a level-yield basis,
based on the underlying contractual rate. For further
discussion of interest income, refer to Note 7.
Revenue from contracts with customers
JPMorgan Chase records noninterest revenue from certain
contracts with customers under ASC 606, Revenue fromContracts with customers, in investment banking fees,
deposit-related fees, asset management administration andcommissions, and components of card income. Under thisguidance, revenue is recognized when the Firm’s
performance obligations are satisfied. For further
discussion of the Firm’s revenue from contracts withcustomers, refer to Note 6.
Principal transactions revenue
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. Changes in fair value are reported primarily inprincipal transactions revenue. For further discussion of fairvalue measurement, refer to Notes 2 and 3. For further
discussion of principal transactions revenue, refer to Note
6.

156

Use of estimates in the preparation of consolidated
financial statements
The preparation of the Consolidated Financial Statements
requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
revenue and expense, and disclosures of contingent assets
and liabilities. Actual results could be different from theseestimates.
Foreign currency translation
JPMorgan Chase revalues assets, liabilities, revenue andexpense denominated in non-U.S. currencies into U.S.
dollars using applicable exchange rates.
Gains and losses relating to translating functional currency
financial statements for U.S. reporting are included in OCI
within stockholders’ equity. Gains and losses relating to
nonfunctional currency transactions, including non-U.S.
operations where the functional currency is the U.S. dollar,
are reported in the Consolidated statements of income.
Offsetting assets and liabilities
U.S. GAAP permits entities to present derivative receivables
and derivative payables with the same counterparty and therelated cash collateral receivables and payables on a net
basis on the Consolidated balance sheets when a legally
enforceable master netting agreement exists. U.S. GAAP
also permits securities sold and purchased under
repurchase agreements and securities borrowed or loaned
under securities loan agreements to be presented net when
specified conditions are met, including the existence of alegally enforceable master netting agreement. The Firm has
elected to net such balances when the specified conditions
are met.
The Firm uses master netting agreements to mitigate
counterparty credit risk in certain transactions, including
derivative contracts, resale, repurchase, securities
borrowed and securities loaned agreements. A masternetting agreement is a single agreement with acounterparty that permits multiple transactions governedby that agreement to be terminated or accelerated andsettled through a single payment in a single currency in theevent of a default (e.g., bankruptcy, failure to make arequired payment or securities transfer or deliver collateralor margin when due). Upon the exercise of derivatives
termination rights by the non-defaulting party (i) all
transactions are terminated, (ii) all transactions are valued
and the positive values of “in the money” transactions arenetted against the negative values of “out of the money”
transactions and (iii) the only remaining payment obligation
is of one of the parties to pay the netted termination
amount. Upon exercise of default rights under repurchaseagreements and securities loan agreements in general (i) all
transactions are terminated and accelerated, (ii) all valuesof securities or cash held or to be delivered are calculated,
and all such sums are netted against each other and (iii) the
only remaining payment obligation is of one of the parties
to pay the netted termination amount.

JPMorgan Chase & Co./2018 Form 10-K

Typical master netting agreements for these types oftransactions also often contain a collateral/marginagreement that provides for a security interest in, or title
transfer of, securities or cash collateral/margin to the party
that has the right to demand margin (the “demanding
party”). The collateral/margin agreement typically requiresa party to transfer collateral/margin to the demanding
party with a value equal to the amount of the margin deficit
on a net basis across all transactions governed by themaster netting agreement, less any threshold. The
collateral/margin agreement grants to the demanding
party, upon default by the counterparty, the right to set-off
any amounts payable by the counterparty against any
posted collateral or the cash equivalent of any posted
collateral/margin. It also grants to the demanding party theright to liquidate collateral/margin and to apply theproceeds to an amount payable by the counterparty.
For further discussion of the Firm’s derivative instruments,
refer to Note 5. For further discussion of the Firm’s
securities financing agreements, refer to Note 11.
Statements of cash flows
For JPMorgan Chase’s Consolidated statements of cash
flows, cash is defined as those amounts included in cash
and due from banks and deposits with banks.
Accounting standards adopted January 1, 2018
Revenue recognition – revenue from contracts with customers
The adoption of this guidance requires gross presentation ofcertain costs that were previously offset against revenue.
Adoption of the guidance did not result in any materialchanges in the timing of the Firm’s revenue recognition. This
guidance was adopted retrospectively and, accordingly, priorperiod amounts were revised, which resulted in an increase inboth noninterest revenue and noninterest expense. The Firm
did not apply any practical expedients. For additional
information, refer to the table on page 158 of this Note, andNote 6.
Recognition and measurement of financial assets andfinancial liabilities
The adoption of this guidance requires that certain equity
instruments be measured at fair value, with changes in fairvalue recognized in earnings. The guidance also provides analternative to measure equity securities without readily
determinable fair values at cost less impairment (if any), plus
or minus observable price changes from an identical orsimilar investment of the same issuer (the “measurement
alternative”). The Firm elected the measurement alternative
for its qualifying equity securities and the adoption of theguidance resulted in fair value gains of $505 million whichwere recognized in other income in the first quarter of 2018.
For additional information, refer to Notes 2 and 10.

AOCI. For additional information, refer to the table below,
and Notes 10 and 23.
Hedge accounting
The adoption of this guidance better aligns hedge
accounting with the economics of the Firm’s risk
management activities. As permitted by the guidance, theFirm also elected to transfer certain investment securities
from HTM to AFS. The adoption of this guidance resulted ina cumulative-effect adjustment to retained earnings and
AOCI as a result of the investment securities transfer andthe revised guidance for excluded components. For
additional information, refer to the table below, and Notes
5, 10 and 23.
Treatment of restricted cash on the statement of cash flows
The adoption of this guidance requires restricted cash to be
combined with unrestricted cash when reconciling the
beginning and ending cash balances on the Consolidated
statements of cash flows. To align the Consolidated balance
sheets with the Consolidated statements of cash flows, theFirm reclassified restricted cash into cash and due frombanks or deposits with banks. In addition, for the Firm’s
Consolidated statements of cash flows, cash is defined as
those amounts included in cash and due from banks anddeposits with banks. This guidance was applied
retrospectively and, accordingly, prior period amounts havebeen revised. For additional information, refer to the tablebelow, and Note 25.
Presentation of net periodic pension cost and net periodic
postretirement benefit cost
The adoption of this guidance requires the service cost
component of net periodic pension cost and net periodic
postretirement benefit cost to be reported separately in theConsolidated statements of income from the other cost
components. This change was adopted retrospectively and,accordingly, prior period amounts were revised, which
resulted in an increase in compensation expense and areduction in other expense. For additional information,refer to the table below, and Note 8.
Reclassification of certain tax effects from AOCI
The adoption of this guidance permitted the Firm to reclassify
from AOCI to retained earnings stranded tax effects due tothe revaluation of deferred tax assets and liabilities as aresult of changes in applicable tax rates under the TCJA. The
adoption of this guidance resulted in a cumulative-effectadjustment to retained earnings and AOCI. For additional
information, refer to the table below, and Note 23.

Premium amortization on purchased callable debt securities
The adoption of this guidance requires that premiums beamortized to the earliest call date on certain debt
securities. The adoption of this guidance resulted in acumulative-effect adjustment to retained earnings andJPMorgan Chase & Co./2018 Form 10-K

157

Notes to consolidated financial statements
The following tables present the prior period impact to theConsolidated statements of income and the Consolidatedbalance sheets from the retrospective adoption of the new
accounting standards in the first quarter of 2018:

Reported

Revisions(a)Revised

Revenue
Investment banking fees$

7,248 $

164 $

7,412

Asset management,
administration andcommissions
Other income

15,377910

16,287

3,639

7

3,646

Total net revenue

99,624

1,081

100,705

31,009199

31,208

7,706

9

7,715

6,840

1,050

Noninterest expense
Compensation expense
Technology, communicationand equipment expense
Professional and outsideservices
Other expense
Total noninterest expense$

Year ended
December 31, 2016 (inmillions)

Asset management,
administration andcommissions
Other income
Total net revenue

Total noninterest expense

$

$

288

(288)

(183) $

88

Fair value option

Note 3

Page 179

Derivative instruments

Note 5

Page 184

7,890

Noninterest revenue

Note 6

Page 198

Note 7

Page 201

Note 8Page 202

Employee share-based incentives

Note 9Page 209

Investment securities

Note 10

Page 211

Securities financing activities

Note 11

Page 216

6,572

Loans

Note 12Page 219

Allowance for credit losses

Note 13

Page 239

Variable interest entities

Note 14

Page 244

58,434 $1,081 $

59,515Pension and other postretirement
employee benefit plans

Revised

124 $

115

Page 159

6,079

6,448 $

261

34

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.

(177)

Revisions(a)(505) $

Note 2

14,591773

15,364

3,795

4

3,799

Goodwill and Mortgage servicing rights

Note 15

page 252

96,569Premises and equipment

Note 16

page 256

Long-term debt

Note 19

page 257

Income taxes

Note 24

page 264

901

Noninterest expense
Technology, communicationand equipment expense
Professional and outsideservices
Other expense

Total

6,256

95,668Compensation expense

Reclassification of certain tax effects fromAOCI

Interest income and interest expense

Reported$

Premium amortization on purchased callable$
debt securities
Hedge accounting

AOCI

Fair value measurement

Revenue
Investment banking fees

Retainedearnings

Increase/(decrease) (in millions)

Selected Consolidated statements of income data
Year ended
December 31, 2017 (inmillions)

The following table presents the adjustment to retained
earnings and AOCI as a result of the adoption of new
accounting standards in the first quarter of 2018:

29,979224

30,203

6,846

7

6,853

Off–balance sheet lending-related
financial instruments, guarantees andother commitments

Note 27

page 271

6,655

871

7,526

Litigation

Note 29

page 278

5,756

(201)

5,555

55,771 $901 $56,672(a) Revisions relate to revenue recognition and pension cost guidance.

Selected Consolidated balance sheets data
December 31, 2017
(in millions)

Reported

Revisions(a)RevisedAssetsCash and due from banks
Deposits with banks$

25,827 $71 $25,898404,294

1,112

405,406

Other assets

114,770(1,183)

113,587

Total assets$2,533,600 $— $2,533,600(a) Revisions relate to the reclassification of restricted cash.

158

JPMorgan Chase & Co./2018 Form 10-K

Note 2 – Fair value measurement
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. These assets and liabilities are predominantly
carried at fair value on a recurring basis (i.e., assets andliabilities that are measured and reported at fair value on
the Firm’s Consolidated balance sheets). Certain assets(e.g., held-for-sale loans), liabilities and unfunded lendingrelated commitments are measured at fair value on anonrecurring basis; that is, they are not measured at fairvalue on an ongoing basis but are subject to fair value
adjustments only in certain circumstances (for example,
when there is evidence of impairment).
Fair value is defined as the price that would be received tosell an asset or paid to transfer a liability in an orderlytransaction between market participants at themeasurement date. Fair value is based on quoted market
prices or inputs, where available. If prices or quotes are notavailable, fair value is based on valuation models and othervaluation techniques that consider relevant transaction
characteristics (such as maturity) and use as inputs
observable or unobservable market parameters, including
yield curves, interest rates, volatilities, equity or debt
prices, foreign exchange rates and credit curves. Valuation
adjustments may be made to ensure that financial
instruments are recorded at fair value, as described below.
The level of precision in estimating unobservable market
inputs or other factors can affect the amount of gain or loss
recorded for a particular position. Furthermore, while theFirm believes its valuation methods are appropriate 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 different
methodologies or assumptions by other market participants
compared with those used by the Firm could result in the
Firm deriving a different estimate of fair value at thereporting date.
Valuation process
Risk-taking functions are responsible for providing fair value
estimates for assets and liabilities carried on theConsolidated balance sheets at fair value. The Firm’s VCG,
which is part of the Firm’s Finance function andindependent of the risk-taking functions, is responsible forverifying these estimates and determining any fair value
adjustments that may be required to ensure that the Firm’s
positions are recorded at fair value. The VGF is composed ofsenior finance and risk executives and is responsible foroverseeing the management of risks arising from valuation
activities conducted across the Firm. The Firmwide VGF ischaired by the Firmwide head of the VCG (under the
direction of the Firm’s Controller), and includes sub-forums
covering the CIB, CCB, CB, AWM and certain corporate
functions including Treasury and CIO.

JPMorgan Chase & Co./2018 Form 10-K

159

Notes to consolidated financial statements
Price verification process
The VCG verifies fair value estimates provided by the risktaking functions by leveraging independently derived prices,valuation inputs and other market data, where available.
Where independent prices or inputs are not available, theVCG performs additional review to ensure thereasonableness of the estimates. The additional review may
include evaluating the limited market activity including
client unwinds, benchmarking valuation inputs to thoseused for similar instruments, decomposing the valuation of
structured instruments into individual components,
comparing expected to actual cash flows, reviewing profit
and loss trends, and reviewing trends in collateral valuation.
There are also additional levels of management review for
more significant or complex positions.
The VCG determines any valuation adjustments that may berequired to the estimates provided by the risk-taking
functions. No adjustments to quoted prices are applied for
instruments classified within level 1 of the fair value
hierarchy (refer to below for further information on the fairvalue hierarchy). For other positions, judgment is required
to assess the need for valuation adjustments toappropriately reflect liquidity considerations, unobservableparameters, and, for certain portfolios that meet specified
criteria, the size of the net open risk position. The
determination of such adjustments follows a consistentframework across the Firm:•••

Liquidity valuation adjustments are considered where an
observable external price or valuation parameter exists
but is of lower reliability, potentially due to lower market
activity. Liquidity valuation adjustments are applied anddetermined based on current market conditions. Factorsthat may be considered in determining the liquidity
adjustment include analysis of: (1) the estimated bidoffer spread for the instrument being traded; (2)alternative pricing points for similar instruments inactive markets; and (3) the range of reasonable values
that the price or parameter could take.
The Firm manages certain portfolios of financial
instruments on the basis of net open risk exposure and,as permitted by U.S. GAAP, has elected to estimate thefair value of such portfolios on the basis of a transfer ofthe entire net open risk position in an orderlytransaction. Where this is the case, valuation
adjustments may be necessary to reflect the cost of
exiting a larger-than-normal market-size net open risk
position. Where applied, such adjustments are based on
factors that a relevant market participant would
consider in the transfer of the net open risk position,
including the size of the adverse market move that is
likely to occur during the period required to reduce thenet open risk position to a normal market-size.

parameter valuation adjustments are applied to reflect
the uncertainty inherent in the resulting valuation
estimate.
•

Where appropriate, the Firm also applies adjustments to
its estimates of fair value in order to appropriatelyreflect counterparty credit quality (CVA), the Firm’s own
creditworthiness (DVA) and the impact of funding (FVA),
using a consistent framework across the Firm. For more
information on such adjustments refer to Credit andfunding adjustments on page 175 of this Note.

Valuation model review and approval
If prices or quotes are not available for an instrument or asimilar instrument, fair value is generally determined using
valuation models that consider relevant transaction datasuch as maturity and use as inputs market-based or
independently sourced parameters. Where this is the casethe price verification process described above is applied tothe inputs to those models.
Under the Firm’s Estimations and Model Risk Management
Policy, the Model Risk function reviews and approves newmodels, as well as material changes to existing models,prior to implementation in the operating environment. In
certain circumstances, the head of the Model Risk function
may grant exceptions to the Firm’s policy to allow a model
to be used prior to review or approval. The Model Risk
function may also require the user to take appropriate
actions to mitigate the model risk if it is to be used in theinterim. These actions will depend on the model and may
include, for example, limitation of trading activity.
Valuation hierarchy
A three-level valuation hierarchy has been establishedunder U.S. GAAP for disclosure of fair value measurements.
The valuation hierarchy is based on the transparency of
inputs to the valuation of an asset or liability as of themeasurement date. The three levels are defined as follows.
•

Level 1 – inputs to the valuation methodology arequoted prices (unadjusted) for identical assets or
liabilities in active markets.

•

Level 2 – inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially thefull term of the financial instrument.

•

Level 3 – one or more inputs to the valuation
methodology are unobservable and significant to the fairvalue measurement.

A financial instrument’s categorization within the valuation
hierarchy is based on the lowest level of input that issignificant to the fair value measurement.

Unobservable parameter valuation adjustments may bemade when positions are valued using prices or input
parameters to valuation models that are unobservable
due to a lack of market activity or because they cannot
be implied from observable market data. Such prices orparameters must be estimated and are, therefore,
subject to management judgment. Unobservable
160

JPMorgan Chase & Co./2018 Form 10-K

The following table describes the valuation methodologies generally used by the Firm to measure its significant products/
instruments at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.
Product/instrument

Valuation methodology

Classifications in the valuation
hierarchy

Securities financing agreements

Valuations are based on discounted cash flows, which consider:
Predominantly level 2• Derivative features: for further information refer to the discussionof derivatives below.
• Market rates for the respective maturity• Collateral characteristics
Loans and lending-related commitments — wholesale
Loans carried at fair value
Where observable market data is available, valuations are based on:
Level 2 or 3
(e.g., trading loans and non• Observed market prices (circumstances are infrequent)
trading loans) and associatedlending-related commitments• 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:• Credit spreads derived from the cost of CDS; or benchmark credit
curves developed by the Firm, by industry and credit rating• Prepayment speed• Collateral characteristics
Loans — consumer
Trading loans — conforming
residential mortgage loans
expected to be sold (CCB, CIB)

Investment and trading
securities

Physical commodities

Fair value is based on observable prices for mortgage-backed
securities with similar collateral and incorporates adjustments tothese prices to account for differences between the securities and thevalue of the underlying loans, which include credit characteristics,
portfolio composition, and liquidity.

Predominantly level 2

Quoted market prices are used where available.

Level 1In the absence of quoted market prices, securities are valued basedon:• 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.

Level 2 or 3

JPMorgan Chase & Co./2018 Form 10-K

Level 1 and 2

161

Notes to consolidated financial statements
Product/instrument

Valuation methodology

Classifications in the valuation
hierarchy

Derivatives

Exchange-traded derivatives that are actively traded and valued using
the exchange price.

Level 1

Derivatives that are valued using models such as the Black-Scholes
option pricing model, simulation models, or a combination of models
that may use observable or unobservable valuation inputs as well as
considering the contractual terms.
The key valuation inputs used will depend on the type of derivative andthe nature of the underlying instruments and may include equity prices,
commodity prices, interest rate yield curves, foreign exchange rates,
volatilities, correlations, CDS spreads and recovery rates. Additionally,
the credit quality of the counterparty and of the Firm as well as market
funding levels may also be considered.

Level 2 or 3

In addition, specific inputs used for derivatives that are valued based onmodels with significant unobservable inputs are as follows:
Structured credit derivatives specific inputs include:• CDS spreads and recovery rates• Credit correlation between the underlying debt instruments
Equity option specific inputs include:• Equity volatilities• Equity correlation• Equity-FX correlation• Equity-IR correlation
Interest rate and FX exotic options specific inputs include:• Interest rate spread volatility• Interest rate correlation• Foreign exchange correlation• Interest rate-FX correlation
Commodity derivatives specific inputs include:• Commodity volatility• Forward commodity price
Additionally, adjustments are made to reflect counterparty credit quality(CVA) and the impact of funding (FVA). Refer to page 175 of this Note.
Mortgage servicing rights

Refer to Mortgage servicing rights in Note 15.

Level 3

Private equity direct
investments

Fair value is estimated using all available information; the range ofpotential inputs include:• Transaction prices• Trading multiples of comparable public companies• Operating performance of the underlying portfolio company• Adjustments as required, since comparable public companies are not
identical to the company being valued, and for company-specificissues and lack of liquidity.

Level 2 or 3

Fund investments (e.g.,mutual/collective investment
funds, private equity funds,
hedge funds, and real estate
funds)
Beneficial interests issued byconsolidated VIEs

• Additional available inputs relevant to the investment.
Net asset value• NAV is supported by the ability to redeem and purchase at the NAV
Level 1level.
• Adjustments to the NAV as required, for restrictions on redemption
Level 2 or 3(a)(e.g., lock-up periods or withdrawal limitations) or where observable
activity is limited.
Valued using observable market information, where available.
Level 2 or 3
In the absence of observable market information, valuations are basedon the fair value of the underlying assets held by the VIE.

(a) Excludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient.

162

JPMorgan Chase & Co./2018 Form 10-K

Product/instrument

Valuation methodology

Structured notes (included indeposits, short-termborrowings and long-term
debt)• Valuations are based on discounted cash flow analyses that consider
the embedded derivative and the terms and payment structure of
the note.

Classification in the valuation
hierarchy
Level 2 or 3

• The embedded derivative features are considered using models suchas the Black-Scholes option pricing model, simulation models, or a
combination of models that may use observable or unobservablevaluation inputs, depending on the embedded derivative. The
specific inputs used vary according to the nature of the embedded
derivative features, as described in the discussion above regarding
derivatives valuation. Adjustments are then made to this basevaluation to reflect the Firm’s own credit risk (DVA). Refer to page
175 of this Note.

JPMorgan Chase & Co./2018 Form 10-K

163

Notes to consolidated financial statements
The following table presents the assets and liabilities reported at fair value as of December 31, 2018 and 2017, by major
product category and fair value hierarchy.
Assets and liabilities measured at fair value on a recurring basis
Fair value hierarchy

December 31, 2018 (in millions)
Federal funds sold and securities purchased under resale agreements
Securities borrowed
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies(a)Residential – nonagency
Commercial – nonagency
Total mortgage-backed securities
U.S. Treasury and government agencies(a)Obligations of U.S. states and municipalities
Certificates of deposit, bankers’ acceptances and commercial paper
Non-U.S. government debt securities
Corporate debt securities
Loans(b)Asset-backed securities
Total debt instruments

Level 1$Equity securities
Physical commodities(c)OtherTotal debt and equity instruments(d)Derivative receivables:
Interest rate
CreditForeign exchange
EquityCommodity
Total derivative receivables(e)Total trading assets(f)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
Obligations of U.S. states and municipalities
Certificates of deposit
Non-U.S. government debt securities
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
Other
Total available-for-sale securities
Loans
Mortgage servicing rights
Other assets(f)(g)Total assets measured at fair value on a recurring basis
Deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
Trading liabilities:
Debt and equity instruments(d)Derivative payables:
Interest rate
CreditForeign exchange
EquityCommodity
Total derivative payables(e)Total trading liabilities
Accounts payable and other liabilities
Beneficial interests issued by consolidated VIEs
Long-term debt
Total liabilities measured at fair value on a recurring basis

164

$
$

$

Level 2— $—Derivative
netting
adjustments

Level 3

13,235
5,105

$

—
—

$

Total fair value— $—13,235
5,105

—
—
—
—
51,477——
27,878———79,35576,2491,798
1,501
79,548
7,702
7,121
1,214
27,056
18,65540,0472,756
184,099

549
64
11
624
—
689
—
155
334
1,706
127
3,635

—
—
—
—
—
—
—
—
—
—
—
—

76,7981,862
1,512
80,172
59,1797,810
1,214
55,08918,98941,7532,883
267,089

71,1195,182—
155,656482
1,855
13,192
199,628

232
—
301
4,168

—
—
—
—

71,833
7,037
13,493
359,452

682—
771

266,380
19,235
166,238

1,642
860
676

(245,490)(19,483)(154,235)

23,214612
13,450——1,453
157,10946,777
20,339518,969
718,597

2,508
131
5,817
9,985

(39,339)(13,479)(472,026)(472,026)

9,946
6,991
54,213413,665————
56,059——15,313—68,6468,519
6,654
83,819—37,723
75
8,789
1,918

—
1
—
1
—
—
—
—
—

—
—
—
—
—
—
—
—
—

68,6468,520
6,654
83,82056,05937,72375
24,102
1,918——
71,372——
7,810
236,291 $— $19,4377,260
159,0213,029—
195
899,182
19,048

—
—
1
122
6,130
927
17,165
4,169

$
$

$
$

—
—
—
—
—
—
(472,026) $— $19,437
7,260
230,394
3,151
6,130
8,932
680,612
23,217

—
—

935
5,607

—
1,523

—
—

935
7,130

80,19922,75550—

103,004

1,526
—
695
—
—
2,221
82,4203,063——
85,483 $239,576
19,309163,549
46,462
21,158490,054512,809196
27
35,468574,090

1,680
967
973
4,733
1,260
9,613
9,663
10
1
19,41834,784$$(234,998)(18,609)(152,432)(41,034)(13,046)(460,119)(460,119)———(460,119) $

7,784
1,667
12,785
10,161
9,372
41,769144,773
3,269
28
54,886234,238

JPMorgan Chase & Co./2018 Form 10-K

Fair value hierarchy

December 31, 2017 (in millions)
Federal funds sold and securities purchased under resale agreements
Securities borrowed
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies(a)Residential – nonagency
Commercial – nonagency
Total mortgage-backed securities
U.S. Treasury and government agencies(a)Obligations of U.S. states and municipalities
Certificates of deposit, bankers’ acceptances and commercial paper
Non-U.S. government debt securities
Corporate debt securities
Loans(b)Asset-backed securities
Total debt instruments
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(f)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
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(g)Total available-for-sale securities
Loans
Mortgage servicing rights
Other assets(f)(g)Total assets measured at fair value on a recurring basis
Deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
Trading liabilities:
Debt and equity instruments(d)Derivative payables:
Interest rate
CreditForeign exchange
EquityCommodity
Total derivative payables(e)Total trading liabilities
Accounts payable and other liabilities
Beneficial interests issued by consolidated VIEs
Long-term debt
Total liabilities measured at fair value on a recurring basis

Level 1$$$$

Level 2
— $—14,732
3,049

Derivative
netting
adjustments

Level 3$——$

Total fair value——$

14,732
3,049

—
—
—
—
30,758——28,887———59,64587,346
4,924—
151,915

41,515
1,835
1,645
44,995
6,475
9,067
226
28,831
24,14635,242
3,284
152,266
197
1,322
14,197
167,982

307
60
11
378
1
744
—
78
312
2,719
153
4,385
295
—
690
5,370

—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—

41,822
1,895
1,656
45,37337,2349,811
226
57,79624,45837,961
3,437
216,296
87,8386,246
14,887
325,267

181
—
841
—
—
1,022
152,937

314,107
21,995
158,834
37,722
19,875552,533
720,515

1,704
1,209
557
2,318
210
5,998
11,368(291,319)(22,335)(144,081)(32,158)(13,137)(503,030)(503,030)

24,673869
16,151
7,882
6,948
56,523
381,790————
22,745——
18,140—70,28011,366
5,025
86,671—32,338
59
9,154
2,757

—
1
—
1
—
—
—
—
—

—
—
—
—
—
—
—
—
—

70,28011,367
5,025
86,672
22,74532,33859
27,294
2,757

—
—
547
41,432——
13,795
208,164 $— $——20,7208,817—
160,5162,232—
343
901,387
17,179
697
7,526

276
—
—
277
276
6,030
1,265
19,216
4,142
—
1,665

—
—
—
—
—
—
—
(503,030)———

20,9968,817
547
202,225
2,508
6,030
15,403625,737
21,321
697
9,191

64,664

21,18339—

85,886

170
—
794
—
—
964
65,628
9,074——
74,702 $282,825
22,009154,075
39,66821,017
519,594
540,777121
631,394
597,700

1,440
1,244
953
5,727
884
10,248
10,28713
39
16,12532,271(277,306)(21,954)(143,349)(36,203)(14,217)(493,029)(493,029)———(493,029)

7,129
1,299
12,473
9,192
7,684
37,777
123,663
9,208
45
47,519211,644

$
$

$

$
$

$

$
$

$

(a) At December 31, 2018 and 2017, included total U.S. government-sponsored enterprise obligations of $92.3 billion and $78.0 billion, respectively, whichwere predominantly mortgage-related.
(b) At December 31, 2018 and 2017, included within trading loans were $13.2 billion and $11.4 billion, respectively, of residential first-lien mortgages, and$2.3 billion and $4.2 billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originatedwith the intent to sell to U.S. government agencies of $7.6 billion and $5.7 billion, respectively, and reverse mortgages of zero and $836 million,
respectively.

JPMorgan Chase & Co./2018 Form 10-K

165

Notes to consolidated financial statements(c) Physical commodities inventories are generally accounted for at the lower of cost or net realizable value. “Net realizable value” is a term defined in U.S.
GAAP as not exceeding fair value less costs to sell (“transaction costs”). Transaction costs for the Firm’s physical commodities inventories are either not
applicable or immaterial to the value of the inventory. Therefore, net realizable value approximates fair value for the Firm’s physical commodities
inventories. When fair value hedging has been applied (or when net realizable value is below cost), the carrying value of physical commodities
approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. For a further discussion of the
Firm’s hedge accounting relationships, refer to Note 5. To provide consistent fair value disclosure information, all physical commodities inventories havebeen included in each period presented.
(d) Balances reflect the reduction of securities owned (long positions) by the amount of 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 andderivative payables balances for this netting adjustment, either within or across the levels of the fair value hierarchy, as such netting is not relevant to apresentation based on the transparency of inputs to the valuation of an asset or liability. The level 3 balances would be reduced if netting were applied,
including the netting benefit associated with cash collateral.
(f) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to beclassified in the fair value hierarchy. At December 31, 2018 and 2017, the fair values of these investments, which include certain hedge funds, private
equity funds, real estate and other funds, were $747 million and $779 million, respectively. Included in these balances at December 31, 2018 and 2017,
were trading assets of $49 million and $54 million, respectively, and other assets of $698 million and $725 million, respectively.
(g) Effective January 1, 2018, the Firm adopted the recognition and measurement guidance. Equity securities that were previously reported as AFS securities
were reclassified to other assets upon adoption.

166

JPMorgan Chase & Co./2018 Form 10-K

Level 3 valuations
The Firm has established well-structured processes fordetermining fair value, including for instruments where fairvalue is estimated using significant unobservable inputs(level 3). For further information on the Firm’s valuation
process and a detailed discussion of the determination of fairvalue for individual financial instruments, refer to pages 159–
163 of this Note.
Estimating fair value requires the application of judgment.
The type and level of judgment required is largely dependent
on the amount of observable market information available to
the Firm. For instruments valued using internally developed
valuation models and other valuation techniques that use
significant unobservable inputs and are therefore classified
within level 3 of the fair value hierarchy, judgments used toestimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine theappropriate valuation model or other valuation technique touse. Second, due to the lack of observability of significant
inputs, management must assess all relevant empirical data
in deriving valuation inputs including transaction details,
yield curves, interest rates, prepayment speed, default rates,
volatilities, correlations, equity or debt prices, valuations ofcomparable instruments, foreign exchange rates and credit
curves.
The following table presents the Firm’s primary level 3
financial instruments, the valuation techniques used tomeasure the fair value of those financial instruments, thesignificant unobservable inputs, the range of values for those
inputs and, for certain instruments, the weighted averages ofsuch inputs. While the determination to classify an
instrument within level 3 is based on the significance of theunobservable inputs to the overall fair value measurement,
level 3 financial instruments typically include observable
components (that is, components that are actively quoted
and can be validated to external sources) in addition to theunobservable components. The level 1 and/or level 2 inputs
are not included in the table. In addition, the Firm manages
the risk of the observable components of level 3 financial
instruments using securities and derivative positions that areclassified within levels 1 or 2 of the fair value hierarchy.

In the Firm’s view, the input range and the weighted averagevalue do not reflect the degree of input uncertainty or anassessment of the reasonableness of the Firm’s estimates andassumptions. Rather, they reflect the characteristics of thevarious instruments held by the Firm and the relative
distribution of instruments within the range ofcharacteristics. For example, two option contracts may have
similar levels of market risk exposure and valuation
uncertainty, but may have significantly different implied
volatility levels because the option contracts have different
underlyings, tenors, or strike prices. The input range andweighted average values will therefore vary from period-toperiod and parameter-to-parameter based on thecharacteristics of the instruments held by the Firm at eachbalance sheet date.
For the Firm’s derivatives and structured notes positionsclassified within level 3 at December 31, 2018, interest rate
correlation inputs used in estimating fair value wereconcentrated towards the upper end of the range; equity
correlation, equity-FX and equity-IR correlation inputs wereconcentrated in the middle of the range; commodity
correlation inputs were concentrated in the middle of therange; credit correlation inputs were concentrated towards
the lower end of the range; and the interest rate-foreignexchange (“IR-FX”) correlation inputs were distributed acrossthe range. In addition, the interest rate spread volatility
inputs used in estimating fair value were distributed acrossthe range; equity volatilities and commodity volatilities wereconcentrated in the middle of the range; and forward
commodity prices used in estimating the fair value ofcommodity derivatives were concentrated towards the lower
end of the range. Recovery rate inputs used in estimating thefair value of credit derivatives were distributed across therange; credit spreads and conditional default rates wereconcentrated towards the lower end of the range; loss
severity and price inputs were concentrated towards theupper end of the range.

The range of values presented in the table is representativeof the highest and lowest level input used to value thesignificant groups of instruments within a product/instrumentclassification. Where provided, the weighted averages of the
input values presented in the table are calculated based on
the fair value of the instruments that the input is being used
to value.

JPMorgan Chase & Co./2018 Form 10-K

167

Notes to consolidated financial statements
Level 3 inputs(a)December 31, 2018
Product/Instrument
Residential mortgage-backed securities andloans(b)Commercial mortgage-backed securities andloans(c)Obligations of U.S. states and municipalities

Fair value(in millions)$858

Principal valuation
technique
Discounted cash flows

Unobservable inputs(g)Range of input values

Weighted
average

Yield

0%

–

19%

6%

Prepayment speed

0%

–

24%

9%

Conditional default rate

0%

–

9%

1%

Loss severity

0%

–

100%

6%

–

$103

$90

419

Market comparables

Price

$

0

689

Market comparables

Price

$

62

–

$100

$96

Corporate debt securities

334

Market comparables

Price

$

0

–

$107

$57

Loans(d)234Discounted cash flows

Yield

942

Market comparables

Price

$

$101

$78

Asset-backed securities

127

Market comparables

Price

$

$67

Net interest rate derivatives(180)

Option pricing

Interest rate spread volatility
Interest rate correlation
IR-FX correlation

Net credit derivatives

8%
–

1

–

$102

16bps

–

38bps

(45)%

–

97%

45%

–

60%

142

Discounted cash flows

Prepayment speed

4%

–

30%

(163)

Discounted cash flows

Credit correlation

25%

–

55%

Credit spread

10bps– 1,487bps

Recovery rate

20%

–

70%

Conditional default rate

3%

–

72%

Loss severity
56
Net foreign exchange derivatives
Net equity derivatives

Net commodity derivatives

MSRs
Other assets

100%

Market comparables

Price

1

–

$115

(122)

Option pricing

IR-FX correlation

(45)%

–

60%

(175)

Discounted cash flows

Prepayment speed

8%

–

9%

Option pricing

Equity volatility

14%

–

57%

Equity correlation

20%

–

98%

Equity-FX correlation(75 )%–

61%

Equity-IR correlation

20%

–

60%

39

– $56 per barrel(2,225)(1,129)Option pricing

Forward commodity price$$Commodity volatility

5%

–

68%

Commodity correlation(51 )%

–

95%

6,130

Discounted cash flows

Refer to Note 15

306

Discounted cash flows

Credit spread

55bps

Yield
922

Market comparables

Price
EBITDA multiple

Long-term debt, short-term borrowings, anddeposits(e)Other level 3 assets and liabilities, net(f)8%225,110

Option pricing

8%
$

–

20
2.9x

55bps
10%

8%

$108

$40
7.5x

–

8.3x

Interest rate spread volatility

16bps

–

38bps

Interest rate correlation

(45)%

–

97%

IR-FX correlation

(45)%

–

60%

Equity correlation

20%

–

98%

Equity-FX correlation

(75)%

–

61%

Equity-IR correlation

20%

–

60%

326

(a) The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidatedbalance sheets. Furthermore, the inputs presented for each valuation technique in the table are, in some cases, not applicable to every instrument valued
using the technique as the characteristics of the instruments can differ.
(b) Includes U.S. government agency securities of $541 million, nonagency securities of $65 million and trading loans of $252 million.
(c) Includes U.S. government agency securities of $8 million, nonagency securities of $11 million, trading loans of $278 million and non-trading loans of $122
million.
(d) Comprises trading loans.
(e) Long-term debt, short-term borrowings and deposits include structured notes issued by the Firm that are financial instruments that typically containembedded derivatives. The estimation of the fair value of structured notes includes the derivative features embedded within the instrument. The significant
unobservable inputs are broadly consistent with those presented for derivative receivables.
(f) Includes level 3 assets and liabilities that are insignificant both individually and in aggregate.
(g) Price is a significant unobservable input for certain instruments. When quoted market prices are not readily available, reliance is generally placed on pricebased internal valuation techniques. The price input is expressed assuming a par value of $100.

168

JPMorgan Chase & Co./2018 Form 10-K

Changes in and ranges of unobservable inputs
The following discussion provides a description of the impact
on a fair value measurement of a change in each
unobservable input in isolation, and the interrelationshipbetween unobservable inputs, where relevant and significant.
The impact of changes in inputs may not be independent, as achange in one unobservable input may give rise to a change
in another unobservable input. Where relationships do exist
between two unobservable inputs, those relationships are
discussed below. Relationships may also exist between
observable and unobservable inputs (for example, as
observable interest rates rise, unobservable prepayment
rates decline); such relationships have not been included in
the discussion below. In addition, for each of the individual
relationships described below, the inverse relationship would
also generally apply.
The following discussion also provides a description of
attributes of the underlying instruments and external market
factors that affect the range of inputs used in the valuation of
the Firm’s positions.
Yield – The yield of an asset is the interest rate used to
discount future cash flows in a discounted cash flow
calculation. An increase in the yield, in isolation, would resultin a decrease in a fair value measurement.
Credit spread – The credit spread is the amount of additional
annualized return over the market interest rate that a market
participant would demand for taking exposure to the credit
risk of an instrument. The credit spread for an instrument
forms part of the discount rate used in a discounted cash flow
calculation. Generally, an increase in the credit spread would
result in a decrease in a fair value measurement.
The yield and the credit spread of a particular mortgagebacked security primarily reflect the risk inherent in the
instrument. The yield is also impacted by the absolute level ofthe coupon paid by the instrument (which may notcorrespond directly to the level of inherent risk). Therefore,
the range of yield and credit spreads reflects the range of risk
inherent in various instruments owned by the Firm. The risk
inherent in mortgage-backed securities is driven by thesubordination of the security being valued and thecharacteristics of the underlying mortgages within thecollateralized pool, including borrower FICO scores, LTV ratios
for residential mortgages and the nature of the property and/or any tenants for commercial mortgages. For corporate debt
securities, obligations of U.S. states and municipalities andother similar instruments, credit spreads reflect the credit
quality of the obligor and the tenor of the obligation.

underlying borrower, and the remaining tenor of theobligation as well as the level and type (e.g., fixed or floating)of interest rate being paid by the borrower. Typicallycollateral pools with higher borrower credit quality have ahigher prepayment rate than those with lower borrower
credit quality, all other factors being equal.
Conditional default rate – The conditional default rate is ameasure of the reduction in the outstanding collateralbalance underlying a collateralized obligation as a result ofdefaults. While there is typically no direct relationshipbetween conditional default rates and prepayment speeds,
collateralized obligations for which the underlying collateral
has high prepayment speeds will tend to have lower
conditional default rates. An increase in conditional default
rates would generally be accompanied by an increase in loss
severity and an increase in credit spreads. An increase in theconditional default rate, in isolation, would result in adecrease in a fair value measurement. Conditional default
rates reflect the quality of the collateral underlying asecuritization and the structure of the securitization itself.
Based on the types of securities owned in the Firm’s marketmaking portfolios, conditional default rates are most typicallyat the lower end of the range presented.
Loss severity – The loss severity (the inverse concept is therecovery rate) is the expected amount of future realized
losses resulting from the ultimate liquidation of a particularloan, expressed as the net amount of loss relative to theoutstanding loan balance. An increase in loss severity is
generally accompanied by an increase in conditional default
rates. An increase in the loss severity, in isolation, would
result in a decrease in a fair value measurement.
The loss severity applied in valuing a mortgage-backed
security investment depends on factors relating to theunderlying mortgages, including the LTV ratio, the nature of
the lender’s lien on the property and other instrumentspecific factors.

Prepayment speed – The prepayment speed is a measure of
the voluntary unscheduled principal repayments of aprepayable obligation in a collateralized pool. Prepayment
speeds generally decline as borrower delinquencies rise. An
increase in prepayment speeds, in isolation, would result in adecrease in a fair value measurement of assets valued at apremium to par and an increase in a fair value measurementof assets valued at a discount to par.
Prepayment speeds may vary from collateral pool tocollateral pool, and are driven by the type and location of the
JPMorgan Chase & Co./2018 Form 10-K

169

Notes to consolidated financial statements
Correlation – Correlation is a measure of the relationshipbetween the movements of two variables (e.g., how thechange in one variable influences the change in the other).
Correlation is a pricing input for a derivative product where
the payoff is driven by one or more underlying risks.
Correlation inputs are related to the type of derivative (e.g.,interest rate, credit, equity, foreign exchange andcommodity) due to the nature of the underlying risks. Whenparameters are positively correlated, an increase in one
parameter will result in an increase in the other parameter.
When parameters are negatively correlated, an increase in
one parameter will result in a decrease in the otherparameter. An increase in correlation can result in an
increase or a decrease in a fair value measurement. Given a
short correlation position, an increase in correlation, in
isolation, would generally result in a decrease in a fair value
measurement.
The level of correlation used in the valuation of derivatives
with multiple underlying risks depends on a number offactors including the nature of those risks. For example, thecorrelation between two credit risk exposures would be
different than that between two interest rate risk exposures.
Similarly, the tenor of the transaction may also impact thecorrelation input, as the relationship between the underlying
risks may be different over different time periods.
Furthermore, correlation levels are very much dependent onmarket conditions and could have a relatively wide range oflevels within or across asset classes over time, particularly involatile market conditions.
Volatility – Volatility is a measure of the variability in possible
returns for an instrument, parameter or market index given
how much the particular instrument, parameter or index
changes in value over time. Volatility is a pricing input for
options, including equity options, commodity options, andinterest rate options. Generally, the higher the volatility of
the underlying, the riskier the instrument. Given a longposition in an option, an increase in volatility, in isolation,
would generally result in an increase in a fair value
measurement.

EBITDA multiple – EBITDA multiples refer to the input (often
derived from the value of a comparable company) that is
multiplied by the historic and/or expected earnings before
interest, taxes, depreciation and amortization (“EBITDA”) of acompany in order to estimate the company’s value. An
increase in the EBITDA multiple, in isolation, net ofadjustments, would result in an increase in a fair value
measurement.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the Consolidatedbalance sheets amounts (including changes in fair value) for
financial instruments classified by the Firm within level 3 ofthe fair value hierarchy for the years ended December 31,
2018, 2017 and 2016. When a determination is made toclassify a financial instrument within level 3, thedetermination is based on the significance of theunobservable inputs to the overall fair value measurement.
However, level 3 financial instruments typically include, in
addition to the unobservable or level 3 components,
observable components (that is, components that are actively
quoted and can be validated to external sources);
accordingly, the gains and losses in the table below include
changes in fair value due in part to observable factors thatare part of the valuation methodology. Also, the Firm riskmanages the observable components of level 3 financial
instruments using securities and derivative positions that areclassified within level 1 or 2 of the fair value hierarchy; asthese level 1 and level 2 risk management instruments are
not included below, the gains or losses in the following tables
do not reflect the effect of the Firm’s risk management
activities related to such level 3 instruments.

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.

170

JPMorgan Chase & Co./2018 Form 10-K

Fair value measurements using significant unobservable inputs

Year ended
December 31, 2018
(in millions)Total
realized/unrealized
gains/(losses)Fairvalue atJanuary
1, 2018

Purchases(f)Sales

Settlements(g)Transfers
intolevel 3(h)Transfers(out of)level 3(h)Fairvalue atDec. 31,2018

Change inunrealized
gains/(losses)
related tofinancial
instruments heldat Dec. 31,
2018

Assets:(a)

Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies

307 $

(23)

478 $

(164)

(73) $

94 $(70) $

549

Residential – nonagency

$

60

(2)

78

(50)

(7)

59

(74)

64

1

Commercial – nonagency

11

2

18

(18)

(17)

36

(21)

11

(2)

Total mortgage-backed
securities

$

$

$

(21)

378

(23)

574

(232)

(97)

189

(165)

624

(22)

U.S. Treasury and government
agencies

1

—

—

—

—

—

(1)

—

—

Obligations of U.S. states andmunicipalities

—

—

689

(17)

744

(17)

112

(70)

(80)

Non-U.S. government debt
securities

78

(22)

459

(277)

(12)

23

(94)

155

(9)

Corporate debt securities

312

(18)

364

(309)

(48)

262

(229)

334

(1)

2,719

26

1,364

(1,793)

(658)

813

(765)

1,706

(1)

153

28

98

(41)

(55)

45

(101)

127

22

Total debt instruments

4,385

(26)

2,971

(2,722)

(950)

1,332

(1,355)

3,635

(28)

Equity securities

295

(40)

118

(120)

(1)

107

(127)

232

9

Other

690

(285)

55

(40)

(118)

3

(4)

301

(301)

5,370

(351) (c)3,144(2,882)(1,069)1,442(1,486)4,168(320) (c)Interest rate

264

150

107

(133)

(430)

(15)

19

(38)

187

Credit

(35)

(40)

5

(7)

(57)

4

23

(107)

(28)

Foreign exchange

(396)

103

52

(20)

30

(108)

42

(297)

(63)

(3,409)

198

1,676

(2,208)

1,805

(617)

330

(2,225)561

Loans
Asset-backed securities

Total trading assets – debt andequity instruments
Net derivative receivables:(b)EquityCommodity
Total net derivative receivables

(674)

(73)

(4,250)

338

(c)

1

(72)

(301)

7

(17)

(1,129)

146

1,841

(2,440)

1,047

(729)

397

(3,796)803(c)

Available-for-sale securities:
Mortgage-backed securities

1

—

—

—

—

—

—

1

—

Asset-backed securities

276

1

—

—

(277)

—

—

—

—

Total available-for-sale securities

277

1

(d)

—

—

(277)

—

—

1

—

Loans

276

(7) (c)

123

—

(196)

—

(74)

122

(7) (c)Mortgage servicing rights

6,030

230

(e)

1,246

(636)

(740)

—

—

6,130

230

Other assets

1,265(328) (c)

61

(37)

(37)

4

(1)

927

(340) (c)(e)

Fair value measurements using significant unobservable inputs

Year ended
December 31, 2018
(in millions)
Liabilities:

Fair
value atJanuary
1, 2018

Total
realized/unrealized(gains)/lossesPurchases

Sales

Issuances Settlements(g)Transfers
intolevel 3(h)Transfers(out of)level 3(h)Fairvalue atDec. 31,2018

Change inunrealized(gains)/losses
related tofinancial
instruments heldat Dec. 31,
2018

(a)

Deposits$ 4,142 $ (136) (c)(i)— $— $ 1,437 $

—

—

—

—

—

—

—

—

(329) (c)(i)

—

—

3,455

(3,388)

272

(152)

1,523

(131) (c)(i)

(99)

114

—

(1)

14

(36)

50

16

—

(12)

5

—

—

4

—

10

—

—

—

1

—

(39)

—

—

1

(1,169) (c)(i)——11,919(7,769)

1,143

(831)

19,418Federal funds purchased andsecurities loaned or sold under
repurchase agreements
Short-term borrowings

1,665

Trading liabilities – debt and equity
instruments

39

19

Accounts payable and other liabilities

13—

Beneficial interests issued byconsolidated VIEs
Long-term debt

39
16,125

JPMorgan Chase & Co./2018 Form 10-K(c)$(736) $

2 $(540) $ 4,169$ (204) (c)(i)
—

(c)

—
(1,385) (c)(i)171Notes to consolidated financial statements
Fair value measurements using significant unobservable inputs

Year ended
December 31, 2017
(in millions)

Fair value
at January
1, 2017

Total
realized/unrealized
gains/(losses)

Purchases(f)

$

$

Sales

Settlements(g)Transfers
intolevel 3(h)Transfers(out of)level 3(h)Fairvalue atDec. 31,2017

Change inunrealized
gains/(losses)
related tofinancial
instruments heldat Dec. 31,
2017

Assets:(a)Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies

392$ (11)(70) $

49 $(43) $

307

Residential – nonagency

83

19

53

(30)

(64)

132

(133)

60

11

Commercial – nonagency

17

9

27

(44)

(13)

64

(49)

11

1

Total mortgage-backed
securities

161 $ (171)

$

$

(20)

492

17

241

(245)

(147)

245

(225)

378

(8)

U.S. Treasury and government
agencies

—

—

—

—

—

1

—

1

—

Obligations of U.S. states andmunicipalities

649

18

152

(70)

(5)

—

—

744

15

Non-U.S. government debt
securities

46

—

559

(518)

—

62

(71)

78

—

Corporate debt securities

576

11

872

(612)

(497)

157

(195)

312

18

4,837

333

2,389

(2,832)(1,323)806(1,491)

2,719

43

302

32

354

(356)

(56)

75

(198)

153

—

Total debt instruments

6,902

411

4,567

(4,633)(2,028)1,346(2,180)4,38568Equity securities

231

39

176

(148)

(4)

59

(58)

295

21

Other

761

100

30

(46)

(162)

17

(10)

690

39

7,894

550

4,773

(4,827)(2,194)

1,422(2,248)

5,370

128

Loans
Asset-backed securities

Total trading assets – debt andequity instruments
Net derivative receivables:(b)Interest rate

(c)

1,263

72

60

(82)

(1,040)

(8)

(1)

264

(473)

98

(164)

1

(6)

—

77

(41)

(35)

32

Foreign exchange(1,384)

43

13

(10)

854

(61)

149

(396)

42

Equity(2,252)

(417)

1,116

(551)

(245)

(1,482)422(3,409)

(161)

(85)

(149)

(2,360)(615) (c)CreditCommodity
Total net derivative receivables

—

—

(433)

(6)

(1)

(674)

(718)

1,190

(649)

(864)

(1,480)528(4,250)(1,278) (c)Available-for-sale securities:
Mortgage-backed securities

(c)

—

—
1

—

—

—

—

—

—

1

—

Asset-backed securities

663

15

—

(50)

(352)

—

—

276

14

Total available-for-sale securities

664

15

(d)

—

(50)

(352)

—

—

277

14

(d)

Loans

570

35

(c)

—

(26)

(303)

—

—

276

3

(c)

Mortgage servicing rights

6,096

(232)

(e)

1,103

(140)

(797)

—

—

6,030

(232) (e)Other assets

2,223

244

(c)

66

(177)

(870)

—

(221)

1,265

74

(c)

Fair value measurements using significant unobservable inputs

Year ended
December 31, 2017
(in millions)
Liabilities:

Fair
value atJanuary
1, 2017

Total
realized/unrealized(gains)/lossesPurchases$ 2,117$ 152$

IssuancesSettlements(g)Transfers(out of)level 3(h)Fairvalue atDec. 31,2017(a)

Deposits

— $

— $

—

—

—

—

—

—

—

—

—

—

3,289

(2,748)

150

(202)

1,665

7

(3) (c)

(46)

48

—

3

3

(9)

39

—

13

(2)

(1)

—

—

3

—

—

13

(2)

48

2

(122)

39

—

(6)

78

—

39

—

12,850

1,067

—

—

12,458(10,985)1,660(925) 16,125552

Federal funds purchased andsecurities loaned or sold under
repurchase agreements
Short-term borrowings

—

—

1,134

42

Trading liabilities – debt and equity
instruments

43

Accounts payable and other liabilities
Beneficial interests issued byconsolidated VIEs
Long-term debt

172

Sales

Transfers
intolevel 3(h)Change inunrealized(gains)/losses
related tofinancial
instruments heldat Dec. 31,
2017(c)(i)(c)(i)(c)(c)(i)

3,027$(291) $

11 $(874) $ 4,142$ 198(c)(i)(c)(i)(c)(i)

JPMorgan Chase & Co./2018 Form 10-K

Fair value measurements using significant unobservable inputs

Year ended
December 31, 2016
(in millions)

Total
Fair
realized/
value at unrealized
January
gains/
1, 2016 (losses) Purchases(f)Sales

Settlements(g)Transfers
intolevel 3(h)

$

$

$

Transfers(out of)level 3(h)Fair valueatDec. 31,2016

Change inunrealized
gains/(losses)
related tofinancial
instruments heldat Dec. 31,
2016

Assets:(a)Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies

135$ (295)

111 $(139) $ 392

Residential – nonagency

194

4

252

(319)

(20)

67

(95)

83

5

Commercial – nonagency

115

(11)

69

(29)

(3)

173

(297)

17

3

1,024

(27)

456

(643)

(138)

351

(531)

492

(28)

149

(132)

(38)

—

—

649

—

Total mortgage-backed
securities
Obligations of U.S. states andmunicipalities

715 $ (20)

$

(115)

$

(36)

651

19

Non-U.S. government debt
securities

74

(4)

91

(97)

(7)

19

(30)

46

(7)

Corporate debt securities

736

2

445

(359)

(189)

148

(207)

576

(22)

Loans

6,604

(343)

2,228

(2,598)(1,311)

1,044

(787)

4,837

(169)

Asset-backed securities

1,832

39

655

(712)

(968)

288

(832)

302

19

Total debt instruments

10,921

(314)

4,024

(4,541)(2,651)

1,850(2,387)

6,902

(207)

Equity securities

265

—

90

(108)

(40)

29

(5)

231

7

—

—

—

—

—

—

—

—

—

744

79

649

(287)

(360)

26

(90)

761

28

11,930(235) (c)4,763

(4,936)(3,051)

1,905(2,482)

7,894(172) (c)Physical commodities
Other
Total trading assets – debt andequity instruments
Net derivative receivables:(b)Interest rate

876

756

193

(57)

(713)

(14)

222

1,263

(144)

Credit

549

(742)

10

(2)

211

36

36

98

(622)

Foreign exchange

(725)

67

64

(124)

(649)

(48)

31

(1,384)(350)(1,514)

(145)

277

(852)

213

94

(325) (2,252)

(86)

(935)

194

1

10

645

8

(8)

(1,749)130545(1,025)(293)76(44) (2,360)

1

—

—

—

—

—

—

1

—

823

1

—

—

(119)

—

(42)

663

1

EquityCommodity
Total net derivative receivables

(c)

(85)

(36)
(1,238) (c)Available-for-sale securities:
Mortgage-backed securities
Asset-backed securities
Total available-for-sale securities

824

1

(d)

—

—

(119)

—

(42)

664

1

Loans

1,518

(49) (c)

259

(7)

(838)

—

(313)

570

—

Mortgage servicing rights

6,608(163) (e)

679

(109)

(919)

—

—

6,096

(163) (e)Other assets

2,401

130

487

(496)

(299)

—

—

2,223

48

(c)

(d)

(c)

Fair value measurements using significant unobservable inputs

Year ended
December 31, 2016
(in millions)

Total
Fair
realized/
value at unrealized
January (gains)/
1, 2016
lossesPurchases

Sales$ 2,950 $ (56) (c)$$IssuancesSettlements(g)Transfers
intolevel 3(h)$$Transfers(out of)level 3(h)Fair value
at Dec. 31,
2016

Change inunrealized(gains)/losses
related tofinancial
instruments heldat Dec. 31,
2016

Liabilities:(a)Deposits

—

— $

1,375

(1,283)— $(869) $ 2,117

$

23

(c)

Federal funds purchased andsecurities loaned or sold under
repurchase agreements
Short-term borrowings

—

—

—

—

—

(2)

6

(4)

—

639

(230) (c)

—

—

1,876

(1,210)

114

(55)

1,134

(70) (c)Trading liabilities – debt and equity
instruments

63(12) (c)

(15)

23

—

(22)

13

(7)

43

(18) (c)Accounts payable and other liabilities

19

—

—

—

—

(6)

—

—

13

—

(31) (c)

—

—

143

(613)

—

—

48

6

(c)

147

—

—

8,140

(5,810)315(1,389) 12,850

639

(c)

Beneficial interests issued byconsolidated VIEs
Long-term debt

549
11,447

JPMorgan Chase & Co./2018 Form 10-K

(c)

—

173

Notes to consolidated financial statements(a) Level 3 assets as a percentage of total Firm assets accounted for at fair value (including assets measured at fair value on a nonrecurring basis) were 3%, 3% and 4% at December 31,
2018, 2017 and 2016 respectively. 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%, 15% and 12% at December 31, 2018, 2017 and 2016, respectively.
(b) All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty.
(c) Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans, and lending-related commitments originated with the intent to sell, andmortgage loan purchase commitments, which are reported in mortgage fees and related income.
(d) Realized gains/(losses) on AFS securities, as well as other-than-temporary impairment (“OTTI”) losses that are recorded in earnings, are reported in investment securities gains/(losses).
Unrealized gains/(losses) are reported in OCI. Realized gains/(losses) and foreign exchange hedge accounting adjustments recorded in income on AFS securities were $1 million, zero andzero for the years ended December 31, 2018, 2017 and 2016, respectively. Unrealized gains/(losses) recorded on AFS securities in OCI were zero, $15 million and $1 million for the years
ended December 31, 2018, 2017 and 2016, respectively.
(e) Changes in fair value for MSRs are reported in mortgage fees and related income.
(f) Loan originations are included in purchases.
(g) Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, deconsolidations associated with beneficial interests in VIEs and otheritems.
(h) All transfers into and/or out of level 3 are based on changes in the observability and/or significance of the valuation inputs and are assumed to occur at the beginning of the quarterly
reporting period in which they occur.
(i) Realized (gains)/losses due to DVA for fair value option elected liabilities are reported in principal transactions revenue, and they were not material for the years ended December 31,
2018 and 2017, respectively. Unrealized (gains)/losses are reported in OCI, and they were $(277) million and $(48) million for the years ended December 31, 2018 and 2017,
respectively.

