JPMorgan Chase Annual Report 2017

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FY2017 Annual Report · JPMorgan Chase

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ANNUAL REPORT

2017 Financial Highlights

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

2017

2016

2015

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

Per common share data
Net income per share:
Basic
Diluted
Cash dividends declared
Book value
Tangible book value (TBVPS)(b)

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)

Selected balance sheet data (period-end)
Loans
Total assets
Deposits
Common stockholders’ equity
Total stockholders’ equity

Market data
Closing share price
Market capitalization
Common shares at period-end

Headcount

99,624
58,434
41,190
5,290
24,441

$ 6.35
6.31
2.12
67.04
53.56

10 %
12
12.1
13.8
15.7

$ 930,697
2,533,600
1,443,982
229,625
255,693

$
106.94
366,301
3,425.3

252,539

95,668
55,771
39,897
5,361
24,733

6.24
6.19
1.88
64.06
51.44

10 %
13
12.2
13.9 (d)
15.2

93,543
59,014
34,529
3,827
24,442

6.05
6.00
1.72
60.46
48.13

11 %
13
11.6
13.3
14.7

$ 894,765
2,490,972
1,375,176
228,122
254,190

86.29
307,295
3,561.2

243,355

$ 837,299
2,351,698
1,279,715
221,505
247,573

66.03
241,899
3,663.5

234,598

(a) Results are presented in accordance with accounting principles generally accepted in the United States of America, except where

otherwise noted.

(b) TBVPS and ROTCE are each non-GAAP financial measures. For further discussion of these measures, see Explanation and

Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Financial Performance Measures on pages 52–54.
(c) The ratios presented are calculated under the Basel III Advanced Fully Phased-In Approach, and they are key regulatory capital

measures. For further discussion, see “Capital Risk Management” on pages 82-91.
(d) The prior period ratio has been revised to conform with the current period presentation.

JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets
of $2.5 trillion and operations worldwide. The firm is a leader in investment banking,
financial services for consumers and small businesses, commercial banking, financial
transaction processing, and asset management. A component of the Dow Jones Industrial
Average, JPMorgan Chase & Co. serves millions of customers in the United States and
many of the world’s most prominent corporate, institutional and government clients
under its J.P. Morgan and Chase brands.

Information about J.P. Morgan’s capabilities can be found at jpmorgan.com and about
Chase’s capabilities at chase.com. Information about JPMorgan Chase & Co. is available
at jpmorganchase.com.

46.7 million digital customers
make us the #1 most visited
bank website with the most
mobile banking customers

$900+ billion in debit
and credit card sales
volume

$1.75 billion in
philanthropic investments
over the next five years

$200 billion in clean
energy financing
by 2025

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

#1 on Fortune’s
Change the World list

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

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

$5 trillion daily value
of wholesale payments
across 120 currencies

$1.3 trillion in assets under
management shifted to
J.P. Morgan by BlackRock as
part of the largest custody
mandate in history

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

86% of long-term mutual
fund assets under
management ranked in
top two quartiles over
10-year period

#1400100%TOP 5086%$900+BILLION46.7MILLION DIGITAL CUSTOMERS$1.75BILLION$200BILLION$5TRILLION$1.3TRILLIONTOP EMPLOYERDear Fellow Shareholders,

Jamie Dimon,
Chairman and
Chief Executive Officer

Once again, I begin this letter with a sense of pride about JPMorgan Chase. As I
look back on last year — in fact, the last decade — it is remarkable how well our
company has performed. And I’m not only talking about our strong financial
performance — but also about how much we have accomplished to help our clients,
customers and communities all around the world. Ours is an exceptional company
with an extraordinary heritage and a promising future.

We continue to make excellent progress around technology, risk and controls,
innovation, diversity and reduced bureaucracy. We’ve helped communities large
and small — by doing what we do best (lending, investing and serving our clients);
by creatively expanding certain flagship Corporate Responsibility programs,
including the Entrepreneurs of Color Fund, The Fellowship Initiative and our Service
Corps; and by applying our successful Detroit investment model to neighborhood
revitalization efforts in the Bronx in New York City, Chicago and Washington, D.C.

Throughout a period of profound political and economic change around the world,
our company has been steadfast in our dedication to the clients, communities and
countries we serve while earning a fair return for our shareholders.

2017 was another record year across many measures for our company as we added
clients and customers and delivered record earnings per share. We earned $24.4
billion in net income on revenue1 of $103.6 billion (if we exclude the tax charge
at year-end, 2017 net income would have been a record $26.9 billion), reflecting
strong underlying performance across our businesses. We now have delivered
record results in seven of the last eight years, and we have confidence that we will
continue to deliver in the future.

1 Represents
managed
revenue

Earnings, Diluted Earnings per Share and Return on Tangible Common Equity
2004–2017

($ in billions, except per share and ratio data)

$24.4
$24.4

$24.7
$24.7

$6.00
$6.00
(cid:30)

(cid:30)
13%

$6.19
$6.19
(cid:30)

(cid:30)
13%

$26.9

$24.4

$6.99
$6.31
(cid:30)

(cid:30)
12%

Adjusted net income1

Reported net income

13.6% Adjusted ROTCE1

(cid:30)
24%

22%
(cid:30)

(cid:30)
15%

$14.4
$14.4

$15.4
$15.4

(cid:30)

$4.00
$4.00

$4.33
$4.33

(cid:30)
10%

(cid:30)
$4.5
$4.5
$1.52
$1.52

$8.5
$8.5
(cid:30)
$2.35
$2.35

10%
(cid:30)
$11.7
$11.7

(cid:30)
$2.26
$2.26

(cid:30)
6%

$5.6
$5.6
(cid:30)
$1.35
$1.35

$21.3
$21.3

15%
(cid:30)

(cid:30)

$5.19
$5.19

$17.9
$17.9

11%
(cid:30)

(cid:30)

$4.34
$4.34

$21.7
$21.7

13%
(cid:30)
(cid:30)

$5.29
$5.29

$19.0
$19.0

(cid:30)
15%

(cid:30)

$4.48
$4.48

$17.4
$17.4

(cid:30)
15%

(cid:30)

$3.96
$3.96

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

(cid:31) Net income (cid:31) Diluted earnings per share (cid:31) Return on tangible common equity
(cid:31) Net income (cid:31) Diluted earnings per share (cid:31) Return on tangible common equity (ROTCE)

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

Tangible Book Value and Average Stock Price per Share
2004–2017

High: $ 108.46
Low: $ 81.64

$92.01
(cid:29)

$63.83 $65.62

(cid:29)

$51.44

$53.56

$58.17
(cid:29)

$51.88
(cid:29)

$38.70
(cid:29)

$36.07
(cid:29)

$47.75
(cid:29)

$43.93
(cid:29)

$39.83
(cid:29)

$35.49
(cid:29)

$40.36 $39.36 $39.22
(cid:29)

(cid:29)

$38.68 $40.72

$48.13

$44.60

$15.35 $16.45

$18.88

$21.96

$22.52

$27.09

$30.12

$33.62

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

(cid:31) Tangible book value (cid:31) Average stock price

As you know, we believe tangible book value per share is a good measure of the
value we have created for our shareholders. If our asset and liability values are
appropriate — and we believe they are — and if we can continue to deploy this
capital profitably, we now think that it can earn approximately 17% return on
tangible equity for the foreseeable future. Then, in our view, our company should
ultimately be worth considerably more than tangible book value. The chart on the
bottom of page 3 shows that tangible book value “anchors” the stock price.

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

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

Compounded annual gain

Overall gain

Bank One
(A)

11.8%

566.3%

S&P 500
(B)

Relative Results
(A) — (B)

5.2%

147.3%

6.6%

419.0%

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

Compounded annual gain

Overall gain

JPMorgan Chase & Co.
(A)

S&P 500
(B)

Relative Results
(A) — (B)

12.7%

403.5%

8.8%

210.4%

3.9%

193.1%

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

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

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

We want to remind our shareholders that we much prefer to use our capital to grow
than to buy back stock. Buying back stock should only be considered when we either
cannot invest (sometimes that’s a function of regulatory policies) or when we are
generating excess, unusable capital. We currently have excess capital, but due to
recent tax reform and a more constructive regulatory environment, we hope, in the
future, to use more of our excess capital to grow our businesses, expand into new
markets and support our employees.

Stock total return analysis

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

Compounded annual gain
Overall gain

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

Compounded annual gain
Overall gain

Performance for the period ended
December 31, 2017

Compounded annual gain

One year
Five years
Ten years

Bank One

S&P 500

S&P Financials Index

12.4%
691.5%

5.2%
147.3%

4.1%
102.8%

JPMorgan Chase & Co.

S&P 500

S&P Financials Index

10.7%
294.2%

8.8%
210.4%

3.6%
61.6%

26.7%
22.7%
12.0%

21.8%
15.8%
8.5%

22.1%
18.2%
3.7%

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

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

Our stock price is a measure of the progress we have made over the years. This
progress is a function of continually making important investments, in good
times and not-so-good times, to build our capabilities — people, systems and
products. These investments drive the future prospects of our company and
position it to grow and prosper for decades. Whether looking back over five
years, 10 years or since the Bank One/JPMorgan Chase merger (approximately 13
years ago), our stock has significantly outperformed the Standard & Poor’s 500
Index (S&P 500) and the S&P Financials Index. And this growth came during a
time of unprecedented challenges for banks — both the Great Recession and the

extraordinarily difficult legal, regulatory and political environment that followed.
We have long contended that these factors explained why bank stock price/
earnings ratios were appropriately depressed. And we believe the anticipated
reversal of many negatives and an increasingly more favorable business
environment, coupled with our sustained, strong business results, are among the
reasons our stock price has done so well this past year.

We do not worry about the stock price in the short run, and we do not worry about
quarterly earnings. Our mindset is that we consistently build the company — if
you do the right things, the stock price will take care of itself. In the next section,
I discuss in more detail how we think about building shareholder value for the long
run while also taking care of customers, employees and communities.

JPMorgan Chase stock is owned by large institutions, pension plans, mutual funds
and directly by individual investors. However, it is important to remember that
in almost all cases, the ultimate owner is an individual. Well over 100 million
people in the United States own stocks, and a large percentage of them, in one
way or another, own JPMorgan Chase stock. Many of these people are veterans,
teachers, police officers, firefighters, retirees, or those saving for a home, school
or retirement. Your management team goes to work every day recognizing the
enormous responsibility that we have to perform for our shareholders.

In this letter, I discuss the issues highlighted below — which describe many of our
successes and opportunities, as well as our challenges and responses.

I. JPMorgan Chase Business Strategies

1. How has the company grown?

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

opportunities?

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

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

5. Transparency, financial discipline and a fortress balance sheet. Why is this

discipline so important?

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

7. How is the company dealing with bureaucracy and complacency that often

infect large companies?

8. What are the firm’s views on succession?

II. Public Policy

1. What has gone wrong in public policy?

2. Poor public policy — how has this happened?

3. We can fix this problem through intelligent, thoughtful, analytical and

comprehensive policy.

4. The need for solutions through collaborative, competent government.

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

6. We should reform and expand the Earned Income Tax Credit and invest

in the workforce of the future.

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

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

9. Public company corporate governance — how would you change it? And

the case against earnings guidance.

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

is critical.

Page 8

Page 10

Page 12

Page 13

Page 18

Page 21

Page 26

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Page 29

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Page 32

Page 33

Page 34

Page 35

Page 37

Page 39

Page 41

Page 43

Page 44

JP M OR G AN CHA SE B US INESS STRATEGIES

Since our business leaders describe their businesses later in this report, I am not going to be
repetitive within this section. I encourage you to read their letters following this Letter to
Shareholders. Instead, in this section, I deal with some critical themes around how we run
this company – in good times and in bad times – and how we are continuing to build for
what we think will be a bright future.

1. How has the company grown?

Below is a powerful representation of how
we have grown and built client franchises
over time.

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

Client Franchises Built Over the Long Term

Consumer &
Community
Banking

Deposits market share1
# of top 50 Chase markets
where we are #1 (top 3)
Average deposits growth rate
Active mobile customers growth rate
Credit card sales market share2
Merchant processing volume3 ($B)
# of branches
Client investment assets ($B)
Business Banking primary market share24

2006

3.6%

2016

8.3%

2017

8.7%

11 (25)

14 (38)

16 (40)

NM
15.9%
$661
3,079
~$80

5.1%

10%
16%
21.5%

9%
13%
22.4%

$1,063
5,258
$235

$1,192
5,130
$273

8.5%

8.7%

 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 U.S. credit and debit payments volume15
 #2 merchant acquirer16

Global Investment Banking fees4
Market share4
Total Markets revenue5
Market share5

Corporate &
Investment
Bank

FICC5
Market share5
Equities5
Market share5

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

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

Assets under custody (AUC)($T)

$13.9

$20.5

#1
8.1%
#1
11.0%
#1
11.4%

co–#1

10.3%

$23.5

 >80% of Fortune 500 companies do business with us
 #1 in both N.A. and EMEA Investment Banking fees17
 #1 in Global Long-Term Debt and Loan Syndications17
 #1 in FICC productivity18
 Top 3 Custodian globally with AUC of $23.5T19
 #1 in USD payment volumes with 20% share in 201720
 In Total Markets, J.P. Morgan has ranked #1 in each

year since 201225

 Equities and Prime are now ranked co-#125
 J.P. Morgan Research ranked as the #1 Global

Research Firm26

Commercial
Banking

Asset & Wealth
Management

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

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

Client assets market share11

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

119
NA
1.8%
#1
$1.3

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

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

 Top 3 in overall Middle Market, large Middle Market

and Asset Based Lending Bookrunner21

 Industry-leading credit performance — 6th straight

year of net recoveries or single digit NCO rate

220
#2
2.5%
#1
$2.5

235
#2
2.4%
#1
$2.8

 86% of 10-year long-term mutual fund assets under

management (AUM) in top 2 quartiles22

 #2 in 5-year cumulative long-term client asset flows

among publicly traded peers

 #1 Private Bank in N.A. and LatAm23
 Revenue and long-term AUM growth >90% since 2006

Average loans ($B)
# of Wealth Management client advisors

$26.5
1,506

$112.9
2,504

$123.5
2,605

For information on footnotes 1–23, refer to slides 105-106 in the 2018 JPMorgan Chase Strategic Update presentation, which is available on JPMorgan Chase & Co.’s website
(https://www.jpmorganchase.com/corporate/investor-relations/document/3cea4108_strategic_update.pdf), under the heading Investor Relations, Events & Presentations,
JPMorgan Chase 2018 Investor Day, and on Form 8-K as furnished to the U.S. Securities and Exchange Commission (SEC) on February 27, 2018, which is available on the SEC’s
website (www.sec.gov).
24 Source: Barlow Research Associates, Primary Bank Market Share Database as of 4Q17. Rolling eight quarter average of small businesses with revenues of $100,000 – <$25 million
25 Source: Preliminary Coalition Global Industry Revenue Pool based on internal business structure, 2017
26 Source: Institutional Investor magazine survey of large investors, 2017

NM = Not meaningful
NA = Not available
FICC = Fixed Income, Currencies and Commodities
N.A. = North America

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

B = Billions
T = Trillions

share increases were due to our acquisitions
of Bear Stearns and Washington Mutual. But
in all cases, this growth is driven by consis-
tent and disciplined investment in our busi-
nesses. The chart below shows how we try
to measure customer satisfaction in multiple

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

Increasing Customer Satisfaction

U.S. retail banking satisfaction1

(cid:31) Chase
(cid:31) Industry average
(cid:31) Big banks2 (cid:31) Regional banks (cid:31) Midsized banks

2011

2012

2013

2014

2015

2016

2017

1 Source: J.D. Power U.S. Retail Banking Satisfaction Study, 2017
2 Big banks defined as top six U.S. banks

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

Consumer & Community Banking
 Chase continues to lead the big banks and the industry average in U.S. Consumer Bank Customer Satisfaction studies including

being ranked #1 in retail banking advice in the U.S. and ranked #2 in the first ever National Bank study1

 Customer satisfaction, measured by Net Promoter Scores (“NPS”), has continued to increase across most of our businesses
since we brought CCB together five years ago. NPS increased year over year in Merchant Services, Business Banking, Home
Lending, and Auto

 Digitally-engaged customers who bank with Chase are more satisfied than all other households, with higher NPS (+19%),

higher retention rates (+10 percentage points), and higher card spend (+118%)

 Digitally-engaged established customers who use Chase as their primary bank also have 40% more deposits and investments

with us

Corporate & Investment Bank
 Highest ever client satisfaction and retention levels for Custody & Fund Services

Commercial Banking
 NPS for Commercial Banking Middle Market clients increased from 35 to 45 from 2011 to 20172
 #1 in overall satisfaction, perceived satisfaction, customer relationships and transactions/payments processing3

Asset & Wealth Management
 J.P. Morgan has ranked as the #1 private bank in the U.S. for nine consecutive years and #1 in Latin America for five

consecutive years4

 J.P. Morgan has ranked as the Leading Pan-European Fund Management Firm for eight consecutive years5

1 Source: J.D. Power 2018 U.S. Retail Banking Advice Study & 2017 National Bank Satisfaction Study
2 Source: Greenwich Associates Commercial Banking Study, 2017
3 Source: CFO magazine's Commercial Banking Survey, 2017
4 Source: Euromoney, 2018
5 Source: Thomson Reuters, 2017

I. JPMORGAN CHASE BUSINESS STRATEGIES2. How will the company continue to grow? What are the organic growth opportunities?

We have good market share in most busi-
nesses, but we see organic growth opportu-
nities almost everywhere – some large and
some small. Following are a few examples:

Consumer & Community Banking

• We recently announced that we will start
to expand the consumer branch business
into cities like Boston, Philadelphia and
Washington, D.C. Over the next five years,
we hope to expand to another 15-20 new
markets. We know the competition is
tough, but we have much to offer. When
JPMorgan Chase comes to town, we come
not just with our consumer branches but
also with mortgages, investments, credit
cards, private banking, small and midsized
business banking, government business
and corporate responsibility initiatives to
support our communities.

• In addition, this year we are rolling out
many new exciting products and have
made several improvements around the
customer’s experience, including a fully
mobile bank pilot (Finn), digital account
openings, facial recognition in our app,
the Amazon Prime Rewards Visa card and
a simpler online application for Business
Banking customers.

• We also are adding many tools that will

help our customers manage their financial
affairs. For example, in the credit card busi-
ness, we will be allowing our customers
to review and decide how and where they
want their cards and credit lines to be used.
In Consumer Banking, we are adding finan-
cial planning tools and insights that help
customers make the most of their money –
and there’s more coming.

Corporate & Investment Bank

• We see growth opportunities even in

Fixed Income, Currencies and Commodi-
ties, where we already have the #1 market
share at 11.4%. There may be some under-
lying growth as the capital markets of the
world grow, even though this is partially
offset by declining margins like we
have experienced over the last 30 years.
However, we see opportunities to gain
share in various products and in certain
regions where we have low share.

• This opportunity would be true for Invest-
ment Banking, too. Country by country
and industry by industry, there are still
plenty of opportunities to increase our low
market share. For example, we have 10%
share in the United States but less than
5% share in Asia.

• In Treasury Services and Custody, where
our market shares are 4.7% and 8.0%,
respectively, we believe we can grow
significantly by adding bankers, building
better technology, entering new countries,
building better products and continuing to
do a great job for clients. In this business,
while you make large initial investments
in order to grow, when you gain clients,
they usually stick with you for a long time.

• Over time, we do expect to expand our
Corporate & Investment Bank into new
countries, which will benefit all the busi-
nesses within this franchise.

Commercial Banking

• This past year, Commercial Banking has
completed its expansion into the top 50
markets in the United States – this will
drive growth for decades. And remember,
when Commercial Banking opens its
doors, it also helps drive the growth of
our Private Bank and the Corporate &
Investment Bank businesses.

• Commercial Banking has added many
specialized industry bankers to better
serve those specific segments.

I. JPMORGAN CHASE BUSINESS STRATEGIES Asset & Wealth Management

• Across the company – not just in tech-

nology – we have thousands of employees
who are data scientists or have advanced
degrees in science, technology, engi-
neering and math. Of the nearly 50,000
people in technology at the company,
more than 31,000 are in development and
engineering jobs, and more than 2,500
are in digital technology. Think of these
talented individuals as driving change
across the company.

• Artificial intelligence, big data and machine
learning are helping us reduce risk and
fraud, upgrade service, improve under-
writing and enhance marketing across the
firm. And this is just the beginning.

• Our shared technology infrastructure
– our networks, data centers, and the
public and private cloud – decreases costs,
enhances efficiency and makes all our
businesses more productive. In addition,
this allows us to embrace the fact that
every business and merchant has its own
software and also wants easy, integrated
access to our products and services. We
are delivering on that through the creation
of a common JPMorgan Chase API (appli-
cation programming interface) store that
allows customers to add simple, secure
payments to their software. And we are
building everything digital – both for indi-
vidual customers and large corporations –
from onboarding to idea generation.

• Increasingly, the management teams
of Consumer & Community Banking,
Corporate & Investment Bank,
Commercial Banking and Asset & Wealth
Management share ideas, share platforms
and serve each other’s customers. The
success of any one business almost always
helps the other three.

• In the United States, our share of the

ultra-high-net-worth market ($10 million
or greater) is 8%. We believe we have a
superior business and that we can grow
our share by essentially adding bankers,
branches and better products.

• In the high-net-worth business ($3 million
to $10 million) and the Chase affluent
business ($500,000 to $5 million), our
market shares are only 1% and 4%, respec-
tively. We have no doubt that we can grow
by adding bankers and locations, particu-
larly because we have some exciting new
products coming soon. There is no reason
we can’t more than double our share over
the next 10 years.

• We are also adding new products, like

index funds and exchange-traded funds
(ETF), that we believe will help drive
growth.

Across the company

In addition, we are undertaking many
initiatives across the company that will help
grow our businesses and better serve our
customers.

• On the payments front, we have devel-

oped multiple products to make wholesale
payments better, easier and faster. We
are rolling out these products across our
platforms, and they should help us solidify
and grow our position.

• On the consumer side, we have intro-

duced Chase Pay, the digital equivalent
to using a debit or credit card, which
allows customers to pay online or in-store
with their mobile phone. We also intro-
duced Zelle, a real-time consumer-to-
consumer payments system, which
allows customers to easily, safely and
immediately send money to their friends
and family. We expect these products
to drive lots of customer interactions
and make our payments offerings
compelling, even as some very smart
fintech competitors emerge.

I. JPMORGAN CHASE BUSINESS STRATEGIES• Privacy and safety – we spend an enor-
mous amount of resources to protect
all of our clients and customers from
fraud, cybersecurity risk and invasion
of their privacy. These capabilities are
extraordinary, and we will continue to
relentlessly build them. As part of this, we
have consistently warned our customers
about privacy issues, which will become
increasingly critical for all industries
as consumers realize the severity of
the problem. Last year, we wrote about
a new arrangement with Intuit that
bears repeating – it briefly described
the problem and presented a solution,
which we hope might set a standard for
protecting customers while giving them
control of their data.

For years, we have been describing the
risks – to banks and customers – that arise
when customers 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, access to

the data may continue for years after
customers have stopped using the third-
party services.

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

Events from the past year underscore the
importance of efforts like this. As questions
are raised about how consumers’ infor-
mation is shared and protected, I strongly
believe that data privacy and security should
be a way in which we and other businesses
compete to serve customers.

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

efforts require huge team coordination. So
it’s no surprise that it’s sometimes easier
not to push organic growth. However, if you
build the right culture, where management
teams are intensely analytical and critical of
their own business’ strengths, weaknesses
and opportunities, you can create great
clarity about what those opportunities are. If
you have strong leaders, they have the disci-
pline and fortitude to develop and execute a
forward-looking growth plan.

Organic growth is all about hiring and
training bankers, opening branches,
improving or innovating new products and
building new technology. It is hard work.
In fact, institutionally, there is often a lot
of resistance to it. It’s easier not to add
expenses, even when they are good for the
business. And growing any sales force is
usually met by some opposition from – guess
who? – the existing sales force. Sometimes
people are afraid the change will take away
from their compensation pool or their client
base. And it’s hard work to properly recruit
and train salespeople. Building new products
and services is sometimes in conflict with
existing products and services. All of these

I. JPMORGAN CHASE BUSINESS STRATEGIES 4. Is there a conflict between building shareholder value vs. serving customers, taking care

of employees and lifting up communities?

capital. Diligent management teams
understand the difference between the
two scenarios and invest in a way that will
make the company financially successful
over time. You need to invest continually
for better products and services so you can
serve your customers in the future.

