A N N U A L REPORT 2016

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

2016			2015			2014

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

95,668 		 $93,543		 $95,112
55,771			59,014			61,274
39,897			34,529			33,838
5,361			3,827			3,139
24,733		 $24,442		 $21,745Per common share data
Net income per share:
Basic$
Diluted 			Cash dividends declared 			Book value 			Tangible book value (TBVPS)(b) 			

6.24		$
6.05		 $5.336.19			6.00			5.29
1.88			1.72			1.58
64.06			60.46			56.98
51.44			48.13			44.60

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

10%		
11%		
10%
13			
13 			
13
12.2			11.6			10.2
14.0			13.3			11.4
15.2			14.7 			12.7

Selected balance sheet data (period-end)
Loans$ 894,765		
$ 837,299		
$ 757,336
Total assets
2,490,972 		 2,351,698			 2,572,274
Deposits
		 1,375,179			1,279,715			1,363,427
Common stockholders’ equity
		 228,122			221,505			211,664
Total stockholders’ equity 			 254,190			247,573			231,727
Market data
Closing share priceMarket capitalization
Common shares at period-end

$
86.29
$
66.03		 $62.58		 307,295 		241,899			232,472
		 3,561.2 		3,663.5			3,714.8

Headcount			

243,355			 234,598			 241,359(a) Results are presented in accordance with accounting principles generally accepted in the United States of America, except whereotherwise noted.
(b) TBVPS and ROTCE are each non-GAAP financial measures. For further discussion of these measures, see Explanation andReconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Financial Performance Measures on pages 48–50.
(c) The ratios presented are calculated under the Basel III Advanced Fully Phased-In Approach, and they are key regulatory capital
measures. For further discussion, see “Capital Risk Management” on pages 76-85.

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

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

Dear Fellow Shareholders,Jamie Dimon,
Chairman andChief Executive Officer

I begin this letter with a sense of gratitude and pride about JPMorgan Chase thathas only grown stronger over the course of the last decade. Ours is an exceptional
company with an extraordinary heritage and a promising future.
Throughout a period of profound political and economic change around the world,
our company has been steadfast in our dedication to the clients, communities andcountries we serve while earning a fair return for our shareholders.
2016 was another breakthrough year for our company. We earned a record $24.7 billion
in net income on revenue 1 of $99.1 billion, reflecting strong underlying performanceacross our businesses. We have delivered record results in six out of the last sevenyears, and we hope to continue to deliver in the future.
Our stock price is a measure of the progress we have made over the years. This
progress is a function of continually making important investments, in good times andnot so good times, to build our capabilities — people, systems and products. These
1

2

Represents
managed revenue

Earnings, Diluted Earnings per Share and Return on Tangible Common Equity
2004–2016($ in billions, except per share and ratio data)
$24.4


24%

22%
$19.0
$17.4



15%

$14.4

$15.4
10%







15%

15%



10%



$8.5

$4.00

$11.7





$4.33

6%



$5.6

$2.35





$4.5
$1.52
2004

$21.7

$21.3





15%



$5.19

$4.48



$24.7

$17.9
11%



13%



$5.29

$6.00


$6.19






13%

13%

2015

2016

$4.34

$3.96


$2.26

$1.35
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

 Net income  Diluted earnings per share  Return on tangible common equity

investments drive the future prospects of our company and position it to grow andprosper for decades. Whether looking back over five years, 10 years or since the Bank
One/JPMorgan Chase merger (approximately 12 years ago), our stock has significantly
outperformed the Standard & Poor’s (S&P) 500 and the S&P Financials Index. And thisis during a time of unprecedented challenges for banks — both the Great Recession andStock total return analysis
Bank OneS&P 500

S&P Financials Index

11.5%
524.6%

4.3%
103.0%

3.1%
65.9%

JPMorgan Chase & Co.

S&P 500

S&P Financials Index

9.5%
211.0%

7.8%
154.8%

2.3%
32.3%

34.6%
24.4%
8.6%

12.0%
14.7%
6.9%

22.7%
19.4%
(0.4)%

Performance since becoming CEO of Bank One(3/27/2000—12/31/2016)1

Compounded annual gain
Overall gain

Performance since the Bank One
and JPMorgan Chase & Co. merger(7/1/2004—12/31/2016)

Compounded annual gain
Overall gain
Performance for the period ended
December 31, 2016

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

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

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

3

the extraordinarily difficult legal, regulatory and political environments that followed.
We have long contended that these factors explained why bank stock price/earnings
ratios were appropriately depressed. And we believe the anticipated reversal of many
negatives and the expectation of a more business-friendly environment, coupled with
our sustained, strong business results, are among the reasons our stock price has done
so well this past year.
As you know, we believe tangible book value per share is a good measure of the value
we have created for our shareholders. If we believe our asset and liability values areappropriate — and we do — and if we believe we can continue to deploy this capital at
an approximate 15% return on tangible equity, which we do, then our company should
ultimately be worth considerably more than tangible book value. If you look at thechart below, you’ll see that tangible book value “anchors” the stock price.
In the last five years, we have bought back $25.7 billion in stock. In prior years, I have
explained why buying back our stock at tangible book value per share was a nobrainer. While the first and most important use of capital is to invest in growth, buying
back stock should also be considered when you are generating excess capital. We do

Tangible Book Value and Average Stock Price per Share
2004–2016$65.62$63.83$58.17$51.88$47.75$43.93$38.70$39.83$36.07$40.36$39.36 $39.22$35.49$38.68$44.60$48.13$51.44$40.72$33.62$27.09$15.35$16.452004

2005$18.882006$21.96$22.52

2007

2008

 Tangible book value  Average stock price4

2009$30.12

2010

2011

2012

2013

2014

2015

2016

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

S&P 500(B)

Relative Results(A) — (B)

Performance since becoming CEO of Bank One(3/27/2000—12/31/2016)1

Compounded annual gain

12.2%

4.3%

7.9%

Overall gain

528.1%

103.0%

425.1%

JPMorgan Chase & Co.
(A)

S&P 500(B)

Relative Results(A) — (B)

Performance since the Bank One
and JPMorgan Chase & Co. merger(7/1/2004—12/31/2016)

Compounded annual gain

13.2%

7.8%

5.4%

Overall gain

373.6%

154.8%

218.8%

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

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

currently have excess capital. Five years ago, we offered the example of our buying
back stock at tangible book value and having earnings per share and tangible bookvalue per share substantially higher than they otherwise would have been just four
years later. While we prefer buying our stock at tangible book value, we think it makes
sense to do so at or around two times tangible book value for reasons similar to those
we’ve expressed in the past. If we buy back a big block of stock this year (using analyst
earnings estimates for the next five years), we would expect earnings per share in five
years to be 3%—4% higher, and tangible book value would be virtually unchanged.
In this letter, I discuss the issues highlighted on the next page — which describe manyof our successes and opportunities, as well as our challenges and responses. Like lastyear’s letter, we have organized much of the content around some of the key questions
we have received from shareholders and other interested parties.

5

I.

The JPMorgan Chase franchise

Page 7

1.
2.
3.
4.

Page 75.
6.

II.

Why do we consider our four major business franchises strong and market leading?
Why are we optimistic about our future growth opportunities?
What are some technology and fintech initiatives that you’re most excited about?
How do we protect customers and their sensitive information while enabling themto share data?
What are your biggest geopolitical risks?
Although banks and other large companies remain unpopular with some people,
you often say how proud you are of JPMorgan Chase. Why?

Regulatory reform
1.
2.
3.
4.
5.
6.
7.

Talk about the strength and safety of the financial system and whether Too Big
to Fail has been solved.
How and why should capital rules be changed?
How do certain regulatory policies impact money markets?
How has regulation affected monetary policy, the flow of bank credit and thegrowth of the economy?
How can we reform mortgage markets to give qualified borrowers access to thecredit they need?
How can we reduce complexity and create a more coherent regulatory system?
How can we harmonize regulations across the globe?

III. Public policy
1.
2.
3.
4.
5.
6.
7.
6

The United States of America is truly an exceptional country.
But it is clear that something is wrong — and it’s holding us back.
How can we start investing in our people to help them be more productive andshare in the opportunities and rewards of our economy?
What should our country be doing to invest in its infrastructure? How does the lackof a plan and investment hurt our economy?
How should the U.S. legal and regulatory systems be reformed to incentivize
investment and job creation?
What price are we paying for the lack of understanding about business andfree enterprise?
Strong collaboration is needed between business and government.

Page 9Page 9Page 10
Page 11

Page 12Page 17

Page 18
Page 20
Page 23

Page 24

Page 25
Page 30
Page 31

Page 32
Page 32
Page 32

Page 39

Page 40

Page 41

Page 42
Page 45

I. THE JPMO RGAN C H AS E F R anchise

1. Why do we consider our four major business franchises strong and market leading?
The chart below and those on page 8 speak
for themselves. Looking closely at the actual
numbers, it’s clear that every business isamong the top performers financially –whether you look at efficiency (overheadratios) or return on equity (ROE) vs. the bestin that business. More important, customer
satisfaction is at the center of everything
we do. Each business has gained market
share – which is possible only when you are
improving customer satisfaction and yourproducts and services relative to the competition. And each business continues to innovate, from customer-facing apps, to straightthrough processing, to digitized trading
services or payment systems. Our businessleaders do a great job describing their businesses, and I strongly encourage you to readtheir letters following this year’s Letter toShareholders. Each will give you a feel for
why we are optimistic about our future.

JPMorgan Chase Is in Line with Best-in-Class Peers in Both Efficiency and Returns
Efficiency
JPM 2016
overheadratiosConsumer &Community
Banking

55%

Returns
Best-in-classpeer overheadratios1

JPM target
overheadratiosJPM 2016
ROE2

Best-in-classpeer ROTCE3

56%

~50%

18%

14%

WFC–CB

Corporate &Investment
Bank

54%

39%

54%

Asset & WealthManagement

70%

39%

55%+/-

16%

13%

14%

BAC-GB & BAC–GM

35%

16%

12%

PNC

65%

20%

WFC

BAC–GB & BAC–GM

Commercial
Banking

JPM target
ROTCE2 (+/-)

15%

FITB

70%

24%

CS–PB & BLK

24%

25%

BAC–GWIM & TROW

JPMorgan Chase compared with peers4
Overhead ratios
Target55%+/–

ROTCE

JPM

56%

JPM

WFC

59%

WFC

BAC
C
GS
MS

65%
66%
74%

14%

BAC
C

58%

13%

GS
MS

Target
~15%

10%
8%
10%
9%

1

	Best-in-class overhead ratio represents comparable JPMorgan Chase (JPM) peer segments: Wells Fargo Community Banking(WFC–CB), Bank of America Global Banking and Global Markets (BAC–GB & BAC–GM), PNC Corporate and Institutional Banking(PNC), Credit Suisse Private Banking (CS–PB) and BlackRock (BLK).
	JPM 2016 ROE reflects allocation of common equity to each business. JPM target ROTCE reflects the 2017 change in capital
allocation methodology from common equity to tangible common equity, resulting in LOB equity being more in line with peers.
3	Best-in-class ROTCE is based on net income minus preferred stock dividends of comparable JPM peers and peer segments
when available: Wells Fargo & Company (WFC), BAC–GB & BAC–GM, Fifth Third Bank (FITB), Bank of America Global Wealthand Investment Management (BAC–GWIM) and T. Rowe Price (TROW).
4	WFC, Bank of America Corporation (BAC), Citigroup Inc. (C), Goldman Sachs Group, Inc. (GS), Morgan Stanley (MS).
ROTCE = Return on tangible common equity
2

7

Client Franchises Built Over the Long Term
2006
Deposits market share# of top 50 Chase markets
		 where we are #1 (top 3)
Average deposits growth rate
Active mobile customers growth rate
Credit card sales market share2
Merchant processing volume3($ in billions)1

Consumer &Community
Banking

Corporate &Investment
Bank

Global Investment Banking fees4
Market share4
Total Markets revenue5
Market share5
FICC5		Market share5
Equities5
		Market share5

Commercial
Banking# of Metropolitan Statistical Areas with
Middle Market banking presence6
Multifamily lending7
Gross Investment Banking
revenue ($ in billions)% of North America
		 Investment Banking fees

Asset & WealthManagement

Mutual funds with a 4/5 star rating8
Ranking of long-term client asset flows9
Active AUM market share10
North America Private Bank (Euromoney)
Client assets market share11

2015

2016

3.6%

7.9%

8.3%

11 (25)
8.0%
NM
15.9%

12 (40)
9.0%
20.0%
21.1%

14 (38)
10.0%
16.0%
21.5%

$661

$949

$1,063

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

#1
7.9%
#1
9.7%
#1
10.3%
#3
8.8%

#1
8.1%
#1
11.4%
#1
12.0%
#2
10.1%

26
#28

45
#1

47
#1

$0.7

$2.2

$2.3

16%

36%

40%

119
NA
1.8%
#1
3.0%

214
#4
2.6%
#1
4.4%

220
#2
2.5%
#1
4.4%

 Relationships with ~50% of U.S. households Industry leading deposit growth12
 #1 U.S. credit card issuer13
 #1 U.S. co-brand credit card issuer14
 #1 rated mobile banking app15
 #1 U.S. credit and debit payments volume16
 #2 merchant acquirer17

 >80% of Fortune 500 companies do business with us #1 in both N.A. and EMEA Investment Banking fees18
 #1 in Global Debt, Equity and Equity-related18
 #1 in Global Long-Term Debt and Loan Syndications18
 #1 in FICC productivity19
 Top 3 Custodian globally with AUC of $20.5 trillion20
 #1 in USD clearing volumes with 19.0% share in 201621

 Unparalleled platform capabilities — competitive advantage
 #1 in perceived customer satisfaction22
 Top 3 in overall Middle Market, large Middle Market
and Asset Based Lending Bookrunner23
 Industry-leading credit performance — 5th straight year of net
recoveries or single digit NCO rate 83% of 10-year long-term mutual fund AUM in top 2 quartiles24 Positive client asset flows every year since 2004 #2 Global Private Bank and #1 LatAm Private Bank25
 Revenue and long-term AUM growth ~80% since 2006
 Doubled WM client assets (1.6x industry rate) since 200610

For footnoted information, refer to slide 39 in the 2017 Firm Overview Investor Day presentation, which is available on JPMorgan Chase & Co.’s website(http://investor.shareholder.com/jpmorganchase/presentations.cfm), under the heading Investor Relations, Events & Presentations, JPMorgan Chase 2017 Investor Day,
Firm Overview, and on Form 8-K as furnished to the SEC on February 28, 2017, which is available on the SEC’s website (www.sec.gov).
NM = Not meaningful
NA = Not available

Increasing Customer Satisfaction
U.S. retail banking satisfaction1

Other important metrics
Increasing market share is a sign of increasing customer satisfaction

 Chase Industry average
 Big banks2
 Regional banks
 Midsized banks

 Chase grew its Business Banking primary bank market share from ~6% in 2012 to ~9%in 2016 Chase improved its performance in the J.D. Power Primary Mortgage Origination and Servicer
Satisfaction Studies — ranking #5 in originations and #6 in servicing. Chase originations andservicing rankings went up by 2 and 4 spots, respectively, compared to the 2015 rankings In Total Markets, J.P. Morgan ranked #1; in Fixed Income, #1, continuously since 2010; andin Equities, #2, having increased its share to 10.1% from 8.8% last year3
 Institutional Investor magazine surveys large investors every year. In 2016, J.P. Morgan
Research team rankings were: #1 for All-America Equity; #1 for All-America Fixed Income;and #1 for All-Europe Fixed Income. With the future focus on emerging markets, J.P. Morgan
Research ranked #2 in the survey for Emerging Markets EMEA Research Overall client satisfaction for CB clients has increased from 87% to 91% from 2010 to2016, according to our proprietary client survey J.P. Morgan ranks as the #1 private bank in the U.S. for eight consecutive years and #1 inLatin America for four consecutive years4 J.P. Morgan ranks as the Leading Pan-European Fund Management Firm for sevenconsecutive years5

2011
1
2

2012

2013

2014

2015

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

2016
Market share and rank is based on Coalition FY 16 results and reflects J.P. Morgan’s share of Coalition’s Global
Industry Revenue Pool. Total industry pool is based on J.P. Morgan’s internal business structure.
Source: Euromoney, 20175
Source: Thomson Reuters Extel, 20163

4

8

I. THE JPMORG AN CHAS E F RA N C H ISE

2. Why are we optimistic about our future growth opportunities?
We believe we have substantial opportunities in the decades ahead to drive organic
growth in our company. We have confidence
in the underlying growth in the U.S. andglobal economies, which will fuel the growthin our customer base – consumer deposits,
assets under management and small to large
clients globally. This growth will obviously
be faster in emerging markets than in developed markets – and we are well-positioned
to serve both. In addition, we believe wecan continue to gain share in many markets
and, over time, add new, relevant products.
This can drive organic growth for years.
Capturing this growth is very basic:• Selectively adding investment bankers
and private bankers around the world• Bringing consumer and commercial
banking branches and capabilities to moreplaces in the United States• Adding wholesale branches overseas andcarefully expanding into new countries• Adding wholesale and Private Bank clientsas they grow into our target space
Equally important is using technology andfintech to do a better job serving clients andto grow our businesses – with better products
and services. You can read more about our
big data, machine learning, payment systems,
cybersecurity and electronic trading on pages
47–68 described by our senior executives. But
I do want to highlight a few items in the nextquestion that pertain to these topics.

3. What are some technology and fintech initiatives that you’re most excited about?
One of the reasons we’re performing well as
a company is we never stopped investing intechnology – this should never change. In
2016, we spent more than $9.5 billion intechnology firmwide, of which approximately $3 billion is dedicated toward new
initiatives. Of that amount, approximately$600 million is spent on emerging fintech
solutions – which include building andimproving digital and mobile services andpartnering with fintech companies. The
reasons we invest so much in technology(whether it’s digital, big data or machinelearning) are simple: to benefit customers
with better, faster and often cheaper products and services, to reduce errors and to
make the firm more efficient.

We are developing great new products.

We are currently developing some exciting
new products and services, which we will be
adding to our suite and rolling out later thisyear, including:• End-to-end digital banking – The ability toopen an account and complete the majorityof transactions on a mobile phone.
• Investment advice and self-directed
investing – Online vehicles for both individual retirement and non-retirement
accounts, providing easy-to-use (andinexpensive) automated advice, as well as
enabling our customers to buy and sell
stocks and bonds, etc. (again inexpensively).
• Electronic trading and other online services(e.g., cash management) in our Corporate& Investment Bank and Asset & WealthManagement businesses – Offering ourclients a more robust digital platform.

9I. THE J P MO R GA N CH A SE FR A N C HI S E

We are investing in data and technology to
improve the financial health of low-income
households.

Over the last two years, the JPMorgan Chase
Institute has helped identify some of themost pressing financial challenges facing
American households, such as their difficulty
managing income and expense volatility.
We are using that data to select and support
innovative fintech companies and nonprofitsthat are designing solutions to address thesechallenges. One example of these efforts
is JPMorgan Chase’s Financial Solutions
Lab, which, in partnership with the Center
for Financial Services Innovation, seeks tofacilitate the next generation of fintech products to help consumers manage their daily
finances and meet their long-term goals.
Highlights of the initiative include:• To date, the Lab has helped support morethan 18 fintech companies working to
improve the financial health of more than
1 million Americans. One example is Digit,
an automated savings tool that identifies small amounts of money that can be
moved into savings based on spending
and income. To date, it has helped Americans save more than $350 million.
• Lab winners have raised more than $100
million in follow-on capital.

• In 2017, we launched a new competition
seeking innovative fintech solutions topromote the financial health of populations often overlooked, such as people ofcolor, individuals with disabilities and lowincome women.
We are successfully collaborating with othercompanies to deliver fintech solutions.

Whether it is consumer payment systems(Zelle), mortgages (Roostify), auto finance(TrueCar), small business lending (OnDeck
Capital) or communications systems(Symphony), we are successfully collaborating with some excellent fintech companies
to dramatically improve our digital and othercustomer offerings. I’d like to highlight justtwo new exciting areas:• Developer Services API store – By
providing direct interfaces with our applications (fully controlled, of course), we areenabling entrepreneurs, partners, fintech
companies and clients to build new products or services dedicated to specific needs.
• Bill payment and business services –While I can’t reveal much at the moment,
suffice it to say there are some interestingdevelopments coming as we integrate ourcapabilities with those of other companies.

4. How do we protect customers and their sensitive information while enabling them to share data?
For years, we have been describing the risks– to banks and customers – that arise whencustomers freely give away their bank passcodes to third-party services, allowing virtually unlimited access to their data. Customers
often do not know the liability this may
create for them, if their passcode is misused,
and, in many cases, they do not realize how
their data are being used. For example, accessto the data may continue for years after
customers have stopped using the third-party
services.

10

We recently completed a new arrangementwith Intuit, which we think represents
an important step forward. In addition toprotecting the bank, the customers andeven the third party (in this case, Intuit), it
allows customers to share data – how andwhen they want. Under this arrangement,
customers can choose whatever they would
like to share and opting to turn these selections on or off as they see fit. The data willbe “pushed” to Intuit, eliminating the needfor sharing bank passcodes, which protects
the bank and our customers and reduces
potential liabilities on Intuit’s part as well.
We are hoping this sets a new standard fordata-sharing relationships.

I. THE JPMORG AN CHAS E F RA N C H ISE

5. What are your biggest geopolitical risks?
Banks have to manage a lot of risks – fromcredit and trading risks to technological,
operational, conduct and cybersecurity risks.
But in addition to those, we have exposuresaround the world, which are subject tonormal cyclical and recession risks, as wellas to complex geopolitical risks.
There are always geopolitical risks, andyou can rest assured we are continuously
reviewing, analyzing and stress testing themto ensure that our company can endure them.
We always try to make certain that we canhandle the worst of all cases – importantly,
without disrupting the effective operation of
the company and its service to our clients. We
think these geopolitical risks currently are ina heightened state – that is, beyond what wemight consider normal. There are two specificrisks I want to point out:
Brexit and the increasing risk to the European
Union (EU).

Regarding Brexit, a key concern is to makesure our company is prepared to support ourclients on day one – the first day after theactual Brexit occurs, approximately two years
from now. We are confident we will be able
to develop and expand the capabilities that
our EU subsidiaries and branches will needto serve our clients properly in Europe under
EU law. This will require acquiring regulatory
approvals, transferring certain technologies
and moving some people. On day one, weneed to perform all of our critical functionsat our standards. For example, underwriting
debt and equity, moving money and accepting
deposits, and safeguarding the custody assets
for all of our European clients, including
many sovereigns themselves. We must be
prepared to do this assuming a hard exit by
the United Kingdom – it would be irresponsible to presume otherwise. While this does
not entail moving many people in the next
two years, we do suspect that following Brexit,
there will be constant pressure by the EU not

to “outsource” services to the United Kingdom
but to continue to move people and capabilities into EU subsidiaries.
We hope that the advent of Brexit would leadthe EU to focus on fixing its issues – immigration, bureaucracy, the ongoing loss ofsovereign rights and labor inflexibility – andthereby pulling the EU and the monetary
union closer together. Our fear, however, isthat it could instead result in political unrest
that would force the EU to split apart. The
unraveling of the EU and the monetary union
could have devastating economic and politicaleffects. While we are not predicting this will
happen, the probabilities have certainly goneup – and we will keep a close eye on the situation in Europe over the next several years.
De-globalization, Mexico and China.

Anti-globalization sentiment is growing inparts of the world today, usually expressing
itself in anti-trade and anti-immigration positions. (I’m not going to write about immigration in this letter – we have always supported
proper immigration – it is a vital part of thestrength of America, and, properly done, itenhances the economy and the vitality of
the country.) We do not believe globalization
will reverse course – we believe trade has
been absolutely critical for growth aroundthe world and has benefited billions ofpeople. While there are some issues with ourtrade policies that need to be fixed, poorly
conceived anti-trade policies could be quite
disruptive, particularly with two of our key
trading partners: Mexico and China.
The trade deal with Mexico through NAFTA
is simpler than the one with China. (In full
disclosure, JPMorgan Chase is a major international bank in Mexico, with revenue ofmore than $400 million, serving Mexican,
American and international clients who dobusiness there.) Mexico is a long-standing
peaceful neighbor, and it is wholly in ourcountry’s interest that Mexico be a prosperous nation. This actually reduces immigration issues (there are now more Mexicans
11

I. THE J P MO R GA N CH A SE FR A N C HI S E

going back to Mexico than coming into theUnited States). Our trade agreement with
Mexico helps ensure that the young democracy in Mexico is not hijacked by populist
and anti-American leaders (like Chavez didin Venezuela). While there are some clear,
identifiable problems with NAFTA, I believe
they will be worked out in a way that is fairand beneficial for both sides. The logic to doso is completely compelling.
China is far more complex. (Again, in full
disclosure, we have a major internationalpresence in China, with revenue of approximately $700 million, serving Chinese,
American and international clients who dobusiness in that country.) The United States
has some serious trade issues with China,
which have grown over the years – fromcybersecurity and the protection of intellectual property to tariffs, non-tariff tradebarriers and non-fulfillment of World Trade
Organization obligations. However, there
is no inevitable or compelling reason that
China and America have to clash – in fact,
improving political and economic relationships can be good for both parties. So while
the issues here are not easy, I am hopeful
they can be resolved in a way that is fair andconstructive for the two countries.

6. Although banks and other large companies remain unpopular with some people, you often
say how proud you are of JPMorgan Chase. Why?
I firmly believe the qualities embedded in
JPMorgan Chase today – the knowledge andcohesiveness of our people, our deep client
relationships, our technology, our strategic
thinking and our global presence – cannot
be replicated. While we take nothing for
granted, as long as we continue to do ourjobs well and continue to drive our company
forward, we think we can be a leader for ourindustry and the communities we serve for
decades to come. There are times when I
am bursting with pride with what we haveaccomplished for our clients, communities
and countries around the world – let mecount (some of) the ways:

12

We are strong and steadfast and are there for ourclients in good times and bad.

In the toughest of times, we maintained
a healthy and vibrant company that wasable to do its job – we did not need government support and, in fact, we consistently
provided credit and capital to our clients andassistance to our government throughout
the crisis. I want to remind our shareholders
that we continued to lend not at the muchhigher prevailing market rates at that time
but at existing bank rates. These were far
below market rates because our clients reliedon us – we were their lender of last resort.
JPMorgan Chase was and will be a Rock ofGibraltar in the best and worst of times forour clients around the world.

I. THE JPMORG AN CHAS E F RA N C H ISE

New and Renewed Credit and Capital for Our Clients
at December 31,$1.7

Corporate clients($ in trillions)

$1.6
$1.5
$1.4

$1.4

$1.3

$1.2
$1.1

$1.1

2008

2009

2010

2011

2012

2013

2014

2015

2016

$664

Consumer and Commercial Banking($ in billions)

$556

$601

$583
$523

$474

$479
$379

$419

2008

2009

2010

2011

2012

2013

2014

2015

2016

 Small business

$ 16

$ 7

$ 11

$ 17

$ 20

$ 18

$ 19

$ 22

$ 24

 Card & Auto

121

83

83

91

82

92

108

116

149

 Commercial/Middle market

104

77

93

110

122

131

185

188

207

 Asset management

51

56

67

100

141

165

127

163

173

 Mortgage/Home equity

187

156

165

156

191

177

84

112

111

We have extraordinary capabilities — both ourpeople and our technology.

Ultimately, our people are our most important assets – and they are exceptional. Theirknowledge, their capabilities and theirrelationships are what drive everything else,
including our technology and our innovation.
They partner well with each other aroundthe world, and they are deeply trusted by ourclients and within our communities. We all
owe them an enormous debt. They are theones accomplishing all the things you arereading about in this Annual Report.
Our fortress balance sheet and the strengthof our people were never more vividly
evident than during the darkest hours of thefinancial crisis. I was in awe of the tremendous effort our people made (thousandsof people, seven days a week for months)
13

I. THE J P MO R GA N CH A SE FR A N C HI S E

Assets Entrusted to Us by Our Clients

at December 31,($ in billions)

Deposits and client assets1$3,617$3,255$3,011$1,883

2011$503$3,633$3,802
$618

$558

$439

$398
$730

$464

$3,740

$757

$824

$861

$2,061$2,329$2,376$2,353$2,427

2012

2013

2014

2015

2016

$722

$755

 Client assets  Wholesale deposits  Consumer deposits

Assets under custody2

1
2

2011

2012

2013

2014

2015

2016

$16,870$18,835$20,485$20,549$19,943$20,520

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

to acquire and assimilate Bear Stearns andWashington Mutual – thereby saving 30,000
jobs and avoiding the devastation of communities that would have happened if thosecompanies had been allowed to fail. Our
company went above and beyond the call of
duty during the height of the crisis, including
lending $87 billion to a bankrupt Lehman
to facilitate, as much as possible, an orderly
unwind of its assets. In those dark days, wewere the only bank willing to commit tolending $4 billion to the state of California,$2 billion to the state of New Jersey and $1
billion to the state of Illinois to keep thosestates strong. None of these actions had tobe taken, and they were made at some risk
to JPMorgan Chase. We simply were acting
to do our part to try to stop the crisis fromgetting worse.

14

We try to be outstanding corporate citizens.

We believe in being great corporate citizens– in how we treat our employees and carefor our clients and communities. Let me givesome examples to illustrate this point:• We compensate our employees fairly
and provide extraordinary benefits andtraining. We value our employees at
JPMorgan Chase, and we are committed
to helping them succeed. This past year,
we announced that we will increase ourminimum wages – mostly for entry-levelbank tellers and customer service representatives – to between $12.00 and $16.50
an hour (depending on where these
employees live). This will increase wages
for approximately 18,000 employees.
We believe this pay increase is the rightthing to do, and, above all, it enables more
people to begin to share in the rewards

I. THE JPMORG AN CHAS E F RA N C H ISE

of our success. Remember, many of these
employees soon move on to even higher
paying jobs.

are respected, trusted and given equal
opportunity to contribute and raise theirideas and voices.

We will also continue to invest in
employee benefits and training opportunities so that our workers can continue
to increase their skills and advance theircareers. Our comprehensive benefits
package, including healthcare and retirement savings, on average, is valued at$11,000 per year. Our total investment in
training and development is approximately$325 million a year. Together, these efforts
help our employees support their families, advance their careers and promoteeconomic growth in our communities.

But there is one area in particular where
we simply have not met the standards
JPMorgan Chase has set for itself – and thatis in increasing African-American talentat the firm. While we think our effort to
attract and retain black talent is as goodas at most other companies, it simply is
not good enough. Therefore, in 2016, we
introduced a new firmwide initiative called
Advancing Black Leaders. This initiative isdedicated to helping us better attract andrecruit external black talent while retaining
and developing the talent within thecompany. And we are proud of our efforts
this past year – we increased the number ofblack employees at the officer level (throughboth internal promotions and external newhires), we focused on the pipeline of juniortalent, and we increased the number at thesenior officer and vice president level. We
plan to continue to make progress on thisfront in the years to come.

• We have a diverse workforce. We havemore than 243,000 employees globally withover 167,000 in the United States. Women
represent 50% of our employees. Recently,
Oliver Wyman, a leading global management consulting firm, issued a reportstating that it would be 30 years before
women reach 30% Executive Committee
representation within global financial
services. So you might be surprised to findout that women already represent 30% of
my direct reports and approximately 30%
of our company’s senior leadership globally.
They run major businesses – several units
on their own would be among Fortune
1000 companies. In addition to having
three women on our Operating Committee– who run Asset & Wealth Management,
Finance and Legal – some of our other businesses and functions headed by women
include Consumer Banking, Credit Card,
U.S. Private Bank, U.S. Mergers & Acquisitions, Global Equity Capital Markets,
Global Research, Regulatory Affairs, Global
Philanthropy, our U.S. branch network,
our Controller and firmwide Marketing.
I believe we have some of the best womenleaders in the corporate world globally. In
addition to gender diversity, 48% of our
firm’s population is ethnically diverse in
the United States, and we are in more than
60 countries around the world. Diversity
means running a company where people• We are proud of how we are helping
veterans. We want to continue to update
you on how JPMorgan Chase has helped
position military members, veterans andtheir families. Our program is centered on
facilitating success in their post-service
lives primarily through employment andretention. In 2011, JPMorgan Chase and10 other companies launched the 100,000
Jobs Mission, setting a goal of collectively
hiring 100,000 veterans. The initiative
now includes more than 200 companies,
has collectively hired nearly 400,000
veterans, and is focused on collectively
hiring 1 million people. JPMorgan Chasealone has hired more than 11,000 veteranssince 2011. We hope you feel as goodabout this initiative as we do.
• We have accomplished an extraordinary
amount in our Corporate Responsibility
efforts. We take this responsibility very
seriously, and, over the last decade, notonly have we more than doubled ourphilanthropic giving from approximately
15

I. THE J P MO R GA N CH A SE FR A N C HI S E$100 million to approximately $250
million in 2016, but we have dramatically increased our support with humancapital, collaboration, data and management expertise. Our head of Corporate
Responsibility talks about our significant
measures in more detail in his letter, but
I will highlight two initiatives below:− We provide tremendous support
to cities and communities – especially those left behind – and thebest example is our work in Detroit.
JPMorgan Chase has been doing business in Detroit for more than 80 years,
and we watched as this iconic Americancity was engulfed in economic turmoil
after years of decline. Just as Detroit
was declaring bankruptcy, our company
redoubled its efforts to help and, in
2014, announced our most comprehensive initiative to date – a $100 million
investment in Detroit to help accelerate
the city’s recovery.
We are making strategic, coordinatedinvestments focused on creating
economically inclusive and revitalized neighborhoods, preparing people
with the skills needed for today’shigh-quality jobs and providing small
businesses with the capital they needto grow and succeed. This includes ourinvestment in the Strategic Neighborhoods Fund, which brings together
community developers and dedicatedresources to create and maintain affordable housing and deliver services totargeted communities. We also seeded
the city’s first nonprofit real estatedevelopment firm focused exclusively
on creating and preserving affordable
housing in Detroit’s neighborhoods. In
2015, we helped create the $6.5 million
Entrepreneurs of Color Fund with the
Kellogg Foundation and Detroit Development Fund to bring critical financing
and technical assistance to underserved
minority- and community-based small
businesses. In its first year, the Fund
deployed almost $3 million in capitalthrough more than 30 loans. We are
16

also putting our talented employees
to work in Detroit through the Detroit
Service Corps. Since 2014, 68 JPMorgan
Chase employees from 10 countries
dedicated three intensive weeks to
16 Detroit nonprofits, helping them
analyze challenges, solve problems
and improve their chances for success.
Detroit is making incredible progress
as a result of the unprecedented spiritof engagement and cooperation among
the city’s leaders, business community and nonprofit sectors. JPMorgan
Chase is proud to be part of Detroit’s
resurgence, and we believe a thriving
Detroit economy will become a shining
example of American resilience andingenuity at work.
− And more broadly, we created solutions
for one of our country’s biggest challenges – training the world’s workforce in the skills needed to compete
in today’s economy. Through several
targeted initiatives, JPMorgan Chase isinvesting over $325 million in demanddriven workforce development initiatives around the world. Our programs
build stronger labor markets thatcreate economic opportunity, focusing
on middle-skill jobs – positions that
require a high school education, andoften specialized training or certifications, but not a college degree. Thesejobs – surgical technologists, diesel
mechanics, help desk technicians
and more – offer good wages and thechance to move up the economic ladder.
Our goal is to increase the number ofworkers who have access to career pathways, whether they are adults looking
to develop new skills or younger
workers starting to prepare for careers
during high school and ending withpostsecondary degrees or credentials
aligned with good-paying, high-demandjobs. We are very proud that we can bea bridge between businesses and job
seekers to support an economy thatcreates opportunity for everyone.

II.

R EGU LATO RY R E FO R M

We had a severe financial crisis followedby needed reform, and our financial system
is now stronger and more resilient as aresult. During and since the crisis, we’ve
always supported thoughtful, effective
regulation, not simply more or less. But it
is an understatement to say improvements
could be made. The regulatory environment is unnecessarily complex, costly andsometimes confusing. No rational person
could think that everything that was done
was good, fair, sensible and effective, or
coherent and consistent in creating a safer
and stronger system. We believe (and manystudies show) that poorly conceived anduncoordinated regulations have damaged
our economy, inhibiting growth and jobs –and this has hurt the average American. We
are not looking to throw out the entirety of
Dodd-Frank or other rules (many of whichwere not specifically prescribed in DoddFrank). It is, however, appropriate to open
up the rulebook in the light of day andrework the rules and regulations that don’t
work well or are unnecessary. Rest assured,
we will be responsibly and reasonably
engaged on this front. We believe changes
can and should be made that preserve
the safety and soundness of the financial
system and lead to a more healthy andvibrant economy for the benefit of all.

There are some basic principles that should guide
responsible regulation:• Coherence of rules to be coordinated bothwithin and across regulatory agencies• Global harmonization of regulation toenhance fair trade and competition while
helping eliminate any weak links in the
global system• Simplified and proper risk-based capital
standards• Consistent and transparent capital andliquidity rules• Regular and rigorous regulatory review,
including consideration of costs vs. benefits, efficiencies, competitiveness, reduction of redundant costs and assessment of
impact on economic growth
Adhering to these principles will maximize
safety and soundness, increase competition
and improve economic health.
Since the financial crisis, thousands of newrules and regulations have been put into
place by multiple regulators in the UnitedStates and around the world. An alreadycomplex system of financial oversight andsupervision has grown even more complex– and this complexity can sometimes createeven more risk. Many of these rules andregulations should be examined and possibly
modified, but I will focus on the few that are
critical in response to some of the questions
and topics that follow.

17II. R eg u lato Ry R e fo R m

1. Talk about the strength and safety of the financial system and whether Too Big to Fail has
been solved.
There is no question that the system is safer
and stronger today, and this is mostly due tothe following factors:• Dramatically higher capital for almost allbanks (we’ll talk later about how muchcapital is the appropriate amount)• Far higher liquidity for almost all banks(again, we’ll provide more details later inthis section)• More disclosure and transparency – bothto investors and regulators• More coordinated oversight within the
United States and abroad• Far stronger compliance and control
systems• Laws that allow regulators to step in to
unwind not only failing banks but investment banks (this did not exist for investment banks prior to the financial crisis)• The creation of “bail-inable” unsecured
debt – this converts debt into equity at thetime of failure, immediately recapitalizing
the failed bank
• New rules that prohibit derivatives
contracts from being voided at bankruptcy– this allows derivatives contracts to stayin place, creating an orderly transition tobankruptcy• Stress testing that monitors banks’ balance
sheets and capital ratios under severely
adverse scenarios (more on this below)• Requirements for banks and investmentbanks to prepare corporate recovery plansin the event of a crisis to prevent bankruptcy (these plans did not exist before
the financial crisis)

18

These changes taken together not only
largely eliminate the chance of a majorbank failing today but also prevent such
failure from having a threatening domino
effect on other banks and the economy as awhole. And if a major bank does fail, regulators have the necessary tools to manage itin an orderly way. Moreover, the banking
industry itself has an inherent interest in
the safety and soundness of the financial
system because if there is a failure, the entire
industry will be liable for that cost (more onthat below).
Essentially, Too Big to Fail has been solved —taxpayers will not pay if a bank fails.

The American public has the right todemand that if a major bank fails, they, as
taxpayers, would not have to pay for it, andthe failure wouldn’t unduly harm the U.S.
economy. In my view, these demands havenow both been met.
On the first count, if a bank fails, taxpayers
do not pay. Shareholders and debtholders,
now due to total loss absorbing capacity(TLAC) rules, are at risk for all losses. To add
belts and suspenders, if all that capital is notenough, the next and final line of defense is
the industry itself, which is legally liable to
pay any excess losses. (Notably, since 20o7,
JPMorgan Chase alone has contributed $11.7
billion to the industry deposit fund.)On the second count, a regulatory takeoverof a major bank would be orderly because
regulators have the tools to manage it in theright way.
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 the newrequirements would mean that instead of
Lehman’s equity capital being $23 billion,
which it was in 2007, it would be approximately $45 billion under today’s capital rules.
In addition, Lehman would have far stronger

II. Reg ulatoRy RefoRm

liquidity and “bail-inable” debt. And finally,
the firm would be forced to raise capitalmuch earlier in the process.
If Lehman failed anyway, regulators would
now have the legal authority to put thefirm in receivership (they did not have thatability back in 2007–2008). The moment that
happened, unsecured debt of approximately$120 billion would be immediately converted
to equity. Derivatives contracts would not be
triggered, and cash would continue to movethrough the pipes of the financial system. In
other words, due to the living wills, Too Big
to Fail was solved before any additional rules
were put in place. (I’m not going to go into
detail on the living wills but will say thatwhile they have some positive elements, they
have become unnecessarily complex andcostly, and they need to be simplified.)
Last, there is a new push for Chapter 14
bankruptcy for banks, which we at JPMorgan
Chase support.

This would provide specialized rules toquickly handle bankruptcy for banks.
Whether a failed bank goes through Chapter
14, called “bankruptcy,” or Title II, called“resolution” – these are essentially the samething – we should make the following point
perfectly clear to the American people: A
failed bank means the bank’s board andmanagement are discharged, its equity isworthless, compensation is clawed back to
the extent of the law and the bank’s namewill forever be buried in the Hall of Shame.
In addition, we should change the term “resolution” – as it sounds as if we are bailing out
a failing bank (which couldn’t be further
from the truth). Whatever the term is called,
it should be made clear that the process
is the same as bankruptcy in any otherindustry. One lesson from the prior crisis isthat the American public will not be satisfied
without “Old Testament Justice.”

But market panic will never disappear entirely,
and regulations must be flexible enough to allowbanks to act as a bulwark against it rather than
forcing financial institutions into a defensive
crouch that will only make things worse.

There will be market panic again, and it
won’t affect just banks – it will affect theentire financial marketplace. Remember,banks were consistent providers of credit atexisting prices into the crisis – the market
was not. During the crisis, many companies
could not raise money in the public markets,
many securities did not trade, securities issuances dropped dramatically and many asset
prices fell to valuation levels that virtually
anticipated a Great Depression. Last timearound, banks – in particular (and I say withpride) our bank – stood by their customers
to provide capital and liquidity that helped
them survive. However, today’s capital andliquidity rules have created rigidity that will
actually hurt banks’ ability to stand against
the tide as they did during the Great Recession. This will mean that banks will survive
the next market panic with plenty of cushionthat could have been – but may not havebeen – used to help customers, companies
and communities.
It is in this environment that regulators needcertain authorities to stop the situation fromgetting worse. One important point: Underboth Chapter 14 and Title II, there might bea short-term need for the Federal Deposit
Insurance Corporation or the Fed to lendmoney, in the short run with proper collateral, to a failing or failed institution. This isbecause panic can cause a run on the bank,and it is far less painful to the economy ifthat bank’s assets are not sold in fire sales.
This lending is effectively fully secured, andno loss should ever be incurred. Again, anyloss that did occur would be charged back to
all the banks. This also gives banks an enormous incentive to be in favor of a properly
designed, safe and sound system.
Going back to the principles above, putting
safety and soundness first is clearly correct,
but regulators also need the ability to take
into consideration the costs and impact on
our economy in various scenarios.
19II. R eg u lato Ry R e fo R m

2. How and why should capital rules be changed?
We need consistent, transparent, simplified andmore risk-based capital standards.

A healthy banking system needs consistentand transparent capital and liquidity rulesthat are based on simplified and properrisk-based standards. This allows banks touse capital intelligently and to properly plan
capital levels over the years. Any rules thatare capricious or that cause an arbitrary
reduction in the value of a bank’s capital –and the value of the bank overall – can cause
improper or inefficient risk taking. Finally,
proper capital rules will allow a bank to do
its job: to consistently finance the economy,
in good times and, importantly, in bad times.

There are more than 20 different major
capital and liquidity requirements – andthey often are inconsistent. For example,
certain liquidity rules force a bank to holdan increasing amount of cash, essentiallydeposited at the Fed, but other rules require
the bank to hold capital against this risk-free
cash. An extraordinary number of calculations need to be made as companies try to
manage to avoid inadvertently violating oneof the standards – a violation that rarely
affects safety and soundness. To protect
themselves, banks build enormous buffers –and buffers on top of buffers – or otherwise
take unnecessary actions to ensure that they
don’t step over the line. And finally, if weOur Fortress Balance Sheetat December 31,

2008

2016

CET1

7.0%3

+520 bps

12.2%4TCE/
Total assets1

4.0%+350 bps

7.5%

Tangiblecommon equity

$84B

+$99B

$183B

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

RWA$1.2T3+$300B$1.5T4

Operational risk RWA$0+$400B$400B

Liquidity~$300B+~$486B$786B

Fed funds purchased and securities loaned
or sold under repurchase agreements

$193B

–$27B

$166B

Long-term debt andpreferred stock2

$303B

+$18B

$321B

1

Excludes goodwill and intangible assets.
Includes trust preferred securities.
3
Reflects Basel I measure; CET1 reflects Tier 1 common.
4
Reflects Basel III Advanced Fully Phased-in measure.
2

B = billions
T = trillions
bps = basis points

CET1 = Common equity Tier 1 ratio. CET1 ratios reflect the capital rule the firm was subject to at each reporting period
TCE = Tangible common equity
RWA = Risk-weighted assets
HQLA = High quality liquid assets predominantly includes cash on deposit at central banks and unencumbered U.S. agency
mortgage-backed securities, U.S. Treasuries and sovereign bonds
Liquidity = HQLA plus unencumbered marketable securities and trapped liquidity not included in HQLATLAC = Total loss absorbing capacity20

16.7% adjusted
Basel III Advanced
excluding operationalrisk RWA

Reported HQLA
is $524 billion$172 billion
eligible forexternal TLAC

II. Reg ulatory Reform

enter another Great Recession, the need forthese buffers increases, which inevitably will
force a bank to reduce its lending.
We have a fortress balance sheet — far more than
the numbers imply.

The chart on page 20 shows the dramatic
improvement in our capital and liquidity
numbers since 2008. Remember, we had
enough capital and liquidity in 2008 to easily
handle the crisis that ensued.
The numbers are even better than they lookon the chart for the following reasons:• In 2008, there was no such thing as
operational risk capital (not to say there
wasn’t operational risk but just that
capital was not applied to it). If you
measured our capital ratio on the same
basis as in 2008 (that is, on an apples
to apples basis), we wouldn’t have just
12.2% today vs. 7% in 2008 – we would
have 16.7% today vs. 7% in 2008.
• Since 2008, the regulatory definition ofliquidity has been prescribed. Now, only
deposits at a central bank, Treasuries andgovernment-guaranteed mortgage-backed
securities (plus a limited amount ofsovereign and corporate bonds) count asliquidity. Many securities are not allowed
to count as liquidity today – on the theory
that they can sustain losses and occasionally become illiquid. While maybe not all
100% of the current value of these securities should apply toward liquidity requirements, they should count for something. If
you did combine all of these categories asliquidity, our liquidity at JPMorgan Chasewould have gone from $300 billion in2008 to $786 billion today. And remember,
our deposits – theoretically subject to “runon the bank” risk – total $1.4 trillion. Evenin the Great Recession, the worst case for abank was only a 30% loss of its deposits.

2

Tangible common
equity, long-term debt
and preferred stock.

3

RWA less operationalrisk RWA.

• Finally, when you include long-term debt
and preferred stock as loss absorbing
capital, our total capital 2 is approximately$500 billion vs. true risk-weighted assets
of $1.1 trillion.3 Essentially, since 2008, ourtotal capital has gone from $387 billion
to $500 billion, while actual risk-weighted
assets have declined to $1.1 trillion.
In addition to our fortress balance sheet,
we are well-diversified, and we have healthy
margins and strong controls. These are all
factors that dramatically improve safety
and soundness, but they are not included inany measures. As you will see below, we canhandle almost any stress.
We believe in stress testing, but it could be
improved and simplified.

As you know, the Fed puts our company
through one “severely adverse” stress test
annually, which determines how we can use
our capital, pay dividends, buy back stock andexpand. We are great believers in stress testing
but would like to make the following points:• Our shareholders should know that we
don’t rely on one stress test a year – we
conduct more than 200 each week across allof our riskiest exposures. We meet weekly;
we analyze each exposure in multiple ways;
we are extremely risk conscious.
• The Federal Reserve’s Comprehensive
Capital Analysis and Review (CCAR)
stress test estimates what our losses
would be through a severely adverse
event lasting over nine quarters, whichapproximates the severity and time of
the Great Recession; e.g., high unemployment, counterparty failures, etc. The
Fed estimates that in such a scenario, we
would lose $31 billion over the ensuingnine quarters, which is easily manageable
by JPMorgan Chase’s capital base. My
own view is that we would make money
in almost every quarter in that type ofenvironment, and this is supported byour having earned approximately $30
billion pre-tax over the course of the nine
quarters during the real financial crisis.

21

II. R eg u lato Ry R e fo R m

We don’t completely understand the Fed’s
assumptions and models – the Fed does notshare them with us (we hope there will be
more transparency and clarity in the future).
But we do understand that the Fed’s stresstest shows results far worse than our own
test because the Fed’s stress test is not a forecast of what you actually think will happen.
Instead, it appropriately makes additional
assumptions about a company’s likelihood
to fail – that its trading losses will be far
worse than expected, etc. The Fed wants tomake sure the bank has enough capital if justabout everything goes wrong.

It is clear that the banks have too much capital.

Finally, while we firmly believe banks shouldhave a proper assessment of their qualitative
abilities, this should not be part of a once-ayear stress test. Instead, it should be part of
the Fed’s regular exam process. The Fed andthe banks should work together to continuously improve the quality of their processes
while creating a consistent, safe and economy-growing use of capital.

Proper calibration of capital is critical toensure not only that the system is safe andsound but that banks can use their capital tofinance the economy. And we think it’s clearthat banks can use more of their capital tofinance the economy without sacrificing safety
and soundness. Had they been less afraid ofpotential CCAR stress losses, banks probably
would have been more aggressive in making
some small business loans, lower rated middle
market loans and near-prime mortgages.

Here is another critical point: The Fed’s stresstest of the 33 major banks estimates what
each bank would lose assuming it were theworst bank in the crisis, which, of course, will
not be true in the real world. But even if that
happened, the chart below shows that if you
combine all the banks’ extreme losses, the total
losses add up to less than 10% of the banks’
combined capital. This definitively proves that
there is excess capital in the system.
And more of that capital can be safely used tofinance the economy.

Loss Absorbing Resources of U.S. SIFI Banks Combined($ in billions)$2,192$1,749$1,1730%
˜1$1,2742x
˜$1,019
$195

$475
20071

20161

 Loan loss reserves, preferred stockand long-term debt

 Tangible common equity
Includes 2013’s 18 participating CCAR banks as well as Bear Stearns,
Countrywide, Merrill Lynch, National City, Wachovia and Washington Mutual.
SIFI = Systemically Important Financial Institution
CCAR = Comprehensive Capital Analysis and Review
1

Source: SNL Financial; Federal Reserve Bank

22

33 CCAR banks 2016
projected pre-tax net losses(severely adverse scenario)

II. Reg ulatory Reform

The global systemically important bank (GSIB)
and supplementary leverage ratio (SLR) rules
need to be modified.

The GSIB capital surcharge forces large banks
to add even more capital, based on somevery complex calculations that are highly
flawed and not risk based. In fact, the rules
often penalize fairly risk-free activity, such as
deposits held at the Fed and short-term secured
financing. Likewise, the SLR rules force capital
to be held on deposit at the Fed in Treasury
securities and in other liquid securities. Neither
calculation gives credit for operating margins,diversification or annuity streams of business.
These calculations should, at a minimum,
be significantly modified and balanced topromote lending and other policy goals,
including maintaining deep and liquid capital
markets, clearing derivatives and directing
more private capital in the mortgage market.
Operational risk capital should be significantly
modified, if not eliminated.

No one could credibly argue that there is nosuch thing as operational risk, separate anddistinct from credit and market risk. All businesses have operational risk (trucks crash,computers fail, lawsuits happen, etc.), butalmost all businesses successfully manage itthrough their operating earnings and general
resources. Basel standards required banks
to hold capital for operational risk, and theUnited States “gold plated” this calculation.
Banks in the United States in total now holdapproximately $200 billion in operational risk
capital. For us, we hold excess operational risk
capital which is not being utilized to support
our economy. It was an unnecessarily large
add-on. If you are going to have operationalrisk capital, it should be forward looking, fairly
calculated, coordinated with other capital rules
and consistent with reality. (Currently, if you
exit a business that created operational risk
capital, you are still, most likely, required tohold the operational risk capital.)
Finally, America should eliminate its “goldplating” of international standards.

American regulators took the new Baselstandards across a wide variety of calculations and asked for more. If JPMorgan Chase
could use the same international standards
as other international banks, it would free up
a material amount of capital. The removal of
the GSIB surcharge “gold plating” alone would
free up $15 billion of equity capital – anamount that could support almost $190 billion
of loans. In addition, America gold plated
operational risk capital, liquidity rules, SLR
rules and TLAC rules. Later in this letter, we
will discuss international standards.
Properly done and improved, modifying
many of these regulatory standards could
help finance the growth of the American
economy without damaging the safety andsoundness of the system.

3. How do certain regulatory policies impact money markets?

4

Match-funding ensures thatthe risk characteristics —e.g., interest rate, maturity— of the asset (e.g., loan)
are offset by the liability(e.g., deposit) funding it.

Different from most banks, money centerbanks help large institutions – including
governments, investors and large money
market funds – move short-term funds
around the system to where those funds areneeded most. The recipients of these funds
include financial institutions (including nonmoney center banks) and corporations that
can have large daily needs to invest or borrow.
The products that money center banks offer
large institutions are predominantly deposits,
securities, money market funds and shortterm overnight investments called repurchaseagreements. These involve enormous flows
of funds, which money center banks handle
easily, carefully and securely. They are generally match-funded 4, almost no credit risk istaken, and most lending is done wholly andproperly secured by Treasuries or government-guaranteed securities. These transactions represent a large part of JPMorgan
Chase’s balance sheet. Because of new rules,
capital in many cases must be held on theseshort-term, virtually riskless activities, andwe believe this has caused distortions in themarketplace. For example:
23

II. R eg u lato Ry R e fo R m• Swap spreads, for the first time in history,
turned negative, which means that corporations need to pay a lot more to hedge
their interest rate exposure.

though we could have taken them without
incurring any risk whatsoever (we simply
would have deposited the $200 billion at
the central bank).

• Reduction in broker-dealer inventories has
impacted liquidity.

The charts below shows some of the reduction in banks’ market-making abilities.

• Many banks reject certain types of large
deposits from some of their large institutional clients. In a peculiar twist of fate
– and something difficult for our clientsto understand – through 2016, JPMorgan
Chase turned away 3,200 large clientsand $200 billion of their deposits even

We need to work closely with regulators toassess the impact of the new rules on specificmarkets, the cost and volatility of liquidity,
and the potential cost of credit. We shouldbe able to make some modest changes thatin no way impact safety and soundness but
improve markets.

Dealer Positions across Treasuries,
Agencies, MBS1 and Corporates
2006–2016

Total Repurchase Agreements Outstanding
2006–2016($ in billions)($ in billions)$600$5,500$5,000$500$4,500$400$4,000$3,500$300$3,000$200$2,500$100
Jan. ’06
1

Sep. ’08

Jun. ’11

Mar. ’14

Dec. ’16$2,000Jan. ’06

Sep. ’08

Jun. ’11

Mar. ’14

Dec. ’16

Mortgage-backed securities (MBS)

Source: Haver; Federal Reserve Bank of New York4. How has regulation affected monetary policy, the flow of bank credit and the growth of theeconomy?
It is extremely important that we analyze
how new capital and liquidity rules affect thecreation of credit; i.e., lending. We have yet
to see thorough, thoughtful analysis on thissubject by economists – because in this case,
it is very hard to calculate what might havebeen counterfactual. However, it seems clearthat if banks had been able to use more of
their capital and liquidity, they would havebeen more aggressive in terms of expanding:Think of additional bankers, bank branches
and geographies, which likely would have24

led to additional lending. (On the following
pages, we make it clear that this would havebeen the case in mortgage lending.)
I would like to focus on how liquidity policies
may have impacted the effectiveness of monetary policy and lending. The chart on page
25 shows bank loans vs. bank deposits from2006 to 2016. During the last several decades,
deposits and loans were mostly balanced.
You can see that stopped being true after thestart of the Great Recession. Today, loans areapproximately $2 trillion less than deposits.

II. Reg ulatoRy RefoRm

Bank Loans and Bank Deposits
2006–2016($ in trillions)
$14.0
$12.0
$10.0
$8.0
$6.0
$4.0
$2.0
$0.0
2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

 Bank loans  Bank deposits
Source: Haver; Federal Reserve Bank

Many factors may influence this scenario,
but there are two arguments at the bookends
about why this happened:• There was simply not enough loan
demand due to a slow-growing economy.
• The new liquidity rules require banks
to hold approximately $2 trillion at theFederal Reserve, whether or not there isloan demand.
It is evident that banks reduced certain typesof lending legitimately – think of some of theinappropriate subprime mortgage lending –but banks cut back on other types of lending

as well because of the new rules; for example,
small business lending due to CCAR andcross-border lending because of GSIB. The
ensuing discussion shows how other regulatory rules dramatically decreased mortgage
lending, again slowing down the economy.
It is clear that the transmission of monetary
policy is different today from what it was in
the past because of new capital and liquidity
rules. What is not clear is how much theserules reduced lending. Again, working
together, we should be able to figure it out andmake appropriate improvements that enhance
economic growth without damaging the safetyof the system.

5. How can we reform mortgage markets to give qualified borrowers access to the credit they need?
Much of what we consider good in America– a good job, stability and community
involvement – is represented in the achievement of homeownership. Owning a home isstill the embodiment of the American Dream,and it is commonly the most important asset
that most families have.

So it is no surprise the financial crisis, which
was caused in part by poor mortgage lending
practices and which caused so much pain
for American families and businesses, led
to new regulations and enhanced supervision. We needed to create a safer and better
functioning mortgage industry. However, our25II. R eg u lato Ry R e fo R mhousing sector has been unusually slow torecover, and that may be partly due to restrictions in mortgage credit.
Seven major federal regulators and a long listof state and local regulators have overlapping
jurisdiction on mortgage laws and wrote aplethora of new rules and regulations appropriately focused on educating and protecting
customers. While some of the rules are
beneficial, many were hastily developed andlayered upon existing rules without coordination or calibration as to the potential effects.
The result is a complex, highly risky andunpredictable operating environment that
exposes lenders and servicers to disproportionate legal liability and materially increases
operational risks and costs. These actions
resulted in:• Mortgages that cost the consumer more
• A tightening credit box; i.e., mortgage
lenders are less likely to extend credit toborrowers without a strong credit history• An inhibition of the return of private
capital to the housing industry• The crowding out of resources to improve
technology and the customer experience
The chart below and the top chart on page 27
show the decline in lending to individuals
with lower credit scores. The bottom chart on
page 27 shows what is likely a related decline
in the sales of new but lower priced homes.

Share of Borrowers with Strong Credit Has Increased Dramatically
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

2001

2002

2003

2004

2005

2006

2007

2008

2009

 FICO scores >700  FICO scores between 660–700  FICO scores <660
Source: Urban Institute Housing Finance Policy Center

26

2010

2011

2012

2013

2014

2015

II. Reg ulatoRy RefoRm

Average FICO of Newly Originated 30-Year Purchase Loans, for the GSEs and FHA775
750
40 point
increase

725
700

70 point
increase

675
650
625
2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

 GSE  FHAGSE = Government-sponsored enterprise
FHA = Federal Housing Administration
Source: Freddie Mac, The Federal Housing Administration

Comparison of New Home Sales by Price Range
Benchmark (1x = January 2010 sales levels)
6x
5x
4x
3x
2x
1x
0x
2000

2005

2010

2015

 Over $300,000  Under $300,000
Source: Haver; U.S. Census Bureau

There are significant opportunities to makesimple changes that can have a dramatic
impact on improving the current state of thehome lending industry – this will make accessto good and affordable mortgages much moreachievable for far more Americans. And it’s
noteworthy that those who lost access tomortgage credit are the very ones who somany people profess to want to help – e.g.,
lower income buyers, first-time homebuyers,
the self-employed and individuals with priordefaults who deserve another chance.

Federal Housing Administration (FHA) reform canbring banks back and expand access to credit.

The FHA plays a significant role in providing
credit for first-time, low- to moderate-income
and minority homebuyers. However, aggressive use of the False Claims Act (FCA) (aCivil War act passed to protect the government from intentional fraud) and overly
complex regulations have made FHA lending
risky and cost prohibitive for many banks.
In fact, FCA settlements wiped out a decadeof FHA profitability, and subsequent losses
27II. R eg u lato Ry R e fo R m

Nonbank Share of New 30-Year FHA Originations
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2011

2012

2013

2014

2015

2016

 Nonbank
Source: Ginnie Maehave kept returns on capital solidly below
our target. This has led us to scale back ourparticipation in the FHA lending program infavor of less burdensome lending programs
that serve the same consumer base – and weare not alone. The chart above shows thatnonbanks have gone from 20% to 80% of
FHA originations.
A first step to increasing participation in the
FHA program could be the communication of
support for only using the FCA, as originallyintended, to penalize intentional fraud rather
than immaterial or unintentional errors. Otherchanges that would help would be:• Improve and fully implement the
Housing and Urban Development’s (HUD)
proposed defect taxonomy, clarifying
liability for fraudulent activity.
• Revise certification requirements to makethem more commercially reasonable.
• Simplify loss mitigation by allowing
streamlined programs and aligning withindustry standards.
• Eliminate costly, unnecessary andoutdated requirements that make the costof servicing an FHA loan significantly
more expensive than a conventional loan.
28

Mortgage servicing is too complex: National
servicing standards would help.

Mortgage servicing is a particularly complex
business in which the cumulative impactof regulations has dramatically increased
operational and compliance risk and costs(remember that costs are usually passed
on to the customer). Mortgage servicing
starts immediately after loan origination(loan origination also has become significantly more expensive and complex as aresult of regulatory changes) and involves acontinuing and dynamic relationship amonga servicer, customer and investor or guarantor, such as Fannie Mae, Freddie Mac or
FHA, to name a few.
New mortgage rules and regulations total
more than 14,000 pages and stand about six
feet tall. In servicing alone, there are thousands of pages of federal and state servicing
rules now – clearly driving up complexity
and cost. The Mortgage Bankers Association estimated the fully loaded annual costof industry servicing, as of 2015, to be $181
for a performing mortgage and $2,386 for amortgage in default. The cost of servicing adefaulted loan is so high that many servicers
avoid underwriting loans that have even a
modest probability of default. This is anotherII. Reg ulatoRy RefoRm

reason why mortgage companies avoid underwriting certain types of mortgages today thanthey would have underwritten in the past.
The most promising opportunity in mortgage servicing is to adopt uniform national
servicing standards across guarantors,
federal and state regulators, and investors.
Importantly, there is no need for legislation
to implement the necessary coordination to
get this done. In particular, the U.S. Treasury
is well-positioned to lead key players in themortgage industry (the Consumer Financial Protection Bureau, Fannie Mae, Freddie
Mac, the Federal Housing Finance Agency,
HUD, the FHA, the Veterans Administration, Ginnie Mae and the U.S. Departmentof Agriculture) to establish national service
standards that would simplify mortgage
origination and servicing. Treasury played asimilarly pivotal leadership role during thecrisis when it helped develop the various
mortgage assistance initiatives, such as theloan modification and streamlined refinanceprograms that allowed many Americans tostay in their homes and communities.
Private capital needs to return in order to makethe market less taxpayer dependent — we needto complete the securitization standards.

Private capital in the mortgage industry,
particularly in the form of securitizations,dried up as a result of the financial crisis.
Eight years later, we still have not opened upa healthy securitization market because of
our inability to finalize the rules. Not only
does this reduce the share of private capitalin the U.S. housing sector (an action thatwould significantly reduce taxpayer exposure), it also significantly increases the costto the customer. Taking a few actions would
fix this, including:• Rationalize capital requirements on securitizations to effectively transfer risk to themarket while leaving “skin in the game”
with the originator.

• Reduce the complexity of data delivery
requirements.
• Clarify and define materiality standards
associated with compliance with laws andregulations, as well as underwriting standards, to allow for reasonable protections
from litigation and to enable standardized
due diligence practices.
If we do this right, we believe the mortgage
market could add more than $300 billion a year
in new purchased loans.

If we take the actions mentioned above, we
believe that the cost to a customer would
be 20 basis points lower and that mortgage
underwriters would be willing to take more
– but appropriate – risk on loans (again, thiswould be for first-time, young and lower
income buyers, those with prior delinquencies but who are now in good financial
standing and those who are self-employed).
Taken in total, we believe the issues identified above have reduced mortgage lending by
more than $300 billion purchased mortgages
annually (our analysis deliberately excludes
underwriting the subprime and Alt-A mortgages that caused so many problems in the
Great Recession). Had we been able to fix
these issues five years ago (i.e., three years
after the crisis), our analysis shows that,conservatively, more than $1 trillion in mortgage loans might have been made.
If this is true, it may explain why our housing
sector has been unusually slow to recover:$1 trillion of new mortgage loans is approximately 3 million loans. Of these, typicallymore than 20% would go to purchase newhomes that would need to be built. By any
estimate, this could have had a significant
impact on the growth of jobs and grossdomestic product (GDP). Our economists thinkthat $1 trillion of loans could have increased
GDP, in each of those five years, by 0.5%. In
the next section, we will talk about how this isjust one of the many things we did to damage
our nation’s economy.

29

II. R eg u lato Ry R e fo R m

6. How can we reduce complexity and create a more coherent regulatory system?
We created a massively complex system
in which multiple regulators have overlapping responsibilities on virtually every issue,
including rulemaking, examination, auditingand enforcement. This is extremely taxing,
complex and overly burdensome for banks,
customers of banks and regulators.
Dodd-Frank appropriately established the
Financial Services Oversight Committee(FSOC) and assigned to it the responsibilityof general oversight across the entire financial system. Unfortunately, the FSOC was
not given the ability to adjudicate issues orassign responsibility. Therefore, the FSOC isunable to fully resolve some of the problems
that we have detailed in this letter. Finally,another flaw is that some of the laws were
written in a way that left them open to broadinterpretation and novel enforcement.
There is too much complexity in the system — it
could be fixed, and that would make the systemstronger.

Nearly everyone agrees there is too muchcomplexity in the current construct of thefinancial system. A few examples will suffice:• There are multiple calculations of capital,
living wills, the Volcker Rule, etc.
• There are multiple regulators involved
independently in rulemaking – just two
examples: Seven regulators are involved
in setting mortgage regulations, and fiveregulators oversee the Volcker Rule. This
leads to slow rulemaking (e.g., as noted
above, we still have not finished the mortgage rules eight years after the crisis),excessive reporting and varied interpretations on what the actual rules are.
• Each agency makes separate audit andreporting demands and can independently take enforcement action on thesame subject.
This is clearly a dysfunctional structure.
The fix is simple – though getting it done
may not be:
30• The system should be simplified. There
should be one primary regulator on any
issue, and we should always strive to makethings as simple as possible.
• The primary regulator should establish
the rules, the reporting requirements, theaudit plans and the enforcement action.
Other regulators should get involved only
if they believe the primary person did aparticularly poor job.
• Everything in the regulatory landscapeshould be reviewed in the context ofsafety and soundness, cost-benefit analysis
and economic growth.
The FSOC is a good idea but needs to be modified
to be more effective.

It makes sense for regulators to be continuously reviewing the entire financial system
in an effort to make it as safe and sound as
possible (think of this as a well-functioning
risk committee of a major bank). But the
FSOC should be given some authority toassign responsibility, adjudicate disagreements, set deadlines and force the resolution of critical issues. The FSOC could
also enforce due consideration of regulations’ costs vs. benefits and the impact on
economic growth.
We have great sympathy for, and agree with,the complaints of the community banks. They
are struggling to deal with the complexity
and cost of meeting these requirements –and we agree these smaller banks should be
relieved of many of the requirements.
Enhancing the functionality of the FSOC andproviding regulatory relief where appropriate should not be a political issue. The
administration is currently conducting areview of the rules and regulations, which
are burdensome and duplicative and which
may impede economic growth. That process
should be as de-politicized as possible.
Everyone stands to gain when growth isenabled in a safe and sound manner.

II. Reg ulatoRy RefoRm

7. How can we harmonize regulations across the globe?
Currently, American regulators have beenpushing the Basel Committee – the international forum that is supposed to set international financial regulatory guidelines – tomeet the even higher American standards
around capital requirements, derivatives
rules, risk-weight calculations, stress testingand other requirements. Many other countries around the world are telling Basel thatit has gone too far and that it’s time to let
the banks focus on healthy lending andgrowth of the economy. Following are a few
principles that we think should guide global
regulations and international coordination
to increase safety and soundness and foster
global growth:• International regulations should be
coherent and generally harmonizedaround the world – but they don’t need to
be exactly the same.
• We should recognize where there are legitimate reasons to do something different.
For example, certain types of loans legitimately could draw different risk weighting
in various countries based on historicalperformance, collateral and bankruptcy
laws or even culture.
• Cross-border financial rules need to bepart of trade negotiations like any otherproduct or service. We know we will be
increasingly competing with Chinesebanks, and, eventually, we need the U.S.
government to make that part of ourtrade agreement.

• We can acknowledge that the state ofaffairs in different countries, includingin their banks and their economies,
may differ and that these differences
might warrant idiosyncratic regulatory
responses. For example, European banks
for eight years have consistently been put
in the position of having to raise more
and more capital and liquidity or having
to reduce their lending capacity. While
their capital standards may have been
low compared with American standards(particularly in how they calculate riskweighted assets), this deleveraging has tohave hurt the growth of European economies and opportunities for their people.
These banks started from a different position (which had been sanctioned by boththeir regulators and governments yearsago), and we agree that these banks shouldbe allowed to do their job. Most of thesebanks have plenty of total capital. Whileit might be true that one day they shouldhave more, the moral imperative now is tohelp their economies grow and to help the
people of those countries.
We are completely convinced that if we canrationally change and coordinate many ofthese rules, banks can do even more to help
the economy thrive.

31

III. P UBLI C PO LICY

Before we address some of the critical issues confronting our country, it would be good tocount our blessings. Let’s start with a serious assessment of our strengths.
1. The United States of America is truly an exceptional country.
America today is probably stronger than everbefore. For example:• The United States has the world’s strongest military, and this will be the case for
decades. We are fortunate to be at peacewith our neighbors and to have the protection of the Atlantic and Pacific oceans.
• As a nation, we have essentially all thefood, water and energy we need.
• The United States has among the world’s
best universities and hospitals.
• The United States has a generally reliable
rule of law and low corruption.
• The government of the United States is theworld’s longest surviving democracy, which
has been steadfast, resilient and enduring
through some very difficult times.
• The people of the United States have agreat work ethic and can-do attitude.
• Americans are among the most entrepreneurial and innovative people in the world– from those who work on the factory

floors to geniuses like the late Steve
Jobs. Improving “things” and increasing
productivity are American pastimes. And
America still fosters an entrepreneurial
culture, which allows risk taking – andacknowledges that it can result in successor failure.
• The United States is home to many ofthe best, most vibrant businesses on theplanet – from small and midsized companies to large, global multinationals.
• The United States has the widest, deepest,
most transparent and best financial
markets in the world. And I’m not talking
about just Wall Street and banks – I
include the whole mosaic: venture capital,
private equity, asset managers, individualand corporate investors, and public andprivate capital markets. Our financial
markets have been an essential part of thegreat American business machine.
Very few countries, if any, are as blessed as
we are.

2. But it is clear that something is wrong — and it’s holding us back.
Our economy has been growing much more
slowly in the last decade or two than in the
50 years before then. From 1948 to 2000,
real per capita GDP grew 2.3%; from 2000
to 2016, it grew 1%. Had it grown at 2.3%
instead of 1% in those 17 years, our GDP per
capita would be 24%, or more than $12,500
per person higher than it is. U.S. productivity
growth tells much the same story, as shownin the chart on page 33.
32

Our nation’s lower growth has been accompanied by – and may be one of the reasons
why – real median household incomes in2015 were actually 2.5% lower than they
were in 1999. In addition, the percentage of
middle class households has actually shrunk
over time. In 1971, 61% of households wereconsidered middle class, but that percentage
was only 50% in 2015. And for those in
the bottom 20% of earners – mainly lower
skilled workers – the story may be evenIII. PUBLIC POLICY

U.S. Productivity Growth5-year % change, annualized
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
1955

1965

1975

1985

1995

2005

2015

Source: Haver; Bureau of Labor Statistics

worse. For this group, real incomes declinedby more than 8% between 1999 and 2015.
In 1984, 60% of families could afford amodestly priced home. By 2009, that figure
fell to about 50%. This drop occurred eventhough the percentage of U.S. citizens with ahigh school degree or higher increased from
30% to 50% from 1980 to 2013. Low-skilledlabor just doesn’t earn what it used to, which
understandably is a source of real frustration
for a very meaningful group of people. The
income gap between lower skilled and skilledworkers has been growing and may be theinevitable consequence of an increasingly
sophisticated economy.
Regarding reduced social mobility,
researchers have found that the likelihoodof workers moving to the top-earning decile
from starting positions in the middle of theearnings distribution has declined by approximately 20% since the early 1980s.
Many economists believe we are now permanently
relegated to slower growth and lower productivity(they say that secular stagnation is the newnormal), but I strongly disagree.

We will describe in the rest of this section
many factors that are rarely considered ineconomic models although they can have anenormous effect on growth and productivity.
Making this list was an upsetting exercise,especially since many of our problems havebeen self-inflicted. That said, it was also agood reminder of how much of this is in ourcontrol and how critical it is that we focus
on all the levers that could be pulled to help
the U.S. economy. We must do this because it
will help all Americans.
Many other, often non-economic, factors impact
growth and productivity.

Following is a list of some non-economic
items that must have had a significant
impact on America’s growth:• Over the last 16 years, we have spent trillions of dollars on wars when we could
have been investing that money productively. (I’m not saying that money didn’t
need to be spent; but every dollar spenton battle is a dollar that can’t be put touse elsewhere.)• Since 2010, when the government took
over student lending, direct government
lending to students has gone from approximately $200 billion to more than $900
billion – creating dramatically increased
student defaults and a population that isrightfully angry about how much money
they owe, particularly since it reduces
their ability to get other credit.

33III. PUB LI C P O LI CY• Our nation’s healthcare costs are essentially twice as much per person vs. mostother developed nations.
• It is alarming that approximately 40%(this is an astounding 300,000 students
each year) of those who receive advanced
degrees in science, technology, engineering and math at American universities are foreign nationals with no legal
way of staying here even when many
would choose to do so. We are forcing
great talent overseas by not allowing theseyoung people to build their dreams here.
• Felony convictions for even minor
offenses have led, in part, to 20 million
American citizens having a criminal
record – and this means they often havea hard time getting a job. (There are six
times more felons in the United States
than in Canada.)• The inability to reform mortgage markets
has dramatically reduced mortgage availability. We estimate that mortgages alone
would have been more than $1 trillion

higher had we had healthier mortgage
markets. Greater mortgage access would
have led to more homebuilding and additional jobs and investments, which also
would have driven additional growth.
Any one of these non-economic factors isfairly material in damaging America’s effort
to achieve healthy growth. Let’s dig a little bit
deeper into six additional unsettling issues
that have also limited our growth rate.
Labor force participation is too low.

Labor force participation in the UnitedStates has gone from 66% to 63% between
2008 and today. Some of the reasons for thisdecline are understandable and aren’t too
worrisome – for example, an aging population. But if you examine the data more closely
and focus just on labor force participation for
one key segment; i.e., men ages 25-54, you’ll
see that we have a serious problem. The chart
below shows that in America, the participation rate for that cohort has gone from 96%
in 1968 to a little over 88% today. This is way
below labor force participation in almost
every other developed nation.

Labor Force Participation Rates for Men Ages 25–54: U.S. vs. 22 Original OECD Member States, 1960–2015
98.0
97.0
96.0
95.0
94.0
93.0
92.0
91.0
90.0
89.0
88.0
1960

 Australia
 France Japan Spain
34

1965

1970

 Austria
 Germany Luxembourg Sweden1975 Belgium Greece Netherlands
 Switzerland

1980 Canada Iceland New Zealand United Kingdom

1985

1990

 Denmark Ireland Norway United States

1995

 Finland Italy Portugal

2000

2005

2010

2015

Source: Organisation for Economic
Co-operation and Development (OECD)

III. PUBLIC POLICY

If the work participation rate for this groupwent back to just 93% – the current averagefor the other developed nations – approximately 10 million more people would beworking in the United States. Some otherhighly disturbing facts include: Fifty-sevenpercent of these non-working males are on
disability, and fully 71% of today’s youth(ages 17–24) are ineligible for the military
due to a lack of proper education (basic
reading or writing skills) or health issues(often obesity or diabetes).
Education is leaving too many behind.

Many high schools and vocational schools
do not provide the education our students
need – the goal should be to graduate andget a decent job. We should be ringing thenational alarm bell that inner city schools are
failing our children – often minorities andchildren from lower income households. In
many inner city schools, fewer than 60% of
students graduate, and many of those who
do graduate are not prepared for employment. We are creating generations of citizens
who will never have a chance in this land of
dreams and opportunity. Unfortunately, it’s
self-perpetuating, and we all pay the price.
The subpar academic outcomes of America’s
minority and low-income children resulted
in yearly GDP losses of trillions of dollars,
according to McKinsey & Company.
Infrastructure needs planning and investment.

In the early 1960s, America was consideredby most to have the best infrastructure(highways, ports, water supply, electricalgrid, airports, tunnels, etc.). The World
Economic Forum now ranks the UnitedStates #27 on its Basic Requirements index,
reflecting infrastructure along with othercriteria, among 138 countries. On infrastructure, the United States is behind most major
developed countries, including the United
Kingdom, France and Korea. The American
Society of Civil Engineers releases a report
every four years examining current infrastructure conditions and needs – the 2017
report card gave us a grade of D+. Anotherinteresting and distressing fact: The UnitedStates has not built a major airport in morethan 20 years. China, on the other hand, hasbuilt 75 new civilian airports in the last 10
years alone.
Our corporate tax system is driving capital andbrains overseas.

America now has the highest corporate tax
rates among developed nations. Most otherdeveloped nations have reduced their tax
rates substantially over the past 10 years(and this is true whether looking at statutory or effective tax rates). This is causing
considerable damage. American corporations are generally better off investing
their capital overseas, where they can earna higher return because of lower taxes. In
addition, foreign companies are advantaged
when they buy American companies – often
they are able to reduce the overall tax rateof the combined company. Because of this,American companies have been making
substantial investments in human capital,
as well as in plants, facilities, researchand development (R&D) and acquisitions
overseas. Also, American corporations holdmore than $2 trillion in cash abroad to
avoid the additional taxes. The only question is how much damage will be done
before we fix this.
Reducing corporate taxes would incent business investment and job creation. The chartson page 36 show the following:• That job growth is highly correlated tobusiness investment (this also makes
intuitive sense).
• That fixed investments by businesses
and capital formation have gone down
substantially and are far below what wewould consider normal.

35

III. PUB LI C P O LI CY

Jobs Growth Clearly Linked to Business Investment
Year-over-year % change
30%

8%Real equipment and software spending (left scale)

6%

20%

4%
10%

2%
0%

0%

–2%

–10%
Private employment (right scale)

–4%

–20%

–6%

–30%
1961

1966

1976

1971

1986

1981

1991

1996

2001

–8%
2016

2011

2006

Source: Bureau of Economic Analysis; Bureau of Labor Statistics

Business Fixed Investment below Trend
Quarterly data from 1947 to 3rd quarter 2016($ in billions)$4,000$3,000$2,000$1,000

$0
1947

1953

1959

1965

1971

1977

1983

1989

1995

2001

2007

2013

 Non-residential fixed investment
 Non-residential fixed investment trend
Source: Haver; Bureau of Economic Analysis

U.S. Public Gross Fixed Capital Formation as % of GDP
8%
7%
6%
5%
4%
3%
2%
1%
0%
1947

1951

1955

1959

1963

1967

Source: Haver; Bureau of Economic Analysis

36

1971

1975

1979

1983

1987

1991

1995

1999 2003 2007

2011

2016

III. PUBLIC POLICY

Crews, Clyde Wayne, Jr.
(2016). Ten Thousand
Commandments — An
Annual Snapshot of theFederal Regulatory State.

Excessive regulations reduce growth and businessformation.

Everyone agrees we should have proper regulation – and, of course, good regulations have
many positive effects. But anyone in businessunderstands the damaging effects of overcomplicated and inefficient regulations. There
are many ways to look at regulations, and thechart below and the two on page 38 provide
some insight. The one below shows the total
pages of federal regulations, which is a simple
way to illustrate additional reporting andcompliance requirements. The second records
how we compare with the rest of the world on
the ease of starting a new business – we used
to be among the best, and now we are not.
The bottom chart on page 38 shows that small
businesses now report that one of their largest
problems is regulations.
By some estimates, approximately $2 trillion is spent on regulations annually (which
is approximately $15,000 per U.S. household
annually).5 And even if this number is exag-

Code of Federal Regulation 1975–2015
Number of pages
180,000

160,000
140,000
120,000
100,000

80,00060,00040,00020,000
0
197
5
197
6
197
7
197
8
197
9
198
0
198
1
198
2
198
3
198
4
198
5
198
6
198
7
198
8
198
9
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5

5

And counterintuitively, reducing corporate
taxes would also improve wages. One of theunintended consequences of high corporate
taxes is that they actually depress wages in
the United States. A 2007 Treasury Department review finds that labor “may bear asubstantial portion of the burden from thecorporate income tax.” A study by Kevin
Hassett from the American EnterpriseInstitute finds that each $1 increase in U.S.
corporate income tax collections leads to a $2
decrease in wages in the short run and a $4
decrease in aggregate wages in the long run.
And analysis of the U.S. corporate income tax
by the Congressional Budget Office finds thatlabor bears more than 70% of the burden of
the corporate income tax, with the remaining
30% borne by domestic savers through areduced return on their savings. We must fix
this for the benefit of American competitiveness and all Americans.

Source: The National Archives

37III. PUB LI C P O LI CY“Ease of Starting a New Business”: In the U.S., Getting Less Easy
U.S. percentile rank relative to world and OECD
100%
Easier
90%
80%
70%
60%
50%
Harder
40%
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

 U.S. vs. World  U.S. vs. OECD
Source: World Bank Doing Business; J.P. Morgan Asset Management, October 2016. N = 189

What’s the Largest Problem Facing Small Businesses?
% of respondents, 6-month average
35%

30%

25%

20%

15%

10%

5%

0%
1986

1990

1994

1998

2002

2006

2010

2014

 Taxes  Quality of labor  Poor sales  Regulation
Source: Haver; National Federation of Independent Businessgerated, it highlights a disturbing problem.
Particularly troubling is that this may be oneof the reasons why small business creation
has slowed alarmingly in recent years.
According to the U.S. Chamber of Commerce,
the rising burdens of federal regulations alone
may be a main reason for a falling pace innew business formation. In 1980, Americans
38

were creating some 450,000 new companies ayear. In 2013, they formed 400,000 new businesses despite a 40% increase in populationfrom 1980 to 2013. Our three-decade slump
in company formation fell to its lowest pointwith the onset of the Great Recession; evenwith more businesses being established today,
America’s startup activity remains below prerecession levels.

III. PUBLIC POLICY

While some regulations quite clearly create
a common good (e.g., clean air and water),
it is clear that excessive regulation does nothelp productivity, growth of the economy
or job creation. And even regulations thatonce may have made sense may no longer
be fit for the purpose. I am not going tooutline specific recommendations about
non-financial regulatory reform here, otherthan to say that we should have a permanent and systematic review of the costs
and benefits of regulations, including theirintended vs. unintended consequences.
The lack of economic growth and opportunity
has led to deep and understandable frustration
among so many Americans.

Low job growth, a lack of opportunity for
many, declining wages, students and lowwage workers being left behind, economic
and job uncertainty, high healthcare costs
and growing income inequality all havecreated deep frustration. It is understandable why so many are angry at the leaders ofAmerica’s institutions, including businesses,
schools and governments – they are right toexpect us to do a better job. Collectively, weare the ones responsible. Additionally, thiscan understandably lead to disenchantment
with trade, globalization and even our freeenterprise system, which for so many people
seems not to have worked.
Our problems are significant, and they are
not the singular purview of either politicalparty. We need coherent, consistent, comprehensive and coordinated policies that help fix
these problems. The solutions are not binary– they are not either/or, and they are notabout Democrats or Republicans. They areabout facts, analysis, ideas and best practices(including what we can learn from othersaround the world).

3. How can we start investing in our people to help them be more productive and share in theopportunities and rewards of our economy?
We need to work together to improve work skills.

I cannot in this letter tackle the complex setof issues confronting our inner city schools,
but I do know that if we don’t acknowledge
these problems, we will never fix them.
Whether they graduate from high school,
vocational or training school or go on tocollege, our students can and should be
adequately prepared for good, decent-paying
jobs. And whether a student graduates fromhigh school, vocational school or training
school, the graduate should have a sense of
pride and accomplishment – and meaningfulemployment opportunities, without forgoingthe chance to go to college later on. Career
and technical education specifically can giveyoung people the skills they need for decentpaying roles in hundreds of fields, including
aviation, robotics, medical science, welding,accounting and coding – all jobs that are in
demand today.

In New York City, not far from where I grew
up in Jackson Heights, Queens, there’s aschool called Aviation High School. Students
travel from all over the city to go to the school(with a 97% student attendance rate), where
they are trained in many facets of aviation,from how to maintain an aircraft to thedetails of the plane’s electronics, hydraulics
and electrical systems. And when the students
graduate (93% graduated in the normal four
years), they get a job, often earning an annual
starting salary of approximately $60,000.
It’s a great example of what we should bepromoting in our educational system.
Businesses must be involved in this process.
They need to partner with schools to letthem know what skills are needed, help
develop the appropriate curricula, help
train teachers and be prepared to hire thestudents. In addition, this has to be done
locally because that is where the actual jobs
are. Germany does this well. Germany has
39III. PUB LI C P O LI CY

one of the strongest education and training
systems in the world, with about 1.5 million
young people every year participating inapprenticeship programs that are paid opportunities to gain in-demand skills along withan education. The vocational schools andapprenticeship programs work directly withlocal businesses to ensure the students areconnected to available jobs upon graduation.
As a result of this market-driven vocational
training, Germany’s youth unemployment
rate is also one of the lowest in the world.
There is nothing wrong with learning fromother countries.
Proper skills training also can be used tocontinuously re-educate American workers.
Many people are afraid that automation istaking away jobs. Let’s be clear. Technology
is the best thing that ever happened to
mankind, and it is the reason the world isgetting progressively better. But we should
acknowledge that though technology helps
everyone generally, it does cause some job
loss, dislocation and disruption in specificareas. Retraining is the best way to help those
disrupted by advancements in technology.
We need to help lower skilled workers earn aliving wage while helping small businesses.
Business should support an expanded EITC.

There is a tax credit in the United Statescalled the Earned Income Tax Credit (EITC),
which supplements low-paid workers’
incomes. For example, a single mother withtwo children earning $9 an hour (approximately $20,000 a year) could get a tax creditof more than $5,000 at the end of the year.
A single man without children could get atax credit under this program of only about$500. This program has flaws (which we
believe could be fixed), but it has lifted an
estimated 9 million people above the poverty
line. (The federal poverty guideline is determined by household size. For a four-personhousehold, the poverty level is $24,600 or
approximately $11 an hour.) Last year, the
EITC program cost the United States about$67 billion, and there were 27 million individuals who received the credit.
Approximately 20.6 million American
workers earn between $7.25 an hour (theprevailing federal minimum wage) and$10.10 an hour. Approximately 42% of American workers make less than $15 an hour. I
believe we should dramatically expand the
EITC to help more low-paid individuals, withand without children, earn a living wage.
I have no doubt that this will entice moreworkers back into the workforce. Jobs bringdignity. That first job is often the first rungon the ladder. And studies show that once
people start working, they continue working.
In addition, living wages lead to less crime,
more household formation and, it is hoped,
better social outcomes, including moremarriages and children and better health andoverall well-being.
It is important to note that large companies
generally pay well above the minimum wage
and provide health insurance and retirement benefits to all their employees. They
also extensively train their employees andhelp them move along in their careers. While
this would help small businesses far morethan big businesses, large companies should
support the expansion of this program
because it would foster growth and be great
for lower paid American workers.

4. What should our country be doing to invest in its infrastructure? How does the lack of a planand investment hurt our economy?
Infrastructure in America is a very broad andcomplex subject. However, we do have a few
suggestions on how to make it better.
Similar to companies planning for capacity
needs, it is quite clear that cities, states and40

the federal government can also plan aroundtheir somewhat predictable needs for maintenance, new roads and bridges, increasing
electrical requirements and other necessities
to serve a growing population. Infrastructure should not be a stop-start process but an
ongoing endeavor whereby intelligent invest-

III. PUBLIC POLICY

ments are made continuously. And the plan
could also be sped up if necessary to help aweakening economy.

It’s important to streamline the approval
process, and approvals should run simultaneously and not sequentially.

Infrastructure, which could have a life of
five to 50 years, should not be expensed asa government debt but should be accounted
for as an investment that could be financed
separately. Borrowing money for consumption is completely different from borrowing
for something that has value for a long
period of time.

Last, we need to assure that we have good
infrastructure and not bridges to nowhere.
Good infrastructure serving real needs is not
only conducive to jobs in the short run but
to growth in the long run. Projects should bespecifically identified, with budgets and calendars and with responsible parties named.

5. How should the U.S. legal and regulatory systems be reformed to incentivize investment
and job creation?
There are many reasons to be proud of oursystem of government. The U.S. Constitution
is the bedrock of the greatest democracy inthe world. The checks and balances put inplace by the framers are still powerful limitson each branch’s powers. And this year, we
witnessed one of the hallmarks of our great
nation – the peaceful transition of power
following a democratic election.
Our legal system, including our nation’scommitment to the rule of law, has long
been a particular source of strength for our
economy. When people, communities andcompanies are confident in the stability andfairness of a country’s legal system, they want
to do business in that country and invest
there (and come from overseas to do so).
Knowing that you will have access to courts
for a fair and timely hearing on matters andthat there are checks against abuses of poweris important. As the discussion about areasfor potential reform continues, it is criticalthat these long-term U.S. advantages are kept
in mind and preserved.
In regulation, for example, I worry that the
distribution of power has shifted. Congress,
through the Administrative Procedures Act(APA), set out how regulators should publish
draft rules. The APA allows for commentson draft rules, including comments on how
a proposed rule will impact lending, jobs
and the economy. Today, however, agencies
often regulate through supervisory guidance
that isn’t subject to the same commentary or

checks. The function of interpretive guidance is to clarify or explain existing law andshould not be used to impose new, substantive requirements. Now is a good time to
discuss how to reset this balance.
There also is an opportunity to have a similar
conversation around enforcement and litigation. On the civil side, we should look closely
at whether statutory damages provisions
work as intended. I read recently about
a settlement under the Fair and Accurate
Credit Transactions Act in which plaintiffs
received in excess of $30 million from abusiness that printed credit card receipts
with the customer’s card expiration date. Is
that fair and proportionate – or is the result
driven by a statutory damages frameworkthat should be reconsidered?
And simply because the company agreed tothe settlement does not mean it was the right
result. Here is the fact: The current dynamics
make it very hard for companies to get their
day in court – as the consequences of a loss
at trial can be disproportionately severe. Thisis particularly true in a government-initiatedcase. The collateral consequences of standing
up to a regulator or losing at trial can bedisproportionately negative when comparedwith the underlying issue or proposed settlement, and it can lead to the decision not tofight at all, no matter what the merits of thecase may be. The Institute for Legal Reform,
for the Chamber of Commerce has framed
this issue as follows:41III. PUB LI C P O LI CY“The so-called ‘trial penalty’ has virtuallyannihilated the constitutional right to a trial.
What are the consequences of a system inwhich the government is only rarely required
to prove its case? What are the implicationsof this on businesses, both large and small?
Ultimately, what are the long-term prospects
for entrepreneurship in an environment
where even the most minor, unintentional
misstep may result in criminal investigation,prosecution and loss of liberty?”
When you combine this with the fact thatbusinesses have no “penalty-free” way tochallenge a new interpretation of the law, thenet-net result is a system that fosters legislation
by enforcement actions and settlements. Said
differently, rather than Congress expanding alaw or a court testing a novel interpretation,
regulators and prosecutors make those decisions and companies acquiesce.
The impact of these issues is further exacerbated by a system that allows for “multiple
jeopardy,” where federal, state, prudential

and foreign agencies can “pile on” to any
matter, each seeking its own penalty without
any mechanism to ensure that the multiple
punishments are proportionate and fair. It
would be like getting pulled over by a local
police officer and getting fined by your local
town, then by your county, then by yourstate, then by the federal government andthen having the U.N. weigh in since the car
was made overseas.
To be clear, we need regulators focused on
the safety and soundness of all institutions.
We need enforcement bodies focused oncompliance with the law. But we also need topreserve the system of checks and balances– when you cannot get your day in court onsome really important issues, we all suffer.
We need to improve and reform our legal
system because it is having a chilling
impact on business formation, risk taking
and entrepreneurship.

6. What price are we paying for the lack of understanding about business and free enterprise?
The United States needs to ensure that we
maintain a healthy and vibrant economy.
This is what fuels job creation, raises thestandard of living for those who are hurting,and positions us to invest in education,technology and infrastructure in a programmatic and sustainable way to build a betterand safer future for our country and its
people. America’s military will be the best in
the world only as long as we have the best
economy in the world.
Business plays a critical role as an engine of
economic growth, particularly our largest,
globally competitive American businesses.
As an example, the thousand largest companies in America (out of approximately 29
million) employ nearly 30 million people
in the United States, and almost all of theiremployees get full medical and retirement
benefits and extensive training. In addition,these companies account for more than 30%
42

of the roughly $2.3 trillion spent annuallyon capital expenditures. Capital expenditures and R&D spending drive productivity
and innovation, which ultimately drive job
creation across the entire economy.
To support this, we need a pro-growth policy
environment from the government thatprovides a degree of certainty around longstanding issues that have proved frustratingly elusive to solve. The most pressing
areas in which government, business andother stakeholders can find common groundshould include tax reform, infrastructure
investment, education reform, more favorable trade agreements and a sensible immigration policy, among others.
When you read that small businesses and big
businesses are pitted against each other or
are not good for each other, don’t believe it.

Why are America’s public equity markets so important?
How do we sustain them and strengthen corporate governance?
For more than two centuries, the American free enterprisesystem has led to enormous prosperity for our country: thecreation of jobs, increases in wages and savings, and theemergence and growth of dynamic companies. Because wellmanaged and well-governed businesses are the engines of oureconomy, good corporate governance must be more than justa catchphrase or fad. It’s an imperative — especially when it
comes to our publicly owned companies.
The chart on the right should be a cause for concern. It notesthat the number of public companies in the United States has
declined 45% since 1996.
There may very well be some logical and good explanations forwhy this is so; e.g., companies can get capital more easily in theprivate markets, and the private markets can be more efficientthan they used to be.
I suspect there are other less-constructive reasons, which could
be greatly expanded upon, but I will merely list them below:

Many private equity companies often stress that it is better tobe owned by them because they operate with commonsense
corporate governance; i.e., less check-the-box corporate
governance — whether addressing board membership, how aboard spends its time, management compensation or long-term
results vs. just quarterly earnings. The following page exhibits aletter drafted by a diverse group of financial leaders that outlines
recommendations for commonsense corporate governanceprinciples that would foster the health of our public companies.
It is hard to estimate the cause and effect of all these factors,
but they are reasons for concern. America’s public markets havebeen a key to America’s success, and I suspect that years fromnow, we may regret the damage we have done to them.

Public Companies Disappearing
9,000

•

Excessive litigation, including shareholder class action
lawsuits•

Excessive and expensive reporting requirements

7,000

•

Self-serving shareholder activity and proposals not intended
to benefit the company

6,000

•

Shareholder meetings that are hijacked by special interest
groups and become a complete farce•

Too much short-termism; i.e., quarterly earnings, at theexpense of making good, long-term investments•

Constant and frequent negative media scrutiny — somedeserved and some not•

Boards spending more and more time on check-the-box
legal and regulatory demands as opposed to the mostimportant role of boards — management, strategy,
major risks, etc.

1996: 8,090
8,000

45% decline

5,000
4,000

2015: 4,381

3,000
2,000
1,000
0
1980

1985

1990

1995

2000

2005

2010

2015

Source: World Bank; World Federation of Exchanges database

43

COMMONSENSE CORPORATE GOvERNANCE PRINCIPLES

The health of America’s public corporations and financial markets — and public trust in both — is critical to economic growth and a better
financial future for American workers, retirees and investors.
Millions of American families depend on these companies for work — our nearly 5,000 public companies account for a third of the nation’s
private sector jobs. And these same families and millions more also rely on public companies to help improve their financial future — they
are heavily invested in these companies through mutual funds, 401(k) and pension plans, college savings plans and other accounts to buy ahome, send their children to college and save for retirement.
Our future depends on these companies being managed effectively for long-term prosperity, which is why the governance of American companies
is so important to every American. Corporate governance in recent years has often been an area of intense debate among investors, corporate
leaders and other stakeholders. Yet, too often, that debate has generated more heat than light.
We represent some of America’s largest corporations, as well as investment managers, that, as fiduciaries, represent millions of individual savers
and pension beneficiaries. We include corporate CEOs, the head of the Canadian public pension fund and an activist investor, and the heads of anumber of institutional investors who manage money on behalf of a broad range of Americans.
This diverse group certainly holds varied opinions on corporate governance. But we share the view that constructive dialogue requires finding common ground — a starting point to foster the economic growth that benefits shareholders, employees and the economy as a whole.
To that end, we have worked to find commonsense principles. We offer these principles, which can be found at www.governanceprinciples.
org, in the hope that they will promote further conversation on corporate governance. These principles include the following, among others:
■

■

■

■

■

■

Truly independent corporate boards are vital to effective governance, so no board should be beholden to the CEO or management. Everyboard should meet regularly without the CEO present, and every board should have active and direct engagement with executives below
the CEO level;
Diverse boards make better decisions, so every board should have members with complementary and diverse skills, backgrounds and experiences. It’s also important to balance wisdom and judgment that accompany experience and tenure with the need for fresh thinking andperspectives of new board members;
Every board needs a strong leader who is independent of management. The board’s independent directors usually are in the best position to evaluate whether the roles of chairman and CEO should be separate or combined; and if the board decides on a combined role,
it is essential that the board have a strong lead independent director with clearly defined authorities and responsibilities;
Our financial markets have become too obsessed with quarterly earnings forecasts. Companies should not feel obligated to provide earnings
guidance — and should do so only if they believe that providing such guidance is beneficial to shareholders;
A common accounting standard is critical for corporate transparency, so while companies may use non-Generally Accepted Accounting
Principles (“GAAP”) to explain and clarify their results, they never should do so in such a way as to obscure GAAP-reported results; andin particular, since stock- or options-based compensation is plainly a cost of doing business, it always should be reflected in non-GAAP
measurements of earnings; andEffective governance requires constructive engagement between a company and its shareholders. So the company’s institutional investors
making decisions on proxy issues important to long-term value creation should have access to the company, its management and, in somecircumstances, the board; similarly, a company, its management and board should have access to institutional investors’ ultimate decision
makers on those issues.

These recommendations are not meant to be absolute. We know that there is significant variation among our public companies and that theirapproach to corporate governance will inevitably (and appropriately) reflect those differences. But we do hope our effort will be the beginningof a continuing dialogue that will benefit millions of Americans by promoting trust in our nation’s public companies.
We encourage others to join in that dialogue. Our country, our economy and the future of our citizens depend on getting corporate governance right.

Tim Armour
Capital Group

Mary Erdoes
J.P. Morgan Asset Management

Bill McNabb
vanguard

Mary Barra
General Motors Company

Larry Fink
BlackRockWarren Buffett
Berkshire Hathaway Inc.

Jeff Immelt
GE

Ronald O’Hanley
State Street Global Advisors

Jamie Dimon
JPMorgan Chase

Mark Machin
CPP Investment Board

Brian Rogers
T. Rowe Pricewww.governanceprinciples.org

Jeff Ubben
valueAct Capital

Lowell McAdam
verizonIII. PUBLIC POLICY

Small businesses and large businesses are
symbiotic – they are substantial customers ofeach other, and they help drive each other’s
growth – and are integral to our large business ecosystem. At JPMorgan Chase, forexample, we support more than 4 million
small business clients, 15,000 middle market
companies, and approximately 7,000 corporations and investor clients. We also rely on
services from nearly 30,000 vendors, manyof which are small and midsized companies.
Business, taken as a whole, is the source ofalmost all job creation.
Approximately 150 million people workin the United States; 130 million work in
private enterprise. We hold in high regard
the 20 million people who work in government – teachers, policemen, firemen andothers. But we could not pay for those jobs
if the other 130 million were not actively
producing the GDP of America.

7. Strong collaboration is needed between
business and government.
We all can agree that a general dissatisfaction
with the lack of true collaboration and willingness to address our most pressing policy
issues has contributed to the existing divisiveand polarized environment. Certainly thereis plenty of blame to go around on this front.
However, rather than looking back, it is
now more important than ever for the business community and government to cometogether and collaborate to find meaningful
solutions and develop thoughtful policies
that create economic growth and opportunity
for all. This cannot be done by government
alone or by business alone. We all must work
together in ways that put aside our “businessas-usual” approaches. The lack of economic
opportunity is a moral and economic crisis
that affects everyone. There are too many
people who are not getting a fair chance to
get ahead and move up the economic ladder.
This runs contrary to the fundamental idea

Something has gone awry in the public’s
understanding of business and free enterprise. Whether it is the current environment or the deficiency of education in
general, the lack of understanding around
free enterprise is astounding. When businesses or individuals in business do something wrong (problems that all institutions
have, including schools, churches, governments, small businesses, etc.), they should
be appropriately punished – but not demonized. We need trust and confidence in our
institutions – confidence is the “secret sauce”
that, without spending any money, helps the
economy grow. A strong and vibrant private
sector (including big companies) is good forthe average American. Entrepreneurshipand free enterprise, with strong ethics andhigh standards, are worth rooting for, notattacking.

that America is a country where everyone
has an opportunity to improve their lives
and that future generations of Americans
know they can be just as successful as those
who came before them.
By working together and applying somegood old American can-do ingenuity, there isnothing that we can’t accomplish. By working
together, the business community, government and the nonprofit sector can ensure
and maintain a healthy and vibrant economy
today and into the future, creating jobs,
fostering economic mobility and maintaining
sustainable economic growth. Ultimately, thistranslates to an improved quality of life andgreater financial security for those who arestruggling to make ends meet. It also would
be a significant step in restoring public faithin two of our greatest democratic institutions– U.S. business and government – and would
allow us to move forward toward a prosperous future for all Americans.

45

IN C lO S I N G

We know we have to earn the trust and respect of our shareholders,
employees, customers and the communities we serve every single
day. You can rest assured that we are devoted to doing this.
I want to thank our management team. If you could see them inaction like I do, you would know that they have remarkable capabilities, character, culture, experience and wisdom.
In closing, I can’t emphasize enough how honored I am to work at
this company and with its people. What they have accomplishedduring these turbulent times has been extraordinary. On behalf of
JPMorgan Chase and its management, I want to express my deepest
gratitude to our people – I am proud to be their partner.

Jamie Dimon
Chairman and Chief Executive Officer
April 4, 201746

Redefining the Financial Services Industry
Optimize to innovate

Matt Zames

As the firm’s Chief Operating Officer,
I manage a diverse group of criticalfirmwide operations and functions,as well as certain markets-intensive
activities that are integral to our
success. These include Global
Technology, the Intelligent Solutionsgroup (which drives innovation
across the firm by leveraging big
data and advanced analytics such asmachine learning), Treasury and theChief Investment Office, Mortgage
Banking Capital Markets, Oversight& Control, Regulatory Affairs andthe Chief Administrative Office, which
includes Real Estate, Procurement,
Military & Veteran Affairs, Compliance Operations and Strategy &Process Improvement, among others.
The Chief Operating Office (COO) has
a broad and deep mandate, but thisyear, I want to highlight (i) our investment in technology; (ii) our approachto managing a $2.5 trillion balance
sheet; and (iii) our ongoing commitment to a best-in-class culture.

Technology continues to fueleverything we doTechnology is at the core of what we
do. Advances in technology make us
faster and safer and drive a moreengaging customer experience, differentiating our businesses today and forthe future. The pace of technology
change is always increasing, and wechallenge ourselves to think, innovateand deliver like a technology company.
Our more than $9.5 billion technology budget demonstrates our significant, ongoing commitment to technology investment. The scale anddiversity of our businesses enable
us to invest wherever we see opportunity or competitive advantage to
do so effectively. We will continue
to grow the share of our technology
budget allocated to new investment
and innovation by optimizing ourexisting technology environment.
We will also maintain a relentless
focus and significant spend on
cybersecurity, protecting the firmand enabling the secure introduction of new capabilities.

2016 was a year of mobilizing a portfolio of optimization programs that
increased the pace and quality of technology delivery while decreasing cost.
Improving software development
productivity and adopting cloud infrastructure are core elements of thatstrategy. We continued to improve
developer productivity by enabling an
agile technology workforce and automating the software development life
cycle. We are also defining design
standards to provide a common technical framework for development ofapplications of a particular type, forexample, big data analytics. This will
significantly reduce rework and duplication in the software development
life cycle where, previously, application developers have had to create
their own one-off frameworks. We
anticipate that these steps ultimately
will lead to a 20% efficiency gain in
the development process.
Historically, we have followed a
traditional “waterfall” approach tosoftware development, with separate
teams and processes for development,
testing and operations. The agile
approach, by contrast, is characterizedby multifunctional and collaborative
teams and allows frequent readjustment to project plans in response tochanging requirements. Adopting thisapproach vastly improves software
quality through its iterative nature
and accelerates our ability to deliver
incremental value. To put that into
perspective, we are moving from software release cycles measured in quarters to cycles measured in days.
We have also made great progress
toward fully automating development life cycle processes and standardizing developer toolkits. In 2016,
automated code scanning anddeployment tools resulted in savingsof nearly 120,000 developer hours –47

and, over the next few years, we
expect to be able to deliver morethan 90% of our software throughend-to-end automation.
Attracting, retaining and developing
top technology talent is paramount,
and we cast a net far and wide to findthe best and the brightest. In 2016,
32% of our senior hires in technology
came from non-financial services
firms. We had a 10:1 applicant-toposition ratio for our Technology Analyst Program, which targets graduatesof global universities that have strong
technology programs. Our employee
training programs cover new skill sets,such as cloud and agile development.
We also reinforce a strong innovation
culture and atmosphere to spark new
solutions through open source projects and “hackathons” in which technologists collaboratively code to solve
business problems. In 2016, we hosted
a firmwide global hackathon across 20
cities with over 2,500 developer participants. This led to 400 new productideas, of which 130 were potential
opportunities for patents.
We continued to pursue a hybrid
cloud strategy – leveraging a nextgeneration internal, private cloud, as
well as external, public cloud services– to further enable our developers
through on-demand availability, payfor-use and elastic scalability. In 2016,
we launched a new private cloud platform called Gaia, designed to provide
developers with rapid agility – so thatthey spend more time developing andless time provisioning infrastructure
and application services. Over 5,000
developers already have begun to use
Gaia. By the end of 2017, we expect tomore than double the number ofapplications hosted on the platform.
Over the last year, we established a
new Cloud Services function within
Global Technology to accelerate our48

hybrid cloud strategy, which includes
running our first applications in the
public cloud in 2017. Working collaboratively with public cloud providers,
we have made significant progressdeveloping a set of solutions thatmeets our rigorous risk and security
standards. The public cloud reduces
our peak infrastructure requirements
by providing compute services
during temporary fluctuations indemand. The public cloud also helps
reduce long-term storage costs andaccelerates developer access to newcloud services.

unique code is rapidly being replacedby reusable component pieces(“microservices”) that can communicate seamlessly, dramatically reducing
integration development time anddriving developer efficiency. We also
are expanding the APIs we offer externally to enable direct client integrationand secure solutions by third-party
developers – for example, the partnership with Intuit that we recently
announced. By the end of 2017, weestimate our applications will generate
more than 100 million internal andexternal API calls each day.

In 2016, we invested in a new global
data center strategy to consolidate ourexisting facilities into fewer, larger,
more modular sites. In early 2017, we
opened our first new state-of-the-art
data center, which is the strategic
model for all future builds globally.
The new data centers will house ournext-generation optimized infrastructure, enabling significant cost benefits.
For example, hardware commoditization already has reduced our server
costs by 25%. We also have introduced innovative storage offerings,
decreasing the price of our lowest tierstorage by 75%. We are driving additional efficiency by reducing waste
and becoming smarter around technology consumption – for example,
reducing over-provisioned storage andautomating manual operational tasks.

Advancing innovation andpartnerships

Our applications are also changing.
We are designing and developing
applications to take full advantage ofthe cloud’s benefits. In addition, there
is growing internal and external
demand for simple, self-service interfaces to our data and applications. To
meet this demand, we are leveraging
application programming interfaces(API) and launched an internal API
store to provide access to a marketplace of secure application services todevelopers throughout the firm. The
old world of developing and writing

As a firm, innovation is our top strategic priority. We take pride in ourability to differentiate ourselves
through the development of new
solutions and the adoption of emerging technology at scale.
Demand for digital-centric experiences
is transforming our businesses fasterthan ever. Most of our digital solutions
will continue to be built in-house due
to competitive and strategic importance. However, we have realized thecomplementary benefit of partneringwith fintech companies to enhance
select digital products and services. As
a result, our strategy is a combinationof build, buy and partner in order tocontinue delivering the best digitalproducts and services at scale.
We have formalized a firmwide fintech strategy and ecosystem engagement model to identify and leverage
partner relationships across all ofour business areas. In their letters,
each of our CEOs highlights examples of how technological innovation
is delivering value to their business.
Our relationships with the external
technology ecosystem helped drive
value across our technology focus
areas, including next-generation dataand analytics platforms, such as
Hadoop and Spark. To maximize theimpact of these new data platforms,
we have doubled our big data infrastructure consistently year-over-year.
We now can access and analyze data
in ways that we could not have done
before. For example, last year, we
re-engineered our Market Risk platform, one of the largest in-memoryrisk analytics platforms in the world.
The platform now manages over1 billion risk sensitivities and provides visibility 17 times faster thanthe prior system while delivering amore granular and holistic view ofthe firm’s risk exposure.
Within our global payments strategy,
we have developed a new payments
platform based on similar cuttingedge technologies. It will replace ninemonolithic platforms and enhanceclient value through real-time crossborder payment execution and endto-end payment status transparency.
In addition, the platform will enable
us to bring new products to market
more quickly and offer a more configurable, flexible client experiencethrough reusable APIs and microservices for event processing.
As we look forward, two emerging
areas of innovation – robotics andmachine learning – offer promising
opportunities to drive new value
through automation and insight.
Robotics

Robotic process automation is software that automates routine, repetitive activity that otherwise would be
performed manually. Virtual “bots”
are available 24/7 to efficiently execute simple processes without the riskof human error. In 2016, we established an internal center of excellence
to drive best practices around a growing pipeline of robotic process automation, including systems accessadministration, for which we expect
to automate 1.7 million requests in2017. We have line of sight into morethan $30 million run rate saves fromrobotic process automation in 2017,a savings that, coupled with otheroptimization efforts, will continue toincrease substantially in the years tocome. This technology has the opportunity to deliver immediate benefit inseveral areas across the firm, helping
us to position our workforce aroundhigher value tasks and functions.
Machine learning

Machine learning offers another exciting opportunity to drive new capabilities for the firm and our customers
and clients. Machine learning technology provides insights about data
without needing to pre-program algorithms. Machine learning technology
actively learns from data with the goalof predicting outcomes. The morethese learning algorithms are engaged,
the more effective they become at
identifying patterns and relationships.
In 2016, we established a center of
excellence within Intelligent Solutions
to explore and implement a growing
number of use cases for machinelearning applications across the firm.
As an example, we recently introduced COiN, a contract intelligenceplatform that uses unsupervisedmachine learning to analyze legal documents and to extract important data
points and clauses. In an initial implementation of this technology, we canextract 150 relevant attributes from12,000 annual commercial credit
agreements in seconds comparedwith as many as 360,000 hours per
year under manual review. This capability has far-reaching implications
considering that approximately 80%
of loan servicing errors today are due
to contract interpretation errors.
We also use machine learning todrive predictive recommendations

for Investment Banking. Last year,
we introduced the Emerging Opportunities Engine, which helps identify
clients best positioned for follow-on
equity offerings through automatedanalysis of current financial positions,market conditions and historical
data. Given the initial success of theEmerging Opportunities Engine in
Equity Capital Markets, we are
expanding it to other areas, like Debt
Capital Markets, similarly basing
predictions on client financial data,issuance history and market activity.
We are initiating pilots for a broad
range of machine learning use cases– from detecting anomalies for fraudand cybersecurity, to generatingtargeted trading strategies to sharewith clients, to optimizing our clientservicing channels. We are only at thevery beginning of tapping the potential capabilities of machine learningand its benefits to our business.
We also are excited about the prospects of cognitive automation, which
combines both robotics and machinelearning technologies to mimic
human judgment. Cognitive automation has the potential to automate
more complex, human-like processes,
such as perceiving, hypothesizing andreasoning. In 2016, we successfully
piloted a virtual assistant technology
to respond to employee technology
service desk requests through a natural language interface. We are rollingout this technology in 2017 to help us
initially triage over 120,000 service
tickets, with plans to expand the capability to address even more of the
1.7 million annual employee requests.
Securing a changing landscape
Our cybersecurity strategy is focusedon securely enabling new technology
and business initiatives while maintaining a relentless focus on protecting the firm from cybersecurity49threats. Our defensive philosophy follows a “kill chain” approach – layersof controls aligned to the multiple
stages of the cyber threat life cycle(from early warning, to inbound/
outbound prevention and detection,
to response and recovery). We havealigned our security technology andprocesses to this life cycle, with afocus on a “shift left” approach –increasing our effectiveness in detecting and preventing malicious activity
at the earliest points in the life cycle.

embrace our cybersecurity leadership
responsibility to the industry. In
2016, we led the creation of the
Financial Systemic Analysis & Resilience Center (FSARC) in partnershipwith seven of our peer banks and the
U.S. government. FSARC’s mission isto proactively identify, analyze,
assess and coordinate activities tomitigate systemic risk to the U.S.
financial system from cybersecurity
threats through focused operations
and enhanced collaboration.

The firm continues to make significant investments in cybersecurity toenhance these defensive controls andour resilience to threats. For example, we have deployed web browser
isolation technology to reduce therisk of employee compromise
through phishing. Investments insecurity analytics, data science andautomation technology will enable
analysts within our Security Operations Centers to efficiently detect andrespond to anomalous activity. We
have adopted and continue to evolve
leading-edge technology to prevent
client fraud across lines of business,
including risk-decisioning enginesthat help distinguish between goodand bad activity in real time.

Increasingly, our customers andclients view our cyber posture, likeour fortress balance sheet, as asource of strength. We will continue
to work tirelessly to identify opportunities in which the firm can leverage our cybersecurity expertise tostrengthen our controls, protect ourclient relationships and improve theposture of the broader industry.

Through robust employee awarenessand readiness programs, we continue
to reinforce the idea that cybersecurity is everyone’s job. We also educate our customers and clients on
how to protect their assets andbusiness from cyber threats. We
broadly distribute awareness communications and conduct both inperson and web-based training inwhich more than 7,000 clients in
Asset & Wealth Management, morethan 3,000 Commercial Banking
clients and over 1,900 Corporate &Investment Bank clients participatedin 2016 alone. As one of the largest
global financial institutions, we
50

Liquidity and interest rate risk
The firm’s Treasury and Chief Investment Office are integral to deliveringon our strategic objectives, playing a
primary role in overseeing our $2.5
trillion balance sheet and providing
both governance and risk management expertise around interest rateand liquidity risk. We meet ourobjectives through our nearly $300
billion high-quality investment securities portfolio, as well as the $300+
billion of funding and liquidity
sources directed by Treasury.
Most notable in 2016 was our work
related to liquidity and funding in
response to U.S. regulator feedback on
our 2015 Resolution Plan. We introduced a comprehensive new liquidity
framework to estimate available
resources and liquidity needs during a
resolution event – and, as part of thiswork, rolled out two enhanced liquidity models across our material legal
entities. We further strengthened thefirm’s liquidity position, raising morethan $50 billion of liquidity to meetthe requirements of the new framework. While deposit growth in excess
of loan growth drove some of thisimprovement, the liquidity benefit
came mainly from a reduction in nonhigh quality liquid assets in our investment securities portfolio and anincrease in Treasury-originated shortand long-term secured funding.
Our focus on optimizing the firm’sbalance sheet continued with rigor
through 2016. We extended our optimization framework to analyze thematurity structure of our long-term
debt, and we introduced the industry’s first total loss absorbing capacity(TLAC) efficient callable debt structure, resulting in a larger proportionof our outstanding long-term debt
being TLAC eligible. More broadly,
our optimization framework helped
to inform our new multi-factor
equity allocation approach to betteralign incentives with the broader setof constraints we face. Our firmwide
Asset Strategy group together with
our Deposit Strategy group provide
strategic cross-business focus on
our deposit, lending and investment
activities. These forums have andwill continue to evolve our analyticalframeworks and monitoring capabilities, as well as continually assessmarket opportunities and associatedresources and risks.
2016 also saw a move higher in U.S.
dollar interest rates and featured a second rate hike by the Fed in December.
During the second half of 2016, threemonth LIBOR increased 35 basis
points to 1%, while 10-year Treasury
yields increased nearly 100 basis
points to 2.43%. Staying true to ourdisciplined risk management framework, we opportunistically added
duration through our investment securities portfolio as long-end rates rose.