Level 3 analysis
Consolidated balance sheets changes
Level 3 assets (including assets measured at fair value on anonrecurring basis) were 0.7% of total Firm assets at
December 31, 2018. The following describes significant
changes to level 3 assets since December 31, 2017, for those
items measured at fair value on a recurring basis. For further
information on changes impacting items measured at fair value
on a nonrecurring basis, refer to Assets and liabilities measured
at fair value on a nonrecurring basis on page 176.
For the year ended December 31, 2018
Level 3 assets were $17.2 billion at December 31, 2018,reflecting a decrease of $2.1 billion from December 31, 2017,
largely due to:• $1.2 billion decrease in trading assets — debt and equity
instruments predominantly driven by a decrease of $1.0
billion in trading loans primarily due to settlements and net
sales.
Transfers between levels for instruments carried atfair value on a recurring basis
During the year ended December 31, 2018, transfers from level3 into level 2 included the following:• $1.5 billion of total debt and equity instruments, themajority of which were trading loans, driven by an increasein observability.
• $1.2 billion of gross equity derivative receivables and $1.5
billion of gross equity derivative payables as a result of anincrease in observability and a decrease in the significanceof unobservable inputs.
During the year ended December 31, 2018, transfers from level2 into level 3 included the following:• $1.4 billion of total debt and equity instruments, themajority of which were trading loans, driven by a decrease inobservability.
• $1.0 billion of gross equity derivative receivables and $1.6
billion of gross equity derivative payables as a result of adecrease in observability and an increase in the significanceof unobservable inputs.
• $1.1 billion of long-term debt driven by a decrease inobservability and an increase in the significance ofunobservable inputs for certain structured notes.
During the year ended December 31, 2017, transfers from level3 into level 2 included the following:• $1.5 billion of trading loans driven by an increase inobservability.

174•$1.2 billion of gross equity derivative payables as a result of
an increase in observability and a decrease in thesignificance of unobservable inputs.
During the year ended December 31, 2017, transfers from level2 into level 3 included the following:• $1.0 billion of gross equity derivative receivables and $2.5
billion of gross equity derivative payables as a result of adecrease in observability and an increase in the significanceof unobservable inputs.
• $1.7 billion of long-term debt driven by a decrease inobservability and an increase in the significance ofunobservable inputs for certain structured notes.
During the year ended December 31, 2016, transfers from level3 into level 2 included the following:•$1.4 billion of long-term debt driven by an increase inobservability and a reduction in the significance ofunobservable inputs for certain structured notes.

During the year ended December 31, 2016, transfers from level2 into level 3 included the following:••$1.1 billion of gross equity derivative receivables and $1.0
billion of gross equity derivative payables as a result of an
decrease in observability and an increase in the significanceof unobservable inputs.
$1.0 billion of trading loans driven by a decrease inobservability.

All transfers are based on changes in the observability and/or
significance of the valuation inputs and are assumed to occur atthe beginning of the quarterly reporting period in which theyoccur.
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, 2018,2017 and 2016. For further information on these instruments,
refer to Changes in level 3 recurring fair value measurements
rollforward tables on pages 170-174.
2018• $1.6 billion of net gains on liabilities largely driven bymarket movements in long-term debt.
2017• $1.3 billion of net losses on liabilities predominantly driven
by market movements in long-term debt.
2016• There were no individually significant movements for theyear ended December 31, 2016.
JPMorgan Chase & Co./2018 Form 10-K

Credit and funding adjustments – derivatives
Derivatives are generally valued using models that use as
their basis observable market parameters. These market
parameters generally do not consider factors such ascounterparty nonperformance risk, the Firm’s own credit
quality, and funding costs. Therefore, it is generally
necessary to make adjustments to the base estimate of fairvalue to reflect these factors.
CVA represents the adjustment, relative to the relevantbenchmark interest rate, necessary to reflect counterparty
nonperformance risk. The Firm estimates CVA using a
scenario analysis to estimate the expected positive credit
exposure across all of the Firm’s existing positions with eachcounterparty, and then estimates losses based on theprobability of default and estimated recovery rate as aresult of a counterparty credit event considering
contractual factors designed to mitigate the Firm’s credit
exposure, such as collateral and legal rights of offset. The
key inputs to this methodology are (i) the probability of a
default event occurring for each counterparty, as derived
from observed or estimated CDS spreads; and (ii) estimatedrecovery rates implied by CDS spreads, adjusted to consider
the differences in recovery rates as a derivative creditor
relative to those reflected in CDS spreads, which generally
reflect senior unsecured creditor risk.
FVA represents the adjustment to reflect the impact offunding and is recognized where there is evidence that amarket participant in the principal market would
incorporate it in a transfer of the instrument. The Firm’s
FVA framework, applied to uncollateralized (including
partially collateralized) over-the-counter (“OTC”)
derivatives incorporates key inputs such as: (i) the expected
funding requirements arising from the Firm’s positions with

JPMorgan Chase & Co./2018 Form 10-K

each counterparty and collateral arrangements; and (ii) the
estimated market funding cost in the principal market
which, for derivative liabilities, considers the Firm’s credit
risk (DVA). For collateralized derivatives, the fair value isestimated by discounting expected future cash flows at therelevant overnight indexed swap rate given the underlying
collateral agreement with the counterparty, and therefore aseparate FVA is not necessary.
The following table provides the impact of credit andfunding adjustments on principal transactions revenue inthe respective periods, excluding the effect of any
associated hedging activities. The FVA presented below
includes the impact of the Firm’s own credit quality on the
inception value of liabilities as well as the impact of changes
in the Firm’s own credit quality over time.
Year ended December 31,(in millions)

2018

2017

2016

Credit and funding adjustments:
Derivatives CVA
Derivatives FVA

$

193
(74)

$

802
(295)

$

(84)
7

Valuation adjustments on fair value option electedliabilities
The valuation of the Firm’s liabilities for which the fair value
option has been elected requires consideration of the Firm’s
own credit risk. DVA on fair value option elected liabilities
reflects changes (subsequent to the issuance of the liability)
in the Firm’s probability of default and LGD, which are
estimated based on changes in the Firm’s credit spread
observed in the bond market. Realized (gains)/losses due to
DVA for fair value option elected liabilities are reported inprincipal transactions revenue. Unrealized (gains)/losses
are reported in OCI. Refer to page 174 in this Note and Note
23 for further information.

175

Notes to consolidated financial statements
Assets and liabilities measured at fair value on a nonrecurring basis
The following tables present the assets held as of December 31, 2018 and 2017, respectively, for which a nonrecurring fairvalue adjustment was recorded during the years ended December 31, 2018 and 2017, respectively, by major product category
and fair value hierarchy.
Fair value hierarchy
December 31, 2018 (in millions)Level 1Loans$

Other assets(a)Total assets measured at fair value on a nonrecurring basis$

Level 2

— $

273

—

8

— $

281

Total fairvalue

Level 3
$

264

(b)

$

815
$

1,079

537
823

$

1,360

Fair value hierarchy
December 31, 2017 (in millions)Level 1Loans$

Other assets
Total assets measured at fair value on a nonrecurring basis$

Level 2

— $

238

—

283

— $

521

Total fairvalue

Level 3
$

596

$

834

$

1,300

183
$

779

466

(a) Primarily includes equity securities without readily determinable fair values that were adjusted based on observable price changes in orderly transactions
from an identical or similar investment of the same issuer (measurement alternative) as a result of the adoption of the recognition and measurement
guidance. Of the $815 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2018, $667 million related to such
equity securities. These equity securities are classified as level 3 due to the infrequency of the observable prices and/or the restrictions on the shares.
(b) Of the $264 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2018, $225 million related to residential realestate loans carried at the net realizable value of the underlying collateral (e.g., collateral-dependent loans and other loans charged off in accordance withregulatory guidance). These amounts are classified as level 3 as they are valued using information from broker’s price opinions, appraisals and automatedvaluation models and discounted based upon the Firm’s experience with actual liquidation values. These discounts ranged from 13% to 54% with aweighted average of 25%.

There were no material liabilities measured at fair value on a nonrecurring basis at December 31, 2018 and 2017.
Nonrecurring fair value changes
The following table presents the total change in value of
assets and liabilities for which a fair value adjustment has
been recognized for the years ended December 31, 2018,2017 and 2016, related to financial instruments held at
those dates.
December 31, (in millions)

2018

2017

2016

Loans

$ (68)$ (159)$ (209)

(148)

37

—

(1)

—

64

$ (308)$ (172)Other assets
Accounts payable and otherliabilities
Total nonrecurring fair value
gains/(losses)

132

$

(a)

(a) Included $149 million for the year ended 2018 of net gains as a resultof the measurement alternative.

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), refer to Note 12.

176

JPMorgan Chase & Co./2018 Form 10-K

Equity securities without readily determinable fair values
As a result of the adoption of the recognition and measurement guidance and the election of the measurement alternative inthe first quarter of 2018, the Firm measures certain equity securities without readily determinable fair values at cost less
impairment (if any), plus or minus observable price changes from an identical or similar investment of the same issuer, withsuch changes recognized in other income.
In its determination of the new carrying values upon observable price changes, the Firm may adjust the prices if deemednecessary to arrive at the Firm’s estimated fair values. Such adjustments may include adjustments to reflect the different rights
and obligations of similar securities, and other adjustments that are consistent with the Firm’s valuation techniques for private
equity direct investments.
The following table presents the carrying value of equity securities without readily determinable fair values held as ofDecember 31, 2018, that are measured under the measurement alternative and the related adjustments recorded during theperiods presented for those securities with observable price changes. These securities are included in the nonrecurring fairvalue tables when applicable price changes are observable.
As of or for the(in millions)Year ended
December 31, 2018

Other assets
Carrying value

$

1,510

Upward carrying value changes

309

Downward carrying value changes/impairment(160)

Included in other assets above is the Firm’s interest in approximately 40 million Visa Class B shares, recorded at a nominal
carrying value. These shares are subject to certain transfer restrictions currently and will be convertible into Visa Class A
shares upon final resolution of certain litigation matters involving Visa. The conversion rate of Visa Class B shares into Visa
Class A shares is 1.6298 at December 31, 2018, and may be adjusted by Visa depending on developments related to thelitigation matters.
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. 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 thescope of these disclosure requirements. Accordingly, the fairvalue disclosures provided in the following table include
only a partial estimate of the fair value of JPMorgan Chase’s
assets and liabilities. For example, the Firm has developed
long-term relationships with its customers through its
deposit base and credit card accounts, commonly referred
to as core deposit intangibles and credit card relationships.
In the opinion of management, these items, in theaggregate, add significant value to JPMorgan Chase, but
their fair value is not disclosed in this Note.

JPMorgan Chase & Co./2018 Form 10-K

Financial instruments for which carrying value approximatesfair value
Certain financial instruments that are not carried at fairvalue on the Consolidated balance sheets are carried at
amounts that approximate fair value, due to their shortterm nature and generally negligible credit risk. These
instruments include cash and due from banks, deposits withbanks, federal funds sold, securities purchased under resaleagreements and securities borrowed, short-term
receivables and accrued interest receivable, short-termborrowings, federal funds purchased, securities loaned andsold under repurchase agreements, accounts payable, andaccrued liabilities. In addition, U.S. GAAP requires that thefair value of deposit liabilities with no stated maturity (i.e.,demand, savings and certain money market deposits) beequal to their carrying value; recognition of the inherent
funding value of these instruments is not permitted.

177Notes to consolidated financial statements
The following table presents by fair value hierarchy classification the carrying values and estimated fair values at
December 31, 2018 and 2017, of financial assets and liabilities, excluding financial instruments that are carried at fair value
on a recurring basis, and their classification within the fair value hierarchy.

Carryingvalue(in billions)

December 31, 2018

December 31, 2017

Estimated fair value hierarchy

Estimated fair value hierarchy

Level 1

Level 2Total
estimated
fair value

Level 3Carrying
value

Level 1

Level 2Total
estimated
fair value

Level 3Financial assets
Cash and due from banks
Deposits with banks
Accrued interest and accounts
receivable
Federal funds sold andsecurities purchased underresale agreements
Securities borrowed
Investment securities, held-tomaturity$

22.3 $
256.5

22.3 $
256.5

72.0

—

71.9

0.1

308.4

—

308.4

106.9

—

106.9

31.4

—

Loans, net of allowance for968.0
loan losses(a)Other(b)60.5
Financial liabilities
Deposits$ 1,447.4 $Federal funds purchased andsecurities loaned or sold
181.4
under repurchase agreements
Short-term borrowings
62.1
Accounts payable and other160.6
liabilities
Beneficial interests issued by
20.2
consolidated VIEs
Long-term debt and juniorsubordinated deferrable
227.1
interest debentures

— $
—

— $
—

22.3
256.5

25.9 $
405.4

25.9 $
401.8

— $
3.6

— $
—

25.9
405.4

72.0

67.0

—

67.0

—

67.0

—

308.4

—

106.9

183.7

—

183.7

—

183.7

102.1

—

102.1

—

102.1

31.5

—

31.5

47.7

—

48.7

—

48.7

—

241.5

—

59.6

728.5

970.0

914.6

—

213.2

707.1

920.3

1.0

60.6

53.9

—

52.1

9.2

61.3

— $ 1,447.5 $— $ 1,447.5

—

181.4

—

181.4

—

62.1

—

0.2

157.0

—
—

$

$ 1,422.7 $— $ 1,422.7 $— $ 1,422.7

158.2

—

158.2

—

158.2

62.1

42.6

—

42.4

0.2

42.6

3.0

160.2

152.0

—

148.9

2.9

151.8

20.2

—

20.2

26.0

—

26.0

—

26.0

224.6

3.3

227.9

236.6

—

240.3

3.2

243.5

Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior periodamounts were revised. For additional information, refer to Note 1.

(a) Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal, contractualinterest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and primary origination orsecondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. The difference between the estimated fairvalue and carrying value of a financial asset or liability is the result of the different methodologies used to determine fair value as compared with carrying value. For
example, credit losses are estimated for a financial asset’s remaining life in a fair value calculation but are estimated for a loss emergence period in the allowance forloan loss calculation; future loan income (interest and fees) is incorporated in a fair value calculation but is generally not considered in the allowance for loan losses.
(b) The prior period amounts have been revised to conform with the current period presentation.

The majority of the Firm’s lending-related commitments are not carried at fair value on a recurring basis on the Consolidatedbalance sheets. The carrying value of the wholesale allowance for lending-related commitments and the estimated fair value ofthese wholesale lending-related commitments were as follows for the periods indicated.

(in billions)

Carrying
value(a)Wholesale lendingrelated commitments $1.0 $December 31, 2018

December 31, 2017

Estimated fair value hierarchy

Estimated fair value hierarchy

Level 1

Level 2
— $Level 3— $Totalestimated
fair value

2.1 $

2.1

Carrying
value(a)$1.1 $Level 1

Level 2
— $Level 3— $Totalestimated
fair value

1.6 $

1.6

(a) Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which is recognized at fair value at the inception of theguarantees.

The Firm does not estimate the fair value of consumer lending-related commitments. In many cases, the Firm can reduce orcancel these commitments by providing the borrower notice or, in some cases as permitted by law, without notice. For a further
discussion of the valuation of lending-related commitments, refer to page 161 of this Note.

178

JPMorgan Chase & Co./2018 Form 10-K

Note 3 – Fair value option
The fair value option provides an option to elect fair value
as an alternative measurement for selected financial assets,financial liabilities, unrecognized firm commitments, andwritten loan commitments.
The Firm has elected to measure certain instruments at fairvalue for several reasons including to mitigate income
statement volatility caused by the differences between themeasurement basis of elected instruments (e.g., certain
instruments elected were previously accounted for on an
accrual basis) and the associated risk management
arrangements that are accounted for on a fair value basis,
as well as to better reflect those instruments that aremanaged on a fair value basis.

JPMorgan Chase & Co./2018 Form 10-K

The Firm’s election of fair value includes the following
instruments:• Loans purchased or originated as part of securitization
warehousing activity, subject to bifurcation accounting,or managed on a fair value basis, including lendingrelated commitments• Certain securities financing agreements, such as thosewith an embedded derivative and/or a maturity ofgreater than one year
• Owned beneficial interests in securitized financial assetsthat contain embedded credit derivatives, which would
otherwise be required to be separately accounted for asa derivative instrument• Structured notes, which are predominantly financial
instruments that contain embedded derivatives, that areissued as part of CIB’s client-driven activities• Certain long-term beneficial interests issued by CIB’s
consolidated securitization trusts where the underlying
assets are carried at fair value

179

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, 2018, 2017 and 2016, 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.
2018

December 31, (in millions)

Principaltransactions

Federal funds sold and securities
purchased under resaleagreements$

Securities borrowed
Trading assets:
Debt and equity instruments,
excluding loans
Loans reported as trading
assets:Changes in instrumentspecific credit risk
Other changes in fair value
Loans:
Changes in instrument-specificcredit risk
Other changes in fair value
Other assets
Deposits(a)Federal funds purchased andsecurities loaned or sold under
repurchase agreements
Short-term borrowings
Trading liabilities
Beneficial interests issued byconsolidated VIEs
Long-term debt(a)(b)
(a)

2017

All otherincome(35) $—

22—(1,680)

1

414
160

(1)

—

(1)
5
181

—
(45) (d)
—

11

Total
changes infair value
recorded(e)$Principaltransactions

2016

All otherincome(35) $(97) $

—

22

50

—

(c)

(1,679)

1,943

2

1

(c)

415

330

185

(c)

345

217

(1)

(1)

(1)
(40)
181

(12)
11
(533)

—

11

862
1

—
—

—
2,695

Total
changes infair value
recorded(e)$Principaltransactions(97) $All otherincomeTotalchanges infair value
recorded(e)(76) $

—

50

1

—

$

(76)
1

(c)

1,945

120

(1) (c)

119

14

(c)

344

461

43

(c)

504

747

(c)

964

79

684

(c)

763

—

(1)

13

—

3 (c)
(55) (d)
—

(9)
(44)
(533)

(7)
20
(134)

—
62
—

11

—

11

19

—

19

862
1

(747)
(1)

—
—

(747)
(1)

(236)
6

—
—

(236)
6

—

—

—

—

—

23

—

23

—

2,695

(2,022)—(2,022)

(773)

—

(773)

13
(d)

(7)
82
(134)

(a) Unrealized gains/(losses) due to instrument-specific credit risk (DVA) for liabilities for which the fair value option has been elected is recorded in OCI,
while realized gains/(losses) are recorded in principal transactions revenue. Realized gains/(losses) due to instrument-specific credit risk recorded inprincipal transactions revenue were not material for the years ended December 31, 2018, 2017 and 2016.
(b) Long-term debt measured at fair value predominantly relates to structured notes. Although the risk associated with the structured notes is actively
managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage suchrisk.
(c) Reported in mortgage fees and related income.
(d) Reported in other income.
(e) Changes in fair value exclude contractual interest, which is included in interest income and interest expense for all instruments other than hybrid financial
instruments. For further information regarding interest income and interest expense, refer to Note 7.

Determination of instrument-specific credit risk for items
for which a fair value election was madeThe following describes how the gains and losses that are
attributable to changes in instrument-specific credit risk,
were determined.
• Loans and lending-related commitments: For floatingrate instruments, all changes in value are attributed to
instrument-specific credit risk. For fixed-rate
instruments, an allocation of the changes in value for theperiod is made between those changes in value that areinterest rate-related and changes in value that are
credit-related. Allocations are generally based on an
analysis of borrower-specific credit spread and recovery
information, where available, or benchmarking to similar
entities or industries.
180

•

•

Long-term debt: Changes in value attributable to
instrument-specific credit risk were derived principallyfrom observable changes in the Firm’s credit spread as
observed in the bond market.
Securities financing agreements: Generally, for thesetypes of agreements, there is a requirement thatcollateral be maintained with a market value equal to or
in excess of the principal amount loaned; as a result,
there would be no adjustment or an immaterial
adjustment for instrument-specific credit risk related tothese agreements.

JPMorgan Chase & Co./2018 Form 10-K

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, 2018 and 2017, for loans, long-term debt and long-term beneficial interests forwhich the fair value option has been elected.
2018

December 31, (in millions)2017

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

1,350 $

(2,890) $4,219

1,371 $

(2,848)

Loans

4,240
39

—

(39)

39

$

—

(39)

Subtotal

4,279

1,350

(2,929)

4,258

1,371

(2,887)Loans reported as trading assets

42,21540,403(1,812)38,15736,590(1,567)

Loans

3,186

3,151

(35)

2,539

2,508

(31)

$

44,904 $(4,776) $44,954$

40,469 $(4,485)$28,718 $(3,956) $26,297$

23,848 $(2,449)26,168NANA

All other performing loans

Total loans$

49,680$32,674Long-term debt
Principal-protected debt(c)

Nonprincipal-protected debt(b)NATotal long-term debt

NA$54,886

NA

NA

Nonprincipal-protected debt(b)

NA

$

28

NA

Total long-term beneficial interests

NA

$

28

NA

(c)

23,671NA$

47,519

NA

NA

$

45

NA

NA

$

45

NA

Long-term beneficial interests(a) There were no performing loans that were ninety days or more past due as of December 31, 2018 and 2017.
(b) Remaining contractual principal is not applicable to nonprincipal-protected structured notes and long-term beneficial interests. Unlike principal-protectedstructured notes and long-term beneficial interests, for which the Firm is obligated to return a stated amount of principal at maturity, nonprincipalprotected structured notes and long-term beneficial interests do not obligate the Firm to return a stated amount of principal at maturity, but for structured
notes to return an amount based on the performance of an underlying variable or derivative feature embedded in the note. However, investors are
exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal-protected notes.
(c) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if
applicable, the contractual principal payment at the Firm’s next call date.

At December 31, 2018 and 2017, the contractual amount of lending-related commitments for which the fair value option waselected was $6.9 billion and $7.4 billion, respectively, with a corresponding fair value of $(82) million and $(76) million,
respectively. For further information regarding off-balance sheet lending-related financial instruments, refer to Note 27.
Structured note products by balance sheet classification and risk component
The following table presents the fair value of structured notes, by balance sheet classification and the primary risk type.
December 31, 2018
(in millions)Long-term Short-term
debtborrowings

December 31, 2017

Deposits

Total

LongShort-term
term debt borrowings

Deposits

Total

Risk exposure
Interest rate

$ 24,137 $62 $ 12,372 $ 36,571$ 22,056 $69 $8,058 $ 30,183

Credit

4,009

995

—

5,004

4,329

1,312

—

Foreign exchange

3,169

157

38

3,364

2,841

147

38

3,026

Equity21,382

5,422

7,368

34,172

17,581

7,106

6,548

31,235

34

1,207

1,613

15

4,468

4,713

Commodity
Total structured notes

JPMorgan Chase & Co./2018 Form 10-K

372
$ 53,069 $

6,670 $ 20,985 $ 80,724

230$ 47,037 $

5,641

8,649 $ 19,112 $ 74,798

181

Notes to consolidated financial statements
Note 4 – Credit risk concentrations
Concentrations of credit risk arise when a number of clients,
counterparties or customers are engaged in similarbusiness activities or activities in the same geographic
region, or when they have similar economic features thatwould cause their ability to meet contractual obligations tobe similarly affected by changes in economic conditions.
JPMorgan Chase regularly monitors various segments of its
credit portfolios to assess potential credit risk
concentrations and to obtain additional collateral when
deemed necessary and permitted under the Firm’s
agreements. Senior management is significantly involved in
the credit approval and review process, and risk levels areadjusted as needed to reflect the Firm’s risk appetite.

In the Firm’s consumer portfolio, concentrations aremanaged primarily by product and by U.S. geographic
region, with a key focus on trends and concentrations at theportfolio level, where potential credit risk concentrations
can be remedied through changes in underwriting policies
and portfolio guidelines. For additional information on thegeographic composition of the Firm’s consumer loan
portfolios, refer to Note 12. In the wholesale portfolio,
credit risk concentrations are evaluated primarily byindustry and monitored regularly on both an aggregate
portfolio level and on an individual client or counterparty
basis.
The Firm’s wholesale exposure is managed through loan
syndications and participations, loan sales, securitizations,credit derivatives, master netting agreements, collateraland other risk-reduction techniques. For additional
information on loans, refer to Note 12.
The Firm does not believe that its exposure to any
particular loan product or industry segment (e.g., realestate), or its exposure to residential real estate loans withhigh LTV ratios, results in a significant concentration of
credit risk.
Terms of loan products and collateral coverage are includedin the Firm’s assessment when extending credit andestablishing its allowance for loan losses.

182

JPMorgan Chase & Co./2018 Form 10-K

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, 2018 and 2017.
As a result of continued growth and the relative size of the portfolio, exposure to “Individuals,” which was previously disclosed
in “All Other,” is now separately disclosed in the table below as “Individuals and Individual Entities.” This category
predominantly consists of Wealth Management clients within AWM and includes exposure to personal investment companies
and personal and testamentary trusts. Predominantly all of this exposure is secured, largely by cash and marketable securities.
In the table below, prior period amounts have been revised to conform with the current period presentation.
2018

2017

On-balance sheet

On-balance sheet

December 31, (in millions)Creditexposure(g)Consumer, excluding credit card

$ 419,798 $ 373,732 $Receivables from customers(a)Total Consumer, excluding credit card
Credit card

Loans

Derivatives

Off-balance
sheet(h)— $46,066

Creditexposure(g)Loans

Derivatives$ 421,234 $ 372,681 $Off-balance
sheet(h)— $48,553

154

—

—

—

133

—

—

—

419,952

373,732—

46,066421,367

372,681—

48,553762,011

156,632—

605,379

722,342

149,511—572,8311,181,963

530,364—

651,445

1,143,709

522,192—

621,384

143,316

115,737

164

27,415

139,409

113,648

153

25,608

Individuals and Individual Entities

97,07786,586

1,017

9,474

87,371

77,768

1,252

8,351

Consumer & Retail

94,81536,921

1,093

56,801

87,67931,044

1,114

55,521

Technology, Media & Telecommunications

72,646

16,9802,667

52,99959,274

13,6652,265

43,344

Industrials

58,52819,126958

38,44455,272

18,161

1,163

35,948Banks & Finance Cos

49,92028,825

5,903

15,192

49,03725,8796,816

16,342

Healthcare

48,142

16,347

1,874

29,921

55,997

16,273

2,191

37,533

Asset Managers

42,807

16,806

9,033

16,96832,531

11,480

7,998

13,053

Oil & Gas

42,60013,008559

29,03341,317

12,621

1,727

26,969

Utilities

28,172

5,591

1,740

20,841

29,317

6,187

2,084

21,046

State & Municipal Govt(d)27,351

10,3192,000

15,032

28,633

12,134

2,888

13,611

Central Govt

18,456

3,867

12,8691,720

19,182

3,375

13,9371,870

Automotive

17,3395,170

399

11,77014,820

4,903

342

9,575

Chemicals & Plastics

16,035

4,902

181

10,952

15,9455,654

208

10,083

Transportation

15,660

6,391

1,102

8,167

15,797

6,733

977

8,087

Metals & Mining

15,359

5,370

488

9,501

14,171

4,728

702

8,741

Insurance

12,639

1,356

2,569

8,714

14,089

1,411

2,804

9,874

Financial Markets Infrastructure

7,484

18

5,941

1,525

5,036

351

3,499

1,186

Securities Firms

4,558

645

2,029

1,884

4,113

952

1,692

1,469

All other(e)68,28445,197

1,627

21,46060,52935,931

2,711

21,887

Subtotal

881,188439,162

54,213387,813829,519402,898

56,523370,098

Loans held-for-sale and loans at fair value

15,02815,028

—

—

5,607

5,607

—

—

Receivables from customers and other(a)30,063———

26,139———Total wholesale-related

926,279

454,190

54,213387,813

861,265

408,505

56,523370,098

Total consumer-related
Wholesale-related(b)Real Estate(c)

Total exposure(f)(g)$2,108,242 $ 984,554 $

54,213 $1,039,258$2,004,974 $ 930,697 $

56,523 $ 991,482(a) Receivables from customers primarily represent held-for-investment margin loans to brokerage customers (Prime Services in CIB, AWM and CCB) that arecollateralized through assets maintained in the clients’ brokerage accounts, as such no allowance is held against these receivables. These receivables are reported
within accrued interest and accounts receivable on the Firm’s Consolidated balance sheets.
(b) The industry rankings presented in the table as of December 31, 2017, are based on the industry rankings of the corresponding exposures at December 31,
2018, not actual rankings of such exposures at December 31, 2017.
(c) Individuals and Individual Entities predominantly consists of Wealth Management clients within AWM and includes exposure to personal investment companies
and personal and testamentary trusts.
(d) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2018 and 2017, noted above, the Firm
held: $7.8 billion and $9.8 billion, respectively, of trading securities; $37.7 billion and $32.3 billion, respectively, of AFS securities; and $4.8 billion and $14.4
billion, respectively, of held-to-maturity (“HTM”) securities, issued by U.S. state and municipal governments. For further information, refer to Note 2 and Note
10.
(e) All other includes: SPEs and Private education and civic organizations, representing approximately 92% and 8%, respectively, at December 31, 2018 and 90%
and 10%, respectively, at December 31, 2017. For more information on exposures to SPEs, refer to Note 14.
(f) Excludes cash placed with banks of $268.1 billion and $421.0 billion, at December 31, 2018 and 2017, respectively, which is predominantly placed with various
central banks, primarily Federal Reserve Banks.
(g) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against derivative
receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(h) Represents lending-related financial instruments.

JPMorgan Chase & Co./2018 Form 10-K

183

Notes to consolidated financial statements
Note 5 – Derivative instruments
Derivative contracts derive their value from underlying
asset prices, indices, reference rates, other inputs or a
combination of these factors and may expose
counterparties to risks and rewards of an underlying asset
or liability without having to initially invest in, own or
exchange the asset or liability. JPMorgan Chase makes
markets in derivatives for clients and also uses derivatives
to hedge or manage its own risk exposures. Predominantly
all of the Firm’s derivatives are entered into for marketmaking or risk management purposes.
Market-making derivatives
The majority of the Firm’s derivatives are entered into formarket-making purposes. Clients use derivatives to mitigate
or modify interest rate, credit, foreign exchange, equity andcommodity risks. The Firm actively manages the risks fromits exposure to these derivatives by entering into otherderivative contracts or by purchasing or selling otherfinancial instruments that partially or fully offset the
exposure from client derivatives.
Risk management derivatives
The Firm manages certain market and credit risk exposuresusing derivative instruments, including derivatives in hedge
accounting relationships and other derivatives that are used
to manage risks associated with specified assets andliabilities.
The Firm generally uses interest rate contracts to manage
the risk associated with changes in interest rates. Fixed-rate
assets and liabilities appreciate or depreciate in market
value as interest rates change. Similarly, interest income
and expense 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 and losses on the derivative
instruments related to these assets and liabilities are
expected to substantially offset this variability.
Foreign currency forward contracts are used to manage theforeign exchange risk associated with certain foreign
currency–denominated (i.e., non-U.S. dollar) assets andliabilities and forecasted transactions, as well as the Firm’s
net investments in certain non-U.S. subsidiaries or branches
whose functional currencies are not the U.S. dollar. As aresult of fluctuations in foreign currencies, the U.S. dollar–
equivalent values of the foreign currency–denominatedassets and liabilities or the forecasted revenues or expenses
increase or decrease. Gains or losses on the derivative
instruments related to these foreign currency–denominatedassets or liabilities, or forecasted transactions, are expected
to substantially offset this variability.

184

Commodities contracts are used to manage the price risk ofcertain commodities inventories. Gains or losses on thesederivative instruments are expected to substantially offset
the depreciation or appreciation of the related inventory.
Credit derivatives are used to manage the counterparty
credit risk associated with loans and lending-related
commitments. Credit derivatives compensate the purchaser
when the entity referenced in the contract experiences acredit event, such as bankruptcy or a failure to pay an
obligation when due. Credit derivatives primarily consist of
CDS. For a further discussion of credit derivatives, refer tothe discussion in the Credit derivatives section on pages
195-197 of this Note.
For more information about risk management derivatives,
refer to the risk management derivatives gains and losses
table on page 195 of this Note, and the hedge accounting
gains and losses tables on pages 192-195 of this Note.
Derivative counterparties and settlement types
The Firm enters into OTC derivatives, which are negotiatedand settled bilaterally with the derivative counterparty. The
Firm also enters into, as principal, certain ETD such as
futures and options, and OTC-cleared derivative contracts
with CCPs. ETD contracts are generally standardized
contracts traded on an exchange and cleared by the CCP,
which is the Firm’s counterparty from the inception of thetransactions. OTC-cleared derivatives are traded on abilateral basis and then novated to the CCP for clearing.
Derivative clearing services
The Firm provides clearing services for clients in which the
Firm acts as a clearing member at certain derivative
exchanges and clearing houses. The Firm does not reflect
the clients’ derivative contracts in its Consolidated Financial
Statements. For further information on the Firm’s clearing
services, refer to Note 27.
Accounting for derivatives
All free-standing derivatives that the Firm executes for its
own account are required to be recorded on theConsolidated balance sheets at fair value.
As permitted under U.S. GAAP, the Firm nets derivative
assets and liabilities, and the related cash collateral
receivables and payables, when a legally enforceable
master netting agreement exists between the Firm and thederivative counterparty. For further discussion of theoffsetting of assets and liabilities, refer to 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
188-195 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, refer to Notes 2 and 3.

JPMorgan Chase & Co./2018 Form 10-K

Derivatives designated as hedges
The Firm adopted new hedge accounting guidance in thefirst quarter of 2018, which required prospective
amendments to the disclosures, as reflected in this Note.
For additional information on the impact upon adoption of
the new guidance, refer to Notes 1 and 23.
The Firm applies hedge accounting to certain derivatives
executed for risk management purposes – generally interest
rate, foreign exchange and commodity derivatives.
However, JPMorgan Chase does not seek to apply hedge
accounting to all of the derivatives involved in the Firm’s
risk management activities. For example, the Firm does not
apply hedge accounting to purchased CDS used to manage
the credit risk of loans and lending-related commitments,
because of the difficulties in qualifying such contracts ashedges. For the same reason, the Firm does not apply
hedge accounting to certain interest rate, foreign exchange,
and commodity derivatives used for risk management
purposes.
To qualify for hedge accounting, a derivative must be highly
effective at reducing the risk associated with the exposure
being hedged. In addition, for a derivative to be designatedas a hedge, the risk management objective and strategy
must be documented. Hedge documentation must identify
the derivative hedging instrument, the asset or liability or
forecasted transaction and type of risk to be hedged, andhow the effectiveness of the derivative is assessed
prospectively and retrospectively. To assess effectiveness,
the Firm uses statistical methods such as regression
analysis, nonstatistical methods such as dollar-value
comparisons of the change in the fair value of the derivative
to the change in the fair value or cash flows of the hedged
item, and qualitative comparisons of critical terms and theevaluation of any changes in those terms. The extent towhich a derivative has been, and is expected to continue tobe, highly effective at offsetting changes in the fair value orcash flows of the hedged item must be assessed anddocumented at least quarterly. If it is determined that aderivative is not highly effective at hedging the designatedexposure, hedge accounting is discontinued.

JPMorgan Chase & Co./2018 Form 10-K

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. Certain amounts excluded from theassessment of effectiveness are recorded in OCI andrecognized in earnings over the life of the derivative. If thehedge relationship is terminated, then the adjustment to
the hedged item continues to be reported as part of thebasis of the hedged item, and for benchmark interest rate
hedges, is amortized to earnings as a yield adjustment.
Derivative amounts affecting earnings are recognizedconsistent with the classification of the hedged item –primarily net interest income and principal transactions
revenue.
JPMorgan Chase uses cash flow hedges primarily to hedge
the exposure to variability in forecasted cash flows fromfloating-rate assets and liabilities and foreign currency–
denominated revenue and expense. For qualifying cash flow
hedges, changes in the fair value of the derivative arerecorded in OCI and recognized in earnings as the hedged
item affects earnings. Derivative amounts affecting
earnings are recognized consistent with the classification of
the hedged item – primarily interest income, interest
expense, noninterest revenue and compensation expense. If
the hedge relationship is terminated, then the change invalue of the derivative recorded in AOCI is recognized inearnings when the cash flows that were hedged affectearnings. For hedge relationships that are discontinued
because a forecasted transaction is not expected to occur
according to the original hedge forecast, any related
derivative values recorded in AOCI are immediately
recognized in earnings.
JPMorgan Chase uses net investment hedges to protect thevalue of the Firm’s net investments in certain non-U.S.
subsidiaries or branches whose functional currencies are
not the U.S. dollar. For qualifying net investment hedges,changes in the fair value of the derivatives due to changes
in spot foreign exchange rates are recorded in OCI astranslation adjustments. Amounts excluded from theassessment of effectiveness are recorded directly inearnings.

185

Notes to consolidated financial statements
The following table outlines the Firm’s primary uses of derivatives and the related hedge accounting designation or disclosure
category.
Type of Derivative

Use of Derivative

Affected
Designation and disclosure segment or unit

Page
referenceManage specifically identified risk exposures in qualifying hedge accounting relationships:• Interest rate

Hedge fixed rate assets and liabilities

Fair value hedge

Corporate

192• Interest rate

Hedge floating-rate assets and liabilities

Cash flow hedge

Corporate

194• Foreign exchange

Hedge foreign currency-denominated assets and liabilities

Fair value hedge

Corporate

192• Foreign exchange

Hedge foreign currency-denominated forecasted revenue andexpenseCash flow hedge

Corporate

194• Foreign exchange

Hedge the value of the Firm’s investments in non-U.S. dollar
functional currency entities
Hedge commodity inventory

Net investment hedge

Corporate

195

Fair value hedge

CIB

192

• Commodity

Manage specifically identified risk exposures not designated in qualifying hedge accounting
relationships:• Interest rate

Manage the risk of the mortgage pipeline, warehouse loans and MSRs Specified risk management

CCB

195

• Credit

Manage the credit risk of wholesale lending exposures

Specified risk management

CIB

195

• Interest rate andforeign exchangeManage the risk of certain other specified assets and liabilities

Specified risk management

Corporate

195

Market-making derivatives and other activities:• Various

Market-making and related risk management

Market-making and other

CIB

195

• Various

Other derivatives

Market-making and other

CIB, Corporate

195

186

JPMorgan Chase & Co./2018 Form 10-K

Notional amount of derivative contracts
The following table summarizes the notional amount ofderivative contracts outstanding as of December 31, 2018and 2017.
Notional amounts(b)December 31, (in billions)

2018

2017

Interest rate contracts
Swaps

$

21,763$21,043Futures and forwards

3,562

4,904

Written options

3,997

3,576

Purchased options

4,322

3,987

Total interest rate contracts

33,64433,510Credit derivatives(a)

1,501

1,522

Cross-currency swaps

3,548

3,953

Spot, futures and forwards

5,871

5,923

Written options

835

786

Purchased options

830

776

11,084

11,438

Swaps

346

367

Futures and forwards

101

90

Written options

528

531

Purchased options

490

453

Total equity contracts

1,465

1,441

Swaps

134

133

Spot, futures and forwards

156

168

Written options

135

98

Purchased options

120

93

Total commodity contracts

545

492

(c)

48,403(c)Foreign exchange contracts

Total foreign exchange contracts
Equity contracts

Commodity contracts

Total derivative notional amounts$

48,239$(c)(a) For more information on volumes and types of credit derivative
contracts, refer to the Credit derivatives discussion on pages 195-197.
(b) Represents the sum of gross long and gross short third-party notional
derivative contracts.
(c) The prior period amounts have been revised to conform with thecurrent period presentation.

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 contracts, the notionalamount is not exchanged; it is used simply as a reference tocalculate payments.

JPMorgan Chase & Co./2018 Form 10-K

187

Notes to consolidated financial statements
Impact of derivatives on the Consolidated balance sheets
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) thatare reflected on the Firm’s Consolidated balance sheets as of December 31, 2018 and 2017, 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, 2018
(in millions)Not
designatedas hedges$ 267,871

Gross derivative payables

Designated ashedgesTotalderivative
receivables

Net
derivative
receivables(b)Notdesignatedas hedges

Designatedas hedges

Total
derivative
payablesNet
derivative
payables(b)

$

$

$

$

Trading assets andliabilities
Interest rate833

$ 268,704

23,214$ 242,782—$ 242,782

Credit20,095—20,095612

20,276—

20,276

1,667

Foreign exchange

167,057

628

167,685

13,450164,392

825

165,217

12,785Equity49,285—49,285

9,946

51,195—

51,195

10,161

Commodity

20,223247

20,4706,991

22,297

121

22,418

9,372

1,708

$ 526,239

54,213$ 500,942

946$ 501,888

Designated ashedgesTotalderivative
receivables

Net
derivative
receivables(b)Notdesignatedas hedges$$ 315,992$$ 284,433

Total fair value of trading
assets and liabilities$ 524,531

December 31, 2017
(in millions)Not
designatedas hedges$$

Gross derivative receivables

$

$

7,784

41,769Gross derivative payables
Designatedas hedges

Total
derivative
payablesNet
derivative
payables(b)$ 284,436$

Trading assets andliabilities
Interest rate

$ 314,962

(c)

1,030

(c)

24,673

(c)

$

3

(c)

7,129

Credit23,205—23,205869

23,252—

23,252

1,299

Foreign exchange

159,740491

160,231

16,151

154,601

1,221

155,822

12,473Equity40,040—40,0407,882

45,395—45,395

9,192

Commodity

20,06619

20,085

6,948

21,498403

21,901

7,684

56,523$ 529,179

Total fair value of trading
assets and liabilities$ 558,013

(c)

$

1,540

(c)

$ 559,553

$

(c)

$

1,627

(c)

$ 530,806$

37,777(a) Balances exclude structured notes for which the fair value option has been elected. Refer to Note 3 for further information.
(b) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables andpayables when a legally enforceable master netting agreement exists.
(c) The prior period amounts have been revised to conform with the current period presentation.

188

JPMorgan Chase & Co./2018 Form 10-K

Derivatives netting
The following tables present, as of December 31, 2018 and 2017, gross and net derivative receivables and payables bycontract and settlement type. Derivative receivables and payables, as well as the related cash collateral from the same
counterparty, have been netted on the Consolidated balance sheets where the Firm has obtained an appropriate legal opinion
with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, amounts are
not eligible for netting on the Consolidated balance sheets, and those derivative receivables and payables are shown separately
in the tables below.
In addition to the cash collateral received and transferred that is presented on a net basis with derivative receivables andpayables, the Firm receives and transfers additional collateral (financial instruments and cash). These amounts mitigate
counterparty credit risk associated with the Firm’s derivative instruments, but are not eligible for net presentation:• collateral that consists of non-cash financial instruments (generally U.S. government and agency securities and other G7
government securities) and cash collateral held at third party custodians, which are shown separately as “Collateral notnettable on the Consolidated balance sheets” in the tables below, up to the fair value exposure amount.
• the amount of collateral held or transferred that exceeds the fair value exposure at the individual counterparty level, as ofthe date presented, which is excluded from the tables below; and• collateral held or transferred that relates to derivative receivables or payables where an appropriate legal opinion has notbeen either sought or obtained with respect to the master netting agreement, which is excluded from the tables below.
2018

December 31, (in millions)Grossderivative
receivables

2017

Amounts
netted on theNet
Consolidated
derivativebalance sheets receivables

Grossderivative
receivables

Amounts
netted on theConsolidatedbalance sheetsNet
derivative
receivables

U.S. GAAP nettable derivative receivables
Interest rate contracts:
OTC$

18,729$ 305,569$ (284,917)$ 20,652

6,404(5,856)

548

6,531

(6,318)

213

322

(136)

186

185

(84)

101

264,953(245,490)

19,463

312,285(291,319)

20,966OTC

12,648(12,261)387

15,390(15,165)

225

OTC–cleared

7,267(7,222)

45

7,225(7,170)55

19,915(19,483)432

22,615(22,335)

280
12,869OTC–cleared
Exchange-traded(a)Total interest rate contracts

258,227 $ (239,498)$

Credit contracts:

Total credit contracts
Foreign exchange contracts:
OTC

163,862(153,988)

9,874

155,289(142,420)

OTC–cleared

235

(226)

9

1,696

(1,654)42

Exchange-traded(a)

32

(21)

11

141

(7)

134

164,129(154,235)

9,894

157,126(144,081)

13,045OTC

26,178(23,879)

2,299

22,024(19,917)

2,107

Exchange-traded(a)18,876(15,460)

3,416

14,188(12,241)

1,947

Total equity contracts

45,054(39,339)

5,715

36,212(32,158)

4,054

OTC

7,448

(5,261)

2,187

7,204

(4,436)

2,768

Exchange-traded(a)8,815(8,218)

597

8,854

(8,701)

153

16,263(13,479)

2,784

Derivative receivables with appropriate legal opinion

510,314(472,026)

38,288Derivative receivables where an appropriate legal
opinion has not been either sought or obtained

15,925

Total foreign exchange contracts
Equity contracts:

Commodity contracts:

Total commodity contracts

Total derivative receivables recognized on theConsolidated balance sheets$

526,239$

Collateral not nettable on the Consolidated balance
sheets(b)(c)
Net amounts

JPMorgan Chase & Co./2018 Form 10-K

$

(e)

(e)

16,058(e)(13,137)

2,921

(e)

544,296(e)(503,030)

41,266(d)(e)

15,925

15,257(e)

15,257(e)54,213$ 559,553(d)$ 56,523(13,046)(13,363)

41,167$ 43,160

189

Notes to consolidated financial statements

Grossderivative
payablesDecember 31, (in millions)

2018

2017

Amounts
netted on theConsolidatedbalance sheetsNet
derivative
payablesGrossderivative
payablesAmounts
netted on theConsolidatedbalance sheets

$

5,035

$ 276,960$ (271,294)$ 5,666

669

6,004

(5,928)76

Net
derivative
payablesU.S. GAAP nettable derivative payables
Interest rate contracts:
OTC$

OTC–cleared

233,404 $ (228,369)
7,163

Exchange-traded(a)Total interest rate contracts(6,494)

210

(135)

75

127

(84)

43

240,777(234,998)

5,779

283,091(277,306)

5,785

13,412(11,895)

1,517

16,194(15,170)

1,024

Credit contracts:
OTC
OTC–cleared

6,716(6,714)

2

6,801(6,784)17

20,128(18,609)

1,519

22,995(21,954)

1,041

160,930(152,161)

8,769

150,966(141,789)

9,177

OTC–cleared

274

(268)

6

1,555

(1,553)

2

Exchange-traded(a)

16

(3)

13

98

(7)

91

161,220(152,432)

8,788

152,619(143,349)

9,270

OTC

29,437(25,544)

3,893

28,193(23,969)

4,224

Exchange-traded(a)16,285(15,490)795

12,720(12,234)486

Total equity contracts

45,722(41,034)

4,688

40,913(36,203)

4,710

8,930

(4,838)

4,092

7,697

(e)

(5,508)2,189

Total credit contracts
Foreign exchange contracts:
OTC

Total foreign exchange contracts
Equity contracts:

Commodity contracts:
OTC
Exchange-traded

(e)

8,259

(8,208)51

8,870(8,709)161

17,189(13,046)

4,143

16,567(e)(14,217)

2,350

(e)

Derivative payables with appropriate legal opinion

485,036(460,119)

24,917516,185(e)(493,029)

23,156(d)(e)

Derivative payables where an appropriate legal
opinion has not been either sought or obtained

16,852

16,852

14,621(e)

14,621(e)

41,769$ 530,806(a)Total commodity contracts

Total derivative payables recognized on theConsolidated balance sheets
Collateral not nettable on the Consolidated balance
sheets(b)(c)
Net amounts$

501,888$$(d)$ 37,777(4,449)(4,180)37,320$ 33,597(a) Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b) Represents liquid security collateral as well as cash collateral held at third-party custodians related to derivative instruments where an appropriate legal
opinion has been obtained. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative
payables balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances withthat counterparty.
(c) Derivative collateral relates only to OTC and OTC-cleared derivative instruments.
(d) Net derivatives receivable included cash collateral netted of $55.2 billion and $55.5 billion at December 31, 2018 and 2017, respectively. Net derivatives
payable included cash collateral netted of $43.3 billion and $45.5 billion at December 31, 2018 and 2017, respectively. Derivative cash collateral relates
to OTC and OTC-cleared derivative instruments.
(e) The prior period amounts have been revised to conform with the current period presentation.

190

JPMorgan Chase & Co./2018 Form 10-K

Liquidity risk and credit-related contingent features
In addition to the specific market risks introduced by each
derivative contract type, derivatives expose JPMorgan
Chase to credit risk — the risk that derivative counterparties
may fail to meet their payment obligations under thederivative contracts and the collateral, if any, held by the
Firm proves to be of insufficient value to cover the payment
obligation. It is the policy of JPMorgan Chase to actively
pursue, where possible, the use of legally enforceable
master netting arrangements and collateral agreements tomitigate derivative counterparty credit risk. The amount ofderivative receivables reported on the Consolidated balance
sheets is the fair value of the derivative contracts after
giving effect to legally enforceable master netting
agreements and cash collateral held by the Firm.

of the contracts moves in the counterparties’ favor or upon
specified downgrades in the Firm’s and its subsidiaries’
respective credit ratings. Certain derivative contracts also
provide for termination of the contract, generally upon adowngrade of either the Firm or the counterparty, at thefair value of the derivative contracts. The following tableshows the aggregate fair value of net derivative payables
related to OTC and OTC-cleared derivatives that containcontingent collateral or termination features that may betriggered upon a ratings downgrade, and the associatedcollateral the Firm has posted in the normal course ofbusiness, at December 31, 2018 and 2017.

While derivative receivables expose the Firm to credit risk,
derivative payables expose the Firm to liquidity risk, as thederivative contracts typically require the Firm to post cash
or securities collateral with counterparties as the fair value

December 31, (in millions)

OTC and OTC-cleared derivative payables containing
downgrade triggers
2018

Aggregate fair value of net derivative payables
Collateral posted

$

2017

9,396 $ 11,916
8,907

9,973

The following table shows the impact of a single-notch and two-notch downgrade of the long-term issuer ratings of JPMorgan
Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), at
December 31, 2018 and 2017, related to OTC and OTC-cleared derivative contracts with contingent collateral or termination
features that may be triggered upon a ratings downgrade. Derivatives contracts generally require additional collateral to beposted or terminations to be triggered when the predefined threshold rating is breached. A downgrade by a single rating
agency that does not result in a rating lower than a preexisting corresponding rating provided by another major rating agency
will generally not result in additional collateral (except in certain instances in which additional initial margin may be required
upon a ratings downgrade), nor in termination payments requirements. The liquidity impact in the table is calculated based
upon a downgrade below the lowest current rating of the rating agencies referred to in the derivative contract.
Liquidity impact of downgrade triggers on OTC and OTC-cleared derivatives
2018
December 31, (in millions)Single-notch
downgradeAmount of additional collateral to be posted upon downgrade(a)$Amount required to settle contracts with termination triggers upon downgrade(b)2017
Two-notch
downgrade

76 $

947

172

764

Single-notch
downgrade
$

79 $
320

Two-notch
downgrade
1,989
650

(a) Includes the additional collateral to be posted for initial margin.
(b) Amounts represent fair values of derivative payables, and do not reflect collateral posted.

Derivatives executed in contemplation of a sale of the underlying financial asset
In certain instances the Firm enters into transactions in which it transfers financial assets but maintains the economic exposure
to the transferred assets by entering into a derivative with the same counterparty in contemplation of the initial transfer. The
Firm generally accounts for such transfers as collateralized financing transactions as described in Note 11, but in limited
circumstances they may qualify to be accounted for as a sale and a derivative under U.S. GAAP. The amount of such transfers
accounted for as a sale where the associated derivative was outstanding at December 31, 2018 was not material, and there
were no such transfers at December 31, 2017.

JPMorgan Chase & Co./2018 Form 10-K

191

Notes to consolidated financial statements
Impact of derivatives on the Consolidated statements of income
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting
designation or purpose.
Fair value hedge gains and losses
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as wellas pre-tax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 2018,2017 and 2016, respectively. The Firm includes gains/(losses) on the hedging derivative in the same line item in theConsolidated statements of income as the related hedged item.
Income statement impact of
excluded components(f)Gains/(losses) recorded in income
Year ended December 31, 2018
(in millions)

Derivatives

Hedged items

Incomestatement
impactAmortization
approach

OCI impact

Changes in fairvalue

Derivatives Gains/(losses)
recorded in OCI(g)Contract typeInterest rate(a)(b)$

Foreign exchange(c)Commodity(d)
Total

$

(1,145) $1,782 $

637

1,092

(616)

476

789

(754)

35

736 $

412 $

1,148

$

$

Gains/(losses) recorded in income
Year ended December 31, 2017
(in millions)

Derivatives

Hedged items

— $
(566)

623

$

476

—

26

(566) $

1,125

—
(140)
—

$

(140)

Income statement impact due to:

Incomestatement
impactHedge
ineffectiveness(e)Excludedcomponents(f)Contract typeInterest rate(a)(b)1,359 $

878

Foreign exchange(c)(3,509)

3,507

(2)

—

(2)

Commodity(d)(1,275)

1,348

73

29

44

(5,265) $6,214 $

949

11 $

938

Total

$

$

(481) $$$

Gains/(losses) recorded in income
Year ended December 31, 2016
(in millions)

Derivatives

Hedged items(18) $

896

Income statement impact due to:

Incomestatement
impactHedge
ineffectiveness(e)Excludedcomponents(f)Contract typeInterest rate(a)(b)(482) $

1,338 $

856

6 $

850

Foreign exchange(c)2,435(2,261)

174

—

174

Commodity(d)

(536)

586

50

(9)

59

1,417 $

(337) $

1,080

(3) $

1,083

Total

$

$

$

$

(a) Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate (“LIBOR”)) interest rate risk of fixed-rate long-term debt and AFS
securities. Gains and losses were recorded in net interest income.
(b) Excludes the amortization expense associated with the inception hedge accounting adjustment applied to the hedged item. This expense is recorded in net
interest income and substantially offsets the income statement impact of the excluded components. Also excludes the accrual of interest on interest rate
swaps and the related hedged items.
(c) Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses
related to the derivatives and the hedged items due to changes in foreign currency rates and the income statement impact of excluded components wererecorded primarily in principal transactions revenue and net interest income.
(d) Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or net realizable value (netrealizable value approximates fair value). Gains and losses were recorded in principal transactions revenue.
(e) Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on thehedged item attributable to the hedged risk.
(f) The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward
points on foreign exchange forward contracts, time values and cross-currency basis spreads. Under the new hedge accounting guidance, the initial amountof the excluded components may be amortized into income over the life of the derivative, or changes in fair value may be recognized in current period
earnings.
(g) Represents the change in value of amounts excluded from the assessment of effectiveness under the amortization approach, predominantly cross-currency
basis spreads. The amount excluded at inception of the hedge is recognized in earnings over the life of the derivative.

192

JPMorgan Chase & Co./2018 Form 10-K

As of December 31, 2018, the following amounts were recorded on the Consolidated balance sheets related to certain
cumulative fair value hedge basis adjustments that are expected to reverse through the income statement in future periods as
an adjustment to yield.
Cumulative amount of fair value hedging adjustments
included in the carrying amount of hedged items:
December 31, 2018
(in millions)

Carrying amountof the hedged
items(a)(b)

Discontinued
hedging
relationships(d)Active hedging
relationships

Total

AssetsInvestment securities - AFS$

55,313$

139,915(c)$(1,105) $

381 $

(724)

$

141 $

8 $

149

Liabilities
Long-term debt
Beneficial interests issued by consolidated VIEs

6,987

—

(33)

(33)

(a) Excludes physical commodities with a carrying value of $6.8 billion to which the Firm applies fair value hedge accounting. As a result of the application ofhedge accounting, these inventories are carried at fair value, thus recognizing unrealized gains and losses in current periods. Given the Firm exits these
positions at fair value, there is no incremental impact to net income in future periods.
(b) Excludes hedged items where only foreign currency risk is the designated hedged risk, as basis adjustments related to foreign currency hedges will notreverse through the income statement in future periods. The carrying amount excluded for available-for-sale securities is $14.6 billion and for long-term
debt is $7.3 billion.
(c) Carrying amount represents the amortized cost.
(d) Represents hedged items no longer designated in qualifying fair value hedging relationships for which an associated basis adjustment exists at the balance
sheet date.

JPMorgan Chase & Co./2018 Form 10-K

193

Notes to consolidated financial statements
Cash flow hedge gains and losses
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, andthe pre-tax gains/(losses) recorded on such derivatives, for the years ended December 31, 2018, 2017 and 2016,
respectively. The Firm includes the gain/(loss) on the hedging derivative in the same line item in the Consolidated statements
of income as the change in cash flows on the related hedged item.
Derivatives gains/(losses) recorded in income and othercomprehensive income/(loss)
Amounts
reclassified fromAOCI to income

Year ended December 31, 2018
(in millions)

Amounts recordedin OCI

Total change
in OCI
for period

Contract typeInterest rate(a)$Foreign exchange(b)
Total

$

44 $

(44) $

(88)

(26)

(201)

(175)

18 $

(245) $

(263)

Derivatives gains/(losses) recorded in income and othercomprehensive income/(loss)
Amounts
reclassified fromAOCI to income

Year ended December 31, 2017
(in millions)

Amounts recordedin OCI(c)Total change
in OCI
for period

Contract typeInterest rate(a)$Foreign exchange

(b)

Total

$

(17) $

12 $

29

(117)

135

252

(134) $

147 $

281

Derivatives gains/(losses) recorded in income and othercomprehensive income/(loss)
Amounts
reclassified fromAOCI to income

Year ended December 31, 2016
(in millions)

Amounts recordedin OCI(c)Total change
in OCI
for period

Contract typeInterest rate(a)$Foreign exchange(b)
Total

$

(74) $(55) $

(286)

(395)

(109)

19

(360) $

(450) $

(90)(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) Represents the effective portion of changes in value of the related hedging derivative. Hedge ineffectiveness is the amount by which the cumulative gain orloss on the designated derivative instrument exceeds the present value of the cumulative expected change in cash flows on the hedged item attributable tothe hedged risk. The Firm did not recognize any ineffectiveness on cash flow hedges during 2017 and 2016.