A bank cannot simply stop serving its clients
or halt investing because of quarterly or
annual earnings pressures. It does not work
when long-term investing is changed because
of short-term pressures – you cannot stop-
start training programs and the development
of new products, among other investments.
You need to serve your clients and make
investments while explaining to shareholders
why certain decisions are appropriate at that
time. Earnings results for any one quarter or
even the next few years are fundamentally
the result of decisions that were made years
and even decades earlier.

Keeping JPMorgan Chase a healthy and
vibrant company is the best thing we can
do for our shareholders, our customers, our
employees and our communities. Building
shareholder value is the primary goal of a
business, but it is simply not possible to do
well if a company is not properly treating
and serving its customers, training and
motivating its employees, and being a good
citizen in the community. If they are all
done well, it enhances shareholder value.
Let me explain.

We cannot be a healthy and vibrant company if
we are not both delivering financial success and
investing for the future.

Show me a company that is not financially
successful (in the long run), and I will
show you an unsuccessful company. This is
particularly true for a bank, where confi-
dence in its stability is critical. I should
caution, however, that financial success is a
little more complex than short-term profits
– and many investors are completely aware
of this.

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

I. JPMORGAN CHASE BUSINESS STRATEGIESNew and Renewed Credit and Capital for Our Clients
at December 31,

Corporate clients
($ in trillions)

$1.1

$1.2

$1.4

$1.3

$1.5

$1.6

$1.4

$1.7

$1.6

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Consumer and Commercial Banking
($ in billions)

$479

$474

$419

$379

$556

$583

$523

$601

$664

$688

(cid:31) Small business
(cid:31) Card & Auto
(cid:31) Commercial/Middle market
(cid:31) Asset & Wealth management
(cid:31) Mortgage/Home equity

2008
$ 16

121

104

187

2009
$ 7

156

2010
$ 11

165

2011
$ 17

110

100

156

2012
$ 20

122

141

191

2013
$ 18

131

165

177

2014
$ 19

108

185

127

2015
$ 22

116

188

163

112

2016
$ 24

149

207

173

111

2017
$ 22

148

218

195

105

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

Deposits and client assets1
($ in billions)

$3,617

$464

$824

$3,740

$503

$861

$3,633

$558

$722

$3,255

$439

$755

$2,061

$2,329

$2,376

$2,353

$3,011

$398

$730

$1,883

$4,227

$660

$784

$2,783

$3,802

$618

$757

$2,427

2011

2012

2013

2014

2015

2016

2017

(cid:31) Client assets (cid:31) Wholesale deposits (cid:31) Consumer deposits

Assets under custody2
($ in trillions)

$16.9

$18.8

$20.5

$19.9

$20.5

$23.5

2011

2012

2013

2014

2015

2016

2017

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

We have to be there for our clients in good times
and bad. And we have to continuously improve
the products and services we provide to them.

If you are a bank, your clients rely on you to
always be there, regardless of the environ-
ment – banks are the lender of last resort.
Contrary to public opinion, most banks
consistently extended credit to their clients
(without dramatically raising lending rates)
throughout the Great Recession. The charts
on page 14 show how we have consistently
been there for our clients and that they trust
us to hold their assets.

We simply cannot deliver to our shareholders
what they deserve if we do not have high-quality,
motivated, committed employees.

Talented, diverse employees deliver lifelong
– and satisfied – customers. They also deliver
innovative products, excellent training and
outstanding ideas. Basically, everything we
do emanates from our employees. And all
of this creates shareholder value. We do
not try to get the last dollar of profit off of
our employees’ or customers’ backs. We
want long-tenured employees and satisfied
customers who stay with us year after year.
We would rather earn a fair return and grow
our businesses long term than try to maxi-
mize our profit over any one time period.

Great employees are the result of a healthy,
open and respectful environment and
continual investment in training. And great
employees are the result of management
teams that are humble enough to recog-
nize that they don’t know everything their
employees do and, therefore, are always
seeking out constructive feedback.

While keeping JPMorgan Chase a healthy and
vibrant company is the best thing we can do for
our communities, there’s a lot more we can do.

It is important to explain both what we do and
why it is so important for our communities.

As the primary engine of economic growth,
the private sector has an important role to
play in making sure the benefits are widely
shared. The future of business and the health

of our communities are inextricably linked.
We believe that making the economy work
for more people is not simply a moral obliga-
tion – it’s a business imperative.

Using our unique capabilities, we can do
even more for our communities to help lift
them up. We have broad and unique knowl-
edge around how communities can develop,
how work skills can be successfully imple-
mented, how businesses can be started, how
inequality can be addressed, how financial
health can be secured, and how more fami-
lies can find jobs and affordable housing.

We continue to step up our efforts to help
communities. In 2017, we were honored to
be ranked by Fortune magazine as the #1
company changing the world in recognition of
our work in Detroit and other communities.

We do extensive investing to help our
communities, such as providing affordable
housing, lending to lower income households
and helping advise governments in economic
development. Our philanthropic efforts
are only a part of what we do – but a very
important part. This year, we announced we
will increase our philanthropic investments
by 40%. Over the next five years, we will
spend $1.75 billion to help drive inclusive
growth in communities around the world.
Our head of Corporate Responsibility talks
about our significant progress and specific
measures in more detail in his letter, but I
would like to highlight a few initiatives:

• We are helping communities realize their
potential as engines of growth and shared
prosperity. In 2014, we launched our most
comprehensive corporate responsibility
initiative to date to try to help Detroit,
an iconic city that was long engulfed in
economic turmoil and then bankruptcy. We
view our initiative in Detroit as validation
of our firm’s model for driving inclusive
growth. Three years in, we exceeded our
initial $100 million commitment, and we
now expect to invest $150 million in the
city by 2019. We see the results on the
ground – people are moving back into the
city, small businesses are being created and

I. JPMORGAN CHASE BUSINESS STRATEGIESsafety. New research from The Brookings
Institution shows that, not surprisingly,
joblessness and incarceration are related.
Barriers to hiring returning citizens come
in different forms, and some are imposed
from the outside. This year, we welcomed
the Federal Deposit Insurance Corpora-
tion’s proposed changes to allow banks
more flexibility in hiring returning citi-
zens. Our responsibility to recruit, hire,
retain and train talented workers extends
to this population. Earlier this year, I
visited one of our partnering organiza-
tions, the North Lawndale Employment
Network in Chicago, which gives formerly
incarcerated Americans a path to well-
paying jobs. The network also builds a
pipeline of trained mechanics for Chica-
go’s growing transportation sector. This is
a win-win for workers, employers and the
economy as a whole.

• We are expanding innovative models that

enable more people to share in the rewards
of a growing economy. Small businesses are
growing fastest among people of color,
yet, despite their critical role in boosting
economic growth, these businesses
receive only a fraction of traditional loans
compared with non-minority entrepre-
neurs. In Detroit, a city with the fourth-
largest number of minority-owned small
businesses, we quickly saw the need to
address the challenges facing minority
entrepreneurs. Therefore, in 2015, we
helped launch the Entrepreneurs of Color
Fund in Detroit to provide underserved
entrepreneurs with greater access to the
capital and assistance they needed. Seeing
the tremendous success this program has
had in Detroit, we decided to scale this
model to the South Bronx in New York
City, as well as San Francisco – cities that
are experiencing similar challenges.

expanded, and for the first time in 17 years,
property values are on the rise. Our work
in Detroit has taught us many important
lessons, and this past year, we extended our
model for impact to communities in need
in Chicago and Washington, D.C.

• Helping people develop the skills they need
to compete for today’s jobs can transform
lives and strengthen economies. JPMorgan
Chase is investing more than $350 million
to support demand-driven skills training
around the world. Through New Skills for
Youth, we launched additional innovation
sites to expand high-quality, career-focused
education programs in cities across the
United States and around the world.

• The path to opportunity begins at an early

age, but too many young people, particularly
from disadvantaged backgrounds, do not get
a fair shot at economic opportunity. High
school graduation rates for young men of
color are dangerously low, and many who
do graduate lack the skills they need to
be successful in college or their careers.
Through programs like The Fellowship
Initiative (TFI), we are working to address
barriers to opportunity. TFI engages
young men of color in a comprehensive
program that includes academic support,
leadership development and mentoring
during their critical high school years.
This past year, we expanded this program
to Dallas and recruited new classes of
Fellows in Chicago, Los Angeles and
New York. One hundred percent of these
students are graduating from high school,
and, combined, they have been accepted
into more than 200 colleges and universi-
ties across the country.

• Supporting re-entry programs is an important
part of our effort to create opportunity that
strengthens communities and results in a
stronger economy. The overwhelming
majority of Americans who are incar-
cerated return to their communities
after they are released. Reducing recidi-
vism is not only important to returning
citizens and their families – it can also
have profound implications for public

I. JPMORGAN CHASE BUSINESS STRATEGIES Our Diverse Workforce

I believe the door to diversity opens when you
run a great company where everyone feels they
are treated fairly and with respect – this is what
we strive to create at JPMorgan Chase. We are
devoted to diversity for three reasons, and each
reason stands on its own – combined, they are
powerful. First, it is the right thing to do from a
moral perspective. Second, it is better for busi-
ness to include a group of people who represent
the various communities where we operate. And
third, if I can pick my team from among all diverse
people, I will have the best team.

We have more than 252,000 employees globally,
with over 170,000 in the United States. Women
represent 50% of our employees. Recently, Oliver
Wyman, a leading global management consulting
firm, issued a report stating that it would be
30 years before women reach 30% executive
committee representation within global financial
services companies. So you might be surprised to
learn that, today, 50% of the Operating Committee
members reporting to me are women as are
approximately 30% of our firm’s senior leader-

Advancing Black Leaders

In 2016, we introduced Advancing Black Leaders
(ABL), an expanded diversity strategy focused
on increased hiring, retention and development
of talent from within the black community. This
specifically recognized that — with this popula-
tion — we should and could do more. We set up a
separate group whose sole purpose is to help do
this better. From training to retention to recruiting
and hiring new employees, our intensified efforts
are starting to pay off.

Two years into this initiative, we are seeing
encouraging results. At executive levels, we closed
2017 with a noticeable increase in headcount (97
black managing directors globally, up from 83 a
year earlier), driven by recruiting new talent and
promoting existing talent. In addition, we are
seeing positive headcount gains in our pipeline

ship globally. They run major businesses – several
units on their own would be among Fortune 1000
companies. In addition to having five women on
our Operating Committee – who run Asset & Wealth
Management, Finance, Global Technology, Legal
and Human Resources – some of our other busi-
nesses and functions headed by women include
Consumer Banking, Credit Card, U.S. Private Bank,
U.S. Mergers & Acquisitions, Global Equity Capital
Markets, Global Research, Global Custody, Regula-
tory Affairs, Global Philanthropy, our U.S. branch
network, our Controller and firmwide Marketing.
I believe we have some of the best women leaders
in the corporate world globally. In addition to
gender diversity, 48% of our firm’s population is
ethnically diverse in the United States.

We are proud of JPMorgan Chase’s industry recog-
nition for its diversity and inclusion efforts. In 2017,
we received more than 50 awards that recog-
nize the firm and represent the diversity of our
employees.

for mid-level managers over the last two years,
with executive director representation up 30%,
emerging talent with vice president representation
up 17% and student talent up 7%. To encourage
dialogue and engage our people, more than 85,000
employees were invited to participate in ABL
Dialogues — a series of interactive panel discus-
sions facilitated by local leaders in 10 U.S. strategic
hubs.

We recently developed a few additional plans and
goals for this effort, which we believe will improve
these results dramatically.

5. Transparency, financial discipline and a fortress balance sheet. Why is this discipline

so important?

Our bank operates in a complex and some-
times volatile world. We must maintain a
fortress balance sheet if we want to contin-
ually invest and support our clients through
thick and thin. A fortress balance sheet
also means clear, comprehensive, accurate
financial and operational reporting so we can
properly manage the company, particularly
through difficult times.

We are fanatical about measuring our results
— financial and operational. We set targets for
ourselves, and we always compare ourselves with
our competitors.

These targets are what we hope to achieve
over the medium term and after making
proper investments for the future, such as
adding bankers and enhancing technology.
The chart below shows that we generally
compare well with our best-in-class peers (we
never expect to be best-in-class every year

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

Efficiency

Returns

JPM 2017
overhead
ratios

Best-in-class
peer overhead
ratios1

JPM medium-term
target overhead
ratio

JPM 2017
ROTCE

Best-in-class
peer ROTCE2, 3

JPM medium-term target ROTCE

Year-ago

Current4

Consumer &
Community
Banking

Corporate &
Investment
Bank

Commercial
Banking

Asset & Wealth
Management

56%

39%

72%

52%
BAC–CB

53%
BAC–GB & GM

42%
PNC

50%+/-

17%

54%+/-

14%

35%+/-

17%

22%
BAC–CB

14%
BAC–GB & GM

16%
FITB

20%+/-

25%+

14%+/-

~17%

15%+/-

~18%

63%
CS–PB & TROW

70%+/-

25%

24%
BAC–GWIM & TROW

25%+/-

~35%

JPMorgan Chase compared with peers5

Overhead ratios

Target
~55%

JPM

BAC

WFC

56%

62%

65%

57%

65%

73%

ROTCE6

JPM

BAC

WFC

13.6%

Target4
~17%

8.1%

11.1%

11.3%

11.2%

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

I. JPMORGAN CHASE BUSINESS STRATEGIES

in every business). You should assume we
do this internally at a far more detailed level
than what is presented here.

We need a fortress balance sheet so we can
continue to do our job — regardless of the
environment.

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

We have said this before, and it remains
true: JPMorgan Chase has to be prepared to
handle multiple, complex, global and interre-
lated types of risk. We do this in many ways
– let me share a few:

The Federal Reserve’s Comprehensive
Capital Analysis and Review (CCAR) stress
test estimated what our losses would be
through a severely adverse event lasting over
nine quarters – an event that is worse than
what actually happened during the Great
Recession; e.g., high unemployment and

Our Fortress Balance Sheet
at December 31,

CET1

TCE/
Total assets1

Tangible
common equity

Total assets

RWA

Operational risk RWA

2008

7.0%3

4.0%

$84B

$2.2T

$1.2T3

+570 bps

+340 bps

+$99B

+$300B

+$200B

+$400B

Liquidity

~$300B

+~$256B

Fed funds purchased and securities loaned
or sold under repurchase agreements

Long-term debt and
preferred stock2

$193B

$303B

–$34B

+$7B

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

2017

12.7%4

7.4%

$183B

$2.5T

$1.4T4

$400B5

$556B6

$159B

$310B

B = Billions

T = Trillions

bps = basis points

CET1 = Common equity Tier 1 ratio
TCE = Tangible common equity
RWA = Risk-weighted assets
HQLA = High quality liquid assets predominantly includes cash on deposit at central banks, U.S. agency mortgage-backed securities,

U.S. Treasuries and sovereign bonds

Liquidity = HQLA plus unencumbered marketable securities, which includes excess liquidity at JPMorgan Chase Bank, N.A.
TLAC = Total loss absorbing capacity

17.5% excluding
operational risk RWA

$186B eligible
for TLAC

I. JPMORGAN CHASE BUSINESS STRATEGIES

Loss Absorbing Resources of U.S. SIFI Banks Combined
($ in billions)

$2,270

$1,262

$1,008

20171

$1,749

$1,274

$475

20071

2x
˜

(cid:31) Loan loss reserves, preferred stock

and TLAC long-term debt
(cid:31) Tangible common equity

$111

$386

$203
$183

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

2017 JPMorgan Chase only

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

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

counterparty failures. The Fed estimated
that in such a scenario, we would lose $18
billion over the ensuing nine quarters, which
is easily manageable by JPMorgan Chase’s
capital base. My view is that we would
make money in almost every quarter in that
scenario, and this is supported by our having
earned approximately $30 billion pre-tax
over the course of the nine quarters during
the actual financial crisis of 2009.

We are believers in the CCAR stress testing
process, although our view is that it could
be simplified and improved. Our share-
holders should know that the CCAR stress
test is only an annual test. To explain
how serious we are about stress testing,
you should know that we run several
hundred tests a week – including a number
of complicated, potentially disastrous
scenarios – to prepare our company for
almost every type of event. While we never
know exactly how and when the next major
crisis will unfold, these rigorous exercises
keep us constantly prepared.

I. JPMORGAN CHASE BUSINESS STRATEGIES
6. What risks worry us the most? And what could go wrong?

The global economy across Asia and Japan,
Latin America and Europe, and the United
States has been doing well – better than most
would have expected a year ago. The United
States in particular may be strengthening
as we speak. The competitive tax system,
a more constructive regulatory environ-
ment, and very high consumer and business
confidence are increasing indications that
the economy will likely expand. Unemploy-
ment may very well drop to 3.5% this year,
and there are more and more signals that
business will improve capital expenditures
and raise payrolls. Credit is readily available
(though still not enough in some mort-
gage markets). Wages, jobs and household
formation are increasing. Housing is in short
supply. Underlying consumer and corpo-
rate credit have been relatively strong. All
these signs lead to a positive outlook for the
economy for the next year or so.

I will not spend time dwelling on geopolitics
here, which can – but rarely does – upset the
global economy. In the next section, I talk
about serious policy issues that could harm
economic growth, including America’s rela-
tionship with China and potential disrup-
tions to global trade. In this section, I focus
on some of the risks in the financial system
and how we go about managing them.

We will be prepared for Brexit.

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

are complete – is what the end state will
look like. Although unlikely, there is the
possibility that we could stay exactly as we
are today. Unfortunately, the worst outcome
would be much of London’s financial center
moving to the Continent over time. We hope
for all involved that this outcome will not be
the case.

We cannot do enough as a country when it comes
to cybersecurity.

I cannot overemphasize the importance of
cybersecurity in America. This is a critical
issue, not just for financial companies but
also for utilities, technology companies, elec-
trical grids and others. It is an arms race, and
we need to do whatever we can to protect the
United States of America.

Our bank is extremely good at cybersecurity
and client protection. However, cyber law
in the United States is inadequate regarding
banks and government entities. We need
to be allowed to work even closer with our
government in real time to properly protect
the financial system. In addition, we need
to have better international cyber laws (and
include them in trade agreements) like we
do in maritime and aviation laws. Countries
should know what they are responsible for
– and what redress companies or countries
have – when either a bad state actor or crimi-
nals in a state cause extreme problems.

In the financial markets, we must be prepared for
the full range of possibilities and probabilities.

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

I. JPMORGAN CHASE BUSINESS STRATEGIESWe try to intelligently, thoughtfully and
analytically make decisions and manage risk
(and not overly rely on models).

When I hear people talk about banks taking
risks, it often sounds as if we are taking
big bets like you would at a casino or a
racetrack. This is the complete opposite of
reality. Every loan we extend is a proprietary
risk. Every new facility we build is a risk.
Whether we are adding branches or bankers
– or making markets or expanding opera-
tions – we perform extensive analytics and
stress testing to challenge our assumptions.
In short, we look at the best- and worst-case
scenarios before we “take risk.” Much of what
we do as a bank is to mitigate or manage
the risk being taken. I think you would be
impressed by the thoroughness and risk-mit-
igating approach demonstrated at our risk
committee meetings. At these meetings,
we have lawyers, compliance, risk manage-
ment, bankers and technologists – folks with
decades of experience who challenge each
other and ensure we have thought about
every possible angle. And since we know we
will be wrong sometimes, we almost always
look at the worst possible case – to ensure
JPMorgan Chase can survive any situation.
This is not risk taking on the order of taking
a guess – it is intelligent, thoughtful, analyt-
ical decision making.

We rely heavily on detailed and constantly
improving models as a foundational element
of that analysis. But we are cognizant of
the fact that models by their nature are
backward looking and have a difficult time
adjusting to material items, including the
following:

• The character and integrity of those with

whom you are doing business

• Changing technology as it impacts indus-
tries (including the banking industry)

• Future changes in the law or even how

the law might be interpreted differently 10
years from now

• Deteriorating international competiveness

(as what happened to our tax code)

• Emerging competitive threats

• Changes in industrial structure; e.g., new

sources of competition

• Political influence and unexpected litigation

• Public sector fiscal challenges, demo-

graphic changes and challenges managing
the nation’s healthcare resources

There are other items – but you get the point.
Judgment (which will never be perfect all of
the time) cannot be removed from the process.

Volatility and rapidly moving markets should
surprise no one.

We are always prepared for volatility and
rapidly moving markets – they should
surprise no one. I am a little perplexed when
people are surprised by large market moves.
Oftentimes, it takes only an unexpected
supply/demand imbalance of a few percent
and changing sentiment to dramatically
move markets. We have seen that condition
occur recently in oil, but I have also seen it
multiple times in my career in cotton, corn,
aluminum, soybeans, chicken, beef, copper,
iron – you get the point. Each industry or
commodity has continually changing supply
and demand, different investment horizons
to add or subtract supply, varying marginal
and fixed costs, and different inventory and
supply lines. In all cases, extreme volatility
can be created by slightly changing factors.

It is fundamentally the same for stocks,
bonds, and interest rates and currencies.
Changing expectations, whether around
inflation, growth or recession (yes, there will
be another recession – we just don’t know
when), supply and demand, sentiment and
other factors, can cause drastic volatility.

One scenario that we must be prepared for is
the possibility that the reversal of quantitative
easing (QE) by the world’s central banks — in a
new regulatory environment — will be different
from what people expect.

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

I. JPMORGAN CHASE BUSINESS STRATEGIES demographic realities. Our growth cumula-
tively in this expansion has been about 20%,
while a more normal recovery would have
seen growth of over 40% by now. However,
with recent reforms, the situation may be
improving. As inflation, wages and growth
seem to be modestly increasing, the Federal
Reserve has started to raise interest rates and
reverse QE. Importantly, as long as rates are
rising because the economy is strengthening
and inflation is contained, it is reasonable
to expect that the reversal of QE will not be
painful. The benefits of a strong economy
are more important than the negative impact
from modest increases in interest rates.

Since QE has never been done on this scale
and we don’t completely know the myriad
effects it has had on asset prices, confidence,
capital expenditures and other factors, we
cannot possibly know all of the effects of its
reversal. We have to deal with the possibility
that at one point, the Federal Reserve and
other central banks may have to take more
drastic action than they currently antici-
pate – reacting to the markets, not guiding
the markets. A simple scenario under which
this could happen is if inflation and wages
grow more than people expect. I believe that
many people underestimate the possibility
of higher inflation and wages, which means
they might be underestimating the chance
that the Federal Reserve may have to raise
rates faster than we all think. While in the
past, interest rates have been lower and
for longer than people expected, they may
go higher and faster than people expect. If
this happens, it is useful to look at how the
table is set – what are all the things that are
different or better or worse than during prior
crises, particularly the last one – and try to
think through the possible effects.

There are many pluses (things that are better
than during the last crisis in 2009):

• Far more capital and less leverage in the

banking system

• Far more liquidity in the banking system

• More collateral in the markets

• Less total short-term secured financing,

which is also more properly collateralized

• Less leveraged lending

• Money market funds that are far safer due
to regulatory requirements around credit
standards and liquidation

• Healthier consumers in terms of both

employment and disposable income (and
their debt burden is still modest relative
to their disposable income, while debt
service burdens are historically low)

• The absence of massive losses in the

mortgage markets. Mortgage underwriting
since 2009 has been rather pristine. And
while losses will go up in a recession, it
will be nothing like what happened in the
Great Recession. In the 2009 crisis, losses
totaled more than $1 trillion. The market-
place realization that financial institutions
and investors were going to experience
massive losses is a primary reason why
there was a devastating loss of confidence
in the financial system.

And there are some modest negatives or
potentially important differences (than
during the last crisis):

• Far more money than before (about $9 tril-
lion of assets, which represents about 30%
of total mutual fund long-term assets) is
managed passively in index funds or ETFs
(both of which are very easy to get out
of). Some of these funds provide far more
liquidity to the customer than the under-
lying assets in the fund, and it is reason-
able to worry about what would happen if
these funds went into large liquidation.

I. JPMORGAN CHASE BUSINESS STRATEGIES• Even more procyclicality has been built

into the system. Risk-weighted assets will
go up as will collateral requirements – and
this is on top of the procyclicality of loan
loss reserving.

• Market making is dramatically smaller than
in the past (e.g., aggregate primary dealer
positions of bonds – including Treasury
and agency securities, mortgage-backed
securities and corporates – averaged
$530 billion in 2007 vs. an average of
$179 billion today). While in the past that
total may have been too high, virtually
every asset manager says today it is much
harder to buy and sell securities, particu-
larly the less liquid securities.

• Liquidity requirements, while much

higher, now have an element of rigidity
built in that did not exist before. Banks
will be unable to use that liquidity when
they most need to do so – to make loans
or intermediate markets. They have a “red
line” they cannot cross (they are required
to maintain hard and fast liquidity
requirements). As clients demand more
liquidity from their banks, the banks
essentially will be unable to provide it.

• There has been an excessive reliance on
models (which I spoke about earlier in
this section).