Market expectations have shifted aswell. At the end of the second quarter of 2016, the market was expecting
the Fed’s interest rate on reserves toremain below 1% through the end of
2019. With recent and anticipated
Fed interest rate hikes, industry
expectations are now for the rate onreserves to reach 2% during 2019.
And, as indicated by our $2.4 billionof “earnings-at-risk,” our firm benefits greatly when rates rise, particularly short rates, which allow us tocapture the full value of our significant deposit franchise.
We continue to build on the great
work started in 2015 on our intraday
liquidity program, with technology at
the core of our advancements. We areable to monitor, in real time, theliquidity impact of over $6 trillion oftransactions daily and the credit exposure across tens of thousands of intraday credit facilities, consuming up to
5,500 updates per second. This year,
we introduced big data analytics,
which has substantially improved our
predictive capabilities around intraday drivers. We store 90 million data
points covering in excess of 18
months of daily history, adding over
500,000 data points per day. We are
now realizing the benefits of harnessing this vast amount of data, informing decisions internally and improving the quality of our dialogue withclients. Additionally, we are leveraging technology to further optimize
approximately $1 trillion of collateral
the firm has received, as well as thefirm’s own collateral, to provide amore integrated and dynamic operating model for collateral firmwide.
A culture of accountability
Having fortress controls remains a
critical priority, but controls alone
are not sufficient without the rightculture. The COO will continue its

leadership to reinforce our Business
Principles and cultural values
throughout the firm and maintain an
appropriate governance framework toeffectively manage our approach to
conduct risk. Confirming we are getting it right requires a comprehensive
set of metrics, and, over the past year,
we have introduced a series of conduct measures to do just that.
Culture and Conduct Risk was reaffirmed as a strategic priority at our
Operating Committee annual strategy
off-site meeting in July. We recently
appointed a Chief Culture and Conduct Officer for the firm to reinforce
ownership of conduct risk and a consistent firmwide approach in the firstline of defense. We also established aseparate risk stripe for Conduct Risk
so that we have disciplined and consistent oversight and a clear conduct
risk management framework.
We use increasingly sophisticateddetective controls to help us identify
broad, as well as individual, trends in
employee conduct. For example, we
now have in production a Front Office
Supervisory monthly report acrossour markets businesses globally. This
tool consolidates key sales and trading metrics, such as number of canceled and amended trades and credit
and market risk limit breaches, withcompliance metrics, such as an
employee’s compliance with mandatory training and consecutive leave
requirements, to give supervisors aview of their employees’ behavior. We
also surveil certain electronic communications and trades to identify potential misconduct, and we have implemented controls designed to preventand detect abuses related to collusion,
market misconduct or manipulationand corruption, among others.
We continue to develop our Culture
and Conduct Risk Dashboard, whichis reviewed with our Board of Direc-

tors and senior management. The
Dashboard is a qualitative and quantitative assessment that includes key
metrics and commentary related to
how well-controlled we are and how
well we manage risk, complianceresults for our businesses andemployees, Code of Conduct matters,
employee survey results, and customer and client feedback/complaints for each of our businesses.
In 2017, we will continue to connect
key programs, metrics and policies
across the firm to identify additional
opportunities – and our Board of
Directors will continue to hold us
accountable for this important work.
Our approach is iterative, driven by
our commitment to our firmwide
values and ongoing communicationof our standards to our employees.
We engage in ongoing dialogue with
our regulators, industry peers andother experts to identify and adopt
best practices.
Looking ahead
I have never been more excitedabout the opportunities ahead. Our
focus on innovation and aggressive
optimization to meet new challenges
will continue to result in dynamicchanges to our operating model as
we best position our businesses forthe future. In so doing, we will maintain a relentless commitment to thehighest standards of conduct andsafety and soundness to protect the
integrity and security of the markets
in which we operate and the assetsof our customers and clients.

Matt Zames
Chief Operating Officer

51

Consumer & Community Banking
Today, we have a relationship withalmost half of all households in the
U.S. We grew our customer base in2016 by 4% to 60 million U.S. households. We are the primary bank formore than 70% of our consumer
households and nearly 50% of oursmall businesses. Our household
attrition is at record lows. And
according to our 2016 Brand Health
Survey, the Chase brand is at thestrongest levels we have seen, ranking #1 in key categories, including
consideration, which measures if
survey participants would consider
doing business with Chase and havea positive perception of Chase.
Gordon Smith

2016 financial results2016 was another strong year for
Consumer & Community Banking(CCB). All our businesses performed
well and delivered very strong
results. We gained market share ineach of our six business units. For
the full year, we achieved a return on
equity of 18% on net income of $9.7
billion and revenue of $44.9 billion.
We made meaningful progress on
our 2016 priorities – a strategy wehave been following consistently
since we unified our Consumer businesses in 2012 under CCB:
• Deepen relationships with ourcustomers and simplify andimprove the customer experience• Lead payments innovation bydelivering solutions that address
merchant and consumer needs• Increase digital engagement by
delivering differentiatedexperiences

52• Protect the firm and its clients/
customers, investors and employees from cyberattacks, as well asprotect the privacy of their data
and transactions• Continue our unwavering commitment to build and maintain an
effective and efficient control
environment• Execute structural expense management strategies while continuing toinvest for the future• Attract, train, develop and retain
the best talent and strengthen our
diversity
Simply put, our commitment to customers is at the heart of everything
we do. It’s what drives our work andour strong results. We know that
happy customers will do more business with us and stick with us
throughout their lives. For us, ourgoal is not only to acquire customers– it’s to acquire customers who view
Chase as their primary bank or credit
card. We want to be our customers’
first call when they are seeking
financial advice.

While we are extremely pleased with
where we are, we know we haveplenty of work to do. There is tremendous opportunity literally on ourown doorstep. More than 80% of
Chase households with a mortgage
got it somewhere else. Only one-thirdof our customers are engaged withmore than one product across Chase.
And only 10% of our small businesscustomers who have a Chase banker
use us for business banking, credit
card and merchant services, while
43% of small businesses need all
three. We can continue to grow simply by serving our existing customers
exceptionally well and earning theirtrust to do more business with us.
Building a strong business for the
futureWe have been fortunate to be in an
extended, historically benign credit
environment. Despite that, we havenot forgotten the painful lessons of2008 and have maintained an
extremely disciplined approach tocredit throughout the cycle.
In Mortgage Banking, we’ve
increased our loan balances while
improving the quality of our servicing portfolio. Today, our delinquency
rate is approaching its lowest level inPayments innovation

2016 Performance Highlights
Key business drivers$ in billions, except ratios and where otherwise noted

2016

YoY∆

Consumer &Community Banking

Households (millions)
Active mobile customers (millions)

60.0
26.5

4%
16%

Consumer Banking

Average deposits
Client investment assets (end of period)

$461
$235

11%
7%

Business Banking

Average deposits
Average loans2
Loan originations
Net charge-off rate

$110
$22
$7
0.61%

9%
7%
8%
(5) bpsMortgage Banking

Total mortgage origination volume
Foreclosure units (thousands, end of period)
Average loans
Net charge-off rate3

$104
47
$232
0.10%

(3)%
(36)%
14%
(8) bps

Credit Card

New accounts opened4 (millions)
Sales volume4
Average loans
Net charge-off rate

10.4
$545
$131
2.63%

20%
10%
4%
12 bpsCommerce Solutions

Merchant processing volume$1,063

12%

Auto Finance

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

$35
$75
0.45%

9%
16%
7 bps

1

1

Reflects data as of November 2016
Includes predominantly Business Banking loans as well as deposit overdrafts
3
Excludes the impact of purchased credit-impaired loans
4Excludes Commercial Card2

a decade, and our foreclosure inventory is down 85% since 2012. That’s
important because a nonperforming
loan is 25 to 30 times more expensive for us to service than one that is
performing. We are continuing toevolve Mortgage Banking into a lessvolatile and more profitable business. In our Card business, we havebeen very consistent in terms of ourmodest exposure to the less than 660
FICO segment. And when you lookat the mid-prime space, characterized
as FICO scores between 640 and 720,
we have the lowest share among theplayers in the industry. Our credit
card losses remain at very low levels.
Along with credit discipline, we
remain fiercely devoted to expense
discipline. We reversed a trend of ris-

YoY = year-over-year bps = basis points

ing expenses with relatively flat revenue. Since 2014, we achieved $2.4
billion in structural expense reductions and improved our overheadratio from 58% in 2014 to 55% in
2016. Importantly, during that sametime period, we continued to prudently invest in our core businesses
to deliver value for the long term. In
particular, we’ve invested heavily intechnology and marketing associatedwith new product launches, digitaland payments innovation, and cybersecurity. Our investments have also
improved our control environment,
leading to more automated processes
and better customer and employee
experiences. Expense discipline ispart of how we do business every
day, and the work to reduce ourstructural expenses will continue.

Payments are at the very core ofwhat our business does for customers.
We are one of the few companies
that can deliver the full payment
chain from merchant to consumer.
The payments industry is one that is
evolving rapidly with innovation andnew entrants. Our strategy has been
consistent:• Build our own proprietary walletwith Chase PaySM• Be top of wallet in other wallets,
whether that is Apple PayTM,
Android PayTM, Samsung PayTM, orother embedded payment systems
such as Amazon or Uber
• Have the best person-to-person(P2P) payments experience
anywhere• Create card products that ourcustomers love, with rich reward
offerings to make them top of thephysical and digital wallet
The future here is still unknown ascustomers adopt new capabilities. But
we know payments are core to what
we do, and we are investing acrossmultiple fronts to create the best payments experience for our consumer
and merchant customers as technology evolves. In 2016, we achieved
some key milestones in payments:
Commerce Solutions – Our Chase
Commerce Solutions business has
earned double-digit growth since2012 and in 2016 surpassed a staggering $1 trillion in processing volume.
Chase Pay – We introduced Chase
Pay, our payment solution that provides benefits to both customers andmerchants. Chase Pay has unique features other payment methods don’t
and has the Chase brand and security
behind it. Several large retailers,
53

including WalMart, Starbucks andBest Buy, have partnered with us tooffer Chase Pay to their customers. It’s
early, but we’re already seeing promising results and expect 2017 to show
continued strong momentum.
Person-to-person payments – Chase
QuickPaySM has been an industry
leader with 94 million transactionsin 2016. The number of households
using QuickPay has gone up 30% injust the past year. As strong as it is,
we took an important step to makeit even better. We worked with 20+
other financial institutions on a solution called Zelle that speeds up P2P
real-time payments between banks.
Sapphire ReserveSM – This past year,
our team noticed an important
insight from our customers: People
are traveling differently. They want
to feel more like locals than tourists,
and the shared economy has revolutionized the travel industry. Whenchoosing a credit card, customers
want a card that rewards them more
for doing what they love to do andhelps them discover the future oftravel. We created Sapphire Reservewith one of the strongest point programs in the industry. And while we
knew we had designed a superb card,
frankly, even we were surprised by
the sensation it became. We
exceeded our annual target of customers in less than two weeks.
Sapphire Reserve has introduced
Chase to an exciting and passionate
customer base with average FICO
scores above 785 and an averagedeposit and investment wallet ofover $800,000. Even more exciting,the majority of our new Sapphire
Reserve customers are millennials.
That is significant because millennials make up the majority of our new
deposit accounts today, and their54

wealth is expected to grow at thefastest rate of all generations overthe next 15 years. Since we are morethan a credit card company andgiven our new customers’ strong satisfaction and engagement with their
Sapphire Reserve cards, we are confident they will also choose Chase to
do more of their banking, investments and loans.
New card launches – While receiving less hype than Sapphire Reserve,
we’ve also introduced several otherpopular cards. Chase Freedom
UnlimitedSM simplified our cash-backproposition by offering customers
1.5% cash back on everything theybuy. And not to be outdone, Ink
Business PreferredSM and our Amazon
PrimeSM card also earned a verystrong customer reception. Together,
these cards have contributed to ourmomentum. In 2016, we saw new
accounts up 20%, card sales volume
up 10% and outstandings up 8%.
DigitalWe think we can confidently saythat Chase is the digital leader in
the industry. We have the #1 rated
mobile banking app, #1 ATM network
and #1 most visited banking portal
in the U.S. This is important because,
increasingly, digital is a critical driverin why customers choose to do business with Chase. Banking no longer
is a sometimes activity – customers
engage with us every day. More than
26 million customers are active on
our mobile app today. Digital also
drives tremendous loyalty. Households that use our digital channels
have credit and debit spend levels
over 90% higher than those that
don’t. Customers who are digitallyengaged have higher satisfaction andretention rates, spend more and have
far lower transaction costs.

Advancing our digital and technology capabilities is job #1, but we arealso paying close attention to theemerging technologies in our industry. Many new fintech companies aremastering ways to simplify the customer experience. Those we meetwith have huge respect for the Chasebrand, and they envy our scale anddistribution. In cases where we thinktheir solutions will improve the customer experience quickly, we partnerwith them. A few of those 2016 partnerships have worked out very well:• Chase Business Quick Capital® –A partnership with OnDeck to provide fast funding to small businesses
using Chase underwriting standards• Chase Digital MortgageSM –A partnership with Roostify thathelps our customers manage themortgage process online or on
mobile• Chase Auto DirectSM – A partnership with TrueCar that allows customers to shop for and finance thespecific car they want online andsimply pick it up at the dealership
We continue to study and meet withnew players to evaluate which partnerships could benefit our customers.
Chase in the community
Chase’s 5,258 branches are the faceof our firm to local communities.
Roughly two-thirds of our customers visit a Chase branch four times aquarter on average. Our branches
are located in the fastest growing
markets in the country, and we are
outpacing our competitors wherever
we compete.
If you visit our branches regularly,
you will see how they have changed.
There are fewer teller lines and more

options for customers who choose to
self-serve. There are more private
spaces and conference rooms forcustomers to meet with a banker andprivately discuss transactions. And
the branches just look better. Most
branches are refreshed roughly every
six to seven years to update the technology and brand experience.
We know one thing that will drive acustomer crazy is a long teller line.
Since 2014, we’ve reduced total tellertransactions by ~130 million andincreased self-service/digital transactions by ~180 million. That’s great
progress, but we still can do more. In
2016, 70% of our 400 million tellertransactions could have been performed through a self-service channel. We continue to work with ourcustomers to help them understandhow to complete transactions on
their own if they so choose.

And as transaction volumes comedown, we will rationalize our branchfootprint. We have been opening
branches in higher growth areas andconsolidating those with less foottraffic. As a result, we reduced ournet branches by about 150 in the past
year. However, by being smart about
where we open branches, even inmarkets where we consolidated, we
still grew share.
Our branches also are advice centers
for many of our 4 million small businesses. There are few things moregratifying than watching a small
business owner turn an idea into asale and then sales into a business.
Since 2012, our share of business customers who use Chase as their primary bank grew from 6% to 9%. We
improved our Net Promoter Score by
38%. And since 2014, average deposits are up by 21% and loans by 13%.

At Chase, we take very seriously therole our business plays in helping
customers make the most of theirmoney. Our goal is to offer products,
advice and tools to help them makethe best choices. It’s such a privilege
to be in the business of banking andpayments. We are honored to be partof our customers’ lives in a way thatfew businesses are.
On behalf of the more than 130,000
employees in Consumer & Community Banking, thank you for yourinvestment in us.

Gordon Smith
CEO, Consumer & Community Banking

2016 HigHligHTS And ACCoMpliSHMenTS• Consumer relationship withalmost half of U.S. households• #1 most visited banking portal in
the U.S. — chase.com• #1 in primary bank relationships
within our Chase footprint• #1 rated mobile banking app• Consumer deposit volume hasgrown at more than twice theindustry average since 2012

• #1 ATM network in the U.S.

• #1 credit card issuer in the U.S.
• #1 U.S. co-brand credit card
issuer• #2 mortgage originator andservicer• #3 bank auto lender• #1 in total U.S. credit and debit
payments volume• #2 merchant acquirer

2016 West Coast Bus Tour
Every summer, we go out on the road to meet with our employees andask for their feedback. They tell us what they are hearing from ourcustomers and give us ideas on how we can make our Chase customer
experience even better. We’ve made many customer improvements asa result of our bus tours, and we have a lot of fun along the way.

55

Corporate & Investment Bankis the ultimate outcome of negotiations between the U.K. and the EU.
We are fortunate to have options interms of locations and legal entities
that will allow us to serve clientsseamlessly during the transition. We
will need to make adjustments, but
our commitment to clients in the
U.K. and the EU is as strong as ever.
By continually improving, adapting
and being prepared, we are better
able to respond. That’s what ourclients have come to expect, and weknow that their success is the foundation for ours.

daniel pinto

During a year of significant volatility,
the Corporate & Investment Bank
(CIB) consistently delivered for its
clients. Throughout 2016, weincreased or maintained our leading
positions by avoiding complacency,
reinforcing our culture of meetingthe highest standards and attracting
the best talent in the industry.
By adhering to those principles, theCIB achieved impressive results in
2016. Record earnings of $10.8 billion
were up 34% compared with 2015,
and our $35.2 billion in total revenue
reflects a gain of 5% over the previous year. That performance produced
a superior return on equity (ROE) of
16% on a capital base of $64 billion.
Providing clients with capital andliquidity during volatile market conditions has become even more essential
in recent years. As some competitors
retrenched and signs of decreasingliquidity emerged, we remained
supportive and accessible. Our global
scale, complete product set and thestrength of our balance sheet, underpinned by our sound risk management practices, enabled us to consistently serve clients, a factor in56

driving wallet share increases across
our already top-ranked businesses.
We don’t take our leadership for
granted, though. Despite our leading
franchises, we continue to lookbeneath the surface of our businesses,
ask the critical questions and make
improvements where necessary. We
are committed to staying ahead of
the curve and embracing the technological changes affecting our industry
in the face of competitors, both newand traditional.
By investing in scalable platforms andinnovative trading tools and improving the overall experience, we areserving clients better, faster and more
efficiently than ever before. More
important, while we drove annual
expenses down to $19 billion by staying disciplined, we still kept investingfor the future. The market share gains
we experienced in 2016 were supported by the CIB’s profitability andour willingness to make strategic
investments in innovation that willbolster our growth for years to come.
The past year demonstrated once
again that there will always be unpredictable global events. One unknown

Strengthening investment banking
leadership
Investment banking has always been
about deep, long-standing relationships and solutions. Clients wantconsistent coverage, good ideas andglobal capabilities. We have an exceptional Investment Banking franchisethat consistently ranks #1 globally.
That success continued in 2016 withan 8.1% share of the global fee wallet.
We take immense pride in our people and the talent at J.P. Morgan, andour #1 standing is mainly due to thefact that we have the industry’s bestbankers. Still, there are sectors andgeographies in which we can always
improve. Since 2014, we have hired
approximately 60 investment bankers, about 40 of whom were managing directors, who brought experience and relationships that will help
bring J.P. Morgan’s full suite of solutions to even more clients.
Our bankers represent a franchisethat has a full range of global capabilities. Our Debt Capital Markets
team retained its hold at the top of
the global debt league tables. Its
expertise and the firm’s ability todeliver capital in scale for complex
financings set us apart.

One standout deal of the year was evident in J.P. Morgan’s role as the leadfinancial advisor to Dell Inc. and Silver Lake Partners on Dell’s $67 billion
acquisition of EMC Corporation, thelargest technology transaction in history. In addition, J.P. Morgan served as
global financing coordinator on Dell’s$49.5 billion of committed financing
associated with this transaction.
We also remain a leading source ofdebt capital for U.S. nonprofit andgovernmental entities, specificallystates, municipalities, hospitals anduniversities. Last year, J.P. Morgan
raised $90 billion of credit and capitalfor these important clients.
In 2016, we also were the top equity
underwriter. Despite a difficult environment for initial public offerings(IPO) and a significantly smallerindustry wallet, J.P. Morgan was the
only global bank to gain share lastyear. Our bankers led 343 deals, morethan any other bank. J.P. Morgan wasa global coordinator and sponsor on
the Postal Savings Bank of China’s$7.6 billion IPO, the largest equity
deal of the year and the largest IPO
since the 2014 deal for Alibaba, inwhich J.P. Morgan acted as global
coordinator. That 2016 deal underscored once again our ability to execute large transactions around theworld by connecting regional issuerswith global investors.
In order to grow, clients have often
searched for merger and acquisition(M&A) opportunities to transformtheir companies. They look to trusted
advisors who understand their companies and sectors and can provide thestrategic insights to help them expand.
Our global team of M&A bankers
works together to coordinate quickly
and often, enabling J.P. Morgan to
identify timely trends and opportunities across industries and borders.
After record M&A volume in 2015,

overall activity was down in 2016, but
J.P. Morgan advised on more deals
than any other bank and ranked #2 inwallet share globally. The firm’s North
America M&A wallet share grew by
60 basis points since the end of 2015.
Having top franchises across M&A,
debt and equity gives us real-time,
global market insights. Windowsof opportunity in both M&A andcapital markets can open and closequickly. Having expertise acrossproduct areas allows us to be timely
and provide our clients with the bestsolutions to further their growthstrategies. That’s how we build trust.
Our Investment Banking franchise
also enjoys a strong partnership with
Commercial Banking (CB) that sets
us apart from all other competitors.
Its Commercial and Industrial franchise is a leading bank to nearly
18,000 clients. As those businesses
grow and flourish, many need capital and advisory services from the
Corporate & Investment Bank.
In 2016, the CIB led more than 800
capital markets transactions for CB
clients and generated a record $2.3
billion of gross investment banking
revenue. Despite that already impressive pipeline of shared client business,
we think the potential magnitude
over time could reach $3 billion.
Another developing partnership for
the CIB is the potential to work with
J.P. Morgan Asset & Wealth Management and its client base of family
offices. We think there is more opportunity to offer these large investors
participation in CIB transactions
relevant to their investment goals.
Investments and scale in the global
markets
We believe that having global scale, acomplete platform and operational
excellence are essential to having a

best-in-class, profitable franchise. In
2016, our Markets business (Fixed
Income and Equities) finished the yearwith a combined $21.0 billion in revenue, a year-over-year increase of 15%.
We have always believed that providing clients with a global and diverse
Markets business leads to a higher
and more resilient ROE. In 2016, eachone of our major Fixed Income businesses produced a ROE above the costof capital. More important, the marginal contribution that each businessprovides to the larger Fixed Income
franchise is much greater. The costs to
run our Markets business are mostly
fixed so operating leverage gives us
upside when market growth occurs,
which is what we saw last year. Even
Commodities, which didn’t meet its
cost of capital in 2015, in part becauseof ongoing simplification efforts, produced a good return in 2016.
Since 2010, the Fixed Income industry revenue pool has contracted from$157 billion to $114 billion. However,
because of our scale, continuous
investments and risk discipline, wewere able to increase our market
share over the seven-year period
from 8.6% to 12.0%.
Our Equities and Prime Services
businesses, major areas of focus forus, also gained share during thatseven-year period. Our market share
increased from 6.9% to 10.1%, andwe are now ranked #2, even as theglobal wallet declined by $6 billion
during that stretch. We had record
revenue and balances in prime brokerage last year. It’s an area where
we committed to invest in order tocomplete our platform, and the progress is evident across all segments.
In fact, since 2014, we have grownsynthetic revenue by 48% and cash
revenue by 12% within our prime
brokerage business, bringing the twosegments more into balance. Our
57

leading equity derivatives franchise
grew revenue by 26% even while theindustry revenue pool shrunk by 5%.
We’ve also made great strides in cash
equities. No doubt about it, we werelate to the game when it came toinvesting in low-touch, electronic
trading about a decade ago. But by
taking advantage of our profitability
and committing ourselves to significant, ongoing technology investments, we now are a leading equities
franchise and are driving the changesof tomorrow. Between 2014 and 2016,
the overall cash equities industry revenue pool fell by 18%, yet our revenue
decreased by only 4%, helped by a
31% jump in low-touch revenue. The
technology investments we madehelped preserve our share in a declining market and positioned us for
growth as we continue to onboard
clients faster and build best-in-classelectronic trading tools.
We are proud to be a perennial leader
in Fixed Income and pleased with theprogress we’ve made in Equities, butthere is still more to do. Across theMarkets businesses, we track 31 subproduct and geographic categories. In
2012, we held a top three leadership
position in 61% of those categories.
In 2016, we improved our standing by
having a top three leadership positionin 77% of those same categories.
The bulk of those leadership improvements came from investments wemade in Asia, where we have completed or enhanced some pieces ofour global platform.
We feel very good about our Markets
business. Global scale and a complete
platform have never been morecritical. We have many competitive
advantages in Markets, but it isessential we continue to invest andproactively think about disruption
on our own terms.
58

Adapting to the new market structure
Technology is rapidly reshaping theMarkets landscape, positively altering how our clients trade and how
we communicate with them. As thetechnology advances, we have theresources and the will to embrace
behavioral shifts and build offerings
around them. We fundamentally
believe that clients should have theability to choose how they want totrade with us rather than be constrained by the technologies we, orthey, happen to have. Our Markets
Execution group is dedicated to making sure clients can seamlessly andconfidently engage with us anytime,
anywhere, now and in the future.
Whether it was the U.K.’s referendum
to exit the EU, the results of the U.S.
presidential election or the uncertainty of China’s growth rate, the
CIB’s technology, our scale and operational excellence enabled clients totrade through turbulent markets.
In the case of the U.K. referendum,
as results were tallied, J.P. Morgansmoothly handled record volume incurrency trading, at one point processing 1,000 tickets per second as
investors scrambled and adjusted
their positions around the world.
While impressive, years of technology investments and proper risk discipline prepared us for an event suchas the U.K. referendum. Our profitable Markets business, which generated an overall ROE of 17% last year,
enables us to invest in innovationand the client experience. Eightythree percent of notional FX trading
is now done electronically. We haveseen a $100 million trade done on amobile phone, and on peak days in
2016, $200 billion in FX was tradedthrough our electronic channels,
including our own J.P. Morgan
Markets platform, which provides
a range of services from research topre- and post-trade reporting.

The electronic evolution is advancing, and the investments we’ve made,and will continue to make, alreadyare proving their merit to our clients.
Transforming transaction banking
Our commitment to technologicaladvancement also has helped us makesignificant progress in Treasury
Services (TS) and Custody & Fund
Services (CFS). As businesses thatprovide vital services to clients, bothhave benefited from the extensive
resources we’ve allocated to them.
To give a sense of the scale andimportance of these two franchises,
we hold and protect more than $20
trillion in assets under custody andsecurely process $5 trillion in payments every day.
Global companies know how vital
these functions are in terms of safeguarding their financial operations
and enabling their businesses torun smoothly.
Clients of both Treasury Services andCustody & Fund Services increasingly demand real-time access totheir balances, intraday liquidity andever faster processing capabilities.
They are turning to us to deliver
innovative products, alert them tofraudulent transactions, and track
their finances across multiple currencies and countries. The goal is to giveclients real-time information on theircomplex, global portfolios with easyto-use, seamless technology.
Clients look to these critical services
to be faster and more accessible
than ever before, which is why wehave invested so heavily in thesebusinesses.
There’s more to do, but our efforts
haven’t gone unnoticed. Greenwich
Associates recently named

J.P. Morgan’s ACCESS OnlineSM the
top-ranking cash management portal
globally, as well as in North America.
Our commitment to technology anddelivery of innovative solutions werealso important factors behind BlackRock’s decision to award us a CFS
mandate with $1.3 trillion in assets
under management last year, the biggest custody transaction in history.
Clients are rewarding us with new
and incremental business; the bankhas increased business with existingcustody clients by 10% in 2016, andthe forward pipeline is strong. Overall, the bank serves about 2,500 custody clients in more than 100 markets.
The faith that clients have in ourcapabilities is a validation of ourinvestments and reflects our ability tocollaborate across areas, such as Sales,
Products, Technology and Operations.
By 2017, TS is expected to increase
its technology budget by 12% vs.
2014 with investments that include
automating and streamlining theaccount opening process, digitizing
document exchanges and expanding virtual branches. We’re also
continually investing in cybersecurity capabilities to guard against

fraud, malevolent attacks on ouroperations and other intrusions. We
believe that by 2017, these improvements will help reduce operating
expenses by 13% vs. 2014, whileclient operating balances jumpedby 15% in just the last two years.
Similarly, Custody & Fund Services
will increase its technology budget
by 30% vs. 2014 while driving
down operating expenses by 12%.
Using technology-driven solutions,
CFS is enhancing its stability andenabling the business to grow in amore scalable way.
After a few years of tightening controls and upgrading systems, we are
now winning more business andattracting talented bankers and technologists who are excited about our
willingness to invest in and build
new technologies.
Building for the future
We view last year as a transitional
period in the financial markets. If the
global economy continues improving,that should have a positive impact onclient activity and gross domestic
product (GDP) growth in the U.S. andin many of the developed and emerging market economies.

Estimates are that emerging markets
ultimately will account for 70% of
future GDP growth compared with
its present share of worldwide GDP
of 40%. If and when that shift
occurs, J.P. Morgan will be prepared
to serve the next generation of multinationals and to foster their development through the financing capabilities that we are uniquely able to offer.
We will continue to build new products and make it easier for clients towork with us, from onboarding to
day-to-day trading and through thesimplification of our processes. We
have great assets, and no other bankis better positioned to deliver themto the global corporations of today or
the ones sure to come into being in
the next decades. But whether
they’re long-established multinationals or startups looking to gain theirown foothold in the global markets,
we will never forget that they are at
the center of what we do.

Daniel Pinto
CEO, Corporate & Investment Bank

2016 HigHligHTS And ACCoMpliSHMenTS• The CiB had record earnings of$10.8 billion on $35.2 billion ofrevenue, producing an Roe of 16%
on a capital base of $64 billion.
• We retained our #1 ranking in global
Investment Banking fees with an
8.1% market share, according todealogic.
• The CiB had $19 billion of expenses,
down $2.8 billion since 2014.

• The CiB continued investing
to embrace technology in order tooffer clients a broader array of
trading platforms in which to transact
with J.p. Morgan.
• The CiB’s leadership and role as atrusted partner to our clients helped
drive the firm’s total merger andacquisition share to 8.6%, up from
6.4% in 2012, a gain of more than
200 basis points.

• in our Markets business, despite• Custody & Fund Services has
a significantly smaller industry
more than $20 trillion inrevenue pool compared with 2010,
assets under custody; during
the CiB’s Fixed income
the past year, it increased
market share rose to 12.0% in
business with existing clients
2016, up from 8.6% during theby 10%.
same time frame.
• The Treasury Services businesssupports approximately 80% of
the global Fortune 500, including
the world’s top 25 banks, andhandles $5 trillion in payments
per day.
59

Commercial Banking
Loan growth across our business was
also outstanding, ending the yearwith record loan balances of $189 billion, up $21 billion from the prioryear. Loans in our Commercial &Industrial franchise reached a newrecord, up 9% from the prior year,
and loans in our Commercial Real
Estate businesses completed anotherfantastic year, with record originations of $37 billion.

doug petno

Across our company, our clients are at
the center of everything we do. In
2016, this meant supporting ourenergy clients as they weathered oneof the worst sector downturns in 30
years. With oil prices down almost
75%, the industry has felt tremendous
stress. During this time, we stood by
our clients and have provided meaningful advice and much-needed capital. As many banks stepped away, we
continued to demonstrate leadershipin the industry, adding over 30 clientsto our energy portfolio and extending
more than $1 billion in new loan commitments last year.

franchise. I’m excited to share our2016 results, the investments weare making and our expectations
for the future.

It was our disciplined client selection
and deep sector expertise that gave us
the confidence and resolve to provide
unwavering support during this significant downturn. I’m incredibly proudof our entire energy team for theirrelentless focus, leadership and hard
work. We believe it is this enduring
client commitment and our long-termview that set us apart in the industry.

Our partnership with the Corporate& Investment Bank (CIB) continues
to thrive and is a key differentiator
for our business. Being able to provide
strategic insights and leading capital
markets and advisory capabilities distinguishes us from every other commercial bank. In 2016, we delivered
record gross investment banking revenue of $2.3 billion, up 5% from theprior year. This outstanding partnership accounted for 40% of the firm’s
North American investment banking
fees, and we believe there is tremendous opportunity to grow.

2016 was a terrific year for Commercial Banking (CB) in so many ways,
and our performance highlighted
the strength and potential of our
602016 performance
For the year, Commercial Banking
delivered strong financial results,
with record revenue of $7.5 billion,$2.7 billion of net income and a
return on equity of 16%. Notably, weabsorbed incrementally higher capital and substantial investments in
our platform and capabilities while
maintaining strong returns and operating efficiency in the business.

Staying true to our proven underwriting standards, we have remained
highly selective in growing our loan
portfolio. Despite pressures in theenergy and commodities sectors,
2016 marked the fifth straight year of
net charge-offs of less than 10 basis
points. As we begin 2017, credit fundamentals across CB are quite strong,
but we remain disciplined andfocused. We are monitoring all new
activity carefully and know that thiswill serve us well over time.
What’s not in our financial results
also tells a great story. We havemade significant investments tobuild a fortress risk and complianceframework for our business. Moreover, we have executed a significant
portion of our regulatory and control priorities and are committed to
set the standard in the industry. This
progress has allowed us to focus on
improving our processes to deliver
a better client experience. It is an
ongoing priority, and we will continue to invest in safeguarding ourclients and our business.
Investing in our franchise to better
serve our clients
As strong as our business is, we arecertainly not standing still. We are
executing a multi-year transformation across CB, with a clear focus onbringing greater value to our clients.

Last year, we invested more than
we ever have on technology, data andour key product capabilities. Looking
forward, we will direct even moreresources in 2017 to enhance ourwholesale payments platforms, build
upon our market-leading digital capabilities, use data to better manage
risks, and drive improvements acrosscritical processes like credit delivery
and client onboarding. This is aneffort with no finish line – throughcontinuous innovation, we will seek
better ways to serve our clients andextend our competitive advantages.

partners in Consumer & Community
Banking (CCB) and CIB to leverage
their experience and technology
investment in this area.
In 2016, we joined CCB to launch a
new digital platform that is specificallytailored to meet the needs of small andmidsized companies. It works acrossdesktops, tablets and mobile devices toprovide an integrated experience
across all of our products and services.
We are excited that this new platform
will help us bring innovative functionality to our clients.
Expanding our footprint to reach more clients

Improving the client experience throughenhanced digital delivery

Given the rapidly increasing consumer
and wholesale client expectations, weare focused on leading the industry
in our digital and mobile capabilities.
Our mission is to deliver greater
speed, convenience, simplification,transparency and mobile access. We
are working hand in hand with our

Expanding our client base and building deeper client relationships
remain top priorities for CB. During
2016, we made significant progressin executing our long-term growthstrategy – opening offices in eight
new markets and hiring over 100
bankers across our business. Theselong-term investments are bringing

us much closer to our clients. We
made 20,000 more client calls lastyear than we did in 2015, and thisfocus will continue to drive opportunity for us in the coming years.
Our Middle Market business in California is a great example of the progress we’ve made so far and the tremendous potential we see in our
expansion markets. It’s an extremely
exciting market for us as it represents
the sixth largest global economy. Our
team entered California following theWashington Mutual acquisition in
2008, and we now have 13 offices
across the state. We are delighted
with our progress as we have added
more than 450 clients, and we are
growing with discipline, maintaining
fantastic credit performance withessentially zero net charge-offs.
Since 2010, our Middle Market teamhas opened 45 offices in major markets, including Los Angeles, San

Total Expansion Market Revenue1

Commercial Banking Gross Investment Banking Revenue3$ in millions$ in billions

Expansion efforts havedoubled Middle Market
addressable client universe2

1%
R: 4
CAG
e
u
en
ns
Rev
atio
Loc
$297

$328

45

$1,000

R: 9%
CAG

$411

$2.0

$352
$1.3

$232

19

$3.0

CB clients represented 40%
of CiB’s n.A. iB fees in 20164

$1.4

$1.6

$2.2

$2.3

$1.7

$139
$53

2010

2011

2012

2013

2014

2015

2016 Long-termtarget

2010

2011

2012

2013

2014

2015

2016 Long-termtarget2010–2016
CAGR
Clients (#)

820

1,100

1,360

1,470

1,670

1,970

2,220

18%

loans eop ($B) $1.6

$4.4

$6.8

$8.2

$8.8

$10.7

$12.6

41%

deposits ($B)

$3.0

$4.7

$6.0

$7.8

$8.2

$8.2

36%

$1.3

1

prior years’ financials have been revised to conform to current presentation
Analysis based on dun & Bradstreet data for companies headquartered in Metropolitan Statistical Areas with revenue between $20 million and $500 million; excludes high-risk industries
and industries not aligned to Middle Market
3
Represents total firm revenue from investment banking products provided to CB clients4
does not include fees from Fixed income and equity Markets products, which are included in Commercial Banking gross investment banking revenue
CAgR = Compound annual growth rate eop = end of period n.A. iB = north America investment Banking
261Francisco, Boston, Miami and Washington, D.C. We are in 48 of the top
50 markets in the U.S., and by theend of 2017, we will be in all 50.
Through these efforts, we haveorganically built a nice-sized bankwith over 2,200 clients, $13 billion ofloans and $8 billion of deposits. Our
Middle Market expansion strategy isa significant growth opportunity –one in which we believe will reach$1 billion in revenue over time.
Our opportunity
As we look forward, our strategic
priorities are clear. We are going tocontinue to drive innovation andstrengthen our business processes toimprove the client experience, operate with fortress principles and havethe best team in all of our markets toserve our clients. We remain committed to growing with discipline andwill continue to take a long-term view
with our business and our clients,
investing for their success and ours.
With these priorities guiding us, I’m
excited by the future and the potential of our business. We see enormous
opportunity across our franchise as
the investments we have made overthe last several years have set a solid
foundation. Expanding our footprint
and adding new bankers puts us in
front of a tremendous number ofpotential clients. Moreover, the enhancements we are making in ourplatform and capabilities give us confidence in our ability to compete andadd differential value to our clients.

Our success depends completely on
our people. They are knowledgeable,
dedicated and deeply embedded in
the communities they serve. I’m
excited by the enthusiasm they show
every day and am proud to workwith such an incredible team. As
always, we are optimistic about the
U.S. economy and our clients’ role indriving growth and opportunity for
CB. If we stay true to our provenstrategy, we believe this team willcontinue to deliver strong results forour shareholders.

Douglas Petno
CEO, Commercial Banking

2016 HigHligHTS And ACCoMpliSHMenTS
Performance highlights• delivered record revenue of$7.5 billion• grew end-of-period loans 13%;26 consecutive quarters ofloan growth• generated return on equity of
16% on $16 billion of allocatedcapital• Continued superior credit quality— net charge-off ratio of 0.09%
Leadership positions• #1 U.S. multifamily lender1• Winner of greenwich Associates’
Best Brand Awards in Middle Market
Banking — overall, loans or lines ofcredit, cash management, tradefinance and investment banking,2016• Recognized in 2016 by greenwich
Associates as #1 cash management overall satisfaction and #1
cash management market penetration in the $20 million–$500
million footprint
Business segment highlights• Middle Market Banking — Added
more than 700 new clients• Corporate Client Banking — Record• #1 in perceived Customer Satisfacgross investment banking revenue3
tion, CFO magazine’s Commercial
Banking Survey, 2016
• Commercial Term lending —Record originations of more than• Top 3 in overall Middle Market,$20 billion
large Middle Market and Asset
Based Lending Bookrunner2

62• Real estate Banking — Completed
its best year ever with record
originations over $10 billion• Community development Banking— originated over $1 billion in
new construction commitments,
financing more than 10,000 unitsof affordable housing in 90+ cities
Firmwide contribution• Commercial Banking clients
accounted for 40% of total northAmerican investment banking fees4• over $130 billion in assets undermanagement from Commercial
Banking clients, generating morethan $460 million in Investment
Management revenue• $475 million in Card Services
revenue3• $2.8 billion in Treasury Services
revenue

Progress in key growth areas• Middle Market expansion — Record
revenue of $411 million; 24% CAgR
since 2011
• investment banking — Record grossrevenue of $2.3 billion; 10%
CAgR since 2011
• international Banking — Revenue5of $285 million; 8% CAgR since
2011
1

Snl Financial based on Federal deposit
Insurance Corporation data as of 12/31/16

2

Thomson Reuters as of year-end 2016

3

Investment banking and Card Services
revenue represents gross revenue
generated by CB clients4

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

5

overseas revenue from U.S. multinational
clients
CAgR = Compound annual growth rate

Asset & Wealth Management
asset classes helps clients avoid
overexposure to a particular regionor asset class, protecting their portfolios from significant drawdowns
and enabling them to be nimble
and take advantage of market
opportunities when they arise.
When investors make emotional
decisions related to current events,
the benefits of long-term investingand properly diversified portfolios
can be eroded.

Mary Callahan Erdoes

The major geopolitical events of
2016, namely the U.S. presidential
election and Brexit, surprised manyas the outcome of these two major
votes had been deemed improbable.
As such, market reactions were volatile and unsettling to many.
The emotional response to such
events often makes it difficult toobjectively reassess and position
portfolios. For 180 years – throughcountless political challenges andconflicts – J.P. Morgan Asset &Wealth Management (AWM) has
brought its fiduciary mindset tohelp clients navigate portfolios.
Over these many decades, we haveinstitutionalized our insights andpassed on the cumulative wisdom
and knowledge of those before us
to incoming generations.
Perhaps the two most importantinvestment lessons passed on
through these centuries are aroundlong-term focus and diversification.
Diversification across and within

Instead of focusing on proper longterm, diversified investment portfolios, today’s debate is centered moreon how to invest. Questions relating
to “active vs. passive” investing and“humans vs. computers” have takenover the headlines.
We believe proper portfolio construction should include both active andpassive strategies, depending on aclient’s time horizon and risk profile.
We also believe advisors and technology need to work together. Clientswant to choose how, when and from
where they interact with us – whether
it’s through online platforms, on thephone or face to face. The person-toperson interaction becomes evenmore important as our clients’ lives
grow more complex and they require
more comprehensive advice.

20-Year Annualized Returns by Asset Class (1996–2015)
12%

10.9%

10%

8.2%

8%

7.2%

6.7%
5.3%

6%

5.2%

4.8%
3.4%

4%

3.3%

2%
0%

REITs

S&P 500

60/40

40/60

Bonds

Gold

EAFE

Homes

Oil

2.2%

2.1%

Inflation

Averageinvestor

Source: J.p. Morgan Asset Management; dalbar inc.
indexes used are as follows: ReiTs: nAReiT equity ReiT index; eAFe: MSCi eAFe; oil: WTi index; Bonds: Barclays U.S. Aggregate index; Homes: median sale price of existing single-family homes; gold: USd/troy oz; inflation: Cpi; 60/40: A balanced portfolio with 60% invested in S&p 500 index and 40% invested in high-quality U.S. fixed income, represented by the Barclays U.S. Aggregate index. The portfolio
is rebalanced annually. Average asset allocation investor return is based on an analysis by dalbar inc., which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as ameasure of investor behavior. Returns are annualized (and total return where applicable) and represent the 20-year period ending 12/31/15 to match dalbar’s most recent analysis.
Source: “guide to the Markets” — U.S. data are as of december 31, 201663

Returns of S&P 500
Performance of a $10,000 investment between
January 2, 1997 and December 31, 20167.68%
return$43,933

Six of the 10 best days
occurred within two weeksof the 10 worst days
4.00%
return$21,925

1.57%
return-0.51%
return$13,662-2.42%
return$9,025
Fully
invested

Missed 10
best days

Missed 20
best days$6,132

Missed 30
best days

Missed 40
best days-4.16%
return$4,275-5.76%
return$3,050Missed 50
best days

Missed 60
best days

As stewards of our clients’ wealth,our mission at J.P. Morgan is to help
clients of all types get, and stay,properly invested. Our clients spanthe entire spectrum – from retailinvestors working with our Chasebranch network, to wealthy individuals or families working with ourPrivate Bank, to sophisticated institutional investors working with ourAsset Management business.

Our market-leading performancespans asset classes – 90% of assets
for multi-asset solutions and alternatives, 84% for equity and 77% for
fixed income ranked in the top twoquartiles over the 10-year period.
This outstanding track record has
resulted in 140 of our equity strategies and 41 of our fixed income
strategies receiving a four- or fivestar ranking from Morningstar.

We have direct relationships with
60% of the world’s largest pension
funds, sovereign wealth funds andcentral banks and 50% of theworld’s wealthiest individuals andfamilies. We also deliver ourinsights and advice to more than
1 million U.S. families throughChase Wealth Management.

This consistent performance also has
led to clients entrusting J.P. Morganwith more of their assets. Over the
past five years, we ranked #2 in total
inflows among our large public peers,with an average of $82 billion annually and $408 billion cumulatively.

These clients can choose to workwith any firm they wish. They turnto J.P. Morgan because they know
we will be there for them when
they need us most and that we will
always put their interests first.
World-class investment performance
While trust is the primary reason
clients choose J.P. Morgan, our superior investment performance is also
critically important to the compounding of clients’ wealth. In 2016, 83% of
our 10-year, long-term mutual fundassets under management (AUM)
ranked in the top two quartiles.
64

Source: prepared by J.p. Morgan Asset Management
using data from Morningstar direct. Returns based on
the S&p 500 Total Return index. For illustrative
purposes only. past performance is not indicative of
future returns

In addition, clients are increasingly
using us for their primary banking
services. Wealth Management deposits grew to $290 billion in 2016 andrecorded an impressive 19% CAGR
over the past decade. In credit, our$121 billion in loan balances, including mortgages, represent a 15%
CAGR over the past 10 years. Our
focus on strong risk management
has helped us do that while maintaining charge-off rates that areamong the lowest in the industry.
% of 2016 J.P. Morgan Asset Management
AUM Over Peer Median1(net of fees)

Total J.P. Morgan
Asset Management

A diverse and balanced businessmix driving strong financial
performance
Much like the portfolios we manage,
our business is diversified across asset
classes, regions and client types. That
diversity, coupled with our proventrack record, has led to strong financial performance for AWM.

10-Year83%

Equity84%

Fixed Income
77%

In 2016, we delivered $12 billion inrevenue and record pre-tax incomeof $3.5 billion. We also reached arecord $2.5 trillion in total client
assets. These numbers have consistently grown over the past five
years, with a 5% compound annual
growth rate (CAGR) for revenue andclient assets and a 7% rate for pretax income.

Multi-Asset Solutions& Alternatives

1

90%

For footnoted information, refer to slide 17 in the 2017 Asset &Wealth Management investor day presentation, which is available on
JpMorgan Chase & Co.’s website at jpmorganchase.com/corporate/
investor-relations/event-calendar.htm, under the heading JpMorgan
Chase 2017 investor day, Asset & Wealth Management, and on Form
8-K as furnished to the SEC on February 28, 2017, which is available
on the SeC’s website at www.sec.gov

Never stop investing in people andtechnology
We work hard to make J.P. Morgana place where our people can havelong and successful careers. We
have a history of investing in ourpeople at every level, from the thousands of training sessions and leadership development courses to ourcontinuous work on talent mobility.
Over the past five years, we’ve
increased our front-office spend by
14% to ensure we have the rightpeople with the right skills in theright roles. As a result of this commitment to developing our talent,
we proudly maintained a top talentretention rate of over 95%.
One of the best ways we can invest in
our people is by also investing in our
technology. Our emphasis is on having a technology platform that allows
us to automate and improve processes
while, at the same time, helps ouradvisors to serve clients more quickly
and efficiently, as well as focus on
the value-added client work.

We have successfully reduced ourlegacy technology footprint anderror rates and significantly
increased our spend on forwardlooking initiatives. These efforts
include building out an enhanced
digital wealth management platform that will launch later this year
and introducing new client management systems for our advisors.
Asset & Wealth Management —difficult to replicate
One of the keys to our success has
been our ability to bring to thetable a unique combination of a
two-century heritage and a focus oncontinuous investment, innovationand improvement. That meansclients can have confidence that wewill be there for them over the longterm and also know that we havethe foresight to adapt and innovateto help them through whatever the
future brings.
The long-term focus of this businessis part of what makes AWM so difficult to replicate. A franchise witha 10-year investment performancetrack record, a 50-year relationshipwith a state pension fund and a
100-year relationship with a multigenerational family cannot be built
overnight. The culture of our firm –both what we do and how we do it –is equally special and one of ourgreatest competitive advantages.
When you combine our AWM capabilities with the world’s leading
investment, consumer and commercial banks, our story is even more
powerful and enables us to bring thebest the firm has to offer to help solve
our clients’ most important issues.
I am so proud to be part of this greatfirm and our AWM business. Ourcommitment to you, our shareholders, is that we will continue to do
first-class business in a first-class way
so that we can create even morevalue for you and for our clients.

Mary Callahan Erdoes
CEO, Asset & Wealth Management

2016 Highlights and Accomplishments
Business highlights• Record average loan balancesof $113 billion• Fiduciary mindset ingrained since
mid-1800s• Record average mortgagebalances of $29 billion• Positive client asset flows every
year since 2004
• Retention rate of over 95%
for top senior portfolio• Revenue of $12 billion
management talent• Record $2.5 trillion in client assets• Record pre-tax income of$3.5 billion

Leadership positions• #1 Global Asset Management(Euromoney, February 2017)• #1 Institutional Money Market
Fund Manager Worldwide(iMoneyNet, December 2016)• Best Infrastructure Manager of
the Year (Institutional Investor,
May 2016)• #1 Private Bank Overall in
North America (Euromoney,
February 2017)• Top Pan-European Fund Management Firm (Thomson Reuters Extel,
June 2016)• #1 Private Bank Overall in
Latin America (Euromoney,
February 2017)• Best Large-Cap Core Equity
Manager of the Year (Institutional
Investor, May 2016)• Best Asset Management Company
for Asia (The Asset, May 2016)• #3 Hedge Fund Manager(Absolute Return, September 2016)65

Corporate Responsibility
needed for today’s high-quality jobs;
provide small businesses – particularly minority-owned and communitybased ones – with capital andresources; invest in community development that revitalizes not only urbancores but also surrounding neighborhoods; and give households the tools
and resources to manage their financial health. Taken together, these are
four fundamental pillars of opportunity – and the focus of our efforts.

peter Scher

At JPMorgan Chase, we understandthat the success of our firm is directly
linked to the success of our communities. For us, corporate responsibility
is a strategic imperative. By giving
more people the opportunity to sharein the rewards of a growing economy,
we help build the foundation for
more prosperous communities – and,in the process, help secure our firm’s
long-term future.

applied to the JPMorgan Chase Service Corps, our highly selective program that embeds top-performing
employees with many of our nonprofit partners. That so many of ourpeople eagerly throw their hats in thering to leave their jobs, families and,in some cases, their countries forthree weeks to lend their skills to ourcommunities speaks volumes about
who we are as a firm.

The importance of corporate responsibility is reflected in its integration
throughout our operations. Our
long-term initiatives and programs– backed by significant human andfinancial capital and informed by
our firm’s expertise – are among themost externally visible indicators of
the seriousness of our intent. So, too,
are the ways in which we actively
leverage our core business in service
to our communities, deploying thecapital and the credit that fuel economic growth.

Underpinning this ethos is a conviction that firms like ours have not
only a responsibility and a vested
interest in helping solve the challenges facing our communities but
also a vital contribution to make. The
private sector’s capabilities, ingenuity and assets have time and again
demonstrated their capacity to drive
transformative change.

Bolstering these investments is thetremendous dedication of our people
to serve our communities, including
the hundreds of employees who
66

JPMorgan Chase has answered thiscall by reimagining our approach tocorporate responsibility. Based on our
experience around the world, we havedeveloped and refined a model that is
informed by data and based on evidence about what’s most effective atdriving inclusive growth. Our conclusion: Arm people with the skills

Our model also reflects what we havelearned are the essential ingredientsfor creating lasting impact. Critically,
it must include a deliberate focus on
strengthening the underlying organizations and systems that are needed toempower communities to deliver on –and sustain – change. Equally, it
depends on forging meaningful partnerships across the public, private andnonprofit sectors – and then actively
leveraging our unique capabilities.
Of course, every company has different assets and experiences to contribute – from Google’s initiatives thatharness its employees’ passion fortechnology to give back to their communities to IBM’s pioneering skilled
volunteerism program that demonstrates what can be achieved whenfirms lend their people’s expertise.
Regardless of what we bring to thetable, all of us can – and must –embrace the obligation to be a positive force for progress and opportunity in our communities.

Peter Scher
Head of Corporate Responsibility
and Chairman of theGreater Washington Region

A MODEL FOR IMPACT

Driving inclusive growthMore people must have access to opportunity
and the chance to move up the economic
ladder, particularly in the world’s cities, where
the benefits of revitalization are not reaching
everyone. To achieve this mission, we havereimagined our approach to corporate responsibility. We are leveraging our firm’s data,
global scale, talent and resources to invest
in key drivers of inclusive growth: financial
health, jobs and skills, neighborhood revitalization and small business expansion.
We continually test, learn and iterate in orderto create more widely shared prosperity and tostrengthen the underlying systems needed todeliver sustainable change.

A MODEL IN ACTION

Jobs and skills
Helping people get the skills they need tocompete in today’s labor market is critical for
expanding access to opportunity and promoting economic mobility. Yet even as the global
economy improves, people around the world
are being left behind.
To help address this challenge, JpMorgan
Chase is investing $325 million over five years
to provide adults and young people around theworld with critical support, education andtraining to build in-demand skills while providing employers with the workforce they need to
grow and compete in today’s economy. As partof these efforts, JpMorgan Chase launched
New Skills for Youth in 2016, a $75 million
global initiative to expand high-quality, careerfocused education programs that lead to wellpaying jobs and long-term careers.
New Skills for Youth is expanding opportunity
for young people through two approaches: amultimillion dollar competition, in collabora-tion with the Council of Chief State School officers, which seeks to incentivize U.S. states togrow and strengthen their career and technicaleducation systems; and, through global innovation sites, the development of career-focused
education programs in cities and school districts around the world.
Communities engaged in 2016:• Forty-three states and the district of Columbia submitted proposals to participate in
the first phase of the competitive program.
of these 44 submissions, we selected 24
states and the district of Columbia and thencommitted a total of $2.5 million to help
them plan and implement long-term careerreadiness programs. These states represent
half of all K-12 enrollments in the U.S.
• in the second phase of the program in January 2017, we selected 10 states and committed a total of $20 million to help them execute the career-readiness plans they
developed during phase one of the initiative. Through ongoing engagement by
JpMorgan Chase, these 10 states will havethe opportunity to collaborate and learn
from each other, receive targeted technicalassistance to address their specific challenges, and access lessons, best practices
and other research drawn from the initiative.

This initiative focuses on three key areas:
convening and supporting Community development Financial institution (CdFi) collaboratives to work together to address specificcommunity development challenges; providing
seed capital that enables partners to develop
and preserve affordable housing; and funding
research on land use, housing trends and shifting demographics to identify data-drivenneighborhood solutions.
in october 2016, JpMorgan Chase announced$20 million for five community development
organizations working to create economic
opportunity in five U.S. cities: Atlanta, Chicago,
detroit, Miami and new York.

Small business expansion
Small businesses are vital engines of job
growth and economic stability in the neighborhoods they serve.
They also have the potential to play a majorrole in lowering unemployment rates in distressed neighborhoods. Yet many low- andmoderate-income small businesses lack accessto vital resources needed for success.

• Additionally, we have committed a total of$10.5 million to denver, detroit and neworleans to develop and expand innovative
apprenticeship models and career-focusedprograms that equip high school students
with the skills and education they need topursue well-paying, long-term careers.

Neighborhood revitalization
our community development efforts focus on
creating vibrant communities and neighborhoods that offer residents access to opportunity
through partnerships, innovative financing anddata to address the key drivers of inequality.
launched in 2016, pRo neighborhoods, our$125 million, five-year initiative, seeks to identify
and support solutions for creating economic
opportunity in disadvantaged neighborhoods
around the country. pRo neighborhoods promotes collaboration across sectors and community-based innovators to ensure that economic
growth does not stop at commercial corridors
but extends into a city’s neighborhoods.

Through our efforts in detroit, we have learned
that supporting underserved entrepreneurs isessential to the city’s transformation. These
insights led us to refine and sharpen our focus
on helping underserved entrepreneurs connect
with capital to drive sustainable, widespreadand inclusive growth.
in october 2016, JpMorgan Chase more thandoubled the size of the global Small Business
Forward program, committing $75 million overthe next three years to connect underserved
small businesses with capital, targeted technical assistance and support networks to help
them grow faster, create jobs and strengthen
local economies.

67

As part of these efforts, JpMorgan Chase partnered with liftFund and committed $4.6 million
to support the launch of liftUp, a new webbased small business lending program toincrease access to capital for underserved
minority- and women-owned small businesses
in the southern U.S. liftUp will provide small
businesses faster access to affordable small
business loans, reducing lending approval timefrom an average of five weeks to four days.
Additionally, JpMorgan Chase partnered with
the Association for enterprise opportunityand committed $1.9 million to support theadvancement of a new technology-enabled
platform that will serve as an industry utility
connecting small businesses with CdFi lenders when the owners are unable to qualify fortraditional loans.

Data and analysis
Almost two years ago, we established the
JPMorgan Chase Institute: a global economic
think tank dedicated to delivering data-richanalyses for the public good. The Institute utilizes
our proprietary data, augmented by firmwide
expertise and market access, to provide
insights on the global economy and offer innovative analyses to advance economic prosperity.
In 2016, the Institute uncovered fresh
insights on:• Household income volatility, particularly inthe wake of extraordinary payments;• The impact of the online platform economy
as a way for consumers to manage this volatility and the slowing participation growthwithin the online platform economy;• Consumers’ response to the sustained dropin the price of fuel;• Small business cash flow and cash reserves(“cash buffer days”) they have on hand to
weather financial volatility;• The economic impact of daylight SavingsTime;• The role of unemployment insurance andthe financial decisions households makeafter receiving it;• nearly a full year of the local Consumer
Commerce Index, measuring consumer
spending growth in 15 U.S. cities andin aggregate.

2016 HigHligHTS And ACCoMpliSHMenTS
JpMorgan Chase received Euromoney’s 2016 World’s Best Bank for Corporate Social Responsibility award
for our commitment and innovative approach to addressing economic opportunity around the world.

• JpMorgan Chase’s $100 million
commitment to detroit announced
in 2014, half of which we areinvesting in two CdFis — to fundand catalyze further investment
in housing, commercial and manufacturing — has supported morethan $270 million in such projects,
created or preserved over 800
units of housing and creatednearly 800 jobs.
• Announced nine financial services
innovators as winners of the second competition of the Financial
Solutions Lab aimed at identifying
solutions that help consumers
prepare for, and weather, financial
shocks. Each winner received$250,000 in capital to enhanceand scale the availability of theirproducts and services. More than68

70 of our employees leveraged
their expertise and networks tohelp the Lab winners improvetheir products and increase theirreach. To date, the Financial Solutions Lab has supported 18 fintech
companies offering innovative
financial products to help morethan 1 million Americans improvetheir financial health.
• engaged over 1,800 young people
in summer jobs and other workrelated experiences in 21 cities
across the U.S.
• Underwrote more than $5 billion
in green, social and sustainability
themed bonds and facilitated over
$1.9 billion of capital for renewable energy projects in the U.S.

• Committed to strengthening appren- • The talent and expertise of ourticeship systems around the world
people are key components of ourthrough a $9 million investment bymodel for impact and are central
supporting the development of innoto all of our efforts. In 2016,vative apprenticeship models in
50,000 of our employees volunhigh-growth fields; expanding existteered more than 325,000 hours
ing high-quality programs to serveof their time. And through theyoung people from disadvantaged
JpMorgan Chase Service Corps,
backgrounds; and bolstering the64 employees applied their skills
case for private investment inand expertise to help our nonapprenticeship through first-ofprofit partners expand their
its-kind research measuring thecapacity, contributing more thanemployer return on investment for
9,600 hours with an approximate
apprenticeship programs.
market value of $1.4 million.

Table of contents

Financial:
34

Five-Year Summary of Consolidated Financial
Highlights

Audited financial statements:

35

Five-Year Stock Performance

139

Management’s Report on Internal Control Over
Financial Reporting

140

Report of Independent Registered Public Accounting
Firm

Management’s discussion and analysis:
36

Introduction

141

Consolidated Financial Statements

37

Executive Overview

146

Notes to Consolidated Financial Statements

40

Consolidated Results of Operations

43
45

Consolidated Balance Sheets Analysis
Off–Balance Sheet Arrangements and ContractualCash Obligations

47

Consolidated Cash Flows Analysis

48

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

Supplementary information:

51

Business Segment Results272

Selected quarterly financial data (unaudited)

71

Enterprise-wide Risk Management274

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

76

Capital Risk Management

279

Glossary of Terms and Acronyms

86

Credit Risk Management

108

Country Risk Management

110

Liquidity Risk Management

116

Market Risk Management

124

Principal Risk Management

125

Compliance Risk Management

126

Conduct Risk Management

127

Legal Risk Management

128

Model Risk Management

129

Operational Risk Management

131

Reputation Risk Management

132

Critical Accounting Estimates Used by the Firm

135

Accounting and Reporting Developments

138

Forward-Looking Statements

JPMorgan Chase & Co./2016 Annual Report

Note:
The following pages from JPMorgan Chase & Co.'s 2016
Form 10-K are not included herein: 1-32, 286-298

33

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

2016
$

2015

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

$

$

6.24
6.19
3,618.5
3,649.8

$

$

$

$

$

$

$

2014

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

$

$

6.05
6.00
3,700.4
3,732.8

307,295
3,561.2

$

87.39
52.50
86.29
64.06
51.44
1.88

$

$

10%
13
1.00
58
65
524 $
12.4%
14.1
15.5
8.4
372,130
289,059
894,765
806,152
769,385
2,490,972
1,375,179
295,245
228,122254,190
243,355$

14,854 $1.55%
1.34
7,535 $
4,692
0.54%

2013

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

$

$

5.33
5.29
3,763.5
3,797.5

241,899
3,663.5

$

70.61
50.07
66.03
60.46
48.13
1.72

$

$

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

14,341 $1.63%
1.37
7,034 $
4,086
0.52%

2012

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

$

$

4.38
4.34
3,782.4
3,814.9

$

5.21
5.19
3,809.4
3,822.2

232,472
3,714.8$

219,657
3,756.1$

167,260
3,804.0

63.49
52.97
62.58
56.98
44.60
1.58

$

58.55
44.20
58.48
53.17
40.72
1.44

$

46.49
30.83
43.97
51.19
38.68
1.20

$

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

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

$

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

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

97,68064,72932,951
3,385
29,566
8,307
21,259

11%
15
0.94
66
61
341
11.0%
12.6
15.2
7.1
450,028
371,152
733,796555,351534,615
2,358,323
1,193,593
248,521
194,727
203,785258,753
22,6043.02%
2.43
11,906
9,063
1.26%

Note: Effective January 1, 2016, the Firm adopted new accounting guidance related to (1) the recognition and measurement of debit valuation adjustments (“DVA”) on financial liabilities where
the fair value option has been elected, and (2) the accounting for employee stock-based incentive payments. For additional information, see Accounting and Reporting Developments on pages
135–137 and Notes 3, 4 and 25.
(a)
(b)
(c)
(d)
(e)
(f)

34

Share prices are from the New York Stock Exchange.
TBVPS and ROTCE are non-GAAP financial measures. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Financial
Performance Measures on pages 48–50.
HQLA represents the amount of assets that qualify for inclusion in the liquidity coverage ratio under the final U.S. rule (“U.S. LCR”) for December 31, 2016 and 2015, and the Firm’s estimated amount for
December 31, 2014 prior to the effective date of the final rule, and under the Basel III liquidity coverage ratio (“Basel III LCR”) for prior periods. For additional information, see HQLA on page 111.
Ratios presented are calculated under the Basel III Transitional rules, which became effective on January 1, 2014, and for the capital ratios, represent the Collins Floor. Prior to 2014, the ratios were
calculated under the Basel I rules. See Capital Risk Management on pages 76–85 for additional information on Basel III.
Included unsecured long-term debt of $212.6 billion, $211.8 billion, $207.0 billion, $198.9 billion and $200.1 billion respectively, as of December 31, of each year presented.
Excluded the impact of residential real estate purchased credit-impaired (“PCI”) loans, a non-GAAP financial measure. For further discussion of these measures, see Explanation and Reconciliation of the
Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 48–50. For further discussion, see Allowance for credit losses on pages 105–107.

JPMorgan Chase & Co./2016 Annual ReportFIVE-YEAR STOCK PERFORMANCE

The following table and graph compare the five-year cumulative total return for JPMorgan Chase & Co. (“JPMorgan Chase” or
the “Firm”) common stock with the cumulative return of the S&P 500 Index, the KBW Bank Index and the S&P Financial Index.
The S&P 500 Index is a commonly referenced United States of America (“U.S.”) equity benchmark consisting of leading
companies from different economic sectors. The KBW Bank Index seeks to reflect the performance of banks and thrifts that are
publicly traded in the U.S. and is composed of 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, 2011, in JPMorgan Chase common
stock and in each of the above indices. The comparison assumes that all dividends are reinvested.
December 31,(in dollars)

2011

2012

2013

2014

2015

2016

JPMorgan Chase$ 100.00$ 136.18$ 186.17$ 204.57$ 221.68$ 298.31

KBW Bank Index

100.00133.03183.26200.42201.40258.82

S&P Financial Index

100.00128.75174.57201.06

197.92242.94

S&P 500 Index

100.00115.99153.55174.55176.95198.10December 31,(in dollars)

JPMorgan Chase & Co./2016 Annual Report35

Management’s discussion and analysis
This section of JPMorgan Chase’s Annual Report for the year ended December 31, 2016 (“Annual Report”), provides Management’s
discussion and analysis of the financial condition and results of operations (“MD&A”) of JPMorgan Chase. See the Glossary of Terms
and Acronyms on pages 279-285 for definitions of terms used throughout this Annual Report. The MD&A included in this Annual
Report contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant
risks and uncertainties. These risks and uncertainties could cause the Firm’s actual results to differ materially from those set forthin such forward-looking statements. Certain of such risks and uncertainties are described herein (see Forward-looking Statements
on page 138) and in JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2016 (“2016 Form 10-K”),
in Part I, Item 1A: Risk factors; reference is hereby made to both.

INTRODUCTION
JPMorgan Chase & Co., a financial holding company
incorporated under Delaware law in 1968, is a leading
global financial services firm and one of the largest banking
institutions in the United States of America (“U.S.”), with
operations worldwide; the Firm had $2.5 trillion in assets
and $254.2 billion in stockholders’ equity as ofDecember 31, 2016. The Firm is a leader in investmentbanking, financial services for consumers and small
businesses, commercial banking, financial transaction
processing and asset management. Under the J.P. Morgan
and Chase brands, the Firm serves millions of customers in
the U.S. and many of the world’s most prominent corporate,institutional and government clients.

For management reporting purposes, the Firm’s activities
are organized into four major reportable businesssegments, as well as a Corporate segment. The Firm’s
consumer business is the Consumer & Community Banking(“CCB”) segment. The Firm’s wholesale business segments
are Corporate & Investment Bank (“CIB”), Commercial
Banking (“CB”), and Asset & Wealth Management (“AWM”)(formerly Asset Management or “AM”). For a description of
the Firm’s business segments, and the products andservices they provide to their respective client bases, refer
to Business Segment Results on pages 51–70, and Note 33.

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

36

JPMorgan Chase & Co./2016 Annual Report

EXECUTIVE OVERVIEWThis executive overview of the MD&A highlights selected
information and may not contain all of the information that is
important to readers of this Annual Report. For a complete
description of the trends and uncertainties, as well as therisks and critical accounting estimates affecting the Firm andits various lines of business, this Annual Report should beread in its entirety.
Financial performance of JPMorgan Chase
Year ended December 31,(in millions, except per share data
and ratios)

2016

2015

Change$ 95,668$ 93,543

2%

Total noninterest expense

55,77159,014(5)Pre-provision profit

39,89734,52916

Selected income statement data
Total net revenue

Provision for credit losses

5,361

3,827

40

Net income

24,73324,442

1

6.19

6.00

3

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

10%

11%

Return on tangible common equity

13

13$ 64.06$ 60.46

6

51.44

48.13

7

CET1

12.4%

11.8%

Tier 1 capital

14.1

13.5

Total capital

15.5

15.1

Book value per share
Tangible book value per share
Capital ratios(a)(a) Ratios presented are calculated under the Basel III Transitional rules andrepresent the Collins Floor. See Capital Risk Management on pages 76–85
for additional information on Basel III.

Summary of 2016 results
JPMorgan Chase reported strong results for full year 2016
with net income of $24.7 billion, or $6.19 per share, on net
revenue of $95.7 billion. The Firm reported ROE of 10%
and ROTCE of 13%.
Net income increased 1% compared with the prior year
driven by lower noninterest expense and higher net
revenue, predominantly offset by higher income tax
expense and provision for credit losses.
Total net revenue increased by 2% primarily reflecting
higher net interest income across all the Firm’s businesssegments and higher Markets noninterest revenue in CIB,
partially offset by lower card income in CCB and lower asset
management fees in AWM.
Noninterest expense was $55.8 billion, down 5% comparedwith the prior year, driven by lower legal expense.
The provision for credit losses was $5.4 billion, an increaseof $1.5 billion, reflecting an increase in the total consumer
provision related to additions in the allowance for loan
losses and higher net charge-offs in the credit card
portfolio, and a lower benefit in the residential real estate
portfolio driven by a lower reduction in the allowance for
JPMorgan Chase & Co./2016 Annual Reportloan losses compared with the prior year. The wholesale
provision had a modest increase, largely driven by the
impact of downgrades in the Oil & Gas and Natural Gas
Pipelines portfolios.
The total allowance for credit losses was $14.9 billion at
December 31, 2016, and the Firm had a loan loss coverage
ratio, excluding the PCI portfolio, of 1.34%, compared with
1.37% in the prior year. The Firm’s nonperforming assets
totaled $7.5 billion, an increase from the prior-year level of$7.0 billion.
Firmwide average core loans increased 15% compared withthe prior year.
Within CCB, average core loans increased 20% from theprior year. CCB had record growth in average deposits, witha 10% increase from the prior year. Credit card sales
volume increased 10%, and merchant processing volume
increased 12%, from the prior year. CCB had nearly 27
million active mobile customers at year-end 2016, anincrease of 16% from the prior year.
CIB maintained its #1 ranking for Global Investment
Banking fees with a 8.1% wallet share for the full-year
ended December 31, 2016. Within CB, record average loans
increased 14% from the prior year as loans in thecommercial and industrial client segment increased 9% andloans in the wholesale commercial real estate client
segment increased 18%. AWM had record average loans, anincrease of 5% over the prior year, and 79% of AWM’s
mutual fund assets under management ranked in the 1st or
2nd quartiles over the past 5 years.
For a detailed discussion of results by line of business(“LOB”), refer to the Business Segment Results on
pages 51–52.
The Firm added to its capital, ending the full-year of 2016
with a TBVPS of $51.44, up 7% over the prior year. The
Firm’s estimated Basel III Advanced Fully Phased-In CET1
capital and ratio were $182 billion and 12.2%,
respectively. The Fully Phased-In supplementary leverage
ratio (“SLR”) for the Firm and for JPMorgan Chase Bank,
N.A. was 6.5% and 6.6%, respectively, at December 31,
2016. The Firm also was compliant with the Fully Phased-In
U.S. LCR and had $524 billion of HQLA as of December 31,
2016. For further discussion of the LCR and HQLA, see
Liquidity Risk Management on pages 110–115.
ROTCE and TBVPS are non-GAAP financial measures. Coreloans are considered a key performance measure. Each of
the Fully Phased-In capital and leverage measures is
considered a key regulatory capital measure. For a further
discussion of these measures, see Explanation andReconciliation of the Firm’s Use of Non-GAAP Financial
Measures and Key Performance Measures on pages 48–50,
and Capital Risk Management on pages 76–85.

37

Management’s discussion and analysis
JPMorgan Chase continues to support consumers,
businesses and communities around the globe. The Firm
provided credit and raised capital of $2.4 trillion forcommercial and consumer clients during the full-year of2016:• $265 billion of credit for consumers• $24 billion of credit for U.S. small businesses• $772 billion of credit for corporations• $1.2 trillion of capital raised for corporate clients andnon-U.S. government entities• $90 billion of credit and capital raised for nonprofit andU.S. government entities, including states, municipalities,
hospitals and universities
On October 1, 2016, the Firm filed with the Federal Reserveand the FDIC its submission (the “2016 Resolution
Submission”) describing how the Firm remediated certain
deficiencies, and providing a status report on its actions toaddress certain shortcomings, that had been identified by
the Federal Reserve and the FDIC in April 2016 when thoseagencies provided feedback to the Firm as well as toseven other systemically important domestic banking
institutions on their respective 2015 Resolution Plans.
Among the steps taken by the Firm to address the identified
deficiencies and shortcomings were: (i) establishing a new
subsidiary that has become an “intermediate holding
company” and to which JPMorgan Chase & Co. hascontributed the stock of substantially all of its direct
subsidiaries (other than JPMorgan Chase Bank, N.A.), as
well as other assets and intercompany indebtedness owing
to JPMorgan Chase & Co.; (ii) increasing the Firm’s liquidity
reserves and pre-positioning significant amounts of capitaland liquidity at the Firm’s “material legal entities” (asdefined in the 2016 Resolution Submission); (iii) refining
the Firm’s liquidity and capital governance frameworks,
including establishing a Firmwide “trigger framework” that
identifies key actions and escalations that would need to betaken, as well as decisions that would need to be made, atcritical points in time if certain defined liquidity and/or
capital metrics were to fall below defined thresholds; (iv)establishing clear, actionable legal entity rationalization
criteria and related governance procedures; and (v)improving divestiture readiness, including determining andanalyzing divestiture options in a crisis. On December 13,
2016, the Federal Reserve and the FDIC informed the Firmthat they had determined that the Firm’s 2016 Resolution
Submission adequately remediated the identified
deficiencies in the Firm’s 2015 Resolution Plan. For more
information, see the Federal Reserve and FDIC websites,
and the Firm’s website for the public portion of the 2016
Resolution Submission.

38

Business outlook
These current expectations are forward-looking statements
within the meaning of the Private Securities Litigation ReformAct of 1995. Such forward-looking statements are based on
the current beliefs and expectations of JPMorgan Chase’s
management and are subject to significant risks anduncertainties. These risks and uncertainties could cause theFirm’s actual results to differ materially from those set forth insuch forward-looking statements. See Forward-Looking
Statements on page 138 and the Risk Factors section on pages
8–21.
Business outlook
JPMorgan Chase’s outlook for the full-year 2017 should beviewed against the backdrop of the global and U.S.
economies, financial markets activity, the geopoliticalenvironment, the competitive environment, client activity
levels, and regulatory and legislative developments in the
U.S. and other countries where the Firm does business. Eachof these inter-related factors will affect the performance of
the Firm and its lines of business. The Firm expects it willcontinue to make appropriate adjustments to its businesses
and operations in response to ongoing developments in thelegal and regulatory, as well as business and economic,
environment in which it operates.
In the first quarter of 2017, management expects net
interest income to increase modestly compared with thefourth quarter of 2016. During 2017, assuming no change ininterest rates since December 31, 2016, management
expects net interest income could be approximately $3 billion
higher than in 2016, reflecting the Federal Reserve’s rateincrease in December 2016 and expected loan growth.
Management expects average core loan growth ofapproximately 10% in 2017.
The Firm continues to experience charge-off rates at or near
historically low levels, reflecting favorable credit trends
across the consumer and wholesale portfolios. Management
expects total net charge-offs of approximately $5 billion in2017. In Card, management expects the portfolio average
net charge-off rate to increase in 2017, but remain below
3.00%, reflecting continued loan growth and the seasoningof newer vintages, with quarterly net-charge offs reflecting
normal seasonal trends.
Management believes that the consumer allowance for credit
losses could increase by approximately $300 million in 2017,reflecting growth across businesses, offset by reductions in
the allowance for the residential real estate portfolio.
Excluding the allowance related to the Oil & Gas and Natural
Gas Pipelines and Metals & Mining portfolios, management
expects that the wholesale allowance for credit losses could
increase modestly in 2017 reflecting growth acrossbusinesses. Continued stability in the energy sector could
result in a reduction in the allowance for credit losses infuture periods. As management continually looks to enhance
its credit loss estimation methodologies, the outlook for theallowance for credit losses does not take into consideration
any such potential refinements.

JPMorgan Chase & Co./2016 Annual Report

The Firm continues to take a disciplined approach to
managing its expenses, while investing in growth andinnovation. As a result, Firmwide adjusted expense in 2017 is
expected to be approximately $58 billion (excluding
Firmwide legal expense).
In CCB, management expects Mortgage noninterest revenue
to decrease approximately $700 million in 2017, driven by
margin compression in a smaller mortgage market andcontinued run-off of the Servicing portfolio, as well as
approximately $200 million of MSR gains in 2016 which are
not expected to recur in 2017. Management expects Card
Services noninterest revenue to decrease approximately$600 million in 2017, reflecting the amortization ofpremiums on strong new product originations and theabsence in 2017 of a gain on the sale of Visa Europe interests
in 2016, although total Card Services revenue is expected toincrease due to strong growth in net interest income.
In the first quarter of 2017, management expects CCB
expense to increase by approximately $150 million,
compared to the prior quarter.
In CIB, Investment Banking revenue in the first quarter of2017 is expected to be approximately in line with the fourth
quarter of 2016, dependent on the timing of the closing of anumber of transactions. Treasury Services revenue is
expected to be approximately $950 million in the firstquarter of 2017. In addition, management currently expects
Markets revenue in the first quarter of 2017 to increase
modestly compared to the prior year quarter, with resultssensitive to market conditions in March in light of particularly
strong revenue in March 2016. In Securities Services,management expects revenue of approximately $900 million
in the first quarter of 2017.
In CB, management expects expense of approximately $775
million in the first quarter of 2017.
In AWM, management expects revenue to be approximately$3 billion in the first quarter of 2017.

JPMorgan Chase & Co./2016 Annual Report39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, 2016,
unless otherwise specified. Factors that relate primarily to asingle business segment are discussed in more detail withinthat business segment. For a discussion of the Critical
Accounting Estimates Used by the Firm that affect theConsolidated Results of Operations, see pages 132–134.
RevenueYear ended December 31,(in millions)
Investment banking fees

2016
$

6,448

2015
$

6,751

2014
$

6,542

Principal transactions(a)11,566

10,408

10,531

Lending- and deposit-related fees

5,774

5,694

5,801

Asset management,
administration and commissions

14,591

15,50915,931

Securities gains

141

202

77

Mortgage fees and related income

2,491

2,513

3,563

Card income

4,779

5,924

6,020

Other income(b)

3,795

3,032

3,013

Noninterest revenue

49,58550,03351,478Net interest income

46,083

Total net revenue$ 95,668

43,510$93,543

43,634$

95,112(a) Effective January 1, 2016, changes in DVA on fair value option electedliabilities previously recorded in principal transactions revenue arerecorded in other comprehensive income (“OCI”). For additional
information, see the segment results of CIB and Accounting and Reporting
Developments on pages 58–62 and page 135, respectively.
(b) Included operating lease income of $2.7 billion, $2.1 billion and $1.7
billion for the years ended December 31, 2016, 2015 and 2014,
respectively.

2016 compared with 2015
Total net revenue increased by 2% primarily reflecting
higher net interest income across all the Firm’s businesssegments and higher Markets noninterest revenue in CIB,
partially offset by lower card income in CCB and lower asset
management fees in AWM.
Investment banking fees decreased predominantly due tolower equity underwriting fees driven by declines inindustry-wide fee levels. For additional information on
investment banking fees, see CIB segment results on pages
58–62 and Note 7.
Principal transactions revenue increased reflecting broadbased strength across products in CIB’s Fixed Income
Markets business. Rates performance was strong, withincreased client activity driven by high issuance-based
flows, global political developments, and central bankactions. Credit revenue improved driven by higher marketmaking revenue from the secondary market as clients’appetite for risk recovered. For additional information, see
CIB and Corporate segment results on pages 58–62 andpages 69–70, respectively, and Note 7.
Asset management, administration and commissions
revenue decreased reflecting lower asset management feesin AWM driven by a reduction in revenue related to thedisposal of assets at the beginning of 2016, the impact oflower average equity market levels and lower performance40

fees, as well as due to lower brokerage commissions andother fees in CIB and AWM. For additional information, see
the segment discussions of CIB and AWM on pages 58–62
and pages 66–68, respectively, and Note 7.
For information on lending- and deposit-related fees, see
the segment results for CCB on pages 53–57, CIB on pages
58–62, and CB on pages 63–65 and Note 7; on securities
gains, see the Corporate segment discussion on pages 69–
70.
Mortgage fees and related income were relatively flat, as
lower mortgage servicing revenue related to lower average
third-party loans serviced was predominantly offset byhigher MSR risk management results. For further
information on mortgage fees and related income, see thesegment discussion of CCB on pages 53–57 and Notes 7 and17.
Card income decreased predominantly driven by higher new
account origination costs and the impact of renegotiated cobrand partnership agreements, partially offset by higher
card sales volume and other card-related fees. For further
information, see CCB segment results on pages 53–57 andNote 7.
Other income increased primarily reflecting:higher operating lease income from growth in auto
operating lease assets in CCB
a gain on the sale of Visa Europe interests in CCB
a gain related to the redemption of guaranteed capitaldebt securities (“trust preferred securities”)
the absence of losses recognized in 2015 related to theaccelerated amortization of cash flow hedges associatedwith the exit of certain non-operating deposits
a gain on disposal of an asset in AWM at the beginning of
2016
partially offset by
a $514 million benefit recorded in the prior year from alegal settlement in Corporate.
For further information on other income, see Note 7.
Net interest income increased primarily driven by loan
growth across the businesses and the net impact of higher
rates, partially offset by lower investment securities
balances and higher interest expense on long-term debt.
The Firm’s average interest-earning assets were $2.1 trillion
in 2016, and the net interest yield on these assets, on a
fully taxable equivalent (“FTE”) basis, was 2.25%, anincrease of 11 basis points from the prior year.
2015 compared with 2014
Total net revenue for 2015 was down by 2%,
predominantly driven by lower Corporate private equity
gains, lower CIB revenue reflecting the impact of businesssimplification initiatives, and lower CCB Mortgage Banking
revenue. These decreases were partially offset by a benefit
from a legal settlement in Corporate, and higher operatinglease income, predominantly in CCB.
JPMorgan Chase & Co./2016 Annual ReportInvestment banking fees increased reflecting higher
advisory fees, partially offset by lower equity and debt
underwriting fees. The increase in advisory fees was driven
by a greater share of fees for completed transactions aswell as growth in industry-wide fee levels. The decrease inequity underwriting fees resulted from lower industry-wideissuance, and the decrease in debt underwriting fees
resulted primarily from lower loan syndication and bondunderwriting fees on lower industry-wide fee levels.

Provision for credit losses

Principal transactions revenue decreased reflecting lower
private equity gains in Corporate driven by lower valuation
gains and lower net gains on sales as the Firm exits thisnon-core business. The decrease was partially offset byhigher client-driven market-making revenue, particularly inforeign exchange, interest rate and equity-related products
in CIB, as well as a gain of approximately $160 million on
CCB’s investment in Square, Inc. upon its initial public
offering.

2016 compared with 2015
The provision for credit losses reflected an increase in the
total consumer provision and, to a lesser extent, thewholesale provision. The increase in the total consumer
provision was predominantly driven by:

Asset management, administration and commissions
revenue decreased largely as a result of lower fees in CIB
and lower performance fees in AWM. The decrease waspartially offset by higher asset management fees as a resultof net client inflows into assets under management and theimpact of higher average market levels in AWM and CCB.
Mortgage fees and related income decreased reflecting
lower servicing revenue, largely as a result of lower average
third-party loans serviced, and lower net production
revenue reflecting a lower repurchase benefit.
For information on lending- and deposit-related fees, see
the segment results for CCB on pages 53–57, CIB on pages
58–62, and CB on pages 63–65 and Note 7; on securities
gains, see the Corporate segment discussion on pages 69–
70; and card income, see CCB segment results on pages 53–
57.
Other income was relatively flat reflecting a $514 million
benefit from a legal settlement in Corporate, higher
operating lease income as a result of growth in auto
operating lease assets in CCB, and the absence of losses
related to the exit of non-core portfolios in Card. These
increases were offset by the impact of businesssimplification in CIB; the absence of a benefit recognized in2014 from a franchise tax settlement; and losses related tothe accelerated amortization of cash flow hedges associatedwith the exit of certain non-operating deposits.

Year ended December 31,(in millions)2016
Consumer, excluding credit card $467
Credit card
4,042
Total consumer
4,509
Wholesale852
Total provision for credit losses $ 5,361

$

$

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

2014
419
3,079
3,498
(359)
3,139

a $920 million increase related to the credit card
portfolio, due to a $600 million addition in the allowance
for loan losses, as well as $320 million of higher net
charge-offs, driven by loan growth (including growth innewer vintages which, as anticipated, have higher loss
rates compared to the overall portfolio), anda $470 million lower benefit related to the residential
real estate portfolio, as the current year reduction in theallowance for loan losses was lower than the prior year.
The reduction in both periods reflected continued
improvements in home prices and lower delinquencies.
The increase in the wholesale provision was largely driven
by the impact of downgrades in the Oil & Gas and Natural
Gas Pipelines portfolios. For a more detailed discussion of
the credit portfolio and the allowance for credit losses, see
the segment discussions of CCB on pages 53–57, CIB on
pages 58–62 , CB on pages 63–65, the Allowance For Credit
Losses on pages 105–107 and Note 15.
2015 compared with 2014
The provision for credit losses increased as a result of anincrease in the wholesale provision, largely reflecting theimpact of downgrades in the Oil & Gas portfolio. The
increase was partially offset by a decrease in the consumer
provision, reflecting lower net charge-offs due to continued
discipline in credit underwriting, as well as improvement in
the economy driven by increasing home prices and lower
unemployment levels. The decrease in the consumer
provision was partially offset by a lower reduction in theallowance for loan losses.

Net interest income was relatively flat as lower loan yields,
lower investment securities net interest income, and lower
trading asset balance and yields were offset by higher
average loan balances and lower interest expense on
deposits. The Firm’s average interest-earning assets were
$2.1 trillion in 2015, and the net interest yield on theseassets, on a FTE basis, was 2.14%, a decrease of 4 basis
points from the prior year.

JPMorgan Chase & Co./2016 Annual Report41

Management’s discussion and analysis
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

2016$29,979

2015$29,750

2014$30,160

3,638

3,768

3,909

6,846

6,193

5,804

6,655
2,897
5,756
25,792$55,771

7,002
2,708
9,593
29,264$59,014

7,705
2,550
11,146
31,114$61,274

Noncompensation expense decreased reflecting benefits
from business simplification in CIB; lower professional andoutside services expense, reflecting lower legal services
expense and a reduced number of contractors in thebusinesses; lower amortization of intangibles; and theabsence of a goodwill impairment in Corporate. These
factors were partially offset by higher depreciation expense,
largely associated with higher auto operating lease assets in
CCB; higher marketing expense in CCB; and higher FDICrelated assessments. Legal expense was relatively flatcompared with the prior year.
Income tax expense(a) Included legal (benefit)/expense of $(317) million, $3.0 billion and $2.9
billion for the years ended December 31, 2016, 2015 and 2014,
respectively.
(b) Included FDIC-related expense of $1.3 billion, $1.2 billion and $1.0 billion
for the years ended December 31, 2016, 2015 and 2014, respectively.

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

2016

2015

2014

Income before income tax
expense$34,536$ 30,702$ 30,699

Income tax expense

9,803

6,260

8,954

2016 compared with 2015
Total noninterest expense decreased by 5% driven by lower
legal expense.

Effective tax rate

28.4%

20.4%

29.2%

Compensation expense was relatively flat predominantly
driven by higher performance-based compensation expense
and investments in several businesses, offset by the impact
of continued expense reduction initiatives, including lower
headcount in certain businesses.
Noncompensation expense decreased as a result of lower
legal expense (including lower legal professional services
expense), the impact of efficiencies, and reduced non-U.S.
tax surcharges. These factors were partially offset by higher
depreciation expense from growth in auto operating leaseassets and higher investments in marketing. For a further
discussion of legal expense, see Note 31.
2015 compared with 2014
Total noninterest expense decreased by 4% as a result of
lower CIB expense, predominantly reflecting the impact ofbusiness simplification; and lower CCB expense resulting
from efficiencies related to declines in headcount-related
expense and lower professional fees. These decreases werepartially offset by investment in the businesses, including
for infrastructure and controls.
Compensation expense decreased predominantly driven bylower performance-based incentives and reduced
headcount, partially offset by higher postretirement benefit
costs and investment in the businesses, including forinfrastructure and controls.

42

2016 compared with 2015
The effective tax rate in 2016 was affected by changes in
the mix of income and expense subject to U.S. federal andstate and local taxes, tax benefits related to the utilizationof certain deferred tax assets, as well as the adoption of
new accounting guidance related to employee stock-based
incentive payments. These tax benefits were partially offset
by higher income tax expense from tax audits. The lower
effective tax rate in 2015 was predominantly driven by$2.9 billion of tax benefits, which reduced the Firm’s
effective tax rate by 9.4 percentage points. The recognitionof tax benefits in 2015 resulted from the resolution ofvarious tax audits, as well as the release of U.S. deferredtaxes associated with the restructuring of certain non-U.S.
entities. For additional details on the impact of the new
accounting guidance, see Accounting and Reporting
Developments on page 135 and for further information see
Note 26.
2015 compared with 2014
The effective tax rate decreased predominantly due to therecognition in 2015 of tax benefits of $2.9 billion and otherchanges in the mix of income and expense subject to U.S.
federal, state and local income taxes, partially offset byprior-year tax adjustments. See above for details on the$2.9 billion of tax benefits.

JPMorgan Chase & Co./2016 Annual ReportCONSOLIDATED BALANCE SHEETS ANALYSISThe following is a discussion of the significant changes between December 31, 2016 and 2015.
Selected Consolidated balance sheets data
December 31, (in millions)

2016

2015

ChangeAssetsCash and due from banks

20,49017%

Deposits with banks$

365,762

23,873$340,015

8

Federal funds sold and securities purchased under resale agreements

229,967

212,575

8

Securities borrowed

96,40998,721(2)

Debt and equity instruments

308,052

284,1628

Derivative receivables

64,07859,677

7

Securities

289,059

290,827

(1)

Loans

894,765

837,299

7

Allowance for loan losses(13,776)(13,555)

2

Loans, net of allowance for loan losses

880,989823,7447

Accrued interest and accounts receivable

52,33046,60512

Premises and equipment

14,131

14,362(2)

Goodwill

47,28847,325—Mortgage servicing rights

6,096

6,608

(8)

862

1,015

(15)

112,076

105,572

6

2,351,698

6%

Trading assets:

Other intangible assets
Other assets
Total assets

Cash and due from banks and deposits with banks
The increase was primarily driven by deposit growth inexcess of loan growth. The Firm’s excess cash is placed withvarious central banks, predominantly Federal Reserve
Banks.
Federal funds sold and securities purchased under resaleagreements
The increase was due to higher demand for securities tocover short positions related to client-driven market-making
activities in CIB, and the deployment of excess cash by
Treasury and Chief Investment Office (“CIO”). For additional
information on the Firm’s Liquidity Risk Management, seepages 110–115.
Trading assets and liabilities–debt and equity instruments
The increase in trading assets and liabilities was
predominantly related to client-driven market-making
activities in CIB. The increase in trading assets reflected
higher debt and, to a lesser extent, equity instrument
inventory levels to facilitate client demand. The increase in
trading liabilities reflected higher levels of client-driven
short positions in both debt and equity instruments. For
additional information, refer to Note 3.
Trading assets and liabilities–derivative receivables andpayablesThe change in derivative receivables and payables was
predominantly related to client-driven market-making
activities in CIB. The increase in derivative receivables
reflected the impact of market movements, which increased
foreign exchange receivables, partially offset by reduced
commodity derivative receivables. The decrease inderivative payables reflected the impact of market
JPMorgan Chase & Co./2016 Annual Report$

2,490,972$

movements, which reduced commodity payables. For
additional information, refer to Derivative contracts on
pages 102–103, and Notes 3 and 6.
Securities
The decrease was predominantly due to net sales,maturities and paydowns during the year of non-agency
mortgage-backed securities (“MBS”), corporate debt
securities and asset-backed securities (“ABS”), offset bypurchases of U.S. Treasuries. For additional information, seeNotes 3 and 12.
Loans and allowance for loan losses
The increase in loans was driven by higher consumer andwholesale loans. The increase in consumer loans was due toretention of originated high-quality prime mortgages in CCB
and AWM, and growth in credit card and auto loans in CCB.
The increase in wholesale loans was predominantly driven
by originations of commercial real estate loans in CB andcommercial and industrial loans across multiple industries
in CB and CIB.
The increase in the allowance for loan losses was
attributable to additions to the wholesale allowance driven
by downgrades in the Oil & Gas and Natural Gas Pipelines
portfolios. The consumer allowance was flat from the prioryear and reflected reductions in the allowance for loan
losses in the residential real estate portfolio reflecting
continued improvement in home prices and delinquencies,and due to runoff in the student loan portfolio; thesefactors were offset by additions to the allowance reflecting
the impact of loan growth in the credit card portfolio(including newer vintages which, as anticipated, have higher
loss rates compared to the overall portfolio), as well as due
43Management’s discussion and analysis
to loan growth in the auto and business banking loan
portfolios. For a more detailed discussion of loans and theallowance for loan losses, refer to Credit Risk Managementon pages 86–107, and Notes 3, 4, 14 and 15.
Accrued interest and accounts receivable
The increase reflected higher receivables from merchants in
CCB and higher client receivables related to client-driven
activity in CIB.

Mortgage servicing rights
For additional information on MSRs, see Note 17.
Other assets
The increase reflected higher auto operating lease assets
from growth in business volume in CCB and higher cash
collateral pledged in CIB.

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

2016

2015

ChangeLiabilities
Deposits$

1,375,179$

1,279,715

7

Federal funds purchased and securities loaned or sold under repurchase agreements

165,666

152,678

9

Commercial paper

11,73815,562(25)

Other borrowed funds

22,705

21,1058

Debt and equity instruments

87,428

74,10718

Derivative payables

49,231

52,790(7)

Accounts payable and other liabilities

190,543

177,6387

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

39,047

41,879(7)

Trading liabilities:

Long-term debt

295,245

288,651

2

Total liabilities

2,236,782

2,104,125

6

254,190

247,57332,351,698

6%

Stockholders’ equity
Total liabilities and stockholders’ equity

Deposits
The increase was attributable to higher consumer andwholesale deposits. The consumer increase reflected
continuing strong growth from existing and new customers,
and the impact of low attrition rates. The wholesale
increase was driven by growth in operating deposits related
to client activity in CIB’s Treasury Services business, andinflows in AWM primarily from business growth and theimpact of new rules governing money market funds. For
more information on deposits, refer to the Liquidity Risk
Management discussion on pages 110–115; and Notes 3
and 19.
Federal funds purchased and securities loaned or soldunder repurchase agreements
The increase was predominantly due to higher client-driven
market-making activities in CIB. For additional informationon the Firm’s Liquidity Risk Management, see pages 110–
115.
Commercial paper
The decrease reflected lower issuance in the wholesalemarkets consistent with Treasury and CIO’s short-term
funding plans. For additional information, see Liquidity Risk
Management on pages 110–115.

44$

2,490,972$

Accounts payable and other liabilities
The increase was largely driven by higher client-driven
activity in CIB.
Beneficial interests issued by consolidated VIEs
The decrease was predominantly due to a reduction incommercial paper issued by conduits to third parties,
partially offset by net new credit card securitizations. For
further information on Firm-sponsored VIEs and loan
securitization trusts, see Off-Balance Sheet Arrangements
on pages 45–46 and Note 16.
Long-term debt
The increase was due to net issuance of structured notes
driven by client demand in CIB, and other net issuanceconsistent with Treasury and CIO’s long-term funding plans,
including liquidity actions related to the 2016 Resolution
Submission. For additional information on the Firm’s longterm debt activities, see Liquidity Risk Management on
pages 110–115 and Note 21.
Stockholders’ equity
The increase was due to net income offset partially by cash
dividends on common and preferred stock, and repurchasesof common stock. For additional information on changes instockholders’ equity, see page 144, and on the Firm’s
capital actions, see Capital actions on page 84.

JPMorgan Chase & Co./2016 Annual ReportOFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONSIn the normal course of business, the Firm enters into
various contractual obligations that may require future cash
payments. Certain obligations are recognized on-balance
sheet, while others are off-balance sheet under accounting
principles generally accepted in the U.S. (“U.S. GAAP”). The
Firm is involved with several types of off–balance sheet
arrangements, including through nonconsolidated SPEs,
which are a type of VIE, and through lending-related
financial instruments (e.g., commitments and guarantees).

Special-purpose entities

The most common type of VIE is an SPE. SPEs arecommonly used in securitization transactions in order toisolate certain assets and distribute the cash flows fromthose assets to investors. SPEs are an important part of thefinancial markets, including the mortgage- and assetbacked securities and commercial paper markets, as they
provide market liquidity by facilitating investors’ access to
specific portfolios of assets and risks. SPEs may beorganized as trusts, partnerships or corporations and are
typically established for a single, discrete purpose. SPEs are
not typically operating entities and usually have a limited
life and no employees. The basic SPE structure involves acompany selling assets to the SPE; the SPE funds thepurchase of those assets by issuing securities to investors.
JPMorgan Chase uses SPEs as a source of liquidity for itself
and its clients by securitizing financial assets, and bycreating investment products for clients. The Firm is
involved with SPEs through multi-seller conduits, investor
intermediation activities, and loan securitizations. See Note
16 for further information on these types of SPEs.
The Firm holds capital, as deemed appropriate, against all
SPE-related transactions and related exposures, such asderivative transactions and lending-related commitments
and guarantees.
The Firm has no commitments to issue its own stock tosupport any SPE transaction, and its policies require thattransactions with SPEs be conducted at arm’s length andreflect market pricing. Consistent with this policy, no
JPMorgan Chase employee is permitted to invest in SPEs
with which the Firm is involved where such investment
would violate the Firm’s Code of Conduct. These rules
prohibit employees from self-dealing and acting on behalfof the Firm in transactions with which they or their family
have any significant financial interest.
Implications of a credit rating downgrade to JPMorgan Chase
Bank, N.A.
For certain liquidity commitments to SPEs, JPMorgan Chase
Bank, N.A. could be required to provide funding if its shortterm credit rating were downgraded below specific levels,
primarily “P-1”, “A-1” and “F1” for Moody’s InvestorsService (“Moody’s”), Standard & Poor’s and Fitch,

JPMorgan Chase & Co./2016 Annual Reportrespectively. These liquidity commitments support theissuance of asset-backed commercial paper by Firmadministered consolidated SPEs. In the event of a shortterm credit rating downgrade, JPMorgan Chase Bank, N.A.,
absent other solutions, would be required to provide
funding to the SPE if the commercial paper could not bereissued as it matured. The aggregate amounts ofcommercial paper outstanding held by third parties as ofDecember 31, 2016 and 2015, was $2.7 billion and $8.7
billion, respectively. The aggregate amounts of commercial
paper issued by these SPEs could increase in future periods
should clients of the Firm-administered consolidated SPEs
draw down on certain unfunded lending-related
commitments. These unfunded lending-related
commitments were $7.4 billion and $5.6 billion at
December 31, 2016 and 2015, respectively. The Firm could
facilitate the refinancing of some of the clients’ assets inorder to reduce the funding obligation. For further
information, see the discussion of Firm-administered multiseller conduits in Note 16.
The Firm also acts as liquidity provider for certain municipal
bond vehicles. The Firm’s obligation to perform as liquidity
provider is conditional and is limited by certain termination
events, which include bankruptcy or failure to pay by themunicipal bond issuer and any credit enhancement
provider, an event of taxability on the municipal bonds orthe immediate downgrade of the municipal bond to below
investment grade. See Note 16 for additional information.

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

JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to meetthe financing needs of its customers. The contractual
amount of these financial instruments represents the
maximum possible credit risk to the Firm should thecounterparty draw upon the commitment or the Firm berequired to fulfill its obligation under the guarantee, andshould the counterparty subsequently fail to perform
according to the terms of the contract. Most of thesecommitments and guarantees are refinanced, extended,cancelled, or expire without being drawn or a default
occurring. As a result, the total contractual amount of these
instruments is not, in the Firm’s view, representative of its
actual future credit exposure or funding requirements. For
further discussion of lending-related financial instruments,
guarantees and other commitments, and the Firm’s
accounting for them, see Lending-related commitments on
page 101 and Note 29. For a discussion of liabilities
associated with loan sales and securitization-related
indemnifications, see Note 29.

45

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, 2016. The contractual cash
obligations included in the table below reflect the minimum
contractual obligation under legally enforceable contracts
with terms that are both fixed and determinable. Excluded
from the below table are certain liabilities with variable
cash flows and/or no obligation to return a stated amountof principal at maturity.

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

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

2017

2016
2020-2021

2018-2019

After 2021

Total

2015
Total

On-balance sheet obligations
Deposits(a)1,356,641 $

5,512 $

Federal funds purchased and securities loaned orsold under repurchase agreements$

3,542 $

3,171 $

1,368,866 $

1,276,139

163,978

Commercial paper

11,738

1,307

2

379

165,666

152,738———

11,73815,562
11,331(a)Other borrowed funds

14,759———14,759Beneficial interests issued by consolidated VIEs

17,290

16,240

2,767

2,630

38,92741,092Long-term debt(a)44,38078,676

61,772

103,487

288,315280,206

Other(b)

4,172

1,328

984

2,496

8,980

8,372

1,612,958

103,063

69,067112,163

1,897,251

1,785,440

Total on-balance sheet obligations
Off-balance sheet obligations
Unsettled reverse repurchase and securities
borrowing agreements(c)50,722———50,722

42,482Contractual interest payments(d)9,640

10,317

7,638

21,267

48,862

46,149(e)Operating leases

1,598

2,780

2,036

3,701

10,115

11,829Equity investment commitments(f)

356

103

30

579

1,068

921

1,382

723

236

225

2,566

2,598

187

233

201

247

868

496

63,885

14,156

10,141

26,019114,201

104,475

1,676,843 $

117,219 $

79,208 $

138,182 $2,011,452 $

1,889,915

Contractual purchases and capital expenditures
Obligations under co-brand programs
Total off-balance sheet obligations
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 and insurance liabilities.
(c) For further information, refer to unsettled reverse repurchase and securities borrowing agreements in Note 29.
(d) Includes accrued interest and future contractual interest obligations. Excludes interest related to structured notes for which the Firm’s payment obligation
is based on the performance of certain benchmarks.
(e) Includes noncancelable operating leases for premises and equipment used primarily for banking purposes and for energy-related tolling service
agreements. Excludes the benefit of noncancelable sublease rentals of $1.4 billion and $1.9 billion at December 31, 2016 and 2015, respectively. See
Note 30 for more information on lease commitments.
(f) At December 31, 2016 and 2015, included unfunded commitments of $48 million and $50 million, respectively, to third-party private equity funds, and$1.0 billion and $871 million of unfunded commitments, respectively, to other equity investments.

46

JPMorgan Chase & Co./2016 Annual ReportCONSOLIDATED CASH FLOWS ANALYSIS
Year ended December 31,(in millions)

2016

2015

2014

Net cash provided by/(used in)Operating activities$

20,196$

73,466$36,593

Investing activities(114,949)

106,980(165,636)

Financing activities

98,271(187,511)

118,228

(135)

(276)

(1,125)

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

$

3,383

$

(7,341) $ (11,940)

Operating activities
JPMorgan Chase’s operating assets and liabilities support
the Firm’s lending and capital markets activities, including
the origination or purchase of loans initially designated as
held-for-sale. Operating assets and liabilities can varysignificantly in the normal course of business due to theamount and timing of cash flows, which are affected byclient-driven and risk management activities and market
conditions. The Firm believes cash flows from operations,available cash balances and its capacity to generate cash
through secured and unsecured sources are sufficient tomeet the Firm’s operating liquidity needs.
Cash provided by operating activities in 2016, 2015 and2014 reflected net income after noncash operating
adjustments. Additionally, in 2016 cash provided reflected
increases in accounts payable and trading liabilities related
to client-driven market-making activities in CIB. The
increase in trading liabilities reflected higher levels ofclient-driven short positions in both debt and equity
instruments. Cash used in 2016 reflected an increase in
trading assets, an increase in accounts receivable frommerchants in CCB and higher client receivables related toclient-driven activities in CIB; and higher net originations
and purchases from loan held-for-sale activities. The
increase in trading assets reflected higher debt and, to alesser extent, equity instrument inventory levels to facilitateclient demand. Cash provided in 2015 resulted from adecrease in trading assets, predominantly due to clientdriven market-making activities in CIB, resulting in lower
levels of debt and equity securities. Additionally, cash
provided reflected a decrease in accounts receivable due tolower client receivables and higher net proceeds from loan
sales activities. This was partially offset by cash used due toa decrease in accounts payable and other liabilities,
resulting from lower brokerage customer payables related
to client activity in CIB. In 2014, cash provided reflected
higher net proceeds from loan securitizations and sales
activities.
Investing activities
The Firm’s investing activities predominantly include
originating loans for investment, depositing cash at banks,and investing in the securities portfolio and other shortterm interest-earning assets. Cash used in investing
activities in 2016 resulted from net originations ofconsumer and wholesale loans. The increase in consumer
loans was due to retention of originated high-quality prime
JPMorgan Chase & Co./2016 Annual Reportmortgages in CCB and AWM, and growth of credit card andauto loans in CCB. The increase in wholesale loans was
predominantly driven by originations of commercial realestate loans in CB and commercial and industrial loans
across multiple industries in CB and CIB. Additionally, in
2016, cash outflows reflected an increase in deposits withbanks primarily due to growth in deposits in excess ofgrowth in loans; an increase in securities purchased underresale agreements due to higher demand for securities tocover short positions related to client-driven market-making
activities in CIB and the deployment of excess cash by
Treasury and CIO. Cash provided by investing activities
during 2015 predominantly resulted from lower deposits
with banks due to the Firm’s actions to reduce wholesale
non-operating deposits; and net proceeds from paydowns,
maturities, sales and purchases of investment securities.
Partially offsetting these net inflows was cash used for net
originations of consumer and wholesale loans, a portion ofwhich reflected a shift from investment securities. Cashused in investing activities during 2014 resulted fromincreases in deposits with banks attributable to higher
levels of excess funds; cash was also used for growth inwholesale and consumer loans in 2014. Partially offsettingthese cash outflows in 2014 was a net decline in securities
purchased under resale agreements due to a shift in the
deployment of the Firm’s excess cash by Treasury and CIO.
Investing activities in 2014 also reflected net proceeds frompaydowns, maturities, sales and purchases of investment
securities.
Financing activities
The Firm’s financing activities includes acquiring customer
deposits, issuing long-term debt, as well as preferred andcommon stock. Cash provided by financing activities in2016 resulted from higher consumer and wholesale
deposits, and an increase in securities loaned or sold under
repurchase agreements, predominantly due to higher clientdriven market-making activities in CIB. Cash used infinancing activities in 2015 resulted from lower wholesale
deposits partially offset by higher consumer deposits.
Additionally, in 2015 cash outflows were attributable tolower levels of commercial paper due to the discontinuationof a cash management product that offered customers theoption of sweeping their deposits into commercial paper;
lower commercial paper issuances in the wholesalemarkets; and a decrease in securities loaned or sold under
repurchase agreements due to a decline in secured
financings. Cash provided by financing activities in 2014
predominantly resulted from higher consumer andwholesale deposits. For all periods, cash was provided by
net proceeds from long-term borrowings; and cash wasused for repurchases of common stock and cash dividends
on common and preferred stock.
***

For a further discussion of the activities affecting the Firm’s
cash flows, see Consolidated Balance Sheets Analysis on
pages 43–44, Capital Risk Management on pages 76–85,
and Liquidity Risk Management on pages 110–115.
47

Management’s discussion and analysis
EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES AND KEY
PERFORMANCE MEASURES
Non-GAAP financial measures
The Firm prepares its Consolidated Financial Statements
using U.S. GAAP; these financial statements appear on
pages 141–145. That presentation, which is referred to as“reported” basis, provides the reader with anunderstanding of the Firm’s results that can be tracked
consistently from year to year and enables a comparison of
the Firm’s performance with other companies’ U.S. GAAP
financial statements.

related to tax-exempt items is recorded within income tax
expense. These adjustments have no impact on net income
as reported by the Firm as a whole or by the lines ofbusiness.
Management also uses certain non-GAAP financial
measures at the Firm and business-segment level, because
these other non-GAAP financial measures provide
information to investors about the underlying operational
performance and trends of the Firm or of the particularbusiness segment, as the case may be, and, therefore,
facilitate a comparison of the Firm or the business segmentwith the performance of its relevant competitors. For
additional information on these non-GAAP measures, see
Business Segment Results on pages 51–70.

In addition to analyzing the Firm’s results on a reported
basis, management reviews the Firm’s results, including theoverhead ratio, and the results of the lines of business, on a“managed” basis, which are non-GAAP financial measures.
The Firm’s definition of managed basis starts with thereported U.S. GAAP results and includes certain
reclassifications to present total net revenue for the Firm(and each of the reportable business segments) on an FTE
basis. Accordingly, revenue from investments that receive
tax credits and tax-exempt securities is presented in the
managed results on a basis comparable to taxable
investments and securities. These non-GAAP financial
measures allow management to assess the comparability ofrevenue from year-to-year arising from both taxable andtax-exempt sources. The corresponding income tax impact

Additionally, certain credit metrics and ratios disclosed by
the Firm exclude PCI loans, and are therefore non-GAAP
measures. For additional information on these non-GAAP
measures, see Credit Risk Management on pages 86–107.
Non-GAAP financial measures used by the Firm may not becomparable to similarly named non-GAAP financial
measures used by other companies.

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

2016

2015

2014

Reported
Results

Fully taxableequivalentadjustments(a)Managedbasis

Reported
Results

Fully taxableequivalentadjustments(a)Managedbasis

Reported
Results

Fully taxableequivalentadjustments(a)Managed
basis

$

$

$

$

$

$

$

$

$

3,795

2,265

6,060

3,032

1,980

5,012

3,013

Total noninterest revenue

49,5852,265

51,85050,033

1,980

52,01351,478Net interest income

46,083

1,209

47,29243,5101,110

44,620Total net revenue

95,6683,474

99,14293,543

3,090

96,633Pre-provision profit

39,8973,474

43,371

34,5293,090

Income before income tax expense

34,536

3,474

38,01030,702

Income tax expense

9,803

3,474

13,277

6,260

Overhead ratio

58%

NM

56%

63%

1,788

4,801

1,788

53,266

43,634985

44,61995,112

2,773

97,88537,61933,8382,773

36,611

3,090

33,792

30,6992,773

33,472

3,090

9,350

8,954

2,773

11,727

NM

61%

64%

NM

63%

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

48

JPMorgan Chase & Co./2016 Annual ReportNet interest income excluding CIB’s Markets businesses
In addition to reviewing net interest income on a managedbasis, management also reviews net interest income
excluding net interest income arising from CIB’s Markets
businesses to assess the performance of the Firm’s lending,investing (including asset-liability management) anddeposit-raising activities. CIB’s Markets businesses
represent both Fixed Income Markets and Equity Markets.
The data presented below are non-GAAP financial measuresdue to the exclusion of net interest income from CIB’s
Markets businesses (“CIB Markets”).
Management believes this exclusion provides investors andanalysts with another measure by which to analyze the nonmarkets-related business trends of the Firm and provides acomparable measure to other financial institutions that areprimarily focused on lending, investing and deposit-raising
activities.
Year ended December 31,(in millions, except rates)
Net interest income –managed basis(a)(b)2016$

Less: CIB Markets net
interest income(c)Net interest income
excluding CIB Markets(a)47,292

2015
$

6,334
$

40,95844,62039,322Certain 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

2014
$

5,298
$

Calculation of certain U.S. GAAP and non-GAAP financial measures

44,6196,032$

38,587

Average interest-earning
assets$ 2,101,604$ 2,088,242$ 2,049,093

Less: Average CIB Markets
interest-earning assets(c)520,307510,292

522,989

Average interest-earning
assets excluding CIB
Markets$ 1,581,297$ 1,577,950$ 1,526,104

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

2.25%

2.14%

2.18%

Net interest yield on average
CIB Markets interestearning assets(c)

1.22

1.04

1.15

Net interest yield on averageinterest-earning assets
excluding CIB Markets

2.59%

2.49%

2.53%

(a) Interest includes the effect of related hedges. Taxable-equivalent amounts areused where applicable.
(b) For a reconciliation of net interest income on a reported and managed basis, seereconciliation from the Firm’s reported U.S. GAAP results to managed basis on
page 48.
(c) Prior period amounts were revised to align with CIB’s Markets businesses. For
further information on CIB’s Markets businesses, see page 61.

JPMorgan Chase & Co./2016 Annual Report49Management’s discussion and analysis
Tangible common equity, ROTCE and TBVPS
Tangible common equity (“TCE”), ROTCE and TBVPS are each non-GAAP financial measures. TCE represents the Firm’s common
stockholders’ equity (i.e., total stockholders’ equity less preferred stock) less goodwill and identifiable intangible assets (otherthan MSRs), net of related deferred tax liabilities. ROTCE measures the Firm’s net income applicable to common equity as apercentage of average TCE. TBVPS represents the Firm’s TCE at period-end divided by common shares at period-end. TCE,
ROTCE, and TBVPS are utilized by the Firm, as well as investors and analysts, in assessing the Firm’s use of equity. The following
summary table provides a reconciliation from the Firm’s common stockholders’ equity to TCE.
Period-end
Dec 31,
2016(in millions, except per share and ratio data)
Common stockholders’ equity$

Less: Goodwill
Less: Certain identifiable intangible assets
Add: Deferred tax liabilities

2016

2015

2014

228,122 $

221,505$ 224,631$ 215,690$ 207,400

47,28847,32547,31047,44548,029

862

1,015

922

1,092

1,378

3,230

3,148

3,212

2,964

2,950

183,202 $176,313$ 179,611$ 170,117$ 160,943

NA

NA

13%

13%

13%

$

51.44 $

48.13

NA

NA

NA

Return on tangible common equity
Tangible book value per share

Dec 31,
2015

$

(a)

Tangible common equity

AverageYear ended December 31,(a) Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted against goodwill andother intangibles when calculating TCE.

Key performance measures
The Firm’s capital, RWA, and capital and leverage ratios thatare presented under Basel III Standardized and Advanced
Fully Phased-In rules and the Firm’s, JPMorgan Chase Bank,
N.A.’s and Chase Bank USA, N.A.’s SLRs calculated under the
Basel III Advanced Fully Phased-In rules are considered key
regulatory capital measures. Such measures are used bybanking regulators, investors and analysts to assess the
Firm’s regulatory capital position and to compare the Firm’s
regulatory capital to that of other financial services
companies.

50

For additional information on these measures, see Capital
Risk Management on pages 76–85.
Core loans are also considered a key performance measure.
Core loans represent loans considered central to the Firm’s
ongoing businesses; and exclude loans classified as trading
assets, runoff portfolios, discontinued portfolios andportfolios the Firm has an intent to exit. Core loans are
utilized by the Firm and its investors and analysts inassessing actual growth in the loan portfolio.

JPMorgan Chase & Co./2016 Annual ReportBUSINESS SEGMENT RESULTS
The Firm is managed on a line of business basis. There are
four major reportable business segments – Consumer &Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset & Wealth Management(formerly Asset Management). In addition, there is a
Corporate segment.

served, and they reflect the manner in which financial
information is currently evaluated by management. Resultsof these lines of business are presented on a managedbasis. For a definition of managed basis, see Explanation
and Reconciliation of the Firm’s use of Non-GAAP Financial
Measures, on pages 48–50.