The Firm did not experience any forecasted transactions that failed to occur for the years ended 2018, 2017 and 2016.
Over the next 12 months, the Firm expects that approximately $(74) million (after-tax) of net losses recorded in AOCI at
December 31, 2018, related to cash flow hedges will be recognized in income. For cash flow hedges that have been
terminated, the maximum length of time over which the derivative results recorded in AOCI will be recognized in earnings isapproximately six years, corresponding to the timing of the originally hedged forecasted cash flows. For open cash flow
hedges, the maximum length of time over which forecasted transactions are hedged is approximately six years. The Firm’s
longer-dated forecasted transactions relate to core lending and borrowing activities.

194

JPMorgan Chase & Co./2018 Form 10-K

Net investment hedge gains and losses
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting
relationships, and the pre-tax gains/(losses) recorded on such instruments for the years ended December 31, 2018, 2017 and
2016.
2018
Amounts
recorded inincome(a)(b)$11Year ended December 31,(in millions)
Foreign exchange derivatives

2017
Amounts
recorded in
OCI$1,219Amounts
recorded inincome(a)(b)(c)$(152)

2016
Amounts
recorded in
OCI(d)$(1,244)

Amounts
recorded inincome(a)(b)(c)$(280)

Amounts
recorded in
OCI(d)$262(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. The Firm elects to record changes in fair value of these amounts directly in other income.
(b) Excludes amounts reclassified from AOCI to income on the sale or liquidation of hedged entities. For additional information, refer to Note 23.
(c) The prior period amounts have been revised to conform with the current period presentation.
(d) Represents the effective portion of changes in value of the related hedging derivative. The Firm did not recognize any ineffectiveness on net investment
hedges directly in income during 2017 and 2016.

Gains and losses on derivatives used for specified risk
management purposes
The following table presents pre-tax gains/(losses) recorded
on a limited number of derivatives, not designated in hedge
accounting relationships, that are used to manage risks
associated with certain specified assets and liabilities,
including certain risks arising from the mortgage pipeline,
warehouse loans, MSRs, wholesale lending exposures, andforeign currency denominated assets and liabilities.
Derivatives gains/(losses)
recorded in income
Year ended December 31,(in millions)Contract typeInterest rate(a)Credit(b)Foreign exchange(c)
Total

2018
$

$

79
(21)
117
175

2017
$

$

2016

331
$ 1,174(74)(282)(107) (d)(20) (d)(d)
150$ 872 (d)(a) Primarily represents interest rate derivatives used to hedge theinterest rate risk inherent in the mortgage pipeline, warehouse loans
and MSRs, as well as written commitments to originate warehouseloans. Gains and losses were recorded predominantly in mortgage feesand related income.
(b) Relates to credit derivatives used to mitigate credit risk associatedwith lending exposures in the Firm’s wholesale businesses. These
derivatives do not include credit derivatives used to mitigate
counterparty credit risk arising from derivative receivables, which isincluded in gains and losses on derivatives related to market-making
activities and other derivatives. Gains and losses were recorded inprincipal transactions revenue.
(c) Primarily relates to derivatives used to mitigate foreign exchange riskof specified foreign currency-denominated assets and liabilities. Gains
and losses were recorded in principal transactions revenue.
(d) The prior period amounts have been revised to conform with thecurrent period presentation.

JPMorgan Chase & Co./2018 Form 10-K

Gains and losses on derivatives related to market-making
activities and other derivatives
The Firm makes markets in derivatives in order to meet theneeds of customers and uses derivatives to manage certain
risks associated with net open risk positions from its
market-making activities, including the counterparty credit
risk arising from derivative receivables. All derivatives notincluded in the hedge accounting or specified risk
management categories above are included in this category.
Gains and losses on these derivatives are primarily recorded
in principal transactions revenue. Refer to Note 6 for
information on principal transactions revenue.
Credit derivatives
Credit derivatives are financial instruments whose value isderived from the credit risk associated with the debt of athird-party issuer (the reference entity) and which allow
one party (the protection purchaser) to transfer that risk toanother party (the protection seller). Credit derivatives
expose the protection purchaser to the creditworthiness ofthe protection seller, as the protection seller is required tomake payments under the contract when the reference
entity experiences a credit event, such as a bankruptcy, afailure to pay its obligation or a restructuring. The seller ofcredit protection receives a premium for providing
protection but has the risk that the underlying instrument
referenced in the contract will be subject to a credit event.
The Firm is both a purchaser and seller of protection in thecredit derivatives market and uses these derivatives for two
primary purposes. First, in its capacity as a market-maker,
the Firm actively manages a portfolio of credit derivatives
by purchasing and selling credit protection, predominantly
on corporate debt obligations, to meet the needs ofcustomers. Second, as an end-user, the Firm uses credit
derivatives to manage credit risk associated with lending
exposures (loans and unfunded commitments) and
derivatives counterparty exposures in the Firm’s wholesale
businesses, and to manage the credit risk arising fromcertain financial instruments in the Firm’s market-making
businesses. Following is a summary of various types ofcredit derivatives.

195

Notes to consolidated financial statements
Credit default swaps
Credit derivatives may reference the credit of either a single
reference entity (“single-name”) or a broad-based index.
The Firm purchases and sells protection on both singlename and index-reference obligations. Single-name CDS andindex CDS contracts are either OTC or OTC-cleared
derivative contracts. Single-name CDS are used to manage
the default risk of a single reference entity, while index CDS
contracts are used to manage the credit risk associated withthe broader credit markets or credit market segments. Like
the S&P 500 and other market indices, a CDS index consistsof a portfolio of CDS across many reference entities. New
series of CDS indices are periodically established with a newunderlying portfolio of reference entities to reflect changes
in the credit markets. If one of the reference entities in theindex experiences a credit event, then the reference entitythat defaulted is removed from the index. CDS can also bereferenced against specific portfolios of reference names oragainst customized exposure levels based on specific clientdemands: for example, to provide protection against thefirst $1 million of realized credit losses in a $10 million
portfolio of exposure. Such structures are commonly known
as tranche CDS.
For both single-name CDS contracts and index CDS
contracts, upon the occurrence of a credit event, under theterms of a CDS contract neither party to the CDS contract
has recourse to the reference entity. The protection
purchaser has recourse to the protection seller for thedifference between the face value of the CDS contract andthe fair value of the reference obligation at settlement of
the credit derivative contract, also known as the recovery
value. The protection purchaser does not need to hold thedebt instrument of the underlying reference entity in orderto receive amounts due under the CDS contract when acredit event occurs.

196

Credit-related notes
A credit-related note is a funded credit derivative where theissuer of the credit-related note purchases from the note
investor credit protection on a reference entity or an index.
Under the contract, the investor pays the issuer the parvalue of the note at the inception of the transaction, and in
return, the issuer pays periodic payments to the investor,
based on the credit risk of the referenced entity. The issuer
also repays the investor the par value of the note atmaturity unless the reference entity (or one of the entities
that makes up a reference index) experiences a specified
credit event. If a credit event occurs, the issuer is not
obligated to repay the par value of the note, but rather, theissuer pays the investor the difference between the parvalue of the note and the fair value of the defaulted
reference obligation at the time of settlement. Neither party
to the credit-related note has recourse to the defaulting
reference entity.
The following tables present a summary of the notionalamounts of credit derivatives and credit-related notes theFirm sold and purchased as of December 31, 2018 and2017. 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./2018 Form 10-K

The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives,because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery valueof the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm’s view, therisks associated with such derivatives.
Total credit derivatives and credit-related notes
Maximum payout/Notional amountProtection purchasedwith identicalunderlyings(b)Protection
sold

December 31, 2018 (in millions)

Net protection(sold)/
purchased(c)Otherprotection
purchased(d)Credit derivatives
Credit default swaps
Other credit derivatives$(697,220)(a)

Total credit derivatives$

707,282

4,053(41,244)

42,484

1,240

8,488

749,766

11,302

12,541—$

10,062 $(738,464)

Credit-related notes
Total

$

—

(738,464)$

749,766

$

—

8,425

11,302 $20,966

Maximum payout/Notional amountProtection purchasedwith identicalunderlyings(b)Protection
sold

December 31, 2017 (in millions)

Net protection(sold)/
purchased(c)Otherprotection
purchased(d)Credit derivatives
Credit default swaps

11,874 $5,045

Other credit derivatives(a)$(690,224)(54,157)

59,158

5,001

11,747

Total credit derivatives(744,381)

761,256

16,875

16,792

(18)

—

(18)

7,915

16,857 $

24,707

Credit-related notes
Total

$

(744,399)$$

702,098

761,256$$(a) Other credit derivatives largely consists of credit swap options.
(b) Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument onprotection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than
the notional amount of protection sold.
(c) Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller ofprotection pays to the buyer of protection in determining settlement value.
(d) Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on
the identical reference instrument.

The following tables summarize the notional amounts by the ratings, maturity profile, and total fair value, of credit derivatives
and credit-related notes as of December 31, 2018 and 2017, where JPMorgan Chase is the seller of protection. The maturity
profile is based on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based on therating of the reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit
derivatives and credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profilereflected below.
Protection sold – credit derivatives and credit-related notes ratings(a)/maturity profile
December 31, 2018
(in millions)<1 year>5 years

Total notionalamountFair value of
receivables(b)Fair value of
payables(b)Net fairvalue(402,325)$ (43,611)

$

$

$

$ 2,929(119,348)(11,840)(521,673)$ (55,451)$>5 years

Total notionalamount$ (39,429)$

1–5 years

Risk rating of reference entity
Investment-grade
Noninvestment-grade
Total
December 31, 2017
(in millions)$ (115,443)$(45,897)$ (161,340)$<1 year

1–5 years(561,379)(177,085)(738,464)

5,720
4,719

(2,791)(5,660)(941)(8,451)$ 1,988

Fair value of
receivables(b)Fair value of
payables(b)Net fair
value

$

8,516

$

$ 7,382$

15,923$

10,439$Risk rating of reference entity
Investment-grade
Noninvestment-grade
Total$ (159,286)$(73,394)$ (232,680)$(319,726)(134,125)(18,439)(453,851)$ (57,868)(518,441)(225,958)$(744,399)

7,407$(1,134)(5,313)

2,094(6,447)$ 9,476(a) The ratings scale is primarily based on external credit ratings defined by S&P and Moody’s.
(b) Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral received by the Firm.
JPMorgan Chase & Co./2018 Form 10-K

197

Notes to consolidated financial statements
Note 6 – Noninterest revenue and noninterest expense
The Firm records noninterest revenue from certain
contracts with customers under ASC 606, Revenue fromContracts with Customers, in investment banking fees,
deposit-related fees, asset management, administration,and commissions, and components of card income.
Contracts in the scope of ASC 606 are often terminable on
demand and the Firm has no remaining obligation to deliver
future services. For arrangements with a fixed term, theFirm may commit to deliver services in the future. Revenue
associated with these remaining performance obligations
typically depends on the occurrence of future events orunderlying asset values, and is not recognized until theoutcome of those events or values are known.
The adoption of the revenue recognition guidance in thefirst quarter of 2018, required gross presentation of certain
costs previously offset against revenue, predominantly
associated with certain distribution costs (previously offset
against asset management, administration andcommissions), with the remainder associated with certain
underwriting costs (previously offset against investmentbanking fees). Adoption of the guidance did not result inany material changes in the timing of revenue recognition.
This guidance was adopted retrospectively and, accordingly,
prior period amounts were revised, which resulted in an
increase in both noninterest revenue and noninterest
expense. The Firm did not apply any practical expedients.
For additional information, refer to Note 1.
Investment banking fees
This revenue category includes debt and equity
underwriting and advisory fees. As an underwriter, the Firm
helps clients raise capital via public offering and private
placement of various types of debt and equity instruments.
Underwriting fees are primarily based on the issuance priceand quantity of the underlying instruments, and arerecognized as revenue typically upon execution of theclient’s transaction. The Firm also manages and syndicatesloan arrangements. Credit arrangement and syndication
fees, included within debt underwriting fees, are recorded
as revenue after satisfying certain retention, timing andyield criteria.
The Firm also provides advisory services, by assisting its
clients with mergers and acquisitions, divestitures,
restructuring and other complex transactions. Advisory fees
are recognized as revenue typically upon execution of theclient’s transaction.
Year ended December 31,(in millions)

2018

2017

2016

Equity$ 1,684$ 1,466

Debt

3,347

3,802

3,277

Total underwriting

5,031

5,268

4,477

Advisory

2,519

2,144

$ 7,550$ 7,412

Principal transactions
Principal transactions revenue is driven by many factors,
including the bid-offer spread, which is the difference
between the price at which the Firm is willing to buy afinancial or other instrument and the price at which the
Firm is willing to sell that instrument. It also consists of therealized (as a result of the sale of instruments, closing out
or termination of transactions, or interim cash payments)
and unrealized (as a result of changes in valuation) gains
and losses on financial and other instruments (including
those accounted for under the fair value option) primarily
used in client-driven market-making activities and on
private equity investments. In connection with its clientdriven market-making activities, the Firm transacts in debt
and equity instruments, derivatives and commodities(including physical commodities inventories and financial
instruments that reference commodities).
Principal transactions revenue also includes certain realized
and unrealized gains and losses related to hedge accounting
and specified risk-management activities, including: (a)certain derivatives designated in qualifying hedge
accounting relationships (primarily fair value hedges ofcommodity and foreign exchange risk), (b) certain
derivatives used for specific risk management purposes,
primarily to mitigate credit risk and foreign exchange risk,and (c) other derivatives. For further information on theincome statement classification of gains and losses fromderivatives activities, refer to Note 5.
In the financial commodity markets, the Firm transacts in
OTC derivatives (e.g., swaps, forwards, options) and ETD
that reference a wide range of underlying commodities. In
the physical commodity markets, the Firm primarily
purchases and sells precious and base metals and may holdother commodities inventories under financing and otherarrangements with clients.
The following table presents all realized and unrealized
gains and losses recorded in principal transactions revenue.
This table excludes interest income and interest expense on
trading assets and liabilities, which are an integral part ofthe overall performance of the Firm’s client-driven marketmaking activities. Refer to Note 7 for further information oninterest income and interest expense. Trading revenue ispresented primarily by instrument type. The Firm’s clientdriven market-making businesses generally utilize a variety
of instrument types in connection with their market-making
and related risk-management activities; accordingly, thetrading revenue presented in the table below is not
representative of the total revenue of any individual line ofbusiness.

Underwriting

Total investment banking fees

$

1,200

2,095
$

6,572

Investment banking fees are earned primarily by CIB. Refer
to Note 31 for segment results.
198

JPMorgan Chase & Co./2018 Form 10-K

Year ended December 31,(in millions)

2018

2017

2016

Trading revenue by instrument
type
Interest rate

Year ended December 31,(in millions)

2018

2017

2016

$ 10,768$ 10,434

270

296

338

Total asset management fees

11,038

10,730

9,974

2,179

2,029

1,915

Asset management fees
$

1,961

$

2,479

$

2,325

Investment management fees(a)All other asset management fees(b)Credit

1,395

1,329

2,096

Foreign exchange

3,222

2,746

2,827

Equity

4,924

3,873

2,994

Total administration fees(c)Commodity

$

9,636

906

661

1,067

Commissions and other fees

Total trading revenue

12,40811,08811,309Brokerage commissions(d)

2,505

2,239

2,151

Private equity gains

(349)

259

257

All other commissions and fees

1,396

1,289

1,324

Total commissions and fees

3,901

3,528

3,475

$ 17,118$ 16,287$ 15,364

Principal transactions$ 12,059$ 11,347$ 11,566

Principal transactions revenue is earned primarily by CIB.
Refer to Note 31 for segment results.
Lending- and deposit-related fees
Lending-related fees include fees earned from loan
commitments, standby letters of credit, financial
guarantees, and other loan-servicing activities. Depositrelated fees include fees earned in lieu of compensatingbalances, and fees earned from performing cash
management activities and other deposit account services.
Lending- and deposit-related fees in this revenue category
are recognized over the period in which the related service
is provided.
Year ended December 31, (in millions)

2018

2017

2016

Lending-related fees

$ 1,117$ 1,110$ 1,114

Deposit-related fees

4,935

4,823

4,660

$ 6,052$ 5,933$ 5,774

Total lending- and deposit-related fees

Lending- and deposit-related fees are earned by CCB, CIB,
CB, and AWM. Refer to Note 31 for segment results.
Asset management, administration and commissions
This revenue category includes fees from investment
management and related services, custody, brokerage
services and other products. The Firm manages assets onbehalf of its clients, including investors in Firm-sponsoredfunds and owners of separately managed investment
accounts. Management fees are typically based on the valueof assets under management and are collected andrecognized at the end of each period over which the
management services are provided and the value of the
managed assets is known. The Firm also receives
performance-based management fees, which are earned
based on exceeding certain benchmarks or otherperformance targets and are accrued and recognized when
the probability of reversal is remote, typically at the end of
the related billing period. The Firm has contractual
arrangements with third parties to provide distribution andother services in connection with its asset management
activities. Amounts paid to third-party service providers arerecorded in professional and outside services expense.

JPMorgan Chase & Co./2018 Form 10-K

Total asset management,
administration andcommissions(a) Represents fees earned from managing assets on behalf of the Firm’sclients, including investors in Firm-sponsored funds and owners of
separately managed investment accounts.
(b) The Firm receives other asset management fees for services that are
ancillary to investment management services, including commissions
earned on sales or distribution of mutual funds to clients. These fees arerecorded as revenue at the time the service is rendered or, in the case ofcertain distribution fees based on the underlying fund’s asset value and/or investor redemption, recorded over time as the investor remains in
the fund or upon investor redemption.
(c) The Firm receives administrative fees predominantly from custody,
securities lending, fund services and securities clearance services it
provides. These fees are recorded as revenue over the period in which
the related service is provided.
(d) The Firm acts as a broker, by facilitating its clients’ purchases and salesof securities and other financial instruments. Brokerage commissions arecollected and recognized as revenue upon occurrence of the clienttransaction. The Firm reports certain costs paid to third-party clearing
houses and exchanges net against commission revenue.

Asset management, administration and commissions areearned primarily by AWM, CIB, CCB, and CB. Refer to Note
31 for segment results.
Mortgage fees and related income
This revenue category primarily reflects CCB’s Home
Lending net production and net mortgage servicing
revenue.
Net production revenue includes fees and income
recognized as earned on mortgage loans originated with theintent to sell; the impact of risk management activities
associated with the mortgage pipeline and warehouseloans; and changes in the fair value of any residual interests
held from mortgage securitizations. Net production revenue
also includes gains and losses on sales of mortgage loans,lower of cost or fair value adjustments on mortgage loans
held-for-sale, changes in fair value on mortgage loans
originated with the intent to sell and measured at fair value
under the fair value option, as well as losses recognized as
incurred related to the repurchase of previously sold loans.
Net mortgage servicing revenue includes operating revenue
earned from servicing third-party mortgage loans which isrecognized over the period in which the service is provided,changes in the fair value of MSRs and the impact of risk
management activities associated with MSRs.
For further discussion of risk management activities andMSRs, refer to Note 15.
Net interest income from mortgage loans is recorded ininterest income.
199

Notes to consolidated financial statements
Card income
This revenue category includes interchange income fromcredit and debit cards and fees earned from processing cardtransactions for merchants, both of which are recognizedwhen purchases are made by a cardholder. Card income
also includes account origination costs and annual fees,
which are deferred and recognized on a straight-line basis
over a 12-month period.
Certain Chase credit card products offer the cardholder theability to earn points based on account activity, which the
cardholder can choose to redeem for cash and non-cash
rewards. The cost to the Firm related to these proprietary
rewards programs varies based on multiple factors
including the terms and conditions of the rewards
programs, cardholder activity, cardholder reward
redemption rates and cardholder reward selections. The
Firm maintains a liability for its obligations under its
rewards programs and reports the current-period cost as a
reduction of card income.
Credit card revenue sharing agreements
The Firm has contractual agreements with numerous cobrand partners that grant the Firm exclusive rights to issue
co-branded credit card products and market them to thecustomers of such partners. These partners endorse the cobrand credit card programs and provide their customer ormember lists to the Firm. The partners may also conduct
marketing activities and provide rewards redeemable under
their own loyalty programs that the Firm will grant to cobrand credit cardholders based on account activity. The
terms of these agreements generally range from five to ten
years.
The Firm typically makes payments to the co-brand credit
card partners based on the cost of partners’ marketing
activities and loyalty program rewards provided to credit
cardholders, new account originations and sales volumes.
Payments to partners based on marketing efforts
undertaken by the partners are expensed by the Firm as
incurred and reported as marketing expense. Payments forpartner loyalty program rewards are reported as a
reduction of card income when incurred. Payments topartners based on new credit card account originations areaccounted for as direct loan origination costs and are
deferred and recognized as a reduction of card income on astraight-line basis over a 12-month period. Payments topartners based on sales volumes are reported as a
reduction of card income when the related interchange
income is earned.

200

The following table presents the components of card income:Year ended December 31,(in millions)Interchange and merchantprocessing income
Reward costs and partner
payments
Other card income(a)Total card income
(a)

(b)

2018

2017

2016

$ 18,808$ 17,080$ 15,367(10,820)(9,480)(13,074) (b)
$

(745)
4,989

(1,827)(1,108)$ 4,433 $ 4,779

Predominantly represents annual fees and new account origination
costs, which are deferred and recognized on a straight-line basis overa 12-month period and are outside the scope of the revenue
recognition guidance, ASC 606, Revenue from Contracts with
Customers.
Includes an adjustment to the credit card rewards liability of
approximately $330 million, recorded in the second quarter of 2018.

Card income is earned primarily by CCB and CB. Refer toNote 31 for segment results.
Other income
Other income on the Firm’s Consolidated statements ofincome included the following:
Year ended December 31, (in millions)

2018

2017

2016

Operating lease income$ 4,540$ 3,613$ 2,724

Operating lease income is recognized on a straight–linebasis over the lease term.

Noninterest expense
Other expense
Other expense on the Firm’s Consolidated statements ofincome included the following:
Year ended December 31,(in millions)
Legal expense/(benefit)
FDIC-related expense

2018
$

72
1,239

2017
$

(35) $
1,492

2016
(317)
1,296

JPMorgan Chase & Co./2018 Form 10-K

Note 7 – Interest income and Interest expense
Interest income and interest expense are recorded in theConsolidated statements of income and classified based on
the nature of the underlying asset or liability.
The following table presents the components of interest
income and interest expense:
Year ended December 31,(in millions)

2018

2017

2016

Interest income
Loans(a)$ 47,620 $ 41,008 $ 36,634

Taxable securities

5,653

5,535

5,538

Non-taxable securities(b)

1,595

1,847

1,766

Total investment securities

7,248

7,382

7,304

Trading assets

8,703

7,610

7,292

Federal funds sold and securities
purchased under resaleagreements
Securities borrowed(c)

3,819

2,327

2,265

728

(37)

(332)

Deposits with banks

5,907

4,238

1,879

All other interest-earning assets(d)

3,417

1,844

859

Total interest income

Interest income and interest expense includes the currentperiod interest accruals for financial instruments measured
at fair value, except for derivatives and financial
instruments containing embedded derivatives that would be
separately accounted for in accordance with U.S. GAAP,
absent the fair value option election; for those instruments,
all changes in fair value including any interest elements, arereported in principal transactions revenue. For financial
instruments that are not measured at fair value, the related
interest is included within interest income or interest
expense, as applicable. For further information on
accounting for interest income and interest expense related
to loans, investment securities, securities financing (i.e.
securities purchased or sold under resale or repurchaseagreements; securities borrowed; and securities loaned)and long-term debt, refer to Notes 12, 10, 11 and 19,
respectively.

$ 77,442 $ 64,372 $ 55,901

Interest expense
Interest bearing deposits

5,973 $

2,857 $

1,356

Federal funds purchased andsecurities loaned or sold under
repurchase agreements

$

3,066

1,611

1,089

Short-term borrowings

1,144

481

203

Trading liabilities - debt and allother interest-bearing liabilities(f)

3,729

2,070

1,102

Long-term debt

7,978

6,753

5,564

493

503

504

(e)

Beneficial interest issued byconsolidated VIEs
Total interest expense$ 22,383 $ 14,275 $Net interest income$ 55,059 $ 50,097 $ 46,083

Provision for credit losses
Net interest income after
provision for credit losses

4,871

5,290

9,818
5,361

$ 50,188 $ 44,807 $ 40,722(a) Includes the amortization/accretion of unearned income (e.g.,purchase premiums/discounts, net deferred fees/costs, etc.).
(b) Represents securities that are tax-exempt for U.S. federal income tax
purposes.
(c) Negative interest income is related to client-driven demand for certain
securities combined with the impact of low interest rates. This ismatched book activity and the negative interest expense on thecorresponding securities loaned is recognized in interest expense.
(d) Includes held-for-investment margin loans, which are classified in
accrued interest and accounts receivable, and all other interestearning assets, which are classified in other assets on the Consolidatedbalance sheets.
(e) Includes commercial paper.
(f) Other interest-bearing liabilities include brokerage customer payables.

JPMorgan Chase & Co./2018 Form 10-K

201

Notes to consolidated financial statements
Note 8 – Pension and other postretirement
employee benefit plans
The Firm has various defined benefit pension plans and
OPEB plans that provide benefits to its employees in the
U.S. and certain non-U.S. locations. The Firm also provides aqualified defined contribution plan in the U.S. and maintains
other similar arrangements in certain non-U.S. locations.
The principal defined benefit pension plan in the U.S. is aqualified noncontributory plan that provides benefits tosubstantially all U.S. employees. In connection with changes
to the U.S. Retirement Savings Program during the fourth
quarter of 2018, the Firm announced that it will freeze theU.S. defined benefit pension plan. Commencing on January
1, 2020 (and January 1, 2019 for new hires), pay credits
will be directed to the U.S. defined contribution plan.
Interest credits will continue to accrue. As a result, acurtailment was triggered and a remeasurement of the U.S.
defined benefit pension obligation and plan assets occurred
as of November 30, 2018. The plan design change resulted
in an increase to pension expense of $21 million
representing the immediate recognition of the prior service
cost, but did not have a material impact on the U.S. defined
benefit pension plan or the Firm’s Consolidated Financial
Statements.
The Firm also has defined benefit pension plans that are
offered in certain non-U.S. locations based on factors suchas eligible compensation, age and/or years of service. It is
the Firm’s policy to fund the pension plans in amounts
sufficient to meet the requirements under applicable laws.
The Firm does not anticipate at this time any contribution to
the U.S. defined benefit pension plan in 2019. The 2019
contributions to the non-U.S. defined benefit pension plans
are expected to be $45 million of which $30 million arecontractually required.

The Firm offers postretirement medical and life insurance
benefits to certain U.S. retirees and postretirement medical
benefits to qualifying U.S. and U.K. employees.
The Firm defrays the cost of its U.S. OPEB obligation
through corporate-owned life insurance (“COLI”) purchasedon the lives of eligible employees and retirees. While theFirm owns the COLI policies, COLI proceeds (death benefits,
withdrawals and other distributions) may be used only toreimburse the Firm for its net postretirement benefit claim
payments and related administrative expense. The Firm has
generally funded its postretirement benefit obligations
through contributions to the relevant trust on a pay-as-you
go basis. On December 21, 2017, the Firm contributed$600 million of cash to the trust as a prefunding of a
portion of its postretirement benefit obligations. The U.K.
OPEB plan is unfunded.
Pension and OPEB accounting generally requires that thedifference between plan assets at fair value and the benefit
obligation be measured and recorded on the balance sheet.
Plans that are overfunded (excess of plan assets overbenefit obligation) are recorded in other assets and plansthat are underfunded (excess benefit obligation over plan
assets) are recorded within other liabilities. Gains or losses
resulting from changes in the benefit obligation and thevalue of plan assets are recorded in other comprehensive
income (“OCI”) and recognized as part of the net periodic
benefit cost over subsequent periods as discussed in theGains and losses section of this Note. Additionally, income
statement items related to pension and OPEB plans (otherthan benefits earned during the period) are aggregated andreported net within other expense.

The Firm also has a number of nonqualified
noncontributory defined benefit pension plans that are
unfunded. These plans provide supplemental defined
pension benefits to certain employees.

202

JPMorgan Chase & Co./2018 Form 10-K

The following table presents the changes in benefit obligations, plan assets, the net funded status, and the pretax pension and
OPEB amounts recorded in AOCI on the Consolidated balance sheets for the Firm’s defined benefit pension and OPEB plans, andthe weighted-average actuarial annualized assumptions for the projected and accumulated postretirement benefit obligations.
Defined benefit
pension plans

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

2018

OPEB plans(h)

2017

2018

2017

Change in benefit obligation
Benefit obligation, beginning of year$

(16,700)$(15,594)

$

(684)

$

(708)

Benefits earned during the year

(354)

(330)

—

—

Interest cost on benefit obligations

(556)

(598)

(24)

(28)

Plan amendments

(29)

—

—

—

Plan curtailment

123

—

—

—

(7)

(7)

(15)

(16)

Employee contributions
Net gain/(loss)

938

Benefits paid

873

(721)

(g)

40

(4)

841

69

76

(g)

Plan settlements

15

30

—

—

Expected Medicare Part D subsidy receipts

NA

NA

—

(1)

Foreign exchange impact and otherBenefit obligation, end of year(a)

185

(321)

2

(3)

$

(15,512)$(16,700)

$

(612)

$

(684)

$

19,603$

17,703

$

2,757

$

1,956

Change in plan assets
Fair value of plan assets, beginning of year
Actual return on plan assets

(548)

2,356

(28)

233

Firm contributions

75

78

2

602

Employee contributions

7

7

15

—

(873)

(841)

(113)

(34)
—

Benefits paid
Plan settlements

(15)

(30)

—

Foreign exchange impact and other

(197)

330

—

—

Fair value of plan assets, end of year (a)(b)(c)$

18,052$

19,603

$

2,633

$

2,757

Net funded status (d)(e)

$

2,540

$

2,903

$

2,021

$

2,073

Accumulated benefit obligation, end of year$

(15,494)$(16,530)$(3,134)$(2,800)NA

NA

Pretax pension and OPEB amounts recorded in AOCI
Net gain/(loss)
Prior service credit/(cost)
Accumulated other comprehensive income/(loss), pretax, end of year(23)$

(3,157)$

6$(2,794)

184

$

—
$

184

271
—

$

271

Weighted-average actuarial assumptions used to determine benefit obligations
Discount Rate (f)0.60 - 4.30 %0.60 - 3.70 %

4.20%

3.70%

Rate of compensation increase (f)2.25 – 3.00

2.25 – 3.00

NA

NAInterest crediting rate(f)1.81 - 4.90%

1.81 - 4.90%

NA

NA
5.00

Health care cost trend rate:
Assumed for next year

NA

NA

5.00

Ultimate

NA

NA

5.00

5.00

Year when rate will reach ultimate

NA

NA

2019

2018

(a) At December 31, 2018 and 2017, included non-U.S. benefit obligations of $(3.3) billion and $(3.8) billion, and plan assets of $3.5 billion and $3.9 billion,
respectively, predominantly in the U.K.
(b) At both December 31, 2018 and 2017, approximately $302 million of U.S. defined benefit pension plan assets included participation rights under participating
annuity contracts.
(c) At December 31, 2018 and 2017, defined benefit pension plan amounts that were not measured at fair value included $340 million and $377 million, respectively,of accrued receivables, and $503 million and $587 million, respectively, of accrued liabilities, for U.S. plans.
(d) Represents plans with an aggregate overfunded balance of $5.1 billion and $5.6 billion at December 31, 2018 and 2017, respectively, and plans with an aggregate
underfunded balance of $547 million and $612 million at December 31, 2018 and 2017, respectively.
(e) For pension plans with a projected benefit obligation exceeding plan assets, the projected benefit obligation and fair value of plan assets was $1.3 billion and $762
million at December 31, 2018, respectively and $1.4 billion and $811 million at December 31, 2017, respectively. For pension plans with an accumulated benefit
obligation exceeding plan assets, the accumulated benefit obligation and fair value of plan assets was $1.3 billion and $762 million at December 31, 2018,
respectively, and $1.4 billion and $811 million at December 31, 2017, respectively. For OPEB plans with a projected benefit obligation exceeding plan assets, theprojected benefit obligation was $26 million and $32 million at December 31, 2018 and December 31, 2017, respectively, they had no plan assets.
(f) For the U.S. defined benefit pension plans, the discount rate assumption is 4.30% and 3.70% for 2018 and 2017, respectively, and the rate of compensation
increase and the interest crediting rate are 2.30% and 4.90%, respectively, for both 2018 and 2017.
(g) At December 31, 2018 and 2017, the gain/(loss) was primarily attributable to the change in the discount rate.
(h) Includes an unfunded postretirement benefit obligation of $26 million and $32 million at December 31, 2018 and 2017, respectively, for the U.K. plan.

JPMorgan Chase & Co./2018 Form 10-K

203

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 eight years and for the non-U.S.
defined benefit pension plans is the period appropriate forthe affected plan. In addition, prior service costs areamortized over the average remaining service period of
active employees expected to receive benefits under theplan when the prior service cost is first recognized. Due tothe curtailment of the principal U.S. defined benefit pension
plan in 2018, all related prior service cost was recognizedin the annual net periodic benefit cost.
For the Firm’s OPEB plans, a calculated value thatrecognizes changes in fair value over a five-year period isused to determine the expected return on plan assets. Thisvalue is referred to as the market-related value of assets.
Amortization of net gains and losses, adjusted for gains andlosses not yet recognized, is included in annual net periodic
benefit cost if, as of the beginning of the year, the net gainor loss exceeds 10% of the greater of the accumulated
postretirement benefit obligation or the market-related
value of assets. Any excess net gain or loss is amortizedover the average expected lifetime of retired participants,
which is currently eleven years; however, prior service costs
resulting from plan changes are amortized over the average
years of service remaining to full eligibility age, which iscurrently one year.

204

JPMorgan Chase & Co./2018 Form 10-K

The following table presents the components of net periodic benefit costs reported in the Consolidated statements of income
for the Firm’s U.S. and non-U.S. defined benefit pension, defined contribution and OPEB plans, and in other comprehensive
income for the defined benefit pension and OPEB plans, and the weighted-average annualized actuarial assumptions for the
net periodic benefit cost.
Pension plans
Year ended December 31, (in millions)

2018

OPEB plans

2017

2016

2018

2017

2016

Components of net periodic benefit cost
Benefits earned during the year

$

354

$

330

$

332

$

—

$

—

$

—

Interest cost on benefit obligations

556

598

629

24

28

31

Expected return on plan assets

(981)

(968)

(1,030)

(103)

(97)

(105)

Net (gain)/loss

103

250

257

—

—

—

Prior service cost/(credit)

(23)

(36)

(36)

—

—

—

Curtailment (gain)/loss

21

—

—

—

—

—

Settlement (gain)/loss

2

2

4

—

—

—

$

(79) $(69) $

(74)

NA

NA

NA

$

(79) $(69) $

(74)

NA

NA

NA

$

(79) $(69) $(74)

Amortization:

Net periodic defined benefit cost(a)$32

Other defined benefit pension plans(b)Total defined benefit plans

176

$

200

$

1,014

20
$

52

Total defined contribution plans
Total pension and OPEB cost included in noninterest expense

$

924

156

$

181

24

872
$

$

25

814

789
$

970

Changes in plan assets and benefit obligations recognized in other comprehensive income
Prior service (credit)/cost arising during the year

29

—

—

—

—

—

Net (gain)/loss arising during the year

467

(669)

395

91

(133)

(29)

Amortization of net loss

(103)

(250)

(257)

—

—

—

Amortization of prior service (cost)/credit

23

36

36

—

—

—

Curtailment gain/(loss)

(21)

—

—

—

—

—

Settlement gain/(loss)

(2)

(2)

(4)

—

—

—

Foreign exchange impact and other

(30)

54

(77)

(4)

—

—

Total recognized in other comprehensive income

$

363

$

(831)

$

93

$

87

$

(133) $

(29)

Total recognized in net periodic benefit cost and othercomprehensive income

$

395

$

(655)

$

249

$

8

$

(202) $

(103)

Weighted-average assumptions used to determine net periodic benefit costs
Discount rate(c)0.60 - 4.50 % 0.60 - 4.30 %0.90 – 4.50%

3.70%

4.20%

4.40%

Expected long-term rate of return on plan assets (c)0.70 - 5.50

0.70 - 6.00

0.80 – 6.50

4.00

5.00

5.75

Rate of compensation increase (c)2.25 - 3.00

2.25 - 3.00

2.25 – 4.30

NA

NA

NA

Interest crediting rate(c)1.81- 4.90%

1.81- 4.90%

1.56- 4.90%

NA

NA

NA
5.50

Health care cost trend rate
Assumed for next year

NA

NA

NA

5.00

5.00

Ultimate

NA

NA

NA

5.00

5.00

5.00

Year when rate will reach ultimate

NA

NA

NA

2018

2017

2017

(a) Effective January 1, 2018, benefits earned during the year are reported in compensation expense; all other components of net periodic defined benefit
costs are reported within other expense in the Consolidated statements of income.
(b) Includes various defined benefit pension plans which are individually immaterial.
(c) The rate assumptions for the U.S. defined benefit pension plans are at the upper end of the range, except for the rate of compensation increase, which is
2.30% for both 2018 and 2017, and 3.50% for 2016.

Plan assumptions
The Firm’s expected long-term rate of return for defined
benefit pension and OPEB plan assets is a blended weighted
average, by asset allocation of the projected long-term
returns for the various asset classes, taking into
consideration local market conditions and the specificallocation of plan assets. Returns on asset classes aredeveloped using a forward-looking approach and are notstrictly based on historical returns. Consideration is also
given to current market conditions and the short-term
portfolio mix of each plan.

JPMorgan Chase & Co./2018 Form 10-K

The discount rate used in determining the benefit obligation
under the U.S. defined benefit pension and OPEB plans wasprovided by the Firm’s actuaries. This rate was selected byreference to the yields on portfolios of bonds with maturity
dates and coupons that closely match each of the plan’s
projected cash flows. The discount rate for the U.K. defined
benefit pension plan represents a rate of appropriate
duration from the analysis of yield curves provided by the
Firm’s actuaries.
At December 31, 2018, the Firm increased the discountrates used to determine its benefit obligations for the U.S.
defined benefit pension and OPEB plans in light of current
205Notes to consolidated financial statements
market interest rates, which will decrease expense byapproximately $20 million in 2019. The 2019 expectedlong-term rate of return on U.S. defined benefit pension
plan assets and U.S. OPEB plan assets are 5.50% and4.30%, respectively. As of December 31, 2018, the interest
crediting rate assumption was 4.90%.
The following table represents the effect of a 25-basis point
decline in the two listed rates below on estimated 2019
defined benefit pension and OPEB plan expense, as well as
the effect on the postretirement benefit obligations.

(in millions)Defined benefit
pension and OPEB
plan expense

Expected long-term rate of return$

51

Discount rate$

50

Benefitobligation
NA
$

490

Investment strategy and asset allocation
The assets of the Firm’s defined benefit pension plans areheld in various trusts and are invested in well-diversified
portfolios of equity and fixed income securities, cash andcash equivalents, and alternative investments. The trustowned assets of the Firm’s U.S. OPEB plan are invested
primarily in fixed income securities. COLI policies used todefray the cost of the Firm’s U.S. OPEB plan are invested inseparate accounts of an insurance company and areallocated to investments intended to replicate equity and
fixed income indices.
The investment policies for the assets of the Firm’s defined
benefit pension plans are to optimize the risk-return
relationship as appropriate to the needs and goals of eachplan using a global portfolio of various asset classes
diversified by market segment, economic sector, and issuer.
Assets are managed by a combination of internal andexternal investment managers. The Firm regularly reviews
the asset allocations and asset managers, as well as otherfactors that impact the portfolios, which are rebalanced
when deemed necessary.
Investments held by the plans include financial instruments
which are exposed to various risks such as interest rate,
market and credit risks. Exposure to a concentration of
credit risk is mitigated by the broad diversification of both
U.S. and non-U.S. investment instruments. Additionally, theinvestments in each of the collective investment funds and/or registered investment companies are further diversified
into various financial instruments. As of December 31,
2018, assets held by the Firm’s defined benefit pension and
OPEB plans do not include JPMorgan Chase common stock,
except through indirect exposures through investments inthird-party stock-index funds. The plans hold investments infunds that are sponsored or managed by affiliates of
JPMorgan Chase in the amount of $3.7 billion and $6.0
billion, as of December 31, 2018 and 2017, respectively.

206

JPMorgan Chase & Co./2018 Form 10-K

The following table presents the weighted-average asset allocation of the fair values of total plan assets at December 31 forthe years indicated, as well as the respective approved asset allocation ranges by asset class.
Defined benefit pension plans(a)Asset
December 31,% of plan assets

Allocation

2018

OPEB plan(d)
Asset

2017

% of plan assets

Allocation

2018

2017

Asset class
Debt securities(b)27-100%48%42%30-70%

61%

61%

Equity securities

10-45

37

42

30-70

39

39

Real estate

0-10

2

3

—

—

—

Alternatives (c)

0-35

13

13

—

—

—

Total

100%

100%

100%

100%

100%

100%

(a) Represents the U.S. defined benefit pension plan only, as that is the most significant plan.
(b) Debt securities primarily includes cash and cash equivalents, corporate debt, U.S. federal, state, local and non-U.S. government, and mortgage-backed
securities.
(c) Alternatives primarily include limited partnerships.
(d) Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded.

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, refer to Note 2.
Pension and OPEB plan assets and liabilities measured at fair value
Defined benefit pension plans
2018
December 31,(in millions)Level 1

Cash and cash equivalents$

Equity securities
Mutual funds
Collective investment funds

Level 2

343

$

2017
Total fairvalue

Level 3
1

$

—

$

344

Level 1$

Level 2

173$

Total fairvalue

Level 3
1

$

—

$

174

5,342

162

2

5,506

6,407

194

2

6,603

—

—

—

—

325

—

—

325
778

161

—

—

161

778

—

—

Limited partnerships(b)

40

—

—

40

60

—

—

60

Corporate debt securities(c)

—

3,540

3

3,543

—

2,644

4

2,648

1,191

743

—

1,934

1,096

784

—

1,880

Mortgage-backed securities

82

272

3

357

92

100

2

194

Derivative receivables

—

143

—

143

—

203

—

203

885

80

302

1,267

2,353

60

302

2,715

$ 13,295$ 11,284$ 15,580(a)U.S. federal, state, local and non-U.S.
government debt securities

Other(d)Total assets measured at fair value(e)

$

8,044

$

$

310

$

3,986

$

310

Derivative payables

$

—

$

4,941

(96) $—$(96) $—$(141) $

—

$

(141)

Total liabilities measured at fair value(e) $—$(96) $—$(96) $—$(141) $

—

$

(141)

(a) At December 31, 2018 and 2017, collective investment funds primarily included a mix of short-term investment funds, U.S. and non-U.S. equity
investments (including index) and real estate funds.
(b) Unfunded commitments to purchase limited partnership investments for the plans were $521 million and $605 million for 2018 and 2017,
respectively.
(c) Corporate debt securities include debt securities of U.S. and non-U.S. corporations.
(d) Other consists primarily of mutual funds, money market funds and participating and non-participating annuity contracts. Mutual funds and money
market funds are primarily classified within level 1 of the fair value hierarchy given they are valued using market observable prices. Participating
and non-participating annuity contracts are classified within level 3 of the fair value hierarchy due to a lack of market mechanisms for transferring
each policy and surrender restrictions.
(e) At December 31, 2018 and 2017, excludes $5.0 billion and $4.4 billion of certain investments that are measured at fair value using the net asset
value per share (or its equivalent) as a practical expedient, which are not required to be classified in the fair value hierarchy, $340 million and$377 million of defined benefit pension plan receivables for investments sold and dividends and interest receivables, $479 million and $561
million of defined benefit pension plan payables for investments purchased, and $24 million and $26 million of other liabilities, respectively.

The assets of the U.S. OPEB plan consisted of $561 million and $600 million in corporate debt securities, U.S. federal,state, local and non-U.S. government debt securities and other classified in level 1 and level 2 of the valuation hierarchy
and in cash and cash equivalents classified in level 1 of the valuation hierarchy and $2.1 billion and $2.2 billion of COLI
policies classified in level 3 of the valuation hierarchy at December 31, 2018 and 2017, respectively.

JPMorgan Chase & Co./2018 Form 10-K

207

Notes to consolidated financial statements
Changes in level 3 fair value measurements using significant unobservable inputs
Fair value,
Beginningbalance(in millions)

Actual return on plan assets
Realized
gains/(losses)

Unrealized
gains/(losses)

Purchases, sales
and settlements,
net$

Year ended December 31, 2018
U.S. defined benefit pension plan
Annuity contracts and other (a)

$

310

$

—

$

—

U.S. OPEB plan
COLI policies

$

2,157

$

—

$

Year ended December 31, 2017
U.S. defined benefit pension plan
Annuity contracts and other (a)

$

396

$

—

$

1,957

$

—

U.S. OPEB plan
COLI policies

Transfers in
and/or outof level 3

Fair value,
Endingbalance

(1) $

1

$

310

(85) $

—

$

—

$

2,072

$

1

$

(87) $

—

$

310

$

200

$

—

—

$

2,157

$

(a) Substantially all are participating and non-participating annuity contracts.

Estimated future benefit payments
The following table presents benefit payments expected tobe paid, which include the effect of expected future service,for the years indicated. The OPEB medical and life insurance
payments are net of expected retiree contributions.
Definedbenefitpensionplans

Year ended December 31,(in millions)
2019

$

939

OPEB
beforeMedicarePart Dsubsidy

MedicarePart Dsubsidy

$

$

62

1

2020

932

60

1

2021

921

57

1

2022

920

55

1

919

52

—

4,529

223

2

2023
Years 2024–2028

208

JPMorgan Chase & Co./2018 Form 10-K

Note 9 – Employee share-based incentives
Employee share-based awards
In 2018, 2017 and 2016, JPMorgan Chase granted longterm share-based awards to certain employees under its
LTIP, as amended and restated effective May 19, 2015, andfurther amended and restated effective May 15, 2018.
Under the terms of the LTIP, as of December 31, 2018, 86
million shares of common stock were available for issuancethrough May 2022. The LTIP is the only active plan underwhich the Firm is currently granting share-based incentive
awards. In the following discussion, the LTIP, plus prior Firmplans and plans assumed as the result of acquisitions, arereferred to collectively as the “LTI Plans,” and such plansconstitute the Firm’s share-based incentive plans.

Once the PSUs have vested, the shares of common stockthat are delivered, after applicable tax withholding, must be
held for an additional two-year period, typically for a total
combined vesting and holding period of five years from the
grant date.

RSUs are awarded at no cost to the recipient upon their
grant. Generally, RSUs are granted annually and vest at a
rate of 50% after two years and 50% after three years andare converted into shares of common stock as of the vestingdate. In addition, RSUs typically include full-career eligibility
provisions, which allow employees to continue to vest upon
voluntary termination based on age or service-related
requirements, subject to post-employment and otherrestrictions. All RSU awards are subject to forfeiture until
vested and contain clawback provisions that may result incancellation under certain specified circumstances.
Generally, RSUs entitle the recipient to receive cash
payments equivalent to any dividends paid on theunderlying common stock during the period the RSUs areoutstanding and, as such, are considered participating
securities as discussed in Note 22.

The Firm separately recognizes compensation expense foreach tranche of each award, net of estimated forfeitures, as
if it were a separate award with its own vesting date.
Generally, for each tranche granted, compensation expense
is recognized on a straight-line basis from the grant dateuntil the vesting date of the respective tranche, provided
that the employees will not become full-career eligible
during the vesting period. For awards with full-career
eligibility provisions and awards granted with no future
substantive service requirement, the Firm accrues theestimated value of awards expected to be awarded to
employees as of the grant date without giving consideration
to the impact of post-employment restrictions. For eachtranche granted to employees who will become full-career
eligible during the vesting period, compensation expense isrecognized on a straight-line basis from the grant date until
the earlier of the employee’s full-career eligibility date or
the vesting date of the respective tranche.

In January 2018, 2017 and 2016, the Firm’s Board of
Directors approved the grant of performance share units(“PSUs”) to members of the Firm’s Operating Committee
under the variable compensation program for performance
years 2017, 2016 and 2015, respectively. PSUs are subject
to the Firm’s achievement of specified performance criteria
over a three-year period. The number of awards that vest
can range from zero to 150% of the grant amount. The
awards vest and are converted into shares of common stockin the quarter after the end of the performance period,
which is generally three years. In addition, dividends are
notionally reinvested in the Firm’s common stock and will
be delivered only in respect of any earned shares.

JPMorgan Chase & Co./2018 Form 10-K

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 2018, 2017 and 2016. SARs generally expire ten years
after the grant date.

The Firm’s policy for issuing shares upon settlement of
employee share-based incentive awards is to issue either
new shares of common stock or treasury shares. During
2018, 2017 and 2016, the Firm settled all of its employee
share-based awards by issuing treasury shares.

209Notes to consolidated financial statements
RSUs, PSUs, employee stock options and SARs activity
Generally, compensation expense for RSUs and PSUs is measured based on the number of units granted multiplied by the stock
price at the grant date, and for employee stock options and SARs, is measured at the grant date using the Black-Scholes
valuation model. Compensation expense for these awards is recognized in net income as described previously. The following
table summarizes JPMorgan Chase’s RSUs, PSUs, employee stock options and SARs activity for 2018.
RSUs/PSUs

Options/SARs

17,493Weightedaverage
exercise
price
$
40.76

110.4646

113.63

58.97(5,054)39.65(2,136)

84.60

(1)

112.25

NA

NA

(21)

45.75

Outstanding, December 31

58,809 $85.04

12,463

Exercisable, December 31NANA12,449Year ended December 31, 2018
(in thousands, except weighted-average data, andwhere otherwise stated)
Outstanding, January 1

Weightedaverage grant
date fair value

Number ofunits

72,733 $66.36

Granted20,489Exercised or vested(32,277)

Forfeited
Canceled

Number ofawards$

Weighted-averageremaining
contractual life
(in years)

Aggregate
intrinsic
value

41.46

2.4 $ 702,815

41.37

2.4

702,815

The total fair value of RSUs that vested during the years ended December 31, 2018, 2017 and 2016, was $3.6 billion, $2.9
billion and $2.2 billion, respectively. The total intrinsic value of options exercised during the years ended December 31, 2018,2017 and 2016, was $370 million, $651 million and $338 million, respectively.
Compensation expense
The Firm recognized the following noncash compensation
expense related to its various employee share-based
incentive plans in its Consolidated statements of income.
Year ended December 31, (in millions)

2018

2017

2016

Cost of prior grants of RSUs, PSUs andSARs that are amortized over theirapplicable vesting periods$ 1,241$ 1,125$ 1,046

Accrual of estimated costs of sharebased awards to be granted in future
periods including those to full-career
eligible employees

1,081

945

894

Total noncash compensation expense
related to employee share-based
incentive plans$ 2,322$ 2,070$ 1,940At December 31, 2018, approximately $704 million(pretax) of compensation expense related to unvested
awards had not yet been charged to net income. That cost is
expected to be amortized into compensation expense over aweighted-average period of 1.6 years. The Firm does not
capitalize any compensation expense related to share-based
compensation awards to employees.

210

Cash flows and tax benefits
Effective January 1, 2016, the Firm adopted new
accounting guidance related to employee share-based
payments. As a result of the adoption of this new guidance,
all excess tax benefits (including tax benefits from dividends
or dividend equivalents) on share-based payment awards
are recognized within income tax expense in theConsolidated statements of income. Income tax benefits
related to share-based incentive arrangements recognizedin the Firm’s Consolidated statements of income for theyears ended December 31, 2018, 2017 and 2016, were$1.1 billion, $1.0 billion and $916 million, respectively.
The following table sets forth the cash received from theexercise of stock options under all share-based incentive
arrangements, and the actual income tax benefit related to
tax deductions from the exercise of the stock options.
Year ended December 31, (in millions)
Cash received for options exercised
Tax benefit

2018
$

14
75

2017
$

18
190

2016
$

26
70

JPMorgan Chase & Co./2018 Form 10-K

Note 10 – Investment securities
Investment securities consist of debt securities that areclassified as AFS or HTM. Debt securities classified as
trading assets are discussed in Note 2. Predominantly all of
the Firm’s AFS and HTM securities are held by Treasury and
CIO in connection with its asset-liability management
activities. At December 31, 2018, the investment securities
portfolio consisted of debt securities with an average credit
rating of AA+ (based upon external ratings where available,
and where not available, based primarily upon internalratings which correspond to ratings as defined by S&P and
Moody’s). AFS securities are carried at fair value on theConsolidated balance sheets. Unrealized gains and losses,
after any applicable hedge accounting adjustments, arereported as net increases or decreases to AOCI. The specificidentification method is used to determine realized gains
and losses on AFS securities, which are included in securities
gains/(losses) on the Consolidated statements of income.
HTM debt securities, which the Firm has the intent andability to hold until maturity, are carried at amortized coston the Consolidated balance sheets.

For both AFS and HTM debt securities, purchase discounts or
premiums are generally amortized into interest income on alevel-yield basis over the contractual life of the security.
However, as a result of the adoption of the premium
amortization accounting guidance in the first quarter of
2018, premiums on purchased callable debt securities mustbe amortized to the earliest call date for debt securities withcall features that are explicit, noncontingent and callable atfixed prices and on preset dates. The guidance primarily
impacts obligations of U.S. states and municipalities held in
the Firm’s investment securities portfolio. For additional
information, refer to Note 23.
As permitted by the new hedge accounting guidance, theFirm also elected to transfer U.S. government agency MBS,commercial MBS, and obligations of U.S. states andmunicipalities with a carrying value of $22.4 billion from
HTM to AFS in the first quarter of 2018. The transfer ofthese investment securities resulted in the recognition of anet pretax unrealized gain of $221 million within AOCI. Thistransfer was a noncash transaction. For additional
information, refer to Notes 1, 5 and 23.

The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
2018
December 31, (in millions)

Amortized
cost

Gross
unrealized
gains

2017

Gross
unrealized
lossesFair
value

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
lossesFair
value

Available-for-sale securities
Mortgage-backed securities:
U.S. government agencies(a)$ 69,026 $

594 $

974

$ 68,646

U.S

5,877

79

31

Non-U.S.

2,529

72

Commercial

6,758

43

Total mortgage-backed securities

84,190788

U.S. Treasury and government agencies

55,771

Obligations of U.S. states and municipalities$

69,879 $

736 $

335

$

70,280

5,925

8,193

185

14

8,364

6

2,595

2,882

122

1

3,003

147

6,654

4,932

98

5

5,025

1,158

83,82085,886

1,141

355

86,672366

78

56,05922,510266

3122,74536,221

1,582

80

37,72330,4901,881

33

32,338

75

—

—

75

59

—

—

59

Non-U.S. government debt securities

23,771351

20

24,102

26,900426

32

27,294

Corporate debt securities

1,904

23

9

1,918

2,657

101

1

2,757
20,996

Residential:

Certificates of deposit

Asset-backed securities:
Collateralized loan obligations

19,612

1

176

19,437

20,928

69

1

Other

7,225

57

22

7,260

8,764

77

24

8,817

228,769

3,168

1,543

230,394

198,194

3,961

477

201,678

Total available-for-sale debt securities
Available-for-sale equity securities(b)

—

—

—

—

547

—

—

547

228,769

3,168

1,543

230,394

198,741

3,961

477

202,225

26,610134

200

26,54427,577558

40

28,095

—

—

—

—

5,783

1

74

5,710

Total mortgage-backed securities

26,610134

200

26,54433,360559

114

33,805

Obligations of U.S. states and municipalities

4,824

105

15

4,914

14,373554

80

14,847239

215

31,45847,733

1,113

194

48,652

3,407 $ 1,758$ 261,852$ 246,474 $5,074 $

671

$ 250,877

Total available-for-sale securities
Held-to-maturity securities
Mortgage-backed securities
U.S. government agencies(c)Commercial

Total held-to-maturity securities
Total investment securities
JPMorgan Chase & Co./2018 Form 10-K

31,434$ 260,203 $211

Notes to consolidated financial statements(a) Includes total U.S. government-sponsored enterprise obligations with fair values of $50.7 billion and $45.8 billion for the years ended December 31, 2018 and2017 respectively.
(b) Effective January 1, 2018, the Firm adopted the recognition and measurement guidance. Equity securities that were previously reported as AFS securities werereclassified to other assets upon adoption.
(c) Included total U.S. government-sponsored enterprise obligations with amortized cost of $20.9 billion and $22.0 billion at December 31, 2018 and 2017,
respectively.

Investment securities impairment
The following tables present the fair value and gross unrealized losses for investment securities by aging category at
December 31, 2018 and 2017.
Investment securities with gross unrealized losses
Less than 12 months
December 31, 2018 (in millions)

12 months or more

Gross unrealized
lossesFair value

Gross unrealized
lossesFair value

Total fairvalue

Total grossunrealized losses

Available-for-sale securities
Mortgage-backed securities:
U.S. government agencies$

17,656 $

318

U.S

623

Non-U.S.

907$

22,728 $656 $40,384 $

974

4

1,445

27

2,068

31

5

165

1

1,072

6

Residential:

974

6

3,172

141

4,146

147

Total mortgage-backed securities

Commercial

20,160333

27,510825

47,6701,158

U.S. Treasury and government agencies

4,792

7

2,391

71

7,183

78

Obligations of U.S. states and municipalities

1,808

15

2,477

65

4,285

80

Certificates of deposit

75

—

—

—

75

—

3,123

5

1,937

15

5,060

20

478

8

37

1

515

9

Collateralized loan obligations

18,681

176——

18,681

176

Other

1,208

6

2,354

16

3,562

22

50,325550

36,706993

87,031

1,543

4,385

23

7,082

177

11,467

200

—

—

—

—

—

—

4,385

23

7,082

177

11,467200

Non-U.S. government debt securities
Corporate debt securities
Asset-backed securities:

Total available-for-sale securities
Held-to-maturity securities
Mortgage-backed securities
U.S. government agencies
Commercial
Total mortgage-backed securities
Obligations of U.S. states and municipalities
Total held-to-maturity securities
Total investment securities with grossunrealized losses

212

$

12

—

1,114

15

1,126

15

4,397

23

8,196

192

12,593215

54,722 $573

44,902 $

1,185 $

99,624 $1,758$

JPMorgan Chase & Co./2018 Form 10-K

Investment securities with gross unrealized losses
Less than 12 months
December 31, 2017 (in millions)

12 months or more

Gross unrealized
lossesFair value

Gross unrealized
lossesFair value

Total fairvalue

Total grossunrealized losses

Available-for-sale securities
Mortgage-backed securities:
U.S. government agencies$

36,037 $139$

7,711 $

196 $

43,748 $335

Residential:
U.S.