• The continuous politicization of complex
policy is an issue. No one can believe
that very detailed and complex global
liquidity or capital requirements should
be set by politicians.

• No banks to the rescue this time – banks

got punished for helping in the last
go-round.

It would be a reasonable expectation
that with normal growth and inflation
approaching 2%, the 10-year bond could
or should be trading at around 4%. And
the short end should be trading at around
2½% (these would be fairly normal histor-
ical experiences). And this is still a little
lower than the Fed is forecasting under
these conditions. It is also a reasonable
explanation (and one that many economists
believe) that today’s rates of the 10-year
bond trading below 3% are due to the
large purchases of U.S. debt by the Federal
Reserve (and others).

This situation is completely reversing.
Sometime in the next year or so, many of
the major buyers of U.S. debt, including
the Federal Reserve, will either stop their
buying or reverse their purchases (think
foreign exchange managers or central banks
in Japan or China and Europe). So far, only
one central bank, the Federal Reserve, has
started to reverse QE – and even that in a
minor way. However, by the end of this year,
the Fed has indicated it might reduce its
holding of Treasuries by up to $150 billion
a quarter. And finally, the U.S. government
will need to sell more than $250 billion a
quarter to fund its deficit.

There are two offsetting factors to the large
sales of Treasuries. One is that as the Federal
Reserve sells, it reduces excess reserves,
which requires banks to buy Treasuries to
meet liquidity requirements. But we do not
fully know the extent of this scenario, and
it certainly won’t be dollar for dollar. The
second factor, as some argue, is that the U.S.
trade deficit effectively forces foreign coun-
tries to use their dollars to buy Treasuries,
although this is not completely true – they
can buy other U.S. securities or assets or sell
their dollars.

So we could be going into a situation where
the Fed will have to raise rates faster and/
or sell more securities, which certainly could
lead to more uncertainty and market vola-
tility. Whether this would lead to a reces-
sion or not, we don’t know – but even that

I. JPMORGAN CHASE BUSINESS STRATEGIES is not the worst case. If growth in America
is accelerating, which it seems to be, and
any remaining slack in the labor markets
is disappearing – and wages start going up,
as do commodity prices – then it is not an
unreasonable possibility that inflation could
go higher than people might expect. As a
result, the Federal Reserve will also need
to raise rates faster and higher than people
might expect. In this case, markets will get
more volatile as all asset prices adjust to
a new and maybe not-so-positive environ-
ment. Remember that former Chairman of
the Federal Reserve Paul Volcker increased
the discount rate by 100 basis points on a
Saturday night back in 1979 in response to a
serious double-digit inflation problem. And
when markets opened the next business
day, the Fed funds rate went up by over 200
basis points. Also remember that the Federal
Reserve is operating with extremely different
monetary transmission mechanisms than
in the past. The old “money multiplier” has
been superseded by the new capital and
liquidity requirements. Today’s “excess
reserves” (reserves once considered in
excess of what banks were required to post
in cash at the Federal Reserve – fundamen-
tally reserves that could be lent out) are not
lendable, although we still don’t completely
understand the effect of this.

There is a risk that volatile and declining markets
can lead to market panic.

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

and 2009 are the only real examples in the
United States in the past 100 years when
panic in the markets caused large reduc-
tions in investments and hiring. I wouldn’t
give this scenario very high odds – in fact, I
would give it low odds. Most people think of
those events as one-in-a-thousand-year floods.
But because the experience of 2009 is so
recent, there is always a chance that people
may overreact.

If truly negative events started to unfold, we
could expect the Federal Reserve, with its
enormous authority and power, to take strong
action, including changing regulations, if the
Fed thought it necessary. In any event, our
shareholders should rest assured that we will
weather it all. There are a couple of things
we all could do to be more prepared for this
situation and other disruptions, which I will
discuss in the next few paragraphs.

Banks and regulators need to be more forward
looking and less backward looking — particularly
when examining risks across the system.

One day there will be another crisis, and
financial institutions and central banks will
need to respond. The financial system is far
more safe and sound than in the past. But
in spite of all the regulations put in place,
I worry about whether we have properly
prepared for the next crisis. The Financial
Stability Oversight Council was created to
oversee the whole system (as appropriate),
but we have not yet really worked collabo-
ratively to prepare tabletop exercises about
what would happen across the system under
difficult situations.

When the next crisis begins, regardless of
where or how it starts, multiple actors in the
system will take actions – either out of neces-
sity (i.e., they need cash) or sentiment (i.e.,
they want to reduce risk). This will happen
across passive, index and ETF funds, insur-
ance companies, banks and nonbanks. As
individual actors stop providing credit and
liquidity in the marketplace, we need to do a
better job of understanding how this might
unfold. And all this will be happening under
a different regulatory regime from before.

I. JPMORGAN CHASE BUSINESS STRATEGIESWe also need to be more forward looking
in many other areas. Doing so will create a
better and stronger system – not doing so
will actually create additional risk. Following
are a few examples:

Almost all risk and control functions
(think Anti-Money Laundering, Know Your
Customer (KYC) and Compliance) could
be better performed if we worked with the
regulators to streamline what we do and use
advanced techniques, like artificial intelli-
gence and machine learning, to improve the
outcomes. The same is true for fraud preven-
tion and customer service. We must also be
far more aggressive in protecting ourselves
from cybersecurity risks, both within the
banking system and across the financial
system (think of nonbanks, money managers,
clearinghouses, exchanges, etc.)

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

While the regulatory environment is appro-
priately much stricter than it once was, we
can simplify it and even strengthen it by
ensuring that it is globally fair and trans-
parent and includes continuous, regular
review and appropriate modification.

Regulators now have begun to simplify, coor-
dinate and reduce overlapping regulations.
I won’t repeat the details that I’ve discussed
in prior letters – many of them were also
discussed in Treasury reports issued by the
government. But suffice it to say, modest
regulatory reform could allow banks to
expand carefully, improve access to credit
(e.g., mortgages and small business loans)
and improve market making and the func-
tioning of the money markets.

7. How is the company dealing with bureaucracy and complacency that often infect

large companies?

I was recently at a senior leadership offsite
meeting talking about bureaucracy. We
heard bureaucracy described as “a necessary
outcome of complex businesses operating
in complex international and regulatory
environments.” This is hogwash. Bureau-
cracy is a disease. Bureaucracy drives out
good people, slows down decision making,
kills innovation and is often the petri dish of
bad politics. Large organizations, in fact all
organizations, should be thought of as always
slowing down and getting more bureaucratic.
Therefore, leaders must continually drive
for speed and accuracy to eliminate waste
and kill bureaucracy. When you get in great
shape, you don’t stop exercising.

After years of increasing regulations, there
has been a temptation to blame some of our
bureaucracy and ridiculous processes on
regulations. That, too, is (mostly) hogwash.
It is easy to find excuses not to attempt to
reimagine how things could be done better
and more efficiently.

Below are five examples of how we’ve set out
to combat this condition:

Meetings. Internal meetings can be a giant
waste of time and money. I am a vocal propo-
nent of having fewer of them. If a meeting
is absolutely necessary, the organizer needs
to have a well-planned, focused agenda with
pre-read materials sent in advance. The
right people have to be in the room, and
follow-up actions must be well-documented.
Just as important, each meeting should
only run for as long as it needs to and lead

I. JPMORGAN CHASE BUSINESS STRATEGIES to real decisions. In addition, there should
be clarity around who chairs the meeting.
The chair is responsible for making sure all
issues are properly raised, facilitating effec-
tive and productive discussions and driving
to decisions.

War rooms. Just as important, we need to
simplify our processes while accelerating the
pace of change and driving new innovations.
Last year, the Operating Committee created
a number of “war rooms” – spanning lines of
business, geographies, functions and levels
– to make our firm more agile and to put a
laser focus on several hot-button issues, like
client onboarding and vendor and third-
party management. Each war room is staffed
with a dedicated group of employees tasked
with solving specific problems within a set
number of weeks or months. You would be
amazed at how quickly our employees can
come up with new solutions when they are
galvanized around solving a problem in a
concentrated time period. These teams have
been so successful in driving bureaucracy
out of the decision-making process that we
plan to deploy more war rooms when crit-
ical needs arise. These war rooms are very
similar to how we operated when we made
complex acquisitions. Essentially, they cause
better and faster dissemination of infor-
mation to those who need to know – and
faster and more productive decision making
because everyone involved is in the room.

Reimagining. You can take any part of your
business and reimagine it. You can get
all the right people in the room to think
about a certain process and reimagine how
it could be done from the ground up. Our
Know Your Customer problem-solving team
is a good example of the results our reimag-
ining and war rooms can drive. Comprising
all lines of business, the group was given
eight weeks to reimagine our KYC processes
to improve the customer experience without
sacrificing controls. By applying a sharp,
firmwide focus to the KYC protocols, the

team identified several KYC questions and
protocols that had become outdated or been
made redundant by recent controls. One
customer could be subjected to multiple
KYC processes depending on the line of
business and channel used. As a result, the
team streamlined KYC questions substan-
tially and identified a number of processes
that could be eliminated, which will allow
for a better customer experience while still
maintaining a strong control environment.
This war room team’s results not only
helped disparate lines of business identify
duplicative processes but also enabled the
team to update the firm’s priorities.

Fighting complacency by being self-critical.
Complacency is another disease. It is usually
borne out of arrogance or success, but it is a
guarantee of future failure. Our competitors
are not resting on their laurels – nor can
we. The only way to fight complacency is to
always analyze our own actions and point
out our own weaknesses. It’s great to openly
celebrate our successes, but when the door
is closed, management should emphasize
the negatives.

Using agile management to create speed.
Agile technology generally means using
new forms of technology – think cloud
computing, for example – to enable small
teams of programmers to build and prop-
erly execute new programs and products
rapidly and effectively. The concept of agile
management goes hand in hand with this
approach. Small teams of people respon-
sible for products and services work with
technologists to improve the customer
experience. To do this, they must be given
the necessary authority and resources. It is
also important they understand that they
can make mistakes without punishment.

I. JPMORGAN CHASE BUSINESS STRATEGIES8. What are the firm’s views on succession?

Having a first-rate management team in
place is probably the Board’s highest priority.
Therefore, management succession planning
is a key focus of our Board. The Board knows
the firm’s senior leaders well, through unfet-
tered access and significant interaction.

While the Board and I have agreed that I
will continue in my current role for approxi-
mately five more years, we both believe that,
under all timing scenarios, the firm has in
place several highly capable successors.

Early in the year, we announced that Daniel
Pinto, CEO of our Corporate & Investment
Bank, and Gordon Smith, CEO of Consumer
& Community Banking, have been appointed
Co-Presidents and Chief Operating Officers
of the company. In addition to their current

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

I. JPMORGAN CHASE BUSINESS STRATEGIES II. PU BLIC PO LICY

The following messages are worth repeating
from last year’s letter: The United States
needs to ensure that we maintain a healthy
and vibrant economy. This is what fuels
job creation, raises the standard of living
and creates opportunity for those who are
hurting, while positioning us to invest in
education, technology and infrastructure
– in a programmatic and sustainable way
– to build a better and safer future for our
country and its people. And in a world with
so many security threats and challenges, we
need to maintain the best military. Amer-
ica’s military will be the best in the world
only as long as we have the best economy
in the world.

Business plays a critical role as an engine of
economic growth – particularly our largest,
globally competitive American businesses.
As an example, the 1,000 largest compa-
nies in America (out of approximately 29
million) employ nearly 30 million people
in the United States, and nearly all of their
full-time employees receive full medical
and retirement benefits, as well as exten-
sive training. In addition, these companies
account for more than 30% of the roughly
$2.3 trillion spent annually on capital expen-
ditures. These expenditures and research and
development spending drive productivity
and innovation, which, ultimately, drive job
creation across the entire economy.

Of the approximately 150 million people
who work in the United States, 130 million
work in private enterprise. We hold in high
regard the 20 million people employed by
the government or in the public sector –
teachers, police officers, firefighters and
others. But we could not pay for those jobs
if the other 130 million workers were not
actively producing America’s gross domestic
product (GDP).

Small businesses are a critical engine of
economic growth. Small and large busi-
nesses are symbiotic – they are each other’s
customers, and they help drive each other’s
growth. They are integral to our large busi-
ness ecosystem. At JPMorgan Chase, for
example, we support more than 4 million
small business clients, including hundreds of
small banks, 15,000 middle market compa-
nies, and approximately 7,000 corporations
and investor clients. Additionally, we rely on
services from nearly 30,000 vendors, many
of which are small and midsized companies.

Business, taken as a whole, is the source of
almost all job creation. And we need to main-
tain trust and confidence in our businesses
as in all of our institutions. Confidence is a
“secret sauce” that costs nothing, but it helps
the economy grow. A strong and vibrant
private sector (including big companies) is
good for the average American. Entrepre-
neurship and free enterprise, with strong
ethics and high standards, are something to
root for – not attack.

To support this, we need a pro-growth policy
environment from the government that
provides a degree of certainty around long-
standing issues that have proved frustrat-
ingly elusive to solve. The most pressing
areas where government, business and
other stakeholders can find common ground
should include tax reform, infrastructure
investment, education reform, more favor-
able trade agreements and a sensible immi-
gration policy.

Let’s take another look at what is holding us
back and some solutions that could make life
better for all Americans.

1. What has gone wrong in public policy?

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

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

GDP1 Growth
The present expansion relative to average
Cumulative growth since prior trough, percent

Bank Credit1 Growth
The present expansion relative to average
Cumulative growth since prior trough, percent

(cid:31) Current expansion
(cid:31) Current expansion
(cid:31) Average expansion
(cid:31) Average expansion

30%

25%

20%

15%

10%

0%
0

Recovery period in quarters

(cid:31) Current expansion
(cid:31) Current expansion
(cid:31) Average expansion
(cid:31) Average expansion

30%

25%

20%

15%

10%

0%
0

–5%

–10%

Recovery period in quarters

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

1 Adjusted for inflation
Source: Haver; Federal Reserve Board, March 2018

II. PUBLIC POLICY • We had a hugely and increasingly uncom-
petitive tax system driving companies’
capital and brainpower overseas.

• Excessive regulations for both large and
small companies reduced growth and
business formation. The ease of starting
a business in the United States worsened,
with small business formation dropping to
the lowest rate in 30 years.

• The chart on the bottom right of page

• Our schools are leaving too many behind.
In some inner city schools, fewer than
60% of students graduate, and of those
who do, a significant number are not
prepared for employment. Additionally,
many of our high schools, vocational
schools and community colleges do not
properly prepare today’s younger gener-
ation for the available professional-level
jobs, many of which pay a multiple of the
minimum wage.

30 shows how tepid bank credit growth
was in general during this recovery.
Remember, bank credit growth directly
relates to economic growth, although it’s
often difficult to figure out the cause and
effect. But there is no question that the
things that reduce credit availability, in
turn, reduce growth. One area where we
know this happened was in the mortgage
market. Household formation has been
slow because many young adults have had
a difficult time finding work and, with the
help of their families, have gone back for
more schooling. That is slowly reversing.
But the inability to reform mortgage
markets has dramatically reduced mort-
gage availability. In fact, our analysis
shows that, conservatively, more than
$1 trillion in mortgage loans might have
been made over a five-year period.

• Labor force participation – particularly

among men aged 25-54 – dropped dramat-
ically. An estimated 2 million Americans
are currently addicted to opioids (in
2016, a staggering 42,000 Americans died
because of opioid overdoses), and some
studies show this is one of the major
reasons why men aged 25-54 are perma-
nently out of work. Even worse, 70% of
today’s youth (ages 17-24) are not eligible
for military service, essentially due to a
lack of proper education (basic reading
and writing skills) or health issues (often
obesity or diabetes).

• Infrastructure is a disaster. It took eight

years to get a man to the moon (from idea
inception to completion), yet it now can
sometimes take a decade to simply get the
permits to build a bridge or a new solar
field. The country that used to have the
best infrastructure on the planet by most
measures is now not even ranked among
the top 20 developed nations according to
the Basic Requirement Index.

• Our immigration policies fail us in

numerous ways. Forty percent of foreign
students who receive advanced degrees
in science, technology and math (300,000
students annually) have no legal way of
staying here, although many would choose
to do so. Most students from countries
outside the United States pay full freight
to attend our universities but many are
forced to take the training back home.
From my vantage point, that means one of
our largest exports is brainpower.

• Our nation’s healthcare costs are twice the
amount per person compared with most
developed nations.

• Our litigation system is increasingly

arbitrary, capricious, wasteful and slow.

II. PUBLIC POLICYEconomic analysis provides a sense of the
costs associated with misguided policies. The
Congressional Budget Office estimates the
cost of failing to pass immigration reform
earlier this decade at 0.3% of GDP a year. An
International Monetary Fund study suggests
that a 1% of GDP rise in infrastructure
investment in 2013 would have delivered a
similar boost to advanced economy GDP over
the subsequent decade. J.P. Morgan analysis
indicates that the cost of not reforming the
mortgage markets could be as high as 0.2%
of GDP a year. Taken together with the costs
of excessive regulation and a depressed
prime age labor participation rate, it is easy
to conclude that corrections in policy could
add more than 1% of GDP annually. And this
does not account for many of the items I
mentioned in the prior list.

The end result is that our economy is still
leaving many behind. Much of this is
probably self-inflicted. While a job used to
provide a ticket to the middle class, today
more people are getting stuck in low-wage
work. Historically, we’ve thought of these
jobs as providing the first rung on a career

ladder – a chance for workers to prove them-
selves and develop skills before moving on
to other, better paying jobs. But a growing
number of Americans are left hanging on
this first rung: During the mid-1990s, only
one in five minimum-wage workers was still
at minimum wage a year later. Today, that
number is nearly one in three.

So while the economy has not performed
badly and has done amazingly well for a
handful – low-skilled and even middle-skilled
wages have gone down, leaving large swaths
of Americans behind.

It is surprising that many younger people in
the United States, who are effectively going
to inherit the wealthiest nation on the planet,
seem to be pessimistic about our future
and capitalism. But falling expectations, the
failure of our economy to lift up everyone,
and the continual deprecation of society
and its leaders have led to huge amounts of
discontent and unrest.

All these issues are fixable, but we should
ask ourselves how we got it wrong in the
first place.

2. Poor public policy — how has this happened?

America has been an amazingly resilient
country. And we hope it will reset and get
back on track. But it is hard to look at the
last 20 years and not think that it has been
getting increasingly worse (and we should
not assume that it will get better on its own).
Before we try to address what we can do to
fix it, it is important to look at why it has
gotten worse. Here are my theories:

• The world is getting faster and more

complex, making speed and analytics all
the more important. But the structure of
our political parties and institutions has
barely changed in 100 years. They may not
be set up for success – organized in a way to
enable them to deal with today’s challenges.

• Critical thinking, analysis of facts and
proper policy formation have become
extremely difficult in a politicized and

media-saturated environment. Often,
politics misuses facts to justify a position.

• We are effectively crippled when it

comes to fixing our problems even when
they are totally predictable. Puerto
Rico’s bankruptcy, Detroit’s bankruptcy,
unfunded pension plans, the job skills
gap, and crumbling bridges and tunnels
are prime examples.

• We focus too much on the short term.

For example, President Bill Clinton (and
I don’t mean to pick him out specifically)
usually gets credit for driving a strong
economy. But the excessive mortgage
lending, incented and promulgated by
the federal government (I am in no way
saying that banks and investors didn’t
play a part, too), is part of the reason the
economy at that time did well. It blew up

II. PUBLIC POLICY late in President George W. Bush’s term.
There are many examples of presidents
getting credit or blame for scenarios that
had nothing to do with their governing.
We simply learned the wrong lessons. And
in the short run, we tend to simplistically
look for scapegoats instead of solutions.

• Rogoff and Reinhart wrote in their book,
This Time Is Different, that it takes a long
time to recover from a financial crisis. But
this was often due to poor policy or over-
reaction to the financial crisis, and while
history teaches us that maybe we should
expect this reaction in the next crisis, it
does not have to be true over and over. We
have a difficult time learning from the past.

• A famous politician once said, “Don’t let a
good crisis go to waste.” I think he really
meant, “Let’s use the crisis to get some
good, important things done.” It appears

that politicians sometimes use a crisis to
justify implementing their own agenda.

• Here’s another example: We all know that
the U.S. healthcare system needs to be
reformed. Many have advocated getting
on the path to universal healthcare for all
Americans. The creation of Obamacare,
while a step in the right moral direc-
tion, was not well done. America has
290 million people who have insurance
– 180 million through private enterprise
and 110 million through Medicare and
Medicaid. Obamacare slightly expanded
both and created exchanges that insure
10 million people. But it did very little
to fix our broken healthcare system and
has, in fact, torn up the body politic over
10 years – and this tumult may go on for
another 10 years.

3. We can fix this problem through intelligent, thoughtful, analytical and comprehensive policy.

First off, we should find it rather easy to
recognize that bad thinking often leads to bad
policymaking. Let me list a few of the culprits:

• Binary arguments. When people argue as
if there are binary solutions, the argument
is almost always wrong. When people say
you should not do something because it
is like going down a “slippery slope,” it
generally is not a good argument. In the
modern world, there are reasons to cali-
brate various parts of policy instead of just
denying the argument altogether.

• “They complain too much” arguments.

When a point has been made and someone
calls it a complaint, the point is diminished
right away. When someone complains
about something, a better response is to
think about where or how the person
might be right or partially right.

• Not listening to one another. I tell my
liberal friends to read columnists like
Arthur Brooks and George Will. And I tell
my conservative friends to read writers
like Tom Friedman.

• Not asking what outcomes you really want

to achieve.

• Not working with experts who know the

most about a subject.

• Trying to create too many zero-tolerance
environments when they are often not
merited. Examples include situations
where people need to be able to commu-
nicate with each other and work through
miscommunications and mistakes of judg-
ment rather than criminal and unethical
behavior, where a zero-tolerance standard
should be applied equally to all.

• This way of thinking also applies to institu-
tions. We should not destroy the credibility
or the effectiveness of institutions – public
or private – for the mistakes or misdeeds of
a few. This may feel good in the short term
but will not serve us well over the long term.

We all generally know what a good
decision-making process looks like – and
we applaud it – whether in business or
in Congress.

II. PUBLIC POLICY4. The need for solutions through collaborative, competent government.

restoring public faith in two of our greatest
democratic institutions in the United States:
business and government. Working together
will allow us to move toward a prosperous
future for all Americans.

Many examples of business and government
working together already have produced
positive outcomes. Businesses have played
a large role in trying to help Detroit recover.
Businesses started the Veteran Jobs Mission.
With a goal of 1 million jobs, the coalition
of businesses has already helped 400,000
U.S. veterans get work, and the number is
still growing. Many businesses have worked
closely with the education system (mostly
locally) to support charter schools, voca-
tional schools and community colleges to
provide skills training that prepares students
for productive employment. We believe
that collaboration can create even better
outcomes in education, healthcare and job
creation while shoring up pension plans and
rebuilding our cities and communities across
the nation.

Our Founding Fathers studied and worked
hard to design a strong and permanent
democracy. They perfected a Constitution to
protect our basic liberties, building in protec-
tions to temper some of our worst attributes
and incent our best ones. If they were here
with us today, I believe they would recognize
that our government institutions are stuck
in the mud – too slow and inadequate for
the job at hand. Therefore, they would study
and work hard within the Constitution to
redesign and reformulate how government
should function so that it works properly.
We will eventually need to do the same.

People don’t think about the challenges in
their everyday lives as being Democratic
or Republican issues – and our political
leaders need to stop thinking that way. We
need a well-performing, competent govern-
ment to thrive as a nation. Clearly, there
are things that only the government can
do – and must do well – such as having a
strong military and ensuring an efficient and
properly functioning justice system. The
federal government maintains most of our
nation’s transportation systems, and we need
state and local governments to do a good
job in terms of education, policing and other
important functions. Some argue that the
government should be doing more. But when
many Americans think of the government
delivering services, they think of the endless
bureaucracy and paperwork associated with
the Internal Revenue Service, the U.S. Postal
Service and the Department of Veterans
Affairs – none of which would consistently
get high marks.

We all can agree that the lack of true collab-
oration and an unwillingness to address our
most pressing policy issues have contributed
to the divisive and polarized environment we
have today. Certainly there is plenty of blame
to go around on this front. However, rather
than looking back, it now is more important
than ever for the business community and
government to come together to find mean-
ingful solutions. This cannot be done by
government or business alone.