The business segments are determined based on the
products and services provided, or the type of customer

JPMorgan Chase
Consumer Businesses

Wholesale Businesses

Consumer & Community Banking

Commercial
Banking

Asset & WealthManagement

Markets &Investor Services• Middle
MarketBanking• AssetManagement(a)• FixedIncomeMarkets• Corporate
ClientBanking• Wealth
Management(b)• Equity
Markets• Securities
Services• Credit
Adjustments& Other• Commercial
Term
Lending

Corporate & Investment Bank

Consumer &Business
Banking

Mortgage
Banking

Card, Commerce
Solutions & Auto

Banking• Consumer
Banking/
Chase WealthManagement• BusinessBanking• Mortgage
Production• Mortgage
Servicing• Real Estate
Portfolios• CardServices– Credit Card
– Commerce
Solutions• Auto &Student• Investment
Banking• Treasury
Services• Lending• Real Estate
Banking(a) Formerly Global Investment Management(b) Formerly Global Wealth Management

Description of business segment reporting methodology
Results of the business segments are intended to reflect
each segment as if it were essentially a stand-alone
business. The management reporting process that derives
business segment results 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. For further
information about line of business capital, see Line ofbusiness equity on page 83.
The Firm periodically assesses the assumptions,
methodologies and reporting classifications used forsegment reporting, and further refinements may be
implemented in future periods.
Revenue sharing
When business segments join efforts to sell products andservices to the Firm’s clients, the participating businesssegments agree to share revenue from those transactions.
The segment results reflect these revenue-sharing
agreements.
Funds transfer pricing
Funds transfer pricing is used to allocate interest income
and expense to each business segment and to transfer the
primary interest rate risk and liquidity risk exposures toTreasury and CIO within Corporate. The funds transfer
pricing process considers the interest rate risk, liquidity risk
and regulatory requirements of a business segment as if itwere operating independently. This process is overseen by
JPMorgan Chase & Co./2016 Annual Reportsenior management and reviewed by the Firm’s AssetLiability Committee (“ALCO”).
Debt expense and preferred stock dividend allocation
As part of the funds transfer pricing process, largely 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 dividend to the business segments
is aligned with the Firm’s process to allocate capital. The
allocated cost of unsecured long-term debt is included in abusiness segment’s net interest income, and net income is
reduced by preferred stock dividends to arrive at a businesssegment’s net income applicable to common equity.
Business segment capital allocation changes
The amount of capital assigned to each business is referred
to as common equity. On at least an annual basis, the Firm
assesses the level of capital required for each line ofbusiness as well as the assumptions and methodologies
used to allocate capital. Through the end of 2016, capital
was allocated to the lines of business based on a single
measure, Basel III Advanced Fully Phased-In RWA. Effective
January 1, 2017, the Firm’s methodology used to allocate
capital to the Firm’s business segments was updated. The
new methodology incorporates Basel III Standardized Fully
Phased-In RWA (as well as Basel III Advanced Fully PhasedIn RWA), leverage, the GSIB surcharge, and a simulation of51

Management’s discussion and analysis
capital in a severe stress environment. The methodology
will continue to be weighted towards Basel III Advanced
Fully Phased-In RWA because the Firm believes it to be thebest proxy for economic risk. The Firm will consider further
changes to its capital allocation methodology as theregulatory framework evolves. In addition, under the new
methodology, capital is no longer allocated to each line ofbusiness for goodwill and other intangibles associated withacquisitions effected by the line of business.

allocated based on actual cost and use of services provided.
In contrast, certain other costs related to corporate support
units, or to certain technology and operations, are notallocated to the business segments and are retained in
Corporate. Expense retained in Corporate generally includes
parent company costs that would not be incurred if thesegments were stand-alone businesses; adjustments toalign corporate support units; and other items not alignedwith a particular business segment.

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

The following provides a comparative discussion of businesssegment results as of or for the years ended December 31,
2016, 2015 and 2014.

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

Total net revenue(in millions)

Total noninterest expense
2015

2014

Pre-provision profit/(loss)

2016

2015

2014

2016

Consumer & Community Banking$ 44,915 $

43,820 $44,368$ 24,905 $Corporate & Investment Bank

35,21633,542

34,59518,992

21,361

23,273

16,224

12,181

11,322
4,187

24,909 $ 25,609

2016

2015

2014

$ 20,010 $ 18,911 $ 18,759

Commercial Banking

7,453

6,885

6,882

2,934

2,881

2,695

4,519

4,004

Asset & Wealth Management

12,045

12,11912,028

8,478

8,886

8,538

3,567

3,233

3,490

(487)

267

12

462

977

1,159

(949)

(710)

(1,147)$ 99,142 $

96,633 $Corporate
Total

97,885

Year ended December 31,

Provision for credit losses(in millions, except ratios)

2016

2015

2014

4,494 $

3,059 $

3,520

Corporate & Investment Bank

563

332

Commercial Banking

282

442

Asset & Wealth Management

26

Corporate

Consumer & Community Banking

Total

52

$

$

$ 55,771 $

59,014 $ 61,274

Net income/(loss)$ 43,371 $ 37,619 $ 36,611

Return on common equity

2016

2015

2014

2016

2015

2014

9,714 $

9,789 $

9,185

18%

18%

18%

(161)

10,815

8,090

6,908

16

12

10

(189)

2,657

2,191

2,635

16

15

18

4

4

2,251

1,935

2,153

24

21

23

(4)

(10)

(35)

(704)

2,437

864

NM

NM

NM

5,361 $

3,827 $

3,139

10%

11%

10%

$

$ 24,733 $ 24,442 $ 21,745

JPMorgan Chase & Co./2016 Annual ReportCONSUMER & COMMUNITY BANKING
Consumer & Community Banking offers services to
consumers and businesses through bank branches,
ATMs, online, mobile and telephone banking. CCB isorganized into Consumer & Business Banking (including
Consumer Banking/Chase Wealth Management andBusiness Banking), Mortgage Banking (including
Mortgage Production, Mortgage Servicing and Real
Estate Portfolios) and Card, Commerce Solutions &Auto. Consumer & Business Banking offers deposit andinvestment products and services to consumers, andlending, deposit, and cash management and payment
solutions to small businesses. Mortgage Banking
includes mortgage origination and servicing activities,
as well as portfolios consisting of residential
mortgages and home equity loans. Card, Commerce
Solutions & Auto issues credit cards to consumers andsmall businesses, offers payment processing services
to merchants, originates and services auto loans andleases, and services student loans.

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

2016

2015

2014

Lending- and deposit-related fees $ 3,231$ 3,137$ 3,039

Revenue
Asset management,
administration andcommissions

2,093

2,172

2,096

Mortgage fees and related
income

2,490

2,511

3,560

Card income

4,364

5,491

5,779

All other income

3,077

2,281

1,463

15,255

15,592

15,937

Net interest income

29,66028,22828,431

Total net revenue

44,91543,82044,368

4,494

3,059

3,520

9,723

9,770

10,538

Noncompensation expense

15,182

15,13915,071

Total noninterest expense

24,90524,90925,609

Income before income tax
expense15,51615,852

15,239

Income tax expense

5,802

6,063

6,054

$ 9,714$ 9,789$ 9,185

Noninterest revenue

Provision for credit losses
Noninterest expense
Compensation expense(a)

Net income
Revenue by line of business
Consumer & Business Banking$ 18,659$ 17,983$ 18,226

Mortgage Banking

7,361

6,817

7,826

Card, Commerce Solutions &Auto

18,89519,02018,316

Net production revenue

853

769

1,190

Net mortgage servicing
revenue(b)

1,637

1,742

2,370

$ 2,490$ 2,511$ 3,560

Mortgage fees and related
income details:

Mortgage fees and related
incomeFinancial ratios
Return on common equity

18%

18%

18%

Overhead ratio

55

57

58

Note: In the discussion and the tables which follow, CCB presents certain
financial measures which exclude the impact of PCI loans; these are non-GAAP
financial measures.

(a) Included operating lease depreciation expense of $1.9 billion, $1.4 billion

and $1.2 billion for the years ended December 31, 2016, 2015 and 2014,
respectively.
(b) Included MSR risk management of $217 million, $(117) million and $(28)million for the years ended December 31, 2016, 2015 and 2014,
respectively.

JPMorgan Chase & Co./2016 Annual Report53Management’s discussion and analysis
2016 compared with 2015
Consumer & Community Banking net income was $9.7
billion, a decrease of 1% compared with the prior year,
driven by higher provision for credit losses predominantly
offset by higher net revenue.

2015 compared with 2014
Consumer & Community Banking net income was $9.8
billion, an increase of 7% compared with the prior year,
driven by lower noninterest expense and lower provision for
credit losses, partially offset by lower net revenue.

Net revenue was $44.9 billion, an increase of 2% comparedwith the prior year. Net interest income was $29.7 billion,
up 5%, driven by higher deposit balances and higher loanbalances, partially offset by deposit spread compression
and an increase in the reserve for uncollectible interest andfees in Credit Card. Noninterest revenue was $15.3 billion,
down 2%, driven by higher new account origination costs
and the impact of renegotiated co-brand partnershipagreements in Credit Card and lower mortgage servicing
revenue predominantly as a result of a lower level of thirdparty loans serviced; these factors were predominantly
offset by higher auto lease and card sales volume, higher
card- and deposit-related fees, higher MSR risk
management results and a gain on the sale of Visa Europe
interests. See Note 17 for further information regarding
changes in value of the MSR asset and related hedges, andmortgage fees and related income.

Net revenue was $43.8 billion, a decrease of 1% comparedwith the prior year. Net interest income was $28.2 billion,
down 1%, driven by spread compression, predominantly
offset by higher deposit balances, higher loan balanceslargely resulting from originations of high-quality mortgage
loans that have been retained, and improved credit quality
including lower reversals of interest and fees due to lower
net charge-offs in Credit Card. Noninterest revenue was$15.6 billion, down 2%, driven by lower mortgage servicing
revenue largely as a result of lower average third-partyloans serviced, lower net mortgage production revenue
reflecting a lower repurchase benefit and the impact ofrenegotiated co-brand partnership agreements in Credit
Card, largely offset by higher auto lease and card sales
volume, the impact of non-core portfolio exits in Credit Cardin the prior year, and a gain on the investment in Square,Inc. upon its initial public offering.

The provision for credit losses was $4.5 billion, an increaseof 47% from the prior year. The increase in the provision
was driven by:
a $920 million increase related to the credit card
portfolio, due to a $600 million addition in the allowance
for loan losses, as well as $320 million of higher net
charge-offs, driven by loan growth, including growth innewer vintages which, as anticipated, have higher loss
rates compared to the overall portfolio,
a $450 million lower benefit related to the residential
real estate portfolio, as the current year reduction in theallowance for loan losses was lower than the prior year.
The reduction in both periods reflected continued
improvements in home prices and lower delinquencies
anda $150 million increase related to the auto and businessbanking portfolio, due to additions to the allowance forloan losses and higher net charge-offs, reflecting loan
growth in the portfolios.
Noninterest expense of $24.9 billion was flat comparedwith the prior year, driven by lower legal expense andbranch efficiencies offset by higher auto lease depreciationand higher investment in marketing.

54

The provision for credit losses was $3.1 billion, a decreaseof 13% from the prior year, reflecting lower net chargeoffs, partially offset by a lower reduction in the allowance
for loan losses. The current-year provision reflected a $1.0
billion reduction in the allowance for loan losses due tocontinued improvement in home prices and lower
delinquencies as well as increased granularity in the
impairment estimates in the residential real estate portfolio
and runoff in the student loan portfolio. The prior-year
provision reflected a $1.3 billion reduction in the allowance
for loan losses due to continued improvement in homeprices and lower delinquencies in the residential real estate
portfolio, a decrease in the Credit Card asset-specificallowance resulting from increased granularity of theimpairment estimates and lower balances related to credit
card loans modified in troubled debt restructurings(“TDRs”), runoff in the student loan portfolio and lower
estimated losses in auto loans.
Noninterest expense was $24.9 billion, a decrease of 3%
from the prior year, driven by lower headcount-related
expense and lower professional fees, partially offset byhigher auto lease depreciation.

JPMorgan Chase & Co./2016 Annual ReportSelected metrics

Selected metrics

As of or for the year ended
December 31,

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

2016

2015

2014

Selected balance sheet data(period-end)
Total assets

2016

2015

2014

$ 4,708$ 5,313$ 6,401

Consumer & Business Banking

257

253

305

Home equity

184

283

473

Credit data and quality statistics$535,310$502,652$455,634

Consumer & Business Banking

24,30722,73021,200Home equity

50,29658,734

67,994

Residential mortgage and other

181,196

164,500

115,575

Mortgage Banking

231,492

223,234

183,569

Credit Card

141,816

131,463

131,048

Auto

65,81460,25554,536Student

7,057

8,176

9,351

Total loans

470,486445,858

399,704

Core loans

382,608

341,881

273,494

Deposits

618,337

557,645

502,520

Common equity

51,00051,00051,000Loans:

Selected balance sheet data
(average)
Total assets(in millions, except ratio data)
Nonaccrual loans(a)(b)
Net charge-offs(c)Residential mortgage and other

14

2

10

Mortgage Banking

198

285

483

3,442

3,122

3,429

285

214

181

Credit Card
Auto
Student
Total net charge-offs

162

210

375

$ 4,344$ 4,084$ 4,773

Net charge-off rate(c)Consumer & Business Banking

1.10%

1.16 %

1.51%

Home equity

0.45

0.60

0.87

Residential mortgage and other(d)

0.01

—

0.01

Mortgage Banking(d)

0.10

0.18

0.37

Credit Card(e)

2.63

2.51

2.75

Auto

0.45

0.38

0.34

Student

2.13

2.40

3.75

1.04

1.10

1.40

(d)

$516,354$472,972$447,750

Consumer & Business Banking

23,431

21,894

20,152Home equity

54,54563,261

72,440Residential mortgage and other

177,010140,294

110,231

30+ day delinquency rate

Mortgage Banking

231,555

203,555

182,671Mortgage Banking(f)(g)

1.23%

1.57 %

2.61%

Credit Card

131,165

125,881

125,113Credit Card(h)

1.61

1.43

1.44

Auto

63,57356,48752,961

Auto

1.19

1.35

1.23

Student

7,623

8,763

9,987

Student(i)

1.60

1.81

2.35

Total loans

457,347

416,580

390,884

Core loans

361,316

301,700

253,803

0.81

0.72

0.70

Deposits

586,637

530,938

486,919

Common equity

51,00051,00051,000

Headcount

132,802

127,094

137,186

Loans:

Total net charge-offs rate(d)90+ day delinquency rate Credit Card(h)Allowance for loan losses
Consumer & Business Banking

$

753

$

703

$

703

Mortgage Banking, excluding
PCI loans

1,328

1,588

2,188

Mortgage Banking — PCI loans(c)

2,311

2,742

3,325

Credit Card

4,034

3,434

3,439

Auto

474

399

350

Student

249

299

399

$ 9,149$ 9,165$ 10,404

Total allowance for loan
losses(c)(a) Excludes PCI loans. The Firm is recognizing interest income on each poolof PCI loans as they are all performing.
(b) At December 31, 2016, 2015 and 2014, nonaccrual loans excluded
loans 90 or more days past due as follows: (1) mortgage loans insured
by U.S. government agencies of $5.0 billion, $6.3 billion and $7.8 billion
respectively; and (2) student loans insured by U.S. government agencies
under the Federal Family Education Loan Program (“FFELP”) of $263
million, $290 million and $367 million, respectively. These amounts
have been excluded based upon the government guarantee.
(c) Net charge-offs and the net charge-off rates for the years ended
December 31, 2016, 2015 and 2014, excluded $156 million, $208
million, and $533 million, respectively, of write-offs in the PCI portfolio.
These write-offs decreased the allowance for loan losses for PCI loans.
For further information on PCI write-offs, see summary of changes in theallowance on page 106.

JPMorgan Chase & Co./2016 Annual Report55

Management’s discussion and analysis(d) Excludes the impact of PCI loans. For the years ended December 31,
2016, 2015 and 2014, the net charge-off rates including the impact of
PCI loans were as follows: (1) home equity of 0.34%, 0.45% and 0.65%,
respectively; (2) residential mortgage and other of 0.01%, –% and0.01%, respectively; (3) Mortgage Banking of 0.09%, 0.14% and0.27%, respectively; and (4) total CCB of 0.95%, 0.99% and 1.22%,
respectively.
(e) Average credit card loans included loans held-for-sale of $84 million,$1.6 billion and $509 million for the years ended December 31, 2016,2015 and 2014, respectively. These amounts are excluded whencalculating the net charge-off rate.
(f) At December 31, 2016, 2015 and 2014, excluded mortgage loans
insured by U.S. government agencies of $7.0 billion, $8.4 billion and$9.7 billion, respectively, that are 30 or more days past due. Theseamounts have been excluded based upon the government guarantee.
(g) Excludes PCI loans. The 30+ day delinquency rate for PCI loans was
9.82%, 11.21% and 13.33% at December 31, 2016, 2015 and 2014,
respectively.
(h) Period-end credit card loans included loans held-for-sale of $105 million,$76 million and $3.0 billion at December 31, 2016, 2015 and 2014,
respectively. These amounts are excluded when calculating delinquency
rates.
(i) Excluded student loans insured by U.S. government agencies under
FFELP of $468 million, $526 million and $654 million at December 31,
2016, 2015 and 2014, respectively, that are 30 or more days past due.
These amounts have been excluded based upon the government
guarantee.

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

2016

2015

2014

60.0
5,258

57.8
5,413

57.2
5,602

43,836

39,24236,396

26,536

22,81019,084$ 817.9$ 753.8$ 707.0$ 570.8$ 515.2$ 472.3

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

1.81%

Business banking origination
volumeClient investment assets

$

7.3

1.90%
$

234.5

6.8

2.21%
$

218.6

6.6
213.5

Mortgage Banking
Mortgage origination volume bychannel
Retail$Correspondent
Total mortgage origination
volume(c)Total loans serviced(period-end)

44.3

$

36.1

$

29.5

59.3

70.3

$ 103.6$ 106.4$$ 846.6$ 910.1$ 948.8

Third-party mortgage loans
serviced (period-end)

48.5
78.0

591.5

674.0

751.5

MSR carrying value(period-end)

6.1

6.6

7.4

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

1.03%

0.98%

0.98%

MSR revenue multiple(d)

2.94x

2.80x

2.72x

$ 545.4$ 495.9$ 465.6

10.4

8.7

8.8

11.29%

12.33%

12.03%

Credit Card, excluding
Commercial Card
Credit card sales volume
New accounts opened(in millions)
Card Services
Net revenue rate
Commerce Solutions
Merchant processing volume$1,063.4$ 949.3$ 847.9

$

$

$

Auto
Loan and lease origination
volumeAverage Auto operating leaseassets

35.4
11.0

32.4
7.8

27.5
6.1

(a) Users of all web and/or mobile platforms who have logged in within thepast 90 days.
(b) Users of all mobile platforms who have logged in within the past 90 days.
(c) Firmwide mortgage origination volume was $117.4 billion, $115.2 billion
and $83.3 billion for the years ended December 31, 2016, 2015 and2014, respectively.
(d) Represents the ratio of MSR carrying value (period-end) to third-party
mortgage loans serviced (period-end) divided by the ratio of loan servicingrelated revenue to third-party mortgage loans serviced (average).

56

JPMorgan Chase & Co./2016 Annual ReportMortgage servicing-related matters
The Firm has resolved the majority of the consent orders andsettlements into which it entered with federal and state
governmental agencies and private parties related to
mortgage servicing, origination, and residential mortgagebacked securities activities. However, among thoseobligations, the mortgage servicing-related Consent Order
entered into with the Federal Reserve on April 13, 2011, as
amended on February 28, 2013, and certain othersettlements remain outstanding. The Audit Committee of theBoard of Directors provides governance and oversight of theFederal Reserve Consent Order.
The Federal Reserve Consent Order and other obligations
under certain mortgage-related settlements are the subjectof ongoing reporting to various regulators and independent
overseers. The Firm’s compliance with certain of these
settlements is detailed in periodic reports published by the
independent overseers. The Firm is committed to fulfilling its
commitments with appropriate diligence.

JPMorgan Chase & Co./2016 Annual Report57

Management’s discussion and analysis
CORPORATE & INVESTMENT BANKThe Corporate & Investment Bank, which consists of
Banking and Markets & Investor Services, offers abroad suite of investment banking, market-making,prime brokerage, and treasury and securities products
and services to a global client base of corporations,investors, financial institutions, government andmunicipal entities. Banking offers a full range ofinvestment banking products and services in all major
capital markets, including advising on corporate
strategy and structure, capital-raising in equity anddebt markets, as well as loan origination andsyndication. Banking also includes Treasury Services,which provides transaction services, consisting of cash
management and liquidity solutions. Markets &Investor Services is a global market-maker in cash
securities and derivative instruments, and also offers
sophisticated risk management solutions, prime
brokerage, and research. Markets & Investor Services
also includes Securities Services, a leading global
custodian which provides custody, fund accounting andadministration, and securities lending products
principally for asset managers, insurance companies
and public and private investment funds.
Selected income statement data
Year ended December 31,(in millions)
2016
Revenue
Investment banking fees
$ 6,424
Principal transactions
11,089Lending- and deposit-related fees
1,581
Asset management,
administration and commissions
4,062

2015
$

6,736
9,905
1,573

2014
$

6,570
8,947
1,742

4,467

4,687

All other income(a)

1,169

1,012

1,474

Noninterest revenue

24,32523,69323,420Net interest income(a)10,891

9,849

11,175

Total net revenue

35,21633,542

34,595

563

332

(161)

Provision for credit losses
Noninterest expense
Compensation expense

9,546

9,973

10,449Noncompensation expense

9,446

11,38812,824

Total noninterest expense

18,992

21,361

23,273

Income before income tax
expense15,661

11,84911,483

Income tax expense

4,846

3,759

Net income$ 10,815

$

8,090

4,575
$

6,908

(a) Included tax-equivalent adjustments, predominantly due to income tax
credits related to alternative energy investments; income tax credits andamortization of the cost of investments in affordable housing projects; andtax-exempt income from municipal bonds of $2.0 billion, $1.7 billion and$1.6 billion for the years ended December 31, 2016, 2015 and 2014,
respectively.

58

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

2016

2015

2014

Financial ratios
Return on common equity

16%

12%

10%

Overhead ratio

54

64

67

Compensation expense as
percentage of total net
revenue
Revenue by business

27

30

30

Investment Banking$ 5,950$ 6,376$ 6,122

Treasury Services

3,643

3,631

3,728

Lending

1,208

1,461

1,547

Total Banking

10,801

11,468

11,397

Fixed Income Markets

15,25912,592

14,075Equity Markets

5,740

5,694

5,044

Securities Services

3,591

3,777

4,351

Credit Adjustments & Other(a)

(175)

11

(272)

Total Markets & Investor
Service

24,41522,07423,198

Total net revenue$35,216$33,542$ 34,595(a) Effective January 1, 2016, consists primarily of credit valuation
adjustments (“CVA”) managed by the Credit Portfolio Group, Funding
valuation adjustment (“FVA”) and DVA on derivatives. Results are primarily
reported in Principal transactions. Prior periods also include DVA on fairvalue option elected liabilities. Results are presented net of associatedhedging activities and net of CVA and FVA amounts allocated to Fixed
Income Markets and Equity Markets. Effective January 1, 2016, changes

in DVA on fair value option elected liabilities is recognized in OCI. For
additional information, see Accounting and Reporting Developments
on page 135 and Notes 3, 4 and 25.

2016 compared with 2015
Net income was $10.8 billion, up 34% compared with theprior year, driven by lower noninterest expense and higher
net revenue, partially offset by a higher provision for credit
losses.
Banking revenue was $10.8 billion, down 6% comparedwith the prior year. Investment banking revenue was $6.0
billion, down 7% from the prior year, largely driven bylower equity underwriting fees. The Firm maintained its #1
ranking for Global Investment Banking fees, according to
Dealogic. Equity underwriting fees were $1.2 billion, down
19% driven by lower industry-wide fee levels; however, theFirm improved its market share and maintained its #1
ranking in equity underwriting fees globally as well as inboth North America and Europe and its #1 ranking byvolumes across all products, according to Dealogic. Advisory
fees were $2.1 billion, down 1%; the Firm maintained its#2 ranking for M&A, according to Dealogic. Debt
underwriting fees were $3.2 billion; the Firm maintained its#1 ranking globally in fees across high grade, high yield,
and loan products, according to Dealogic. Treasury Services
revenue was $3.6 billion. Lending revenue was $1.2 billion,
down 17% from the prior year, reflecting fair value losses
on hedges of accrual loans.

JPMorgan Chase & Co./2016 Annual ReportMarkets & Investor Services revenue was $24.4 billion, up
11% from the prior year. Fixed Income Markets revenue
was $15.3 billion, up 21% from the prior year, driven bybroad strength across products. Rates performance wasstrong, with increased client activity driven by highissuance-based flows, global political developments, andcentral bank actions. Credit and Securitized Products
revenue improved driven by higher market-making revenue
from the secondary market as clients’ risk appetite
recovered, and due to increased financing activity. Equity
Markets revenue was $5.7 billion, up 1%, compared to astrong prior-year. Securities Services revenue was $3.6
billion, down 5% from the prior year, largely driven bylower fees and commissions. Credit Adjustments and Other
was a loss of $175 million driven by valuation adjustments,
compared with an $11 million gain in prior-year, which
included funding spread gains on fair value option electedliabilities.
The provision for credit losses was $563 million, compared
to $332 million in the prior year, reflecting a higher
allowance for credit losses, including the impact of selectdowngrades within the Oil & Gas portfolio.
Noninterest expense was $19.0 billion, down 11%
compared with the prior year, driven by lower legal andcompensation expenses.
2015 compared with 2014
Net income was $8.1 billion, up 17% compared with $6.9
billion in the prior year. The increase primarily reflected
lower income tax expenses largely reflecting the release in2015 of U.S. deferred taxes associated with therestructuring of certain non-U.S. entities and lower
noninterest expense partially offset by lower net revenue,
both driven by business simplification, as well as higher
provisions for credit losses.

Banking revenue was $11.5 billion, up 1% versus the prioryear. Investment banking revenue was $6.4 billion, up 4%
from the prior year, driven by higher advisory fees, partially
offset by lower debt and equity underwriting fees. Advisory
fees were $2.1 billion, up 31% on a greater share of fees
for completed transactions as well as growth in theindustry-wide fee levels. The Firm maintained its #2 ranking
for M&A, according to Dealogic. Debt underwriting fees
were $3.2 billion, down 6%, primarily related to lower
bond underwriting and loan syndication fees on lower
industry-wide fee levels. The Firm ranked #1 globally in fee
share across high grade, high yield and loan products.
Equity underwriting fees were $1.4 billion, down 9%,
driven by lower industry-wide fee levels. The Firm was #1 inequity underwriting fees in 2015, up from #3 in 2014.
Treasury Services revenue was $3.6 billion, down 3%
compared with the prior year, primarily driven by lower net
interest income. Lending revenue was $1.5 billion, down
6% from the prior year, driven by lower trade financerevenue on lower loan balances.
Markets & Investor Services revenue was $22.1 billion,
down 5% from the prior year. Fixed Income Markets
revenue was $12.6 billion, down 11% from the prior year,
primarily driven by the impact of business simplification as
well as lower revenue in credit-related products on anindustry-wide slowdown, partially offset by increased
revenue in Rates and Currencies & Emerging Markets onhigher client activity. The lower Fixed Income revenue also
reflected higher interest costs on higher long-term debt.
Equity Markets revenue was $5.7 billion, up 13%, primarily
driven by higher equity derivatives revenue across all
regions. Securities Services revenue was $3.8 billion, down
13% from the prior year, driven by lower fees as well as
lower net interest income.
The provision for credit losses was $332 million, compared
to a benefit of $161 million in the prior year, reflecting ahigher allowance for credit losses, including the impact of
select downgrades within the Oil & Gas portfolio.
Noninterest expense was $21.4 billion, down 8% comparedwith the prior year, driven by the impact of businesssimplification as well as lower legal and compensation
expenses.

JPMorgan Chase & Co./2016 Annual Report59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)

2016

2015

2014

Selected balance sheet data(period-end)
Assets$ 803,511$ 748,691$ 861,466

111,872

106,908

96,409

3,781

3,698

5,567

Total loans

115,653

110,606

101,976

Core Loans

115,243

110,084

100,772

Common equity

64,00062,00061,000Net charge-offs/(recoveries)

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

2015

2014

$

168

$

(19)

$

(12)

Nonperforming assets:
Nonaccrual loans:

Selected balance sheet data
(average)
Assets2016

Credit data and quality
statistics

Nonaccrual loans
retained(a)

467

428

110

Nonaccrual loans heldfor-sale and loans atfair value

109

10

11

Total nonaccrual loans

576

438

121

Derivative receivables

223

204

275

Assets acquired in loansatisfactions

79

62

67

878

704

463

$ 815,321$ 824,208$ 854,712

Trading assets-debt and equity
instruments

300,606

302,514317,535

Trading assets-derivative
receivables

63,387

67,26364,833

Allowance for credit losses:

111,082

98,331

95,764

Allowance for loan
losses

1,420

1,258

1,034

7,599

Allowance for lendingrelated commitments

801

569

439

Total allowance for credit
losses

2,221

1,827

1,473

Net charge-off/(recovery)
rate

0.15%

(0.02)%(0.01)%

Allowance for loan losses toperiod-end loans
retained

1.27

1.18

1.07

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

1.86

1.88

1.82

Allowance for loan losses tononaccrual loans
retained(a)

304

294

940

Nonaccrual loans to total
period-end loans

0.50

0.40

0.12

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

3,812

4,572

Total loans

114,894

102,903103,363Core Loans(b)114,455

102,142

99,500Common equity

64,00062,00061,000

Headcount

48,74849,06750,965(a) Loans retained includes credit portfolio loans, loans held by consolidated
Firm-administered multi-seller conduits, trade finance loans, other held-forinvestment loans and overdrafts.
(b) Prior period amounts were revised to conform with current period
presentation.

(a) Allowance for loan losses of $113 million, $177 million and $18 million
were held against these nonaccrual loans at December 31, 2016, 2015
and 2014, respectively.
(b) Management uses allowance for loan losses to period-end loans retained,
excluding trade finance and conduits, a non-GAAP financial measure, toprovide a more meaningful assessment of CIB’s allowance coverage ratio.

Investment banking feesYear ended December 31,(in millions)
Advisory

2016
$

2015
2,110

$

2014
2,133

Equity underwriting

1,159

1,434

Debt underwriting(a)

3,155

3,169

Total investment banking fees

$

6,424

$

6,736

$

1,627
1,571
3,372

$

6,570

(a) Includes loans syndication

60

JPMorgan Chase & Co./2016 Annual ReportLeague table results – wallet share
2016
Year ended
December 31,

2015

2014

Share

Rank

Share

Rank

Share

Rank

Global

7.2%

#1

7.7%

#1

7.6%

#1

U.S.

11.9

1

11.7

1

10.7

1

Global

6.9

1

8.3

1

7.9

1

U.S.

11.1

2

11.9

1

11.7

1

Global(c)

7.6

1

7.0

1

7.2

3

U.S.

13.4

1

11.4

1

9.6

3

Global

8.6

2

8.4

2

8.0

2

U.S.

10.1

2

9.9

2

9.7

2

Global

9.4

1

7.5

1

9.3

1

U.S.

11.9

2

10.8

2

13.0

1

8.1%

#1

7.9%

#1

8.0%

#1

Based on fees(a)Debt, equity and equity-relatedLong-term debt(b)Equity and equity-related

M&A(d)

Loan syndications

Global investment banking fees (e)(a) Source: Dealogic as of January 3, 2017. Reflects the ranking of revenue wallet and market share.
(b) Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, ABS and MBS; and exclude money market, short-term debt, and U.S.
municipal securities.
(c) Global equity and equity-related ranking includes rights offerings and Chinese A-Shares.
(d) Global M&A reflect the removal of any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S.
(e) Global investment banking fees exclude money market, short-term debt and shelf deals.

Markets Revenue
The following table summarizes select income statement data for the Markets businesses. Markets includes both Fixed Income
Markets and Equity Markets. Markets revenue comprises principal transactions, fees, commissions and other income, as well as
net interest income. For a description of the composition of these income statement line items, see Notes 7 and 8.
Principal transactions reflects revenue on financial instruments and commodities transactions that arise from client-driven
market making activity. Principal transactions revenue includes amounts recognized upon executing new transactions withmarket participants, as well as “inventory-related revenue”, which is revenue recognized from gains and losses on derivatives
and other instruments that the Firm has been holding in anticipation of, or in response to, client demand, and changes in thefair value of instruments used by the Firm to actively manage the risk exposure arising from such inventory. Principaltransactions revenue recognized upon executing new transactions with market participants is driven by many factors including
the level of client activity, the bid-offer spread (which is the difference between the price at which a market participant iswilling to sell an instrument to the Firm and the price at which another market participant is willing to buy it from the Firm,and vice versa), market liquidity and volatility. These factors are interrelated and sensitive to the same factors that drive
inventory-related revenue, which include general market conditions, such as interest rates, foreign exchange rates, credit
spreads, and equity and commodity prices, as well as other macroeconomic conditions.
For the periods presented below, the predominant source of principal transactions revenue was the amounts recognized upon
executing new transactions.

Year 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
Total net revenue
Loss days(a)

2016

2015

2014

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

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

Fixed
EquityTotal
IncomeMarkets
Markets
Markets$
7,014 $
2,362 $
9,376
222
2
224

$

388

1,551

1,939

383

1,704

2,087

345

1,684

2,029

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

13
4,696
1,044
5,740 $

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

854
8,330
4,262
12,592 $

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

770
12,988
5,298
18,286
2

1,399
8,980
5,095
14,075 $

59
4,107
937
5,044 $

1,458
13,087
6,032
19,1190$$(a) Loss days represent the number of days for which Markets posted losses. The loss days determined under this measure differ from the loss days that are determined based on the disclosureof market risk-related gains and losses for the Firm in the value-at-risk (“VaR”) back-testing discussion on pages 118-120.

JPMorgan Chase & Co./2016 Annual Report61

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

2016
$

2015
12,166$2014
12,042Equity

6,428

6,194

Other(a)

1,926

1,707

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

12,328
6,524
1,697

$

20,520$19,943$

20,549$376,287$395,297$

417,369

15,923

19,25525,713(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)

2016

2015

2014

$ 10,786$ 10,894$ 11,598

Asia/Pacific

4,915

4,901

4,698

Latin America/Caribbean

1,225

1,096

1,179

Total international net revenue

16,926

16,891

17,475

North America

18,29016,651

17,120$ 35,216$ 33,542$ 34,595$ 26,696$ 24,622$ 27,155

14,508

17,10819,992

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

7,607

8,609

8,950

Total international loans

48,81150,33956,097

North America
Total loans retained

63,06156,56940,312$111,872$106,908$ 96,409

Client deposits and other thirdparty liabilities (average)(a)(b)Europe/Middle East/Africa$135,979$141,062$ 152,712

Asia/Pacific

68,11067,111

66,933Latin America/Caribbean

22,91423,07022,360Total international$227,003$231,243$ 242,005

North America

149,284

164,054

175,364

Total client deposits and otherthird-party liabilities$376,287$395,297$ 417,369$ 12,290$ 12,034$ 11,987

8,230

7,909

8,562

$ 20,520$ 19,943$ 20,549

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

62

JPMorgan Chase & Co./2016 Annual Report

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

2016
$

917

2015
$

944

2014
$

978

69

88

92

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

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

1,279
2,349
4,533
6,882

Provision for credit losses

282

442

(189)

Noninterest expense
Compensation expense
Noncompensation expense
Total noninterest expense

1,332
1,602
2,934

1,238
1,643
2,881

1,203
1,492
2,695

4,237
1,580
$ 2,657

3,562
1,371
$ 2,191

4,376
1,741
$ 2,635

Income before income tax expense
Income tax expense
Net income(a) Includes revenue from investment banking products and commercial cardtransactions.
(b) Total net revenue included tax-equivalent adjustments from income tax
credits related to equity investments in designated community
development entities that provide loans to qualified businesses in lowincome communities, as well as tax-exempt income related to municipal
financing activities of $505 million, $493 million and $462 million for theyears ended December 31, 2016, 2015 and 2014, respectively.

JPMorgan Chase & Co./2016 Annual Report2016 compared with 2015
Net income was $2.7 billion, an increase of 21% comparedwith the prior year, driven by higher net revenue and alower provision for credit losses, partially offset by higher
noninterest expense.
Net revenue was $7.5 billion, an increase of 8% comparedwith the prior year. Net interest income was $5.1 billion, an
increase of 14% compared with the prior year, driven byhigher loan balances and deposit spreads. Noninterest
revenue was $2.3 billion, a decrease of 2% compared withthe prior year, largely driven by lower lending-and-depositrelated fees and other revenue, partially offset by higher
investment banking revenue.
Noninterest expense was $2.9 billion, an increase of 2%
compared with the prior year, reflecting increased hiring ofbankers and business-related support staff and investments
in technology.
The provision for credit losses was $282 million and $442
million for 2016 and 2015, respectively, with both periods
driven by downgrades in the Oil & Gas portfolio and selectclient downgrades in other industries.
2015 compared with 2014
Net income was $2.2 billion, a decrease of 17% comparedwith the prior year, driven by a higher provision for credit
losses and higher noninterest expense.
Net revenue was $6.9 billion, flat compared with the prioryear. Net interest income was $4.5 billion, flat comparedwith the prior year, with interest income from higher loanbalances offset by spread compression. Noninterest revenue
was $2.4 billion, flat compared with the prior year, withhigher investment banking revenue offset by lower lendingrelated fees.
Noninterest expense was $2.9 billion, an increase of 7%
compared with the prior year, reflecting investment incontrols.
The provision for credit losses was $442 million, reflecting
an increase in the allowance for credit losses for Oil & Gas
exposure and select client downgrades in other industries.
The prior year was a benefit of $189 million.

63

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)

2016

2015

2014

$ 3,795
2,797
785
76

$ 3,429
2,581
730
145

$ 3,358
2,681
684
159

$ 7,453$ 6,885$ 6,882

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.
Investment banking revenue, gross, represents total
revenue related to investment banking products sold to CB
clients.

Investment banking revenue, gross(b) $ 2,286$ 2,179$ 1,986$ 2,885
2,392
1,408
456
312

$ 2,706
2,184
1,275
358
362

$ 2,765
2,134
1,252
369
362

Other product revenue primarily includes tax-equivalentadjustments generated from Community Development
Banking activities and certain income derived from principaltransactions.

Revenue by client segment
Middle Market Banking
Corporate Client Banking
Commercial Term Lending
Real Estate Banking
Other
Total Commercial Banking net
revenue$ 7,453$ 6,885$ 6,882

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.

CB is divided into four primary client segments: Middle
Market Banking, Corporate Client Banking, Commercial
Term Lending, and Real Estate Banking.
Middle Market Banking covers corporate, municipal andnonprofit clients, with annual revenue generally ranging
between $20 million and $500 million.
Corporate Client Banking covers clients with annual
revenue generally ranging between $500 million and $2
billion and focuses on clients that have broader investmentbanking needs.

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

Financial ratios
Return on common equity
Overhead ratio

16%
39

15%
42

18%
39

(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 sold to CB
clients.
(c) Certain clients were transferred from Middle Market Banking to Corporate
Client Banking and from Real Estate Banking to Corporate Client Banking
during 2016. Prior period client segment amounts were revised to conformwith the current period presentation.

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.

64

JPMorgan Chase & Co./2016 Annual ReportSelected metrics (continued)

Selected metrics (continued)

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)

2016

2015

2014

Selected balance sheet data(period-end)
Total assets$ 214,341$ 200,700$ 195,267

188,261

167,374

147,661

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

734

267

845

Total loans$ 188,995$ 167,641$ 148,506Core loans

188,673

166,939

147,392

Common equity

16,00014,00014,000$53,931$50,502$50,040

2014

$

21

$

(7)

Nonperforming assets
Nonaccrual loans:
Nonaccrual loans retained(a)

1,149

375

317

—

18

14

Total nonaccrual loans

1,149

393

331

Assets acquired in loansatisfactions

1

8

10

1,150

401

341

Nonaccrual loans held-for-saleand loans at fair value

Allowance for credit losses:
2,466

54,038

248

198

165

11,234

9,024

Total allowance for credit losses

3,173

3,053

2,631

5,337

4,840

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

0.09%

0.01%

$ 167,641$ 148,506

Allowance for loan losses toperiod-end loans retained

1.55

1.71

1.67

Allowance for loan losses tononaccrual loans retained(a)

255

761

778

Nonaccrual loans to period-end
total loans

0.61

0.23

0.22

30,564

Commercial Term Lending

71,24962,860Real Estate Banking

14,722

Other

6,068
$ 188,995

Selected balance sheet data
(average)$ 207,532$ 198,076$ 191,857

178,670

157,389

140,982

Loans held-for-sale andloans at fair value

163

2,855

37,708Loans retained

$

2,925

43,025

Total assets
Loans:

2015

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(a)Middle Market Banking

2016

Credit data and quality statistics

723

492

782

Total loans$ 179,393$ 157,881$ 141,764

Core loans

178,875

156,975

140,390

Client deposits and otherthird-party liabilities

174,396

191,529

204,017

Common equity

16,00014,00014,000Allowance for loan losses—%(a) An allowance for loan losses of $155 million, $64 million and $45 million
was held against nonaccrual loans retained at December 31, 2016, 2015
and 2014, respectively.
(b) Loans held-for-sale and loans at fair value were excluded when calculating
the net charge-off/(recovery) rate.

Average loans by client
segment(a)Middle Market Banking$

52,244$50,336$50,076

Corporate Client Banking

41,75434,49527,732

Commercial Term Lending

66,70058,13851,120Real Estate Banking

13,063

9,917

8,324

Other

5,632

4,995

4,512

$ 179,393$ 157,881$ 141,764

8,365

7,845

7,426

Total Commercial Banking
loans
Headcount(a) Certain clients were transferred from Middle Market Banking to Corporate
Client Banking and from Real Estate Banking to Corporate Client Banking
during 2016. Prior period client segment amounts were revised to conformwith the current period presentation.

JPMorgan Chase & Co./2016 Annual Report65

Management’s discussion and analysis
ASSET & WEALTH MANAGEMENT
Asset & Wealth Management, with client assets of $2.5
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.

2016 compared with 2015
Net income was $2.3 billion, an increase of 16% comparedwith the prior year, reflecting lower noninterest expense,
partially offset by lower net revenue.
Net revenue was $12.0 billion, a decrease of 1%. Net
interest income was $3.0 billion, up 19%, driven by higher
deposit and loan spreads and loan growth. Noninterest
revenue was $9.0 billion, a decrease of 6%, reflecting theimpact of lower average equity market levels, a reduction inrevenue related to the disposal of assets at the beginning of
2016, and lower performance fees and placement fees.

2016

2015

2014

$ 8,414$ 9,175$ 9,024

Revenue from Asset Management was $6.0 billion, down
5% from the prior year, driven by a reduction in revenue
related to the disposal of assets at the beginning of 2016,
the impact of lower average equity market levels and lower
performance fees. Revenue from Wealth Management was$6.1 billion, up 4% from the prior year, reflecting higher
net interest income from higher deposit and loan spreads
and continued loan growth, partially offset by the impact oflower average equity market levels and lower placement
fees.

598
9,012
3,033
12,045

388
9,563
2,556
12,119

564
9,588
2,440
12,028

Noninterest expense was $8.5 billion, a decrease of 5%,
predominantly due to a reduction in expense related to thedisposal of assets at the beginning of 2016 and lower legal
expense.

Provision for credit losses

26

4

4

Noninterest expense
Compensation expense
Noncompensation expense
Total noninterest expense

5,065
3,413
8,478

5,113
3,773
8,886

5,082
3,456
8,538

2015 compared with 2014
Net income was $1.9 billion, a decrease of 10% comparedwith the prior year, reflecting higher noninterest expense,
predominantly offset by higher net revenue.

Income before income tax expense
3,541
Income tax expense
1,290
Net income$ 2,251

3,229
1,294
$ 1,935

3,486
1,333
$ 2,153

Revenue by line of business
Asset Management
Wealth Management
Total net revenue$ 6,301
5,818$ 12,119$ 6,327
5,701$ 12,028

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

Financial ratios
Return on common equity
Overhead ratio
Pre-tax margin ratio:
Asset Management
Wealth Management
Asset & Wealth Management$ 5,970
6,075$12,045

24%
70

21%
73

23%
71

31
28
29

31
22
27

31
27
29

Headcount

21,082

20,975

19,735

Number of client advisors

2,504

2,778

2,836

66

Net revenue was $12.1 billion, an increase of 1%. Net
interest income was $2.6 billion, up 5%, driven by higher
loan balances and spreads. Noninterest revenue was $9.6
billion, flat from last year, as net client inflows into assets
under management and the impact of higher average
market levels were predominantly offset by lower
performance fees and the sale of Retirement Plan Services(“RPS”) in 2014.
Revenue from Asset Management was $6.3 billion, flat fromthe prior year as the sale of RPS in 2014 and lower
performance fees were largely offset by net client inflows.
Revenue from Wealth Management was $5.8 billion, up 2%
from the prior year due to higher net interest income fromhigher loan balances and spreads and net client inflows,
partially offset by lower brokerage revenue.
Noninterest expense was $8.9 billion, an increase of 4%,
predominantly due to higher legal expense and investment
in both infrastructure and controls.

JPMorgan Chase & Co./2016 Annual ReportAWM’s lines of business consist of the following:

Selected metrics

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

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

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

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

63%

52%

51%

% of JPM mutual fund assets
ranked in 1st or 2nd
quartile:(c)1 year54

62

72

3 years

72

78

72

5 years(b)

79

79

76

$ 138,384$ 131,451$ 128,701

118,039

111,007104,279

118,039

111,007104,279

161,577

146,766

155,247

9,000

9,000

9,000

$ 132,875$ 129,743$ 126,440

112,876

107,418

99,805

112,876

107,418

99,805

153,334

149,525

150,121

9,000

9,000

9,000

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

Deposits• 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 “primary shareclass”, as defined by Morningstar, denotes the share classrecommended as being the best proxy for the portfolio and in mostcases will be the most retail version (based upon annual management
charge, minimum investment, currency and other factors). Where
peer group rankings given for a fund are in more than one “primaryshare class” territory both rankings are included to reflect local
market competitiveness (applies to “Offshore Territories” and “HK SFC
Authorized” funds only). The performance data could have beendifferent if all funds/accounts would have been included. Past
performance is not indicative of future results.
JPMorgan Chase & Co./2016 Annual Report

Total assets

2016Core loans
Common equity

2015

2014

Selected balance sheet data
(average)
Total assets
LoansCore loans
Deposits
Common equity
Credit data and quality
statistics
Net charge-offs
Nonaccrual loans

$

16

$

12

$

6

390

218

218

Allowance for loan losses

274

266

271

Allowance for lendingrelated commitments

4

5

5

278

271

276

Net charge-off rate

0.01%

0.01%

0.01%

Allowance for loan losses toperiod-end loans

0.23

0.24

0.26

Allowance for loan losses tononaccrual loans

70

122

124

Nonaccrual loans to periodend loans

0.33

0.20

0.21

Allowance for credit losses:

Total allowance for credit
losses(a) Represents the “overall star rating” derived from Morningstar for the U.S.,
the U.K., Luxembourg, Hong Kong and Taiwan domiciled funds; and Nomura“star rating” for Japan domiciled funds. Includes only Asset Management
retail open-ended mutual funds that have a rating. Excludes money market
funds, Undiscovered Managers Fund, and Brazil and India domiciled funds.
(b) Prior period amounts were revised to conform with current period
presentation.
(c) Quartile ranking sourced from: Lipper for the U.S. and Taiwan domiciled
funds; Morningstar for the U.K., Luxembourg and Hong Kong domiciled
funds; Nomura for Japan domiciled funds and FundDoctor 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 and India domiciled
funds.
(d) Included $32.8 billion, $26.6 billion and $22.1 billion of prime mortgage
loans reported in the Consumer, excluding credit card, loan portfolio at
December 31, 2016, 2015 and 2014, respectively.

67

Management’s discussion and analysis
Client assets

Client assets (continued)

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

Year ended December 31,(in billions)2015 compared with 2014
Client assets were $2.4 trillion, a decrease of 2% comparedwith the prior year. Assets under management were $1.7
trillion, a decrease of 1% from the prior year reflecting theeffect of lower market levels, partially offset by net inflows
to long-term products.

2016

Beginning balance

$

2016

2015

2014

Assets by asset class
Liquidity(a)

$

—

14

30

(8)

37

Equity(29)

15Multi-asset and alternatives

22

22

42

1

(36)

48

$

1,771 $

1,723 $

1,744$

2,350 $

2,387 $

2,343

63

27

118

Market/performance/other impacts
Ending balance, December 31
Client assets rollforward

Market/performance/other impacts
Ending balance, December 31

Fixed income(a)

420

376

395

Equity

351

353

375

International metrics
Year ended December 31,(in billions, except where otherwise
noted)
Total net revenue (in millions)(a)Custody/brokerage/administration/deposits
Total client assets

$

564

564

549

1,723

1,744

682

627

643

2,453 $

2,350 $

2,387

Alternatives client assets

$

154 $

172 $

166

$

435 $

437 $

428

Institutional

869

816

827

Retail

467

470

489

Total assets under management $1,771 $

1,723 $

1,744

Private Banking

1,098 $

1,050 $

1,057

Institutional

886

824

835

Retail

469

476

495

2,453 $

2,350 $

2,387

(b)

Assets by client segment

Total client assets

Europe/Middle East/Africa$

Asia/PacificTotal international net revenue
North America$$(a) Prior period amounts were revised to conform with current period
presentation.
(b) Represents assets under management, as well as client balances inbrokerage accounts.

40

(64)

(74)

2,453 $

2,350 $

2,387

2016

Latin America/Caribbean

Memo:

Private Banking$(a) Prior period amounts were revised to conform with current period
presentation.

425

1,771

1,598

24

430 $

Total assets under management

1,744 $

Fixed income(a)436 $Multi-asset and alternatives

1,723 $

Liquidity(a)Net asset flows

December 31,(in billions)2014

Net asset flows:

Beginning balance

Client assets

2015

Assets under management
rollforward

Total net revenue

2015

2014

1,849 $

1,946 $

2,080

1,077

1,130

1,199

726

795

841

3,652

3,871

4,120

8,393

8,248

7,908

$ 12,045 $ 12,119 $ 12,028

Assets under management
Europe/Middle East/Africa

309 $

302 $

329

Asia/Pacific

$

123

123

126

Latin America/Caribbean

45

45

46

Total international assets undermanagement

477

470

501

North America
Total assets under management

1,294

1,253

1,243

$

1,771 $

1,723 $

1,744$

Client assets
Europe/Middle East/Africa

359 $

351 $

391

Asia/Pacific

177

173

174

Latin America/Caribbean

114

110

115

Total international client assets

650

634

680

1,803

1,716

1,707

2,453 $

2,350 $

2,387

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

68

JPMorgan Chase & Co./2016 Annual ReportCORPORATEThe Corporate segment consists of Treasury and Chief
Investment Office and Other Corporate, which includes
corporate staff units and expense that is centrally
managed. Treasury and CIO are predominantly
responsible for measuring, monitoring, reporting andmanaging the Firm’s liquidity, funding and structuralinterest rate and foreign exchange risks, as well as
executing the Firm’s capital plan. The major Other
Corporate units include Real Estate, EnterpriseTechnology, Legal, Compliance, Finance, Human
Resources, Internal Audit, Risk Management, Oversight& Control, Corporate Responsibility and various Other
Corporate groups.

2016 compared with 2015
Net loss was $704 million, compared with net income of$2.4 billion in the prior year.

Selected income statement data

Noninterest expense was $462 million, a decrease of $515
million from the prior year driven by lower legal expense,
partially offset by higher compensation expense.

Year ended December 31,(in millions, except headcount)
RevenuePrincipal transactions
Securities gains
All other income
Noninterest revenue
Net interest income
Total net revenue(a)2016$

Provision for credit losses
Noninterest expense(b)Loss before income tax benefit
Income tax 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)

2015

2014

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

41 $
190
569
800
(533)
267

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

(4)

(10)

(35)

462
(945)

977
(700)

1,159
(1,112)$(241)(704) $

(3,137)2,437 $

(1,976)
864

$

(787)
300
(487) $

(493)
760
267 $

(1,317)
1,329
12

$

(715)
11
(704) $

(235)
2,672
2,437 $

(1,165)2,029
864

Selected balance sheet data(period-end)
Total assets (period-end)
LoansCore loans(c)Headcount$799,426
1,592
1,589
32,358$ 768,204
2,187
2,182
29,617$ 931,206
2,871
2,848
26,047(a) Included tax-equivalent adjustments, predominantly due to tax-exempt
income from municipal bond investments of $885 million, $839 million
and $730 million for the years ended December 31, 2016, 2015 and2014, respectively.
(b) Included legal expense/(benefit) of $(385) million, $832 million and $821
million for the years ended December 31, 2016, 2015 and 2014,
respectively.
(c) Average core loans were $1.9 billion, $2.5 billion and $3.3 billion for theyears ended December 31, 2016, 2015 and 2014, respectively.

JPMorgan Chase & Co./2016 Annual Report

Net revenue was a loss of $487 million, compared with again of $267 million in the prior year. The prior year
included a $514 million benefit from a legal settlement.
Net interest income was a loss of $1.4 billion, comparedwith a loss of $533 million in the prior year. The loss in thecurrent year was primarily driven by higher interest
expense on long-term debt and lower investment securities
balances during the year, partially offset by higher interest
income on deposits with banks and securities purchased
under resale agreements as a result of higher rates.

The prior year reflected tax benefits of $2.6 billion
predominantly from the resolution of various tax audits.
2015 compared with 2014
Net income was $2.4 billion, compared with net income of$864 million in the prior year.
Net revenue was $267 million, compared with $12 million
in the prior year. The current year included a $514 million
benefit from a legal settlement. Treasury and CIO included abenefit of approximately $178 million associated withrecognizing the unamortized discount on certain debt
securities which were called at par and a $173 million
pretax loss primarily related to accelerated amortization of
cash flow hedges associated with the exit of certain nonoperating deposits. Private Equity gains were $1.2 billion
lower compared with the prior year, reflecting lower
valuation gains and lower net gains on sales as the Firm
exits this non-core business.
Noninterest expense was $977 million, a decrease of $182
million from the prior year which had included a $276
million goodwill impairment related to the sale of a portionof the Private Equity business.
The current year reflected tax benefits of $2.6 billion
predominantly from the resolution of various tax audits
compared with tax benefits of $1.1 billion in the prior year.

69

Management’s discussion and analysis
Treasury and CIO overview

Treasury and CIO are predominantly responsible formeasuring, monitoring, reporting and managing the Firm’s
liquidity, funding and structural interest rate and foreignexchange risks, as well as executing the Firm’s capital plan.
The risks managed by Treasury and CIO arise from theactivities undertaken by the Firm’s four major reportablebusiness segments to serve their respective client bases,
which generate both on- and off-balance sheet assets andliabilities.
Treasury and CIO achieve the Firm’s asset-liability
management objectives generally by investing in highquality securities that are managed for the longer-term aspart of the Firm’s investment securities portfolio. Treasury
and CIO also use derivatives to meet the Firm’s assetliability management objectives. For further information onderivatives, see Note 6. The investment securities portfolio
primarily consists of U.S. and non-U.S. government
securities, agency and nonagency mortgage-backed
securities, other ABS, corporate debt securities andobligations of U.S. states and municipalities. At
December 31, 2016, the investment securities portfolio was$286.8 billion, and the average credit rating of the
securities comprising the portfolio was AA+ (based upon
external ratings where available and where not available,
based primarily upon internal ratings that correspond to
ratings as defined by S&P and Moody’s). During 2016, theFirm transferred commercial mortgage-backed securities
and obligations of U.S. states and municipalities with a fairvalue of $7.5 billion from available-for-sale (“AFS”) to heldto maturity (“HTM”). These securities were transferred atfair value. The transfers reflect the Firm’s intent to hold the
securities to maturity in order to reduce the impact of pricevolatility on accumulated other comprehensive income(“AOCI”).
See Note 12 for further information on the details of the
Firm’s investment securities portfolio.

Selected income statement and balance sheet data
As of or for the year ended
December 31, (in millions)2016

Securities gains

$

132

2015
$

190

2014
$

71

Investment securities portfolio(average) (a)278,250

314,802349,285

Investment securities portfolio(period–end)(b)286,838

287,777

343,146

Mortgage loans (average)

1,790

2,501

3,308

Mortgage loans (period-end)

1,513

2,136

2,834

(a) Average investment securities included HTM balances of $51.4 billion,$50.0 billion and $47.2 billion for the years ended December 31, 2016,2015 and 2014, respectively.
(b) Period-end investment securities included HTM securities of $50.2 billion,$49.1 billion, $49.3 billion at December 31, 2016, 2015 and 2014,
respectively.

Private equity portfolio information(a)December 31, (in millions)
Carrying value
Cost

2016
$

1,797
2,649

2015
$

2,103
3,798

2014
$

5,866
6,281

(a) For more information on the Firm’s methodologies regarding the valuationof the Private Equity portfolio, see Note 3.

2016 compared with 2015
The carrying value of the private equity portfolio at
December 31, 2016 was $1.8 billion, down from $2.1
billion at December 31, 2015, driven by portfolio sales.
2015 compared with 2014
The carrying value of the private equity portfolio at
December 31, 2015 was $2.1 billion, down from $5.9
billion at December 31, 2014, driven by the sale of a
portion of the Private Equity business and porfolio sales.

For further information on liquidity and funding risk, see
Liquidity Risk Management on pages 110–115. For
information on interest rate, foreign exchange and otherrisks, Treasury and CIO VaR and the Firm’s earnings-at-risk,
see Market Risk Management on pages 116–123.

70

JPMorgan Chase & Co./2016 Annual Report

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

The Firm strives for continual improvement through efforts
to enhance controls, ongoing employee training anddevelopment, talent retention, and other measures. The
Firm follows a disciplined and balanced compensation
framework with strong internal governance andindependent Board oversight. The impact of risk and control
issues are carefully considered in the Firm’s performance
evaluation and incentive compensation processes.

Firmwide Risk Management is overseen and managed on an
enterprise-wide basis. The Firm’s approach to risk
management covers a broad spectrum of economic andother core risk areas, such as credit, market, liquidity,
model, principal, country, operational, compliance, conduct,
legal, capital and reputation risk, with controls andgovernance established for each area, as appropriate.
The Firm believes that effective risk management requires:•

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

•

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

The Firm’s Operating Committee, which consists of the
Firm’s Chief Executive Officer (“CEO”), Chief Risk Officer(“CRO”), Chief Operating Officer (“COO”), Chief Financial
Officer (“CFO”) and other senior executives, is the ultimate
management escalation point in the Firm, and may refermatters to the Firm’s Board of Directors. The Operating
Committee is responsible and accountable to the Firm’s
Board of Directors.

JPMorgan Chase & Co./2016 Annual Report71Management’s discussion and analysis
The following sections outline the key risks that are inherent in the Firm’s business activities:
Risk

Definition

Select risk management metrics

Page
references

I. Economic risks(i) Capital risk

The risk that the Firm has an insufficient level and composition of capital tosupport its business activities and associated risks during both normal
economic environments and under stressed conditions.

Risk-based capital ratios and leverage ratios;stress76–85(ii) Consumer
Credit risk

The risk of loss arising from the default of a customer.

Total exposure; geographic and customer
concentrations; delinquencies; loss experience;stressed credit performance

89–95(iii) Wholesale
Credit risk

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

Total exposure; industry, geographic and client
concentrations; risk ratings; loss experience;stressed credit performance

96–104(iv) Country risk

The risk that a sovereign event or action alters the value or terms of contractual Default exposure at 0% recovery; stress; risk
obligations of obligors, counterparties and issuers, or adversely affects markets ratings; ratings based capital limits
related to a particular country.

108–109(v) Liquidity risk

The risk that the Firm will be unable to meet its contractual and contingent
obligations or that it does not have the appropriate amount, composition andtenor of funding and liquidity to support its assets and liabilities.

110–115(vi) Market risk

The risk of loss arising from potential adverse changes in the value of the Firm’s VaR; P&L drawdown; economic stress testing;sensitivities; earnings-at-risk; and foreign
assets and liabilities or future results, resulting from changes in market
exchange (“FX”) net open position
variables such as interest rates, foreign exchange rates, equity prices,
commodity prices, implied volatilities or credit spreads; this includes the
structural interest rate and foreign exchange risks managed on a firmwide basis
in Treasury and CIO.

(vii) Principal risk

The risk of an adverse change in the value of privately-held financial assets and Carrying value, stress
instruments, typically representing an ownership or junior capital positions thathave unique risks due to their illiquidity or for which there is less observable
market or valuation data.

124(i) Compliance risk

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

Risk based monitoring and testing for timely
compliance with financial obligations

125(ii) Conduct risk

The risk that an employee’s action or inaction causes undue harm to the Firm’sclients, damages market integrity, undermines the Firm’s reputation, or
negatively impacts the Firm’s culture.

Relevant risk and control self-assessment
results, employee compliance information, codeof conduct case information

126(iii) Legal risk

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

Not applicable127(iv) Model risk

The risk of the potential for adverse consequences from decisions based onincorrect or misused model outputs.

Model status, model tier128

LCR; stress by material legal entity

116–123

II. Other core risks(v) Operational risk The risk of loss resulting from inadequate or failed processes or systems,
human factors, or due to external events that are neither market- nor creditrelated such as cyber and technology related events.

Risk and control self-assessment results, firmspecific loss experience; industry loss
experience; business environment and internal
control factors; key risk indicators; key control
indicators; operating metrics(vi) Reputation risk The risk that an action, transaction, investment or event will reduce trust in the
Firm’s integrity or competence by its various constituents, including clients,
counterparties, investors, regulators, employees and the broader public.

Not applicable72

129–130

131

JPMorgan Chase & Co./2016 Annual ReportGovernance and oversight
The Firm’s overall appetite for risk is governed by a “Risk
Appetite” framework. The framework and the Firm’s risk
appetite are set and approved by the Firm’s CEO, CFO, CRO
and COO. LOB-level risk appetite is set by the respective LOB
CEO, CFO and CRO and is approved by the Firm’s CEO, CFO,
CRO and COO. Quantitative parameters and qualitative
factors are used to monitor and measure the Firm’s capacity
to take risk against stated risk appetite. Quantitative
parameters have been established to assess stressed net
income, capital, credit risk, market risk, structural interest
rate risk and liquidity risk. Qualitative factors have been
established for select risks. Risk Appetite results arereported quarterly to the Board of Directors’ Risk Policy
Committee (“DRPC”).
The Firm’s CRO is the head of the Independent Risk
Management (“IRM”) function and reports to the CEO andthe DRPC. The CEO appoints the CRO to create the Risk
Management Framework subject to approval by the DRPC in
the form of the Primary Risk Policies. The Chief Compliance
Officer (“CCO”), who reports to the CRO, is also responsible
for reporting to the Audit Committee for the Global
Compliance Program. The Firm’s Global Compliance
Program focuses on overseeing compliance with laws, rules
and regulations applicable to the Firm’s products andservices to clients and counterparties.
The IRM function, comprised of Risk Management andCompliance Organizations, is independent of the businesses.
The IRM function sets various standards for the risk
management governance framework, including risk policy,
identification, measurement, assessment, testing, limit
setting (e.g., risk appetite, thresholds, etc.), monitoring andreporting. Various groups within the IRM function arealigned to the LOBs and to corporate functions, regions andcore areas of risk such as credit, market, country andliquidity risks, as well as operational, model andreputational risk governance.

The Firmwide Oversight and Control Group consists ofdedicated control officers within each of the lines ofbusiness and corporate functions, as well as having acentral oversight function. The group is charged withenhancing the Firm’s control environment by looking within
and across the lines of business and corporate functions to
help identify and remediate control issues. The groupenables the Firm to detect control problems more quickly,
escalate issues promptly and engage other stakeholders tounderstand common themes and interdependencies among
the various parts of the Firm.
As the “second line of defense”, the IRM function provides
oversight and independent challenge, consistent with its
policies and framework, to the risk-creating LOBs andfunctional areas.
Internal Audit, a function independent of the businesses
and the IRM function, tests and evaluates the Firm’s risk
governance and management, as well as its internal control
processes. This function, the “third line of defense” in therisk governance framework, brings a systematic anddisciplined approach to evaluating and improving theeffectiveness of the Firm’s governance, risk management
and internal control processes. The Internal Audit Functionis headed by the General Auditor, who reports to the Audit
Committee.
The independent status of the IRM function is supported bya governance structure that provides for escalation of risk
issues to senior management, the Firmwide Risk
Committee, or the Board of Directors.

The Firm places key reliance on each of its LOBs and otherfunctional areas giving rise to risk. Each LOB or otherfunctional area giving rise to risk is expected to operate its
activities within the parameters identified by the IRM
function, and within their own management-identified risk
and control standards. Because these LOBs and functional
areas are accountable for identifying and addressing therisks in their respective businesses and for operating withina sound control environment, they are considered the “firstline of defense” within the Firm’s risk governanceframework.

JPMorgan Chase & Co./2016 Annual Report73Management’s discussion and analysis
The chart below illustrates the key senior management level committees in the Firm’s risk governance structure. Other
committees, forums and paths of escalation are in place that are responsible for management and oversight of risk, although
they are not shown in the chart below.

The Board of Directors provides oversight of risk principally through the DRPC, Audit Committee and, with respect tocompensation and other management-related matters, the Compensation & Management Development Committee. Eachcommittee of the Board oversees reputation risk issues within its scope of responsibility.
The Directors’ Risk Policy Committee of the Board oversees
the Firm’s global risk management framework and approves
the primary risk management policies of the Firm. The
Committee’s responsibilities include oversight ofmanagement’s exercise of its responsibility to assess andmanage the Firm’s risks, and its capital and liquidity
planning and analysis. Breaches in risk appetite, liquidity
issues that may have a material adverse impact on the Firmand other significant risk-related matters are escalated to
the Committee.
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.
74

The Compensation & Management Development Committee(“CMDC”) assists the Board in its oversight of the Firm’s
compensation programs and reviews and approves the
Firm’s overall compensation philosophy, incentive
compensation pools, and compensation practices consistent
with key business objectives and safety and soundness. The
Committee reviews Operating Committee members’
performance against their goals, and approves theircompensation awards. The Committee also periodicallyreviews the Firm’s diversity programs and management
development and succession planning, and provides
oversight of the Firm’s culture and conduct programs.
Among the Firm’s senior management-level committees thatare primarily responsible for key risk-related functions are:
The Firmwide Risk Committee (“FRC”) is the Firm’s highest
management-level risk committee. It provides oversight of
the risks inherent in the Firm’s businesses. The Committee isco-chaired by the Firm’s CEO and CRO. This Committee
serves as an escalation point for risk topics and issues
raised by its members, the Line of Business Risk
JPMorgan Chase & Co./2016 Annual ReportCommittees, Firmwide Control Committee, Firmwide
Fiduciary Risk Governance Committee, and regional Risk
Committees, as appropriate. The Committee 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”) which provides theframework for the governance, assessment, measurement,
and monitoring and reporting of operational risk. The FCC is
co-chaired by the Chief Control Officer and the Firmwide
Risk Executive for Operational Risk Governance. The
committee relies upon the prompt escalation of issues frombusinesses and functions as the primary owners of theoperational risk. Operational risk issues may be escalated
by business or function control committees to the FCC,
which may, in turn, escalate to the FRC, as appropriate.
The Firmwide Fiduciary Risk Governance Committee is aforum for risk matters related to the Firm’s fiduciary
activities. The Committee oversees the firmwide fiduciaryrisk governance framework, which supports the consistentidentification and escalation of fiduciary risk issues by therelevant lines of business; establishes policies and bestpractices to effectuate the Committee’s oversight
responsibility; and creates metrics reporting to track
fiduciary activity and issue resolution Firmwide. The
Committee escalates significant fiduciary issues to the FRC,
the DRPC and the Audit Committee, as appropriate.
Line of Business and Regional Risk Committees review theways in which the particular line of business or the business
operating in a particular region could be exposed to adverse
outcomes with a focus on identifying, accepting, escalating
and/or requiring remediation of matters brought to thesecommittees. These committees may escalate to the FRC, asappropriate. LOB risk committees are co-chaired by the LOB
CEO and the LOB CRO. Each LOB risk committee may create
sub-committees with requirements for escalation. The
regional committees are established similarly, as
appropriate, for the region.
In addition, each line of business and function is required tohave a Control Committee. These control committees
oversee the control environment of their respective
business or function. As part of that mandate, they are
responsible for reviewing data which indicates the quality
and stability of the processes in a business or function,
reviewing key operational risk issues and focusing on
processes with shortcomings and overseeing process
remediation. These committees escalate to the FCC, asappropriate.
The Firmwide Asset Liability Committee (“ALCO”), chaired by
the Firm’s Treasurer and Chief Investment Officer under the
direction of the COO, monitors the Firm’s balance sheet,liquidity risk and structural interest rate risk. ALCO reviews
the Firm’s overall structural interest rate risk position,
JPMorgan Chase & Co./2016 Annual Reportfunding requirements and strategy, and securitization
programs (and any required liquidity support by the Firm ofsuch programs). ALCO is responsible for reviewing andapproving the Firm’s Funds Transfer Pricing Policy (throughwhich lines of business “transfer” interest rate risk toTreasury and CIO) and the Firm’s Intercompany Funding and
Liquidity Policy. ALCO is also responsible for reviewing the
Firm’s Contingency Funding Plan.
The Firmwide Capital Governance Committee, chaired by the
Head of the Regulatory Capital Management Office is
responsible for reviewing the Firm’s Capital Management
Policy and the principles underlying capital issuance anddistribution alternatives and decisions. The Committee
oversees the capital adequacy assessment process,including the overall design, scenario development andmacro assumptions and ensures that capital stress test
programs are designed to adequately capture the risks
specific to the Firm’s businesses.
The Firmwide Valuation Governance Forum (“VGF”) is
composed of senior finance and risk executives and is
responsible for overseeing the management of risks arisingfrom valuation activities conducted across the Firm. The
VGF is chaired by the firmwide head of the Valuation Control
Group (“VCG”) (under the direction of the Firm’s Controller),and includes sub-forums covering the Corporate &Investment Bank, Consumer & Community Banking,Commercial Banking, Asset & Wealth Management andcertain corporate functions, including Treasury and CIO.
In addition, the JPMorgan Chase Bank, N.A. Board of
Directors is responsible for the oversight of management of
the Bank. The JPMorgan Chase Bank, N.A. Board
accomplishes this function acting directly and through theprincipal standing committees of the Firm’s Board of
Directors. Risk oversight on behalf of JPMorgan Chase Bank
N.A. is primarily the responsibility of the DRPC and Audit
Committee of the Firm’s Board of Directors and, withrespect to compensation and other management-related
matters, the Compensation & Management Development
Committee of the Firm’s Board of Directors.
Risk measurement
The Firm has a broad spectrum of risk management
metrics, as appropriate for each risk category. For further
information on risk management metrics, see table on key
risks on page 72. Additionally, the Firm is exposed tocertain potential low-probability, but plausible and material,
idiosyncratic risks that are not well-captured by its otherexisting risk analysis and reporting metrics. These
idiosyncratic risks may arise in a number of ways, such aschanges in legislation, an unusual combination of market
events, or specific counterparty events. The Firm has aprocess intended to identify these risks in order to allow theFirm to monitor vulnerabilities that are not adequately
covered by its other standard risk measurements.

75

Management’s discussion and analysis
CAPITAL RISK MANAGEMENT
Capital risk is the risk the Firm has an insufficient level andcomposition of capital to support its business activities andassociated risks during both 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’sbalance sheet philosophy focuses on risk-adjusted returns,
strong capital and robust liquidity. The Firm’s capitalmanagement strategy focuses on maintaining long-term
stability to enable it to build and invest in market-leadingbusinesses, even in a highly stressed environment. Prior to
making any decisions on future business activities, senior
management considers the implications on the Firm’s
capital. In addition to considering the Firm’s earnings
outlook, senior management evaluates all sources and usesof capital with a view to preserving the Firm’s capitalstrength.

These objectives are achieved through the establishment ofminimum capital targets and a strong capital governanceframework. Capital management is intended to be flexible
in order to react to a range of potential events. The Firm’s
minimum capital targets are based on the most binding of
three pillars: an internal assessment of the Firm’s capitalneeds; an estimate of required capital under the CCAR andDodd-Frank Act 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.

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

76

JPMorgan Chase & Co./2016 Annual Report

The following tables present the Firm’s Transitional and Fully Phased-In risk-based and leverage-based capital metrics underboth the Basel III Standardized and Advanced Approaches. The Firm’s Basel III ratios exceed both the current and Fully PhasedIn regulatory minimums as of December 31, 2016 and 2015. For further discussion of these capital metrics and theStandardized and Advanced approaches, refer to Monitoring and management of capital on pages 78–82.
Transitional
December 31, 2016
(in millions, except ratios)Standardized

Advanced

Fully Phased-In
Minimum
capital ratios (c)Standardized

Advanced

Minimum
capital ratios (d)Risk-based capital metrics:
CET1 capital$ 182,967

Tier 1 capital

208,112208,112

207,474

Total capital

239,553

228,592

237,487

226,526

1,464,981

1,476,915

1,474,665

1,487,180

Risk-weighted assets$

182,967$

181,734$

181,734
207,474

CET1 capital ratio

12.5%

12.4%

6.25%

12.3%

12.2%

10.5%

Tier 1 capital ratio

14.2

14.1

7.75

14.1

14.0

12.0

Total capital ratio

16.4

15.5

9.75

16.1

15.2

14.0

2,484,631

2,484,631

2,485,480

2,485,480

Leverage-based capital metrics:
Adjusted average assets
Tier 1 leverage ratio(a)8.4%

SLR leverage exposure

NA

SLR(b)

NA

8.4%

4.0

8.3%

$ 3,191,990
6.5%

NA
NA

NA

Transitional
December 31, 2015
(in millions, except ratios)Standardized

Advanced

8.3%

4.0

$ 3,192,839
6.5%

5.0

(e)

Fully Phased-In
Minimum
capital ratios (c)Standardized

Advanced

Minimum
capital ratios (d)Risk-based capital metrics:
CET1 capital$ 175,398

Tier 1 capital

200,482

200,482

199,047

Total capital

234,413

224,616

229,976

220,179

1,465,262

1,485,336

1,474,870

1,495,520

Risk-weighted assets$

175,398$

173,189$

173,189
199,047

CET1 capital ratio

12.0%

11.8%

4.5%

11.7%

11.6%

10.5%

Tier 1 capital ratio

13.7

13.5

6.0

13.5

13.3

12.0

Total capital ratio

16.0

15.1

8.0

15.6

14.7

14.0

2,358,471

2,358,471

2,360,499

2,360,499

Leverage based capital metrics:
Adjusted average assets
Tier 1 leverage ratio(a)8.5%

SLR leverage exposure

NA

SLR(b)

NA

8.5%

4.0

3,079,797
6.5%

8.4%
NA

NA

NA

8.4%

4.0

$ 3,079,119
6.5%

5.0

Note: As of December 31, 2016 and 2015, the lower of the Standardized or Advanced capital ratios under each of the Transitional and Fully Phased-In approaches in the table above
represents the Firm’s Collins Floor, as discussed in Monitoring and management of Capital on page 78.
(a) The Tier 1 leverage ratio is calculated by dividing Tier 1 capital by adjusted average assets.
(b) The SLR leverage ratio is calculated by dividing Tier 1 capital by SLR leverage exposure.
(c) Represents the Transitional minimum capital ratios applicable to the Firm under Basel III as of December 31, 2016 and 2015. At December 31, 2016, the CET1 minimum
capital ratio includes 0.625% resulting from the phase-in of the Firm’s 2.5% capital conservation buffer and 1.125%, resulting from the phase-in of the Firm’s 4.5%
global systemically important banks (“GSIB”) surcharge.
(d) Represents the minimum capital ratios applicable to the Firm on a Fully Phased-In Basel III basis. At December 31, 2016, the ratios include the Firm’s estimate of its Fully
Phased-In U.S. GSIB surcharge of 3.5%. The minimum capital ratios will be fully phased-in effective January 1, 2019. For additional information on the GSIB surcharge, see page
79.
(e) In the case of the SLR, the Fully Phased-In minimum ratio is effective beginning January 1, 2018.

JPMorgan Chase & Co./2016 Annual Report

77

(e)

Management’s discussion and analysis
Strategy and governance
The Firm’s CEO, in conjunction with the Board of Directors,
establishes principles and guidelines for capital planning,issuance, usage and distributions, and minimum capitaltargets for the level and composition of capital in bothbusiness-as-usual and highly stressed environments. The
DRPC assesses and approves the capital management andgovernance processes of the Firm. The Firm’s Audit
Committee is responsible for reviewing and approving thecapital stress testing end-to-end control framework.
The Capital Governance Committee and the Regulatory
Capital Management Office (“RCMO”) support the Firm’s
strategic capital decision-making. The Capital GovernanceCommittee oversees the capital adequacy assessment
process, including the overall design, scenario development
and macro assumptions and ensures that capital stress test
programs are designed to adequately capture the risks
specific to the Firm’s businesses. RCMO, which reports to
the Firm’s CFO, is responsible for designing and monitoring
the Firm’s execution of its capital policies and strategies
once approved by the Board, as well as reviewing andmonitoring the execution of its capital adequacy assessment
process. The Basel Independent Review function (“BIR”),
which reports to the RCMO and has direct access to both the
DRPC and Capital Governance Committee, conducts
independent assessments of the Firm’s regulatory capitalframework to ensure compliance with the applicable U.S.
Basel rules in support of senior management’s
responsibility for assessing and managing capital and forthe DRPC’s oversight of management in executing that
responsibility. For additional discussion on the DRPC, seeEnterprise-wide Risk Management on pages 71–75.
Monitoring and management of capital
In its monitoring and management of capital, the Firm takes
into consideration an assessment of economic risk and all
regulatory capital requirements to determine the level ofcapital needed to meet and maintain the objectives
discussed above, as well as to support the framework forallocating capital to its business segments. While economicrisk is considered prior to making decisions on futurebusiness activities, in most cases, the Firm considers riskbased regulatory capital to be a proxy for economic risk
capital.
Regulatory capital
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
minimum capital requirements for the Firm’s nationalbanks, including JPMorgan Chase Bank, N.A. andChase Bank USA, N.A. The U.S. capital requirements
generally follow the Capital Accord of the Basel Committee,
as amended from time to time.

78

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 andbanks, including the Firm and its insured depository
institution (“IDI”) subsidiaries. Basel III presents twocomprehensive methodologies for calculating RWA: ageneral (standardized) approach (“Basel III Standardized”),
and an advanced approach (“Basel III Advanced”). Certainof the requirements of Basel III are subject to phase-in
periods that began on January 1, 2014 and continue
through the end of 2018 (“transitional period”).
Basel III establishes capital requirements for calculating
credit risk and market risk RWA, and in the case of Basel III
Advanced, operational risk RWA. Key differences in thecalculation of credit risk RWA between the Standardized
and Advanced approaches are that for Basel III Advanced,
credit risk RWA is based on risk-sensitive approaches whichlargely rely on the use of internal credit models andparameters, whereas for Basel III Standardized, credit risk
RWA is generally based on supervisory risk-weightings
which vary primarily by counterparty type and asset class.
Market risk RWA is calculated on a generally consistentbasis between Basel III Standardized and Basel III
Advanced. In addition to the RWA calculated under thesemethodologies, the Firm may supplement such amounts toincorporate management judgment and feedback from its
bank regulators.
Basel III also includes a requirement for Advanced
Approach banking organizations, including the Firm, tocalculate SLR. For additional information on SLR, seepage 82.
Basel III Fully Phased-In
Basel III capital rules will become fully phased-in on January
1, 2019, at which point the Firm will continue to calculate
its capital ratios under both the Basel III Standardized andAdvanced Approaches. The Firm manages each of thebusinesses, as well as the corporate functions, primarily on
a Basel III Fully Phased-In basis. For additional informationon 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 SLRs
calculated under the Basel III Advanced Fully Phased-In
rules, all of which are considered key regulatory capital
measures, see Explanation and Reconciliation of the Firm’s
Use of Non-GAAP Financial Measures and Key Performance
Measures on pages 48–50.

JPMorgan Chase & Co./2016 Annual Report

The Firm’s estimates of its Basel III Standardized andAdvanced Fully Phased-In capital, RWA and capital ratios
and SLRs for the Firm, JPMorgan Chase Bank, N.A. andChase Bank USA, N.A. are based on the current published
U.S. Basel III rules and on the application of such rules to
the Firm’s businesses as currently conducted. The actual
impact on the Firm’s capital ratios and SLR as of theeffective date of the rules may differ from the Firm’s current
estimates depending on changes the Firm may make to its
businesses in the future, further implementation guidancefrom the regulators, and regulatory approval of certain of
the Firm’s internal risk models (or, alternatively, regulatory
disapproval of the Firm’s internal risk models that havepreviously been conditionally approved).

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 Basel III rules include minimum capital ratio
requirements that are subject to phase-in periods throughthe end of 2018. The capital adequacy of the Firm and its
national bank subsidiaries, both during the transitional
period and upon full-phase in, is evaluated against the Basel
III approach (Standardized or Advanced) which results foreach quarter in the lower ratio as required by the Collins
Amendment of the Dodd-Frank Act (the “Collins Floor”).
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 28. For
further information on the Firm’s Basel III measures, see theFirm’s Pillar 3 Regulatory Capital Disclosures reports, which
are available on the Firm’s website (http://
investor.shareholder.com/jpmorganchase/basel.cfm).
All banking institutions are currently required to have aminimum capital ratio of 4.5% of CET1 capital. Certain
banking organizations, including the Firm, are required tohold additional amounts of capital to serve as a “capitalconservation buffer”. The capital conservation buffer isintended to be used to absorb potential losses in times offinancial or economic stress. If not maintained, the Firm
could be limited in the amount of capital that may be
JPMorgan Chase & Co./2016 Annual Report

distributed, including dividends and common equity
repurchases. The capital conservation buffer is subject to aphase-in period that began January 1, 2016 and continues
through the end of 2018.
As an expansion of the capital conservation buffer, the Firmis also required to hold additional levels of capital in theform of a GSIB surcharge and a countercyclical capital
buffer.
Under the Federal Reserve’s final rule, GSIBs, including theFirm, are required to calculate their GSIB surcharge on anannual basis under two separately prescribed methods, andare subject to the higher of the two. The first (“Method 1”),
reflects the GSIB surcharge as prescribed by the BaselCommittee’s assessment methodology, and is calculated
across five criteria: size, cross-jurisdictional activity,interconnectedness, complexity and substitutability. The
second (“Method 2”), modifies the Method 1 requirements
to include a measure of short-term wholesale funding inplace of substitutability, and introduces a GSIB score“multiplication factor”.

79Management’s discussion and analysis
The Firm’s Fully Phased-In GSIB surcharge for 2016 wascalculated to be 2.5% under Method 1 and 4.5% under
Method 2. Accordingly, the Firm’s minimum capital ratios
applicable in 2016 include a GSIB surcharge of 1.125%,
resulting from the application of the transition provisions to
the 4.5% fully phased-in GSIB surcharge. For 2017, theFirm has calculated its Fully Phased-In GSIB surcharge to be
2.5% under Method 1 and 3.5% under Method 2 resulting
in the inclusion of a GSIB surcharge of 1.75% in the Firm’s
minimum capital ratios after application of the transition
provisions.

CapitalA reconciliation of total stockholders’ equity to Basel III
Fully Phased-In CET1 capital, Tier 1 capital and Basel III
Advanced and Standardized Fully Phased-In Total capital ispresented in the table below. For additional information on
the components of regulatory capital, see Note 28.

Less: Preferred stock

26,068The countercyclical capital buffer takes into account themacro financial environment in which large, internationallyactive banks function. On September 8, 2016 the Federal
Reserve published the framework that will apply to thesetting of the countercyclical capital buffer. As of October24, 2016 the Federal Reserve reaffirmed setting the U.S.
countercyclical capital buffer at 0%, and stated that it will
review the amount at least annually. The countercyclicalcapital buffer can be increased if the Federal Reserve, FDIC
and OCC determine that credit growth in the economy has
become excessive and can be set at up to an additional
2.5% of RWA subject to a 12-month implementation period.

Common stockholders’ equity

228,122

Based on the Firm’s most recent estimate of its GSIB
surcharge and the current countercyclical buffer being set
at 0%, the Firm estimates its Fully Phased-In CET1 capitalrequirement, at January 1, 2019, would be 10.5%(reflecting the 4.5% CET1 capital requirement, the Fully
Phased-In 2.5% capital conservation buffer and the GSIB
surcharge of 3.5%). As well as meeting the capital ratio
requirements of Basel III, the Firm must, in order to be“well-capitalized”, maintain a minimum 6% Tier 1 capitaland a 10% Total capital requirement. At December 31,
2016 and 2015, JPMorgan Chase maintained Basel III
Standardized Transitional and Basel III Advanced
Transitional ratios in excess of the well-capitalized
standards established by the Federal Reserve.

Standardized/Advanced Tier 1 capital$

207,474

Long-term debt and other instruments qualifying asTier 2 capital$

15,253

The Firm continues to believe that over the next several
years, it will operate with a Basel III CET1 capital ratio
between 11% and 12.5%. It is the Firm’s intention that the
Firm’s capital ratios continue to meet regulatory minimums
as they are fully implemented in 2019 and thereafter.

Capital components
December 31,
2016$
254,190(in millions)
Total stockholders’ equity

Less:
Goodwill

47,288Other intangible assets

862

Add:
Deferred tax liabilities(a)3,230

Less: Other CET1 capital adjustments

1,468Standardized/Advanced CET1 capital

181,734

Preferred stock

26,068Less:
Other Tier 1 adjustments(b)328Qualifying allowance for credit losses

14,854

Other

(94)

Standardized Fully Phased-In Tier 2 capital$

30,013Standardized Fully Phased-in Total capital$

237,487

Adjustment in qualifying allowance for credit losses for
Advanced Tier 2 capital(10,961)

Advanced Fully Phased-In Tier 2 capital$

19,052

Advanced Fully Phased-In Total capital$

226,526(a) Represents deferred tax liabilities related to tax-deductible goodwill
and to identifiable intangibles created in nontaxable transactions,which are netted against goodwill and other intangibles whencalculating TCE.
(b) Includes the deduction associated with the permissible holdings ofcovered funds (as defined by the Volcker Rule) acquired after
December 31, 2013. The deduction was not material as of December
31, 2016.

Each of the Firm’s IDI subsidiaries must maintain aminimum 6.5% CET1, 8% Tier 1 capital, 10% Total capitaland 5% Tier 1 leverage requirement to meet the definitionof “well-capitalized” under the Prompt Corrective Action(“PCA”) requirements of the FDIC Improvement Act(“FDICIA”) for IDI subsidiaries.

80

JPMorgan Chase & Co./2016 Annual Report

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

December 31,
2016$
182,967

AOCI phase-in(a)(156)

CET1 capital deduction phase-in(b)(695)

Intangible assets deduction phase-in(c)(312)

Other adjustments to CET1 capital(d)(70)

Fully Phased-In CET1 capital$

181,734(a) Includes the remaining balance of AOCI related to AFS debt securities
and defined benefit pension and other postretirement employee
benefit (“OPEB”) plans that will qualify as Basel III CET1 capital uponfull phase-in.
(b) Predominantly includes regulatory adjustments related to changes in
DVA, as well as CET1 deductions for defined benefit pension plan
assets and deferred tax assets related to net operating loss (“NOL”)
and tax credit carryforwards.
(c) Relates to intangible assets, other than goodwill and MSRs, that are
required to be deducted from CET1 capital upon full phase-in.
(d) Includes minority interest and the Firm’s investments in its own CET1
capital instruments.

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, 2016.
Year Ended December 31, (in millions)

2016

Standardized/Advanced CET1 capital at December 31, 2015 $ 173,189
Net income applicable to common equity

23,086

Dividends declared on common stock(6,912)

Net purchase of treasury stock(7,163)

Changes in additional paid-in capital(873)

Changes related to AOCI(a)(1,280)Adjustment related to DVA(a)

954

Other
Increase in Standardized/Advanced CET1 capital

733
8,545

Standardized/Advanced CET1 capital at
December 31, 2016

$ 181,734

Standardized/Advanced Tier 1 capital at
December 31, 2015

$ 199,047

Change in CET1 capital
Net issuance of noncumulative perpetual preferred stock

8,545
—

Other

(118)

Increase in Standardized/Advanced Tier 1 capital

8,427Standardized/Advanced Tier 1 capital at
December 31, 2016

$ 207,474

Standardized Tier 2 capital at December 31, 2015

$ 30,929

Change in long-term debt and other instruments qualifying
as Tier 2
Change in qualifying allowance for credit losses
Other
Increase in Standardized Tier 2 capital(1,426)
513
(3)
(916)

Standardized Tier 2 capital at December 31, 2016

$ 30,013

Standardized Total capital at December 31, 2016

$ 237,487

Advanced Tier 2 capital at December 31, 2015

$ 21,132

Change in long-term debt and other instruments qualifying
as Tier 2
Change in qualifying allowance for credit losses
Other
Increase in Advanced Tier 2 capital(1,426)(651)(3)(2,080)

Advanced Tier 2 capital at December 31, 2016

$ 19,052

Advanced Total capital at December 31, 2016

$ 226,526(a) Effective January 1, 2016, the adjustment reflects the impact of the
adoption of DVA through OCI. For further discussion of the accountingchange refer to Note 25.

JPMorgan Chase & Co./2016 Annual Report81Management’s discussion and analysis
RWA rollforward
The following table presents changes in the components of RWA under Basel III Standardized and Advanced Fully Phased-In forthe year ended December 31, 2016. The amounts in the rollforward categories are estimates, based on the predominant
driver of the change.
Year ended December 31, 2016
(in billions)
December 31, 2015
Model & data changes(a)Portfolio runoff(b)Movement in portfolio levels(c)Changes in RWA
December 31, 2016

Standardized
Credit risk
Market risk
Total RWA
RWA
RWA$
1,333 $
142 $
1,475
—
(14)
(14)
(13)
(2)
(15)
27
2
29
14
(14)
—
$
1,347 $
128 $
1,475

Advanced
Credit risk
Market risk
Operational risk
Total RWA
RWA
RWA
RWA
$
954 $
142 $
400 $
1,496
2
(14)
—
(12)
(15)
(2)
—
(17)
18
2
—
20
5
(14)
—
(9)
$
959 $
128 $
400 $
1,487

(a) Model & data changes refer to 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 reflects reduced risk from position rolloffs in legacy portfolios in Mortgage Banking (under both the Standardized and Advanced
framework), and for market risk RWA reflects reduced risk from position rolloffs in legacy portfolios in the wholesale businesses.
(c) Movement in portfolio levels for credit risk RWA refers to changes in book size, composition, credit quality, and market movements; and for market risk RWA refers tochanges in position and market movements.

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.
U.S. bank holding companies, including the Firm, arerequired to have a minimum SLR of 5% and IDI subsidiaries,
including JPMorgan Chase Bank, N.A. andChase Bank USA, N.A., are required to have a minimum SLR
of 6%, both beginning January 1, 2018. As of December
31, 2016, the Firm estimates that JPMorgan Chase Bank,
N.A.’s and Chase Bank USA, N.A.’s Fully Phased-In SLRs areapproximately 6.6% and 9.6%, respectively.

82

The following table presents the components of the Firm’s
Fully Phased-In SLR as of December 31, 2016.
(in millions, except ratio)
Fully Phased-in Tier 1 Capital
Total average assets
Less: amounts deducted from Tier 1 capital
Total adjusted average assets(a)Off-balance sheet exposures(b)SLR leverage exposure
SLR

December 31,
2016$
207,474
2,532,457
46,9772,485,480
707,359$ 3,192,839
6.5%(a) Adjusted average assets, for purposes of calculating the SLR, includes
total quarterly average assets adjusted for on-balance sheet assetsthat are subject to deduction from Tier 1 capital, predominantly
goodwill and other intangible assets.
(b) Off-balance sheet exposures are calculated as the average of the threemonth-end spot balances in the reporting quarter.

JPMorgan Chase & Co./2016 Annual ReportLine of business equity
The Firm’s framework for allocating capital to its businesssegments (line of business equity) is based on the following
objectives:• Integrate firmwide and line of business capitalmanagement activities;• Measure performance consistently across all lines ofbusiness; and• Provide comparability with peer firms for each of thelines of business.
Each business segment is allocated capital by taking into
consideration stand-alone peer comparisons and regulatory
capital requirements (as estimated under Basel III Advanced
Fully Phased-In). For 2016, capital was allocated to eachbusiness segment for, among other things, goodwill andother intangibles associated with acquisitions effected by
the line of business. ROE is measured and internal targets
for expected returns are established as key measures of abusiness segment’s performance.
Line of business common equity
Yearly average
Year ended December 31,(in billions)
Consumer & Community Banking

2016
$

51.0

2015
$

51.0

2014
$

51.0

Corporate & Investment Bank

64.0

62.0

61.0

Commercial Banking

16.0

14.0

14.0

Asset & Wealth Management

9.0

9.0

9.0

Corporate

84.6

79.7

72.4

$ 224.6$ 215.7$ 207.4

Total common stockholders’ equity

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

JPMorgan Chase & Co./2016 Annual Report

The table below reflects the Firm’s assessed level of capitalrequired for each line of business as of the dates indicated.
Line of business common equity
December 31,(in billions)January 1,
2017Consumer & Community Banking

$

51.0

2016
$

51.0

2015
$

51.0

Corporate & Investment Bank

70.0

64.0

62.0

Commercial Banking

20.0

16.0

14.0

Asset & Wealth Management

9.0

9.0

9.0

Corporate

78.1

88.1

85.5

228.1

$ 228.1

Total common stockholders’equity

$

$

221.5

Planning and stress testingComprehensive Capital Analysis and Review
The Federal Reserve requires large bank holding
companies, including the Firm, to submit a capital plan on
an annual basis. The Federal Reserve uses the CCAR andDodd-Frank Act stress test processes to ensure that large
BHCs have sufficient capital during periods of economic andfinancial stress, and have robust, forward-looking capitalassessment and planning processes in place that addresseach BHC’s unique risks to enable them to absorb losses
under certain stress scenarios. Through the CCAR, theFederal Reserve evaluates each BHC’s capital adequacy andinternal capital adequacy assessment processes (“ICAAP”),
as well as its plans to make capital distributions, such as
dividend payments or stock repurchases.
On June 29, 2016, the Federal Reserve informed the Firmthat it did not object, on either a quantitative or qualitativebasis, to the Firm’s 2016 capital plan. For information on
actions taken by the Firm’s Board of Directors following the2016 CCAR results, see Capital actions on page 84.
The Firm’s CCAR process is integrated into and employs thesame methodologies utilized in the Firm’s ICAAP process, as
discussed below.
Internal Capital Adequacy Assessment Process
Semiannually, the Firm completes the ICAAP, which provides
management with a view of the impact of severe andunexpected events on earnings, balance sheet positions,reserves and capital. The Firm’s ICAAP integrates stresstesting protocols with capital planning.
The process assesses the potential impact of alternative
economic and business scenarios on the Firm’s earnings andcapital. Economic scenarios, and the parameters underlying
those scenarios, are defined centrally and applied uniformly
across the businesses. These scenarios are articulated interms of macroeconomic factors, which are key drivers ofbusiness results; global market shocks, which generate
short-term but severe trading losses; and idiosyncratic
operational risk events. The scenarios are intended tocapture and stress key vulnerabilities and idiosyncratic risksfacing the Firm. However, when defining a broad range of
scenarios, realized events can always be worse. Accordingly,
83

Management’s discussion and analysis
management considers additional stresses outside thesescenarios, as necessary. ICAAP results are reviewed bymanagement and the Board of Directors.
Capital actions
Dividends
The Firm’s common stock dividend policy reflects JPMorgan
Chase’s earnings outlook, desired dividend payout ratio,
capital objectives, and alternative investment opportunities.
On May 17, 2016, the Firm announced that its Board of
Directors increased the quarterly common stock dividend to$0.48 per share, effective with the dividend paid on July
31, 2016. The Firm’s dividends are subject to the Board of
Directors’ approval at the customary times those dividends
are to be declared.
For information regarding dividend restrictions, see Note 22
and Note 27.
The following table shows the common dividend payout
ratio based on net income applicable to common equity.
Year ended December 31,

2016

2015

2014

Common dividend payout ratio

30%

28%

29%

Common equity
During the year ended December 31, 2016, warrant
holders exercised their right to purchase 22.5 million
shares of the Firm’s common stock. The Firm issued fromtreasury stock 11.1 million shares of its common stock as aresult of these exercises. As of December 31, 2016, 24.9
million warrants remained outstanding, compared with
47.4 million outstanding as of December 31, 2015.
On March 17, 2016, the Firm announced that its Board of
Directors had authorized the repurchase of up to an
additional $1.9 billion of common equity (common stock
and warrants) through June 30, 2016 under its equity
repurchase program. This amount is in addition to the $6.4
billion of common equity that was previously authorized for
repurchase between April 1, 2015 and June 30, 2016.
Following receipt in June 2016 of the Federal Reserve’s
non-objection to the Firm’s 2016 capital plan, the Firm’s
Board of Directors authorized the repurchase of up to$10.6 billion of common equity (common stock andwarrants) between July 1, 2016 and June 30, 2017.
This authorization includes shares repurchased to offset
issuances under the Firm’s equity-based compensationplans.
As of December 31, 2016, $6.1 billion of authorized
repurchase capacity remained under the program.

84

The following table sets forth the Firm’s repurchases ofcommon equity for the years ended December 31, 2016,2015 and 2014. There were no warrants repurchased
during the years ended December 31, 2016, 2015 and2014.
Year ended December 31, (in millions)2016

Total number of shares of common stock
repurchased

2015

2014

140.4

89.8

82.3

Aggregate purchase price of common
stock repurchases$ 9,082$ 5,616$ 4,760

The Firm may, from time to time, enter into written trading
plans under Rule 10b5-1 of the Securities Exchange Act of1934 to facilitate repurchases in accordance with thecommon equity repurchase program. A Rule 10b5-1
repurchase plan allows the Firm to repurchase its equity
during periods when it would not otherwise be repurchasing
common equity — for example, during internal trading
blackout periods. All purchases under a Rule 10b5-1 plan
must be made according to a predefined plan establishedwhen the Firm is not aware of material nonpublic
information.
The authorization to repurchase common equity will beutilized at management’s discretion, and the timing ofpurchases and the exact amount of common equity that
may be repurchased is subject to various factors, including
market conditions; legal and regulatory considerations
affecting the amount and timing of repurchase activity; theFirm’s capital position (taking into account goodwill andintangibles); internal capital generation; and alternative
investment opportunities. The repurchase program does notinclude specific price targets or timetables; may be
executed through open market purchases or privately
negotiated transactions, or utilize Rule 10b5-1 programs;
and may be suspended at any time.
For additional information regarding repurchases of the
Firm’s equity securities, see Part II, Item 5: Market for
Registrant’s Common Equity, Related Stockholder Mattersand Issuer Purchases of Equity Securities on page 22.
Preferred stock
Preferred stock dividends declared were $1.6 billion for theyear ended December 31, 2016. For additional informationon the Firm’s preferred stock, see Note 22.
Redemption of outstanding trust preferred securities
The Firm redeemed $1.6 billion and $1.5 billion of trust
preferred securities in the years ended December 31, 2016
and 2015, respectively.

JPMorgan Chase & Co./2016 Annual ReportOther capital requirements
TLAC
On December 15, 2016, the Federal Reserve issued its final
TLAC rule which requires the top-tier holding companies ofeight U.S. global systemically important bank holding
companies, including the Firm, among other things, tomaintain minimum levels of external TLAC and external
long-term debt that satisfies certain eligibility criteria(“eligible LTD”) by January 1, 2019. The minimum external
TLAC requirement is the greater of (A) 18% of the financial
institution’s RWA plus applicable buffers, including its GSIB
surcharge as calculated under Method 1 and (B) 7.5% of its
total leverage exposure plus a buffer equal to 2.0%. The
required minimum level of eligible long-term debt is equal
to the greater of (A) 6% of the financial institution’s RWA,
plus its U.S. Method 2 GSIB surcharge and (B) 4.5% of the
Firm’s total leverage exposure. The final rule permanently
grandfathered all long-term debt issued before December
31, 2016, to the extent these securities would be ineligible
only due to containing impermissible acceleration rights orbeing governed by foreign law. While the Firm may have toraise long-term debt to be in full compliance with the rule,management estimates the net amount to be raised is notmaterial and the timing for raising such funds ismanageable.

Broker-dealer regulatory capital
JPMorgan Chase’s principal U.S. broker-dealer subsidiary is
JPMorgan Securities. Prior to October 1, 2016 the Firm had
two principal U.S. broker-dealer subsidiaries. Effective
October 1, 2016 JPMorgan Clearing merged with JPMorgan
Securities. JPMorgan Securities is the surviving entity in themerger and its name remain unchanged.
JPMorgan Securities is subject to Rule 15c3-1 under the
Securities Exchange Act of 1934 (the “Net Capital Rule”).
JPMorgan Securities is also registered as futurescommission merchants and subject to Rule 1.17 of the
CFTC.
JPMorgan Securities has elected to compute its minimum
net capital requirements in accordance with the “Alternative
Net Capital Requirements” of the Net Capital Rule. At
December 31, 2016, JPMorgan Securities’ net capital, as
defined by the Net Capital Rule, was $14.7 billion,
exceeding the minimum requirement by $11.9 billion.
In addition to its minimum net capital requirement,
JPMorgan Securities is required to hold tentative net capitalin excess of $1.0 billion and is also required to notify the
SEC in the event that tentative net capital is less than
$5.0 billion, in accordance with the market and credit risk
standards of Appendix E of the Net Capital Rule. As of
December 31, 2016, JPMorgan Securities had tentative net
capital in excess of the minimum and notification
requirements.
J.P. Morgan Securities plc is a wholly owned subsidiary of
JPMorgan Chase Bank, N.A. and is the Firm’s principal
operating subsidiary in the U.K. It has authority to engage inbanking, investment banking and broker-dealer activities.
J.P. Morgan Securities plc is jointly regulated by the U.K.
PRA and the FCA. J.P. Morgan Securities plc is subject to theEuropean Union Capital Requirements Regulation and the
U.K. PRA capital rules, under which it has implemented
Basel III.
At December 31, 2016, J.P. Morgan Securities plc had
estimated total capital of $34.5 billion, its estimated CET1
capital ratio was 13.8% and its estimated total capital ratio
was 17.4%. Both ratios exceeded the minimum standardsof 4.5% and 8.0%, respectively, under the transitional
requirements of the European Union’s (“EU”) Basel III
Capital Requirements Directive and Regulation, as well as
the additional capital requirements specified by the PRA.

JPMorgan Chase & Co./2016 Annual Report85Management’s discussion and analysis
CREDIT RISK MANAGEMENT
Credit risk is the risk of loss arising from the default of acustomer, client or counterparty. The Firm provides credit
to a variety of customers, ranging from large corporate andinstitutional clients to individual consumers and small
businesses. In its consumer businesses, the Firm is exposedto credit risk primarily through its mortgage banking, credit
card, auto, business banking and student lending
businesses. Originated mortgage loans are retained in themortgage portfolio, securitized or sold to U.S. government
agencies and U.S. government-sponsored enterprises; othertypes of consumer loans are typically retained on thebalance sheet. 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. A portionof the loans originated or acquired by the Firm’s wholesale
businesses are generally retained on the balance sheet; theFirm’s syndicated loan business distributes a significant
percentage of originations into the market and is an
important component of portfolio management.

probability of default of an obligor or counterparty, the loss
severity given a default event and the exposure at default.

Credit risk management
Credit risk management is an independent risk
management function that monitors and measures credit
risk throughout the Firm and defines credit risk policies andprocedures. The credit risk function reports to the Firm’sCRO. The Firm’s credit risk management governanceincludes the following activities:• Establishing a comprehensive credit risk policy
framework• Monitoring and managing credit risk across all portfolio
segments, including transaction and exposure approval• Setting industry concentration limits and establishingunderwriting guidelines• Assigning and managing credit authorities in connection
with the approval of all credit exposure• Managing criticized exposures and delinquent loans• Estimating credit losses and ensuring appropriate credit
risk-based capital management

Scored exposure
The scored portfolio is generally held in CCB andpredominantly includes residential real estate loans, credit
card loans, certain auto and business banking loans, andstudent loans. For the scored portfolio, credit loss estimatesare based on statistical analysis of credit losses overdiscrete periods of time. The statistical analysis uses
portfolio modeling, credit scoring, and decision-support
tools, which consider loan-level factors such as delinquency
status, credit scores, collateral values, and other risk
factors. Credit loss analyses also consider, as appropriate,
uncertainties and other factors, including those related tocurrent macroeconomic and political conditions, the qualityof underwriting standards, and other internal and external
factors. The factors and analysis are updated on a quarterly
basis or more frequently as market conditions dictate.

Risk identification and measurement
The Credit Risk Management function measures, limits,manages and monitors credit risk across the Firm’s
businesses. To measure credit risk, the Firm employs
several methodologies for estimating the likelihood of
obligor or counterparty default. Methodologies formeasuring credit risk vary depending on several factors,
including type of asset (e.g., consumer versus wholesale),risk measurement parameters (e.g., delinquency status andborrower’s credit score versus wholesale risk-rating) andrisk management and collection processes (e.g., retailcollection center versus centrally managed workout
groups). Credit risk measurement is based on the86

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 15. In addition, potential and unexpectedcredit losses are reflected in the allocation of credit risk
capital and represent the potential volatility of actual losses
relative to the established allowances for loan losses andlending-related commitments. The analyses for these losses
include stress testing that considers alternative economic
scenarios as described in the Stress testing section below.
For further information, see Critical Accounting Estimatesused by the Firm on pages 132–134.
The methodologies used to estimate credit losses dependon the characteristics of the credit exposure, as described
below.

Risk-rated exposure
Risk-rated portfolios are generally held in CIB, CB and AWM,
but also include certain business banking and auto dealer
loans held in CCB that are risk-rated because they havecharacteristics similar to commercial loans. For the riskrated portfolio, credit loss estimates are based on estimatesof the probability of default (“PD”) and loss severity given adefault. The probability of default is the likelihood that aborrower will default on its obligation; the loss given default(“LGD”) is the estimated loss on the loan that would be
realized upon the default and takes into consideration
collateral and structural support for each credit facility. The
estimation process includes assigning risk ratings to eachborrower and credit facility to differentiate risk within theportfolio. These risk ratings are reviewed regularly by Credit
Risk Management and revised as needed to reflect the
JPMorgan Chase & Co./2016 Annual Reportborrower’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 trends are incorporated into the modeling of
estimated consumer credit losses and are part of themonitoring of the credit risk profile of the portfolio.

JPMorgan Chase & Co./2016 Annual Report

Wholesale credit risk is monitored regularly at an aggregate
portfolio, industry, and individual client and counterparty
level with established concentration limits that are reviewed
and revised as deemed appropriate by management,
typically on an annual basis. Industry and counterparty
limits, as measured in terms of exposure and economic 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
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 initiatedby responsible business units; and• Evaluating the effectiveness of business units’ credit
management processes, including the adequacy of credit
analyses and risk grading/LGD rationales, propermonitoring and management of credit exposures, andcompliance with applicable grading policies andunderwriting guidelines.
For further discussion of consumer and wholesale loans, seeNote 14.
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, customer, productand geographic concentrations occurs monthly, and theappropriateness of the allowance for credit losses isreviewed by senior management at least on a quarterly
basis. Through the risk reporting and governance structure,credit risk trends and limit exceptions are provided
regularly to, and discussed with, risk committees, senior
management and the Board of Directors as appropriate.

87Management’s discussion and analysis
CREDIT PORTFOLIO
In the following tables, reported loans include loans
retained (i.e., held-for-investment); loans held-for-sale; andcertain loans accounted for at fair value. In addition, theFirm records certain loans accounted for at fair value in
trading assets. For further information regarding theseloans, see Note 3 and Note 4. For additional information on
the Firm’s loans, lending-related commitments, andderivative receivables, including the Firm’s accounting
policies, see Note 14, Note 29, and Note 6, respectively. For
further information regarding the credit risk inherent in the
Firm’s cash placed with banks, investment securities
portfolio, and securities financing portfolio, see Note 5,
Note 12, and Note 13, respectively.
For discussion of the consumer credit environment andconsumer loans, see Consumer Credit Portfolio on pages
89–95 and Note 14. For discussion of wholesale credit
environment and wholesale loans, see Wholesale Credit
Portfolio on pages 96–104 and Note 14.

Total credit portfolio
Credit exposure

December 31,(in millions)
Loans retained

2016

Nonperforming(b)(c)

2015

2016

$ 889,907 $ 832,792

$

2015

6,721 $

6,303
101

Loans held-for-sale

2,628

1,646

162

Loans at fair value

2,230

2,861

—

25

Total loans – reported

894,765

837,299

6,883

6,429

Derivative receivables

64,07859,677223

204

Receivables from
customers and other

17,56013,497——

Total credit-related
assets976,403

910,473

7,106

6,633

Real estate owned

NA

NA

370

347

Other

NA

NA

59

54

Assets acquired in loansatisfactions

Total assets acquired inloan satisfactions
Total assets
Lending-related
commitments

NA

NA

429

401

976,403

910,473

7,535

7,034

976,702940,395

506

193

Total credit portfolio$1,953,105 $1,850,868$

8,041 $

7,227

Credit derivatives used in
credit portfolio
management activities(a)

$

$

— $

(9)

NA

NA

Liquid securities and othercash collateral held
against derivatives(22,114) $(20,681)(22,705)(16,580)

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

2016

Net charge-offs

$

4,692

2015
$

4,086

Average retained loans
Loans – reported

861,345

780,293

Loans – reported, excluding
residential real estate PCI loans

822,973736,543

Net charge-off rates
Loans – reported

0.54%

0.52%

Loans – reported, excluding PCI

0.57

0.55

(a) Represents the net notional amount of protection purchased and sold throughcredit derivatives used to manage both performing and nonperforming wholesalecredit exposures; these derivatives do not qualify for hedge accounting under
U.S. GAAP. For additional information, see Credit derivatives on pages 103–104
and Note 6.
(b) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as each of the pools is performing.
(c) At December 31, 2016 and 2015, nonperforming assets excluded: (1) mortgage
loans insured by U.S. government agencies of $5.0 billion and $6.3 billion,
respectively, that are 90 or more days past due; (2) student loans insured by U.S.
government agencies under the FFELP of $263 million and $290 million,
respectively, that are 90 or more days past due; and (3) Real estate owned(“REO”) insured by U.S. government agencies of $142 million and $343 million,
respectively. These amounts have been excluded based upon the government
guarantee. In addition, the Firm’s policy is generally to exempt credit card loans
from being placed on nonaccrual status as permitted by regulatory guidanceissued by the Federal Financial Institutions Examination Council (“FFIEC”).

88

JPMorgan Chase & Co./2016 Annual ReportCONSUMER CREDIT PORTFOLIOThe Firm’s consumer portfolio consists primarily of
residential real estate loans, credit card loans, auto loans,business banking loans and student loans, and associatedlending-related commitments. The Firm’s focus is on serving
primarily the prime segment of the consumer credit market.
The credit performance of the consumer portfolio continues
to benefit from discipline in credit underwriting as well as
improvement in the economy driven by increasing homeprices and lower unemployment. Both early-stage
delinquencies (30–89 days delinquent) and late-stage
delinquencies (150+ days delinquent) for residential realestate, excluding government guaranteed loans, declined
from December 31, 2015 levels. The Credit Card 30+ day
delinquency rate and the net charge-off rate increased fromthe prior year but remain near record lows. For further
information on consumer loans, see Note 14.

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

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

2016

2015

Nonaccrual loans(h)(i)Net charge-offs/(recoveries)(j)Average annual net
charge-off rate(j)(k)

2016

2016

2016

2015

2015

2015

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

45,559$ 1,845 $

2,191

189 $

291

0.45%

Residential mortgage

192,163

166,239

2,247

2,503

12

(4)

0.01

—

Auto(a)65,81460,255

214

116

285

214

0.45

0.38

Business banking(b)22,69821,208

286

263

257

253

1.17

1.23

Student and other

8,989

10,096

175

242

166

200

1.74

1.89

328,727

303,357

4,767

5,315

909

954

0.28

0.35

Home equity

12,902

14,989

NA

NA

NA

NA

NA

NA

Prime mortgage

7,602

8,893

NA

NA

NA

NA

NA

NA

Subprime mortgage

2,941

3,263

NA

NA

NA

NA

NA

NA

Option ARMs(c)12,234

13,853

NA

NA

NA

NA

NA

NA

Total loans – PCI

35,67940,998

NA

NA

NA

NA

NA

NA

Total loans – retained

364,406

344,355

4,767

5,315

909

954

0.25

0.30

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

39,063

$

$

0.59%

Loans – PCI

Loans held-for-sale

238

53

98

—

—

—

—

4,820

5,413

909

954

0.25

0.30

131,387

—

—

3,442

3,122

2.63

2.51

76

—

—

—

—

—

—

141,816

131,463

—

—

3,442

3,122

2.63

2.51

553,891

515,518(g)

466

Total consumer, excluding credit card loans

364,644344,821

Lending-related commitments(d)54,79758,478

Receivables from customers(e)

120

125

419,561

403,424

141,711105

Total credit card loans
Lending-related commitments(d)Total consumer exposure, excluding credit card(g)

Credit Card
Loans retained(f)Loans held-for-sale

Total credit card exposure695,707646,981

Total consumer credit portfolio$ 1,115,268$ 1,050,405$ 4,820 $5,413$ 4,351 $

4,076

0.89%

0.92%

Memo: Total consumer credit portfolio, excluding PCI$ 1,079,589$ 1,009,407$ 4,820 $5,413$ 4,351 $

4,076

0.96%

1.02%

(a) At December 31, 2016 and 2015, excluded operating lease assets of $13.2 billion and $9.2 billion, respectively.
(b) Predominantly includes Business Banking loans as well as deposit overdrafts.
(c) At December 31, 2016 and 2015, approximately 66% and 64%, respectively, of the PCI option adjustable rate mortgages (“ARMs”) portfolio has been modified into fixed-rate,
fully amortizing loans.
(d) Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, and does not anticipate,that all available lines of credit would be used at the same time. For credit card and home equity commitments (if certain conditions are met), the Firm can reduce or cancel theselines of credit by providing the borrower notice or, in some cases as permitted by law, without notice.
(e) Receivables from customers represent margin loans to brokerage customers that are collateralized through assets maintained in the clients’ brokerage accounts, as such noallowance is held against these receivables. These receivables are reported within accrued interest and accounts receivable on the Firm’s Consolidated balance sheets.
(f) Includes billed interest and fees net of an allowance for uncollectible interest and fees.
(g) Predominantly represents prime mortgage loans held-for-sale.
(h) At December 31, 2016 and 2015, nonaccrual loans excluded loans 90 or more days past due as follows: (1) mortgage loans insured by U.S. government agencies of $5.0 billion
and $6.3 billion, respectively; and (2) student loans insured by U.S. government agencies under the FFELP of $263 million and $290 million, respectively. These amounts havebeen 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.
(i) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing.

JPMorgan Chase & Co./2016 Annual Report89Management’s discussion and analysis(j) Net charge-offs and net charge-off rates excluded write-offs in the PCI portfolio of $156 million and $208 million for the years ended December 31, 2016 and 2015. These writeoffs decreased the allowance for loan losses for PCI loans. See Allowance for Credit Losses on pages 105–107 for further details.
(k) Average consumer loans held-for-sale were $496 million and $2.1 billion for the years ended December 31, 2016 and 2015, respectively. These amounts were excluded whencalculating net charge-off rates.

Consumer, excluding credit card
Portfolio analysis
Consumer loan balances increased during the year ended
December 31, 2016, predominantly due to originations ofhigh-quality prime mortgage and auto loans that have beenretained on the balance sheet, partially offset by paydowns
and the charge-off or liquidation of delinquent loans. The
credit environment remained favorable as the economy
strengthened and home prices increased.

The following chart illustrates the payment recast
composition of the approximately $21 billion of HELOCs
scheduled to recast in the future, based upon their current
contractual terms.
HELOCs scheduled to recast(at December 31, 2016)

PCI loans are excluded from the following discussions ofindividual loan products and are addressed separately
below. For further information about the Firm’s consumer
portfolio, including information about delinquencies, loan
modifications and other credit quality indicators, seeNote 14.
Home equity: The home equity portfolio declined from
December 31, 2015 primarily reflecting loan paydowns andcharge-offs. Both early-stage and late-stage delinquencies
declined from December 31, 2015. Nonaccrual loans
improved from December 31, 2015 primarily as a result ofloss mitigation activities. Net charge-offs for the year ended
December 31, 2016, declined when compared with theprior year as a result of improvement in home prices anddelinquencies.
At December 31, 2016, approximately 90% of the Firm’s
home equity portfolio consists of home equity lines of credit(“HELOCs”) and the remainder consists of home equity
loans (“HELOANs”). HELOANs are generally fixed-rate,
closed-end, amortizing loans, with terms ranging from 3–30
years. In general, HELOCs originated by the Firm are
revolving loans for a 10-year period, after which time the
HELOC recasts into a loan with a 20-year amortization
period. At the time of origination, the borrower typicallyselects one of two minimum payment options that will
generally remain in effect during the revolving period: amonthly payment of 1% of the outstanding balance, orinterest-only payments based on a variable index (typically
Prime). HELOCs originated by Washington Mutual weregenerally revolving loans for a 10-year period, after whichtime the HELOC converts to an interest-only loan with aballoon payment at the end of the loan’s term.
The carrying value of HELOCs outstanding was $34 billion at
December 31, 2016. Of such amounts, approximately:•$13 billion have recast from interest-only to fully
amortizing payments or have been modified,•$15 billion are scheduled to recast from interest-only to
fully amortizing payments in future periods, and•$6 billion are interest-only balloon HELOCs, whichprimarily mature after 2030.