1,112

5

596

9

1,708

14

Non-U.S.

—

—

266

1

266

1

Commercial

528

4

335

1

863

5

Total mortgage-backed securities

37,677

148

8,908

207

46,585

355

U.S. Treasury and government agencies

1,834

11

373

20

2,207

31

949

7

1,652

26

2,601

33

—

—

—

—

—

—

6,500

15

811

17

7,311

32

—

—

52

1

52

1

—

—

276

1

276

1

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

3,521

20

720

4

4,241

24

50,481201

12,792276

63,273

477

U.S. government agencies

4,070

38

205

2

4,275

40

Commercial

3,706

41

1,882

33

5,588

74

7,776

79

2,087

35

9,863

114

584

9

2,131

71

2,715

80

8,360

88

4,218

106

12,578

194

58,841 $289

17,010 $382 $75,851 $671

Total available-for-sale securities
Held-to-maturity securities
Mortgage-backed securities

Total mortgage-backed securities
Obligations of U.S. states and municipalities
Total held-to-maturity securities
Total investment securities with grossunrealized losses$

Other-than-temporary impairment
AFS and HTM debt securities in unrealized loss positions areanalyzed as part of the Firm’s ongoing assessment of OTTI.
The Firm considers a decline in fair value to be other-thantemporary when the Firm does not expect to recover theentire amortized cost basis of the security.
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 securities areevaluated to determine if a credit loss exists. In the event ofa credit loss, only the amount of impairment associatedwith the credit loss is recognized in income. Amounts
relating to factors other than credit losses are recorded in
OCI.
Factors considered in evaluating potential OTTI include
adverse conditions specifically related to the industry,geographic area or financial condition of the issuer orunderlying collateral of a security; payment structure of the
JPMorgan Chase & Co./2018 Form 10-K$

security; changes to the rating of the security by a rating
agency; the volatility of the fair value changes; and the
Firm’s intent and ability to hold the security until recovery.
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.
When assessing securities issued in a securitization for OTTI,
the Firm estimates cash flows considering underlying loanlevel data and structural features of the securitization, suchas subordination, excess spread, overcollateralization orother forms of credit enhancement, and compares thelosses projected for the underlying collateral (“pool losses”)
against the level of credit enhancement in the securitization
structure to determine whether these features are sufficient
to absorb the pool losses, or whether a credit loss exists.
The Firm also performs other analyses to support its cash
flow projections, such as first-loss analyses or stressscenarios.
For beneficial interests in securitizations that are rated
below “AA” at their acquisition, or that can be contractually
prepaid or otherwise settled in such a way that the Firm
would not recover substantially all of its recorded
investment, the Firm considers an impairment to be otherthan-temporary when there is an adverse change in
expected cash flows.
213

Notes to consolidated financial statements
As a result of the adoption of the recognition andmeasurement guidance in the first quarter of 2018, equity
securities are no longer permitted to be classified as AFS.
For additional information, refer to Note 1. Additionally, theFirm did not recognize any OTTI for AFS equity securities forthe years ended December 31, 2017 and 2016.
For the year ended December 31, 2018, the Firm
recognized $22 million of unrealized losses as OTTI on
securities it intended to sell and subsequently sold during
the year. The Firm does not intend to sell any of theremaining investment securities with an unrealized loss in
AOCI as of December 31, 2018, and it is not likely that the
Firm will be required to sell these securities before recoveryof their amortized cost basis. Further, the Firm did notrecognize any credit-related OTTI losses during the year
ended December 31, 2018. Accordingly, the Firm believes
that the investment securities with an unrealized loss in
AOCI as of December 31, 2018, are not other-thantemporarily impaired.

Investment securities gains and losses
The following table presents realized gains and losses and
OTTI from AFS securities that were recognized in income.
Year ended December 31,(in millions)

2018

Realized gains
Realized losses
OTTI losses
Net investment securities gains/(losses)
OTTI losses
Credit-related losses recognized inincomeInvestment securities the Firm
intends to sell(a)Total OTTI losses recognized inincome

$

$

2017

2016

211
(606)
—

$ 1,013(1,072)
(7)

(395)

(66)

141

—

—

(1)

—

(7)

(27)

—

$

(7)

$

$

401
(232)
(28)

(28)

(a) Excludes realized losses on securities sold of $22 million, $6 million
and $24 million for the years ended December 31, 2018, 2017 and2016, respectively, that had been previously reported as an OTTI loss
due to the intention to sell the securities.

Changes in the credit loss component of credit-impaired
debt securities
The cumulative credit loss component, including any
changes therein, of OTTI losses that have been recognized inincome related to AFS securities was not material as of andduring the years ended December 31, 2018, 2017 and
2016.

214

JPMorgan Chase & Co./2018 Form 10-K

Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at December 31, 2018, of JPMorgan Chase’s
investment securities portfolio by contractual maturity.
By remaining maturity
December 31, 2018 (in millions)
Available-for-sale securities
Mortgage-backed securities(a)Amortized cost
Fair value
Average yield(b)U.S. Treasury and government agencies
Amortized cost
Fair value
Average yield(b)Obligations of U.S. states and municipalities
Amortized cost
Fair value
Average yield(b)Certificates of deposit
Amortized cost
Fair value
Average yield(b)Non-U.S. government debt securities
Amortized cost
Fair value
Average yield(b)Corporate debt securities
Amortized cost
Fair value
Average yield(b)Asset-backed securities
Amortized cost
Fair value
Average yield(b)Total available-for-sale securities
Amortized cost
Fair value
Average yield(b)Held-to-maturity securities
Mortgage-backed securities(a)Amortized Cost
Fair value
Average yield(b)Obligations of U.S. states and municipalities
Amortized cost
Fair value
Average yield(b)Total held-to-maturity securities
Amortized cost
Fair value
Average yield(b)Due in one
year or lessDue after one year
through five years

Due after five years
through 10 years

Due after
10 years(c)

Total

$

519
520
2.02%

$

77
77
3.50%

$

7,574
7,616
3.48%

$

76,02075,607
3.52%$

84,19083,8203.51%$

22,43922,444
2.42%$

17,94518,090
2.90%

$

9,618
9,588
2.60%

$

5,769
5,937
3.05%

$

55,77156,059
2.67%

$

177
176
1.94%

$

617
629
4.30%

$

2,698
2,790
5.26%

$

32,72934,128
5.02%$

36,22137,723
5.01%

$

75
75
0.49%

$

—
—
—%

$

—
—
—%

$

—
—
—%

$

75
75
0.49%

$

5,604
5,606
3.25%

$

13,117
13,314
1.95%

$

5,050
5,182
1.33%

$

—
—
—%

$

23,771
24,102
2.13%

$

22
22
4.05%

$

950
964
4.64%

$

792
792
4.56%

$

140
140
4.74%

$

1,904
1,918
4.60%

$

—
—
—%

$

3,222
3,208
2.85%

$

4,615
4,592
3.12%

$

19,00018,897
3.19%$

26,837
26,697
3.14%$

28,836
28,843
2.57%$

35,92836,2822.62%$

30,34730,5602.98%$

133,658
134,709
3.82%$

228,769
230,394
3.36%

$

—
—
—%

$

—
—
—%

$

3,125
3,141
3.53%

$

23,48523,403
3.34%$

26,61026,544
3.36%

$

—
—
—%

$

—
—
—%

$

20
20
3.93%

$

4,804
4,894
4.12%

$

4,824
4,914
4.12%

$

—
—
—%

$

—
—
—%

$

3,145
3,161
3.53%

$

28,28928,2973.47%$

31,434
31,458
3.48%(a) As of December 31, 2018, mortgage-backed securities issued by Fannie Mae exceeded 10% of JPMorgan Chase’s total stockholders’ equity; both the amortized costand fair value of such securities was $52.3 billion.
(b) Average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each security. The effective yieldconsiders the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging derivatives. Taxable-equivalent amounts are used
where applicable. The effective yield excludes unscheduled principal prepayments; and accordingly, actual maturities of securities may differ from their contractual or expectedmaturities as certain securities may be prepaid.
(c) Substantially all of the Firm’s U.S. residential MBS and collateralized mortgage obligations are due in 10 years or more, based on contractual maturity. The estimated weightedaverage life, which reflects anticipated future prepayments, is approximately 7 years for agency residential MBS, 3 years for agency residential collateralized mortgage
obligations and 2 years for nonagency residential collateralized mortgage obligations.

JPMorgan Chase & Co./2018 Form 10-K

215

Notes to consolidated financial statements
Note 11 – Securities financing activities
JPMorgan Chase enters into resale, repurchase, securities
borrowed and securities loaned agreements (collectively,“securities financing agreements”) primarily to finance theFirm’s inventory positions, acquire securities to cover shortsales, accommodate customers’ financing needs, settle
other securities obligations and to deploy the Firm’s excess
cash.
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 agreements are generally carried at theamount of cash collateral advanced or received. Where
appropriate under applicable accounting guidance,
securities financing agreements with the same counterparty
are reported on a net basis. For further discussion of theoffsetting of assets and liabilities, refer to Note 1. Fees
received and paid in connection with securities financing
agreements are recorded over the life of the agreement ininterest income and interest expense on the Consolidated
statements of income.
The Firm has elected the fair value option for certain
securities financing agreements. For further information
regarding the fair value option, refer to Note 3. The
securities financing agreements for which the fair value
option has been elected are reported within securities
purchased under resale agreements, securities loaned orsold under repurchase agreements, and securities borrowedon the Consolidated balance sheets. Generally, foragreements carried at fair value, current-period interest
accruals are recorded within interest income and interest
expense, with changes in fair value reported in principaltransactions revenue. However, for financial instruments
containing embedded derivatives that would be separately
accounted for in accordance with accounting guidance forhybrid instruments, all changes in fair value, including any
interest elements, are reported in principal transactions
revenue.

216

Securities financing agreements expose the Firm primarily
to credit and liquidity risk. To manage these risks, the Firm
monitors the value of the underlying securities(predominantly high-quality securities collateral, including
government-issued debt and agency MBS) that it hasreceived from or provided to its counterparties compared to
the value of cash proceeds and exchanged collateral, andeither requests additional collateral or returns securities orcollateral when appropriate. Margin levels are initiallyestablished based upon the counterparty, the type ofunderlying securities, and the permissible collateral, andare monitored on an ongoing basis.
In resale and securities borrowed agreements, the Firm is
exposed to credit risk to the extent that the value of the
securities received is less than initial cash principal
advanced and any collateral amounts exchanged. In
repurchase and securities loaned agreements, credit risk
exposure arises to the extent that the value of underlying
securities advanced exceeds the value of the initial cash
principal received, and any collateral amounts exchanged.
Additionally, the Firm typically enters into master netting
agreements and other similar arrangements with its
counterparties, which provide for the right to liquidate theunderlying securities and any collateral amounts exchangedin the event of a counterparty default. It is also the Firm’s
policy to take possession, where possible, of the securities
underlying resale and securities borrowed agreements. For
further information regarding assets pledged and collateral
received in securities financing agreements, refer to Note28.
As a result of the Firm’s credit risk mitigation practices withrespect to resale and securities borrowed agreements as
described above, the Firm did not hold any reserves for
credit impairment with respect to these agreements as ofDecember 31, 2018 and 2017.

JPMorgan Chase & Co./2018 Form 10-K

The table below summarizes the gross and net amounts of the Firm’s securities financing agreements, as of December 31,
2018 and 2017. When the Firm has obtained an appropriate legal opinion with respect to the master netting agreement with acounterparty and where other relevant netting criteria under U.S. GAAP are met, the Firm nets, on the Consolidated balance
sheets, the balances outstanding under its securities financing agreements with the same counterparty. In addition, the Firm
exchanges securities and/or cash collateral with its counterparties; this collateral also reduces the economic exposure with thecounterparty. Such collateral, along with securities financing balances that do not meet all these relevant netting criteria under
U.S. GAAP, is presented as “Amounts not nettable on the Consolidated balance sheets,” and reduces the “Net amounts”
presented below, if the Firm has an appropriate legal opinion with respect to the master netting agreement with thecounterparty. Where a legal opinion has not been either sought or obtained, the securities financing balances are presented
gross in the “Net amounts” below, and related collateral does not reduce the amounts presented.
2018

December 31, (in millions)

Gross amounts

Amounts nettedon theConsolidatedbalance sheets

Amountspresented on theConsolidatedbalance sheets(b)Amounts notnettable on theConsolidatedbalance sheets(c)Net amounts(d)AssetsSecurities purchased under resale agreements$

691,116 $(369,612) $321,504 $(308,854) $12,650132,955(20,960)

111,995(79,747)

32,248541,587 $(369,612) $171,975 $(149,125) $22,85033,700(20,960)

12,740(12,358)

382

Gross amounts

Amounts nettedon theConsolidatedbalance sheets

Amountspresented on theConsolidatedbalance sheets(b)Securities borrowed
Liabilities
Securities sold under repurchase agreements$

Securities loaned and other(a)2017

December 31, (in millions)

Amounts notnettable on theConsolidatedbalance sheets(c)Net amounts(d)AssetsSecurities purchased under resale agreements$

Securities borrowed

448,608 $(250,505) $198,103 $(188,502) $9,601

113,926(8,814)105,112(76,805)

28,307398,218 $(250,505) $147,713 $(129,178) $18,53527,228(8,814)

18,414(18,151)

263

Liabilities
Securities sold under repurchase agreements
Securities loaned and other(a)$(a) Includes securities-for-securities lending agreements of $3.3 billion and $9.2 billion at December 31, 2018 and 2017, respectively, accounted for at fairvalue, where the Firm is acting as lender. These amounts are presented within accounts payable and other liabilities in the Consolidated balance sheets.
(b) Includes securities financing agreements accounted for at fair value. At December 31, 2018 and 2017, included securities purchased under resaleagreements of $13.2 billion and $14.7 billion, respectively; securities sold under repurchase agreements of $935 million and $697 million, respectively;
and securities borrowed of $5.1 billion and $3.0 billion, respectively. There were no securities loaned accounted for at fair value in either period.
(c) In some cases, collateral exchanged with a counterparty exceeds the net asset or liability balance with that counterparty. In such cases, the amounts
reported in this column are limited to the related net asset or liability with that counterparty.
(d) Includes securities financing agreements that provide collateral rights, but where an appropriate legal opinion with respect to the master netting
agreement has not been either sought or obtained. At December 31, 2018 and 2017, included $7.9 billion and $7.5 billion, respectively, of securities
purchased under resale agreements; $30.3 billion and $25.5 billion, respectively, of securities borrowed; $21.5 billion and $16.5 billion, respectively, of
securities sold under repurchase agreements; and $25 million and $29 million, respectively, of securities loaned and other.

JPMorgan Chase & Co./2018 Form 10-K

217

Notes to consolidated financial statements
The tables below present as of December 31, 2018 and 2017 the types of financial assets pledged in securities financing
agreements and the remaining contractual maturity of the securities financing agreements.
Gross liability balance
2018
Securities soldunder repurchaseagreements

December 31, (in millions)2017

Securities loaned
and other

Securities soldunder repurchaseagreements

Securities loaned
and otherMortgage-backed securities:
U.S. government agencies

28,811 $—13,100 $—Residential - nonagency

$

2,165

—

2,972

—

Commercial - nonagency

1,390

—

1,594

—

323,078

69

177,581

14

1,150

—

1,557

—

Non-U.S. government debt

154,900

4,313

170,196

2,485

Corporate debt securities

13,898428

14,231

287

Asset-backed securities

3,867

—

3,508

—

Equity securities

12,32828,89013,47924,442541,587 $

33,700398,218 $

27,228

U.S. Treasury and government agencies
Obligations of U.S. states and municipalities

Total

$

$

$

Remaining contractual maturity of the agreements
2018 (in millions)

Overnight andcontinuous

Up to 30 days

Total securities sold under repurchase agreements$$

Total securities loaned and other

247,579
28,40230 – 90 days

174,971$

997

Greater than
90 days

Total

71,637 $47,400 $541,587

2,132

2,169

33,700

Remaining contractual maturity of the agreements
2017 (in millions)

Overnight andcontinuous

Total securities sold under repurchase agreements$

Total securities loaned and other142,185
22,876Up to 30 days(a)$

180,674375

30 – 90 days(a)$Greater than
90 daysTotal

41,611 $

33,748 $398,218

2,328

1,649

27,228(a) The prior period amounts have been revised to conform with the current period presentation.

Transfers not qualifying for sale accounting
At December 31, 2018 and 2017, the Firm held $701 million and $1.5 billion, respectively, of financial assets for which therights have been transferred to third parties; however, the transfers did not qualify as a sale in accordance with U.S. GAAP.
These transfers have been recognized as collateralized financing transactions. The transferred assets are recorded in trading
assets and loans, and the corresponding liabilities are recorded predominantly in short-term borrowings on the Consolidatedbalance sheets.

218

JPMorgan Chase & Co./2018 Form 10-K

Note 12 – Loans
Loan accounting framework
The accounting for a loan depends on management’s
strategy for the loan, and on whether the loan was creditimpaired at the date of acquisition. The Firm accounts forloans based on the following categories:• Originated or purchased loans held-for-investment (i.e.,“retained”), other than PCI loans• Loans held-for-sale• Loans at fair value• PCI loans held-for-investment
The following provides a detailed accounting discussion ofthese loan categories:
Loans held-for-investment (other than PCI loans)
Originated or purchased loans held-for-investment, otherthan PCI loans, are recorded at the principal amountoutstanding, net of the following: charge-offs; interest
applied to principal (for loans accounted for on the cost
recovery method); unamortized discounts and premiums;
and net deferred loan fees or costs. Credit card loans also
include billed finance charges and fees net of an allowance
for uncollectible amounts.
Interest income
Interest income on performing loans held-for-investment,
other than PCI loans, is accrued and recognized as interest
income at the contractual rate of interest. Purchase pricediscounts or premiums, as well as net deferred loan fees orcosts, are amortized into interest income over thecontractual life of the loan as an adjustment of yield.
Nonaccrual loans
Nonaccrual loans are those on which the accrual of interest
has been suspended. Loans (other than credit card loans
and certain consumer loans insured by U.S. government
agencies) are placed on nonaccrual status and considerednonperforming when full payment of principal and interest
is not expected, regardless of delinquency status, or whenprincipal and interest has been in default for a period of 90days or more, unless the loan is both well-secured and in
the process of collection. A loan is determined to be past
due when the minimum payment is not received from theborrower by the contractually specified due date or forcertain loans (e.g., residential real estate loans), when amonthly payment is due and unpaid for 30 days or more.
Finally, collateral-dependent loans are typically maintainedon nonaccrual status.
On the date a loan is placed on nonaccrual status, allinterest accrued but not collected is reversed againstinterest income. In addition, the amortization of deferred
amounts is suspended. Interest income on nonaccrual loans
may be recognized as cash interest payments are received(i.e., on a cash basis) if the recorded loan balance isdeemed fully collectible; however, if there is doubt
regarding the ultimate collectibility of the recorded loanbalance, all interest cash receipts are applied to reduce the
JPMorgan Chase & Co./2018 Form 10-K

carrying value of the loan (the cost recovery method). For
consumer loans, application of this policy typically results in
the Firm recognizing interest income on nonaccrual
consumer loans on a cash basis.
A loan may be returned to accrual status when repayment 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. The Firm separately establishes an allowance, which
reduces loans and is charged to interest income, for theestimated uncollectible portion of accrued and billedinterest and fee income on credit card loans.
Allowance for loan losses
The allowance for loan losses represents the estimatedprobable credit losses inherent in the held-for-investment
loan portfolio at the balance sheet date and is recognizedon the balance sheet as a contra asset, which brings therecorded investment to the net carrying value. Changes in
the allowance for loan losses are recorded in the provision
for credit losses on the Firm’s Consolidated statements ofincome. Refer to Note 13 for further information on the
Firm’s accounting policies for the allowance for loan losses.
Charge-offs
Consumer loans, other than risk-rated business banking andauto loans, and PCI loans, are generally charged off or
charged down to the net realizable value of the underlying
collateral (i.e., fair value less costs to sell), with an offset tothe allowance for loan losses, upon reaching specified
stages of delinquency in accordance with standards
established by the FFIEC. Residential real estate loans andnon-modified credit card loans are generally charged off nolater than 180 days past due. Scored auto and modified
credit card loans are charged off no later than 120 days
past due.
Certain consumer loans will be charged off or charged down
to their net realizable value earlier than the FFIEC chargeoff standards in certain circumstances as follows:• Loans modified in a TDR that are determined to becollateral-dependent.
• Loans to borrowers who have experienced an event thatsuggests a loss is either known or highly certain are
subject to accelerated charge-off standards (e.g.,
residential real estate and auto loans are charged off
within 60 days of receiving notification of a bankruptcy
filing).
• Auto loans upon repossession of the automobile.
Other than in certain limited circumstances, the Firm
typically does not recognize charge-offs on governmentguaranteed loans.
219

Notes to consolidated financial statements
Wholesale loans, risk-rated business banking loans and riskrated auto loans are charged off when it is highly certainthat a loss has been realized, including situations where aloan is determined to be both impaired and collateraldependent. The determination of whether to recognize acharge-off includes many factors, including theprioritization of the Firm’s claim in bankruptcy, expectationsof the workout/restructuring of the loan and valuation of
the borrower’s equity or the loan collateral.
When a loan is charged down to the estimated net realizablevalue, the determination of the fair value of the collateraldepends on the type of collateral (e.g., securities, realestate). In cases where the collateral is in the form of liquid
securities, the fair value is based on quoted market prices
or broker quotes. For illiquid securities or other financial
assets, the fair value of the collateral is estimated using a
discounted cash flow model.
For residential real estate loans, collateral values are based
upon external valuation sources. When it becomes likelythat a borrower is either unable or unwilling to pay, theFirm utilizes a broker’s price opinion, appraisal and/or an
automated valuation model of the home based on an
exterior-only valuation (“exterior opinions”), which is thenupdated at least every twelve months, or more frequently
depending on various market factors. As soon as practicable
after the Firm receives the property in satisfaction of a debt
(e.g., by taking legal title or physical possession), the Firm
generally obtains an appraisal based on an inspection that
includes the interior of the home (“interior appraisals”).
Exterior opinions and interior appraisals are discounted
based upon the Firm’s experience with actual liquidation
values as compared with the estimated values provided byexterior opinions and interior appraisals, considering statespecific 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.

220

Loans held-for-sale
Held-for-sale loans are measured at the lower of cost or fairvalue, with valuation changes recorded in noninterest
revenue. For consumer loans, the valuation is performed ona portfolio basis. For wholesale loans, the valuation is
performed on an individual loan basis.
Interest income on loans held-for-sale is accrued andrecognized based on the contractual rate of interest.
Loan origination fees or costs and purchase price discounts
or premiums are deferred in a contra loan account until the
related loan is sold. The deferred fees or costs anddiscounts or premiums are an adjustment to the basis of theloan and therefore are included in the periodic
determination of the lower of cost or fair value adjustments
and/or the gain or loss recognized at the time of sale.
Held-for-sale loans are subject to the nonaccrual policies
described above.
Because held-for-sale loans are recognized at the lower ofcost or fair value, the Firm’s allowance for loan losses andcharge-off policies do not apply to these loans.
Loans at fair value
Loans used in a market-making strategy or risk managed ona fair value basis are measured at fair value, with changes
in fair value recorded in noninterest revenue.
Interest income on these loans is accrued and recognizedbased on the contractual rate of interest. Changes in fairvalue are recognized in noninterest revenue. Loan
origination fees are recognized upfront in noninterest
revenue. Loan origination costs are recognized in theassociated expense category as incurred.
Because these loans are recognized at fair value, the Firm’s
allowance for loan losses and charge-off policies do not
apply to these loans. However, loans at fair value aresubject to the nonaccrual policies described above.
Refer to Note 3 for further information on the Firm’s
elections of fair value accounting under the fair value
option. Refer to Note 2 and Note 3 for further information
on loans carried at fair value and classified as trading
assets.
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. Refer to page 231 of this Note for
information on accounting for PCI loans subsequent to theiracquisition.

JPMorgan Chase & Co./2018 Form 10-K

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,
refer to Note 13.
Loan modifications
The Firm seeks to modify certain loans in conjunction with
its loss-mitigation activities. Through the modification,
JPMorgan Chase grants one or more concessions to aborrower who is experiencing financial difficulty in order tominimize the Firm’s economic loss and avoid foreclosure or
repossession of the collateral, and to ultimately maximize
payments received by the Firm from the borrower. The
concessions granted vary by program and by borrowerspecific characteristics, and may include interest rate
reductions, term extensions, payment deferrals, principal
forgiveness, or the acceptance of equity or other assets inlieu of payments.
Such modifications are accounted for and reported as TDRs.
A loan that has been modified in a TDR is generally
considered to be impaired until it matures, is repaid, or isotherwise liquidated, regardless of whether the borrower
performs under the modified terms. In certain limited
cases, the effective interest rate applicable to the modified
loan is at or above the current market rate at the time of
the restructuring. In such circumstances, and assuming thatthe loan subsequently performs under its modified terms
and the Firm expects to collect all contractual principal andinterest cash flows, the loan is disclosed as impaired and asa TDR only during the year of the modification; insubsequent years, the loan is not disclosed as an impaired
loan or as a TDR so long as repayment of the restructured
loan under its modified terms is reasonably assured.

JPMorgan Chase & Co./2018 Form 10-K

Loans, except for credit card loans, modified in a TDR are
generally placed on nonaccrual status, although in manycases such loans were already on nonaccrual status prior tomodification. These loans may be returned to performing
status (the accrual of interest is resumed) if the following
criteria are met: (i) the borrower has performed under themodified terms for a minimum of six months and/or six
payments, and (ii) the Firm has an expectation that
repayment of the modified loan is reasonably assured basedon, for example, the borrower’s debt capacity and level offuture earnings, collateral values, LTV ratios, and othercurrent market considerations. In certain limited and welldefined circumstances in which the loan is current at themodification date, such loans are not placed on nonaccrual
status at the time of modification.
Because loans modified in TDRs are considered to be
impaired, these loans are measured for impairment using
the Firm’s established asset-specific allowancemethodology, which considers the expected re-default rates
for the modified loans. A loan modified in a TDR generally
remains subject to the asset-specific allowancemethodology throughout its remaining life, regardless ofwhether the loan is performing and has been returned to
accrual status and/or the loan has been removed from theimpaired loans disclosures (i.e., loans restructured atmarket rates). For further discussion of the methodology
used to estimate the Firm’s asset-specific allowance, refer toNote 13.
Foreclosed property
The Firm acquires property from borrowers through loan
restructurings, workouts, and foreclosures. Property
acquired may include real property (e.g., residential realestate, land, and buildings) and commercial and personal
property (e.g., automobiles, aircraft, railcars, and ships).
The Firm recognizes foreclosed property upon receiving
assets in satisfaction of a loan (e.g., by taking legal title orphysical possession). For loans collateralized by real
property, the Firm generally recognizes the asset received
at foreclosure sale or upon the execution of a deed in lieu offoreclosure transaction with the borrower. Foreclosed
assets are reported in other assets on the Consolidatedbalance sheets and initially recognized at fair value lesscosts to sell. Each quarter the fair value of the acquired
property is reviewed and adjusted, if necessary, to the lowerof cost or fair value. Subsequent adjustments to fair value
are charged/credited to noninterest revenue. Operating
expense, such as real estate taxes and maintenance, arecharged to other expense.

221

Notes to consolidated financial statements
Loan portfolio
The Firm’s loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine
the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment the
Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class.
Consumer, excluding
credit card(a)Residential real estate – excluding PCI• Residential mortgage(b)• Home equity(c)Other consumer loans(d)• Auto• Consumer & Business Banking(e)Residential real estate – PCI• Home equity• Prime mortgage• Subprime mortgage• Option ARMs

Credit card

Wholesale(f)• Credit card loans• Commercial and industrial• Real estate• Financial institutions• Governments & Agencies• Other(g)(a) Includes loans held in CCB, prime mortgage and home equity loans held in AWM and prime mortgage loans held in Corporate.
(b) Predominantly includes prime (including option ARMs) and subprime loans.
(c) Includes senior and junior lien home equity loans.
(d) Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses;
these loans are managed by CCB, and therefore, for consistency in presentation, are included with the other consumer loan classes.
(e) Predominantly includes Business Banking loans.
(f) Includes loans held in CIB, CB, AWM and Corporate. Excludes prime mortgage and home equity loans held in AWM and prime mortgage loans held in
Corporate. Classes are internally defined and may not align with regulatory definitions.
(g) Includes loans to: individuals and individual entities (predominantly consists of Wealth Management clients within AWM and includes exposure to personal
investment companies and personal and testamentary trusts), SPEs and Private education and civic organizations. For more information on SPEs, refer toNote 14.

The following tables summarize the Firm’s loan balances by portfolio segment.
December 31, 2018
(in millions)
Retained

Consumer, excluding
credit card$

373,637

Credit card(a)Wholesale$156,616$ 439,162

Held-for-sale95

16

11,877

At fair value

—

—

3,151

156,632$ 454,190

Total
December 31, 2017
(in millions)
Retained$

Consumer, excluding
credit card$

Held-for-sale372,553$

Credit card(a)Wholesale$149,387$ 402,898

124

3,099

128

At fair value
Total

373,732—$

372,681

$

—

2,508

149,511$ 408,505

Total$

969,415
11,9883,151$

984,554

Total$

924,838
3,351
2,508

$

930,697(a) Includes accrued interest and fees net of an allowance for the uncollectible portion of accrued interest and fee income.
(b) Loans (other than PCI loans and those for which the fair value option has been elected) are presented net of unamortized discounts and premiums and net
deferred loan fees or costs. These amounts were not material as of December 31, 2018 and 2017.

222

(b)

JPMorgan Chase & Co./2018 Form 10-K

(b)

The following tables provide information about the carrying value of retained loans purchased, sold and reclassified to heldfor-sale during the periods indicated. Reclassifications of loans to held-for sale are non-cash transactions. The Firm manages its
exposure to credit risk on an ongoing basis. Selling loans is one way that the Firm reduces its credit exposures. Loans that werereclassified to held-for-sale and sold in a subsequent period are excluded from the sales line of this table.
2018Year ended December 31,(in millions)

Consumer, excluding
credit card

Purchases$

Sales
Retained loans reclassified to held-for-sale

2,543

Credit card(a)(b)$

Wholesale
—

$

2,354

Total
$

4,897

9,984

—

16,741

26,725

36

—

2,276

2,312

2017
Year ended December 31,(in millions)

Consumer, excluding
credit card

Purchases

$

3,461

Sales

3,405

Retained loans reclassified to held-for-sale

6,340

Credit card(a)(b)$

Wholesale
—

(c)

$

1,799

Total
$

5,260

—

11,063

14,468

—

1,229

7,569

2016
Year ended December 31,(in millions)

Consumer, excluding
credit card

Purchases$

Sales
Retained loans reclassified to held-for-sale

4,116

Credit card(a)(b)$

Wholesale
—

$

1,448

Total
$

5,564

6,368

—

8,739

15,107

321

—

2,381

2,702

(a) Purchases predominantly represent the Firm’s voluntary repurchase of certain delinquent loans from loan pools as permitted by Government National
Mortgage Association (“Ginnie Mae”) guidelines. The Firm typically elects to repurchase these delinquent loans as it continues to service them and/or
manage the foreclosure process in accordance with applicable requirements of Ginnie Mae, FHA, RHS, and/or VA.
(b) Excludes purchases of retained loans sourced through the correspondent origination channel and underwritten in accordance with the Firm’s standards.
Such purchases were $18.6 billion, $23.5 billion and $30.4 billion for the years ended December 31, 2018, 2017 and 2016, respectively.
(c) Includes the Firm’s student loan portfolio which was sold in 2017.

Gains and losses on sales of loans
Gains and losses on sales of loans (including adjustments to record loans held-for-sale at the lower of cost or fair value)
recognized in other income were not material to the Firm for the years ended December 31, 2018, 2017 and 2016. In
addition, the sale of loans may also result in write downs, recoveries or changes in the allowance recognized in the provision
for credit losses.

JPMorgan Chase & Co./2018 Form 10-K

223

Notes to consolidated financial statements
Consumer, excluding credit card, loan portfolio
Consumer loans, excluding credit card loans, consist
primarily of residential mortgages, home equity loans andlines of credit, auto loans and consumer and businessbanking loans, with a focus on serving the prime consumer
credit market. The portfolio also includes home equity loans
secured by junior liens, prime mortgage loans with aninterest-only payment period, and certain payment-optionloans that may result in negative amortization.
The following table provides information about retained
consumer loans, excluding credit card, by class. In 2017,
the Firm sold its student loan portfolio.
December 31, (in millions)

2018

2017

Residential real estate – excluding PCI
Residential mortgage
Home equity$ 231,078 $ 216,496
28,34033,450Auto63,573

66,242

Consumer & Business Banking

26,61225,789Home equity

8,963

10,799

Prime mortgage

4,690

6,479

Subprime mortgage

1,945

2,609

Option ARMs

8,436

10,689Other consumer loans

Residential real estate – PCI

Total retained loans

224$ 373,637 $ 372,553

Delinquency rates are a primary credit quality indicator for
consumer loans. Loans that are more than 30 days past due
provide an early warning of borrowers who may be
experiencing financial difficulties and/or who may beunable or unwilling to repay the loan. As the loan continues
to age, it becomes more clear whether the borrower islikely either unable or unwilling to pay. In the case ofresidential real estate loans, late-stage delinquencies(greater than 150 days past due) are a strong indicator ofloans that will ultimately result in a foreclosure or similar
liquidation transaction. In addition to delinquency rates,
other credit quality indicators for consumer loans vary
based on the class of loan, as follows:• For residential real estate loans, including both non-PCI
and PCI portfolios, the current estimated LTV ratio, or
the combined LTV ratio in the case of junior lien loans, isan indicator of the potential loss severity in the event ofdefault. Additionally, LTV or combined LTV ratios canprovide insight into a borrower’s continued willingness
to pay, as the delinquency rate of high-LTV loans tends
to be greater than that for loans where the borrower has
equity in the collateral. The geographic distribution of
the loan collateral also provides insight as to the credit
quality of the portfolio, as factors such as the regional
economy, home price changes and specific events suchas natural disasters, will affect credit quality. The
borrower’s current or “refreshed” FICO score is asecondary credit-quality indicator for certain loans, as
FICO scores are an indication of the borrower’s credit
payment history. Thus, a loan to a borrower with a low
FICO score (less than 660 ) is considered to be of higher
risk than a loan to a borrower with a higher FICO score.
Further, a loan to a borrower with a high LTV ratio and a
low FICO score is at greater risk of default than a loan toa borrower that has both a high LTV ratio and a high
FICO score.
• For scored auto and scored business banking loans,geographic distribution is an indicator of the credit
performance of the portfolio. Similar to residential realestate loans, geographic distribution provides insights
into the portfolio performance based on regional
economic activity and events.
• Risk-rated business banking and auto loans are similar
to wholesale loans in that the primary credit quality
indicators are the risk rating that is assigned to the loan
and whether the loans are considered to be criticized
and/or nonaccrual. Risk ratings are reviewed on aregular and ongoing basis by Credit Risk Management
and are adjusted as necessary for updated information
about borrowers’ ability to fulfill their obligations. For
further information about risk-rated wholesale loancredit quality indicators, refer to page 236 of this Note.

JPMorgan Chase & Co./2018 Form 10-K

Residential real estate — excluding PCI loans
The following table provides information by class for retained residential real estate — excluding PCI loans.
Residential real estate – excluding PCI loans
Residential mortgage

December 31,(in millions, except ratios)

Total residential realestate – excluding PCIHome equity

2018

2017

2018

2017

2018

2017

Loan delinquency(a)Current$ 225,899$ 208,713$ 27,611$ 32,391$ 253,510$ 241,104

30–149 days past due

2,763

4,234

453

671

3,216

4,905

150 or more days past due

2,416

3,549

276

388

2,692

3,937

$ 231,078$ 216,496$ 28,340$ 33,450$ 259,418$ 249,946

Total retained loans% of 30+ days past due to total retained loans(b)90 or more days past due and government guaranteed(c)

0.48%
$

Nonaccrual loans

2,541

0.77%
$

1,765

2.57%

3.17%

4,172

—

—

2,175

1,323

1,610

0.71%
$

2,541

1.09%
$

3,088

4,172
3,785

Current estimated LTV ratios(d)(e)Greater than 125% and refreshed FICO scores:
Equal to or greater than 660
Less than 660

$

25

$

37

$

6

$

10

$

31

$

47

13

19

1

3

14

22

Equal to or greater than 660

37

36

111

296

148

332

Less than 660

53

88

38

95

91

183

3,977

4,369

986

1,676

4,963

6,045

281

483

326

569

607

1,052

212,505

194,758

22,63225,262

235,137

220,020

6,457

6,952

3,355

3,850

9,812

10,802

813

1,259

885

1,689

1,698

2,948

6,917

8,495

—

—

6,917

8,495

$ 231,078$ 216,496$ 28,340$ 33,450$ 259,418$ 249,946

California$ 74,759$ 68,855

$

$

6,582

$ 80,454$ 75,437

New York

28,84727,473

5,769

6,866

34,61634,339Illinois

15,24914,501

2,131

2,521

17,38017,022

Texas

13,76912,508

1,819

2,021

15,588

14,529

Florida10,704

9,598

1,575

1,847

12,27911,445

Washington

8,304

6,962

869

1,026

9,173

7,988

New Jersey

7,302

7,142

1,642

1,957

8,944

9,099

Colorado

8,140

7,335

521

632

8,661

7,967

Massachusetts

6,574

6,323

236

295

6,810

6,618

Arizona

4,434

4,109

1,158

1,439

5,592

5,548

All other(g)52,996

51,690

6,925

8,264

59,921

59,954$ 231,078$ 216,496$ 28,340$ 33,450$ 259,418$ 249,946

101% to 125% and refreshed FICO scores:

80% to 100% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
Less than 80% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
No FICO/LTV available
U.S. government-guaranteed
Total retained loans
Geographic region(f)Total retained loans

5,695(a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $2.8 billion and $2.4 billion; 30–149
days past due included $2.1 billion and $3.2 billion; and 150 or more days past due included $2.0 billion and $2.9 billion at December 31, 2018 and 2017,
respectively.
(b) At December 31, 2018 and 2017, residential mortgage loans excluded mortgage loans insured by U.S. government agencies of $4.1 billion and $6.1 billion,
respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee.
(c) These balances, which are 90 days or more past due, were excluded from nonaccrual loans as the loans are guaranteed by U.S government agencies. Typically theprincipal balance of the loans is insured and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. At
December 31, 2018 and 2017, these balances included $999 million and $1.5 billion, respectively, of loans that are no longer accruing interest based on theagreed-upon servicing guidelines. For the remaining balance, interest is being accrued at the guaranteed reimbursement rate. There were no loans that were notguaranteed by U.S. government agencies that are 90 or more days past due and still accruing interest at December 31, 2018 and 2017.
(d) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum,
quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available 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.
(e) Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(f) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2018.
(g) At December 31, 2018 and 2017, included mortgage loans insured by U.S. government agencies of $6.9 billion and $8.5 billion, respectively. These amounts havebeen excluded from the geographic regions presented based upon the government guarantee.

JPMorgan Chase & Co./2018 Form 10-K

225

Notes to consolidated financial statements

Approximately 37% of the home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANs or
HELOCs. The following table provides the Firm’s delinquency statistics for junior lien home equity loans and lines as ofDecember 31, 2018 and 2017.
Total loans
December 31, (in millions except ratios)

2018

Total 30+ day delinquency rate
2017

2018

2017

HELOCs:(a)Within the revolving period(b)$Beyond the revolving period
HELOANs
Total$

5,608 $

6,363

0.25%

0.50%

11,286

13,532

2.80

3.56

1,030

1,371

2.82

3.50

17,924 $21,266

2.00%

2.64%

(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 that allow interest-only payments beyond the revolving period.
(b) The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers
are experiencing financial difficulty.

HELOCs beyond the revolving period and HELOANs have higher delinquency rates than HELOCs within the revolving period.
That is primarily because the fully-amortizing payment that is generally required for those products is higher than theminimum payment options available for HELOCs within the revolving period. The higher delinquency rates associated withamortizing HELOCs and HELOANs are factored into the Firm’s allowance for loan losses.
Impaired loans
The table below provides information about the Firm’s residential real estate impaired loans, excluding PCI loans. These loans
are considered to be impaired as they have been modified in a TDR. All impaired loans are evaluated for an asset-specificallowance as described in Note 13.
Residential mortgage

December 31,(in millions)2018

Total residential real estate– excluding PCIHome equity

2017

2018

2017

2018

2017

Impaired loans
With an allowance$

Without an allowance(a)3,381 $

4,407

1,184

1,213

$

1,142 $

1,236

870

882

$

4,523 $

5,643

2,054

2,095
7,738

Total impaired loans(b)(c)$4,565 $

5,620$

2,012 $

2,118$

6,577 $

Allowance for loan losses related to impaired loans

$

88 $

62

$

45 $

111

$

133 $

173

Unpaid principal balance of impaired loans(d)

6,207

7,741

3,466

3,701

9,673

11,442

Impaired loans on nonaccrual status(e)

1,459

1,743

955

1,032

2,414

2,775

(a) Represents collateral-dependent residential real estate loans that are charged off to the fair value of the underlying collateral less costs to sell. The Firm
reports, in accordance with regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmedby the borrower (“Chapter 7 loans”) as collateral-dependent nonaccrual TDRs, regardless of their delinquency status. At December 31, 2018, Chapter 7
residential real estate loans included approximately 13% of residential mortgages and approximately 9% of home equity that were 30 days or more pastdue.
(b) At December 31, 2018 and 2017, $4.1 billion and $3.8 billion, respectively, of loans modified subsequent to repurchase from Ginnie Mae in accordancewith the standards of the appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent tomodification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform
become subject to foreclosure.
(c) Predominantly all residential real estate impaired loans, excluding PCI loans, are in the U.S.
(d) Represents the contractual amount of principal owed at December 31, 2018 and 2017. The unpaid principal balance differs from the impaired loanbalances due to various factors including charge-offs, net deferred loan fees or costs, and unamortized discounts or premiums on purchased loans.
(e) As of December 31, 2018 and 2017, nonaccrual loans included $2.0 billion and $2.2 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 219-221 of this Note.

226

JPMorgan Chase & Co./2018 Form 10-K

The following table presents average impaired loans and the related interest income reported by the Firm.

Residential mortgage

2018$Home equity
Total residential real estate – excluding PCI

$

2017

Interest income on impairedloans on a cash basis(a)Interest income on
impaired loans(a)Average impaired loans

Year ended December 31,(in millions)2016

5,082 $

5,797 $

6,376

2,078

2,189

2,311

7,160 $

7,986 $

8,687

2018
$
$

2017

2016

257 $

287 $

305

131

127

125

388 $

414 $

430

2018
$
$

2017

2016

75 $

75 $

84

80

77
80

159 $

155 $

157

(a) Generally, interest income on loans modified in TDRs is recognized on a cash basis until the borrower has made a minimum of six payments under the newterms, unless the loan is deemed to be collateral-dependent.

Loan modifications
Modifications of residential real estate loans, excluding PCI
loans, are generally accounted for and reported as TDRs.
There were no additional commitments to lend toborrowers whose residential real estate loans, excluding PCI
loans, have been modified in TDRs.

The following table presents new TDRs reported by the
Firm.
Year ended December 31,(in millions)

2018

2017

2016

401 $

373 $

254

Home equity

286

321

385

Total residential real estate – excluding PCI $

687 $

694 $

639

Residential mortgage$

Nature and extent of modifications
The U.S. Treasury’s Making Home Affordable programs, as well as the Firm’s proprietary modification programs, generally
provide various concessions to financially troubled borrowers including, but not limited to, interest rate reductions, term or
payment extensions and deferral of principal and/or interest payments that would otherwise have been required under theterms of the original agreement.
The following table provides information about how residential real estate loans, excluding PCI loans, were modified under the
Firm’s loss mitigation programs described above during the periods presented. This table excludes Chapter 7 loans where thesole concession granted is the discharge of debt.
Residential mortgage

Total residential real estate– excluding PCIHome equity

Year ended December 31,

2018

2017

2016

2018

2017

2016

2018

2017

2016

Number of loans approved for a trial
modification

2,570

1,283

1,945

2,316

2,321

3,760

4,886

3,604

5,705

Number of loans permanently modified

2,907

2,628

3,338

4,946

5,624

4,824

7,853

8,252

8,162

Concession granted:(a)Interest rate reduction

40%

63%

76%

62%

59%

75%

54%

60%

76%

Term or payment extension

55

72

90

66

69

83

62

70

86

Principal and/or interest deferred

44

15

16

20

10

19

29

12

18

Principal forgiveness

8

16

26

7

13

9

7

14

16

Other(b)

38

33

25

58

31

6

51

32

14

(a) Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages
exceeds 100% because predominantly all of the modifications include more than one type of concession. Concessions offered on trial modifications are
generally consistent with those granted on permanent modifications.
(b) Includes variable interest rate to fixed interest rate modifications for the years ended December 31, 2018, 2017 and 2016. Also includes forbearancesthat meet the definition of a TDR for the year ended December 31, 2018. Forbearances suspend or reduce monthly payments for a specific period of time
to address a temporary hardship.

JPMorgan Chase & Co./2018 Form 10-K

227

Notes to consolidated financial statements
Financial effects of modifications and redefaults
The following table provides information about the financial effects of the various concessions granted in modifications ofresidential real estate loans, excluding PCI, under the loss mitigation programs described above and about redefaults ofcertain loans modified in TDRs for the periods presented. The following table presents only the financial effects of permanentmodifications and does not include temporary concessions offered through trial modifications. This table also excludes Chapter
7 loans where the sole concession granted is the discharge of debt.
Residential mortgage

Year ended
December 31,(in millions, except weighted-average data)

2018

2017

Total residential real estate –excluding PCIHome equity

2016

2018

2017

2016

2018

2017

2016

Weighted-average interest rate of loans withinterest rate reductions – before TDR

5.65%

5.15%

5.59%

5.39%

4.94%

4.99%

5.50%

5.06%

5.36%

Weighted-average interest rate of loans withinterest rate reductions – after TDR

3.80

2.99

2.93

3.46

2.64

2.34

3.60

2.83

2.70

Weighted-average remaining contractual term(in years) of loans with term or payment
extensions – before TDR

24

24

24

19

21

18

21

23

22

Weighted-average remaining contractual term(in years) of loans with term or payment
extensions – after TDR

38

38

38

39

39

38

38

38

38

Charge-offs recognized upon permanentmodification

$

1

$

2

$

4

$

1

$

1

$

1

$

2

$

3

$

5

Principal deferred

21

12

30

9

10

23

30

22

53

Principal forgiven

10

20

44

7

13

7

17

33

51

Balance of loans that redefaulted within one
year of permanent modification(a)

$

97

$

124

$

98

$

64

$

56

$

40

$

161

$

180

$

138

(a) Represents loans permanently modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred
within one year of the modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which suchloans defaulted. For residential real estate loans modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments
past due. In the event that a modified loan redefaults, it is probable that the loan will ultimately be liquidated through foreclosure or another similar typeof liquidation transaction. Redefaults of loans modified within the last 12 months may not be representative of ultimate redefault levels.

At December 31, 2018, the weighted-average estimatedremaining lives of residential real estate loans, excluding
PCI loans, permanently modified in TDRs were 9 years forresidential mortgage and 8 years for home equity. The
estimated remaining lives of these loans reflect estimatedprepayments, both voluntary and involuntary (i.e.,
foreclosures and other forced liquidations).

228

Active and suspended foreclosure
At December 31, 2018 and 2017, the Firm had non-PCIresidential real estate loans, excluding those insured by U.S.
government agencies, with a carrying value of $653 million
and $787 million, respectively, that were not included in
REO, but were in the process of active or suspended
foreclosure.

JPMorgan Chase & Co./2018 Form 10-K

Other consumer loans
The table below provides information for other consumer retained loan classes, including auto and business banking loans.
Auto

December 31,(in millions, except ratios)

2018

2017

Consumer &Business Banking

Total other consumer

2018

2018

2017

2017

Loan delinquency
Current$

30–119 days past due
120 or more days past due
Total retained loans$

62,984$65,651$

26,249$25,454$

89,233

589

584

252

213

841

—

7

111

122

111

63,573$

66,242$

26,612$25,789$90,185$

91,105797
129$

92,031% of 30+ days past due to total retained loans

0.93%

0.89%

1.36%

1.30%

1.06%

1.01%

Nonaccrual loans(a)

128

141

245

283

373

424

Geographic region(b)California

$

8,330

$

8,445

$

5,520

$

5,032

$

13,850$13,477

Texas

6,531

7,013

2,993

2,916

9,524

9,929

New York

3,863

4,023

4,381

4,195

8,244

8,218

Illinois

3,716

3,916

2,046

2,017

5,762

5,933

Florida

3,256

3,350

1,502

1,424

4,758

4,774

Arizona

2,084

2,221

1,491

1,383

3,575

3,604

Ohio

1,973

2,105

1,305

1,380

3,278

3,485

New Jersey

1,981

2,044

723

721

2,704

2,765

Michigan

1,357

1,418

1,329

1,357

2,686

2,775

Louisiana

1,587

1,656

860

849

2,447

2,505

All other

28,89530,051

4,462

4,515

33,35734,566

Total retained loans$

63,573$

66,242$

26,612$25,789$90,185$92,031$

15,749$15,604$

18,743$

17,938$34,492$33,542Loans by risk ratings(c)Noncriticized
Criticized performing

273

93

751

791

1,024

884

Criticized nonaccrual

—

9

191

213

191

222

(a) There were no loans that were 90 or more days past due and still accruing interest at December 31, 2018 and December 31, 2017.
(b) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2018.
(c) 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.

JPMorgan Chase & Co./2018 Form 10-K

229

Notes to consolidated financial statements
Other consumer impaired loans and loan modifications
The following table provides information about the Firm’s other consumer impaired loans, including risk-rated businessbanking and auto loans that have been placed on nonaccrual status, and loans that have been modified in TDRs.
December 31, (in millions)
2018
2017
Impaired loans
With an allowance$ 222 $ 272
Without an allowance(a)2926Total impaired loans(b)(c)$ 251 $ 298
Allowance for loan losses related to impaired loans $63 $73
Unpaid principal balance of impaired loans(d)355402Impaired loans on nonaccrual status
229268(a) When discounted cash flows, collateral value or market price equals or
exceeds the recorded investment in the loan, the loan does not require
an allowance. This typically occurs when the impaired loans have been
partially charged off and/or there have been interest payments
received and applied to the loan balance.
(b) Predominantly all other consumer impaired loans are in the U.S.
(c) Other consumer average impaired loans were $275 million, $427
million and $635 million for the years ended December 31, 2018,2017 and 2016, respectively. The related interest income on impairedloans, including those on a cash basis, was not material for the years
ended December 31, 2018, 2017 and 2016.
(d) Represents the contractual amount of principal owed at December 31,
2018 and 2017. The unpaid principal balance differs from theimpaired loan balances due to various factors, including charge-offs,
interest payments received and applied to the principal balance, netdeferred loan fees or costs and unamortized discounts or premiums onpurchased loans.

230

Loan modifications
Certain other consumer loan modifications are considered
to be TDRs as they provide various concessions toborrowers who are experiencing financial difficulty. All ofthese TDRs are reported as impaired loans. At
December 31, 2018 and 2017, other consumer loans
modified in TDRs were $79 million and $102 million,
respectively. The impact of these modifications, as well as
new TDRs, were not material to the Firm for the years
ended December 31, 2018, 2017 and 2016. Additional
commitments to lend to borrowers whose loans have been
modified in TDRs as of December 31, 2018 and 2017 were
not material. TDRs on nonaccrual status were $57 million
and $72 million at December 31, 2018 and 2017,
respectively.

JPMorgan Chase & Co./2018 Form 10-K

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. All of the Firm’s
residential real estate PCI loans were acquired in the same
fiscal quarter and aggregated into pools of loans with
common risk characteristics.
On a quarterly basis, the Firm estimates the total cash flows(both principal and interest) expected to be collected over
the remaining life of each pool. These estimates incorporate
assumptions regarding default rates, loss severities, theamounts and timing of prepayments and other factors thatreflect then-current market conditions. Probable decreases
in expected cash flows (i.e., increased credit losses) trigger
the recognition of impairment, which is then measured as
the present value of the expected principal loss plus any
related forgone interest cash flows, discounted at the pool’s
effective interest rate. Impairments are recognized throughthe provision for credit losses and an increase in theallowance for loan losses. Probable and significant
increases in expected cash flows (e.g., decreased credit
losses, the net benefit of modifications) would first reverse
any previously recorded allowance for loan losses with any
remaining increases recognized prospectively as a yield
adjustment over the remaining estimated lives of theunderlying loans. The impacts of (i) prepayments, (ii)changes in variable interest rates, and (iii) any otherchanges in the timing of expected cash flows are generally
recognized prospectively as adjustments to interest income.
The Firm continues to modify certain PCI loans. The impactof these modifications is incorporated into the Firm’squarterly assessment of whether a probable and significant
change in expected cash flows has occurred, and the loans
continue to be accounted for and reported as PCI loans. In
evaluating the effect of modifications on expected cash
flows, the Firm incorporates the effect of any forgoneinterest and also considers the potential for redefault. The
Firm develops product-specific probability of default
estimates, which are used to compute expected credit
losses. In developing these probabilities of default, the Firm
considers the relationship between the credit quality
characteristics of the underlying loans and certain
assumptions about home prices and unemployment based
upon industry-wide data. The Firm also considers its own
historical loss experience to-date based on actual
redefaulted modified PCI loans.

Since the timing and amounts of expected cash flows for the
Firm’s PCI consumer loan pools are reasonably estimable,interest is being accreted and the loan pools are being
reported as performing loans. No interest would beaccreted and the PCI loan pools would be reported as
nonaccrual loans if the timing and/or amounts of expectedcash flows on the loan pools were determined not to bereasonably estimable.
The liquidation of PCI loans, which may include sales ofloans, receipt of payment in full from the borrower, or
foreclosure, results in removal of the loans from theunderlying PCI pool. When the amount of the liquidation
proceeds (e.g., cash, real estate), if any, is less than theunpaid principal balance of the loan, the difference is first
applied against the PCI pool’s nonaccretable difference forprincipal losses (i.e., the lifetime credit loss estimate
established as a purchase accounting adjustment at theacquisition date). When the nonaccretable difference for aparticular loan pool has been fully depleted, any excess of
the unpaid principal balance of the loan over the liquidation
proceeds is written off against the PCI pool’s allowance forloan losses. Write-offs of PCI loans also include otheradjustments, primarily related to principal forgivenessmodifications. Because the Firm’s PCI loans are accounted
for at a pool level, the Firm does not recognize charge-offs
of PCI loans when they reach specified stages ofdelinquency (i.e., unlike non-PCI consumer loans, theseloans are not charged off based on FFIEC standards).
The PCI portfolio affects the Firm’s results of operations
primarily through: (i) contribution to net interest margin;(ii) expense related to defaults and servicing resulting fromthe liquidation of the loans; and (iii) any provision for loan
losses. The Firm’s residential real estate PCI loans were
funded based on the interest rate characteristics of theloans. For example, variable-rate loans were funded withvariable-rate liabilities and fixed-rate loans were fundedwith fixed-rate liabilities with a similar maturity profile. A
net spread will be earned on the declining balance of theportfolio, which is estimated as of December 31, 2018, tohave a remaining weighted-average life of 7 years.

The excess of cash flows expected to be collected over the
carrying value of the underlying loans is referred to as theaccretable yield. This amount is not reported on the Firm’s
Consolidated balance sheets but is accreted into interest
income at a level rate of return over the remaining
estimated lives of the underlying pools of loans.

JPMorgan Chase & Co./2018 Form 10-K

231

Notes to consolidated financial statements
Residential real estate – PCI loans
The table below provides 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

2018

2017

2018

2017

2018

2017

2018

2017

2018

2017

$ 8,963$ 10,799$ 4,690$ 6,479$ 1,945$ 2,609$ 8,436$ 10,689$ 24,034$ 30,576

Loan delinquency (based on unpaid principal balance)
Current$ 8,624$ 10,272$ 4,226$ 5,839$ 2,033$ 2,640$ 7,592$ 9,662$ 22,475$ 28,413

30–149 days past due

278

356

259

336

286

381

398

547

1,221

1,620

150 or more days past due

242

392

223

327

123

176

457

689

1,045

1,584

$ 9,144$ 11,020$ 4,708$ 6,502$ 2,442$ 3,197$ 8,447$ 10,898$ 24,741$ 31,617

Total loans% of 30+ days past due to total loans

5.69%

6.79%

10.24%

10.20%

16.75%

17.42%

10.12%

11.34%

9.16%

10.13%

Current estimated LTV ratios (based on unpaid principal balance)(b)(c)Greater than 125% and refreshed FICO scores:
Equal to or greater than 660
Less than 660

$

17

$

33

13

21

Equal to or greater than 660

135

Less than 660

65Equal to or greater than 660

805

Less than 660

388

Equal to or greater than 660
Less than 660

$

1

$

4

7

16

274

6

132

22

1,195

75

559

112

5,548

6,134

2,689

3,551

1,908

2,095

1,568

2,103

265

577

228

319

$ 9,144$ 11,020$ 4,708$ 5,420$ 6,555

Florida

976

1,137

New York

525

$

—

$

2

$

3

$

6

$

21

$

45

9

20

7

9

36

66

16

4

20

17

43

162

353

42

35

75

33

71

155

320

221

54

119

119

316

1,053

1,851

230

161

309

190

371

851

1,469

739

895

5,111

6,113

14,087

16,693

1,327

1,608

2,622

3,499

7,425

9,305

113

149

345

470

951

1,515

$ 6,502$ 2,442$ 3,197$ 8,447$ 10,898$ 24,741$ 31,617$ 2,578$ 3,716$$797$ 4,798$ 6,225$ 13,389$ 17,293

332

428

234

296

713

878

2,255

2,739

607

365

457

268

330

502

628

1,660

2,022

Washington

419

532

98

135

44

61

177

238

738

966

Illinois

233

273

154

200

123

161

199

249

709

883

New Jersey

210

242

134

178

88

110

258

336

690

866

Massachusetts

65

79

113

149

73

98

240

307

491

633

Maryland

48

57

95

129

96

132

178

232

417

550

Virginia

54

66

91

123

37

51

211

280

393

520

Arizona

165

203

69

106

43

60

112

156

389

525

All other

1,029

1,269

679

881

843

1,101

1,059

1,369

3,610

4,620

$ 9,144$ 11,020$ 4,708$ 6,502$ 2,442$ 3,197$ 8,447$ 10,898$ 24,741$ 31,617

101% to 125% and refreshed FICO scores:

80% to 100% and refreshed FICO scores:

Lower than 80% and refreshed FICO scores:

No FICO/LTV available
Total unpaid principal balance

Geographic region (based on unpaid principal balance)(d)California

Total unpaid principal balance593(a) Carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition.
(b) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at aminimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to theextent available and forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateralvalues; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates. Current estimated combined LTV for junior lien homeequity loans considers all available lien positions, as well as unused lines, related to the property.
(c) Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(d) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2018.