By collaborating and applying some good old
American can-do ingenuity, there is nothing
we can’t accomplish. By working together,
business, government and the nonprofit
sector can ensure and maintain a healthy and
vibrant economy into the future – creating
jobs, fostering economic mobility and main-
taining sustainable economic growth. Ulti-
mately, this translates to an improved quality
of life and greater financial security for those
in the United States struggling to make ends
meet. It also represents a significant step in

II. PUBLIC POLICY 5. A competitive business tax system is a key pillar of a growth strategy.

It isn’t easy to stay competitive in an increas-
ingly global marketplace, and national tax
policy was one critical area where we were
falling behind. Over the last 20 years, as
the world reduced its tax rates, America did
not. Our previous tax code was increasingly
uncompetitive, overly complex, and loaded
with special interest provisions that created
winners and losers. This was driving down
capital investment, reducing productivity
and causing wages to remain stagnant. The
good news is that the recent changes in the
U.S. tax system have many of the key ingre-
dients to fuel economic expansion: a busi-
ness tax rate that will make the U.S. compet-
itive around the world; provisions to free
U.S. companies to bring back profits earned
overseas; and, importantly, tax relief for the
middle class.

The passage of tax reform is critical because
strong businesses create jobs and higher
wages. Before tax reform was passed, 76%
of the CEOs of leading U.S. companies said
they would increase hiring if tax reform
were enacted, and 82% would increase
capital spending – and we already are seeing
these effects. Hundreds of companies like
ours are stepping up by investing in their
employees and in initiatives to address
challenges facing communities.

I must confess I don’t understand how
anyone could believe an uncompetitive tax
system would be good for the United States
– whether the current economic environ-
ment was good or bad. The damage has
been cumulative. Here is one example: A
recent study by the accounting firm Ernst
& Young found that under a 20% corporate
income tax rate, U.S. companies would

have acquired $1.2 trillion in cross-border
assets during 2004-2016 instead of losing
$510 billion in such assets to foreign buyers.
Simply put, this means the United States
would have kept 4,700 companies under U.S.
ownership during the past 13 years if they
had paid taxes at a rate competitive with
other countries that have modernized their
corporate tax codes. Today’s competitive
U.S. corporate tax rate will reduce incentives
for U.S. companies to relocate abroad or be
purchased by foreign companies.

There is a reason why it has taken 30 years
for comprehensive tax reform to take place
in this country: It is complicated work, and
navigating competing interests is hard. I
am pleased that we did the right thing – not
the easy thing. Congress took a historic step
in 2017 to reform America’s broken and
outdated tax code. Coming together to get
that work done shows that we can take on
tough issues that have been holding us back.

I believe tax reform will have both short-
and long-term benefits. In the short term,
we already are seeing some companies
increasing capital expenditures, hiring and
raising wages. Of course, that will not be
enough to offset all the immediate benefits
associated with tax reform. Some argue that
the added cash flow going to dividends and
buybacks is a negative – it is not. It simply
represents capital finding a higher and better
use than the current owner has with it. And
that higher and better use will be reinvest-
ment in companies, innovation, R&D or
consumption. Thinking this is a bad thing is
just wrong. Tax reform’s real benefit will be
the long-term cumulative effect of retained
and reinvested capital in the United States,
which means more companies, innovation
and employment will stay in this country.
The United States should always aim to have
a competitive business tax system. It should
not be traded off against other objectives.

II. PUBLIC POLICYHere is some news we announced on how JPMorgan Chase is immediately putting
some of the benefits of tax reform to good work.

This is the right thing to do, and we believe it puts
us well above the average hourly wage for most
markets. These increases are on top of the value
of the firm’s full benefits package, which averages
$12,000 for employees in this pay range. But the
improvements won’t stop there. We’re reducing
medical plan deductibles by $750 per year for
employees making less than $60,000 — this essen-
tially makes the deductible $0 for those employees
who take care of themselves by meeting minimal
wellness and preventative program requirements.

Credit is essential to a healthy economy and
growth, and our new investments include sizable
increases in lending to small businesses and
homeowners. Through Commercial Banking and
Business Banking, we will hire 500 new bankers
and help expand small business lending by 20% —
or $4 billion — over three years while entering new
markets. We’re also doubling the investment in our
Small Business Forward initiative to $150 million
over five years to help provide small businesses run
by women, minorities and veterans get both the
capital and technical assistance they need to grow.

We will also help more families live their dream of
owning a home by increasing home lending in low-
and moderate-income communities by 25% — to
$50 billion — over the next five years. To do so,
we will hire up to 500 new Home Lending advisors
across our current markets and in some new ones. In
addition, we will increase lending to finance afford-
able rental housing to $7 billion over five years.

Today, our company is strong and growing, and
when we grow, so do the communities where we do
business. We’re excited to welcome new employees,
new customers and new communities to JPMorgan
Chase and to look forward to a bright future.

Along with a more constructive regulatory and
business environment and our strong business
performance, this reform has led our company
to recently announce a $20 billion, five-year
comprehensive investment to help its employees
while supporting job and local economic growth
in the United States.

JPMorgan Chase plans to build up to 400 Chase
branches in 15-20 new markets and hire up to
4,000 additional employees over the next five
years. These employees will support our branch
growth and more lending to small businesses and
homeowners. Today, Chase has roughly 5,100
branches across 23 U.S. states, and, for a long time,
we have wanted to expand beyond our current foot-
print. The heart of our company is our branches.
We serve 61 million U.S. households — one out of
every two U.S. families is a Chase customer. Nearly
every line of business operates out of our branches
in some way. We are not in some major markets,
including Boston, Philadelphia and Washington,
D.C., but Consumer Banking has started the formal
application process for national expansion.

As I previously said, when Chase enters a commu-
nity, it enters with the full force of JPMorgan
Chase behind it. We hire people. We lend to and
support local businesses. We help customers with
banking, lending and saving. And our philanthropic
programs help make these communities stronger.

Our company has made a significant economic
impact in all the communities in which we operate,
and we’re excited to become an even more relevant
part of many others.

We’re also investing in our employees. We want
to have the best people, period. We know happy
customers start with happy employees, and we
want to be the best place to work everywhere we
do business. For the second time in two years,
we’re raising wages for 22,000 employees. For
employees making between $12 and $16.50 an
hour, we will raise hourly wages to between $15
and $18, depending on the local cost of living.

The need for rational, thoughtful, consistent
tax policy.

The best long-term tax policy should have
the following attributes:

• The business tax system should be

competitive – always – and not be traded
off against anything else. I would consider
this table stakes for having a healthy
economy in the long run.

• We should build the infrastructure we
need. (We should consider this table
stakes, too.) There are many reports that
highlight how less expensive it is in the
long run to have better infrastructure. In
fact, some studies show it is even more
expensive to have bad infrastructure.

• We should have a progressive tax system
(helping people on the lower end) that
progressively taxes higher incomes, like
mine. And, of course, no one wants to

think about their money being misspent.
Therefore, it is critical for Washington to
show the American public that their money
will be used wisely – and that includes
canceling or modifying programs that
don’t work and not using money to pay off
special interest groups. If we need to raise
taxes on the more well-off, I would hope the
more affluent would recognize that they
will do better if the country does better.

• The tax policy should be consistent in

the long term for businesses to maximize
their productivity and growth.

This is the best way to permanently drive
growth and become a far wealthier and fairer
society. There are two things I would do
immediately to improve income inequality
and create a much healthier society as
explained below.

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

the future.

The Earned Income Tax Credit (EITC)
supplements low- to moderate-income
working individuals and couples, particularly
with children. For example, a single mother
with two children earning $9 an hour (approx-
imately $20,000 a year) could get a tax credit
of more than $5,000 at year’s end. A single
male without children (also making approx-
imately $20,000 a year) does not get any
money for a tax credit under this program.
Last year, the EITC program cost the United
States about $65 billion, and 27 million indi-
viduals received the credit. This program has
lifted an estimated 9 million people above the
poverty line. (The federal poverty guideline
is determined by household size. For a four-
person household, the poverty level is $25,100
or approximately $11 an hour.)

There are some problems with the EITC. Paid
as a tax credit at the end of the year, 21% of
the people who are entitled to it don’t file for
it – mostly because they don’t know about it.
Additionally, there is some fraud involved.

We should convert the EITC into more of a
negative income payroll tax, which would
spread the benefit, reduce fraud and get it
into more people’s hands. (Both Democrats
and Republicans favor a move like this.)
We should also dramatically expand the tax
credit and even make it more available to
workers without children.

Of the 150 million Americans working today,
approximately 21 million earn between $7.25
an hour (the prevailing federal minimum
wage) and $10.10 an hour. Approximately
42% of American workers make less than
$15 an hour. It is hard to argue that you
can live on $7-$10 an hour, particularly for
families (even if two are working in that
household). Decades ago, workers with very
limited skills could earn a living wage to
support themselves and their family. In this
new highly technical world – where work
skills are so greatly valued – the “natural”
wage for unskilled workers may no longer
lead to a living wage. This is an area that
deserves more study.

II. PUBLIC POLICYJobs are a wonderful thing. Jobs bring dignity.
That first job is often the first rung on the
ladder. People like working, and studies show
that once people start working, they continue
working. Jobs and living wages lead to better
social outcomes – more household formation,
more marriages and children, and less crime,
as well as better health and overall well-being.
As society creates an enormous amount of
wealth, expanding the EITC would be a very
productive way to share it. If a large portion
of the American population cannot earn a
living wage, then we will create a situation of
permanent social turmoil.

We need to improve work skills and training that
lead to better jobs — this will help both low- and
middle-income workers. It is also the cure for
rapid technological change.

Many high schools and vocational schools do
not provide the education our students need
– the ability to graduate and get a decent job.
We should be ringing the alarm bell, signaling
that inner city schools are failing our children
– often minorities and mostly lower income
students. In many inner city schools, fewer
than 60% of students graduate, and many of
those who do are not prepared for employ-
ment. We are creating generations of citi-
zens who never had a chance in this land of
dreams and equal opportunity. Unfortunately,
it’s self-perpetuating.

And we all pay the price. According to an
assessment of math and science scores that
the Organisation for Economic Co-operation
and Development (OECD) conducted in 35
advanced industrialized countries, the United
States ranks, on average, #24. Making the
investment to improve our performance to
the level of the OECD average would increase
the U.S. gross domestic product by 1.7% over
the next 35 years.

America used to be one of the best at training
our workforce for good jobs. We know what
to do to regain that mantle. We need to ensure
that our high schools, vocational schools, tech-
nical schools and community colleges work
together with local businesses to properly
train these students so they can get well-
paying jobs upon graduation; then we need

to make sure proper apprenticeships and
certifications (including college credits) are
widely available. These students can continue
to work or have the opportunity to go back
to college, if they so choose. Doing this well
will help the lower skilled and middle-income
workers in the new world. The best way to
offset any negatives associated with trade
or technology is through continued educa-
tion and training so that well-paying jobs are
replaced with other well-paying jobs.

We know that technological advancements are
displacing certain industries. Driverless cars,
for example, are getting closer to mainstream
use every day. Technology will bring innova-
tion, but it will also change the employment
opportunities available to hundreds of thou-
sands – perhaps even millions – of people. We
have the opportunity, now, to start preparing
for and addressing potential future job losses.
Anticipating problems that may arise from
new technologies – and developing plans
to responsibly minimize them – should be
considered the final phase of our R&D process.

We, as a country, must also change the way
we think about education. In less mutable
times, a degree meant that formal learning
was complete. You had acquired what you
needed for a successful career in your field.
A degree in today’s world cannot mean the
end of your studies. New discoveries, new
advancements, new technologies and new
terminology all mean that a degree will not
carry you as far into the future as it once
did. We must place a higher premium on
lifelong learning. Corporations can do a lot to
encourage and foster such a shift.

We should celebrate the benefits of technology,
and we should also prepare for its challenges.

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

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

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

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

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

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

U.S. Government Public1 Debt as a Percentage of GDP

160%

140%

120%

100%

80%

60%

40%

20%

(cid:31) Debt held by public

(% of GDP growth at 2.0%)

(cid:31) Debt held by public

(% of GDP growth at 2.5%)

2017

77%

+37ppts

+24ppts

+26ppts

+12ppts

+17ppts

+6ppts

2027

89%

83%

2037

113%

100%

2047

150%

126%

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

II. PUBLIC POLICY

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

We cannot fix problems if we don’t acknowl-
edge them. The extraordinary growth of
Medicare, Medicaid and Social Security is
jeopardizing our fiscal situation. We have to
attack these issues. I am not going to spend
a lot of time talking about Social Security.
I think fixing it is within our grasp – for
example, by changing the qualification age
and means testing, among other things.
When President Franklin Delano Roosevelt
astutely put Social Security in place in 1935,
American citizens would work and pay into
Social Security until they were 65 years old.
At that time, when someone retired at age
65, the average life span after retirement was
13 years. Today, the average person retires
at age 62, and the average life span after
retiring is just under 25 years.

The core issue underpinning the entitle-
ments problem is healthcare in the United
States. Here are just a few places where we
know we can do better:

• The United States has some of the best
healthcare in the world, including our
doctors, nurses, hospitals and clinical
research. However, we also have some of
the worst – in terms of some outcomes
and costs.

• Administrative and fraud costs are esti-
mated to be 25% to 40% of total health-
care spend.

• Chronic disease accounts for 75% of

spend concentrated on six conditions,
which, in many cases, are preventable
or reversible.

JPMorgan Chase, along with our partners
Amazon and Berkshire Hathaway, recently
formed a joint venture that we hope will
help improve the satisfaction of our health-
care services for our employees (that could
be in terms of costs and outcomes) and
possibly help inform public policy for the
country. The effort will start very small, but
there is much to do, and we are optimistic.
We will be hiring a strong management
team to start working on some of these
critical problems and issues:

• Aligning incentives systemwide – the

United States has the highest costs asso-
ciated with the worst outcomes because
we’re getting what we incentivize.

• Studying the extraordinary amount of

money spent on waste, administration and
fraud costs.

• Empowering employees to make better

choices and have the best options available
by owning their own healthcare data with
access to excellent telemedicine options,
where more consumer-driven health initia-
tives can help.

• Developing better wellness programs,

particularly around obesity and smoking
– they account for approximately 25% of
chronic diseases (e.g., cancer, stroke, heart
disease and depression).

• Determining why costly and special-

ized medicine and pharmaceuticals are
frequently over- and under-utilized.

• Examining the extraordinary amount of
money spent on end-of-life care, often
unwanted.

While we don’t know the exact fix to this
problem, we do know the process that will
help us fix it. We need to form a bipartisan
group of experts whose direct charge is to fix
our healthcare system. I am convinced that
this can be done, and if done properly, it will
actually improve the outcomes and satisfac-
tion of all American citizens.

To attack these issues, we will be using
top management, big data, virtual tech-
nology, better customer engagement and the
improved creation of customer choice (high
deductibles have barely worked). This effort
is just beginning, and we intend to start
small. We will report on our progress in the
coming years.

II. PUBLIC POLICY 8. Why is smart regulation vs. just more regulation so important?

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

The current administration is taking steps to
reduce unnecessary regulation by insisting
that congressional rules around cost-benefit
analysis be properly applied. It is also actively
trying to put regulators in the right roles with
the proper authority to use commonsense
principles to make appropriate changes.

By some estimates, approximately $2 trillion
is spent on regulations annually, which is
about $15,000 per household. While we
believe much of this money is well spent
(leading to cleaner water and air, and safer
highways and hospitals, for example), it is
hard to imagine that all of it is well spent.
Decades of continuously expanding and over-
lapping regulation certainly can be stream-
lined and improved. There is little doubt that
excessive regulation has adversely impacted
innovation, growth and the formation of
small businesses. The chart below shows the
dramatic reduction in the net formation of
small businesses. It is hard to know exactly

Annual Net Small Business Formations
Number of businesses

250,000

200,000

150,000

100,000

50,000

–50,000

–100,000

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999 2001

2003 2005

2007 2009

2011

2013

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

II. PUBLIC POLICY42

why this is happening, but the main culprits
are probably the cost and difficulties that
unnecessary regulations cause, coupled with
the lack of access to credit for new businesses.

Another study examines the effect poor
infrastructure has on efficiency (for example,
poorly constructed highways, congested

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

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

earnings guidance.

Last year, I wrote about the decline in
the number of public companies in the
United States. Unfortunately, that trend has
continued unabated. Indeed, if anything,
it’s accelerated. According to one study, the
number of U.S. public companies has fallen
by approximately 50% over two decades
(from 8,090 in 1996 to 4,331 in 2016). And
that decline, it pains me to say, is a uniquely
American phenomenon. Public company
listings in other developed markets have
increased over the same period.

Fortunately, policymakers are sitting up and
taking notice. In a report issued in October
2017, the U.S. Treasury Department decried the
decline in the number of U.S. public compa-
nies and recommended several measures to
stem the tide. Eliminating duplicative regu-
lations, liberalizing restrictions on pre-initial
public offering communications and removing
non-material disclosure requirements
were some of these measures. Jay Clayton,
Chairman of the U.S. Securities and Exchange
Commission, also has been quite vocal about
the decline: He says it potentially deprives
“Mr. and Ms. 401(k)” of the opportunity to
participate in much of our country’s wealthy
creation. I share Chairman Clayton’s concern.

Too many private company owners look at
the burdens tied to public company status –
among them, frivolous shareholder litigation,
burdensome disclosures that don’t get to
the core of investor concerns, an unhealthy
focus on short-term results and shareholder
meetings that often focus on the trivial.
Because of such factors, many private compa-
nies make a rational decision to stay private,

particularly given rules that increasingly
allow individuals to invest in private compa-
nies. Ultimately, that’s not good for America
because public companies are a powerful
economic engine for job and wealth creation.
They are also responsible for one-third of
all private sector employment, with millions
of American families depending on public
companies for retirement, savings for college
and home purchases, and investment.

So what can public companies do about
these issues? For one, they can continue
to engage policymakers. Second, they can
continue to resist pressures to focus on
the short term at the expense of long-term
strategy, growth and sustainable perfor-
mance. And in my mind, quarterly and
annual earnings per share guidance is a
major contributor to that short-term focus.
It can cause companies to hold back on tech-
nology spending, marketing expenditures
and other investments in their future in
order to meet a prognostication affected by
factors outside the company’s control, such
as fluctuations in commodity prices, stock
market volatility and even the weather.
That’s why during my time as JPMorgan
Chase’s CEO we’ve never provided quarterly
or annual net earnings guidance and why we
would support any company that considers
dropping such guidance in the future. We
totally support being open and transparent
about our financial and operational numbers
with our shareholders – this includes
providing guidance or expectations around
number of branches, likely expense levels,
“what ifs” and other specific items.

II. PUBLIC POLICYWith their own sizable investment portfolios,
most public companies could use their power
as shareholders to urge public companies
and asset managers to take a relentlessly
long-term focus.

Of course, shareholders of all stripes – and
particularly institutional shareholders (asset
managers, as well as asset owners) – have
a critical role to play in public company
corporate governance. Among other things,
they should exercise their proxy voting
rights thoughtfully, using independent

judgment even where they use proxy advi-
sors to inform their judgment. They should
actively engage with company boards and
management, as appropriate, to understand
the company’s point of view and to convey
their own. And they should evaluate and
compensate their portfolio managers in a
manner that reflects the investment time
horizon applicable to the portfolio they are
managing. That may mean using perfor-
mance benchmarks over three-, five- and
even 10-year periods, in addition to shorter
period benchmarks.

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

Today’s world is as complex and dynamic
as ever. Things like trade, immigration,
technology and social media, as well as our
ability to move capital and purchase goods
with the click of a button, all are changing
how we live and how we do business. A
natural reaction to this disruption might
be to turn inward, to build walls. Such an
impulse reflects real and justifiable concerns
about whether our rush to change has
outpaced our ability to successfully adapt. At
this moment of uncertainty, however, U.S.
global engagement is needed more than ever.

Following the devastation brought on by
two world wars, the United States and other
like-minded nations resolved to shape a new
international order that would ensure a future
unlike the past. In the succeeding years,
America led the creation of a system defined
by the rule of law and supported interna-
tional institutions like the United Nations, the
World Health Organization and the World
Trade Organization (WTO). These institu-
tions offered states a way to work out their
differences around a conference table and
address pressing economic and social chal-
lenges. Organizations like the North Atlantic
Treaty Organization (NATO) were formed to
enable collective action, promote peace and
deter aggression. Treaties and coalitions were
forged to limit the spread of nuclear weapons
and to address threats such as terrorism,
disease and climate change. America under-
took efforts to promote and spread democratic

values such as free speech and equality while
standing firm against dictators and strongmen
who would otherwise insist that “might makes
right.” There should be no doubt that these
efforts have made us all more prosperous,
secure and free.

The world has made incredible strides
since most of us were born. We have over-
come challenges once thought insurmount-
able. More than a billion people have been
lifted out of extreme poverty in the last
two decades. Food security is dramatically
improving – a major driver of improving
human health – and the number of under-
nourished people around the world is
continuing to fall. Vaccines have almost
entirely eliminated most infectious diseases
around the globe – polio, smallpox, measles,
mumps, diphtheria, rubella. Malaria has been
eradicated in many parts of the world, and
deaths have declined significantly in Africa
and Southeast Asia over the last decade.
These achievements and numerous others
reinforce the overall positive trend line of
human history.

Reversing the interconnectedness built by
our post-World War II institutions is neither
desirable nor feasible. As a nation, we cannot
isolate ourselves any more than we can stem
the ocean’s tide. The international system
provides agreed-upon rules of the road – and
mechanisms for enforcing them. It serves
as the basis upon which we can insist on
fairer trade practices from competitors and
adequate burden-sharing from allies. It is the

II. PUBLIC POLICY means by which we can continue to improve
people’s lives and livelihoods. The system,
built at great sacrifice, continues to serve our
interests. It should be preserved and defended
– ideally under strong U.S. leadership.

Any system created by humans, however, is
ultimately fallible. Sustaining the current
order and ensuring its longevity mean
acknowledging its flaws. We must have an
honest conversation about its strengths
and, more important, its weaknesses. Global
GDP has more than doubled since 2000,
yet too many people are being left behind
– shut out of a growing economy’s rewards.
Nations with a proud history of welcoming
immigrants – including the United States, a
nation of immigrants – are engaged in hotly
contested debates over whether immigration
is good for one’s country or not. Recognizing
our extraordinary accomplishments is one
thing, but we should acknowledge what
has gotten worse. NATO has become less
effective, serious issues surround trade and
the WTO is unprepared to deal with today’s
issues – and too bureaucratic and slow to fix
them. The associated loss of faith in govern-
ments and institutions has manifested itself
in a wave of political disruptions, none more
surprising than in the United States itself.
We are increasingly divided and unable to
work out our disagreements.

Retreating from the world is not the solu-
tion, nor is burning down the current system
and starting anew. At the same time, we
cannot and should not turn a blind eye to
the real pressures millions of families face
at the hands of globalization, technolog-
ical advances and other factors. Ultimately,
governments are charged with addressing
the types of issues and popular grievances
that led us to this moment of division and
distrust. But increasingly, the private sector
must also play a role.

Business in total has a huge amount of
capabilities and knowledge. Business needs
to work with the government to drive good,
long-term solutions. But if it is to play a
helpful role, business must be less paro-
chial about what is good for one’s particular
company and more helpful about what is
good for the people of our countries.

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

We have entered a time of uncertainty over
global trade. President Trump has rejected the
Trans-Pacific Partnership (TPP) as not being
in the best interests of the United States and
is renegotiating the North American Free
Trade Agreement (NAFTA). He has begun
to demand material changes in our trade
agreements with many nations and has begun
to demand that nations reduce their trade
surpluses with the United States, probably
most importantly between the United States
and China, the world’s two largest economies.

We should acknowledge many of the legitimate
complaints around trade. Tariffs and non-tariff
barriers to trade are often not fair; intellectual
property is frequently stolen; and the rights to
invest in and own companies in some coun-
tries, in many cases, are not equal. Countries
commonly subsidize state-owned enterprises.
When the U.S. administration talks about “free”
and “fair,” it essentially means the same on all
counts. This is not what has existed. It is not
unreasonable for the United States to press
ahead for more equivalency.

In last year’s letter, I spoke about NAFTA
and said that while there are some clear
problems, an updated agreement should be
worked out in a way that is fair and bene-
ficial for all parties. The logic to do so is
completely compelling.

China is far more complex – and the
complaints are more legitimate. China has
realized significant economic and employ-
ment gains since joining the WTO in 2001.
China was expected to continue on an aggres-
sive path of opening up its economy, but this
has happened at a much slower pace than
most nations expected. Now, more than 16
years later, it has the second-largest economy
in the world and is home to 20% of the
Fortune 500 companies, yet it still considers
itself a “developing” nation that should not
be subject to the same WTO standards as the
United States and other “developed” coun-
tries. The Chinese government is competent
and capable, and it has done an extraordi-
narily good job of managing its emergence as
the world’s second-largest economy. I believe

II. PUBLIC POLICY• We need to have – and believe that we
have – proper border control. American
citizens have the right to complain that
we have not successfully protected our
borders since the last immigration reform
in 1986. In the 1986 amnesty, 3 million
undocumented immigrants came forward,
and now we estimate there are another 11
million undocumented people domiciled
in our country. If the American public
does not believe we have proper border
control, nothing else can be accomplished.