90

The Firm has considered this payment recast risk in its
allowance for loan losses based upon the estimated amountof payment shock (i.e., the excess of the fully-amortizing
payment over the interest-only payment in effect prior torecast) expected to occur at the payment recast date, alongwith the corresponding estimated PD and loss severity
assumptions. As part of its allowance estimate, the Firm
also expects, based on observed activity in recent years,
that approximately 30% of the carrying value of HELOCs
scheduled to recast will voluntarily prepay prior to or after
the recast. The HELOCs that have previously recast to fully
amortizing payments generally have higher delinquency
rates than the HELOCs within the revolving period, primarily
as a result of the payment shock at the time of recast.
Certain other factors, such as future developments in bothunemployment rates and home prices, could also have asignificant impact on the performance of these loans.
The Firm manages the risk of HELOCs during their revolving
period by closing or reducing the undrawn line to the extent
permitted by law when borrowers are exhibiting a material
deterioration in their credit risk profile. The Firm willcontinue to evaluate both the near-term and longer-term
recast risks inherent in its HELOC portfolio to ensure thatchanges in the Firm’s estimate of incurred losses areappropriately considered in the allowance for loan losses
and that the Firm’s account management practices areappropriate given the portfolio’s risk profile.

JPMorgan Chase & Co./2016 Annual ReportJunior lien loans where the borrower has a senior lien loanthat is either delinquent or has been modified areconsidered high-risk seconds. Such loans are considered topose a higher risk of default than junior lien loans for which
the senior lien loan is neither delinquent nor modified. At
December 31, 2016, the Firm estimated that the carrying
value of its home equity portfolio contained approximately$1.1 billion of current junior lien loans that wereconsidered high risk seconds, compared with $1.4 billion at
December 31, 2015. The Firm estimates the balance of its
total exposure to high-risk seconds on a quarterly basis
using internal data and loan level credit bureau data (which
typically provides the delinquency status of the senior lienloan). The Firm considers the increased PD associated withthese high-risk seconds in estimating the allowance for loan
losses and classifies those loans that are subordinated to afirst lien loan that is more than 90 days delinquent asnonaccrual loans. The estimated balance of these high-risk
seconds may vary from quarter to quarter for reasons suchas the movement of related senior lien loans into and out of
the 30+ day delinquency bucket. The Firm continues tomonitor the risks associated with these loans. For further
information, see Note 14.
Residential mortgage: The residential mortgage portfolio
predominantly consists of high-quality prime mortgage
loans with a small component (approximately 2%) of theresidential mortgage portfolio in subprime mortgage loans.
These subprime mortgage loans continue to run-off and are
performing in line with expectations. The residential
mortgage portfolio, including loans held-for-sale, increased
from December 31, 2015 due to retained originations ofprimarily high-quality fixed rate prime mortgage loans
partially offset by paydowns. Both early-stage and latestage delinquencies showed improvement from
December 31, 2015. Nonaccrual loans decreased from theprior year primarily as a result of loss mitigation activities.
Net charge-offs for the year ended December 31, 2016
remain low, reflecting continued improvement in homeprices and delinquencies.
At December 31, 2016 and 2015, the Firm’s residential
mortgage portfolio, including loans held-for-sale, included$9.5 billion and $11.1 billion, respectively, of mortgage
loans insured and/or guaranteed by U.S. government
agencies, of which $7.0 billion and $8.4 billion,
respectively, were 30 days or more past due (of these past
due loans, $5.0 billion and $6.3 billion, respectively, were
90 days or more past due). The Firm monitors its exposure
to certain potential unrecoverable claim payments related
to government insured loans and considers this exposure in
estimating the allowance for loan losses.

JPMorgan Chase & Co./2016 Annual Report

At December 31, 2016 and 2015, the Firm’s residential
mortgage portfolio included $19.1 billion and $17.8 billion,
respectively, of interest-only loans. These loans have aninterest-only payment period generally followed by anadjustable-rate or fixed-rate fully amortizing payment
period to maturity and are typically originated as higherbalance loans to higher-income borrowers. To date, losseson this portfolio generally have been consistent with thebroader residential mortgage portfolio and the Firm’s
expectations. The Firm continues to monitor the risks
associated with these loans.
Auto: Auto loans increased from December 31, 2015, as aresult of growth in new originations. Nonaccrual loans
increased compared with December 31, 2015, primarily
due to downgrades of select auto dealer risk-rated loans.
Net charge-offs for the year ended December 31, 2016
increased compared with the prior year, as a result ofhigher retail auto loan balances and a moderate increase inloss severity. The auto portfolio predominantly consists ofprime-quality loans.
Business banking: Business banking loans increased
compared with December 31, 2015 as a result of growth inloan originations. Nonaccrual loans at December 31, 2016
and net charge-offs for the year ended December 31, 2016
increased from the prior year as a result of growth in theportfolio.
Student and other: Student and other loans decreased from
December 31, 2015 primarily as a result of the run-off ofthe student loan portfolio as the Firm ceased originations ofstudent loans during the fourth quarter of 2013.
Nonaccrual loans and net charge-offs also declined as aresult of the run-off of the student loan portfolio.
Purchased credit-impaired loans: PCI loans decreased as
the portfolio continues to run off. As of December 31,
2016, approximately 12% of the option ARM PCI loans
were delinquent and approximately 66% of the portfolio
had been modified into fixed-rate, fully amortizing loans.
Substantially all of the remaining loans are making
amortizing payments, although such payments are notnecessarily fully amortizing. This latter group of loans issubject to the risk of payment shock due to future payment
recast. Default rates generally increase on option ARM loans
when payment recast results in a payment increase. The
expected increase in default rates is considered in the
Firm’s quarterly impairment assessment.

91

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

$

$

Lifetime loss estimates(a)
2016
2015
14.4 $
14.5
4.0
4.0
3.2
3.3
10.0
10.0
31.6 $
31.8

Life-to-date liquidation losses(b)
2016
2015
$
12.8 $
12.7
3.7
3.7
3.1
3.0
9.7
9.5
$
29.3 $
28.9(a) Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses plus additional principal losses recognized subsequent toacquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses was $1.1 billion and $1.5 billion at December 31,
2016 and 2015, respectively.
(b) Life-to-date liquidation losses represent both realization of loss upon loan resolution and any principal forgiven upon modification.

For further information on the Firm’s PCI loans, including write-offs, see Note 14.

Geographic composition of residential real estate loans
At December 31, 2016, $139.7 billion, or 63% of total retained residential real estate loan portfolio, excluding mortgage
loans insured by U.S. government agencies and PCI loans, were concentrated in California, New York, Illinois, Texas and Florida,compared with $123.0 billion, or 61%, at December 31, 2015. California had the greatest concentration of retained
residential loans with 30% at December 31, 2016, compared with 28% at December 31, 2015. The unpaid principal balanceof PCI loans concentrated in California represented 55% of total PCI loans at both December 31, 2016 and 2015. The
following charts illustrate the percentages of the total retained residential real estate portfolio held in the top 5 states,
excluding mortgage loans insured by U.S. government agencies and PCI loans. For further information on the geographic
composition of the Firm’s residential real estate loans, see Note 14.

92

JPMorgan Chase & Co./2016 Annual ReportCurrent estimated loan-to-values of residential realestate loans
The current estimated average loan-to-value (“LTV”) ratio
for residential real estate loans retained, excluding
mortgage loans insured by U.S. government agencies and
PCI loans, was 58% at December 31, 2016 compared with
59% at December 31, 2015.
Although the delinquency rate for loans with high LTV ratios
is generally greater than the delinquency rate for loans inwhich the borrower has greater equity in the collateral, theaverage LTV ratios have declined consistent withimprovements in home prices, reducing the number of loans
with a current estimated LTV ratio greater than 100%.
The current estimated average LTV ratio for residential realestate PCI loans, based on the unpaid principal balances,
was 64% at December 31, 2016, compared with 69% at
December 31, 2015. Of the total PCI portfolio, 4% of theloans had a current estimated LTV ratio greater than 100%,
and 1% had a current LTV ratio greater than 125% at
December 31, 2016, compared with 6% and 1%,
respectively, at December 31, 2015.
While the current estimated collateral value is greater than
the net carrying value of PCI loans, the ultimate
performance of this portfolio is highly dependent onborrowers’ behavior and ongoing ability and willingness tocontinue to make payments on homes with negative equity,
as well as on the cost of alternative housing.
For further information on current estimated LTVs ofresidential real estate loans, see Note 14.
Loan modification activities – residential real estate loans
The performance of modified loans generally differs by
product type due to differences in both the credit quality
and the types of modifications provided. Performance
metrics for modifications to the residential real estate
portfolio, excluding PCI loans, that have been seasoned
more than six months show weighted-average redefault
rates of 21% for home equity and 22% for residential
mortgages. The cumulative performance metrics formodifications to the PCI residential real estate portfolio thathave been seasoned more than six months show weighted
average redefault rates of 20% for home equity, 19% forprime mortgages, 16% for option ARMs and 32% forsubprime mortgages. The cumulative redefault rates reflect
the performance of modifications completed under both the
U.S. Government’s Home Affordable Modification Program(“HAMP”) and the Firm’s proprietary modification programs(primarily the Firm’s modification program that wasmodeled after HAMP) from October 1, 2009, throughDecember 31, 2016.

modified in active step-rate modifications were $3 billion
and $9 billion, respectively. The Firm continues to monitor
this risk exposure and the impact of these potential interest
rate increases is considered in the Firm’s allowance for loan
losses.
The following table presents information as ofDecember 31, 2016 and 2015, relating to modified
retained residential real estate loans for which concessions
have been granted to borrowers experiencing financial
difficulty. Modifications of PCI loans continue to beaccounted for and reported as PCI loans, and the impact ofthe modification is incorporated into the Firm’s quarterly
assessment of estimated future cash flows. Modifications ofconsumer loans other than PCI loans are generally
accounted for and reported as TDRs. For further
information on modifications for the years ended
December 31, 2016 and 2015, see Note 14.
Modified residential real estate loans
2016
December 31,(in millions)

Retained
loans

2015

Nonaccrual
retainedloans(d)Retainedloans

Nonaccrual
retainedloans(d)Modified residential
real estate loans,
excluding PCI loans(a)(b)Home equity$ 2,264 $1,116$ 2,358 $1,220

Residential mortgage

6,032

1,755

6,690

1,957

$ 8,296 $2,871$ 9,048 $3,177$ 2,447NA$ 2,526

NA

Prime mortgage

5,052

NA

5,686

NA

Subprime mortgage

2,951

NA

3,242

NA

Option ARMs

9,295

NA

10,427

NA

Total modified PCI loans $19,745

NA$21,881

NA

Total modified
residential real estateloans, excluding PCI
loans
Modified PCI loans(c)Home equity(a) Amounts represent the carrying value of modified residential real estate loans.
(b) At December 31, 2016 and 2015, $3.4 billion and $3.8 billion, respectively, ofloans modified subsequent to repurchase from Ginnie Mae in accordance withthe standards of the appropriate government agency (i.e., Federal Housing
Administration (“FHA”), U.S. Department of Veterans Affairs (“VA”), Rural
Housing Service of the U.S. Department of Agriculture (“RHS”)) are not includedin the table above. When such loans perform subsequent to modification inaccordance with Ginnie Mae guidelines, they are generally sold back into Ginnie
Mae loan pools. Modified loans that do not re-perform become subject toforeclosure. For additional information about sales of loans in securitizationtransactions with Ginnie Mae, see Note 16.
(c) Amounts represent the unpaid principal balance of modified PCI loans.
(d) As of December 31, 2016 and 2015, nonaccrual loans included $2.3 billion and$2.5 billion, respectively, of TDRs for which the borrowers were less than 90days past due. For additional information about loans modified in a TDR that areon nonaccrual status, see Note 14.

Certain loans that were modified under HAMP and the
Firm’s proprietary modification programs have interest rate
reset provisions (“step-rate modifications”). Interest rates
on these loans generally began to increase commencing in2014 by 1% per year, and continue to do so, until the rate
reaches a specified cap, typically at a prevailing market
interest rate for a fixed-rate loan as of the modification
date. At December 31, 2016, the carrying value of non-PCI
loans and the unpaid principal balance of PCI loans
JPMorgan Chase & Co./2016 Annual Report93Management’s discussion and analysis
Nonperforming assets
The following table presents information as ofDecember 31, 2016 and 2015, 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

2016

2015

Active and suspended foreclosure: For information onloans that were in the process of active or suspended
foreclosure, see Note 14.
Nonaccrual loans: The following table presents changes in
the consumer, excluding credit card, nonaccrual loans forthe years ended December 31, 2016 and 2015.
Nonaccrual loans$ 4,145
675
4,820
292
57
349
$ 5,169

$

$

4,792
621
5,413
277
48
325
5,738

(a) At December 31, 2016 and 2015, nonperforming assets excluded: (1) mortgage
loans insured by U.S. government agencies of $5.0 billion and $6.3 billion,
respectively, that are 90 or more days past due; (2) student loans insured by U.S.
government agencies under the FFELP of $263 million and $290 million,
respectively, that are 90 or more days past due; and (3) real estate owned
insured by U.S. government agencies of $142 million and $343 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 each pool is
accounted for as a single asset with a single composite interest rate and an
aggregate expectation of cash flows, the past-due status of the pools, or that ofindividual loans within the pools, is not meaningful. The Firm is recognizing
interest income on each pool of loans as they are all performing.

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

$

$

2016
2015
5,413 $
6,509
3,858
3,662
1,437
843
1,589
582
4,451
(593)
4,820 $

1,668
800
1,725
565
4,758
(1,096)5,413(a) Other reductions includes loan sales.

Nonaccrual loans in the residential real estate portfolio
decreased to $4.1 billion from $4.8 billion at December 31,
2016, and 2015, respectively, of which 29% and 31% 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 43% and 44% to the estimated net
realizable value of the collateral at December 31, 2016 and2015, respectively.

94

JPMorgan Chase & Co./2016 Annual ReportCredit card
Total credit card loans increased from December 31, 2015
due to strong new account growth and higher sales volume.
The December 31, 2016 30+ day delinquency rateincreased to 1.61% from 1.43% at December 31, 2015.
For the years ended December 31, 2016 and 2015, the net
charge-off rates were 2.63% and 2.51%, respectively. The
credit card portfolio continues to reflect a largely wellseasoned, rewards-based portfolio that has good U.S.
geographic diversification. New originations continue togrow as a percentage of the total portfolio, in line with the
Firm’s credit parameters; these originations have generated
higher loss rates, as anticipated, than the more seasoned
portion of the portfolio, given the higher mix of near-prime
accounts being originated. These near-prime accounts have

Modifications of credit card loans
At December 31, 2016 and 2015, the Firm had $1.2 billion
and $1.5 billion, respectively, of credit card loans
outstanding that have been modified in TDRs. Thesebalances included both credit card loans with modified
payment terms and credit card loans that reverted back totheir pre-modification payment terms because thecardholder did not comply with the modified payment
terms. The decrease in modified credit card loans
outstanding from December 31, 2015, was attributable to a
reduction in new modifications as well as ongoing payments
and charge-offs on previously modified credit card loans.

JPMorgan Chase & Co./2016 Annual Report

net revenue rates and returns on equity that are higher
than the portfolio average.
Loans outstanding in the top five states of California, Texas,
New York, Florida and Illinois consisted of $62.8 billion inreceivables, or 44% of the retained loan portfolio, at
December 31, 2016, compared with $57.5 billion, or 44%,
at December 31, 2015. The greatest geographic
concentration of credit card retained loans is in California,
which represented 15% and 14% of total retained loans at
December 31, 2016 and 2015, respectively. For further
information on the geographic and FICO composition of the
Firm’s credit card loans, see Note 14.

Consistent with the Firm’s policy, all credit card loans
typically remain on accrual status until charged off.
However, the Firm establishes an allowance, which is offset
against loans and charged to interest income, for theestimated uncollectible portion of accrued and billedinterest and fee income.
For additional information about loan modification
programs to borrowers, see Note 14.

95

Management’s discussion and analysis
WHOLESALE CREDIT PORTFOLIOThe Firm’s wholesale businesses are exposed to credit risk
through underwriting, lending, market-making, and hedging
activities with and for clients and counterparties, as well as
through various operating services such as cash
management and clearing activities. A portion of the loans
originated or acquired by the Firm’s wholesale businesses isgenerally retained on the balance sheet. The Firm
distributes a significant percentage of the loans it originates
into the market as part of its syndicated loan business andto manage portfolio concentrations and credit risk.
The wholesale credit portfolio, excluding the Oil & Gas,
Natural Gas Pipelines, and Metals & Mining portfolios,
continued to be generally stable for the year ended
December 31, 2016, characterized by low levels ofcriticized exposure, nonaccrual loans and charge-offs. See
industry discussion on pages 97–101 for further
information. Growth in retained loans was predominantly
driven within the commercial real estate portfolio in
Commercial Banking, and across multiple commercial andindustrial industries in Commercial Banking and the
Corporate & Investment Bank. Discipline in underwriting
across all areas of lending continues to remain a key pointof focus. The wholesale portfolio is actively managed, inpart by conducting ongoing, in-depth reviews of client credit
quality and transaction structure, inclusive of collateral
where applicable; and of industry, product and client
concentrations.

96

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

Credit exposure
2016

2015

$383,790 $357,050
2,285

Nonperforming(c)
2016

2015

$ 1,954 $

988

109

3

1,104

Loans at fair value

2,230

2,861

—

25

Loans – reported

388,305

361,015

2,063

1,016

Derivative receivables

64,07859,677223

204

Receivables from
customers and other(a)17,44013,372——

Total wholesale creditrelated assets

469,823

434,064

2,286

1,220

Lending-related
commitments

368,014366,399506

193

Total wholesale credit
exposure$837,837 $800,463$ 2,792 $ 1,413

Credit derivatives usedin credit portfolio
management activities(b) $ (22,114) $ (20,681) $

— $

(9)

Liquid securities andother cash collateral
held against derivatives

NANA(22,705)(16,580)(a) Receivables from customers and other include $17.3 billion and $13.3
billion of margin loans at December 31, 2016 and 2015, respectively,
to prime brokerage customers; these are classified in accrued interest
and accounts receivable on the Consolidated balance sheets.
(b) Represents the net notional amount of protection purchased and soldthrough credit derivatives used to manage both performing andnonperforming wholesale credit exposures; these derivatives do not
qualify for hedge accounting under U.S. GAAP. For additional
information, see Credit derivatives on pages 103–104, and Note 6.
(c) Excludes assets acquired in loan satisfactions.

JPMorgan Chase & Co./2016 Annual Report

The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of December 31, 2016 and2015. The ratings scale is based on the Firm’s internal risk ratings, which generally correspond to the ratings defined by S&P
and Moody’s. For additional information on wholesale loan portfolio risk ratings, see Note 14.
Wholesale credit exposure – maturity and ratings profile
Maturity profile(d)December 31, 2016
(in millions, except ratios)

Due in 1
year or less

Loans retained$ 117,238 $Due after
1 yearthrough
5 years

Ratings profile

Due after 5
years

167,235 $99,317 $Derivative receivables

Investmentgrade

Noninvestmentgrade

Total

AAA/Aaa to
BBB-/Baa3

BB+/Ba1 &
below

383,790$289,923$

93,867

Total$ 383,790

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

Total %
of IG
76%

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

Total derivative receivables, net of all collateral

14,0198,510

18,844

41,37333,081

8,292

41,373

80

Lending-related commitments

88,399271,825

7,790

368,014

269,820

98,194

368,01473

Subtotal

219,656

447,570

125,951

793,177

592,824

200,353

793,177

75

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

4,515

4,515

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

Total exposure – net of liquid securities andother cash collateral held against derivatives
Credit derivatives used in credit portfolio
management activities(b)(c)$(1,354) $(16,537) $$(18,710)$Maturity profile(d)December 31, 2015
(in millions, except ratios)

Due in 1
year or less

Loans retained$ 110,348 $Due after
1 yearthrough
5 years$(22,114)85%

Ratings profile

Due after 5
years

155,902 $(3,404)90,800 $Derivative receivables

Investmentgrade

Noninvestmentgrade

Total

AAA/Aaa to
BBB-/Baa3

BB+/Ba1 &
below

357,050$

267,736$

89,314

Total$ 357,050

59,677

Less: Liquid securities and other cash collateral
held against derivatives

Total %
of IG
75%

59,677(16,580)(16,580)

Total derivative receivables, net of all collateral

11,39912,836

18,86243,097

34,7738,324

43,097

81

Lending-related commitments

105,514251,0429,843

366,399

267,922

98,477366,399

73

Subtotal

227,261

419,780

119,505

766,546

570,431

196,115

766,546

74

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

3,965

3,965

Receivables from customers and other

13,372

13,372$783,883$ 783,883(5,446) $(20,681)

Total exposure – net of liquid securities andother cash collateral held against derivatives
Credit derivatives used in credit portfolio
management activities (b)(c)$(808) $

(14,427) $$(17,754)$(2,927)$(20,681)86%(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 for 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, 2016, may become a payable prior to maturity based on their cash flow profile or changes in market conditions.

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

JPMorgan Chase & Co./2016 Annual Reportcategories. The total criticized component of the portfolio,
excluding loans held-for-sale and loans at fair value, was$19.8 billion at December 31, 2016, compared with $14.6
billion at December 31, 2015, driven by downgrades,
including within the Oil & Gas, Natural Gas Pipelines, andMetals & Mining portfolios.

97

Management’s discussion and analysis
Below are summaries of the Firm’s exposures as of December 31, 2016 and 2015. For additional information on industry
concentrations, see Note 5.
Wholesale credit exposure – industries(a)Selected metrics
Noninvestment-grade

As of or for the year ended
December 31, 2016
(in millions)Creditexposure(e)Real Estate$

Investmentgrade

Noncriticized

Criticized
performing

Criticized
nonperforming

Net chargeoffs/(recoveries)

Creditderivative
hedges(f)135,041 $

104,575 $29,295 $

200 $

157 $

(7) $

(54) $(27)

Consumer & Retail

85,43555,49528,146

1,554

240

75

24

(424)

(69)

Technology, Media &Telecommunications

62,95039,756

21,619

1,559

16

9

2

(589)

(30)

Industrials

55,44936,597

17,690

1,026

136

128

3

(434)

(40)

Healthcare

47,86637,852

9,092

882

40

86

37

(286)

(246)

Banks & Finance Cos

44,61435,308

8,892

404

10

21

(2)

(1,336)(7,319)

Oil & Gas

40,09918,497

12,138

8,069

1,395

31

222

(1,532)(18)

Asset Managers

31,88627,378

4,507

1

—

14

—

—

(5,737)

Utilities

29,622

24,184

4,960

392

86

8

—

(306)

39

State & Municipal Govt(b)28,26327,603

624

6

30

107

(1)

(130)

398

Central Govt

20,40820,123

276

9

—

4

—

(11,691)(4,183)

Transportation

19,02912,170

6,362

444

53

9

10

(93)

(188)

Automotive

16,635

9,229

7,204

201

1

7

—

(401)

(14)

Chemicals & Plastics

14,98810,365

4,451

142

30

3

—

(35)

(3)

Metals & Mining

13,419

5,523

6,744

1,133

19

—

36

(621)

(62)

Insurance

13,151

10,766

2,252

—

133

9

—

(275)

(2,538)Financial Markets Infrastructure

8,732

7,980

752

—

—

—

—

—

(390)

Securities Firms

3,867

1,543

2,324

—

—

—

—

(273)

(491)

144,428

128,456

15,305

373

294

650

17

(3,634)(1,787)815,882 $613,400 $182,633 $17,166 $2,683 $

1,318 $All other(c)Subtotal$

Loans held-for-sale and loans at fair
value

4,515

Receivables from customers and other17,440Total(d)

98

$

971 $

30 days ormore past
due andaccruing
loans

Liquidsecurities
and othercash
collateral
held against
derivative
receivables

341 $ (22,114) $(22,705)

837,837

JPMorgan Chase & Co./2016 Annual ReportSelected metrics
Noninvestment-grade

As of or for the year ended
December 31, 2015
(in millions)Creditexposure(e)Real Estate$

Investmentgrade

Noncriticized

Criticized
performing

Criticized
nonperforming

30 days ormore past
due andaccruing
loans

Net chargeoffs/(recoveries)

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

116,857 $88,076 $27,087 $1,463 $

231 $

208 $

(14) $(54) $(47)

Consumer & Retail

85,46053,64729,659

1,947

207

18

13

(288)

(94)

Technology, Media &Telecommunications

57,382

29,20526,925

1,208

44

5

(1)

(806)

(21)

Industrials

54,38636,51916,663

1,164

40

59

8

(386)

(39)

Healthcare

46,05337,858

7,755

394

46

129

(7)

(24)

(245)

Banks & Finance Cos

43,39835,071

7,654

610

63

17

(5)

(974)

(5,509)

Oil & Gas

42,077

24,37913,158

4,263

277

22

13

(530)

(37)

Asset Managers

23,815

20,214

3,570

31

—

18

—

(6)

(4,453)

Utilities

30,85324,983

5,655

168

47

3

—

(190)

(289)

State & Municipal Govt(b)29,11428,307

745

7

55

55

(8)

(146)

(81)

Central Govt

17,96817,871

97

—

—

7

—

(9,359)(2,393)

Transportation

19,227

13,258

5,801

167

1

15

3

(51)

(243)

Automotive

13,864

9,182

4,580

101

1

4

(2)

(487)

(1)

Chemicals & Plastics

15,232

10,910

4,017

274

31

9

—

(17)

—

Metals & Mining

14,049

6,522

6,434

1,008

85

1

—

(449)

(4)

Insurance

11,889

9,812

1,958

26

93

23

—

(157)

(1,410)Financial Markets Infrastructure

7,973

7,304

669

—

—

—

—

—

(167)

Securities Firms

4,412

1,505

2,907

—

—

3

—

(102)

(256)

149,117130,488

18,095

370

164

1,015

10

(6,655)(1,291)

783,126 $

585,111 $

183,429 $13,201 $

1,385 $

1,611 $

10 $ (20,681) $All other(c)Subtotal$

Loans held-for-sale and loans at fair
value

3,965

Receivables from customers and other

13,372

Total(d)$(16,580)

800,463(a) The industry rankings presented in the table as of December 31, 2015, are based on the industry rankings of the corresponding exposures at
December 31, 2016, not actual rankings of such exposures at December 31, 2015.
(b) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2016 and 2015, noted above, theFirm held: $9.1 billion and $7.6 billion, respectively, of trading securities; $31.6 billion and $33.6 billion, respectively, of AFS securities; and $14.5 billion
and $12.8 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, see Note 3 and Note 12.
(c) All other includes: individuals; SPEs; holding companies; and private education and civic organizations, representing approximately 56%, 36%, 4% and
4%, respectively, at December 31, 2016, and 54%, 37%, 5% and 4%, respectively, at December 31, 2015.
(d) Excludes cash placed with banks of $380.2 billion and$351.0 billion, at December 31, 2016 and 2015, respectively, which is predominantly placed withvarious central banks, primarily Federal Reserve Banks.
(e) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against
derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(f) Represents the net notional amounts of protection purchased and sold through credit derivatives used to manage the credit exposures; these derivatives
do not qualify for hedge accounting under U.S. GAAP. The All other category includes purchased credit protection on certain credit indices.

JPMorgan Chase & Co./2016 Annual Report99Management’s discussion and analysis
Presented below is a discussion of certain industries towhich the Firm has significant exposures and/or which
present actual or potential credit concerns.
Real Estate
Exposure to the Real Estate industry was approximately
16.1% and 14.6% of the Firm’s total wholesale exposure asof December 31, 2016 and 2015, respectively. Exposure to
this industry increased by $18.2 billion, or 16%, in 2016 to$135.0 billion primarily driven by Commercial Banking. The
investment-grade percentage of the portfolio increased to77% in 2016, up from 75% in 2015. As of December 31,

2016, $106.3 billion of the exposure was drawn, of which
83% was investment-grade, and 83% of the $135.0 billion
exposure was secured. As of December 31, 2016, $80.1
billion of the $135.0 billion was multifamily, largely in
California; of the $80.1 billion, 82% was investment-grade
and 98% was secured. For further information oncommercial real estate loans, see Note 14.
Oil & Gas and Natural Gas Pipelines
The following table presents Oil & Gas and Natural Gas
Pipeline exposures as of December 31, 2016, andDecember 31, 2015.
December 31, 2016

(in millions, except ratios)

Loans andLending-related
Commitments

Derivative
Receivables

Exploration & Production (“E&P”) and Oilfield Services(a)

$

1,256

$

622
1,878
106
1,984

$

20,829Other Oil & Gas(b)Total Oil & Gas
Natural Gas Pipelines(c)Total Oil & Gas and Natural Gas Pipelines$

17,392
38,221
4,253
42,474(in millions, except ratios)

Loans andLending-related
Commitments

Creditexposure%
Investmentgrade% Drawn$

22,085

26%

34%

$

18,01440,0994,359
44,458

71
46
66
48

30
33
30
32

%
Investmentgrade% Drawn

44%
76
58
64
59

36%
27
32
21
31

December 31, 2015

E&P and Oilfield Services(a)Other Oil & Gas(b)Total Oil & Gas
Natural Gas Pipelines(c)Total Oil & Gas and Natural Gas Pipelines$$

23,055
17,12040,175
4,093
44,268Derivative
Receivables
$

$

400
1,502
1,902
158
2,060

Creditexposure$$

23,455
18,622
42,0774,251
46,328(a) Noninvestment-grade exposure to E&P and Oilfield Services is largely secured.
(b) Other Oil & Gas includes Integrated Oil & Gas companies, Midstream/Oil Pipeline companies and refineries.
(c) Natural Gas Pipelines is reported within the Utilities Industry.

Exposure to the Oil & Gas and Natural Gas Pipelines portfolios was approximately 5.3% and 5.8% of the Firm’s total wholesale
exposure as of December 31, 2016 and 2015, respectively. Exposure to these industries decreased by $1.9 billion in 2016 to$44.5 billion; of the $44.5 billion, $14.4 billion was drawn at year-end. As of December 31, 2016, approximately $21.4 billionof the exposure was investment-grade, of which approximately $5.3 billion was drawn, and approximately $23.1 billion of the
exposure was noninvestment grade, of which approximately $9.0 billion was drawn; 21% of the total exposure to the Oil & Gas
and Natural Gas Pipelines industries was criticized. Secured lending, of which approximately half is reserve-based lending to
the Exploration & Production sub-sector of the Oil & Gas industry, was $14.3 billion as of December 31, 2016; 44% of the
secured lending exposure was drawn. Exposure to commercial real estate, which is reported within the Real Estate industry, incertain areas of Texas, California and Colorado that are deemed sensitive to the Oil & Gas industry, was $4.5 billion as ofDecember 31, 2016. While the overall trends and sentiment have been stabilizing, the Firm continues to actively monitor andmanage its exposure to these portfolios.

100

JPMorgan Chase & Co./2016 Annual ReportMetals & Mining
Exposure to the Metals & Mining industry wasapproximately 1.6% and 1.8% of the Firm’s total wholesale
exposure as of December 31, 2016 and 2015, respectively.
Exposure to the Metals & Mining industry decreased by$630 million in 2016 to $13.4 billion, of which $4.4 billion
was drawn. The portfolio largely consisted of exposure in
North America, and was concentrated in the Steel andDiversified Mining sub-sectors. Approximately 41% and
46% of the exposure in the Metals & Mining portfolio wasinvestment-grade as of December 31, 2016 andDecember 31, 2015, respectively. While the overall trends
and sentiment have been stabilizing, the Firm continues toactively monitor and manage its exposure to this industry.
Loans
In the normal course of its wholesale business, the Firm
provides loans to a variety of customers, ranging from large
corporate and institutional clients to high-net-worth
individuals. For further discussion on loans, including
information on credit quality indicators and sales of loans,see Note 14.
The following table presents the change in the nonaccrualloan portfolio for the years ended December 31, 2016 and2015. Wholesale nonaccrual loans increased primarily
driven by downgrades in the Oil & Gas portfolio.
Wholesale nonaccrual loan activity(a)Year ended December 31, (in millions)
Beginning balance

2016
$

2015

1,016 $

624

2,981

1,307

Paydowns and other

1,148

534

Gross charge-offs

385

87

Returned to performing status

242

286

Additions
Reductions:

159

8

Total reductions

Sales

1,934

915

Net changes

1,047

392

2,063 $

1,016

Ending balance$(a) Loans are placed on nonaccrual status when management believes full
payment of principal or interest is not expected, regardless of delinquency
status, or when principal or interest have been in default for a period of 90days or more unless the loan is both well-secured and in the process ofcollection.

JPMorgan Chase & Co./2016 Annual Report

The following table presents net charge-offs/recoveries,
which are defined as gross charge-offs less recoveries, forthe years ended December 31, 2016 and 2015. The
amounts in the table below do not include gains or losses
from sales of nonaccrual loans.
Wholesale net charge-offs/(recoveries)
Year ended December 31,(in millions, except ratios)

2016

2015

$ 371,778$ 337,407

Loans – reported
Average loans retained
Gross charge-offs

398

95

Gross recoveries

(57)

(85)

Net charge-offs

341

10

Net charge-off rate

0.09%

—%

Lending-related commitments
The Firm uses lending-related financial instruments, such ascommitments (including revolving credit facilities) andguarantees, to meet the financing needs of its customers.
The contractual amounts of these financial instruments
represent the maximum possible credit risk should thecounterparties draw down on these commitments or the
Firm fulfill its obligations under these guarantees, and thecounterparties subsequently fail to perform according to
the terms of these contracts.
In the Firm’s view, the total contractual amount of thesewholesale lending-related commitments is not
representative of the Firm’s future credit exposure or
funding requirements. In determining the amount of credit
risk exposure the Firm has to wholesale lending-related
commitments, the Firm has estimated a loan-equivalentamount for each commitment. The loan-equivalent amountof the Firm’s lending-related commitments was $204.6
billion and $212.4 billion as of December 31, 2016 and2015, respectively.
Clearing services
The Firm provides clearing services for clients entering into
securities and derivative transactions. Through theprovision of these services the Firm is exposed to the risk of
non-performance by its clients and may be required toshare in losses incurred by central counterparties. Where
possible, the Firm seeks to mitigate its credit risk to its
clients through the collection of adequate margin at
inception and throughout the life of the transactions andcan also cease provision of clearing services if clients do notadhere to their obligations under the clearing agreement.
For further discussion of clearing services, see Note 29.

101

Management’s discussion and analysis
Derivative contracts
In the normal course of business, the Firm uses derivative
instruments predominantly for market-making activities.
Derivatives enable customers to manage exposures tofluctuations in interest rates, currencies and other markets.
The Firm also uses derivative instruments to manage its
own credit and other market risk exposure. The nature of
the counterparty and the settlement mechanism of thederivative affect the credit risk to which the Firm is
exposed. For OTC derivatives the Firm is exposed to thecredit risk of the derivative counterparty. For exchangetraded derivatives (“ETD”), such as futures and options and“cleared” over-the-counter (“OTC-cleared”) derivatives, theFirm is generally exposed to the credit risk of the relevant
CCP. Where possible, the Firm seeks to mitigate its credit
risk exposures arising from derivative transactions throughthe use of legally enforceable master netting arrangements
and collateral agreements. For further discussion ofderivative contracts, counterparties and settlement types,
see Note 6.
The following table summarizes the net derivative
receivables for the periods presented.
Derivative receivables
December 31, (in millions)

2016

2015

28,302 $26,363Credit derivatives

1,294

1,423

Foreign exchange

23,271

17,177

Equity

4,939

5,529

Commodity

6,272

9,185

Total, net of cash collateral

64,07859,677(22,705)(16,580)

41,373 $43,097

Interest rate$

Liquid securities and other cash collateral
held against derivative receivables(a)Total, net of all collateral$(a) Includes collateral related to derivative instruments where an appropriate
legal opinion has not been either sought or obtained.

Derivative receivables reported on the Consolidated balance
sheets were $64.1 billion and $59.7 billion at
December 31, 2016 and 2015, respectively. These amounts
represent the fair value of the derivative contracts after
giving effect to legally enforceable master netting
agreements and cash collateral held by the Firm. However,in management’s view, the appropriate measure of current
credit risk should also take into consideration additionalliquid securities (primarily U.S. government and agency
securities and other group of seven nations (“G7”)government bonds) and other cash collateral held by the
Firm aggregating $22.7 billion and $16.6 billion at
December 31, 2016 and 2015, respectively, that may be
used as security when the fair value of the client’s exposure
is in the Firm’s favor. The change in derivative receivables
was predominantly related to client-driven market-making
activities in CIB. The increase in derivative receivables
reflected the impact of market movements, which increased
foreign exchange receivables, partially offset by reduced
commodity derivative receivables.

102

In addition to the collateral described in the preceding
paragraph, the Firm also holds additional collateral(primarily cash, G7 government securities, other liquid
government-agency and guaranteed securities, andcorporate debt and equity securities) delivered by clients at
the initiation of transactions, as well as collateral related tocontracts that have a non-daily call frequency and collateralthat the Firm has agreed to return but has not yet settled asof the reporting date. Although this collateral does not
reduce the balances and is not included in the table above,it is available as security against potential exposure that
could arise should the fair value of the client’s derivativetransactions move in the Firm’s favor. The derivative
receivables fair value, net of all collateral, also does notinclude other credit enhancements, such as letters of credit.
For additional information on the Firm’s use of collateralagreements, see Note 6.
While useful as a current view of credit exposure, the net
fair value of the derivative receivables does not capture thepotential future variability of that credit exposure. To
capture the potential future variability of credit exposure,
the Firm calculates, on a client-by-client basis, threemeasures of potential derivatives-related credit loss: Peak,
Derivative Risk Equivalent (“DRE”), and Average exposure(“AVG”). These measures all incorporate netting andcollateral benefits, where applicable.
Peak represents a conservative measure of potential
exposure to a counterparty calculated in a manner that is
broadly equivalent to a 97.5% confidence level over the lifeof the transaction. Peak is the primary measure used by the
Firm for setting of credit limits for derivative transactions,senior management reporting and derivatives exposure
management. DRE exposure is a measure that expresses therisk of derivative exposure on a basis intended to beequivalent to the risk of loan exposures. DRE is a lessextreme measure of potential credit loss than Peak and isused for aggregating derivative credit risk exposures withloans and other credit risk.
Finally, AVG is a measure of the expected fair value of the
Firm’s derivative receivables at future time periods,
including the benefit of collateral. AVG exposure over the
total life of the derivative contract is used as the primary
metric for pricing purposes and is used to calculate credit
capital and the CVA, as further described below. The threeyear AVG exposure was $31.1 billion and $32.4 billion at
December 31, 2016 and 2015, respectively, compared with
derivative receivables, net of all collateral, of $41.4 billion
and $43.1 billion at December 31, 2016 and 2015,
respectively.
The fair value of the Firm’s derivative receivables
incorporates an adjustment, the CVA, to reflect the credit
quality of counterparties. The CVA is based on the Firm’s
AVG to a counterparty and the counterparty’s credit spreadin the credit derivatives market. The primary components ofchanges in CVA are credit spreads, new deal activity or
unwinds, and changes in the underlying market
environment. The Firm believes that active risk
management is essential to controlling the dynamic credit
JPMorgan Chase & Co./2016 Annual Reportrisk in the derivatives portfolio. In addition, the Firm’s risk
management process takes into consideration the potential
impact of wrong-way risk, which is broadly defined as thepotential for increased correlation between the Firm’s
exposure to a counterparty (AVG) and the counterparty’s
credit quality. Many factors may influence the nature andmagnitude of these correlations over time. To the extent
that these correlations are identified, the Firm may adjust
the CVA associated with that counterparty’s AVG. The Firmrisk manages exposure to changes in CVA by entering into
credit derivative transactions, as well as interest rate,
foreign exchange, equity and commodity derivativetransactions.

The accompanying graph shows exposure profiles to theFirm’s current derivatives portfolio over the next 10 years
as calculated by the Peak, DRE and AVG metrics. The threemeasures generally show that exposure will decline after
the first year, if no new trades are added to the portfolio.
Exposure profile of derivatives measures
December 31, 2016
(in billions)

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

2016

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

$

$

11,4498,505
13,127
7,308
984
41,3732015(a)% of exposure netof all collateral

Exposure net of
all collateral

28% $
20
32
18
2
100% $

10,371
10,59513,8077,500
824
43,097% of exposure netof all collateral
24%
25
32
17
2
100%

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

As previously noted, the Firm uses collateral agreements tomitigate counterparty credit risk. The percentage of the
Firm’s derivatives transactions subject to collateralagreements — excluding foreign exchange spot trades,
which are not typically covered by collateral agreements
due to their short maturity — was 90% as of December 31,
2016, largely unchanged compared with 87% as ofDecember 31, 2015.
Credit derivatives
The Firm uses credit derivatives for two primary purposes:
first, in its capacity as a market-maker, and second, as an
end-user to manage the Firm’s own credit risk associatedwith various exposures. For a detailed description of credit
derivatives, see Credit derivatives in Note 6.

JPMorgan Chase & Co./2016 Annual Report

Credit portfolio management activities
Included in the Firm’s end-user activities are credit
derivatives used to mitigate the credit risk associated withtraditional lending activities (loans and unfunded
commitments) and derivatives counterparty exposure in the
Firm’s wholesale businesses (collectively, “credit portfolio
management” activities). Information on credit portfolio
management activities is provided in the table below. For
further information on derivatives used in credit portfolio
management activities, see Credit derivatives in Note 6.
The Firm also uses credit derivatives as an end-user tomanage other exposures, including credit risk arising fromcertain securities held in the Firm’s market-making
businesses. These credit derivatives are not included in
credit portfolio management activities; for further
information on these credit derivatives as well as credit
derivatives used in the Firm’s capacity as a market-maker incredit derivatives, see Credit derivatives in Note 6.
103

Management’s discussion and analysis
Credit derivatives used in credit portfolio management
activities
Notional amount ofprotection
purchased (a)December 31, (in millions)

2016

2015

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

Derivative receivables
Credit derivatives used in credit portfolio
management activities

2,430

$

19,684$

22,114

2,289
18,392$

20,681(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,

104

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./2016 Annual ReportALLOWANCE FOR CREDIT LOSSES
JPMorgan Chase’s allowance for loan losses covers both theconsumer (primarily scored) portfolio and wholesale (riskrated) portfolio. The allowance represents management’s
estimate of probable credit losses inherent in the Firm’s
loan portfolio. Management also determines an allowancefor wholesale and certain consumer lending-related
commitments.
For a further discussion of the components of the allowancefor credit losses and related management judgments, see
Critical Accounting Estimates Used by the Firm on pages
132–134 and Note 15.
At least quarterly, the allowance for credit losses isreviewed by the CRO, the CFO and the Controller of theFirm, and discussed with the DRPC and the Audit
Committee. As of December 31, 2016, JPMorgan Chase
deemed the allowance for credit losses to be appropriate
and sufficient to absorb probable credit losses inherent in
the portfolio.

JPMorgan Chase & Co./2016 Annual Report

The consumer allowance for loan losses remained relatively
unchanged from December 31, 2015. Changes to theallowance for loan losses included reductions in theresidential real estate portfolio, reflecting continued
improvements in home prices and lower delinquencies, aswell as runoff in the student loan portfolio. These
reductions were offset by increases in the allowance forloan losses reflecting loan growth in the credit card
portfolio (including newer vintages which, as anticipated,have higher loss rates compared to the overall portfolio), as
well as loan growth in the auto and business banking loan
portfolios. For additional information about delinquencies
and nonaccrual loans in the consumer, excluding credit
card, loan portfolio, see Consumer Credit Portfolio on pages
89–95 and Note 14.
The wholesale allowance for credit losses increased from
December 31, 2015, reflecting the impact of downgrades in
the Oil & Gas and Natural Gas Pipelines portfolios. For
additional information on the wholesale portfolio, see
Wholesale Credit Portfolio on pages 96–104 and Note 14.

105

Management’s discussion and analysis
Summary of changes in the allowance for credit losses
2016
Year ended December 31,(in millions, except ratios)

2015

Consumer,
excludingcredit card

Credit card

Wholesale

$

$

$

Total

Consumer,
excludingcredit card

Credit card

Wholesale

13,555

$

$

$

Total

Allowance for loan losses
Beginning balance at January 1,

5,806

3,434

4,315

$

7,050

3,439

3,696

$ 14,185

Gross charge-offs

1,500

3,799

398

5,697

1,658

3,488

95

5,241

Gross recoveries

(591)

(357)

(57)

(1,005)

(704)

(366)

(85)

(1,155)

Net charge-offs

909

3,442

341

4,692

954

3,122

10

4,086

Write-offs of PCI loans(a)

156

—

—

156

208

—

—

208

Provision for loan losses

467

4,042

571

5,080

(82)

3,122

623

3,663

Other
Ending balance at December 31,

(10)
$

—

5,198

$

308

$

(1)

4,034

$

358

$

(11)

4,544

$

342

$

—

13,776

$

1,008

$

(5)

5,806

$

364

$

3,434

$

460

$

6

1

4,315

$ 13,555

Impairment methodology
Asset-specific(b)

$

274

$

1,098

Formula-based

2,579

3,676

4,202

10,457

2,700

2,974

4,041

PCI

2,311

—

—

2,311

2,742

—

—

2,742
$ 13,555

Total allowance for loan losses

$

5,198

$

4,034

$

4,544

$

13,776

$

5,806

$

3,434

$

4,315

$

14

$

—

$

772

$

786

$

13

$

—

$

609

9,715

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

—

—

281

281

1

—

163

Other

12

—

(1)

11

—

—

—

Ending balance at December 31,

$

26

$

—

$

1,052

$

1,078

$

—

$

—

$

169

$

169

$

14

$

—

$

—

$

—

$

$

622
164
—

772

$

73

$

786

Impairment methodology
Asset-specific$

Formula-based

26

—

883

909

14

—

699

73
713

Total allowance for lending-related
commitments(c)

$

26

$

—

$

1,052

$

1,078

$

14

$

—

$

772

Total allowance for credit losses

$

5,224

$

4,034

$

5,596

$

14,854

$

5,820

$

3,434

$

5,087

$ 14,341

$

786

Memo:
Retained loans, end of period$ 364,406$ 141,711$ 383,790$ 889,907$ 344,355$ 131,387$ 357,050$ 832,792

Retained loans, average

358,486

131,081371,778

861,345

318,612124,274

337,407780,293

PCI loans, end of period

35,679—3

35,68240,998—441,002Credit ratios
Allowance for loan losses to retained loans

1.43%

2.85%

1.18%

1.55%

1.69%

2.61%

1.21%

1.63%

Allowance for loan losses to retained nonaccrualloans(d)

109

NM

233

205

109

NM

437

215

Allowance for loan losses to retained nonaccrualloans excluding credit card

109

NM

233

145

109

NM

437

161

Net charge-off rates

0.25

2.63

0.09

0.54

0.30

2.51

—

0.52

0.88

2.85

1.18

1.34

1.01

2.61

1.21

1.37

Allowance for loan losses to retained
nonaccrual loans(d)

61

NM

233

171

58

NM

437

172

Allowance for loan losses to retained nonaccrualloans excluding credit card

61

NM

233

111

58

NM

437

117

0.28%

2.63%

0.09%

0.57%

0.35%

2.51%

Credit ratios, excluding residential real estate
PCI loans
Allowance for loan losses toretained loans

Net charge-off rates

—%

0.55%

Note: In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures.
(a) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded aspurchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g.,
upon liquidation).
(b) 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.
(c) The allowance for lending-related commitments is reported in accounts payable and other liabilities on the Consolidated balance sheets.
(d) The Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.

106

JPMorgan Chase & Co./2016 Annual ReportProvision for credit losses
For the year ended December 31, 2016, the provision for
credit losses was $5.4 billion, compared with $3.8 billion
for the year ended December 31, 2015.
The total consumer provision for credit losses increased forthe year ended December 31, 2016 when compared withthe prior year. The increase in the provision was driven by:•••

a $920 million increase related to the credit card
portfolio, due to a $600 million addition in theallowance for loan losses, as well as $320 million ofhigher net charge-offs, driven by loan growth, including
growth in newer vintages which, as anticipated, havehigher loss rates compared to the overall portfolio,
a $450 million lower benefit related to the residential
real estate portfolio, as the current year reduction in theConsumer, excluding credit card

The wholesale provision for credit losses increased for theyear ended December 31, 2016 reflecting the impact ofdowngrades in the Oil & Gas and Natural Gas Pipelines
portfolios.

Provision for
lending-related commitments

Provision for loan losses

Year ended December 31,(in millions)

2016
$

467 $

2015
(82) $

allowance for loan losses was lower than the prior year.
The reduction in both periods reflected continued
improvements in home prices and lower delinquencies
anda $150 million increase related to the auto and businessbanking portfolio, due to additions to the allowance forloan losses and higher net charge-offs, reflecting loan
growth in the portfolios.

2014
414

2016
$

2015

Total provision for credit losses

2014

2016
$

467 $

2015
(81) $

2014

— $

1 $

5

—

—

—

4,042

3,122

3,079

419
3,498

Credit card

4,042

3,122

3,079

Total consumer

4,509

3,040

3,493

—

1

5

4,509

3,041

571

623

(269)

281

163

(90)

852

786

(359)

5,080 $

3,663 $

3,224

281 $

164 $

(85) $

5,361 $

3,827 $

3,139

Wholesale
Total

JPMorgan Chase & Co./2016 Annual Report

$

$

107

Management’s discussion and analysis
COUNTRY RISK MANAGEMENTCountry risk is the risk that a sovereign event or action
alters the value or terms of contractual obligations of
obligors, counterparties and issuers or adversely affects
markets related to a particular country. The Firm has acomprehensive country risk management framework forassessing country risks, determining risk tolerance, andmeasuring and monitoring direct country exposures in theFirm. The Country Risk Management group is responsiblefor developing guidelines and policies for managing country
risk in both emerging and developed countries. The Country
Risk Management group actively monitors the various
portfolios giving rise to country risk to ensure the Firm’s
country risk exposures are diversified and that exposurelevels are appropriate given the Firm’s strategy and risk
tolerance relative to a country.
Country risk organization
The Country Risk Management group, part of the
independent risk management function, works in close
partnership with other risk functions to assess and monitor
country risk within the Firm. The Firmwide Risk Executive
for Country Risk reports to the Firm’s CRO.
Country Risk Management is responsible for the following
functions:• Developing guidelines and policies consistent with acomprehensive country risk framework• Assigning sovereign ratings and assessing country risks• Measuring and monitoring country risk exposure andstress across the Firm
• Managing country limits and reporting trends and limit
breaches to senior management• Developing surveillance tools for early identification ofpotential country risk concerns• Providing country risk scenario analysis
Country risk identification and measurement
The Firm is exposed to country risk through its lending anddeposits, investing, and market-making activities, whether
cross-border or locally funded. Country exposure includes
activity with both government and private-sector entities ina country. Under the Firm’s internal country risk
management approach, country exposure is reported basedon the country where the majority of the assets of theobligor, counterparty, issuer or guarantor are located orwhere the majority of its revenue is derived, which may bedifferent than the domicile (legal residence) or country ofincorporation of the obligor, counterparty, issuer orguarantor. Country exposures are generally measured byconsidering the Firm’s risk to an immediate default of thecounterparty or obligor, with zero recovery. Assumptions
are sometimes required in determining the measurement
and allocation of country exposure, particularly in the caseof certain tranched credit derivatives. Different
measurement approaches or assumptions would affect theamount of reported country exposure.
108

Under the Firm’s internal country risk measurement
framework:• Lending exposures are measured at the total committed
amount (funded and unfunded), net of the allowance for
credit losses and cash and marketable securities
collateral received• Deposits are measured as the cash balances placed withcentral and commercial banks• Securities financing exposures are measured at theirreceivable balance, net of collateral received• Debt and equity securities are measured at the fair valueof all positions, including both long and short positions• Counterparty exposure on derivative receivables ismeasured at the derivative’s fair value, net of the fairvalue of the related collateral. Counterparty exposure onderivatives can change significantly because of market
movements• Credit derivatives protection purchased and sold isreported based on the underlying reference entity and ismeasured at the notional amount of protection
purchased or sold, net of the fair value of the recognizedderivative receivable or payable. Credit derivatives
protection purchased and sold in the Firm’s marketmaking activities is measured on a net basis, as suchactivities often result in selling and purchasingprotection related to the same underlying reference
entity; this reflects the manner in which the Firm
manages these exposures
Some activities may create contingent or indirect exposure
related to a country (for example, providing clearing
services or secondary exposure to collateral on securities
financing receivables). These exposures are managed in thenormal course of business through the Firm’s credit,
market, and operational risk governance, rather than
through Country Risk Management.
The Firm’s internal country risk reporting differs from thereporting provided under the FFIEC bank regulatory
requirements. For further information on the FFIEC’sreporting methodology, see Cross-border outstandings on
page 292.

JPMorgan Chase & Co./2016 Annual ReportCountry risk stress testing
The country risk stress framework aims to estimate losses
arising from a country crisis by capturing the impact oflarge asset price movements in a country based on market
shocks combined with counterparty specific assumptions.
Country Risk Management periodically defines and runs ad
hoc stress scenarios for individual countries in response to
specific market events and sector performance concerns.
Country risk monitoring and control
The Country Risk Management group establishes guidelines
for sovereign ratings reviews and limit management.
Country stress and nominal exposures are measured undera comprehensive country limit framework. Country ratingsand limits are actively monitored and reported on a regularbasis. Country limit requirements are reviewed andapproved by senior management as often as necessary, but
at least annually. In addition, the Country Risk Management
group uses surveillance tools, such as signaling models andratings indicators, for early identification of potential
country risk concerns.

Country risk reporting
The following table presents the Firm’s top 20 exposures bycountry (excluding the U.S.) as of December 31, 2016. The
selection of countries is based solely on the Firm’s largest
total exposures by country, based on the Firm’s internalcountry risk management approach, and does not represent
the Firm’s view of any actual or potentially adverse credit
conditions. Country exposures may fluctuate from period toperiod due to client activity and market flows.
The increase in exposure to Germany, Japan andLuxembourg since December 31, 2015 largely reflects
higher Euro and Yen balances, predominantly placed on
deposit at the central banks of these countries, driven bychanging client positions and prevailing market and liquidity
conditions.
Top 20 country exposures
December 31, 2016
(in billions)Lending anddeposits(a)Germany$

Trading andinvesting(b)(c)

Total
exposure

Other(d)46.9 $

15.2 $

United Kingdom

25.0

15.8

0.6

— $

62.1
41.4

Japan

33.9

4.0

0.1

38.0

France

13.0

12.0

0.2

25.2

China

9.8

6.5

0.8

17.1

Canada

10.9

2.6

0.1

13.6

Australia

6.8

5.6

—

12.4

Netherlands

6.3

3.1

1.1

10.5

Luxembourg

10.0

0.2

—

10.2

Brazil

5.0

5.0

—

10.0

Switzerland

7.5

0.6

1.6

9.7

India

3.8

4.5

0.4

8.7

Italy

3.3

3.7

—

7.0

Korea

3.9

2.3

0.8

7.0

Hong Kong

2.1

1.4

1.9

5.4

Singapore

2.5

1.3

1.2

5.0

Mexico

3.1

1.4

—

4.5

Saudi Arabia

3.5

0.8

—

4.3

United ArabEmirates

3.2

1.1

—

4.3

Ireland

1.6

0.3

2.3

4.2

(a) Lending and deposits includes loans and accrued interest receivable(net of collateral and the allowance for loan losses), deposits withbanks (including central banks), acceptances, other monetary assets,
issued letters of credit net of participations, and unused commitments
to extend credit. Excludes intra-day and operating exposures, such as
from settlement and clearing activities.
(b) Includes market-making inventory, AFS securities, counterparty
exposure on derivative and securities financings net of collateral andhedging.
(c) Includes single reference entity (“single-name”), index and tranchedcredit derivatives for which one or more of the underlying reference
entities is in a country listed in the above table.
(d) Includes capital invested in local entities and physical commodity
inventory.

JPMorgan Chase & Co./2016 Annual Report109Management’s discussion and analysis
LIQUIDITY RISK MANAGEMENT
Liquidity risk is the risk that the Firm will be unable to meetits contractual and contingent obligations or that it does nothave the appropriate amount, composition and tenor offunding and liquidity to support its assets and liabilities.
Liquidity risk oversight
The Firm has a liquidity risk oversight function whose
primary objective is to provide assessment, measurement,
monitoring, and control of liquidity risk across the Firm.
Liquidity risk oversight is managed through a dedicatedfirmwide Liquidity Risk Oversight group. The CIO, Treasury
and Corporate (“CTC”) CRO, who reports to the CRO, as partof the independent risk management function, has
responsibility for firmwide Liquidity Risk Oversight.
Liquidity Risk Oversight’s responsibilities include but are
not limited to:• Establishing and monitoring limits, indicators, andthresholds, including liquidity appetite tolerances;• Defining, monitoring, and reporting internal firmwide
and material legal entity liquidity stress tests, andmonitoring and reporting regulatory defined liquidity
stress testing;• Monitoring and reporting liquidity positions, balance
sheet variances and funding activities;• Conducting ad hoc analysis to identify potential
emerging liquidity risks.
Risk governance and measurement
Specific committees responsible for liquidity governanceinclude firmwide ALCO as well as line of business andregional ALCOs, and the CTC Risk Committee. In addition,
the DRPC reviews and recommends to the Board of
Directors, for formal approval, the Firm’s liquidity risk
tolerances, liquidity strategy, and liquidity policy at least
annually. For further discussion of ALCO and other riskrelated committees, see Enterprise-wide Risk Managementon pages 71–75.
Internal Stress testing
Liquidity stress tests are intended to ensure 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 obligations are met and take into
consideration varying levels of access to unsecured andsecured funding markets, estimated non-contractual andcontingent outflows and potential impediments to theavailability and transferability of liquidity between
jurisdictions and material legal entities such as regulatory,
legal or other restrictions. Liquidity outflow assumptions
are modeled across a range of time horizons andcontemplate both market and idiosyncratic stress.
110

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 stock and long-term debt issuances,and the IHC provides funding support to the ongoing
operations of the Parent Company and its subsidiaries, asnecessary. The Firm maintains liquidity at the Parent
Company and the IHC, in addition to liquidity held at theoperating subsidiaries, at levels sufficient to comply withliquidity risk tolerances and minimum liquidity
requirements, to manage through periods of stress where
access to normal funding sources is disrupted.
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,
meet contractual and contingent obligations throughnormal economic cycles as well as during stress events, andto manage an optimal funding mix, and availability ofliquidity sources. The Firm manages liquidity and funding
using a centralized, global approach across its entities,
taking into consideration both their current liquidity profile
and any potential changes over time, in order to optimize
liquidity sources and uses.
In the context of the Firm’s liquidity management, Treasury
and CIO is responsible for:
•

•

•
•

Analyzing and understanding the liquidity characteristicsof the Firm, lines of business and legal entities’ assets
and liabilities, taking into account legal, regulatory, andoperational restrictions;Defining and monitoring firmwide and legal entityspecific liquidity strategies, policies, guidelines, andcontingency funding plans;Managing liquidity within approved liquidity risk
appetite tolerances and limits;
Setting transfer pricing in accordance with underlying
liquidity characteristics of balance sheet assets andliabilities as well as certain off-balance sheet items.

Contingency funding plan
The Firm’s contingency funding plan (“CFP”), which isreviewed by ALCO and approved by the DRPC, is acompilation of procedures and action plans for managing
liquidity through stress events. The CFP incorporates thelimits and indicators set by the Liquidity Risk Oversightgroup. These limits and indicators are reviewed regularly toidentify the emergence of risks or vulnerabilities in the
Firm’s liquidity position. The CFP identifies the alternative
contingent liquidity resources available to the Firm in a
stress event.

JPMorgan Chase & Co./2016 Annual Report

LCR and NSFRThe U.S. LCR rule requires the Firm to measure the amountof HQLA held by the Firm in relation to estimated net cash
outflows within a 30-day period during an acute stressevent. The LCR was required to be 90% at January 1, 2016,
increased to a minimum of 100% commencing January 1,
2017. At December 31, 2016, the Firm was compliant with
the Fully Phased-In U.S. LCR.

The following table presents the Firm’s estimated HQLA
included in the U.S. LCR broken out by HQLA-eligible cash
and securities as of December 31, 2016.

On December 19, 2016 the Federal Reserve published final
U.S. LCR public disclosure requirements for certain bankholding companies and nonbank financial companies.
Starting with the second quarter of 2017, the Firm will be
required to disclose quarterly its consolidated LCR pursuant
to the U.S. LCR rule, including the Firm’s average LCR for thequarter and the key quantitative components of the average
LCR in a standardized template, along with a qualitative
discussion of material drivers of the ratio, changes overtime, and causes of such changes.

Eligible securities

The Basel Committee final standard for the net stable
funding ratio (“Basel NSFR”) is intended to measure theadequacy of “available” and “required” amounts of stable
funding over a one-year horizon. Basel NSFR will become aminimum standard by January 1, 2018 and requires that
this ratio be equal to at least 100% on an ongoing basis.
On April 26, 2016, the U.S. NSFR proposal was released forlarge banks and bank holding companies and was largely
consistent with Basel NSFR. The proposed requirement
would apply beginning on January 1, 2018, consistent with
the Basel NSFR timeline.
The Firm estimates it was compliant with the proposed U.S.
NSFR as of December 31, 2016 based on its current
understanding of the proposed rule.
HQLA
HQLA is the amount of assets that qualify for inclusion in
the U.S. LCR. HQLA primarily consists of cash and certain
unencumbered high quality liquid assets as defined in the
final rule.
As of December 31, 2016, the Firm’s HQLA was $524
billion, compared with $496 billion as of December 31,
2015. The increase in HQLA primarily reflects the impact ofsales, maturities and paydowns in non-HQLA-eligible
securities, as well as deposit growth in excess of loan
growth. Certain of these actions resulted in increased
excess liquidity at JPMorgan Chase Bank, N.A. and Chase
Bank USA, N.A. which is excluded from the Firm’s HQLA as
required under the U.S. LCR rules. The Firm’s HQLA may
fluctuate from period to period primarily due to normal
flows from client activity.

JPMorgan Chase & Co./2016 Annual Report

December 31,(in billions)

2016

HQLA
Eligible cash(a)$Total HQLA

(c)

323
201

(b)

$

524

(a) Cash on deposit at central banks.
(b) Predominantly includes U.S. agency MBS, U.S. Treasuries, andsovereign bonds net of applicable haircuts under U.S. LCR rules.
(c) Excludes excess HQLA at JPMorgan Chase Bank, N.A. and Chase Bank
USA, N.A.

As of December 31, 2016, in addition to HQLA reported
above, the Firm had approximately $262 billion of
unencumbered marketable securities, such as equity
securities and fixed income debt securities, available toraise liquidity, if required. This includes HQLA-eligible
securities included as part of the excess liquidity at
JPMorgan Chase Bank, N.A. The Firm also maintains
borrowing capacity at various Federal Home Loan Banks(“FHLBs”), the Federal Reserve Bank discount window andvarious other central banks as a result of collateral pledgedby the Firm to such banks. Although available, the Firm
does not view the borrowing capacity at the Federal
Reserve Bank discount window and the various othercentral banks as a primary source of liquidity. As of
December 31, 2016, the Firm’s remaining borrowing
capacity at various FHLBs and the Federal Reserve Bank
discount window was approximately $221 billion. Thisremaining borrowing capacity excludes the benefit of
securities included in HQLA or other unencumberedsecurities that are currently held at the Federal Reserve
Bank discount window, but for which the Firm has not
drawn liquidity.

Funding
Sources of funds
Management believes that the Firm’s unsecured andsecured funding capacity is sufficient to meet its on- andoff-balance sheet obligations.
The Firm funds its global balance sheet through diverse
sources of funding including a stable deposit franchise as
well as secured and unsecured funding in the capital
markets. The Firm’s loan portfolio ($894.8 billion at
December 31, 2016), is funded with a portion of the Firm’s
deposits ($1,375.2 billion at December 31, 2016)
and through securitizations and, with respect to a portion of
the Firm’s real estate-related loans, with secured
borrowings from the FHLBs. Deposits in excess of theamount utilized to fund loans are primarily invested in the
Firm’s investment securities portfolio or deployed in cash orother short-term liquid investments based on their interest
rate and liquidity risk characteristics. Securities borrowed
or purchased under resale agreements and trading assets111

Management’s discussion and analysis
debt and equity instruments are primarily funded by the
Firm’s securities loaned or sold under agreements torepurchase, trading liabilities–debt and equity instruments,
and a portion of the Firm’s long-term debt andstockholders’ equity. In addition to funding securities
borrowed or purchased under resale agreements andtrading assets-debt and equity instruments, proceeds fromthe Firm’s debt and equity issuances are used to fundcertain loans and other financial and non-financial assets,
or may be invested in the Firm’s investment securities
portfolio. See the discussion below for additional
information relating to Deposits, Short-term funding, andLong-term funding and issuance.

Deposits
The table below summarizes, by line of business, the period-end and average deposit balances as of and for the years ended
December 31, 2016 and 2015.
Deposits

Year ended December 31,

As of or for the year ended December 31,

Average(in millions)
Consumer & Community Banking

2016
$

2015

2015

586,637 $

530,938

618,337 $557,645

Corporate & Investment Bank

412,434

395,228

409,680

414,064

Commercial Banking

179,532

172,470

172,835

184,132

Asset & Wealth Management

161,577

146,766

153,334

149,525

3,299

7,606

5,482

17,1291,327,968 $

1,295,788

Corporate
Total Firm$

1,375,179 $

1,279,715

$

2016

$

A key strength of the Firm is its diversified deposit franchise, through each of its lines of business, which provides a stablesource of funding and limits reliance on the wholesale funding markets. A significant portion of the Firm’s deposits are
consumer deposits, which are considered a stable source of liquidity. Additionally, the majority of the Firm’s wholesale
operating deposits are also considered to be stable sources of liquidity because they are generated from customers thatmaintain operating service relationships with the Firm.
The Firm’s loans-to-deposits ratio was 65% at both December 31, 2016 and 2015.
As of December 31, 2016, total deposits for the Firm were $1,375.2 billion, compared with $1,279.7 billion at December 31,
2015 (61% of total liabilities at each of December 31, 2016 and 2015). The increase was attributable to higher consumer andwholesale deposits. The increase in consumer deposits reflected continuing strong growth from existing and new customers,
and the impact of low attrition rates. The wholesale increase was driven by growth in operating deposits related to client
activity in CIB’s Treasury Services business, and inflows in AWM primarily from business growth and the impact of new rules
governing money market funds.
The Firm believes average deposit balances are generally more representative of deposit trends. The increase in averagedeposits for the year ended December 31, 2016 compared with the year ended December 31, 2015, was predominantly
driven by an increase in consumer deposits, partially offset by a reduction in wholesale non-operating deposits, driven by the
Firm’s actions in 2015 to reduce such deposits. For further discussions of deposit and liability balance trends, see thediscussion of the Firm’s business segments results and the Consolidated Balance Sheet Analysis on pages 51–70 and pages 43–
44, respectively.

112

JPMorgan Chase & Co./2016 Annual Report

The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2016 and 2015,
and average balances for the years ended December 31, 2016 and 2015. For additional information, see the Consolidated
Balance Sheet Analysis on pages 43–44 and Note 21.
Sources of funds (excluding deposits)
As of or for the year ended December 31,(in millions)
Commercial paper:
Wholesale funding
Client cash management
Total commercial paper

Average2016

2016

15,562—
15,562$$

11,738 $—
11,738 $Obligations of Firm-administered multi-seller conduits(a)$2,719 $

Other borrowed funds$

22,705 $$Securities loaned or sold under agreements to repurchase:
Securities sold under agreements to repurchase
Securities loaned(b)Total securities loaned or sold under agreements to repurchase(b)(c)(d)(e)Senior notes

$

2015

2015

$

15,001 $—15,001 $

19,34018,80038,1408,724$

5,153 $

11,961

21,105$

21,139 $28,816$$

149,826 $ 129,598
12,137
16,877
161,963 $ 146,475$

160,458 $13,195
173,653 $

168,163
18,633
186,796$

151,042 $ 149,964$

153,768 $

147,498

Trust preferred securities

2,345

3,969

3,724

4,341

Subordinated debt

21,94025,027

24,22427,31037,29232,813Structured notes
Total long-term unsecured funding$

212,619 $ 211,773$

35,97831,309217,694 $

210,458

Credit card securitization(a)31,181

27,90629,42830,382Other securitizations((a)(f)

1,527

1,760

1,669

1,909

FHLB advances

79,51971,581

73,26070,150

Other long-term secured funding(g)

3,107

5,297

4,619

4,332

108,976 $106,773

Total long-term secured funding$

115,334 $ 106,544

Preferred stock(h)$26,068 $26,06826,068 $24,040$228,122 $ 221,505

224,631 $215,690

Common stockholders’ equity(h)$(a) Included in beneficial interest issued by consolidated variable interest entities on the Firm’s Consolidated balance sheets.
(b) Prior period amounts have been revised to conform with current period presentation.
(c) Excludes federal funds purchased.
(d) Excludes long-term structured repurchase agreements of $1.8 billion and $4.2 billion as of December 31, 2016 and 2015, respectively, and averagebalances of $2.9 billion and $3.9 billion for the years ended December 31, 2016 and 2015, respectively.
(e) Excludes long-term securities loaned of $1.2 billion and $1.3 billion as of December 31, 2016, and December 31, 2015, respectively, and averagebalances of $1.3 billion and $0.9 billion for the years ended December 31, 2016 and 2015, respectively.
(f) Other securitizations includes securitizations of student loans. The Firm’s wholesale businesses also securitize loans for client-driven transactions, which
are not considered to be a source of funding for the Firm and are not included in the table.
(g) Includes long-term structured notes which are secured.
(h) For additional information on preferred stock and common stockholders’ equity see Capital Risk Management on pages 76–85, Consolidated statements ofchanges in stockholders’ equity, Note 22 and Note 23.
(i) During 2015 the Firm discontinued its commercial paper customer sweep cash management program.

JPMorgan Chase & Co./2016 Annual Report

113

(i)

Management’s discussion and analysis
Short-term funding
The Firm’s sources of short-term secured funding primarily
consist of securities loaned or sold under agreements torepurchase. Securities loaned or sold under agreements torepurchase are secured predominantly by high-quality
securities collateral, including government-issued debt andagency MBS, and constitute a significant portion of thefederal funds purchased and securities loaned or sold under
repurchase agreements on the Consolidated balance sheets.
The decrease in the average balance of securities loaned orsold under agreements to repurchase for the year ended
December 31, 2016, compared with the balance at
December 31, 2015, was largely due to lower secured
financing of trading assets-debt and equity instruments in
the CIB related to client-driven market-making activities.
The balances associated with securities loaned or soldunder agreements to repurchase fluctuate over time due tocustomers’ investment and financing activities; the Firm’s
demand for financing; the ongoing management of the mixof the Firm’s liabilities, including its secured and unsecured
financing (for both the investment securities and marketmaking portfolios); and other market and portfolio factors.
Long-term funding and issuanceLong-term funding provides additional sources of stable
funding and liquidity for the Firm. The Firm’s long-term
funding plan is driven by expected client activity, liquidity
considerations, and regulatory requirements, including
TLAC requirements. 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.
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 nonbank
subsidiary funding needs. The Parent Company advances
substantially all net funding proceeds to the IHC. The IHC
does not issue debt to external counterparties. The
following table summarizes long-term unsecured issuanceand maturities or redemptions for the years ended
December 31, 2016 and 2015. For additional information,
see Note 21.

114

Long-term unsecured funding
Year ended December 31,(in millions)

2016

2015

25,639 $19,212

7,063

10,18832,702

29,400Issuance
Senior notes issued in the U.S. market$

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

1,093

3,210

Structured notes

22,86522,165$56,660 $54,775$29,989 $18,454

1,630

1,500

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

3,596

6,908

Structured notes

15,92518,09951,140 $44,961

Total long-term unsecured funding –maturities/redemptions$

The Firm raises secured long-term funding throughsecuritization of consumer credit card loans and advancesfrom the FHLBs.
The following table summarizes the securitization issuanceand FHLB advances and their respective maturities orredemption for the years ended December 31, 2016 and2015.
Long-term secured funding
Year ended
December 31,(in millions)Credit card
securitization
Other securitizations(a)FHLB advances
Other long-term
secured funding(b)Total long-term
secured funding

Issuance
2016

Maturities/Redemptions

2015

2016

$ 8,277 $ 6,807

5,025 $

10,130

—

—

233

248

17,15016,550

9,209

9,960

455

1,105

2,645

383

$ 17,112 $

20,721$ 25,882 $ 24,462

$

2015

(a) Other securitizations includes securitizations of student loans.
(b) Includes long-term structured notes which are secured.

The Firm’s wholesale businesses also securitize loans forclient-driven transactions; those client-driven loan
securitizations are not considered to be a source of funding
for the Firm and are not included in the table above. For
further description of the client-driven loan securitizations,see Note 16.

JPMorgan Chase & Co./2016 Annual ReportCredit ratings
The cost and availability of financing are influenced bycredit ratings. Reductions in these ratings could have an
adverse effect on the Firm’s access to liquidity sources,
increase the cost of funds, trigger additional collateral or
funding requirements and decrease the number of investors
and counterparties willing to lend to the Firm. Additionally,
the Firm’s funding requirements for VIEs and other third-

party commitments may be adversely affected by a decline
in credit ratings. For additional information on the impact ofa credit ratings downgrade on the funding requirements for
VIEs, and on derivatives and collateral agreements, seeSPEs on page 45, and credit risk, liquidity risk and creditrelated contingent features in Note 6 on page 181.

The credit ratings of the Parent Company and the Firm’s principal bank and nonbank subsidiaries as of December 31, 2016,
were as follows.
JPMorgan Chase & Co.

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

J.P. Morgan Securities LLC

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

Moody’s Investors Service

A3

P-2

StableAa3

P-1

StableAa3(a)

P-1

StableStandard & Poor’s

A-

A-2

StableA+

A-1

StableA+

A-1

StableFitch Ratings

A+

F1

StableAA-

F1+StableAA-

F1+StableDecember 31, 2016(a) On February 22, 2017, Moody’s published its updated rating methodologies for securities firms. Subsequently, as a result of this action, J.P. Morgan
Securities LLC’s long-term issuer rating was downgraded by one notch from Aa3 to A1. The short-term issuer rating was unchanged and the outlook
remained stable.

Downgrades of the Firm’s long-term ratings by one or two
notches could result in an increase in its cost of funds, andaccess to certain funding markets could be reduced as
noted above. The nature and magnitude of the impact ofratings downgrades depends on numerous contractual andbehavioral factors (which the Firm believes areincorporated in its liquidity risk and stress testing metrics).
The Firm believes that it maintains sufficient liquidity towithstand a potential decrease in funding capacity due toratings downgrades.

Critical factors in maintaining high credit ratings include astable and diverse earnings stream, strong capital ratios,
strong credit quality and risk management controls, diverse
funding sources, and disciplined liquidity monitoringprocedures. Rating agencies continue to evaluate economic
and geopolitical trends, regulatory developments, future
profitability, risk management practices, and litigation
matters, as well as their broader ratings methodologies.
Changes in any of these factors could lead to changes in the
Firm’s credit ratings.

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.

Although the Firm closely monitors and endeavors tomanage, to the extent it is able, factors influencing its credit
ratings, there is no assurance that its credit ratings will not
be changed in the future.

JPMorgan Chase & Co./2016 Annual Report115Management’s discussion and analysis
MARKET RISK MANAGEMENT
Market risk is the risk of loss arising from potential adversechanges in the value of the Firm’s assets and liabilities
resulting from changes in market variables such as interest
rates, foreign exchange rates, equity prices, commodity
prices, implied volatilities or credit spreads.
Market Risk Management
Market Risk Management monitors market risks throughout
the Firm and defines market risk policies and procedures.
The Market Risk Management function reports to the Firm’sCRO.
Market Risk Management seeks to manage risk, facilitate
efficient risk/return decisions, reduce volatility in operating
performance and provide transparency into the Firm’s
market risk profile for senior management, the Board of
Directors and regulators. Market Risk Management is
responsible for the following functions:•

Establishment of a market risk policy framework•

Independent measurement, monitoring and control ofline of business and firmwide market risk•

Definition, approval and monitoring of limits•

Performance of stress testing and qualitative risk
assessments

Risk measurement
Tools used to measure risk
Because no single measure can reflect all aspects of market
risk, the Firm uses various metrics, both statistical andnonstatistical, to assess risk including:
•

VaR

•

Economic-value stress testing•

Nonstatistical risk measures•

Loss advisories•

Profit and loss drawdowns•

Earnings-at-risk•

Other sensitivities

116

Risk monitoring and control
Market risk exposure is managed primarily through a seriesof limits set in the context of the market environment andbusiness strategy. In setting limits, the Firm takes into
consideration factors such as market volatility, productliquidity and accommodation of client business andmanagement experience. The Firm maintains different
levels of limits. Corporate level limits include VaR and stresslimits. Similarly, line of business limits include VaR andstress limits and may be supplemented by loss advisories,
nonstatistical measurements and profit and loss
drawdowns. Limits may also be set within the lines ofbusiness, as well at the portfolio or legal entity level.
Market Risk Management sets limits and regularly reviews
and updates them as appropriate, with any changes
approved by line of business management and Market Risk
Management. Senior management, including the Firm’s CEO
and CRO, are responsible for reviewing and approving
certain of these risk limits on an ongoing basis. All limits
that have not been reviewed within specified time periods
by Market Risk Management are escalated to senior
management. The lines of business are responsible foradhering to established limits against which exposures aremonitored and reported.
Limit breaches are required to be reported in a timely
manner to limit approvers, Market Risk Management andsenior management. In the event of a breach, Market Risk
Management consults with Firm senior management andthe line of business senior management to determine theappropriate course of action required to return tocompliance, which may include a reduction in risk in orderto remedy the breach. Certain Firm or line of business-level
limits that have been breached for three business days or
longer, or by more than 30%, are escalated to senior
management and the Firmwide Risk Committee.

JPMorgan Chase & Co./2016 Annual Report

The following table summarizes by line of business the predominant business activities that give rise to market risk, and theprimary market risk management tools utilized to manage those risks.
Risk identification and classification by line of businessLine ofBusiness

Predominant business activities
and related market risks

Positions included in Risk Management
VaR

Positions included inearnings-at-risk

CCB• Services mortgage loans whichgive rise to complex, non-linear
interest rate and basis risk
• Non-linear risk arises primarily
from prepayment options
embedded in mortgages andchanges in the probability of
newly originated mortgage
commitments actually closing• Basis risk results fromdifferences in the relative
movements of the rate indicesunderlying mortgage exposure
and other interest rates• Originates loans and takes
deposits• Mortgage pipeline loans, classified as
derivatives• Warehouse loans, classified as trading
assets – debt instruments• MSRs• Hedges of pipeline loans,
warehouse loans and MSRs, classified
as derivatives• Interest-only securities, classified as
trading assets - debt instruments, andrelated hedges, classified as
derivatives• Marketable equity investments
measured at fair value throughearnings• Retained loan portfolio• Deposits

CIB• Makes markets and services• Trading assets/liabilities – debt and• Retained loan portfolio
clients across fixed income,marketable equity instruments, and• Deposits
foreign exchange, equities andderivatives, including hedges of thecommodities
retained loan portfolio• Market risk arises from changes in • Certain securities purchased, loaned or
market prices (e.g., rates andsold under resale agreements andcredit spreads) resulting in asecurities borrowed
potential decline in net income• Fair value option elected liabilities• Derivative CVA and associated hedges

CB• Engages in traditional wholesalebanking activities which include
extensions of loans and credit
facilities and taking deposits• Risk arises from changes ininterest rates and prepayment
risk with potential for adverse
impact on net interest income andinterest-rate sensitive fees

AWM

• Provides initial capital
investments in products such as
mutual funds, which give rise tomarket risk arising from changes
in market prices in such products

Corporate• Manages the Firm’s liquidity,• Derivative positions measured at fair
funding, structural interest rate
value through noninterest revenue inand foreign exchange risks arisingearnings
from activities undertaken by the • Marketable equity investments
Firm’s four major reportablemeasured at fair value throughbusiness segments
earnings

Positions included in othersensitivity-based measurements• Private-equity investments
measured at fair value• Derivatives DVA/FVA and fairvalue option elected liabilities
DVA• Retained loan portfolio• Deposits• Debt securities held in advance ofdistribution to clients, classified as
trading assets - debt and equity
instruments• Retained loan portfolio• Deposits• Initial seed capital investments
and related hedges, classified as
derivatives• Capital invested alongside thirdparty investors, typically inprivately distributed collective
vehicles managed by AWM (i.e.,
co-investments)• Investment securities
portfolio and related
interest rate hedges• Deposits• Long-term debt andrelated interest rate
hedges• Private equity investments
measured at fair value• Foreign exchange exposure
related to Firm-issued non-USD
long-term debt (“LTD”) andrelated hedges

As part of the Firm’s evaluation and periodic enhancement of its market risk measures, during the third quarter of 2016 theFirm refined the scope of positions included in risk management VaR. In particular, certain private equity positions in the CIB,
exposure arising from non-U.S. dollar denominated funding activities in Corporate, as well as seed capital investments in AWM
were removed from the VaR calculation. Commencing with the third quarter of 2016, exposure arising from these positions is
captured using other sensitivity-based measures, such as a 10% decline in market value or a 1 basis point parallel shift in
spreads, as appropriate. For more information, see Other sensitivity-based measures at page 123. The Firm believes thisrefinement to its reported VaR measures more appropriately captures the risk of its market risk sensitive instruments. Thischange did not impact Regulatory VaR as these positions are not included in the calculation of Regulatory VaR. Regulatory VaR
is used to derive the Firm’s regulatory VaR-based capital requirements under Basel III.

JPMorgan Chase & Co./2016 Annual Report117Management’s discussion and analysis
Value-at-risk
JPMorgan Chase utilizes VaR, a statistical risk measure, toestimate the potential loss from adverse market moves in anormal market environment. The Firm has a single VaR
framework used as a basis for calculating Risk Management
VaR and Regulatory VaR.
The framework is employed across the Firm using historicalsimulation based on data for the previous 12 months. The
framework’s approach assumes that historical changes inmarket values are representative of the distribution ofpotential outcomes in the immediate future. The Firm
believes the use of Risk Management VaR provides a stablemeasure of VaR that is closely aligned to the day-to-day risk
management decisions made by the lines of business, andprovides the appropriate information needed to respond torisk events on a daily basis.
The Firm’s Risk Management VaR is calculated assuming a
one-day holding period and an expected tail-loss
methodology which approximates a 95% confidence level.
Risk Management VaR provides a consistent framework tomeasure risk profiles and levels of diversification acrossproduct types and is used for aggregating risks andmonitoring limits across businesses. Those 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, on average five times every 100 trading days.
The number of VaR back-testing exceptions observed candiffer from the statistically expected number of back-testing
exceptions if the current level of market volatility ismaterially different from the level of market volatility
during the 12 months of historical data used in the VaR
calculation.
Underlying the overall VaR model framework are individual
VaR models that simulate historical market returns forindividual products and/or risk factors. To capture material
market risks as part of the Firm’s risk management
framework, comprehensive VaR model calculations are
performed daily for businesses whose activities give rise tomarket risk. These VaR models are granular and incorporate
numerous risk factors and inputs to simulate daily changes
in market values over the historical period; inputs are
selected based on the risk profile of each portfolio, assensitivities and historical time series used to generate daily
market values may be different across product types or risk
management systems. The VaR model results across all
portfolios are aggregated at the Firm level.

118

Since VaR is based on historical data, it is an imperfectmeasure of market risk exposure and potential losses, and
it is not used to estimate the impact of stressed market
conditions or to manage any impact from potential stressevents. In addition, based on their reliance on available
historical data, limited time horizons, and other factors, VaR
measures are inherently limited in their ability to measurecertain risks and to predict losses, particularly those
associated with market illiquidity and sudden or severe
shifts in market conditions.
For certain products, specific risk parameters are notcaptured in VaR due to the lack of inherent liquidity andavailability of appropriate historical data. The Firm uses
proxies to estimate the VaR for these and other products
when daily time series are not available. It is likely thatusing an actual price-based time series for these products,
if available, would affect the VaR results presented. The
Firm therefore considers other measures such as stresstesting, 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 (see Valuation process in Note 3 forfurther information on the Firm’s valuation process).
Because VaR model calculations require daily data and aconsistent source for valuation, it may not be practical touse the data collected in the VCG monthly valuation process
for VaR model calculations.
The Firm’s VaR model calculations are periodicallyevaluated and enhanced in response to changes in thecomposition of the Firm’s portfolios, changes in market
conditions, improvements in the Firm’s modeling techniquesand measurements, and other factors. Such changes may
affect historical comparisons of VaR results. For information
regarding model reviews and approvals, see Model Risk
Management on page 128.
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./2016 Annual ReportFor additional information on Regulatory VaR and the othercomponents of market risk regulatory capital for the Firm(e.g. VaR-based measure, stressed VaR-based measure andthe respective backtesting), see JPMorgan Chase’s Basel III

Pillar 3 Regulatory Capital Disclosures reports, which areavailable on the Firm’s website at: (http://
investor.shareholder.com/jpmorganchase/basel.cfm).

The table below shows the results of the Firm’s Risk Management VaR measure using a 95% confidence level.
Total VaR
As of or for the year ended December 31,(in millions)
CIB trading VaR by risk type
Fixed income
Foreign exchange
Equities
Commodities and other

2016
Min

Avg.
$

45
12
13
9

$

33
7
5
7

Diversification benefit to CIB trading VaR(36) (a)NM

CIB trading VaR
Credit portfolio VaRDiversification benefit to CIB VaR
CIB VaR4312(10) (a)
45

28
10
NM
32

Consumer & Community Banking VaR
Corporate VaR
Asset & Wealth Management VaR
Diversification benefit to other VaR
Other VaR
Diversification benefit to CIB and other VaR
Total VaR362(3) (a)8(8) (a)
45

1
3
—
NM
4
NM
33

$

$

Max
$

65
27
32
11
NM

(b)

79
16
NM
81

(b)

(b)

(b)

$

6
13
4
NM
16
NM
78

2015
Min

Avg.
$

(b)

(b)

(b)

(b)

42
9
18
10

$

31
6
11
6

(35) (a)NM

4414(9) (a)
49

27
10
NM
34

4
4
3
(3) (a)8(10) (a)
$ 47

2
3
2
NM
5
NM
34

$

At December 31,
2016
2015

Max
$

60
16
26
14
NM

(b)

68
20
NM
71

(b)

(b)

(b)

$

8
7
4
NM
12
NM
67

$

(b)

(b)

(b)

(b)

$

37
14
12
9

$

37
6
21
10

(38) (a)(28) (a)34
11(7) (a)384610(10) (a)4633—(2) (a)4(4) (a)38

453(4) (a)8(9) (a)45$(a) Average portfolio VaR and period-end portfolio VaR were less than the sum of the VaR of the components described above, which is due to portfolio diversification.
The diversification effect reflects the fact that risks are not perfectly correlated.
(b) Designated as NM, because the minimum and maximum may occur on different days for distinct risk components, and hence it is not meaningful to compute a
portfolio-diversification effect.

As discussed on page 117, during the third quarter of 2016
the Firm refined the scope of positions included in Risk
Management VaR. In the absence of these refinements, theaverage VaR, without diversification, for each of thefollowing reported components would have been higher by
the following amounts for the full year 2016: CIB Equities
VaR by $3 million; CIB trading VaR by $2 million; CIB VaR by$3 million; Corporate VaR by $4 million; AWM VaR by $2
million; Other VaR by $4 million; and Total VaR by $3
million. Additionally, the Total VaR at December 31, 2016
would have been higher by $7 million in the absence of
these refinements.
Average Total VaR decreased $2 million for the full year
ending December 31, 2016 as compared with therespective prior year period. The reduction in average
Total VaR is due to the aforementioned scope changes aswell as a lower risk profile in the Equities risk type. Thiswas offset by changes in the risk profiles of the Foreignexchange and Fixed Income risk types. Additionally,
average Credit portfolio VaR declined as a result of lower
exposures arising from select positions.

JPMorgan Chase & Co./2016 Annual Report

The Firm’s average Total VaR diversification benefit was $8
million or 18% of the sum for 2016, compared with $10
million or 21% of the sum for 2015.
The Firm continues to enhance its VaR model calculations
and the time series inputs related to certain asset-backed
products.
VaR can vary significantly as positions change, market
volatility fluctuates, and diversification benefits change.
VaR back-testing
The Firm evaluates the effectiveness of its VaR methodology
by back-testing, which compares the daily Risk Management
VaR results with the daily gains and losses recognized onmarket-risk related revenue.
The Firm’s definition of market risk-related gains and losses
is consistent with the definition used by the banking
regulators under Basel III. Under this definition market riskrelated gains and losses are defined as: gains and losses on
the positions included in the Firm’s Risk Management VaR,
excluding fees, commissions, certain valuation adjustments(e.g., liquidity and DVA), net interest income, and gains andlosses arising from intraday trading.

119

Management’s discussion and analysis
The following chart compares the daily market risk-related gains and losses with the Firm’s Risk Management VaR for the year
ended December 31, 2016. As the chart presents market risk-related gains and losses related to those positions included in
the Firm’s Risk Management VaR, the results in the table below differ from the results of 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, 2016 the Firm observed 5 VaR back-testing
exceptions and posted Market-risk related gains on 151 of the 260 days in this period.
Daily Market Risk-Related Gains and Losses
vs. Risk Management VaR (1-day, 95% Confidence level)
Year ended December 31, 2016
Market Risk-Related Gains and Losses

First Quarter
2016

Second Quarter
2016

Risk Management VaR

Third Quarter
2016

Fourth Quarter2016

For the year ended December 31, 2016, there were 5 back-testing exceptions. The two exceptions that occurred towards the end of June 2016, subsequent to the U.K.
referendum on membership in the European Union, reflect the elevated market volatility observed across multiple asset classes following the outcome of the vote.

120

JPMorgan Chase & Co./2016 Annual ReportOther risk measures
Economic-value stress testing
Along with VaR, stress testing is an important tool inmeasuring and controlling risk. While VaR reflects the riskof loss due to adverse changes in markets using recent
historical market behavior as an indicator of losses, stresstesting is intended to capture the Firm’s exposure tounlikely but plausible events in abnormal markets. The Firm
runs weekly stress tests on market-related risks across thelines of business using multiple scenarios that assume
significant changes in risk factors such as credit spreads,
equity prices, interest rates, currency rates and commodity
prices.
The Firm uses a number of standard scenarios that capture
different risk factors across asset classes including
geographical factors, specific idiosyncratic factors andextreme tail events. The stress framework calculates
multiple magnitudes of potential stress for both market
rallies and market sell-offs for each risk factor andcombines them in multiple ways to capture different market
scenarios. For example, certain scenarios assess thepotential loss arising from current exposures held by the
Firm due to a broad sell off in bond markets or an extreme
widening in corporate credit spreads. The flexibility of thestress testing framework allows risk managers to constructnew, specific scenarios that can be used to form decisions
about future possible stress events.
Stress testing complements VaR by allowing risk managers
to shock current market prices to more extreme levels
relative to those historically realized, and to stress test therelationships between market prices under extreme
scenarios. Stress scenarios are defined and reviewed byMarket Risk Management, and significant changes arereviewed by the relevant LOB Risk Committees and may be
redefined on a periodic basis to reflect current market
conditions.
Stress-test results, trends and qualitative explanations
based on current market risk positions are reported to therespective LOBs and the Firm’s senior management to allow
them to better understand the sensitivity of positions tocertain defined events and to enable them to manage theirrisks with more transparency. Results are also reported to
the Board of Directors.

business and by risk type, and are also used for monitoring
internal market risk limits.
Loss advisories and profit and loss drawdowns
Loss advisories and profit and loss drawdowns are tools
used to highlight trading losses above certain levels of risk
tolerance. Profit and loss drawdowns are defined as thedecline in net profit and loss since the year-to-date peakrevenue level.
Earnings-at-risk
The VaR and sensitivity measures described above illustrate
the economic sensitivity of the Firm’s Consolidated balance
sheets to changes in market variables. The effect of interest
rate exposure on the Firm’s reported net income is also
important as interest rate risk represents one of the Firm’s
significant market risks. Interest rate risk arises not only
from trading activities but also from the Firm’s traditionalbanking activities, which include extension of loans andcredit facilities, taking deposits and issuing debt. The Firmevaluates its structural interest rate risk exposure throughearnings-at-risk, which measures the extent to whichchanges in interest rates will affect the Firm’s net interest
income and certain interest rate-sensitive fees. For asummary by line of business, identifying positions includedin earnings-at-risk, see the table on page 117.
The CTC Risk Committee establishes the Firm’s structuralinterest rate risk policies and market risk limits, which are
subject to approval by the DRPC. Treasury and CIO, working
in partnership with the lines of business, calculates the
Firm’s structural interest rate risk profile and reviews it withsenior management including the CTC Risk Committee andthe Firm’s ALCO. In addition, oversight of structural interest
rate risk is managed through a dedicated risk function
reporting to the CTC CRO. This risk function is responsible
for providing independent oversight and governance aroundassumptions and establishing and monitoring limits forstructural interest rate risk. The Firm manages structuralinterest rate risk generally through its investment securities
portfolio and interest rate derivatives.
Structural interest rate risk can occur due to a variety offactors, including:•

The Firm’s stress testing framework is utilized in calculating
results under scenarios mandated by the Federal Reserve’s
CCAR and ICAAP processes. In addition, the results areincorporated into the quarterly assessment of the Firm’s
Risk Appetite Framework and are also presented to the
DRPC.

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 same
time•

Nonstatistical risk measures
Nonstatistical risk measures include sensitivities tovariables used to value positions, such as credit spreadsensitivities, interest rate basis point values and market
values. These measures provide granular information on the
Firm’s market risk exposure. They are aggregated by line ofDifferences in the amounts by which short-term andlong-term market interest rates change (for example,
changes in the slope of the yield curve)•

The impact of changes in the maturity of various assets,
liabilities or off-balance sheet instruments as interest
rates change

JPMorgan Chase & Co./2016 Annual Report121Management’s discussion and analysis
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 a transfer-pricing system, which takes into
account the elements of interest rate exposure that can be
risk-managed in financial markets. These elements include
asset and liability balances and contractual rates of interest,
contractual principal payment schedules, expected
prepayment experience, interest rate reset dates andmaturities, rate indices used for repricing, and any interest
rate ceilings or floors for adjustable rate products. Alltransfer-pricing assumptions are dynamically reviewed.
The Firm 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. dollar and other currencies(“non-U.S. dollar” currencies). Earnings-at-risk scenarios
estimate the potential change in this baseline, over thefollowing 12 months utilizing multiple assumptions. These
scenarios consider the impact on exposures as a result ofchanges in interest rates from baseline rates, as well as
pricing sensitivities of deposits, optionality and changes in
product mix. The scenarios include forecasted balance sheetchanges, as well as modeled prepayment and reinvestment
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 scenario interest rates comparedwith underlying contractual rates, the time sinceorigination, and other factors which are updated
periodically based on historical experience. The Firm’s
earnings-at-risk scenarios are periodically evaluated andenhanced in response to changes in the composition of the
Firm’s balance sheet, changes in market conditions,improvements in the Firm’s simulation and other factors.

The Firm’s U.S. dollar sensitivities are presented in the tablebelow. The non-U.S. dollar sensitivity scenarios are notmaterial to the Firm’s earnings-at-risk at December 31,
2016 and 2015.
JPMorgan Chase’s 12-month earnings-at-risk sensitivity
profilesU.S. dollar

Instantaneous change in rates(in billions)+200 bps

December 31, 2016
December 31, 2015

$
$

4.0
5.2

$
$

+100 bps-100 bps

2.4
3.1

NM
NM

(a)
(a)

-200 bps
NM
NM

(a)
(a)

(a) Given the current level of market interest rates, downward parallel
100 and 200 basis point earnings-at-risk scenarios are not considered
to be meaningful.

The Firm’s benefit to rising rates on U.S. dollar assets andliabilities is largely a result of reinvesting at higher yields
and assets repricing at a faster pace than deposits.
The Firm’s net U.S. dollar sensitivity to a 200 bps and100 bps instantaneous increase in rates decreased byapproximately $1.2 billion and $700 million, respectively,
when compared to December 31, 2015. The primary driverof that decrease was the updating of the Firm’s baseline toreflect higher interest rates. As higher interest rates arereflected in the Firm’s baselines, the magnitude of thesensitivity to further increases in rates would be expected
to be less significant. The net change in mix in the Firm’s
spot and forecasted balance sheet also contributed to adecrease in the net U.S. dollar sensitivity when compared to
December 31, 2015.
Separately, another U.S. dollar interest rate scenario usedby the Firm — involving a steeper yield curve with long-term
rates rising by 100 basis points and short-term rates
staying at current levels — results in a 12-month benefit to
net interest income of approximately $800 million. The
increase under this scenario reflects the Firm reinvesting at
the higher long-term rates, with funding costs remaining
unchanged. The result of the comparable non-U.S. dollar
scenario was not material to the Firm.
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.

122

JPMorgan Chase & Co./2016 Annual ReportOther sensitivity-based measures
The Firm quantifies the market risk of certain investment and funding activities by assessing the potential impact on net
revenue and OCI due to changes in relevant market variables. For additional information on the positions captured in othersensitivity-based measures, please refer to the Risk identification and classification table on page 117.
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, 2016, as the movement in market parameters across maturities may vary and are
not intended to imply management’s expectation of future deterioration in these sensitivities.
(in millions)
December 31, 2016
Activity

Description

Sensitivity measure

Gain/(Loss)

Investment management activities

Consists of seed capital and related
hedges; and fund co-investments

10% decline in market value

$

(166)

Other investments

Consists of private equity and otherinvestments held at fair value

10% decline in market value

$

(358)

Non-USD LTD Cross-currency basis

Represents the basis risk on derivatives
used to hedge the foreign exchange risk on
the non-USD LTD

1 basis point parallel tightening ofcross currency basis$(7)

Non-USD LTD hedges FX exposure

Primarily represents the foreign exchange
revaluation on the fair value of thederivative hedges

10% depreciation of currency

$

(23)

Funding Spread Risk - Derivatives

Impact of changes in the spread related toderivatives DVA/FVA

1 basis point parallel increase in
spread$(4)

Funding Spread Risk - Fair value option
elected liabilities(a)Impact of changes in the spread related tofair value option elected liabilities DVA

1 basis point parallel increase in
spread$17

Investment Activities

Funding Activities(a) Impact recognized through OCI.

JPMorgan Chase & Co./2016 Annual Report123Management’s discussion and analysis
PRINCIPAL RISK MANAGEMENT
Principal investments are predominantly privately-held
financial assets and instruments, typically representing
ownership or junior capital positions, that have unique risks
due to their illiquidity or for which there is less observable
market or valuation data. Such positions are typicallyintended to be held over extended investment periods and,accordingly, the Firm has no expectation for short-term gain
with respect to these investments. Principal investments
cover multiple asset classes and are made either in standalone investing businesses or as part of a broader businessplatform. Asset classes include tax-oriented investments(e.g., affordable housing and alternative energy
investments), private equity and various debt investments.
Increasingly, new principal investment activity seeks toenhance or accelerate line of business strategic businessinitiatives.

124

The Firm’s principal investments are managed undervarious lines of business and are reflected within therespective LOBs financial results. The Firm’s approach to
managing principal risk is consistent with the Firm’s generalrisk governance structure. A Firmwide risk policy framework
exists for all principal investing activities. All investments
are approved by investment committees that include
executives who are independent from the investing
businesses. The Firm’s independent control functions are
responsible for reviewing the appropriateness of thecarrying value of principal investments in accordance with
relevant policies. Approved levels for such investments are
established for each relevant business in order to manage
the overall size of the portfolios. Industry, geographic andposition level concentration limits are in place and areintended to ensure diversification of the portfolios. The
Firm also conducts stress testing on these portfolios using
specific scenarios that estimate losses based on significant
market moves and/or other risk events.

JPMorgan Chase & Co./2016 Annual Report

COMPLIANCE RISK MANAGEMENT
Compliance risk is the risk of failure to comply withapplicable laws, rules and regulations.
Overview
Each line of business is accountable for managing its
compliance risk. The Firm’s Compliance Organization(“Compliance”), which is independent of the lines ofbusiness, works closely with senior management to provide
independent review, monitoring and oversight of business
operations with a focus on compliance with the legal andregulatory obligations applicable to the offering 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 products
and services, relationships and interactions with clients andcustomers, and employee activities. For example,
compliance risks include those associated with anti-money
laundering compliance, trading activities, market conduct,and complying with the rules and regulations related to theoffering of products and services across jurisdictional
borders, among others.
Other Functions such as Finance (including Tax), Technology
and Human Resources provide oversight of significant
regulatory obligations that are specific to their respective
areas of responsibility.
Compliance implements various practices designed to
identify and mitigate compliance risk by establishingpolicies, testing, monitoring, training and providing
guidance.
In recent years, the Firm has experienced heightened
scrutiny by its regulators of its compliance with regulations,and with respect to its controls and operational processes.
In certain instances, the Firm has entered into Consent
Orders with its regulators requiring the Firm to take certain
specified actions to remediate compliance with regulations
and improve its controls. The Firm expects that such
regulatory scrutiny will continue.

JPMorgan Chase & Co./2016 Annual Report

Governance and oversightCompliance is led by the Firms’ CCO who reports, effective
September 2016, to the Firm’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, fromtime to time, special committees of the Board have been
established to oversee the Firm’s compliance withregulatory Consent Orders.
The Firm has in place a Code of Conduct (the “Code”), andeach employee is given annual training in respect of theCode and is required annually to affirm his or her
compliance with the Code. The Code sets forth the Firm’s
core principles and fundamental values, including that no
employee should ever sacrifice integrity - or give theimpression that he or she has. The Code requires prompt
reporting of any known or suspected violation of the Code,any internal Firm policy, or any law or regulation applicableto the Firm’s business. It also requires the reporting of any
illegal conduct, or conduct that violates the underlying
principles of the Code, by any of the Firm’s employees,
customers, suppliers, contract workers, business partners,
or agents. Specified employees are specially trained anddesignated as “code specialists” who act as a resource toemployees on Code matters. In addition, concerns may bereported anonymously and the Firm prohibits retaliation
against employees for the good faith reporting of any actualor suspected violations of the Code. The Code and theassociated employee compliance program are focused on
the regular assessment of certain key aspects of the Firm’s
culture and conduct initiatives.

125

CONDUCT RISK MANAGEMENT
Conduct risk is the risk that an employee’s action or inaction
causes undue harm to the Firm’s clients and customers,
damages market integrity, undermines the Firm’s
reputation, or negatively impacts the Firm’s culture.
Overview
Each line of business or function is accountable for
identifying and managing its conduct risk to provide
appropriate engagement, ownership and sustainability of aculture consistent with the Firm’s How We Do Business
Principles (“Principles”). The Principles serve as a guide forhow employees are expected to conduct themselves. With
the Principles serving as a guide, the Firm’s Code sets out
the Firm’s expectations for each employee and provides
certain information and the resources to help employees
conduct business ethically and in compliance with the law
everywhere the Firm operates. For further discussion of theCode, see Compliance Risk Management on page 125.
Governance and oversight
The CMDC is the primary Board-level Committee thatoversees the Firm’s culture and conduct programs. The
Audit Committee has responsibility to review the program
established by management that monitors compliance with
the Code. Additionally, the DRPC reviews, at least annually,
the Firm’s qualitative factors included in the Risk Appetite
Framework, including conduct risk. The DRPC also meetsannually with the CMDC to review and discuss aspects of the
Firm’s compensation practices.

126

Conduct risk management is incorporated into various
aspects of people management practices throughout theemployee life cycle, including recruiting, onboarding,training and development, performance management,
promotion and compensation processes. Businesses
undertake annual Risk and Control Self-Assessment(“RCSA”) assessments; and, as part of these RCSA reviews,
they identify their respective key inherent operational risks(including conduct risks), evaluate the design andeffectiveness of their controls, identify control gaps anddevelop associated action plans. The Firm’s Know Your
Employee framework generally addresses how the Firm
manages, oversees and responds to workforce conduct
related matters that may otherwise expose the Firm tofinancial, reputational, compliance and other operating
risks. The Firm also has a HR Control Forum, the primary
purpose of which is to discuss conduct and accountability
for more significant risk and control issues and review,
when appropriate, employee actions including but notlimited to promotion and compensation actions.

JPMorgan Chase & Co./2016 Annual ReportLEGAL RISK MANAGEMENT
Legal risk is the risk of loss or imposition of damages, fines,
penalties or other liability arising from the failure to comply
with a contractual obligation or to comply with laws, rules
or regulations to which the Firm is subject.
Overview
In addition to providing legal services and advice to theFirm, and communicating and helping the lines of businessadjust to the legal and regulatory changes they face,
including the heightened scrutiny and expectations of the
Firm’s regulators, the global Legal function is responsible
for working with the businesses and corporate functions tofully understand and assess their adherence to laws, rules
and regulations. In particular, Legal assists Oversight &Control, Risk, Finance, Compliance and Internal Audit intheir efforts to ensure compliance with all applicable laws
and regulations and the Firm’s corporate standards fordoing business. The Firm’s lawyers also advise the Firm on
potential legal exposures on key litigation and transactional
matters, and perform a significant defense and advocacyrole by defending the Firm against claims and potential
claims and, when needed, pursuing claims against others. In
addition, they advise the Firm’s Conflicts Office which
reviews the Firm’s wholesale transactions that may have thepotential to create conflicts of interest for the Firm.

JPMorgan Chase & Co./2016 Annual Report

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 FCC. The General Counsel’s leadershipteam includes a General Counsel for each line of business,the heads of the Litigation and Corporate & Regulatory
practices, as well as the Firm’s Corporate Secretary. Eachregion (e.g., Latin America, Asia Pacific) has a GeneralCounsel who is responsible for managing legal risk acrossall lines of business and functions in the region.
Legal works with various committees (including new
business initiative and reputation risk committees) and the
Firm’s businesses to protect the Firm’s reputation beyond
any particular legal requirements.

127

MODEL RISK MANAGEMENT
Model risk is the potential for adverse consequences fromdecisions based on incorrect or misused model outputs.
The Firm uses models across various businesses andfunctions. The models are of varying levels of sophistication
and are used for many purposes including, for example, thevaluation of positions and the measurement of risk, such as
assessing regulatory capital requirements, conducting
stress testing, and making business decisions.
Model risks are owned by the users of the models within thevarious businesses and functions in the Firm based on thespecific purposes of such models. Users and developers ofmodels are responsible for developing, implementing andtesting their models, as well as referring models to theModel Risk function for review and approval. Once models
have been approved, model users and developers are
responsible for maintaining a robust operating
environment, and must monitor and evaluate theperformance of the models on an ongoing basis. Model
users and developers may seek to enhance models in
response to changes in the portfolios and in product andmarket developments, as well as to capture improvements
in available modeling techniques and systems capabilities.
The Model Risk function reviews and approves a wide rangeof models, including risk management, valuation andregulatory capital models used by the Firm. The Model Risk
function is independent of model users and developers. The
Firmwide Model Risk Executive reports to the Firm’s CRO.

Models are tiered based on an internal standard according
to their complexity, the exposure associated with the modeland the Firm’s reliance on the model. This tiering is subject
to the approval of the Model Risk function. A model review
conducted by the Model Risk function considers the model’s
suitability for the specific uses to which it will be put. The
factors considered in reviewing a model include whether themodel accurately reflects the characteristics of the productand its significant risks, the selection and reliability ofmodel inputs, consistency with models for similar products,
the appropriateness of any model-related adjustments, andsensitivity to input parameters and assumptions that cannot
be observed from the market. When reviewing a model, theModel Risk function analyzes and challenges the model
methodology and the reasonableness of model assumptions
and may perform or require additional testing, including
back-testing of model outcomes. Model reviews areapproved by the appropriate level of management within
the Model Risk function based on the relevant model tier.
Under the Firm’s Model Risk Policy, the Model Risk function
reviews and approves new models, as well as materialchanges to existing models, prior to implementation in theoperating environment. In certain circumstances, the headof the Model Risk function may grant exceptions to theFirm’s model risk policy to allow a model to be used prior toreview or approval. The Model Risk function may also
require the user to take appropriate actions to mitigate themodel risk if it is to be used in the interim. These actions
will depend on the model and may include, for example,
limitation of trading activity.
For a summary of valuations based on models, see Critical
Accounting Estimates Used by the Firm on pages 132–134
and Note 3.

128

JPMorgan Chase & Co./2016 Annual ReportOPERATIONAL RISK MANAGEMENT
Operational risk is the risk of loss resulting from inadequate
or failed processes or systems, human factors or due toexternal events that are neither market- nor credit-related.
Operational risk is inherent in the Firm’s activities and canmanifest itself in various ways, including fraudulent acts,business interruptions, inappropriate employee behavior,
failure to comply with applicable laws and regulations or
failure of vendors to perform in accordance with theirarrangements. These events could result in financial losses,
litigation and regulatory fines, as well as other damages to
the Firm. The goal is to keep operational risk at appropriate
levels in light of the Firm’s financial strength, thecharacteristics of its businesses, and the markets andregulatory environments in which it operates.
Operational Risk Management Framework
To monitor and control operational risk, the Firm has an
Operational Risk Management Framework which is designed
to enable the Firm to maintain a sound and well-controlled
operational environment. The ORMF is comprised of fourmain components: Governance, Risk Assessment,
Measurement, and Monitoring and Reporting.
Governance
The lines of business and corporate functions are
responsible for owning and managing their operationalrisks. The Firmwide Oversight and Control Group, which
consists of control officers within each line of business andcorporate function, is responsible for the day-to-day
execution of the ORMF.
Line of business and corporate function control committees
oversee the operational risk and control environments of
their respective businesses and functions. These
committees escalate operational risk issues to the FCC, asappropriate. For additional information on the FCC, seeEnterprise Risk Management on pages 71–75.
The Firmwide Risk Executive for Operational Risk
Governance (“ORG”), a direct report to the CRO, is
responsible for defining the ORMF and establishingminimum standards for its execution. Operational Risk
Officers report to both the line of business CROs and to the
Firmwide Risk Executive for ORG, and are independent of
the respective businesses or corporate functions they
oversee.
The Firm’s Operational Risk Appetite Policy is approved by
the DRPC. This policy establishes the Operational Risk
Management Framework for the Firm. The assessments ofoperational risk using this framework are reviewed with the
DRPC.
Risk assessment
The Firm utilizes several tools to identify, assess, mitigate
and manage its operational risk. One such tool is the RCSA
program which is executed by LOBs and corporate functionsin accordance with the minimum standards established by
ORG. As part of the RCSA program, lines of business andcorporate functions identify key operational risks inherent
in their activities, evaluate the effectiveness of relevant
JPMorgan Chase & Co./2016 Annual Reportcontrols in place to mitigate identified risks, and define
actions to reduce residual risk. Action plans are developedfor identified control issues and businesses are held
accountable for tracking and resolving issues in a timely
manner. Operational Risk Officers independently challenge
the execution of the RCSA program and evaluate theappropriateness of the residual risk results.
In addition to the RCSA program, the Firm tracks andmonitors events that have or could lead to actual
operational risk losses, including litigation-related events.
Responsible businesses and corporate functions analyze
their losses to evaluate the efficacy of their control
environment to assess where controls have failed, and to
determine where targeted remediation efforts may berequired. ORG provides oversight of these activities and may
also perform independent assessments of significant
operational risk events and areas of concentrated or
emerging risk.
Measurement
In addition to the level of actual operational risk losses,
operational risk measurement includes operational riskbased capital and operational risk losses under bothbaseline and stressed conditions.
The primary component of the operational risk capital
estimate is the Loss Distribution Approach (“LDA”)
statistical model, which simulates the frequency andseverity of future operational risk loss projections based on
historical data. The LDA model is used to estimate anaggregate operational risk loss over a one-year time
horizon, at a 99.9% confidence level. The LDA model
incorporates actual internal operational risk losses in thequarter following the period in which those losses wererealized, and the calculation generally continues to reflect
such losses even after the issues or business activities
giving rise to the losses have been remediated or reduced.
As required under the Basel III capital framework, the Firm’s
operational risk-based capital methodology, which uses theAdvanced Measurement Approach, incorporates internaland external losses as well as management’s view of tail risk
captured through operational risk scenario analysis, andevaluation of key business environment and internal control
metrics.
The Firm considers the impact of stressed economic
conditions on operational risk losses and develops aforward looking view of material operational risk events
that may occur in a stressed environment. The Firm’s
operational risk stress testing framework is utilized in
calculating results for the Firm’s CCAR and ICAAP processes.
For information related to operational risk RWA, CCAR or
ICAAP, see Capital Risk Management section, pages 76–85.

129

Management’s discussion and analysis
Monitoring and reporting
ORG has established standards for consistent operationalrisk reporting. The standards also reinforce escalation
protocols to senior management and to the Board of
Directors. Operational risk reports are produced on a
firmwide basis as well as by line of business and corporate
function.
Other operational risks
As mentioned previously, operational risk can manifest itself
in various ways. Risks such as Compliance risk, Conduct risk,
Legal risk and Model risk as well as other operational risks,
can lead to losses which are captured through the Firm’s
operational risk measurement processes. More information
on Compliance risk, Conduct risk, Legal risk and Model risk
are discussed on pages 125, 126, 127 and 128,
respectively. Details on other select operational risks areprovided below.
Cybersecurity risk
The Firm devotes significant resources to protect the
security of the Firm’s computer systems, software, networks
and other technology assets. The Firm’s security efforts areintended to protect against cybersecurity attacks byunauthorized parties to obtain access to confidential
information, destroy data, disrupt or degrade service,
sabotage systems or cause other damage. The Firm
continues to make significant investments in enhancing its
cyber defense capabilities and to strengthen its
partnerships with the appropriate government and law
enforcement agencies and other businesses in order tounderstand the full spectrum of cybersecurity risks in theenvironment, enhance defenses and improve resiliency
against cybersecurity threats. Third parties with which the
Firm does business or that facilitate the Firm’s businessactivities (e.g., vendors, exchanges, clearing houses, central
depositories, and financial intermediaries) could also be
sources of cybersecurity risk to the Firm. Third party
cybersecurity incidents such as system breakdowns or
failures, misconduct by the employees of such parties, orcyberattacks could affect their ability to deliver a product orservice to the Firm or result in lost or compromised
information of the Firm or its clients. Clients can also be
sources of cybersecurity risk to the Firm, particularly when
their activities and systems are beyond the Firm’s own
security and control systems. However, where cybersecurity
incidents are due to client failure to maintain the security of
their own systems and processes, clients will generally be
responsible for losses incurred.
To protect the confidentiality, integrity and availability of
the Firm’s infrastructure, resources and information, theFirm leverages the ORMF to ensure risks are identified andmanaged within defined corporate tolerances. The Firm’s
Board of Directors and the Audit Committee are regularly
briefed on the Firm’s cybersecurity policies and practices aswell as its efforts regarding significant cybersecurity events.

attempts hitting record highs. The complexities of these
attacks along with perpetrators’ strategies continue to
evolve. A Payments Control Program has been establishedthat includes Cybersecurity, Operations, Technology, Risk
and the lines of business to manage the risk, implement
controls and provide client education and awarenesstraining. The program monitors and measures payment
fraud activity, evaluates the Firm’s cybersecurity defenses,
limits access to sensitive data, and provides training to both
employees and clients.
Third-party outsourcing risk
To identify and manage the operational risk inherent in its
outsourcing activities, the Firm has a Third-Party Oversight(“TPO”) framework to assist lines of business and corporate
functions in selecting, documenting,onboarding, monitoring and managing their supplier
relationships. The objective of the TPO framework is to holdthird parties to the same high level of operational
performance as is expected of the Firm’s internal
operations. The Third-Party Oversight group is responsible
for Firmwide TPO training, monitoring, reporting andstandards.
Business and technology resilience 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 ensure that
the Firm has the ability to recover its critical business
functions and supporting assets (i.e., staff, technology andfacilities) in the event of a business interruption. The
program includes corporate governance, awareness andtraining, as well as strategic and tactical initiatives to
identify, assess, and manage business interruption andpublic safety risks.
The strength and proficiency of the Firm’s global resiliency
program has played an integral role in maintaining the
Firm’s business operations during and quickly after various
events.
Insurance
One of the ways operational loss may be mitigated isthrough insurance maintained by the Firm. The Firmpurchases insurance to be in compliance with local laws andregulations (e.g., workers compensation), as well as toserve other needs (e.g., property loss and public liability).
Insurance may also be required by third parties with whom
the Firm does business. The insurance purchased isreviewed and approved by senior management.