232

JPMorgan Chase & Co./2018 Form 10-K

Approximately 26% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANs or
HELOCs. The following table provides delinquency statistics for PCI junior lien home equity loans and lines of credit based on
the unpaid principal balance as of December 31, 2018 and 2017.
Total loans

December 31,(in millions, except ratios)
HELOCs:(a)(b)

2018
$
$

2018

2017

6,531 $

7,926

4.00%

4.62%

280

360

3.57

5.28

6,811 $

8,286

3.98%

4.65%

HELOANs
Total

Total 30+ day delinquency rate
2017(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. Substantially all HELOCs are beyond the revolving period.
(b) Includes loans modified into fixed rate amortizing loans.

The table below presents the accretable yield activity for the Firm’s PCI consumer loans for the years ended December 31,
2018, 2017 and 2016, 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

2018$

Accretion into interest income
Changes in interest rates on variable-rate loans
Other changes in expected cash flows(a)Balance at December 31
Accretable yield percentage$

11,1592017$

11,7682016$

13,491(1,249)(1,396)

(109)

503

260

(1,379)

284

(428)

8,422
4.92%

$

11,159(1,555)$

11,768

4.53%

4.35%

(a) Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model, for example cash flows expected
to be collected due to the impact of modifications and changes in prepayment assumptions.

Active and suspended foreclosure
At December 31, 2018 and 2017, the Firm had PCI residential real estate loans with an unpaid principal balance of$964 million and $1.3 billion, respectively, that were not included in REO, but were in the process of active or suspended
foreclosure.

JPMorgan Chase & Co./2018 Form 10-K

233

Notes to consolidated financial statements
Credit card loan portfolio
The credit card portfolio segment includes credit card loans
originated and purchased by the Firm. Delinquency rates
are the primary credit quality indicator for credit card loans
as they provide an early warning that borrowers may be
experiencing difficulties (30 days past due); information on
those borrowers that have been delinquent for a longer
period of time (90 days past due) is also considered. In
addition to delinquency rates, the geographic distribution of
the loans provides insight as to the credit quality of theportfolio based on the regional economy.
While the borrower’s credit score is another generalindicator of credit quality, the Firm does not view creditscores as a primary indicator of credit quality because theborrower’s credit score tends to be a lagging indicator. The
distribution of such scores provides a general indicator of
credit quality trends within the portfolio; however, the scoredoes not capture all factors that would be predictive of
future credit performance. Refreshed FICO score
information, which is obtained at least quarterly, for astatistically significant random sample of the credit card
portfolio is indicated in the following table. FICO isconsidered to be the industry benchmark for credit scores.
The Firm generally originates new card accounts to prime
consumer borrowers. However, certain cardholders’ FICO
scores may decrease over time, depending on theperformance of the cardholder and changes in credit score
calculation.

The table below provides information about the Firm’s
credit card loans.
As of or for the year ended December 31,(in millions, except ratios)
Net charge-offs

2018$% of net charge-offs to retained loans

4,518

2017
$

3.10%

4,123
2.95%

Loan delinquency
Current and less than 30 days past due
and still accruing$ 153,746$ 146,704

30–89 days past due and still accruing

1,426

1,305

1,444
$ 156,616

1,378$ 149,387

90 or more days past due and still accruing
Total retained credit card loans
Loan delinquency ratios% of 30+ days past due to total retained loans

1.83%

1.80%

% of 90+ days past due to total retained loans

0.92

0.92

Credit card loans by geographic region(a)California
Texas
New York
FloridaIllinois
New Jersey
Ohio
Pennsylvania
Colorado
Michigan
All other$

23,75715,085
13,601
9,770
8,938
6,739
5,094
4,996
4,309
3,912
60,415

Total retained credit card loans$ 156,616$

22,245
14,20013,021
9,138
8,585
6,506
4,997
4,883
4,006
3,826
57,980$ 149,387

Percentage of portfolio based on carrying
value with estimated refreshed FICO scores
Equal to or greater than 660
Less than 660

84.2%
15.0

84.0%
14.6

No FICO available

0.8

1.4

a) The geographic regions presented in the table are ordered based on themagnitude of the corresponding loan balances at December 31, 2018.

234

JPMorgan Chase & Co./2018 Form 10-K

Credit card impaired loans and loan modifications
The table below provides information about the Firm’s
impaired credit card loans. All of these loans are considered
to be impaired as they have been modified in TDRs.
December 31, (in millions)
Impaired credit card loans with anallowance(a)(b)(c)
Allowance for loan losses related to
impaired credit card loans

$

2018

2017

1,319 $

1,215

440

383

(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) Predominantly all impaired credit card loans are in the U.S.

The following table presents average balances of impaired
credit card loans and interest income recognized on thoseloans.
Year ended December 31,(in millions)Average impaired credit card loans
Interest income on
impaired credit card loans

2018

2017

2016

$ 1,260 $ 1,214 $ 1,325
65

59

63

Loan modifications
The Firm may offer one of a number of loan modification
programs to credit card borrowers who are experiencing
financial difficulty. Most of the credit card loans have been
modified under long-term programs for borrowers who areexperiencing financial difficulties. These modifications
involve placing the customer on a fixed payment plan,
generally for 60 months, and typically include reducing theinterest rate on the credit card. Substantially all
modifications are considered to be TDRs.

JPMorgan Chase & Co./2018 Form 10-K

If the cardholder does not comply with the modified
payment terms, then the credit card loan continues to age
and will ultimately be charged-off in accordance with the
Firm’s standard charge-off policy. In most cases, the Firm
does not reinstate the borrower’s line of credit.
New enrollments in these loan modification programs forthe years ended December 31, 2018, 2017 and 2016, were$866 million, $756 million and $636 million, respectively.
For all periods disclosed, new enrollments were less than
1% of total retained credit card loans.
Financial effects of modifications and redefaults
The following table provides information about the financial
effects of the concessions granted on credit card loans
modified in TDRs and redefaults for the periods presented.
Year ended December 31,(in millions, except
weighted-average data)

2018

2017

2016

Weighted-average interest rateof loans – before TDR

17.98%

16.58%

15.56%

Weighted-average interest rateof loans – after TDR

5.16

4.88

4.76

Loans that redefaulted within
one year of modification(a)(b)

$

116

$

93

$

74

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

For credit card loans modified in TDRs, payment default isdeemed to have occurred when the borrower misses twoconsecutive contractual payments. A substantial portion ofthese loans are expected to be charged-off in accordancewith the Firm’s standard charge-off policy. Based on
historical experience, the estimated weighted-average
default rate for modified credit card loans was expected tobe 33.38%, 31.54% and 28.87% as of December 31,
2018, 2017 and 2016, respectively.

235

Notes to consolidated financial statements
Wholesale loan portfolio
Wholesale loans include loans made to a variety of clients,
ranging from large corporate and institutional clients tohigh-net-worth individuals.
The primary credit quality indicator for wholesale loans is
the risk rating assigned to each loan. Risk ratings are used
to identify the credit quality of loans and differentiate risk
within the portfolio. Risk ratings on loans consider the PD
and the LGD. The PD is the likelihood that a loan will
default. The LGD is the estimated loss on the loan thatwould be realized upon the default of the borrower andtakes into consideration collateral and structural support
for each credit facility.

Risk ratings are reviewed on a regular and ongoing basis by
Credit Risk Management and are adjusted as necessary for
updated information affecting the obligor’s ability to fulfill
its obligations.
As noted above, the risk rating of a loan considers theindustry in which the obligor conducts its operations. As
part of the overall credit risk management framework, theFirm focuses on the management and diversification of its
industry and client exposures, with particular attention paid
to industries with actual or potential credit concern. Refer
to Note 4 for further detail on industry concentrations.

Management considers several factors to determine anappropriate risk rating, including the obligor’s debt capacityand financial flexibility, the level of the obligor’s earnings,
the amount and sources for repayment, the level and natureof contingencies, management strength, and the industry
and geography in which the obligor operates. The Firm’s
definition of criticized aligns with the banking regulatory
definition of criticized exposures, which consist of special
mention, substandard and doubtful categories. Risk ratings
generally represent ratings profiles similar to those definedby S&P and Moody’s. Investment-grade ratings range from
“AAA/Aaa” to “BBB-/Baa3.” Noninvestment-grade ratings
are classified as noncriticized (“BB+/Ba1 and B-/B3”) andcriticized (“CCC+”/“Caa1 and below”), and the criticized
portion is further subdivided into performing andnonaccrual loans, representing management’s assessmentof the collectibility of principal and interest. Criticized loans
have a higher probability of default than noncriticizedloans.

236

JPMorgan Chase & Co./2018 Form 10-K

The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment. For
additional information on industry concentrations, refer to Note 4.
As of or for theyear ended
December 31,(in millions,
except ratios)
Loans by risk
ratings
Investmentgrade

Commercial
and industrial

Financial
institutions

Real estate

Governments &Agencies

Total
retained loans

Other(d)

2018

2017

2018

2017

2018

2017

2018

2017

2018

2017

2018

2017

$ 73,497$ 68,071$100,107$ 98,467$ 32,178$ 26,791$ 13,984$ 15,140$119,963$103,212$ 339,729$ 311,681

51,72046,55814,876

14,335

15,316

13,071201

369

11,478

9,988

93,591

84,321

Noninvestmentgrade:
Noncriticized
Criticized
performing

3,738

3,983

620

710

150

210

2

—

182

259

4,692

5,162

Criticizednonaccrual

851

1,357

134

136

4

2

—

—

161

239

1,150

1,734

Total
noninvestmentgrade

56,30951,89815,63015,181

15,47013,283203

369

11,821

10,48699,433

91,217

Total retained
loans$129,806$119,969$115,737$ 113,648$ 47,648$ 40,074$ 14,187$ 15,509$131,784$113,698$ 439,162$ 402,898% of total
criticized
exposure tototal retained
loans

3.54%

4.45%

0.65%

0.74%

0.32%

0.53%

0.01%

—%

0.26%

0.44%

1.33%

1.71%

0.66

1.13

0.12

0.12

0.01

—

—

—

0.12

0.21

0.26

0.43

$ 29,572
100,234$ 28,470
91,499$2,967
112,770$

3,101
110,547$ 18,524
29,124$ 16,790
23,284$ 3,150
11,037$2,906
12,603$ 48,433
83,351$ 44,112
69,586$ 102,646
336,516$ 95,379
307,519$129,806$119,969$115,737$ 113,648$ 47,648$ 40,074$ 14,187$ 15,509$131,784$113,698$ 439,162$ 402,898

$

$

$

$

$

$

$

$

$

$

$

$

% of criticizednonaccrual tototal retained
loans
Loans bygeographic
distribution(a)Total non-U.S.
Total U.S.
Total retainedloans
Net charge-offs/(recoveries)% of net
charge-offs/(recoveries) to
end-of-period
retained loans

165

0.13%

117

0.10%

(20)

(0.02)%

(4)

—%

—

—%

6

0.01%

—

—%

5

0.03%

10

0.01%

(5)

—%

155

0.04%

119

0.03%

Loan
delinquency(b)Current and lessthan 30 days
past due andstill accruing
30–89 days past
due and still
accruing$128,678$118,288$115,533$ 113,258$ 47,622$ 40,042$ 14,165$ 15,493$130,918$112,559$ 436,916$ 399,640

109

216

67

242

12

15

18

12

702

898

908

1,383

90 or more days
past due andstill accruing(c)

168

108

3

12

10

15

4

4

3

2

188

141

Criticizednonaccrual

851

1,357

134

136

4

2

—

—

161

239

1,150

1,734

$129,806$119,969$115,737$ 113,648$ 47,648$ 40,074$ 14,187$ 15,509$131,784$113,698$ 439,162$ 402,898

Total retained
loans(a) The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
(b) The credit quality of wholesale loans is assessed primarily through ongoing review and monitoring of an obligor’s ability to meet contractual obligations
rather than relying on the past due status, which is generally a lagging indicator of credit quality.
(c) Represents loans that are considered well-collateralized and therefore still accruing interest.
(d) Other includes individuals and individual entities (predominantly consists of Wealth Management clients within AWM and includes exposure to personal
investment companies and personal and testamentary trusts), SPEs and Private education and civic organizations. For more information on SPEs, refer toNote 14.

JPMorgan Chase & Co./2018 Form 10-K

237

Notes to consolidated financial statements
The following table presents additional information on the real estate class of loans within the Wholesale portfolio for theperiods indicated. Exposure consists primarily of secured commercial loans, of which multifamily is the largest segment.
Multifamily lending finances acquisition, leasing and construction of apartment buildings, and includes exposure to realestate investment trusts (“REITs”). Other commercial lending largely includes financing for acquisition, leasing andconstruction, largely for office, retail and industrial real estate, and includes exposure to REITs. Included in real estate loans is$10.5 billion and $10.8 billion as of December 31, 2018 and 2017, respectively, of construction and development exposure
consisting of loans originally purposed for construction and development, general purpose loans for builders, as well as loans
for land subdivision and pre-development.
Multifamily

December 31,(in millions, except ratios)

2018

Real estate retained loans$

Other Commercial

2017

79,184$

2018

77,597$

Total real estate loans

201736,553$36,051

20182017$ 115,737$ 113,648

Criticized exposure

388

491

366

355

754

846

% of total criticized exposure to total real estate retained loans

0.49%

0.63%

1.00%

0.98%

0.65%

0.74%

Criticized nonaccrual$% of criticized nonaccrual loans to total real estate retained loans

57

$

44

0.07%

$

0.06%

77

$

92

0.21%

$

134

0.26%

$

136

0.12%

0.12%

Wholesale impaired retained loans and loan modifications
Wholesale impaired retained loans consist of loans that have been placed on nonaccrual status and/or that have been modified
in a TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 13.
The table below sets forth information about the Firm’s wholesale impaired retained loans.
Commercial
and industrial

December 31,(in millions)2018

Financial
institutions

Real estate

2017

2018

2017

2018

Governments &Agencies

2017

2018

Total
retained loans

Other

2017

2018

2017

2018

2017
$ 1,509

Impaired loans
With an allowance$

Without an allowance(a)807 $ 1,170
140

$

107 $

78

27

60

228

$

4 $

93

—

—

$

— $

—

—

—

$

152 $

168

$ 1,070

13

70

180

Total impaired loans$

947 $ 1,398

$

134 $

138

$

4 $

93

$

— $

—

$

165 $

238

$ 1,250

Allowance for loan losses related
to impaired loans

$

252 $

$

25 $

11

$

1 $

4

$

— $

—

$

19 $

42

$

203

201

4

94

—

—

473

255

Unpaid principal balance ofimpaired loans(b)

404

1,043

1,604

297
1,723

358
(c)

$ 1,867
$

461
2,154

(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 anallowance. This typically occurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied
to the loan balance.
(b) Represents the contractual amount of principal owed at December 31, 2018 and 2017. The unpaid principal balance differs from the impaired loanbalances due to various factors, including charge-offs; interest payments received and applied to the carrying value; net deferred loan fees or costs; andunamortized discount or premiums on purchased loans.
(c) Based upon the domicile of the borrower, largely consists of loans in the U.S.

The following table presents the Firm’s average impaired
retained loans for the years ended 2018, 2017 and 2016.
Year ended December 31, (in millions)
Commercial and industrial

2018$

2017(b)2016

1,027 $

1,256 $

1,480

Real estate

133

165

217

Financial institutions

57

48

13

Governments & Agencies

—

—

—

199

241

213

1,416 $

1,710 $

1,923

Other
Total(a)$Certain loan modifications are considered to be TDRs as
they provide various concessions to borrowers who areexperiencing financial difficulty. All TDRs are reported as
impaired loans in the tables above. TDRs were $576 million
and $614 million as of December 31, 2018 and 2017,
respectively. The impact of these modifications, as well as
new TDRs, were not material to the Firm for the years
ended December 31, 2018, 2017 and 2016.

(a) The related interest income on accruing impaired loans and interest
income recognized on a cash basis were not material for the years
ended December 31, 2018, 2017 and 2016.
(b) The prior period amounts have been revised to conform with thecurrent period presentation.

238

JPMorgan Chase & Co./2018 Form 10-K(c)Note 13 – Allowance for credit losses
JPMorgan Chase’s allowance for loan losses represents
management’s estimate of probable credit losses inherent
in the Firm’s retained loan portfolio, which consists of thetwo consumer portfolio segments (primarily scored) andthe wholesale portfolio segment (risk-rated). The allowance
for loan losses includes a formula-based component, anasset-specific component, and a component related to PCI
loans, as described below. Management also estimates anallowance for wholesale and certain consumer lendingrelated commitments using methodologies similar to thoseused to estimate the allowance on the underlying loans.
The Firm’s policies used to determine its allowance for
credit losses are described in the following paragraphs.
Determining the appropriateness of the allowance iscomplex and requires judgment by management about theeffect of matters that are inherently uncertain. Subsequentevaluations of the loan portfolio, in light of the factors thenprevailing, may result in significant changes in theallowances for loan losses and lending-related
commitments in future periods. At least quarterly, theallowance for credit losses is reviewed by the CRO, the CFO
and the Controller of the Firm. As of December 31, 2018,
JPMorgan Chase deemed the allowance for credit losses tobe appropriate and sufficient to absorb probable credit
losses inherent in the portfolio.
Formula-based component
The formula-based component is based on a statistical
calculation to provide for incurred credit losses in all
consumer loans and performing risk-rated loans. All loans
restructured in TDRs as well as any impaired risk-rated
loans have an allowance assessed as part of the assetspecific component, while PCI loans have an allowanceassessed as part of the PCI component. Refer to Note 12 formore information on TDRs, Impaired loans and PCI loans.
Formula-based component - Consumer loans and certain
lending-related commitments
The formula-based allowance for credit losses for the
consumer portfolio segments is calculated by applying
statistical credit loss factors (estimated PD and loss
severities) to the recorded investment balances or loanequivalent amounts of pools of loan exposures with similarrisk characteristics over a loss emergence period to arriveat an estimate of incurred credit losses. Estimated loss
emergence periods may vary by product and may changeover time; management applies judgment in estimating loss
emergence periods, using available credit information andtrends. In addition, management applies judgment to thestatistical loss estimates for each loan portfolio category,using delinquency trends and other risk characteristics toestimate the total incurred credit losses in the portfolio.
Management uses additional statistical methods andconsiders actual portfolio performance, including actual
losses recognized on defaulted loans and collateralvaluation trends, to review the appropriateness of the
primary statistical loss estimate. The economic impact of
JPMorgan Chase & Co./2018 Form 10-K

potential modifications of residential real estate loans is notincluded in the statistical calculation because of theuncertainty regarding the type and results of suchmodifications.
The statistical calculation is then adjusted to take into
consideration model imprecision, external factors andcurrent economic events that have occurred but that are notyet reflected in the factors used to derive the statistical
calculation; these adjustments are accomplished in part byanalyzing the historical loss experience for each major
product segment. However, it is difficult to predict whether
historical loss experience is indicative of future loss levels.
Management applies judgment in making this adjustment,
taking into account uncertainties associated with current
macroeconomic and political conditions, quality ofunderwriting standards, borrower behavior, and otherrelevant internal and external factors affecting the credit
quality of the portfolio. In certain instances, theinterrelationships between these factors create further
uncertainties. The application of different inputs into thestatistical calculation, and the assumptions used bymanagement to adjust the statistical calculation, are subject
to management judgment, and emphasizing one input orassumption over another, or considering other inputs orassumptions, could affect the estimate of the allowance for
credit losses for the consumer credit portfolio.
Overall, the allowance for credit losses for consumer
portfolios is sensitive to changes in the economic
environment (e.g., unemployment rates), delinquency rates,
the realizable value of collateral (e.g., housing prices), FICO
scores, borrower behavior and other risk factors. While allof these factors are important determinants of overall
allowance levels, changes in the various factors may notoccur at the same time or at the same rate, or changes may
be directionally inconsistent such that improvement in one
factor may offset deterioration in another. In addition,changes in these factors would not necessarily be consistentacross all geographies or product types. Finally, it is difficult
to predict the extent to which changes in these factors
would ultimately affect the frequency of losses, the severityof losses or both.

239

Notes to consolidated financial statements
Formula-based component - Wholesale loans and lendingrelated commitments
The Firm’s methodology for determining the allowance forloan losses and the allowance for lending-related
commitments involves the early identification of credits thatare deteriorating. The formula-based component of theallowance for wholesale loans and lending-related
commitments is calculated by applying statistical credit loss
factors (estimated PD and LGD) to the recorded investment
balances or loan-equivalent over a loss emergence period toarrive at an estimate of incurred credit losses in theportfolio. Estimated loss emergence periods may vary by
the funded versus unfunded status of the instrument andmay change over time.
The Firm assesses the credit quality of a borrower orcounterparty and assigns a risk rating. Risk ratings are
assigned at origination or acquisition, and if necessary,adjusted for changes in credit quality over the life of the
exposure. In assessing the risk rating of a particular loan or
lending-related commitment, among the factors considered
are the obligor’s debt capacity and financial flexibility, thelevel of the obligor’s earnings, the amount and sources for
repayment, the level and nature of contingencies,
management strength, and the industry and geography inwhich the obligor operates. These factors are based on an
evaluation of historical and current information and involve
subjective assessment and interpretation. Determining risk
ratings involves significant judgment; emphasizing one
factor over another or considering additional factors could
affect the risk rating assigned by the Firm.
A PD estimate is determined based on the Firm’s history ofdefaults over more than one credit cycle.
LGD estimate is a judgment-based estimate assigned toeach loan or lending-related commitment. The estimate
represents the amount of economic loss if the obligor were
to default. The type of obligor, quality of collateral, and theseniority of the Firm’s lending exposure in the obligor’s
capital structure affect LGD.
The Firm applies judgment in estimating PD, LGD, loss
emergence period and loan-equivalent used in calculating
the allowance for credit losses. Estimates of PD, LGD, loss
emergence period and loan-equivalent used are subject toperiodic refinement based on any changes to underlying
external or Firm-specific historical data. Changes to thetime period used for PD and LGD estimates could also affectthe allowance for credit losses. The use of different inputs,
estimates or methodologies could change the amount of theallowance for credit losses determined appropriate by theFirm.
In addition to the statistical credit loss estimates applied to
the wholesale portfolio, management applies its judgment
to adjust the statistical estimates for wholesale loans andlending-related commitments, taking into consideration
model imprecision, external factors and economic events
that have occurred but are not yet reflected in the loss
factors. Historical experience of both LGD and PD are
240

considered when estimating these adjustments. Factors
related to concentrated and deteriorating industries also
are incorporated where relevant. These estimates are basedon management’s view of uncertainties that relate tocurrent macroeconomic conditions, quality of underwriting
standards and other relevant internal and external factors
affecting the credit quality of the current portfolio.
Asset-specific component
The asset-specific component of the allowance relates toloans considered to be impaired, which includes loans thathave been modified in TDRs as well as risk-rated loans thathave been placed on nonaccrual status. To determine theasset-specific component of the allowance, larger risk-rated
loans (primarily loans in the wholesale portfolio segment)
are evaluated individually, while smaller loans (both riskrated and scored) are evaluated as pools using historicalloss experience for the respective class of assets.
The Firm generally measures the asset-specific allowance as
the difference between the recorded investment in the loan
and the present value of the cash flows expected to becollected, discounted at the loan’s original effective interest
rate. Subsequent changes in impairment are reported as an
adjustment to the allowance for loan losses. In certain
cases, the asset-specific allowance is determined using anobservable market price, and the allowance is measured as
the difference between the recorded investment in the loan
and the loan’s fair value. Collateral-dependent loans arecharged down to the fair value of collateral less costs tosell. For any of these impaired loans, the amount of theasset-specific allowance required to be recorded, if any, isdependent upon the recorded investment in the loan(including prior charge-offs), and either the expected cash
flows or fair value of collateral. Refer to Note 12 for more
information about charge-offs and collateral-dependent
loans.
The asset-specific component of the allowance for impairedloans that have been modified in TDRs (including forgoneinterest, principal forgiveness, as well as other concessions)
incorporates the effect of the modification on the loan’s
expected cash flows, which considers the potential for
redefault. For residential real estate loans modified in TDRs,
the Firm develops product-specific probability of default
estimates, which are applied at a loan level to compute
expected losses. In developing these probabilities ofdefault, the Firm considers the relationship between thecredit quality characteristics of the underlying loans andcertain assumptions about home prices and unemployment,
based upon industry-wide data. The Firm also considers its
own historical loss experience to-date based on actual
redefaulted modified loans. For credit card loans modified
in TDRs, expected losses incorporate projected redefaults
based on the Firm’s historical experience by type ofmodification program. For wholesale loans modified in
TDRs, expected losses incorporate management’s
expectation of the borrower’s ability to repay under themodified terms.
JPMorgan Chase & Co./2018 Form 10-K

Estimating the timing and amounts of future cash flows ishighly judgmental as these cash flow projections rely uponestimates such as loss severities, asset valuations, default
rates (including redefault rates on modified loans), theamounts and timing of interest or principal payments(including any expected prepayments) or other factors thatare reflective of current and expected market conditions.
These estimates are, in turn, dependent on factors such as
the duration of current overall economic conditions,industry-, portfolio-, or borrower-specific factors, theexpected outcome of insolvency proceedings as well as, incertain circumstances, other economic factors, including
the level of future home prices. All of these estimates andassumptions require significant management judgment andcertain assumptions are highly subjective.

JPMorgan Chase & Co./2018 Form 10-K

PCI loans
In connection with the acquisition of certain PCI loans,which are accounted for as described in Note 12, theallowance for loan losses for the PCI portfolio is based onquarterly estimates of the amount of principal and interest
cash flows expected to be collected over the estimatedremaining lives of the loans.
These cash flow projections are based on estimates
regarding default rates (including redefault rates on
modified loans), loss severities, the amounts and timing of
prepayments and other factors that are reflective of current
and expected future market conditions. These estimates are
dependent on assumptions regarding the level of futurehome prices, and the duration of current overall economic
conditions, among other factors. These estimates andassumptions require significant management judgment andcertain assumptions are highly subjective.

241

Notes to consolidated financial statements
Allowance for credit losses and related information
The table below summarizes information about the allowances for loan losses and lending-relating commitments, and includes
a breakdown of loans and lending-related commitments by impairment methodology.
(Table continued on next page)

2018
Consumer,
excludingcredit card

Year ended December 31,(in millions)Credit card

Wholesale

Total

Allowance for loan losses
Beginning balance at January 1,

$

4,579

$

4,884

$

4,141

$

13,604Gross charge-offs

1,025

5,011

313

6,349

Gross recoveries

(842)

(493)

(158)

(1,493)

Net charge-offs

183

4,518

155

4,856

Write-offs of PCI loans(a)

187

—

—

187

Provision for loan losses

(63)

4,818

130

4,885

—

—

(1)

Other
Ending balance at December 31,

$

4,146

$

196

$

5,184

$

(1)

4,115

$

297

$

13,445

Allowance for loan losses by impairment methodology
Asset-specific(b)$Formula-based

2,162

PCI
Total allowance for loan losses

1,788
$

440

(c)

$

4,744

3,818

—

4,146

$

6,828

$

—

5,184

$

1,319

$

933
10,724
1,788

4,115

$

1,250

$

13,445Loans by impairment methodology
Asset-specific

$

9,397

Formula-based

342,775

155,297

437,909935,981PCI

24,034—

3

24,037

Total retained loans$

373,637$

156,616

$

24

$

—

$

439,162$21$

969,415

Impaired collateral-dependent loans
Net charge-offs$

Loans measured at fair value of collateral less cost to sell

2,080

—

202

45
2,282

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

$

33

$

—

$

1,035

$

1,068

Provision for lending-related commitments

—

—

(14)

(14)

Other

—

—

1

1

Ending balance at December 31,

$

33

$

—

$

—

$

—

$

1,022

$

99

$

1,055

Allowance for lending-related commitments by impairment methodology
Asset-specific$

Formula-based
Total allowance for lending-related commitments

33
$

—

33

$

—

$

923

—

$

—

$

99
956

1,022

$

469

$

1,055

Lending-related commitments by impairment methodology
Asset-specific$

Formula-based
Total lending-related commitments

46,066$

46,066605,379$

605,379

387,344$387,813469
1,038,789$

1,039,258(a) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting
adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool.
(b) Includes risk-rated loans that have been placed on nonaccrual status and 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.

242

JPMorgan Chase & Co./2018 Form 10-K

(table continued from previous page)2017
Consumer,
excludingcredit card$$$

Credit card

5,198

$

$

$

$

$

$

$

13,776

$

5,806

$

3,434

$

Total

4,315

$

13,555

212

6,512

1,500

3,799

398

5,697

(93)

(1,125)

(591)

(357)

(57)

(1,005)

1,145

4,123

119

5,387

909

3,442

341

4,692

86

—

—

86

156

—

—

156

613

4,973

(286)

5,300

467

4,042

571

5,080

(1)

—

2

1

(10)

—

(1)

4,579

$

246

$

4,884

383

$

(c)

$

4,501
$

8,036

$

4,141

$

461

$

3,680

—

4,579

$

1,215

$

$

1,090

$

10,289—4,884

13,604

$

1,867

$

$

308

$

2,579

2,225

4,141

5,198

$

11,118

$

358

$

(c)

$

3,676

2,311

13,604

4,034

$

8,940

$

$

342

$

4,202

—

5,198

(11)

4,544

$

1,240

$

1,008
10,457—

4,034

13,776

2,311

4,544

$

2,017

$

13,776

12,197

333,941

148,172

401,028

883,141

319,787

140,471

381,770842,028

30,576—

3

30,57935,679—3

35,682

372,553$

149,387

$

64

$

—

$

26

—

$

—

402,898

$

31

$

233

$

1,052

924,838

$

95

$

2,366

$

1,078

364,406$

141,711

$

98

$

—

$

2,391

$

14

—

$

—

383,790

$

7

$

300

$

772

889,907

105
2,691

$

786

7

—

(17)

(10)

—

—

281

281

—

—

—

—

12

—

(1)

11

33

$

—

$

1,035

$

1,068

$

—

$

—

$

187

$

187

$

—

33

$

—

$

48,553$

4,544

Wholesale

(398)

33
$

$

Credit card

4,521

2,133

$

4,034

Total

(634)

2,225

$

Wholesale

1,779

2,108
$

2016
Consumer,
excludingcredit card

48,553

848

—

$

—

$

572,831$572,831

JPMorgan Chase & Co./2018 Form 10-K

881

1,035

$

731

$

369,367$

370,098

1,068

$

731

$

991,482

$

—

$

1,052

$

1,078

—

$

—

$

169

$

169

1,052

$

1,078

506

$

26

990,751
$

26

—

26

$

—

$

53,247$53,247

883

—

$

—

$

553,891$

553,891909

367,508$

368,014506
974,646$

975,152243

Notes to consolidated financial statements
Note 14 – Variable interest entities
For a further description of JPMorgan Chase’s accounting policies regarding consolidation of VIEs, refer to Note 1. Page 198
The following table summarizes the most significant types of Firm-sponsored VIEs by business segment. The Firm considers a“sponsored” VIE to include any entity where: (1) JPMorgan Chase is the primary beneficiary of the structure; (2) the VIE isused by JPMorgan Chase to securitize Firm assets; (3) the VIE issues financial instruments with the JPMorgan Chase name; or(4) the entity is a JPMorgan Chase–administered asset-backed commercial paper conduit.
Line of Business

Activity

Credit card securitization trusts

Securitization of originated credit card receivables

244-245

Mortgage securitization trusts

Servicing and securitization of both originated andpurchased residential mortgages

245-247

Mortgage and other securitization trusts

Securitization of both originated and purchased
residential and commercial mortgages, and otherconsumer loans

245-247

Multi-seller conduits

Assist clients in accessing the financial markets in a
cost-efficient manner and structures transactions tomeet investor needs
Financing of municipal bond investments

CCB

CIB

2018 Form 10-K
page references

Transaction Type

Municipal bond vehicles

247
247-248

The Firm’s other business segments are also involved with VIEs (both third-party and Firm-sponsored), but to a lesser extent,
as follows:• Asset & Wealth Management: AWM sponsors and manages certain funds that are deemed VIEs. As asset manager of thefunds, AWM earns a fee based on assets managed; the fee varies with each fund’s investment objective and is competitively
priced. For fund entities that qualify as VIEs, AWM’s interests are, in certain cases, considered to be significant variableinterests that result in consolidation of the financial results of these entities.
• Commercial Banking: CB provides financing and lending-related services to a wide spectrum of clients, including certain
third-party-sponsored entities that may meet the definition of a VIE. CB does not control the activities of these entities anddoes not consolidate these entities. CB’s maximum loss exposure, regardless of whether the entity is a VIE, is generally
limited to loans and lending-related commitments which are reported and disclosed in the same manner as any other thirdparty transaction.
• Corporate: Corporate is involved with entities that may meet the definition of VIEs; however these entities are generally
subject to specialized investment company accounting, which does not require the consolidation of investments, including
VIEs. In addition, Treasury and CIO invest in securities generally issued by third parties which may meet the definition of
VIEs (e.g., issuers of asset-backed securities). In general, the Firm does not have the power to direct the significant
activities of these entities and therefore does not consolidate these entities. Refer to Note 10 for further information on the
Firm’s investment securities portfolio.
In addition, CIB also invests in and provides financing and other services to VIEs sponsored by third parties. Refer to page 249of this Note for more information on the VIEs sponsored by third parties.
Significant Firm-sponsored variable interest entities
Credit card securitizations
CCB’s Card business securitizes originated credit card loans,primarily through the Chase Issuance Trust (the “Trust”).
The Firm’s continuing involvement in credit card
securitizations includes servicing the receivables, retaining
an undivided seller’s interest in the receivables, retaining
certain senior and subordinated securities and maintaining
escrow accounts.
The Firm is considered to be the primary beneficiary ofthese Firm-sponsored credit card securitization trusts basedon the Firm’s ability to direct the activities of these VIEs
through its servicing responsibilities and other duties,
including making decisions as to the receivables that aretransferred into those trusts and as to any related
modifications and workouts. Additionally, the nature andextent of the Firm’s other continuing involvement with thetrusts, as indicated above, obligates the Firm to absorb
244

losses and gives the Firm the right to receive certain
benefits from these VIEs that could potentially besignificant.
The underlying securitized credit card receivables and otherassets of the securitization trusts are available only for
payment of the beneficial interests issued by the
securitization trusts; they are not available to pay the Firm’sother obligations or the claims of the Firm’s creditors.
The agreements with the credit card securitization trusts
require the Firm to maintain a minimum undivided interestin the credit card trusts (generally 5%). As of December 31,
2018 and 2017, the Firm held undivided interests in Firmsponsored credit card securitization trusts of $15.1 billion
and $15.8 billion, respectively. The Firm maintained anaverage undivided interest in principal receivables ownedby those trusts of approximately 37% and 26% for theyears ended December 31, 2018 and 2017. The Firm did
JPMorgan Chase & Co./2018 Form 10-Knot retain any senior securities and retained $3.0 billion
and $4.5 billion of subordinated securities in certain of its
credit card securitization trusts as of December 31, 2018and 2017, respectively. The Firm’s undivided interests inthe credit card trusts and securities retained are eliminatedin consolidation.

Firm-sponsored mortgage and other securitization trusts
The Firm securitizes (or has securitized) originated andpurchased residential mortgages, commercial mortgages
and other consumer loans primarily in its CCB and CIB
businesses. Depending on the particular transaction, as wellas the respective business involved, the Firm may act as theservicer of the loans and/or retain certain beneficial
interests in the securitization trusts.

The following table presents the total unpaid principal amount of assets held in Firm-sponsored private-label securitization
entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing
involvement includes servicing the loans, holding senior interests or subordinated interests (including amounts required to beheld pursuant to credit risk retention rules), recourse or guarantee arrangements, and derivative contracts. In certain
instances, the Firm’s only continuing involvement is servicing the loans. Refer to Securitization activity on page 250 of thisNote for further information regarding the Firm’s cash flows associated with and interests retained in nonconsolidated VIEs,
and pages 250-251 of this Note for information on the Firm’s loan sales to U.S. government agencies.
JPMorgan Chase interest in securitized assets innonconsolidated VIEs(c)(d)(e)Principal amount outstanding

December 31, 2018 (in millions)

Assets held in
Assetsnonconsolidated
Total assets
held insecuritization
held byconsolidated
VIEs withsecuritization securitization
continuing
VIEs
VIEs
involvement

Trading
assetsInvestment
securities

Total
interests
held by
JPMorgan
Chase

Other
financialassetsSecuritization-related(a)Residential mortgage:
Prime/Alt-A and option ARMs$

Subprime
Commercial and other

(b)

Total

$

63,350 $3,237 $

50,67916,72932

15,434

102,961—

79,387183,040 $3,269 $

145,500

$

$

647 $

— $

1,270

53

—

—

53

783

801

210

1,794

1,459 $

1,448 $

210 $

3,117

JPMorgan Chase interest in securitized assets innonconsolidated VIEs(c)(d)(e)Principal amount outstanding

December 31, 2017(in millions)

623 $Assets held in
Assetsnonconsolidated
Total assets
held insecuritization
held byconsolidated
VIEs withsecuritization securitization
continuing
VIEs
VIEs
involvement

Trading
assetsInvestment
securities

Total
interests
held by
JPMorgan
Chase

Other
financialassetsSecuritization-related(a)Residential mortgage:
Prime/Alt-A and option ARMs$

Subprime
Commercial and other(b)
Total

$

68,874 $3,615 $

52,280

410 $

943 $

— $

18,984

7

17,612

$

93

—

—

93

94,90563

63,411

745

1,133

157

2,035

182,763 $3,685 $

133,303

1,248 $

2,076 $

157 $

3,481

$

1,353

(a) Excludes U.S. government agency securitizations and re-securitizations, which are not Firm-sponsored. Refer to pages 250-251 of this Note for
information on the Firm’s loan sales to U.S. government agencies.
(b) Consists of securities backed by commercial loans (predominantly real estate) and non-mortgage-related consumer receivables purchased from third
parties.
(c) Excludes the following: retained servicing (refer to Note 15 for a discussion of MSRs); securities retained from loan sales to U.S. government agencies;
interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities (refer to Note 5
for further information on derivatives); senior and subordinated securities of $87 million and $28 million, respectively, at December 31, 2018, and $88
million and $48 million, respectively, at December 31, 2017, 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, 2018 and 2017, 60% and 61%, respectively, of the Firm’s retained securitization interests, which are predominantly carried at fairvalue and include amounts required to be held pursuant to credit risk retention rules, were risk-rated “A” or better, on an S&P-equivalent basis. The
retained interests in prime residential mortgages consisted of $1.3 billion of investment-grade for both periods, and $16 million and $48 million ofnoninvestment-grade at December 31, 2018 and 2017, respectively. The retained interests in commercial and other securitizations trusts consisted of$1.2 billion and $1.6 billion of investment-grade and $623 million and $412 million of noninvestment-grade retained interests at December 31, 2018and 2017, respectively.

JPMorgan Chase & Co./2018 Form 10-K

245

Notes to consolidated financial statements
Residential mortgage
The Firm securitizes residential mortgage loans originatedby CCB, as well as residential mortgage loans purchasedfrom third parties by either CCB or CIB. CCB generally
retains servicing for all residential mortgage loans it
originated or purchased, and for certain mortgage loans
purchased by CIB. For securitizations of loans serviced by
CCB, the Firm has the power to direct the significant
activities of the VIE because it is responsible for decisions
related to loan modifications and workouts. CCB may also
retain an interest upon securitization.
In addition, CIB engages in underwriting and trading
activities involving securities issued by Firm-sponsoredsecuritization trusts. As a result, CIB at times retains senior
and/or subordinated interests (including residual interests
and amounts required to be held pursuant to credit risk
retention rules) in residential mortgage securitizations at
the time of securitization, and/or reacquires positions in thesecondary market in the normal course of business. In
certain instances, as a result of the positions retained or
reacquired by CIB or held by CCB, when considered together
with the servicing arrangements entered into by CCB, theFirm is deemed to be the primary beneficiary of certain
securitization trusts. Refer to the table on page 248 of thisNote for more information on consolidated residential
mortgage securitizations.
The Firm does not consolidate a residential mortgage
securitization (Firm-sponsored or third-party-sponsored)
when it is not the servicer (and therefore does not have thepower to direct the most significant activities of the trust)or does not hold a beneficial interest in the trust that could
potentially be significant to the trust. Refer to the table on
page 248 of this Note for more information on the
consolidated residential mortgage securitizations, and thetable on the previous page of this Note for further
information on interests held in nonconsolidated residential
mortgage securitizations.
Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans,and engages in underwriting and trading activities involving
the securities issued by securitization trusts. CIB may retain
unsold senior and/or subordinated interests (including
amounts required to be held pursuant to credit risk
retention rules) in commercial mortgage securitizations at
the time of securitization but, generally, the Firm does notservice commercial loan securitizations. For commercial
mortgage securitizations the power to direct the significant
activities of the VIE generally is held by the servicer orinvestors in a specified class of securities (“controllingclass”). The Firm generally does not retain an interest in thecontrolling class in its sponsored commercial mortgage
securitization transactions. Refer to the table on page 248of this Note for more information on the consolidated
commercial mortgage securitizations, and the table on theprevious page of this Note for further information oninterests held in nonconsolidated securitizations.
246

Re-securitizations
The Firm engages in certain re-securitization transactions inwhich debt securities are transferred to a VIE in exchange
for new beneficial interests. These transfers occur inconnection with both agency (Federal National Mortgage
Association (“Fannie Mae”), Federal Home Loan Mortgage
Corporation (“Freddie Mac”) and Government National
Mortgage Association (“Ginnie Mae”)) and nonagency(private-label) sponsored VIEs, which may be backed byeither residential or commercial mortgages. The Firm’s
consolidation analysis is largely dependent on the Firm’srole and interest in the re-securitization trusts.
The following table presents the principal amount of
securities transferred to re-securitization VIEs.
Year ended December 31,(in millions)

2018

2017

2016

Transfers of securities to
VIEs
Firm-sponsored private-label
Agency$—15,532$—
12,617$647
11,241

Most re-securitizations with which the Firm is involved areclient-driven transactions in which a specific client or groupof clients is seeking a specific return or risk profile. For
these transactions, the Firm has concluded that thedecision-making power of the entity is shared between the
Firm and its clients, considering the joint effort anddecisions in establishing the re-securitization trust and its
assets, as well as the significant economic interest the client
holds in the re-securitization trust; therefore the Firm does
not consolidate the re-securitization VIE.
In more limited circumstances, the Firm creates anonagency re-securitization trust independently and not in
conjunction with specific clients. In these circumstances, theFirm is deemed to have the unilateral ability to direct themost significant activities of the re-securitization trust
because of the decisions made during the establishment
and design of the trust; therefore, the Firm consolidates there-securitization VIE if the Firm holds an interest that could
potentially be significant.
Additionally, the Firm may invest in beneficial interests ofthird-party-sponsored re-securitizations and generallypurchases these interests in the secondary market. In thesecircumstances, the Firm does not have the unilateral ability
to direct the most significant activities of the resecuritization trust, either because it was not involved in theinitial design of the trust, or the Firm is involved with anindependent third-party sponsor and demonstrates shared
power over the creation of the trust; therefore, the Firm
does not consolidate the re-securitization VIE.

JPMorgan Chase & Co./2018 Form 10-K

The following table presents information on
nonconsolidated re-securitization VIEs.

program-wide credit enhancement provider, as well as thepotential exposure created by the liquidity and credit
enhancement facilities provided to the conduits. Refer topage 248 of this Note for further information on
consolidated VIE assets and liabilities.

Nonconsolidated
re-securitization VIEs
December 31,(in millions)Firm-sponsored private-label
Assets held in VIEs with continuing
involvement(a)Interest in VIEs

2018

$

2017

118

$

783

10

29

3,058

2,250

AgencyInterest in VIEs(a) Represents the principal amount and includes the notional amount ofinterest-only securities.

As of December 31, 2018 and 2017, the Firm did notconsolidate any agency re-securitization VIEs or any Firmsponsored private-label re-securitization VIEs.
Multi-seller conduits
Multi-seller conduit entities are separate bankruptcy
remote entities that provide secured financing,collateralized by pools of receivables and other financial
assets, to customers of the Firm. The conduits fund theirfinancing facilities through the issuance of highly rated
commercial paper. The primary source of repayment of thecommercial paper is the cash flows from the pools of assets.
In most instances, the assets are structured with dealspecific credit enhancements provided to the conduits by
the customers (i.e., sellers) or other third parties. Dealspecific credit enhancements are generally structured tocover a multiple of historical losses expected on the pool ofassets, and are typically in the form of overcollateralization
provided by the seller. The deal-specific credit
enhancements mitigate the Firm’s potential losses on its
agreements with the conduits.
To ensure timely repayment of the commercial paper, andto provide the conduits with funding to provide financing tocustomers in the event that the conduits do not obtainfunding in the commercial paper market, each asset poolfinanced by the conduits has a minimum 100% dealspecific liquidity facility associated with it provided by
JPMorgan Chase Bank, N.A. JPMorgan Chase Bank, N.A. also
provides the multi-seller conduit vehicles with uncommitted
program-wide liquidity facilities and program-wide credit
enhancement in the form of standby letters of credit. The
amount of program-wide credit enhancement required isbased upon commercial paper issuance and approximates
10% of the outstanding balance of commercial paper.
The Firm consolidates its Firm-administered multi-seller
conduits, as the Firm has both the power to direct thesignificant activities of the conduits and a potentiallysignificant economic interest in the conduits. As
administrative agent and in its role in structuringtransactions, the Firm makes decisions regarding asset
types and credit quality, and manages the commercial
paper funding needs of the conduits. The Firm’s intereststhat could potentially be significant to the VIEs include thefees received as administrative agent and liquidity and
JPMorgan Chase & Co./2018 Form 10-K

In the normal course of business, JPMorgan Chase makes
markets in and invests in commercial paper issued by the
Firm-administered multi-seller conduits. The Firm held
$20.1 billion and $20.4 billion of the commercial paperissued by the Firm-administered multi-seller conduits at
December 31, 2018 and 2017, respectively, which havebeen eliminated in consolidation. The Firm’s investments
reflect the Firm’s funding needs and capacity and were notdriven by market illiquidity. Other than the amounts
required to be held pursuant to credit risk retention rules,
the Firm is not obligated under any agreement to purchasethe commercial paper issued by the Firm-administeredmulti-seller conduits.
Deal-specific liquidity facilities, program-wide liquidity andcredit enhancement provided by the Firm have been
eliminated in consolidation. The Firm or the Firmadministered multi-seller conduits provide lending-related
commitments to certain clients of the Firm-administeredmulti-seller conduits. The unfunded commitments were$8.0 billion and $8.8 billion at December 31, 2018 and2017, respectively, and are reported as off-balance sheet
lending-related commitments. For more information on offbalance sheet lending-related commitments, refer to Note
27.
Municipal bond vehicles
Municipal bond vehicles or tender option bond (“TOB”)
trusts allow institutions to finance their municipal bondinvestments at short-term rates. In a typical TOB
transaction, the trust purchases highly rated municipalbond(s) of a single issuer and funds the purchase by issuing
two types of securities: (1) puttable floating-rate
certificates (“floaters”) and (2) inverse floating-rate
residual interests (“residuals”). The floaters are typicallypurchased by money market funds or other short-term
investors and may be tendered, with requisite notice, to the
TOB trust. The residuals are retained by the investor seeking
to finance its municipal bond investment. TOB transactions
where the residual is held by a third-party investor are
typically known as customer TOB trusts, and non-customer
TOB trusts are transactions where the Residual is retainedby the Firm. Customer TOB trusts are sponsored by a third
party; refer to page 249 on this Note for further
information. The Firm serves as sponsor for all noncustomer TOB transactions. The Firm may provide various
services to a TOB trust, including remarketing agent,liquidity or tender option provider, and/or sponsor.
J.P. Morgan Securities LLC may serve as a remarketing
agent on the floaters for TOB trusts. The remarketing agent
is responsible for establishing the periodic variable rate on
the floaters, conducting the initial placement andremarketing tendered floaters. The remarketing agent may,247

Notes to consolidated financial statements
but is not obligated to, make markets in floaters. Floaters
held by the Firm were not material during 2018 and 2017.
JPMorgan Chase Bank, N.A. or J.P. Morgan Securities LLC
often serves as the sole liquidity or tender option provider
for the TOB trusts. The liquidity provider’s obligation to
perform is conditional and is limited by certain events(“Termination Events”), which include bankruptcy or failure
to pay by the municipal bond issuer or credit enhancement
provider, an event of taxability on the municipal bonds orthe immediate downgrade of the municipal bond to below
investment grade. In addition, the liquidity provider’s
exposure is typically further limited by the high credit
quality of the underlying municipal bonds, the excess
collateralization in the vehicle, or, in certain transactions,the reimbursement agreements with the Residual holders.

Holders of the floaters may “put,” or tender, their floaters
to the TOB trust. If the remarketing agent cannot
successfully remarket the floaters to another investor, theliquidity provider either provides a loan to the TOB trust for
the TOB trust’s purchase of the floaters, or it directly
purchases the tendered floaters.
TOB trusts are considered to be variable interest entities.
The Firm consolidates Non-Customer TOB trusts because as
the Residual holder, the Firm has the right to makedecisions that significantly impact the economic
performance of the municipal bond vehicle, and it has theright to receive benefits and bear losses that could
potentially be significant to the municipal bond vehicle.

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,
2018 and 2017.
AssetsTrading
assets

December 31, 2018 (in millions)
VIE program typeFirm-sponsored credit card trusts
Firm-administered multi-seller conduits
Municipal bond vehicles
Mortgage securitization entities(a)
Other
Total

$

$

— $
—
1,779
53
134
1,966 $

Loans

Liabilities

Other(b)31,760 $24,411—
3,285—
59,456 $

491 $
300
4
40
178
1,013 $

Total
assets(c)32,251
24,711
1,783
3,378
312
62,435

Beneficial
interests in
VIE assets(d)$$13,404 $
4,842
1,685
308
2
20,241 $AssetsTrading
assets

December 31, 2017 (in millions)
VIE program typeFirm-sponsored credit card trusts
Firm-administered multi-seller conduits
Municipal bond vehicles
Mortgage securitization entities(a)
Other
Total

$

$

— $
—
1,278
66
105
1,449 $

Loans
41,923 $23,411—
3,661—
68,995 $Other(e)
12 $
33
3
161
103
312 $

Total
liabilities
13,416
4,875
1,688
469
105
20,553Liabilities

Other(b)
652 $
48
3
55
1,916
2,674 $

Total
assets(c)42,57523,459
1,281
3,782
2,021
73,118Beneficial
interests in
VIE assets(d)$$21,278 $
3,045
1,265
359
134
26,081 $Other(e)
16 $
28
2
199
104
349 $

Total
liabilities
21,294
3,073
1,267
558
238
26,430(a) Includes residential and commercial mortgage securitizations.
(b) Includes assets classified as cash and other assets on the Consolidated balance sheets.
(c) The assets of the consolidated VIEs included in the program types above are used to settle the liabilities of those entities. The assets and liabilities include
third-party assets and liabilities of consolidated VIEs and exclude intercompany balances that eliminate in consolidation.

(d) The interest-bearing beneficial interest liabilities issued by consolidated VIEs are classified in the line item on the Consolidated balance sheets titled,“Beneficial interests issued by consolidated variable interest entities.” The holders of these beneficial interests generally do not have recourse to thegeneral credit of JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $13.7 billion and $21.8 billion at
December 31, 2018 and 2017, respectively. For additional information on interest-bearing long-term beneficial interests, refer to Note 19.
(e) Includes liabilities classified as accounts payable and other liabilities on the Consolidated balance sheets.

248

JPMorgan Chase & Co./2018 Form 10-K

VIEs sponsored by third parties
The Firm enters into transactions with VIEs structured byother parties. These include, for example, acting as a
derivative counterparty, liquidity provider, investor,
underwriter, placement agent, remarketing agent, trustee
or custodian. These transactions are conducted at arm’slength, and individual credit decisions are based on theanalysis of the specific VIE, taking into consideration thequality of the underlying assets. Where the Firm does nothave the power to direct the activities of the VIE that mostsignificantly impact the VIE’s economic performance, or avariable interest that could potentially be significant, theFirm generally does not consolidate the VIE, but it records
and reports these positions on its Consolidated balance
sheets in the same manner it would record and report
positions in respect of any other third-party transaction.
Tax credit vehicles
The Firm holds investments in unconsolidated tax credit
vehicles, which are limited partnerships and similar entities
that construct, own and operate affordable housing,alternative energy, and other projects. These entities areprimarily considered VIEs. A third party is typically thegeneral partner or managing member and has control overthe significant activities of the tax credit vehicles, andaccordingly the Firm does not consolidate tax credit
vehicles. The Firm generally invests in these partnerships asa limited partner and earns a return primarily through thereceipt of tax credits allocated to the projects. The
maximum loss exposure, represented by equity investments
and funding commitments, was $16.5 billion and $13.4
billion, of which $4.0 billion and $3.2 billion was unfundedat December 31, 2018 and 2017, respectively. In order toreduce the risk of loss, the Firm assesses each project andwithholds varying amounts of its capital investment until
the project qualifies for tax credits. Refer to Note 24 forfurther information on affordable housing tax credits. For
more information on off-balance sheet lending-related
commitments, refer to Note 27.

information on off-balance sheet lending-related
commitments, refer to Note 27.
Loan securitizations
The Firm has securitized and sold a variety of loans,including residential mortgage, credit card, and commercial
mortgage. The purposes of these securitization transactions
were to satisfy investor demand and to generate liquidity
for the Firm.
For loan securitizations in which the Firm is not required toconsolidate the trust, the Firm records the transfer of theloan receivable to the trust as a sale when all of thefollowing accounting criteria for a sale are met: (1) thetransferred financial assets are legally isolated from the
Firm’s creditors; (2) the transferee or beneficial interest
holder can pledge or exchange the transferred financial
assets; and (3) the Firm does not maintain effective control
over the transferred financial assets (e.g., the Firm cannot
repurchase the transferred assets before their maturity andit does not have the ability to unilaterally cause the holder
to return the transferred assets).
For loan securitizations accounted for as a sale, the Firm
recognizes a gain or loss based on the difference between
the value of proceeds received (including cash, beneficial
interests, or servicing assets received) and the carrying
value of the assets sold. Gains and losses on securitizations
are reported in noninterest revenue.

Customer municipal bond vehicles (TOB trusts)
The Firm may provide various services to Customer TOB
trusts, including remarketing agent, liquidity or tender
option provider. In certain Customer TOB transactions, theFirm, as liquidity provider, has entered into areimbursement agreement with the Residual holder. In
those transactions, upon the termination of the vehicle, theFirm has recourse to the third-party Residual holders forany shortfall. The Firm does not have any intent to protect
Residual holders from potential losses on any of theunderlying municipal bonds. The Firm does not consolidate
Customer TOB trusts, since the Firm does not have thepower to make decisions that significantly impact theeconomic performance of the municipal bond vehicle. The
Firm’s maximum exposure as a liquidity provider toCustomer TOB trusts at December 31, 2018 and 2017, was$4.8 billion and $5.3 billion, respectively. The fair value of
assets held by such VIEs at December 31, 2018 and 2017
was $7.7 billion and $9.2 billion, respectively. For more
JPMorgan Chase & Co./2018 Form 10-K

249

Notes to consolidated financial statements
Securitization activity
The following table provides information related to the Firm’s securitization activities for the years ended December 31, 2018,2017 and 2016, related to assets held in Firm-sponsored securitization entities that were not consolidated by the Firm, andwhere sale accounting was achieved at the time of the securitization.
2018

2017

Year ended December 31,(in millions)

Residential
mortgage(f)Principal securitized
All cash flows during the period:(a)$6,431 $

10,159$5,532 $

10,252$

1,817 $

8,964$

6,449 $

10,218$

5,661 $

10,340$1,831 $

9,094

Proceeds received from loan sales as financial
instruments(b)(c)Servicing fees collected(d)319

Purchases of previously transferred financial assets (orthe underlying collateral)(e)Cash flows received on interests

Commercial
and other(g)2Residential
mortgage(f)

2016

338

Commercial
and other(g)3Residential
mortgage(f)477Commercial
and other(g)

3

—

—

1

—

37

—

411

301

463

918

482

1,441

(a) Excludes re-securitization transactions.
(b) Predominantly includes Level 2 assets.
(c) The carrying value of the loans accounted for at fair value approximated the proceeds received upon loan sale.
(d) The prior period amounts have been revised to conform with the current period presentation.
(e) Includes cash paid by the Firm to reacquire assets from nonconsolidated entities – for example, loan repurchases due to representation and warranties and servicer“clean-up” calls.
(f) Includes prime mortgages only. Excludes certain loan securitization transactions entered into with Ginnie Mae, Fannie Mae and Freddie Mac.
(g) Includes commercial mortgage and other consumer loans.