• The “Dreamers” who came to America as
undocumented children (there are approx-
imately 2 million of them) should get a
path to legal status and citizenship.

• We need improved merit-based immigra-

tion. Those who get an advanced degree in
the United States should receive a green
card along with their diploma. We need
these skilled individuals in America. We
could also improve on other merit-based
immigration practices.

• Law-abiding, hardworking undocumented
immigrants should have a path to legal
status or citizenship. The American public
should know this is no easy path. Back
taxes should be paid, and citizenship could
take up to 15 years.

• Finally, it is unlikely the American public

will feel comfortable with immigration if we
don’t revert to some core principles. Immi-
grants should be coming here because
they want to be part of our country and
who we are as a people. America was an
idea borne of freedom, with freedom of
speech, freedom of religion, freedom of
enterprise, and equality and opportunity.
People immigrating to this country should
be taught American history, our language
and our principles. The American public
will not be pro-immigration if we don’t
address these issues.

that China understands most of these issues
and wants to properly resolve them. Recently,
the United States threatened unilateral action
against China. Of course, anything that starts
to resemble a trade war creates risk and uncer-
tainty to the global economic system. One of
the administration’s best arguments is that
negotiation alone has not worked. But regard-
less of the process, here is my view on what
the best outcomes would look like:

• The United States should define very clearly,

and in detail, what it wants from China.

• The United States should lay out a distinct
timeline – and determine what the reaction
would be if it is not met.

• The United States should listen closely to
China about any legitimate complaints it
may have.

• This should be done in partnership with our
largest allies, particularly Japan and Europe.

• The United States should revisit the

Trans-Pacific Partnership and fix the parts
considered unfair. The TPP could be an
excellent economic and strategic agreement
between America and its allies, particularly
Asia. This is not against China: The country
could at some point be offered the oppor-
tunity to enter the TPP if it demonstrates
a willingness to meet its standards, which
would improve upon the rules-based global
trading system under American leadership.

While the chance of having an improved trade
deal with both Mexico and Canada, as well
as a more mutually beneficial relationship
with China, is possible and preferable, there
is always a chance that miscalculations on the
part of the various actors could lead to nega-
tive outcomes. This obviously creates higher
risk and more uncertainty until resolved.

We need to resolve immigration — it is tearing
apart our body politic and damaging our economy.

Immigration reform is important both
morally and economically. Immigration has
been a critical part of America’s economic
and cultural vitality. And there are some
basic and key principles that most Americans
seem to agree with:

II. PUBLIC POLICY Closing policy thoughts.

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

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

IN CLO SING

We are devoted to earning the trust and respect of
our shareholders, customers, employees
and the communities we serve every single day.
We will never lose sight of this.
And we have an outstanding management team
leading this mission – a group of dedicated executives
with exceptional capabilities, character,
experience and wisdom.

I am humbled and honored to work at this
company and with its great people. It is an
extraordinary privilege and responsibility.
On behalf of JPMorgan Chase and our management
team, I want to express my deepest gratitude
to all of our people – I am proud to be their partner.

Jamie Dimon
Chairman and Chief Executive Officer

April 5, 2018

Consumer & Community Banking

2017 financial results

2017 Performance Highlights

JPMorgan Chase had a strong year in
2017. For Consumer & Community
Banking (CCB), we delivered 17%
return on equity (ROE) on net income
of $9.4 billion and $46.5 billion in
revenue. We grew our customer base
to 61 million U.S. households –
nearly half of all U.S. households do
business with Chase – including 4
million small businesses. Our cus-
tomers have 97 million debit and
credit card accounts and spent over
$900 billion on their cards in 2017.
Our active digital customers grew to
47 million, and 30 million of them
are active on mobile, the largest in
our industry.

We’ve made progress since we
brought the Chase businesses together
five years ago, and we have seen
remarkable growth in our business
drivers over that time. In Consumer
and Business Banking, our average
deposits of $626 billion are up 60%,
and our client investment assets are
up 72%, hitting a record $273 billion.
Annual credit card sales rose to $622
billion in 2017, up 63% since five
years ago. Merchant processing vol-
ume reached $1.2 trillion, up 82%.
Home Lending average loans have
grown 16%, and our Auto loans and
leases have grown 53%.

We delivered these results with a
steady focus on the same four areas:
customers, profitability, controls and
people. There is no substitute for a
consistent strategy well-executed.

Here are some of the highlights from
2017 for each.

Customers

Customer satisfaction is at record
highs across most of our businesses.
We will always have plenty of work
to do, but we are extremely pleased
with how far we’ve come.

Key business drivers

($ in billions, except ratios and where otherwise noted)

2017

2012

%∆

Consumer &
Community Banking

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

61.0
46.7
30.1

55.9
31.1
12.4

9%
50%
143%

Consumer and
Business Banking

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

$626
$273
$23
0.57%

$392
$159
$18
1.65%

60%
72%
28%
(108) bps

Home Lending

Credit Card

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

$98
35
$237
0.02%

$181
312
$205
2.37%

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

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

8.4
$622
$140
2.95%

6.7
$381
$125
3.95%

25%
63%
12%
(100) bps

Merchant Services

Merchant processing volume

$1,192

$655

82%

Auto

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

$33
$81
0.51%

$23
$53
0.39%

43%
53%
12 bps

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

bps = basis points

The bar for what customers expect
in every industry has grown much
higher. We live in an on-demand
world. Customers can get the service,
content or experience they want when
they want it on nearly any device.
They expect speed and simplicity.

Customer service in banking and
payments has improved greatly in
recent years but lags compared with
certain other industries such as travel
or segments of retail. We are seeing
fintechs have success simply by
removing customer pain points that
banks haven’t. Customers are show-
ing us where we need to get better,
and we are paying attention. Getting
this right is important because we
are a part of our customers’ every-
day lives. On average, our digitally
active customers log in more than 15
times a month. Our active debit card
customers average 32 purchases a

month, and those who use our
ATMs have an average of five
monthly ATM transactions. Our
active credit card customers average
21 transactions each month.

In 2017, we made several improve-
ments around the customer experi-
ence, including facial recognition in
our app, a fully mobile bank pilot
(Finn), real-time payments using
Chase QuickPaySM with Zelle and a
simpler online application for Busi-
ness Banking customers. For those
who need our business products –
deposits, credit cards and merchant
processing – we collapsed the three
applications into one so customers
provide their information once
instead of multiple times. We didn’t
change the products – we just made
it easier for customers to get the ones
they want. The simpler application
reduces the time it takes to apply

for all three products by 45 minutes,
and we saw engagement with new
Business Banking households with
both deposit and credit card accounts
increase 25% with this change.

We also reached many new customers
through important partnerships. In
the Card business, many consumers
want rewards for items they buy. In
2017, we completed co-brand renewals
for partner cards with Disney, Hyatt
and Marriott. We also launched the
popular Amazon Prime Rewards Visa
card and helped drive double-digit
year-over-year sales growth for the
Amazon portfolio. In addition to sign-
ing new, strategic Chase Pay® partner-
ships with PayPal and The Kroger Co.,
we launched acceptance of Chase Pay®
across merchants such as Cinemark,
Wakefern Food Corporation and
Walmart. And in Auto, we renewed
our contract with Subaru of America,
extending our partnership.

Profitability

We always have said short-term
growth is not our goal, but profitable
growth over the long term is. We
never make decisions to drive short-
term earnings and always focus on
investing for long-term results. We
are proud of the work we have done
to bring down our structural expense,
allowing us to invest more in our core
businesses. The CCB overhead ratio
has gone from 61% in 2011 to 56% in
2017, with a medium-term target of
50%+/-. Delivering on that will allow
us to further increase our investments
in technology and digital, as well as to
move with greater speed to market.
These investments matter: Digital is a
more efficient way to serve our
customers, and our digitally engaged
customers are happier with us and
are more likely to stay with Chase.
Our goal is to be the easiest bank for
customers to do business with.

Controls

Controls are the checks, balances and
safeguards we rely on to do our work
effectively. Controls help us avoid
errors and adhere to all requirements
and regulations. Controls are an ongo-
ing discipline for us, but we believe
the worst is behind us. In 2017, three
of our consent orders were lifted.
Early in 2018, the Federal Reserve
lifted our Home Lending consent
order, recognizing the improvements
we have made since the financial
crisis; the Office of the Comptroller of
the Currency lifted its own foreclosure
consent order in 2016.

People

We think we have the greatest team
on the field with our 134,000 Chase
employees. Our steady focus on creat-
ing a great employee experience and
investing in our people has made us a
stronger business. We promoted more
than 15,000 people in 2017 and filled
over 16,000 roles with internal candi-
dates. During the year, the firm
invested in excess of $300 million on
employee training to keep everyone’s
skills current in a changing economy.
Our team reflects the customer base
we serve: More than 58% of our
employees are female, and over 53%
are minorities. Although we are proud
of our progress in increasing diversity
among our senior leadership, we still
have work to do.

We have also made several changes
to help support our people. For the
second time in two years, we raised
wages for 22,000 employees to $15 to
$18 an hour, depending on the local
cost of living. These increases are on
top of our full benefits package,
which averages $12,000 for employees
in this pay range and a lower medical
deductible to protect families from
sudden medical expense.

Perhaps the proudest moment of
2017 came when this firm and our

people stepped up to help communi-
ties in need, as hurricanes, fires
and mudslides devastated several
communities in the U.S.

This is when our company is at its
best. We made more loans, extended
loan payments, waived late fees and
made investments to support the
long-term recovery in these commu-
nities. We also reached out to help
the hundreds of our employees who
were affected directly. Our employee-
to-employee giving fund showed the
tremendous generosity of employees
looking out for each other in times
of need. And from Houston to South
Florida to the Bay Area, you could
see the blue shirts of our Good Works
volunteers helping out distributing
food and water, clearing debris and
helping however they could. Business
has a broader social role to play, par-
ticularly now, and it’s possible that no
company can do as much as ours.

Looking ahead

If this organization has proved one
thing, it’s that we can move and
adapt quickly for a company of our
size. We are experiencing another
period of extraordinary change. The
pace of technology is accelerating
faster than most businesses can
absorb. Industry after industry is
being disrupted as emerging players
develop better customer experiences,
faster than incumbents can innovate.
API-based platforms allow software
developers to build onto experiences,
and we see services converging.

We know we have an extraordinary
leadership position, and we do not
take it for granted for a second.
Across industries, the mighty have
fallen – and we do not think we are
immune. The key for us now is to
invest, innovate and speed up
to serve customers. As we look
ahead, we will be laser focused on

Intelligence is the ability to adapt to change.
– STEPHEN HAWKING

becoming the easiest bank to do
business with. We will do that by
being excellent in six core areas
we deliver for customers: becoming
a customer, paying with Chase, own-
ing a home, owning a car, growing
wealth and growing businesses.

Becoming a customer – No matter
how customers find us – in a branch,
on our app, on chase.com or through
a friend – we want to make it easy for
them to become a customer and stay
with us throughout their lives. We
will continue to invest in having a
simple, fast way to develop this rela-
tionship across Chase. Early in 2018,
we started using a simpler digital
application for our Consumer check-
ing and savings products. Similar to
the Business Banking application I
mentioned earlier, we just stream-
lined the process to make it fast and
easy. Early results have been beyond
our expectations, requiring only a few
minutes for existing customers to add
checking or savings accounts and
only a few minutes longer for custom-
ers who are new to Chase to join us.
During one day in February, we
opened two accounts every minute.

Paying with Chase – Helping our
customers pay for things is at the
center of everything we do. Whether
a customer pays an individual, pur-
chases a product or settles a bill, it
should be simple, quick and safe.
Forty percent of Chase customers
already move money with us. We
have 48 million active credit and
debit card customers, and more than
70% of our active credit card custom-
ers use those cards in mobile wallets
or for recurring bills and merchant
payments. Zelle has been adding
nearly 100,000 users every day, and

Chase QuickPaySM makes up more
than 50% of Zelle’s volume. We want
our customers to decide who to pay
and when, and we make sure it’s sim-
ple, safe and seamless.

Owning a home – Buying a home is
one of the most emotional purchases
a family ever makes. But the process
of buying one is anything but joyful.
We want to help the hundreds of
thousands of customers who will buy
a home with Chase in 2018 to do so
with ease and speed. Our partnership
with Roostify has made our digital
mortgage process simpler and has
reduced the time it takes to refinance
by 15%.

Owning a car – Over 1 million cus-
tomers will buy or lease a car with
Chase in 2018, yet many people still
don’t think to call us first if they’re
buying one. Like getting a home
loan, the experience of buying a car
can be long and daunting. We think
we can reinvent it – making it easier,
less expensive and a pleasant experi-
ence. Chase Auto Direct, in partner-
ship with TrueCar, is a step in the
right direction.

Growing wealth – Our brand prom-
ise is to help customers make the
most of their money. Our team of
bankers and wealth advisors has
worked with customers for decades.
In 2018, we will introduce new digital
tools to help customers invest and
trade from their phones, as well as
connect them with an advisor when
they need one. Unlike other invest-
ment apps, ours will have the team
of J.P. Morgan advisors and bankers
behind it.

Growing businesses – Few banks
can help businesses as much as
JPMorgan Chase can, from startups

to multinationals. From the begin-
ning, we can offer banking, credit
and merchant services along with a
business banker. We have developed
new products and services that make
it easier for our customers to manage
and grow their business. Chase Busi-
ness Quick Capital®, powered by our
partnership with OnDeck, is a great
example, offering same-day access to
short-term loans. The next step is to
expand into new markets and use
the power of Chase to help our busi-
ness customers grow and thrive.

Looking ahead at our ambitions for
the year, we are grateful for our leader-
ship position and are ready to do
more. As large as we are and as much
as we have grown, we know the best
days are still to come. We raised our
medium-term ROE target to 25%+
from 20%+/-, in part due to the impact
of tax reform. With the strength of
our products, distribution and brand,
we know we can get there.

The first step will be expanding our
already sizable technology investment.
As a firm, we invest in excess of $10
billion annually in technology. We
have more than 31,000 technologists
at the firm in development and engi-
neering jobs; that number has grown
over time, and we expect to hire
more people in 2018. We have moved
a number of our technology teams to
an agile structure, allowing them to
be closer to the product owners and
speeding up time to market. This
change has enabled our teams to be
100% focused on their products and
on delivering for our customers.

To maintain speed and adaptability,
we have to fight the institutional
drag that slows big companies down.
Bureaucracy is like a virus. As soon

“”as one strain is inoculated, another
appears. In most cases, bureaucracy
is driven by good people thinking
they’re doing the right thing. But
when we try to torture a product to
perfection, we sacrifice time to market
and risk losing customers to someone
who can do it better. Jamie has asked
Daniel and me to take this on, and we
have accepted with pleasure. We are
working at cutting unnecessary
committees, making meetings more
efficient and putting accountability on
business owners.

And last, we will expand our retail
branches into new communities.
This is perhaps the most exciting
development for 2018. The heart of
our company is our retail branches –
more than 1 million customers visit
our branches each day. For years, we
have been constrained to our current
23-state footprint and unable to
expand into major markets such as
Washington, D.C., Boston, Philadelphia,
Baltimore and the Carolinas. In
January 2018, we announced that we
plan to open up to 400 branches in

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

When we enter these markets, we
will do so with the full force of
JPMorgan Chase. We will hire. We
will lend. And we will help custom-
ers achieve milestones, like buying a
home or sending a child to college.
Our JPMorgan Chase Foundation
will support the nonprofits within
that area to drive economic growth.
We have seen the significant impact
we have made in the communities
we are in, and we’re excited to
become an even more relevant part
of many more.

I’m always an optimist, but I can hon-
estly say I’ve never been more opti-
mistic to be a part of this company.
We are the largest bank in America,
and I don’t think we’ve ever been
stronger, more disciplined and more

2017 HIGHLIGHTS AND ACCOMPLISHMENTS

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

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

• Consumer relationships with
nearly half of U.S. households

• #1 most visited banking portal in

• #1 U.S. co-brand credit card

• #2 jumbo mortgage originator

the U.S. — chase.com

issuer

• #1 in primary bank relationships

• #1 in Retail Banking for five years

• #1 in total U.S. credit and debit

within our Chase footprint

in a row (Kantar TNS)

payments volume

• Consumer deposit volume has

• #1 ATM network in the U.S.

• #1 wholly-owned merchant

grown at a rate more than twice
the industry average since 2012

• #1 credit card issuer in the U.S.

acquirer

• #3 bank auto lender

• 2017 Bank Brand of the Year

(The Harris Poll)

Helping Customers in Times of Need

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

Corporate & Investment Bank

During 2017, the Corporate &
Investment Bank (CIB) maintained its
position as the most successful and
profitable institution of its kind.

But the seeds of our current strength
were planted years ago. As other banks
retrenched, cutting back on products
and geographies, we chose a different
path. We believed that growth would
come from being global, having scale
and maintaining a complete product
offering for clients. Those elements
anchored the profitability that enabled
us to invest consistently and to sus-
tain our growth, all while improving
the client experience.

Staying true to our character and
reputation, we also knew we had to
be open for business under all market
conditions, not just when markets
were strong. Whether in Europe,
Latin America, Asia or North America,
our teams have worked hard, built
trust and gained share in recent years.

In 2017, the CIB generated earnings
of $10.8 billion on $34.5 billion of
revenue, resulting in a return on
equity (ROE) of 14% that allowed us
to continue our pace of investment
in our people and technology.

Our CIB franchise also benefits from
being part of JPMorgan Chase and
collaborating with our firmwide
partners: Commercial Banking (CB),
Asset & Wealth Management
(AWM) and Consumer & Community
Banking (CCB).

To cite some examples, CB’s universe
of more than 20,000 clients has access
to the CIB’s treasury services and
foreign exchange products as a result
of the close working relationship
they share. On the strength of that
relationship, nearly 40% of North
America Investment Banking fees
were derived from CB clients – a
record. Family office clients served
by AWM are often interested in
investing in the types of transactions
the CIB brings to market, and the
CCB’s relationships with major
merchants and businesses generate
opportunities as these businesses
need to raise capital, seek advisory
expertise or require payments services.

Maintaining share, and even growing
it, in recent years hasn’t been easy.
Having scale and expertise across a
set of businesses enabled us to sus-
tain profitability under various market
conditions. And while we take pride
in our standings, we aren’t compla-

cent about them. Each day, our
employees know that J.P. Morgan has
to earn client business with innova-
tive solutions that tap the appropriate
mix of our products. More than ever,
that means delivering best-in-class
ideas and service through cutting-
edge technology.

Providing easy-to-use technology in
order to deliver a great client experi-
ence will continue to be a major
differentiator in the coming years.
That’s why we are always exploring
ways to offer our clients faster, better
and simpler ways to do business
with us. The banks that don’t invest
will lose ground and will have a long,
difficult catchup process.

Looking ahead, we are implementing
a set of simultaneous priorities – a
blueprint for investing that runs
in parallel tracks across three time
horizons. In the immediate period,
we are focused on maintaining day-
to-day discipline to support organic
growth while holding firm on costs
and integrating efficiencies.

At the same time, we are planning
and preparing for the changing
industry conditions that will affect
the business over the medium term,

Sustaining Our Lead Across Three Horizons

Maintaining
day-to-day discipline

Running a best-in-class
business across all
dimensions

Optimizing our
current model

Improving the way
we serve our clients

Transforming for
the future

Investing in next–
generation capabilities
and expanding
our global footprint

a period defined as the next two
to three years, and the longer term,
extending 10 years out. The medium-
term investments we’re making are
already enhancing our ability to
serve clients and hold the promise of
transforming our business.

Looking five to 10 years out, the pace
of technological innovation will
only quicken as artificial intelligence,
robotics, machine learning, distrib-
uted ledgers and big data will all
shape our future.

We will continue the prudent expan-
sion of our global footprint. J.P. Morgan
has been doing business in China,
India, Brazil and countries in Africa
for decades. And as global economies
grow, we are making judicious
decisions that will reaffirm our
unique position as the leading global
financial institution.

Our efforts to expand our coverage
of global clients over the last eight
years are paying dividends today.
Now, with economic growth taking
hold across the globe, these clients
have turned to us for services, such
as cash management, electronic
payments and fraud detection.

On the following pages, I will discuss
the CIB’s 2017 performance in greater
detail, outlining how we intend to
prepare for the industry changes that
are certain to affect our business over
the foreseeable future.

By the numbers: Working for clients

The CIB’s revenue was more than
$6 billion higher than its closest
competitor, according to industry
data provider Coalition.

That financial success is directly tied
to how well the CIB delivers for our
clients across our businesses. Their
success is our success. With the

increasingly competitive environ-
ment we inhabit today, we take pride
in every client assignment and the
number of times they choose us for
repeat business.

We kicked off 2017 announcing that
J.P. Morgan’s Custody & Fund Services
business won the largest custody
mandate in history. BlackRock is in
the process of shifting $1.3 trillion in
assets under management over to our
platform, validating the investments
we’ve made and the resources we’ve
added to that business. As the only
global custodian with a top Markets
franchise, we’re confident that scale,
technology and seamless execution
will continue to draw clients.

Custody & Fund Services built on its
momentum, as evidenced by the $3.9
billion revenue in Securities Services,
which was up 9% for the year. Our
business has record assets under cus-
tody of $23.5 trillion, which increased
by 14% compared with 2016.

Treasury Services, a business that
supports clients in their cash manage-
ment needs and is rolling out its
real-time payments capability, also
continued to perform well through
the year, with revenue rising to $4.2
billion, an increase of 15% over 2016.
As it serves the needs of increasingly
global commerce, Treasury Services’
state-of-the-art technology is reducing
to seconds what once took days.

Turning to investment banking,
J.P. Morgan set a record in global
Investment Banking fees, $7.2 billion,
including debt underwriting of $3.6
billion. Measured by market share,
in Mergers & Acquisitions (M&A),
Equity Capital Markets (ECM) and
Debt Capital Markets (DCM), the firm
has scored gains since 2015: M&A
share rose to 8.6% from 8.4%; ECM
was up to 7.1% from 6.9%; and
DCM moved to 8.3% from 7.9%.

Our debt underwriting team closed
on the largest number of deals in its
history, up about 16% over last year.
While we witnessed an overall
decline in the number of deals over
$1 billion, J.P. Morgan still played a key
role in the year’s biggest transactions.
We served as joint active bookrunner
on AT&T’s $22.5 billion bond offer-
ing, the third largest of all time,
and also served as joint active book-
runner on Amazon’s $16 billion
offering to support its acquisition
of Whole Foods Market.

J.P. Morgan was also #1 in U.S. initial
public offering (IPO) volume and
managed the largest number of deals
during 2017. Our equity team served
as global coordinator or helped to
lead more than 40% of the IPOs over
$1 billion in size, including Pirelli at
$2.8 billion, Altice at $2.1 billion and
Netmarble at $2.3 billion.

Our Global M&A team completed the
most M&A deals during the year, 354,
and had record post-crisis fees for its
advisory work. The firm advised on
six of the top M&A announced trans-
actions in North America. One of
our more visible roles is our work
serving as advisor to The Walt Disney
Company on its acquisition of por-
tions of 21st Century Fox, including
its film and television studio.

Looking at the Markets business,
after an exceptionally strong 2016,
J.P. Morgan’s 2017 share in Fixed
Income, Currencies and Commodities
(FICC) decreased marginally to 11.4%
from 11.7%. However, offsetting that
slight drop, the market share in
Equities and Prime rose to 10.3% from
the previous year’s 10.1% and shared
the top ranking for the category.

We are particularly proud of prog-
ress in Prime Services. We have a
competitive and complete platform,

and we grew global prime balances
by 28% last year while increasing
market share to 13.8% from 11.3%
since 2015.

The CIB’s Global Research team also
continued to rank #1 worldwide and
across a broad range of equity and
debt market categories, providing
clients with actionable insights on
the markets. The regularity with
which our analysts top the rankings
is a remarkable achievement. As
Markets in Financial Instruments
Directive regulations take on a
greater impact, quality research will
continue to set us apart.

Our fintech future

The CIB is an investment bank, but
financial technology forms the
bank’s backbone. As part of JPMorgan
Chase, the CIB benefits from being
part of a firm that draws on the
expertise of nearly 50,000 technolo-
gists and a 2017 technology budget
that amounted to $9.5 billion. But
to underscore the firm’s overall
commitment, this year’s technology
budget totals $10.8 billion, with
more than $5 billion earmarked for
new investments.