Payment fraud risk
Payment fraud risk is the risk of external and internal
parties unlawfully obtaining personal benefit at the expenseof the Firm. Over the past year, the risk of payment fraud
has increased across the industry, with the number of
130

JPMorgan Chase & Co./2016 Annual ReportREPUTATION RISK MANAGEMENT
Reputation risk is the risk that an action, transaction,
investment or event will reduce trust in the Firm’s integrity
or competence by its various constituents, including clients,
counterparties, investors, regulators, employees and thebroader public. Maintaining the Firm’s reputation is the
responsibility of each individual employee of the Firm. The
Firm’s Reputation Risk Governance policy explicitly vests
each employee with the responsibility to consider the
reputation of the Firm when engaging in any activity. Since
the types of events that could harm the Firm’s reputation
are so varied across the Firm’s lines of business, each line ofbusiness has a separate reputation risk governance

JPMorgan Chase & Co./2016 Annual Reportinfrastructure in place, which consists of three key
elements: clear, documented escalation criteria appropriate
to the business; a designated primary discussion forum — inmost cases, one or more dedicated reputation risk
committees; and a list of designated contacts, to whomquestions relating to reputation risk should be referred.
Line of business reputation risk governance is overseen by a
Firmwide Reputation Risk Governance function which
provides oversight of the governance infrastructure andprocess to support the consistent identification, escalation,
management and monitoring of reputation risk issues
firmwide.

131

Management’s discussion and analysis
CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM
JPMorgan Chase’s accounting policies and use of estimates
are integral to understanding its reported results. The
Firm’s most complex accounting estimates require
management’s judgment to ascertain the appropriate
carrying value of assets and liabilities. The Firm hasestablished policies and control procedures intended toensure that estimation methods, including any judgments
made as part of such methods, are well-controlled,
independently reviewed and applied consistently fromperiod to period. The methods used and judgments madereflect, among other factors, the nature of the assets or
liabilities and the related business and risk management
strategies, which may vary across the Firm’s businesses andportfolios. In addition, the policies and procedures areintended to ensure that the process for changing
methodologies occurs in an appropriate manner. The Firm
believes its estimates for determining the carrying value of
its assets and liabilities are appropriate. The following is abrief description of the Firm’s critical accounting estimates
involving significant judgments.
Allowance for credit losses
JPMorgan Chase’s allowance for credit losses covers theretained consumer and wholesale loan portfolios, as well as
the Firm’s wholesale and certain consumer lending-related
commitments. The allowance for loan losses is intended toadjust the carrying value of the Firm’s loan assets to reflect
probable credit losses inherent in the loan portfolio as of
the balance sheet date. Similarly, the allowance for lendingrelated commitments is established to cover probable credit
losses inherent in the lending-related commitments
portfolio as of the balance sheet date.
The allowance for credit losses includes a formula-based
component, an asset-specific component, and a component
related to PCI loans. The determination of each of thesecomponents involves significant judgment on a number ofmatters. For further discussion of these components, areasof judgment and methodologies used in establishing the
Firm’s allowance for credit losses, see Note 15.
Allowance for credit losses sensitivity
The Firm’s allowance for credit losses is sensitive tonumerous factors, which may differ depending on theportfolio. Changes in economic conditions or in the Firm’s
assumptions and estimates could affect its estimate ofprobable credit losses inherent in the portfolio at thebalance sheet date. The Firm uses its best judgment toassess these economic conditions and loss data inestimating the allowance for credit losses and theseestimates are subject to periodic refinement based onchanges to underlying external or Firm-specific historical
data. The use of alternate estimates, data sources,
adjustments to modeled loss estimates for model
imprecision and other factors would result in a different
estimated allowance for credit losses.

132

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, 2016,
without consideration of any offsetting or correlated effects
of other inputs in the Firm’s allowance for loan losses:
•

•

•

•

•

For PCI loans, a combined 5% decline in housing prices
and a 100 basis point increase in unemployment rates
from current levels could imply an increase to modeledcredit loss estimates of approximately $600 million.
For the residential real estate portfolio, excluding PCI
loans, a combined 5% decline in housing prices and a
100 basis point increase in unemployment rates fromcurrent levels could imply an increase to modeled
annual loss estimates of approximately $125 million.
For credit card loans, a 100 basis point increase in
unemployment rates from current levels could imply an
increase to modeled annual loss estimates ofapproximately $900 million.
An increase in PD factors consistent with a one-notch
downgrade in the Firm’s internal risk ratings for its
entire wholesale loan portfolio could imply an increasein the Firm’s modeled loss estimates of approximately$2.3 billion.
A 100 basis point increase in estimated LGD for the
Firm’s entire wholesale loan portfolio could imply an
increase in the Firm’s modeled credit loss estimates ofapproximately $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
JPMorgan Chase & Co./2016 Annual Report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 of financial instruments, MSRs and commodities
inventory
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. The majority of such assets and liabilities aremeasured at fair value on a recurring basis. Certain assets
and liabilities are measured at fair value on a nonrecurring
basis, including certain mortgage, home equity and otherloans, where the carrying value is based on the fair value ofthe underlying collateral.
Assets measured at fair value
The following table includes the Firm’s assets measured atfair value and the portion of such assets that are classified
within level 3 of the valuation hierarchy. For further
information, see Note 3.
December 31, 2016
(in billions, except ratio data)
Trading debt and equity instruments
Derivative receivables(a)Trading assets
AFS securities
Loans
MSRs
Private equity investments(b)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
$
308.0
64.1
372.1
238.9
2.2
6.1
1.7
26.4

Total level3 assets
$
7.9
5.8
13.7
0.7
0.6
6.1
1.6
0.5

647.4

23.2

1.6
$
$

649.0
2,491.0

0.8
$

24.0

1.0%
3.7%

(a) For purposes of table above, the derivative receivables total reflects theimpact of netting adjustments; however, the $5.8 billion of derivative
receivables classified as level 3 does not reflect the netting adjustment assuch netting is not relevant to a presentation based on the transparency
of inputs to the valuation of an asset. The level 3 balances would be
reduced if netting were applied, including the netting benefit associatedwith cash collateral.
(b) Private equity instruments represent investments within Corporate.

Valuation
Details of the Firm’s processes for determining fair value
are set out in Note 3. Estimating fair value requires theapplication of judgment. The type and level of judgment
required is largely dependent on the amount of observable
market information available to the Firm. For instruments
valued using internally developed models that use
significant unobservable inputs and are therefore classified
within level 3 of the valuation hierarchy, judgments used toestimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
JPMorgan Chase & Co./2016 Annual Report

In arriving at an estimate of fair value for an instrument
within level 3, management must first determine theappropriate model to use. Second, the lack of observabilityof certain significant inputs requires management to assess
all relevant empirical data in deriving valuation inputs
including, for example, transaction details, yield curves,interest rates, prepayment rates, default rates, volatilities,
correlations, equity or debt prices, valuations ofcomparable instruments, foreign exchange rates and credit
curves. For further discussion of the valuation of level 3
instruments, including unobservable inputs used, seeNote 3.
For instruments classified in levels 2 and 3, management
judgment must be applied to assess the appropriate level ofvaluation adjustments to reflect counterparty credit quality,
the Firm’s creditworthiness, market funding rates, liquidity
considerations, unobservable parameters, and for
portfolios that meet specified criteria, the size of the net
open risk position. The judgments made are typicallyaffected by the type of product and its specific contractual
terms, and the level of liquidity for the product or within themarket as a whole. For further discussion of valuation
adjustments applied by the Firm see Note 3.
Imprecision in estimating unobservable market inputs orother factors can affect the amount of gain or loss recorded
for a particular position. Furthermore, while the Firm
believes its valuation methods are appropriate andconsistent with those of other market participants, themethods and assumptions used reflect management
judgment and may vary across the Firm’s businesses andportfolios.
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of methodologies
or assumptions different than those used by the Firm could
result in a different estimate of fair value at the reporting
date. For a detailed discussion of the Firm’s valuation
process and hierarchy, and its determination of fair value
for individual financial instruments, see Note 3.
Goodwill impairment
Under U.S. GAAP, goodwill must be allocated to reporting
units and tested for impairment at least annually. The Firm’s
process and methodology used to conduct goodwill
impairment testing is described in Note 17.
Management applies significant judgment when estimating
the fair value of its reporting units. Estimates of fair value
are dependent upon estimates of (a) the future earnings
potential of the Firm’s reporting units, including theestimated effects of regulatory and legislative changes, (b)long-term growth rates and (c) the estimated market costof equity. Imprecision in estimating these factors can affectthe estimated fair value of the reporting units.
Based upon the updated valuations for all of its reporting
units, the Firm concluded that the goodwill allocated to its
reporting units was not impaired at December 31, 2016.
The fair values of these reporting units exceeded theircarrying values by approximately 10% - 130% for all
133

Management’s discussion and analysis
reporting units and did not indicate a significant risk of
goodwill impairment based on current projections andvaluations.
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 equity capital requirements, as well as
deterioration in economic or market conditions, adverse
estimates of regulatory or legislative changes or increases
in the estimated market cost of equity, could cause theestimated fair values of the Firm’s reporting units or theirassociated goodwill to decline in the future, which could
result in a material impairment charge to earnings in a
future period related to some portion of the associatedgoodwill.
For additional information on goodwill, see Note 17.
Income taxes
JPMorgan Chase is subject to the income tax laws of thevarious jurisdictions in which it operates, including U.S.
federal, state and local, and non-U.S. jurisdictions. Theselaws are often complex and may be subject to different
interpretations. To determine the financial statement
impact of accounting for income taxes, including theprovision for income tax expense and unrecognized tax
benefits, JPMorgan Chase must make assumptions andjudgments about how to interpret and apply these complex
tax laws to numerous transactions and business events, aswell as make judgments regarding the timing of whencertain items may affect taxable income in the U.S. andnon-U.S. tax jurisdictions.
JPMorgan Chase’s interpretations of tax laws around theworld are subject to review and examination by the various
taxing authorities in the jurisdictions where the Firm
operates, and disputes may occur regarding its view on atax position. These disputes over interpretations with thevarious taxing authorities may be settled by audit,
administrative appeals or adjudication in the court systemsof the tax jurisdictions in which the Firm operates.
JPMorgan Chase regularly reviews whether it may beassessed additional income taxes as a result of theresolution of these matters, and the Firm records additional
reserves as appropriate. In addition, the Firm may revise its
estimate of income taxes due to changes in income tax
laws, legal interpretations, and 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.

performs regular reviews to ascertain whether its deferred
tax assets are realizable. These reviews include
management’s estimates and assumptions regarding futuretaxable income, which also incorporates various tax
planning strategies, including strategies that may beavailable to utilize NOLs before they expire. In connection
with these reviews, if it is determined that a deferred tax
asset is not realizable, a valuation allowance is established.
The valuation allowance may be reversed in a subsequent
reporting period if the Firm determines that, based onrevised estimates of future taxable income or changes intax planning strategies, it is more likely than not that all orpart of the deferred tax asset will become realizable. As of
December 31, 2016, management has determined it ismore likely than not that the Firm will realize its deferred
tax assets, net of the existing valuation allowance.
JPMorgan Chase does not record U.S. federal income taxes
on the undistributed earnings of certain non-U.S.
subsidiaries, to the extent management has determinedsuch earnings have been reinvested abroad for an indefinite
period of time. Changes to the income tax rates applicableto these non-U.S. subsidiaries may have a material impact
on the effective tax rate in a future period if such changes
were to occur.
The Firm adjusts its unrecognized tax benefits as necessary
when additional information becomes available. Uncertain
tax positions that meet the more-likely-than-not recognition
threshold are measured to determine the amount of benefit
to recognize. An uncertain tax position is measured at thelargest amount of benefit that management believes ismore likely than not to be realized upon settlement. It is
possible that the reassessment of JPMorgan Chase’s
unrecognized tax benefits may have a material impact on its
effective income tax rate in the period in which thereassessment occurs.
For additional information on income taxes, see Note 26.
Litigation reserves
For a description of the significant estimates and judgments
associated with establishing litigation reserves, seeNote 31.

The Firm’s provision for income taxes is composed ofcurrent and deferred taxes. Deferred taxes arise fromdifferences between assets and liabilities measured forfinancial reporting versus income tax return purposes.
Deferred tax assets are recognized if, in management’s
judgment, their realizability is determined to be more likely
than not. The Firm has also recognized deferred tax assets
in connection with certain NOLs and tax credits. The Firm
134

JPMorgan Chase & Co./2016 Annual Report

ACCOUNTING AND REPORTING DEVELOPMENTS
Financial Accounting Standards Board (“FASB”) Standards adopted during 2016
Standard

Summary of guidance

Effects on financial statements

Amendments to theconsolidation analysis• Eliminates the deferral issued by the FASB in February 2010 of
VIE-related accounting requirements for certain investment funds,
including mutual funds, private equity funds and hedge funds.

• Adopted January 1, 2016.

• Amends the evaluation of fees paid to a decision-maker or a service
provider, and exempts certain money market funds fromconsolidation.

• For further information, see Note 1.

Improvements toemployee share-based
payment accounting• Requires that all excess tax benefits and tax deficiencies thatpertain to employee stock-based incentive payments be recognizedwithin income tax expense in the Consolidated statements ofincome, rather than within additional paid-in capital.

• Adopted January 1, 2016.

Measuring thefinancial assets andfinancial liabilities of aconsolidated
collateralized
financing entity• Provides an alternative for consolidated financing VIEs to elect: (1)to measure their financial assets and liabilities separately under
existing U.S. GAAP for fair value measurement with any differencesin such fair values reflected in earnings; or (2) to measure boththeir financial assets and liabilities using the more observable ofthe fair value of the financial assets or the fair value of the financial
liabilities.

• Adopted January 1, 2016.

Recognition andmeasurement offinancial assets andfinancial liabilities –DVA to OCI• For financial liabilities where the fair value option has been elected,
the portion of the total change in fair value caused by changes in
the Firm’s own credit risk (i.e., DVA) is required to be presented
separately in OCI.

• Adopted January 1, 2016.

• Requires a cumulative-effect adjustment to retained earnings as of
the beginning of the period of adoption.

JPMorgan Chase & Co./2016 Annual Report• There was no material impact on the Firm’s
Consolidated Financial Statements.

• There was no material impact on the Firm’s
Consolidated Financial Statements.

• There was no material impact on the Firm’s
Consolidated Financial Statements as the Firm hashistorically measured the financial assets andliabilities using the more observable fair value.

• There was no material impact on the Firm’s
Consolidated Financial Statements.
• For additional information about the impact of the
adoption of the new accounting guidance, seeNotes 3, 4 and 25.

135

Management’s discussion and analysis

FASB Standards issued but not yet adopted
Standard

Summary of guidance

Effects on financial statements

Revenue recognition –revenue fromcontracts withcustomers• Requires that revenue from contracts with customers be recognized
upon transfer of control of a good or service in the amount ofconsideration expected to be received.

• Required effective date: January 1, 2018.(a)Issued May 2014

• Changes the accounting for certain contract costs, including
whether they may be offset against revenue in the Consolidated
statements of income, and requires additional disclosures about
revenue and contract costs.
• May be adopted using a full retrospective approach or a modified,cumulative effect approach wherein the guidance is applied only toexisting contracts as of the date of initial application, and to newcontracts transacted after that date.

Recognition andmeasurement offinancial assets andfinancial liabilities• Requires that certain equity instruments be measured at fair value,with changes in fair value recognized in earnings.
• Generally requires a cumulative-effect adjustment to retained
earnings as of the beginning of the reporting period of adoption.

Issued January 2016

LeasesIssued February 2016136

• Requires lessees to recognize all leases longer than twelve months
on the Consolidated balance sheets as lease liabilities withcorresponding right-of-use assets.
• Requires lessees and lessors to classify most leases using principles
similar to existing lease accounting, but eliminates the “bright line”
classification tests.
• Expands qualitative and quantitative disclosures regarding leasingarrangements.
• Requires adoption using a modified cumulative effect approach
wherein the guidance is applied to all periods presented.

• Because the guidance does not apply to revenue
associated with financial instruments, includingloans and securities that are accounted for underother U.S. GAAP, the Firm does not expect the newrevenue recognition guidance to have a material
impact on the elements of its Consolidated
statements of income most closely associated withfinancial instruments, including securities gains,interest income and interest expense.
• The Firm plans to adopt the revenue recognition
guidance in the first quarter of 2018. The Firm’s
implementation efforts include the identification ofrevenue within the scope of the guidance, as well as
the evaluation of revenue contracts and related
accounting policies. While the Firm has not yet
identified any material changes in the timing ofrevenue recognition, the Firm’s review is ongoing,
and it continues to evaluate the presentation ofcertain contract costs (whether presented gross oroffset against noninterest revenue).

• Required effective date: January 1, 2018.
• The Firm is currently evaluating the potential impact
on the Consolidated Financial Statements. The Firm’s
implementation efforts include the identification of
securities within the scope of the guidance, theevaluation of the measurement alternative available
for equity securities without a readily determinable
fair value, and the related impact to accounting
policies, presentation, and disclosures.
• Required effective date: January 1, 2019.(a)• The Firm is currently evaluating the potential impact
on the Consolidated Financial Statements byreviewing its existing lease contracts and service
contracts that may include embedded leases. The
Firm expects to recognize lease liabilities andcorresponding right-of-use assets (at their present
value) related to predominantly all of the $10 billionof future minimum payments required underoperating leases as disclosed in Note 30. However,the population of contracts subject to balance sheet
recognition and their initial measurement remains
under evaluation. The Firm does not expect materialchanges to the recognition of operating lease
expense in its Consolidated statements of income.

JPMorgan Chase & Co./2016 Annual ReportFASB Standards issued but not yet adopted (continued)
Standard

Summary of guidance

Effects on financial statements

Financial instruments credit losses• Replaces existing incurred loss impairment guidance andestablishes a single allowance framework for financial assets
carried at amortized cost (including HTM securities), which willreflect management’s estimate of credit losses over the fullremaining expected life of the financial assets.

• Required effective date: January 1, 2020.(b)Issued June 2016

• Eliminates existing guidance for PCI loans, and requires recognitionof an allowance for expected credit losses on financial assets
purchased with more than insignificant credit deterioration sinceorigination.
• Amends existing impairment guidance for AFS securities toincorporate an allowance, which will allow for reversals of
impairment losses in the event that the credit of an issuer
improves.
• Requires a cumulative-effect adjustment to retained earnings as of
the beginning of the reporting period of adoption.

Classification ofcertain cash receipts
and cash payments inthe statement of cashflows

• The Firm has begun its implementation efforts by
establishing a firmwide, cross-discipline governancestructure. The Firm is currently identifying key
interpretive issues, and is assessing existing credit
loss forecasting models and processes against the
new guidance to determine what modifications may
be required.
• The Firm expects that the new guidance will result in
an increase in its allowance for credit losses due toseveral factors, including:
1. The allowance related to the Firm’s loans andcommitments will increase to cover credit losses
over the full remaining expected life of theportfolio, and will consider expected futurechanges in macroeconomic conditions
2. The nonaccretable difference on PCI loans will berecognized as an allowance, offset by an increasein the carrying value of the related loans
3. An allowance will be established for estimatedcredit losses on HTM securities• The extent of the increase is under evaluation, butwill depend upon the nature and characteristics ofthe Firm’s portfolio at the adoption date, and themacroeconomic conditions and forecasts at that date.

• Provides targeted amendments to the classification of certain cash
flows, including treatment of cash payments for settlement of zerocoupon debt instruments and distributions received from equity
method investments.
• Requires retrospective application to all periods presented.

• Required effective date: January 1, 2018.(a)• The Firm is currently evaluating the potential impact
on the Consolidated Financial Statements.

• Requires inclusion of restricted cash in the cash and cash
equivalents balances in the Consolidated statements of cash flows.
• Requires additional disclosures to supplement the Consolidated
statements of cash flows.
• Requires retrospective application to all periods presented.

• Required effective date: January 1, 2018.(a)• The Firm is currently evaluating the potential impact
on the Consolidated Financial Statements.

• Narrows the definition of a business and clarifies that, to beconsidered a business, the fair value of the gross assets acquired(or disposed of) may not be substantially all concentrated in asingle identifiable asset or a group of similar assets.
• In addition, in order to be considered a business, a set of activities
and assets must include, at a minimum, an input and a substantive
process that together significantly contribute to the ability to create
outputs.

• Required effective date: January 1, 2018.(a)• No material impact is expected because the guidanceis to be applied prospectively, although it isanticipated that after adoption, fewer transactions
will be treated as acquisitions or dispositions of abusiness.

Goodwill• Requires an impairment loss to be recognized when the estimatedfair value of a reporting unit falls below its carrying value.

Issued January 2017

• Eliminates the second condition in the current guidance that
requires an impairment loss to be recognized 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 a material effect on the Consolidated
Financial Statements.
• After adoption, the guidance may result in more
frequent goodwill impairment losses due to theremoval of the second condition.

Issued August 2016
Treatment of
restricted cash on thestatement of cash
flows
Issued November 2016
Definition of abusiness
Issued January 2017(a) Early adoption is permitted.
(b) Early adoption is permitted on January 1, 2019.

JPMorgan Chase & Co./2016 Annual Report137Management’s discussion and analysis

FORWARD-LOOKING STATEMENTS
From time to time, the Firm has made and will makeforward-looking statements. These statements can be
identified by the fact that they do not relate strictly tohistorical or current facts. Forward-looking statements
often use words such as “anticipate,” “target,” “expect,”“estimate,” “intend,” “plan,” “goal,” “believe,” or otherwords of similar meaning. Forward-looking statements
provide JPMorgan Chase’s current expectations or forecastsof future events, circumstances, results or aspirations.
JPMorgan Chase’s disclosures in this Annual Report containforward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995. The Firm
also may make forward-looking statements in its otherdocuments filed or furnished with the SEC. In addition, theFirm’s senior management may make forward-looking
statements orally to investors, analysts, representatives ofthe media and others.
All forward-looking statements are, by their nature, subject
to risks and uncertainties, many of which are beyond the
Firm’s control. JPMorgan Chase’s actual future results may
differ materially from those set forth in its forward-looking
statements. While there is no assurance that any list of risks
and uncertainties or risk factors is complete, below arecertain factors which could cause actual results to differ
from those in the forward-looking statements:
•
•

•

•
•
•
•
•

•
•
•
•
•

Local, regional and global business, economic andpolitical conditions and geopolitical events;
Changes in laws and regulatory requirements, including
capital and liquidity requirements affecting the Firm’s
businesses, and the ability of the Firm to address thoserequirements;
Heightened regulatory and governmental oversight andscrutiny of JPMorgan Chase’s business practices,
including dealings with retail customers;
Changes in trade, monetary and fiscal policies and laws;
Changes in income tax laws and regulations;
Securities and capital markets behavior, includingchanges in market liquidity and volatility;
Changes in investor sentiment or consumer spending or
savings behavior;
Ability of the Firm to manage effectively its capital andliquidity, including approval of its capital plans bybanking regulators;
Changes in credit ratings assigned to the Firm or its
subsidiaries;
Damage to the Firm’s reputation;
Ability of the Firm to deal effectively with an economic
slowdown or other economic or market disruption;
Technology changes instituted by the Firm, its
counterparties or competitors;
The success of the Firm’s business simplification
initiatives and the effectiveness of its control agenda;

138

•

•

•
•
•
•
•

•
•
•
•

•

•

•

Ability of the Firm to develop new products and services,and the extent to which products or services previously
sold by the Firm (including but not limited to mortgages
and asset-backed securities) require the Firm to incur
liabilities or absorb losses not contemplated at theirinitiation or origination;
Acceptance of the Firm’s new and existing products andservices by the marketplace and the ability of the Firm
to innovate and to increase market share;
Ability of the Firm to attract and retain qualified
employees;
Ability of the Firm to control expense;
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 effectively defend itself against
cyberattacks and other attempts by unauthorizedparties to access information of the Firm or its
customers or to disrupt the Firm’s systems; andThe other risks and uncertainties detailed in Part I, Item
1A: Risk Factors in the Firm’s Annual Report on Form
10-K for the year ended December 31, 2016.

Any forward-looking statements made by or on behalf of
the Firm speak only as of the date they are made, andJPMorgan Chase does not undertake to update forwardlooking statements to reflect the impact of circumstances or
events that arise after the date the forward-looking
statements were made. The reader should, however, consult
any further disclosures of a forward-looking nature 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.

JPMorgan Chase & Co./2016 Annual Report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,
2016. In making the assessment, management used the“Internal Control — Integrated Framework” (“COSO 2013”)
promulgated by the Committee of Sponsoring Organizationsof the Treadway Commission (“COSO”).

JPMorgan Chase & Co./2016 Annual Report

Based upon the assessment performed, management
concluded that as of December 31, 2016, 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, 2016.
The effectiveness of the Firm’s internal control overfinancial reporting as of December 31, 2016, 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 28, 2017139

Report of independent registered public accounting firm

To the Board of Directors and Stockholders of JPMorgan
Chase & Co.:In our opinion, the accompanying consolidated balance
sheets and the related consolidated statements of income,comprehensive income, changes in stockholders’ equity andcash flows present fairly, in all material respects, thefinancial position of JPMorgan Chase & Co. and its
subsidiaries (the “Firm”) at December 31, 2016 and 2015
and the results of their operations and their cash flows foreach of the three years in the period ended December 31,
2016 in conformity with accounting principles generally
accepted in the United States of America. Also in our
opinion, the Firm maintained, in all material respects,
effective internal control over financial reporting as ofDecember 31, 2016 based on criteria established inInternal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Firm’s management is responsible
for these financial statements, for maintaining effective
internal control over financial reporting and for its
assessment of the effectiveness of internal control overfinancial reporting, included in the accompanying“Management’s report on internal control over financial
reporting”. Our responsibility is to express opinions onthese financial statements and on the Firm’s internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and performthe audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement
and whether effective internal control over financial
reporting was maintained in all material respects. Our
audits of the financial statements included examining, on atest basis, evidence supporting the amounts and disclosuresin the financial statements, assessing the accounting
principles used and significant estimates made bymanagement, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal

PricewaterhouseCoopers LLP

140

300 Madison Avenue

control over financial reporting, assessing the risk that amaterial weakness exists, and testing and evaluating thedesign and operating effectiveness of internal control basedon the assessed risk. Our audits also included performing
such other procedures as we considered necessary in thecircumstances. We believe that our audits provide a
reasonable basis for our opinions.
A company’s internal control over financial reporting is aprocess designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes inaccordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes
those policies and procedures that (i) pertain to themaintenance of records that, in reasonable detail,accurately and fairly reflect the transactions anddispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements inaccordance with generally accepted accounting principles,
and that receipts and expenditures of the company arebeing made only in accordance with authorizations ofmanagement and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of
the company’s assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control overfinancial reporting may not prevent or detect
misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

February 28, 2017

New York, NY 10017

JPMorgan Chase & Co./2016 Annual ReportConsolidated statements of income

Year ended December 31, (in millions, except per share data)

2016

2015

2014

Revenue
Investment banking fees

$

6,448

$

6,751

$

6,542

Principal transactions

11,566

10,408

10,531

Lending- and deposit-related fees

5,774

5,694

5,801

Asset management, administration and commissions

14,591

15,50915,931

141

202

77

Mortgage fees and related income

2,491

2,513

3,563

Card income

4,779

5,924

6,020

Securities gains

Other income

3,795

3,032

3,013

Noninterest revenue

49,58550,03351,478Interest income

55,90150,97351,531

Interest expense

9,818

7,463

7,897

Net interest income

46,08343,51043,634

Total net revenue

95,66893,543

95,112

Provision for credit losses

5,361

3,827

3,139

Compensation expense

29,97929,75030,160Occupancy expense

3,638

3,768

3,909

Technology, communications and equipment expense

6,846

6,193

5,804

Professional and outside services

6,655

7,002

7,705

Marketing

2,897

2,708

2,550

Other expense

5,756

9,593

11,146

Total noninterest expense

55,77159,014

61,274

Income before income tax expense

34,53630,702

30,699

Income tax expense

9,803

6,260

Noninterest expense

8,954

Net income$

24,733$24,442$

21,745

Net income applicable to common stockholders$

22,583$22,406$

20,077

$

6.24

$

6.05

$

5.33

Net income per common share data
Basic earnings per share
Diluted earnings per share

6.19

6.00

5.29

Weighted-average basic shares

3,618.5

3,700.4

3,763.5

Weighted-average diluted shares

3,649.8

3,732.8

Cash dividends declared per common share

$

1.88

$

1.72

3,797.5$

1.58

The Notes to Consolidated Financial Statements are an integral part of these statements.

JPMorgan Chase & Co./2016 Annual Report141Consolidated statements of comprehensive income
Year ended December 31, (in millions)
Net income

2016$

24,733

2015$

24,442

2014$

21,745

Other comprehensive income/(loss), after–tax
Unrealized gains/(losses) on investment securities(1,105)(2,144)

1,975

Translation adjustments, net of hedges

(2)

(15)

(11)

Cash flow hedges

(56)

51

44

Defined benefit pension and OPEB plans

(28)

111

(1,018)

DVA on fair value option elected liabilities

(330)

—

—

(1,521)(1,997)990

Total other comprehensive income/(loss), after–tax
Comprehensive income$

23,212$

22,445$22,735The Notes to Consolidated Financial Statements are an integral part of these statements.

142

JPMorgan Chase & Co./2016 Annual Report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 $21,506 and $23,141 at fair value)
Securities borrowed (included $0 and $395 at fair value)
Trading assets (included assets pledged of $115,847 and $115,284)
Securities (included $238,891 and $241,754 at fair value and assets pledged of $16,115 and $14,883)
Loans (included $2,230 and $2,861 at fair value)
Allowance for loan losses
Loans, net of allowance for loan losses
Accrued interest and accounts receivable
Premises and equipment
Goodwill
Mortgage servicing rights
Other intangible assets
Other assets (included $7,557 and $7,604 at fair value and assets pledged of $1,603 and $1,286)
Total assets(a)Liabilities
Deposits (included $13,912 and $12,516 at fair value)
Federal funds purchased and securities loaned or sold under repurchase agreements (included $687 and $3,526 at fairvalue)

2016

2015

$

23,873 $365,762
229,967
96,409372,130
289,059
894,765(13,776)
880,989
52,33014,13147,2886,096
862
112,076
2,490,972 $

20,490340,015
212,575
98,721
343,839
290,827
837,299(13,555)
823,744
46,605
14,36247,325
6,608
1,015
105,572
2,351,698$

1,375,179

1,279,715$

Commercial paper
Other borrowed funds (included $9,105 and $9,911 at fair value)
Trading liabilities
Accounts payable and other liabilities (included $9,120 and $4,401 at fair value)
Beneficial interests issued by consolidated VIEs (included $120 and $787 at fair value)
Long-term debt (included $37,686 and $33,065 at fair value)
Total liabilities(a)Commitments and contingencies (see Notes 29, 30 and 31)
Stockholders’ equity
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 2,606,750 shares)
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Shares held in restricted stock units (“RSU”) trust, at cost (472,953 shares)
Treasury stock, at cost (543,744,003 and 441,459,392 shares)
Total stockholders’ equity
Total liabilities and stockholders’ equity$$

165,666

152,678

11,73822,705
136,659
190,543
39,047295,245
2,236,782

15,562
21,105
126,897
177,638
41,879288,651
2,104,125

26,068
4,105
91,627
162,440(1,175)(21)(28,854)254,1902,490,972 $

26,0684,105
92,500146,420
192(21)(21,691)
247,573
2,351,698(a) The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at December 31, 2016 and 2015. The difference between total
VIE assets and liabilities represents the Firm’s interests in those entities, which were eliminated in consolidation.
December 31, (in millions)

2016

AssetsTrading assets

$

Loans

2015
3,185

$

75,614

All other assets

3,321

Total assets

3,736
75,104
2,765$

82,120$81,605$39,047$

41,879$42,688

Liabilities
Beneficial interests issued by consolidated VIEs
All other liabilities

490

Total liabilities$

39,537809

The assets of the consolidated VIEs are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general credit of JPMorgan
Chase. At December 31, 2016 and 2015, the Firm provided limited program-wide credit enhancement of $2.4 billion and $2.0 billion, respectively, related to its Firm-administeredmulti-seller conduits, which are eliminated in consolidation. For further discussion, see Note 16.

The Notes to Consolidated Financial Statements are an integral part of these statements.

JPMorgan Chase & Co./2016 Annual Report143Consolidated statements of changes in stockholders’ equity
Year ended December 31, (in millions, except per share data)

2016

2015

2014

Preferred stock
Balance at January 1$

Issuance of preferred stock
Balance at December 31

26,068$20,063$

11,158

—

6,005

8,905

26,06826,06820,063

4,105

4,105

4,105

92,50093,27093,828

(334)

(436)

(508)

Common stock
Balance at January 1 and December 31
Additional paid-in capital
Balance at January 1
Shares issued and commitments to issue common stock for employee stock-based compensation awards, andrelated tax effects
Other
Balance at December 31

(539)

(334)

(50)

91,62792,50093,270146,420

129,977

115,435

Retained earnings
Balance at January 1
Cumulative effect of change in accounting principle
Net income

(154)

—

—

24,73324,442

21,745(1,647)(1,515)(1,125)

Dividends declared:
Preferred stock
Common stock ($1.88, $1.72 and $1.58 per share for 2016, 2015 and 2014, respectively)
Balance at December 31(6,912)(6,484)(6,078)

162,440

146,420

129,977

192

2,189

1,199

Accumulated other comprehensive income
Balance at January 1
Cumulative effect of change in accounting principle

154

—

—

Other comprehensive income/(loss)(1,521)(1,997)

990

Balance at December 31(1,175)

192

2,189

(21)

(21)

(21)

Balance at January 1(21,691)(17,856)(14,847)

Purchase of treasury stock(9,082)(5,616)(4,760)Shares held in RSU Trust, at cost
Balance at January 1 and December 31
Treasury stock, at cost

Reissuance from treasury stock

1,919

1,781

1,751

Balance at December 31(28,854)(21,691)(17,856)

Total stockholders’ equity$ 254,190$ 247,573$ 231,727

The Notes to Consolidated Financial Statements are an integral part of these statements.

144

JPMorgan Chase & Co./2016 Annual ReportConsolidated statements of cash flows
Year ended December 31, (in millions)

2016

2015

2014

Operating activities
Net income$

24,733$24,442$

21,745Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Provision for credit losses

5,361

3,827

3,139

Depreciation and amortization

5,478

4,940

4,759

Deferred tax expense

4,651

1,333

4,362

Other

1,799

1,785

2,113

Originations and purchases of loans held-for-sale(61,107)(48,109)(67,525)

Proceeds from sales, securitizations and paydowns of loans held-for-sale60,19649,363

71,407(24,814)

Net change in:Trading assets(20,007)62,212

Securities borrowed

2,313

12,165

1,020

Accrued interest and accounts receivable(5,815)22,664(3,637)

Other assets(4,517)(3,701)(9,166)

Trading liabilities

5,198(28,972)

26,818
6,058

3,740

(23,361)

Other operating adjustments

Accounts payable and other liabilities(1,827)(5,122)314

Net cash provided by operating activities

20,196

73,46636,593

Deposits with banks(25,747)

144,462(168,426)

Federal funds sold and securities purchased under resale agreements(17,468)

3,190

30,848Investing activities
Net change in:

Held-to-maturity securities:
Proceeds from paydowns and maturities

6,218

6,099

4,169

Purchases(143)(6,204)(10,345)

Proceeds from paydowns and maturities

65,95076,44890,664

Proceeds from sales

48,59240,444

38,411(123,959)(70,804)(121,504)

Available-for-sale securities:

Purchases
Proceeds from sales and securitizations of loans held-for-investment

15,42918,604

20,115

Other changes in loans, net(80,996)(108,962)(51,749)

All other investing activities, net(2,825)

3,703

2,181

(114,949)

106,980(165,636)

Deposits

97,336(88,678)

89,346

Federal funds purchased and securities loaned or sold under repurchase agreements

13,007(39,415)

10,905

Commercial paper and other borrowed funds(2,461)(57,828)

9,242

Beneficial interests issued by consolidated VIEs

(5,707)(5,632)(834)

Proceeds from long-term borrowings

83,07079,611

78,515

Payments of long-term borrowings(65,275)

Net cash provided by/(used in) investing activities
Financing activities
Net change in:(68,949)(67,247)

Proceeds from issuance of preferred stock

—

5,893

8,847

Treasury stock and warrants repurchased(9,082)(5,616)(4,760)

Dividends paid

(8,476)(7,873)(6,990)

(467)

(726)

(768)

98,271(187,511)

118,228

All other financing activities, net
Net cash provided by/(used in) financing activities
Effect of exchange rate changes on cash and due from banks

(135)

(276)

(1,125)

Net increase/(decrease) in cash and due from banks

3,383(7,341)(11,940)

Cash and due from banks at the beginning of the period

20,49027,831

39,771

Cash and due from banks at the end of the period$

23,873$

20,490$27,831

Cash interest paid

$

9,508

$

7,220

$

8,194

Cash income taxes paid, net

2,405

9,423

1,392

The Notes to Consolidated Financial Statements are an integral part of these statements.

JPMorgan Chase & Co./2016 Annual Report145Notes to consolidated financial statements
Note 1 – Basis of presentation
JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”), a
financial holding company incorporated under Delaware law
in 1968, is a leading global financial services firm and oneof the largest banking institutions in the U.S., with
operations worldwide. The Firm is a leader in investmentbanking, financial services for consumers and small
business, commercial banking, financial transaction
processing and asset management. For a discussion of the
Firm’s business segments, see Note 33.
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.
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.
Effective January 1, 2016, the Firm adopted new
accounting guidance related to the consolidation of legal
entities such as limited partnerships, limited liability
corporations, and securitization structures. The guidance
eliminated the deferral issued by the FASB in February2010 of the accounting guidance for VIEs for certain
investment funds, including mutual funds, private equity
funds and hedge funds. In addition, the guidance amends
the evaluation of fees paid to a decision-maker or a service
provider, and exempts certain money market funds fromconsolidation. Furthermore, asset management funds
structured as limited partnerships or certain limited liability
companies are now evaluated for consolidation as votinginterest entities if the non-managing partners or members
have the ability to remove the Firm as the general partner
or managing member without cause (i.e., kick-out rights)
based on a simple majority vote, or the non-affiliatedpartners or members have rights to participate inimportant decisions. Accordingly, the Firm does notconsolidate these voting interest entities. However, in thelimited cases where the non-managing partners or
members do not have substantive kick-out or participatingrights, the Firm evaluates the funds as VIEs andconsolidates if it is the general partner or managing
member and has a potentially significant variable interest.
There was no material impact on the Firm’s Consolidated
146

Financial Statements upon adoption of this accounting
guidance.
Voting Interest Entities
Voting interest entities are entities that have sufficient
equity and provide the equity investors voting rights thatenable them to make significant decisions relating to theentity’s operations. For these types of entities, the Firm’s
determination of whether it has a controlling interest is
primarily based on the amount of voting equity interests
held. Entities in which the Firm has a controlling financial
interest, through ownership of the majority of the entities’
voting equity interests, or through other contractual rightsthat give the Firm control, are consolidated by the Firm.
Investments in companies in which the Firm has significant
influence over operating and financing decisions (but does
not own a majority of the voting equity interests) areaccounted for (i) in accordance with the equity method of
accounting (which requires the Firm to recognize its
proportionate share of the entity’s net earnings), or (ii) at
fair value if the fair value option was elected. These
investments are generally included in other assets, withincome or loss included in other income.
Certain Firm-sponsored asset management funds are
structured as limited partnerships or limited liability
companies. For many of these entities, the Firm is thegeneral partner or managing member, but the non-affiliatedpartners or members have the ability to remove the Firm as
the general partner or managing member without cause(i.e., kick-out rights), based on a simple majority vote, orthe non-affiliated partners or members have rights toparticipate in important decisions. Accordingly, the Firm
does not consolidate these funds. In the limited cases where
the nonaffiliated partners or members do not havesubstantive kick-out or participating rights, the Firm
consolidates the funds.
The Firm’s investment companies have investments in bothpublicly-held and privately-held entities, including
investments in buyouts, growth equity and venture
opportunities. These investments are accounted for underinvestment company guidelines and accordingly,
irrespective of the percentage of equity ownership interests
held, are carried on the Consolidated balance sheets at fairvalue, and are recorded in other assets.
Variable Interest Entities
VIEs are entities that, by design, either (1) lack sufficient
equity to permit the entity to finance its activities without
additional subordinated financial support from otherparties, or (2) have equity investors that do not have theability to make significant decisions relating to the entity’s
operations through voting rights, or do not have theobligation to absorb the expected losses, or do not have theright to receive the residual returns of the entity.

JPMorgan Chase & Co./2016 Annual Report

The most common type of VIE is an SPE. SPEs are commonlyused in securitization transactions in order to isolate certain
assets and distribute the cash flows from those assets toinvestors. The basic SPE structure involves a company
selling assets to the SPE; the SPE funds the purchase of
those assets by issuing securities to investors. The legal
documents that govern the transaction specify how the cash
earned on the assets must be allocated to the SPE’s
investors and other parties that have rights to those cash
flows. SPEs are generally structured to insulate investors
from claims on the SPE’s assets by creditors of otherentities, including the creditors of the seller of the assets.
The primary beneficiary of a VIE (i.e., the party that has acontrolling financial interest) is required to consolidate theassets and liabilities of the VIE. The primary beneficiary is
the party that has both (1) the power to direct the activitiesof the VIE that most significantly impact the VIE’s economic
performance; and (2) through its interests in the VIE, theobligation to absorb losses or the right to receive benefits
from the VIE that could potentially be significant to the VIE.
To assess whether the Firm has the power to direct theactivities of a VIE that most significantly impact the VIE’s
economic performance, the Firm considers all the facts andcircumstances, including its role in establishing the VIE and
its ongoing rights and responsibilities. This assessment
includes, first, identifying the activities that mostsignificantly impact the VIE’s economic performance; 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 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.
JPMorgan Chase & Co./2016 Annual Report

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 to be presented net when specified
conditions are met, including the existence of a legally
enforceable master netting agreement. The Firm has
elected to net such balances when the specified conditions
are met.
The Firm uses master netting agreements to mitigate
counterparty credit risk in certain transactions, including
derivatives transactions, repurchase and reverse
repurchase agreements, and securities borrowed andloaned agreements. A master netting agreement is a single
contract with a counterparty that permits multiple
transactions governed by that contract to be terminatedand settled through a single payment in a single currency inthe event of a default (e.g., bankruptcy, failure to make arequired payment or securities transfer or deliver collateralor margin when due after expiration of any grace period).
Upon the exercise of termination rights by the nondefaulting party (i) all transactions are terminated, (ii) all
transactions are valued and the positive value or “in themoney” transactions are netted against the negative valueor “out of the money” transactions and (iii) the only
remaining payment obligation is of one of the parties to pay
the netted termination amount. Upon exercise of
repurchase agreement and securities loan default rights ingeneral (i) all transactions are terminated and accelerated,(ii) all values of securities or cash held or to be delivered
are calculated, and all such sums are netted against eachother and (iii) the only remaining payment obligation is of
one of the parties to pay the netted termination amount.

147

Notes to consolidated financial statements
Typical master netting agreements for these types oftransactions also often contain a collateral/marginagreement that provides for a security interest in, or title
transfer of, securities or cash collateral/margin to the party
that has the right to demand margin (the “demanding
party”). The collateral/margin agreement typically requiresa party to transfer collateral/margin to the demanding
party with a value equal to the amount of the margin deficit
on a net basis across all transactions governed by themaster netting agreement, less any threshold. The
collateral/margin agreement grants to the demanding
party, upon default by the counterparty, the right to set-off
any amounts payable by the counterparty against any
posted collateral or the cash equivalent of any posted
collateral/margin. It also grants to the demanding party theright to liquidate collateral/margin and to apply theproceeds to an amount payable by the counterparty.

Note 2 – Business changes and developments
None

For further discussion of the Firm’s derivative instruments,
see Note 6. For further discussion of the Firm’s repurchaseand reverse repurchase agreements, and securities
borrowing and lending agreements, see Note 13.
Statements of cash flows
For JPMorgan Chase’s Consolidated statements of cash
flows, cash is defined as those amounts included in cash
and due from banks.
Significant accounting policies
The following table identifies JPMorgan Chase’s othersignificant accounting policies and the Note and page wherea detailed description of each policy can be found.
Fair value measurement

Note 3

Page 149

Fair value option

Note 4

Page 168

Derivative instruments

Note 6

Page 174

Noninterest revenue

Note 7

Page 187

Interest income and interest expense

Note 8Page 189

Pension and other postretirement
employee benefit plans

Note 9Page 189

Employee stock-based incentives

Note 10

Page 197

Securities

Note 12Page 199

Securities financing activities

Note 13

Page 205

Loans

Note 14

Page 208

Allowance for credit losses

Note 15

Page 227

Variable interest entities

Note 16

Page 232

Goodwill and Mortgage servicing rights

Note 17

Page 240

Premises and equipment

Note 18

Page 244

Long-term debt

Note 21

Page 245

Income taxes

Note 26

Page 250

Off–balance sheet lending-related
financial instruments, guarantees andother commitments

Note 29

Page 255

Litigation

Note 31

Page 262

148

JPMorgan Chase & Co./2016 Annual ReportNote 3 – Fair value measurement
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. These assets and liabilities are predominantly
carried at fair value on a recurring basis (i.e., assets andliabilities that are measured and reported at fair value on
the Firm’s Consolidated balance sheets). Certain assets(e.g., certain mortgage, home equity and other loans where
the carrying value is based on the fair value of theunderlying collateral), liabilities and unfunded lendingrelated commitments are measured at fair value on anonrecurring basis; that is, they are not measured at fairvalue on an ongoing basis but are subject to fair value
adjustments only in certain circumstances (for example,
when there is evidence of impairment).
Fair value is defined as the price that would be received tosell an asset or paid to transfer a liability in an orderlytransaction between market participants at themeasurement date. Fair value is based on quoted market
prices or inputs, where available. If prices or quotes are notavailable, fair value is based on models that consider
relevant transaction characteristics (such as maturity) and
use as inputs observable or unobservable market
parameters, including but not limited to yield curves,interest rates, volatilities, equity or debt prices, foreignexchange rates and credit curves. Valuation adjustments
may be made to ensure that financial instruments arerecorded at fair value, as described below.
The level of precision in estimating unobservable market
inputs or other factors can affect the amount of gain or loss
recorded for a particular position. Furthermore, while theFirm believes its valuation methods are appropriate andconsistent with those of other market participants, themethods and assumptions used reflect management
judgment and may vary across the Firm’s businesses andportfolios.
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 adifferent estimate of fair value at the reporting date.
Valuation process
Risk-taking functions are responsible for providing fair value
estimates for assets and liabilities carried on theConsolidated balance sheets at fair value. The Firm’s VCG,
which is part of the Firm’s Finance function andindependent of the risk-taking functions, is responsible forverifying these estimates and determining any fair value
adjustments that may be required to ensure that the Firm’s
positions are recorded at fair value. The VGF is composed ofsenior finance and risk executives and is responsible foroverseeing the management of risks arising from valuation
activities conducted across the Firm. The VGF is chaired by
the Firmwide head of the VCG (under the direction of the
Firm’s Controller), and includes sub-forums covering the
CIB, CCB, CB, AWM and certain corporate functions including
Treasury and CIO.
JPMorgan Chase & Co./2016 Annual Report

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 are applied for instruments
classified within level 1 of the fair value hierarchy (seebelow for further information on the fair value hierarchy).
For other positions, judgment is required to assess the needfor valuation adjustments to appropriately reflect liquidity
considerations, unobservable parameters, and, for certain
portfolios that meet specified criteria, the size of the net
open risk position. The determination of such adjustments
follows a consistent framework across the Firm:•

Liquidity valuation adjustments are considered where an
observable external price or valuation parameter exists
but is of lower reliability, potentially due to lower market
activity. Liquidity valuation adjustments are 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.

•

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
149

Notes to consolidated financial statements•

be implied from observable market data. Such prices orparameters must be estimated and are, therefore,
subject to management judgment. Unobservableparameter valuation adjustments are applied to reflect
the uncertainty inherent in the resulting valuation
estimate.

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.

Where appropriate, the Firm also applies adjustments to
its estimates of fair value in order to appropriatelyreflect counterparty credit quality (CVA), the Firm’s own
creditworthiness (DVA) and the impact of funding (FVA),
using a consistent framework across the Firm. For more
information on such adjustments see Credit and funding
adjustments on page 164 of this Note.

•

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.

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.

A financial instrument’s categorization within the valuation
hierarchy is based on the lowest level of input that issignificant to the fair value measurement.

The Model Risk function reviews and approves a wide rangeof models, including risk management, valuation, andregulatory capital models used by the Firm. The Model Risk
function is independent of model users and developers. The
Firmwide Model Risk Executive reports to the Firm’s CRO.
When reviewing a model, the Model Risk function analyzes
and challenges the model methodology, and thereasonableness of model assumptions and may perform or
require additional testing, including back-testing of modeloutcomes.
The Model Risk function reviews and approves new models,
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 model risk policy to allow amodel 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.

150

JPMorgan Chase & Co./2016 Annual Report

The following table describes the valuation methodologies generally used by the Firm to measure its significant products/
instruments at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.
Product/instrument

Valuation methodology

Classifications in the valuation
hierarchy

Securities financing agreements

Valuations are based on discounted cash flows, which consider:
Predominantly level 2• Derivative features: for further information refer to the discussionof derivatives below.
• Market rates for the respective maturity• Collateral
Loans and lending-related commitments — wholesale
Loans carried at fair value (e.g. Where observable market data is available, valuations are based on:
Level 2 or 3
trading loans and non-trading• Observed market prices (circumstances are infrequent)loans)• 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
Loans held for investment andassociated lending-related
commitments• Prepayment speed
Valuations are based on discounted cash flows, which consider:
Predominantly level 3• Credit spreads, derived from the cost of CDS; or benchmark credit
curves developed by the Firm, by industry and credit rating• Prepayment speed
Lending-related commitments are valued similar to loans and reflect
the portion of an unused commitment expected, based on the Firm’s
average portfolio historical experience, to become funded prior to an
obligor default
For information regarding the valuation of loans measured atcollateral value, see Note 14.

Loans — consumer
Held for investment consumer
loans, excluding credit card

Valuations are based on discounted cash flows, which consider:
Predominantly level 3• Credit losses – which consider expected and current default rates,
and loss severity• Prepayment speed• Discount rates• Servicing costs
For information regarding the valuation of loans measured atcollateral value, see Note 14.

Held for investment credit card Valuations are based on discounted cash flows, which consider:receivables• Credit costs - the allowance for loan losses is considered areasonable proxy for the credit cost
• Projected interest income, late-fee revenue and loan repayment
rates• Discount rates

Level 3

• Servicing costs
Trading loans — conforming
residential mortgage loans
expected to be soldFair value is based on observable prices for mortgage-backed
securities with similar collateral and incorporates adjustments tothese prices to account for differences between the securities and thevalue of the underlying loans, which include credit characteristics,
portfolio composition, and liquidity.

JPMorgan Chase & Co./2016 Annual Report

Predominantly level 2151

Notes to consolidated financial statements
Product/instrument

Valuation methodology, inputs and assumptions

Classifications in the valuation
hierarchy

Investment and trading
securities

Quoted market prices are used where available.

Level 1In the absence of quoted market prices, securities are valued based on:• Observable market prices for similar securities• Relevant broker quotes• Discounted cash flows
In addition, the following inputs to discounted cash flows are used forthe following products:
Mortgage- and asset-backed securities specific inputs:• Collateral characteristics• Deal-specific payment and loss allocations• Current market assumptions related to yield, prepayment speed,
conditional default rates and loss severity
Collateralized loan obligations (“CLOs”) specific inputs:• Collateral characteristics• Deal-specific payment and loss allocations• Expected prepayment speed, conditional default rates, loss severity• Credit spreads• Credit rating data
Valued using observable market prices or data
Exchange-traded derivatives that are actively traded and valued using
the exchange price.

Level 2 or 3

Physical commodities
Derivatives

Predominantly level 1 and 2
Level 1

Derivatives that are valued using models such as the Black-Scholes
Level 2 or 3
option pricing model, simulation models, or a combination of models,that use observable or unobservable valuation inputs (e.g., plain vanilla
options and interest rate and CDS). Inputs include:• Contractual terms including the period to maturity• Readily observable parameters including interest rates and volatility• Credit quality of the counterparty and of the Firm
• Market funding levels• Correlation levels
In addition, 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 (levels
are modeled on a transaction basis and calibrated to liquid
benchmark tranche indices)• Actual transactions, where available, are used to regularly
recalibrate unobservable parameters
Certain long-dated equity option specific inputs include:• Long-dated equity volatilities
Certain interest rate and FX exotic options specific inputs include:• Interest rate correlation• Interest rate spread volatility• Foreign exchange correlation• Correlation between interest rates and foreign exchange rates• Parameters describing the evolution of underlying interest rates
Certain commodity derivatives specific inputs include:• Commodity volatility• Forward commodity price
Additionally, adjustments are made to reflect counterparty credit quality(CVA), the Firm’s own creditworthiness (DVA), and the impact of funding(FVA). See pages 164-165 of this Note.

152

JPMorgan Chase & Co./2016 Annual ReportProduct/instrument

Valuation methodology, inputs and assumptions

Classification in the valuation
hierarchy

Mortgage servicing rights

See Mortgage servicing rights in Note 17.

Level 3

Private equity direct investments Private equity direct investments

Level 2 or 3

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 companyspecific issues and lack of liquidity
Fund investments (e.g. mutual/collective investment funds,
private equity funds, hedge
funds, and real estate funds)• Additional available inputs relevant to the investment
Net asset value• NAV is supported by the ability to redeem and purchase at the NAV Level 1
level.
• Adjustments to the NAV as required, for restrictions on redemption
Level 2 or 3(a)(e.g., lock-up periods or withdrawal limitations) or whereobservable activity is limited

Beneficial interests issued byconsolidated VIEs

Valued using observable market information, where available

Long-term debt, not carried atfair value

Valuations are based on discounted cash flows, which consider:
Predominantly level 2• Market rates for respective maturity• Valuations are based on discounted cash flow analyses that
Level 2 or 3
consider the embedded derivative and the terms and payment
structure of the note.
• The embedded derivative features are considered using models
such as the Black-Scholes option pricing model, simulation
models, or a combination of models that use observable orunobservable valuation inputs, depending on the embedded
derivative. The specific inputs used vary according to the nature of
the embedded derivative features, as described in the discussion
above regarding derivatives valuation. Adjustments are then madeto this base valuation to reflect the Firm’s own creditworthiness(DVA) and to incorporate the impact of funding (FVA). See pages
164-165 of this Note.

Structured notes (included indeposits, other borrowed funds
and long-term debt)

Level 2 or 3

In the absence of observable market information, valuations are
based on the fair value of the underlying assets held by the VIE(a) Excludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient.

JPMorgan Chase & Co./2016 Annual Report153Notes to consolidated financial statements
The following table presents the assets and liabilities reported at fair value as of December 31, 2016 and 2015, by major
product category and fair value hierarchy.
Assets and liabilities measured at fair value on a recurring basis
Fair value hierarchy

December 31, 2016 (in millions)
Federal funds sold and securities purchased under resale agreements
Securities borrowed
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies(a)Residential – nonagency
Commercial – nonagency
Total mortgage-backed securities
U.S. Treasury and government agencies(a)Obligations of U.S. states and municipalities
Certificates of deposit, bankers’ acceptances and commercial paper
Non-U.S. government debt securities
Corporate debt securities
Loans(b)Asset-backed securities
Total debt instruments

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(a)Obligations of U.S. states and municipalities
Certificates of deposit
Non-U.S. government debt securities
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
Other
Equity securities
Total available-for-sale securities
Loans
Mortgage servicing rights
Other assets:
Private equity investments(g)All other
Total other assets(f)Total assets measured at fair value on a recurring basis
Deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Other borrowed funds
Trading liabilities:
Debt and equity instruments(d)Derivative payables:
Interest rate
CreditForeign exchange
EquityCommodity
Total derivative payables(e)Total trading liabilities
Accounts payable and other liabilities
Beneficial interests issued by consolidated VIEs
Long-term debt
Total liabilities measured at fair value on a recurring basis

154

$
$

$

Level 2— $—Derivative
netting
adjustments

Level 321,506
—

$

—
—

$

Total fair value— $—21,506—13——
13
19,554——28,443———48,01040,586
1,552
1,321
43,459
5,201
8,403
1,649
23,07622,751
28,965
5,250
138,754

392
83
17
492
—
649
—
46
576
4,837
302
6,902

—
—
—
—
—
—
—
—
—
—
—
—

40,991
1,635
1,338
43,96424,755
9,052
1,649
51,56523,32733,802
5,552
193,666

96,7595,341—
150,110

281
1,620
9,341
149,996

231
—
761
7,894

—
—
—
—

97,271
6,961
10,102
308,000

715—
812

602,747
28,256
231,743

2,501
1,389
870

(577,661)(28,351)(210,154)

28,302
1,294
23,271—
158
1,685
151,795

34,032
18,360915,138
1,065,134

908
125
5,793
13,687(30,001)(12,371)(858,538)(858,538)

4,939
6,272
64,078372,078————
44,072——
22,793—64,005
14,442
9,104
87,55129
31,592
106
12,495
4,958

—
1
—
1
—
—
—
—
—

—
—
—
—
—
—
—
—
—

64,005
14,443
9,104
87,552
44,101
31,592
10635,288
4,958

—
—
926
67,791——

26,738
6,967—
170,436
1,660
—

663
—
—
664
570
6,096

—
—
—
—
—
—

27,401
6,967
926
238,891
2,230
6,096

68
4,289
4,357
223,943 $
— $

—
—
—
1,258,736
11,795

1,606
617
2,223
23,240
2,117

(g)

$
$

(g)

$
$

—
—
—
(858,538) $
— $

1,674
4,906
6,580
647,381
13,912

—
—

687
7,971

—
1,134

—
—

687
9,105

68,30419,08143—

87,428

539
—
902
—
173
1,614
69,9189,107——
79,025 $569,001
27,375
231,815
35,202
20,079883,472
902,553—
72
23,792946,870

1,238
1,291
2,254
3,160
210
8,153
8,196
13
48
13,89425,402$$(559,963)(27,255)(214,463)(30,222)(12,105)(844,008)(844,008)———(844,008) $10,815
1,411
20,5088,140
8,357
49,231
136,659
9,120
120
37,686207,289

JPMorgan Chase & Co./2016 Annual ReportFair value hierarchy

December 31, 2015 (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(a)Obligations of U.S. states and municipalities
Certificates of deposit
Non-U.S. government debt securities
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
Other
Equity securities
Total available-for-sale securities
Loans
Mortgage servicing rights
Other assets:
Private equity investments(g)All other
Total other assets(f)Total assets measured at fair value on a recurring basis
Deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Other borrowed funds
Trading liabilities:
Debt and equity instruments(d)Derivative payables:
Interest rate
CreditForeign exchange
EquityCommodity
Total derivative payables(e)Total trading liabilities
Accounts payable and other liabilities
Beneficial interests issued by consolidated VIEs
Long-term debt
Total liabilities measured at fair value on a recurring basis

JPMorgan Chase & Co./2016 Annual Report

Level 1$$$$

Level 2
— $—23,141
395

Derivative
netting
adjustments

Level 3$——$

Total fair value——$

23,141395

6——
6
12,036——27,974———40,016
94,0593,593—
137,668

31,815
1,299
1,080
34,194
6,985
6,986
1,042
25,06422,80722,211
2,392
121,681606
1,064
11,152
134,503

715
194
115
1,024
—
651
—
74
736
6,604
1,832
10,921
265—
744
11,930

—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—

32,536
1,493
1,195
35,22419,0217,637
1,042
53,112
23,54328,815
4,224
172,618
94,9304,657
11,896284,101

354
—
734
—
108
1,196
138,864

666,491
48,850177,525
35,15024,720952,736
1,087,239

2,766
2,618
1,616
709
237
7,946
19,876(643,248)(50,045)(162,698)(30,330)(15,880)(902,201)(902,201)

26,363
1,423
17,1775,529
9,185
59,677343,778————
10,998——23,199—55,066
27,61822,897
105,58138
33,550283
13,477
12,436

—
1
—
1
—
—
—
—
—

—
—
—
—
—
—
—
—
—

55,066
27,61922,897
105,582
11,03633,550283
36,676
12,436——2,087
36,284——30,248
9,033—
204,646
1,343
—

759
64
—
824
1,518
6,608

—
—
—
—
—
—

31,007
9,097
2,087
241,754
2,861
6,608

102
3,815
3,917
179,065 $
— $
—
—

101
28
129
1,316,893
9,566
3,526
9,272

1,657
744
2,401
31,227
2,950
—
639

—
—
—
(902,201)
—
—
—

1,860
4,587
6,447
624,984
12,516
3,526
9,911

53,84520,19963—

74,107

216
—
669
—
52
937
54,782
4,382——
59,164 $633,060
48,460187,890
36,44026,430932,280
952,479—
238
21,452996,533

1,890
2,069
2,341
2,223
1,172
9,695
9,758
19
549
11,61325,528(624,945)(48,988)(171,131)(29,480)(15,578)(890,122)(890,122)———(890,122)

10,221
1,541
19,7699,183
12,076
52,790126,897
4,401
787
33,065
191,103

$
$

$

$
$

$

$
$

$

155

Notes to consolidated financial statements(a) At December 31, 2016 and 2015, included total U.S. government-sponsored enterprise obligations of $80.6 billion and $67.0 billion, respectively, which were predominantly
mortgage-related.
(b) At December 31, 2016 and 2015, included within trading loans were $16.5 billion and $11.8 billion, respectively, of residential first-lien mortgages, and $3.3 billion and $4.3
billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell to U.S. government
agencies of $11.0 billion and $5.3 billion, respectively, and reverse mortgages of $2.0 billion and $2.5 billion, respectively.
(c) Physical commodities inventories are generally accounted for at the lower of cost or market. “Market” is a term defined in U.S. GAAP as not exceeding fair value less costs to sell(“transaction costs”). Transaction costs for the Firm’s physical commodities inventories are either not applicable or immaterial to the value of the inventory. Therefore, market
approximates fair value for the Firm’s physical commodities inventories. When fair value hedging has been applied (or when market is below cost), the carrying value of physicalcommodities approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. For a further discussion of the Firm’s hedge
accounting relationships, see Note 6. To provide consistent fair value disclosure information, all physical commodities inventories have been included in each period presented.
(d) Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).
(e) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally
enforceable master netting agreement exists. For purposes of the tables above, the Firm does not reduce derivative receivables and derivative payables balances for this netting
adjustment, either within or across the levels of the fair value hierarchy, as such netting is not relevant to a presentation based on the transparency of inputs to the valuation ofan asset or liability. 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 be classified in the fairvalue hierarchy. At December 31, 2016 and 2015, the fair values of these investments, which include certain hedge funds, private equity funds, real estate and other funds,
were $1.0 billion and $1.2 billion, respectively. Included in the balances at December 31, 2016 and 2015, were trading assets of $52 million and $61 million, respectively, andother assets of $1.0 billion and $1.2 billion, respectively.
(g) Private equity instruments represent investments within Corporate. The portion of the private equity investment portfolio carried at fair value on a recurring basis had a costbasis of $2.5 billion and $3.5 billion at December 31, 2016 and 2015, respectively.

Transfers between levels for instruments carried atfair value on a recurring basis
For the years ended December 31, 2016 and 2015, there
were no significant transfers between levels 1 and 2.
During the year ended December 31, 2016, transfers fromlevel 3 to level 2 included the following:•$1.4 billion of long-term debt driven by an increase inobservability and a reduction of the significance in theunobservable inputs for certain structured notes.

During the year ended December 31, 2016, transfers fromlevel 2 to level 3 included the following:•$1.1 billion of gross equity derivative receivables and$1.0 billion of gross equity derivative payables as aresult of a decrease in observability and an increase in
the significance in unobservable inputs.

•$1.0 billion of trading loans driven by a decrease inobservability.

During the year ended December 31, 2015, transfers fromlevel 3 to level 2 included the following:•$3.1 billion of long-term debt and $1.0 billion ofdeposits driven by an increase in observability on
certain structured notes with embedded interest rateand FX derivatives and a reduction of the significance inthe unobservable inputs for certain structured notes
with embedded equity derivatives.

•$2.1 billion of gross equity derivatives for both
receivables and payables as a result of an increase inobservability and a decrease in the significance inunobservable inputs; partially offset by transfers intolevel 3 resulting in net transfers of approximately $1.2
billion for both receivables and payables.

•$2.8 billion of trading loans driven by an increase inobservability of certain collateralized financing
transactions.

156

During the year ended December 31, 2015, transfers fromlevel 2 to level 3 included the following:•$2.4 billion of corporate debt driven by a decrease in
the significance in the unobservable inputs and anincrease in observability for certain structured products

During the year ended December 31, 2014, transfers fromlevel 3 to level 2 included the following:•$4.3 billion and $4.4 billion of gross equity derivative
receivables and payables, respectively, due to increased
observability of certain equity option valuation inputs•$2.7 billion of trading loans, $2.6 billion of marginloans, $2.3 billion of private equity investments, $2.0
billion of corporate debt, and $1.3 billion of long-term
debt, based on increased liquidity and pricetransparency•

Transfers from level 2 into level 3 included $1.1 billionof other borrowed funds, $1.1 billion of trading loans
and $1.0 billion of long-term debt, based on a decreasein observability of valuation inputs and pricetransparency.

All transfers are assumed to occur at the beginning of thequarterly reporting period in which they occur.

JPMorgan Chase & Co./2016 Annual Report

Level 3 valuations
The Firm has established well-structured processes fordetermining fair value, including for instruments where fairvalue is estimated using significant unobservable inputs(level 3). For further information on the Firm’s valuation
process and a detailed discussion of the determination offair value for individual financial instruments, see pages
150–153 of this Note.
Estimating fair value requires the application of judgment.
The type and level of judgment required is largely
dependent on the amount of observable market information
available to the Firm. For instruments valued using
internally developed models that use significant
unobservable inputs and are therefore classified within
level 3 of the fair value hierarchy, judgments used toestimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine theappropriate model to use. Second, due to the lack ofobservability of significant inputs, management must assess
all relevant empirical data in deriving valuation inputs
including, but not limited to, transaction details, yield
curves, interest rates, prepayment speed, default rates,
volatilities, correlations, equity or debt prices, valuations ofcomparable instruments, foreign exchange rates and credit
curves.
The following table presents the Firm’s primary level 3
financial instruments, the valuation techniques used tomeasure the fair value of those financial instruments, thesignificant unobservable inputs, the range of values for
those inputs and, for certain instruments, the weighted
averages of such inputs. While the determination to classify
an instrument within level 3 is based on the significance of
the unobservable inputs to the overall fair value
measurement, level 3 financial instruments typically include
observable components (that is, components that are
actively quoted and can be validated to external sources) inaddition to the unobservable components. The level 1 and/or level 2 inputs are not included in the table. In addition,
the Firm manages the risk of the observable components oflevel 3 financial instruments using securities and derivative
positions that are classified within levels 1 or 2 of the fairvalue hierarchy.

In the Firm’s view, the input range and the weighted
average value do not reflect the degree of input uncertainty
or an assessment of the reasonableness of the Firm’s
estimates and assumptions. Rather, they reflect thecharacteristics of the various instruments held by the Firm
and the relative distribution of instruments within the rangeof characteristics. For example, two option contracts may
have similar levels of market risk exposure and valuation
uncertainty, but may have significantly different implied
volatility levels because the option contracts have different
underlyings, tenors, or strike prices. The input range andweighted average values will therefore vary from period-toperiod and parameter-to-parameter based on thecharacteristics of the instruments held by the Firm at eachbalance sheet date.
For the Firm’s derivatives and structured notes positionsclassified within level 3 at December 31, 2016, interest
rate correlation inputs used in estimating fair value wereconcentrated towards the upper end of the range
presented; equity correlation inputs were concentrated at
the upper end of the range; the credit correlation inputs
were distributed across the range presented; and theforeign exchange correlation inputs were concentrated at
the upper end of the range presented. In addition, theinterest rate volatility inputs used in estimating fair value
were distributed across the range presented; equity
volatilities were concentrated in the lower half end of therange; and forward commodity prices used in estimating thefair value of commodity derivatives were concentrated in
the middle of the range presented.

The range of values presented in the table is representativeof the highest and lowest level input used to value thesignificant groups of instruments within a product/
instrument classification. Where provided, the weighted
averages of the input values presented in the table arecalculated based on the fair value of the instruments thatthe input is being used to value.

JPMorgan Chase & Co./2016 Annual Report157

Notes to consolidated financial statements
Level 3 inputs(a)December 31, 2016 (in millions, except for ratios and basis points)
Product/Instrument

Fair
value

Principal valuation
techniqueUnobservable inputs

Range of input values

Residential mortgage-backed
securities and loans$ 2,861

Discounted cash flows

Commercial mortgage-backed
securities and loans(b)1,555Discounted cash flows

764

Discounted cash flows

Net interest rate derivatives

3,744
1,263

Market comparables
Option pricing

Net credit derivatives(b)(c)
Net foreign exchange derivatives

98 Discounted cash flows(1,384) Option pricing

Credit correlation
Foreign exchange correlation

Net equity derivatives
Net commodity derivatives
Collateralized loan obligations(2,252) Option pricing(85) Discounted cash flows
663 Discounted cash flows

Corporate debt securities, obligationsof U.S. states and municipalities, andother(c)

Yield
4%
18%
Prepayment speed
0%20%
Conditional default rate
0%34%
Loss severity
0%
90%
Yield
1%
32%
Conditional default rate
0%100%
Loss severity
40%
Credit spread
40bps 375bps
Yield
1%
17%
Price
$ 0
- $121
Interest rate correlation(30)% 100%
Interest rate spread volatility
3%
38%
30%
(30)%

65%

158

Market comparables

MSRs

6,096

Discounted cash flows

Refer to Note 17

Private equity investments
Long-term debt, other borrowed funds,
and deposits(d)1,606
16,669Market comparables
Option pricing

EBITDA multiple
Interest rate correlation
Interest rate spread volatility

6.4x (30)% 3% -

11.5x
100%
38%

Foreign exchange correlation(30)% -

65%

Equity correlation
Credit correlation(50)% 30% -

80%
85%

Discounted cash flows

$

0

5%
8%
15%
37%
8%
69%
40%
96bps
9%
$91

85%

Equity volatility
Forward commodity price
Credit spread
Prepayment speed
Conditional default rate
Loss severity
Price

476

20%
$ 46
303bps-

Weighted
average60%- $59 per barrel
475bps339bps
20%
20%
2%
2%
30%
30%
- $111$73

7.9x(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) The unobservable inputs and associated input ranges for approximately $394 million of credit derivative receivables and $226 million of credit derivative
payables with underlying commercial mortgage risk have been included in the inputs and ranges provided for commercial mortgage-backed securities andloans.
(c) The unobservable inputs and associated input ranges for approximately $362 million of credit derivative receivables and $333 million of credit derivative
payables with underlying ABS risk have been included in the inputs and ranges provided for corporate debt securities, obligations of U.S. states andmunicipalities and other.
(d) Long-term debt, other borrowed funds and deposits include structured notes issued by the Firm that are predominantly financial instruments containing
embedded derivatives. The estimation of the fair value of structured notes includes the derivative features embedded within the instrument. The
significant unobservable inputs are broadly consistent with those presented for derivative receivables.

158

JPMorgan Chase & Co./2016 Annual ReportChanges in and ranges of unobservable inputs
The following discussion provides a description of the
impact on a fair value measurement of a change in each
unobservable input in isolation, and the interrelationshipbetween unobservable inputs, where relevant andsignificant. The impact of changes in inputs may not be
independent, as a change in one unobservable input may
give rise to a change in another unobservable input. Where
relationships do exist between two unobservable inputs,
those relationships are discussed below. Relationships may
also exist between observable and unobservable inputs (forexample, as observable interest rates rise, unobservableprepayment rates decline); such relationships have notbeen included in the discussion below. In addition, for eachof the individual relationships described below, the inverse
relationship would also generally apply.
The following discussion also provides a description of
attributes of the underlying instruments and externalmarket factors that affect the range of inputs used in thevaluation of the Firm’s positions.
Yield – The yield of an asset is the interest rate used to
discount future cash flows in a discounted cash flow
calculation. An increase in the yield, in isolation, would
result in a decrease in a fair value measurement.
Credit spread – The credit spread is the amount ofadditional annualized return over the market interest ratethat a market participant would demand for taking
exposure to the credit risk of an instrument. The credit
spread for an instrument forms part of the discount rateused in a discounted cash flow calculation. Generally, an
increase in the credit spread would result in a decrease in afair value measurement.
The yield and the credit spread of a particular mortgagebacked security primarily reflect the risk inherent in the
instrument. The yield is also impacted by the absolute levelof the coupon paid by the instrument (which may notcorrespond directly to the level of inherent risk). Therefore,
the range of yield and credit spreads reflects the range ofrisk inherent in various instruments owned by the Firm. The
risk inherent in mortgage-backed securities is driven by thesubordination of the security being valued and thecharacteristics of the underlying mortgages within thecollateralized pool, including borrower FICO scores, LTV
ratios for residential mortgages and the nature of theproperty and/or any tenants for commercial mortgages. For
corporate debt securities, obligations of U.S. states andmunicipalities and other similar instruments, credit spreads
reflect the credit quality of the obligor and the tenor of theobligation.

JPMorgan Chase & Co./2016 Annual Report

Prepayment speed – The prepayment speed is a measure of
the voluntary unscheduled principal repayments of aprepayable obligation in a collateralized pool. Prepayment
speeds generally decline as borrower delinquencies rise. An
increase in prepayment speeds, in isolation, would result ina decrease in a fair value measurement of assets valued at
a premium to par and an increase in a fair value
measurement of assets valued at a discount to par.
Prepayment speeds may vary from collateral pool tocollateral pool, and are driven by the type and location of
the underlying borrower, 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.
Typically collateral pools with higher borrower credit quality
have a higher prepayment rate than those with lower
borrower credit quality, all other factors being equal.
Conditional default rate – The conditional default rate is ameasure of the reduction in the outstanding collateralbalance underlying a collateralized obligation as a result ofdefaults. While there is typically no direct relationshipbetween conditional default rates and prepayment speeds,
collateralized obligations for which the underlying collateral
has high prepayment speeds will tend to have lower
conditional default rates. An increase in conditional default
rates would generally be accompanied by an increase in loss
severity and an increase in credit spreads. An increase in
the conditional default rate, in isolation, would result in adecrease in a fair value measurement. Conditional default
rates reflect the quality of the collateral underlying asecuritization and the structure of the securitization itself.
Based on the types of securities owned in the Firm’s marketmaking portfolios, conditional default rates are mosttypically at the lower end of the range presented.
Loss severity – The loss severity (the inverse concept is therecovery rate) is the expected amount of future realized
losses resulting from the ultimate liquidation of a particularloan, expressed as the net amount of loss relative to theoutstanding loan balance. An increase in loss severity is
generally accompanied by an increase in conditional default
rates. An increase in the loss severity, in isolation, would
result in a decrease in a fair value measurement.
The loss severity applied in valuing a mortgage-backed
security investment depends on factors relating to theunderlying mortgages, including the LTV ratio, the nature of
the lender’s lien on the property and other instrumentspecific factors.

159

Notes to consolidated financial statements
Correlation – Correlation is a measure of the relationshipbetween the movements of two variables (e.g., how thechange in one variable influences the change in the other).
Correlation is a pricing input for a derivative product where
the payoff is driven by one or more underlying risks.
Correlation inputs are related to the type of derivative (e.g.,interest rate, credit, equity and foreign exchange) due tothe nature of the underlying risks. When parameters are
positively correlated, an increase in one parameter will
result in an increase in the other parameter. Whenparameters are negatively correlated, an increase in one
parameter will result in a decrease in the other parameter.
An increase in correlation can result in an increase or adecrease in a fair value measurement. Given a shortcorrelation position, an increase in correlation, in isolation,
would generally result in a decrease in a fair value
measurement. The range of correlation inputs between
risks within the same asset class are generally narrower
than those between underlying risks across asset classes. In
addition, the ranges of credit correlation inputs tend to be
narrower than those affecting other asset classes.
The level of correlation used in the valuation of derivatives
with multiple underlying risks depends on a number offactors including the nature of those risks. For example, thecorrelation between two credit risk exposures would be
different than that between two interest rate risk
exposures. Similarly, the tenor of the transaction may also
impact the correlation input, as the relationship between
the underlying risks may be different over different time
periods. Furthermore, correlation levels are very muchdependent on market conditions and could have a relatively
wide range of levels within or across asset classes overtime, particularly in volatile market conditions.

EBITDA multiple – EBITDA multiples refer to the input (often
derived from the value of a comparable company) that is
multiplied by the historic and/or expected earnings before
interest, taxes, depreciation and amortization (“EBITDA”) of
a company in order to estimate the company’s value. An
increase in the EBITDA multiple, in isolation, net ofadjustments, would result in an increase in a fair value
measurement.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of theConsolidated balance sheets amounts (including changes infair value) for financial instruments classified by the Firm
within level 3 of the fair value hierarchy for the years ended
December 31, 2016, 2015 and 2014. When adetermination is made to classify a financial instrument
within level 3, the determination is based on thesignificance of the unobservable parameters to the overall
fair value measurement. However, level 3 financial
instruments typically include, in addition to theunobservable or level 3 components, observable
components (that is, components that are actively quoted
and can be validated to external sources); accordingly, thegains and losses in the table below include changes in fairvalue due in part to observable factors that are part of thevaluation methodology. Also, the Firm risk-manages theobservable components of level 3 financial instruments
using securities and derivative positions that are classified
within level 1 or 2 of the fair value hierarchy; as these level
1 and level 2 risk management instruments are notincluded below, the gains or losses in the following tables
do not reflect the effect of the Firm’s risk management
activities related to such level 3 instruments.

Volatility – Volatility is a measure of the variability inpossible returns for an instrument, parameter or market
index given how much the particular instrument, parameteror index changes in value over time. Volatility is a pricing
input for options, including equity options, commodity
options, and interest rate options. Generally, the higher thevolatility of the underlying, the riskier the instrument. Givena long position in an option, an increase in volatility, inisolation, would generally result in an increase in a fairvalue measurement.
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.

160

JPMorgan Chase & Co./2016 Annual ReportFair value measurements using significant unobservable inputs

Year ended
December 31, 2016
(in millions)

Fair value
at January
1, 2016

Total
realized/unrealized
gains/(losses)

Purchases(g)SalesSettlements(h)Transfers into
and/or out oflevel 3(i)Fair value
at Dec.
31, 2016

Change inunrealized gains/(losses) related
to financial
instruments heldat Dec. 31, 2016

Assets:Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies

715 $

(20)

135 $

(295)

(115) $

(28) $

392

Residential – nonagency

$

194

4

252

(319)

(20)

(28)

83

Commercial – nonagency

115

(11)

69

(29)

(3)

(124)

17

3

1,024

(27)

456

(643)

(138)

(180)

492

(28)

149

(132)

(38)

—

649

—

Total mortgage-backed securities
Obligations of U.S. states andmunicipalities

$

$

$

(36)
5

651

19

Non-U.S. government debt
securities

74

(4)

91

(97)

(7)

(11)

46

(7)

Corporate debt securities

736

2

445

(359)

(189)

(59)

576

(22)

Loans

6,604

(343)

2,228

(2,598)(1,311)

257

4,837

(169)

Asset-backed securities

1,832

39

655

(712)

(968)

(544)

302

19

Total debt instruments

10,921

(314)

4,024

(4,541)(2,651)

(537)

6,902

(207)

Equity securities

265

—

90

(108)

(40)

24

231

7

Other

744

79

649

(287)

(360)

(64)

761

28

11,930(235) (c)4,763

(4,936)(3,051)

(577)

7,894

(172) (c)Total trading assets – debt andequity instruments
Net derivative receivables:(a)Interest rate

876

756

193

(57)

(713)

208

1,263

(144)

Credit

549

(742)

10

(2)

211

72

98

(622)

Foreign exchange

(725)

67

64

(124)

(649)

(17)

(1,384)(350)(1,514)

(145)

277

(852)

213

(231)

(2,252)

(86)

(935)

194

1

10

645

—

(85)

(36)

(1,749)130545(1,025)(293)

32(2,360)(1,238) (c)EquityCommodity
Total net derivative receivables(c)

Available-for-sale securities:
Asset-backed securities

823

1

—

—

(119)

(42)

663

1

1

—

—

—

—

—

1

—

Other
Total available-for-sale securities

824

1

(d)

—

—

(119)

(42)

664

1

(d)

Loans

1,518

(49) (c)

259

(7)

(838)

(313)

570

—

(c)

Mortgage servicing rights

6,608(163) (e)

679

(109)

(919)

—

6,096

(163) (e)

1,657

80

(c)

457

(485)

(103)

—

1,606

1

(c)

744

50

(f)

30

(11)

(196)

—

617

47

(f)

Other assets:
Private equity investments
All other

Fair value measurements using significant unobservable inputs

Year ended
December 31, 2016
(in millions)

Fair value
at January
1, 2016

Total
realized/unrealized(gains)/lossesPurchases(g)Sales

IssuancesSettlements(h)Transfers into
and/or out oflevel 3(i)Fair value
at Dec.
31, 2016

Change inunrealized(gains)/losses
related tofinancial
instruments heldat Dec. 31, 2016

Liabilities:(b)Deposits$

2,950 $

— $

— $

—

—

—

—

(2)

2

—

(230) (c)

—

—

1,876

(1,210)591,134(70) (c)(12) (c)

(15)

23

—

(22)

6

43

(18) (c)

19

—

—

—

—

(6)

—

13

—

549

(31) (c)

—

—

143

(613)

—

48

6

(c)

216

—

—

8,949

(5,810)(1,074)

13,894540(c)Federal funds purchased and securities
loaned or sold under repurchaseagreements
Other borrowed funds—
639

Trading liabilities – debt and equity
instruments

63

Accounts payable and other liabilities
Beneficial interests issued byconsolidated VIEs
Long-term debt

11,613

JPMorgan Chase & Co./2016 Annual Report(56) (c)(c)$

1,375 $

(1,283) $(869) $

2,117

$

23

(c)

—

161

Notes to consolidated financial statements
Fair value measurements using significant unobservable inputs

Year ended
December 31, 2015
(in millions)

Fair value
at January
1, 2015

Total
realized/unrealized
gains/(losses)

Purchases

(g)

Sales

Settlements(h)Transfers into
and/or out oflevel 3(i)Fair value
at Dec.
31, 2015

Change inunrealized gains/(losses) related
to financial
instruments heldat Dec. 31, 2015

Assets:Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies

922 $

(28)

327 $

(303)

(132) $

(71) $

715

Residential – nonagency

$

663

130

$

253

(611)

$

(23)

(218)

194

$

(27)
4

Commercial – nonagency

306

(14)

246

(262)

(22)

(139)

115

(5)

Total mortgage-backed securities

1,891

88

826

(1,176)

(177)

(428)

1,024

(28)

Obligations of U.S. states andmunicipalities

1,273

14

352

(133)

(27)

(828)

651

(1)
(16)

Non-U.S. government debt
securities

302

9

205

(123)

(64)

(255)

74

Corporate debt securities

2,989

(77)

1,171

(1,038)(125)(2,184)

736

2

Loans

13,287

(174)

3,532

(4,661)(3,112)(2,268)

6,604

(181)

1,264

(41)

1,920

(1,229)

(35)

(47)

1,832

(32)

Total debt instruments

Asset-backed securities

21,006

(181)

8,006

(8,360)(3,540)(6,010)10,921(256)

Equity securities

431

96

89

(193)

(26)

(132)

265

82

2

(2)

—

—

—

—

—

—

1,050

119

1,581

(1,313)

192

(885)

744

85

22,48932

9,676(9,866)(3,374)(7,027)

11,930(89) (c)Interest rate

626

962

513

(173)

(732)

(320)

876

263

Credit

189

118

129

(136)

165

84

549

260

Foreign exchange

(526)

657

19

(149)

(296)

(430)

(725)

49

(1,785)731

890(1,262)(158)

70(1,514)

5

(565)

(856)

1

(24)

512

(3)

(935)

(41)

(2,061)

1,612

1,552

(1,744)

(509)

(599)

(1,749)536

Asset-backed securities

908

(32)

51

(43)

(61)

—

823

(28)

Other

129

—

—

—

(29)

(99)

1

—

Total available-for-sale securities

1,037(32) (d)

51

(43)

(90)

(99)

824

(28) (d)

Loans

2,541

(133) (c)

1,290

(92)

(1,241)

(847)

1,518

(32) (c)Mortgage servicing rights

7,436

(405)

(e)

985

(486)

(922)

—

6,608

(405) (e)2,225(120) (c)

281

(362)

(187)

(180)

1,657

(304) (c)

959

91

65

(147)

(224)

—

744

15

Physical commodities
Other
Total trading assets – debt andequity instruments(c)

Net derivative receivables:(a)EquityCommodity
Total net derivative receivables

(c)

(c)

Available-for-sale securities:

Other assets:
Private equity investments
All other

(f)

(f)

Fair value measurements using significant unobservable inputs

Year ended
December 31, 2015
(in millions)

Fair value
at January
1, 2015

Total
realized/unrealized(gains)/lossesPurchases

(g)

Sales

IssuancesSettlements(h)Transfers into
and/or out oflevel 3(i)Fair value
at Dec.
31, 2015

Change inunrealized(gains)/losses
related tofinancial
instruments heldat Dec. 31, 2015

Liabilities:(b)Deposits

2,859 $

(39) (c)1,453

Trading liabilities – debt and equity
instruments
Accounts payable and other liabilities

Other borrowed funds

$

— $

— $

1,993 $

(697)

(c)

$

—

—

3,334

72

15

(c)

(163)

160

26

—

—

—

(850) $

(1,013) $2,950(2,963)

(488)

639

(57) (c)

—

(17)

(4)

63

(4) (c)

—

(7)

—

19

—

Beneficial interests issued byconsolidated VIEs

1,146(82) (c)

—

—

286

(574)

(227)

549

Long-term debt

11,877(480) (c)

(58)

—

9,359

(6,299)(2,786)

11,613162$(29) (c)(63) (c)385(c)

JPMorgan Chase & Co./2016 Annual ReportFair value measurements using significant unobservable inputs

Year ended
December 31, 2014
(in millions)

Fair value
at January
1, 2014

Total
realized/unrealized
gains/(losses)

Purchases

Sales

(g)

Settlements(h)Transfers into
and/or out oflevel 3(i)Change inunrealized gains/(losses) related
Fair value at
to financial
Dec. 31,
instruments held
2014
at Dec. 31, 2014

Assets:Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies

1,005 $

(97)(121) $

(30) $

922

Residential – nonagency

$

726

66

$

351
827

$

(186)
(761)

$

(41)

(154)

663

$

(92)

Commercial – nonagency

432

17

980

(914)

(60)

(149)

306

(12)

Total mortgage-backed securities

2,163

(14)

2,158

(1,861)

(222)

(333)

1,891

(119)

Obligations of U.S. states andmunicipalities

1,382

90

298

(358)

(139)

—

1,273

(27)

(15)

Non-U.S. government debt
securities

143

24

719

(617)

(3)

36

302

10

Corporate debt securities

5,920

210

5,854

(3,372)(4,531)(1,092)

2,989

379

Loans

13,455387

13,551(7,917)(4,623)(1,566)

13,287123

Asset-backed securities

1,272

19

2,240

(2,126)

(283)

142

1,264

(30)

Total debt instruments

24,335716

24,820(16,251)(9,801)(2,813)21,006336

Equity securities

867

113

248

(259)

(286)

(252)

431

46

4

(1)

—

—

(1)

—

2

—

2,000

239

1,426

(276)

(201)

(2,138)

1,050

329

27,206

1,067

26,494(16,786)(10,289)(5,203)22,489711

Physical commodities
Other
Total trading assets – debt andequity instruments

(c)

(c)

Net derivative receivables:(a)Interest rate

2,379

184

198

(256)

(1,771)

(108)

626

(853)

95

(149)

272

(47)

92

(74)

189

(107)

Foreign exchange(1,200)

(137)

139

(27)

668

31

(526)

(62)

Equity(1,063)

154

2,044

(2,863)10(67)(1,785)

583

115

(465)

1

(113)

(109)

6

(565)

(186)

326

(413) (c)2,654

(3,306)(1,110)(212)(2,061)(625) (c)Asset-backed securities

1,088

(41)

275

(2)

(101)

(311)

908

(40)

Other

1,234

(19)

122

—

(223)

(985)

129

(2)

Total available-for-sale securities

2,322(60) (d)

397

(2)

(324)

(1,296)1,037(42) (d)

Loans

1,931

(254) (c)

3,258

(845)

(1,549)—2,541(234) (c)Mortgage servicing rights

9,614(1,826) (e)

768

(209)

(911)

—

7,436

(1,826) (e)Private equity investments

5,816

400

(c)

145

(1,967)(197)(1,972)

2,225

33

(c)

All other

1,382

83

(f)

10

(357)

(159)

—

959

59

(f)

CreditCommodity
Total net derivative receivables
Available-for-sale securities:

Other assets:

Fair value measurements using significant unobservable inputs

Year ended
December 31, 2014
(in millions)

Fair value
at January
1, 2014

Total
realized/unrealized(gains)/lossesPurchases

(g)

$

—

Sales

IssuancesSettlements(h)Transfers into
and/or out oflevel 3(i)Change inunrealized(gains)/losses
related toFair value atfinancial
Dec. 31,
instruments held
2014
at Dec. 31, 2014

Liabilities:(b)Deposits
Other borrowed funds$

2,255 $ 149

(c)

2,074

(c)

(5) (c)Trading liabilities – debt and equity
instruments

113

Accounts payable and other liabilities

—

(596)

27

$

— $

1,578 $

—

—

5,377

(305)

323

(c)

—

—

(197) $(926) $

2,859

$

130

(6,127)

725

1,453

(415) (c)

—

(5)

(49)

72

2

—

(1)

—

26

—

(c)

(c)

Beneficial interests issued byconsolidated VIEs

1,240(4) (c)

—

—

775

(763)

(102)

1,146

(22) (c)Long-term debt

10,008(40) (c)

—

—

7,421

(5,231)(281)

11,877(9) (c)(a) All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty.
(b) Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis) were 12%, 13% and 15% at
December 31, 2016, 2015 and 2014, respectively.

JPMorgan Chase & Co./2016 Annual Report163Notes to consolidated financial statements(c) Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans, and lending-related commitments originated with the intent to sell,
and mortgage loan purchase commitments, which are reported in mortgage fees and related income.
(d) Realized gains/(losses) on AFS securities, as well as other-than-temporary impairment (“OTTI”) losses that are recorded in earnings, are reported in securities gains. Unrealized gains/(losses) are reported in OCI. Realized gains/(losses) and foreign exchange hedge accounting adjustments recorded in income on AFS securities were zero, $(7) million, and $(43)million for the years ended December 31, 2016, 2015 and 2014, respectively. Unrealized gains/(losses) recorded on AFS securities in OCI were $1 million, $(25) million and $(16)million for the years ended December 31, 2016, 2015 and 2014, respectively.
(e) Changes in fair value for CCB MSRs are reported in mortgage fees and related income.
(f) Predominantly reported in other income.
(g) Loan originations are included in purchases.
(h) Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, and deconsolidation associated with beneficial interests in VIEs.
(i) All transfers into and/or out of level 3 are assumed to occur at the beginning of the quarterly reporting period in which they occur.

Level 3 analysis
Consolidated balance sheets changes
Level 3 assets (including assets measured at fair value on anonrecurring basis) were 1.0% of total Firm assets at
December 31, 2016. The following describes significant
changes to level 3 assets since December 31, 2015, forthose items measured at fair value on a recurring basis. For
further information on changes impacting items measured
at fair value on a nonrecurring basis, see Assets andliabilities measured at fair value on a nonrecurring basis on
page 165.
For the year ended December 31, 2016
Level 3 assets were $23.2 billion at December 31, 2016,reflecting a decrease of $8.0 billion from December 31,
2015. This decrease was driven by settlements (including
repayments and restructurings) and transfers to Level 2
due to an increase in observability and a decrease in thesignificance of unobservable inputs. In particular:••$4.0 billion decrease in trading assets — debt and equity
instruments was predominantly driven by a decrease of$1.8 billion in trading loans largely due to settlements,
and a $1.5 billion decrease in asset-backed securities
due to settlements and transfers from level 3 to level 2
as a result of increased observability of certain valuation
inputs$2.1 billion decrease in gross derivative receivables was
driven by a decrease in credit and foreign exchange
derivative receivables due to market movements andtransfers from level 3 to level 2 as a result of increased
observability of certain valuation inputs

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, 2016, 2015 and 2014. For further
information on these instruments, see Changes in level 3
recurring fair value measurements rollforward tables on
pages 160–164.
2016• There were no individually significant movements for theyear ended December 31, 2016.
2015• $1.6 billion of net gains in interest rate, foreign exchange
and equity derivative receivables largely due to market
movements; partially offset by losses on commodity
derivatives due to market movements• $1.3 billion of net gains in liabilities due to market
movements

164

2014
• $1.8 billion of losses on MSRs. For further discussion of
the change, refer to Note 17• $1.1 billion of net gains on trading assets — debt andequity instruments, largely driven by market movements
and client-driven financing transactions
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 credit exposure
across all of the Firm’s positions with each counterparty,
and then estimates losses as a result of a counterparty
credit event. The key inputs to this methodology are (i) the
expected positive exposure to each counterparty based on asimulation that assumes the current population of existing
derivatives with each counterparty remains unchanged andconsiders contractual factors designed to mitigate theFirm’s credit exposure, such as collateral and legal rights ofoffset; (ii) the probability of a default event occurring foreach counterparty, as derived from observed or estimated
CDS spreads; and (iii) estimated recovery rates implied by
CDS spreads, adjusted to consider the differences inrecovery rates as a derivative creditor relative to thosereflected in CDS spreads, which generally reflect seniorunsecured creditor risk.
DVA represents the adjustment, relative to the relevantbenchmark interest rate, necessary to reflect the credit
quality of the Firm. The derivative DVA calculation
methodology is generally consistent with the CVA
methodology described above and incorporates JPMorgan
Chase’s credit spread as observed through the CDS market
to estimate the PD and LGD as a result of a systemic event
affecting the Firm.
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) OTC derivatives, leverages its
existing CVA and DVA calculation methodologies, andconsiders the fact that the Firm’s own credit risk is asignificant component of funding costs.
JPMorgan Chase & Co./2016 Annual Report

The key inputs to FVA are: (i) the expected funding
requirements arising from the Firm’s positions with eachcounterparty and collateral arrangements; (ii) for assets,
the estimated market funding cost in the principal market;
and (iii) for liabilities, the hypothetical market funding cost
for a transfer to a market participant with a similar credit
standing as the Firm. For collateralized derivatives, the fairvalue is estimated by discounting expected future cash
flows at the relevant overnight indexed swap rate given theunderlying collateral agreement with the counterparty, andtherefore a separate 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 DVA and FVA reported
below include the impact of the Firm’s own credit quality on
the inception value of liabilities as well as the impact ofchanges in the Firm’s own credit quality over time.
Year ended December 31,(in millions)

2016

2015

2014

Credit adjustments:
Derivatives CVA$

Derivatives DVA and FVA(84) $

620

7

73

$

(322)
(58)

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 ismeasured using (i) the current fair value of the liability and(ii) changes (subsequent to the issuance of the liability) in
the Firm’s probability of default and LGD, which are
estimated based on changes in the Firm’s credit spread
observed in the bond market. Effective January 1, 2016,
the effect of DVA on fair value option elected liabilities isrecognized in OCI. See Note 25 for further information.
Assets and liabilities measured at fair value on anonrecurring basis
At December 31, 2016 and 2015, assets measured at fairvalue on a nonrecurring basis were $1.6 billion and $1.7
billion, respectively, consisting predominantly of loans that
had fair value adjustments for the years ended
December 31, 2016 and 2015. At December 31, 2016,$735 million and $822 million of these assets wereclassified in levels 2 and 3 of the fair value hierarchy,
respectively. At December 31, 2015, $696 million and$959 million of these assets were classified in levels 2 and
3 of the fair value hierarchy, respectively. Liabilities
measured at fair value on a nonrecurring basis were notsignificant at December 31, 2016 and 2015. For the years
ended December 31, 2016, 2015 and 2014, there were no
significant transfers between levels 1, 2 and 3 related toassets held at the balance sheet date.
Of the $822 million in level 3 assets measured at fair value
on a nonrecurring basis as of December 31, 2016:•$462 million related to residential real estate loans
carried at the net realizable value of the underlying
collateral (i.e., collateral-dependent loans and otherloans charged off in accordance with regulatory
JPMorgan Chase & Co./2016 Annual Report

guidance). These amounts are classified as level 3, as
they are valued using a broker’s price opinion anddiscounted based upon the Firm’s experience with actual
liquidation values. These discounts to the broker priceopinions ranged from 12% to 47%, with a weighted
average of 25%.
The total change in the recorded value of assets andliabilities for which a fair value adjustment has been
included in the Consolidated statements of income for theyears ended December 31, 2016, 2015 and 2014, related
to financial instruments held at those dates, were losses of$172 million, $294 million and $992 million respectively;
these reductions were predominantly associated with loans.
For further information about the measurement of impaired
collateral-dependent loans, and other loans where thecarrying value is based on the fair value of the underlying
collateral (e.g., residential mortgage loans charged off inaccordance with regulatory guidance), see Note 14.
Additional disclosures about the fair value of financial
instruments that are not carried on the Consolidatedbalance sheets at fair value
U.S. GAAP requires disclosure of the estimated fair value ofcertain financial instruments, and the methods andsignificant assumptions used to estimate their fair value.
Financial instruments within the scope of these disclosure
requirements are included in the following table. However,certain financial instruments and all nonfinancial
instruments are excluded from the scope of these disclosure
requirements. Accordingly, the fair value disclosuresprovided in the following table include only a partial
estimate of the fair value of JPMorgan Chase’s assets andliabilities. For example, the Firm has developed long-term
relationships with its customers through its deposit baseand credit card accounts, commonly referred to as core
deposit intangibles and credit card relationships. In theopinion of management, these items, in the aggregate, add
significant value to JPMorgan Chase, but their fair value is
not disclosed in this Note.
Financial instruments for which carrying value approximatesfair value
Certain financial instruments that are not carried at fairvalue on the Consolidated balance sheets are carried at
amounts that approximate fair value, due to their shortterm nature and generally negligible credit risk. These
instruments include cash and due from banks, deposits withbanks, federal funds sold, securities purchased under resaleagreements and securities borrowed, short-term
receivables and accrued interest receivable, commercial
paper, federal funds purchased, securities loaned and soldunder repurchase agreements, other borrowed funds,
accounts payable, and accrued liabilities. In addition, U.S.
GAAP requires that the fair value of deposit liabilities withno stated maturity (i.e., demand, savings and certain money
market deposits) be equal to their carrying value;
recognition of the inherent funding value of these
instruments is not permitted.

165Notes to consolidated financial statements
The following table presents by fair value hierarchy classification the carrying values and estimated fair values at
December 31, 2016 and 2015, of financial assets and liabilities, excluding financial instruments that are carried at fair value
on a recurring basis, and their classification within the fair value hierarchy. For additional information regarding the financial
instruments within the scope of this disclosure, and the methods and significant assumptions used to estimate their fair value,
see pages 150–153 of this Note.

(in billions)

Carrying
value

December 31, 2016

December 31, 2015

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

23.9 $

23.9 $— $23.9

20.5 $

20.5 $— $20.5

Deposits with banks

$

365.8

362.0

3.8

— $

—

365.8

$

340.0

335.9

4.1

— $

—

340.0

Accrued interest and accounts
receivable

52.3

—

52.2

0.1

52.3

46.6

—

46.4

0.2

46.6

Federal funds sold andsecurities purchased underresale agreements
Securities borrowed

208.5

—

208.3

0.2

208.5

189.5

—

189.5

—

189.5

96.4

—

96.4

—

96.4

98.3

—

98.3

—

98.3

Securities, held-to-maturity

50.2

—

50.9

—

50.9

49.1

—

50.6

—

50.6

Loans, net of allowance forloan losses(a)

878.8

—

24.1

851.0

875.1

820.8

—

25.4

802.7

828.1

Other

71.4

0.1

60.8

14.3

75.2

66.0

0.1

56.3

14.3

70.7

Financial liabilities
Deposits— $ 1,361.3 $— $ 1,361.3

165.0

—

165.0

—

165.0

149.2

—

149.2

—

149.2

11.7

—

11.7

—

11.7

15.6

—

15.6

—

15.6

Other borrowed funds

13.6

—

13.6

—

13.6

11.2

—

11.2

—

11.2

Accounts payable and otherliabilities

148.0

—

144.8

3.4

148.2

144.6

—

141.7

2.8

144.5

Beneficial interests issued byconsolidated VIEs

38.9

—

38.9

—

38.9

41.1

—

40.2

0.9

41.1

Long-term debt and juniorsubordinated deferrable
interest debentures

257.5

—

260.0

2.0

262.0

255.6

—

257.4

4.3

261.7

Federal funds purchased andsecurities loaned or soldunder repurchase agreements
Commercial paper

(a)

166

$ 1,361.3 $$ 1,267.2 $— $ 1,266.1 $1.2 $ 1,267.3

Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal,
contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, andprimary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. The
difference between the estimated fair value and carrying value of a financial asset or liability is the result of the different methodologies used todetermine fair value as compared with carrying value. For example, credit losses are estimated for a financial asset’s remaining life in a fair value
calculation but are estimated for a loss emergence period in the allowance for loan loss calculation; future loan income (interest and fees) is
incorporated in a fair value calculation but is generally not considered in the allowance for loan losses. For a further discussion of the Firm’s
methodologies for estimating the fair value of loans and lending-related commitments, see Valuation hierarchy on pages 150–153.

JPMorgan Chase & Co./2016 Annual Report

The majority of the Firm’s lending-related commitments are not carried at fair value on a recurring basis on the Consolidatedbalance sheets, nor are they actively traded. The carrying value of the wholesale allowance for lending-related commitments
and the estimated fair value of these wholesale lending-related commitments were as follows for the periods indicated.

(in billions)

Carrying
value(a)Wholesale lendingrelated commitments $December 31, 2016

December 31, 2015

Estimated fair value hierarchy

Estimated fair value hierarchy

Level 1

1.1 $Level 2
— $Level 3— $Totalestimated
fair value

2.1 $

2.1

Carrying
value(a)$0.8 $Level 1

Level 2
— $Level 3— $Totalestimated
fair value

3.0 $

3.0

(a) Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which is recognized at fair value at the inception of theguarantees.

The Firm does not estimate the fair value of consumer lending-related commitments. In many cases, the Firm can reduce orcancel these commitments by providing the borrower notice or, in some cases as permitted by law, without notice. For a further
discussion of the valuation of lending-related commitments, see page 151 of this Note.

JPMorgan Chase & Co./2016 Annual Report167

Notes to consolidated financial statements
Note 4 – Fair value option
The fair value option provides an option to elect fair value
as an alternative measurement for selected financial assets,financial liabilities, unrecognized firm commitments, andwritten loan commitments.
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.

168

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• Certain securities financing arrangements with anembedded derivative and/or a maturity of greater than
one year• Owned beneficial interests in securitized financial assetsthat contain embedded credit derivatives, which would
otherwise be required to be separately accounted for asa derivative instrument• Structured notes, which are predominantly financial
instruments that contain embedded derivatives, that areissued as part of CIB’s client-driven activities• Certain long-term beneficial interests issued by CIB’s
consolidated securitization trusts where the underlying
assets are carried at fair value

JPMorgan Chase & Co./2016 Annual ReportChanges in fair value under the fair value option election
The following table presents the changes in fair value included in the Consolidated statements of income for the years ended
December 31, 2016, 2015 and 2014, 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.
2016

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(a)Other borrowed funds(a)Trading liabilities
Beneficial interests issued byconsolidated VIEs
Other liabilities
Long-term debt:
DVA on fair value option electedliabilities (a)Other changes in fair value(b)2015

All otherincomeTotalchangesin fair
value
recorded$Principaltransactions

2014

All otherincomeTotalchangesin fair
value
recorded$Principaltransactions

All otherincomeTotalchangesin fair
value
recorded(76) $—(76) $(38) $—(38) $(15) $

—

1

—

1

(6)

—

(6)

(10)

—

(10)

120

(1) (c)119756(10) (c)

746

639

—

639

461

43

(c)

504

138

41

(c)

179

885

29

(c)

914

79

684

(c)

(c)

1,050

352

1,353

(c)

1,705

13
(7)
20
(134)

763

232

818

—

13

35

—

35

40

—

—
62
—

(7)
82
(134)

4
79
93

—
(1) (d)
—

4
78
93

34
24
(287)

—
6
—

(d)

$

(15)

40
(d)

34
30
(287)

19

—

19

8

—

8

(33)

—

(33)

(236)
6

—
—

(236)
6

1,996
(20)

—
—

1,996
(20)

(891)
(17)

—
—

(891)
(17)

23

—

23

49

—

49

(233)

—

(233)

—

—

—

—

—

—

(27)

—

(27)

—

—

—

300

—

300

101

—

101

(773)

—

(773)

1,088

—

1,088

(615)

—

(615)

(a) Effective January 1, 2016, unrealized gains/(losses) due to instrument-specific credit risk (DVA) for liabilities for which the fair value option has been elected isrecorded in OCI, while realized gains/(losses) are recorded in principal transactions revenue. DVA for 2015 and 2014 was included in principal transactions revenue,
and includes the impact of the Firm’s own credit quality on the inception value of liabilities as well as the impact of changes in the Firm’s own credit quality
subsequent to issuance. See Notes 3 and 25 for further information.
(b) Long-term debt measured at fair value predominantly relates to structured notes containing embedded derivatives. Although the risk associated with the structured
notes is actively managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage
such risk.
(c) Reported in mortgage fees and related income.
(d) Reported in other income.

JPMorgan Chase & Co./2016 Annual Report169Notes to consolidated financial statements
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.

••

Long-term debt: Changes in value attributable to
instrument-specific credit risk were derived principallyfrom observable changes in the Firm’s credit spread.
Resale and repurchase agreements, securities borrowed
agreements and securities lending agreements:
Generally, for these types of agreements, there is arequirement that collateral be maintained with a market
value equal to or in excess of the principal amountloaned; as a result, there would be no adjustment or an
immaterial adjustment for instrument-specific credit risk
related to these agreements.

Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principalbalance outstanding as of December 31, 2016 and 2015, for loans, long-term debt and long-term beneficial interests forwhich the fair value option has been elected.
2016

December 31, (in millions)2015

Contractual
principal
outstanding

Fair value$$

Fair value
over/(under)contractual
principal
outstanding

Contractual
principal
outstanding

Fair value

Fair value
over/(under)contractual
principal
outstanding

Loans(a)Nonaccrual loans
Loans reported as trading assets

748 $(2,590) $

Loans

3,338
—

—

—

3,484
7

$

631 $
7

(2,853)—

Subtotal

3,338

748

(2,590)

3,491

638

(2,853)Loans reported as trading assets

35,47733,054(2,423)30,78028,184(2,596)

Loans

2,259

2,228

(31)

2,771

2,752

(19)

$

36,030 $(5,044) $37,042$

31,574 $(5,468)$19,195 $(2,407) $17,910$16,611 $(1,299)18,491NANA

All other performing loans

Total loans$

41,074$

21,602Long-term debt
Principal-protected debt
Nonprincipal-protected debt(b)

Total long-term debt

(c)

NA

(c)

16,454NANA$

37,686NANA$

33,065NA

Nonprincipal-protected debt

NA

$

120

NA

NA

$

787

NA

Total long-term beneficial interests

NA

$

120

NA

NA

$

787

NA

Long-term beneficial interests(a) There were no performing loans that were ninety days or more past due as of December 31, 2016 and 2015, respectively.
(b) Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is
obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return astated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in thenote. However, investors are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal protected notes.
(c) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if
applicable, the contractual principal payment at the Firm’s next call date.

At December 31, 2016 and 2015, the contractual amount of lending-related commitments for which the fair value option waselected was $4.6 billion for both years, with a corresponding fair value of $(118) million and $(94) million, respectively. For
further information regarding off-balance sheet lending-related financial instruments, see Note 29.

170

JPMorgan Chase & Co./2016 Annual Report

Structured note products by balance sheet classification and risk component
The table below presents the fair value of the structured notes issued by the Firm, by balance sheet classification and theprimary risk type.
December 31, 2016
(in millions)

Other
Long-term borrowed
debt
funds

Deposits

December 31, 2015
Total

Other
Long-term borrowed
debt
funds

Deposits

Total

Risk exposure
Interest rate

$ 16,296 $184 $ 4,296 $ 20,776$ 12,531 $58 $3,340 $ 15,929

Credit

3,267

225

—

3,492

3,195

547

—

Foreign exchange

2,365

135

6

2,506

1,765

77

11

1,853

Equity14,831

8,234

5,481

28,546

14,293

8,447

4,993

27,733

488

37

1,811

2,336

640

50

1,981

2,671

Commodity
Total structured notes

JPMorgan Chase & Co./2016 Annual Report$ 37,247 $

8,815 $ 11,594 $ 57,656$ 32,424 $

3,742

9,179 $ 10,325 $ 51,928

171Notes to consolidated financial statements
Note 5 – Credit risk concentrations
Concentrations of credit risk arise when a number ofcustomers are engaged in similar business activities or
activities in the same geographic region, or when they have
similar economic features that would cause their ability tomeet contractual obligations to be similarly affected bychanges in economic conditions.
JPMorgan Chase regularly monitors various segments of its
credit portfolios to assess potential credit risk
concentrations and to obtain collateral when deemednecessary. Senior management is significantly involved in
the credit approval and review process, and risk levels areadjusted as needed to reflect the Firm’s risk appetite.

In the Firm’s consumer portfolio, concentrations areevaluated primarily by product and by U.S. geographic
region, with a key focus on trends and concentrations at theportfolio level, where potential credit risk concentrations
can be remedied through changes in underwriting policies
and portfolio guidelines. In the wholesale portfolio, credit
risk concentrations are evaluated primarily by industry andmonitored regularly on both an aggregate portfolio leveland on an individual customer basis. The Firm’s wholesale
exposure is managed through loan syndications andparticipations, loan sales, securitizations, credit derivatives,
master netting agreements, and collateral and other riskreduction techniques. For additional information on loans,see Note 14.
The Firm does not believe that its exposure to any
particular loan product (e.g., option ARMs), or industry
segment (e.g., commercial real estate), or its exposure toresidential real estate loans with high LTV ratios, results in asignificant 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.

172

JPMorgan Chase & Co./2016 Annual Report

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, 2016 and 2015.
2016

2015

On-balance sheet

On-balance sheet

December 31, (in millions)CreditexposureConsumer, excluding credit card

$ 419,441 $ 364,644 $Receivables from customers(a)Total Consumer, excluding credit card
Credit Card

Loans

Derivatives

Off-balance
sheet(g)— $54,797

Creditexposure

Loans

Derivatives$ 403,299 $ 344,821 $Off-balance
sheet(g)— $58,478

120

—

—

—

125

—

—

—

419,561

364,644—

54,797

403,424

344,821—58,478695,707

141,816—

553,891

646,981

131,463—515,518

1,115,268

506,460—

608,688

1,050,405

476,284—

573,996

Real Estate

135,041

106,315

222

28,504

116,857

92,820312

23,725

Consumer & Retail

85,43529,842

1,082

54,511

85,46027,175

1,573

56,712

Technology, Media & Telecommunications

62,95013,845

1,227

47,87857,382

11,0791,032

45,271

Industrials

55,44917,1501,615

36,68454,386

16,791

1,428

36,167

Healthcare

47,86615,1202,277

30,46946,053

16,9652,751

26,337Banks & Finance Cos

44,614

19,46012,232

12,922

43,39820,401

10,218

12,779

Oil & Gas

40,09913,0791,878

25,142

42,077

13,343

1,902

26,832

Asset Managers

31,886

10,53910,81910,52823,815

6,703

7,733

9,379

Utilities

29,622

7,183

883

21,55630,853

5,294

1,689

23,870State & Municipal Govt(c)28,263

12,416

2,096

13,751

29,114

9,626

3,287

16,201

Central Govt

20,4083,964

14,2352,209

17,9682,000

13,2402,728Transportation

19,029

8,942

751

9,336

19,227

9,157

1,575

8,495

Automotive

16,635

4,943

1,190

10,502

13,864

4,473

1,350

8,041

Chemicals & Plastics

14,988

5,287

271

9,430

15,232

4,033

369

10,830

Metals & Mining

13,419

4,350

439

8,630

14,049

4,622

607

8,820

Insurance

13,151

947

3,382

8,822

11,889

1,094

1,992

8,803

Financial Markets Infrastructure

8,732

347

3,884

4,501

7,973

724

2,602

4,647

Total consumer-related
Wholesale-related(b)Securities Firms

3,867

794

1,913

1,160

4,412

861

1,424

2,127

All other(d)144,428

109,267

3,682

31,479149,117

109,889

4,593

34,635

Subtotal

815,882

383,79064,078368,014783,126

357,050

59,677366,399

4,515

4,515

—

—

3,965

3,965

—

—

Loans held-for-sale and loans at fair value
Receivables from customers and other(a)

Total wholesale-related
Total exposure(e)(f)17,440———13,372———

837,837

388,305

64,078368,014800,463

361,015

59,677366,399

59,677 $940,395$ 1,953,105 $ 894,765 $

64,078 $ 976,702$ 1,850,868 $ 837,299 $(a) Receivables from customers primarily represent margin loans to brokerage customers that are collateralized 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, 2015, are based on the industry rankings of the corresponding exposures at December 31, 2016,
not actual rankings of such exposures at December 31, 2015.
(c) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2016 and 2015, noted above, the Firm held:$9.1 billion and 7.6 billion, respectively, of trading securities; $31.6 billion and $33.6 billion, respectively, of AFS securities; and $14.5 billion and $12.8 billion,
respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, see Note 3 and Note 12.
(d) All other includes: individuals; SPEs; holding companies; and private education and civic organizations. For more information on exposures to SPEs, see Note 16.
(e) For further information regarding on–balance sheet credit concentrations by major product and/or geography, see Note 6 and Note 14. For information regarding
concentrations of off–balance sheet lending-related financial instruments by major product, see Note 29.
(f) Excludes cash placed with banks of $380.2 billion and $351.0 billion, at December 31, 2016 and 2015, respectively, which is predominantly placed with various
central banks, primarily Federal Reserve Banks(g) Represents lending-related financial instruments.

JPMorgan Chase & Co./2016 Annual Report173Notes to consolidated financial statements
Note 6 – Derivative instruments
Derivative contracts derive their value from underlying
asset prices, indices, reference rates, other inputs or a
combination of these factors and may expose
counterparties to risks and rewards of an underlying asset
or liability without having to initially invest in, own or
exchange the asset or liability. JPMorgan Chase makes
markets in derivatives for clients and also uses derivatives
to hedge or manage its own risk exposures. Predominantly
all of the Firm’s derivatives are entered into for marketmaking or risk management purposes.
Market-making derivatives
The majority of the Firm’s derivatives are entered into formarket-making purposes. Clients use derivatives to mitigate
or modify interest rate, credit, foreign exchange, equity andcommodity risks. The Firm actively manages the risks fromits exposure to these derivatives by entering into otherderivative transactions or by purchasing or selling otherfinancial instruments that partially or fully offset the
exposure from client derivatives.
Risk management derivatives
The Firm manages certain market and credit risk exposuresusing derivative instruments, including derivatives in hedge
accounting relationships and other derivatives that are used
to manage risks associated with specified assets andliabilities.
Interest rate contracts are used to minimize fluctuations inearnings that are caused by changes in interest rates. Fixedrate assets and liabilities appreciate or depreciate in market
value as interest rates change. Similarly, interest income
and expense increases or decreases as a result of variablerate assets and liabilities resetting to current market rates,
and as a result of the repayment and subsequentorigination or issuance of fixed-rate assets and liabilities atcurrent market rates. Gains or losses on the derivative
instruments that are related to such assets and liabilities
are expected to substantially offset this variability inearnings. The Firm generally uses interest rate swaps,
forwards and futures to manage the impact of interest rate
fluctuations on earnings.
Foreign currency forward contracts are used to manage theforeign exchange risk associated with certain foreign
currency–denominated (i.e., non-U.S. dollar) assets andliabilities and forecasted transactions, as well as the Firm’s
net investments in certain non-U.S. subsidiaries or branches
whose functional currencies are not the U.S. dollar. As aresult of fluctuations in foreign currencies, the U.S. dollar–
equivalent values of the foreign currency–denominatedassets and liabilities or the forecasted revenues or expenses
increase or decrease. Gains or losses on the derivative
instruments related to these foreign currency–denominatedassets or liabilities, or forecasted transactions, are expected
to substantially offset this variability.

174

Commodities contracts are used to manage the price risk ofcertain commodities inventories. Gains or losses on thesederivative instruments are expected to substantially offset
the depreciation or appreciation of the related inventory.
Credit derivatives are used to manage the counterparty
credit risk associated with loans and lending-related
commitments. Credit derivatives compensate the purchaser
when the entity referenced in the contract experiences acredit event, such as bankruptcy or a failure to pay an
obligation when due. Credit derivatives primarily consist of
CDS. For a further discussion of credit derivatives, see thediscussion in the Credit derivatives section on pages 184–
186 of this Note.
For more information about risk management derivatives,
see the risk management derivatives gains and losses tableon page 184 of this Note, and the hedge accounting gains
and losses tables on pages 182–184 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 where theFirm acts as a clearing member with respect to certain
derivative exchanges and clearing houses. The Firm does
not reflect the clients’ derivative contracts in its
Consolidated Financial Statements. For further informationon the Firm’s clearing services, see Note 29.
Accounting for derivatives
All free-standing derivatives that the Firm executes for its
own account are required to be recorded on theConsolidated balance sheets at fair value.
As permitted under U.S. GAAP, the Firm nets derivative
assets and liabilities, and the related cash collateral
receivables and payables, when a legally enforceable
master netting agreement exists between the Firm and thederivative counterparty. For further discussion of theoffsetting of assets and liabilities, see Note 1. The
accounting for changes in value of a derivative depends onwhether or not the transaction has been designated andqualifies for hedge accounting. Derivatives that are notdesignated as hedges are reported and measured at fairvalue through earnings. The tabular disclosures on pages
178–184 of this Note provide additional information on theamount of, and reporting for, derivative assets, liabilities,
gains and losses. For further discussion of derivatives
embedded in structured notes, see Notes 3 and 4.