Key assumptions used to value retained interests originatedduring the year are shown in the table below.
Year ended December 31,
Residential mortgage retained interest:
Weighted-average life (in years)
Weighted-average discount rate
Commercial mortgage retained interest:
Weighted-average life (in years)
Weighted-average discount rate

250

2018

2017

2016

7.6
3.6%

4.8
2.9%

4.5
4.2%

5.3
4.0%

7.1
4.4%

6.2
5.8%

Loans and excess MSRs sold to U.S. governmentsponsored enterprises, loans in securitizationtransactions pursuant to Ginnie Mae guidelines, and otherthird-party-sponsored securitization entities
In addition to the amounts reported in the securitization
activity tables above, the Firm, in the normal course ofbusiness, sells originated and purchased mortgage loans
and certain originated excess MSRs on a nonrecourse basis,
predominantly to U.S. government-sponsored enterprises(“U.S. GSEs”). These loans and excess MSRs are soldprimarily for the purpose of securitization by the U.S. GSEs,
who provide certain guarantee provisions (e.g., credit
enhancement of the loans). The Firm also sells loans into
securitization transactions pursuant to Ginnie Mae
guidelines; these loans are typically insured or guaranteedby another U.S. government agency. The Firm does notconsolidate the securitization vehicles underlying thesetransactions as it is not the primary beneficiary. For alimited number of loan sales, the Firm is obligated to sharea portion of the credit risk associated with the sold loans
with the purchaser. Refer to Note 27 for additional
information about the Firm’s loan sales and securitizationrelated indemnifications. Refer to Note 15 for additional
information about the impact of the Firm’s sale of certain
excess MSRs.

JPMorgan Chase & Co./2018 Form 10-K

The following table summarizes the activities related toloans sold to the U.S. GSEs, loans in securitizationtransactions pursuant to Ginnie Mae guidelines, and otherthird-party-sponsored securitization entities.
Year ended December 31,(in millions)

2018

2017

2016

Carrying value of loans sold$

44,609 $64,542 $52,869Proceeds received from loan
sales as cash

$

9 $

117 $

592

Proceeds from loans sales as
securities(a)Total proceeds received fromloan sales(b)Gains/(losses) on loan sales(c)(d)

43,67163,54251,852$

43,680 $63,659 $52,444$(93) $

163 $222(a) Predominantly includes securities from U.S. GSEs and Ginnie Mae thatare generally sold shortly after receipt.
(b) Excludes the value of MSRs retained upon the sale of loans.
(c) Gains/(losses) on loan sales include the value of MSRs.
(d) The carrying value of the loans accounted for at fair value
approximated the proceeds received upon loan sale.

Options to repurchase delinquent loans
In addition to the Firm’s obligation to repurchase certain
loans due to material breaches of representations andwarranties as discussed in Note 27, the Firm also has theoption to repurchase delinquent loans that it services for
Ginnie Mae loan pools, as well as for other U.S. government
agencies under certain arrangements. The Firm typicallyelects to repurchase delinquent loans from Ginnie Mae loanpools as it continues to service them and/or manage theforeclosure process in accordance with the applicablerequirements, and such loans continue to be insured or
guaranteed. When the Firm’s repurchase option becomes
exercisable, such loans must be reported on theConsolidated balance sheets as a loan with a corresponding
liability. For additional information, refer to Note 12.
The following table presents loans the Firm repurchased or
had an option to repurchase, real estate owned, andforeclosed government-guaranteed residential mortgage
loans recognized on the Firm’s Consolidated balance sheets
as of December 31, 2018 and 2017. Substantially all ofthese loans and real estate are insured or guaranteed by
U.S. government agencies.
December 31,(in millions)

2018

2017

7,021 $

8,629

Real estate owned

75

95

Foreclosed government-guaranteed residential
mortgage loans(b)

361

527

Loans repurchased or option to repurchase(a)$(a) Predominantly all of these amounts relate to loans that have been
repurchased from Ginnie Mae loan pools.
(b) Relates to voluntary repurchases of loans, which are included in
accrued interest and accounts receivable.

Loan delinquencies and liquidation losses
The table below includes information about components of nonconsolidated securitized financial assets held in Firm-sponsoredprivate-label securitization entities, in which the Firm has continuing involvement, and delinquencies as of December 31, 2018and 2017.
As of or for the year ended December 31, (in millions)
Securitized loans
Residential mortgage:
Prime/ Alt-A & option ARMs
Subprime
Commercial and otherTotal loans securitized

Securitized assets
2018
2017

$ 50,679 $ 52,280

90 days past due
2018
2017

$

3,354 $

4,870

Net liquidation losses(a)
2018
2017

$

610 $

790
719

15,434

17,612

2,478

3,276

(169)

79,38763,411

225

957

280

114

6,057 $

9,103

721 $

1,623

$ 145,500 $ 133,303$$(a) Includes liquidation gains as a result of private label mortgage settlement payments during the first quarter of 2018, which were reflected as asset recoveries bytrustees.

JPMorgan Chase & Co./2018 Form 10-K

251Notes to consolidated financial statements
Note 15 – Goodwill and Mortgage servicing rights
Goodwill
Goodwill is recorded upon completion of a businesscombination as the difference between the purchase priceand the fair value of the net assets acquired. Subsequent toinitial recognition, goodwill is not amortized but is tested
for impairment during the fourth quarter of each fiscal
year, or more often if events or circumstances, such as
adverse changes in the business climate, indicate there may
be impairment.
The goodwill associated with each business combination isallocated to the related reporting units, which are
determined based on how the Firm’s businesses aremanaged and how they are reviewed by the Firm’s
Operating Committee. The following table presents goodwill
attributed to the business segments.
December 31, (in millions)
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
Total goodwill

2018

2017

2016

$ 30,984 $ 31,013 $ 30,797
6,770
6,776
6,772
2,860
2,860
2,861
6,857
6,858
6,858
$ 47,471 $ 47,507 $ 47,288

The following table presents changes in the carrying
amount of goodwill.
Year ended December 31, (inmillions)

2018

2017

2016

Balance at beginning of period$ 47,507$ 47,288$ 47,325

Business combinations(a)

—

199

—

Dispositions(b)

—

—

(72)

(36)

20

35

$ 47,471$ 47,507$ 47,288

Changes during the period from:

Other(c)Balance at December 31,(a) For 2017, represents CCB goodwill in connection with an acquisition.
(b) For 2016, represents AWM goodwill, which was disposed of as part ofa sale.
(c) Includes foreign currency remeasurement and other adjustments.

252

Goodwill impairment testing
The Firm’s goodwill was not impaired at December 31,
2018, 2017, and 2016.
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. If the fair value is inexcess of the carrying value, then the reporting unit’s
goodwill is considered not to be impaired. If the fair value isless than the carrying value, then a second step isperformed. In the second step, the implied current fairvalue of the reporting unit’s goodwill is determined bycomparing the fair value of the reporting unit (asdetermined in step one) to the fair value of the net assets of
the reporting unit, as if the reporting unit were being
acquired in a business combination. The resulting impliedcurrent fair value of goodwill is then compared with thecarrying value of the reporting unit’s goodwill. If thecarrying value of the goodwill exceeds its implied current
fair value, then an impairment charge is recognized for theexcess. If the carrying value of goodwill is less than its
implied current fair value, then no goodwill impairment isrecognized.
The Firm uses the reporting units’ allocated capital plus
goodwill and other intangible assets capital as a proxy forthe carrying values of equity for the reporting units in the
goodwill impairment testing. Reporting unit equity isdetermined on a similar basis as the allocation of capital to
the Firm’s lines of business and takes into consideration
capital level of similarly-rated peers and applicableregulatory requirements. Proposed line of business equity
levels are incorporated into the Firm’s annual budget
process, which is reviewed by the Firm’s Board of Directors.
Allocated capital is further reviewed on a periodic basis andupdated as needed.

JPMorgan Chase & Co./2018 Form 10-K

The primary method the Firm uses to estimate the fairvalue of its reporting units is the income approach. Thisapproach projects cash flows for the forecast period anduses the perpetuity growth method to calculate terminal
values. These cash flows and terminal values are thendiscounted using an appropriate discount rate. Projectionsof cash flows are based on the reporting units’ earnings
forecasts which are reviewed with senior management of
the Firm. The discount rate used for each reporting unit
represents an estimate of the cost of equity for thatreporting unit and is determined considering the Firm’s
overall estimated cost of equity (estimated using the Capital
Asset Pricing Model), as adjusted for the risk characteristics
specific to each reporting unit (for example, for higher
levels of risk or uncertainty associated with the business or
management’s forecasts and assumptions). To assess thereasonableness of the discount rates used for eachreporting unit management compares the discount rate to
the estimated cost of equity for publicly traded institutions
with similar businesses and risk characteristics. In addition,
the weighted average cost of equity (aggregating thevarious reporting units) is compared with the Firms’ overall
estimated cost of equity to ensure reasonableness.
The valuations derived from the discounted cash flow
analysis are then compared with market-based trading andtransaction multiples for relevant competitors. Trading andtransaction comparables are used as general indicators toassess the general reasonableness of the estimated fairvalues, although precise conclusions generally cannot be
drawn due to the differences that naturally exist between
the Firm’s businesses and competitor institutions.
Management also takes into consideration a comparison
between the aggregate fair values of the Firm’s reporting
units and JPMorgan Chase’s market capitalization. In
evaluating this comparison, management considers several
factors, including (i) a control premium that would exist in amarket transaction, (ii) factors related to the level ofexecution risk that would exist at the firmwide level that do
not exist at the reporting unit level and (iii) short-term
market volatility and other factors that do not directly
affect the value of individual reporting units.

Mortgage servicing rights
MSRs represent the fair value of expected future cash flows
for performing servicing activities for others. The fair value
considers estimated future servicing fees and ancillary
revenue, offset by estimated costs to service the loans, andgenerally declines over time as net servicing cash flows arereceived, effectively amortizing the MSR asset against
contractual servicing and ancillary fee income. MSRs areeither purchased from third parties or recognized upon saleor securitization of mortgage loans if servicing is retained.
As permitted by U.S. GAAP, the Firm has elected to accountfor its MSRs at fair value. The Firm treats its MSRs as asingle class of servicing assets based on the availability ofmarket inputs used to measure the fair value of its MSR
asset and its treatment of MSRs as one aggregate pool forrisk management purposes. The Firm estimates the fairvalue of MSRs using an option-adjusted spread (“OAS”)
model, which projects MSR cash flows over multiple interest
rate scenarios in conjunction with the Firm’s prepayment
model, and then discounts these cash flows at risk-adjusted
rates. The model considers portfolio characteristics,
contractually specified servicing fees, prepayment
assumptions, delinquency rates, costs to service, latecharges and other ancillary revenue, and other economic
factors. The Firm compares fair value estimates andassumptions to observable market data where available,
and also considers recent market activity and actual
portfolio experience.

Declines in business performance, increases in credit losses,
increases in capital requirements, as well as deteriorationin economic or market conditions, adverse regulatory or
legislative changes or increases in the estimated market
cost of equity, could cause the estimated fair values of the
Firm’s reporting units or their associated goodwill to
decline in the future, which could result in a material
impairment charge to earnings in a future period related tosome portion of the associated goodwill.

JPMorgan Chase & Co./2018 Form 10-K

253

Notes to consolidated financial statements
The fair value of MSRs is sensitive to changes in interest
rates, including their effect on prepayment speeds. MSRs
typically decrease in value when interest rates decline
because declining interest rates tend to increase
prepayments and therefore reduce the expected life of the
net servicing cash flows that comprise the MSR asset.
Conversely, securities (e.g., mortgage-backed securities),
principal-only certificates and certain derivatives (i.e.,

those for which the Firm receives fixed-rate interest
payments) increase in value when interest rates decline.
JPMorgan Chase uses combinations of derivatives andsecurities to manage the risk of changes in the fair value of
MSRs. The intent is to offset any interest-rate relatedchanges in the fair value of MSRs with changes in the fairvalue of the related risk management instruments.

The following table summarizes MSR activity for the years ended December 31, 2018, 2017 and 2016.
As of or for the year ended December 31, (in millions, except where otherwise noted)
Fair value at beginning of period

2018
$

6,030

2017
$

6,096

2016
$

6,608

MSR activity:
Originations of MSRs

931

1,103

Purchase of MSRs

315

—

—

Disposition of MSRs(a)

(636)

(140)

(109)

Net additions

610

963

570

(740)

(797)

(919)

300

(202)

(72)

Projected cash flows (e.g., cost to service)

15

(102)

(35)

Discount rates

24

(19)

7

(109)

91

(63)

Changes due to collection/realization of expected cash flows

679

Changes in valuation due to inputs and assumptions:
Changes due to market interest rates and other(b)Changes in valuation due to other inputs and assumptions:Prepayment model changes and other(c)Total changes in valuation due to other inputs and assumptions
Total changes in valuation due to inputs and assumptions

(70)

(30)

(91)

230

(232)

(163)

Fair value at December 31,

$

6,130

$

6,030

$

6,096

Change in unrealized gains/(losses) included in income related to MSRs held at December 31,

$

230

$

(232)

$

(163)

Contractual service fees, late fees and other ancillary fees included in income

1,778

1,886

2,124

Third-party mortgage loans serviced at December 31, (in billions)

521.0

555.0

593.3

3.0

4.0

4.7

Servicer advances, net of an allowance for uncollectible amounts, at December 31, (in billions)(d)(a) Includes excess MSRs transferred to agency-sponsored trusts in exchange for stripped mortgage backed securities (“SMBS”). In each transaction, a
portion of the SMBS was acquired by third parties at the transaction date; the Firm acquired the remaining balance of those SMBS as trading securities.
(b) Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual andexpected prepayments.
(c) Represents changes in prepayments other than those attributable to changes in market interest rates.
(d) Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest, taxes and insurance), which will generally be reimbursed withina short period of time after the advance from future cash flows from the trust or the underlying loans. The Firm’s credit risk associated with these servicer
advances is minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the rightto stop payment to investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable ifthey were not made in accordance with applicable rules and agreements.

254

JPMorgan Chase & Co./2018 Form 10-K

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,
2018, 2017 and 2016.
Year ended December 31,(in millions)

2018

2017

2016

CCB mortgage fees and related
incomeNet production revenue

$ 268

$

636

$ 853

Loan servicing revenue

1,835

2,014

2,336

Changes in MSR asset fair value
due to collection/realization of
expected cash flows

(740)

(795)

(916)

Total operating revenue

1,095

1,219

1,420

Total CCB mortgage fees andrelated income
All otherMortgage fees and related income

8.78%
$

Weighted-average option adjusted spread
Impact on fair value of 100 basis points
adverse change
Impact on fair value of 200 basis points
adverse change

2017

$

(205)

9.35%
$

(221)

(397)

(427)

8.70%

9.04%

(235)
(452)

$

(250)
(481)

CPR: Constant prepayment rate.

Risk management:

Total net mortgage servicing
revenue2018

Weighted-average prepayment speed
assumption (“CPR”)
Impact on fair value of 20% adverse change

Operating revenue:

Total risk management

December 31,(in millions, except rates)

Impact on fair value of 10% adverse change

Net mortgage servicing revenue:

Changes in MSR asset fair value
due to market interest rates
and other(a)Other changes in MSR asset fairvalue due to other inputs andassumptions in model(b)Change in derivative fair value
and other

The table below outlines the key economic assumptions
used to determine the fair value of the Firm’s MSRs at
December 31, 2018 and 2017, and outlines thesensitivities of those fair values to immediate adversechanges in those assumptions, as defined below.

300

(202)

(72)

(70)

(30)

(91)

(341)

(10)

380

(111)

(242)

217

984

977

1,637

1,252

1,613

2,490

2

3

1

$1,254$ 1,616$2,491

Changes in fair value based on variations in assumptions
generally cannot be easily extrapolated, because therelationship of the change in the assumptions to the change
in fair value are often highly interrelated and may not belinear. In this table, the effect that a change in a particularassumption may have on the fair value is calculated withoutchanging any other assumption. In reality, changes in one
factor may result in changes in another, which would either
magnify or counteract the impact of the initial change.

(a) Represents both the impact of changes in estimated futureprepayments due to changes in market interest rates, and thedifference between actual and expected prepayments.
(b) Represents the aggregate impact of changes in model inputs andassumptions such as projected cash flows (e.g., cost to service),discount rates and changes in prepayments other than those
attributable to changes in market interest rates (e.g., changes in
prepayments due to changes in home prices).

JPMorgan Chase & Co./2018 Form 10-K

255

Notes to consolidated financial statements
Note 16 – Premises and equipment

Note 18 – Accounts payable and other liabilities

Premises and equipment, including leasehold
improvements, are carried at cost less accumulated
depreciation and amortization. JPMorgan Chase computes
depreciation using the straight-line method over theestimated useful life of an asset. For leasehold
improvements, the Firm uses the straight-line method
computed over the lesser of the remaining term of theleased facility or the estimated useful life of the leased
asset.

Accounts payable and other liabilities consist of brokeragepayables, which includes payables to customers, dealers
and clearing organizations, and payables from security
purchases that did not settle; accrued expenses, including
income tax payables and credit card rewards liability; andall other liabilities, including obligations to return securities
received as collateral and litigation reserves.

JPMorgan Chase capitalizes certain costs associated withthe acquisition or development of internal-use software.
Once the software is ready for its intended use, these costs
are amortized on a straight-line basis over the software’s
expected useful life and reviewed for impairment on an
ongoing basis.

Note 17 – Deposits

The following table details the components of accounts
payable and other liabilities.
December 31, (in millions)
Brokerage payables
Other payables and liabilities(a)Total accounts payable and otherliabilities2018$ 114,794
81,9162017$ 102,727
86,656$ 196,710$ 189,383(a) Includes credit card rewards liability of $5.8 billion and $4.9 billion at
December 31, 2018 and 2017, respectively.

At December 31, 2018 and 2017, noninterest-bearing andinterest-bearing deposits were as follows.
December 31, (in millions)
U.S. offices
Noninterest-bearing
Interest-bearing (included $19,691, and$14,947 at fair value)(a)

2018

2017

369,505$ 393,645

831,085

793,618

1,200,590

1,187,263

19,092

15,576250,984

241,143

270,076$ 1,470,666

256,719$1,443,982$

Total deposits in U.S. offices
Non-U.S. offices
Noninterest-bearing
Interest-bearing (included $3,526 and$6,374 at fair value)(a)Total deposits in non-U.S. offices
Total deposits(a) Includes structured notes classified as deposits for which the fair value
option has been elected. For further discussion, refer to Note 3.

At December 31, 2018 and 2017, time deposits indenominations of $250,000 or more were as follows.
December 31, (in millions)

2018

U.S. offices$ 25,119

Non-U.S. offices

2017$41,661

Total$ 66,780

30,671
29,049$59,720At December 31, 2018, the maturities of interest-bearing
time deposits were as follows.
December 31, 2018
(in millions)
2019
2020
2021
2022
2023
After 5 years
Total

256

U.S.
$ 31,757
6,309
5,235
2,884
1,719
3,515
$ 51,419

Non-U.S.
$ 40,259
229
19
173
372
2,023
$ 43,075

$

$

Total
72,016
6,538
5,254
3,057
2,091
5,538
94,494

JPMorgan Chase & Co./2018 Form 10-K

Note 19 – Long-term debt
JPMorgan Chase issues long-term debt denominated in various currencies, predominantly U.S. dollars, with both fixed andvariable interest rates. Included in senior and subordinated debt below are various equity-linked or other indexed instruments,
which the Firm has elected to measure at fair value. Changes in fair value are recorded in principal transactions revenue in theConsolidated statements of income, except for unrealized gains/(losses) due to DVA which are recorded in OCI. The following
table is a summary of long-term debt carrying values (including unamortized premiums and discounts, issuance costs,
valuation adjustments and fair value adjustments, where applicable) by remaining contractual maturity as of December 31,
2018.
2018

By remaining maturity at
December 31,(in millions, except rates)

Under 1 year

1-5 years

2017
After 5 years

Total

Total

Parent company
Senior debt:

Fixed rate$

Variable rate
Subordinated debt:

8,958

$

55,362$81,500$145,820$

141,551

4,037

14,025

4,916

22,97826,461

Interest rates(a)0.17-6.30%

0.23-4.95%

0.45-6.40%

0.17-6.40%

0.16-7.25%

Fixed rate

$

$

1,948

$

$

$

—
3.38%

9
3.63-8.00%

93.38-8.53%

71,335$98,639

$

25

$

118

$

Variable rate
Interest rates(a)Subtotal

146
—
8.53%

$

13,141$

12$

12,21414,308

14,6469
3.38-8.53%

183,115$155$

182,667

Subsidiaries
Federal Home Loan Banks
advances:

Fixed rate$

Variable rate
Senior debt:

11,0002.58-2.95%

2.36-2.96%

2.43-2.52%

2.36-2.96%

$

$

$

$

1,574

6,454

8,406

167
60,4501.18-2.00%

16,434$

11,9906,667

22,277

6,657

35,601

26,218Interest rates(a)1.65-7.50%

2.60-7.50%

1.00-7.50%

1.00-7.50%

0.22-7.50%

Fixed rate

$

$

—

—

Variable rate——

Interest rates(a)—%—%Fixed rate

19,253$58,056

$

$

—

$

—

$

—

Interest rates(a)Subtotal
Total long-term debt(b)(c)(d)Fixed rate$$

Variable rateLong-term beneficial
interests:

44,300

Fixed rate

Subtotal
Junior subordinated debt:

4,000Interest rates(a)Variable rate
Subordinated debt:

29,300

—

—%

301

$

301

$

313

—

—

—

8.25%

8.25%

8.25%

19,482

$

659

$

1,466

96,791

$

659

$

1,466

—%

3.04-8.75%

3.04-8.75%

$

—

$

—

$

2,125

$

2,125

$

32,394$

129,391$

120,246$

282,031

$

4,634

$

2,977

$

—

$

7,611

99,138690
1,585
1.88-8.75%(f)(g)

$

2,275

$

284,080$

13,579Variable rate

2,324

3,471

308

6,103

8,192

Interest rates

1.27-2.87%

0.00-3.01%

2.50-4.62%

0.00-4.62%

0.00-6.54%

Total long-term beneficial
interests(e)

$

6,958

$

6,448

$

308

$

13,714$

21,771(a) The interest rates shown are the range of contractual rates in effect at December 31, 2018 and 2017, respectively, including non-U.S. dollar fixed- and variable-rate issuances,which excludes the effects of the associated derivative instruments used in hedge accounting relationships, if applicable. The use of these derivative instruments modifies the
Firm’s exposure to the contractual interest rates disclosed in the table above. Including the effects of the hedge accounting derivatives, the range of modified rates in effect at
December 31, 2018, for total long-term debt was (0.06)% to 8.88%, versus the contractual range of 0.17% to 8.75% presented in the table above. The interest rate ranges
shown exclude structured notes accounted for at fair value.
(b) Included long-term debt of $47.7 billion and $63.5 billion secured by assets totaling $207.0 billion and $208.4 billion at December 31, 2018 and 2017, respectively. The
amount of long-term debt secured by assets does not include amounts related to hybrid instruments.
(c) Included $54.9 billion and $47.5 billion of long-term debt accounted for at fair value at December 31, 2018 and 2017, respectively.
(d) Included $11.2 billion and $10.3 billion of outstanding zero-coupon notes at December 31, 2018 and 2017, respectively. The aggregate principal amount of these notes at theirrespective maturities is $37.4 billion and $33.5 billion, respectively. The aggregate principal amount reflects the contractual principal payment at maturity, which may exceed
the contractual principal payment at the Firm’s next call date, if applicable.
(e) Included on the Consolidated balance sheets in beneficial interests issued by consolidated VIEs. Also included $28 million and $45 million accounted for at fair value at
December 31, 2018 and 2017, respectively. Excluded short-term commercial paper and other short-term beneficial interests of $6.5 billion and $4.3 billion at December 31,
2018 and 2017, respectively.
(f) At December 31, 2018, long-term debt in the aggregate of $138.2 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior to maturity, based on theterms specified in the respective instruments.
(g) The aggregate carrying values of debt that matures in each of the five years subsequent to 2018 is $32.4 billion in 2019, $46.7 billion in 2020, $40.0 billion in 2021, $16.3
billion in 2022 and $26.4 billion in 2023.

JPMorgan Chase & Co./2018 Form 10-K

257

Notes to consolidated financial statements
The weighted-average contractual interest rates for total
long-term debt excluding structured notes accounted for atfair value were 3.28% and 2.87% as of December 31,
2018 and 2017, respectively. In order to modify exposure
to interest rate and currency exchange rate movements,
JPMorgan Chase utilizes derivative instruments, primarily
interest rate and cross-currency interest rate swaps, inconjunction with some of its debt issuances. The use of
these instruments modifies the Firm’s interest expense on
the associated debt. The modified weighted-averageinterest rates for total long-term debt, including the effects
of related derivative instruments, were 3.64% and 2.56%
as of December 31, 2018 and 2017, respectively.

Junior subordinated deferrable interest debentures
On September 10, 2018 the Firm’s last remaining issuer ofoutstanding trust preferred securities (“issuer trust”) was
liquidated, resulting in $475 million of trust preferred
securities and $15 million of trust common securities
originally issued by the issuer trust being cancelled. The
junior subordinated debentures previously held by the trust
issuer were distributed pro rata to the holders of the trust
preferred and trust common securities. The carrying valueof the junior subordinated debt was $659 million as ofDecember 31, 2018.

JPMorgan Chase & Co. has guaranteed certain long-term
debt of its subsidiaries, including both long-term debt andstructured notes. These guarantees rank on parity with the
Firm’s other unsecured and unsubordinated indebtedness.
The amount of such guaranteed long-term debt andstructured notes was $10.9 billion and $7.9 billion at
December 31, 2018 and 2017, 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.

258

JPMorgan Chase & Co./2018 Form 10-K

Note 20 – Preferred stock
At December 31, 2018 and 2017, JPMorgan Chase wasauthorized to issue 200 million shares of preferred stock, in
one or more series, with a par value of $1 per share.

In the event of a liquidation or dissolution of the Firm,
JPMorgan Chase’s preferred stock then outstanding takes
precedence over the Firm’s common stock with respect tothe payment of dividends and the distribution of assets.

The following is a summary of JPMorgan Chase’s non-cumulative preferred stock outstanding as of December 31, 2018 and 2017.
Carrying value(in millions)at December 31,

Shares at December 31,(a)Fixed-rate:
Series P
Series T
Series W
Series Y
Series AA
Series BB
Series DD
Fixed-to-floatingrate:
Series I

Series Q
Series R
Series S
Series U
Series V
Series X
Series Z
Series CC
Total preferred
stock

2018

2017

90,00092,50088,000143,000
142,500
115,000
169,625

90,00092,50088,000143,000
142,500
115,000—

430,375

600,000

150,000
150,000
200,000
100,000
250,000
160,000
200,000
125,750

150,000
150,000
200,000
100,000
250,000
160,000
200,000
125,750

2,606,750

2,606,750

Floating
annualrate ofthree-month
LIBOR plus:

Dividend
declaredpershare(b)

NA
NA
NA
NA
NA
NA
NA

NA
NA
NA
NA
NA
NA
NA

$136.25167.50157.50153.13152.50153.75111.81

Issue date

900 $ 900
925
925
880
880
1,430
1,430
1,425
1,425
1,150
1,150
1,696
—

2/5/2013
1/30/2014
6/23/2014
2/12/2015
6/4/2015
7/29/2015
9/21/20185.450% 3/1/2018
6.700
3/1/2019
6.300
9/1/2019
6.125
3/1/2020
6.100
9/1/2020
9/1/2020
6.150
5.750 12/1/2023

4,304

4/23/2008

LIBOR +
3.47% 4/30/2018 4/30/2018 LIBOR + 3.47% $395.00

4/23/2013
7/29/2013
1/22/2014
3/10/2014
6/9/2014
9/23/2014
4/21/2015
10/20/2017

147.34148.45153.09257.50300.00337.50306.25250.00305.00265.00231.252018$

Date atwhich
dividend
rate
becomesfloating

Contractualrate
in effect at
Earliest
December redemption
31, 2018
date

1,500
1,500
2,000
1,000
2,500
1,600
2,000
1,258

2017

6,000

1,500
1,500
2,000
1,000
2,500
1,600
2,000
1,258

5.150
6.000
6.750
6.125
5.000
6.100
5.300
4.625

5/1/2023 5/1/2023
8/1/2023 8/1/2023
2/1/2024 2/1/2024
4/30/2024 4/30/2024
7/1/2019 7/1/2019
10/1/2024 10/1/2024
5/1/2020 5/1/2020
11/1/2022 11/1/2022

LIBOR + 3.25
LIBOR + 3.30
LIBOR + 3.78
LIBOR + 3.33
LIBOR + 3.32
LIBOR + 3.33
LIBOR + 3.80
LIBOR + 2.58

(c)

(d)
(d)
(d)
(d)

(c)

$26,068 $26,068(a) Represented by depositary shares.
(b) Dividends on fixed-rate preferred stock are payable quarterly. Dividends on fixed-to-floating-rate preferred stock are payable semiannually while at a fixed rate, and payable
quarterly after converting to a floating rate.
(c) Dividend per share is prorated based on the number of days outstanding for the period.
(d) The dividend rate for Series I preferred stock became floating and payable quarterly starting on April 30, 2018; prior to which the dividend rate was fixed at 7.90% or $395.00
per share payable semi annually. The Firm declared a dividend of $147.34, $148.45 and $153.09 per share on outstanding Series I preferred stock on June 15, 2018,
September 14, 2018 and December 14, 2018, respectively.

Each series of preferred stock has a liquidation value andredemption price per share of $10,000, plus accrued but
unpaid dividends.
On January 24, 2019, the Firm issued $1.85 billion of
6.00% non-cumulative preferred stock, Series EE, and on
January 30, 2019, the Firm announced that it will redeem
all $925 million of its outstanding 6.70% non-cumulative
preferred stock, Series T, on March 1, 2019. On September
21, 2018, the Firm issued $1.7 billion of 5.75% noncumulative preferred stock, Series DD. On October 30,
2018, the Firm redeemed $1.7 billion of its fixed-to-floating
rate non-cumulative perpetual preferred stock, Series I.

2017, the Firm redeemed all $1.3 billion of its outstanding
5.50% non-cumulative preferred stock, Series O. Quarterly
dividend per share for Series O was $137.50 for the years
ended December 31, 2017 and 2016.
Redemption rights
Each series of the Firm’s preferred stock may be redeemedon any dividend payment date on or after the earliest
redemption date for that series. All outstanding preferredstock series except Series I may also be redeemed following
a “capital treatment event,” as described in the terms ofeach series. Any redemption of the Firm’s preferred stock issubject to non-objection from the Board of Governors of theFederal Reserve System (the “Federal Reserve”).

On October 20, 2017, the Firm issued $1.3 billion of fixedto-floating rate non-cumulative preferred stock, Series CC,
with an initial dividend rate of 4.625%. On December 1,
JPMorgan Chase & Co./2018 Form 10-K

259

Notes to consolidated financial statements
Note 21 – Common stock
At December 31, 2018 and 2017, JPMorgan Chase wasauthorized to issue 9.0 billion shares of common stock witha par value of $1 per share.
Common shares issued (newly issued or reissuance fromtreasury) by JPMorgan Chase during the years ended
December 31, 2018, 2017 and 2016 were as follows.
Year ended December 31,(in millions)

2018

2017

2016

Total issued – balance atJanuary 1

4,104.9

4,104.9

4,104.9

Treasury – balance at January 1
Repurchase
Reissuance:
Employee benefits andcompensation plans
Warrant exercise(679.6)(181.5)(543.7)(166.6)(441.4)(140.4)

21.7

24.5

26.0

9.4

5.4

11.1

Employee stock purchase plans
Total reissuanceTotal treasury – balance at
December 31
Outstanding at December 31

0.9
32.0

0.8
30.7

1.0
38.1

(829.1)(679.6)(543.7)3,275.8

3,425.3

3,561.2

There were no warrants to purchase shares of common
stock (“Warrants”) outstanding at December 31, 2018, as
any Warrants that were not exercised on or before October
29, 2018, have expired. At December 31, 2017, and 2016,
respectively, the Firm had 15.0 million and 24.9 million
Warrants outstanding.
On June 28, 2018, in conjunction with the Federal Reserve’s
release of its 2018 CCAR results, the Firm’s Board of
Directors authorized a $20.7 billion common equity
repurchase program. As of December 31, 2018, $10.4
billion of authorized repurchase capacity remained under
the program. This authorization includes shares
repurchased to offset issuances under the Firm’s sharebased compensation plans.

260

The following table sets forth the Firm’s repurchases ofcommon equity for the years ended December 31, 2018,2017 and 2016. There were no Warrants repurchased
during the years ended December 31, 2018, 2017 and2016.
Year ended December 31, (in millions)

2018

2017

2016

Total number of shares of common stock
repurchased

181.5

166.6

140.4

Aggregate purchase price of common
stock repurchases$19,983$15,410$ 9,082

The Firm from time to time enters into written trading plans
under Rule 10b5-1 of the Securities Exchange Act of 1934
to facilitate repurchases in accordance with the common
equity repurchase program. A Rule 10b5-1 repurchase plan
allows the Firm to repurchase its equity during periods
when it would not otherwise be repurchasing common
equity — for example, during internal trading “blackout
periods.” All purchases under a Rule 10b5-1 plan must be
made according to a predefined plan established when the
Firm is not aware of material nonpublic information. For
additional information regarding repurchases of the Firm’s
equity securities, refer to Part II, Item 5: Market forregistrant’s common equity, related stockholder mattersand issuer purchases of equity securities, on page 30.
As of December 31, 2018, approximately 85 million sharesof common stock were reserved for issuance under various
employee incentive, compensation, option and stock
purchase plans, and directors’ compensation plans.

JPMorgan Chase & Co./2018 Form 10-K

Note 22 – Earnings per share
Basic earnings per share (“EPS”) is calculated using thetwo-class method. Dilutive EPS is calculated under both thetwo-class and treasury stock methods, and the more
dilutive amount is reported. Under the two-class method, allearnings (distributed and undistributed) are allocated toeach class of common stock and participating securities
based on their respective rights to receive dividends.
JPMorgan Chase grants RSUs under its share-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. Accordingly, these RSUs are treatedas a separate class of securities in computing basic EPS, andare not included as incremental shares in computing
dilutive EPS; refer to Note 9 for additional information. For
each of the periods presented diluted EPS calculated under
the two-class method was more dilutive.
The following table presents the calculation of basic anddiluted EPS for the years ended December 31, 2018, 2017and 2016.
Year ended December 31,(in millions,
except per share amounts)

2018

2017

2016

Basic earnings per share
Net income$ 32,474 $ 24,441 $ 24,733

Less: Preferred stock dividends

1,551

1,663

1,647

Net income applicable to common
equity30,923

22,77823,086

Less: Dividends and undistributed
earnings allocated to participating
securities
Net income applicable to common
stockholders

214

211

252

$ 30,709 $ 22,567 $ 22,834

Total weighted-average basic
shares outstanding
Net income per share

3,396.4$

9.04 $

3,551.6
6.35 $

3,658.8
6.24

Diluted earnings per share
Net income applicable to common
stockholders$ 30,709 $ 22,567 $ 22,834

Total weighted-average basic shares
outstanding

3,396.4

3,551.6

3,658.8

Add: Employee stock options, SARs,
warrants and unvested PSUs

17.6

25.2

31.2

3,414.0

3,576.8

3,690.0

Total weighted-average diluted
shares outstanding
Net income per share$

JPMorgan Chase & Co./2018 Form 10-K

9.00 $

6.31 $

6.19

261

Notes to consolidated financial statements
Note 23 – Accumulated other comprehensive income/(loss)
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation
adjustments (including the impact of related derivatives), fair value changes of excluded components on fair value hedges, cash
flow hedging activities, and net loss and prior service costs/(credit) related to the Firm’s defined benefit pension and OPEB plans.
Year ended
December 31,(in millions)

Unrealized
gains/(losses)
on investment
securities

Translation
adjustments,
net of hedges

Balance at
December 31,
2015$ 2,629$

Cumulative effect ofchange inaccounting
principle(a)Net change
Balance at
December 31,
2016
Net change
Balance at
December 31,
2017

Fair value
hedges(c)Cash flow
hedges

NA

—

—

NA

—

—

154

154

(1,105)

(2)

NA

(56)

(28)

(330)

(1,521)

(164)

NA

(306)

NA

$

640
$ 2,164

$

(470)

$

—

$

(44)

(100)

$

$

176
$

76

(2,231)(2,259)

$

$

738
$

(1,521)—

Accumulated
othercomprehensive
income/(loss)(162)$ 1,524$

Defined benefit pension
and OPEB plans

DVA on fair value
option electedliabilities

(176)

$

$

(192)
$

(368)

192

(1,175)
1,056

$

(119)

Cumulative effect ofchanges inaccounting
principles:(b)Premiumamortization onpurchasedcallable debt
securities
Hedge accounting
Reclassification ofcertain tax
effects fromAOCI
Net change
Balance at
December 31,
2018

261

—

—

—

—

—

261

169

—

(54)

—

—

—

115

466

(277)

—

16

(414)

(79)

(288)

(1,858)

20

(107)

(201)

(373)

1,043

(1,476)$ 1,202

$

(727)

$

(161)

$

(109)

$

(2,308)$596$(1,507)(a) Effective January 1, 2016, the Firm adopted new accounting guidance related to the recognition and measurement of financial liabilities where the fairvalue option has been elected. This guidance requires the portion of the total change in fair value caused by changes in the Firm’s own credit risk (DVA) tobe presented separately in OCI; previously these amounts were recognized in net income.
(b) Represents the adjustment to AOCI as a result of the new accounting standards adopted in the first quarter of 2018. For additional information, refer toNote 1.
(c) Represents changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads, which are excluded from the assessmentof hedge effectiveness and recorded in other comprehensive income. The initial cost of cross-currency basis spreads is recognized in earnings as part of
the accrual of interest on the cross currency swap.

262

JPMorgan Chase & Co./2018 Form 10-K

The following table presents the pre-tax and after-tax changes in the components of OCI.

Year ended December 31, (in millions)Pre-tax

2018

2017

Tax
effectTaxeffectAfter-tax

Pre-tax

2016
After-tax

Pre-taxTax
effectAfter-tax

Unrealized gains/(losses) on investment securities:
Net unrealized gains/(losses) arising during the period$ (2,825) $Reclassification adjustment for realized (gains)/losses
included in net income(a)Net change665$ (2,160) $944$(346) $598

$ (1,628) $611$ (1,017)

395

(93)

302

66

(24)

42

(141)

53

(88)

(2,430)572(1,858)

1,010

(370)

640

(1,769)664(1,105)

Translation adjustments(b):Translation(1,078)

156

(922)

1,313

(801)

512

(261)

99

(162)

Hedges

1,236

(294)

942

(1,294)

476

(818)

262

(102)

160

158

(138)

20

19

(325)

(306)

1

(3)

(2)

(140)

33

(107)

NA

NA

NA

NA

NA

NA

(245)

58

(187)

147

(55)

92

(450)

168

(282)

Net change
Fair value hedges, net change(c):Cash flow hedges:
Net unrealized gains/(losses) arising during the period
Reclassification adjustment for realized (gains)/losses
included in net income(d)

(18)

4

(14)

134

(50)

84

360

(134)

226

(263)

62

(201)

281

(105)

176

(90)

34

(56)

Prior service credit/(cost) arising during the period

(29)

7

(22)

—

—

—

—

—

—

Net gain/(loss) arising during the period

(558)

102

(456)

802

(160)

642

(366)

145

(221)

Amortization of net loss

103

(24)

79

250

(90)

160

257

(97)

160

Amortization of prior service cost/(credit)

(23)

6

(17)

(36)

13

(23)

(36)

14

(22)

Curtailment (gain)/loss

21

(5)

16

—

—

—

—

—

—

Settlement (gain)/loss

2

—

2

2

(1)

1

4

(1)

3

Foreign exchange and other

34

(9)

25

(54)

12

(42)

77

(25)

52

77

(373)

964

(226)

(303) $

111

Net change
Defined benefit pension and OPEB plans:

Reclassification adjustments included in net income(e):Net change(450)

DVA on fair value option elected liabilities, net change: $ 1,364
Total other comprehensive income/(loss)$$ (1,761) $(321) $ 1,043
285$$ (1,476) $ 1,971

$

$

738

(64)

36

(192) $

(529) $

199$

$ (2,451) $930$ (1,521)(915) $ 1,056

(28)
(330)

(a) The pre-tax amount is reported in investment securities gains/(losses) in the Consolidated statements of income.
(b) Reclassifications of pre-tax realized gains/(losses) on translation adjustments and related hedges are reported in other income/expense in theConsolidated statements of income. During the year ended December 31, 2018, the Firm reclassified a net pre-tax loss of $168 million to other expense
related to the liquidation of certain legal entities, $17 million related to net investment hedge losses and $151 million related to cumulative translation
adjustments. During the year ended December 31, 2017, the Firm reclassified a net pre-tax loss of $25 million to other expense related to the liquidationof a legal entity, $50 million related to net investment hedge gains and $75 million related to cumulative translation adjustments.
(c) Represents changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads, which are excluded from the assessmentof hedge effectiveness and recorded in other comprehensive income. The initial cost of cross-currency basis spreads is recognized in earnings as part of
the accrual of interest on the cross-currency swap.
(d) The pre-tax amounts are predominantly recorded in noninterest revenue, net interest income and compensation expense in the Consolidated statements
of income.
(e) The pre-tax amount is reported in other expense in the Consolidated statements of income.

JPMorgan Chase & Co./2018 Form 10-K

263

Notes to consolidated financial statements
Note 24 – Income taxes
JPMorgan Chase and its eligible subsidiaries file a
consolidated U.S. federal income tax return. JPMorgan
Chase uses the asset and liability method to provide income
taxes on all transactions recorded in the Consolidated
Financial Statements. This method requires that income
taxes reflect the expected future tax consequences of
temporary differences between the carrying amounts ofassets or liabilities for book and tax purposes. Accordingly,
a deferred tax asset or liability for each temporary
difference is determined based on the tax rates that the
Firm expects to be in effect when the underlying items ofincome and expense are realized. JPMorgan Chase’s
expense for income taxes includes the current and deferred
portions of that expense. A valuation allowance isestablished to reduce deferred tax assets to the amount the
Firm expects to realize.
Due to the inherent complexities arising from the nature of
the Firm’s businesses, and from conducting business andbeing taxed in a substantial number of jurisdictions,significant judgments and estimates are required to be
made. Agreement of tax liabilities between JPMorgan Chaseand the many tax jurisdictions in which the Firm files tax
returns may not be finalized for several years. Thus, theFirm’s final tax-related assets and liabilities may ultimately
be different from those currently reported.
Effective tax rate and expense
A reconciliation of the applicable statutory U.S. federal
income tax rate to the effective tax rate for each of theyears ended December 31, 2018, 2017 and 2016, ispresented in the following table.
Effective tax rate
Year ended December 31,

2018

2017

2016

Statutory U.S. federal tax rate

21.0%

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

4.0

2.2

2.4

Tax-exempt income

(1.5)

(3.3)

(3.1)

Non-U.S. subsidiary earnings

0.6

(3.1)

Business tax credits

(3.5)

(4.2)

Impact of the TCJA

(0.7)

5.4

—

Other, net

0.4

(0.1)

(0.3)

Effective tax rate

20.3%

31.9%

28.4%

(a)

(1.7)

(a)

Impact of the TCJA
2018
The Firm’s effective tax rate decreased in 2018 due to the
TCJA, including the reduction in the U.S. federal statutory
income tax rate as well as a $302 million net tax benefit
recorded in 2018 resulting from changes in the estimates
related to the remeasurement of certain deferred taxes andthe deemed repatriation tax on non-U.S. earnings. Thechange in estimate was recorded under SEC Staff
Accounting Bulletin No. 118 (“SAB 118”) and theaccounting under SAB 118 is complete.
2017
The Firm’s effective tax rate increased in 2017 driven by a
$1.9 billion income tax expense representing the estimatedimpact of the enactment of the TCJA. The $1.9 billion tax
expense was predominantly driven by a deemed
repatriation of the Firm’s unremitted non-U.S. earnings andadjustments to the value of certain tax-oriented
investments partially offset by a benefit from therevaluation of the Firm’s net deferred tax liability.
The deemed repatriation of the Firm’s unremitted non-U.S.
earnings is based on the post-1986 earnings and profits ofeach controlled foreign corporation. The calculation
resulted in an estimated income tax expense of $3.7 billion.
Furthermore, accounting for income taxes requires theremeasurement of certain deferred tax assets and liabilities
based on the rates at which they are expected to reverse in
the future. The Firm remeasured its deferred tax asset andliability balances in the fourth quarter of 2017 to the new
statutory U.S. federal income tax rate of 21% as well as any
federal benefit associated with state and local deferredincome taxes. The remeasurement resulted in an estimatedincome tax benefit of $2.1 billion.
Adjustments were also recorded in 2017 to income tax
expense for certain tax-oriented investments. These
adjustments were driven by changes to affordable housing
proportional amortization resulting from the reduction of
the federal income tax rate under the TCJA. SAB 118 did not
apply to these adjustments.

(3.9)(a) Predominantly includes earnings of U.K. subsidiaries that were deemed
to be reinvested indefinitely through December 31, 2017.

264

JPMorgan Chase & Co./2018 Form 10-K

The components of income tax expense/(benefit) includedin the Consolidated statements of income were as follows
for each of the years ended December 31, 2018, 2017, and2016.
Income tax expense/(benefit)
Year ended December 31,(in millions)

2018

2017

2016

U.S. federal$ 2,854$ 5,718$ 2,488

Non-U.S.

2,077

2,400

1,760

U.S. state and local

1,638

1,029

904

Total current income tax expense/(benefit)

6,569

9,147

5,152

U.S. federal

1,359

2,174

4,364

Non-U.S.

(93)

(144)

(73)

U.S. state and local

455

282

360

Current income tax expense/(benefit)

Deferred income tax expense/(benefit)

Total deferred income tax
expense/(benefit)

1,721

2,312

4,651

Total income tax expense$ 8,290$ 11,459$ 9,803

Total income tax expense includes $54 million, $252
million and $55 million of tax benefits recorded in 2018,2017, and 2016, respectively, as a result of tax audit
resolutions.
Tax effect of items recorded in stockholders’ equity
The preceding table does not reflect the tax effect of certain
items that are recorded each period directly instockholders’ equity. The tax effect of all items recorded
directly to stockholders’ equity resulted in an increase of$172 million in 2018, a decrease of $915 million in 2017,and an increase of $925 million in 2016.

Prior to December 31, 2017, U.S. federal income taxes had
not been provided on the undistributed earnings of certain
non-U.S. subsidiaries, to the extent that such earnings had
been reinvested abroad for an indefinite period of time. The
Firm is no longer maintaining the indefinite reinvestment
assertion on the undistributed earnings of those non-U.S.
subsidiaries in light of the enactment of the TCJA. The U.S.
federal and state and local income taxes associated with theundistributed and previously untaxed earnings of those
non-U.S. subsidiaries was included in the deemed
repatriation charge recorded as of December 31, 2017.
Affordable housing tax credits
The Firm recognized $1.5 billion, $1.7 billion and $1.7
billion of tax credits and other tax benefits associated withinvestments in affordable housing projects within income
tax expense for the years 2018, 2017 and 2016,
respectively. The amount of amortization of suchinvestments reported in income tax expense was $1.2
billion, $1.7 billion and $1.2 billion, respectively. The
carrying value of these investments, which are reported inother assets on the Firm’s Consolidated balance sheets, was$7.9 billion and $7.8 billion at December 31, 2018 and2017, respectively. The amount of commitments related tothese investments, which are reported in accounts payable
and other liabilities on the Firm’s Consolidated balance
sheets, was $2.3 billion and $2.4 billion at December 31,
2018 and 2017, respectively.

Results from Non-U.S. earnings
The following table presents the U.S. and non-U.S.
components of income before income tax expense for theyears ended December 31, 2018, 2017 and 2016.
Year ended December 31,(in millions)
U.S.

2018

2017

2016

$ 33,052$ 27,103$ 26,651

Non-U.S.(a)Income before income tax expense

7,712

8,797

7,885

$ 40,764$ 35,900$ 34,536(a) For purposes of this table, non-U.S. income is defined as income
generated from operations located outside the U.S.

JPMorgan Chase & Co./2018 Form 10-K

265Notes to consolidated financial statements
Deferred taxes
Deferred income tax expense/(benefit) results fromdifferences between assets and liabilities measured forfinancial reporting purposes versus income tax return
purposes. Deferred tax assets are recognized if, inmanagement’s judgment, their realizability is determined tobe more likely than not. If a deferred tax asset isdetermined to be unrealizable, a valuation allowance isestablished. The significant components of deferred tax
assets and liabilities are reflected in the following table asof December 31, 2018 and 2017.
December 31, (in millions)

2018

2017

Deferred tax assets
Allowance for loan losses

$

3,433

$

3,395

Employee benefits

1,129

688

Accrued expenses and other

2,701

3,528

Non-U.S. operations

629

327

Tax attribute carryforwards

163

219

Gross deferred tax assets

8,055

8,157

(89)

(46)

Valuation allowance
Deferred tax assets, net of valuation
allowance

$

7,966

$

8,111

$

2,533

$

2,299

Deferred tax liabilities
Depreciation and amortization
Mortgage servicing rights, net ofhedges
Leasing transactions
Non-U.S. operations

2,586

2,757

4,719

3,483

—

200

Other, net

3,713

3,502

Gross deferred tax liabilities

13,551

12,241(5,585) $(4,130)Net deferred tax (liabilities)/assets$

JPMorgan Chase has recorded deferred tax assets of $163
million at December 31, 2018, in connection with U.S.
federal and non-U.S. net operating loss (“NOL”)
carryforwards and state and local capital loss
carryforwards. At December 31, 2018, total U.S. federal
NOL carryforwards were approximately $423 million, nonU.S. NOL carryforwards were approximately $120 million
and state and local capital loss carryforwards were $1.3
billion. If not utilized, the U.S. federal NOL carryforwards
will expire between 2022 and 2036 and the state and local
capital loss carryforwards will expire between 2020 and
2022. Certain non-U.S. NOL carryforwards will expire
between 2028 and 2034 whereas others have an unlimited
carryforward period.
The valuation allowance at December 31, 2018, was due tothe state and local capital loss carryforwards and certain
non-U.S. deferred tax assets, including NOL carryforwards.

266

Unrecognized tax benefits
At December 31, 2018, 2017 and 2016, JPMorgan Chase’s
unrecognized tax benefits, excluding related interest
expense and penalties, were $4.9 billion, $4.7 billion and$3.5 billion, respectively, of which $3.8 billion, $3.5 billion
and $2.6 billion, respectively, if recognized, would reduce
the annual effective tax rate. Included in the amount of
unrecognized tax benefits are certain items that would notaffect the effective tax rate if they were recognized in theConsolidated statements of income. These unrecognizeditems include the tax effect of certain temporary
differences, the portion of gross state and local
unrecognized tax benefits that would be offset by thebenefit from associated U.S. federal income tax deductions,and the portion of gross non-U.S. unrecognized tax benefits
that would have offsets in other jurisdictions. JPMorgan
Chase is presently under audit by a number of taxing
authorities, most notably by the Internal Revenue Service assummarized in the Tax examination status table below. As
JPMorgan Chase is presently under audit by a number oftaxing authorities, it is reasonably possible that over the
next 12 months the resolution of these examinations may
increase or decrease the gross balance of unrecognized tax
benefits by as much as $0.9 billion. Upon settlement of anaudit, the change in the unrecognized tax benefit would
result from payment or income statement recognition.
The following table presents a reconciliation of the
beginning and ending amount of unrecognized tax benefits
for the years ended December 31, 2018, 2017 and 2016.
Year ended December 31,(in millions)

2018

2017

2016

$ 4,747$ 3,450$ 3,497

Increases based on tax positions
related to the current period

980

1,355

262

Increases based on tax positions
related to prior periods

649

626

583

Decreases based on tax positions
related to prior periods(1,249)

(350)

(785)

Decreases related to cash
settlements with taxing authorities

(266)

(334)

(56)

Balance at January 1,

Decreases related to a lapse of
applicable statute of limitations
Balance at December 31,

—

—

(51)

$ 4,861$ 4,747$ 3,450After-tax interest expense/(benefit) and penalties related toincome tax liabilities recognized in income tax expense were$192 million, $102 million and $86 million in 2018, 2017and 2016, respectively.
At December 31, 2018 and 2017, in addition to the liability
for unrecognized tax benefits, the Firm had accrued $887
million and $639 million, respectively, for income taxrelated interest and penalties.

JPMorgan Chase & Co./2018 Form 10-K

Tax examination status
JPMorgan Chase is continually under examination by theInternal Revenue Service, by taxing authorities throughout
the world, and by many state and local jurisdictions
throughout the U.S. The following table summarizes thestatus of significant income tax examinations of JPMorgan
Chase and its consolidated subsidiaries as of December 31,
2018.
December 31, 2018

Periods under
examination

Status

JPMorgan Chase – U.S.

2006 – 2010

Field examination ofamended returns

JPMorgan Chase – U.S.

2011 – 2013

Field Examination

JPMorgan Chase – U.S.

2014 - 2016

Field Examination

JPMorgan Chase – NewYork State2012 - 2014

Field Examination

JPMorgan Chase – NewYork City

2012 - 2014

Field Examination

JPMorgan Chase –California

2011 – 2012

Field Examination

JPMorgan Chase – U.K.

2006 – 2016

Field examination ofcertain select entities

JPMorgan Chase & Co./2018 Form 10-K

267

Notes to consolidated financial statements
Note 25 – Restricted cash, other restrictedassets and intercompany funds transfers
Restricted cash and other restricted assets
Certain of the Firm’s cash and other assets are restricted as
to withdrawal or usage. These restrictions are imposed byvarious regulatory authorities based on the particular
activities of the Firm’s subsidiaries.
The business of JPMorgan Chase Bank, N.A. is subject toexamination and regulation by the OCC. The Bank is amember of the U.S. Federal Reserve System, and its
deposits in the U.S. are insured by the FDIC, subject toapplicable limits.
The Federal Reserve requires depository institutions tomaintain cash reserves with a Federal Reserve Bank. The
average required amount of reserve balances is depositedby the Firm’s bank subsidiaries. In addition, the Firm isrequired to maintain cash reserves at certain non-US
central banks.
The Firm is also subject to rules and regulations establishedby other U.S. and non U.S. regulators. As part of its
compliance with the respective regulatory requirements,
the Firm’s broker-dealers (principally J.P. Morgan Securities
LLC in the U.S and J.P. Morgan Securities plc in the U.K.) are
subject to certain restrictions on cash and other assets.
Upon the adoption of the restricted cash guidance in thefirst quarter of 2018, restricted and unrestricted cash arereported together on the Consolidated balance sheets andConsolidated statements of cash flows. The following table
presents the components of the Firm’s restricted cash:
December 31, (in billions)
Cash reserves – Federal Reserve
Banks

2018
22.1 $

25.7

Segregated for the benefit of
securities and futures brokeragecustomers

14.6

16.8

Cash reserves at non-U.S. central
banks and held for other general
purposes

4.1

3.3

40.8 $

45.8

Total restricted cash

(a)

$

2017

$

(a) Comprises $39.6 billion and $44.8 billion in deposits with banks, and$1.2 billion and $1.0 billion in cash and due from banks on theConsolidated balance sheets as of December 31, 2018 and 2017,
respectively.

Also, as of December 31, 2018 and 2017, the Firm had thefollowing other restricted assets:• Cash and securities pledged with clearing organizations
for the benefit of customers of $20.6 billion and $18.0
billion, respectively.

Intercompany funds transfers
Restrictions imposed by U.S. federal law prohibit JPMorgan
Chase & Co. (“Parent Company”) and certain of its affiliatesfrom borrowing from banking subsidiaries unless the loans
are secured in specified amounts. Such secured loans
provided by any banking subsidiary to the Parent Company
or to any particular affiliate, together with certain othertransactions with such affiliate (collectively referred to as“covered transactions”), are generally limited to 10% of thebanking subsidiary’s total capital, as determined by the riskbased capital guidelines; the aggregate amount of covered
transactions between any banking subsidiary and all of its
affiliates is limited to 20% of the banking subsidiary’s total
capital.
The Parent Company’s two principal subsidiaries are
JPMorgan Chase Bank, N.A. and JPMorgan Chase Holdings
LLC, an intermediate holding company (the “IHC”). The IHC
holds the stock of substantially all of JPMorgan Chase’s
subsidiaries other than JPMorgan Chase Bank, N.A. and its
subsidiaries. The IHC also owns other assets andintercompany indebtedness owing to the holding company.
The Parent Company is obligated to contribute to the IHC
substantially all the net proceeds received from securities
issuances (including issuances of senior and subordinateddebt securities and of preferred and common stock).
The principal sources of income and funding for the Parent
Company are dividends from JPMorgan Chase Bank, N.A.
and dividends and extensions of credit from the IHC. In
addition to dividend restrictions set forth in statutes andregulations, the Federal Reserve, the OCC and the FDIC haveauthority under the Financial Institutions Supervisory Act toprohibit or to limit the payment of dividends by the banking
organizations they supervise, including the Parent Company
and its subsidiaries that are banks or bank holding
companies, if, in the banking regulator’s opinion, paymentof a dividend would constitute an unsafe or unsoundpractice in light of the financial condition of the banking
organization. The IHC is prohibited from paying dividends orextending credit to the Parent Company if certain capital or
liquidity “thresholds” are breached or if limits are otherwise
imposed by the Parent Company’s management or Board of
Directors.
At January 1, 2019, the Parent Company’s banking
subsidiaries could pay, in the aggregate, approximately $10
billion in dividends to their respective bank holding
companies without the prior approval of their relevantbanking regulators. The capacity to pay dividends in 2019will be supplemented by the banking subsidiaries’ earnings
during the year.