Over the last several years, I have
mentioned in my annual letter
J.P. Morgan’s commitment to embrac-
ing technology. Being creative
requires a willingness to take risks.
As part of our technology culture,
experimentation and failure are okay
– it is encouraged, in fact, in order
to achieve breakthroughs.

It was only a few years ago that pro-
grammers and technology graduates
seemed reluctant to build their
careers in banks; that’s not the case
at J.P. Morgan. Nearly 30% of our
recent senior hires in technology
came from non-financial services
firms, and they’re working on find-

ing solutions to some of the most
complex issues in the field.

The divide between the front office
and the back office is no more. Our
technologists and our product people
work side by side, in the same rooms
and at the same tables. They’re fully
assimilated. That way, the teams are
able to work in tandem to build the
next-generation systems best targeted
to meet the needs of our clients and
the business.

In the age of smartphones, when
people only need an app in order to
trade, our mission is to make it pos-
sible for clients to trade and interact
with us easily and in whatever way
they choose. If they want to access
our top-rated research or conduct
business with us, we want them to
have the freedom to choose the
option they prefer – whether it’s in
person or by telephone, website,
mobile app, online trading platform
or third party.

On the strength of its scale and tech-
nology, J.P. Morgan processes
$5 trillion in payments and trades
billions of dollars electronically every
day. In equities, nearly 100% of the
tickets are handled electronically,
representing 89% of notional volume.
The macro desk, primarily foreign
exchange, handles 97% of its tickets
electronically, corresponding to 46%
of its volume.

We have assembled talented teams
to drive innovation in artificial intel-
ligence, blockchain technology, big
data, machine learning and bots,
with the objectives of improving our
efficiency and enabling us to serve
more clients with greater effective-
ness, depth and sophistication. As a
result, many of our initiatives are
already showing promise in terms of
charting their future expansion
and application.

We’re piloting several ventures to
test the viability of technology in
real-world situations. Late in 2017,
J.P. Morgan’s Treasury Services and
its Blockchain Center of Excellence
launched a payment network pow-
ered by distributed ledger technology
in partnership with the Royal Bank
of Canada and the Australia and New
Zealand Banking Group. Called the
Interbank Information Network, the
pilot’s objective is to use blockchain
technology to process bank-to-bank
transactions faster, alleviating situa-
tions where payments get held up due
to mismatched information.

Because our people are our greatest
strength, we value technology as a
tool to enhance their ability to provide
the best-in-class ideas and solutions
that our clients expect from us.

Sustainability

Before I close, I want to highlight
what the CIB, along with the overall
JPMorgan Chase organization, is
doing to further a sustainable
environment. On behalf of the entire
organization, I have been asked to
champion our sustainability efforts.
It’s an issue that is important to me
and is one that our employees care
about deeply as well. Employees
want to work for an organization
they can be proud of and that shares
their values. Through our sustain-
ability initiatives, the firm is demon-
strating its commitment to those
shared concerns and is taking action.

In 2017, the Operating Committee
ramped up our firmwide sustainability
efforts in a big way. Over the next
three years, JPMorgan Chase intends
to become 100% reliant on renewable
power. In our own workspace, we
are executing several strategies to
increase our energy efficiency. We are
installing building management

systems and are in the process of
retrofitting 4,500 Chase branches with
LED lighting as part of the world’s
largest LED lighting installation. We
will also produce power for some
of our own buildings by developing
on-site solar power generation. We
expect that these measures will reduce
total power consumption by 15%.

Using the firm’s expertise in the
renewable power sector also enables
us to support the development of
renewable projects – and advances
our goal of 100% reliance on renew-
able power – in other substantive
ways. One example is the Buckthorn
wind farm, a 100-megawatt project in
Texas that came online last December.
More than half of the wind farm’s
output will be purchased by our Global
Real Estate team and the remainder
by our Commodities team. This is
good for the environment and good
for business.

In our effort to finance green initia-
tives, we’ve raised the stakes, com-
mitting $200 billion for such projects
by 2025. From 2016 to year-end 2017,
we reached $60.6 billion cumulatively
toward that goal. The company plans
to increase its recycling efforts and to
pioneer the use of greener materials
in its products and processes.

We’ve also continued our leading role
as an underwriter of green bonds.
In 2017, Apple Inc. raised $1 billion
using green bonds – the second
green bond Apple has issued with
J.P. Morgan as an active bookrunner.

In addition, J.P. Morgan led some of
the largest clean energy transactions,
such as serving as financial advisor to
Enbridge on its C$2.1 billion partner-
ship with EnBW on the Hohe See
and Albatros offshore wind farms in
the North Sea. J.P. Morgan also was a
bookrunner for energy company
Iberdrola’s first issue of green hybrid
bonds on the euro market, valued at
€1 billion. The proceeds will be used
to refinance investments in various
renewable projects in the United
Kingdom.

Closing

The CIB has had another successful
year, gaining share and generating
healthy profits by remaining intently
focused on serving our clients and
benefiting from our scale, breadth
and global reach.

J.P. Morgan is known for being a
place where people want to work,
where we can attract and retain the
best talent, where their work is
recognized and where the culture is
collaborative. That is critical to our

2017 HIGHLIGHTS AND ACCOMPLISHMENTS

ongoing success. I, along with the
entire CIB management team,
appreciate the dedication, enthusiasm
and intelligence our employees
bring with them every day.

Finally, on a personal note, I’d like to
express my gratitude to my partners
on the Operating Committee. The
collaboration that exists throughout
the firm is the foundation that
supports our strength year after year.

Daniel Pinto
Co-President and Chief Operating
Officer, JPMorgan Chase & Co., and
CEO, Corporate & Investment Bank

• The CIB had earnings of $10.8 billion

on $34.5 billion of revenue, producing
a best-in-class ROE of 14%.

• Equity Capital Markets was #1
in U.S. IPO volume and in the
number of deals.

•

• We retained our #1 ranking in global
Investment Banking fees with an 8.1%
market share, according to Dealogic.

• M&A was #1 in the number of

deals completed: 354.

• Debt Capital Markets was #1 in

closing deals, setting a record for
the highest number of deals book-
run in the firm’s history.

• The CIB continued investing in
technology to offer clients a
broader array of trading platforms
while making it easier and faster
to trade with us.

Institutional Investor magazine’s
survey of large investors ranked
J.P. Morgan as the #1 Global
Research Firm. Across individual
categories, J.P. Morgan ranked
#1 in All-America Fixed Income
Research and All-Europe Fixed
Income Research. It also ranked #1
in All-America Equity Research and
ranked #2 in Emerging Markets.

• Treasury Services revenue rose

to $4.2 billion, an increase of 15%
over 2016, and continued momen-
tum in Custody & Fund Services
drove 9% growth in Securities
Services revenue for the year.

▪• Custody & Fund Services had a
record $23.5 trillion in assets
under custody while also achiev-
ing the highest ever client satis-
faction and retention levels.

Commercial Banking

Commercial Banking (CB) is the nexus
of everything we do at JPMorgan
Chase. The hard work of our dedicated
team, along with the unmatched
capabilities across our firm, allows us
to build deep, lasting relationships
with so many great companies. We
are incredibly proud of the role we
play in the success of our clients,
and we are grateful every day for the
confidence they place in us.

One such success story is siggi’s yogurt
(siggi’s), celebrated as the fastest-
growing national yogurt brand in
2017. What started as selling his
unique recipe out of coolers at local
outdoor markets in New York,
founder Siggi Hilmarsson quickly
turned his humble operation into a
thriving business. Up until 2016,
Siggi and his team had fully funded
the company on their own, but when
their growth accelerated, we worked
with them to deliver their first bank
credit facility. As Siggi shaped the
company’s plans for the future, we
provided differentiated industry
advice, and in 2017, we were selected
to advise siggi’s on the sale of the
company – the capstone transaction
for an incredible brand and business.
At every step, we were delighted to
support Siggi’s passion to share his
native Icelandic recipe with house-
holds around the country.

Our dedication to clients, like siggi’s,
continues to drive our strategy and
how we do business in CB. I’m
excited to share highlights of our
2017 performance, the investments
we are making to deliver more value
to our clients and the steps we are
taking to reach our full potential.

2017 performance

With strong momentum across all of
our businesses and continued focus
on executing our strategic priorities,

CB delivered record financial results
for 2017, earning $3.5 billion of net
income on revenue of $8.6 billion.
We achieved a notable return on
equity of 17% and an industry-leading
overhead ratio of 39%, even while
making significant investments
across the business.

Higher interest rates, disciplined
loan growth and outstanding credit
quality all contributed to our record
performance. We ended the year
with record loan balances across our
Commercial & Industrial and Com-
mercial Real Estate (CRE) businesses,
up $15 billion or 8% from the prior
year. Staying true to our proven
underwriting standards, we have
remained highly selective in growing
our loan portfolio – 2017 marked
the sixth straight year of net charge-
offs of less than 10 basis points.
This ongoing discipline is especially
important given the late stages of
the current economic cycle and com-
petitive pressures in the market.

These record results reflect our
sustained investment, the incredible
effort of the CB team and their con-
tinued focus on our clients. We are
committed to building upon these
great milestones and see tremendous
potential across our franchise.

Executing our long-term, organic
growth strategy

Our strategy to grow CB remains
consistent year after year: Add great
clients and work hard to deepen
those relationships over time by
delivering valuable solutions to help
them succeed. We have been steadily
investing in the business, taking a
long-term disciplined approach. Since
2010, we have expanded into 33
new cities and added more than 800
bankers, helping us achieve sustained
organic growth across our business.

Expanding into new markets

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

Investing in our team

Our success depends 100% on our
people. As such, we are making sig-
nificant investments in our training
and development capabilities, all
focused on providing our bankers
with the deep expertise they need to
best serve our clients. In 2017, we
hired more than 100 bankers to sup-
port the growth and expansion of our
business, and we expect to add more
great bankers in the coming year.

Delivering value to our clients

Expansion is only one part of our
growth strategy – deepening our rela-
tionships with our clients is equally
important. Given the breadth of our
capabilities, we can support the needs
of businesses of all sizes – fast-growing
companies, like siggi’s, as well as
large, multinational corporations.

With the quality of our team, differ-
entiated advice, and ability to deliver
a full range of solutions locally, not
many other banks can serve clients the
way we can. In 2017, our clients had
more than $135 billion in assets man-
aged by our leading Asset & Wealth
Management business, generated
nearly 40% of all North America
Investment Banking (IB) fees for the
Corporate & Investment Bank (CIB),
and made over 13 million transactions
in our branches.

Smart growth in our CRE business

We have been building a CRE busi-
ness that will stand the test of time.
Although we are in the late stages
of the real estate cycle, market condi-
tions for our targeted asset classes
remain strong, and we were able to
grow our CRE loan portfolio by $12
billion in 2017. Importantly, maintain-
ing our strict underwriting standards
and conservative approach, we are
focusing only on the loans and mar-
kets we know best. If we can stay true
to these fundamentals, we believe we
can continue to selectively grow our
real estate loan balances.

Innovating across CB

Complementing our investments to
drive growth in our business, we are
working to bring new technologies
and innovation to transform how
we interact with our clients. Our
approach to innovation is anchored
on having a full understanding of
the identified, as well as unidentified,
needs of our clients. Over 99% of
companies in the U.S. are small to
midsized businesses. We know they

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

Digital

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

integrated, digital capabilities for
clients and will continue to invest in
enhancing the functionality of this
robust platform.

Payments

Recognizing that managing pay-
ments is a major pain point for our
clients, we completed a comprehen-
sive analysis to determine a digital
solution. In 2017, we announced our
investment in and partnership with
Bill.com, the largest digital business-
to-business payments network in the
U.S. Seamlessly integrated into
Chase Connect, this new automated
payments capability will enable our
clients to easily send and receive
electronic invoices and payments,
saving them substantial time and
effort. We are very excited about this
innovative solution and look forward
to bringing this functionality to our
clients in 2018.

Client experience

In addition to offering new capabili-
ties, we are making great progress in
re-engineering our core processes to

Sustained Growth Across Commercial Banking

~1,800

$8.6B

$3.5B

~1,000

$6.0B

$2.1B

Markets1

Bankers2

Revenue

Earnings

 2010  2017

¹ Number of Metropolitan Statistical Areas (MSAs) with Middle Market Banking presence out of top 50 MSAs

2 Based on total count of client-facing employees

B = Billion

make it easier for clients to do busi-
ness with us. For example, we are
working to streamline and digitize
the onboarding process to ensure
that our clients’ first experience with
JPMorgan Chase is simple and trans-
parent. Through these efforts, clients
will be able to provide information
electronically, e-sign and upload doc-
uments digitally, and receive real-
time support via online chat capabili-
ties. Clients are at the center of
everything we do, and our work to
deliver more value and an excep-
tional experience has no finish line.

Looking forward

While we celebrate CB’s record 2017,
we do not take our performance for

granted. We understand that compla-
cency and standing still in any way
will threaten the future success of
our business. As such, we remain
focused on building upon our fran-
chise to provide even more support
to our clients. By combining the core
strength of our business with new
technologies and innovation, we
believe we can further extend our
competitive advantages.

I want to thank all of our great clients,
like siggi’s, for the trust and confi-
dence they place in JPMorgan Chase.
I also want to thank the entire CB
team for their continued dedication
to our clients and their communities.
I am excited about the direction of
the business for 2018 and beyond.

Douglas Petno
CEO, Commercial Banking

2017 HIGHLIGHTS AND ACCOMPLISHMENTS

Performance highlights

• Delivered record revenue of

$8.6 billion

• Grew end-of-period loans 8%;
30 consecutive quarters of
loan growth

• Generated return on equity of 17%
on $20 billion of allocated capital

• Continued superior credit quality
— net charge-off ratio of 0.02%

Leadership positions

• #1 U.S. multifamily lender1

• #1 in overall satisfaction,

perceived satisfaction, customer
relationships and transactions/
payments processing — CFO
magazine’s Commercial Banking
Survey, 2017

• Top 3 in Overall Middle Market,
Large Middle Market and Asset
Based Lending Bookrunner2

• Winner of 2017 Greenwich Best
Brand Awards in Middle Market
Banking — overall, loans/lines
of credit, cash management,
international products/services
and investment banking

• Winner of 2017 Greenwich

Excellence Awards in Middle Market
Banking: international capabilities,
cash management online banking
functionality, cash management
mobile banking functionality

Business segment highlights

• Middle Market Banking — Record

gross Investment Banking
revenue3; added eight new offices

• Corporate Client Banking — Record
revenue, with average loans up
10% from prior year

• Commercial Term Lending —

Record average loans; completed
rollout of Commercial Real
Estate Origination System for
MFL business

• Real Estate Banking — Record
revenue, with average loans up
27% from the prior year

• Community Development Banking
— Record New Market Tax Credit
equity investment production of
$1.2 billion — Financed more than
9,000 units of affordable housing
in 70+ cities through construction
lending commitments of over
$1 billion

Firmwide contribution

• Commercial Banking clients

accounted for 38% of total North
America Investment Banking fees4

• Over $135 billion in assets under
management from Commercial
Banking clients, generating more
than $475 million in investment
management revenue

• $479 million in Card Services

revenue3

• $3.4 billion in Treasury Services

revenue

Progress in key growth areas

• Middle Market expansion — Record
revenue of $519 million; 18% CAGR
since 2012

• Investment Banking — Record gross
revenue of $2.3 billion3; 8% CAGR
since 2012

• International Banking — Revenue5 of
$323 million; 8% CAGR since 2012

1 Rank based on S&P Global Market

Intelligence as of 12/31/17

2 Thomson Reuters LPC, FY17

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

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

5 Non-U.S. revenue from U.S. multinational

clients

CAGR = Compound annual growth rate
MFL = Multifamily lending

Asset & Wealth Management

J.P. Morgan Asset & Wealth Manage-
ment (AWM) has been a fiduciary
of client assets for nearly two centu-
ries, with our roots dating back to
the earliest cross-border fund man-
agers in the industry. Over these
many decades, we have managed
the assets of institutions, central
banks, sovereign wealth funds and
individuals, helping them navigate
their assets from the beginning
stages of cash management all
the way through complex multi-
generational portfolios.

Our breadth of experience, through
economic and geopolitical cycles,
gives us the insights to help clients
make smart, long-term investment
decisions. It also gives our portfolio
managers and advisors the perspective
and fortitude to remain disciplined
risk managers and opportunistic
risk takers in today’s ever-evolving
market environment.

Today, while the fundamentals
of managing money still require
having the best investment minds,
they must be coupled with major
investments in technology. This
enables more comprehensive anal-
ysis of enormous data sets, faster
and more optimal execution in port-
folios, and seamless delivery of all
that we do in both human and digi-
tal form. The global size and scale
of AWM, as well as its connectivity
with JPMorgan Chase’s broader
technology expertise, continue to
be competitive advantages for
our teams, our clients and our
shareholders.

A record year for AWM

For investors in JPMorgan Chase,
AWM continues to be a consistent
revenue and earnings growth con-
tributor to the company, with a very
strong return on shareholder capital.

AWM’s total client assets in 2017
grew to a record $2.8 trillion, with
revenue of $12.9 billion and pre-tax
income of $3.6 billion also hitting
their highest levels ever. However,
the consistent growth trajectory
those numbers represent is just as
important. From 2012 to 2017, we
achieved a 6% compound annual
growth rate (CAGR) for client
assets and a 5% CAGR for both
revenue and pre-tax income.

Rising client assets is a critical indi-
cator because it tells us that clients
continue to entrust even more of
their capital with us every year. In
2017, clients entrusted us with an
additional $84 billion of long-term
assets – or $1 billion to $2 billion of
incoming money every week. We
have increased net new assets every
year since 2004, with $388 billion
coming over the past five years.

Continued Strong Financial Performance in 2017

Client assets
(EOP $ in trillions)

Revenue
($ in billions)

Pre-tax income
($ in billions)

6 %

C A G R :

$2.5

$2.8

5 %

C A G R :

$12.0

$12.9

5 %

C A G R :

$3.5

$3.6

$2.1

$10.0

$2.8

2012

2016

2017

2012

2016

2017

2012

2016

2017

CAGR = Compound annual growth rate
EOP = End of period

Returns of S&P 500
Performance of a $10,000 investment between

January 2, 1998 and December 29, 2017

7.20%
return

$40,135

Six of the 10 best days
occurred within two weeks
of the 10 worst days
• The best day of 2015 —
August 26 — was only
two days after the worst
day — August 24

3.53%
return

$20,030

1.15%
return

$12,569

-0.91%
return

$8,331

-2.80%
return

$5,669

-4.52%
return

$3,965

-6.11%
return
$2,834

Fully
invested

Missed 10
best days

Missed 20
best days

Missed 30
best days

Missed 40
best days

Missed 50
best days

Missed 60
best days

The primary reason clients turn
to J.P. Morgan to manage their
assets is because of our strong and
consistent investment performance.
In 2017, 86% of our long-term
mutual fund assets under manage-
ment outperformed the peer median
in the 10-year period, including
87% for equity, 81% for fixed
income, and 90% for multi-asset
solutions and alternatives.

Covering the full spectrum of
clients

AWM delivers investment
advisory expertise to clients across
the firm, ranging from Chase
customers investing their first
$100 to the world’s wealthiest
individuals and families. We also
manage the portfolios of many of
the largest sovereign wealth funds,
pension funds and central banks
in the world.

Across the Wealth Management
business, in addition to invest-
ments, we help clients with their
banking needs. This ranges from
cash deposits to loans across many
areas from real estate to invest-
ment capital for a new business.
The deposit base of these private
clients has grown consistently over
the past five years, achieving a 10%

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

In addition to traditional investing
and banking, AWM has developed
a full suite of solutions to meet
the complexity of our clients’ needs
– from alternative investments
to trust and estate planning to
philanthropic advice. Our platform
is among the most comprehensive
in the industry, enabling us to
serve clients across both sides of
their balance sheet and to offer
insights and expertise into virtually
every area of their financial life.

As wealth grows around the world,
we continue to hire advisors to
deliver J.P. Morgan’s capabilities to
more clients. We expect to hire
in excess of 1,000 advisors over the
coming years to expand in both
new and existing markets. Our
extensive experience in hiring
and training has led our advisor
productivity to rank among the top
in the industry.

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

An increasingly digital world

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

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

10-year

Total J.P. Morgan
Asset Management

Equity

Fixed Income

Multi-Asset Solutions
& Alternatives

86%

87%

81%

90%

1 For footnoted information, refer to slide 98 in the 2018

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

Last year, we formed a new business,
Intelligent Digital Solutions (IDS), to
help drive our efforts around digital
transformation and big data. This
group is unifying and optimizing our
use of data analytics to transform
how we apply these added insights
efficiently and effectively in manag-
ing portfolios. IDS also is helping us
digitize everything we do to make it
easier for clients to gain 24/7 access
to our investment ideas, insights
and execution.

Additionally, we are building a digital
wealth offering that provides clients
access to proprietary tools that can
complement their personal relation-
ship with an advisor or be used
when they want to interact with us
entirely online. Ultimately, we want to
be at the intersection of human and
digitally enhanced advice.

Simplify for growth

Our goal is not to be the biggest asset
manager but rather to be the best at
what we do. Knowing that what has
made us successful in the past will not
necessarily be sustainable or sufficient

for the future, we relentlessly chal-
lenge ourselves to focus on the prod-
ucts and services that are most
important to clients and in which
we have a competitive advantage.

We bring equal parts innovation
and introspection in evaluating
where to place our extra investment
dollars and resources to ensure we
have a differentiated offering. Last
year, we launched more than 70
new fund strategies to our platform,
a third of which are in our Beta
Strategies lineup.

At the same time, if we aren’t con-
vinced we have a long-lasting advan-
tage, we realign those resources to
areas in which we do. In 2017, we
liquidated or merged more than 70
funds and implemented significant
fee reductions on 58 different funds
across 235 share classes.

Above all, first-class business in a
first-class way

I am proud of what we have
delivered for our shareholders and
clients and am even more excited
about the investments we are

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

Mary Callahan Erdoes
CEO, Asset & Wealth Management

2017 HIGHLIGHTS AND ACCOMPLISHMENTS

Business highlights

• Record average loan balances

• Fiduciary mindset ingrained since

of $123 billion

mid-1800s

• Positive client asset flows every

year since 2004

• Record revenue of $12.9 billion

• Record pre-tax income of

$3.6 billion

• Record $2.8 trillion in client assets

• Record average mortgage
balances of $37 billion

• Retention rate of 98%
for top senior portfolio
management talent

Leadership positions

• #1 Private Bank Overall in

North America (Euromoney,
February 2018)

• #1 Private Bank Overall in
Latin America (Euromoney,
February 2018)

• Best New Alternatives ETF and
Best New Active ETF (ETF.com,
March 2017)

• Best Private Bank in Asia for

• IT Team of the Year

Ultra-High-Net-Worth (The Asset,
July 2017)

(Banking Technology magazine,
December 2017)

• Best Asset Management Company

in Asia (The Asset, May 2017)

• Social Media Leader of the Year
(Fund Intelligence, March 2017)

• Top Pan-European Fund

Management Firm (Thomson
Reuters Extel, June 2017)

Corporate Responsibility

One reason for JPMorgan Chase’s
enduring success is that we have
always recognized that businesses
operate within the context of their
communities – and when our com-
munities thrive, our business thrives.

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

sector must step up and do more to
ensure that everyone shares in the
rewards of a growing economy.

That is precisely what JPMorgan
Chase is doing. Through our model
for driving inclusive growth, we are
undertaking significant, long-term
initiatives and are making strategic
investments focused in areas where
we can draw on our firm’s resources
and capabilities to have the greatest
impact: building skills for today’s
high-quality jobs, expanding small

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

Young people entering the labor
market are finding themselves stuck
in low-skill, low-wage jobs or worse,
entirely disconnected from employ-
ment, education or training. When
so many are left behind, we all feel
the consequences: It sows division,
erodes trust in our institutions and
undermines confidence in our sys-
tems. We all have a stake in creating
more widely shared prosperity.

Economic growth fuels economic
opportunity, so the momentum we
are seeing in economies around the
world should be unequivocally
heralded as good news. Yet it is not
preordained that an expanding econ-
omy automatically translates into
greater opportunity for all. Rather, it
requires deliberate action and mean-
ingful collaboration. Government
and the nonprofit sector will continue
to play vital roles, but the private

businesses, revitalizing neighbor-
hoods and promoting financial health.

Our firm’s model is yielding real
results – so we are scaling it with a
40% increase in our annual commu-
nity investments. Whether times are
good or tough, our firm has always
supported our communities, but the
strong and sustained performance
of our company, recent changes to
the U.S. corporate tax system, and a
more constructive regulatory and
business environment are enabling
us to do even more. The net result is
that JPMorgan Chase will invest a
total of $1.75 billion over the next five
years to help drive inclusive economic
growth in local communities.