JPMorgan Chase & Co./2016 Annual ReportDerivatives designated as hedges
The Firm applies hedge accounting to certain derivatives
executed for risk management purposes – generally interest
rate, foreign exchange and commodity derivatives.
However, JPMorgan Chase does not seek to apply hedge
accounting to all of the derivatives involved in the Firm’s
risk management activities. For example, the Firm does not
apply hedge accounting to purchased CDS used to manage
the credit risk of loans and lending-related commitments,
because of the difficulties in qualifying such contracts ashedges. For the same reason, the Firm does not apply
hedge accounting to certain interest rate, foreign exchange,
and commodity derivatives used for risk management
purposes.
To qualify for hedge accounting, a derivative must be highly
effective at reducing the risk associated with the exposure
being hedged. In addition, for a derivative to be designatedas a hedge, the risk management objective and strategy
must be documented. Hedge documentation must identify
the derivative hedging instrument, the asset or liability or
forecasted transaction and type of risk to be hedged, andhow the effectiveness of the derivative is assessed
prospectively and retrospectively. To assess effectiveness,
the Firm uses statistical methods such as regression
analysis, as well as nonstatistical methods including dollarvalue comparisons of the change in the fair value of thederivative to the change in the fair value or cash flows of
the hedged item. The extent to which a derivative has been,
and is expected to continue to be, effective at offsettingchanges in the fair value or cash flows of the hedged item
must be assessed and documented at least quarterly. Any
hedge ineffectiveness (i.e., the amount by which the gain orloss on the designated derivative instrument does notexactly offset the change in the hedged item attributable tothe hedged risk) must be reported in current-period
earnings. If it is determined that a derivative is not highly
effective at hedging the designated exposure, hedge
accounting is discontinued.

JPMorgan Chase & Co./2016 Annual Report

There are three types of hedge accounting designations: fairvalue hedges, cash flow hedges and net investment hedges.
JPMorgan Chase uses fair value hedges primarily to hedge
fixed-rate long-term debt, AFS securities and certain
commodities inventories. For qualifying fair value hedges,
the changes in the fair value of the derivative, and in thevalue of the hedged item for the risk being hedged, arerecognized in earnings. If the hedge relationship isterminated, then the adjustment to the hedged item
continues to be reported as part of the basis of the hedged
item, and for benchmark interest rate hedges, is amortizedto earnings as a yield adjustment. Derivative amounts
affecting earnings are recognized consistent with theclassification of the hedged item – primarily net interest
income and principal transactions revenue.
JPMorgan Chase uses cash flow hedges primarily to hedge
the exposure to variability in forecasted cash flows fromfloating-rate assets and liabilities and foreign currency–
denominated revenue and expense. For qualifying cash flow
hedges, the effective portion of the change in the fair valueof the derivative is recorded in OCI and recognized in theConsolidated statements of income when the hedged cash
flows affect earnings. Derivative amounts affecting earnings
are recognized consistent with the classification of thehedged item – primarily interest income, interest expense,
noninterest revenue and compensation expense. The
ineffective portions of cash flow hedges are immediately
recognized in earnings. If the hedge relationship isterminated, then the value of the derivative recorded in
AOCI is recognized in earnings when the cash flows thatwere hedged affect earnings. For hedge relationships thatare discontinued because a forecasted transaction is notexpected to occur according to the original hedge forecast,
any related derivative values recorded in AOCI are
immediately recognized in earnings.
JPMorgan Chase uses net investment hedges to protect thevalue of the Firm’s net investments in certain non-U.S.
subsidiaries or branches whose functional currencies are
not the U.S. dollar. For foreign currency qualifying net
investment hedges, changes in the fair value of thederivatives are recorded in the translation adjustments
account within AOCI.

175

Notes to consolidated financial statements
The following table outlines the Firm’s primary uses of derivatives and the related hedge accounting designation or disclosure
category.
Type of Derivative

Use of Derivative

Affected
Designation and disclosure segment or unit

Page
referenceManage specifically identified risk exposures in qualifying hedge accounting relationships:
Hedge fixed rate assets and liabilities

Fair value hedge

Corporate

182

Hedge floating-rate assets and liabilities

Cash flow hedge

Corporate

183

Foreign exchange

Hedge foreign currency-denominated assets and liabilities

Fair value hedge

Corporate

182

Foreign exchange

Hedge forecasted revenue and expense

Cash flow hedge

Corporate

183

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

184

Fair value hedge

CIB

182

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

184

CreditManage the credit risk of wholesale lending exposures

Specified risk management

CIB

184

Commodity

Manage the risk of certain commodities-related contracts andinvestments
Manage the risk of certain other specified assets and liabilities

Specified risk management

CIB

184

Specified risk management

Corporate

184

Interest rate andforeign exchange

Market-making derivatives and other activities:
VariousMarket-making and related risk management

Market-making and other

CIB

184

Various

Other derivatives

Market-making and other

CIB, Corporate

184

176

JPMorgan Chase & Co./2016 Annual ReportNotional amount of derivative contracts
The following table summarizes the notional amount ofderivative contracts outstanding as of December 31, 2016
and 2015.
Notional amounts(b)December 31, (in billions)

2016

2015

Interest rate contracts
Swaps$ 22,000$ 24,162

Futures and forwards

5,289

5,167

Written options

3,091

3,506

Purchased options

3,482

3,896

Total interest rate contracts

33,862

36,731Credit derivatives(a)

2,032

2,900

Cross-currency swaps

3,359

3,199

Spot, futures and forwards

5,341

5,028

Written options

734

690

Purchased options

721

706

10,155

9,623

Swaps

258

232

Futures and forwards

59

43

Written options

417

395

Purchased options

345

326

Total equity contracts

1,079

996

Swaps

102

83

Spot, futures and forwards

130

99

Written options

83

115

Purchased options

94

112

Foreign exchange contracts

Total foreign exchange contracts
Equity contracts

Commodity contracts

Total commodity contracts
Total derivative notional amounts

409

409

$ 47,537$ 50,659(a) For more information on volumes and types of credit derivative
contracts, see the Credit derivatives discussion on pages 184–186.
(b) Represents the sum of gross long and gross short third-party notional
derivative contracts.

While the notional amounts disclosed above give an
indication of the volume of the Firm’s derivatives activity,
the notional amounts significantly exceed, in the Firm’sview, the possible losses that could arise from suchtransactions. For most derivative transactions, the notionalamount is not exchanged; it is used simply as a reference tocalculate payments.

JPMorgan Chase & Co./2016 Annual Report177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, 2016 and 2015, 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, 2016
(in millions)Not
designatedas hedges$ 601,557

Gross derivative payables

Designatedas hedges

Total
derivative
receivables

Net
derivative
receivables(b)Notdesignatedas hedges

Designatedas hedges

Total
derivative
payablesNet
derivative
payables(b)

$

$

$

2,884 $ 570,778$ 10,815

Trading assets andliabilities
Interest rate

4,406

$ 605,963

28,302$ 567,894

Credit29,645—29,645

1,294

28,666—

28,666

1,411

Foreign exchange

232,137

1,289

233,426

23,271

233,8231,148

234,971

20,508Equity34,940—34,9404,939

38,362—38,362

8,140

Commodity

18,505137

18,642

6,272

20,283179

20,462

8,357

5,832

$ 922,616

64,078$ 889,028

4,211 $ 893,239$ 49,231

Net
derivative
receivables(b)Notdesignatedas hedges

Designatedas hedges$$ 632,928$

Total fair value of trading
assets and liabilities$ 916,784

December 31, 2015
(in millions)Not
designatedas hedges

Designatedas hedges

Total
derivative
receivables$ 665,531$$ 669,611$$

Gross derivative receivables$

Gross derivative payables
Total
derivative
payablesNet
derivative
payables(b)2,238 $ 635,166$ 10,221

Trading assets andliabilities
Interest rate

4,080

26,363Credit

51,468—51,468

1,423

50,529—50,5291,541

Foreign exchange

179,072803

179,875

17,177

189,397

1,503

190,900

19,769Equity35,859—35,8595,529

38,663—38,6639,183

Commodity

23,713

1,352

25,0659,185

27,653

1

27,654

12,0766,235$ 961,878

59,677$ 939,170

3,742 $ 942,912$ 52,790

Total fair value of trading
assets and liabilities$ 955,643$$$(a) Balances exclude structured notes for which the fair value option has been elected. See Note 4 for further information.
(b) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables andpayables when a legally enforceable master netting agreement exists.

178

JPMorgan Chase & Co./2016 Annual ReportDerivatives netting
The following tables present, as of December 31, 2016 and 2015, 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 bonds) and cash collateral held at third party custodians, which are shown separately as “Collateral not nettableon 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.
2016

December 31, (in millions)Grossderivative
receivables

2015

Amounts nettedon theConsolidatedbalance sheetsNet
derivative
receivables

Grossderivative
receivables

Amounts nettedon theConsolidatedbalance sheets

$

$

Net
derivative
receivables$

U.S. GAAP nettable derivative receivables
Interest rate contracts:
OTC$ 365,227 $ (342,173)

417,386$ (396,506)

235,399(235,261)

138

246,750(246,742)

8

241

(227)

14

—

—

—

600,867(577,661)

23,206664,136(643,248)

20,888OTC

23,130(22,612)518

44,082(43,182)900

OTC–cleared

5,746(5,739)7

6,866(6,863)

3

28,876(28,351)525

50,948(50,045)903

226,271(208,962)

17,309175,060(162,377)

12,683

1,238(1,165)

73

323

(321)

2

104

(27)

77

—

—

—

227,613(210,154)

17,459175,383(162,698)

12,685

20,868(20,570)

298

20,690(20,439)

251

—

—

—

—

—

—

OTC–cleared
Exchange-traded(a)Total interest rate contracts

23,054

20,880Credit contracts:

Total credit contracts
Foreign exchange contracts:
OTC
OTC–cleared
Exchange-traded(a)Total foreign exchange contracts
Equity contracts:
OTC
OTC–cleared
Exchange-traded

11,439(9,431)

2,008

12,285(9,891)

2,394

Total equity contracts

32,307(30,001)

2,306

32,975(30,330)

2,645

11,571(5,605)

5,966

15,001(6,772)

8,229

(a)

Commodity contracts:
OTC
OTC–cleared
Exchange-traded(a)Total commodity contracts

—

—

—

—

—

—

6,794

(6,766)28

9,199(9,108)91

18,365(12,371)

5,994

24,200(15,880)

8,320

Derivative receivables with appropriate legal
opinions

908,028(858,538) (b)49,490947,642(902,201) (b)45,441

Derivative receivables where an appropriate legal
opinion has not been either sought or obtained

14,588

14,588

14,236

Total derivative receivables recognized on theConsolidated balance sheets$ 922,616$

Collateral not nettable on the Consolidated balance
sheets(c)(d)Net amounts
JPMorgan Chase & Co./2016 Annual Report

64,078$961,878

14,236$(18,638)$

45,44059,677(13,543)$

46,134179

Notes to consolidated financial statements
2016
Gross
derivative
payablesDecember 31, (in millions)

2015

Amounts nettedon theConsolidatedbalance sheetsNet
derivative
payablesAmounts nettedon theConsolidatedbalance sheetsNet
derivative
payables393,709$ (384,576)$

240,398(240,369)

Grossderivative
payablesU.S. GAAP nettable derivative payables
Interest rate contracts:
OTC$

OTC–cleared

338,502 $ (329,325)
230,464

Exchange-traded(a)Total interest rate contracts$(230,463)

9,177

$

1

9,133
29

196

(175)

21

—

—

—

569,162(559,963)

9,199

634,107(624,945)

9,162

22,366(21,614)752

44,379(43,019)

1,360

Credit contracts:
OTC
OTC–cleared

5,641(5,641)—

5,969(5,969)—28,007(27,255)752

50,348(48,988)1,360

228,300(213,296)

15,004

185,178(170,830)

14,348

1,158(1,158)

—

301

(301)

—

328

(9)

319

—

—

—

229,786(214,463)

15,323

185,479(171,131)

14,34824,688(20,808)

3,880

23,458(19,589)

3,869

—

—

—

—

—

—

Exchange-traded(a)10,004(9,414)590

10,998(9,891)

1,107

Total equity contracts

34,692(30,222)

4,470

34,456(29,480)

4,976

12,885(5,252)

7,633

16,953(6,256)

10,697

—

—

—

—

—

—

7,099

(6,853)

246

9,374

(9,322)

52

Total credit contracts
Foreign exchange contracts:
OTC
OTC–cleared
Exchange-traded(a)Total foreign exchange contracts
Equity contracts:
OTC
OTC–cleared

Commodity contracts:
OTC
OTC–cleared
Exchange-traded(a)19,984(12,105)

7,879

26,327(15,578)

10,749Derivative payables with appropriate legal opinions

Total commodity contracts

881,631(844,008) (b)37,623930,717(890,122) (b)40,595Derivative payables where an appropriate legal
opinion has not been either sought or obtained

11,608

11,60812,195

Total derivative payables recognized on theConsolidated balance sheets
Collateral not nettable on the Consolidated balance
sheets(c)(d)(e)Net amounts$

893,239$

49,231$

942,912

12,195$(8,925)$40,306

52,790(7,957)$

44,833(a) Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b) Net derivatives receivable included cash collateral netted of $71.9 billion and $73.7 billion at December 31, 2016 and 2015, respectively. Net derivatives
payable included cash collateral netted of $57.3 billion and $61.6 billion related to OTC and OTC-cleared derivatives at December 31, 2016 and 2015,
respectively.
(c) Excludes all collateral related to derivative instruments where an appropriate legal opinion has not been either sought or obtained.
(d) 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.
(e) Derivative payables collateral relates only to OTC and OTC-cleared derivative instruments. Amounts exclude collateral transferred related to exchangetraded derivative instruments.

180

JPMorgan Chase & Co./2016 Annual Report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, 2016 and 2015.

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
2016

Aggregate fair value of net derivative payables
Collateral posted

2015$ 21,550 $ 22,328
19,383

18,942

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, 2016 and 2015, 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
2016
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)2015
Two-notch
downgrade

560 $

2,497

606

1,049

Single-notch
downgrade$

Two-notch
downgrade

807 $

3,028

271

1,093

(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 13, 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, 2016 was not material.

JPMorgan Chase & Co./2016 Annual Report181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, 2016,2015 and 2014, respectively. The Firm includes gains/(losses) on the hedging derivative and the related hedged item in thesame line item in the Consolidated statements of income.
Gains/(losses) recorded in income
Year ended December 31, 2016 (in millions)

Derivatives

Income statement impact due to:Hedged items

Total income
statement
impactHedge
ineffectiveness(e)Excludedcomponents(f)

$

$

$

$

Contract typeInterest rate(a)(b)

$

(482)

1,338

856

6

850

Foreign exchange(c)2,435(2,261)

174

—

174

Commodity(d)

(536)

586

50

(9)

59

Total

$

1,417

$

(337)

$

1,080

Gains/(losses) recorded in income
Year ended December 31, 2015 (in millions)

Derivatives Hedged items

$

(3)

$

1,083

Income statement impact due to:Total income
statement
impactHedge
ineffectiveness(e)Excludedcomponents(f)

$

$

$

Contract typeInterest rate(a)(b)

$

38

$

911

949

3

946

Foreign exchange(c)6,030(6,006)24—

24

Commodity(d)1,153(1,142)

11

(13)

24

Total

$

7,221

$

(6,237)$984

Gains/(losses) recorded in income
Year ended December 31, 2014 (in millions)

$

(10)

$

994

Income statement impact due to:

Derivatives Hedged items

Total income
statement
impactHedge
ineffectiveness(e)Excludedcomponents(f)

2,106

$

$

$

Contract typeInterest rate(a)(b)$

Foreign exchange(c)Commodity(d)
Total

$

$

(801)

1,305

131

1,174

8,279

(8,532)

(253)

—

(253)

49

145

194

42

152

10,434$(9,188)

$

1,246

$

173

$

1,073

(a) Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate (“LIBOR”)) interest rate risk of fixed-rate long-term debt and AFS
securities. Gains and losses were recorded in net interest income.
(b) Excludes the amortization expense associated with the inception hedge accounting adjustment applied to the hedged item. This expense is recorded in net
interest income and substantially offsets the income statement impact of the excluded components.
(c) Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses
related to the derivatives and the hedged items, due to changes in foreign currency rates, were recorded primarily in principal transactions revenue andnet interest income.
(d) Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or market (market approximatesfair value). Gains and losses were recorded in principal transactions revenue.
(e) Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on thehedged item attributable to the hedged risk.
(f) The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward
points on foreign exchange forward contracts and time values.

182

JPMorgan Chase & Co./2016 Annual Report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, 2016, 2015 and 2014,
respectively. The Firm includes the gain/(loss) on the hedging derivative and the change in cash flows on the hedged item inthe same line item in the Consolidated statements of income.
Gains/(losses) recorded in income and other comprehensive income/(loss)

Year ended December 31, 2016
(in millions)

Derivatives –effective portion
reclassified fromAOCI to income

Hedge
ineffectivenessrecorded directly
in income(c)Total income
statement impact

Derivatives –effective
portionrecorded in OCI

Total change
in OCI
for period

Contract typeInterest rate(a)$Foreign exchange(b)
Total

(74)

$

(286)
$

(360)

—

$

—
$

—

(74)

$

(286)
$

(360)

(55)

$

19

(395)
$

(450)

(109)
$

(90)

Gains/(losses) recorded in income and other comprehensive income/(loss)

Year ended December 31, 2015
(in millions)

Derivatives –effective portion
reclassified fromAOCI to income

Hedge
ineffectivenessrecorded directly
in income(c)Total income
statement impact

Derivatives –effective
portionrecorded in OCI

Total change
in OCI
for period

Contract typeInterest rate(a)$Foreign exchange(b)
Total

(99)

$

(81)
$

(180)

—

$

—
$

—

(99)

$

(81)
$

(180)

(44)

$

55

(53)
$

(97)

28
$

83

Gains/(losses) recorded in income and other comprehensive income/(loss)

Year ended December 31, 2014
(in millions)

Derivatives –effective portion
reclassified fromAOCI to income

Hedge
ineffectivenessrecorded directly
in income(c)Total income
statement impact

Derivatives –effective
portionrecorded in OCI

Total change
in OCI
for period

Contract typeInterest rate(a)$Foreign exchange(b)
Total

(54)

$

78
$

24

—

$

—
$

—

(54)

$

78
$

24

189

$

(91)
$

98

243
(169)

$

74

(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, and for the forecasted transactions that the Firm determined during the year ended December 31, 2015, were probable of notoccurring, in other income.
(b) Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification ofgains and losses follows the hedged item – primarily noninterest revenue and compensation expense.
(c) Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the
cumulative expected change in cash flows on the hedged item attributable to the hedged risk.

The Firm did not experience any forecasted transactions that failed to occur for the years ended 2016 and 2014. In 2015, theFirm reclassified approximately $150 million of net losses from AOCI to other income because the Firm determined that it wasprobable that the forecasted interest payment cash flows would not occur as a result of the planned reduction in wholesale
non-operating deposits.
Over the next 12 months, the Firm expects that approximately $151 million (after-tax) of net losses recorded in AOCI at
December 31, 2016, related to cash flow hedges will be recognized in income. For terminated cash flow hedges, the maximum
length of time over which forecasted transactions are remaining is approximately six years. For open cash flow hedges, themaximum length of time over which forecasted transactions are hedged is approximately one year. The Firm’s longer-dated
forecasted transactions relate to core lending and borrowing activities.

JPMorgan Chase & Co./2016 Annual Report183Notes to consolidated financial statements
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, 2016, 2015 and2014.
Gains/(losses) recorded in income and other comprehensive income/(loss)
2016
2015
2014
Excluded
Excluded
Excludedcomponents
components
components
recorded
Effective
recorded
Effective
recorded
Effective
directly in
portiondirectly in
portiondirectly in
portion(a)(a)(a)
incomerecorded in OCI
incomerecorded in OCI
incomerecorded in OCI

Year ended December 31,(in millions)
Foreign exchange derivatives$(282)$262$(379)$1,885$(448)$1,698(a) Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreignexchange forward contracts. Amounts related to excluded components are recorded in other income. The Firm measures the ineffectiveness of net
investment hedge accounting relationships based on changes in spot foreign currency rates and, therefore, there was no significant ineffectiveness for net
investment hedge accounting relationships during 2016, 2015 and 2014.

Gains and losses on derivatives used for specified risk
management purposes
The following table presents pre-tax gains/(losses) recorded
on a limited number of derivatives, not designated in hedge
accounting relationships, that are used to manage risks
associated with certain specified assets and liabilities,
including certain risks arising from the mortgage pipeline,
warehouse loans, MSRs, wholesale lending exposures,
foreign currency denominated assets and liabilities, andcommodities-related contracts and investments.
Derivatives gains/(losses)
recorded in income
Year ended December 31,(in millions)Contract typeInterest rate(a)Credit(b)Foreign exchange(c)Commodity(d)
Total

$

$

2016

2015

2014

1,174 $
(282)
27
—
919 $

853 $
70
25
(12)
936 $

2,308
(58)
(7)
156
2,399

(a) Primarily represents interest rate derivatives used to hedge theinterest rate risk inherent in the mortgage pipeline, warehouse loans
and MSRs, as well as written commitments to originate warehouseloans. Gains and losses were recorded predominantly in mortgage feesand related income.
(b) Relates to credit derivatives used to mitigate credit risk associatedwith lending exposures in the Firm’s wholesale businesses. These
derivatives do not include credit derivatives used to mitigate
counterparty credit risk arising from derivative receivables, which isincluded in gains and losses on derivatives related to market-making
activities and other derivatives. Gains and losses were recorded inprincipal transactions revenue.
(c) Primarily relates to derivatives used to mitigate foreign exchange riskof specified foreign currency-denominated assets and liabilities. Gains
and losses were recorded in principal transactions revenue.
(d) Primarily relates to commodity derivatives used to mitigate energy
price risk associated with energy-related contracts and investments.
Gains and losses were recorded in principal transactions revenue.

184

Gains and losses on derivatives related to market-making
activities and other derivatives
The Firm makes markets in derivatives in order to meet theneeds of customers and uses derivatives to manage certain
risks associated with net open risk positions from its
market-making activities, including the counterparty credit
risk arising from derivative receivables. All derivatives notincluded in the hedge accounting or specified risk
management categories above are included in this category.
Gains and losses on these derivatives are primarily recorded
in principal transactions revenue. See Note 7 for
information on principal transactions revenue.
Credit derivatives
Credit derivatives are financial instruments whose value isderived from the credit risk associated with the debt of athird-party issuer (the reference entity) and which allow
one party (the protection purchaser) to transfer that risk toanother party (the protection seller). Credit derivatives
expose the protection purchaser to the creditworthiness ofthe protection seller, as the protection seller is required tomake payments under the contract when the reference
entity experiences a credit event, such as a bankruptcy, afailure to pay its obligation or a restructuring. The seller ofcredit protection receives a premium for providing
protection but has the risk that the underlying instrument
referenced in the contract will be subject to a credit event.
The Firm is both a purchaser and seller of protection in thecredit derivatives market and uses these derivatives for two
primary purposes. First, in its capacity as a market-maker,
the Firm actively manages a portfolio of credit derivatives
by purchasing and selling credit protection, predominantly
on corporate debt obligations, to meet the needs ofcustomers. Second, as an end-user, the Firm uses credit
derivatives to manage credit risk associated with lending
exposures (loans and unfunded commitments) and
derivatives counterparty exposures in the Firm’s wholesale
businesses, and to manage the credit risk arising fromcertain financial instruments in the Firm’s market-making
businesses. Following is a summary of various types ofcredit derivatives.
JPMorgan Chase & Co./2016 Annual Report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.

JPMorgan Chase & Co./2016 Annual Report

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, 2016 and2015. 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.

185Notes to consolidated financial statements
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, 2016 (in millions)

Net protection(sold)/
purchased(c)Otherprotection
purchased(d)Credit derivatives
Credit default swaps
Other credit derivatives$(961,003)(a)Total credit derivatives$

974,252$

13,249 $7,935(36,829)

31,859(4,970)19,991(997,832)

1,006,111

8,279

27,926

(41)

—

(41)

4,505

8,238 $

32,431Credit-related notes
Total

$

(997,873)$

1,006,111$

Maximum payout/Notional amountProtection purchasedwith identicalunderlyings(b)Protection
sold

December 31, 2015 (in millions)

Net protection(sold)/
purchased(c)Otherprotection
purchased(d)Credit derivatives
Credit default swaps

16,130 $12,011Other credit derivatives(a)$ (1,386,071)(42,738)

38,158(4,580)18,792

Total credit derivatives(1,428,809)

1,440,359

11,55030,803

(30)

—

(30)

4,715

11,520 $35,518Credit-related notes
Total$ (1,428,839)$$

1,402,201

1,440,359$$(a) Other credit derivatives largely consists of credit swap options.
(b) Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on protection sold; the notionalamount of protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold.
(c) Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to thebuyer of protection in determining settlement value.
(d) Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on the identical reference
instrument.

The following tables summarize the notional amounts by the ratings, maturity profile, and total fair value, of credit derivatives
and credit-related notes as of December 31, 2016 and 2015, 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, 2016
(in millions)<1 year

1–5 years>5 years

Total notionalamountFair value of
receivables(b)Fair value of
payables(b)Net fairvalue$ (39,281)

$

$

7,841

$

(3,055)$ 4,786(8,570)(386)$

16,025$(11,625)$ 4,400

Risk rating of reference entity
Investment-grade
Noninvestment-grade
Total
December 31, 2015
(in millions)$ (273,688)$(107,955)$ (381,643)$<1 year(383,586)(696,555)(170,046)(23,317)(553,632)$ (62,598)$>5 years

Total notionalamountFair value of
receivables(b)Fair value of
payables(b)Net fairvalue(699,227)$ (46,970)$ (1,053,408)$$(245,151)(21,085)(375,431)(944,378)$ (68,055)$ (1,428,839)

1–5 years(301,318)(997,873)

8,184

Risk rating of reference entity
Investment-grade
Noninvestment-grade
Total$ (307,211)$(109,195)$ (416,406)$

13,53910,823$24,362$(6,836)$ 6,703(18,891)(8,068)(25,727)$ (1,365)(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.

186

JPMorgan Chase & Co./2016 Annual ReportNote 7 – Noninterest revenue
Investment banking fees
The following table presents the components of investmentbanking fees.
Year ended December 31,(in millions)

2016

2015

2014

Equity$ 1,146$ 1,408

Debt

3,207

3,232

3,340

Total underwriting

4,353

4,640

4,911

Underwriting

Advisory
Total investment banking fees

2,095

2,111

$ 6,448$ 6,751

$

1,571

1,631
$

6,542

Underwriting fees are recognized as revenue when the Firm
has rendered all services to, and is entitled to collect the fee
from, the issuer, and there are no other contingencies
associated with the fee. Underwriting fees are net ofsyndicate expense; the Firm recognizes credit arrangement
and syndication fees as revenue after satisfying certain
retention, timing and yield criteria. Advisory fees arerecognized as revenue when the related services have been
performed and the fee has been earned.
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 closing out or termination oftransactions, or interim cash payments) and unrealized (asa 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 clientdriven 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. For further
information on the income statement classification of gains
and losses from derivatives activities, see Note 6.

The following table presents all realized and unrealized
gains and losses recorded in principal transactions revenue.
This table excludes interest income and interest expense on
trading assets and liabilities, which are an integral part ofthe overall performance of the Firm’s client-driven marketmaking activities. See Note 8 for further information oninterest income and interest expense. Trading revenue ispresented primarily by instrument type. The Firm’s clientdriven market-making businesses generally utilize a variety
of instrument types in connection with their market-making
and related risk-management activities; accordingly, thetrading revenue presented in the table below is not
representative of the total revenue of any individual line ofbusiness.
Year ended December 31,(in millions)
Trading revenue by instrument
type
Interest rate

2016

$

2015

2,325

$

1,933

2014

$

1,362

Credit

2,096

1,735

1,880

Foreign exchange

2,827

2,557

1,556

Equity

2,994

2,990

2,563

Commodity

1,067

842

1,663

Total trading revenue

11,30910,057

9,024

Private equity gains(a)

257

351

1,507

Principal transactions$ 11,566$ 10,408$ 10,531(a) Includes revenue on private equity investments held in the Private Equity
business within Corporate, as well as those held in other businesssegments.

Lending- and deposit-related fees
The following table presents the components of lendingand deposit-related fees.
Year ended December 31, (in millions)

2016

2015

2014

Lending-related fees

$ 1,114$ 1,148$ 1,307

Deposit-related fees

4,660

4,546

4,494

$ 5,774$ 5,694$ 5,801

Total 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.

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.
JPMorgan Chase & Co./2016 Annual Report187Notes to consolidated financial statements
Asset management, administration and commissions
The following table presents Firmwide asset management,
administration and commissions income:Year ended December 31,(in millions)

2016

2015

2014

Asset management fees
Investment management fees(a)8,865$ 9,403

336

352

477

Total asset management fees

9,201

9,755

9,646

Total administration fees(c)

1,915

2,015

2,179

Brokerage commissions

2,151

2,304

2,270

All other commissions and fees

1,324

1,435

1,836

Total commissions and fees

3,475

3,739

4,106

$ 14,591$ 15,509$ 15,931

All other asset management fees(b)

$

$

9,169

Commissions and other fees

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) Represents fees for services that are ancillary to investment management
services, such as commissions earned on the sales or distribution of mutual
funds to clients.
(c) Predominantly includes fees for custody, securities lending, funds services
and securities clearance.

This revenue category includes fees from investment
management and related services, custody and brokerage
services, insurance premiums and commissions, and feesfrom other products and services. These fees are recognizedover the period in which the related product or service isprovided. Performance-based fees, which are earned basedon exceeding certain benchmarks or other performancetargets, are accrued and recognized at the end of theperformance period in which the target is met. The Firm has
contractual arrangements with third parties to provide
certain services in connection with its asset management
activities. Amounts paid to third-party service providers are
predominantly expensed, such that asset management fees
are recorded gross of payments made to third parties.

Card income
This revenue category includes interchange income fromcredit and debit cards and net fees earned from processing
card transactions for merchants. Card income is recognized
as earned. Costs related to rewards programs are recorded
when the rewards are earned by the customer andpresented as a reduction to interchange income. Annual
fees and direct loan origination costs are deferred andrecognized on a straight-line basis over a 12-month period.
Credit card revenue sharing agreements
The Firm has contractual agreements with numerous cobrand partners which grant the Firm exclusive rights tomarket to the customers or members of such partners.
These partners endorse the credit card programs andprovide their customer or member lists to the Firm, andthey may also conduct marketing activities and provide
awards under the various credit card programs. The termsof these agreements generally range from five to ten years.
The Firm typically makes incentive payments to thepartners based on new account originations, sales volumes
and the cost of the partners’ marketing activities andawards. Payments based on new account originations areaccounted for as direct loan origination costs. Payments topartners based on sales volumes are deducted frominterchange income as the related revenue is earned.
Payments based on marketing efforts undertaken by thepartners are expensed by the Firm as incurred and reported
as noninterest expense.
Other income
Other income on the Firm’s Consolidated statements ofincome included the following:
Year ended December 31, (in millions)

2016

2015

2014

Operating lease income$ 2,724$ 2,081$ 1,699

Operating lease income is recognized on a straight–linebasis over the lease term.

Mortgage fees and related income
This revenue category primarily reflects CCB’s Mortgage
Banking production and servicing revenue, including fees
and income derived from mortgages originated with theintent to sell; mortgage sales and servicing including losses
related to the repurchase of previously sold loans; theimpact of risk-management activities associated with themortgage pipeline, warehouse loans and MSRs; and revenue
related to any residual interests held from mortgage
securitizations. This revenue category also includes gains
and losses on sales and lower of cost or fair value
adjustments for mortgage loans held-for-sale, as well aschanges in fair value for mortgage loans originated with theintent to sell and measured at fair value under the fair value
option. Changes in the fair value of MSRs are reported in
mortgage fees and related income. For a further discussionof MSRs, see Note 17. Net interest income from mortgage
loans is recorded in interest income.

188

JPMorgan Chase & Co./2016 Annual ReportNote 8 – 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)

2016

2015

2014

Interest Income
Loans(a)$ 36,634 $ 33,134 $ 32,218

Taxable securities

5,538

6,550

7,617

Non taxable securities(b)

1,766

1,706

1,423

Total securities

7,304

8,256

9,040

Trading assets

7,292

6,621

7,312

Federal funds sold and securities
purchased under resaleagreements
Securities borrowed(c)

2,265

1,592

1,642

(332)

(532)

(501)

Deposits with banks

1,863

1,250

1,157

875

652

663

Other assets(d)Total interest income$ 55,901 $ 50,973 $ 51,531

Interest expense
Interest bearing deposits$

Federal funds purchased andsecurities loaned or sold under
repurchase agreements
Commercial paper

1,356 $

1,252 $

1,633

1,089

609

604

135

110

134

Trading liabilities - debt, shortterm and other liabilities(e)

1,170

622

712

Long-term debt

5,564

4,435

4,409

504

435

405

9,818 $

7,463 $

7,897

Beneficial interest issued byconsolidated VIEs
Total interest expense$

Net interest income$ 46,083 $ 43,510 $ 43,634

Provision for credit losses
Net interest income after
provision for credit losses

5,361

3,827

3,139

$ 40,722 $ 39,683 $ 40,495(a) Includes the amortization of purchase price discounts or premiums, aswell as net deferred loan fees or costs.
(b) Represents securities that are tax exempt for U.S. federal income tax
purposes.
(c) Securities borrowed’s negative interest income, for the years ended
December 31, 2016, 2015 and 2014, is a result of client-driven demandfor certain securities combined with the impact of low interest rates; thisis matched book activity and the negative interest expense on thecorresponding securities loaned is recognized in interest expense.
(d) Largely margin loans.
(e) Includes brokerage customer payables.

Interest income and interest expense includes the currentperiod interest accruals for financial instruments measured
at fair value, except for derivatives and financial
instruments containing embedded derivatives that would be
separately accounted for in accordance with U.S. GAAP,
absent the fair value option election; for those instruments,
all changes in fair value including any interest elements, arereported in principal transactions revenue. For financial
instruments that are not measured at fair value, the related
interest is included within interest income or interest
expense, as applicable.
JPMorgan Chase & Co./2016 Annual Report

Note 9 – Pension and other postretirement
employee benefit plans
The Firm has various defined benefit pension plans and
OPEB plans that provide benefits to its employees. These
plans are discussed below.
Defined benefit pension plans
The Firm has a qualified noncontributory U.S. defined
benefit pension plan that provides benefits to substantiallyall U.S. employees. The U.S. plan employs a cash balance
formula in the form of pay and interest credits to determine
the benefits to be provided at retirement, based on years ofservice and eligible compensation (generally base salary/
regular pay and variable cash incentive compensation
capped at $100,000 annually). Employees begin to accrue
plan benefits after completing one year of service, andbenefits generally vest after three years of service. The Firm
also offers benefits through defined benefit pension plans
to qualifying employees in certain non-U.S. locations basedon factors such as eligible compensation, age and/or yearsof service.
It is the Firm’s policy to fund the pension plans in amounts
sufficient to meet the requirements under applicable laws.
The Firm does not anticipate at this time any contribution to
the U.S. defined benefit pension plan in 2017. The 2017contributions to the non-U.S. defined benefit pension plans
are expected to be $44 million of which $28 million arecontractually required.
JPMorgan Chase also has a number of defined benefit
pension plans that are not subject to Title IV of the
Employee Retirement Income Security Act. The mostsignificant of these plans is the Excess Retirement Plan,pursuant to which certain employees previously earned pay
credits on compensation amounts above the maximum
stipulated by law under a qualified plan; no further pay
credits are allocated under this plan. The Excess Retirement
Plan had an unfunded projected benefit obligation (“PBO”)
in the amount of $215 million and $237 million, at
December 31, 2016 and 2015, respectively.
Defined contribution plans
JPMorgan Chase currently provides two qualified defined
contribution plans in the U.S. and other similararrangements in certain non-U.S. locations, all of which areadministered in accordance with applicable local laws andregulations. The most significant of these plans is the
JPMorgan Chase 401(k) Savings Plan (the “401(k) SavingsPlan”), which covers substantially all U.S. employees.
Employees can contribute to the 401(k) Savings Plan on apretax and/or Roth 401(k) after-tax basis. The JPMorgan
Chase Common Stock Fund, which is an investment option
under the 401(k) Savings Plan, is a nonleveraged employee
stock ownership plan.
The Firm matches eligible employee contributions up to 5%of eligible compensation (generally base salary/regular pay
and variable cash incentive compensation) on an annual
basis. Employees begin to receive matching contributions
189

Notes to consolidated financial statements
after completing a one-year-of-service requirement.
Employees with total annual cash compensation of$250,000 or more are not eligible for matching
contributions. Matching contributions vest after three yearsof service. The 401(k) Savings Plan also permits
discretionary profit-sharing contributions by participatingcompanies for certain employees, subject to a specified
vesting schedule.

a transition of certain Medicare eligible retirees from
JPMorgan Chase group sponsored coverage to Medicare
exchanges. As a result of this change, eligible retirees will
receive a Healthcare Reimbursement Account amount eachyear if they enroll through the Medicare exchange. The
impact of this change was not material. Postretirement
medical benefits also are offered to qualifying U.K.
employees.

OPEB plans
JPMorgan Chase offers postretirement medical and life
insurance benefits to certain retirees and postretirement
medical benefits to qualifying U.S. employees. Thesebenefits vary with the length of service and the date of hire
and provide for limits on the Firm’s share of covered
medical benefits. The medical and life insurance benefits
are both contributory. Effective January 1, 2015, there was

JPMorgan Chase’s U.S. OPEB obligation is funded withcorporate-owned life insurance (“COLI”) purchased on the
lives of eligible employees and retirees. While the Firm
owns the COLI policies, COLI proceeds (death benefits,
withdrawals and other distributions) may be used only toreimburse the Firm for its net postretirement benefit claim
payments and related administrative expense. The U.K.
OPEB plan is unfunded.

The following table presents the changes in benefit obligations, plan assets and funded status amounts reported on theConsolidated balance sheets for the Firm’s U.S. and non-U.S. defined benefit pension and OPEB plans.
Defined benefit pension plans
As of or for the year ended December 31,

U.S.

(in millions)

Non-U.S.

2016

2015

2016

OPEB plans(d)
2015

2016

2015

Change in benefit obligation
Benefit obligation, beginning of year

$ (11,912)$(12,536)

Benefits earned during the year

(296)

(340)

$

(3,347)(36)$(3,640)
(37)

$

(744)
—

$

(842)
(1)

Interest cost on benefit obligations

(31)

(530)

(498)

(99)

(112)

(31)

Special termination benefits

—

—

—

(1)

—

—

Employee contributions

NA

NA

(7)

(7)

(19)

(25)

Net gain/(loss)

(203)

702

(540)

146

4

71

Benefits paid

88

725

760

126

120

76

Plan settlements

—

—

21

—

—

—

Expected Medicare Part D subsidy receipts

NA

NA

NA

NA

—

(6)

Foreign exchange impact and other

—

—

504

184

6

2

$ (12,216)$(11,912)$(3,378)$(3,347)

$

$

3,511

$

Benefit obligation, end of year

(708)

$

(744)

Change in plan assets
Fair value of plan assets, beginning of year

$ 14,125$ 14,623

3,718$ 1,855$ 1,903

Actual return on plan assets

838

231

537

52

131

13

Firm contributions

34

31

52

45

2

2

Employee contributions

—

—

7

7

—

—

(725)

(760)

(126)

(120)

(32)

(63)

—

—

(21)

—

—

—

Benefits paid
Plan settlements
Foreign exchange impact and other——

Fair value of plan assets, end of year

$ 14,272$ 14,125

Net funded status(a)

$

2,056

$ 2,213

Accumulated benefit obligation, end of year

$ (12,062)$(11,774)(529)(b)(c)

$

(191)

—

—

3,511

$ 1,956$ 1,855$164$ 1,248$ 1,111$(3,322)

NA

NA

3,431

$

$

53

$

(3,359)(a) Represents plans with an aggregate overfunded balance of $4.0 billion and $4.1 billion at December 31, 2016 and 2015, respectively, and plans with anaggregate underfunded balance of $639 million and $636 million at December 31, 2016 and 2015, respectively.
(b) At December 31, 2016 and 2015, approximately $390 million and $533 million, respectively, of U.S. plan assets included participation rights underparticipating annuity contracts.
(c) At December 31, 2016 and 2015, defined benefit pension plan amounts that were not measured at fair value included $130 million and $74 million,
respectively, of accrued receivables, and $224 million and $123 million, respectively, of accrued liabilities, for U.S. plans.
(d) Includes an unfunded accumulated postretirement benefit obligation of $35 million and $32 million at December 31, 2016 and 2015, respectively, for the
U.K. plan.

190

JPMorgan Chase & Co./2016 Annual ReportGains and losses
For the Firm’s defined benefit pension plans, fair value isused to determine the expected return on plan assets.
Amortization of net gains and losses is included in annual
net periodic benefit cost if, as of the beginning of the year,
the net gain or loss exceeds 10% of the greater of the PBO
or the fair value of the plan assets. Any excess is amortizedover the average future service period of defined benefit
pension plan participants, which for the U.S. defined benefit
pension plan is currently seven years and for the non-U.S.
defined benefit pension plans is the period appropriate forthe affected plan. In addition, prior service costs areamortized over the average remaining service period of
active employees expected to receive benefits under theplan when the prior service cost is first recognized. The
average remaining amortization period for the U.S. defined
benefit pension plan for current prior service costs is three
years.

For the Firm’s OPEB plans, a calculated value thatrecognizes changes in fair value over a five-year period isused to determine the expected return on plan assets. Thisvalue is referred to as the market related value of assets.
Amortization of net gains and losses, adjusted for gains andlosses not yet recognized, is included in annual net periodic
benefit cost if, as of the beginning of the year, the net gainor loss exceeds 10% of the greater of the accumulated
postretirement benefit obligation or the market related
value of assets. Any excess net gain or loss is amortizedover the average expected lifetime of retired participants,
which is currently twelve years; however, prior service costs
resulting from plan changes are amortized over the average
years of service remaining to full eligibility age, which iscurrently two years.

The following table presents pretax pension and OPEB amounts recorded in AOCI.
December 31,(in millions)
Net gain/(loss)
Prior service credit/(cost)
Accumulated other comprehensive income/(loss), pretax, end of year$$

Defined benefit pension plans
U.S.
Non-U.S.
2016
2015
2016
2015
(3,116) $ (3,096) $ (551) $ (513) $
34
68
8
9
(3,082) $ (3,028) $ (543) $ (504) $OPEB plans
2016
2015
138 $
109
—
—
138 $
109

The following table presents the components of net periodic benefit costs reported in the Consolidated statements of income
and other comprehensive income for the Firm’s U.S. and non-U.S. defined benefit pension, defined contribution and OPEB
plans.
Pension plans
Year ended December 31, (in millions)Components of net periodic benefit cost
Benefits earned during the year
Interest cost on benefit obligations
Expected return on plan assets
Amortization:
Net (gain)/loss
Prior service cost/(credit)
Special termination benefits
Settlement loss
Net periodic defined benefit cost
Other defined benefit pension plans(a)Total defined benefit plans
Total defined contribution plans
Total pension and OPEB cost included incompensation expense
Changes in plan assets and benefit obligations
recognized in other comprehensive income
Net (gain)/loss arising during the year
Prior service credit arising during the year
Amortization of net loss
Amortization of prior service (cost)/credit
Settlement loss
Foreign exchange impact and otherTotal recognized in other comprehensive income
Total recognized in net periodic benefit cost andother comprehensive income

2016
$

$

U.S.
2015

2014

2016

296 $ 340 $
530
498
(891)
(929)

281
534
(985)

235
(34)
—
—
136
14
150
473

247
(34)
—
—
122
14
136
449

25
(41)
—
—
(186)
14
(172)
438

22
(2)
—
4
20
11
31
316

35
(2)
1
—
33
10
43
320

623 $

585 $

266

$ 347

$ 363

$

$

36
99
(139)

Non-U.S.
2015
$

37
112
(150)

OPEB plans
2016 2015
2014

2014
$

33
137
(172)
47
(2)
—
—
43
6
49
329

$

378

$

— $
1 $
—
31
31
38
(105) (106) (101)
—
—
—
—
(74)
NA
(74)
NA

$ (74) $ (74) $255 $(3) $ 1,645
—
—
53
(235)
(247)
(25)
34
34
41
—
—
—
—
—
—
$
54 $ (216) $ 1,714$ 140$ (47)
$
—
—
(22)
(35)
2
2
(4)
—
(77) (a)(33) (a)$ 39$ (113)$57$ (29) $
—
—
(47)
—
2
—
—
—
(39) (a)—(27)$ (29) $

$

$

16

190 $

(94) $ 1,52859$ (80)

$

—
—
—
—
(74)
NA
(74)
NA

—
(1)
—
—
(64)
NA
(64)
NA
(64)

21 $
—
—
—
—
—
21 $

(5)
—
—
1
—
—
(4)

$ (103) $ (53) $(68)(a) Includes various defined benefit pension plans which are individually immaterial.
JPMorgan Chase & Co./2016 Annual Report

191Notes to consolidated financial statements
The estimated pretax amounts that will be amortized from AOCI into net periodic benefit cost in 2017 are as follows.
Defined benefit pension plans(in millions)U.S.

Net loss/(gain)$

216

Prior service cost/(credit)

$

$

182

U.S.
28

(34)

Total

OPEB plans

Non-U.S.
$

(2)
$

26

Non-U.S.
—

$

—

—
$

—

—
$

—

The following table presents the actual rate of return on plan assets for the U.S. and non-U.S. defined benefit pension and
OPEB plans.
U.S.
Year ended December 31,

Non-U.S.

2016

2015

2014

Defined benefit pension plans

6.12%

0.88%

7.29%

OPEB plans

7.29

1.16

9.84

2016

2015

2014

Actual rate of return:Plan assumptions
JPMorgan Chase’s expected long-term rate of return for U.S.
defined benefit pension and OPEB plan assets is a blended
average of the investment advisor’s projected long-term(10 or more years) returns for the various asset classes,
weighted by the asset allocation. Returns on asset classes
are developed using a forward-looking approach and are
not strictly based on historical returns. Equity returns are
generally developed as the sum of inflation, expected realearnings growth and expected long-term dividend yield.
Bond returns are generally developed as the sum of
inflation, real bond yield and risk spread (as appropriate),adjusted for the expected effect on returns from changing
yields. Other asset-class returns are derived from theirrelationship to the equity and bond markets. Considerationis also given to current market conditions and the shortterm portfolio mix of each plan.
For the U.K. defined benefit pension plans, which represent
the most significant of the non-U.S. defined benefit pension
plans, procedures similar to those in the U.S. are used todevelop the expected long-term rate of return on plan
assets, taking into consideration local market conditions
and the specific allocation of plan assets. The expectedlong-term rate of return on U.K. plan assets is an average of
projected long-term returns for each asset class. The returnon equities has been selected by reference to the yield on
long-term U.K. government bonds plus an equity risk
premium above the risk-free rate. The expected return on“AA” rated long-term corporate bonds is based on an
implied yield for similar bonds.

1.07 – 20.60%
NA(0.48) – 4.92%

5.62 – 17.69%

NANA

implied by the Mercer Yield Curve published as of themeasurement date. The discount rate for the U.K. defined
benefit pension plan represents a rate of appropriate
duration from the analysis of yield curves provided by the
Firm’s actuaries.
At December 31, 2016, the Firm decreased the discountrates used to determine its benefit obligations for the U.S.
defined benefit pension and OPEB plans in light of current
market interest rates, which will increase expense byapproximately $45 million in 2017. The 2017 expectedlong-term rate of return on U.S. defined benefit pension
plan assets and U.S. OPEB plan assets are 6.00% and5.00%, respectively. For 2017, the initial health carebenefit obligation trend assumption has been set at 5.00%,
while the ultimate health care trend assumption and theyear to reach the ultimate rate remain at 5.00% and 2017,
respectively, unchanged from 2016. As of December 31,
2016, the interest crediting rate assumption remained at
5.00% and the assumed rate of compensation increase was
reduced to 2.30%.

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; such portfolios are derived from a
broad-based universe of high-quality corporate bonds as ofthe measurement date. In years in which these hypotheticalbond portfolios generate excess cash, such excess is
assumed to be reinvested at the one-year forward rates
192

JPMorgan Chase & Co./2016 Annual Report

The following tables present the weighted-average annualized actuarial assumptions for the projected and accumulated
postretirement benefit obligations, and the components of net periodic benefit costs, for the Firm’s significant U.S. and nonU.S. defined benefit pension and OPEB plans, as of and for the periods indicated.
Weighted-average assumptions used to determine benefit obligations
U.S.
December 31,

Non-U.S.

2016

2015

2016

2015

Defined benefit pension plans

4.30%

4.50%

OPEB plans

4.20

4.40

2.30

3.50

Assumed for next year

5.00

5.50

—

—

Ultimate

5.00

5.00

—

—

Year when rate will reach ultimate

2017

2017

—

—

Discount rate:

Rate of compensation increase

0.60 – 2.60%

0.80 – 3.70%——

2.25 – 3.00

2.25 – 4.30

Health care cost trend rate:

Weighted-average assumptions used to determine net periodic benefit costs
U.S.
Year ended December 31,

Non-U.S.

2016

2015

2014

2016

2015

2014

Defined benefit pension plans

4.50%

4.00%

5.00%

OPEB plans

4.40

4.10

4.90

—

—

—

Defined benefit pension plans

6.50

6.50

7.00

0.80 – 4.60

0.90 – 4.80

1.20 – 5.30

OPEB plans

5.75

6.00

6.25

NA

NA

3.50

3.50

3.50

2.25 – 4.30

2.75 – 4.20

Assumed for next year

5.50

6.00

6.50

—

—

—

Ultimate

5.00

5.00

5.00

—

—

—

Year when rate will reach ultimate

2017

2017

2017

—

—

—

Discount rate:
0.90 – 3.70%

1.00 – 3.60%

1.10 – 4.40%

Expected long-term rate of return on plan assets:

Rate of compensation increaseNA
2.75 – 4.60

Health care cost trend rate:

The following table presents the effect of a one-percentagepoint change in the assumed health care cost trend rate on
JPMorgan Chase’s accumulated postretirement benefit
obligation. As of December 31, 2016, there was no material
effect on total service and interest cost.
Year ended December 31, 2016
(in millions)

1-Percentage
point
increase

1-Percentage
point
decrease

Effect on accumulated postretirement
benefit obligation$$

JPMorgan Chase & Co./2016 Annual Report

8(7)

JPMorgan Chase’s U.S. defined benefit pension and OPEB
plan expense is sensitive to the expected long-term rate of
return on plan assets and the discount rate. With all otherassumptions held constant, a 25-basis point decline in the
expected long-term rate of return on U.S. plan assets would
result in an aggregate increase of approximately $40
million in 2017 U.S. defined benefit pension and OPEB plan
expense. A 25-basis point decline in the discount rate for
the U.S. plans would result in an increase in 2017 U.S.
defined benefit pension and OPEB plan expense of
approximately an aggregate $31 million and an increase in
the related benefit obligations of approximately anaggregate $316 million. A 25-basis point decrease in theinterest crediting rate for the U.S. defined benefit pension
plan would result in a decrease in 2017 U.S. defined benefit
pension expense of approximately $36 million and adecrease in the related PBO of approximately $160 million.
A 25-basis point decline in the discount rates for the nonU.S. plans would result in an increase in the 2017 non-U.S.
defined benefit pension plan expense of approximately $12
million.

193

Notes to consolidated financial statements
Investment strategy and asset allocation
The Firm’s U.S. defined benefit pension plan assets are heldin trust and are invested in a well-diversified portfolio of
equity and fixed income securities, cash and cash
equivalents, and alternative investments (e.g., hedge funds,
private equity, real estate and real assets). Non-U.S. defined
benefit pension plan assets are held in various trusts andare also invested in well-diversified portfolios of equity,
fixed income and other securities. Assets of the Firm’s COLI
policies, which are used to partially fund the U.S. OPEB
plan, are held in separate accounts of an insurancecompany and are allocated to investments intended toreplicate equity and fixed income indices.
The investment policy for the Firm’s U.S. defined benefit
pension plan assets is to optimize the risk-return
relationship as appropriate to the needs and goals of theplan using a global portfolio of various asset classes
diversified by market segment, economic sector, and issuer.
Assets are managed by a combination of internal andexternal investment managers. Periodically the Firm
performs a comprehensive analysis on the U.S. defined
benefit pension plan asset allocations, incorporating
projected asset and liability data, which focuses on the
short- and long-term impact of the asset allocation on
cumulative pension expense, economic cost, present valueof contributions and funded status. Currently, approved
asset allocation ranges are: U.S. equity 0% to 45%,
international equity 0% to 40%, debt securities 0% to80%, hedge funds 0% to 5%, real estate 0% to 10%, real
assets 0% to 10% and private equity 0% to 20%. Asset
allocations are not managed to a specific target but seek toshift asset class allocations within these stated ranges.
Investment strategies incorporate the economic outlook andthe anticipated implications of the macroeconomic
environment on the various asset classes while maintaining
an appropriate level of liquidity for the plan. The Firm

regularly reviews the asset allocations and asset managers,
as well as other factors that impact the portfolio, which isrebalanced when deemed necessary.
For the U.K. defined benefit pension plans, which represent
the most significant of the non-U.S. defined benefit pension
plans, the assets are invested to maximize returns subject
to an appropriate level of risk relative to the plans’
liabilities. To reduce the volatility in returns relative to theplans’ liability profiles, the U.K. defined benefit pension
plans’ largest asset allocations are to debt securities ofappropriate durations. Other assets, mainly equity
securities, are then invested for capital appreciation, toprovide long-term investment growth. Similar to the U.S.
defined benefit pension plan, asset allocations and asset
managers for the U.K. plans are reviewed regularly and theportfolios are rebalanced when deemed necessary.
Investments held by the U.S. and non-U.S. defined benefit
pension and OPEB plans include financial instruments thatare exposed to various risks such as market, credit, liquidity
and country risks. Exposure to a concentration of credit risk
is mitigated by the broad diversification of both U.S. andnon-U.S. investment instruments. Additionally, theinvestments in each of the common/collective trust funds
and registered investment companies are further diversified
into various financial instruments. As of December 31,
2016, assets held by the Firm’s U.S. and non-U.S. defined
benefit pension and OPEB plans do not include JPMorgan
Chase common stock, except through indirect exposuresthrough investments in third-party stock-index funds. The
plans hold investments in funds that are sponsored or
managed by affiliates of JPMorgan Chase in the amount of$3.4 billion and $3.2 billion for U.S. plans and $1.2 billion
and $1.2 billion for non-U.S. plans, as of December 31,
2016 and 2015, respectively.

The following table presents the weighted-average asset allocation of the fair values of total plan assets at December 31 forthe years indicated, as well as the respective approved range/target allocation by asset category, for the Firm’s U.S. and nonU.S. defined benefit pension and OPEB plans.
Defined benefit pension plans
U.S.
TargetDecember 31,

Allocation

Non-U.S.

% of plan assets

TargetOPEB plans(c)% of plan assets

Target% of plan assets

2016

2015

Allocation

2016

2015

Allocation

2016

2015

Asset category
Debt securities(a)

0-80%

35%

32%

59%

60%

60%

30-70%

50%

50%

Equity securities

0-85

47

48

40

39

38

30-70

50

50

Real estate

0-10

4

4

—

—

1

—

—

—

Alternatives
Total

(b)

0-35

14

16

1

1

1

—

—

—

100%

100%

100%

100%

100%

100%

100%

100%

100%

(a) Debt securities primarily include corporate debt, U.S. federal, state, local and non-U.S. government, and mortgage-backed securities.
(b) Alternatives primarily include limited partnerships.
(c) Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded.

194

JPMorgan Chase & Co./2016 Annual ReportFair value measurement of the plans’ assets and liabilities
For information on fair value measurements, including descriptions of level 1, 2, and 3 of the fair value hierarchy and thevaluation methods employed by the Firm, see Note 3.
Pension and OPEB plan assets and liabilities measured at fair value
U.S. defined benefit pension plans

Non-U.S. defined benefit pension plans(h)December 31, 2016
(in millions)Level 1

Level 2

Level 3

Total fairvalue

Cash and cash equivalents

$

$

$

$

Equity securities

74

—

—

Level 1

74$

Total fairvalue

Level 2

122

$

2

$

124

5,178

12

2

5,192

980

154

1,134

Common/collective trust funds(a)

266

—

—

266

118

—

118

Limited partnerships

62

—

—

62

—

—

—

—

1,791

4

1,795

—

715

715

U.S. federal, state, local and non-U.S. government debt
securities

926

234

—

1,160

213

570

783

Mortgage-backed securities

39

65

—

104

3

10

13
219

(b)

Corporate debt securities(c)Derivative receivables

—

24

—

24

—

219

1,274

—

390

1,664

223

53

Total assets measured at fair value(e)$ 7,819$ 2,126$396$ 10,341

Derivative payables

$

—

$

(14) $—$(14)

Total liabilities measured at fair value

$

—

$

(14) $—$(14)

Other(d)(f)(g)

U.S. defined benefit pension plans
Level 1

Level 2

Level 3

Total fairvalue

Cash and cash equivalents

$

$

$

$

112

—

—

1,659

$

1,723

$

3,382

$

—

$

(194) $

(194)

$

—

$

(194) $

(194)

Non-U.S. defined benefit pension plans(h)December 31, 2015
(in millions)
Equity securities

276$

Level 1

112$

Total fairvalue

Level 2

114

$

1

$

115

4,826

5

2

4,833

1,002

157

1,159

Common/collective trust funds(a)

339

—

—

339

135

—

135

Limited partnerships

53

—

—

53

—

—

—

—

1,619

2

1,621

—

758

758

580

108

—

688

212

504

716

—

67

1

68

2

26

28
209

(b)

Corporate debt securities(c)U.S. federal, state, local and non-U.S. government debt
securities
Mortgage-backed securities
Derivative receivables

—

104

—

104

—

209

1,760

27

534

2,321

257

53

Total assets measured at fair value(e)$ 7,670$ 1,930$539$ 10,139

Derivative payables

$

—

$

(35) $—$(35)

Total liabilities measured at fair value

$

—

$

(35) $—$(35)

Other(d)

(f)

(g)

310

$

1,722

$

1,708

$

3,430

$

—

$

(153) $

(153)

$

—

$

(153) $

(153)(a) At December 31, 2016 and 2015, common/collective trust funds primarily included a mix of short-term investment funds, domestic and international equity
investments (including index) and real estate funds.
(b) Unfunded commitments to purchase limited partnership investments for the plans were $735 million and $895 million for 2016 and 2015, respectively.
(c) Corporate debt securities include debt securities of U.S. and non-U.S. corporations.
(d) Other consists primarily of money market funds and participating and non-participating annuity contracts. Money market funds are primarily classified within level 1of the fair value hierarchy given they are valued using market observable prices. Participating and non-participating annuity contracts are classified within level 3 ofthe fair value hierarchy due to a lack of market mechanisms for transferring each policy and surrender restrictions.
(e) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be classified in
the fair value hierarchy. At December 31, 2016 and 2015, the fair values of these investments, which include certain limited partnerships and common/collective
trust funds, were $4.0 billion and $4.1 billion, respectively, of U.S. defined benefit pension plan investments, and $243 million and $234 million, respectively, of
non-U.S. defined benefit pension plan investments.
(f) At December 31, 2016 and 2015, excluded U.S. defined benefit pension plan receivables for investments sold and dividends and interest receivables of $130 million
and $74 million, respectively.
(g) At December 31, 2016 and 2015, excluded $203 million and $106 million, respectively, of U.S. defined benefit pension plan payables for investments purchased;
and $21 million and $17 million, respectively, of other liabilities.
(h) There were zero assets or liabilities classified as level 3 for the non-U.S. defined benefit pension plans as of December 31, 2016 and 2015.

The Firm’s U.S. OPEB plan was partially funded with COLI policies of $2.0 billion and $1.9 billion at December 31, 2016 and2015, which were classified in level 3 of the valuation hierarchy.

JPMorgan Chase & Co./2016 Annual Report

195Notes to consolidated financial statements
Changes in level 3 fair value measurements using significant unobservable inputs
Actual return on plan assets

Fair value,
January 1,
2016

Year ended December 31, 2016
(in millions)

Realized
gains/(losses)

Unrealized
gains/(losses)

Purchases, sales
and settlements,
net

Transfers in
and/or outof level 3

Fair value,
December 31,
2016

$

$

$

$

$

U.S. defined benefit pension plans
Equity securities$

2

Corporate debt securities

—

1
534

Mortgage-backed securities
Other
Total U.S. defined benefit pension plans

—

2

—

—

—

2

—

1

1

4

—

—

(1)

—

—

—

(157)

—

13

390

$

539

$

—

$

(157) $

—

$

14

$

396

COLI

$

1,855

$

—

$

102

$

—

$

—

$

1,957

Total OPEB plans

$

1,855

$

—

$

102

$

—

$

—

$

1,957

OPEB plans

Actual return on plan assets

Fair value,
January 1,
2015

Year ended December 31, 2015
(in millions)

Realized
gains/(losses)

Unrealized
gains/(losses)$$

Purchases, sales
and settlements,
net

Transfers in
and/or outof level 3

Fair value,
December 31,
2015

$

$

U.S. defined benefit pension plans
Equity securities

$

4

—

(2) $

—

—

2

Corporate debt securities

9

—

—

(7)

—

Mortgage-backed securities

1

—

—

—

—

1

337

—

197

—

—

534

(7) $

—

$

539

Other
Total U.S. defined benefit pension plans

$

2

$

351

$

—

$

195

COLI

$

1,903

$

—

$

(48) $

—

$

—

$

1,855

Total OPEB plans

$

1,903

$

—

$

(48) $

—

$

—

$

1,855

OPEB plans

Actual return on plan assets

Fair value,
January 1,
2014

Year ended December 31, 2014
(in millions)

Realized
gains/(losses)

Unrealized
gains/(losses)

Purchases, sales
and settlements,
net

Transfers in
and/or outof level 3

Fair value,
December 31,
2014

$

$

$

$

$

U.S. defined benefit pension plans
Equity securities

$

4

—

—

—

—

4

Corporate debt securities

7

(2)

2

4

(2)

Mortgage-backed securities

—

—

—

1

—

1

430

—

(93)

—

—

337
351

Other
Total U.S. defined benefit pension plans

9

$

441

$

(2) $

(91) $

5

$

(2) $

COLI

$

1,749

$

—

$

154

$

—

$

—

$

1,903

Total OPEB plans

$

1,749

$

—

$

154

$

—

$

—

$

1,903

OPEB plans

Estimated future benefit payments
The following table presents benefit payments expected to be paid, which include the effect of expected future service, for theyears indicated. The OPEB medical and life insurance payments are net of expected retiree contributions.
Year ended December 31,(in millions)
2017

U.S. defined benefit
pension plans$

766

Non-U.S. defined
benefit pension plans

OPEB before Medicare
Part D subsidy

$

$

103

68

Medicare Part D
subsidy
$

1

2018

768

104

65

1

2019

758

107

63

1

2020

765

113

60

1

2021

775

117

58

1

3,961

646

250

2

Years 2022–2026

196

JPMorgan Chase & Co./2016 Annual ReportNote 10 – Employee stock-based incentives
Employee stock-based awards
In 2016, 2015 and 2014, JPMorgan Chase granted longterm stock-based awards to certain employees under its
LTIP, as amended and restated effective May 19, 2015.
Under the terms of the LTIP, as of December 31, 2016, 78
million shares of common stock were available for issuancethrough May 2019. The LTIP is the only active plan underwhich the Firm is currently granting stock-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 stock-based incentive plans.
RSUs are awarded at no cost to the recipient upon their
grant. Generally, RSUs are granted annually and vest at a
rate of 50% after two years and 50% after three years andare converted into shares of common stock as of the vestingdate. In addition, RSUs typically include full-career eligibility
provisions, which allow employees to continue to vest upon
voluntary termination, subject to post-employment andother restrictions based on age or service-related
requirements. All RSU awards are subject to forfeiture until
vested and contain clawback provisions that may result incancellation under certain specified circumstances. RSUs
entitle the recipient to receive cash payments equivalent toany dividends paid on the underlying common stock during
the period the RSUs are outstanding and, as such, areconsidered participating securities as discussed in Note 24.
In January 2016, the Firm’s Board of Directors approved
the grant of performance share units (“PSUs”) to membersof the Firm’s Operating Committee under the variable
compensation program for performance year 2015. PSUs
are subject to the Firm’s achievement of specified
performance criteria over a three-year period. The numberof awards that vest can range from zero to 150% of the
grant amount. The awards vest and are converted intoshares of common stock in the quarter after the end of thethree-year performance period. In addition, dividends are
notionally reinvested in the Firm’s common stock and will
be delivered only in respect of any earned shares.
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, for a total combined
vesting and holding period of five years from the grant date.

The Firm separately recognizes compensation expense foreach tranche of each award, net of estimated forfeitures, as
if it were a separate award with its own vesting date.
Generally, for each tranche granted, compensation expense
is recognized on a straight-line basis from the grant dateuntil the vesting date of the respective tranche, provided
that the employees will not become full-career eligible
during the vesting period. For awards with full-career
eligibility provisions and awards granted with no future
substantive service requirement, the Firm accrues theestimated value of awards expected to be awarded to
employees as of the grant date without giving consideration
to the impact of post-employment restrictions. For eachtranche granted to employees who will become full-career
eligible during the vesting period, compensation expense isrecognized on a straight-line basis from the grant date until
the earlier of the employee’s full-career eligibility date or
the vesting date of the respective tranche.
The Firm’s policy for issuing shares upon settlement of
employee stock-based incentive awards is to issue either
new shares of common stock or treasury shares. During
2016, 2015 and 2014, the Firm settled all of its employee
stock-based awards by issuing treasury shares.
In January 2008, the Firm awarded to its Chairman andChief Executive Officer up to 2 million SARs. The terms ofthis award are distinct from, and more restrictive than,other equity grants regularly awarded by the Firm. On July
15, 2014, the Compensation & Management Development
Committee and Board of Directors determined that all
requirements for the vesting of the 2 million SAR awards
had been met and thus, the awards became exercisable. The
SARs, which will expire in January 2018, have an exercise
price of $39.83 (the price of JPMorgan Chase common
stock on the date of grant). The expense related to thisaward was dependent on changes in fair value of the SARs
through July 15, 2014 (the date when the vested number ofSARs were determined), and the cumulative expense wasrecognized ratably over the service period, which was
initially assumed to be five years but, effective in the firstquarter of 2013, was extended to six and one-half years.
The Firm recognized $3 million in compensation expense in2014 for this award.

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 2016, 2015 and 2014. SARs generally expire ten years
after the grant date.

JPMorgan Chase & Co./2016 Annual Report197Notes to consolidated financial statements
RSUs, PSUs, employee stock options and SARs activity
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 tablesummarizes JPMorgan Chase’s RSUs, PSUs, employee stock options and SARs activity for 2016.
RSUs/PSUs

Options/SARs

43,466Weightedaverage
exercise
price
$
43.51

57.80

77

72.63

52.09

(12,836)

41.55(3,254)

56.45

(240)

44.28

NA

NA

(200)

612.18

Outstanding, December 31

81,707 $57.15

30,267

Exercisable, December 31NANA24,815

Year ended December 31, 2016
(in thousands, except weighted-average data, andwhere otherwise stated)
Outstanding, January 1

Weightedaverage grant
date fair value

Number ofunits

85,307 $54.60

Granted36,775

Exercised or vested(37,121)

Forfeited
Canceled

Number ofawards$

Weighted-averageremaining
contractual life
(in years)

Aggregate
intrinsic
value

40.65

3.9 $ 1,378,254

40.08

3.6

1,144,937

The total fair value of RSUs that vested during the years ended December 31, 2016, 2015 and 2014, was $2.2 billion, $2.8
billion and $3.2 billion, respectively. The total intrinsic value of options exercised during the years ended December 31, 2016,2015 and 2014, was $338 million, $335 million and $539 million, respectively.
Compensation expense
The Firm recognized the following noncash compensation
expense related to its various employee stock-based
incentive plans in its Consolidated statements of income.
Year ended December 31, (in millions)

2016

2015

2014

Cost of prior grants of RSUs, PSUs andSARs that are amortized over theirapplicable vesting periods$ 1,046$ 1,109$ 1,371

Accrual of estimated costs of stockbased awards to be granted in future
periods including those to full-career
eligible employees

894

878

819

Total noncash compensation expense
related to employee stock-based
incentive plans$ 1,940$ 1,987$ 2,190

At December 31, 2016, approximately $700 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 1.0 year. The Firm does not
capitalize any compensation expense related to share-based
compensation awards to employees.

198

Cash flows and tax benefits
Effective January 1, 2016, the Firm adopted new
accounting guidance related to employee share-based
payments. As a result of the adoption of this new guidance,
all excess tax benefits (including tax benefits from dividends
or dividend equivalents) on share-based payment awards
are recognized within income tax expense in theConsolidated statements of income. In prior years these tax
benefits were recorded as increases to additional paid-in
capital. Income tax benefits related to stock-based incentive
arrangements recognized in the Firm’s Consolidated
statements of income for the years ended December 31,
2016, 2015 and 2014, were $916 million, $746 million
and $854 million, respectively.
The following table sets forth the cash received from theexercise of stock options under all stock-based incentive
arrangements, and the actual income tax benefit related to
tax deductions from the exercise of the stock options.
Year ended December 31, (in millions)
Cash received for options exercised
Tax benefit

2016
$

26
70

2015
$

20
64

2014
$

63
104

JPMorgan Chase & Co./2016 Annual ReportNote 11 – Noninterest expense

Note 12 – Securities

For details on noninterest expense, see Consolidated
statements of income on page 141. Included within otherexpense are the following:

Securities are classified as trading, AFS or HTM. Securities
classified as trading assets are discussed in Note 3.
Predominantly all of the Firm’s AFS and HTM investment
securities (the “investment securities portfolio”) are held by
Treasury and CIO in connection with its asset-liability
management objectives. At December 31, 2016, theinvestment securities portfolio consisted of debt securities
with an average credit rating of AA+ (based upon externalratings where available, and where not available, based
primarily upon internal ratings which correspond to ratings
as defined by S&P and Moody’s). AFS securities are carriedat fair value on the Consolidated balance sheets. Unrealized
gains and losses, after any applicable hedge accounting
adjustments, are reported as net increases or decreases to
AOCI. The specific identification method is used todetermine realized gains and losses on AFS securities,
which are included in securities gains/(losses) on theConsolidated statements of income. HTM debt securities,
which management has the intent and ability to hold until
maturity, are carried at amortized cost on the Consolidatedbalance sheets. For both AFS and HTM debt securities,
purchase discounts or premiums are generally amortized
into interest income over the contractual life of the security.

Year ended December 31,(in millions)
Legal (benefit)/expense
FDIC-related expense

$

2016

2015

(317) $

2,969

1,296

1,227

2014
$

2,883
1,037

During 2016, the Firm transferred commercial MBS andobligations of U.S. states and municipalities with a fair valueof $7.5 billion from AFS to HTM. These securities weretransferred at fair value. AOCI included net pretax
unrealized gains of $78 million on the securities at the dateof transfer. The transfers reflect the Firm’s intent to hold the
securities to maturity in order to reduce the impact of pricevolatility on AOCI. This transfer was a non-cash transaction.

JPMorgan Chase & Co./2016 Annual Report

199

Notes to consolidated financial statements
The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
2016
December 31, (in millions)

Amortized
cost

Gross
unrealized
gains

2015

Gross
unrealized
lossesFair
value

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
lossesFair
value

Available-for-sale debt securities
Mortgage-backed securities:
U.S. government agencies(a)$ 63,367 $

1,112 $

474

$ 64,005

Prime and Alt-A(b)

4,256

38

22

Subprime(b)

3,915

62

6

Non-U.S.

6,049

158

Commercial

9,002

122

Total mortgage-backed securities

86,589

1,492

U.S. Treasury and government agencies(a)44,822

Obligations of U.S. states and municipalities$

53,689 $1,483 $

106$

55,066

4,272

6,594

38

49

6,583

3,971

1,078

9

8

1,079

7

6,200

19,629341

1319,95720

9,104

22,990150

243

22,897529

87,552103,980

2,021

419

105,58275

796

44,101

11,202—

166

11,03630,284

1,492

184

31,592

31,3282,245

2333,550

106

—

—

106

282

1

—

283

Non-U.S. government debt securities

34,497836

4535,28835,864853

41

36,676

Corporate debt securities

4,916

64

22

4,958

12,464142

170

12,436

Collateralized loan obligations

27,35275

26

27,401

31,14652

191

31,007

Other

6,950

62

45

6,967

9,125

72

100

9,097

235,516

4,096

1,647

237,965

235,391

5,386

1,110

239,667

Residential:

Certificates of deposit

Asset-backed securities:

Total available-for-sale debt securities
Available-for-sale equity securities

914

12

—

926

2,067

20

—

2,087

Total available-for-sale securities

236,430

4,108

1,647

238,891

237,458

5,406

1,110

241,754

U.S. government agencies(c)29,910638

37

30,511

36,271852

42

37,081

Commercial

5,783

—

129

5,654

—

—

—

—

Total mortgage-backed securities

35,693638

166

36,16536,271852

42

37,081

Obligations of U.S. states and municipalities

14,475374

125

14,724

12,802708

413,50650,1681,012

291

50,88949,0731,560

46

50,587

5,120 $ 1,938$ 289,780

6,966 $ 1,156$ 292,341

Held-to-maturity debt securities
Mortgage-backed securities

Total held-to-maturity debt securities
Total securities$ 286,598 $$ 286,531 $(a) Includes total U.S. government-sponsored enterprise obligations with fair values of $45.8 billion and $42.3 billion at December 31, 2016 and 2015, respectively,
which were predominantly mortgage-related.
(b) Prior period amounts have been revised to conform with current period presentation.
(c) Included total U.S. government-sponsored enterprise obligations with amortized cost of $25.6 billion and $30.8 billion at December 31, 2016 and 2015,
respectively, which were mortgage-related.

200

JPMorgan Chase & Co./2016 Annual ReportSecurities impairment
The following tables present the fair value and gross unrealized losses for the investment securities portfolio by aging category
at December 31, 2016 and 2015.
Securities with gross unrealized losses
Less than 12 months
December 31, 2016 (in millions)

12 months or more

Gross unrealized
lossesFair value

Gross unrealized
lossesFair value

Total fairvalue

Total grossunrealized losses

Available-for-sale debt securities
Mortgage-backed securities:
U.S. government agencies$

29,856 $463

Prime and Alt-A

977

2

Subprime

396

Non-U.S.

—

Commercial

2,328

Total mortgage-backed securities

$

506 $

11 $

30,362 $

474

1,018

20

1,995

22

4

55

2

451

6

—

886

7

886

7

17

1,078

3

3,406

20

33,557

486

3,543

43

37,100529

U.S. Treasury and government agencies

23,543796——

23,543796

Obligations of U.S. states and municipalities

7,215

181

55

3

7,270

184

—

—

—

—

—

—

4,436

36

421

9

4,857

45

797

2

829

20

1,626

22

Collateralized loan obligations

766

2

5,263

24

6,029

26

Other

739

6

1,992

39

2,731

45

71,053

1,509

12,103

138

83,156

1,647

—

—

—

—

—

—

Residential:

Certificates of deposit
Non-U.S. government debt securities
Corporate debt securities
Asset-backed securities:

Total available-for-sale debt securities
Available-for-sale equity securities
Held-to-maturity securities
Mortgage-backed securities
U.S. government securities

3,129

37

—

—

3,129

37

Commercial

5,163

114

441

15

5,604

129

Total mortgage-backed securities

8,292

151

441

15

8,733

166

Obligations of U.S. states and municipalities

4,702

125

—

—

4,702

125

441

15

13,435291

12,544 $153 $96,591 $1,938

Total held-to-maturity securities
Total securities with gross unrealized losses

JPMorgan Chase & Co./2016 Annual Report$

12,994276

84,047 $

1,785

$

201

Notes to consolidated financial statements
Securities with gross unrealized losses
Less than 12 months
December 31, 2015 (in millions)

12 months or more

Gross unrealized
lossesFair value

Gross unrealized
lossesFair value

Total fairvalue

Total grossunrealized losses

Available-for-sale debt securities
Mortgage-backed securities:
U.S. government agencies$

13,002 $

95

$

697 $

11 $

13,699 $106
49

Residential:
Prime and Alt-A(a)

4,455

43

238

6

4,693

Subprime(a)

692

8

—

—

692

8

Non-U.S.

2,021

12

167

1

2,188

13

Commercial

13,779

239

658

4

14,437

243

Total mortgage-backed securities

33,949

397

1,760

22

35,709

419

U.S. Treasury and government agencies

10,998166——

10,998166

Obligations of U.S. states and municipalities

1,676

18

205

5

1,881

23

Certificates of deposit

—

—

—

—

—

—

Non-U.S. government debt securities

3,267

26

367

15

3,634

41

Corporate debt securities

3,198

125

848

45

4,046

170

Collateralized loan obligations

15,34067

10,692

124

26,032

191

Other

4,284

60

1,005

40

5,289

100

72,712859

14,877

251

87,589

1,110

—

—

—

—

—

—

3,294

42

—

—

3,294

42

—

—

—

—

—

—

3,294

42

—

—

3,294

42

469

4

—

—

469

4

3,763

46

—

—

3,763

46

76,475 $905

14,877 $251 $91,352 $1,156

Asset-backed securities:

Total available-for-sale debt securities
Available-for-sale equity securities
Held-to-maturity debt 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 securities with gross unrealized losses$$(a) Prior period amounts have been revised to conform with current period presentation.

202

JPMorgan Chase & Co./2016 Annual Report

Gross unrealized losses
The Firm has recognized unrealized losses on securities it
intends to sell as OTTI. The Firm does not intend to sell anyof the remaining securities with an unrealized loss in AOCI
as of December 31, 2016, and it is not likely that the Firm
will be required to sell these securities before recovery of
their amortized cost basis. Except for the securities forwhich credit losses have been recognized in income, theFirm believes that the securities with an unrealized loss in
AOCI are not other-than-temporarily impaired as ofDecember 31, 2016.
Other-than-temporary impairment
AFS debt and equity securities and HTM debt securities in
unrealized loss positions are analyzed as part of the Firm’s
ongoing assessment of OTTI. For most types of debt
securities, the Firm considers a decline in fair value to beother-than-temporary when the Firm does not expect torecover the entire amortized cost basis of the security. For
beneficial interests in securitizations that are rated below“AA” at their acquisition, or that can be contractually
prepaid or otherwise settled in such a way that the Firm
would not recover substantially all of its recorded
investment, the Firm considers an impairment to be otherthan-temporary when there is an adverse change in
expected cash flows. For AFS equity securities, the Firm
considers a decline in fair value to be other-than-temporary
if it is probable that the Firm will not recover its cost basis.
Potential OTTI is considered using a variety of factors,
including the length of time and extent to which the market
value has been less than cost; adverse conditions
specifically related to the industry, geographic area or
financial condition of the issuer or underlying collateral of asecurity; payment structure of the security; changes to therating of the security by a rating agency; the volatility of thefair value changes; and the Firm’s intent and ability to holdthe security until recovery.
For AFS debt securities, the Firm recognizes OTTI losses inearnings if the Firm has the intent to sell the debt security,
or if it is more likely than not that the Firm will be required
to sell the debt security before recovery of its amortizedcost basis. In these circumstances the impairment loss isequal to the full difference between the amortized costbasis and the fair value of the securities. For debt securities
in an unrealized loss position that the Firm has the intent
and ability to hold, the expected cash flows to be received
from the securities are evaluated to determine if a credit
loss exists. In the event of a credit loss, only the amount of
impairment associated with the credit loss is recognized inincome. Amounts relating to factors other than credit losses
are recorded in OCI.

JPMorgan Chase & Co./2016 Annual Report

The Firm’s cash flow evaluations take into account thefactors noted above and expectations of relevant market
and economic data as of the end of the reporting period.
For securities issued in a securitization, the Firm estimatescash flows considering underlying loan-level data andstructural features of the securitization, such as
subordination, excess spread, overcollateralization or otherforms of credit enhancement, and compares the losses
projected for the underlying collateral (“pool losses”)
against the level of credit enhancement in the securitization
structure to determine whether these features are sufficient
to absorb the pool losses, or whether a credit loss exists.
The Firm also performs other analyses to support its cash
flow projections, such as first-loss analyses or stressscenarios.
For equity securities, OTTI losses are recognized in earnings
if the Firm intends to sell the security. In other cases theFirm considers the relevant factors noted above, as well as
the Firm’s intent and ability to retain its investment for aperiod of time sufficient to allow for any anticipated
recovery in market value, and whether evidence exists to
support a realizable value equal to or greater than the costbasis. Any impairment loss on an equity security is equal to
the full difference between the cost basis and the fair valueof the security.
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)
Realized gains
Realized losses
OTTI losses
Net securities gains

2016
$

401
(232)
(28)
141

2015
$

351
(127)
(22)
202

2014
$

314
(233)
(4)
77

OTTI losses
Credit losses recognized in income

(1)

(1)

(2)

Securities the Firm intends to sell(a)

(27)

(21)

(2)

Total OTTI losses recognized inincome

$

(28)

$

(22)

$

(4)

(a) Excludes realized losses on securities sold of $24 million, $5 million and $3
million for the years ended December 31, 2016, 2015 and 2014,
respectively that had been previously reported as an OTTI loss due to theintention to sell the securities.

Changes in the credit loss component of credit-impaired
debt securities
The cumulative credit loss component, including any
changes therein, of OTTI losses that have been recognized inincome related to AFS debt securities was not material as ofand during the years ended December 31, 2016, 2015 and
2014.

203

Notes to consolidated financial statements
Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at December 31, 2016, of JPMorgan Chase’s
investment securities portfolio by contractual maturity.
By remaining maturity
December 31, 2016 (in millions)
Available-for-sale debt securities
Mortgage-backed securities(a)Amortized cost
Fair value
Average yield(b)U.S. Treasury and government agencies(a)Amortized cost
Fair value
Average yield(b)Obligations of U.S. states and municipalities
Amortized cost
Fair value
Average yield(b)Certificates of deposit
Amortized cost
Fair value
Average yield(b)Non-U.S. government debt securities
Amortized cost
Fair value
Average yield(b)Corporate debt securities
Amortized cost
Fair value
Average yield(b)Asset-backed securities
Amortized cost
Fair value
Average yield(b)Total available-for-sale debt securities
Amortized cost
Fair value
Average yield(b)Available-for-sale equity securities
Amortized cost
Fair value
Average yield(b)Total available-for-sale securities
Amortized cost
Fair value
Average yield(b)Held-to-maturity debt securities
Mortgage-backed securities(a)Amortized Cost
Fair value
Average yield(b)Obligations of U.S. states and municipalities
Amortized cost
Fair value
Average yield(b)Total held-to-maturity securities
Amortized cost
Fair value
Average yield(b)Due in one
year or lessDue after one year
through five years

Due after five years
through 10 years

Due after
10 years(c)

Total

$

2,012 $
2,022
2.04%

2,393 $
2,449
2.36%

7,574 $
7,756
3.03%

74,610 $75,325
3.26%

86,58987,552
3.19%

$

132 $
132
0.42%

4,573 $
4,561
0.86%

38,976 $38,3171.27%

1,141 $
1,091
1.13%

44,822
44,101
1.22%

$

134 $
135
5.85%

752 $
767
3.58%

1,096 $
1,148
6.29%

28,302 $29,542
6.63%

30,284
31,592
6.54%

$

106 $
106
1.78%

— $
—
—%

— $
—
—%

— $
—
—%

106
106
1.78%

$

5,831 $
5,838
2.92%

14,109 $
14,444
1.55%

13,503 $13,9440.93%

1,054 $
1,062
0.58%

34,49735,2881.51%$

2,059 $
2,070
2.88%

1,312 $
1,332
3.11%

1,424 $
1,433
3.24%

121 $
123
3.52%

4,916
4,958
3.06%

$

— $
—
—%

444 $
446
0.49%

21,551 $
21,5772.33%

12,307 $
12,3452.21%

34,302
34,368
2.26%$

10,274 $10,303
2.73%

23,583 $23,9991.63%

84,124 $84,175
1.74%

117,535 $
119,488
3.92%

235,516
237,965
2.86%

$

— $
—
—%

— $
—
—%

— $
—
—%

914 $
926
0.58%

914
926
0.58%

$

10,274 $10,303
2.73%

23,583 $23,9991.63%

84,124 $84,175
1.74%

118,449 $
120,414
3.89%

236,430
238,891
2.85%

$

— $
—
—%

— $
—
—%

— $
—
—%

35,693 $36,1653.30%

35,69336,165
3.30%

$

— $
—
—%

29 $
29
6.61%

1,439 $
1,467
5.11%

13,007 $13,2285.68%

14,475
14,724
5.63%

$

— $
—
—%

29 $
29
6.61%

1,439 $
1,467
5.11%

48,700 $49,393
3.94%

50,16850,8893.97%(a) U.S. government-sponsored enterprises were the only issuers whose securities exceeded 10% of JPMorgan Chase’s total stockholders’ equity at December 31, 2016.
(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

204

JPMorgan Chase & Co./2016 Annual Report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) Includes securities with no stated maturity. Substantially all of the Firm’s residential MBS and collateralized mortgage obligations are due in 10 years or more, based oncontractual maturity. The estimated weighted-average life, which reflects anticipated future prepayments, is approximately seven years for agency residential MBS, three years
for agency residential collateralized mortgage obligations and three years for nonagency residential collateralized mortgage obligations.

Note 13 – Securities financing activities
JPMorgan Chase enters into resale agreements, repurchaseagreements, securities borrowed transactions and securities
loaned transactions (collectively, “securities financing
agreements”) primarily to finance the Firm’s inventory
positions, acquire securities to cover short positions,accommodate customers’ financing needs, and settle othersecurities obligations.
Securities financing agreements are treated ascollateralized financings on the Firm’s Consolidated balance
sheets. Resale and repurchase agreements are generally
carried at the amounts at which the securities will be
subsequently sold or repurchased. Securities borrowed andsecurities loaned transactions are generally carried at theamount of cash collateral advanced or received. Where
appropriate under applicable accounting guidance, resale
and repurchase agreements with the same counterparty arereported on a net basis. For further discussion of theoffsetting of assets and liabilities, see Note 1. Fees received
and paid in connection with securities financing agreements
are recorded in interest income and interest expense on theConsolidated statements of income.
The Firm has elected the fair value option for certain
securities financing agreements. For further information
regarding the fair value option, see Note 4. The securities
financing agreements for which the fair value option has
been elected are reported within securities purchased
under resale agreements, securities loaned or sold under
repurchase agreements, and securities borrowed on theConsolidated balance sheets. Generally, for agreements
carried at fair value, current-period interest accruals arerecorded within interest income and interest expense, withchanges in fair value reported in principal transactions
revenue. However, for financial instruments containing
embedded derivatives that would be separately accounted
for in accordance with accounting guidance for hybrid
instruments, all changes in fair value, including any interest
elements, are reported in principal transactions revenue.

JPMorgan Chase & Co./2016 Annual Report

Securities financing transactions expose the Firm to credit
and liquidity risk. To manage these risks, the Firm monitors
the value of the underlying securities (predominantly highquality securities collateral, including government-issued
debt and agency MBS) that it has received from or provided
to its counterparties compared to the value of cash
proceeds and exchanged collateral, and either requests
additional collateral or returns securities or collateral whenappropriate. Margin levels are initially established based
upon the counterparty, the type of underlying securities,
and the permissible collateral, and are monitored on an
ongoing basis.
In resale agreements and securities borrowed transactions,
the Firm is exposed to credit risk to the extent that thevalue of the securities received is less than initial cash
principal advanced and any collateral amounts exchanged.
In repurchase agreements and securities loaned
transactions, credit risk exposure arises to the extent thatthe value of underlying securities exceeds the value of theinitial cash principal advanced, and any collateral amounts
exchanged.
Additionally, the Firm typically enters into master netting
agreements and other similar arrangements with its
counterparties, which provide for the right to liquidate theunderlying securities and any collateral amounts exchangedin the event of a counterparty default. It is also the Firm’s
policy to take possession, where possible, of the securities
underlying resale agreements and securities borrowed
transactions. For further information regarding assets
pledged and collateral received in securities financing
agreements, see Note 30.
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, 2016 and 2015.

205

Notes to consolidated financial statements
The table below summarizes the gross and net amounts of the Firm’s securities financing agreements, as of December 31,
2016, and 2015. When the Firm has obtained an appropriate legal opinion with respect to the master netting agreement witha counterparty and where other relevant netting criteria under U.S. GAAP are met, the Firm nets, on the Consolidated balance
sheets, the balances outstanding under its securities financing agreements with the same counterparty. In addition, the Firm
exchanges securities and/or cash collateral with its counterparties; this collateral also reduces, in the Firm’s view, the economic
exposure with the counterparty. 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 withthe counterparty. Where a legal opinion has not been either sought or obtained, the securities financing balances arepresented gross in the “Net amounts” below, and related collateral does not reduce the amounts presented.
2016

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$

Securities borrowed

480,735 $
96,409(250,832) $—229,903 $(222,413) $7,490

96,409(66,822)

29,587

Liabilities
Securities sold under repurchase agreements$

151,633 $(133,300) $18,33322,451—

22,451(22,177)

274

Gross amounts

Amounts nettedon theConsolidatedbalance sheets

Amountspresented on theConsolidatedbalance sheets(b)Securities loaned and other(a)402,465 $(250,832) $2015

December 31, (in millions)

Amounts notnettable on theConsolidatedbalance sheets(c)Net amounts(d)AssetsSecurities purchased under resale agreements$

Securities borrowed

368,148 $98,721(156,258) $—211,890 $(207,958) $3,932

98,721(65,081)

33,640133,786 $(119,332) $14,45422,556(22,245)311(e)Liabilities
Securities sold under repurchase agreements
Securities loaned and other(a)$290,044 $
22,556(156,258) $—(a) Includes securities-for-securities lending transactions of $9.1 billion and $4.4 billion at December 31, 2016 and 2015, respectively, accounted for at fairvalue, where the Firm is acting as lender. These amounts are presented within other liabilities in the Consolidated balance sheets.
(b) Includes securities financing agreements accounted for at fair value. At December 31, 2016 and 2015, included securities purchased under resaleagreements of $21.5 billion and $23.1 billion, respectively, and securities sold under agreements to repurchase of $687 million and $3.5 billion,
respectively. There were no securities borrowed at December 31, 2016 and $395 million at December 31, 2015. There were no securities loaned
accounted for at fair value in either period.
(c) In some cases, collateral exchanged with a counterparty exceeds the net asset or liability balance with that counterparty. In such cases, the amounts
reported in this column are limited to the related asset or liability with that counterparty.
(d) Includes securities financing agreements that provide collateral rights, but where an appropriate legal opinion with respect to the master netting
agreement has not been either sought or obtained. At December 31, 2016 and 2015, included $4.8 billion and $2.3 billion, respectively, of securities
purchased under resale agreements; $27.1 billion and $31.3 billion, respectively, of securities borrowed; $15.9 billion and $12.6 billion, respectively, of
securities sold under agreements to repurchase; and $90 million and $45 million, respectively, of securities loaned and other.
(e) Prior period amounts have been revised to conform with the current presentation.

206

JPMorgan Chase & Co./2016 Annual Report(e)The tables below present as of December 31, 2016 and 2015 the types of financial assets pledged in securities financing
agreements and the remaining contractual maturity of the securities financing agreements.
Gross liability balance2016

December 31, (in millions)

Securities soldunder repurchaseagreements

Mortgage-backed securities

$

2015

Securities loaned
and other(a)Securities soldunder repurchaseagreements

10,546 $—199,030—

154,377

5

2,491

—

1,316

—

Non-U.S. government debt

149,008

1,279

80,1624,426

Corporate debt securities

18,140108

21,28678

Asset-backed securities

7,721

—

4,394

—

Equity securities

15,52921,064

15,71918,047

402,465 $

22,451

290,044 $

22,556

U.S. Treasury and government agencies
Obligations of U.S. states and municipalities

Total

$

$

Securities loaned
and other(a)$12,790 $—Remaining contractual maturity of the agreements
Overnight andcontinuous

2016 (in millions)
Total securities sold under repurchase agreements$

Total securities loaned and other(a)

Up to 30 days

30 – 90 days

Greater than
90 daysTotal

140,318 $

157,860 $

55,621 $48,666 $402,465

13,586

1,371

2,877

4,617

22,451

Remaining contractual maturity of the agreements
Overnight andcontinuous

2015 (in millions)
Total securities sold under repurchase agreements
Total securities loaned and other(a)$

Up to 30 days

30 – 90 days

Greater than
90 daysTotal

114,595 $

100,082 $29,955 $45,412 $290,044

8,320

708

793

12,73522,556(a) Includes securities-for-securities lending transactions of $9.1 billion and $4.4 billion at December 31, 2016 and 2015, respectively, accounted for at fairvalue, where the Firm is acting as lender. These amounts are presented within other liabilities on the Consolidated balance sheets.

Transfers not qualifying for sale accounting
At December 31, 2016 and 2015, the Firm held $5.9 billion and $7.5 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 other borrowed funds on the Consolidatedbalance sheets.

JPMorgan Chase & Co./2016 Annual Report207Notes to consolidated financial statements
Note 14 – Loans
Loan accounting framework
The accounting for a loan depends on management’s
strategy for the loan, and on whether the loan was creditimpaired at the date of acquisition. The Firm accounts forloans based on the following categories:• Originated or purchased loans held-for-investment (i.e.,“retained”), other than PCI loans• Loans held-for-sale• Loans at fair value• PCI loans held-for-investment
The following provides a detailed accounting discussion ofthese loan categories:
Loans held-for-investment (other than PCI loans)
Originated or purchased loans held-for-investment, otherthan PCI loans, are recorded at the principal amountoutstanding, net of the following: charge-offs; interest
applied to principal (for loans accounted for on the cost
recovery method); unamortized discounts and premiums;
and net deferred loan fees or costs. Credit card loans also
include billed finance charges and fees net of an allowance
for uncollectible amounts.
Interest income
Interest income on performing loans held-for-investment,
other than PCI loans, is accrued and recognized as interest
income at the contractual rate of interest. Purchase pricediscounts or premiums, as well as net deferred loan fees orcosts, are amortized into interest income over thecontractual life of the loan to produce a level rate of return.
Nonaccrual loans
Nonaccrual loans are those on which the accrual of interest
has been suspended. Loans (other than credit card loans
and certain consumer loans insured by U.S. government
agencies) are placed on nonaccrual status and considerednonperforming when full payment of principal and interest
is not expected, regardless of delinquency status, or whenprincipal and interest has been in default for a period of 90days or more, unless the loan is both well-secured and in
the process of collection. A loan is determined to be past
due when the minimum payment is not received from theborrower by the contractually specified due date or forcertain loans (e.g., residential real estate loans), when amonthly payment is due and unpaid for 30 days or more.
Finally, collateral-dependent loans are typically maintainedon nonaccrual status.
On the date a loan is placed on nonaccrual status, allinterest accrued but not collected is reversed againstinterest income. In addition, the amortization of deferred
amounts is suspended. Interest income on nonaccrual loans
may be recognized as cash interest payments are received(i.e., on a cash basis) if the recorded loan balance isdeemed fully collectible; however, if there is doubt
regarding the ultimate collectibility of the recorded loanbalance, all interest cash receipts are applied to reduce the208carrying value of the loan (the cost recovery method). For
consumer loans, application of this policy typically results in
the Firm recognizing interest income on nonaccrual
consumer loans on a cash basis.
A loan may be returned to accrual status when repayment isreasonably assured and there has been demonstrated
performance under the terms of the loan or, if applicable,
the terms of the restructured loan.
As permitted by regulatory guidance, credit card loans are
generally exempt from being placed on nonaccrual status;
accordingly, interest and fees related to credit card loans
continue to accrue until the loan is charged off or paid infull. However, the Firm separately establishes an allowance,
which is offset against loans and charged to interest
income, for the estimated uncollectible portion of accrued
and billed interest and fee income on credit card loans. The
allowance is established with a charge to interest income
and is reported as an offset to loans.
Allowance for loan losses
The allowance for loan losses represents the estimatedprobable credit losses inherent in the held-for-investment
loan portfolio at the balance sheet date and is recognizedon the balance sheet as a contra asset, which brings therecorded investment to the net carrying value. Changes in
the allowance for loan losses are recorded in the provision
for credit losses on the Firm’s Consolidated statements ofincome. See Note 15 for further information on the Firm’s
accounting policies for the allowance for loan losses.
Charge-offs
Consumer loans, other than risk-rated business banking,risk-rated auto and PCI loans, are generally charged off or
charged down to the net realizable value of the underlying
collateral (i.e., fair value less costs to sell), with an offset tothe allowance for loan losses, upon reaching specified
stages of delinquency in accordance with standards
established by the FFIEC. Residential real estate loans, nonmodified credit card loans and scored business banking
loans are generally charged off no later than 180 days pastdue. Auto, student and modified credit card loans arecharged off no later than 120 days past due.
Certain consumer loans will be charged off earlier than the
FFIEC charge-off standards in certain circumstances asfollows:• A charge-off is recognized when a loan is modified in a
TDR if the loan is determined to be collateral-dependent.
• Loans to borrowers who have experienced an event(e.g., bankruptcy) that suggests a loss is either known orhighly certain are subject to accelerated charge-off
standards. Residential real estate and auto loans arecharged off when the loan becomes 60 days past due, or
sooner if the loan is determined to be collateraldependent. Credit card, student and scored businessbanking loans are charged off within 60 days of
JPMorgan Chase & Co./2016 Annual Report•

receiving notification of the bankruptcy filing or otherevent.
Auto loans are written down to net realizable value upon
repossession of the automobile and after a redemption
period (i.e., the period during which a borrower may
cure the loan) has passed.

Other than in certain limited circumstances, the Firm
typically does not recognize charge-offs on governmentguaranteed loans.
Wholesale loans, risk-rated business banking loans and riskrated auto loans are charged off when it is highly certainthat a loss has been realized, including situations where aloan is determined to be both impaired and collateraldependent. The determination of whether to recognize acharge-off includes many factors, including theprioritization of the Firm’s claim in bankruptcy, expectationsof the workout/restructuring of the loan and valuation of
the borrower’s equity or the loan collateral.
When a loan is charged down to the estimated net realizablevalue, the determination of the fair value of the collateraldepends on the type of collateral (e.g., securities, realestate). In cases where the collateral is in the form of liquid
securities, the fair value is based on quoted market prices
or broker quotes. For illiquid securities or other financial
assets, the fair value of the collateral is estimated using a
discounted cash flow model.
For residential real estate loans, collateral values are based
upon external valuation sources. When it becomes likelythat a borrower is either unable or unwilling to pay, theFirm obtains a broker’s price opinion of the home based on
an exterior-only valuation (“exterior opinions”), which isthen updated at least every six months thereafter. As soon
as practicable after the Firm receives the property insatisfaction of a debt (e.g., by taking legal title or physicalpossession), generally, either through foreclosure or upon
the execution of a deed in lieu of foreclosure transaction
with the borrower, the Firm obtains an appraisal based on
an inspection that includes the interior of the home(“interior appraisals”). Exterior opinions and interior
appraisals are discounted based upon the Firm’s experience
with actual liquidation values as compared with theestimated values provided by exterior opinions and interior
appraisals, considering state- and product-specific factors.
For commercial real estate loans, collateral values are
generally based on appraisals from internal and externalvaluation sources. Collateral values are typically updated
every six to twelve months, either by obtaining a new
appraisal or by performing an internal analysis, inaccordance with the Firm’s policies. The Firm also considers
both borrower- and market-specific factors, which may
result in obtaining appraisal updates or broker priceopinions at more frequent intervals.

JPMorgan Chase & Co./2016 Annual Report

Loans held-for-sale
Held-for-sale loans are measured at the lower of cost or fairvalue, with valuation changes recorded in noninterest
revenue. For consumer loans, the valuation is performed ona portfolio basis. For wholesale loans, the valuation is
performed on an individual loan basis.
Interest income on loans held-for-sale is accrued andrecognized based on the contractual rate of interest.
Loan origination fees or costs and purchase price discounts
or premiums are deferred in a contra loan account until the
related loan is sold. The deferred fees and discounts or
premiums are an adjustment to the basis of the loan andtherefore are included in the periodic determination of thelower of cost or fair value adjustments and/or the gain orloss recognized at the time of sale.
Held-for-sale loans are subject to the nonaccrual policies
described above.
Because held-for-sale loans are recognized at the lower ofcost or fair value, the Firm’s allowance for loan losses andcharge-off policies do not apply to these loans.
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 loans is accrued and recognized basedon the contractual rate of interest. Changes in fair value arerecognized in noninterest revenue. Loan origination fees arerecognized upfront in noninterest revenue. Loan origination
costs are recognized in the associated expense category as
incurred.
Because these loans are recognized at fair value, the Firm’s
allowance for loan losses and charge-off policies do not
apply to these loans.
See Note 4 for further information on the Firm’s elections offair value accounting under the fair value option. See Note 3
and Note 4 for further information on loans carried at fairvalue and classified as trading assets.
PCI loans
PCI loans held-for-investment are initially measured at fairvalue. PCI loans have evidence of credit deterioration since
the loan’s origination date and therefore it is probable, atacquisition, that all contractually required payments will not
be collected. Because PCI loans are initially measured at fairvalue, which includes an estimate of future credit losses, noallowance for loan losses related to PCI loans is recorded at
the acquisition date. See page 219 of this Note for
information on accounting for PCI loans subsequent to theiracquisition.

209

Notes to consolidated financial statements
Loan classification changes
Loans in the held-for-investment portfolio that management
decides to sell are transferred to the held-for-sale portfolio
at the lower of cost or fair value on the date of transfer.
Credit-related losses are charged against the allowance forloan losses; non-credit related losses such as those due tochanges in interest rates or foreign currency exchange rates
are recognized in noninterest revenue.
In the event that management decides to retain a loan in
the held-for-sale portfolio, the loan is transferred to theheld-for-investment portfolio at the lower of cost or fairvalue on the date of transfer. These loans are subsequently
assessed for impairment based on the Firm’s allowancemethodology. For a further discussion of the methodologies
used in establishing the Firm’s allowance for loan losses,
see Note 15.
Loan modifications
The Firm seeks to modify certain loans in conjunction with
its loss-mitigation activities. Through the modification,
JPMorgan Chase grants one or more concessions to aborrower who is experiencing financial difficulty in order tominimize the Firm’s economic loss, avoid foreclosure or
repossession of the collateral, and to ultimately maximize
payments received by the Firm from the borrower. The
concessions granted vary by program and by borrowerspecific characteristics, and may include interest rate
reductions, term extensions, payment deferrals, principal
forgiveness, or the acceptance of equity or other assets inlieu of payments.
Such modifications are accounted for and reported 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.

210

Loans, except for credit card loans, modified in a TDR are
generally placed on nonaccrual status, although in manycases such loans were already on nonaccrual status prior tomodification. These loans may be returned to performing
status (the accrual of interest is resumed) if the following
criteria are met: (i) the borrower has performed under themodified terms for a minimum of six months and/or six
payments, and (ii) the Firm has an expectation that
repayment of the modified loan is reasonably assured basedon, for example, the borrower’s debt capacity and level offuture earnings, collateral values, LTV ratios, and othercurrent market considerations. In certain limited and welldefined circumstances in which the loan is current at themodification date, such loans are not placed on nonaccrual
status at the time of modification.
Because loans modified in TDRs are considered to be
impaired, these loans are measured for impairment using
the Firm’s established asset-specific allowancemethodology, which considers the expected re-default rates
for the modified loans. A loan modified in a TDR generally
remains subject to the asset-specific allowancemethodology throughout its remaining life, regardless ofwhether the loan is performing and has been returned to
accrual status and/or the loan has been removed from theimpaired loans disclosures (i.e., loans restructured atmarket rates). For further discussion of the methodology
used to estimate the Firm’s asset-specific allowance, seeNote 15.
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.

JPMorgan Chase & Co./2016 Annual Report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• Home equity(b)• Residential mortgage(c)Other consumer loans• Auto(d)• Business banking(d)(e)• Student and other
Residential real estate – PCI• Home equity• Prime mortgage• Subprime mortgage• Option ARMs

Credit card

Wholesale(f)• Credit card loans• Commercial and industrial• Real estate• Financial institutions• Government agencies• Other(g)(a) Includes loans held in CCB, prime mortgage and home equity loans held in AWM and prime mortgage loans held in Corporate.
(b) Includes senior and junior lien home equity loans.
(c) Includes prime (including option ARMs) and subprime 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 as well as deposit overdrafts.
(f) Includes loans held in CIB, CB, AWM and Corporate. Excludes prime mortgage and home equity loans held in AWM and prime mortgage loans held in
Corporate. Classes are internally defined and may not align with regulatory definitions.
(g) Includes loans to: individuals; SPEs; holding companies; and private education and civic organizations. For more information on exposures to SPEs, seeNote 16.

The following tables summarize the Firm’s loan balances by portfolio segment.
December 31, 2016
(in millions)
Retained

Consumer, excluding
credit card$

Held-for-sale

December 31, 2015
(in millions)
Retained

Wholesale$

141,711$ 383,790

105

2,285

238

At fair value
Total

364,406

Credit card(a)—$364,644

Consumer, excluding
credit card$

344,355

$

—

2,230

141,816$ 388,305

Credit card(a)Wholesale$131,387$ 357,050

Total$

889,907
2,628
2,230

$

894,765

Total$

832,792

Held-for-sale

466

76

1,104

1,646

At fair value

—

—

2,861

2,861

131,463$ 361,015

Total

$

344,821$$837,299(a) Includes billed interest and fees net of an allowance for uncollectible interest and fees.
(b) Loans (other than PCI loans and those for which the fair value option has been elected) are presented net of unearned income, unamortized discounts andpremiums, and net deferred loan costs. These amounts were not material as of December 31, 2016 and 2015.

JPMorgan Chase & Co./2016 Annual Report

(b)

211

(b)

Notes to consolidated financial statements
The following tables provide information about the carrying value of retained loans purchased, sold and reclassified to heldfor-sale during the periods indicated. These tables exclude loans recorded at fair value. The Firm manages its exposure tocredit risk on an ongoing basis. Selling loans is one way that the Firm reduces its credit exposures.
2016
Year ended December 31,(in millions)

Consumer, excluding
credit card

Purchases
Sales
Retained loans reclassified to held-for-sale

$

4,116
6,368
321

Credit card(a)(b)$

Wholesale
—
—
—

$

Total

1,448
8,739
2,381

$

5,564
15,107
2,702

2015
Year ended December 31,(in millions)

Consumer, excluding
credit card

Purchases
Sales
Retained loans reclassified to held-for-sale$Year ended December 31,(in millions)

Consumer, excluding
credit card

Purchases
Sales
Retained loans reclassified to held-for-sale

$

5,279
5,099
1,514

Credit card(a)(b)$

Wholesale

—
—
79

$

Total

2,154
9,188
642

$

7,433
14,287
2,235

2014

7,434
6,655
1,190

Credit card(a)(b)$

Wholesale

—
—
3,039

$

Total

885
7,381
581

$

8,319
14,036
4,810(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 $30.4 billion, $50.3 billion and $15.1 billion for the years ended December 31, 2016, 2015 and 2014, respectively.

The following table provides information about gains and losses, including lower of cost or fair value adjustments, on loan sales
by portfolio segment.
Year ended December 31, (in millions)

2016

2015

2014

Net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)(a)Consumer, excluding credit card

$

231 $

305 $

341

Credit card

(12)

1

(241)

Wholesale

26

34

101

245 $

340 $

201

Total net gains on sales of loans (including lower of cost or fair value adjustments)$(a) Excludes sales related to loans accounted for at fair value.

212

JPMorgan Chase & Co./2016 Annual ReportConsumer, excluding credit card, loan portfolio

Consumer loans, excluding credit card loans, consist
primarily of residential mortgages, home equity loans andlines of credit, auto loans, business banking loans, andstudent and other loans, with a focus on serving the prime
consumer credit market. The portfolio also includes homeequity loans secured by junior liens, prime mortgage loans
with an interest-only payment period, and certain paymentoption loans that may result in negative amortization.
The table below provides information about retained
consumer loans, excluding credit card, by class.
December 31, (in millions)

2016

2015

Residential real estate – excluding PCIHome equity

39,063 $45,559192,163

166,239

Auto

65,81460,255Business banking

22,69821,208Student and other

8,989

10,096

Home equity

12,902

14,989

Prime mortgage

7,602

8,893

Subprime mortgage

2,941

3,263

12,234

13,853

Residential mortgage$•

Other consumer loans

Residential real estate – PCI

Option ARMs
Total retained loans$ 364,406 $ 344,355

Delinquency rates are a primary credit quality indicator for
consumer loans. Loans that are more than 30 days past due
provide an early warning of borrowers who may be
experiencing financial difficulties and/or who may beunable or unwilling to repay the loan. As the loan continues
to age, it becomes more clear that the borrower is likely
either unable or unwilling to pay. In the case of residential
real estate loans, late-stage delinquencies (greater than
150 days past due) are a strong indicator of loans that will
ultimately result in a foreclosure or similar liquidationtransaction. In addition to delinquency rates, other credit
quality indicators for consumer loans vary based on theclass of loan, as follows:• For residential real estate loans, including both non-PCI
and PCI portfolios, the current estimated LTV ratio, or
the combined LTV ratio in the case of junior lien loans, isan indicator of the potential loss severity in the event ofdefault. Additionally, LTV or combined LTV 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

JPMorgan Chase & Co./2016 Annual Report•

the loan collateral also provides insight as to the credit
quality of the portfolio, as factors such as the regional
economy, home price changes and specific events suchas natural disasters, will affect credit quality. The
borrower’s current or “refreshed” FICO score is asecondary credit-quality indicator for certain loans, as
FICO scores are an indication of the borrower’s credit
payment history. Thus, a loan to a borrower with a low
FICO score (660 or below) is considered to be of higher
risk than a loan to a borrower with a high FICO score.
Further, a loan to a borrower with a high LTV ratio and a
low FICO score is at greater risk of default than a loan toa borrower that has both a high LTV ratio and a high
FICO score.
For scored auto, scored business banking and student
loans, geographic distribution is an indicator of thecredit performance of the portfolio. Similar toresidential real estate loans, geographic distribution
provides insights into the portfolio performance basedon regional economic activity and events.
Risk-rated business banking and auto loans are similar
to wholesale loans in that the primary credit quality
indicators are the risk rating that is assigned to the loan
and whether the loans are considered to be criticized
and/or nonaccrual. Risk ratings are reviewed on aregular and ongoing basis by Credit Risk Management
and are adjusted as necessary for updated information
about borrowers’ ability to fulfill their obligations. For
further information about risk-rated wholesale loancredit quality indicators, see pages 224–225 of this
Note.

Residential real estate — excluding PCI loans
The following table provides information by class forresidential real estate — excluding retained PCI loans in the
consumer, excluding credit card, portfolio segment.
The following factors should be considered in analyzingcertain credit statistics applicable to the Firm’s residential
real estate — excluding PCI loans portfolio: (i) junior lien
home equity loans may be fully charged off when the loan
becomes 180 days past due, and the value of the collateraldoes not support the repayment of the loan, resulting in
relatively high charge-off rates for this product class; and(ii) the lengthening of loss-mitigation timelines may resultin higher delinquency rates for loans carried at the net
realizable value of the collateral that remain on the Firm’s
Consolidated balance sheets.

213

Notes to consolidated financial statements
Residential real estate – excluding PCI loans
Home equity(g)December 31,(in millions, except ratios)

Total residential realestate – excluding PCI

Residential mortgage(g)

2016

2015

2016

2015

2016

2015

Loan delinquency(a)Current$ 37,941$ 44,299$ 183,819$ 156,463$ 221,760$ 200,762

30–149 days past due

646

708

3,824

4,042

4,470

4,750

150 or more days past due

476

552

4,520

5,734

4,996

6,286

$ 39,063$ 45,559$ 192,163$ 166,239$ 231,226$ 211,798

Total retained loans% of 30+ days past due to total retained loans(b)90 or more days past due and government guaranteed(c)

2.87%
$

Nonaccrual loans

—

2.77%
$

1,845

—

0.75%
$

2,191

4,858

1.03%
$

2,247

6,056

1.11%
$

2,503

4,858

1.40%
$

4,092

6,056
4,694

Current estimated LTV ratios(d)(e)Greater than 125% and refreshed FICO scores:
Equal to or greater than 660$

Less than 660

70

$

165

$

30

$

58

$

100

$

223

15

32

48

77

63

109

Equal to or greater than 660

668

1,344

135

274

803

1,618

Less than 660

221

434

177

291

398

725

2,961

4,537

4,026

3,159

6,987

7,696

945

1,409

718

996

1,663

2,405

Equal to or greater than 660

27,31729,648

169,579

142,241

196,896

171,889

Less than 660

4,380

4,934

6,759

6,797

11,13911,731

2,486

3,056

1,327

1,658

3,813

4,714

—

—

9,364

10,6889,364

10,688$ 39,063$ 45,559$ 192,163$ 166,239$ 231,226$ 211,798$$

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:

No FICO/LTV available
U.S. government-guaranteed
Total retained loans
Geographic region
California

8,945$ 59,785$ 47,263$ 67,429$ 56,208

New York

7,978

9,147

24,813

21,462

32,79130,609Illinois

2,947

3,420

13,115

11,524

16,062

14,944

Texas

2,225

2,532

10,717

9,128

12,942

11,660Florida

2,133

2,409

8,387

7,177

10,5209,586

New Jersey

2,253

2,590

6,371

5,567

8,624

8,157

Colorado

677

807

6,304

5,409

6,981

6,216

Washington

1,229

1,451

5,443

4,176

6,672

5,627

Massachusetts

371

459

5,833

5,340

6,204

5,799

Arizona

1,772

2,143

3,577

3,155

5,349

5,298

All other(f)9,834

11,65647,81846,03857,652

57,694$ 39,063$ 45,559$ 192,163$ 166,239$ 231,226$ 211,798

Total retained loans

7,644(a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $2.5 billion and $2.6 billion; 30–149 days pastdue included $3.1 billion and $3.2 billion; and 150 or more days past due included $3.8 billion and $4.9 billion at December 31, 2016 and 2015, respectively.
(b) At December 31, 2016 and 2015, residential mortgage loans excluded mortgage loans insured by U.S. government agencies of $6.9 billion and $8.1 billion, respectively, thatare 30 or more days past due. These amounts have been excluded based upon the government guarantee.
(c) These balances, which are 90 days or more past due, were excluded from nonaccrual loans as the loans are guaranteed by U.S government agencies. Typically the principalbalance of the loans is insured and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. At December 31, 2016 and2015, these balances included $2.2 billion and $3.4 billion, respectively, of loans that are no longer accruing interest based on the agreed-upon servicing guidelines. For theremaining balance, interest is being accrued at the guaranteed reimbursement rate. There were no loans that were not guaranteed by U.S. government agencies that are 90 or
more days past due and still accruing interest at December 31, 2016 and 2015.
(d) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly,
based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where
actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise andshould be viewed as estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as unused lines, related to theproperty.
(e) Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(f) At December 31, 2016 and 2015, included mortgage loans insured by U.S. government agencies of $9.4 billion and $10.7 billion, respectively.
(g) Includes residential real estate loans to private banking clients in AWM, for which the primary credit quality indicators are the borrower’s financial position and LTV.

214

JPMorgan Chase & Co./2016 Annual Report

The following table represents the Firm’s delinquency statistics for junior lien home equity loans and lines as of December 31,
2016 and 2015.
Total loans
December 31, (in millions except ratios)

2016

Total 30+ day delinquency rate
2015

2016

2015

HELOCs:(a)Within the revolving period(b)$Beyond the revolving period
HELOANs
Total$

10,304 $17,050

1.27%

1.57%

13,272

11,252

3.05

3.10

1,861

2,409

2.85

3.03

25,437 $

30,711

2.32%

2.25%

(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 or when the collateral does not support the loan amount.