• Securities with a fair value of $9.7 billion and $3.5
billion, respectively, were also restricted in relation tocustomer activity.

268

JPMorgan Chase & Co./2018 Form 10-K

Note 26 – Regulatory capital
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
minimum capital requirements and standards for the Firm’s
IDI, including JPMorgan Chase Bank, N.A. andChase Bank USA, N.A.

The following table presents the minimum and wellcapitalized ratios to which the Firm and its IDI subsidiaries
were subject as of December 31, 2018.

Capital rules under Basel III establish minimum capitalratios and overall capital adequacy standards for large andinternationally active U.S. bank holding companies andbanks, including the Firm and its IDI subsidiaries. Basel III
set forth two comprehensive approaches for calculating
RWA: a standardized approach (“Basel III Standardized”)
and an advanced approach (“Basel III Advanced”). Certainof the requirements of Basel III were subject to phase-in
periods that began on January 1, 2014 and continued
through the end of 2018 (“transitional period”).

Capital ratios

The three components of regulatory capital under the BaselIII rules are as illustrated below:

Minimum capital ratios

Well-capitalized ratios

BHC(a)(e)(f)BHC(c)

IDI(b)(e)(f)IDI(d)

CET1

9.0%

6.375%

Tier 1

10.5

7.875

6.0

—%

6.5%
8.0

Total

12.5

9.875

10.0

10.0

Tier 1 leverage

4.0

4.00

5.0

5.0

SLR

5.0

6.00

—

6.0

Note: The table above is as defined by the regulations issued by the Federal
Reserve, OCC and FDIC and to which the Firm and its IDI subsidiaries are
subject.
(a) Represents the Transitional minimum capital ratios applicable to theFirm under Basel III at December 31, 2018. At December 31, 2018,
the CET1 minimum capital ratio includes 1.875% resulting from thephase in of the Firm’s 2.5% capital conservation buffer, and 2.625%
resulting from the phase in of the Firm’s 3.5% GSIB surcharge.
(b) Represents requirements for JPMorgan Chase’s IDI subsidiaries. The
CET1 minimum capital ratio includes 1.875% resulting from the phasein of the 2.5% capital conservation buffer that is applicable to the IDI
subsidiaries. The IDI subsidiaries are not subject to the GSIB surcharge.
(c) Represents requirements for bank holding companies pursuant toregulations issued by the Federal Reserve.
(d) Represents requirements for IDI subsidiaries pursuant to regulations
issued under the FDIC Improvement Act.
(e) For the period ended December 31, 2017 the CET1, Tier 1, Total andTier 1 leverage minimum capital ratios applicable to the Firm were7.5%, 9.0%, 11.0% and 4.0% and the CET1, Tier 1, Total and Tier 1
leverage minimum capital ratios applicable to the Firm’s IDI
subsidiaries were 5.75%, 7.25%, 9.25% and 4.0% respectively.
(f) Represents minimum SLR requirement of 3.0%, as well as,
supplementary leverage buffers of 2.0% and 3.0% for BHC and IDI,
respectively.

Under the risk-based and leverage-based capital guidelinesof the Federal Reserve, JPMorgan Chase is required tomaintain minimum ratios for CET1, Tier 1, Total, Tier 1
leverage and the SLR. Failure to meet these minimum
requirements could cause the Federal Reserve to takeaction. IDI subsidiaries are also subject to these capitalrequirements by their respective primary regulators.

JPMorgan Chase & Co./2018 Form 10-K

269

Notes to consolidated financial statements
The following tables present the risk-based and leverage-based capital metrics for JPMorgan Chase and its significant IDI
subsidiaries under both the Basel III Standardized and Basel III Advanced Approaches. As of December 31, 2018 and 2017,
JPMorgan Chase and all of its IDI subsidiaries were well-capitalized and met all capital requirements to which each was subject.
Basel III Standardized Transitional
December 31, 2018
(in millions, except ratios)

JPMorgan
Chase & Co.

JPMorgan
Chase Bank, N.A.

Basel III Advanced Transitional

Chase Bank
USA, N.A.

JPMorgan
Chase & Co.

JPMorgan
Chase Bank, N.A.

Chase Bank
USA, N.A.

Regulatory capital
CET1 capital$

183,474$

187,259$

23,696$

183,474$

187,259$

23,696Tier 1 capital

209,093

187,259

23,696

209,093

187,259

23,696

Total capital

237,511

198,494

28,628227,435

192,250

27,196

Risk-weighted

1,528,916

1,348,230

112,513

1,421,205

1,205,539

174,469

Adjusted average(a)2,589,887

2,189,293

118,0362,589,887

2,189,293

118,036

AssetsCapital ratios(b)
CET1

12.0%

13.9%

21.1%

12.9%

15.5%

13.6%

Tier 1

13.7

13.9

21.1

14.7

15.5

13.6

Total

15.5

14.7

25.4

16.0

15.9

15.6

Tier 1 leverage(c)

8.1

8.6

20.1

8.1

8.6

20.1

Basel III Standardized Transitional
December 31, 2017
(in millions, except ratios)

JPMorgan
Chase & Co.

JPMorgan
Chase Bank, N.A.

Basel III Advanced Transitional

Chase Bank
USA, N.A.

JPMorgan
Chase & Co.

JPMorgan
Chase Bank, N.A.

Chase Bank
USA, N.A.

Regulatory capital
CET1 capital$

183,300$

184,375$

21,600$183,300$

184,375$

21,600Tier 1 capital

208,644

184,375

21,600208,644

184,375

Total capital

238,395

195,839

27,691

227,933

189,510(d)

21,60026,250Risk-weighted

1,499,506

1,338,970

113,108

1,435,825

1,241,916(d)

190,523

Adjusted average(a)2,514,270

2,116,031

126,5172,514,270

2,116,031

Assets(d)126,517

Capital ratios(b)
CET1

12.2%

13.8%

19.1%

12.8%

14.8% (d)11.3%

Tier 1

13.9

13.8

19.1

14.5

14.8

(d)

11.3

Total

15.9

14.6

24.5

15.9

15.3

(d)

13.8

Tier 1 leverage(c)

8.3

8.7

17.1

8.3

8.7

(d)

17.1

(a) Adjusted average assets, for purposes of calculating the Tier 1 leverage ratio, includes total quarterly average assets adjusted for on-balance sheet assetsthat are subject to deduction from Tier 1 capital, predominantly goodwill and other intangible assets.
(b) For each of the risk-based capital ratios, the capital adequacy of the Firm and its IDI subsidiaries is evaluated against the lower of the two ratios ascalculated under Basel III approaches (Standardized or Advanced).
(c) The Tier 1 leverage ratio is not a risk-based measure of capital.
(d) The prior period amounts have been revised to conform with the current period presentation.

(in millions, except ratios)
Total leverage exposure(a)SLR(a)

December 31, 2018

December 31, 2017

Basel III Advanced Fully Phased-In

Basel III Advanced Transitional

JPMorgan
Chase & Co.
3,269,988
6.4%

JPMorgan
Chase Bank, N.A.
$

2,813,396
6.7%

Chase Bank
USA, N.A.
$

177,328
13.4%

JPMorgan
Chase & Co.
$

JPMorgan
Chase Bank, N.A.

3,204,463$

6.5%

2,775,041
6.6%

Chase Bank
USA, N.A.
$

182,803
11.8%(a) Effective January 1, 2018, the SLR was fully phased-in under Basel III. The December 31, 2017 amounts were calculated under the Basel III Transitionalrules.

270

JPMorgan Chase & Co./2018 Form 10-K

Note 27 – Off–balance sheet lending-related
financial instruments, guarantees, andother commitments
JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to address
the financing needs of its customers and clients. The
contractual amount of these financial instruments
represents the maximum possible credit risk to the Firmshould the customer or client draw upon the commitment
or the Firm be required to fulfill its obligation under theguarantee, and should the customer or client subsequently
fail to perform according to the terms of the contract. Mostof these commitments and guarantees are refinanced,
extended, cancelled, or expire without being drawn or adefault occurring. As a result, the total contractual amountof these instruments is not, in the Firm’s view,
representative of its expected future credit exposure or
funding requirements.

JPMorgan Chase & Co./2018 Form 10-K

To provide for probable credit losses inherent in wholesaleand certain consumer lending-commitments, an allowancefor credit losses on lending-related commitments ismaintained. Refer to Note 13 for further information
regarding the allowance for credit losses on lending-related
commitments. The following table summarizes thecontractual amounts and carrying values of off-balance
sheet lending-related financial instruments, guarantees andother commitments at December 31, 2018 and 2017. The
amounts in the table below for credit card and home equity
lending-related commitments represent the total available
credit for these products. The Firm has not experienced,
and does not anticipate, that all available lines of credit forthese products will be utilized at the same time. The Firm
can reduce or cancel credit card lines of credit by providing
the borrower notice or, in some cases as permitted by law,
without notice. In addition, the Firm typically closes credit
card lines when the borrower is 60 days or more past due.
The Firm may reduce or close HELOCs when there are
significant decreases in the value of the underlying
property, or when there has been a demonstrable decline in
the creditworthiness of the borrower.

271

Notes to consolidated financial statements
Off–balance sheet lending-related financial instruments, guarantees and other commitments

By remaining maturity at December 31,(in millions)Lending-related
Consumer, excluding credit card:
Home equity
Residential mortgage(a)AutoConsumer & Business Banking
Total consumer, excluding credit card
Credit card
Total consumer(b)Wholesale:
Other unfunded commitments to extend credit(c)Standby letters of credit and other financial
guarantees(c)Other letters of credit(c)Total wholesale(d)Total lending-related
Other guarantees and commitments
Securities lending indemnification agreements andguarantees(e)Expires in
1 year or
less

$

796 $
5,469
6,954
10,58023,799605,379
629,178

Contractual amount
2018
Expires
after
Expires
3 years
after 5throughyears
5 years

Expiresafter
1 yearthrough
3 years

1,095 $
—
878
566
2,539
—
2,539

1,813 $ 17,197 $
—
12
78
101
102
425
1,993
17,735——
1,993
17,735

2017

Total

Carrying value(i)
2018
2017

Total

20,901
5,481
8,011
11,67346,066605,379
651,445$ 20,360
5,736
9,255
13,202
48,553572,831621,384

$

12 $
—
2
19
33
—
33

12
—
2
19
33
—
33

62,384

123,751

154,177

11,178351,490

331,160

852

840

14,408

11,462

5,248

2,380

521

636

33,49835,226

2,608
177
40
—
2,825
79,400135,390
159,465
13,558387,813$ 708,578 $ 137,929 $ 161,458 $ 31,293 $ 1,039,258

3,712
370,098$ 991,482

3
3
1,376
1,479
$ 1,409 $ 1,512$ 186,077 $$

186,077$ 179,490

Derivatives qualifying as guarantees
Unsettled resale and securities borrowed
agreements

2,099

299

— $

12,614— $40,259— $55,271

57,174

367

— $

304

—

102,008———

102,008

76,859——Unsettled repurchase and securities loaned
agreements

57,732———

57,732

44,205

—

—

NA
NA

NA
NA

NA
NA

NA
NA

NA
1,019

NA
1,169

89
30

111
38

Loan sale and securitization-related
indemnifications:
Mortgage repurchase liability
Loans sold with recourse
Exchange & clearing house guarantees andcommitments(f)(g)58,960———58,96013,871——Other guarantees and commitments (g)(h)

3,874

542

299

3,468

8,183

8,206

(73)

(76)

(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, 2018 and 2017, reflected the contractual amount net of risk participations totaling $282 million and $334 million, respectively, forother unfunded commitments to extend credit; $10.4 billion and $10.4 billion, respectively, for standby letters of credit and other financial guarantees;
and $385 million and $405 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown
gross of risk participations.
(d) Predominantly all wholesale lending-related commitments are in the U.S.
(e) At December 31, 2018 and 2017, collateral held by the Firm in support of securities lending indemnification agreements was $195.6 billion and $188.7
billion, respectively. Securities lending collateral primarily consists of cash and securities issued by governments that are members of G7 and U.S.
government agencies.
(f) At December 31, 2018, includes guarantees to the Fixed Income Clearing Corporation under the sponsored member repo program and commitments andguarantees associated with the Firm’s membership in certain clearing houses. At December 31, 2017 includes commitments and guarantees associatedwith the Firm’s membership in certain clearing houses.
(g) Certain guarantees and commitments associated with the Firm’s membership in clearing houses previously disclosed in “other guarantees andcommitments” are now disclosed in “Exchange and clearing house guarantees and commitments”. Prior period amounts have been revised to conformwith the current period presentation.
(h) At December 31, 2018 and 2017, primarily includes letters of credit hedged by derivative transactions and managed on a market risk basis, and unfunded
commitments related to institutional lending. Additionally, includes unfunded commitments predominantly related to certain tax-oriented equity
investments.
(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.

272

JPMorgan Chase & Co./2018 Form 10-K

Other unfunded commitments to extend credit
Other unfunded commitments to extend credit generally
consist of commitments for working capital and general
corporate purposes, extensions of credit to support
commercial paper facilities and bond financings in the eventthat those obligations cannot be remarketed to newinvestors, as well as committed liquidity facilities to clearingorganizations. The Firm also issues commitments undermultipurpose facilities which could be drawn upon inseveral forms, including the issuance of a standby letter ofcredit.
The Firm acts as a settlement and custody bank in the U.S.
tri-party repurchase transaction market. In its role assettlement and custody bank, the Firm in part is exposed tothe intra-day credit risk of its cash borrower clients, usuallybroker-dealers. This exposure arises under secured
clearance advance facilities that the Firm extended to its
clients (i.e. cash borrowers); these facilities contractuallylimit the Firm’s intra-day credit risk to the facility amountand must be repaid by the end of the day. As of
December 31, 2017, the secured clearance advance facility
maximum outstanding commitment amount was $1.5
billion. As of December 31, 2018 the Firm no longer offers
such arrangements to its clients.
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 arrangements to be guarantees under U.S. GAAP:
standby letters of credit and other financial guarantees,
securities lending indemnifications, certain indemnificationagreements included within third-party contractual
arrangements, certain derivative contracts and theguarantees under the sponsored member repo program.
As required by U.S. GAAP, the Firm initially records
guarantees at the inception date fair value of the 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 contractual
amount and carrying value of guarantees andindemnifications are included in the table on page 272. For
additional information on the guarantees, see below.
Standby letters of credit and other financial guarantees
Standby letters of credit and other financial guarantees areconditional lending commitments issued by the Firm toguarantee the performance of a client or customer to athird party under certain arrangements, such ascommercial paper facilities, bond financings, acquisition
financings, trade and similar transactions.

The following table summarizes the contractual amount and carrying value of standby letters of credit and other financial
guarantees and other letters of credit arrangements as of December 31, 2018 and 2017.
Standby letters of credit, other financial guarantees and other letters of credit
2018
December 31,(in millions)
Investment-grade(a)Standby letters of credit andother financial guarantees$

Noninvestment-grade(a)26,4202017
Other lettersof credit
$

7,078

2,079

Standby letters of credit andother financial guarantees$

746

28,492Other lettersof credit
$

6,734

1,066

Total contractual amount$

33,498

$

2,825

$

35,226$

Allowance for lending-related commitments

$

167

$

3

$

192

$

Guarantee liability

354

—

2,646

444

3,712
3
—

Total carrying value

$

521

$

3

$

636

$

3

Commitments with collateral$

17,400$583$

17,421$878(a) The ratings scale is based on the Firm’s internal ratings which generally correspond to ratings as defined by S&P and Moody’s.

JPMorgan Chase & Co./2018 Form 10-K

273

Notes to consolidated financial statements
Securities lending indemnifications
Through the Firm’s securities lending program,counterparties’ securities, via custodial and non-custodial
arrangements, may be lent to third parties. As part of thisprogram, the Firm provides an indemnification in thelending agreements which protects the lender against the
failure of the borrower to return the lent securities. To
minimize its liability under these indemnificationagreements, the Firm obtains cash or other highly liquid
collateral with a market value exceeding 100% of the valueof the securities on loan from the borrower. Collateral ismarked to market daily to help assure that collateralizationis adequate. Additional collateral is called from theborrower if a shortfall exists, or collateral may be released
to the borrower in the event of overcollateralization. If aborrower defaults, the Firm would use the collateral held topurchase replacement securities in the market or to credit
the lending client or counterparty with the cash equivalent
thereof.
Derivatives qualifying as guarantees
The Firm transacts certain derivative contracts that havethe characteristics of a guarantee under U.S. GAAP. These
contracts include written put options that require the Firm
to purchase assets upon exercise by the option holder at a
specified price by a specified date in the future. The Firm
may enter into written put option contracts in order to meetclient needs, or for other trading purposes. The terms of
written put options are typically five years or less.
Derivatives deemed to be guarantees also includes stablevalue contracts, commonly referred to as “stable value
products”, that require the Firm to make a payment of thedifference between the market value and the book value ofa counterparty’s reference portfolio of assets in the eventthat market value is less than book value and certain otherconditions have been met. Stable value products aretransacted in order to allow investors to realize investment
returns with less volatility than an unprotected portfolio.
These contracts are typically longer-term or may have nostated maturity, but allow the Firm to elect to terminate thecontract under certain conditions.
The notional value of derivatives guarantees generally
represents the Firm’s maximum exposure. However,exposure to certain stable value products is contractuallylimited to a substantially lower percentage of the notionalamount.
The fair value of derivative guarantees reflects theprobability, in the Firm’s view, of whether the Firm will be
required to perform under the contract. The Firm reduces
exposures to these contracts by entering into offsetting
transactions, or by entering into contracts that hedge themarket risk related to the derivative guarantees.

274

The following table summarizes the derivatives qualifying as
guarantees as of December 31, 2018 and 2017.
(in millions)

December 31,
2018

December 31,
2017

$

$

Notional amounts
Derivative guarantees
Stable value contracts with
contractually limited exposure

55,271

57,174

28,637

29,104

2,963

3,053

Derivative payables

367

304

Derivative receivables——

Maximum exposure of stablevalue contracts with
contractually limited exposure
Fair value

In addition to derivative contracts that meet thecharacteristics of a guarantee, the Firm is both a purchaserand seller of credit protection in the credit derivatives
market. For a further discussion of credit derivatives, refer
to Note 5.
Unsettled securities financing agreements
In the normal course of business, the Firm enters into resaleand securities borrowed agreements. At settlement, thesecommitments result in the Firm advancing cash to andreceiving securities collateral from the counterparty. The
Firm also enters into repurchase and securities loaned
agreements. At settlement, these commitments result in the
Firm receiving cash from and providing securities collateral
to the counterparty. Such agreements settle at a futuredate. These agreements generally do not meet thedefinition of a derivative, and therefore, are not recordedon the Consolidated balance sheets until settlement date.
These agreements predominantly have regular-way
settlement terms. For a further discussion of securities
financing agreements, refer to Note 11.
Loan sales- and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm’s mortgage loan sale andsecuritization activities with GSEs the Firm has maderepresentations and warranties that the loans sold meetcertain requirements, and that may require the Firm torepurchase mortgage loans and/or indemnify the loanpurchaser if such representations and warranties arebreached by the Firm. Further, although the Firm’s
securitizations are predominantly nonrecourse, the Firm
does provide recourse servicing in certain limited cases
where it agrees to share credit risk with the owner of themortgage loans. To the extent that repurchase demands
that are received relate to loans that the Firm purchasedfrom third parties that remain viable, the Firm typically will
have the right to seek a recovery of related repurchaselosses from the third party. Generally, the maximum amountof future payments the Firm would be required to make forbreaches of these representations and warranties would beequal to the unpaid principal balance of such loans that are
deemed to have defects that were sold to purchasers(including securitization-related SPEs) plus, in certain
circumstances, accrued interest on such loans and certain
expenses.
JPMorgan Chase & Co./2018 Form 10-K

Private label securitizations
The liability related to repurchase demands associated withprivate label securitizations is separately evaluated by the
Firm in establishing its litigation reserves.
For additional information regarding litigation, refer to Note
29.
Loans sold with recourse
The Firm provides servicing for mortgages and certain
commercial lending products on both a recourse andnonrecourse basis. In nonrecourse servicing, the principal
credit risk to the Firm is the cost of temporary servicing
advances of funds (i.e., normal servicing advances). In
recourse servicing, the servicer agrees to share credit risk
with the owner of the mortgage loans, such as Fannie Maeor Freddie Mac or a private investor, insurer or guarantor.
Losses on recourse servicing predominantly occur when
foreclosure sales proceeds of the property underlying adefaulted loan are less than the sum of the outstanding
principal balance, plus accrued interest on the loan and thecost of holding and disposing of the underlying property.
The Firm’s securitizations are predominantly nonrecourse,
thereby effectively transferring the risk of future credit
losses to the purchaser of the mortgage-backed securities
issued by the trust. At December 31, 2018 and 2017, theunpaid principal balance of loans sold with recourse totaled$1.0 billion and $1.2 billion, respectively. The carrying
value of the related liability that the Firm has recorded inaccounts payable and other liabilities on the Consolidatedbalance sheets, which is representative of the Firm’s view ofthe likelihood it will have to perform under its recourse
obligations, was $30 million and $38 million at
December 31, 2018 and 2017, respectively.
Other off-balance sheet arrangements
Indemnification agreements – general
In connection with issuing securities to investors outside theU.S., the Firm may agree to pay additional amounts to theholders of the securities in the event that, due to a change
in tax law, certain types of withholding taxes are imposedon payments on the securities. The terms of the securities
may also give the Firm the right to redeem the securities ifsuch additional amounts are payable. The Firm may also
enter into indemnification clauses in connection with thelicensing of software to clients (“software licensees”) or
when it sells a business or assets to a third party (“thirdparty 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 toactions taken by the Firm prior to the sale of the business orassets. It is difficult to estimate the Firm’s maximum
exposure under these indemnification arrangements, since
this would require an assessment of future changes in tax
law and future claims that may be made against the Firmthat have not yet occurred. However, based on historicalexperience, management expects the risk of loss to be
remote.

JPMorgan Chase & Co./2018 Form 10-K

Card charge-backs
Under the rules of Visa USA, Inc., and MasterCard
International, JPMorgan Chase Bank, N.A., is primarily liable
for the amount of each processed card sales transactionthat is the subject of a dispute between a cardmember anda merchant. If a dispute is resolved in the cardmember’sfavor, Merchant Services will (through the cardmember’s
issuing bank) credit or refund the amount to the
cardmember and will charge back the transaction to themerchant. If Merchant Services is unable to collect theamount from the merchant, Merchant Services will bear theloss for the amount credited or refunded to the
cardmember. Merchant Services mitigates this risk by
withholding future settlements, retaining cash reserve
accounts or by obtaining other collateral. However, in theunlikely event that: (1) a merchant ceases operations and isunable to deliver products, services or a refund; (2)Merchant Services does not have sufficient collateral fromthe merchant to provide cardmember refunds; and (3)Merchant Services does not have sufficient financial
resources to provide cardmember refunds, JPMorgan Chase
Bank, N.A., would recognize the loss.
Merchant Services incurred aggregate losses of $30 million,$28 million, and $85 million on $1,366.1 billion, $1,191.7
billion, and $1,063.4 billion of aggregate volume processed
for the years ended December 31, 2018, 2017 and 2016,
respectively. Incurred losses from merchant charge-backs
are charged to other expense, with the offset recorded in avaluation allowance against accrued interest and accounts
receivable on the Consolidated balance sheets. The carrying
value of the valuation allowance was $23 million and $7
million at December 31, 2018 and 2017, respectively,
which the Firm believes, based on historical experience andthe collateral held by Merchant Services of $144 million
and $141 million at December 31, 2018 and 2017,
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 by entering
into securities purchases and sales and derivative contracts
with CCPs, including 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 and 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 a clearing member, the Firm is exposed to the risk ofnonperformance by its clients, but is not liable to clients forthe performance of the CCPs. Where possible, the Firm
seeks to mitigate its risk to the client through the collectionof appropriate amounts of margin at inception andthroughout the life of the transactions. The Firm can alsocease providing clearing services if clients do not adhere to275

Notes to consolidated financial statements
their obligations under the clearing agreement. In the eventof nonperformance by a client, the Firm would close out theclient’s positions and access available margin. The CCP
would utilize any margin it holds to make itself whole, withany remaining shortfalls required to be paid by the Firm asa clearing member.
The Firm reflects its exposure to nonperformance risk of theclient through the recognition of margin receivables fromclients and margin payables to CCPs; the clients’ underlying
securities or derivative contracts are not reflected in the
Firm’s Consolidated Financial Statements.
It is difficult to estimate the Firm’s maximum possible
exposure through its role as a clearing member, as thiswould require an assessment of transactions that clients
may execute in the future. However, based upon historicalexperience, and the credit risk mitigants available to theFirm, management believes it is unlikely that the Firm will
have to make any material payments under thesearrangements and the risk of loss is expected to be remote.
For information on the derivatives that the Firm executes
for its own account and records in its Consolidated Financial
Statements, refer to Note 5.
Exchange & Clearing House Memberships
The Firm is a member of several securities and derivative
exchanges and clearing houses, both in the U.S. and othercountries, and it provides clearing services to its clients.
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 the amount (or a multiple of
the amount) of the Firm’s contribution to the guarantee
fund maintained by a clearing house or exchange as part of
the resources available to cover any losses in the event of amember default. Alternatively, these obligations may also
include a pro rata share of the residual losses after applying
the guarantee fund. Additionally, certain clearing houses
require the Firm as a member to pay a pro rata share oflosses that may result from the clearing house’s investmentof guarantee fund contributions and initial margin,unrelated to and independent of the default of anothermember. Generally a payment would only be required
should such losses exceed the resources of the clearing
house or exchange that are contractually required to absorb
the losses in the first instance. In certain cases, it is difficult
to estimate the Firm’s maximum possible exposure underthese membership agreements, since this would require an
assessment of future claims that may be made against the
Firm that have not yet occurred. However, based on
historical experience, management expects the risk of loss
to the Firm to be remote. Where the Firm’s maximum
possible exposure can be estimated, the amount is disclosed
in the table on page 272, in the Exchange & clearing houseguarantees and commitments line.

276

Sponsored Member Repo Program
In 2018 the Firm commenced the sponsored member repo
program, wherein the Firm acts as a sponsoring member toclear eligible overnight resale and repurchase agreements
through the Government Securities Division of the Fixed
Income Clearing Corporation (“FICC”) on behalf of clientsthat become sponsored members under the FICC’s rules.
The Firm also guarantees to the FICC the prompt and full
payment and performance of its sponsored member clients’respective obligations under the FICC’s rules. The Firm
minimizes its liability under these overnight guarantees byobtaining a security interest in the cash or high quality
securities collateral that the clients place with the clearing
house therefore the Firm expects the risk of loss to be
remote. The Firm’s maximum possible exposure, without
taking into consideration the associated collateral, is
included in the Exchange & clearing house guarantees andcommitments line on page 272. For additional information
on credit risk mitigation practices on resale agreements andthe types of collateral pledged under repurchaseagreements, refer to Note 11.
Guarantees of subsidiaries
In the normal course of business, the Parent Company may
provide counterparties with guarantees of certain of the
trading and other obligations of its subsidiaries on acontract-by-contract basis, as negotiated with the Firm’s
counterparties. The obligations of the subsidiaries areincluded on the Firm’s Consolidated balance sheets or arereflected as off-balance sheet commitments; therefore, theParent Company has not recognized a separate liability forthese guarantees. The Firm believes that the occurrence ofany event that would trigger payments by the Parent
Company under these guarantees is remote.
The Parent Company has guaranteed certain long-term debt
and structured notes of its subsidiaries, including JPMorgan
Chase Financial Company LLC (“JPMFC”), a 100%-owned
finance subsidiary. All securities issued by JPMFC are fully
and unconditionally guaranteed by the Parent Company.
These guarantees, which rank on a parity with the Firm’s
unsecured and unsubordinated indebtedness, are notincluded in the table on page 272 of this Note. For
additional information, refer to Note 19.

JPMorgan Chase & Co./2018 Form 10-K

Note 28 – Commitments, pledged assets andcollateral
Lease commitments
At December 31, 2018, JPMorgan Chase and its
subsidiaries were obligated under a number of
noncancelable operating leases for premises and equipmentused primarily for banking purposes. Certain leases containrenewal options or escalation clauses providing forincreased rental payments based on maintenance, utility
and tax increases, or they require the Firm to perform
restoration work on leased premises. No lease agreement
imposes restrictions on the Firm’s ability to pay dividends,
engage in debt or equity financing transactions or enter into
further lease agreements.
The following table presents required future minimum
rental payments under operating leases with noncancelable
lease terms that expire after December 31, 2018.
Year ended December 31, (in millions)
2019

1,561

2020

1,520

2021

1,320

2022

1,138

2023

973

After 2023

4,480

Total minimum payments required

10,992

Less: Sublease rentals under noncancelable subleases
Net minimum payments required

(825)
$

10,167

Total rental expense was as follows.
Year ended December 31,(in millions)
Gross rental expense

2018$

Sublease rental income
Net rental expense

1,881

2017
$

(239)
$

1,642

1,853

2016
$

(251)
$

1,602

1,860
(241)

$

1,619

Pledged assets
The Firm may pledge financial assets that it owns tomaintain potential borrowing capacity at discount windows
with Federal Reserve banks, various other central banks and
FHLBs. Additionally, pledged assets are used for otherpurposes, including to collateralize repurchase and othersecurities financing agreements, to cover short sales and tocollateralize derivative contracts and deposits. Certain of
these pledged assets may be sold or repledged or otherwise
used by the secured parties and are parenthetically
identified on the Consolidated balance sheets as assets
pledged.
The following table presents the Firm’s pledged assets.
December 31, (in billions)
Assets that may be sold or repledged orotherwise used by secured parties

2018

2017

$ 104.0$ 135.8

Assets that may not be sold or repledged orotherwise used by secured parties

83.7

68.1

Assets pledged at Federal Reserve banks and
FHLBs

475.3

493.7

$ 663.0$ 697.6

Total assets pledged

Total assets pledged do not include assets of consolidated
VIEs; these assets are used to settle the liabilities of thoseentities. Refer to Note 14 for additional information on
assets and liabilities of consolidated VIEs. For additional
information on the Firm’s securities financing activities,
refer to Note 11. For additional information on the Firm’s
long-term debt, refer to Note 19. The significant
components of the Firm’s pledged assets were as follows.
December 31, (in billions)
Investment securities

2018
$

59.5

2017
$

86.2

Loans

440.1

Trading assets and other

163.4

173.7

$ 663.0$ 697.6

Total assets pledged

437.7

Collateral
The Firm accepts financial assets as collateral that it ispermitted to sell or repledge, deliver or otherwise use. This
collateral is generally obtained under resale and othersecurities financing agreements, customer margin loans andderivative contracts. Collateral is generally used under
repurchase and other securities financing agreements, tocover short sales and to collateralize derivative contracts anddeposits.
The following table presents the fair value of collateral
accepted.
December 31, (in billions)
Collateral permitted to be sold or repledged,
delivered, or otherwise used
Collateral sold, repledged, delivered orotherwise used

2018

2017

$ 1,245.3$ 968.8

998.3

771.0

Certain prior period amounts for both collateral and pledged
assets (including the corresponding pledged assets
parenthetical disclosure for trading assets and other assets on
the Consolidated balance sheets) have been revised toconform with the current period presentation.
JPMorgan Chase & Co./2018 Form 10-K

277

Notes to consolidated financial statements
Note 29 – Litigation
Contingencies
As of December 31, 2018, the Firm and its subsidiaries andaffiliates are defendants or putative defendants innumerous legal proceedings, including private, civil
litigations and regulatory/government investigations. The
litigations range from individual actions involving a single
plaintiff to class action lawsuits with potentially millions ofclass members. Investigations involve both formal andinformal proceedings, by both governmental agencies andself-regulatory organizations. These legal proceedings areat varying stages of adjudication, arbitration or
investigation, and involve each of the Firm’s lines ofbusiness and geographies and a wide variety of claims(including common law tort and contract claims andstatutory antitrust, securities and consumer protection
claims), some of which present novel legal theories.
The Firm believes the estimate of the aggregate range ofreasonably possible losses, in excess of reserves
established, for its legal proceedings is from $0 toapproximately $1.5 billion at December 31, 2018. Thisestimated aggregate range of reasonably possible losses
was based upon currently available information for those
proceedings in which the Firm believes that an estimate ofreasonably possible loss can be made. For certain matters,
the Firm does not believe that such an estimate can bemade, as of that date. The Firm’s estimate of the aggregate
range of reasonably possible losses involves significant
judgment, given:•

the number, variety and varying stages of theproceedings, including the fact that many are in
preliminary stages,•

the existence in many such proceedings of multiple
defendants, including the Firm, whose share of liability(if any) has yet to be determined,•

the numerous yet-unresolved issues in many of theproceedings, including issues regarding classcertification and the scope of many of the claims, and•the attendant uncertainty of the various potential
outcomes of such proceedings, including where the Firm
has made assumptions concerning future rulings by the
court or other adjudicator, or about the behavior or
incentives of adverse parties or regulatory authorities,
and those assumptions prove to be incorrect.

In addition, the outcome of a particular proceeding may be
a result which the Firm did not take into account in its
estimate because the Firm had deemed the likelihood ofthat outcome to be remote. Accordingly, the Firm’s estimateof the aggregate range of reasonably possible losses willchange from time to time, and actual losses may varysignificantly.

278

Set forth below are descriptions of the Firm’s material legal
proceedings.
American Depositary Receipts Pre-Release Inquiry. In
December 2018, JPMorgan Chase Bank, N.A. reached asettlement with the U.S. Securities and Exchange
Commission regarding its inquiry into activity relating to
pre-released American Depositary Receipts.
Foreign Exchange Investigations and Litigation. The Firm
previously reported settlements with certain government
authorities relating to its foreign exchange (“FX”) sales andtrading activities and controls related to those activities. FXrelated investigations and inquiries by government
authorities, including competition authorities, are ongoing,
and the Firm is cooperating with and working to resolve
those matters. In May 2015, the Firm pleaded guilty to asingle violation of federal antitrust law. In January 2017,
the Firm was sentenced, with judgment entered thereafter
and a term of probation ending in January 2020. The
Department of Labor has granted the Firm a five-year
exemption of disqualification that allows the Firm and its
affiliates to continue to rely on the Qualified Professional
Asset Manager exemption under the Employee Retirement
Income Security Act (“ERISA”) until January 2023. The Firm
will need to reapply in due course for a further exemption
to cover the remainder of the ten-year disqualification
period. Separately, in February 2017 the South Africa
Competition Commission referred its FX investigation of theFirm and other banks to the South Africa Competition
Tribunal, which is conducting civil proceedings concerningthat matter.
The Firm is also one of a number of foreign exchange
dealers named as defendants in a class action filed in the
United States District Court for the Southern District of New
York by U.S.-based plaintiffs, principally alleging violationsof federal antitrust laws based on an alleged conspiracy tomanipulate foreign exchange rates (the “U.S. class action”).
In January 2015, the Firm entered into a settlementagreement in the U.S. class action. Following thissettlement, a number of additional putative class actions
were filed seeking damages for persons who transacted FX
futures and options on futures (the “exchanged-based
actions”), consumers who purchased foreign currencies atallegedly inflated rates (the “consumer action”),
participants or beneficiaries of qualified ERISA plans (the“ERISA actions”), and purported indirect purchasers of FX
instruments (the “indirect purchaser action”). Since then,the Firm has entered into a revised settlement agreement toresolve the consolidated U.S. class action, including theexchange-based actions. The Court granted final approval ofthat settlement agreement in August 2018. Certain
members of the settlement class filed requests to the Court
to be excluded from the class, and certain of them filed acomplaint against the Firm and a number of other foreignexchange dealers in November 2018 (the “opt-out action”).
JPMorgan Chase & Co./2018 Form 10-K

The District Court has dismissed one of the ERISA actions,and the United States Court of Appeals for the Second
Circuit affirmed that dismissal in July 2018. The second
ERISA action was voluntarily dismissed with prejudice inNovember 2018. The indirect purchaser action, theconsumer action and the opt-out action remain pending in
the District Court.
General Motors Litigation. JPMorgan Chase Bank, N.A.
participated in, and was the Administrative Agent on behalfof a syndicate of lenders on, a $1.5 billion syndicated Term
Loan facility (“Term Loan”) for General Motors Corporation(“GM”). In July 2009, in connection with the GM bankruptcy
proceedings, the Official Committee of Unsecured Creditorsof Motors Liquidation Company (“Creditors Committee”)
filed a lawsuit against JPMorgan Chase Bank, N.A., in its
individual capacity and as Administrative Agent for other
lenders on the Term Loan, seeking to hold the underlying
lien invalid based on the filing of a UCC-3 termination
statement relating to the Term Loan. In January 2015,
following several court proceedings, the United States Courtof Appeals for the Second Circuit reversed the Bankruptcy
Court’s dismissal of the Creditors Committee’s claim andremanded the case to the Bankruptcy Court with
instructions to enter partial summary judgment for theCreditors Committee as to the termination statement. The
proceedings in the Bankruptcy Court thereafter continued
with respect to, among other things, additional defenses
asserted by JPMorgan Chase Bank, N.A. and the value ofadditional collateral on the Term Loan that was unaffectedby the filing of the termination statement at issue. In
addition, certain Term Loan lenders filed cross-claims in the
Bankruptcy Court against JPMorgan Chase Bank, N.A.
seeking indemnification and asserting various claims. In
January 2019, the parties reached an agreement inprinciple to fully resolve the litigation, including the crossclaims filed against the Firm. The agreement is subject todefinitive documentation and court approval, and is notexpected to have any material impact on the Firm. The
Bankruptcy Court has stayed all deadlines in the action toallow the parties to finalize the settlement agreement for
submission to the Bankruptcy Court.
Interchange Litigation. A group of merchants and retailassociations filed a series of class action complaints alleging
that Visa and Mastercard, as well as certain banks,
conspired to set the price of credit and debit card
interchange fees and enacted respective rules in violation of
antitrust laws. The parties settled the cases for a cash
payment, a temporary reduction of credit card interchange,
and modifications to certain credit card network rules. In
December 2013, the District Court granted final approval of
the settlement.
A number of merchants appealed the settlement to theUnited States Court of Appeals for the Second Circuit,which, in June 2016, vacated the District Court’s
certification of the class action and reversed the approval of
the class settlement. In March 2017, the U.S. Supreme
Court declined petitions seeking review of the decision of
JPMorgan Chase & Co./2018 Form 10-K

the Court of Appeals. The case was remanded to the District
Court for further proceedings consistent with the appellate
decision. The original class action was divided into two
separate actions, one seeking primarily monetary relief andthe other seeking primarily injunctive relief. In September
2018, the parties to the class action seeking monetary
relief finalized an agreement which amends and supersedes
the prior settlement agreement, and the plaintiffs filed amotion seeking preliminary approval of the modified
settlement. This settlement provides for the defendants tocontribute an additional $900 million to the approximately$5.3 billion currently held in escrow from the original
settlement. In January 2019, the amended agreement was
preliminarily approved by the District Court, and formal
notice of the class settlement will proceed in accordancewith the District Court’s order. $600 million of theadditional amount will be funded from the litigation escrowaccount established under the Visa defendants’
Retrospective Responsibility Plan, and $300 million will be
paid by Mastercard and certain banks in accordance with anagreement among themselves regarding their respective
shares. In June 2018, Visa deposited an additional $600
million into its litigation escrow account, which in turn led
to a corresponding change in the conversion rate of Visa
Class B to Class A shares. Of the Mastercard-related portion,
the Firm’s share is approximately $36 million. The classaction seeking primarily injunctive relief continues
separately.
In addition, certain merchants have filed individual actions
raising similar allegations against Visa and Mastercard, as
well as against the Firm and other banks, and those actions
are proceeding.
LIBOR and Other Benchmark Rate Investigations andLitigation. JPMorgan Chase has received subpoenas andrequests for documents and, in some cases, interviews,
from federal and state agencies and entities, including the
U.S. Commodity Futures Trading Commission and various
state attorneys general, as well as the European
Commission (“EC”), the Swiss Competition Commission(“ComCo”) and other regulatory authorities and banking
associations around the world relating primarily to theprocess by which interest rates were submitted to the
British Bankers Association (“BBA”) in connection with thesetting of the BBA’s London Interbank Offered Rate(“LIBOR”) for various currencies, principally in 2007 and2008. Some of the inquiries also relate to similar processes
by which information on rates was submitted to theEuropean Banking Federation (“EBF”) in connection withthe setting of the EBF’s Euro Interbank Offered Rate(“EURIBOR”). The Firm continues to cooperate with theseinvestigations to the extent that they are ongoing. ComCo’s
investigation relating to EURIBOR, to which the Firm andother banks are subject, continues. In December 2016, theEC issued a decision against the Firm and other banks
finding an infringement of European antitrust rules relating
to EURIBOR. The Firm has filed an appeal of that decision279

Notes to consolidated financial statementswith the European General Court, and that appeal ispending.
In addition, the Firm has been named as a defendant alongwith other banks in a series of individual and putative classactions related to benchmarks filed in various United States
District Courts, including two putative class actions relating
to U.S. dollar LIBOR during the period that it wasadministered by ICE Benchmark Administration. These
actions have been filed, or consolidated for pre-trial
purposes, in the United States District Court for theSouthern District of New York. In these actions, plaintiffs
make varying allegations that in various periods, starting in2000 or later, defendants either individually or collectively
manipulated various benchmark rates by submitting rates
that were artificially low or high. Plaintiffs allege that theytransacted in loans, derivatives or other financial
instruments whose values are affected by changes in these
rates and assert a variety of claims including antitrust
claims seeking treble damages. These matters are in various
stages of litigation.
The Firm has agreed to settle putative class actions related
to exchange-traded Eurodollar futures contracts, Swiss
franc LIBOR, EURIBOR, the Singapore Interbank OfferedRate, the Singapore Swap Offer Rate and the Australian
Bank Bill Swap Reference Rate. Those settlements are all
subject to further documentation and court approval.
In actions related to U.S. dollar LIBOR during the period that
it was administered by the BBA, the District Court dismissed
certain claims, including antitrust claims brought by someplaintiffs whom the District Court found did not havestanding to assert such claims, and permitted antitrust
claims, claims under the Commodity Exchange Act andcommon law claims to proceed. The plaintiffs whose
antitrust claims were dismissed for lack of standing have
filed an appeal. In February 2018, as to those actions which
the Firm has not agreed to settle, the District Court (i)granted class certification with respect to certain antitrust
claims related to bonds and interest rate swaps sold directlyby the defendants, (ii) denied class certification withrespect to state common law claims brought by the holdersof those bonds and swaps and (iii) denied class certification
with respect to the putative class action related to LIBORbased loans held by plaintiff lending institutions.
Municipal Derivatives Litigation. Several civil actions werecommenced against the Firm relating to certain Jefferson
County, Alabama (the “County”) warrant underwritings andswap transactions. The actions generally alleged that the
Firm made payments to certain third parties in exchange forbeing chosen to underwrite more than $3.0 billion in
warrants issued by the County and to act as thecounterparty for certain swaps executed by the County. The
County subsequently filed for bankruptcy and in November
2013, the Bankruptcy Court confirmed a Plan of Adjustment
pursuant to which the above-described actions against the
Firm were released and dismissed with prejudice. Certain
sewer rate payers filed an appeal challenging the280

confirmation of the Plan of Adjustment, and that appeal was
dismissed by the United States Court of Appeals for the
Eleventh Circuit. The appellants have filed a petition seeking
review by the Supreme Court of the United States.
Precious Metals Investigations and Litigation. Various
authorities, including the Department of Justice’s Criminal
Division, are conducting investigations relating to trading
practices in the precious metals markets and related
conduct. The Firm is responding to and cooperating withthese investigations. Several putative class action
complaints have been filed in the United States District
Court for the Southern District of New York against the Firmand certain current and former employees, alleging aprecious metals futures and options price manipulation
scheme in violation of the Commodity Exchange Act. The
Firm is also a defendant in a consolidated action filed in the
United States District Court for the Southern District of New
York alleging monopolization of silver futures in violation of
the Sherman Act.
Wendel. Since 2012, the French criminal authorities havebeen investigating a series of transactions entered into bysenior managers of Wendel Investissement (“Wendel”)
during the period from 2004 through 2007 to restructure
their shareholdings in Wendel. JPMorgan Chase Bank, N.A.,
Paris branch provided financing for the transactions to anumber of managers of Wendel in 2007. JPMorgan Chasehas cooperated with the investigation. The investigating
judges issued an ordonnance de renvoi in November 2016,referring JPMorgan Chase Bank, N.A. to the French tribunal
correctionnel for alleged complicity in tax fraud. No date fortrial has been set by the court. The Firm has beensuccessful in legal challenges made to the Court ofCassation, France’s highest court, with respect to thecriminal proceedings. In January 2018, the Paris Court ofAppeal issued a decision cancelling the mise en examen of
JPMorgan Chase Bank, N.A. The Court of Cassation ruled in
September 2018 that a mise en examen is a prerequisite foran ordonnance de renvoi and remanded the case to the
Court of Appeal to consider JPMorgan Chase Bank, N.A.’s
application for the annulment of the ordonnance de renvoi
referring JPMorgan Chase Bank, N.A. to the French tribunal
correctionnel. Any further actions in the criminal
proceedings are stayed pending the outcome of thatapplication. In addition, a number of the managers havecommenced civil proceedings against JPMorgan Chase
Bank, N.A. The claims are separate, involve different
allegations and are at various stages of proceedings.
***

In addition to the various legal proceedings discussed
above, JPMorgan Chase and its subsidiaries are named as
defendants or are otherwise involved in a substantial
number of other legal proceedings. The Firm believes it has
meritorious defenses to the claims asserted against it in its
currently outstanding legal proceedings and it intends to
defend itself vigorously. Additional legal proceedings may
be initiated from time to time in the future.
JPMorgan Chase & Co./2018 Form 10-K

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 year ended December 31, 2018, theFirm’s legal expense was $72 million, and for the years
ended December 31, 2017 and 2016, it was a benefit of$(35) million and $(317) million, respectively. 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 ofparties or are in early stages of discovery, the Firm cannot
state with confidence what will be the eventual outcomes of
the currently pending matters, the timing of their ultimate
resolution or the eventual losses, fines, penalties orconsequences related to those matters. JPMorgan Chase
believes, based upon its current knowledge and after
consultation with counsel, consideration of the material
legal proceedings described above and after taking into
account its current litigation reserves and its estimatedaggregate range of possible losses, that the other legal
proceedings currently pending against it should not have amaterial adverse effect on the Firm’s consolidated financial
condition. The Firm notes, however, that in light of theuncertainties involved in such proceedings, there is no
assurance that the ultimate resolution of these matters will
not significantly exceed the reserves it has currently
accrued or that a matter will not have material reputational
consequences. As a result, the outcome of a particularmatter may be material to JPMorgan Chase’s operating
results for a particular period, depending on, among otherfactors, the size of the loss or liability imposed and the levelof JPMorgan Chase’s income for that period.

JPMorgan Chase & Co./2018 Form 10-K

281

Notes to consolidated financial statements
Note 30 – International operations
The following table presents income statement and balance
sheet-related information for JPMorgan Chase by majorinternational geographic area. The Firm definesinternational activities for purposes of this footnote
presentation as business transactions that involve clients
residing outside of the U.S., and the information presented
below is based predominantly on the domicile of the client,
the location from which the client relationship is managed,or the location of the trading desk. However, many of the
Firm’s U.S. operations serve international businesses.
As of or for the year ended December 31,(in millions)

As the Firm’s operations are highly integrated, estimatesand subjective assumptions have been made to apportion
revenue and expense between U.S. and international
operations. These estimates and assumptions are consistent
with the allocations used for the Firm’s segment reporting
as set forth in Note 31.
The Firm’s long-lived assets for the periods presented are
not considered by management to be significant in relation
to total assets. The majority of the Firm’s long-lived assets
are located in the U.S.

Revenue(b)(c)

Expense(c)(d)Income before
income tax
expense$$Net income

Total assets

2018
Europe/Middle East/Africa$

16,181

9,953

6,228

$

4,444

$

423,835

Asia/Pacific

7,119

4,866

2,253

1,593

171,242

Latin America/Caribbean

2,435

1,413

1,022

718

46,560Total international

25,735

16,232

9,503

6,755

641,637

North America(a)83,29452,03331,261

25,7191,980,895

Total

$

109,029$

68,265$40,764$32,474$2,622,532$

15,120

$

9,347

$

5,773

$

4,007

$

407,145(e)2017
Europe/Middle East/Africa
Asia/Pacific

6,028

4,500

1,528

852

Latin America/Caribbean

1,994

1,523

471

299

44,569Total international

23,142

15,370

7,772

5,158

615,432

North America(a)Total

77,56349,43528,128(e)

163,718

19,283

1,918,168$

100,705$

64,805$35,900$24,441$

2,533,600$

14,418

$

9,126

$

5,292

$

3,783

$

394,134

2016
Europe/Middle East/Africa
Asia/Pacific

6,313

4,414

1,899

1,212

Latin America/Caribbean

1,959

1,632

327

208

42,971

Total international

22,69015,172

7,518

5,203

594,051

North America(a)73,87946,86127,01819,5301,896,921

Total

$

96,569$62,033$34,536$

24,733(e)

156,946$2,490,972(a) Substantially reflects the U.S.
(b) Revenue is composed of net interest income and noninterest revenue.
(c) Effective January 1, 2018, the Firm adopted the revenue recognition guidance. The revenue recognition guidance was applied retrospectively and,accordingly, prior period amounts were revised. For additional information, refer to Note 1.
(d) Expense is composed of noninterest expense and the provision for credit losses.
(e) Total assets for the U.K. were approximately $296 billion, $309 billion, and $310 billion at December 31, 2018, 2017 and 2016, respectively.

282

JPMorgan Chase & Co./2018 Form 10-K

Note 31 – Business segments
The Firm is managed on a line of business basis. There are
four major reportable business segments – Consumer &Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset & Wealth Management. In
addition, there is a Corporate segment. The businesssegments are determined based on the products andservices provided, or the type of customer served, and theyreflect the manner in which financial information iscurrently evaluated by the Firm’s Operating Committee.
Segment results are presented on a managed basis. For afurther discussion concerning JPMorgan Chase’s businesssegments, refer to Segment results of this footnote.
The following is a description of each of the Firm’s businesssegments, and the products and services they provide totheir respective client bases.
Consumer & Community Banking
CCB offers services to consumers and businesses throughbank branches, ATMs, digital (including online and mobile)and telephone banking. CCB is organized into Consumer &Business Banking (including Consumer Banking/Chase
Wealth Management and Business Banking), Home Lending(including Home Lending Production, Home Lending
Servicing and Real Estate Portfolios) and Card, MerchantServices & Auto. Consumer & Business Banking offers
deposit and investment products and services to
consumers, and lending, deposit, and cash management
and payment solutions to small businesses. Home Lending
includes mortgage origination and servicing activities, aswell as portfolios consisting of residential mortgages andhome equity loans. Card, Merchant Services & Auto issues
credit cards to consumers and small businesses, offers
payment processing services to merchants, and originatesand services auto loans and leases.
Corporate & Investment BankThe CIB, which consists of Banking and Markets & Investor
Services, offers a broad suite of investment banking,market-making, prime brokerage, and treasury andsecurities products and services to a global client base of
corporations, investors, financial institutions, government
and municipal entities. Banking offers a full range ofinvestment banking products and services in all major
capital markets, including advising on corporate strategy
and structure, capital-raising in equity and debt markets, aswell as loan origination and syndication. Banking also
includes Treasury Services, which provides transaction
services, consisting of cash management and liquidity
solutions. Markets & Investor Services is a global market-

JPMorgan Chase & Co./2018 Form 10-K

maker in cash securities and derivative instruments, andalso offers sophisticated risk management solutions, prime
brokerage, and research. Markets & Investor Services also
includes Securities Services, a leading global custodian
which provides custody, fund accounting andadministration, and securities lending products principally
for asset managers, insurance companies and public andprivate investment funds.
Commercial Banking
CB delivers extensive industry knowledge, local expertiseand dedicated service to U.S. and U.S. multinational clients,
including corporations, municipalities, financial institutions
and nonprofit entities with annual revenue generally
ranging from $20 million to $2 billion. In addition, CB
provides financing to real estate investors and owners.
Partnering with the Firm’s other businesses, CB provides
comprehensive financial solutions, including lending,treasury services, investment banking and asset
management to meet its clients’ domestic and international
financial needs.
Asset & Wealth Management
AWM, with client assets of $2.7 trillion, is a global leader ininvestment and wealth management. AWM clients include
institutions, high-net-worth individuals and retail investors
in many major markets throughout the world. AWM offers
investment management across most major asset classes
including equities, fixed income, alternatives and money
market funds. AWM also offers multi-asset investment
management, providing solutions for a broad range ofclients’ investment needs. For Wealth Management clients,
AWM also provides retirement products and services,brokerage and banking services including trusts andestates, loans, mortgages and deposits. The majority of
AWM’s client assets are in actively managed portfolios.
Corporate
The Corporate segment consists of Treasury and Chief
Investment Office and Other Corporate, which includes
corporate staff functions and expense that is centrally
managed. Treasury and CIO is predominantly responsible
for measuring, monitoring, reporting and managing the
Firm’s liquidity, funding, capital, structural interest rate andforeign exchange risks. The major Other Corporate functions
include Real Estate, Technology, Legal, Corporate Finance,
Human Resources, Internal Audit, Risk Management,
Compliance, Control Management, Corporate Responsibility
and various Other Corporate groups.

283

Notes to consolidated financial statements
Segment results
The following table provides a summary of the Firm’s
segment results as of or for the years ended December 31,
2018, 2017 and 2016, on a managed basis. The Firm’s
definition of managed basis starts with the reported U.S.
GAAP results and includes certain reclassifications topresent total net revenue for the Firm (and each of thereportable business segments) on an FTE 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.
This allows management to assess the comparability ofrevenue from year-to-year arising from both taxable andtax-exempt sources. The corresponding income tax impact
related to tax-exempt items is recorded within income tax
expense/(benefit). These adjustments have no impact on
net income as reported by the Firm as a whole or by thelines of business.

Each business segment is allocated capital by taking into
consideration capital levels of similarly rated peers andapplicable regulatory capital requirements. ROE ismeasured and internal targets for expected returns are
established as key measures of a business segment’s
performance.
The Firm’s allocation methodology incorporates Basel III
Standardized RWA, Basel III Advanced RWA, leverage, theGSIB surcharge, and a simulation of capital in a severe
stress environment. On at least an annual basis, theassumptions and methodologies used in capital allocation
are assessed and as a result, the capital allocated to lines ofbusiness may change.

Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards wereapplied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.
Net income in 2018 for each of the business segments reflects the favorable impact of the reduction in the U.S. federal
statutory income tax rate as a result of the TCJA.
Segment results and reconciliation(Table continued on next page)
As of or for the year ended
December 31,(in millions, except ratios)

Consumer & Community Banking

Corporate & Investment Bank

Commercial Banking

2018

2017

2016

2018

2017

2016

Noninterest revenue$ 16,260$ 14,710$ 15,255$ 26,968$ 24,539$ 24,449

Net interest income

35,81931,77529,6609,480

10,118

10,891

6,716

Total net revenue

52,07946,48544,91536,44834,65735,340

Provision for credit losses

4,753

5,572

4,494

(60)

(45)

563

Noninterest expense

27,835

26,062

24,905

20,91819,407

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

19,491

14,851

15,516

15,59015,295

Income tax expense/(benefit)

4,639

5,456

2018

2016

2018

2017

2,320

$ 10,539$ 10,456

6,083

5,133

3,537

3,379

3,033

9,059

8,605

7,453

14,076

13,835

12,822

129

(276)

282

53

39

26

19,116

3,386

3,327

2,934

10,353

10,2189,255

15,661

5,544

5,554

4,237

3,670

3,578

3,541

$

2,343

5,802

3,817

4,482

4,846

9,714

$ 11,773$ 10,813$ 10,815$$ 51,000$ 51,000$ 70,000$ 70,000$ 64,000$ 20,000

552,601535,310903,051

826,384

803,511220,229

Net income/(loss)$ 14,852$

Average equity$ 51,000

Total assets

557,441

9,395

$

2017

Asset & Wealth Management

$

1,307
4,237

2,522

$

2,015
$

3,539

1,580
$

817

2016
$

1,241

1,290

2,657

$

2,853

$

2,337

$

$ 20,000$ 16,000

$

9,000

$

9,000

$

221,228

214,341

170,024

151,909

9,789

2,251
9,000
138,384

Return on equity

28%

17%

18%

16%

14%

16%

20%

17%

16%

31%

25%

24%

Overhead ratio

53

56

55

57

56

54

37

39

39

74

74

72

284

JPMorgan Chase & Co./2018 Form 10-K

(Table continued from previous page)
Corporate

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

2018$

Reconciling Items(a)2017(263) $

2016

2018

1,085 $

938

$

Total

2017

(1,877) $2016(2,704) (b)

$

2018

(2,265)$2017

53,970$2016

50,608$50,486

Net interest income

135

55

(1,425)(628)(1,313)(1,209)55,05950,09746,083

Total net revenue

(128)

1,140

(487)

(2,505)(4,017)(3,474)

109,029

100,705

96,569

(4)

—

(4)

—

—

—

4,871

5,290

5,361

902

501

462

—

—

—

63,39459,51556,672
34,536

Provision for credit losses
Noninterest expense
Income/(loss) before income
tax expense/(benefit)(1,026)

639

(945)

(2,505)(4,017)(3,474)40,76435,900

Income tax expense/(benefit)

215

2,282

(241)

(2,505)(4,017) (b)(3,474)8,290

11,4599,803

Net income/(loss)$(1,241) $(1,643) $

(704)

$

— $

—

$

—

$

32,474$24,441$

24,733

Average equity$

79,222 $80,350 $84,631

$

— $

—

$

—

$

229,222$230,350$

224,631

Total assets

771,787

781,478

799,426

NA

NA

NA

Return on equity

NM

NM

NM

NM

NM

NM

2,622,532
13%

2,533,600
10%

2,490,972
10%Overhead ratio

NM

NM

NM

NM

NM

NM

58

59

59

(a) Segment results on a managed basis reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/(benefit). These adjustments
are eliminated in reconciling items to arrive at the Firm’s reported U.S. GAAP results.
(b) Included $375 million related to tax-oriented investments as a result of the enactment of the TCJA.