In 2017, for example, we announced
comprehensive, multi-year initiatives
to expand opportunity for the
residents of Chicago’s South and
West sides and Washington, D.C.’s

underserved neighborhoods. Our
commitments to these cities are
based on the successful approach we
developed and refined through our
firm’s $150 million investment in
Detroit’s economic recovery, which
Fortune magazine cited in naming
us #1 on its list of companies that
are changing the world.

At JPMorgan Chase, we view it as a
firmwide objective to be a positive
force in society and to help solve
today’s biggest challenges. We are
deeply proud of the ways we are
making a real difference in people’s
lives through our strategic philan-
thropic investments, but this is just
one example of how we are stepping
up. Across our firm, we are leverag-
ing our resources, capabilities and
core business to, in short, invest in
opportunity – something we know
will pay dividends not only for
our communities but for our firm
as well.

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

“”Investing in opportunity
JPMorgan Chase believes there is a pressing
need to expand access to opportunity and help
more people move up the economic ladder.
Through our proven model for driving inclusive
growth, we are taking a strategic, data-driven
approach to doing just that.

Our efforts are focused on what our experience
has shown are universal pillars of opportunity,
and we are undertaking significant, long-term
global initiatives that directly leverage our firm’s
worldwide presence, expertise and resources.

Extending our model for impact
We refined this model through our work in
Detroit, where, in 2014, we launched our most
comprehensive initiative to date. Combining
philanthropic investments and our core
business expertise, we have been working to
address some of Detroit’s biggest economic
challenges, from catalyzing commercial
development and boosting small business
growth to revitalizing neighborhoods and
equipping Detroiters with the skills to secure
well-paying jobs.

Meaningful collaboration among the city’s
leaders, business community and nonprofit
sector has been the fundamental driver of
the progress we are seeing to date and has
allowed us to accelerate our initial investment.
In just three years, and two years ahead of
schedule, we exceeded our initial $100 million
commitment and now expect to invest $150
million in the city by 2019.

Our comprehensive efforts in Detroit have
yielded important insights, which we are turning
into action in other communities that are facing
similar challenges. In 2017, we extended our
model for impact to Chicago and Washington,
D.C. Our comprehensive, multimillion-dollar
commitment to each city will focus on driving
inclusive growth in underserved neighborhoods,
where economic opportunity is increasingly
out of reach.

Advancing sustainability for our
clients and within our operations
As a company with clients and operations
around the world, JPMorgan Chase is in a
unique position to leverage our expertise to
promote sustainable business practices
and help clients capitalize on opportunities
arising from the transition to a more sustain-
able global economy.

While JPMorgan Chase has a long-standing
commitment to protect the environment and
advance sustainability for our clients and
within our own operations, we recognize that
today’s challenges call for an even greater
commitment.

In 2017, we pledged to source renewable
energy for 100% of our global power needs
by 2020. JPMorgan Chase has offices and
operations in over 60 countries across more
than 5,500 properties, covering nearly 75 million
square feet. To increase energy efficiency, we
are retrofitting our branches with the world’s
largest LED lighting installation — a total of
1.4 million new lightbulbs. This move is likely
to cut our lighting energy consumption in
half, which is the equivalent of taking 27,000
cars off the road.

We are also developing an on-site solar
installation at the firm’s largest single-tenant
office. This will comprise up to 20 megawatts
of capacity, which is enough to power the
equivalent of 3,280 homes. Additionally, we are
supporting the development of new renewable
assets by contracting for long-term power
off-take from wind and solar projects on the
grids from which JPMorgan Chase purchases
power. As a first step, we are purchasing power
from the Buckthorn wind farm, a 100-megawatt
project in Erath County, Texas.

Finally, as one of the largest financiers of
energy in the world, we pledged to facilitate
$200 billion in clean financing through 2025.
Through this commitment, JPMorgan Chase

will help scale the impact of sustainability
efforts among more than 20,000 corporate
and investor clients in the U.S. and across
the world.

The size, scope and global reach of our firm
allow us to take on big challenges and to drive
progress that few can match.

Harnessing the power of data
Delivering data and analyses is central to our
model for impact. The JPMorgan Chase Institute
is harnessing the scale and scope of one of
the world’s leading financial firms to better
understand the economy. Its mission is to help
policymakers, businesses and nonprofit leaders
use better facts, timely data and thoughtful
analysis to make smarter decisions to advance
prosperity. Drawing on JPMorgan Chase’s unique
proprietary data, expertise and market access,
the Institute frames and provides analysis of the
most critical economic challenges of our time.

In 2017, the Institute shared important insights
and thoughtful analyses on:

• U.S. household expense volatility, particu-
larly in the wake of extraordinary medical
payments;

• A first-of-its-kind look into out-of-pocket

healthcare spending by U.S. consumers with
a high frequency view at the state, metro
and county level;

• The gender gap in financial outcomes and
lasting impacts of major medical payments;

• The burden and dynamics of health

insurance premium payments for small
business owners;

• The challenges that U.S. small businesses face
in managing payroll growth and volatility;

• Resident access to everyday goods and
services in Detroit and New York City;

• A full year of the Local Consumer Commerce
Index, measuring consumer spending growth
within and across 14 U.S. cities each month;

• How an anticipated drop in mortgage pay-
ments, resulting from lower interest rates,
impacted household consumption; and

• The impact of payment and principal reduc-
tion on default and consumption provided
by mortgage modifications.

2017 HIGHLIGHTS AND ACCOMPLISHMENTS

FORTUNE RANKS JPMORGAN CHASE #1
ON “CHANGE THE WORLD” LIST

“ Thanks to Detroit, the bank is confident that this
full-court-press approach is a blueprint that could
work across the country — and in the next few
months, they’ll be taking components of the Motown
model nationwide.”

Excerpted from “How JPMorgan Chase Is Fueling Detroit’s Revival,”
Fortune (September 15, 2017)

includes academic support, mentoring
and leadership development at a critical
juncture in their lives. One hundred
percent of TFI Fellows are graduating from
high school, and, collectively, they have
been accepted into more than 200 colleges
and universities across the country.

launch of innovative workforce and career
pathway tools such as the Good Jobs
Index, BankingOnMyCareer.com and
Credential Engine.

• Underwrote $13.5 billion in green bonds

and bonds with a sustainable use of proceeds.

• In 2017, provided $1.2 billion for wind and
solar projects in the U.S. Since 2003,
JPMorgan Chase has committed or arranged
over $18 billion in financing for wind, solar
and geothermal energy projects in the U.S.

• Announced eight financial services innovators
as winners of the third competition of the
Financial Solutions Lab (FinLab), which is
focused on improving the financial health of
overlooked populations. To date, FinLab has
supported 26 fintech companies offering
innovative financial products to help more
than 2.5 million Americans improve their
financial health. Collectively, these companies
have raised over $250 million in capital since
joining the program. More than 100 JPMorgan
Chase employees have provided mentorship
to the companies as part of the Lab.

• JPMorgan Chase’s investment in Detroit is
yielding real results. To date, we have
deployed $117 million in loans and grants
to accelerate the city’s economic recovery.
This investment is allowing more than
15,000 adults and young people to receive
skills training for in-demand jobs; supporting
development projects that have created or
preserved over 900 jobs, more than 1,300
housing units and over 177,000 square feet
of commercial space; and providing more
than 2,200 entrepreneurs with technical
assistance and access to capital, creating or
maintaining more than 1,100 jobs.

• Scaling innovative, high-impact models to

create opportunity for more people:

◦ — Expanded the Entrepreneurs of Color
(EOC) Fund to the South Bronx in New
York City and San Francisco. We first
launched the EOC Fund in Detroit in 2015
to provide underserved entrepreneurs
with greater access to capital and assis-
tance needed to grow and thrive. To date,
the fund has lent or approved nearly $4.7
million to more than 45 minority-owned
small businesses, resulting in over 600
new or preserved jobs.

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

◦ — Expanded innovative apprenticeship
models and career-focused programs
that equip high school students with the
skills and education they need to pursue
well-paying, long-term careers through
the launch of New Skills for Youth
innovation sites in New York City’s South
Bronx and across three provinces in
South Africa and four provinces in China.

• In the United Kingdom, we received the

Queen’s Award for Enterprise for Promoting
Opportunity for the firm’s Aspiring Profes-
sionals Program, which exposes young
people from low-income backgrounds in
London to new career opportunities.

• Engaged more than 1,800 young people
in summer jobs and other work-related
experiences in 19 cities across the U.S.

• Invested more than $43 million in 164 job
training and career education initiatives
in 35 countries around the world — including
in Mexico, the Philippines and the United
Kingdom — to prepare people with the
skills they need to be successful in growing
industries.

• Increased labor market transparency and
efficiency through the development and

• Engaging our employees:
◦ — We are putting the knowledge and

expertise of our people to work for our
communities. In 2017, 56,000 of
our employees volunteered more than
383,000 hours of their time. And
through the JPMorgan Chase Service
Corps, a program that leverages the
energy and skills of top talent to assist
nonprofit partners, nearly 80 employee
volunteers from offices in more than a
dozen countries have contributed over
11,500 hours to help 20 organizations
address critical needs.

◦ — We are committed to supporting the

communities where we work and live in
their time of greatest need. In 2017, in
the wake of an unprecedented number of
natural disasters, our firm and employees
donated $7.8 million to assist disaster
relief efforts around the world.

Table of contents

Financial:

38 Five-Year Summary of Consolidated Financial

Highlights

Audited financial statements:

39 Five-Year Stock Performance

146 Management’s Report on Internal Control Over

Financial Reporting

147 Report of Independent Registered Public Accounting

Management’s discussion and analysis:

Firm

40 Introduction

41 Executive Overview

148 Consolidated Financial Statements

153 Notes to Consolidated Financial Statements

44 Consolidated Results of Operations

47 Consolidated Balance Sheets and Cash Flows Analysis

50 Off–Balance Sheet Arrangements and Contractual

Cash Obligations

52 Explanation and Reconciliation of the Firm’s Use of

Non-GAAP Financial Measures and Key Performance
Measures

Supplementary information:

55 Business Segment Results

277 Selected quarterly financial data (unaudited)

75 Enterprise-wide Risk Management

278 Distribution of assets, liabilities and stockholders’

equity; interest rates and interest differentials

81 Strategic Risk Management

283 Glossary of Terms and Acronyms

99 Credit and Investment Risk Management

121 Market Risk Management

129 Country Risk Management

131 Operational Risk Management

138 Critical Accounting Estimates Used by the Firm

141 Accounting and Reporting Developments

145 Forward-Looking Statements

JPMorgan Chase & Co./2017 Annual Report

Financial

FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL HIGHLIGHTS

(unaudited)
As of or for the year ended December 31,
(in millions, except per share, ratio, headcount data and where otherwise noted)

Selected income statement data
Total net revenue
Total noninterest expense
Pre-provision profit
Provision for credit losses
Income before income tax expense
Income tax expense
Net income(a)
Earnings per share data
Net income: Basic

Diluted

Average shares: Basic

Diluted
Market and per common share data
Market capitalization
Common shares at period-end
Share price:(b)

High
Low
Close

Book value per share
Tangible book value per share (“TBVPS”)(c)
Cash dividends declared per share
Selected ratios and metrics
Return on common equity (“ROE”)
Return on tangible common equity (“ROTCE”)(c)
Return on assets (“ROA”)
Overhead ratio
Loans-to-deposits ratio
High quality liquid assets (“HQLA”) (in billions)(d)
Common equity tier 1 (“CET1”) capital ratio(e)
Tier 1 capital ratio(e)
Total capital ratio(e)
Tier 1 leverage ratio(e)
Selected balance sheet data (period-end)
Trading assets
Securities
Loans

Core Loans
Average core loans

Total assets
Deposits
Long-term debt(f)
Common stockholders’ equity
Total stockholders’ equity
Headcount
Credit quality metrics
Allowance for credit losses
Allowance for loan losses to total retained loans
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(g)

Nonperforming assets
Net charge-offs(h)
Net charge-off rate(h)

2017

2016

2015

2014

2013

99,624
58,434
41,190
5,290
35,900
11,459
24,441

6.35
6.31
3,551.6
3,576.8

$ 366,301
3,425.3

108.46
81.64
106.94
67.04
53.56
2.12

10%
12
0.96
59
64
556
12.2%
13.9
15.9
8.3

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

95,668
55,771
39,897
5,361
34,536
9,803
24,733

6.24
6.19
3,658.8
3,690.0

93,543
59,014
34,529
3,827
30,702
6,260
24,442

6.05
6.00
3,741.2
3,773.6

95,112
61,274
33,838
3,139
30,699
8,954
21,745

5.33
5.29
3,808.3
3,842.3

307,295
3,561.2

$ 241,899
3,663.5

$ 232,472
3,714.8

(i)

87.39
52.50
86.29
64.06
51.44
1.88

10%
13
1.00
58
65
524
12.3%
14.0
15.5
8.4

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

63.49
52.97
62.58
56.98
44.60
1.58

10%
13
0.89
64
56
600
10.2%
11.6
13.1
7.6

372,130
289,059
894,765
806,152
769,385
2,490,972
1,375,179
295,245
228,122
254,190
243,355

$ 343,839
290,827
837,299
732,093
670,757
2,351,698
1,279,715
288,651
221,505
247,573
234,598

$ 398,988
348,004
757,336
628,785
596,823
2,572,274
1,363,427
276,379
211,664
231,727
241,359

97,367
70,467
26,900
225
26,675
8,789
17,886

4.38
4.34
3,832.4
3,864.9

219,657
3,756.1

58.55
44.20
58.48
53.17
40.72
1.44

11
0.75
72
57
522
10.7%
11.9
14.3
7.1

374,664
354,003
738,418
583,751
563,809
2,414,879
1,287,765
267,446
199,699
210,857
251,196

14,672

14,854

14,341

14,807

16,969

1.47%
1.27

1.55%
1.34

1.63%
1.37

1.90%
1.55

2.25%
1.80

6,426
5,387

7,535
4,692

7,034
4,086

7,967
4,759

9,706
5,802

0.60%

0.54%

0.52%

0.65%

0.81%

(a) On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law. The Firm’s results included a $2.4 billion decrease to net income as a result of the enactment of the TCJA. For additional

information related to the impact of the TCJA, see Note 24.
(b) Based on daily prices reported by the New York Stock Exchange.
(c) TBVPS and ROTCE are non-GAAP financial measures. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Financial

Performance Measures on pages 52–54.

(d) HQLA represents the amount of assets that qualify for inclusion in the liquidity coverage ratio. For December 31, 2017, the balance represents the average of quarterly reported results per the U.S. LCR

public disclosure requirements effective April 1, 2017. Prior periods represent period-end balances under the final U.S. rule (“U.S. LCR”) for December 31, 2016 and 2015, and the Firm’s estimated 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 December 31, 2013. For additional information, see LCR and HQLA on
page 93.

(e) Ratios presented are calculated under the Basel III Transitional rules, which became effective on January 1, 2014, and for the capital ratios, represent the Collins Floor. Prior to 2014, the ratios were

calculated under the Basel I rules. See Capital Risk Management on pages 82–91 for additional information on Basel III.
Included unsecured long-term debt of $218.8 billion, $212.6 billion, $211.8 billion, $207.0 billion and $198.9 billion respectively, as of December 31, of each year presented.

(f)
(g) Excluded the impact of residential real estate purchased credit-impaired (“PCI”) loans, a non-GAAP financial measure. For further discussion of these measures, see Explanation and Reconciliation of the

Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 52–54, and the Allowance for credit losses on pages 117–119.

(h) Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for the year ended December 31, 2017 would have been 0.55%.
(i)

The prior period ratios have been revised to conform with the current period presentation.

JPMorgan Chase & Co./2017 Annual Report

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

The following table and graph assume simultaneous investments of $100 on December 31, 2012, in JPMorgan Chase common
stock and in each of the above indices. The comparison assumes that all dividends are reinvested.

December 31,
(in dollars)

JPMorgan Chase

KBW Bank Index

S&P Financial Index

S&P 500 Index

December 31,
(in dollars)

300

250

200

150

100

2012

2013

2014

2015

2016

2017

$ 100.00

$ 136.71

$ 150.22

$ 162.79

$ 219.06

$ 277.62

100.00

137.76

135.59

132.37

150.66

156.17

150.48

151.39

153.72

152.55

194.55

188.69

170.78

230.72

230.47

208.05

2013

2014

2015

2016

2017

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

This section of JPMorgan Chase’s Annual Report for the year ended December 31, 2017 (“Annual Report”), provides Management’s
discussion and analysis of financial condition and results of operations (“MD&A”) of JPMorgan Chase. See the Glossary of Terms
and Acronyms on pages 283-289 for definitions of terms used throughout this Annual Report. The MD&A included in this Annual
Report contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant
risks and uncertainties. These risks and uncertainties could cause the Firm’s actual results to differ materially from those set forth
in such forward-looking statements. Certain of such risks and uncertainties are described herein (see Forward-looking Statements
on page 145) and in JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 Form 10-K”),
in Part I, Item 1A: Risk factors; reference is hereby made to both.

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

INTRODUCTION

JPMorgan Chase & Co., a financial holding company
incorporated under Delaware law in 1968, is a leading
global financial services firm and one of the largest banking
institutions in the United States of America (“U.S.”), with
operations worldwide; the Firm had $2.5 trillion in assets
and $255.7 billion in stockholders’ equity as of
December 31, 2017. The Firm is a leader in investment
banking, financial services for consumers and small
businesses, commercial banking, financial transaction
processing and asset management. Under the J.P. Morgan
and Chase brands, the Firm serves millions of customers in
the U.S. and many of the world’s most prominent corporate,
institutional and government clients.

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

JPMorgan Chase & Co./2017 Annual Report

offset by lower Fixed Income Markets and Home Lending
noninterest revenue.

• Noninterest expense was $58.4 billion, up 5%, driven by
higher compensation expense, auto lease depreciation
expense and continued investments across the
businesses.

• The provision for credit losses was $5.3 billion, relatively
flat compared with the prior year, reflecting a decrease in
the wholesale provision driven by credit quality
improvements in the Oil & Gas, Natural Gas Pipelines and
Metals & Mining portfolios, offset by an increase in the
consumer provision. The increase in the consumer
provision was driven by higher net charge-offs and a
higher addition to the allowance for loan losses in the
credit card portfolio, and the impact of the sale of the
student loan portfolio.

• The total allowance for credit losses was $14.7 billion at

December 31, 2017, and the Firm had a loan loss
coverage ratio, excluding the PCI portfolio, of 1.27%,
compared with 1.34% in the prior year. The Firm’s
nonperforming assets totaled $6.4 billion, a decrease
from the prior-year level of $7.5 billion.

• Firmwide average core loans increased 8%.

Selected capital-related metrics
• The Firm’s Basel III Fully Phased-In CET1 capital was $183
billion, and the Standardized and Advanced CET1 ratios
were 12.1% and 12.7%, respectively.

• The Firm’s Fully Phased-In supplementary leverage ratio

(“SLR”) was 6.5%.

• The Firm continued to grow tangible book value per share

(“TBVPS”), ending 2017 at $53.56, up 4%.

ROTCE and TBVPS are non-GAAP financial measures. Core
loans and each of the Fully Phased-In capital and leverage
measures are considered key performance measures. For a
further discussion of each of these measures, see
Explanation and Reconciliation of the Firm’s Use of Non-
GAAP Financial Measures and Key Performance Measures on
pages 52–54, and Capital Risk Management on pages 82–
91.

EXECUTIVE OVERVIEW

This 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 the
risks and critical accounting estimates affecting the Firm and
its various lines of business, this Annual Report should be
read in its entirety.

Financial performance of JPMorgan Chase

Year ended December 31,
(in millions, except per share data
and ratios)

Selected income statement data

2017

2016

Change

Total net revenue

$ 99,624

$ 95,668

Total noninterest expense

Pre-provision profit

Provision for credit losses

Net income

58,434

41,190

5,290

55,771

39,897

5,361

24,441

24,733

Diluted earnings per share

6.31

6.19

Selected ratios and metrics

Return on common equity

Return on tangible common equity

10%

Book value per share

$ 67.04

$ 64.06

Tangible book value per share

53.56

51.44

(1)

Capital ratios(a)

CET1

Tier 1 capital

Total capital

12.2%

12.3% (b)

13.9

15.9

(b)

14.0

15.5

(a) Ratios presented are calculated under the Basel III Transitional rules and
represent the Collins Floor. See Capital Risk Management on pages 82–91
for additional information on Basel III.

(b) The prior period ratios have been revised to conform with the current

period presentation.

Comparisons noted in the sections below are calculated for
the full year of 2017 versus the full year of 2016, unless
otherwise specified.

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

• Net income decreased 1% driven by higher noninterest

expense and income tax expense, predominantly offset by
higher net interest income.

• Total net revenue increased by 4% driven by higher net
interest income and investment banking fees, partially

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

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

CCB
ROE 17%

CIB
ROE 14%

• Average core loans up 9%; average deposits

of $640 billion, up 9%

• Client investment assets of $273 billion, up

17%

• Credit card sales volume up 14% and
merchant processing volume up 12%

• Maintained #1 ranking for Global Investment

Banking fees with 8.1% wallet share

• Investment Banking revenue up 12%;

Treasury Services revenue up 15%; and
Securities Services revenue up 9%

CB
ROE 17%

• Record revenue of $8.6 billion, up 15%;

record net income of $3.5 billion, up 33%

• Average loan balances of $198 billion, up

10%

AWM
ROE 25%

• Record revenue of $12.9 billion, up 7%;
record net income of $2.3 billion, up 4%

• Average loan balances of $123 billion, up 9%

• Record assets under management (“AUM”) of

$2.0 trillion, up 15%

For a detailed discussion of results by line of business, refer
to the Business Segment Results on pages 55–56.

Credit provided and capital raised
JPMorgan Chase continues to support consumers, businesses
and communities around the globe. The Firm provided credit
and raised capital of $2.3 trillion for wholesale and
consumer clients during 2017:

• $258 billion of credit for consumers

• $22 billion of credit for U.S. small businesses

• $817 billion of credit for corporations

• $1.1 trillion of capital raised for corporate clients and

non-U.S. government entities

• $92 billion of credit and capital raised for U.S.

government and nonprofit entities, including states,
municipalities, hospitals and universities.

Recent events
• On February 21, 2018, the Firm announced its intent to

pursue building a new 2.5 million square foot
headquarters at its 270 Park Avenue location in New York
City. The project will be subject to various approvals, and
the Firm will work closely with the New York City Council
and State officials to complete the project in a manner
that benefits all constituencies. Once the project’s
approvals are granted, redevelopment and construction
are expected to begin in 2019 and take approximately five
years to complete. The project is not expected to have a
material impact on the company’s financial results.

• On January 30, 2018, Amazon, Berkshire Hathaway, and
JPMorgan Chase announced that they are partnering on
ways to address healthcare for their U.S. employees, with
the aim of improving employee satisfaction and reducing
costs. Through a new independent company, the initial
focus will be on technology solutions that will provide U.S.
employees and their families with simplified, high-quality
and transparent healthcare at a reasonable cost.

• On January 29, 2018, JPMorgan Chase announced that
Daniel Pinto, Chief Executive Officer (“CEO”) of CIB, and
Gordon Smith, CEO of CCB, have been appointed Co-
Presidents and Co-Chief Operating Officers (“COO”) of the
Firm, effective January 30, 2018, and will continue to
report to Jamie Dimon, Chairman and CEO. In addition to
their current roles, Mr. Pinto and Mr. Smith will work
closely with Mr. Dimon to help drive critical Firmwide
opportunities. Responsibilities for the rest of the Firm’s
Operating Committee will remain unchanged, with its
members continuing to report to Mr. Dimon.

• On January 23, 2018, the Firm announced a $20 billion,

five-year comprehensive investment to help its employees
and support job and economic growth in the U.S. Through
these new investments, the Firm plans to develop
hundreds of new branches in several new U.S. markets,
increase wages and benefits for hourly U.S. employees,
make increased small business and mortgage lending
commitments, add approximately 4,000 jobs throughout
the country, and increase philanthropic investments.

• On December 22, 2017, the TCJA was signed into law. The

Firm’s results included a $2.4 billion decrease to net
income as a result of the enactment of the TCJA. For
additional information related to the impact of the TCJA,
see Note 24.

• During the second half of 2017, natural disasters caused
significant disruptions to individuals and businesses, and
damage to homes and communities in several regions
where the Firm conducts business. The Firm continues to
provide assistance to customers, clients, communities and
employees who have been affected by these disasters.
These events did not have a material impact on the Firm’s
2017 financial results.

JPMorgan Chase & Co./2017 Annual Report

• The Firm continues to take a disciplined approach to

managing its expenses, while investing for growth and
innovation. As a result, management expects Firmwide
adjusted expense for full-year 2018 to be less than $62
billion, excluding the impact of the new revenue
recognition accounting standard.