HELOCs beyond the revolving period and HELOANs have higher delinquency rates than HELOCs within the revolving period.
That is primarily because the fully-amortizing payment that is generally required for those products is higher than theminimum payment options available for HELOCs within the revolving period. The higher delinquency rates associated withamortizing HELOCs and HELOANs are factored into the Firm’s allowance for loan losses.
Impaired loans
The table below sets forth information about the Firm’s residential real estate impaired loans, excluding PCI loans. These loans
are considered to be impaired as they have been modified in a TDR. All impaired loans are evaluated for an asset-specificallowance as described in Note 15.
Home equity

December 31,(in millions)2016

Total residential real estate– excluding PCI

Residential mortgage

2015

2016

2015

2016

2015

Impaired loans
With an allowance$

Without an allowance(a)1,266 $

1,293

998

1,065

$

4,689 $

5,243

1,343

1,447

$

5,955 $

6,536

2,341

2,512
9,048

Total impaired loans(b)(c)$

2,264 $

2,358$

6,032 $

6,690$

8,296 $

Allowance for loan losses related to impaired loans

$

121 $

138

$

68 $

108

$

189 $

246

Unpaid principal balance of impaired loans(d)

3,847

3,960

8,285

9,082

12,132

13,042

Impaired loans on nonaccrual status(e)

1,116

1,220

1,755

1,957

2,871

3,177

(a) Represents collateral-dependent residential real estate loans that are charged off to the fair value of the underlying collateral less cost to sell. The Firm reports, in accordancewith regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower (“Chapter 7 loans”) as
collateral-dependent nonaccrual TDRs, regardless of their delinquency status. At December 31, 2016, Chapter 7 residential real estate loans included approximately 12% homeequity and 16% of residential mortgages that were 30 days or more past due.
(b) At December 31, 2016 and 2015, $3.4 billion and $3.8 billion, respectively, of loans modified subsequent to repurchase from Ginnie Mae in accordance with the standards ofthe appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent to modification in accordance with Ginnie
Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure.
(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, 2016 and 2015. The unpaid principal balance differs from the impaired loan balances due to various
factors including charge-offs, net deferred loan fees or costs, and unamortized discounts or premiums on purchased loans.
(e) As of December 31, 2016 and 2015, nonaccrual loans included $2.3 billion and $2.5 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 208–210 of this Note.

JPMorgan Chase & Co./2016 Annual Report215

Notes to consolidated financial statements
The following table presents average impaired loans and the related interest income reported by the Firm.
Year ended December 31,(in millions)2016

Home equity$

Residential mortgage
Total residential real estate – excluding PCI

$

2015

Interest income on impairedloans on a cash basis(a)Interest income on
impaired loans(a)Average impaired loans
2014

2,311 $

2,369 $

2,435

6,376

7,697

10,174

8,687 $ 10,066 $ 12,609

2016
$
$

2015

2014

125 $

128 $

137

305

348

444

430 $

476 $

581

2016
$
$

2015

2014

80 $

85 $

90

77

87

105

157 $

172 $

195

(a) Generally, interest income on loans modified in TDRs is recognized on a cash basis until such time as the borrower has made a minimum of six payments under the new terms,
unless the loan is deemed to be collateral-dependent.

Loan modifications
Modifications of residential real estate loans, excluding PCI loans, are generally accounted for and reported as TDRs. There
were no additional commitments to lend to borrowers 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)

2016

2015

2014

385 $

401 $

321

Residential mortgage

254

267

411

Total residential real estate – excluding
$
PCI

639 $

668 $

732

Home equity$

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.
Home equity

Total residential real estate– excluding PCI

Residential mortgage

Year ended December 31,

2016

2015

2014

2016

2015

2014

2016

2015

2014

Number of loans approved for a trial
modification

3,760

3,933

1,565

1,945

2,711

3,108

5,705

6,644

4,673

Number of loans permanently modified

4,824

4,296

3,984

3,338

3,145

5,648

8,162

7,441

9,632

Concession granted:(a)Interest rate reduction

75%

66%

75%

76%

71%

45%

76%

68%

58%

Term or payment extension

83

89

78

90

81

52

86

86

63

Principal and/or interest deferred

19

23

21

16

27

15

18

24

18

Principal forgiveness

9

7

26

26

28

52

16

16

41

Other(b)

6

—

—

25

11

10

14

5

6

(a) Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages exceeds 100% because
predominantly all of the modifications include more than one type of concession. A significant portion of trial modifications include interest rate reductions and/or term or
payment extensions.
(b) Represents variable interest rate to fixed interest rate modifications.

216

JPMorgan Chase & Co./2016 Annual Report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. Because the specific types and amounts of concessions offered toborrowers frequently change between the trial modification and the permanent modification, the following table presents only
the financial effects of permanent modifications. This table also excludes Chapter 7 loans where the sole concession granted isthe discharge of debt.
Year ended
December 31,(in millions, except weighted-average dataand number of loans)

Home equity
2016

Total residential real estate –excluding PCI

Residential mortgage

2015

2014

2016

2015

2014

2016

2015

2014

Weighted-average interest rate of loans withinterest rate reductions – before TDR

4.99%

5.20%

5.27%

5.59%

5.67%

5.74%

5.36%

5.51%

5.61%

Weighted-average interest rate of loans withinterest rate reductions – after TDR

2.34

2.35

2.30

2.93

2.79

2.96

2.70

2.64

2.78

Weighted-average remaining contractual term(in years) of loans with term or payment
extensions – before TDR

18

18

19

24

25

24

22

22

23

Weighted-average remaining contractual term(in years) of loans with term or payment
extensions – after TDR

38

35

33

38

37

36

38

36

36

Charge-offs recognized upon permanentmodification

$

1

$

4

$

27

$

4

$

11

$

12

$

5

$

15

$

39

Principal deferred

23

27

16

30

58

58

53

85

74

Principal forgiven

7

6

35

44

66

172

51

72

207

Balance of loans that redefaulted within one
year of permanent modification(a)

$

40

$

21

$

29

$

98

$

133

$

214

$

138

$

154

$

243

(a) Represents loans permanently modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred within one year of themodification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which such loans defaulted. For residential real estateloans 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 isprobable that the loan will ultimately be liquidated through foreclosure or another similar type of liquidation transaction. Redefaults of loans modified within the last 12 months
may not be representative of ultimate redefault levels.

At December 31, 2016, the weighted-average estimatedremaining lives of residential real estate loans, excluding
PCI loans, permanently modified in TDRs were 9 years forhome equity and 10 years for residential mortgage. The
estimated remaining lives of these loans reflect estimatedprepayments, both voluntary and involuntary (i.e.,
foreclosures and other forced liquidations).

JPMorgan Chase & Co./2016 Annual Report

Active and suspended foreclosure
At December 31, 2016 and 2015, the Firm had non-PCIresidential real estate loans, excluding those insured by U.S.
government agencies, with a carrying value of $932 million
and $1.2 billion, respectively, that were not included in
REO, but were in the process of active or suspended
foreclosure.

217

Notes to consolidated financial statements
Other consumer loans
The table below provides information for other consumer retained loan classes, including auto, business banking and student
loans.
Auto

December 31,(in millions, except ratios)Business banking

Student and otherTotal other consumer

2016

2015

2016

2015

2016

2015

2016

2015

Loan delinquency(a)Current$65,029$ 59,442$ 22,312$ 20,887$ 8,397$ 9,405$95,738$ 89,734

30–119 days past due

773

804

247

215

374

445

1,394

1,464

120 or more days past due

12

9

139

106

218

246

369

361

$65,814$ 60,255$ 22,698$ 21,208$ 8,989$ 10,096$97,501$ 91,559

Total retained loans% of 30+ days past due to total retainedloans
90 or more days past due and still accruing (b)Nonaccrual loans

1.19%
$

—

1.35%
$

—

1.70%
$

—

1.51%
$

1.38% (d)1.63% (d)$290

1.33% (d)$263

1.42% (d)

—

$ 263

214

116

286

263

175

242

675

$

290
621

Geographic region
California$ 7,975$ 7,186$ 4,158$ 3,530$ 935$ 1,051$13,068$ 11,767

Texas

7,041

6,457

2,769

2,622

739

839

10,5499,918

New York

4,078

3,874

3,510

3,359

1,187

1,224

8,775

8,457

Illinois

3,984

3,678

1,627

1,459

582

679

6,193

5,816

Florida

3,374

2,843

1,068

941

475

516

4,917

4,300

Ohio

2,194

2,340

1,366

1,363

490

559

4,050

4,262

Arizona

2,209

2,033

1,270

1,205

202

236

3,681

3,474

Michigan

1,567

1,550

1,308

1,361

355

415

3,230

3,326

New Jersey

2,031

1,998

546

500

320

366

2,897

2,864

Louisiana

1,814

1,713

961

997

120

134

2,895

2,844

All other

29,547

26,583

4,115

3,871

3,584

4,077

37,24634,531

Total retained loans$65,814$ 60,255$ 22,698$ 21,208$ 8,989$ 10,096$97,501$ 91,559

Loans by risk ratings(c)Noncriticized$13,899$ 11,277$ 16,858$ 15,505

NANA$30,757$ 26,782

Criticized performing

201

76

816

815

NA

NA

1,017

891

Criticized nonaccrual

94

—

217

210

NA

NA

311

210

(a) Student loan delinquency classifications included loans insured by U.S. government agencies under the FFELP as follows: current included $3.3 billion and $3.8 billion;
30-119 days past due included $257 million and $299 million; and 120 or more days past due included $211 million and $227 million at December 31, 2016 and 2015,
respectively.
(b) These amounts represent student loans, insured by U.S. government agencies under the FFELP. These amounts were accruing as reimbursement of insured amounts is
proceeding normally.
(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.
(d) December 31, 2016 and 2015, excluded loans 30 days or more past due and still accruing, that are insured by U.S. government agencies under the FFELP, of $468 million and$526 million, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally.

Other consumer impaired loans and loan
modifications
The following table sets forth information about the Firm’sother consumer impaired loans, including risk-rated
business banking and auto loans that have been placed on
nonaccrual status, and loans that have been modified in
TDRs.

December 31, (in millions)
2016
2015
Impaired loans
With an allowance$ 614 $ 527
Without an allowance(a)3031Total impaired loans(b)(c)$ 644 $ 558
Allowance for loan losses related to impaired loans $ 119 $ 118
Unpaid principal balance of impaired loans(d)753668Impaired loans on nonaccrual status
508449(a) When discounted cash flows, collateral value or market price equals or exceeds
the recorded investment in the loan, the loan does not require an allowance. Thistypically occurs when the impaired loans have been partially charged off and/or
there have been interest payments received and applied to the loan balance.
(b) Predominantly all other consumer impaired loans are in the U.S.
(c) Other consumer average impaired loans were $635 million, $566 million and$599 million for the years ended December 31, 2016, 2015 and 2014,
respectively. The related interest income on impaired loans, including those on a
cash basis, was not material for the years ended December 31, 2016, 2015 and2014.
(d) Represents the contractual amount of principal owed at December 31, 2016 and2015. The unpaid principal balance differs from the impaired loan balances due
to various factors, including charge-offs, interest payments received and applied
to the principal balance, net deferred loan fees or costs and unamortizeddiscounts or premiums on purchased loans.

218

JPMorgan Chase & Co./2016 Annual Report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 in the table
above.The following table provides information about the
Firm’s other consumer loans modified in TDRs. New TDRs
were not material for the years ended December 31, 2016
and 2015.
December 31, (in millions)
Loans modified in TDRs(a)(b)2016$

TDRs on nonaccrual status

2015
362 $

384

226

275

(a) The impact of these modifications was not material to the Firm for the years
ended December 31, 2016 and 2015.
(b) Additional commitments to lend to borrowers whose loans have been modified in
TDRs as of December 31, 2016 and 2015 were immaterial.

Purchased credit-impaired loans
PCI loans are initially recorded at fair value at acquisition.
PCI loans acquired in the same fiscal quarter may be
aggregated into one or more pools, provided that the loans
have common risk characteristics. A pool is then accounted
for as a single asset with a single composite interest rate
and an aggregate expectation of cash flows. With respect tothe Washington Mutual transaction, all of the consumer PCI
loans were aggregated into pools of loans with common risk
characteristics.
On a quarterly basis, the Firm estimates the total cash flows(both principal and interest) expected to be collected over
the remaining life of each pool. These estimates incorporate
assumptions regarding default rates, loss severities, theamounts and timing of prepayments and other factors thatreflect then-current market conditions. Probable decreases
in expected cash flows (i.e., increased credit losses) trigger
the recognition of impairment, which is then measured as
the present value of the expected principal loss plus any
related forgone interest cash flows, discounted at the pool’s
effective interest rate. Impairments are recognized throughthe provision for credit losses and an increase in theallowance for loan losses. Probable and significant
increases in expected cash flows (e.g., decreased credit
losses, the net benefit of modifications) would first reverse
any previously recorded allowance for loan losses with any
remaining increases recognized prospectively as a yield
adjustment over the remaining estimated lives of theunderlying loans. The impacts of (i) prepayments, (ii)changes in variable interest rates, and (iii) any otherchanges in the timing of expected cash flows are recognizedprospectively as adjustments to interest income.
The Firm continues to modify certain PCI loans. The impactof these modifications is incorporated into the Firm’squarterly assessment of whether a probable and significant
change in expected cash flows has occurred, and the loans
continue to be accounted for and reported as PCI loans. In
evaluating the effect of modifications on expected cash
flows, the Firm incorporates the effect of any 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
JPMorgan Chase & Co./2016 Annual Reportconsiders 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.
The excess of cash flows expected to be collected over the
carrying value of the underlying loans is referred to as theaccretable yield. This amount is not reported on the Firm’s
Consolidated balance sheets but is accreted into interest
income at a level rate of return over the remaining
estimated lives of the underlying pools of loans.
If the timing and/or amounts of expected cash flows on PCI
loan pools were determined not to be reasonably estimable,
no interest would be accreted and the loan pools would bereported as nonaccrual loans; however, since the timing andamounts of expected cash flows for the Firm’s PCI consumer
loan pools are reasonably estimable, interest is being
accreted and the loan pools are being reported as
performing loans.
The liquidation of PCI loans, which may include sales ofloans, receipt of payment in full from the borrower, or
foreclosure, results in removal of the loans from theunderlying PCI pool. When the amount of the liquidation
proceeds (e.g., cash, real estate), if any, is less than theunpaid principal balance of the loan, the difference is first
applied against the PCI pool’s nonaccretable difference forprincipal losses (i.e., the lifetime credit loss estimate
established as a purchase accounting adjustment at theacquisition date). When the nonaccretable difference for aparticular loan pool has been fully depleted, any excess of
the unpaid principal balance of the loan over the liquidation
proceeds is written off against the PCI pool’s allowance forloan losses. Beginning in 2014, write-offs of PCI loans also
include other adjustments, primarily related to interest
forgiveness modifications. Because the Firm’s PCI loans areaccounted for at a pool level, the Firm does not recognize
charge-offs of PCI loans when they reach specified stages ofdelinquency (i.e., unlike non-PCI consumer loans, theseloans are not charged off based on FFIEC standards).
The PCI portfolio affects the Firm’s results of operations
primarily through: (i) contribution to net interest margin;(ii) expense related to defaults and servicing resulting fromthe liquidation of the loans; and (iii) any provision for loan
losses. The PCI loans acquired in the Washington Mutualtransaction were funded based on the interest ratecharacteristics of the loans. For example, variable-rateloans were funded with variable-rate liabilities and fixedrate loans were funded with fixed-rate liabilities with asimilar maturity profile. A net spread will be earned on the
declining balance of the portfolio, which is estimated as ofDecember 31, 2016, to have a remaining weighted-average
life of 8 years.

219

Notes to consolidated financial statements
Residential real estate – PCI loans
The table below sets forth information about the Firm’s consumer, excluding credit card, PCI loans.
Home equity

December 31,(in millions, except ratios)
Carrying value(a)Prime mortgage

Subprime mortgage

Option ARMs

Total PCI

2016

2015

2016

2015

2016

2015

2016

2015

2016

2015

$12,902$14,989$ 7,602$ 8,893$ 2,941$ 3,263$12,234$13,853$35,679$40,998

1,433

1,708

829

985

—

—

49

49

2,311

2,742

Related allowance for loan losses(b)Loan delinquency (based on unpaid principal balance)
Current$12,423$14,387$ 6,840$ 7,894$ 3,005$ 3,232$11,074$12,370$33,342$37,883

30–149 days past due

291

322

336

424

361

439

555

711

1,543

1,896

150 or more days past due

478

633

451

601

240

380

917

1,272

2,086

2,886

$13,192$15,342$ 7,627$ 8,919$ 3,606$ 4,051$12,546$14,353$36,971$42,665

Total loans% of 30+ days past due to total loans

5.83%

6.22%

10.32%

11.49%

16.67%

20.22%

11.73%

13.82%

9.82%

11.21%

Current estimated LTV ratios (based on unpaid principal balance)(c)(d)Greater than 125% and refreshed FICO scores:
Equal to or greater than 660$

69

Less than 660

$

153

$

6

$

10

$

7
31

$

10

39

80

17

28

55

Equal to or greater than 660

555

942

52

120

39

Less than 660

256

444

84

152

135

1,860

2,709

442

816

214

331

804

1,136

381

614

439

643

Equal to or greater than 660

6,676

6,724

3,967

4,243

919

Less than 660

2,183

2,265

2,287

2,438

1,645

750

889

391

498

177

$13,192$15,342$ 7,627$ 8,919

$

12

$

19

$

94

$

192

18

36

105

199

77

83

166

729

1,305

220

144

239

619

1,055

558

977

3,074

4,833

609

1,050

2,233

3,443

863

6,754

7,073

18,316

18,903

1,642

3,783

4,065

9,898

10,410

210

585

728

1,903

2,325

$ 3,606$ 4,051$12,546$14,353$36,971$42,665$101% to 125% and refreshed FICO scores:

80% to 100% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
Lower than 80% and refreshed FICO scores:

No FICO/LTV available
Total unpaid principal balance

Geographic region (based on unpaid principal balance)

California$ 7,899$ 9,205$ 4,396$ 5,172899$ 1,005$ 7,128$ 8,108$20,322$23,490

Florida

1,306

1,479

501

586

332

373

1,026

1,183

3,165

3,621

New York

697

788

515

580

363

400

711

813

2,286

2,581

Washington

673

819

167

194

68

81

290

339

1,198

1,433

New Jersey

280

310

210

238

125

139

401

470

1,016

1,157

Illinois

314

358

226

263

178

196

282

333

1,000

1,150

Massachusetts

94

112

173

199

110

125

346

398

723

834

Maryland

64

73

144

159

145

161

267

297

620

690

Arizona

241

281

124

143

68

76

181

203

614

703

Virginia

77

88

142

170

56

62

314

354

589

674

All other

1,547

1,829

1,029

1,215

1,262

1,433

1,600

1,855

5,438

6,332

$13,192$15,342$ 7,627$ 8,919$ 3,606$ 4,051$12,546$14,353$36,971$42,665

Total unpaid principal balance(a) Carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition.
(b) Management concluded as part of the Firm’s regular assessment of the PCI loan pools that it was probable that higher expected credit losses would result in a decrease in expectedcash flows. As a result, an allowance for loan losses for impairment of these pools has been recognized.
(c) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based onhome valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is notavailable. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as
estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as unused lines, related to the property.
(d) Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.

220

JPMorgan Chase & Co./2016 Annual ReportApproximately 24% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANs or
HELOCs. The following table sets forth delinquency statistics for PCI junior lien home equity loans and lines of credit based on
the unpaid principal balance as of December 31, 2016 and 2015.
Total loans
December 31,

2016

Total 30+ day delinquency rate
2015

2016

2015

(in millions, except ratios)
HELOCs:(a)Within the revolving period(b)$Beyond the revolving period(c)2,126 $

5,000

3.67%

4.10%

7,452

6,252

4.03

4.46

465

582

5.38

5.33

10,043 $11,834

4.01%

4.35%

HELOANs
Total$(a) In general, these HELOCs are revolving loans for a 10-year period, after which time the HELOC converts to an interest-only loan with a balloon payment at the end of
the loan’s term.
(b) Substantially all undrawn HELOCs within the revolving period have been closed.
(c) Includes loans modified into fixed rate amortizing loans.

The table below sets forth the accretable yield activity for the Firm’s PCI consumer loans for the years ended December 31,
2016, 2015 and 2014, 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)

2016

Beginning balance$

Accretion into interest income

2015

13,491$

2014

14,592$

16,167(1,555)(1,700)(1,934)

Changes in interest rates on variable-rate loans

260

279

(174)

Other changes in expected cash flows(a)

(428)

230

533

Reclassification from nonaccretable difference—(b)Balance at December 31
Accretable yield percentage$

11,7684.35%

90$

13,491
4.20%—$

14,592
4.19%(a) Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model, for example cash flows expected to becollected due to the impact of modifications and changes in prepayment assumptions.
(b) Reclassifications from the nonaccretable difference in the year ended December 31, 2015 were driven by continued improvement in home prices and delinquencies,
as well as increased granularity in the impairment estimates.

Active and suspended foreclosure
At December 31, 2016 and 2015, the Firm had PCI residential real estate loans with an unpaid principal balance of $1.7
billion and $2.3 billion, respectively, that were not included in REO, but were in the process of active or suspended foreclosure.

JPMorgan Chase & Co./2016 Annual Report221Notes to consolidated financial statements
Credit card loan portfolio

The credit card portfolio segment includes credit card loans
originated and purchased by the Firm. Delinquency rates
are the primary credit quality indicator for credit card loans
as they provide an early warning that borrowers may be
experiencing difficulties (30 days past due); information on
those borrowers that have been delinquent for a longer
period of time (90 days past due) is also considered. In
addition to delinquency rates, the geographic distribution of
the loans provides insight as to the credit quality of theportfolio based on the regional economy.
While the borrower’s credit score is another generalindicator of credit quality, the Firm does not view creditscores as a primary indicator of credit quality because theborrower’s credit score tends to be a lagging indicator.
However, the distribution of such scores provides a generalindicator of credit quality trends within the portfolio.
Refreshed FICO score information, which is obtained at least
quarterly, for a statistically significant random sample ofthe credit card portfolio is indicated in the following table;
FICO is considered to be the industry benchmark for creditscores.
The Firm generally originates new card accounts to prime
consumer borrowers. However, certain cardholders’ FICO
scores may decrease over time, depending on theperformance of the cardholder and changes in credit score
technology.

The table below sets forth information about the Firm’s
credit card loans.
As of or for the year ended December 31,(in millions, except ratios)
Net charge-offs

2016$% of net charge-offs to retained loans

3,442

2015
$

2.63%

3,122
2.51%

Loan delinquency
Current and less than 30 days past due
and still accruing$ 139,434$ 129,502

30–89 days past due and still accruing

1,134

941

1,143
$ 141,711

944$ 131,387

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

1.61%

1.43%

% of 90+ days past due to total retained loans

0.81

0.72

Credit card loans by geographic region
California
Texas
New York
FloridaIllinois
New Jersey
Ohio
Pennsylvania
Michigan
Colorado
All other$

20,571
13,22012,249
8,585
8,189
6,271
4,906
4,787
3,741
3,699
55,493

Total retained credit card loans$ 141,711$

18,802
11,847
11,360
7,806
7,655
5,879
4,700
4,533
3,562
3,399
51,844$ 131,387

Percentage of portfolio based on carrying
value with estimated refreshed FICO scores(a)Equal to or greater than 660
Less than 660

84.4%
14.2

84.4%
13.1

No FICO available

1.4

2.5

(a) The current period percentage of portfolio based on carrying value withestimated refreshed FICO scores disclosures have been updated to reflect where
the FICO score is unavailable. The prior period amounts have been revised toconform with the current presentation.

222

JPMorgan Chase & Co./2016 Annual ReportCredit card impaired loans and loan modifications
The table below sets forth information about the Firm’s
impaired credit card loans. All of these loans are considered
to be impaired as they have been modified in TDRs.
December 31, (in millions)
Impaired credit card loans with anallowance(a)(b)Credit card loans with modified payment
terms(c)Modified credit card loans that havereverted to pre-modification payment
terms(d)Total impaired credit card loans(e)Allowance for loan losses related to
impaired credit card loans

2016

2015

$

1,098 $

1,286

142

179

$

1,240 $

1,465

$

358 $

460

If the cardholder does not comply with the modified
payment terms, then the credit card loan agreement reverts
back to its pre-modification payment terms. Assuming thatthe cardholder does not begin to perform in accordancewith those payment terms, the loan continues to age andwill ultimately be charged-off in accordance with the Firm’s
standard charge-off policy. In addition, if a borrower
successfully completes a short-term modification program,then the loan reverts back to its pre-modification payment
terms. However, in most cases, the Firm does not reinstate
the borrower’s line of credit.
New enrollments in these loan modification programs forthe years ended December 31, 2016, 2015 and 2014, were$636 million, $638 million and $807 million, respectively.

(a) The carrying value and the unpaid principal balance are the same for credit
card impaired loans.
(b) There were no impaired loans without an allowance.
(c) Represents credit card loans outstanding to borrowers enrolled in a credit
card modification program as of the date presented.
(d) Represents credit card loans that were modified in TDRs but that havesubsequently reverted back to the loans’ pre-modification payment terms.
At December 31, 2016 and 2015, $94 million and $113 million,
respectively, of loans have reverted back to the pre-modification payment
terms of the loans due to noncompliance with the terms of the modified
loans. The remaining $48 million and $66 million at December 31, 2016
and 2015, respectively, of these loans are to borrowers who havesuccessfully completed a short-term modification program. The Firm
continues to report these loans as TDRs since the borrowers’ credit lines
remain closed.
(e) Predominantly all impaired credit card loans are in the U.S.

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.

The following table presents average balances of impaired
credit card loans and interest income recognized on thoseloans.

(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.

Year ended December 31,(in millions)

For credit card loans modified in TDRs, payment default isdeemed to have occurred when the loans become two
payments past due. A substantial portion of these loans is
expected to be charged-off in accordance with the Firm’s
standard charge-off policy. Based on historical experience,the estimated weighted-average default rate for modified
credit card loans was expected to be 28.87%, 25.61% and27.91% as of December 31, 2016, 2015 and 2014,
respectively.

Average impaired credit card loans

2016

2015

2014

$ 1,325 $ 1,710 $ 2,503

Interest income on
impaired credit card loans

63

82

123

Loan modifications
JPMorgan Chase may offer one of a number of loan
modification programs to credit card borrowers who areexperiencing financial difficulty. Most of the credit cardloans have been modified under long-term programs forborrowers who are experiencing financial difficulties.
Modifications under long-term programs involve placing thecustomer on a fixed payment plan, generally for 60 months.
The Firm may also offer short-term programs for borrowers
who may be in need of temporary relief; however, none are
currently being offered. Modifications under all short- andlong-term programs typically include reducing the interest
rate on the credit card. Substantially all modifications are
considered to be TDRs.

JPMorgan Chase & Co./2016 Annual Report

Year ended December 31,(in millions, except
weighted-average data)

2016

2015

2014

Weighted-average interest rateof loans – before TDR

15.56%

15.08%

14.96%

Weighted-average interest rateof loans – after TDR

4.76

4.40

4.40

Loans that redefaulted within
one year of modification(a)

$

79

$

85

$

119

223

Notes to consolidated financial statements
Wholesale loan portfolio

Wholesale loans include loans made to a variety ofcustomers, ranging from large corporate and institutional
clients to high-net-worth individuals.
The primary credit quality indicator for wholesale loans is
the risk rating assigned to each loan. Risk ratings are used
to identify the credit quality of loans and differentiate risk
within the portfolio. Risk ratings on loans consider the PD
and the LGD. The PD is the likelihood that a loan will
default. The LGD is the estimated loss on the loan thatwould be realized upon the default of the borrower andtakes into consideration collateral and structural support
for each credit facility.

Risk ratings are reviewed on a regular and ongoing basis by
Credit Risk Management and are adjusted as necessary for
updated information affecting the obligor’s ability to fulfill
its obligations.
As noted above, the risk rating of a loan considers theindustry in which the obligor conducts its operations. As
part of the overall credit risk management framework, theFirm focuses on the management and diversification of its
industry and client exposures, with particular attention paid
to industries with actual or potential credit concern. See
Note 5 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.

224

JPMorgan Chase & Co./2016 Annual Report

The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment.
As of or for theyear ended
December 31,(in millions,
except ratios)
Loans by risk
ratings
Investment
grade

Commercial
and industrial

Financial
institutions

Real estate

Government agencies

Total
retained loans

Other(d)

2016

2015

2016

2015

2016

2015

2016

2015

2016

2015

2016

2015

$ 64,949$ 62,150$ 88,434$ 74,330$ 23,562$21,786$15,935$ 11,363$ 97,043$ 98,107$ 289,923$ 267,736

47,14945,632

16,88317,008

8,317

7,667

439

256

11,772

11,39084,56081,953Noninvestment
grade:
Noncriticized
Criticized
performing

6,161

4,542

798

1,251

200

320

6

7

188

253

7,353

6,373

Criticizednonaccrual

1,482

608

200

231

9

10

—

—

263

139

1,954

988

Total
noninvestment
grade

54,79250,782

17,881

18,490

8,526

7,997

445

263

12,223

11,782

93,86789,314

Total retained
loans$119,741$112,932$106,315$ 92,820$ 32,088$29,783$16,380$ 11,626$109,266$109,889$ 383,790$ 357,050% of total
criticized tototal retained
loans% of nonaccrualloans to total
retained loans

6.38%

4.56%

0.94%

1.60%

0.65%

1.11%

0.04%

0.06%

0.41%

0.36%

2.43%

2.06%

1.24

0.54

0.19

0.25

0.03

0.03

—

—

0.24

0.13

0.51

0.28

$ 30,259
89,482$ 30,063
82,869$3,292
103,023$

3,003
89,817$ 14,741
17,347$17,166
12,617$ 3,726
12,654$ 1,788
9,838$ 39,496
69,770$ 42,031
67,858$ 91,514
292,276$ 94,051
262,999$119,741$112,932$106,315$ 92,820$ 32,088$29,783$16,380$ 11,626$109,266$109,889$ 383,790$ 357,050

$

$

$

$

$

$

$

$

$

$

$

$

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

335

0.28%

26

0.02%

(7)

(0.01)%(14)(0.02)%(2)(0.01)%(5)(0.02)%(1)(0.01)%(8)(0.07)%

16

0.01%

11

0.01%

341

10

0.09%

—%

Loan
delinquency(b)Current and lessthan 30 days
past due andstill accruing
30–89 days past
due and still
accruing
90 or more days
past due andstill accruing(c)Criticizednonaccrual
Total retained
loans$117,905$112,058$105,958$ 92,381$ 32,036$29,713$16,269$ 11,565$108,350$108,734$ 380,518$ 354,451

268

259

155

193

22

49

107

55

634

988

1,186

1,544

86

7

2

15

21

11

4

6

19

28

132

67

1,482

608

200

231

9

10

—

—

263

139

1,954

988

$119,741$112,932$106,315$ 92,820$ 32,088$29,783$16,380$ 11,626$109,266$109,889$ 383,790$ 357,050(a) The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
(b) The credit quality of wholesale loans is assessed primarily through ongoing review and monitoring of an obligor’s ability to meet contractual obligations rather than relying on
the past due status, which is generally a lagging indicator of credit quality.
(c) Represents loans that are considered well-collateralized and therefore still accruing interest.
(d) Other includes individuals, SPEs, holding companies, and private education and civic organizations. For more information on exposures to SPEs, see Note 16.

JPMorgan Chase & Co./2016 Annual Report225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$9.2 billion and $7.3 billion as of December 31, 2016 and 2015, 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)

2016

Real estate retained loans$

Other Commercial

2015

71,978$

2016

64,271$

Total real estate loans

2015

34,337

$

2016

2015

28,549$ 106,315

Criticized

539

562

459

920

998

% of criticized to total real estate retained loans

0.75%

0.87%

1.34%

3.22%

0.94%

Criticized nonaccrual$% of criticized nonaccrual to total real estate retained loans

57

$

85

0.08%

$

143

0.13%

$

146

0.42%

$

200

0.51%

$

92,820
1,482
1.60%

$

231

0.19%

0.25%

Wholesale impaired loans and loan modifications
Wholesale impaired loans consist of loans that have been placed on nonaccrual status and/or that have been modified in a TDR.
All impaired loans are evaluated for an asset-specific allowance as described in Note 15.
The table below sets forth information about the Firm’s wholesale impaired loans.
Commercial
and industrial

December 31,(in millions)2016

Financial
institutions

Real estate

2015

2016

2015

2016

Government
agencies

2015

2016

Total
retained loans

Other

2015

2016

2015

2016

2015

Impaired loans
With an allowance$ 1,119 $522

Without an allowance(a)

414

98

Total impaired loans$ 1,533 $620

Allowance for loan losses related
to impaired loans$

220

Unpaid principal balance ofimpaired loans(b)

258 $
1,754

$

125 $

148

87

106

$

212 $

254

$

18 $

27

295

363

669

$

9 $

10

—

—

$

9 $

10

$

3 $

3

12

13

$

— $

—

—

—

$

— $

—

$

— $

—

—

—

$

187 $

46

$ 1,440

76

94

577

$

263 $

140

$ 2,017

$

63 $

24

$

284

164

342
2,345

$

726
298

(c)

$ 1,024
$

274
1,209

(a) When the discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This typicallyoccurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied to the loan balance.
(b) Represents the contractual amount of principal owed at December 31, 2016 and 2015. The unpaid principal balance differs from the impaired loan balances due to various
factors, including charge-offs; interest payments received and applied to the carrying value; net deferred loan fees or costs; and unamortized discount or premiums onpurchased loans.
(c) Based upon the domicile of the borrower, largely consists of loans in the U.S.

The following table presents the Firm’s average impairedloans for the years ended 2016, 2015 and 2014.
Year ended December 31, (in millions)
Commercial and industrial

2016
$

2015

2014

1,480 $

453 $

243

Real estate

217

250

297

Financial institutions

13

13

20

Government agencies

—

—

—

213

129

155

1,923 $

845 $

715

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 $733 million
and $208 million as of December 31, 2016 and 2015.

(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,
2016, 2015 and 2014.

226

JPMorgan Chase & Co./2016 Annual Report(c)Note 15 – Allowance for credit losses
JPMorgan Chase’s allowance for loan losses covers theconsumer, including credit card, portfolio segments(primarily scored) and wholesale (risk-rated) portfolio, andrepresents management’s estimate of probable credit losses
inherent in the Firm’s retained loan portfolio. The allowance
for loan losses includes a formula-based component, anasset-specific component, and a component related to PCI
loans, as described below. Management also estimates anallowance for wholesale and certain consumer lendingrelated commitments using methodologies similar to thoseused to estimate the allowance on the underlying loans.
During 2016, the Firm did not make any significant changes
to the methodologies or policies used to determine its
allowance for credit losses; such policies are described in
the following paragraphs.
Determining the appropriateness of the allowance iscomplex and requires judgment by management about theeffect of matters that are inherently uncertain. Subsequentevaluations of the loan portfolio, in light of the factors thenprevailing, may result in significant changes in theallowances for loan losses and lending-related
commitments in future periods. At least quarterly, theallowance for credit losses is reviewed by the CRO, the CFO
and the Controller of the Firm and discussed with the DRPC
and the Audit Committee. As of December 31, 2016,
JPMorgan Chase deemed the allowance for credit losses tobe appropriate (i.e., sufficient to absorb probable credit
losses inherent in the portfolio).
Formula-based component
The formula-based component is based on a statistical
calculation to provide for incurred credit losses in all
consumer loans and performing risk-rated loans, except for
any loans restructured in TDRs and PCI loans, which arecalculated as a part of the asset-specific and PCI
components, respectively, and are discussed later in thisNote. See Note 14 for more information on TDRs 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
JPMorgan Chase & Co./2016 Annual Reportlosses recognized on defaulted loans and collateralvaluation trends, to review the appropriateness of the
primary statistical loss estimate. The economic impact ofpotential modifications of residential real estate loans is notincluded in the statistical calculation because of theuncertainty regarding the type and results of suchmodifications.
The statistical calculation is then adjusted to take into
consideration model imprecision, external factors andcurrent economic events that have occurred but that are notyet reflected in the factors used to derive the statistical
calculation; these adjustments are accomplished in part byanalyzing the historical loss experience for each major
product segment. However, it is difficult to predict whether
historical loss experience is indicative of future loss levels.
Management applies judgment in making this adjustment,
taking into account uncertainties associated with current
macroeconomic and political conditions, quality ofunderwriting standards, borrower behavior, the potential
impact of payment recasts within the HELOC portfolio, andother relevant internal and external factors affecting thecredit quality of the portfolio. In certain instances, theinterrelationships between these factors create further
uncertainties. For example, the performance of a HELOC
that experiences a payment recast may be affected by boththe quality of underwriting standards applied in originating
the loan and the general economic conditions in effect at
the time of the payment recast. For junior lien products,
management considers the delinquency and/or modification
status of any senior liens in determining the adjustment.
The application of different inputs into the statistical
calculation, and the assumptions used by management toadjust the statistical calculation, are subject to management
judgment, and emphasizing one input or assumption overanother, or considering other inputs or assumptions, could
affect the estimate of the allowance for credit losses for the
consumer credit portfolio.
Overall, the allowance for credit losses for the consumer
portfolio, including credit card, is sensitive to changes in theeconomic environment (e.g., unemployment rates),delinquency rates, the realizable value of collateral (e.g.,
housing prices), FICO scores, borrower behavior and otherrisk factors. While all of these factors are important
determinants of overall allowance levels, changes in thevarious factors may not occur at the same time or at thesame rate, or changes may be directionally inconsistentsuch that improvement in one factor may offset
deterioration in the other. In addition, changes in thesefactors would not necessarily be consistent across all
geographies or product types. Finally, it is difficult topredict the extent to which changes in these factors would
ultimately affect the frequency of losses, the severity oflosses or both.

227

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 amount over a loss emergence
period to arrive at an estimate of incurred credit losses.
The Firm assesses the credit quality of its borrower orcounterparty and assigns a risk rating. Risk ratings are
assigned at origination or acquisition, and if necessary,adjusted for changes in credit quality over the life of the
exposure. In assessing the risk rating of a particular loan or
lending-related commitment, among the factors considered
are the obligor’s debt capacity and financial flexibility, thelevel of the obligor’s earnings, the amount and sources for
repayment, the level and nature of contingencies,
management strength, and the industry and geography inwhich the obligor operates. These factors are based on an
evaluation of historical and current information and involve
subjective assessment and interpretation. Determining risk
ratings involves significant judgment; emphasizing one
factor over another or considering additional factors could
affect the risk rating assigned by the Firm.
PD estimates are based on observable external throughthe-cycle data, using credit rating agency default statistics.
An LGD estimate is assigned to each loan or lending-related
commitment. The estimate represents the amount of
economic loss if the obligor were to default. The type ofobligor, quality of collateral, and the seniority of the Firm’s
lending exposure in the obligor’s capital structure affect
LGD. LGD estimates are based on the Firm’s history of actual
credit losses over more than one credit cycle. Changes tothe time period used for PD and LGD estimates (forexample, point-in-time loss versus longer-term views of thecredit cycle) could also affect the allowance for credit
losses.
The Firm applies judgment in estimating PD, LGD, loss
emergence period and loan-equivalent amounts used in
calculating the allowance for credit losses. Wherever
possible, the Firm uses independent, verifiable data or the
Firm’s own historical loss experience in its models for
estimating the allowances, but differences in characteristics
between the Firm’s specific loans or lending-related
commitments and those reflected in external and Firmspecific historical data could affect loss estimates.
Estimates of PD, LGD, loss emergence period and loanequivalent used are subject to periodic refinement based on
any changes to underlying external or Firm-specifichistorical data. The use of different inputs, estimates or
methodologies could change the amount of the allowancefor credit losses determined appropriate by the Firm.

228

In addition to the modeled loss estimates applied towholesale loans and lending-related commitments,
management applies its judgment to adjust the modeled
loss estimates for wholesale loans, taking into consideration
model imprecision, external factors and economic events
that have occurred but are not yet reflected in the loss
factors. Historical experience of both LGD and PD are
considered when estimating these adjustments. Factors
related to concentrated and deteriorating industries also
are incorporated where relevant. These estimates are basedon management’s view of uncertainties that relate tocurrent macroeconomic, 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 loans areevaluated individually, while smaller loans are evaluated as
pools using historical loss experience for the respectiveclass of assets. Scored loans (i.e., consumer loans) arepooled by product type, while risk-rated loans (primarily
wholesale loans) are segmented by risk rating.
The Firm generally measures the asset-specific allowance as
the difference between the recorded investment in the loan
and the present value of the cash flows expected to becollected, discounted at the loan’s original effective interest
rate. Subsequent changes in impairment are reported as an
adjustment to the 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. Impaired collateral-dependent
loans are charged down to the fair value of collateral lesscosts to sell. For any of these impaired loans, the amount of
the asset-specific allowance required to be recorded, if any,
is dependent upon the recorded investment in the loan(including prior charge-offs), expected cash flows and/or
fair value of assets. See Note 14 for more information aboutcharge-offs and collateral-dependent loans.
The asset-specific component of the allowance for impairedloans that have been modified in TDRs incorporates theeffects of forgone interest, if any, in the present value
calculation and also incorporates the effect of themodification on the loan’s expected cash flows, which
considers the potential for redefault. For residential realestate loans modified in TDRs, the Firm develops productspecific probability of default estimates, which are applied
at a loan level to compute expected losses. In developing
these probabilities of default, the Firm considers therelationship between the credit quality characteristics of
the underlying loans and certain assumptions about homeprices and unemployment, based upon industry-wide data.
The Firm also considers its own historical loss experience todate based on actual redefaulted modified loans. For credit
JPMorgan Chase & Co./2016 Annual Reportcard loans modified in TDRs, expected losses incorporate
projected redefaults based on the Firm’s historicalexperience by type of modification program. For wholesaleloans modified in TDRs, expected losses incorporate
management’s expectation of the borrower’s ability to
repay under the modified terms.
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.
PCI loans
In connection with the Washington Mutual transaction,
JPMorgan Chase acquired certain PCI loans, which areaccounted for as described in Note 14. The allowance forloan losses for the PCI portfolio is based on quarterly
estimates of the amount of principal and interest cash flows
expected to be collected over the estimated remaining livesof the loans.
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.

JPMorgan Chase & Co./2016 Annual Report229

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.
2016
Consumer,
excludingcredit card

Year ended December 31,(in millions)Credit card

Wholesale

Total

Allowance for loan losses
Beginning balance at January 1,

$

5,806

$

3,434

$

4,315

$

13,555Gross charge-offs

1,500

3,799

398

5,697

Gross recoveries

(591)

(357)

(57)

(1,005)

Net charge-offs/(recoveries)

909

3,442

341

4,692

Write-offs of PCI loans(a)

156

—

—

156

Provision for loan losses

467

4,042

571

5,080

Other

(10)

—

(1)

(11)

Ending balance at December 31,

$

5,198

$

4,034

$

308

$

358

$

4,544

$

342

$

13,776

Allowance for loan losses by impairment methodology
Asset-specific(b)Formula-based

2,579

PCI
Total allowance for loan losses

(c)

$

3,676

2,311

4,202

—

1,008
10,457

—

2,311

$

5,198

$

4,034

$

4,544

$

13,776

$

8,940

$

1,240

$

2,017

$

12,197Loans by impairment methodology
Asset-specific
Formula-based

319,787

140,471

381,770

PCI

35,679—3

Total retained loans$

364,406$

141,711

$

98

$

—

$

842,028
35,682

383,790$7$889,907

Impaired collateral-dependent loans
Net charge-offs$

Loans measured at fair value of collateral less cost to sell

2,391

—

300

105
2,691

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

$

14

$

—

$

772

Provision for lending-related commitments

—

—

281

Other

12

—

(1)

Ending balance at December 31,

$

$

786
281
11

26

$

—

$

1,052

$

1,078

—

$

—

$

169

$

169

Allowance for lending-related commitments by impairment methodology
Asset-specific$

Formula-based
Total allowance for lending-related commitments

26
$

—

26

$

—

$

883

—

$

—

$

909

1,052

$

506

$

1,078

Lending-related commitments by impairment methodology
Asset-specific$

Formula-based
Total lending-related commitments

54,797$54,797553,891$

553,891

367,508$

368,014506
976,196$976,702(a) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting
adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g., upon liquidation). During the fourth quarterof 2014, the Firm recorded a $291 million adjustment to reduce the PCI allowance and the recorded investment in the Firm’s PCI loan portfolio, primarily reflecting the
cumulative effect of interest forgiveness modifications. This adjustment had no impact to the Firm’s Consolidated statements of income.
(b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
(c) The asset-specific credit card allowance for loan losses is related to loans that have been modified in a TDR; such allowance is calculated based on the loans’ original contractualinterest rates and does not consider any incremental penalty rates.
(d) Effective January 1, 2015, the Firm no longer includes within its disclosure of wholesale lending-related commitments the unused amount of advised uncommitted lines of credit
as it is within the Firm’s discretion whether or not to make a loan under these lines, and the Firm’s approval is generally required prior to funding. Prior period amounts havebeen revised to conform with the current period presentation.

230

JPMorgan Chase & Co./2016 Annual Report

(table continued from previous page)
2015
Consumer,
excludingcredit card$

Credit card

7,050

$

2014
Wholesale

3,439

$

Consumer,
excludingcredit card

Total

3,696

$

14,185$Credit card

8,456

$

Wholesale

3,795

$

Total

4,013

$

16,264

1,658

3,488

95

5,241

2,132

3,831

151

6,114

(704)

(366)

(85)

(1,155)

(814)

(402)

(139)

(1,355)

954

3,122

10

4,086

1,318

3,429

12

4,759

208

—

—

208

533

—

—

533

(82)

3,122

623

3,663

414

3,079

(269)

3,224

—

(5)

6

1

31

(6)

(36)

(11)

$

5,806

$

3,434

$

364

$

460

(c)

$

4,315

$

13,555

$

7,050

$

3,439

$

274

$

1,098

$

539

$

500

$

(c)

$

3,696

$

14,185

87

$

1,126

2,700

2,974

4,041

9,715

3,186

2,939

3,609

2,742

—

—

2,742

3,325

—

—

9,734
3,325

$

5,806

$

3,434

$

4,315

$

13,555

$

7,050

$

3,439

$

3,696

$

14,185

$

9,606

$

1,465

$

1,024

$

12,095$

12,020

$

2,029

$

637

$

14,686$$

293,751

129,922

356,022779,695

236,263

125,998

323,861

40,998—441,002

46,696—

4344,355$

131,387

$

104

$

—

$

2,566

$

$

$

13

—

$

$

16

$

283

$

832,792

$

120

$

2,849

609

$

622

294,979$

128,027

$

133

$

—

$

3,025

$

8

—

$

—

$

21

$

326

$

163

164

5

—

(90)

—

—

—

—

—

2

$

—

$

—

$

—

$

—

14

$

—

$

58,478—$—$515,518

$

73

$

699

515,518$

772$

JPMorgan Chase & Co./2016 Annual Report$

193
366,399

$

73

$

713

772

366,206

786

$
$

786

$

193

$

940,395

$

—

$

—

$

—

$

13

940,202

(d)

13

—

13

$

—

$

58,153$58,153$—$525,963$

525,963

$

$

$

60

$

622

60
562

609

$

103
366,881

705
2

609

366,778

154

(85)

549

—

747,508

3,351

697

—

14

46,700324,5021

58,478
$

$

—

14
$

—

357,050

686,122

$

622

103
950,894(d)$

950,997231

Notes to consolidated financial statements
Note 16 – Variable interest entities
For a further description of JPMorgan Chase’s accounting policies regarding consolidation of VIEs, see Note 1.
The following table summarizes the most significant types of Firm-sponsored VIEs by business segment. The Firm considers a“sponsored” VIE to include any entity where: (1) JPMorgan Chase is the 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 both originated and purchased
credit card receivables

232

Mortgage securitization trusts

Servicing and securitization of both originated andpurchased residential mortgages

233–235

Mortgage and other securitization trusts

Securitization of both originated and purchased
residential and commercial mortgages and student
loans

233–235

Multi-seller conduits

Assist clients in accessing the financial markets in a
cost-efficient manner and structures transactions tomeet investor needs

235–237CCB

CIB

Annual Report
page references

Transaction Type

Investor intermediation activities:
Municipal bond vehicles

235–236

The Firm’s other business segments are also involved with VIEs, 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 makes investments in and provides lending to community development entities that may meet thedefinition of a VIE. In addition, CB provides financing and lending-related services to certain client-sponsored VIEs. In
general, CB does not control the activities of these entities and does not consolidate these entities.
• Corporate: 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.
The Firm also invests in and provides financing and other services to VIEs sponsored by third parties, as described on page 237of this Note.
Significant Firm-sponsored variable interest entities
Credit card securitizations
The Card business securitizes both originated andpurchased 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 subordinatedsecurities and maintaining escrow accounts.
The Firm is considered to be the primary beneficiary ofthese Firm-sponsored credit card securitization trusts basedon the Firm’s ability to direct the activities of these VIEs
through its servicing responsibilities and other duties,
including making decisions as to the receivables that aretransferred into those trusts and as to any related
modifications and workouts. Additionally, the nature andextent of the Firm’s other continuing involvement with thetrusts, as indicated above, obligates the Firm to absorb
losses and gives the Firm the right to receive certain
benefits from these VIEs that could potentially besignificant.

232

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,
2016 and 2015, the Firm held undivided interests in Firmsponsored credit card securitization trusts of $8.9 billion
and $13.6 billion, respectively. The Firm maintained anaverage undivided interest in principal receivables ownedby those trusts of approximately 16% and 22% for theyears ended December 31, 2016 and 2015. As of both
December 31, 2016 and 2015, the Firm did not retain any
senior securities and retained $5.3 billion of subordinatedsecurities in certain of its credit card securitization trusts.
The Firm’s undivided interests in the credit card trusts andsecurities retained are eliminated in consolidation.

JPMorgan Chase & Co./2016 Annual ReportFirm-sponsored mortgage and other securitization trusts
The Firm securitizes (or has securitized) originated andpurchased residential mortgages, commercial mortgages
and other consumer loans (including student loans)primarily in its CCB and CIB businesses. Depending on theparticular transaction, as well as the respective businessinvolved, the Firm may act as the servicer of the loans and/or retain certain beneficial interests in the securitization
trusts.

The following table presents the total unpaid principal amount of assets held in Firm-sponsored private-label securitization
entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing
involvement includes servicing the loans, holding senior interests or subordinated interests, recourse or guarantee
arrangements, and derivative transactions. In certain instances, the Firm’s only continuing involvement is servicing the loans.
See Securitization activity on page 238 of this Note for further information regarding the Firm’s cash flows with and interests
retained in nonconsolidated VIEs, and pages 238-239 of this Note for information on the Firm’s loan sales to U.S. government
agencies.
JPMorgan Chase interest in securitized
assets in nonconsolidated VIEs(c)(d)(e)Principal amount outstanding

December 31, 2016 (in millions)

Assets held in
Assetsnonconsolidated
Total assets
held insecuritization
held byconsolidated
VIEs withsecuritization securitization
continuing
VIEs
VIEs
involvement

Trading
assetsTotalinterests heldby JPMorgan
Chase

AFS
securities

Securitization-related(a)Residential mortgage:
Prime/Alt-A and option ARMs$

Subprime
Commercial and other(b)
Total

$

76,789 $4,209 $

57,543226 $

1,334 $

21,542—

19,903

$

76

—

76

101,265

107

71,464

509

2,064

2,573

199,596 $4,316 $

148,910811 $

3,398 $

4,209$

JPMorgan Chase interest in securitized
assets in nonconsolidated VIEs(c)(d)(e)Principal amount outstanding

December 31, 2015 (in millions)

1,560

Assets held in
Assetsnonconsolidated
Total assets
held insecuritization
held byconsolidated
VIEs withsecuritization securitization
continuing
VIEs
VIEs
involvement

Trading
assetsTotalinterests heldby JPMorgan
Chase

AFS
securities

Securitization-related(a)Residential mortgage:
Prime/Alt-A and option ARMs$

Subprime
Commercial and other(b)
Total

$

85,687 $1,400 $

66,708394 $

1,619 $

24,38964

22,549

$

109

—

109

123,474107

80,319

447

3,451

3,898

233,550 $

1,571 $

169,576950 $

5,070 $

6,020

$

2,013

(a) Excludes U.S. government agency securitizations and re-securitizations, which are not Firm-sponsored. See pages 238-239 of this Note for information on
the Firm’s loan sales to U.S. government agencies.
(b) Consists of securities backed by commercial loans (predominantly real estate) and non-mortgage-related consumer receivables purchased from third
parties.
(c) Excludes the following: retained servicing (see Note 17 for a discussion of MSRs); securities retained from loan sales to U.S. government agencies; interest
rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities (See Note 6 for further
information on derivatives); senior and subordinated securities of $180 million and $49 million, respectively, at December 31, 2016, and $163 million
and $73 million, respectively, at December 31, 2015, 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, 2016 and 2015, 61% and 76%, respectively, of the Firm’s retained securitization interests, which are carried at fair value, were riskrated “A” or better, on an S&P-equivalent basis. The retained interests in prime residential mortgages consisted of $1.5 billion and $1.9 billion of
investment-grade and $77 million and $93 million of noninvestment-grade retained interests at December 31, 2016 and 2015, respectively. The retainedinterests in commercial and other securitizations trusts consisted of $2.4 billion and $3.7 billion of investment-grade and $210 million and $198 millionof noninvestment-grade retained interests at December 31, 2016 and 2015, respectively.

JPMorgan Chase & Co./2016 Annual Report233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)
in residential mortgage securitizations at the time of
securitization, and/or reacquires positions in the secondary
market in the normal course of business. In certain
instances, as a result of the positions retained or reacquiredby CIB or held by CCB, when considered together with theservicing arrangements entered into by CCB, the Firm isdeemed to be the primary beneficiary of certain
securitization trusts. See the table on page 237 of this Note
for more information on consolidated residential mortgage
securitizations.
The Firm does not consolidate a residential mortgage
securitization (Firm-sponsored or third-party-sponsored)
when it is not the servicer (and therefore does not have thepower to direct the most significant activities of the trust)or does not hold a beneficial interest in the trust that could
potentially be significant to the trust. At December 31,
2016 and 2015, the Firm did not consolidate the assets ofcertain Firm-sponsored residential mortgage securitization
VIEs, in which the Firm had continuing involvement,
primarily due to the fact that the Firm did not hold aninterest in these trusts that could potentially be significant
to the trusts. See the table on page 237 of this Note formore information on the consolidated residential mortgage
securitizations, and the table on the previous page of thisNote for further information on interests held innonconsolidated residential mortgage securitizations.
Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans,and engages in underwriting and trading activities involving
the securities issued by securitization trusts. CIB may retain
unsold senior and/or subordinated interests in commercial
mortgage securitizations at the time of securitization but,
generally, the Firm does not service commercial loan
securitizations. For commercial mortgage securitizations
the power to direct the significant activities of the VIE
generally is held by the servicer or investors in a specifiedclass of securities (“controlling class”). The Firm generally
does not retain an interest in the controlling class in its
sponsored commercial mortgage securitizationtransactions. See the table on page 237 of this Note formore information on the consolidated commercial
mortgage securitizations, and the table on the previous
234

page of this Note for further information on interests held
in nonconsolidated securitizations.
The Firm retains servicing responsibilities for certain
student loan securitizations. The Firm has the power todirect the activities of these VIEs through these servicing
responsibilities. See the table on page 237 of this Note formore information on the consolidated student loan
securitizations, and the table on the previous page of thisNote for further information on interests held innonconsolidated securitizations.
Re-securitizations
The Firm engages in certain re-securitization transactions inwhich debt securities are transferred to a VIE in exchange
for new beneficial interests. These transfers occur inconnection with both agency (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. During theyears ended December 31, 2016, 2015 and 2014, the Firm
transferred $11.2 billion, $21.9 billion and $22.7 billion,
respectively, of securities to agency VIEs, and $647 million,$777 million and $1.1 billion, respectively, of securities toprivate-label VIEs.
Most re-securitizations with which the Firm is involved areclient-driven transactions in which a specific client or groupof clients is seeking a specific return or risk profile. For
these transactions, the Firm has concluded that thedecision-making power of the entity is shared between the
Firm and its clients, considering the joint effort anddecisions in establishing the re-securitization trust and its
assets, as well as the significant economic interest the client
holds in the re-securitization trust; therefore the Firm does
not consolidate the re-securitization VIE.
In more limited circumstances, the Firm creates anonagency re-securitization trust independently and not in
conjunction with specific clients. In these circumstances, theFirm is deemed to have the unilateral ability to direct themost significant activities of the re-securitization trust
because of the decisions made during the establishment
and design of the trust; therefore, the Firm consolidates there-securitization VIE if the Firm holds an interest that could
potentially be significant.
Additionally, the Firm may invest in beneficial interests ofthird-party re-securitizations and generally purchases theseinterests in the secondary market. In these circumstances,
the Firm does not have the unilateral ability to direct themost significant activities of the re-securitization trust,either because it was not involved in the initial design of thetrust, or the Firm is involved with an independent thirdparty sponsor and demonstrates shared power over thecreation of the trust; therefore, the Firm does notconsolidate the re-securitization VIE.
JPMorgan Chase & Co./2016 Annual ReportAs of December 31, 2016 and 2015, total assets (including
the notional amount of interest-only securities) of
nonconsolidated Firm-sponsored private-label resecuritization entities in which the Firm has continuing
involvement were $875 million and $2.2 billion,
respectively. At December 31, 2016 and 2015, the Firm
held $2.0 billion and $4.6 billion, respectively, of interests
in nonconsolidated agency re-securitization entities. The
Firm’s exposure to non-consolidated private-label resecuritization entities as of December 31, 2016 and 2015
was not material. As of December 31, 2016 and 2015, theFirm did not consolidate any agency re-securitizations. As of
December 31, 2016 and 2015, the Firm consolidated an
insignificant amount of assets and liabilities of Firmsponsored private-label re-securitizations.
Multi-seller conduits
Multi-seller conduit entities are separate bankruptcy
remote entities that provide secured financing,collateralized by pools of receivables and other financial
assets, to customers of the Firm. The conduits fund theirfinancing facilities through the issuance of highly rated
commercial paper. The primary source of repayment of thecommercial paper is the cash flows from the pools of assets.
In most instances, the assets are structured with dealspecific credit enhancements provided to the conduits by
the customers (i.e., sellers) or other third parties. Dealspecific credit enhancements are generally structured tocover a multiple of historical losses expected on the pool ofassets, and are typically in the form of overcollateralization
provided by the seller. The deal-specific credit
enhancements mitigate the Firm’s potential losses on its
agreements with the conduits.
To ensure timely repayment of the commercial paper, andto provide the conduits with funding to provide financing tocustomers in the event that the conduits do not obtainfunding in the commercial paper market, each asset poolfinanced by the conduits has a minimum 100% dealspecific liquidity facility associated with it provided by
JPMorgan Chase Bank, N.A. JPMorgan Chase Bank, N.A. also
provides the multi-seller conduit vehicles with uncommitted
program-wide liquidity facilities and program-wide credit
enhancement in the form of standby letters of credit. The
amount of program-wide credit enhancement required isbased upon commercial paper issuance and approximates
10% of the outstanding balance of commercial paper.
The Firm consolidates its Firm-administered multi-seller
conduits, as the Firm has both the power to direct thesignificant activities of the conduits and a potentiallysignificant economic interest in the conduits. As
administrative agent and in its role in structuringtransactions, the Firm makes decisions regarding asset
types and credit quality, and manages the commercial
paper funding needs of the conduits. The Firm’s intereststhat could potentially be significant to the VIEs include thefees received as administrative agent and liquidity andprogram-wide credit enhancement provider, as well as thepotential exposure created by the liquidity and credit
JPMorgan Chase & Co./2016 Annual Reportenhancement facilities provided to the conduits. See page237 of this Note for further information on consolidated VIE
assets and liabilities.
In the normal course of business, JPMorgan Chase makes
markets in and invests in commercial paper issued by the
Firm-administered multi-seller conduits. The Firm held
$21.2 billion and $15.7 billion of the commercial paperissued by the Firm-administered multi-seller conduits at
December 31, 2016 and 2015, respectively. The Firm’s
investments reflect the Firm’s funding needs and capacity
and were not driven by market illiquidity. The Firm is not
obligated under any agreement to purchase the commercial
paper issued by the Firm-administered multi-seller
conduits.
Deal-specific liquidity facilities, program-wide liquidity andcredit enhancement provided by the Firm have been
eliminated in consolidation. The Firm or the Firmadministered multi-seller conduits provide lending-related
commitments to certain clients of the Firm-administeredmulti-seller conduits. The unfunded commitments were
$7.4 billion and $5.6 billion at December 31, 2016 and2015, respectively, and are reported as off-balance sheet
lending-related commitments. For more information on offbalance sheet lending-related commitments, see Note 29.
VIEs associated with investor intermediation activities
As a financial intermediary, the Firm creates certain typesof VIEs and also structures transactions with these VIEs,
typically using derivatives, to meet investor needs. The Firm
may also provide liquidity and other support. The risks
inherent in the derivative instruments or liquidity
commitments are managed similarly to other credit, market
or liquidity risks to which the Firm is exposed. The principal
types of VIEs for which the Firm is engaged in on behalf ofclients are municipal bond vehicles.
Municipal bond vehicles
Municipal bond vehicles or tender option bond (“TOB”)
trusts allow investors to finance their municipal bondinvestments at short-term rates. In a typical TOB
transaction, the trust purchases highly rated municipalbond(s) of a single issuer and funds the purchase by issuing
two types of securities: (1) puttable floating-rate
certificates (“Floaters”) and (2) inverse floating-rate
residual interests (“Residuals”). The Floaters are typicallypurchased by money market funds or other short-term
investors and may be tendered, with requisite notice, to the
TOB trust. The Residuals are retained by the investor
seeking to finance its municipal bond investment. TOB
transactions where the Residual is held by a third party
investor are typically known as Customer TOB trusts, and
Non-Customer TOB trusts are transactions where the
Residual is retained by the Firm. The Firm serves as sponsor
for all Non-Customer TOB transactions and certain
Customer TOB transactions established prior to 2014. The
Firm may provide various services to a TOB trust, including
remarketing agent, liquidity or tender option provider, and/or sponsor.
235

Notes to consolidated financial statements
J.P. Morgan Securities LLC may serve as a remarketing
agent on the Floaters for TOB trusts. The remarketing agent
is responsible for establishing the periodic variable rate on
the Floaters, conducting the initial placement andremarketing tendered Floaters. The remarketing agent may,
but is not obligated to, make markets in Floaters. At
December 31, 2016 and 2015, the Firm held an
insignificant amount of Floaters on its Consolidated balance
sheets and did not hold any significant amounts during
2016 and 2015.

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. In certain Customer TOB
transactions, the Firm, as liquidity provider, has enteredinto a reimbursement agreement with the Residual holder.
In those transactions, upon the termination of the vehicle, if
the proceeds from the sale of the underlying municipal
bonds are not sufficient to repay amounts owed to the Firm,
as liquidity or tender option provider, the Firm has recourse
to the third party Residual holders for any shortfall.
Residual holders with reimbursement agreements are
required to post collateral with the Firm to support such
reimbursement obligations should the market value of theunderlying municipal bonds decline. The Firm does not have
any intent to protect Residual holders from potential losses
on any of the underlying municipal bonds.

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.

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. The
Firm does not consolidate Customer TOB trusts, since theFirm does not have the power to make decisions thatsignificantly impact the economic performance of themunicipal bond vehicle. Certain non-consolidated Customer
TOB trusts are sponsored by a third party, and not the Firm.
See page 237 of this Note for further information on
consolidated municipal bond vehicles.

The Firm’s exposure to nonconsolidated municipal bond VIEs at December 31, 2016 and 2015, including the ratings profile of
the VIEs’ assets, was as follows.
December 31,(in millions)

Fair value of assets
held by VIEs

Liquidity facilities

Excess/(deficit)(a)Maximum
exposure

Nonconsolidated municipal bond vehicles
2016$

1,096 $

2015

662 $

6,937

434 $

3,794

3,143

662
3,794

Ratings profile of VIE assets(b)Investment-grade
December 31,(in millions, except where otherwise noted)
2016
2015

AAA toAAA$

AA+ to AA-

264 $
1,743

700 $
4,631

A+ to A-

BBB+ to
BBB-

43 $

24

448

24

Unrated(c)$Fair value of
assets heldby VIEs

Wt. avg.
expected lifeof assets(years)

65 $

1,096

1.6

91 $

6,937

4.0

(a) Represents the excess/(deficit) of the fair values of municipal bond assets available to repay the liquidity facilities, if drawn.
(b) The ratings scale is presented on an S&P-equivalent basis.
(c) These security positions have been defeased by the municipality and no longer carry credit ratings, but are backed by high-quality assets such as U.S. treasuries
and cash.

236

JPMorgan Chase & Co./2016 Annual Report

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 records and reports these positions on its Consolidatedbalance sheets in the same manner it would record andreport positions in respect of any other third-party
transaction.

Consolidated VIE assets and liabilities
The following table presents information on assets and liabilities related to VIEs consolidated by the Firm as of December 31,
2016 and 2015.
AssetsTrading
assets

December 31, 2016 (in millions)
VIE program type(a)Firm-sponsored credit card trusts
Firm-administered multi-seller conduits
Municipal bond vehicles
Mortgage securitization entities(b)Student loan securitization entities
Other
Total

$

$

— $
—
2,897
143
—
145
3,185 $

Loans

Liabilities

Other(c)45,919 $23,760
—
4,246
1,689
—
75,614 $

790 $
43
8
103
59
2,318
3,321 $

Total
assets(d)46,70923,803
2,905
4,492
1,748
2,463
82,120Beneficial
interests in
VIE assets(e)$$31,181 $
2,719
2,969
468
1,527
183
39,047 $AssetsTrading
assets

December 31, 2015 (in millions)
VIE program type(a)Firm-sponsored credit card trusts
Firm-administered multi-seller conduits
Municipal bond vehicles
Mortgage securitization entities(b)Student loan securitization entities
Other
Total

$

$

— $
—
2,686
840
—
210
3,736 $

Loans
47,358 $24,388
—
1,433
1,925
—
75,104 $Other(f)
18 $
33
2
313
4
120
490 $

Total
liabilities
31,199
2,752
2,971
781
1,531
303
39,537

Liabilities

Other(c)
718 $
37
5
27
62
1,916
2,765 $

Total
assets(d)48,07624,425
2,691
2,300
1,987
2,126
81,605

Beneficial
interests in
VIE assets(e)$$27,906 $
8,724
2,597
777
1,760
115
41,879 $Other(f)
15 $
19
1
643
5
126
809 $

Total
liabilities
27,921
8,743
2,598
1,420
1,765
241
42,688(a) Excludes intercompany transactions, which are eliminated in consolidation.
(b) Includes residential and commercial mortgage securitizations as well as re-securitizations.
(c) Includes assets classified as cash, AFS securities, and other assets on the Consolidated balance sheets.
(d) The assets of the consolidated VIEs included in the program types above are used to settle the liabilities of those entities. The difference between total
assets and total liabilities recognized for consolidated VIEs represents the Firm’s interest in the consolidated VIEs for each program type.
(e) The interest-bearing beneficial interest liabilities issued by consolidated VIEs are classified in the line item on the Consolidated balance sheets titled,“Beneficial interests issued by consolidated variable interest entities.” The holders of these beneficial interests do not have recourse to the general creditof JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $33.4 billion and $30.6 billion at December 31,
2016 and 2015, respectively. The maturities of the long-term beneficial interests as of December 31, 2016, were as follows: $11.6 billion under one year,$19.1 billion between one and five years, and $2.7 billion over five years.
(f) Includes liabilities classified as accounts payable and other liabilities on the Consolidated balance sheets.

JPMorgan Chase & Co./2016 Annual Report237

Notes to consolidated financial statements
Loan securitizations
The Firm has securitized and sold a variety of loans,including residential mortgage, credit card, student andcommercial (primarily related to real estate) loans, as well
as debt securities. The purposes of these securitizationtransactions were to satisfy investor demand and to
generate liquidity for the Firm.

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 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

For loan securitizations accounted for as a sale, the Firm
recognizes a gain or loss based on the difference between
the value of proceeds received (including cash, beneficial
interests, or servicing assets received) and the carrying
value of the assets sold. Gains and losses on securitizations
are reported in noninterest revenue.

Securitization activity
The following table provides information related to the Firm’s securitization activities for the years ended December 31, 2016,2015 and 2014, related to assets held in Firm-sponsored securitization entities that were not consolidated by the Firm, andwhere sale accounting was achieved based on the accounting rules in effect at the time of the securitization.
2016
Year ended December 31,(in millions, except rates)

Residential
mortgage(c)(d)Principal securitized
All cash flows during the period:(a)$1,817 $

Proceeds received from loan sales as cash

$

— $

2015

Commercial
and other(d)(e)2014

Residential
Commercial
mortgage(c)(d) and other(d)(e)Residential
mortgage(c)(d)Commercial
and other(d)(e)

8,964

$

3,008 $

11,933$

2,558 $

11,911

—

$

— $

—

$

— $

568

Proceeds received from loan sales as securities
Level 2

1,831

9,092

2,963

11,9682,384

Level 3

—

2

59

43

185

130

2,569 $

12,079Total proceeds received from loan sales
Servicing fees collected$

1,831 $
477

9,094
3

Purchases of previously transferred financial assets(or the underlying collateral)(b)37—

Cash flows received on interests

482

1,441

$

3,022 $
528

12,011$

11,381

3

557

4

3

—

121

—

407

597

179

578

(a) Excludes re-securitization transactions.
(b) Includes cash paid by the Firm to reacquire assets from off–balance sheet, nonconsolidated entities – for example, loan repurchases due to representation
and warranties and servicer “clean-up” calls.
(c) Includes prime/Alt-A, subprime, and option ARMs. Excludes certain loan securitization transactions entered into with Ginnie Mae, Fannie Mae and Freddie
Mac.
(d) Key assumptions used to measure residential mortgage retained interests originated during the year included weighted-average life (in years) of 4.5, 4.2
and 5.9 for the years ended December 31, 2016, 2015 and 2014, respectively, and weighted-average discount rate of 4.2%, 2.9% and 3.4% for theyears ended December 31, 2016, 2015 and 2014, respectively. Key assumptions used to measure commercial and other retained interests originatedduring the year included weighted-average life (in years) of 6.2, 6.2 and 6.5 for the years ended December 31, 2016, 2015 and 2014, respectively, andweighted-average discount rate of 5.8%, 4.1% and 4.8% for the years ended December 31, 2016, 2015 and 2014, respectively.
(e) Includes commercial mortgage and student loan securitizations.

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
238

guidelines; these loans are typically insured or guaranteedby another U.S. government agency. The Firm does notconsolidate the securitization vehicles underlying thesetransactions as it is not the primary beneficiary. For alimited number of loan sales, the Firm is obligated to sharea portion of the credit risk associated with the sold loans
with the purchaser. See Note 29 for additional information
about the Firm’s loan sales- and securitization-related
indemnifications.
See Note 17 for additional information about the impact of
the Firm’s sale of certain excess MSRs.

JPMorgan Chase & Co./2016 Annual Report

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)

2016

2015

2014

Carrying value of loans sold$

52,869 $42,161 $55,802

Proceeds received from loan
sales as cash

$

592 $

313 $

260

Proceeds from loans sales as
securities(a)Total proceeds received fromloan sales(b)Gains on loan sales(c)(d)

51,852

41,615

55,117$52,444 $41,928 $55,377

$

222 $

299 $

316

(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 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 29, the Firm also has theoption to repurchase delinquent loans that it services for
Ginnie Mae loan pools, as well as for other U.S. government
agencies under certain arrangements. The Firm typicallyelects to repurchase delinquent loans from Ginnie Mae loanpools as it continues to service them and/or manage theforeclosure process in accordance with the applicablerequirements, and such loans continue to be insured or
guaranteed. When the Firm’s repurchase option becomes
exercisable, such loans must be reported on theConsolidated balance sheets as a loan with a corresponding
liability. As of December 31, 2016 and 2015, the Firm hadrecorded on its Consolidated balance sheets $9.6 billion
and $11.1 billion, respectively, of loans that either had
been repurchased or for which the Firm had an option to
repurchase. Predominantly all of these amounts relate toloans that have been repurchased from Ginnie Mae loanpools. Additionally, at December 31, 2016 and 2015, theFirm had real estate owned of $142 million and $343
million, respectively, and certain foreclosed governmentguaranteed residential mortgage loans included in accrued
interest and accounts receivable of $1.0 billion and $1.1
billion, respectively, resulting from voluntary repurchases ofloans. Substantially all of these loans and real estate are
insured or guaranteed by U.S. government agencies. For
additional information, refer to Note 14.

Loan delinquencies and liquidation losses
The table below includes information about components of nonconsolidated securitized financial assets held in Firm-sponsoredprivate-label securitization entities, in which the Firm has continuing involvement, and delinquencies as of December 31, 2016
and 2015.
As of or for the year ended December 31, (in millions)
Securitized loans(a)Residential mortgage:
Prime/ Alt-A & option ARMs
Subprime
Commercial and otherTotal loans securitized

Securitized assets
2016
2015

$ 57,543 $ 66,708
19,90322,54971,46480,319$ 148,910 $ 169,576

90 days past due
2016
2015

$

6,169 $

8,325

4,186

5,448

1,755

1,808

$ 12,110 $ 15,581

Liquidation losses
2016
2015

$

$

1,160 $

1,946

1,087

1,431

643

375

2,890 $

3,752(a) Total assets held in securitization-related SPEs were $199.6 billion and $233.6 billion, respectively, at December 31, 2016 and 2015. The $148.9 billion
and $169.6 billion, respectively, of loans securitized at December 31, 2016 and 2015, excludes: $46.4 billion and $62.4 billion, respectively, of
securitized loans in which the Firm has no continuing involvement, and $4.3 billion and $1.6 billion, respectively, of loan securitizations consolidated on
the Firm’s Consolidated balance sheets at December 31, 2016 and 2015.

JPMorgan Chase & Co./2016 Annual Report239

Notes to consolidated financial statements
Note 17 – 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
Corporate
Total goodwill

2016

2015

2014

$ 30,797 $ 30,769 $ 30,941
6,772
6,772
6,780
2,861
2,861
2,861
6,858
6,923
6,964
—
—
101
$ 47,288 $ 47,325 $ 47,647

The following table presents changes in the carrying
amount of goodwill.
Year ended December 31,(in millions)
Balance at beginning of period

2016

2015

2014

$ 47,325$ 47,647$ 48,081

Changes during the period from:
Business combinations

—

28

43

Dispositions(a)

(72)

(160)

(80)

Other(b)

35

(190)

(397)

$ 47,288$ 47,325$ 47,647

Balance at December 31,(a) For 2016, represents AWM goodwill, which was disposed of as part of
AWM sales completed in March 2016. For 2015 includes $101 millionof Private Equity goodwill, which was disposed of as part of the Private
Equity sale completed in January 2015.
(b) Includes foreign currency translation adjustments, other tax-related
adjustments, and, for 2014, goodwill impairment associated with the
Firm’s Private Equity business of $276 million.

240

Impairment testing
The Firm’s goodwill was not impaired at December 31,
2016 and 2015. Further, except for goodwill related to its
heritage Private Equity business of $276 million, the Firm’s
goodwill was not impaired at December 31, 2014.
The goodwill impairment test is performed in two steps. In
the first step, the current fair value of each reporting unit iscompared with its carrying value, including goodwill. If thefair value is in excess of the carrying value (including
goodwill), then the reporting unit’s goodwill is considered
not to be impaired. If the fair value is less than the carrying
value (including goodwill), then a second step is performed.
In the second step, the implied current fair value of thereporting unit’s goodwill is determined by comparing thefair value of the reporting unit (as determined in step one)to the fair value of the net assets of the reporting unit, as if
the reporting unit were being acquired in a businesscombination. The resulting implied current fair value of
goodwill is then compared with the carrying value of thereporting unit’s goodwill. If the carrying value of the
goodwill exceeds its implied current fair value, then an
impairment charge is recognized for the excess. If thecarrying value of goodwill is less than its implied current
fair value, then no goodwill impairment is recognized.
The Firm uses the reporting units’ allocated equity plus
goodwill capital as a proxy for the carrying amounts ofequity for the reporting units in the goodwill impairment
testing. Reporting unit equity is determined on a similarbasis as the allocation of equity to the Firm’s lines ofbusiness, which takes into consideration the capital thebusiness segment would require if it were operating
independently, incorporating sufficient capital to address
regulatory capital requirements (including Basel III) andcapital levels for similarly rated peers. Proposed line ofbusiness equity levels are incorporated into the Firm’s
annual budget process, which is reviewed by the Firm’s
Board of Directors. Allocated equity is further reviewed ona periodic basis and updated as needed.

JPMorgan Chase & Co./2016 Annual Report

The primary method the Firm uses to estimate the fairvalue of its reporting units is the income approach. Thisapproach projects cash flows for the forecast period anduses the perpetuity growth method to calculate terminal
values. These cash flows and terminal values are thendiscounted using an appropriate discount rate. Projectionsof cash flows are based on the reporting units’ earnings
forecasts, which include the estimated effects of regulatory
and legislative changes, and which are reviewed with thesenior management of the Firm. The discount rate used foreach reporting unit represents an estimate of the cost ofequity for that reporting unit and is determined considering
the Firm’s overall estimated cost of equity (estimated using
the Capital Asset Pricing Model), as adjusted for the risk
characteristics specific to each reporting unit (for example,
for higher levels of risk or uncertainty associated with thebusiness or management’s forecasts and assumptions). To
assess the reasonableness of the discount rates used foreach reporting unit management compares the discountrate to the estimated cost of equity for publicly tradedinstitutions with similar businesses and risk characteristics.
In addition, the weighted average cost of equity(aggregating the various reporting units) is compared with
the Firms’ overall estimated cost of equity to ensure
reasonableness.
The valuations derived from the discounted cash flow
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 equity capital requirements, as well as
deterioration in economic or market conditions, estimatesof adverse regulatory or legislative changes or increases inthe estimated market cost of equity, could cause theestimated fair values of the Firm’s reporting units or theirassociated goodwill to decline in the future, which could
result in a material impairment charge to earnings in a
future period related to some portion of the associatedgoodwill.

JPMorgan Chase & Co./2016 Annual Report241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, 2016, 2015 and 2014.
As of or for the year ended December 31, (in millions, except where otherwise noted)
Fair value at beginning of period

2016
$

6,608

2015
$

7,436

2014
$

9,614

MSR activity:
Originations of MSRs

679

550

Purchase of MSRs

—

435

11

Disposition of MSRs(a)

(109)

(486)

(209)

Net additions

570

499

559

(919)

(922)

(911)

(72)

(160)

(1,608)

(35)

(112)

133

7

(10)

(459) (e)

(63)

(123)

108

(91)

(245)

(218)

(163)

(405)

(1,826)

Changes due to collection/realization of expected cash flows

757

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:
Projected cash flows (e.g., cost to service)
Discount rates
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
Fair value at December 31,

$

6,096

$

6,608

$

7,436

Change in unrealized gains/(losses) included in income related to MSRs held at December 31,

$

(163)

$

(405)

$

(1,826)

Contractual service fees, late fees and other ancillary fees included in income

2,124

2,533

2,884

Third-party mortgage loans serviced at December 31, (in billions)

593.3

677.0

756.1

4.7

6.5

8.5

Servicer advances, net of an allowance for uncollectible amounts, at December 31, (in billions)(d)(a) Includes excess MSRs transferred to agency-sponsored trusts in exchange for stripped mortgage backed securities (“SMBS”). In each transaction, a portion of the
SMBS was acquired by third parties at the transaction date; the Firm acquired the remaining balance of those SMBS as trading securities.
(b) Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and expected
prepayments.
(c) Represents changes in prepayments other than those attributable to changes in market interest rates.
(d) Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest, taxes and insurance), which will generally be reimbursed within a shortperiod of time after the advance from future cash flows from the trust or the underlying loans. The Firm’s credit risk associated with these servicer advances isminimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right to stop payment toinvestors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if they were not made inaccordance with applicable rules and agreements.
(e) For the year ending December 31, 2014, the negative impact was primarily related to higher capital allocated to the Mortgage Servicing business, which, in turn,resulted in an increase in the OAS. The resulting OAS assumption was consistent with capital and return requirements the Firm believed a market participant would
consider, taking into account factors such as the operating risk environment and regulatory and economic capital requirements.

242

JPMorgan Chase & Co./2016 Annual Report

The following table presents the components of mortgage
fees and related income (including the impact of MSR risk
management activities) for the years ended December 31,
2016, 2015 and 2014.
Year ended December 31,(in millions)

2016

2015

2014

CCB mortgage fees and related
incomeNet production revenue

$ 853

$

769

$1,190Loan servicing revenue

2,336

2,776

3,303

Changes in MSR asset fair value
due to collection/realization of
expected cash flows

(916)

(917)

(905)

Total operating revenue

1,420

1,859

2,398

Total CCB mortgage fees andrelated income

(72)

(160)

(1,606)

(91)

(245)

(218)

380

288

1,796

217

(117)

(28)

1,637

1,742

2,370

2,490

2,511

3,560

All otherMortgage fees and related income

9.41%
$

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

2015

$

(231)

9.81%
$

(275)

(445)

(529)

8.55%

9.54%

(248)
(477)

$

(258)
(498)

CPR: Constant prepayment rate.

Risk management:

Total net mortgage servicing
revenue2016

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, 2016 and 2015, and outlines thesensitivities of those fair values to immediate adversechanges in those assumptions, as defined below.

1

2

3

$2,491$ 2,513$3,563The sensitivity analysis in the preceding table ishypothetical and should be used with caution. Changes infair value based on variation in assumptions generally
cannot be easily extrapolated, because the relationship ofthe change in the assumptions to the change in fair value
are often highly interrelated and may not be linear. In thistable, the effect that a change in a particular assumption
may have on the fair value is calculated without changing
any other assumption. In reality, changes in one factor may
result in changes in another, which would either magnify or
counteract the impact of the initial change.

(a) Represents both the impact of changes in estimated futureprepayments due to changes in market interest rates, and thedifference between actual and expected prepayments.
(b) Represents the aggregate impact of changes in model inputs andassumptions such as projected cash flows (e.g., cost to service),discount rates and changes in prepayments other than those
attributable to changes in market interest rates (e.g., changes in
prepayments due to changes in home prices).

JPMorgan Chase & Co./2016 Annual Report243Notes to consolidated financial statements
Note 18 – Premises and equipment

Note 20 – 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; income taxes payables;
accrued expense, including interest-bearing liabilities; andall other liabilities, including litigation reserves andobligations to return securities received as collateral.
The following table details the components of accounts
payable and other liabilities.

JPMorgan Chase capitalizes certain costs associated withthe acquisition or development of internal-use software.
Once the software is ready for its intended use, these costs
are amortized on a straight-line basis over the software’s
expected useful life and reviewed for impairment on an
ongoing basis.

December 31, (in millions)
Brokerage payables
Accounts payable and other liabilities
Total

2016
$ 109,842
80,701$ 190,543

2015$ 107,632
70,006$ 177,638

Note 19 – Deposits
At December 31, 2016 and 2015, noninterest-bearing andinterest-bearing deposits were as follows.
December 31, (in millions)
U.S. offices
Noninterest-bearing
Interest-bearing (included $12,245 and$10,916 at fair value)(a)

2016

2015

400,831$ 392,721

737,949

663,004

1,138,780

1,055,725

14,764

14,489(b)

221,635

209,501(b)

236,399$ 1,375,179

223,990$1,279,715$

Total deposits in U.S. offices
Non-U.S. offices
Noninterest-bearing
Interest-bearing (included $1,667 and$1,600 at fair value)(a)Total deposits in non-U.S. offices
Total deposits(a) Includes structured notes classified as deposits for which the fair value
option has been elected. For further discussion, see Note 4.
(b) Prior periods have been revised to conform with current period
presentation.

At December 31, 2016 and 2015, time deposits indenominations of $250,000 or more were as follows.
December 31, (in millions)

2016

U.S. offices$ 26,180

Non-U.S. offices
Total

2015
$

64,51955,24948,091$ 81,429$ 112,610

At December 31, 2016, the maturities of interest-bearing
time deposits were as follows.
December 31, 2016
(in millions)
2017
2018
2019
2020
2021
After 5 years
Total

244

U.S.
$ 31,531
4,433
2,066
2,005
3,988
3,889
$ 47,912

Non-U.S.
$ 54,846
176
68
39
188
—
$ 55,317

Total
86,377
4,609
2,134
2,044
4,176
3,889
$ 103,229$

JPMorgan Chase & Co./2016 Annual ReportNote 21 – 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. The following table is a summary of long-term debt carrying values (including unamortizedpremiums and discounts, issuance costs, valuation adjustments and fair value adjustments, where applicable) by remaining
contractual maturity as of December 31, 2016.
2016

By remaining maturity at
December 31,(in millions, except rates)

Under 1 year

1-5 years

2015
After 5 years

Total

Total

Parent company
Senior debt:

Subordinated debt:

Fixed rate

58,920$ 128,967

Variable rate

11,87015,497

7,399

34,76644,178Interest rates(a)0.09-6.40%

0.17-7.25%

0.45-6.40%

0.09-7.25%

0.16-7.25%

Fixed rate$$

Variable rate
Interest rates(a)Subtotal

12,109

2,096

$

$

864
0.82-6.13%

57,938

152

$

$

372
1.93-8.53%

14,563$9
3.38-8.00%$

26,939$73,959$80,891

$

5

$

31

$

143

$ 117,758

16,811$

1,245
0.82-8.53%

16,2501,047
1.06-8.53%$ 181,789$ 179,233$$

Subsidiaries
Federal Home Loan Banks
advances:

Senior debt:

Fixed rate

11,34057,00011,00079,34071,390Interest rates(a)0.84-1.01%

0.83-1.21%

0.41-0.67%

0.41-1.21%

0.17-0.72%

Fixed rate$

Fixed rate

339

$

4,520

Interest rates(a)1.29-1.49%
$

3,562

3,100
0.00-7.50%

$

—

—

—

Interest rates(a)

6.00%

—%

Fixed rate$

11,860

Variable rate
Subtotal
Junior subordinated debt:

191

Variable rate

Variable rate
Subordinated debt:

179

4,890

$

2,999
1.30-7.50%$

322

19,766$71,991$

19,354

—

$

—

$

706

5,550
20,5880.47-7.28%

3,884

$

—

8.25%

$

$

0.00-7.50%
$

—

$

8,329
19,379

6,580
1,150

6.00-8.25%

0.83-8.25%$ 111,111$ 105,449

$

$

706

717

Variable rate

—

—

1,639

1,639

3,252

Interest rates(a)—%—%1.39-8.75%

1.39-8.75%

0.83-8.75%

Subtotal
Total long-term debt(b)(c)(d)Long-term beneficial interests: Fixed rate

$

—

$

46,705$ 145,950$ 102,590$ 295,245

$

5,164

$

$

$

Variable rate

6,438Interest rates

0.74-5.23%

Total long-term beneficial
interests(e)$11,602$—

12,766$

6,281

19,047

748

$

1,962

0.98-7.87%
$

2,345

0.39-5.94%
$

2,710

2,345

18,678$(f)(g)

3,969$ 288,651$

14,681

14,19916,3580.39-7.87%

0.00-15.94%$$

33,35930,557(a) The interest rates shown are the range of contractual rates in effect at December 31, 2016 and 2015, respectively, including non-U.S. dollar fixed- andvariable-rate issuances, which excludes the effects of the associated derivative instruments used in hedge accounting relationships, if applicable. The useof these derivative instruments modifies the Firm’s exposure to the contractual interest rates disclosed in the table above. Including the effects of thehedge accounting derivatives, the range of modified rates in effect at December 31, 2016, for total long-term debt was (0.18)% to 8.88%, versus thecontractual range of 0.00% 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 $82.2 billion and $76.6 billion secured by assets totaling $205.6 billion and $171.6 billion at December 31, 2016 and 2015,
respectively. The amount of long-term debt secured by assets does not include amounts related to hybrid instruments.
(c) Included $37.7 billion and $33.1 billion of long-term debt accounted for at fair value at December 31, 2016 and 2015, respectively.
(d) Included $7.5 billion and $5.5 billion of outstanding zero-coupon notes at December 31, 2016 and 2015, respectively. The aggregate principal amount ofthese notes at their respective maturities is $25.1 billion and $16.2 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 $120 million and $787 million accounted forat fair value at December 31, 2016 and 2015, respectively. Excluded short-term commercial paper and other short-term beneficial interests of $5.7
billion and $11.3 billion at December 31, 2016 and 2015, respectively.
(f) At December 31, 2016, long-term debt in the aggregate of $81.8 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior tomaturity, based on the terms specified in the respective instruments.
(g) The aggregate carrying values of debt that matures in each of the five years subsequent to 2016 is $46.7 billion in 2017, $49.4 billion in 2018, $32.2
billion in 2019, $33.8 billion in 2020 and $30.6 billion in 2021.

JPMorgan Chase & Co./2016 Annual Report245Notes to consolidated financial statements
The weighted-average contractual interest rates for total
long-term debt excluding structured notes accounted for atfair value were 2.49% and 2.34% as of December 31,
2016 and 2015, respectively. In order to modify exposure
to interest rate and currency exchange rate movements,
JPMorgan Chase utilizes derivative instruments, primarily
interest rate and cross-currency interest rate swaps, inconjunction with some of its debt issues. The use of these
instruments modifies the Firm’s interest expense on theassociated debt. The modified weighted-average interest
rates for total long-term debt, including the effects ofrelated derivative instruments, were 2.01% and 1.64% asof December 31, 2016 and 2015, respectively.
JPMorgan Chase & Co. has guaranteed certain long-term
debt of its subsidiaries, including both long-term debt andstructured notes. These guarantees rank on parity with the
Firm’s other unsecured and unsubordinated indebtedness.
The amount of such guaranteed long-term debt andstructured notes was $3.9 billion and $152 million at
December 31, 2016 and 2015, 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.

246

Junior subordinated deferrable interest debentures heldby trusts that issued guaranteed capital debt securities
At December 31, 2016, the Firm had outstanding eight
wholly-owned Delaware statutory business trusts (“issuer
trusts”) that had issued trust preferred securities.
The junior subordinated deferrable interest debentures
issued by the Firm to the issuer trusts, totaling $2.3 billion
and $4.0 billion at December 31, 2016 and 2015,
respectively, were reflected on the Firm’s Consolidatedbalance sheets in long-term debt, and in the table on thepreceding page under the caption “Junior subordinateddebt.” The Firm also records the common capital securities
issued by the issuer trusts in other assets in its Consolidatedbalance sheets at December 31, 2016 and 2015. Beginningin 2014, the debentures issued to the issuer trusts by theFirm, less the common capital securities of the issuer trusts,
began being phased out from inclusion as Tier 1 capital
under Basel III and they were fully phased out as ofDecember 31, 2016. As of December 31, 2015, $992
million of these debentures qualified as Tier 1 capital. As of
December 31, 2016 and 2015, $1.4 billion and $3.0
billion, respectively, qualified as Tier 2 capital.
The Firm redeemed $1.6 billion and $1.5 billion of trust
preferred securities in the years ended December 31, 2016
and 2015, respectively.

JPMorgan Chase & Co./2016 Annual ReportNote 22 – Preferred stock
At December 31, 2016 and 2015, 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, 2016 and 2015.

Shares at
December 31,
2016 and 2015(a)Fixed-rate:
Series O
Series P
Series T
Series W
Series Y
Series AA
Series BB
Fixed-to-floating-rate:
Series I
Series Q
Series R
Series S
Series U
Series V
Series X
Series Z
Total preferred stock

125,750
90,00092,50088,000143,000
142,500
115,000
600,000
150,000
150,000
200,000
100,000
250,000
160,000
200,000
2,606,750

Issue date

Contractual ratein effect at
December 31,
2016

Earliest
redemption
date

Date atwhich
dividend
rate
becomesfloating

1,258
900
925
880
1,430
1,425
1,150

8/27/2012
2/5/2013
1/30/2014
6/23/2014
2/12/2015
6/4/2015
7/29/2015

5.500%
5.450
6.700
6.300
6.125
6.100
6.150

9/1/2017
3/1/2018
3/1/2019
9/1/2019
3/1/2020
9/1/2020
9/1/2020

NA
NA
NA
NA
NA
NA
NA

6,000
1,500
1,500
2,000
1,000
2,500
1,600
2,000
26,068

4/23/2008
4/23/2013
7/29/2013
1/22/2014
3/10/2014
6/9/2014
9/23/2014
4/21/2015

7.900%
5.150
6.000
6.750
6.125
5.000
6.100
5.300

4/30/2018 4/30/2018 LIBOR + 3.47%
5/1/2023
5/1/2023 LIBOR + 3.25
8/1/2023
8/1/2023 LIBOR + 3.30
2/1/2024
2/1/2024 LIBOR + 3.78
4/30/2024 4/30/2024 LIBOR + 3.33
7/1/2019
7/1/2019 LIBOR + 3.32
10/1/2024 10/1/2024 LIBOR + 3.33
5/1/2020
5/1/2020 LIBOR + 3.80

Carrying value at
December 31,
2016 and 2015
(in millions)$$

Floating
annualrate ofthree-month
LIBOR plus:
NA
NA
NA
NA
NA
NA
NA

(a) Represented by depositary shares.

Each series of preferred stock has a liquidation value andredemption price per share of $10,000, plus accrued but
unpaid dividends.
Dividends on fixed-rate preferred stock are payable
quarterly. Dividends on fixed-to-floating-rate preferredstock are payable semiannually while at a fixed rate, andbecome payable quarterly after converting to a floating
rate.
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”).

JPMorgan Chase & Co./2016 Annual Report

Note 23 – Common stock
At December 31, 2016 and 2015, JPMorgan Chase wasauthorized to issue 9.0 billion shares of common stock witha par value of $1 per share.
Common shares issued (newly issued or distributed fromtreasury) by JPMorgan Chase during the years ended
December 31, 2016, 2015 and 2014 were as follows.
Year ended December 31,(in millions)

2016

2015

2014

Total issued – balance atJanuary 1

4,104.9

4,104.9

4,104.9

Treasury – balance at January 1
Purchase of treasury stock
Issued from treasury:
Employee benefits andcompensation plans
Warrant exercise(441.4)(140.4)(390.1)(89.8)(348.8)(82.3)

26.0

32.8

39.8

11.1

4.7

—

Employee stock purchase plans
Total issued from treasury
Total treasury – balance at
December 31
Outstanding at December 31

1.0
38.1

1.0
38.5

1.2
41.0

(543.7)(441.4)(390.1)

3,561.2

3,663.5

3,714.8247

Notes to consolidated financial statements
At December 31, 2016, 2015, and 2014, respectively, theFirm had 24.9 million, 47.4 million and 59.8 million
warrants outstanding to purchase shares of common stock(the “Warrants”). The Warrants are currently traded on the
New York Stock Exchange, and they are exercisable, inwhole or in part, at any time and from time to time until
October 28, 2018. The original warrant exercise price was$42.42 per share. The number of shares issuable upon theexercise of each warrant and the warrant exercise price issubject to adjustment upon the occurrence of certain
events, including, but not limited to, the extent to which
regular quarterly cash dividends exceed $0.38 per share.
As a result of the Firm’s quarterly common stock dividend
exceeding $0.38 per share commencing with the second
quarter of 2014, the exercise price of the Warrants has
been adjusted each subsequent quarter. As of
December 31, 2016 the exercise price was $42.073 andthe Warrant share number was 1.01.
On June 29, 2016, in conjunction with the Federal Reserve’s
release of its 2016 CCAR results, the Firm’s Board of
Directors authorized a $10.6 billion common equity (i.e.,common stock and warrants) repurchase program. As of
December 31, 2016, $6.1 billion (on a settlement-datebasis) of authorized repurchase capacity remained under
the program. This authorization includes shares
repurchased to offset issuances under the Firm’s equitybased compensation plans.
The following table sets forth the Firm’s repurchases ofcommon equity for the years ended December 31, 2016,2015 and 2014, on a settlement-date basis. There were no
warrants repurchased during the years ended
December 31, 2016, 2015 and 2014.

Note 24 – Earnings per share
Earnings per share (“EPS”) is calculated under the two-classmethod under which all earnings (distributed andundistributed) are allocated to each class of common stock
and participating securities based on their respective rights
to receive dividends. JPMorgan Chase grants restricted
stock and RSUs to certain employees under its stock-based
compensation programs, which entitle recipients to receive
nonforfeitable dividends during the vesting period on abasis equivalent to the dividends paid to holders of common
stock; these unvested awards meet the definition ofparticipating securities.
The following table presents the calculation of basic anddiluted EPS for the years ended December 31, 2016, 2015
and 2014.
Year ended December 31,(in millions,
except per share amounts)

2016

2015

2014

Basic earnings per share
Net income$ 24,733 $ 24,442 $ 21,745

Less: Preferred stock dividends

1,647

1,515

1,125

Net income applicable to common
equity23,08622,927

20,620Less: Dividends and undistributed
earnings allocated to participating
securities
Net income applicable to common
stockholders

503

521

543

$ 22,583 $ 22,406 $ 20,077

Total weighted-average basic
shares outstanding
Net income per share

3,618.5$

6.24 $

3,700.4
6.05 $

3,763.5
5.33

Diluted earnings per share

Year ended December 31, (in millions)

2016

2015

2014

Total number of shares of common stock
repurchased

140.4

89.8

82.3

Aggregate purchase price of common
stock repurchases$ 9,082$ 5,616$ 4,760

Total weighted-average basic shares
outstanding

3,618.5

3,700.4

3,763.5

The Firm may, from time to time, enter into written trading
plans under Rule 10b5-1 of the Securities Exchange Act of1934 to facilitate repurchases in accordance with thecommon equity repurchase program. A Rule 10b5-1
repurchase plan allows the Firm to repurchase its equity
during periods when it would not otherwise be repurchasing
common equity — for example, during internal trading“blackout periods.” All purchases under a Rule 10b5-1 plan
must be made according to a predefined plan establishedwhen the Firm is not aware of material nonpublic
information. For additional information regarding
repurchases of the Firm’s equity securities, see Part II,
Item 5: Market for registrant’s common equity, related
stockholder matters and issuer purchases of equity
securities, on page 22.

Add: Employee stock options, SARs,
warrants and PSUs(a)

31.3

32.4

34.0

3,649.8

3,732.8

3,797.5

Net income applicable to common
stockholders$ 22,583 $ 22,406 $ 20,077

Total weighted-average diluted
shares outstanding(b)Net income per share$

6.19 $

6.00 $

5.29(a) Excluded from the computation of diluted EPS (due to the antidilutive effect)
were certain options issued under employee benefit plans. The aggregate
number of shares issuable upon the exercise of such options was not material forthe years ended December 31, 2016 and 2015 and were 1 million for the year
ended December 31, 2014.
(b) Participating securities were included in the calculation of diluted EPS using thetwo-class method, as this computation was more dilutive than the calculation
using the treasury stock method.

As of December 31, 2016, approximately 154 million
shares of common stock were reserved for issuance undervarious employee incentive, compensation, option and stock
purchase plans, director compensation plans, and theWarrants.

248

JPMorgan Chase & Co./2016 Annual ReportNote 25 – Accumulated other comprehensive income/(loss)
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation
adjustments (including the impact of related derivatives), cash flow hedging activities, and net loss and prior service costs/(credit)
related to the Firm’s defined benefit pension and OPEB plans.
Effective January 1, 2016, the Firm adopted new accounting guidance related to the recognition and measurement of financial
liabilities where the fair value option has been elected. This guidance requires the portion of the total change in fair value causedby changes in the Firm’s own credit risk (“DVA”) to be presented separately in OCI; previously these amounts were recognized in
net income. The guidance was required to be applied as of the beginning of the fiscal year of adoption by means of a cumulative
effect adjustment to the Consolidated balance sheets, which resulted in a reclassification from retained earnings to AOCI.

Year ended December 31,(in millions)
Balance at December 31, 2013
Net change
Balance at December 31, 2014
Net change
Balance at December 31, 2015
Cumulative effect of change inaccounting principle
Net change
Balance at December 31, 2016

Unrealized
gains/(losses)
on investment
securities(a)$ 2,798
1,975$ 4,773(2,144)$ 2,629

Translation
adjustments,
net of hedges
$

$

(136)
(11)
(147)
(15)
(162)

—
(1,105)$ 1,524$$

Cash flow
hedges
$

$

(139)
44
(95)
51
(44)

—
(2)
(164)

$

$

Defined benefit pension
and OPEB plans$

DVA on fair value
option electedliabilities$(1,324)(1,018)(2,342)111(2,231)

—

—

154

154

(56)
(100)

$

(28)
(2,259)

(330)
(176)

(1,521)(1,175)

$

NA
NA
NA
NA
NA

Accumulated
othercomprehensive
income/(loss)
$
1,199
990
$
2,189
(1,997)$
192$(a) Represents the after-tax difference between the fair value and amortized cost of securities accounted for as AFS, including net unamortized unrealized gains and losses related
to AFS securities transferred to HTM.

The following table presents the pre-tax and after-tax changes in the components of OCI.

Year ended December 31, (in millions)Pre-tax

2016

2015

Tax
effectTaxeffectAfter-tax

Pre-tax

2014
After-tax

Tax
effectPre-tax

After-tax

Unrealized gains/(losses) on investment securities:
Net unrealized gains/(losses) arising during the period$ (1,628) $Reclassification adjustment for realized (gains)/losses
included in net income(a)Net change611$ (1,017) $ (3,315) $ 1,297$ (2,018) $ 3,193$ (1,170) $ 2,023

(141)

53

(88)

(202)

76

(126)

(77)

29

(48)

(1,769)664(1,105)(3,517)

1,373(2,144)

3,116(1,141)

1,975

Translation adjustments:
Translation(b)

(261)

99

(162)

(1,876)682(1,194)(1,638)588(1,050)Hedges(b)

262

(102)

160

1,885

(706)

1,179

1,698

(659)

1,039

1

(3)

(2)

9

(24)

(15)

60

(71)

(11)

Net unrealized gains/(losses) arising during the period

(450)

168

(282)

(97)

35

(62)

98

(39)

59

Reclassification adjustment for realized (gains)/losses
included in net income(c)(d)

360

(134)

226

180

(67)

113

(24)

9

(15)

(90)

34

(56)

83

(32)

51

74

(30)

44

Net change
Cash flow hedges:

Net change
Defined benefit pension and OPEB plans:
Prior service credits arising during the period

—

—

—

—

—

—

(53)

21

(32)

Net gains/(losses) arising during the period

(366)

145

(221)

29

(47)

(18)

(1,697)688(1,009)Amortization of net loss

257

(97)

160

282

(106)

176

72

(29)

43

Prior service costs/(credits)

(36)

14

(22)

(36)

14

(22)

(44)

17

(27)
—

Reclassification adjustments included in net income(e):Settlement loss/(gain)

4

(1)

3

—

—

—

—

—

Foreign exchange and other

77

(25)

52

33

(58)

(25)

39

(32)

7

(64)

36

(28)

308

(197)

111

(1,683)665(1,018)(529) $

199$

(330) $—$ (2,451) $930$ (1,521) $ (3,117) $ 1,120

Net change
DVA on fair value option elected liabilities, net change: $Total other comprehensive income/(loss)

$

—

$

—

$

—

$

—

$ (1,997) $ 1,567

—

$

$

(577) $

990(a) The pre-tax amount is reported in securities gains in the Consolidated statements of income.
(b) Reclassifications of pre-tax realized gains/(losses) on translation adjustments and related hedges are reported in other income/expense in the Consolidated statements ofincome. The amounts were not material for the periods presented.
(c) The pre-tax amounts are predominantly recorded in net interest income in the Consolidated statements of income.
(d) In 2015, the Firm reclassified approximately $150 million of net losses from AOCI to other income because the Firm determined that it is probable that the forecasted interest
payment cash flows will not occur. For additional information, see Note 6.
(e) The pre-tax amount is reported in compensation expense in the Consolidated statements of income.

JPMorgan Chase & Co./2016 Annual Report249

Notes to consolidated financial statements
Note 26 – Income taxes
JPMorgan Chase and its eligible subsidiaries file a
consolidated U.S. federal income tax return. JPMorgan
Chase uses the asset and liability method to provide income
taxes on all transactions recorded in the Consolidated
Financial Statements. This method requires that income
taxes reflect the expected future tax consequences of
temporary differences between the carrying amounts ofassets or liabilities for book and tax purposes. Accordingly,
a deferred tax asset or liability for each temporary
difference is determined based on the tax rates that the
Firm expects to be in effect when the underlying items ofincome and expense are realized. JPMorgan Chase’s
expense for income taxes includes the current and deferred
portions of that expense. A valuation allowance isestablished to reduce deferred tax assets to the amount the
Firm expects to realize.
Due to the inherent complexities arising from the nature of
the Firm’s businesses, and from conducting business andbeing taxed in a substantial number of jurisdictions,significant judgments and estimates are required to be
made. Agreement of tax liabilities between JPMorgan Chaseand the many tax jurisdictions in which the Firm files tax
returns may not be finalized for several years. Thus, theFirm’s final tax-related assets and liabilities may ultimately
be different from those currently reported.
Effective tax rate and expense
A reconciliation of the applicable statutory U.S. income tax
rate to the effective tax rate for each of the years ended
December 31, 2016, 2015 and 2014, is presented in thefollowing table.
Effective tax rate
Year ended December 31,

2016

2015

2014

Statutory U.S. federal tax rate

35.0%

35.0%

35.0%

Increase/(decrease) in tax rate
resulting from:
U.S. state and local income
taxes, net of U.S. federal
income tax benefit

2.4

1.5

2.7

Tax-exempt income

(3.1)

(3.3)

(3.1)

Non-U.S. subsidiary earnings(a)

(1.7)

(3.9)

(2.0)

Business tax credits

(3.9)

(3.7)

(3.3)

Nondeductible legal expense

0.3

0.8

2.3

—

(5.7)

(1.4)

Tax audit resolutions
Other, net

(0.6)

(0.3)

(1.0)

Effective tax rate

28.4%

20.4%

29.2%

(a) Predominantly includes earnings of U.K. subsidiaries that are deemed
to be reinvested indefinitely.

The components of income tax expense/(benefit) includedin the Consolidated statements of income were as follows
for each of the years ended December 31, 2016, 2015, and2014.
Income tax expense/(benefit)
Year ended December 31,(in millions)

2016

2015

2014

U.S. federal$ 2,488$ 3,160$ 2,382

Non-U.S.

1,760

1,220

1,353

904

547

857

5,152

4,927

4,592

U.S. federal

4,364

1,213

3,890

Non-U.S.

(73)

(95)

71

U.S. state and local

360

215

401

Current income tax expense/(benefit)

U.S. state and local
Total current income tax expense/(benefit)
Deferred income tax expense/(benefit)

Total deferred income tax
expense/(benefit)

4,651

1,333

4,362

Total income tax expense$ 9,803$ 6,260$ 8,954

Total income tax expense includes $55 million, $2.4 billion
and $451 million of tax benefits recorded in 2016, 2015,
and 2014, 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$925 million in 2016, an increase of $1.5 billion in 2015,
and a decrease of $140 million in 2014. Effective January
1, 2016, the Firm adopted new accounting guidance related
to employee share-based payments. As a result of the
adoption of this new guidance, all excess tax benefits(including tax benefits from dividends or dividend
equivalents) on share-based payment awards arerecognized within income tax expense in the Consolidated
statements of income. In prior years these tax benefits wererecorded as increases to additional paid-in capital.
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, 2016, 2015 and 2014.
Year ended December 31,(in millions)U.S.
Non-U.S.(a)Income before income tax expense

2016

2015

2014

$ 26,651$ 23,191$ 23,422

7,885

7,511

7,277

$ 34,536$ 30,702$ 30,699(a) For purposes of this table, non-U.S. income is defined as income
generated from operations located outside the U.S.

U.S. federal income taxes have not been provided on theundistributed earnings of certain non-U.S. subsidiaries, tothe extent that such earnings have been reinvested abroad
for an indefinite period of time. Based on JPMorgan Chase’s
250

JPMorgan Chase & Co./2016 Annual Reportongoing review of the business requirements and capitalneeds of its non-U.S. subsidiaries, combined with theformation of specific strategies and steps taken to fulfill
these requirements and needs, the Firm has determinedthat the undistributed earnings of certain of its subsidiaries
would be indefinitely reinvested to fund current and future
growth of the related businesses. As management does notintend to use the earnings of these subsidiaries as a sourceof funding for its U.S. operations, such earnings will not be
distributed to the U.S. in the foreseeable future. For 2016,pretax earnings of $3.8 billion were generated and will beindefinitely reinvested in these subsidiaries. At
December 31, 2016, the cumulative amount of
undistributed pretax earnings in these subsidiaries were
$38.4 billion. If the Firm were to record a deferred tax
liability associated with these undistributed earnings, theamount would be $8.8 billion at December 31, 2016.

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, 2016 and 2015.

These undistributed earnings are related to subsidiaries
located predominantly in the U.K. where the 2016 tax rate
was 28%.
Affordable housing tax credits
The Firm recognized $1.7 billion, $1.6 billion and $1.6
billion of tax credits and other tax benefits associated withinvestments in affordable housing projects within income
tax expense for the years 2016, 2015 and 2014,
respectively. The amount of amortization of suchinvestments reported in income tax expense under thecurrent period presentation during these years was $1.2
billion, $1.1 billion and $1.1 billion, respectively. The
carrying value of these investments, which are reported inother assets on the Firm’s Consolidated balance sheets, was$8.8 billion and $7.7 billion at December 31, 2016 and2015, 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 $2.8 billion and $2.0 billion at December 31,
2016 and 2015, respectively.

December 31, (in millions)

2016

2015

Deferred tax assets
Allowance for loan losses

$

5,534

$

5,343

Employee benefits

2,911

2,972

Accrued expenses and other

6,831

7,299

Non-U.S. operations

5,368

5,365

Tax attribute carryforwards

2,155

2,602

Gross deferred tax assets

22,79923,581

(785)

(735)

Valuation allowance
Deferred tax assets, net of valuation
allowance$

22,014$

22,846

$

3,294

$

3,167

Deferred tax liabilities
Depreciation and amortization
Mortgage servicing rights, net ofhedges
Leasing transactions

4,807

4,968

4,053

3,042

Non-U.S. operations

4,572

4,285

Other, net

5,493

4,419

22,21919,881Gross deferred tax liabilities
Net deferred tax (liabilities)/assets$(205) $

2,965

JPMorgan Chase has recorded deferred tax assets of $2.2
billion at December 31, 2016, in connection with U.S.
federal and non-U.S. NOL carryforwards and foreign tax
credit carryforwards. At December 31, 2016, total U.S.
federal NOL carryforwards were approximately $3.8 billion
and non-U.S. NOL carryforwards were $142 million. If not
utilized, the U.S. federal NOL carryforwards will expire
between 2025 and 2036 and the non-U.S. NOL
carryforwards will expire in 2017. Foreign tax credit
carryforwards were $776 million and will expire between
2022 and 2026.
The valuation allowance at December 31, 2016, was due tolosses associated with non-U.S. subsidiaries.

JPMorgan Chase & Co./2016 Annual Report251Notes to consolidated financial statements
Unrecognized tax benefits
At December 31, 2016, 2015 and 2014, JPMorgan Chase’s
unrecognized tax benefits, excluding related interest
expense and penalties, were $3.5 billion, $3.5 billion and$4.9 billion, respectively, of which $2.6 billion, $2.1 billion
and $3.5 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 $800 million. Upon settlement of anaudit, the change in the unrecognized tax benefit would
result from payment or income statement recognition.

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,
2016.
December 31, 2016

Periods under
examination

Status

JPMorgan Chase – U.S.

2003 – 2005

At Appellate level

JPMorgan Chase – U.S.

2006 – 2010

Field examination ofamended returns;
certain matters at
Appellate level

JPMorgan Chase – U.S.

2011 – 2013

Field Examination

JPMorgan Chase – NewYork State2008 – 2011

Field Examination

JPMorgan Chase – NewYork City

2008 – 2011

Field Examination

JPMorgan Chase –California

2011 – 2012

Field Examination

JPMorgan Chase – U.K.

2006 – 2014

Field examination ofcertain select entities

The following table presents a reconciliation of the
beginning and ending amount of unrecognized tax benefits
for the years ended December 31, 2016, 2015 and 2014.
Year ended December 31,(in millions)

2016

2015

2014

$ 3,497$ 4,911$ 5,535

Increases based on tax positions
related to the current period

262

408

810

Increases based on tax positions
related to prior periods

583

1,028

477

Decreases based on tax positions
related to prior periods(785)(2,646)(1,902)

Decreases related to cash
settlements with taxing authorities

(56)

(204)

(9)

Balance at January 1,

Decreases related to a lapse of
applicable statute of limitations
Balance at December 31,

(51)

—

—

$ 3,450$ 3,497$ 4,911After-tax interest expense/(benefit) and penalties related toincome tax liabilities recognized in income tax expense were
$86 million, $(156) million and $17 million in 2016, 2015
and 2014, respectively.
At December 31, 2016 and 2015, in addition to the liability
for unrecognized tax benefits, the Firm had accrued $687
million and $578 million, respectively, for income taxrelated interest and penalties.

252

JPMorgan Chase & Co./2016 Annual ReportNote 27 – Restrictions on cash andintercompany funds transfers
The business of JPMorgan Chase Bank, National Association(“JPMorgan Chase Bank, N.A.”) is subject to examination
and regulation by the OCC. The Bank is a member of the U.S.
Federal Reserve System, and its deposits in the U.S. are
insured by the FDIC, subject to applicable limits.
The Federal Reserve requires depository institutions tomaintain cash reserves with a Federal Reserve Bank. The
average required amount of reserve balances deposited by
the Firm’s bank subsidiaries with various Federal Reserve
Banks was approximately $19.3 billion and $14.4 billion in2016 and 2015, respectively.
Restrictions imposed by U.S. federal law prohibit JPMorgan
Chase & Co. (“Parent Company”) and certain of its affiliatesfrom borrowing from banking subsidiaries unless the loans
are secured in specified amounts. Such secured loans
provided by any banking subsidiary to the Parent Company
or to any particular affiliate, together with certain othertransactions with such affiliate, (collectively referred to as“covered transactions”), are generally limited to 10% of thebanking subsidiary’s total capital, as determined by the riskbased capital guidelines; the aggregate amount of covered
transactions between any banking subsidiary and all of its
affiliates is limited to 20% of the banking subsidiary’s total
capital.
Prior to the establishment of the IHC in the fourth quarterof 2016, the principal sources of the Parent Company’s
income were dividends and interest from the various bankand non-bank subsidiaries of the Firm; the principal sourceof the Parent Company’s income, commencing with thefourth quarter, will be dividends from the IHC and JPMorgan
Chase Bank, N.A., the two principal subsidiaries of the
Parent Company. In addition to dividend restrictions set
forth in statutes and regulations, the Federal Reserve, the
OCC and the FDIC have authority under the Financial
Institutions Supervisory Act to prohibit or to limit thepayment of dividends by the banking organizations theysupervise, including JPMorgan Chase and its subsidiaries
that are banks or bank holding companies, if, in the banking
regulator’s opinion, payment of a dividend would constitutean unsafe or unsound practice in light of the financial
condition of the banking organization.
At January 1, 2017, JPMorgan Chase’s banking subsidiaries
could pay, in the aggregate, approximately $20 billion in
dividends to their respective bank holding companies
without the prior approval of their relevant banking
regulators. The capacity to pay dividends in 2017 will be
supplemented by the banking subsidiaries’ earnings during
the year.

and $15.6 billion, respectively, consisting of cash deposited
with clearing organizations for the benefit of customers.
Securities with a fair value of $19.3 billion and $20.0
billion, respectively, were also restricted in relation tocustomer activity. In addition, as of December 31, 2016 and2015, the Firm had other restricted cash of $3.6 billion and$3.1 billion, respectively, primarily representing cash
reserves held at non-U.S. central banks and held for othergeneral purposes. Prior period amounts for segregatedcash, receivables within other assets, and other restrictedcash have been revised to conform with the current period
presentation.

Note 28 – 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
national banks, including JPMorgan Chase Bank, N.A. andChase Bank USA, N.A.
Capital rules under Basel III establish minimum capitalratios and overall capital adequacy standards for large andinternationally active U.S. bank holding companies andbanks, including the Firm and its IDI subsidiaries. Basel III
presents two comprehensive methodologies for calculating
RWA: a general (standardized) approach (“Basel III
Standardized”) and an advanced approach (“Basel III
Advanced”). Certain of the requirements of Basel III are
subject to phase-in periods that began on January 1, 2014
and continue through the end of 2018 (“transitional
period”).
There are three categories of risk-based capital under the
Basel III Transitional rules: CET1 capital, as well as Tier 1
capital and Tier 2 capital. CET1 capital predominantly
includes common stockholders’ equity (including capital for
AOCI related to debt and equity securities classified as AFS
as well as for defined-benefit pension and OPEB plans), lesscertain deductions for goodwill, MSRs and deferred tax
assets that arise from NOL and tax credit carryforwards.
Tier 1 capital predominantly consists of CET1 capital as wellas perpetual preferred stock. Tier 2 capital includes longterm debt qualifying as Tier 2 and qualifying allowance for
credit losses. Total capital is Tier 1 capital plus Tier 2
capital.