JPMorgan Chase & Co./2018 Form 10-K

285

Note 32 – Parent Company

Statements of cash flows(a)The following tables present Parent Company-only financial
statements. Effective January 1, 2018, the Parent Company
adopted several new accounting standards. Certain of the new
accounting standards were applied retrospectively and,accordingly, prior period amounts were revised. For additional
information, refer to Note 1.

Year ended December 31,(in millions)

Parent company net loss

Statements of income and comprehensive income(a)Year ended December 31,(in millions)

2018

2017

2016

IncomeDividends from subsidiaries andaffiliates:
Bank and bank holding company
Non-bank(b)Interest income from subsidiaries
Other interest income

2018

2017

2016

$ 32,474$ 24,441$ 24,733

38,12526,18527,846(5,651)(1,744)(3,113)

Cash dividends from subsidiaries
and affiliates(b)Other operating adjustments

32,501

13,54013,873(4,400)

4,635(18,166)

Net cash provided by/(used in)operating activities

22,45016,431(7,406)

Operating activities
Net income
Less: Net income of subsidiaries
and affiliates(b)Investing activities$ 32,501
2
216—$ 13,000540
72
41$ 10,000
3,873
794
207

Bank and bank holding company
Non-bank
Other income
Total income
ExpenseInterest expense to subsidiaries
and affiliates(b)

515
(444)
888
33,678

1,553
(88)
(623)
14,495

852
1,165
(846)
16,045

2,291

400

105

Other interest expense
Noninterest expense
Total expense

4,581
1,793
8,665

5,202
(1,897)
3,705

4,413
1,643
6,161

Income before income tax benefit
and undistributed net income ofsubsidiaries

25,013

10,790

9,884

1,838

1,007

876

Redemption of preferred stock(1,696)(1,258)—

5,623

12,644

13,973

Treasury stock repurchased(19,983)(15,410)(9,082)$ 32,474 $ 24,441(1,476)
1,056$ 30,998 $ 25,497$ 24,733(1,521)$ 23,212

Dividends paid

(10,109)(8,993)(8,476)All other financing activities, net(1,526)(1,361)(905)

Net cash used in financing
activities(30,680)(16,340)(3,197)

2018

2017

(131)

(62)

(60,310)

5,501

5,563

65,873

Other income from subsidiaries:

Income tax benefit
Equity in undistributed net incomeof subsidiaries
Net income
Other comprehensive income, net
Comprehensive income

Balance sheets(a)December 31, (in millions)
AssetsCash and due from banks

$

55

$

163

Deposits with banking subsidiaries

5,315

5,338

Trading assets

3,304

4,773

3,334

2,106

74

82

Advances to, and receivables from, subsidiaries:
Bank and bank holding company
Non-bank
Investments (at equity) in subsidiaries andaffiliates:
Bank and bank holding company

449,628

451,713

Non-bank(b)

1,077

422

Other assets

10,478

10,426

Total assets$ 473,265$ 475,023

Liabilities and stockholders’ equity
Borrowings from, and payables to, subsidiaries
and affiliates(b)$ 20,017$ 23,426

Short-term borrowings

2,672

3,350

Other liabilities

8,821

8,302

Long-term debt(c)(d)185,240

184,252

Total liabilities(d)216,750

219,330

Total stockholders’ equity

256,515

255,693$ 473,265$ 475,023

Total liabilities and stockholders’ equity

286

Net change in:Proceeds from paydowns andmaturities from available-forsale securities
Other changes in loans, net

—

—

353

—

78

1,793

Advances to and investments in
subsidiaries and affiliates, net
All other investing activities, net

8,036

(280)

(51,967)

63

49

114

Net cash provided by/(used in)investing activities
Financing activities

8,099

(153)

(49,707)

Net change in:
Borrowings from subsidiaries
and affiliates(b)Short-term borrowings(2,273)

13,862

2,957

(678)

(481)

109

Proceeds from long-termborrowings
Payments of long-term borrowings
Proceeds from issuance ofpreferred stock

Net decrease in cash and due frombanks and deposits with banking
subsidiaries
Cash and due from banks anddeposits with banking
subsidiaries at the beginning of
the year
Cash and due from banks anddeposits with banking
subsidiaries at the end of theyear
Cash interest paid
Cash income taxes paid, net(e)25,84525,85541,498(21,956)(29,812)(29,298)

1,696

1,258

—

$

5,370

$

5,501

$

5,563

$

6,911

$

5,426

$

4,550

1,782

1,775

1,053

(a) In 2016, in connection with the Firm’s 2016 Resolution Submission, the Parent
Company established the IHC, and contributed substantially all of its direct
subsidiaries (totaling $55.4 billion) other than JPMorgan Chase Bank, N.A., aswell as most of its other assets (totaling $160.5 billion) and intercompany
indebtedness to the IHC. Total noncash assets contributed were $62.3 billion. In
2017, the Parent Company transferred $16.2 billion of noncash assets to the IHC
to complete the contributions to the IHC.
(b) Affiliates include trusts that issued guaranteed capital debt securities (“issuer
trusts”). For further discussion on these issuer trusts, refer to Note 19.
(c) At December 31, 2018, long-term debt that contractually matures in 2019
through 2023 totaled 13.1 billion, $22.1 billion, $20.3 billion, $12.8 billion,
and $16.2 billion, respectively.
(d) For information regarding the Parent Company’s guarantees of its subsidiaries’
obligations, refer to Notes 19 and 27.
(e) Represents payments, net of refunds, made by the Parent Company to various
taxing authorities and includes taxes paid on behalf of certain of its subsidiaries
that are subsequently reimbursed. The reimbursements were $1.2 billion, $4.1
billion, and $3.0 billion for the years ended December 31, 2018, 2017, and2016, respectively.

JPMorgan Chase & Co./2018 Form 10-K

Supplementary information
Selected quarterly financial data (unaudited)
As of or for the period ended(in millions, except per share, ratio, headcountdata and where otherwise noted)
Selected income statement data
Total net revenue
Total noninterest expense
Pre-provision profit

2018
4th quarter$

26,10915,72010,3892017

3rd quarter2nd quarter$$

27,26015,623
11,63727,753
15,971
11,782

1st quarter$

27,907
16,08011,827

4th quarter$

24,457
14,8959,562

3rd quarter2nd quarter$$

25,578
14,57011,00825,731
14,767
10,964

1st quarter$

24,93915,283
9,656

Provision for credit losses

1,548

948

1,210

1,165

1,308

1,452

1,215

1,315

Income before income tax expense

8,841

10,68910,572

10,662

8,254

9,556

9,749

8,341

Income tax expense

1,775

2,309

2,256

1,950

4,022

2,824

2,720

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
Book value per share
TBVPS(a)Cash dividends declared per share
Selected ratios and metrics

$

7,066

$

8,380

$

8,316

$

8,712

$

4,232

$

1.99
1.98
3,335.8
3,347.3

$

2.35
2.34
3,376.1
3,394.3

$

2.31
2.29
3,415.2
3,434.7

$

2.38
2.37
3,458.3
3,479.5$$

319,780
3,275.8
70.35
56.33
0.80

$

375,239
3,325.4
69.52
55.68
0.80

$

350,204
3,360.9
68.85
55.14
0.56

$

374,423
3,404.8
67.59
54.05
0.56

$

ROE(b)ROTCE(a)(b)
ROA(b)
Overhead ratio
Loans-to-deposits ratio
LCR (average)(c)
CET1 capital ratio(d)Tier 1 capital ratio(d)Total capital ratio(d)Tier 1 leverage ratio(d)SLR(e)
Selected balance sheet data (period-end)
Trading assets
Investment Securities
Loans
Core loans
Average core loans
Total assets
Deposits
Long-term debt
Common stockholders’ equity
Total stockholders’ equity
Headcount

12%
14
1.06
60
67
113
12.0
13.7
15.5
8.1
6.4
$

413,714
261,828
984,554931,856
907,2712,622,532
1,470,666
282,031
230,447
256,515
256,105

14%
17
1.28
57
65
115
12.0
13.6
15.4
8.2
6.5
$

419,827
231,398
954,318
899,006
894,279
2,615,183
1,458,762
270,124
231,192
258,956
255,313

14%
17
1.28
58
65
115
12.0
13.6
15.5
8.2
6.5
$

418,799
233,015
948,414889,433
877,640
2,590,050
1,452,122
273,114231,390
257,458
252,942

15%
19
1.37
58
63
115
11.8
13.5
15.3
8.2
6.5
$

412,282
238,188934,424
870,536
861,089
2,609,785
1,486,961
274,449
230,133
256,201
253,707

6,732

$

7,029

$

6,448

1.08
1.07
3,489.7
3,512.2

$

1.77
1.76
3,534.7
3,559.6

$

1.83
1.82
3,574.1
3,599.0

$

1.66
1.65
3,601.7
3,630.4

366,301
3,425.3
67.04
53.56
0.56

$

331,3933,469.7
66.95
54.03
0.56

$

321,633
3,519.0
66.05
53.29
0.50

$

312,078
3,552.8
64.68
52.04
0.50

7%
8
0.66
61
64
119
12.2
13.9
15.9
8.3
6.5
$
$
$

1,893

$

(g)

381,844249,958
930,697
863,683
850,166
2,533,600
1,443,982
284,080
229,625
255,693
252,539

11%
13
1.04
57
63
120
12.5
14.1
16.1
8.4
6.6
$

420,418
263,288913,761
843,432
837,5222,563,074
1,439,027
288,582
232,314258,382
251,503

12%
14
1.10
57
63
115
12.5
14.2
16.0
8.5
6.7
$

407,064
263,458
908,767
834,935
824,583
2,563,174
1,439,473
292,973
232,415
258,483
249,257

11%
13
1.03
61
63
N/A
12.4
14.1
15.6
8.4
6.6
$

402,513281,850
895,974
812,119805,3822,546,290
1,422,999
289,492
229,795
255,863
246,345

Credit quality metrics
Allowance for credit losses
Allowance for loan losses to total retained loans$

14,500 $
1.39%

$

5,190

Allowance for loan losses to retained loans
excluding purchased credit-impaired loans(f)Nonperforming assets

1.23

14,225 $
1.39%
1.23

$

5,034

14,367 $
1.41%
1.22

$

5,767

14,482
1.44%$

14,672
1.47%

$

6,426

1.25
$

6,364

$

14,648 $
1.49%

$

6,154

1.27

1.29

14,480 $
1.49%
1.28

$

6,432

14,490
1.52%
1.31

$

6,826
(h)

Net charge-offs

1,236

1,033

1,252

1,335

1,264

1,265

1,204

1,654

Net charge-off rate

0.52%

0.43%

0.54%

0.59%

0.55%

0.56%

0.54%

0.76% (h)Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly,
prior period amounts were revised. For additional information, refer to Note 1.
(a) TBVPS and ROTCE are non-GAAP financial measures. For further discussion of these measures, refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP
Financial Measures and Key Performance Measures on pages 57-59.
(b) Quarterly ratios are based upon annualized amounts.
(c) The percentage represents the Firm’s reported average LCR per the U.S. LCR public disclosure requirements, which became effective April 1, 2017.
(d) Ratios presented are calculated under the Basel III Transitional rules and for the capital ratios represent the lower of the Standardized or Advanced approach. As of
December 31, 2018, and September 30, 2018, the Firm’s capital ratios were equivalent whether calculated on a transitional or fully phased-in basis. Refer to Capital
Risk Management on pages 85-94 for additional information on Basel III.
(e) Effective January 1, 2018, the SLR was fully phased-in under Basel III. The SLR is defined as Tier 1 capital divided by the Firm’s total leverage exposure. Ratios prior to
March 31, 2018 were
calculated under the Basel III Transitional rules.
(f) Excludes the impact of residential real estate PCI loans, a non-GAAP financial measure. For further discussion of these measures, refer to Explanation andReconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 57-59, and the Allowance for credit losses on pages 120–122.
(g) The Firm’s results for the three months ended December 31, 2017, included a $2.4 billion decrease to net income as a result of the enactment of the TCJA. For
additional information related to the impact of the TCJA, refer to Note 24.
(h) Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rates for the three months ended March 31, 2017 would havebeen 0.54%.

JPMorgan Chase & Co./2018 Form 10-K

287

Distribution of assets, liabilities and stockholders’ equity; interest rates and interest differentials
Consolidated average balance sheet, interest and rates
Provided below is a summary of JPMorgan Chase’s
consolidated average balances, interest rates and interest
differentials on a taxable-equivalent basis for the years
2016 through 2018. Income computed on a taxableequivalent basis is the income reported in the Consolidated
statements of income, adjusted to present interest income

and average rates earned on assets exempt from income
taxes (i.e. federal taxes) on a basis comparable with othertaxable investments. The incremental tax rate used for
calculating the taxable-equivalent adjustment wasapproximately 24%, 37% and 38% in 2018, 2017 and2016, respectively.

(Table continued on next page)(Unaudited)2018Year ended December 31,(Taxable-equivalent interest and rates; in millions, except rates)
Assets
Deposits with banks
Federal funds sold and securities purchased under resale agreements
Securities borrowed
Trading assets – debt instruments
Taxable securities
Non-taxable securities(a)Total investment securities
Loans
All other interest-earning assets(b)Total interest-earning assets
Allowance for loan losses
Cash and due from banks
Trading assets – equity instruments
Trading assets – derivative receivables
Goodwill, MSRs and other intangible assets
Other assets
Total assets
Liabilities
Interest-bearing deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings(c)Trading liabilities – debt and all other interest-bearing liabilities(d)(e)Beneficial interests issued by consolidated VIEs
Long-term debt
Total interest-bearing liabilities
Noninterest-bearing deposits
Trading liabilities – equity instruments(e)Trading liabilities – derivative payables
All other liabilities, including the allowance for lending-related commitments
Total liabilities
Stockholders’ equity
Preferred stock
Common stockholders’ equity
Total stockholders’ equity
Total liabilities and stockholders’ equity
Interest rate spread
Net interest income and net yield on interest-earning assets

Averagebalance$$$$

Averagerate

Interest(g)405,514217,150
115,082
261,051
194,232
42,456236,688944,885
48,8182,229,188(13,269)
21,694
101,872
60,73454,669154,0102,608,898$

1,060,605
189,282
63,523
178,161
21,079276,414
1,789,064
395,856
34,29543,075
91,1372,353,427

$

5,973
3,066
1,144
3,729
493
7,978
22,383

0.56%
1.62
1.80
2.09
2.34
2.89
1.25

$

55,6872.25%
2.50

26,249229,222
255,4712,608,898

5,907
3,819
728
8,763
5,653
1,987
7,640
47,796
3,417
78,070

(h)

1.46%
1.76
0.63
3.36
2.91
4.68
(i)
3.23
5.06
7.00
3.50

(f)

Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior periodamounts were revised. For additional information, refer to Note 1.
(a) Represents securities that are tax-exempt for U.S. federal income tax purposes.
(b) Includes held-for-investment margin loans, which are classified in accrued interest and accounts receivable, and all other interest-earning assets, which are classified in otherassets on the Consolidated balance sheets.
(c) Includes commercial paper.
(d) Other interest-bearing liabilities include brokerage customer payables.
(e) The combined balance of trading liabilities – debt and equity instruments were $107.0 billion, $90.7 billion and $92.8 billion for the years ended December 31, 2018, 2017and 2016, respectively.
(f) The ratio of average stockholders’ equity to average assets was 9.8% for 2018, 10.0% for 2017, and 10.2% for 2016. The return on average stockholders’ equity, based on net
income, was 12.7% for 2018, 9.5% for 2017, and 9.9% for 2016.
(g) Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(h) Fees and commissions on loans included in loan interest amounted to $1.2 billion in 2018, $1.0 billion in 2017, and $808 million in 2016.
(i) The annualized rate for securities based on amortized cost was 3.25% in 2018, 3.13% in 2017, and 2.99% in 2016, and does not give effect to changes in fair value that arereflected in AOCI.
(j) Negative interest income and yield is related to client-driven demand for certain securities combined with the impact of low interest rates; this is matched book activity and thenegative interest expense on the corresponding securities loaned is recognized in interest expense and reported within trading liabilities – debt and all other interest-bearing
liabilities.

288

JPMorgan Chase & Co./2018 Form 10-K

Within the Consolidated average balance sheets, interest and rates summary, the principal amounts of nonaccrual loans havebeen included in the average loan balances used to determine the average interest rate earned on loans. For additional
information on nonaccrual loans, including interest accrued, refer to Note 12.

(Table continued from previous page)
2017
Averagebalance$$$$

Interest(g)439,663
191,820
95,324
237,206
223,592
45,086
268,678
906,397
41,5042,180,592(13,453)
20,432
115,91359,58853,999138,991
2,556,062$

1,013,221
187,386
46,532
171,81432,457
291,489
1,742,899
404,165
21,022
44,12287,292
2,299,500$

26,212
230,350
256,5622,556,062

4,238
2,327
(37) (j)
7,714
5,534
2,769
8,303
(h)
41,296
1,844
65,6852016
Average
rate
0.96%
1.21
(0.04)
3.25
2.48
6.14
(i)
3.09
4.56
4.44
3.01

Averagebalance
$

$
2,857
1,611
481
2,070
503
6,753
14,275

0.28%
0.86
1.03
1.21
1.55
2.32
0.82

$

(f)

$
$

51,410

JPMorgan Chase & Co./2018 Form 10-K

2.19%
2.36

Interest(g)Averagerate

393,599
205,367
102,964
215,565
235,211
44,176279,387
866,378
38,344
2,101,604(13,965)
18,705
95,52870,89753,752135,098
2,461,619

$

1,879
2,265
(332) (j)
7,373
5,538
2,662
8,200
(h)
36,866859
57,1100.48%
1.10(0.32)
3.42
2.35
6.03
(i)
2.94
4.26
2.24
2.72

925,270
178,720
36,140177,765
40,180295,573
1,653,648
402,698
20,73755,927
77,9102,210,920

$

1,356
1,089
203
1,102
504
5,564
9,818

0.15%
0.61
0.56
0.62
1.25
1.88
0.59

$

47,2922.13%
2.25

26,068
224,631250,699
2,461,619

(f)

289

Interest rates and interest differential analysis of net interest income – U.S. and non-U.S.
Presented below is a summary of interest rates and interest
differentials segregated between U.S. and non-U.S.
operations for the years 2016 through 2018. The
segregation of U.S. and non-U.S. components is based on

the location of the office recording the transaction.
Intercompany funding generally consists of dollardenominated deposits originated in various locations thatare centrally managed by Treasury and CIO.

(Table continued on next page)
2018(Unaudited)Year ended December 31,(Taxable-equivalent interest and rates; in millions, except rates)
Interest-earning assets
Deposits with banks:
U.S.
Non-U.S.
Federal funds sold and securities purchased under resale agreements:
U.S.
Non-U.S.
Securities borrowed:
U.S.
Non-U.S.
Trading assets – debt instruments:
U.S.
Non-U.S.
Investment securities:
U.S.
Non-U.S.
Loans:U.S.
Non-U.S.
All other interest-earning assets, predominantly U.S.
Total interest-earning assets
Interest-bearing liabilities
Interest-bearing deposits:
U.S.
Non-U.S.
Federal funds purchased and securities loaned or sold under repurchase agreements:
U.S.
Non-U.S.
Trading liabilities – debt, short-term and all other interest-bearing liabilities:(a)U.S.
Non-U.S.
Beneficial interests issued by consolidated VIEs, predominantly U.S.
Long-term debt:
U.S.
Non-U.S.
Intercompany funding:U.S.
Non-U.S.
Total interest-bearing liabilities
Noninterest-bearing liabilities(b)Total investable funds
Net interest income and net yield:
U.S.
Non-U.S.
Percentage of total assets and liabilities attributable to non-U.S. operations:
AssetsLiabilities

Average balance$$

Interest

Average rate

305,117 $100,397

5,703
204

1.87%
0.20

102,144
115,006

2,427
1,392

2.38
1.21

77,02738,055

640
88

0.83
0.23

141,134
119,917

5,068
3,695

3.59
3.08

200,883
35,805

6,943
697

3.46
1.95

864,149
80,736
48,8182,229,188

45,3952,401
3,417
78,070

5.25
2.97
7.00
3.50

816,305
244,300

4,562
1,411

0.56
0.58

117,754
71,528

2,562
504

2.18
0.70

150,694
90,99021,079

3,389
1,484
493

2.25
1.63
2.34

256,220
20,194

7,954
24

3.10
0.12

(51,933)
51,933
1,789,064
440,124
2,229,188 $
$

(746)
746
22,383——
1.25

22,38355,68750,236
5,451

1.00%
2.50%
2.91
1.09
24.7
22.3

Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, priorperiod amounts were revised. For additional information, refer to Note 1.

(a) Includes commercial paper.
(b) Represents the amount of noninterest-bearing liabilities funding interest-earning assets.
(c) Negative interest income and yield is related to client-driven demand for certain securities combined with the impact of low interest rates; this is matched book
activity and the negative interest expense on the corresponding securities loaned is recognized in interest expense and reported within trading liabilities – debt,
short-term and all other interest-bearing liabilities.

290

JPMorgan Chase & Co./2018 Form 10-K

For further information, refer to the “Net interest income” discussion in Consolidated Results of Operations on pages 48–51.

(Table continued from previous page)
2017
Average balance$

Average rate

366,814 $
72,849

4,093
145

1.12%
0.20

90,879100,941

1,360
967

68,11027,214$

Interest

2016(66) (c)29

Average balance$

Interest

Average rate

329,498 $64,101

1,707
172

0.52%
0.27

1.50
0.96

112,901
92,466

1,166
1,099

1.03
1.19

(0.10)
0.11

73,297
29,667(341) (c)9(0.46)
0.03

128,293108,913

4,186
3,528

3.26
3.24

116,211
99,354

3,825
3,548

3.29
3.57

223,140
45,538

7,490
813

3.36
1.79

216,726
62,661

6,971
1,229

3.22
1.97

832,608
73,78941,5042,180,592

39,4391,857
1,844
65,685

4.74
2.52
4.44
3.01

788,213
78,16538,344
2,101,604

35,1101,756
859
57,110

4.45
2.25
2.24
2.72

776,049
237,172

2,223
634

0.29
0.27

703,738
221,532

1,029
327

0.15
0.15

115,574
71,812

1,349
262

1.17
0.37

121,945
56,775

773
316

0.63
0.56

138,470
79,87632,457

1,271
1,280
503

0.92
1.60
1.55

133,788
80,11740,180

86
1,219
504

0.06
1.52
1.25

276,750
14,739

6,745
8

2.44
0.05

283,169
12,404

5,533
31

1.95
0.25

(2,874)
2,874
1,742,899
437,693
2,180,592 $
$

(25)
25
14,275

—
—
0.82

10
(10)
9,818

—
—
0.59

14,27551,41046,059
5,351

0.65%
2.36%
2.68
1.15

(20,405)
20,405
1,653,648
447,956
2,101,604 $$

9,818
47,29240,705
6,587

0.47%
2.25%
2.49
1.42

22.5
21.1

JPMorgan Chase & Co./2018 Form 10-K

$

23.1
20.7

291

Changes in net interest income, volume and rate analysis
The table below presents an attribution of net interest income between volume and rate. The attribution between volume and rateis calculated using annual average balances for each category of assets and liabilities shown in the table and the corresponding
annual average rates (refer to pages 288–292 for more information on average balances and rates). In this analysis, when thechange cannot be isolated to either volume or rate, it has been allocated to volume. The average annual rates include the impact ofchanges in market rates as well as the impact of any change in composition of the various products within each category of asset
or liability. This analysis is calculated separately for each category without consideration of the relationship between categories(for example, the net spread between the rates earned on assets and the rates paid on liabilities that fund those assets). As aresult, changes in the granularity or groupings considered in this analysis would produce a different attribution result, and due tothe complexities involved, precise allocation of changes in interest rates between volume and rates is inherently complex andjudgmental.
2018 versus 2017
(Unaudited)

Increase/(decrease) due
to change in:Year ended December 31,(On a taxable-equivalent basis; in millions)

VolumeInterest-earning assets
Deposits with banks:
U.S.
Non-U.S.
Federal funds sold and securities purchased under resaleagreements:
U.S.
Non-U.S.
Securities borrowed:
U.S.
Non-U.S.
Trading assets – debt instruments:
U.S.
Non-U.S.
Investment securities:
U.S.
Non-U.S.
Loans:U.S.
Non-U.S.
All other interest-earning assets, predominantly U.S.
Change in interest income
Interest-bearing liabilities
Interest-bearing deposits:
U.S.
Non-U.S.
Federal funds purchased and securities loaned or sold under
repurchase agreements:
U.S.
Non-U.S.
Trading liabilities – debt, short-term and all other interest-bearing
liabilities: (a)U.S.
Non-U.S.
Beneficial interests issued by consolidated VIEs, predominantly
U.S.
Long-term debt:
U.S.
Non-U.S.
Intercompany funding:U.S.
Non-U.S.
Change in interest expense
Change in net interest income$$

2017 versus 2016
Increase/(decrease) due
to change in:NetchangeRate(1,141) $
59

2,751
—

$

1,610
59

267
173

800
252

1,067
425

73
26

633
33

459
341

Volume$$Netchange1,977 $
(45)

2,386
(27)

(337)
81

531
(213)

194
(132)

706
59

11
(4)

264
24

275
20

423
(174)

882
167

396
308

(35)
(328)

361
(20)

(770)
(189)

223
73

(547)
(116)

216
(303)

303
(113)

519
(416)

1,710
212
510
1,730

4,246
332
1,063
10,655

5,956
544
1,573
12,385

2,043
(110)
141
2,869

2,286
211
844
5,706

4,329
101
985
8,575

244
42

2,095
735

2,339
777

209
41

985
266

1,194
307

46
5

1,167
237

1,213
242

(83)
54

659
(108)

576
(54)

276
180

1,842
24

2,118
204

45
(3)

1,140
64

1,185
61

(266)

256

(10)

(122)

121

(1)

(618)
6

1,827
10

1,209
16

(176)
2

1,388
(25)

1,212
(23)

(704)
704
(85)
1,815 $

(17)
17
8,193
2,462 $

(721)
721
8,108
4,277

151
(151)
(33)
2,902 $

(186)
186
4,490
1,216 $

(35)
35
4,457
4,118

$

409
18

Rate

Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and,accordingly, prior period amounts were revised. For additional information, refer to Note 1.
(a) Includes commercial paper.
292

JPMorgan Chase & Co./2018 Form 10-K

Glossary of Terms and Acronyms
2018 Form 10-K: Annual report on Form 10-K for year
ended December 31, 2018, filed with the U.S. Securities
and Exchange Commission.
ABS: Asset-backed securities
AFS: Available-for-sale
ALCO: Asset Liability Committee
AWM: Asset & Wealth Management
AOCI: Accumulated other comprehensive income/(loss)
ARM: Adjustable rate mortgage(s)AUC: Assets under custody
AUM: “Assets under management”: Represent assets
managed by AWM on behalf of its Private Banking,Institutional and Retail clients. Includes “Committed capital
not Called.”
Auto loan and lease origination volume: Dollar amount of
auto loans and leases originated.
Beneficial interests issued by consolidated VIEs:
Represents the interest of third-party holders of debt,
equity securities, or other obligations, issued by VIEs that
JPMorgan Chase consolidates.
Benefit obligation: Refers to the projected benefit
obligation for pension plans and the accumulated
postretirement benefit obligation for OPEB plans.
BHC: Bank holding company
Card Services includes the Credit Card and MerchantServices businesses.
CB: Commercial Banking
CBB: Consumer & Business Banking
CCAR: Comprehensive Capital Analysis and Review
CCB: Consumer & Community Banking
CCO: Chief Compliance Officer
CCP: “Central counterparty” is a clearing house thatinterposes itself between counterparties to contracts tradedin one or more financial markets, becoming the buyer toevery seller and the seller to every buyer and thereby
ensuring the future performance of open contracts. A CCP
becomes counterparty to trades with market participants
through novation, an open offer system, or another legallybinding arrangement.
CDS: Credit default swaps
CEO: Chief Executive Officer
CET1 Capital: Common equity Tier 1 capital
CFTC: Commodity Futures Trading Commission
CFO: Chief Financial Officer
CFP: Contingency funding plan
JPMorgan Chase & Co./2018 Form 10-K

Chase Bank USA, N.A.: Chase Bank USA, National
Association
CIB: Corporate & Investment Bank
CIO: Chief Investment Office
Client assets: Represent assets under management as wellas custody, brokerage, administration and deposit accounts.
Client deposits and other third-party liabilities: Deposits,
as well as deposits that are swept to on-balance sheet
liabilities (e.g., commercial paper, federal funds purchased
and securities loaned or sold under repurchaseagreements) as part of client cash management programs.
CLO: Collateralized loan obligations
CLTV: Combined loan-to-value
Collateral-dependent: A loan is considered to be collateraldependent when repayment of the loan is expected to beprovided solely by the underlying collateral, rather than bycash flows from the borrower’s operations, income or otherresources.
Commercial Card: provides a wide range of payment
services to corporate and public sector clients worldwide
through the commercial card products. Services include
procurement, corporate travel and entertainment, expense
management services, and business-to-business payment
solutions.
Core loans: Represents loans considered central to theFirm’s ongoing businesses; core loans excludes loansclassified as trading assets, runoff portfolios, discontinued
portfolios and portfolios the Firm has an intent to exit.
Credit cycle: A period of time over which credit quality
improves, deteriorates and then improves again (or viceversa). The duration of a credit cycle can vary from a coupleof years to several years.
Credit derivatives: Financial instruments whose value isderived from the credit risk associated with the debt of athird-party issuer (the reference entity) which allow one
party (the protection purchaser) to transfer that risk toanother party (the protection seller). Upon the occurrenceof a credit event by the reference entity, which may include,
among other events, the bankruptcy or failure to pay its
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.
Criticized: Criticized loans, lending-related commitments
and derivative receivables that are classified as special
mention, substandard and doubtful categories forregulatory purposes and are generally consistent with a293

Glossary of Terms and Acronyms
rating of CCC+/Caa1 and below, as defined by S&P and
Moody’s.

Federal Reserve: The Board of the Governors of the Federal
Reserve System

CRO: Chief Risk Officer

FFELP: Federal Family Education Loan Program

CRSC: Conduct Risk Steering Committee

FFIEC: Federal Financial Institutions Examination Council

CTC: CIO, Treasury and Corporate

FHA: Federal Housing Administration

CVA: Credit valuation adjustment

FHLB: Federal Home Loan Bank

Debit and credit card sales volume: Dollar amount of card
member purchases, net of returns.

FICC: The Fixed Income Clearing Corporation

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.

FICO score: A measure of consumer credit risk provided bycredit bureaus, typically produced from statistical models
by Fair Isaac Corporation utilizing data collected by thecredit bureaus.
Firm: JPMorgan Chase & Co.

Dodd-Frank Act: Wall Street Reform and Consumer
Protection Act

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.

DRPC: Board of Directors’ Risk Policy Committee

FRC: Firmwide Risk Committee

DVA: Debit valuation adjustment

Freddie Mac: Federal Home Loan Mortgage Corporation

EC: European Commission

Free standing derivatives: a derivative contract enteredinto either separate and apart from any of the Firm’s otherfinancial instruments or equity transactions. Or, inconjunction with some other transaction and is legallydetachable and separately exercisable.

Eligible LTD: Long-term debt satisfying certain eligibility
criteria
Embedded derivatives: are implicit or explicit terms orfeatures of a financial instrument that affect some or all of
the cash flows or the value of the instrument in a manner
similar to a derivative. An instrument containing such terms
or features is referred to as a “hybrid.” The component of
the hybrid that is the non-derivative instrument is referred
to as the “host.” For example, callable debt is a hybrid
instrument that contains a plain vanilla debt instrument(i.e., the host) and an embedded option that allows theissuer to redeem the debt issue at a specified date for a
specified amount (i.e., the embedded derivative). However,a floating rate instrument is not a hybrid composed of a
fixed-rate instrument and an interest rate swap.
ERISA: Employee Retirement Income Security Act of 1974
EPS: Earnings per share
ETD: “Exchange-traded derivatives”: Derivative contracts
that are executed on an exchange and settled via a central
clearing house.
EU: European Union
Fannie Mae: Federal National Mortgage Association
FASB: Financial Accounting Standards Board
FCA: Financial Conduct Authority
FCC: Firmwide Control Committee
FDIA: Federal Depository Insurance Act
FDIC: Federal Deposit Insurance Corporation
294

FSB: Financial Stability Board
FTE: Fully taxable equivalent
FVA: Funding valuation adjustment
FX: Foreign exchange
G7: Group of Seven nations: Countries in the G7 are
Canada, France, Germany, Italy, Japan, the U.K. and the U.S.
G7 government bonds: Bonds issued by the government of
one of the G7 nations.
Ginnie Mae: Government National Mortgage Association
GSE: Fannie Mae and Freddie Mac
GSIB: Global systemically important banks
Headcount-related expense: Includes salary and benefits(excluding performance-based incentives), and othernoncompensation costs related to employees.
HELOAN: Home equity loan
HELOC: Home equity line of credit
Home equity – senior lien: Represents loans andcommitments where JPMorgan Chase holds the first
security interest on the property.
Home equity – junior lien: Represents loans andcommitments where JPMorgan Chase holds a security
interest that is subordinate in rank to other liens.
JPMorgan Chase & Co./2018 Form 10-K

Glossary of Terms and Acronyms
Households: A household is a collection of individuals or
entities aggregated together by name, address, tax
identifier and phone number.

collateral (i.e., residential real estate) securing the loan.

HQLA: High quality liquid assets

Origination date LTV ratio

HTM: Held-to-maturity

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.

ICAAP: Internal capital adequacy assessment process
IDI: Insured depository institutions
IHC: JPMorgan Chase Holdings LLC, an intermediate holding
company
Impaired loan: Impaired loans are loans measured atamortized cost, for which it is probable that the Firm will be
unable to collect all amounts due, including principal andinterest, according to the contractual terms of theagreement. Impaired loans include the following:•

All wholesale nonaccrual loans•

All TDRs (both wholesale and consumer), including ones
that have returned to accrual status

Investment-grade: An indication of credit quality based on
JPMorgan Chase’s internal risk assessment system.
“Investment grade” generally represents a risk profile
similar to a rating of a “BBB-”/“Baa3” or better, as definedby independent rating agencies.
ISDA: International Swaps and Derivatives Association
JPMorgan Chase: JPMorgan Chase & Co.
JPMorgan Chase Bank, N.A.: JPMorgan Chase Bank,
National Association
JPMorgan Clearing: J.P. Morgan Clearing Corp.
JPMorgan Securities: J.P. Morgan Securities LLC
Loan-equivalent: Represents the portion of the unused
commitment or other contingent exposure that is expected,
based on historical portfolio experience, to become drawn
prior to an event of a default by an obligor.
LCR: Liquidity coverage ratio
LDA: Loss Distribution Approach
LGD: Loss given default
LIBOR: London Interbank Offered Rate

Current estimated LTV ratio
An estimate of the LTV as of a certain date. The current
estimated LTV ratios are calculated using estimatedcollateral values derived from a nationally recognized homeprice index measured at the metropolitan statistical area(“MSA”) level. These MSA-level home price indices consist of
actual data to the extent available and forecasted data
where actual data is not available. As a result, the estimatedcollateral values used to calculate these ratios do not
represent actual appraised loan-level collateral values; assuch, the resulting LTV ratios are necessarily imprecise andshould therefore be viewed as estimates.
Combined LTV ratio
The LTV ratio considering all available lien positions, as wellas unused lines, related to the property. Combined LTV
ratios are used for junior lien home equity products.
Managed basis: A non-GAAP presentation of Firmwide
financial results that includes reclassifications to present
revenue on a fully taxable-equivalent basis. Management
also uses this financial measure at the segment level,
because it believes this provides information to enable
investors to understand the underlying operational
performance and trends of the particular business segment
and facilitates a comparison of the business segment withthe performance of competitors.
Master netting agreement: A single agreement with acounterparty that permits multiple transactions governedby that agreement to be terminated or accelerated andsettled through a single payment in a single currency in theevent of a default (e.g., bankruptcy, failure to make arequired payment or securities transfer or deliver collateralor margin when due).

LOB: Line of businessMeasurement alternative: Measures equity securities
without readily determinable fair values at cost less
impairment (if any), plus or minus observable price changes
from an identical or similar investment of the same issuer.

LOB CROs: Line of Business and CTC Chief Risk Officers

MBS: Mortgage-backed securities

Loss emergence period: Represents the time period
between the date at which the loss is estimated to havebeen incurred and the ultimate realization of that loss.

MD&A: Management’s discussion and analysis

LLC: Limited Liability Company

LTIP: Long-term incentive plan
LTV: “Loan-to-value”: For residential real estate loans, therelationship, expressed as a percentage, between theprincipal amount of a loan and the appraised value of the
JPMorgan Chase & Co./2018 Form 10-K

Merchant Services: is a business that primarily processes
transactions for merchants.
MMDA: Money Market Deposit Accounts
Moody’s: Moody’s Investor Services
Mortgage origination channels:
295

Glossary of Terms and Acronyms
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.

loan is other than the borrower’s primary residence; or (v) ahistory of delinquencies or late payments on the loan.
MSA: Metropolitan statistical areas
MSR: Mortgage servicing rights
Multi-asset: Any fund or account that allocates assets undermanagement to more than one asset class.

Mortgage product types:

NA: Data is not applicable or available for the period
presented.

Alt-A

NAV: Net Asset Value

Alt-A loans are generally higher in credit quality thansubprime loans but have characteristics that would
disqualify the borrower from a traditional prime loan. Alt-A
lending characteristics may include one or more of thefollowing: (i) limited documentation; (ii) a high CLTV ratio;(iii) loans secured by non-owner occupied properties; or (iv)a debt-to-income ratio above normal limits. A substantial
proportion of the Firm’s Alt-A loans are those where aborrower does not provide complete documentation of hisor her assets or the amount or source of his or her income.

Net Capital Rule: Rule 15c3-1 under the Securities
Exchange Act of 1934.

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 who meet specific underwriting
requirements, including prescriptive requirements related
to income and overall debt levels. New prime mortgage
borrowers provide full documentation and generally havereliable payment histories.
Subprime
Subprime loans are loans that, prior to mid-2008, were
offered to certain customers with one or more high risk
characteristics, including but not limited to: (i) unreliable orpoor payment histories; (ii) a high LTV ratio of greater than
80% (without borrower-paid mortgage insurance); (iii) ahigh debt-to-income ratio; (iv) an occupancy type for the296

Net charge-off/(recovery) rate: Represents net chargeoffs/(recoveries) (annualized) divided by average retainedloans for the reporting period.
Net mortgage servicing revenue: Includes operating
revenue earned from servicing third-party mortgage loans
which is recognized over the period in which the service isprovided, changes in the fair value of MSRs and the impactof risk management activities associated with MSRs.
Net production revenue: Includes fees and income
recognized as earned on mortgage loans originated with theintent to sell; the impact of risk management activities
associated with the mortgage pipeline and warehouseloans; and changes in the fair value of any residual interests
held from mortgage securitizations. Net production revenue
also includes gains and losses on sales of mortgage loans,lower of cost or fair value adjustments on mortgage loans
held-for-sale, changes in fair value on mortgage loans
originated with the intent to sell and measured at fair value
under the fair value option, as well as losses recognized as
incurred related to repurchases of previously sold loans.
Net revenue rate: Represents Card Services net revenue(annualized) expressed as a percentage of average loans forthe period.
Net interchange income includes the following
components:• Interchange income: Fees earned by credit and debitcard issuers on sales transactions.
• Rewards costs: The cost to the Firm for points earned bycardholders enrolled in credit card rewards programs.
• Partner payments: Payments to co-brand credit card
partners based on the cost of loyalty program rewards
earned by cardholders on credit card transactions.
Net yield on interest-earning assets: The average rate forinterest-earning assets less the average rate paid for all
sources of funds.
NM: Not meaningful
NOL: Net operating loss
Nonaccrual loans: Loans for which interest income is not
JPMorgan Chase & Co./2018 Form 10-K

Glossary of Terms and Acronyms
recognized on an accrual basis. Loans (other than credit
card loans and certain consumer loans insured by U.S.
government agencies) are placed on nonaccrual statuswhen full payment of principal and interest is not expected,
regardless of delinquency status, or when principal andinterest have been in default for a period of 90 days ormore unless the loan is both well-secured and in theprocess of collection. Collateral-dependent loans are
typically maintained on nonaccrual status.

credit-impaired loans acquired in the same fiscal quarter
into one or more pools, provided that the loans havecommon risk characteristics(e.g., product type, LTV ratios,
FICO scores, past due status, geographic location). A pool isthen accounted for as a single asset with a single composite
interest rate and an aggregate expectation of cash flows.

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.

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.

NOW: Negotiable Order of Withdrawal
OAS: Option-adjusted spread
OCC: Office of the Comptroller of the Currency
OCI: Other comprehensive income/(loss)
OPEB: Other postretirement employee benefit
ORMF: Operational Risk Management Framework
OTTI: Other-than-temporary impairment
Over-the-counter (“OTC”) derivatives: Derivative contracts
that are negotiated, executed and settled bilaterally
between two derivative counterparties, where one or bothcounterparties is a derivatives dealer.
Over-the-counter cleared (“OTC-cleared”) derivatives:
Derivative contracts that are negotiated and executedbilaterally, but subsequently settled via a central clearing
house, such that each derivative counterparty is only
exposed to the default of that clearing house.
Overhead ratio: Noninterest expense as a percentage of
total net revenue.
Parent Company: JPMorgan Chase & Co.
Participating securities: Represents unvested share-based
compensation awards containing nonforfeitable rights todividends or dividend equivalents (collectively, “dividends”),
which are included in the earnings per share calculation
using the two-class method. JPMorgan Chase grants RSUs tocertain employees under its share-based compensation
programs, which entitle the recipients to receive
nonforfeitable dividends during the vesting period on abasis equivalent to the dividends paid to holders of common
stock. These unvested awards meet the definition ofparticipating securities. Under the two-class method, allearnings (distributed and undistributed) are allocated toeach class of common stock and participating securities,
based on their respective rights to receive dividends.
PCA: Prompt corrective action
PCI: “Purchased credit-impaired” loans represents certain
loans that were acquired and deemed to be credit-impairedon the acquisition date in accordance with the guidance of
the FASB. The guidance allows purchasers to aggregate
JPMorgan Chase & Co./2018 Form 10-K

PD: Probability of default
PRA: Prudential Regulatory Authority

Pretax margin: Represents income before income tax
expense divided by total net revenue, which is, inmanagement’s view, a comprehensive measure of pretax
performance derived by measuring earnings after all costs
are taken into consideration. It is one basis upon which
management evaluates the performance of AWM against
the performance of their respective competitors.
Principal transactions revenue: Principal transactions
revenue is driven by many factors, including the bid-offer
spread, which is the difference between the price at which
the Firm is willing to buy a financial or other instrument andthe price at which the Firm is willing to sell that instrument.
It also consists of realized (as a result of closing out or
termination of transactions, or interim cash payments) andunrealized (as a result of changes in valuation) gains andlosses on financial and other instruments (including thoseaccounted for under the fair value option) primarily used inclient-driven market-making activities and on private equity
investments. In connection with its client-driven marketmaking activities, the Firm transacts in debt and equity
instruments, derivatives and commodities (including
physical commodities inventories and financial instrumentsthat reference commodities).
Principal transactions revenue also includes certain realized
and unrealized gains and losses related to hedge accounting
and specified risk-management activities, including: (a)certain derivatives designated in qualifying hedge
accounting relationships (primarily fair value hedges ofcommodity and foreign exchange risk), (b) certain
derivatives used for specific risk management purposes,
primarily to mitigate credit risk, foreign exchange risk andcommodity risk, and (c) other derivatives.
PSU(s): Performance share units
REIT: “Real estate investment trust”: A special purpose
investment vehicle that provides investors with the ability toparticipate directly in the ownership or financing of realestate related assets by pooling their capital to purchaseand manage income property (i.e., equity REIT) and/or
mortgage loans (i.e., mortgage REIT). REITs can be publicly
or privately held and they also qualify for certain favorable
tax considerations.
297

Glossary of Terms and Acronyms
Receivables from customers: Primarily represents held-forinvestment margin loans to brokerage customers that arecollateralized through assets maintained in the clients’brokerage accounts, as such no allowance is held against
these receivables. These receivables are reported within
accrued interest and accounts receivable on the Firm’s
Consolidated balance sheets.
Regulatory VaR: Daily aggregated VaR calculated inaccordance with regulatory rules.
REO: Real estate owned
Reported basis: Financial statements prepared under U.S.
GAAP, which excludes the impact of taxable-equivalentadjustments.
Retained loans: Loans that are held-for-investment (i.e.,
excludes loans held-for-sale and loans at fair value).
Revenue wallet: Proportion of fee revenue based on
estimates of investment banking fees generated across theindustry (i.e., the revenue wallet) from investment banking
transactions in M&A, equity and debt underwriting, andloan syndications. Source: Dealogic, a third-party provider
of investment banking competitive analysis and volumebased league tables for the above noted industry products.
RHS: Rural Housing Service of the U.S. Department ofAgriculture
Risk-rated portfolio: Credit loss estimates are based on
estimates of the probability of default (“PD”) and loss
severity given a default. The probability of default is thelikelihood that a borrower will default on its obligation; theloss given default (“LGD”) is the estimated loss on the loanthat would be realized upon the default and takes into
consideration collateral and structural support for eachcredit facility.
ROA: Return on assets
ROE: Return on equity
ROTCE: Return on tangible common equity
RSU(s): Restricted stock units
RWA: “Risk-weighted assets”: Basel III establishes twocomprehensive approaches for calculating RWA (aStandardized approach and an Advanced approach) which
include capital requirements for credit risk, market risk, andin the case of Basel III Advanced, also operational risk. Key
differences in the calculation of credit risk RWA between theStandardized and Advanced approaches are that for Basel
III Advanced, credit risk RWA is based on risk-sensitive
approaches which largely rely on the use of internal credit
models and parameters, whereas for Basel III Standardized,
credit risk RWA is generally based on supervisory riskweightings which vary primarily by counterparty type andasset class. Market risk RWA is calculated on a generally
consistent basis between Basel III Standardized and Basel III
Advanced.
S&P: Standard and Poor’s 500 Index
298

SAR(s): Stock appreciation rights
Scored portfolio: The scored portfolio predominantly
includes residential real estate loans, credit card loans andcertain auto and business banking loans where credit loss
estimates are based on statistical analysis of credit losses
over discrete periods of time. The statistical analysis uses
portfolio modeling, credit scoring and decision-support
tools.
SEC: Securities and Exchange Commission
Seed capital: Initial JPMorgan capital invested in products,
such as mutual funds, with the intention of ensuring thefund is of sufficient size to represent a viable offering toclients, enabling pricing of its shares, and allowing themanager to develop a track record. After these goals areachieved, the intent is to remove the Firm’s capital from theinvestment.
Single-name: Single reference-entities
SLR: Supplementary leverage ratio
SMBS: Stripped mortgage-backed securities
SPEs: Special purpose entities
Structural interest rate risk: Represents interest rate riskof the non-trading assets and liabilities of the Firm.
Structured notes: Structured notes are financial
instruments whose cash flows are linked to the movement
in one or more indexes, interest rates, foreign exchange
rates, commodities prices, prepayment rates, or othermarket variables. The notes typically contain embedded(but not separable or detachable) derivatives. Contractual
cash flows for principal, interest, or both can vary inamount and timing throughout the life of the note based on
non-traditional indexes or non-traditional uses of traditional
interest rates or indexes.
Taxable-equivalent basis: In presenting results on a
managed basis, the total net revenue for each of thebusiness segments and the Firm is presented on a taxequivalent basis. Accordingly, revenue from investmentsthat receive tax credits and tax-exempt securities ispresented in managed basis results on a level comparable
to taxable investments and securities; the corresponding
income tax impact related to tax-exempt items is recorded
within income tax expense.
TBVPS: Tangible book value per share
TCE: Tangible common equity
TDR: “Troubled debt restructuring” is deemed to occur
when the Firm modifies the original terms of a loan
agreement by granting a concession to a borrower that is
experiencing financial difficulty.
TLAC: Total Loss Absorbing Capacity
U.K.: United Kingdom
Unaudited: Financial statements and information that have
JPMorgan Chase & Co./2018 Form 10-K

Glossary of Terms and Acronyms
not been subjected to auditing procedures sufficient topermit an independent certified public accountant toexpress an opinion.
U.S.: United States of America
U.S. GAAP: Accounting principles generally accepted in theU.S.
U.S. government-sponsored enterprises (“U.S. GSEs”) and
U.S. GSE obligations: In the U.S., GSEs are quasigovernmental, privately held entities established by
Congress to improve the flow of credit to specific sectors of
the economy and provide certain essential services to the
public. U.S. GSEs include Fannie Mae and Freddie Mac, but
do not include Ginnie Mae, which is directly owned by the
U.S. Department of Housing and Urban Development. U.S.
GSE obligations are not explicitly guaranteed as to thetimely payment of principal and interest by the full faith andcredit of the U.S. government.
U.S. LCR: Liquidity coverage ratio under the final U.S. rule.
U.S. Treasury: U.S. Department of the Treasury
VA: U.S. Department of Veterans Affairs
VaR: “Value-at-risk” is a measure of the dollar amount ofpotential loss from adverse market moves in an ordinary
market environment.
VCG: Valuation Control GroupVGF: Valuation Governance Forum
VIEs: Variable interest entities
Warehouse loans: Consist of prime mortgages originatedwith the intent to sell that are accounted for at fair value
and classified as trading assets.

JPMorgan Chase & Co./2018 Form 10-K

299

Board of Directors
Linda B. Bammann 4James S. Crown 4

Michael A. Neal 4

Member of:

Retired Deputy Head of Risk
Management
JPMorgan Chase & Co.
(Financial services)

Chairman andChief Executive Officer
Henry Crown and Company(Diversified investments)

1 Audit Committee

James A. Bell 1

James Dimon

Retired Vice Chairman
General Electric Company;
Retired Chairman andChief Executive Officer
GE Capital(Industrial and financial services)

Retired Executive Vice President
The Boeing Company(Aerospace)

Chairman andChief Executive Officer
JPMorgan Chase & Co.
(Financial services)

Stephen B. Burke 2, 3
Chief Executive Officer
NBCUniversal, LLC(Television and entertainment)

Todd A. Combs 4, 5
Investment Officer
Berkshire Hathaway Inc.
(Conglomerate)

Timothy P. Flynn 1, 5
Retired Chairman andChief Executive Officer
KPMG(Professional services)

Mellody Hobson 1, 5
President
Ariel Investments, LLC(Investment management)

Lee R. Raymond 2, 3

2 Compensation & Management
Development Committee
3 Corporate Governance &Nominating Committee
4 Directors’ Risk Policy Committee
5 Public Responsibility Committee

Lead Independent Director
JPMorgan Chase & Co.;
Retired Chairman andChief Executive Officer
Exxon Mobil Corporation(Oil and gas)

William C. Weldon 2, 3
Retired Chairman andChief Executive Officer
Johnson & Johnson(Healthcare products)

Laban P. Jackson, Jr. 1
Chairman and Chief Executive Officer
Clear Creek Properties, Inc.
(Real estate development)

Operating Committee
James Dimon

Ashley Bacon

Marianne Lake

Chairman andChief Executive Officer

Chief Risk Officer

Chief Financial Officer

Lori Beer

Robin Leopold

Daniel E. Pinto

Chief Information Officer

Head of Human Resources

Co-President andChief Operating Officer;
CEO, Corporate & Investment Bank

Mary Callahan Erdoes

Douglas B. Petno

CEO, Asset & Wealth Management

CEO, Commercial Banking

Gordon A. Smith

Stacey FriedmanPeter L. Scher

Co-President andChief Operating Officer;
CEO, Consumer & Community Banking

General Counsel

Head of Corporate Responsibility;
Chairman of the Mid-Atlantic Region

Other Corporate Officers
Molly Carpenter

Nicole Giles

Jason R. Scott

Secretary

Firmwide Controller

Investor Relations

Joseph M. Evangelisti

Lou Rauchenberger

Corporate Communications

General Auditor

300

JPMorgan Chase & Co./2018 Annual Report

Regional Chief Executive Officers
Asia Pacific

Europe/Middle East/Africa

Latin America/Canada

Nicolas Aguzin

Viswas Raghavan

Martin G. Marron

Senior Country Officers and Location Heads
Asia Pacific

Europe/Middle East/Africa

Australia and New ZealandAfrica, Central & Eastern Europe,
Kazakhstan, Middle East, Pakistan,
Russia and Turkey

Paul Uren
China

Mark Leung

Sjoerd Leenart
Bahrain, Egypt and Lebanon

Hong Kong

Ali Moosa

Filippo Gori

Kazakhstan and Russia

Japan

Yan L. Tavrovsky

Steve Teru Rinoie
Korea

Tae Jin Park
South and South East Asia
Indonesia

Haryanto T. Budiman
Steve R. Clayton

Moises Mainster

Austria

Anton J. Ulmer
Ireland

Colombia

Angela Hurtado
Argentina

Carin Bryans

Facundo D. Gomez Minujin

IsraelBrazilJosé Berenguer

Switzerland

Chile

Nick Bossart

Bader A. Alamoudi

Belgium, France, Greece,
Iberia, Italy and the Netherlands

Sub-Saharan Africa

Kyril Courboin

Mustafa Bagriacik

Carlos Ma. G Mendoza

Dorothee Blessing

Khaled Hobballah
Karim Tannir

TurkeyPhilippines

Andean, Caribbean and Central
America

Roy Navon

Marc J. Hussey
Kevin G. Latter

Malaysia

Austria, Germany, Ireland, Israel,
Nordics and Switzerland

Middle East and North Africa

Saudi Arabia

Kalpana Morparia

Latin America/Caribbean

Belgium

Tanguy A. Piret
IberiaIgnacio de la Colina

Alfonso Eyzaguirre
MexicoFelipe Garcia-Moreno
North America
CanadaDavid E. Rawlings

Italy

Singapore

Francesco Cardinali

Edmund Y. Lee

The Netherlands

ThailandPeter A. Kerckhoffs

M.L. Chayotid Kridakon

Luxembourg
Pablo Garnica

TaiwanCarl K. Chien
VietnamVan Bich Phan

JPMorgan Chase Vice Chairs
Phyllis J. Campbell

Mark S. Garvin

Mel R. Martinez

John L. Donnelly

Vittorio U. Grilli

David Mayhew

Jacob A. Frenkel

Walter A. Gubert

E. John Rosenwald

JPMorgan Chase & Co./2018 Annual Report301

J.P. Morgan International Council

Rt. Hon. Tony Blair

Ignacio Galán

Joe Kaeser

Ratan Naval Tata

Chairman of the Council
Former Prime Minister of Great Britain
and Northern Ireland
London, United Kingdom

Chairman
Iberdrola, S.A.
Madrid, Spain

President and Chief Executive Officer
Siemens AG
Munich, Germany

Chairman Emeritus
Tata Trusts
Mumbai, India

Armando Garza Sada

The Hon. Henry A. Kissinger

Joseph C. TsaiThe Hon. Robert M. Gates

Chairman of the Board
ALFA
Nuevo León, Mexico

Chairman
Kissinger Associates, Inc.
New York, New York

Executive Vice Chairman
Alibaba Group
Hong Kong, China

Alex Gorsky

Jorge Paulo Lemann

The Hon. Tung Chee Hwa GBM

Chairman and Chief Executive Officer
Johnson & Johnson
New Brunswick, New Jersey

Director
The Kraft Heinz Company
Pittsburgh, Pennsylvania

Vice Chairman
National Committee of the Chinese
People’s Political Consultative Conference
Hong Kong, China

Herman Gref

Nancy McKinstry

Chief Executive Officer,
Chairman of the Executive Board
Sberbank
Moscow, Russia

Chief Executive Officer
Wolters Kluwer
Alphen aan den Rijn, The Netherlands

Vice Chairman of the Council
Partner
RiceHadleyGates LLC
Washington, District of Columbia

Bernard Arnault
Chairman and Chief Executive Officer
LVMH Moët Hennessy — Louis Vuitton
Paris, France

Paul Bulcke
Member of the Board of Directors
Nestlé S.A.
Vevey, Switzerland

Jamie Dimon*
Chairman and Chief Executive Officer
JPMorgan Chase & Co.
New York, New YorkJohn Elkann
ChairmanFiat Chrysler Automobiles N.V.
Torino, Italy

Martin Feldstein
Professor of Economics
Harvard University
Cambridge, Massachusetts

William B. Harrison, Jr.
Former Chairman andChief Executive Officer
JPMorgan Chase & Co.
New York, New YorkThe Hon. Carla A. Hills
Chairman and Chief Executive Officer
Hills & Company International Consultants
Washington, District of Columbia

The Hon. John Howard OM AC
Former Prime Minister of Australia
Sydney, Australia

Amin H. Nasser
President and Chief Executive Officer
Saudi Aramco
Dhahran, Saudi Arabia

The Hon. Condoleezza RicePartner
RiceHadleyGates LLC
Stanford, California

Paolo Rocca
Chairman and Chief Executive Officer
TenarisBuenos Aires, Argentina

Nassef Sawiris
Chief Executive Officer
OCI N.V.
London, United Kingdom

Masahiko Uotani
President andGroup Chief Executive Officer
Shiseido., Ltd.
Tokyo, Japan

Cees J.A. van Lede
Former Chairman and Chief Executive
Officer, Board of Management
Akzo Nobel
Amsterdam, The Netherlands

Douglas A. Warner III
Former Chairman of the Board
JPMorgan Chase & Co.
New York, New York

Jaime Augusto Zobel de Ayala
Chairman and Chief Executive Officer
Ayala Corporation
Makati City, Philippines*Ex-officio

302

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