In compliance with rules and regulations established by U.S.
and non-U.S. regulators, as of December 31, 2016 and2015, cash in the amount of $13.4 billion and $13.2
billion, respectively, were segregated in special bankaccounts for the benefit of securities and futures brokeragecustomers. Also, as of December 31, 2016 and 2015, theFirm had receivables within other assets of $16.1 billion
JPMorgan Chase & Co./2016 Annual Report253Notes to consolidated financial statements
The following tables present the regulatory capital, assets
and risk-based capital ratios for JPMorgan Chase and its
significant national bank subsidiaries under both Basel III
Standardized Transitional and Basel III Advanced
Transitional at December 31, 2016 and 2015.

(in millions,
except ratios)

Dec 31,2015

Dec 31,
2016

Dec 31,
2015

CET1 capital$ 182,967$ 175,398$ 182,967$ 175,398

Tier 1 capital(a)208,112200,482

208,112200,482

Total capital

239,553

234,413228,592

224,616

Risk-weighted

1,464,981

1,465,262

1,476,915

1,485,336

Adjusted
average(b)2,484,631

2,358,471

2,484,631

2,358,471

Regulatory
capitalCapital ratios(c)
CET1

12.5%

12.0%

12.4%

11.8%

14.2

13.7

14.1

13.5

Total

16.4

16.0

15.5

15.1

Tier 1 leverage(d)

8.4

8.5

8.4

8.5

(a)

JPMorgan Chase Bank, N.A.
Basel III Standardized
Transitional(in millions,
except ratios)Basel III Advanced
Transitional

Dec 31,
2016

Dec 31,2015

Dec 31,
2016

Dec 31,
2015

CET1 capital$ 179,319$ 168,857$ 179,319$ 168,857

Tier 1 capital(a)179,341

169,222

179,341

169,222

Total capital

191,662

183,262

184,637

176,423

Risk-weighted

1,293,203

1,264,056

1,262,613

1,249,607

Adjusted
average(b)2,088,851

1,910,934

2,088,851

1,910,934

Regulatory
capitalAssetsCapital ratios(c)
CET1
(a)

Total
Tier 1 leverage

(d)

254

Dec 31,
2016

Basel III Advanced
Transitional

Dec 31,2015

Dec 31,
2016

Dec 31,
2015$

16,784$

15,419$16,784$

15,419Tier 1 capital(a)16,784

15,41916,784

15,419Total capital

22,862

21,41821,43420,069Risk-weighted

112,297

105,807

186,378

181,775

Adjusted
average(b)120,304

134,152

120,304

134,152

AssetsAssetsTier 1(in millions,
except ratios)

CET1 capitalBasel III Advanced
Transitional

Dec 31,
2016

Tier 1Basel III Standardized
Transitional

Regulatory
capital

JPMorgan Chase & Co.
Basel III Standardized
Transitional

Chase Bank USA, N.A.

13.9%

13.4%

14.2%

13.5%

13.9

13.4

14.2

13.5

14.8

14.5

14.6

14.1

8.6

8.9

8.6

8.9

Capital ratios(c)
CET1

14.9%

14.6%

9.0%

8.5%

Tier 1(a)

14.9

14.6

9.0

8.5

Total

20.4

20.2

11.5

11.0

Tier 1 leverage(d)

14.0

11.5

14.0

11.5

(a)

Includes the deduction associated with the permissible holdings ofcovered funds (as defined by the Volcker Rule) acquired after December
31, 2013. The deduction was not material as of December 31, 2016.
(b) Adjusted average assets, for purposes of calculating the Tier 1 leverage
ratio, includes total quarterly average assets adjusted for unrealized
gains/(losses) on AFS securities, less deductions for goodwill and otherintangible assets, defined benefit pension plan assets, and deferred tax
assets related to NOL and tax credit carryforwards.
(c) For each of the risk-based capital ratios, the capital adequacy of the Firm
and its national bank subsidiaries are evaluated against the Basel III
approach, Standardized or Advanced, resulting in the lower ratio (the“Collins Floor”), as required by the Collins Amendment of the Dodd-FrankAct.
(d) The Tier 1 leverage ratio is not a risk-based measure of capital. This ratio
is calculated by dividing Tier 1 capital by adjusted average assets.
Note: Rating agencies allow measures of capital to be adjusted upward fordeferred tax liabilities, which have resulted from both non-taxablebusiness combinations and from tax-deductible goodwill. The Firm had
deferred tax liabilities resulting from non-taxable business combinationsof $83 million and $105 million at December 31, 2016, and 2015,
respectively; and deferred tax liabilities resulting from tax-deductible
goodwill of $3.1 billion and $3.0 billion at December 31, 2016, and2015, respectively.

Under the risk-based capital guidelines of the Federal
Reserve, JPMorgan Chase is required to maintain minimum
ratios of CET1, Tier 1 and Total capital to RWA, as well as aminimum leverage ratio (which is defined as Tier 1 capital
divided by adjusted quarterly average assets). Failure tomeet these minimum requirements could cause the Federal
Reserve to take action. National bank subsidiaries also aresubject to these capital requirements by their respective
primary regulators.

JPMorgan Chase & Co./2016 Annual Report

The following table presents the minimum ratios to which
the Firm and its national bank subsidiaries are subject as ofDecember 31, 2016.
Minimum capital ratios
BHC(a)
IDI(b)
Capital ratios
CET1

6.25%

5.125%

Tier 1
Total
Tier 1 leverage

7.75
9.75
4.0

6.625
8.625
4.0

Well-capitalized ratios
BHC(c)IDI(d)
—%
6.0
10.0
—

6.5%
8.0
10.0
5.0

Note: The ratios presented in the table above are as defined by the regulations
issued by the Federal Reserve, OCC and FDIC and to which the Firm and its
national bank subsidiaries are subject.
(a) Represents the transitional minimum capital ratios applicable to the Firm
under Basel III at December 31, 2016. Commencing in the first quarter of
2016, the CET1 minimum capital ratio includes 0.625% resulting from thephase in of the Firm’s 2.5% capital conservation buffer, and 1.125%
resulting from the phase in of the Firm’s 4.5% GSIB surcharge.
(b) Represents requirements for JPMorgan Chase’s banking subsidiaries. The
CET1 minimum capital ratio includes 0.625% resulting from the phase in of
the 2.5% capital conservation buffer that is applicable to the banking
subsidiaries. The banking 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 bank subsidiaries pursuant to regulations
issued under the FDIC Improvement Act.

As of December 31, 2016 and 2015, JPMorgan Chase andall of its banking subsidiaries were well-capitalized and met
all capital requirements to which each was subject.

JPMorgan Chase & Co./2016 Annual Report

Note 29 – Off–balance sheet lending-related
financial instruments, guarantees, and othercommitments
JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to meetthe financing needs of its customers. The contractual
amount of these financial instruments represents the
maximum possible credit risk to the Firm should thecounterparty draw upon the commitment or the Firm berequired to fulfill its obligation under the guarantee, andshould the counterparty subsequently fail to perform
according to the terms of the contract. Most of thesecommitments and guarantees are refinanced, extended,cancelled, or expire without being drawn or a default
occurring. As a result, the total contractual amount of these
instruments is not, in the Firm’s view, representative of its
actual future credit exposure or funding requirements.
To provide for probable credit losses inherent in wholesaleand certain consumer lending-commitments, an allowancefor credit losses on lending-related commitments ismaintained. See Note 15 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, 2016 and 2015. 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.

255

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)AutoBusiness banking
Student and otherTotal 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$

4,247 $
11,745
7,807
11,485
107
35,391
553,891
589,282

Contractual amount
2016
Expires
after
Expires
3 years
after 5throughyears
5 years

Expiresafter
1 yearthrough
3 years

3,578 $
—
461
673
1
4,713
—
4,713

Carrying value(g)
2016
2015

2015

Total

1,035 $ 12,854 $ 21,714——
11,745
173
27
8,468
122
453
12,733
—
29
137
1,330
13,36354,797——553,891
1,330
13,363608,688

Total$ 22,756
12,992
10,237
12,351
142
58,478515,518
573,996

$

12 $
—
2
12
—
26
—
26

—
—
2
12
—
14
—
14

69,307116,716

135,663

6,811

328,497

323,325905

649

15,73812,654

6,577

978

586

548

35,947

39,133

3,354
86
129
1
3,570
88,399129,456
142,369
7,790
368,014$ 677,681 $ 134,169 $ 143,699 $ 21,153 $ 976,702

3,941
366,399$ 940,395

2
2
1,493
1,199
$ 1,519 $ 1,213$ 137,209 $$ 183,329

$

— $

— $

— $ 137,209— $—Derivatives qualifying as guarantees
Unsettled reverse repurchase and securities borrowing
agreements

1,061

450

10,93039,52551,96653,78480

222

50,722———50,722

42,482——

Unsettled repurchase and securities lending
agreements

26,948———26,94821,798

—

—

NA
NA
383

NA
NA
2,662

NA
NA
1,017

NA
NA
1,653

NA
2,730
5,715

NA
4,274
5,580

133
64
(118)

148
82
(94)

Loan sale and securitization-related indemnifications:
Mortgage repurchase liability
Loans sold with recourse
Other guarantees and commitments(f)(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, 2016 and 2015, reflected the contractual amount net of risk participations totaling $328 million and $385 million, respectively, for other unfunded
commitments to extend credit; $11.1 billion and $11.2 billion, respectively, for standby letters of credit and other financial guarantees; and $265 million and $341
million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk participations.
(d) At December 31, 2016 and 2015, the U.S. portion of the contractual amount of total wholesale lending-related commitments was 79% and 77%, respectively.
(e) At December 31, 2016 and 2015, collateral held by the Firm in support of securities lending indemnification agreements was $143.2 billion and $190.6 billion,
respectively. Securities lending collateral consist of primarily cash and securities issued by governments that are members of the Organisation for Economic Co-operation
and Development (“OECD”) and U.S. government agencies.
(f) At December 31, 2016 and 2015, included unfunded commitments of $48 million and $50 million, respectively, to third-party private equity funds; and $1.0 billion and$871 million, respectively, to other equity investments. These commitments included $34 million and $73 million, respectively, related to investments that are generally
fair valued at net asset value as discussed in Note 3. In addition, at December 31, 2016 and 2015, included letters of credit hedged by derivative transactions andmanaged on a market risk basis of $4.6 billion and $4.6 billion, respectively.
(g) For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-related products, thecarrying value represents the fair value.

256

JPMorgan Chase & Co./2016 Annual ReportOther unfunded commitments to extend credit
Other unfunded commitments to extend credit generally
consist of commitments for working capital and general
corporate purposes, extensions of credit to support
commercial paper facilities and bond financings in the eventthat those obligations cannot be remarketed to newinvestors, as well as committed liquidity facilities to clearingorganizations. The Firm also issues commitments undermultipurpose facilities which could be drawn upon inseveral forms, including the issuance of a standby letter ofcredit.
The Firm acts as a settlement and custody bank in the U.S.
tri-party repurchase transaction market. In its role assettlement and custody bank, the Firm is exposed to theintra-day credit risk of its cash borrower clients, usuallybroker-dealers. This exposure arises under secured
clearance advance facilities that the Firm extends to its
clients (i.e. cash borrowers); these facilities contractuallylimit the Firm’s intra-day credit risk to the facility amountand must be repaid by the end of the day. As of
December 31, 2016 and 2015, the secured clearance
advance facility maximum outstanding commitment amount
was $2.4 billion and $2.9 billion, respectively.
Guarantees
U.S. GAAP requires that a guarantor recognize, at the
inception of a guarantee, a liability in an amount equal to
the fair value of the obligation undertaken in issuing theguarantee. U.S. GAAP defines a guarantee as a contract that
contingently requires the guarantor to pay a guaranteed
party based upon: (a) changes in an underlying asset,
liability or equity security of the guaranteed party; or (b) athird party’s failure to perform under a specified
agreement. The Firm considers the following off–balance
sheet lending-related arrangements to be guarantees under
U.S. GAAP: standby letters of credit and other financial
guarantees, securities lending indemnifications, certain
indemnification agreements included within third-party
contractual arrangements and certain derivative contracts.
As required by U.S. GAAP, the Firm initially records
guarantees at the inception date fair value of the obligation

assumed (e.g., the amount of consideration received or the
net present value of the premium receivable). For certain
types of guarantees, the Firm records this fair value amountin other liabilities with an offsetting entry recorded in cash(for premiums received), or other assets (for premiums
receivable). Any premium receivable recorded in otherassets is reduced as cash is received under the contract, andthe fair value of the liability recorded at inception isamortized into income as lending and deposit-related fees
over the life of the guarantee contract. For indemnifications
provided in sales agreements, a portion of the saleproceeds is allocated to the guarantee, which adjusts thegain or loss that would otherwise result from thetransaction. For these indemnifications, the initial liability isamortized to income as the Firm’s risk is reduced (i.e., overtime or when the indemnification expires). Any contingent
liability that exists as a result of issuing the guarantee orindemnification is recognized when it becomes probableand reasonably estimable. The contingent portion of theliability is not recognized if the estimated amount is lessthan the carrying amount of the liability recognized atinception (adjusted for any amortization). The recorded
amounts of the liabilities related to guarantees andindemnifications at December 31, 2016 and 2015,
excluding the allowance for credit losses on lending-related
commitments, are discussed below.
Standby letters of credit and other financial guarantees
Standby letters of credit and other financial guarantees areconditional lending commitments issued by the Firm toguarantee the performance of a customer to a third party
under certain arrangements, such as commercial paper
facilities, bond financings, acquisition financings, trade andsimilar transactions. The carrying values of standby andother letters of credit were $588 million and $550 million
at December 31, 2016 and 2015, respectively, which wereclassified in accounts payable and other liabilities on theConsolidated balance sheets; these carrying values included$147 million and $123 million, respectively, for theallowance for lending-related commitments, and $441
million and $427 million, respectively, for the guarantee
liability and corresponding asset.

The following table summarizes the types of facilities under which standby letters of credit and other letters of credit
arrangements are outstanding by the ratings profiles of the Firm’s customers, as of December 31, 2016 and 2015.
Standby letters of credit, other financial guarantees and other letters of credit
2016
December 31,(in millions)
Investment-grade(a)Standby letters of credit andother financial guarantees$

Noninvestment-grade(a)28,2452015
Other lettersof credit
$

7,702

2,781

Standby letters of credit andother financial guarantees$

789

31,751Other lettersof credit
$

7,382

651

Total contractual amount$35,947

$

3,570

$

39,133$

Allowance for lending-related commitments

$

145

$

2

$

121

$

Guarantee liability

441

—

3,290

427

3,941
2
—

Total carrying value

$

586

$

2

$

548

$

2

Commitments with collateral$

19,346$940$

18,825$996(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./2016 Annual Report257

Notes to consolidated financial statements
Securities lending indemnifications
Through the Firm’s securities lending program, customers’
securities, via custodial and non-custodial arrangements,
may be lent to third parties. As part of this program, theFirm provides an indemnification in the lending agreements
which protects the lender against the failure of theborrower to return the lent securities. To minimize its
liability under these indemnification agreements, the Firm
obtains cash or other highly liquid collateral with a market
value exceeding 100% of the value of the securities on loan
from the borrower. Collateral is marked to market daily tohelp assure that collateralization is adequate. Additional
collateral is called from the borrower if a shortfall exists, or
collateral may be released to the borrower in the event ofovercollateralization. If a borrower defaults, the Firm would
use the collateral held to purchase replacement securities in
the market or to credit the lending customer with the cash
equivalent thereof.
Derivatives qualifying as guarantees
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 include contracts
such as stable value derivatives that require the Firm to
make a payment of the difference between the market
value and the book value of a counterparty’s reference
portfolio of assets in the event that market value is lessthan book value and certain other conditions have been
met. Stable value derivatives, commonly referred to as“stable value wraps,” are transacted in order to allow
investors to realize investment returns with less volatility
than an unprotected portfolio and are typically longer-termor may have no stated maturity, but allow the Firm to electto terminate the contract under certain conditions.
Derivatives deemed to be guarantees are recorded on theConsolidated balance sheets at fair value in trading assets
and trading liabilities. The total notional value of thederivatives that the Firm deems to be guarantees was$52.0 billion and $53.8 billion at December 31, 2016 and2015, respectively. The notional amount generally
represents the Firm’s maximum exposure to derivatives
qualifying as guarantees. However, exposure to certain
stable value contracts is contractually limited to a
substantially lower percentage of the notional amount; thenotional amount on these stable value contracts was $28.7
billion and $28.4 billion at December 31, 2016 and 2015,
respectively, and the maximum exposure to loss was $3.0
billion at both December 31, 2016 and 2015. The fairvalues of the contracts reflect the probability of whether the
Firm will be required to perform under the contract. The
fair value related to derivatives that the Firm deems to beguarantees were derivative payables of $96 million and$236 million and derivative receivables of $16 million and$14 million at December 31, 2016 and 2015, respectively.
The Firm reduces exposures to these contracts by entering
258

into offsetting transactions, or by entering into contracts
that hedge the market risk related to the derivative
guarantees.
In addition to derivative contracts that meet thecharacteristics of a guarantee, the Firm is both a purchaserand seller of credit protection in the credit derivatives
market. For a further discussion of credit derivatives, seeNote 6.
Unsettled reverse repurchase and securities borrowing
agreements, and unsettled repurchase and securities
lending agreements
In the normal course of business, the Firm enters into
reverse repurchase agreements and securities borrowing
agreements, which are secured financing agreements. Suchagreements settle at a future date. At settlement, thesecommitments result in the Firm advancing cash to andreceiving securities collateral from the counterparty. The
Firm also enters into repurchase agreements and securities
lending agreements. At settlement, these commitments
result in the Firm receiving cash from and providing
securities collateral to the counterparty. These agreements
generally do not meet the definition of a derivative, andtherefore, are not recorded on the Consolidated balance
sheets until settlement date. These agreements
predominantly consist of agreements with regular-way
settlement periods. For a further discussion of securities
purchased under resale agreements and securities
borrowed, and securities sold under repurchase agreements
and securities loaned, see Note 13.
Loan sales- and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm’s mortgage loan sale andsecuritization activities with GSEs, as described in Note 16,
the Firm has made representations and warranties that theloans sold meet certain requirements that may require theFirm to repurchase mortgage loans and/or indemnify theloan purchaser. Further, although the Firm’s securitizations
are predominantly nonrecourse, the Firm does provide
recourse servicing in certain limited cases where it agrees
to share credit risk with the owner of the mortgage loans.
To the extent that repurchase demands that are received
relate to loans that the Firm purchased from third parties
that remain viable, the Firm typically will have the right toseek a recovery of related repurchase losses from the third
party. Generally, the maximum amount of future payments
the Firm would be required to make for breaches of these
representations and warranties would be equal to theunpaid principal balance of such loans that are deemed tohave defects that were sold to purchasers (including
securitization-related SPEs) plus, in certain circumstances,accrued interest on such loans and certain expense.
Private label securitizations
The liability related to repurchase demands associated withprivate label securitizations is separately evaluated by the
Firm in establishing its litigation reserves.
For additional information regarding litigation, see Note 31.

JPMorgan Chase & Co./2016 Annual ReportLoans sold with recourse
The Firm provides servicing for mortgages and certain
commercial lending products on both a recourse andnonrecourse basis. In nonrecourse servicing, the principal
credit risk to the Firm is the cost of temporary servicing
advances of funds (i.e., normal servicing advances). In
recourse servicing, the servicer agrees to share credit risk
with the owner of the mortgage loans, such as Fannie Maeor Freddie Mac or a private investor, insurer or guarantor.
Losses on recourse servicing predominantly occur when
foreclosure sales proceeds of the property underlying adefaulted loan are less than the sum of the outstanding
principal balance, plus accrued interest on the loan and thecost of holding and disposing of the underlying property.
The Firm’s securitizations are predominantly nonrecourse,
thereby effectively transferring the risk of future credit
losses to the purchaser of the mortgage-backed securities
issued by the trust. At December 31, 2016 and 2015, theunpaid principal balance of loans sold with recourse totaled$2.7 billion and $4.3 billion, respectively. The carrying
value of the related liability that the Firm has recorded,
which is representative of the Firm’s view of the likelihood itwill have to perform under its recourse obligations, was$64 million and $82 million at December 31, 2016 and2015, respectively.
Other off-balance sheet arrangements
Indemnification agreements – general
In connection with issuing securities to investors, the Firm
may enter into contractual arrangements with third parties
that require the Firm to make a payment to them in theevent of a change in tax law or an adverse interpretation of
tax law. In certain cases, the contract also may include atermination clause, which would allow the Firm to settle thecontract at its fair value in lieu of making a payment under
the indemnification clause. The Firm may also enter into
indemnification clauses in connection with the licensing ofsoftware to clients (“software licensees”) or when it sells abusiness or assets to a third party (“third-party
purchasers”), pursuant to which it indemnifies software
licensees for claims of liability or damages that may occur
subsequent to the licensing of the software, or third-party
purchasers for losses they may incur due to actions takenby the Firm prior to the sale of the business or assets. It isdifficult to estimate the Firm’s maximum exposure underthese indemnification arrangements, since this would
require an assessment of future changes in tax law andfuture claims that may be made against the Firm that have
not yet occurred. However, based on historical experience,
management expects the risk of loss to be remote.
Card charge-backs
Commerce Solutions, Card’s merchant services
business, is a global leader in payment processing andmerchant acquiring.
Under the rules of Visa USA, Inc., and MasterCard
International, JPMorgan Chase Bank, N.A., is primarily liable
for the amount of each processed card sales transactionthat is the subject of a dispute between a cardmember anda merchant. If a dispute is resolved in the cardmember’sfavor, Commerce Solutions will (through the cardmember’s
JPMorgan Chase & Co./2016 Annual Reportissuing bank) credit or refund the amount to the
cardmember and will charge back the transaction to themerchant. If Commerce Solutions is unable to collect theamount from the merchant, Commerce Solutions will bear
the loss for the amount credited or refunded to the
cardmember. Commerce Solutions mitigates this risk by
withholding future settlements, retaining cash reserve
accounts or by obtaining other security. However, in theunlikely event that: (1) a merchant ceases operations and isunable to deliver products, services or a refund; (2)Commerce Solutions does not have sufficient collateral fromthe merchant to provide customer refunds; and (3)Commerce Solutions does not have sufficient financial
resources to provide customer refunds, JPMorgan Chase
Bank, N.A., would recognize the loss.
Commerce Solutions incurred aggregate losses of $85
million, $12 million, and $10 million on $1,063.4 billion,$949.3 billion, and $847.9 billion of aggregate volume
processed for the years ended December 31, 2016, 2015
and 2014, respectively. Incurred losses from merchantcharge-backs are charged to other expense, with the offset
recorded in a valuation allowance against accrued interest
and accounts receivable on the Consolidated balance
sheets. The carrying value of the valuation allowance was$45 million and $20 million at December 31, 2016 and2015, respectively, which the Firm believes, based on
historical experience and the collateral held by Commerce
Solutions of $125 million and $136 million at
December 31, 2016 and 2015, respectively, isrepresentative of the payment or performance risk to theFirm related to charge-backs.
Clearing Services – Client Credit Risk
The Firm provides clearing services for clients by entering
into securities purchases and sales and derivativetransactions with CCPs, including ETDs such as futures andoptions, as well as OTC-cleared derivative contracts. As aclearing member, the Firm stands behind the performanceof its clients, collects cash and securities collateral (margin)
as well as any settlement amounts due from or to clients,
and remits them to the relevant CCP or client in whole orpart. There are two types of margin: variation margin isposted on a daily basis based on the value of clients’derivative contracts and initial margin is posted at inceptionof a derivative contract, generally on the basis of thepotential changes in the variation margin requirement forthe contract.
As clearing member, the Firm is exposed to the risk ofnonperformance by its clients, but is not liable to clients forthe performance of the CCPs. Where possible, the Firm
seeks to mitigate its risk to the client through the collectionof appropriate amounts of margin at inception andthroughout the life of the transactions. The Firm can alsocease providing clearing services if clients do not adhere to
their obligations under the clearing agreement. In the eventof nonperformance by a client, the Firm would close out theclient’s positions and access available margin. The CCP
would utilize any margin it holds to make itself whole, withany remaining shortfalls required to be paid by the Firm asa clearing member.
259

Notes to consolidated financial statements
The Firm reflects its exposure to nonperformance risk of theclient through the recognition of margin payables or
receivables to clients and 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, see Note 6.
Exchange & Clearing House Memberships
The Firm is a member of several securities and derivative
exchanges and clearing houses, both in the U.S. and othercountries, and it provides clearing services. Membership insome of these organizations requires the Firm to pay a pro
rata share of the losses incurred by the organization as aresult of the default of another member. Such obligations
vary with different organizations. These obligations may belimited to members who dealt with the defaulting member
or to the amount (or a multiple of the amount) of the Firm’s
contribution to the guarantee fund maintained by a clearing
house or exchange as part of the resources available tocover any losses in the event of a member default.
Alternatively, these obligations may include a pro rata shareof the residual losses after applying the guarantee fund.
Additionally, certain clearing houses require the Firm as amember to pay a pro rata share of losses that may result
from the clearing house’s investment of guarantee fundcontributions and initial margin, unrelated to andindependent of the default of another member. Generally apayment would only be required should such losses exceed
the resources of the clearing house or exchange that arecontractually required to absorb the losses in the first
instance. It is difficult to estimate the Firm’s maximum
possible exposure under these membership agreements,
since this would require an assessment of future claims that
may be made against the Firm that have not yet occurred.
However, based on historical experience, management
expects the risk of loss to be remote.

260

Guarantees of subsidiaries
In the normal course of business, JPMorgan Chase & Co.
(“Parent Company”) may provide counterparties withguarantees of certain of the trading and other obligations of
its subsidiaries on a contract-by-contract basis, as
negotiated with the Firm’s counterparties. The obligationsof the subsidiaries are included on the Firm’s Consolidatedbalance sheets or are reflected as off-balance sheet
commitments; therefore, the Parent Company has notrecognized a separate liability for these guarantees. The
Firm believes that the occurrence of any event that would
trigger payments by the Parent Company under theseguarantees is remote.
The Parent Company has guaranteed certain 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 256 of this Note. For
additional information, see Note 21.

JPMorgan Chase & Co./2016 Annual ReportNote 30 – Commitments, pledged assets andcollateral
Lease commitments
At December 31, 2016, JPMorgan Chase and its
subsidiaries were obligated under a number of
noncancelable operating leases for premises and equipmentused primarily for banking purposes, and for energy-related
tolling service agreements. Certain leases contain renewal
options or escalation clauses providing for increased rental
payments based on maintenance, utility and tax increases,or they require the Firm to perform restoration work onleased premises. No lease agreement imposes restrictions
on the Firm’s ability to pay dividends, engage in debt orequity financing transactions or enter into further leaseagreements.
The following table presents required future minimum
rental payments under operating leases with noncancelable
lease terms that expire after December 31, 2016.
Year ended December 31, (in millions)
2017

$

1,598

2018

1,479

2019

1,301

2020

1,151

2021

885

Pledged assets
The Firm may pledge financial assets that it owns tomaintain potential borrowing capacity with central banks
and for other purposes, including to secure borrowings andpublic deposits, and to collateralize repurchase and othersecurities financing agreements, and to cover customer
short sales. Certain of these pledged assets may be sold or
repledged or otherwise used by the secured parties and are
identified as financial instruments owned (pledged tovarious parties) on the Consolidated balance sheets. At
December 31, 2016 and 2015, the Firm had pledged assets
of $441.9 billion and $385.6 billion, respectively, atFederal Reserve banks and FHLBs. In addition, as ofDecember 31, 2016 and 2015, the Firm had pledged $53.5
billion and $50.7 billion, respectively, of financial assetsthat may not be sold or repledged or otherwise used by the
secured parties. Total assets pledged do not include assetsof consolidated VIEs; these assets are used to settle theliabilities of those entities. See Note 16 for additional
information on assets and liabilities of consolidated VIEs.
For additional information on the Firm’s securities financing
activities and long-term debt, see Note 13 and Note 21,
respectively. The significant components of the Firm’s
pledged assets were as follows.

After 2021

3,701

Total minimum payments required

10,115

December 31, (in billions)Less: Sublease rentals under noncancelable subleases(1,379)Securities

8,736

Loans
Trading assets and other

153.0

144.9

$ 629.0$ 567.8

Net minimum payment required$

Total rental expense was as follows.
Year ended December 31,(in millions)
Gross rental expense

2016$

Sublease rental income
Net rental expense

Total assets pledged

1,860

2015
$

(241)
$

1,619

JPMorgan Chase & Co./2016 Annual Report

2,015

2014
$

(411)
$

1,604

2,255
(383)

$

1,872

2016

2015

$ 101.1$ 124.3

374.9

298.6

CollateralAt December 31, 2016 and 2015, the Firm had acceptedfinancial assets as collateral that it could sell or repledge,
deliver or otherwise use with a fair value of approximately$914.1 billion and $748.5 billion, respectively. This
collateral was generally obtained under resale agreements,
securities borrowing agreements, customer margin loans
and derivative agreements. Of the collateral received,
approximately $746.6 billion and $580.9 billion,
respectively, were sold, repledged, delivered or otherwise
used. Collateral was generally used under repurchaseagreements, securities lending agreements or to covercustomer short sales and to collateralize deposits andderivative agreements.

261

Notes to consolidated financial statements
Note 31 – Litigation
Contingencies
As of December 31, 2016, 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 $3.0 billion at December 31, 2016. Thisestimated aggregate range of reasonably possible losses
was based upon currently available information for those
proceedings in which the Firm believes that an estimate ofreasonably possible loss can be made. For certain matters,
the Firm does not believe that such an estimate can bemade, as of that date. The Firm’s estimate of the aggregate
range of reasonably possible losses involves significant
judgment, given the number, variety and varying stages ofthe proceedings (including the fact that many are in
preliminary stages), the existence in many suchproceedings of multiple defendants (including the Firm)
whose share of liability has yet to be determined, thenumerous yet-unresolved issues in many of the proceedings(including issues regarding class certification and the scopeof many of the claims) and the attendant uncertainty of thevarious potential outcomes of such proceedings, including
where the Firm has made assumptions concerning future
rulings by the court or other adjudicator, or about the
behavior or incentives of adverse parties or regulatory
authorities, and those assumptions prove to be incorrect. In
addition, the outcome of a particular proceeding may be a
result which the Firm did not take into account in its
estimate because the Firm had deemed the likelihood ofthat outcome to be remote. Accordingly, the Firm’s estimateof the aggregate range of reasonably possible losses willchange from time to time, and actual losses may varysignificantly.
Set forth below are descriptions of the Firm’s material legal
proceedings.
CIO Litigation. The Firm has been sued in a consolidated
shareholder class action, and in a consolidated putativeclass action brought under the Employee Retirement
Income Security Act (“ERISA”), relating to 2012 losses inthe synthetic credit portfolio formerly managed by the
Firm’s Chief Investment Office (“CIO”). A settlement of the262

shareholder class action, under which the Firm paid $150
million, has received full and final approval from the Court.
The putative ERISA class action has been dismissed. Thatdismissal was affirmed by the appellate court, and arequest by the plaintiffs for rehearing by the full appellate
court was denied.
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 those matters. In May
2015, the Firm pleaded guilty to a single violation offederal antitrust law, and in January 2017, the Firm wassentenced, with judgment entered shortly thereafter. The
Department of Labor granted the Firm a temporary oneyear waiver, which was effective upon entry of judgment, toallow the Firm and its affiliates to continue to qualify for the
Qualified Professional Asset Manager exemption under
ERISA. The Firm’s application for a lengthier exemption ispending. Separately, in February 2017 the South Africa
Competition Commission announced that it had referred its
FX investigation of the Firm and other banks to the South
Africa Competition Tribunal to commence civil proceedings.
The Firm is also one of a number of foreign exchange
dealers defending a class action filed in the United States
District Court for the Southern District of New York by U.S.based plaintiffs, principally alleging violations of federal
antitrust laws based on an alleged conspiracy to manipulate
foreign exchange rates (the “U.S. class action”). In January
2015, the Firm entered into a settlement agreement in the
U.S. class action. Following this settlement, a number of
additional putative class actions were filed seeking damages
for persons who transacted FX futures and options on
futures (the “exchanged-based actions”), consumers whopurchased foreign currencies at allegedly inflated rates (the“consumer action”), participants or beneficiaries ofqualified ERISA plans (the “ERISA actions”), and purported
indirect purchasers of FX instruments (the “indirectpurchaser action”). Since then, the Firm has entered into arevised settlement agreement to resolve the consolidated
U.S. class action, including the exchange-based actions, andthat agreement has been preliminarily approved by the
Court. The District Court has dismissed one of the ERISA
actions, and the plaintiffs have filed an appeal. The
consumer action, a second ERISA action and the indirectpurchaser action remain pending in the District Court.
In September 2015, two class actions were filed in Canada
against the Firm as well as a number of other FX dealers,principally for alleged violations of the CanadianCompetition Act based on an alleged conspiracy to fix theprices of currency purchased in the FX market. The firstaction was filed in the province of Ontario, and seeks torepresent all persons in Canada who transacted any FX
JPMorgan Chase & Co./2016 Annual Reportinstrument. The second action was filed in the province ofQuebec, and seeks authorization to represent only those
persons in Quebec who engaged in FX transactions. In late2016, the Firm settled the Canadian class actions; thosesettlements are subject to Court approval.
General Motors Litigation. JPMorgan Chase Bank, N.A.
participated in, and was the Administrative Agent on behalfof a syndicate of lenders on, a $1.5 billion syndicated Term
Loan facility (“Term Loan”) for General Motors Corporation(“GM”). In July 2009, in connection with the GM bankruptcy
proceedings, the Official Committee of Unsecured Creditorsof Motors Liquidation Company (“Creditors Committee”)
filed a lawsuit against JPMorgan Chase Bank, N.A., in its
individual capacity and as Administrative Agent for other
lenders on the Term Loan, seeking to hold the underlying
lien invalid 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 continue with respect
to, among other things, additional defenses asserted by
JPMorgan Chase Bank, N.A. and the value of additional
collateral on the Term Loan that was unaffected by the filingof the termination statement at issue. In addition, certain
Term Loan lenders filed cross-claims against JPMorgan
Chase Bank, N.A. in the Bankruptcy Court seeking
indemnification and asserting various claims.
Interchange Litigation. A group of merchants and retailassociations filed a series of class action complaints alleging
that Visa and MasterCard, as well as certain banks,
conspired to set the price of credit and debit card
interchange fees, enacted respective rules in violation of
antitrust laws, and engaged in tying/bundling and exclusive
dealing. The parties entered into an agreement to settle thecases for a cash payment of $6.1 billion to the classplaintiffs (of which the Firm’s share is approximately 20%)and an amount equal to ten basis points of credit card
interchange for a period of eight months to be measured
from a date within 60 days of the end of the opt-out period.
The agreement also provided for modifications to eachcredit card network’s rules, including those that prohibit
surcharging credit card transactions. In December 2013,
the District Court granted final approval of the settlement.
A number of merchants appealed to the United States Courtof Appeals for the Second Circuit, which, in June 2016,vacated the District Court’s certification of the class action
and reversed the approval of the class settlement. The casehas been remanded to the District Court for further
proceedings consistent with the appellate decision. Both theplaintiffs and the defendants have filed petitions seeking
review by the U.S. Supreme Court of the Second Circuit’s
decision.
JPMorgan Chase & Co./2016 Annual Report

In addition, certain merchants have filed individual actions
against Visa and MasterCard, as well as against the Firmand other banks, and those actions are proceeding.
Investment Management Litigation. The Firm is defending
two pending cases that are coordinated for pre-trial andtrial purposes, alleging that investment portfolios managed
by J.P. Morgan Investment Management (“JPMIM”) were
inappropriately invested in securities backed by residential
real estate collateral. Plaintiffs Assured Guaranty (U.K.) and
Ambac Assurance UK Limited claim that JPMIM is liable fortotal losses of more than $1 billion in market value of thesesecurities. Discovery has been completed. In January 2016,plaintiffs filed a joint partial motion for summary judgmentin the coordinated actions. In February 2017, the Court
ruled in plaintiffs’ favor as to the interpretation of an
applicable statutory provision and the rejection of a certain
defense, but otherwise preserved for trial the determinationof whether JPMIM breached the governing contract and isliable for plaintiffs’ claimed losses under the standard ofgross negligence. The trial is scheduled to begin in March
2017.
Lehman Brothers Bankruptcy Proceedings. In January 2016,
JPMorgan Chase Bank, N.A. and Lehman Brothers Holdings
Inc. (“LBHI”) and several of LBHI’s subsidiaries reached anagreement, approved by the Bankruptcy Court, resolving
several disputes between the parties. The January 2016settlement did not resolve the following remaining
matters: In the Bankruptcy Court proceedings, LBHI and its
Official Committee of Unsecured Creditors filed an objection
to the claims asserted by JPMorgan Chase Bank, N.A.
against LBHI with respect to clearing advances made to
Lehman Brothers Inc., principally on the grounds that the
Firm had not conducted the sale of the securities collateral
held for its claims in a commercially reasonable
manner. LBHI also brought two claims objections relating tosecurities lending claims and a group of other smaller
claims. In January 2017, the Firm entered into anagreement to settle all of these remaining claims, and thissettlement has been approved by the Bankruptcy Court.
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. Department of Justice (“DOJ”), the U.S. Commodity
Futures Trading Commission (“CFTC”), the U.S. Securities
and Exchange Commission (“SEC”) and various state
attorneys general, as well as the European Commission(“EC”), the U.K. Financial Conduct Authority (“FCA”), theCanadian Competition Bureau, the Swiss Competition
Commission (“ComCo”) and other regulatory authorities andbanking associations around the world relating primarily tothe process 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 is submitted to the European
263

Notes to consolidated financial statements
Banking Federation (“EBF”) in connection with the settingof the EBF’s Euro Interbank Offered Rates (“EURIBOR”) andto the Japanese Bankers’ Association for the setting ofTokyo Interbank Offered Rates (“TIBOR”), as well asprocesses for the setting of U.S. dollar ISDAFIX rates andother reference rates in various parts of the world during
similar time periods. The Firm is responding to andcontinuing to cooperate with these inquiries. As previously
reported, the Firm has resolved EC inquiries relating to Yen
LIBOR and Swiss Franc LIBOR. In December 2016, the Firm
resolved ComCo inquiries relating to these same rates.
ComCo’s investigation relating to EURIBOR, to which the
Firm and other banks are subject, continues. In December
2016, the EC issued a decision against the Firm and otherbanks finding an infringement of European antitrust rules
relating to EURIBOR. The Firm has filed an appeal with theEuropean General Court. In June 2016, the DOJ informed
the Firm that the DOJ had closed its inquiry into LIBOR andother benchmark rates with respect to the Firm without
taking action. Other inquiries have been discontinued
without any action against JPMorgan Chase, including by
the SEC, FCA and the Canadian Competition Bureau.
In addition, the Firm has been named as a defendant alongwith other banks in a series of individual and putative classactions filed in various United States District Courts. These
actions have been filed, or consolidated for pre-trial
purposes, in the United States District Court for theSouthern District of New York. In these actions, plaintiffs
make varying allegations that in various periods, starting in2000 or later, defendants either individually or collectively
manipulated the U.S. dollar LIBOR, Yen LIBOR, Swiss franc
LIBOR, Euroyen TIBOR, EURIBOR, Singapore Interbank
Offered Rate (“SIBOR”), Singapore Swap Offer Rate (“SOR”)
and/or the Bank Bill Swap Reference Rate (“BBSW”) bysubmitting rates that were artificially low or high. Plaintiffs
allege that they transacted in loans, derivatives or otherfinancial instruments whose values are affected by changes
in U.S. dollar LIBOR, Yen LIBOR, Swiss franc LIBOR, Euroyen
TIBOR, EURIBOR, SIBOR, SOR or BBSW and assert a variety
of claims including antitrust claims seeking treble damages.
These matters are in various stages of litigation.
In the U.S. dollar LIBOR-related actions, the District Court
dismissed certain claims, including the antitrust claims, andpermitted other claims under the Commodity Exchange Act
and common law to proceed. In May 2016, the UnitedStates Court of Appeals for the Second Circuit vacated thedismissal of the antitrust claims and remanded the case to
the District Court to consider, among other things, whether
the plaintiffs have standing to assert antitrust claims. In July
2016, JPMorgan Chase and other defendants again moved
in the District Court to dismiss the antitrust claims, and in
December 2016, the District Court granted in part anddenied in part defendants’ motion, finding that certain
plaintiffs lacked standing to assert antitrust claims.
Separately, in October 2016, JPMorgan Chase and otherdefendants filed a petition to the U.S. Supreme Court
seeking review of the Second Circuit’s decision that vacated264

the dismissal of plaintiffs’ antitrust claims. That petition was
denied.
The Firm is one of the defendants in a number of putativeclass actions alleging that defendant banks and ICAP
conspired to manipulate the U.S. dollar ISDAFIX rates.
Plaintiffs primarily assert claims under the federal antitrust
laws and Commodity Exchange Act. In April 2016, the Firm
settled the ISDAFIX litigation, along with certain otherbanks. Those settlements have been preliminarily approvedby the Court.
Madoff Litigation. A putative class action was filed in the
United States District Court for the District of New Jersey byinvestors who were net winners (i.e., Madoff customers who
had taken more money out of their accounts than had been
invested) in Madoff’s Ponzi scheme and were not included
in a prior class action settlement. These plaintiffs allege
violations of the federal securities law, as well as other stateand federal claims. A similar action was filed in the UnitedStates District Court for the Middle District of Florida,
although it was not styled as a class action, and included
claims pursuant to Florida statutes. The Florida court
granted the Firm’s motion to dismiss the case, and in August
2016, the United States Court of Appeals for the Eleventh
Circuit affirmed the dismissal. The plaintiffs have filed apetition for writ of certiorari with the United States
Supreme Court. In addition, the same plaintiffs have re-filed
their dismissed state claims in Florida state court, where
the Firm’s motion to dismiss is pending. The New Jersey
court granted a transfer motion to the United States District
Court for the Southern District of New York, which granted
the Firm’s motion to dismiss, and the plaintiffs have filed an
appeal of that dismissal.
Mortgage-Backed Securities and Repurchase Litigation and
Related Regulatory Investigations. The Firm and affiliates(together, “JPMC”), Bear Stearns and affiliates (together,“Bear Stearns”) and certain Washington Mutual affiliates(together, “Washington Mutual”) have been named as
defendants in a number of cases in their various roles inofferings of mortgage-backed securities (“MBS”). Following
the settlements referred to below, the remaining civil cases
include one investor action, one action by a monoline
insurer relating to Bear Stearns’ role solely as underwriter,and actions for repurchase of mortgage loans. The Firm andcertain of its current and former officers and Board
members have also been sued in shareholder derivative
actions relating to the Firm’s MBS activities, and one action
remains pending.
Issuer Litigation – Individual Purchaser Actions. With the
exception of one remaining action, the Firm has settled allof the individual actions brought against JPMC, Bear Stearns
and Washington Mutual as MBS issuers (and, in some cases,
also as underwriters of their own MBS offerings).
Underwriter Actions. The Firm is defending one remaining
action by a monoline insurer relating to Bear Stearns’ rolesolely as underwriter for another issuer’s MBS offering. The
issuer is defunct.
JPMorgan Chase & Co./2016 Annual ReportRepurchase Litigation. The Firm is defending a number ofactions brought by trustees, securities administrators and/or master servicers of various MBS trusts on behalf ofpurchasers of securities issued by those trusts. These cases
generally allege breaches of various representations andwarranties regarding securitized loans and seek repurchaseof those loans or equivalent monetary relief, as well as
indemnification of attorneys’ fees and costs and otherremedies. The Firm has reached a settlement with Deutsche
Bank National Trust Company, acting as trustee for various
MBS trusts, and the Federal Deposit Insurance Corporation(the “FDIC”) in connection with the litigation related to asignificant number of MBS issued by Washington Mutual;that case is described in the Washington Mutual Litigations
section below. Other repurchase actions, each specific to
one or more MBS transactions issued by JPMC and/or Bear
Stearns, are in various stages of litigation.
In addition, the Firm and a group of 21 institutional MBS
investors made a binding offer to the trustees of MBS issuedby JPMC and Bear Stearns providing for the payment of$4.5 billion and the implementation of certain servicing
changes by JPMC, to resolve all repurchase and servicing
claims that have been asserted or could have been assertedwith respect to 330 MBS trusts created between 2005 and2008. The offer does not resolve claims relating toWashington Mutual MBS. The trustees (or separate andsuccessor trustees) for this group of 330 trusts haveaccepted the settlement for 319 trusts in whole or in partand excluded from the settlement 16 trusts in whole or inpart. The trustees’ acceptance has received final approval
from the court.
Additional actions have been filed against third-party
trustees that relate to loan repurchase and servicing claims
involving trusts sponsored by JPMC, Bear Stearns andWashington Mutual.
The Firm has entered into agreements with a number of
MBS trustees or entities that purchased MBS that toll
applicable statute of limitations periods with respect totheir claims, and has settled, and in the future may settle,
tolled claims. There is no assurance that the Firm will not be
named as a defendant in additional MBS-related litigation.
Derivative Actions. A shareholder derivative action against
the Firm, as nominal defendant, and certain of its current
and former officers and members of its Board of Directors
relating to the Firm’s MBS activities is pending in California
federal court. Defendants have filed a motion to dismiss theaction.
Government Enforcement Investigations and Litigation. The
Firm is responding to an ongoing investigation being
conducted by the DOJ’s Criminal Division and two UnitedStates Attorney’s Offices relating to MBS offerings
securitized and sold by the Firm and its subsidiaries.
Mortgage-Related Investigations and Litigation. In January
2017, a Consent Judgment was entered by the UnitedStates District Court for the Southern District of New York
JPMorgan Chase & Co./2016 Annual Reportresolving allegations by the Civil Division of the UnitedStates Attorney’s Office for the Southern District of New
York that the Firm violated the Fair Housing Act and Equal
Credit Opportunity Act by giving pricing discretion to
independent mortgage brokers in its wholesale lending
distribution channel which, according to the government’s
model, may have charged higher fees and interest rates to
African-American and Hispanic borrowers than nonHispanic White borrowers during the period between 2006
and 2009. The Firm denied liability but agreed to pay a
total of approximately $55 million to resolve this matter. In
addition, three municipalities have commenced litigation
against the Firm alleging violations of an unfair competition
law or the Fair Housing Act. The municipalities seek, among
other things, civil penalties for the unfair competition claim,
and, for the Fair Housing Act claims, damages resulting
from lost tax revenue and increased municipal costs
associated with foreclosed properties. The municipal
actions are stayed pending an appeal by the City of Los
Angeles to the United States Court of Appeals for the Ninth
Circuit, as well as the United States Supreme Court’s review
of decisions of the United States Court of Appeals for the
Eleventh Circuit which held, among other things, that theCity of Miami has standing under the Fair Housing Act topursue similar claims against other banks.
Municipal Derivatives Litigation. Several civil actions werecommenced in New York and Alabama courts against the
Firm relating to certain Jefferson County, Alabama (the“County”) warrant underwritings and swap transactions.
The claims in the civil actions generally alleged that the
Firm made payments to certain third parties in exchange forbeing chosen to underwrite more than $3 billion in
warrants issued by the County and to act as thecounterparty for certain swaps executed by the County. The
County filed for bankruptcy in November 2011. In June
2013, the County filed a Chapter 9 Plan of Adjustment, as
amended (the “Plan of Adjustment”), which provided that
all the above-described actions against the Firm would be
released and dismissed with prejudice. In November 2013,
the Bankruptcy Court confirmed the Plan of Adjustment,
and in December 2013, certain sewer rate payers filed an
appeal challenging the confirmation of the Plan of
Adjustment. All conditions to the Plan of Adjustment’s
effectiveness, including the dismissal of the actions against
the Firm, were satisfied or waived and the transactions
contemplated by the Plan of Adjustment occurred in
December 2013. Accordingly, all the above-describedactions against the Firm have been dismissed pursuant to
the terms of the Plan of Adjustment. The appeal of the
Bankruptcy Court’s order confirming the Plan of Adjustment
remains pending.
Petters Bankruptcy and Related Matters. JPMorgan Chaseand certain of its affiliates, including One Equity Partners(“OEP”), have been named as defendants in several actions
filed in connection with the receivership and bankruptcy
proceedings pertaining to Thomas J. Petters and certain
affiliated entities (collectively, “Petters”) and the Polaroid
265Notes to consolidated financial statements
Corporation. The principal actions against JPMorgan Chaseand its affiliates have been brought by a court-appointed
receiver for Petters and the trustees in bankruptcy
proceedings for three Petters entities. These actions
generally seek to avoid certain putative transfers inconnection with (i) the 2005 acquisition by Petters of
Polaroid, which at the time was majority-owned by OEP; (ii)
two credit facilities that JPMorgan Chase and other financial
institutions entered into with Polaroid; and (iii) a credit line
and investment accounts held by Petters. In January 2017,
the Court denied the defendants’ motion to dismiss anamended complaint filed by the plaintiffs.
Proprietary Products Investigations and Litigation. In
December 2015, JPMorgan Chase Bank, N.A. and J.P.
Morgan Securities LLC agreed to a settlement with the SEC,
and JPMorgan Chase Bank, N.A. agreed to a settlement with
the CFTC, regarding disclosures to clients concerning
conflicts associated with the Firm’s sale and use of
proprietary products, such as J.P. Morgan mutual funds, inthe Firm’s CCB and AWM wealth management businesses,
and the U.S. Private Bank’s disclosures concerning the useof hedge funds that pay placement agent fees to JPMorgan
Chase broker-dealer affiliates. The Firm settled with anadditional government authority in July 2016, andcontinues to cooperate with inquiries from othergovernment authorities concerning disclosure of conflicts
associated with the Firm’s sale and use of proprietaryproducts. A putative class action, which was filed in the
United States District Court for the Northern District ofIllinois on behalf of financial advisory clients from 2007 to
the present whose funds were invested in proprietary funds
and who were charged investment management fees, wasdismissed by the Court. The dismissal has been affirmed on
appeal.
Referral Hiring Practices Investigations. In November 2016,
the Firm entered into settlements with DOJ, the SEC and theBoard of Governors of the Federal Reserve System (the“Federal Reserve”) to resolve those agencies’ respective
investigations relating to a former hiring program forcandidates referred by clients, potential clients andgovernment officials in the Asia Pacific region. Other related
investigations are ongoing, and the Firm continues tocooperate with these investigations.
Washington Mutual Litigations. Proceedings related to
Washington Mutual’s failure are pending before the UnitedStates District Court for the District of Columbia and include
a lawsuit brought by Deutsche Bank National Trust
Company, initially against the FDIC and amended to include
JPMorgan Chase Bank, N.A. as a defendant, asserting an
estimated $6 billion to $10 billion in damages based uponalleged breaches of certain representations and warranties
given by certain Washington Mutual affiliates in connection
with mortgage securitization agreements. The case includes
assertions that JPMorgan Chase Bank, N.A. may haveassumed liabilities for the alleged breaches ofrepresentations and warranties in the mortgage
securitization agreements. In June 2015, the court ruled in
266

favor of JPMorgan Chase Bank, N.A. on the question ofwhether the Firm or the FDIC bears responsibility for
Washington Mutual Bank’s repurchase obligations, holdingthat JPMorgan Chase Bank, N.A. assumed only thoseliabilities that were reflected on Washington Mutual Bank’s
financial accounting records as of September 25, 2008, andonly up to the amount of the book value reflected therein.
The FDIC has appealed that ruling.
JPMorgan Chase has also filed complaints in the UnitedStates District Court for the District of Columbia against the
FDIC, in its corporate capacity as well as in its capacity as
receiver for Washington Mutual Bank, asserting multiple
claims for indemnification under the terms of the Purchase& Assumption Agreement between JPMorgan Chase Bank,
N.A. and the FDIC relating to JPMorgan Chase Bank, N.A.’spurchase of substantially all of the assets and certain
liabilities of Washington Mutual Bank (the “Purchase &Assumption Agreement”).
The Firm, Deutsche Bank National Trust Company and the
FDIC have signed a settlement agreement to resolve (i)pending litigation brought by Deutsche Bank National Trust
Company against the FDIC and JPMorgan Chase Bank, N.A.,
as defendants, relating to alleged breaches of certain
representations and warranties given by certain Washington
Mutual affiliates in connection with mortgage securitizationagreements and (ii) JPMorgan Chase Bank, N.A.’s
outstanding indemnification claims pursuant to the terms of
the Purchase & Assumption Agreement. The settlement issubject to certain judicial approval procedures, and bothmatters are stayed pending approval of the settlement.
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 on November 30,
2016, referring JPMorgan Chase Bank, N.A. to the French
tribunal correctionnel for alleged complicity in tax fraud. No
date for trial has been set by the court. The Firm has beensuccessful in legal challenges made to the Court ofCassation, France’s highest court, which have been referredback to and remain pending before the Paris Court ofAppeal. In addition, civil proceedings have been commenced
against JPMorgan Chase Bank, N.A. by a number of the
managers. 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
JPMorgan Chase & Co./2016 Annual Reportdefend itself vigorously in all such matters. Additional legal
proceedings may be initiated from time to time in the
future.
The Firm has established reserves for several hundred of its
currently outstanding legal proceedings. In accordance withthe provisions of U.S. GAAP for contingencies, the Firm
accrues for a litigation-related liability when it is probablethat such a liability has been incurred and the amount of
the loss can be reasonably estimated. The Firm evaluates its
outstanding legal proceedings each quarter to assess its
litigation reserves, and makes adjustments in such reserves,
upwards or downward, as appropriate, based on
management’s best judgment after consultation withcounsel. During the years ended December 31, 2016, 2015
and 2014, the Firm’s legal expense was a benefit of $(317)million and an expense of $3.0 billion and $2.9 billion,
respectively. There is no assurance that the Firm’s litigation
reserves will not need to be adjusted in the future.
In view of the inherent difficulty of predicting the outcomeof legal proceedings, particularly where the claimants seek
very large or indeterminate damages, or where the matterspresent novel legal theories, involve a large number ofparties or are in early stages of discovery, the Firm cannot
state with confidence what will be the eventual outcomes of
the currently pending matters, the timing of their ultimate
resolution or the eventual losses, fines, penalties or impact
related to those matters. JPMorgan Chase believes, based
upon its current knowledge, after consultation with counsel
and after taking into account its current litigation reserves,that the legal proceedings currently pending against it
should not have a material adverse effect on the Firm’s
consolidated financial condition. The Firm notes, however,that in light of the uncertainties involved in suchproceedings, there is no assurance that the ultimate
resolution of these matters will not significantly exceed thereserves it has currently accrued or that a matter will nothave material reputational consequences. As a result, theoutcome of a particular matter may be material to
JPMorgan Chase’s operating results for a particular period,
depending on, among other factors, the size of the loss or
liability imposed and the level of JPMorgan Chase’s income
for that period.

JPMorgan Chase & Co./2016 Annual Report267

Notes to consolidated financial statements
Note 32 – 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 33.
The Firm’s long-lived assets for the periods presented are
not considered by management to be significant in relation
to total assets. The majority of the Firm’s long-lived assets
are located in the U.S.

Revenue(b)Expense(c)Income before
income tax
expenseNet income

Total assets

2016
Europe/Middle East and Africa$

13,842

$

8,550

$

5,292

$

3,783

$

394,134

Asia and Pacific

6,112

4,213

1,899

1,212

156,946

Latin America and the Caribbean

1,959

1,632

327

208

42,971

Total international

21,913

14,395

7,518

5,203

594,051

North America(a)73,75546,73727,01819,5301,896,921

Total

$

95,668$61,132$

34,536$

24,733$2,490,972$

14,206

$

8,871

$

5,335

$

4,158

$

347,647(d)

2015
Europe/Middle East and Africa
Asia and Pacific

6,151

4,241

1,910

1,285

Latin America and the Caribbean

1,923

1,508

415

253

48,185

Total international

22,28014,620

7,660

5,696

534,579

North America(a)Total

71,26348,221

23,042(d)138,747

18,746

1,817,119$

93,543$62,841$30,702$

24,442$

2,351,698$

16,013$

10,123

$

5,890

$

3,935

$

481,328

2014
Europe/Middle East and Africa
Asia and Pacific

6,083

4,478

1,605

1,051

Latin America and the Caribbean

2,047

1,626

421

269

44,567

Total international

24,143

16,227

7,916

5,255

673,252

North America(a)70,96948,18622,783

16,4901,899,022

Total

$

95,112$64,413$30,699$21,745

147,357$

2,572,274(a) Substantially reflects the U.S.
(b) Revenue is composed of net interest income and noninterest revenue.
(c) Expense is composed of noninterest expense and the provision for credit losses.
(d) Total assets for the U.K. were approximately $310 billion, $306 billion, and $434 billion at December 31, 2016, 2015 and 2014, respectively.

268

JPMorgan Chase & Co./2016 Annual Report(d)Note 33 – Business segments
The Firm is managed on a line of business basis. There are
four major reportable business segments – Consumer &Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset & Wealth Management. In
addition, there is a Corporate segment. The businesssegments are determined based on the products andservices provided, or the type of customer served, and theyreflect the manner in which financial information iscurrently evaluated by management. Results of these linesof business are presented on a managed basis. For a further
discussion concerning JPMorgan Chase’s business segments,
see Segment results of this footnote.
The following is a description of each of the Firm’s businesssegments, and the products and services they provide totheir respective client bases.
Consumer & Community Banking
CCB offers services to consumers and businesses throughbank branches, ATMs, online, mobile and telephonebanking. CCB is organized into Consumer & BusinessBanking (including Consumer Banking/Chase WealthManagement and Business Banking), Mortgage Banking(including Mortgage Production, Mortgage Servicing andReal Estate Portfolios) and Card, Commerce Solutions &Auto. Consumer & Business Banking offers deposit andinvestment products and services to consumers, andlending, deposit, and cash management and payment
solutions to small businesses. Mortgage Banking includes
mortgage origination and servicing activities, as well as
portfolios consisting of residential mortgages and homeequity loans. Card, Commerce Solutions & Auto issues credit
cards to consumers and small businesses, offers payment
processing services to merchants, originates and services
auto loans and leases, and services student loans.
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./2016 Annual Reportmaker 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 thatprovides custody, fund accounting and administration, andsecurities lending products principally for asset managers,
insurance companies and public and private 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 $2.5 trillion, is a global leader ininvestment and wealth management. AWM clients include
institutions, high-net-worth individuals and retail investors
in many major markets throughout the world. AWM offers
investment management across most major asset classes
including equities, fixed income, alternatives and money
market funds. AWM also offers multi-asset investment
management, providing solutions for a broad range ofclients’ investment needs. For Wealth Management clients,
AWM also provides retirement products and services,brokerage and banking services, including trusts andestates, loans, mortgages and deposits. The majority of
AWM’s client assets are in actively managed portfolios.
Corporate
The Corporate segment consists of Treasury and CIO andOther Corporate, which includes corporate staff units andexpense that is centrally managed. Treasury and CIO are
predominantly responsible for measuring, monitoring,
reporting and managing the Firm’s liquidity, funding andstructural interest rate and foreign exchange risks, as well
as executing the Firm’s capital plan. The major Other
Corporate units include Real Estate, Enterprise Technology,
Legal, Compliance, Finance, Human Resources, Internal
Audit, Risk Management, Oversight & Control, Corporate
Responsibility and various Other Corporate groups.

269

Notes to consolidated financial statements
Segment results
The following tables provide a summary of the Firm’s
segment results as of or for the years ended December 31,
2016, 2015 and 2014 on a managed basis. The Firm’s
definition of managed basis starts with the reported U.S.
GAAP results and includes certain reclassifications topresent total net revenue (noninterest revenue and net
interest income) for each of the reportable businesssegments on a FTE basis. Accordingly, revenue frominvestments receiving tax credits and tax-exempt securities
is presented in the managed results on a basis comparable
to taxable investments and securities. This allows
management to assess the comparability of revenue fromyear-to-year arising from both taxable and tax-exempt
sources. The corresponding income tax impact related totax-exempt items is recorded within income tax expense/(benefit).

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

Consumer & Community Banking

Corporate & Investment Bank

Commercial Banking
2016

2016

2015

2014

2016

2015

2014

Noninterest revenue$ 15,255$ 15,592$ 15,937$ 24,325$ 23,693$ 23,420

Net interest income

29,66028,22828,431

10,891

9,849

11,175

5,133

4,520

4,533

3,033

2,556

2,440

Total net revenue

44,91543,82044,36835,21633,542

34,595

7,453

6,885

6,882

12,045

12,11912,028$2015

Asset & Wealth Management

2,320

$

2014

2,365

$

2016

2,349

$

2015

9,012

$

2014

9,563

$

9,588

Provision for credit losses

4,494

3,059

3,520

563

332

(161)

282

442

(189)

26

4

4

Noninterest expense

24,90524,90925,60918,992

21,361

23,273

2,934

2,881

2,695

8,478

8,886

8,538

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

15,51615,852

15,23915,661

11,84911,483

4,237

3,562

4,376

3,541

3,229

3,486

Income tax expense/(benefit)

5,802

6,063

6,054

4,846

3,759

4,575

1,580

1,371

1,741

1,290

1,294

9,185

$ 10,815$ 8,090$

Net income/(loss)$

Average common equity$ 51,000$ 51,000$ 51,000$ 64,000$ 62,000$ 61,000$ 16,000

Total assets

535,310502,652

455,634

803,511748,691

861,466

214,341

9,714

$

9,789

$

6,908

$

2,657

$

2,191

$

1,333

2,635

$

2,251

$

1,935

$

2,153

$ 14,000$ 14,000

$

9,000

$

9,000

$

9,000

200,700

195,267

138,384

131,451

128,701

Return on common equity

18%

18%

18%

16%

12%

10%

16%

15%

18%

24%

21%

23%

Overhead ratio

55

57

58

54

64

67

39

42

39

70

73

71

(table continued from above)
Corporate

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

2016
$

2015

2014

2016

2014

2016

800 $

1,972

(2,265) $(1,980) $(1,788)(1,960)(1,209)(1,110)(985)

46,08343,51043,634

Total net revenue

(487)

267

12

(3,474)(3,090)(2,773)

95,66893,543

95,112

(4)

(10)

(35)

—

—

—

5,361

3,827

3,139

Noninterest expense

462

977

1,159

—

—

—

55,77159,014

61,274

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

(945)

(700)

(1,112)(3,474)(3,090)(2,773)34,53630,702

30,699

Income tax expense/(benefit)(241)(3,137)(1,976)(3,474)(3,090)(2,773)

9,803

6,260

(704) $

2,437 $

Average common equity

$

864

$
$

— $

— $

—

$
$

49,585

$

2014

(533)

$

$

2015

(1,425)

Net income/(loss)

$

2015

Total

Net interest income

Provision for credit losses

938 $Reconciling Items(a)24,733$

224,631$50,033$51,478

8,954

24,442$

215,690$

21,74584,631 $79,690 $72,400

— $

— $

—

799,426

768,204

931,206

NA

NA

NA

Return on common equity

NM

NM

NM

NM

NM

NM

10%

11%

10%

Overhead ratio

NM

NM

NM

NM

NM

NM

58

63

64

Total assets

2,490,972

2,351,698

207,400
2,572,274(a) Segment managed results reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/(benefit). These adjustments are
eliminated in reconciling items to arrive at the Firm’s reported U.S. GAAP results.

270

JPMorgan Chase & Co./2016 Annual ReportNote 34 – Parent Company

Statements of cash flows(a)The following tables present Parent Company-only financial
statements.

Year ended December 31,(in millions)

Statements of income and comprehensive income(a)Net income

Year ended December 31,(in millions)Less: Net income of subsidiaries
and affiliates(b)Parent company net loss

2016

2015

2014

IncomeDividends from subsidiaries andaffiliates:
Bank and bank holding company
Nonbank(b)Interest income from subsidiaries
Other interest income
Other income from subsidiaries,
primarily fees:$ 10,000
3,873
794
207

$ 10,653
8,172
443
234

Bank and bank holding company
Nonbank
Other income
Total income
ExpenseInterest expense to subsidiaries andaffiliates(b)

852
1,165
(846)
16,045

1,438(1,402)
1,773
21,311

105

98

169

Other interest expense
Noninterest expense
Total expense

4,413
1,643
6,161

3,720
2,611
6,429

3,645
827
4,641

—
14,716
378
284

2015

2014

$ 24,733$ 24,442$ 21,745

27,846

26,74522,972(3,113)(2,303)(1,227)

Cash dividends from subsidiaries
and affiliates(b)13,87317,023

14,714

Other operating adjustments(18,166)

2,483(1,681)

Net cash provided by operating
activities(7,406)

17,203

11,80660,34930,085(31,040)353

120

12,076

1,793

321

(319)

Investing activities
Net change in:Income before income tax benefit
and undistributed net income ofsubsidiaries
Income tax benefit
Equity in undistributed net incomeof subsidiaries
Net income
Other comprehensive income, net
Comprehensive income

$

2016

Operating activities

779
52
508
16,7179,884

14,882

12,076

876

1,640

1,430

13,973

7,920

8,239

$

113

$

Other changes in loans, net
Advances to and investments in
subsidiaries and affiliates, net(51,967)

(81)

3,306

All other investing activities, net

114

153

32

Net cash provided by/(used in)investing activities

10,64230,598(15,945)

Financing activities
Net change in:
Borrowings from subsidiaries
and affiliates(b)(4,062)

4,454(47,483)(5,778)Proceeds from the issuance oflong-term debt

41,49842,12140,284

Payments of long-term debt

(29,298)(30,077)(31,050)

2015

Proceeds from issuance ofpreferred stock

—

5,893

8,847

74

Treasury stock and warrants
repurchased(9,082)(5,616)(4,760)(8,476)(7,873)(6,990)AssetsCash and due from banks

Proceeds from paydowns andmaturities

109

Balance sheets(a)2016

Available-for-sale securities:

2,957$ 24,733 $ 24,442 $ 21,745(1,521)(1,997)990$ 23,212 $ 22,445 $ 22,735

December 31, (in millions)

Deposits with banking
subsidiaries

Other borrowed funds

Deposits with banking subsidiaries

5,450

65,799Dividends paid

Trading assets

10,326

13,830All other financing activities, net

(905)

(840)

(921)

Available-for-sale securities

2,694

3,154

77

1,887

Net cash provided by/(used in)financing activities(3,197)(47,937)

4,086

Net increase/(decrease) in cash
and due from banks

39

(137)

(53)

Cash and due from banks at the
beginning of the year

74

211

264

Loans
Advances to, and receivables from, subsidiaries:
Bank and bank holding company

524

32,454

Nonbank

46

58,674

Bank and bank holding company

422,028

225,613(b)

Nonbank

13,10334,205

Other assets

10,25718,088

Total assets$ 464,618$ 453,778$ 13,584$ 11,310

Investments (at equity) in subsidiaries andaffiliates:

Liabilities and stockholders’ equity
Borrowings from, and payables to, subsidiaries
and affiliates(b)Other borrowed funds

3,831

3,722

Other liabilities

11,224

11,940Long-term debt(c)(d)181,789

179,233

Total liabilities(d)210,428

206,205

Total stockholders’ equity

254,190

247,573$ 464,618$ 453,778

Total liabilities and stockholders’ equity

JPMorgan Chase & Co./2016 Annual Report

Cash and due from banks at theend of the year

$

113

$

74

$

211

Cash interest paid

$

4,550

$

3,873

$

3,921

Cash income taxes paid, net

1,053

8,251

200

(a) On September 1, 2016, in connection with the Firm’s 2016 Resolution
Submission, the Parent Company established the IHC, and during the fourth
quarter of 2016 contributed substantially all of its direct subsidiaries, other than
JPMorgan Chase Bank, N.A. (totaling $55.4 billion), as well as most of its otherassets (totaling $160.5 billion) and intercompany indebtedness to the IHC. Total
noncash assets contributed were $62.3 billion.
(b) Affiliates include trusts that issued guaranteed capital debt securities (“issuer
trusts”). For further discussion on these issuer trusts, see Note 21.
(c) At December 31, 2016, long-term debt that contractually matures in 2017
through 2021 totaled $26.9 billion, $21.2 billion, $13.0 billion, $21.9 billion
and $17.9 billion, respectively.
(d) For information regarding the Parent Company’s guarantees of its subsidiaries’
obligations, see Notes 21 and 29.

271

Supplementary information
Selected quarterly financial data (unaudited)(Table continued on next page)
As of or for the period ended(in millions, except per share, ratio, headcountdata and where otherwise noted)

2016

2015

4th quarter3rd quarter2nd quarter

1st quarter

4th quarter3rd quarter2nd quarter

1st quarter

$

$

$

$

$

$

$

$

Selected income statement data
Total net revenue

23,376

24,67324,38023,23922,88522,78023,812

24,066

Total noninterest expense

13,833

14,463

13,638

13,837

14,26315,36814,50014,883Pre-provision profit

9,543

10,21010,742

9,402

8,622

7,412

9,312

9,183

864

1,271

1,402

1,824

1,251

682

935

959

8,679

8,939

9,340

7,578

7,371

6,730

8,377

8,224

Provision for credit losses
Income before income tax expense
Income tax expense
Net income

1,952

2,653

3,140

2,058

1,937

(74)

2,087

2,310

$

6,727

$

6,286

$

6,200

$

5,520

$

5,434

$

6,804

$

6,290

$

5,914

$

1.73

$

1.60

$

1.56

$

1.36

$

1.34

$

1.70

$

1.56

$

1.46

Per common share data
Net income:

Basic
Diluted

1.71

1.58

1.55

1.35

1.32

1.68

1.54

1.45

3,570.7

3,597.4

3,635.8

3,669.9

3,674.2

3,694.4

3,707.8

3,725.3

3,606.0

3,629.6

3,666.5

3,696.9

3,704.6

3,725.6

3,743.6

3,757.5$ 307,295$ 238,277$ 224,449$ 216,547$ 241,899$ 224,438$ 250,581$ 224,818

3,561.2

3,578.3

3,612.0

3,656.7

3,663.5

3,681.1

3,698.1

3,711.1

Average shares: Basic
DilutedMarket and per common share data
Market capitalization
Common shares at period-end
Share price:(a)
High

$

87.39

$

67.90

$

66.20

$

64.13

$

69.03

$

70.61

$

69.82

$

62.96

Low

66.10

58.76

57.05

52.50

58.53

50.07

59.65

54.27

Close

86.29

66.59

62.14

59.22

66.03

60.97

67.76

60.58

Book value per share

64.06

63.79

62.67

61.28

60.46

59.67

58.49

57.77

Tangible book value per share (“TBVPS”)(b)

51.44

51.23

50.21

48.96

48.13

47.36

46.13

45.45

Cash dividends declared per share

0.48

0.48

0.48

0.44

0.44

0.44

0.44

0.40

Selected ratios and metrics
Return on common equity (“ROE”)

11%

10%

10%

9%

9%

12%

11%

Return on tangible common equity (“ROTCE”)(b)

14

13

13

12

11

15

14

14

1.06

1.01

1.02

0.93

0.90

1.11

1.01

0.94

Overhead ratio

59

59

56

60

62

67

61

62

Loans-to-deposits ratio

65

65

66

64

65

64

61

Return on assets (“ROA”)

HQLA (in billions)(c)

$

524

$

539

$

516

$

505

$

496

$

505

$

532

11%

56
$

614

CET1 capital ratio(d)

12.4%

12.0%

12.0%

11.9%

11.8%

11.5%

11.2%

10.7%

Tier 1 capital ratio(d)

14.1

13.6

13.6

13.5

13.5

13.3

12.8

12.1

Total capital ratio(d)

15.5

15.1

15.2

15.1

15.1

14.9

14.4

13.6

Tier 1 leverage ratio

8.4

8.5

8.5

8.6

8.5

8.4

8.0

7.5

Selected balance sheet data (period-end)
Trading assets$ 372,130$ 374,837$ 380,793$ 366,153$ 343,839$ 361,708$ 377,870$ 398,981

Securities

289,059

272,401

278,610285,323

290,827

306,660

317,795

331,136Loans

894,765

888,054872,804

847,313837,299

809,457

791,247

764,185

Core loans

806,152

795,077

775,813746,196732,093698,988674,767

641,285

Average core loans

799,698

779,383

760,721

737,297715,282

680,224654,551

631,955

Total assets

2,490,972

2,521,029

2,466,096

2,423,808

2,351,698

2,416,635

2,449,098

2,576,619

Deposits

1,375,179

1,376,138

1,330,958

1,321,816

1,279,715

1,273,106

1,287,332

1,367,887

Long-term debt(e)295,245

309,418

295,627

290,754

288,651

292,503286,240

280,123

Common stockholders’ equity

228,122

228,263

226,355

224,089

221,505

219,660

216,287

214,371

Total stockholders’ equity

254,190

254,331

252,423

250,157

247,573245,728

241,205

235,864

Headcount

243,355

242,315240,046

237,420

234,598

235,678

237,459

241,145

272

JPMorgan Chase & Co./2016 Annual ReportSupplementary information(Table continued from previous page)
As of or for the period ended(in millions, except ratio data)

2016

2015

4th quarter3rd quarter2nd quarter

1st quarter

4th quarter3rd quarter2nd quarter

1st quarter

$

$

$

$

$

$

$

$

Credit quality metrics
Allowance for credit losses
Allowance for loan losses to total retained loans

1.55%

Allowance for loan losses to retained loans
excluding purchased credit-impaired loans(f)Nonperforming assets

14,854

1.61%

1.34
$

7,535

15,304

1.64%

1.37
$

7,779

15,187

1.66%

1.40
$

7,757

15,008

1.63%

1.40
$

8,023

14,341

1.67%

1.37
$

7,034

14,201

1.78%

1.40
$

7,294

14,535

1.86%

1.45
$

7,588

14,658

1.52
$

7,714

Net charge-offs

1,280

1,121

1,181

1,110

1,064

963

1,007

1,052

Net charge-off rate

0.58%

0.51%

0.56%

0.53%

0.52%

0.49%

0.53%

0.57%

Note: Effective January 1, 2016, the Firm adopted new accounting guidance related to (1) the recognition and measurement of DVA on financial liabilities where the fair value option has been
elected, and (2) the accounting for employee stock-based incentive payments. For additional information, see Accounting and Reporting Developments on pages 135–137 and Notes 3, 4, and 25.
(a)
(b)
(c)
(d)
(e)
(f)

Share prices are from the New York Stock Exchange.
TBVPS and ROTCE are non-GAAP financial measures. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Financial
Performance Measures on pages 48–50.
HQLA represents the amount of assets that qualify for inclusion in the liquidity coverage ratio under the U.S. rule (“U.S. LCR”). For additional information, see HQLA on page 111.
Ratios presented are calculated under the Basel III Transitional rules and for the capital ratios represent the Collins Floor. See Capital Risk Management on pages 76–85 for additional information on Basel III.
Included unsecured long-term debt of $212.6 billion, $226.8 billion, $220.6 billion, $216.1 billion, $211.8 billion, $214.6 billion, $209.1 billion, $209.0 billion respectively, for the periods presented.
Excludes the impact of residential real estate PCI loans, a non-GAAP financial measure. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial
Measures and Key Performance Measures on pages 48–50. For further discussion, see Allowance for credit losses on pages 105–107.

JPMorgan Chase & Co./2016 Annual Report273

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
2014 through 2016. 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 (primarily federal taxes) on a basis comparable withother taxable investments. The incremental tax rate used
for calculating the taxable-equivalent adjustment wasapproximately 38% in 2016, 2015 and 2014.

(Table continued on next page)
2016
Year ended December 31,(Taxable-equivalent interest and rates; in millions, except rates)
Assets
Deposits with banks
Federal funds sold and securities purchased under resale agreements
Securities borrowed
Trading assets
Taxable securities
Non-taxable securities(a)Total securities
Loans
Other assets(b)Total interest-earning assets
Allowance for loan losses
Cash and due from banks
Trading assets – equity instruments
Trading assets – derivative receivables
Goodwill
Mortgage servicing rights
Other intangible assets:
Purchased credit card relationships
Other intangibles
Other assets
Total assets
Liabilities
Interest-bearing deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Commercial paper
Trading liabilities – debt, short-term and other liabilities(c)Beneficial interests issued by consolidated VIEs
Long-term debt
Total interest-bearing liabilities
Noninterest-bearing deposits
Trading liabilities – equity instruments
Trading liabilities – derivative payables
All other liabilities, including the allowance for lending-related commitments
Total liabilities
Stockholders’ equity
Preferred stock
Common stockholders’ equity
Total stockholders’ equity
Total liabilities and stockholders’ equity
Interest rate spread
Net interest income and net yield on interest-earning assets

Averagebalance$$$$

Interest(e)392,160
205,368
102,964
215,565
235,211
44,176279,387
866,378
39,782
2,101,604(13,965)
18,66095,52870,89747,3105,520

Average
rate

$

1,863
2,265
(f)
(332)
7,373
5,538
2,662
8,200
(g)
36,866875
57,1100.48%
1.10(0.32)
3.42
2.35
6.03
(h)
2.94
4.26
2.20
2.72

$

1,356
1,089
135
1,170
504
5,564
9,818

0.15%
0.61
0.90
0.59
1.25
1.88
0.59

$

47,292

2.13%
2.25

17
905
135,1432,461,619
925,270
178,720
15,001
198,904
40,180295,573
1,653,648
402,698
20,73755,927
77,9102,210,920
26,068
224,631250,699
2,461,619(d)(a) Represents securities that are tax exempt for U.S. Federal income tax purposes.
(b) Includes margin loans.
(c) Includes brokerage customer payables.
(d) The ratio of average stockholders’ equity to average assets was 10.2% for 2016, 9.7% for 2015, and 9.2% for 2014. The return on average stockholders’ equity, based on net
income, was 9.9% for 2016, 10.2% for 2015, and 9.7% for 2014.
(e) Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(f) Securities borrowed’s negative interest income and yield, for the years ended December 31, 2016, 2015 and 2014, are a result of client-driven demand for certain securities
combined with the impact of low interest rates; the offset of this stock borrow activity is reflected as lower net interest expense reported within short-term and other liabilities.
(g) Fees and commissions on loans included in loan interest amounted to $808 million in 2016, $936 million in 2015, and $1.1 billion in 2014.
(h) The annualized rate for securities based on amortized cost was 2.99% in 2016, 2.94% in 2015, and 2.82% in 2014, and does not give effect to changes in fair value that arereflected in AOCI.
(i) Reflects a benefit from the favorable market environments for dollar-roll financings.

274

JPMorgan Chase & Co./2016 Annual ReportWithin the Consolidated average balance sheets, interest and rates summary, the principal amounts of nonaccrual loans havebeen included in the average loan balances used to determine the average interest rate earned on loans. For additional
information on nonaccrual loans, including interest accrued, see Note 14.

(Table continued from previous page)
2015
Averagebalance$$$$

Interest(e)427,963
206,637
105,273
206,385
273,730
42,125
315,855
787,318
38,811
2,088,242(13,885)
22,042
105,489
73,29047,445
6,902

$

1,250
1,592
(f)
(532)
6,694
6,550
2,556
9,106
(g)
33,321652
52,0832014
Average
rate
0.29%
0.77
(0.50)
3.24
2.39
6.07
(h)
2.88
4.23
1.68
2.49

25
1,067
138,792
2,469,409$$

876,840
192,510
38,140207,810
49,200284,940
1,649,440
418,948
17,28264,716
79,2932,229,679
24,040215,690239,730
2,469,409

Averagebalance

$

1,252
609
110
622
435
4,435
7,463

0.14%
0.32
0.29
0.30
0.88
1.56
0.45

$

(d)

$
$

44,620

JPMorgan Chase & Co./2016 Annual Report

2.04%
2.14

Averagerate

Interest(e)358,072
230,489
116,540
210,609318,970
34,359353,329
739,175
40,8792,049,093(15,418)
25,650116,650
67,12348,029
8,387

$

1,157
1,642
(f)
(501)
7,386
7,617
2,158
9,775
(g)
32,394663
52,5160.32%
0.71(0.43)
3.51
2.39
6.28
(h)
2.77
4.38
1.62
2.56

$

1,633
604
134
712
405
4,409
7,897

0.19%
(i)
0.29
0.22
0.32
0.84
1.63
0.47

62
1,316
146,3432,447,235
872,893
208,560
59,916
220,137
47,974
269,814
1,679,294
391,408
16,24654,758
81,111
2,222,817
17,018207,400
224,418
2,447,235

(i)

(d)

$

44,619

2.09%
2.18

275

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 2014 through 2016. 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)
2016
Year ended December 31,(Taxable-equivalent interest and rates; in millions, except rates)
Interest-earning assets
Deposits with banks:
U.S.
Non-U.S.
Federal funds sold and securities purchased under resale agreements:
U.S.
Non-U.S.
Securities borrowed:
U.S.
Non-U.S.
Trading assets – debt instruments:
U.S.
Non-U.S.
Securities:
U.S.
Non-U.S.
Loans:U.S.
Non-U.S.
Other 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 other 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

328,831 $63,329

1,708
155

0.52%
0.25

112,90292,466

1,166
1,099

1.03
1.19

73,297
29,667(341)
9116,211
99,354

3,825
3,548

3.29
3.57

216,726
62,661

6,971
1,229

3.22
1.97

788,213
78,16539,782
2,101,604

35,1101,756
875
57,110

4.45
2.25
2.20
2.72

703,738
221,532

1,029
327

0.15
0.15

121,945
56,775

773
316

0.63
0.56

133,788
80,11740,180

86
1,219
504

283,169
12,404

5,533
31

1.95
0.25

(20,405)
20,405
1,653,648
447,956
2,101,604 $
$

10
(10)
9,818

—
—
0.59

9,818
47,29240,705
6,587

0.47%
2.25%
2.49
1.42

(c)

(c)

(0.46)
0.03

0.06
1.52
1.25

23.1
20.7

(a) Includes commercial paper.
(b) Represents the amount of noninterest-bearing liabilities funding interest-earning assets.
(c) Securities borrowed’s negative interest income and yield, for the years ended December 31, 2016, 2015 and 2014, are a result of client-driven demand for certain
securities combined with the impact of low interest rates; the offset of this stock borrow activity is reflected as lower net interest expense reported within trading
liabilities – debt, short-term and other liabilities.
(d) Reflects a benefit from the favorable market environments for dollar-roll financings.

276

JPMorgan Chase & Co./2016 Annual ReportFor further information, see the “Net interest income” discussion in Consolidated Results of Operations on pages 40–42.

(Table continued from previous page)
2015
Average balance

$

$

2014

Interest

Average rate

388,833 $
39,130

1,021
229

0.26%
0.59

118,945
87,692

900
692

78,81526,458(562)
30

106,465
99,920

Average balance

Average rate

328,145 $
29,927

825
332

0.25%
1.11

0.76
0.79

125,812
104,677

719
923

0.57
0.88

(0.71)
0.11

77,22839,312

(573)
72

3,572
3,122

3.35
3.12

109,678
100,931

4,045
3,341

3.69
3.31

200,240
115,615

6,676
2,430

3.33
2.10

193,856
159,473

6,586
3,189

3.40
2.00

699,664
87,65438,811
2,088,242

31,4681,853
652
52,083

4.50
2.11
1.68
2.49

635,846
103,329
40,8792,049,093

30,1652,229
663
52,516

4.74
2.16
1.62
2.56

638,756
238,084

761
491

0.12
0.21

620,708
252,185

813
820

0.13
0.33

140,60951,901

366
243

0.26
0.47

146,025
62,535

130
474

(d)

0.09
0.76

166,838
79,112
49,200

(394)
1,126
435

(0.24)
1.42
0.88

194,771
85,28247,974

(284)
1,130
405

(c)

(0.15)
1.33
0.84

273,033
11,907

4,386
49

1.61
0.41

256,726
13,088

4,366
43

1.70
0.33

(50,517)50,517
1,649,440
438,8022,088,242 $
$

7
(7)
7,463

—
—
0.45

(176)
176
7,897

—
—
0.47

7,463
44,62038,033
6,587

0.36%
2.14%
2.34
1.42

(122,467)
122,467
1,679,294
369,799
2,049,093 $$

7,897
44,61937,018
7,601

0.39%
2.18%
2.46
1.39

(c)

(c)

24.7
21.1

JPMorgan Chase & Co./2016 Annual Report$

Interest$(c)(0.74)
0.18

(d)

28.9
22.6

277

Changes in net interest income, volume and rate analysis
The table below presents an analysis of the effect on net interest income from volume and rate changes for the periods 2016
versus 2015 and 2015 versus 2014. In this analysis, when the change cannot be isolated to either volume or rate, it has been
allocated to volume.
2016 versus 2015

2015 versus 2014

Increase/(decrease) due
to change in:Year ended December 31,(On a taxable-equivalent basis; in millions)

VolumeIncrease/(decrease) due
to change in:NetchangeRate

VolumeNetchangeRate

Interest-earning assets
Deposits with banks:
U.S.
Non-U.S.
Federal funds sold and securities purchased under resaleagreements:$(324) $
59

1,011 $
(133)

687
(74)

$

163
53

$

33 $
(156)

196
(103)

U.S.

(55)

321

266

(58)

239

181

Non-U.S.

56

351

407

(137)

(94)

(231)

U.S.

24

197

221

(12)

23

11

Non-U.S.

—

(21)

(21)

(14)

(28)

(42)

Securities borrowed:

Trading assets – debt instruments:
U.S.

317

(64)

253

(100)

(373)

(473)

Non-U.S.

(24)

450

426

(27)

(192)

(219)

515

(220)

295

226

(136)

90

(1,051)(150)(1,201)

(918)

159

(759)

U.S.

3,992

(350)

3,642

2,829

(1,526)

1,303

Non-U.S.

(220)

123

(97)

(324)

(52)

(376)

Securities:
U.S.
Non-U.S.
Loans:

Other assets, predominantly U.S.
Change in interest income

21

202

223

(36)

25

(11)

3,310

1,717

5,027

1,645

(2,078)(433)

Interest-bearing liabilities
Interest-bearing deposits:
U.S.

76

192

268

10

(62)

(52)

Non-U.S.

(21)

(143)

(164)

(26)

(303)

(329)

(113)

520

407

(12)

248

236

26

47

73

(50)

(181)

(231)

U.S.

(24)

504

480

66

(176)

(110)

Non-U.S.

14

79

93

(81)

77

(4)

(113)

182

69

11

19

30

219

928

1,147

251

(231)

20

1

(19)

(18)

(4)

10

6

Federal funds purchased and securities loaned or sold under
repurchase agreements:
U.S.
Non-U.S.
Trading liabilities – debt, short-term and other liabilities: (a)Beneficial interests issued by consolidated VIEs, predominantly
U.S.
Long-term debt:
U.S.
Non-U.S.
Intercompany funding:
U.S.

(17)

20

3

(1)

184

183

Non-U.S.

17

(20)

(3)

1

(184)

(183)

65

2,290

2,355

165

(599)

(434)

(573) $

2,672

(1,479) $1

Change in interest expense
Change in net interest income

$

3,245

$

$

1,480

$

(a) Includes commercial paper.

278

JPMorgan Chase & Co./2016 Annual ReportGlossary of Terms and Acronyms
2016 Annual Report or 2016 Form 10-K: Annual report on
Form 10-K for year ended December 31, 2016, filed with
the U.S. Securities and Exchange Commission.
ABS: Asset-backed securities
Active foreclosures: Loans referred to foreclosure whereformal foreclosure proceedings are ongoing. Includes bothjudicial and non-judicial states.

through novation, an open offer system, or another legallybinding arrangement.
CDS: Credit default swaps
CEO: Chief Executive Officer
CET1 Capital: Common Equity Tier 1 Capital
CFTC: Commodity Futures Trading Commission

AFS: Available-for-sale

CFO: Chief Financial Officer

ALCO: Asset Liability Committee

Chase Bank USA, N.A.: Chase Bank USA, National
Association

Allowance for loan losses to total loans: Represents
period-end allowance for loan losses divided by retainedloans.
Alternative assets: The following types of assets constitutealternative investments – hedge funds, currency, real estate,
private equity and other investment funds designed to focus
on nontraditional strategies.
AWM: Asset & Wealth Management
AOCI: Accumulated other comprehensive income/(loss)
ARM: Adjustable rate mortgage(s)AUC: Assets under custody
AUM: “Assets under management”: Represent assets
managed by AWM on behalf of its Private Banking,Institutional and Retail clients. Includes “Committed capital
not Called,” on which AWM earns fees.
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 Commerce
Solutions businesses.
CB: Commercial Banking
CBB: Consumer & Business Banking
CCAR: Comprehensive Capital Analysis and Review
CCB: Consumer & Community Banking
CCO: Chief Compliance Officer
CCP: “Central counterparty” is a clearing house thatinterposes itself between counterparties to contracts tradedin one or more financial markets, becoming the buyer toevery seller and the seller to every buyer and thereby
ensuring the future performance of open contracts. A CCP
becomes counterparty to trades with market participants
JPMorgan Chase & Co./2016 Annual Report

CIB: Corporate & Investment Bank
CIO: Chief Investment Office
Client assets: Represent assets under management as wellas custody, brokerage, administration and deposit accounts.
Client deposits and other third-party liabilities: Deposits,
as well as deposits that are swept to on-balance sheet
liabilities (e.g., commercial paper, federal funds purchased
and securities loaned or sold under repurchaseagreements) as part of client cash management programs.
During the third quarter 2015 the Firm completed thediscontinuation of its commercial paper customer sweep
cash management program.
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.
Commerce Solutions is a business that primarily processes
transactions for merchants.
Commercial Card: provides a wide range of payment
services to corporate and public sector clients worldwide
through the commercial card products. Services include
procurement, corporate travel and entertainment, expense
management services, and business-to-business payment
solutions.
COO: Chief Operating Officer
Core loans: Represents loans considered central to theFirm’s ongoing businesses; core loans exclude loansclassified as trading assets, runoff portfolios, discontinued
portfolios and portfolios the Firm has an intent to exit.
Credit cycle: A period of time over which credit quality
improves, deteriorates and then improves again (or viceversa). The duration of a credit cycle can vary from a coupleof years to several years.
Credit derivatives: Financial instruments whose value isderived from the credit risk associated with the debt of athird-party issuer (the reference entity) which allow one
party (the protection purchaser) to transfer that risk to279

Glossary of Terms and Acronyms
another 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 arating of CCC+/Caa1 and below, as defined by S&P and
Moody’s.

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

CRO: Chief Risk Officer

FDIC: Federal Deposit Insurance Corporation

CTC: CIO, Treasury and Corporate

Federal Reserve: The Board of the Governors of the Federal
Reserve System

CVA: Credit valuation adjustments
Debit and credit card sales volume: Dollar amount of card
member purchases, net of returns.
Deposit margin/deposit spread: Represents net interest
income expressed as a percentage of average deposits.
Distributed denial-of-service attack: The use of a large
number of remote computer systems to electronically senda high volume of traffic to a target website to create aservice outage at the target. This is a form of cyberattack.
DFAST: Dodd-Frank Act Stress Test
Dodd-Frank Act: Wall Street Reform and Consumer
Protection Act
DOJ: U.S. Department of Justice
DOL: U.S. Department of Labor
DRPC: Directors’ Risk Policy Committee
DVA: Debit valuation adjustment
E&P: Exploration & Production
EC: European Commission
Eligible LTD: Long-term debt satisfying certain eligibility
criteria
Embedded derivatives: are implicit or explicit terms orfeatures of a financial instrument that affect some or all of
the cash flows or the value of the instrument in a manner
similar to a derivative. An instrument containing such terms
or features is referred to as a “hybrid.” The component of
the hybrid that is the non-derivative instrument is referred
to as the “host.” For example, callable debt is a hybrid
instrument that contains a plain vanilla debt instrument(i.e., the host) and an embedded option that allows theissuer to redeem the debt issue at a specified date for a
280

Fee share: Proportion of fee revenue based on estimates ofinvestment banking fees generated across the industry frominvestment banking transactions in M&A, equity and debt
underwriting, and loan syndications. Source: Dealogic, athird-party provider of investment banking fee competitive
analysis and volume-based league tables for the above
noted industry products.
FFELP: Federal Family Education Loan Program
FFIEC: Federal Financial Institutions Examination Council
FHA: Federal Housing Administration
FHLB: Federal Home Loan Bank
FICO score: A measure of consumer credit risk provided bycredit bureaus, typically produced from statistical models
by Fair Isaac Corporation utilizing data collected by thecredit bureaus.
Firm: JPMorgan Chase & Co.
Forward points: Represents the interest rate differential
between two currencies, which is either added to or
subtracted from the current exchange rate (i.e., “spot rate”)
to determine the forward exchange rate.
FRC: Firmwide Risk Committee
Free standing derivatives: a derivative contract enteredinto either separate and apart from any of the Firms otherfinancial instruments or equity transactions. Or, inconjunction with some other transaction and is legallydetachable and separately exercisable.
FSB: Financial Stability Board
FTE: Fully taxable equivalent
FVA: Funding valuation adjustment
JPMorgan Chase & Co./2016 Annual ReportGlossary of Terms and Acronyms
FX: Foreign exchange

JPMorgan Chase: JPMorgan Chase & Co.

G7: Group of Seven nations: Countries in the G7 are
Canada, France, Germany, Italy, Japan, the U.K. and the U.S.

JPMorgan Chase Bank, N.A.: JPMorgan Chase Bank,
National Association

G7 government bonds: Bonds issued by the government of
one of the G7 nations.

JPMorgan Clearing: J.P. Morgan Clearing Corp.

Ginnie Mae: Government National Mortgage Association
GSE: Fannie Mae and Freddie Mac
GSIB: Global systemically important banks
HAMP: Home affordable modification program
Headcount-related expense: Includes salary and benefits(excluding performance-based incentives), and othernoncompensation costs related to employees.

JPMorgan Securities: J.P. Morgan Securities LLC
Loan-equivalent: Represents the portion of the unused
commitment or other contingent exposure that is expected,
based on average portfolio historical experience, to becomedrawn prior to an event of a default by an obligor.
LCR: Liquidity coverage ratio
LDA: Loss Distribution Approach
LGD: Loss given default

HELOAN: Home equity loan

LIBOR: London Interbank Offered RateHELOC: Home equity line of credit

LLC: Limited Liability Company

Home equity – senior lien: Represents loans andcommitments where JPMorgan Chase holds the first
security interest on the property.

LOB: Line of business

Home equity – junior lien: Represents loans andcommitments where JPMorgan Chase holds a security
interest that is subordinate in rank to other liens.
Households: A household is a collection of individuals or
entities aggregated together by name, address, tax
identifier and phone. Reported on a one-month lag.
HQLA: High quality liquid assets
HTM: Held-to-maturity
ICAAP: Internal capital adequacy assessment process
IDI: Insured depository institutions
IHC: JPMorgan Chase Holdings LLC, an intermediate holding
company
Impaired loan: Impaired loans are loans measured atamortized cost, for which it is probable that the Firm will be
unable to collect all amounts due, including principal andinterest, according to the contractual terms of theagreement. Impaired loans include the following:•

All wholesale nonaccrual loans•

All TDRs (both wholesale and consumer), including ones
that have returned to accrual status

Interchange income: A fee paid to a credit card issuer inthe clearing and settlement of a sales or cash advancetransaction.
Investment-grade: An indication of credit quality based on
JPMorgan Chase’s internal risk assessment system.
“Investment grade” generally represents a risk profile
similar to a rating of a “BBB-”/“Baa3” or better, as definedby independent rating agencies.
ISDA: International Swaps and Derivatives Association
JPMorgan Chase & Co./2016 Annual Report

Loss emergence period: Represents the time period
between the date at which the loss is estimated to havebeen incurred and the realization of that loss.
LTIP: Long-term incentive plan
LTV: “Loan-to-value”: For residential real estate loans, therelationship, expressed as a percentage, between theprincipal amount of a loan and the appraised value of thecollateral (i.e., residential real estate) securing the loan.
Origination date LTV ratio
The LTV ratio at the origination date of the loan. Origination
date LTV ratios are calculated based on the actual appraisedvalues of collateral (i.e., loan-level data) at the origination
date.
Current estimated LTV ratio
An estimate of the LTV as of a certain date. The current
estimated LTV ratios are calculated using estimatedcollateral values derived from a nationally recognized homeprice index measured at the metropolitan statistical area(“MSA”) level. These MSA-level home price indices consist of
actual data to the extent available and forecasted data
where actual data is not available. As a result, the estimatedcollateral values used to calculate these ratios do not
represent actual appraised loan-level collateral values; assuch, the resulting LTV ratios are necessarily imprecise andshould therefore be viewed as estimates.
Combined LTV ratio
The LTV ratio considering all available lien positions, as wellas unused lines, related to the property. Combined LTV
ratios are used for junior lien home equity products.
Managed basis: A non-GAAP presentation of financial
results that includes reclassifications to present revenue ona fully taxable-equivalent basis. Management uses this nonGAAP financial measure at the segment level, because it281

Glossary of Terms and Acronyms
believes this provides information to enable investors tounderstand the underlying operational performance andtrends of the particular business segment and facilitates acomparison of the business segment with the performanceof competitors.
Master netting agreement: An agreement between two
counterparties who have multiple contracts with each otherthat provides for the net settlement of all contracts, as wellas cash collateral, through a single payment, in a single
currency, in the event of default on or termination of any
one contract.
MBS: Mortgage-backed securities
MD&A: Management’s discussion and analysis
MMDA: Money Market Deposit Accounts
Moody’s: Moody’s Investor Services
Mortgage origination channels:
Retail – Borrowers who buy or refinance a home throughdirect contact with a mortgage banker employed by the
Firm using a branch office, the Internet or by phone.
Borrowers are frequently referred to a mortgage banker bya banker in a Chase branch, real estate brokers, homebuilders or other third parties.
Correspondent – Banks, thrifts, other mortgage banks andother financial institutions that sell closed loans to the Firm.
Mortgage product types:
Alt-A
Alt-A loans are generally higher in credit quality thansubprime loans but have characteristics that would
disqualify the borrower from a traditional prime loan. Alt-A
lending characteristics may include one or more of thefollowing: (i) limited documentation; (ii) a high CLTV ratio;(iii) loans secured by non-owner occupied properties; or (iv)a debt-to-income ratio above normal limits. A substantial
proportion of the Firm’s Alt-A loans are those where aborrower does not provide complete documentation of hisor her assets or the amount or source of his or her income.
Option ARMs
The option ARM real estate loan product is an adjustablerate mortgage loan that provides the borrower with theoption each month to make a fully amortizing, interest-onlyor minimum payment. The minimum payment on an option
ARM loan is based on the interest rate charged during the
introductory period. This introductory rate is usuallysignificantly below the fully indexed rate. The fully indexed
rate is calculated using an index rate plus a margin. Oncethe introductory period ends, the contractual interest rate
charged on the loan increases to the fully indexed rate andadjusts monthly to reflect movements in the index. The
minimum payment is typically insufficient to cover interest
accrued in the prior month, and any unpaid interest isdeferred and added to the principal balance of the loan.
Option ARM loans are subject to payment recast, which282

converts 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 theloan is other than the borrower’s primary residence; or (v) ahistory of delinquencies or late payments on the loan.
MSA: Metropolitan statistical areas
MSR: Mortgage servicing rights
Multi-asset: Any fund or account that allocates assets undermanagement to more than one asset class.
NA: Data is not applicable or available for the period
presented.
NAV: Net Asset ValueNet Capital Rule: Rule 15c3-1 under the Securities
Exchange Act of 1934.
Net charge-off/(recovery) rate: Represents net chargeoffs/(recoveries) (annualized) divided by average retainedloans for the reporting period.
Net mortgage servicing revenue includes the following
components:
Operating revenue predominantly represents the return on
Mortgage Servicing’s MSR asset and includes:– Actual gross income earned from servicing third-party
mortgage loans, such as contractually specified
servicing fees and ancillary income; and– The change in the fair value of the MSR asset due tothe collection or realization of expected cash flows.
Risk management represents the components ofMortgage Servicing’s MSR asset that are subject to ongoingrisk management activities, together with derivatives andother instruments used in those risk management activities.
Net production revenue: Includes net gains or losses on
originations and sales of mortgage loans, other productionrelated fees and losses related to the repurchase ofpreviously sold loans.

JPMorgan Chase & Co./2016 Annual ReportGlossary of Terms and Acronyms
Net revenue rate: Represents Card Services net revenue(annualized) expressed as a percentage of average loans forthe period.
Net yield on interest-earning assets: The average rate forinterest-earning assets less the average rate paid for all
sources of funds.
NM: Not meaningful
NOL: Net operating loss
Nonaccrual loans: Loans for which interest income is notrecognized on an accrual basis. Loans (other than credit
card loans and certain consumer loans insured by U.S.
government agencies) are placed on nonaccrual statuswhen full payment of principal and interest is not expected,
regardless of delinquency status, or when principal andinterest have been in default for a period of 90 days ormore unless the loan is both well-secured and in theprocess of collection. Collateral-dependent loans are
typically maintained on nonaccrual status.
Nonperforming assets: Nonperforming assets include
nonaccrual loans, nonperforming derivatives and certain
assets acquired in loan satisfaction, predominantly realestate owned and other commercial and personal property.
NOW: Negotiable Order of Withdrawal
NSFR: Net stable funding ratio
OAS: Option-adjusted spread
OCC: Office of the Comptroller of the Currency
OCI: Other comprehensive income/(loss)
OEP: One Equity Partners
OIS: Overnight index swap
OPEB: Other postretirement employee benefit
ORMF: Operational Risk Management Framework
OTTI: Other-than-temporary impairment
Over-the-counter (“OTC”) derivatives: Derivative contracts
that are negotiated, executed and settled bilaterally
between two derivative counterparties, where one or bothcounterparties is a derivatives dealer.
Over-the-counter cleared (“OTC-cleared”) derivatives:
Derivative contracts that are negotiated and executedbilaterally, but subsequently settled via a central clearing
house, such that each derivative counterparty is only
exposed to the default of that clearing house.
Overhead ratio: Noninterest expense as a percentage of
total net revenue.
Parent Company: JPMorgan Chase & Co.
Participating securities: Represents unvested stock-based
compensation awards containing nonforfeitable rights todividends or dividend equivalents (collectively, “dividends”),
which are included in the earnings per share calculation
JPMorgan Chase & Co./2016 Annual Reportusing the two-class method. JPMorgan Chase grants
restricted stock and RSUs to certain employees under its
stock-based compensation programs, which entitle therecipients to receive nonforfeitable dividends during thevesting period on a basis equivalent to the dividends paid toholders of common stock. These unvested awards meet thedefinition of participating securities. Under the two-classmethod, all earnings (distributed and undistributed) areallocated to each class of common stock and participating
securities, based on their respective rights to receive
dividends.
PCA: Prompt corrective action
PCI: “Purchased credit-impaired” loans represents loansthat were acquired in the Washington Mutual transaction
and deemed to be credit-impaired on the acquisition date inaccordance with the guidance of the FASB. The guidance
allows purchasers to aggregate credit-impaired loans
acquired in the same fiscal quarter into one or more pools,
provided that the loans have common risk characteristics(e.g., product type, LTV ratios, FICO scores, past due status,
geographic location). A pool is then accounted for as asingle asset with a single composite interest rate and an
aggregate expectation of cash flows.
PD: Probability of default
PRA: Prudential Regulatory Authority
Pre-provision profit/(loss): Represents total net revenue
less noninterest expense. The Firm believes that thisfinancial measure is useful in assessing the ability of alending institution to generate income in excess of its
provision for credit losses.
Pretax margin: Represents income before income tax
expense divided by total net revenue, which is, inmanagement’s view, a comprehensive measure of pretax
performance derived by measuring earnings after all costs
are taken into consideration. It is one basis upon which
management evaluates the performance of AWM against
the performance of their respective competitors.
Principal transactions revenue: Principal transactions
revenue is driven by many factors, including the bid-offer
spread, which is the difference between the price at which
the Firm is willing to buy a financial or other instrument andthe price at which the Firm is willing to sell that instrument.
It also consists of realized (as a result of closing out or
termination of transactions, or interim cash payments) andunrealized (as a result of changes in valuation) gains andlosses on financial and other instruments (including thoseaccounted for under the fair value option) primarily used inclient-driven market-making activities and on private equity
investments. In connection with its client-driven marketmaking activities, the Firm transacts in debt and equity
instruments, derivatives and commodities (including
physical commodities inventories and financial instrumentsthat reference commodities).
Principal transactions revenue also includes certain realized283

Glossary of Terms and Acronyms
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
RCSA: Risk and Control Self-Assessment
Real assets: Real assets include investments in productive
assets such as agriculture, energy rights, mining and timber
properties and exclude raw land to be developed for realestate purposes.
REIT: “Real estate investment trust”: A special purpose
investment vehicle that provides investors with the ability toparticipate directly in the ownership or financing of realestate related assets by pooling their capital to purchaseand manage income property (i.e., equity REIT) and/or
mortgage loans (i.e., mortgage REIT). REITs can be publicly
or privately held and they also qualify for certain favorable
tax considerations.
Receivables from customers: Primarily represents marginloans to brokerage customers that are collateralized
through assets maintained in the clients’ brokerage
accounts, as such no allowance is held against thesereceivables. These receivables are reported within accrued
interest and accounts receivable on the Firm’s Consolidatedbalance sheets.
Regulatory VaR: Daily aggregated VaR calculated inaccordance with regulatory rules.
REO: Real estate owned
Reported basis: Financial statements prepared under U.S.
GAAP, which excludes the impact of taxable-equivalentadjustments.
Retained loans: Loans that are held-for-investment (i.e.,
excludes loans held-for-sale and loans at fair value).
Revenue wallet: Proportion of fee revenue based on
estimates of investment banking fees generated across theindustry (i.e., the revenue wallet) from investment banking
transactions in M&A, equity and debt underwriting, andloan syndications. Source: Dealogic, a third-party provider
of investment banking competitive analysis and volumebased league tables for the above noted industry products.
RHS: Rural Housing Service of the U.S. Department ofAgriculture
ROA: Return on assets
ROE: Return on equity
ROTCE: Return on tangible common equity
RSU(s): Restricted stock units
284

RWA: “Risk-weighted assets”: Basel III establishes twocomprehensive methodologies for calculating RWA (aStandardized approach and an Advanced approach) which
include capital requirements for credit risk, market risk, andin the case of Basel III Advanced, also operational risk. Key
differences in the calculation of credit risk RWA between theStandardized and Advanced approaches are that for Basel
III Advanced, credit risk RWA is based on risk-sensitive
approaches which largely rely on the use of internal credit
models and parameters, whereas for Basel III Standardized,
credit risk RWA is generally based on supervisory riskweightings which vary primarily by counterparty type andasset class. Market risk RWA is calculated on a generally
consistent basis between Basel III Standardized and Basel III
Advanced, both of which incorporate the requirements set
forth in Basel 2.5.
S&P: Standard and Poor’s 500 Index
SAR(s): Stock appreciation rights
SCCL: single-counterparty credit limits
SEC: Securities and Exchange Commission
Seed capital: Initial JPMorgan capital invested in products,
such as mutual funds, with the intention of ensuring thefund is of sufficient size to represent a viable offering toclients, enabling pricing of its shares, and allowing themanager to develop a track record. After these goals areachieved, the intent is to remove the Firm’s capital from theinvestment.
Short sale: A short sale is a sale of real estate in which
proceeds from selling the underlying property are less than
the amount owed the Firm under the terms of the related
mortgage, and the related lien is released upon receipt ofsuch proceeds.
Single-name: Single reference-entities
SLR: Supplementary leverage ratio
SMBS: Stripped mortgage-backed securities
SOA: Society of Actuaries
SPEs: Special purpose entities
Structural interest rate risk: Represents interest rate riskof the non-trading assets and liabilities of the Firm.
Structured notes: Structured notes are predominantly
financial instruments containing embedded derivatives.
Suspended foreclosures: Loans referred to foreclosure
where formal foreclosure proceedings have started but are
currently on hold, which could be due to bankruptcy or loss
mitigation. Includes both judicial and non-judicial states.
Taxable-equivalent basis: In presenting managed results,
the total net revenue for each of the business segments andthe Firm is presented on a tax-equivalent basis. Accordingly,
revenue from investments that receive tax credits and taxexempt securities is presented in the managed results on abasis comparable to taxable investments and securities; theJPMorgan Chase & Co./2016 Annual ReportGlossary of Terms and Acronyms
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 havenot been subjected to auditing procedures sufficient topermit an independent certified public accountant toexpress an opinion.
U.S.: United States of America
U.S. GAAP: Accounting principles generally accepted in theU.S.
U.S. government-sponsored enterprises (“U.S. GSEs”) and
U.S. GSE obligations: In the U.S., GSEs are quasigovernmental, privately held entities established by
Congress to improve the flow of credit to specific sectors of
the economy and provide certain essential services to the
public. U.S. GSEs include Fannie Mae and Freddie Mac, but
do not include Ginnie Mae, which is directly owned by the
U.S. Department of Housing and Urban Development. U.S.
GSE obligations are not explicitly guaranteed as to thetimely payment of principal and interest by the full faith andcredit of the U.S. government.
U.S. LCR: Liquidity coverage ratio under the final U.S. rule.
U.S. Treasury: U.S. Department of the Treasury
VA: U.S. Department of Veterans Affairs
VaR: “Value-at-risk” is a measure of the dollar amount ofpotential loss from adverse market moves in an ordinary
market environment.
VCG: Valuation Control GroupVGF: Valuation Governance Forum
VIEs: Variable interest entities
Warehouse loans: Consist of prime mortgages originatedwith the intent to sell that are accounted for at fair value
and classified as trading assets.
Washington Mutual transaction: On September 25, 2008,
JPMorgan Chase acquired certain of the assets of thebanking operations of Washington Mutual Bank(“Washington Mutual”) from the FDIC.

JPMorgan Chase & Co./2016 Annual Report285

Board of Directors
Linda B. Bammann 5

Todd A. Combs 4, 5

Laban P. Jackson, Jr. 1

William C. Weldon 2, 3

Retired Deputy Head of Risk
Management
JPMorgan Chase & Co.
(Financial services)

Investment Officer
Berkshire Hathaway, Inc.
(Conglomerate)

Chairman and Chief Executive Officer
Clear Creek Properties, Inc.
(Real estate development)

Retired Chairman andChief Executive Officer
Johnson & Johnson(Health care products)

James S. Crown 5

Michael A. Neal 5

President
Henry Crown and Company(Diversified investments)

Retired Vice Chairman
General Electric Company
and Retired Chairman
and Chief Executive Officer
GE Capital(Industrial and financial services)James A. Bell 1
Retired Executive Vice President
The Boeing Company(Aerospace)

James Dimon
Crandall C. Bowles 1, 4
Chairman Emeritus
The Springs Company(Diversified investments)

Chairman andChief Executive Officer
JPMorgan Chase & Co.

Timothy P. Flynn 1, 4
Stephen B. Burke2, 3

Chief Executive Officer
NBCUniversal, LLC(Television and entertainment)

Retired Chairman andChief Executive Officer
KPMG(Professional services)

Member of:
1 Audit Committee

Lee R. Raymond 2, 3
Lead Director,
JPMorgan Chase & Co.
Retired Chairman andChief Executive Officer
Exxon Mobil Corporation(Oil and gas)

2 Compensation & 	 Management Development
 	 Committee
3 Corporate Governance &Nominating Committee
4 Public Responsibility
 	 Committee
5 Directors’ Risk Policy Committee

Operating Committee
James Dimon

Mary Callahan Erdoes

Daniel E. Pinto

Chairman andChief Executive Officer

CEO, Asset & Wealth Management

CEO, Corporate & Investment Bank
and CEO, EMEA

Stacey Friedman
Ashley Bacon

General Counsel

Chief Risk Officer

Gordon A. Smith
CEO, Consumer & Community Banking

Marianne LakeJohn L. Donnelly

Chief Financial Officer

Head of Human Resources

Matthew E. Zames
Chief Operating Officer

Douglas B. Petno
CEO, Commercial Banking

Other Corporate Officers
Molly Carpenter

Nicole Giles

Jason R. Scott

Secretary

Controller

Investor Relations

Joseph M. Evangelisti

Peter L. Scher

James R. Vallone

Corporate Communications

Corporate Responsibility

General Auditor

286

JPMorgan Chase & Co./2016 Annual Report

Regional Chief Executive Officers
Asia Pacific

Europe/Middle East/Africa

Latin America/Canada

Nicolas Aguzin

Daniel E. Pinto

Martin G. Marron

Viswas Raghavan, Deputy CEO

Senior Country Officers
Asia Pacific

EMEA

Australia and New Zealand

Robert C. Priestley

Belgium, France, Luxembourg andNetherlands

China

Kyril Courboin

David Li

BelgiumHong Kong

Tanguy A. PiretKam Shing Kwang

Netherlands

India, Bangladesh and Sri Lanka

Peter A. Kerckhoffs

Kalpana Morparia

Germany, Austria and Switzerland

Indonesia

Dorothee Blessing

Haryanto T. Budiman

AustriaJapan

Anton J. Ulmer

Steve Teru Rinoie

Switzerland

Korea

Nick Bossart

Tae Jin Park
Malaysia

Steve R. Clayton
Pakistan

Muhammad Aurangzeb
Philippines

Roberto L. Panlilio
Singapore

Bahrain/Egypt/Lebanon

Ali Moosa
Saudi Arabia

Bader A. Alamoudi
Turkey/Azerbaijan

Mustafa Bagriacik
Sub-Saharan Africa

Marc J. Hussey
Kevin G. Latter

Andean, Central America, andCaribbean

Moises Mainster
Argentina, Uruguay, Bolivia, andParaguay

Facundo D. Gomez Minujin
BrazilJosé Berenguer
Chile

Alfonso Eyzaguirre
MexicoEduardo F. Cepeda
North America
CanadaDavid E. Rawlings

IberiaIgnacio de la Colina
Ireland

Carin Bryans

TaiwanRoy Navon

Carl K. Chien

Italy

Vietnam

Sjoerd Leenart

Enrique Casanueva

Israel

M.L. Chayotid Kridakon

Middle East, Turkey and Africa

Central & Eastern Europe, Greece,
Iberia, Ireland, Israel, Italy andNordics

Edmund Y. Lee

ThailandLatin America

Guido M. Nola
Russia/Central Asia

Yan L. Tavrovsky

Van Bich Phan

JPMorgan Chase Vice Chairmen
Melissa L. Bean

Jacob A. Frenkel

David Mayhew

Phyllis J. Campbell

Walter A. GubertPeter L. Scher

Stephen M. Cutler

Mel R. Martinez

JPMorgan Chase & Co./2016 Annual Report287

J.P. Morgan International Council

Rt. Hon. Tony Blair

Herman Gref

Sergio Marchionne

Paolo Rocca

Chairman of the Council
Former Prime Minister of Great Britain
and Northern Ireland
London, United Kingdom

Chief Executive Officer,
Chairman of the Executive Board
Sberbank of Russia
Moscow, Russia

Chief Executive Officer
Fiat Chrysler Automobiles N.V.
Auburn Hills, Michigan

Chairman and Chief Executive Officer
TenarisBuenos Aires, Argentina

Gérard Mestrallet

Ratan Naval Tata

Chairman of the Board
ENGIE
Paris la Défense, France

Chairman
Tata Trusts
Mumbai, India

Akio Mimura

The Hon. Tung Chee Hwa GBM

Senior Advisor and Honorary Chairman
Nippon Steel & Sumitomo Metal
Corporation
Tokyo, Japan

Vice Chairman
National Committee of the Chinese
People’s Political Consultative Conference
Hong Kong, The People’s Republicof China

The Hon. Robert M. Gates
Vice Chairman of the Council
Partner
RiceHadleyGates LLC
Washington, District of Columbia

William B. Harrison, Jr.
Former Chairman andChief Executive Officer
JPMorgan Chase & Co.
New York, New YorkThe Hon. Carla A. Hills
Bernard Arnault
Chairman and Chief Executive Officer
LVMH Moët Hennessy – Louis Vuitton
Paris, France

Paul Bulcke
Member of the Board of Directors
Nestlé S.A.
Vevey, Switzerland

Jamie Dimon*
Chairman and Chief Executive Officer
JPMorgan Chase & Co.
New York, New York

Martin Feldstein
Professor of Economics
Harvard University
Cambridge, Massachusetts

Armando Garza Sada
Chairman of the Board
ALFA
Nuevo León, Mexico

Chairman and Chief Executive Officer
Hills & Company International Consultants
Washington, District of Columbia

The Hon. John Howard OM AC

Patrice Motsepe

Cees J.A. van Lede

Former Prime Minister of Australia
Sydney, Australia

Founder and Executive Chairman
African Rainbow Minerals Limited
Johannesburg, South Africa

Joe Kaeser

Amin H. Nasser

President and Chief Executive Officer
Siemens AG
Munich, Germany

President and Chief Executive Officer
Saudi Aramco
Dhahran, Saudi Arabia

The Hon. Henry A. Kissinger

Michael Pram Rasmussen

Chairman
Kissinger Associates, Inc.
New York, New York

Chairman of the Board
A.P. Møller-Maersk A/S
Copenhagen, Denmark

Jorge Paulo Lemann

The Hon. Condoleezza Rice

Chairman and Chief Executive Officer
LenovoBeijing, China

Director
H.J. Heinz Company
Pittsburgh, Pennsylvania

Partner
RiceHadleyGates LLC

Jaime Augusto Zobel de Ayala

Stanford, California

Former Chairman and Chief Executive
Officer, Board of Management
Akzo Nobel
Amsterdam, The Netherlands

Douglas A. Warner III
Former Chairman of the Board
JPMorgan Chase & Co.
New York, New YorkYang Yuanqing

Chairman and Chief Executive Officer
Ayala Corporation
Makati City, Philippines* Ex-officio

288

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