• Management estimates the full-year 2018 effective
income tax rate to be in the 19% to 20% range,
depending upon several factors, including the geographic
mix of taxable income and refinements to estimates of the
impacts of the TCJA.

• Management expects net charge-off rates to remain
relatively flat across the wholesale and consumer
portfolios, with the exception of Card.

CCB
• Management expects the full-year 2018 Card Services net

revenue rate to be approximately 11.25%.

• In Card, management expects the net charge-off rate to

increase to approximately 3.25% in 2018.

CIB
• Markets revenue in the first-quarter 2018 is expected to
be up by mid to high single digit percentage points when
compared with the prior-year quarter; actual Markets
revenue results will continue to be affected by market
conditions, which can be volatile.

2018 outlook
These current expectations are forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act 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 and
uncertainties. These risks and uncertainties could cause the
Firm’s actual results to differ materially from those set forth in
such forward-looking statements. See Forward-Looking
Statements on page 145 and the Risk Factors section on
pages 8–26. There is no assurance that actual results for the
full year of 2018 will be in line with the outlook set forth
below, and the Firm does not undertake to update any
forward-looking statements.

JPMorgan Chase’s outlook for 2018 should be viewed against
the backdrop of the global and U.S. economies, financial
markets activity, the geopolitical environment, the
competitive environment, client and customer activity levels,
and regulatory and legislative developments in the U.S. and
other countries where the Firm does business. Each of these
interrelated factors will affect the performance of the Firm
and its lines of business. The Firm expects that it will
continue to make appropriate adjustments to its businesses
and operations in response to ongoing developments in the
legal, regulatory, business and economic environments in
which it operates.

Firmwide
• As a result of the change in tax rate due to the TCJA,
management expects a reduction in tax-equivalent
adjustments, decreasing both revenue and income tax
expense, on a managed basis, by approximately $1.2
billion on an annual run-rate basis.

• Management expects the new revenue recognition

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

• Management expects first-quarter 2018 net interest
income, on a managed basis, to be down modestly
compared with the fourth quarter of 2017, driven by the
impact of the TCJA and a lower day count. For full-year
2018, management expects net interest income, on a
managed basis, to be in the $54 to $55 billion range,
market dependent, and assuming expected core loan
growth. Management expects Firmwide average core loan
growth to be in the 6% to 7% range in 2018, excluding
CIB loans.

• Excluding the impact of the new revenue recognition
accounting standard, management expects Firmwide
noninterest revenue for full-year 2018, on a managed
basis, to be up approximately 7%, depending on market
conditions.

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

CONSOLIDATED RESULTS OF OPERATIONS

This section provides a comparative discussion of JPMorgan
Chase’s Consolidated Results of Operations on a reported
basis for the three-year period ended December 31, 2017,
unless otherwise specified. Factors that relate primarily to a
single business segment are discussed in more detail within
that business segment. For a discussion of the Critical
Accounting Estimates Used by the Firm that affect the
Consolidated Results of Operations, see pages 138–140.

2015

6,751

10,408

5,694

Revenue

Year ended December 31,
(in millions)

2017

2016

Investment banking fees

7,248

6,448

Principal transactions

Lending- and deposit-related fees

Asset management,

administration and commissions

Securities gains/(losses)

Mortgage fees and related income

Card income

Other income(a)

Noninterest revenue

Net interest income

Total net revenue

11,347

5,933

11,566

5,774

15,377

14,591

15,509

(66)

1,616

4,433

3,639

49,527

50,097

141

2,491

4,779

3,795

49,585

46,083

202

2,513

5,924

3,032

50,033

43,510

$ 99,624

95,668

93,543

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

2017 compared with 2016
Investment banking fees increased reflecting higher debt
and equity underwriting fees in CIB. The increase in debt
underwriting fees was driven by a higher share of fees and
an overall increase in industry-wide fees; and the increase
in equity underwriting fees was driven by growth in
industry-wide issuance, including a strong initial public
offering (“IPO”) market. For additional information, see CIB
segment results on pages 62–66 and Note 6.

Principal transactions revenue decreased compared with a
strong prior year in CIB, primarily reflecting:

• lower Fixed Income-related revenue driven by sustained

low volatility and tighter credit spreads

partially offset by

• higher Equity-related revenue primarily in Prime

Services, and

• higher Lending-related revenue reflecting lower fair value

losses on hedges of accrual loans.

For additional information, see CIB and Corporate segment
results on pages 62–66 and pages 73–74, respectively, and
Note 6.

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

For information on lending- and deposit-related fees, see
the segment results for CCB on pages 57-61, CIB on pages
62–66, and CB on pages 67–69 and Note 6; on securities
gains, see the Corporate segment discussion on pages 73–
74.

Mortgage fees and related income decreased driven by
lower MSR risk management results, lower net production
revenue on lower margins and volumes, and lower servicing
revenue on lower average third-party loans serviced. For
further information, see CCB segment results on pages
57-61, Note 6 and 15.
Card income decreased predominantly driven by higher
credit card new account origination costs, largely offset
by higher card-related fees, primarily annual fees. For
further information, see CCB segment results on pages
57-61 .

Other income decreased primarily due to:

• lower other income in CIB largely driven by a $520
million impact related to the enactment of the TCJA,
which reduced the value of certain of CIB’s tax-oriented
investments, and

• the absence in the current year of gains from

– the sale of Visa Europe interests in CCB,

– the redemption of guaranteed capital debt securities

(“trust preferred securities”), and

– the disposal of an asset in AWM

partially offset by

• higher operating lease income reflecting growth in auto

operating lease volume in CCB, and

• a legal benefit of $645 million recorded in the second

quarter of 2017 in Corporate related to a settlement with
the FDIC receivership for Washington Mutual and with
Deutsche Bank as trustee of certain Washington Mutual
trusts.

For further information, see Note 6.

Net interest income increased primarily driven by the net
impact of higher rates and loan growth across the
businesses, partially offset by declines in Markets net
interest income in CIB. The Firm’s average interest-earning
assets were $2.2 trillion, up $79 billion from the prior year,
and the net interest yield on these assets, on a fully taxable
equivalent (“FTE”) basis, was 2.36%, an increase of 11
basis points from the prior year.

JPMorgan Chase & Co./2017 Annual Report

2016 compared with 2015
Investment banking fees decreased predominantly due to
lower equity underwriting fees driven by declines in
industry-wide fee levels.

Principal transactions revenue increased reflecting broad-
based strength across products in CIB’s Fixed Income
Markets business. Rates performance was strong, with
increased client activity driven by high issuance-based
flows, global political developments, and central bank
actions. Credit revenue improved driven by higher market-
making revenue from the secondary market as clients’
appetite for risk recovered.

Asset management, administration and commissions
revenue decreased reflecting lower asset management fees
in AWM 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, as well as due to lower brokerage commissions and
other fees in CIB and AWM.

Mortgage fees and related income were relatively flat, as
lower mortgage servicing revenue related to lower average
third-party loans serviced was predominantly offset by
higher MSR risk management results.

Card income decreased predominantly driven by higher
new account origination costs and the impact of
renegotiated co-brand partnership agreements, partially
offset by higher card sales volume and other card-related
fees.

Other income increased primarily reflecting:

higher operating lease income from growth in auto
operating lease assets in CCB

a gain on the sale of Visa Europe interests in CCB

a gain related to the redemption of guaranteed capital
debt securities

the absence of losses recognized in 2015 related to the
accelerated amortization of cash flow hedges associated
with the exit of certain non-operating deposits

a gain on disposal of an asset in AWM

partially offset by
a $514 million benefit recorded in the prior year from a
legal settlement in Corporate.

Net interest income increased primarily driven by loan
growth across the businesses and the net impact of higher
rates, partially offset by lower investment securities
balances and higher interest expense on long-term debt.
The Firm’s average interest-earning assets were $2.1 trillion
in 2016, up $13 billion from the prior year, and the net
interest yield on these assets, on a FTE basis, was 2.25%,
an increase of 11 basis points from the prior year.

Provision for credit losses
Year ended December 31,

(in millions)

2017

2016

Consumer, excluding credit card

620

467

Credit card

Total consumer

Wholesale

4,973

5,593

(303)

4,042

4,509

852

2015

(81)

3,122

3,041

786

Total provision for credit losses $ 5,290

5,361

3,827

2017 compared with 2016
The provision for credit losses decreased as a result of:
• a net $422 million reduction in the wholesale allowance

for credit losses, reflecting credit quality improvements in
the Oil & Gas, Natural Gas Pipelines, and Metals & Mining
portfolios, compared with an addition of $511 million in
the prior year driven by downgrades in the same
portfolios

predominantly offset by

• a higher consumer provision driven by

– $450 million of higher net charge-offs, primarily in the
credit card portfolio due to growth in newer vintages
which, as anticipated, have higher loss rates than the
more seasoned portion of the portfolio, partially offset
by a decrease in net charge-offs in the residential real
estate portfolio reflecting continued improvement in
home prices and delinquencies,

– a $416 million higher addition to the allowance for

credit losses related to the credit card portfolio driven
by higher loss rates and loan growth, and a lower
reduction in the allowance for the residential real
estate portfolio predominantly driven by continued
improvement in home prices and delinquencies, and

– a $218 million impact in connection with the sale of

the student loan portfolio.

For a more detailed discussion of the credit portfolio, the
student loan sale and the allowance for credit losses, see
the segment discussions of CCB on pages 57-61, CIB on
pages 62–66, CB on pages 67–69, the Allowance for Credit
Losses on pages 117–119 and Note 13.

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

a $920 million increase related to the credit card
portfolio, due to a $600 million addition in the allowance
for loan losses, as well as $320 million of higher net
charge-offs, driven by loan growth (including growth in
newer vintages which, as anticipated, have higher loss
rates compared to the overall portfolio), and

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

a $470 million lower benefit related to the residential
real estate portfolio, as the reduction in the allowance for
loan losses in 2016 was lower than the prior year. The
reduction in both periods reflected continued
improvements in home prices and lower delinquencies.

The increase in the wholesale provision was largely driven
by the impact of downgrades in the Oil & Gas and Natural
Gas Pipelines portfolios.

Noninterest expense
Year ended December 31,

(in millions)

2017

2016

2015

Compensation expense

$31,009

$29,979

$29,750

Noncompensation expense:

Occupancy

Technology, communications and

equipment

Professional and outside services

Marketing
Other(a)(b)

3,723

3,638

3,768

7,706

6,840

2,900

6,256

6,846

6,655

2,897

5,756

6,193

7,002

2,708

9,593

Total noncompensation expense

27,425

25,792

29,264

Total noninterest expense

$58,434

$55,771

$59,014

(a) Included Firmwide legal expense/(benefit) of $(35) million, $(317) million
and $3.0 billion for the years ended December 31, 2017, 2016 and 2015,
respectively.

(b) Included FDIC-related expense of $1.5 billion, $1.3 billion and $1.2 billion
for the years ended December 31, 2017, 2016 and 2015, respectively.

2017 compared with 2016
Compensation expense increased predominantly driven by
investments in headcount in most businesses, including
bankers and business-related support staff, and higher
performance-based compensation expense, predominantly
in AWM.

Noncompensation expense increased as a result of:
• higher depreciation expense from growth in auto

operating lease volume in CCB

• contributions to the Firm’s Foundation
• a lower legal net benefit compared to the prior year
• higher FDIC-related expense, and
• an impairment in CB on certain leased equipment, the
majority of which was sold subsequent to year-end

partially offset by
• the absence in the current year of two items totaling

$175 million in CCB related to liabilities from a merchant
in bankruptcy and mortgage servicing reserves.

For a discussion of legal expense, see Note 29.

2016 compared with 2015
Compensation expense was relatively flat predominantly
driven by higher performance-based compensation expense
and investments in several businesses, offset by the impact
of continued expense reduction initiatives, including lower
headcount in certain businesses.

Noncompensation expense decreased as a result of lower
legal expense (including lower legal professional services
expense), the impact of efficiencies, and reduced non-U.S.
tax surcharges. These factors were partially offset by higher
depreciation expense from growth in auto operating lease
assets and higher investments in marketing.

Income tax expense

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

Income before income tax

expense

Income tax expense

Effective tax rate

2017

2016

2015

$35,900

$ 34,536

$ 30,702

11,459

9,803

6,260

31.9%

28.4%

20.4%

2017 compared with 2016
The effective tax rate increased in 2017 driven by:

• a $1.9 billion increase to income tax expense

representing the impact of the enactment of the TCJA.
The increase was driven by the deemed repatriation of
the Firm’s unremitted non-U.S. earnings and adjustments
to the value of certain tax-oriented investments, partially
offset by a benefit from the revaluation of the Firm’s net
deferred tax liability. The incremental expense resulted in
a 5.4 percentage point increase to the Firm’s effective tax
rate

partially offset by

• benefits resulting from the vesting of employee share-
based awards related to the appreciation of the Firm’s
stock price upon vesting above their original grant price,
and the release of a valuation allowance.

For further information, see Note 24.

2016 compared with 2015
The effective tax rate in 2016 was affected by changes in
the mix of income and expense subject to U.S. federal and
state and local taxes, tax benefits related to the utilization
of certain deferred tax assets, as well as the adoption of
new accounting guidance related to employee share-based
incentive payments. These tax benefits were partially offset
by higher income tax expense from tax audits. The lower
effective tax rate in 2015 was predominantly driven by
$2.9 billion of tax benefits, which reduced the Firm’s
effective tax rate by 9.4 percentage points. The recognition
of tax benefits in 2015 resulted from the resolution of
various tax audits, as well as the release of U.S. deferred
taxes associated with the restructuring of certain non-U.S.
entities.

JPMorgan Chase & Co./2017 Annual Report

CONSOLIDATED BALANCE SHEETS AND CASH FLOWS ANALYSIS

Consolidated Balance Sheets Analysis
The following is a discussion of the significant changes between December 31, 2017 and 2016.

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

Assets

Cash and due from banks

Deposits with banks

Federal funds sold and securities purchased under resale agreements

Securities borrowed

Trading assets:

Debt and equity instruments

Derivative receivables

Securities

Loans

Allowance for loan losses

Loans, net of allowance for loan losses

Accrued interest and accounts receivable

Premises and equipment

Goodwill, MSRs and other intangible assets

Other assets

Total assets

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

2017

2016

Change

25,827

23,873

404,294

198,422

105,112

325,321

56,523

249,958

930,697

(13,604)

917,093

67,729

14,159

54,392

365,762

229,967

96,409

308,052

64,078

289,059

894,765

(13,776)

880,989

52,330

14,131

54,246

114,770

112,076

2,533,600

2,490,972

(14)

(12)

(14)

(1)

—

Securities decreased primarily reflecting net sales,
maturities and paydowns of U.S. Treasuries, non-U.S.
government securities and collateralized loan obligations.
For additional information, see Notes 2 and 10.
Loans increased reflecting:
• higher wholesale loans driven by new originations in CB

and higher loans to Private Banking clients in AWM
• higher consumer loans driven by higher retention of

originated high-quality prime mortgages in CCB and AWM,
and higher credit card loans, largely offset by the sale of
the student loan portfolio, lower home equity loans and
the run-off of PCI loans.

The allowance for loan losses decreased driven by:
• a net reduction in the wholesale allowance, reflecting

credit quality improvements in the Oil & Gas, Natural Gas
Pipelines and Metals & Mining portfolios (compared with
additions to the allowance in the prior year driven by
downgrades in the same portfolios)

largely offset by
• a net increase in the consumer allowance, reflecting
additions to the allowance for the credit card and
business banking portfolios, driven by loan growth in both
of these portfolios and higher loss rates in the credit card
portfolio, largely offset by a reduction in the allowance
for the residential real estate portfolio, predominantly
driven by continued improvement in home prices and
delinquencies, and the utilization of the allowance in
connection with the sale of the student loan portfolio.

For a more detailed discussion of loans and the allowance
for loan losses, refer to Credit and Investment Risk
Management on pages 99–120, and Notes 2, 3, 12 and 13.

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

Accrued interest and accounts receivable
increased primarily reflecting higher held-for-investment
margin loans related to client-driven financing activities in
Prime Services.

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

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

Liabilities

Deposits

Federal funds purchased and securities loaned or sold under repurchase agreements

Short-term borrowings

Trading liabilities:

Debt and equity instruments

Derivative payables

Accounts payable and other liabilities

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

Long-term debt

Total liabilities

Stockholders’ equity

Total liabilities and stockholders’ equity

Deposits increased due to:

• higher consumer deposits reflecting the continuation of
strong growth from new and existing customers, and low
attrition rates

• higher wholesale deposits largely driven by growth in
client cash management activity in CIB’s Securities
Services business, partially offset by lower balances in
AWM reflecting balance migration predominantly into the
Firm’s investment-related products.

For more information, refer to the Liquidity Risk
Management discussion on pages 92–97; and Notes 2
and 17.

Short-term borrowings increased primarily due to higher
issuance of commercial paper reflecting in part a change in
the mix of funding from securities sold under repurchase
agreements for CIB Markets activities. For additional
information, see Liquidity Risk Management on pages 92–
97.

2017

2016

Change

1,443,982

1,375,179

158,916

51,802

85,886

37,777

189,383

26,081

284,080

165,666

34,443

87,428

49,231

190,543

39,047

295,245

2,277,907

255,693

2,236,782

254,190

2,533,600

2,490,972

(4)

(2)

(23)

(1)

(33)

(4)

Beneficial interests issued by consolidated VIEs
decreased due to net maturities of credit card
securitizations and the deconsolidation of the student loan
securitization entities in connection with the portfolio’s sale.
For further information on Firm-sponsored VIEs and loan
securitization trusts, see Off-Balance Sheet Arrangements
on pages 50–51 and Note 14 and 27; and for the sale of the
student loan portfolio, see CCB segment results on pages
57-61.

Long-term debt decreased reflecting lower Federal Home
Loan Bank (“FHLB”) advances, partially offset by the net
issuance of senior debt and the net issuance of structured
notes in CIB driven by client demand. For additional
information on the Firm’s long-term debt activities, see
Liquidity Risk Management on pages 92–97 and Note 19.
For information on changes in stockholders’ equity, see
page 151, and on the Firm’s capital actions, see Capital
actions on pages 89-90.

JPMorgan Chase & Co./2017 Annual Report

Consolidated Cash Flows Analysis

Year ended December 31,

(in millions)

2017

2016

2015

Net cash provided by/(used in)

Operating activities

$ (2,501) $ 20,196

$ 73,466

Investing activities

Financing activities

Effect of exchange rate

changes on cash

Net increase/(decrease) in
cash and due from banks

(10,283)

(114,949)

106,980

14,642

98,271

(187,511)

(135)

(276)

1,954

3,383

(7,341)

Operating activities
JPMorgan Chase’s operating assets and liabilities support
the Firm’s lending and capital markets activities. These
assets and liabilities can vary significantly in the normal
course of business due to the amount and timing of cash
flows, which are affected by client-driven and risk
management activities and market conditions. The Firm
believes cash flows from operations, available cash and
other liquidity sources, and its capacity to generate cash
through secured and unsecured sources are sufficient to
meet operating liquidity needs.
• In 2017, cash used reflected an increase in held-for-

investment margin loans in accrued interest and accounts
receivable and a decrease in trading liabilities.

• In 2016, cash provided reflected increases in accounts
payable and trading liabilities, partially offset by cash
used reflecting an increase in trading assets, an increase
in accounts receivable from merchants and higher client
receivables.

• In 2015, cash provided reflected decreases in trading

assets and in accounts receivable, partially offset by cash
used due to a decrease in accounts payable and other
liabilities.

Investing activities
The Firm’s investing activities predominantly include
originating held-for-investment loans and investing in the
securities portfolio and other short-term interest-earning
assets.
• In 2017, cash used primarily reflected net originations of
loans and a net increase in short-term interest-earning
assets, partially offset by net proceeds from paydowns,
maturities, sales and purchases of investment securities.
• In 2016, cash used reflected net originations of loans, an

increase in short-term interest-earning assets, an
increase in securities purchased under resale
agreements, and the deployment of excess cash.

• In 2015, cash provided predominantly reflected lower

short-term interest-earning assets, and net proceeds from
lower investment securities, partially offset by cash used
for net originations of loans.

Financing activities
The Firm’s financing activities include acquiring customer
deposits and issuing long-term debt, as well as preferred
and common stock.
• In 2017, cash provided reflected higher deposits and

short-term borrowings, partially offset by a decrease in
long-term borrowings.

• In 2016, cash provided reflected higher deposits, and an
increase in securities loaned or sold under repurchase
agreements, and net proceeds from long term
borrowings.

• In 2015, cash used reflected lower deposits and short-
term borrowings, partially offset by net proceeds from
long-term borrowings. Additionally, in 2015 cash
outflows reflected a decrease in securities loaned or sold
under repurchase agreements.

• For all periods, cash was used for repurchases of common
stock and cash dividends on common and preferred stock.

* * *

For a further discussion of the activities affecting the Firm’s
cash flows, see Consolidated Balance Sheets Analysis on
pages 47-48 , Capital Risk Management on pages 82–91,
and Liquidity Risk Management on pages 92–97.

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS

In 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).

The Firm holds capital, as deemed appropriate, against all
SPE-related transactions and related exposures, such as

derivative transactions and lending-related commitments
and guarantees.

The Firm has no commitments to issue its own stock to
support any SPE transaction, and its policies require that
transactions with SPEs be conducted at arm’s length and
reflect market pricing. Consistent with this policy, no
JPMorgan Chase employee is permitted to invest in SPEs
with which the Firm is involved where such investment
would violate the Firm’s Code of Conduct.

The table below provides an index of where in this Annual Report a discussion of the Firm’s various off-balance sheet
arrangements can be found. In addition, see Note 1 for information about the Firm’s consolidation policies.

Type of off-balance sheet arrangement

Special-purpose entities: variable interests and other
obligations, including contingent obligations, arising
from variable interests in nonconsolidated VIEs

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

Location of disclosure

See Note 14

Page references

236–243

See Note 27

261–266

JPMorgan Chase & Co./2017 Annual Report

Contractual cash obligations
The accompanying table summarizes, by remaining
maturity, JPMorgan Chase’s significant contractual cash
obligations at December 31, 2017. The contractual cash
obligations included in the table below reflect the minimum
contractual obligation under legally enforceable contracts
with terms that are both fixed and determinable. Excluded
from the below table are certain liabilities with variable
cash flows and/or no obligation to return a stated amount
of principal at maturity.

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

Contractual cash obligations

By remaining maturity at December 31,
(in millions)

On-balance sheet obligations

2018

2019-2020

2017
2021-2022

After 2022

Total

2016
Total

Deposits(a)

1,421,174 $

5,276 $

4,810 $

6,204 $

1,437,464 $

1,368,866

Federal funds purchased and securities loaned or

sold under repurchase agreements

Short-term borrowings(a)

Beneficial interests issued by consolidated VIEs

Long-term debt(a)

Other(b)

Total on-balance sheet obligations

Off-balance sheet obligations

Unsettled reverse repurchase and securities

borrowing agreements(c)

Contractual interest payments(d)

Operating leases(e)

Equity investment commitments(f)

Contractual purchases and capital expenditures

Obligations under co-brand programs

Total off-balance sheet obligations

133,779

42,664

13,636

37,211

4,726

1,653,190

76,859

9,248

1,526

174

1,923

249

4,198

—

9,542

63,685

2,146

84,847

—

11,046

2,750

937

500

4,958

—

2,544

43,180

2,080

57,572

—

7,471

1,844

439

478

15,981

158,916

165,666

—

314

116,819

4,573

42,664

26,036

260,895

13,525

26,497

38,927

288,315

8,980

143,891

1,939,500

1,897,251

—

26,338

3,757

515

204

207

76,859

54,103

9,877

754

3,503

1,434

50,722

48,862

10,115

1,068

2,566

868

89,979

15,279

10,251

31,021

146,530

114,201

Total contractual cash obligations

1,743,169 $

100,126 $

67,823 $

174,912 $

2,086,030 $

2,011,452

(a) Excludes structured notes on which the Firm is not obligated to return a stated amount of principal at the maturity of the notes, but is obligated to return

an amount based on the performance of the structured notes.

(b) Primarily includes dividends declared on preferred and common stock, deferred annuity contracts, pension and other postretirement employee benefit

obligations, insurance liabilities and income taxes payable associated with the deemed repatriation under the TCJA.

(c) For further information, refer to unsettled reverse repurchase and securities borrowing agreements in Note 27.
(d) Includes accrued interest and future contractual interest obligations. Excludes interest related to structured notes for which the Firm’s payment obligation

is based on the performance of certain benchmarks.

(e) Includes noncancelable operating leases for premises and equipment used primarily for banking purposes. Excludes the benefit of noncancelable sublease

rentals of $1.0 billion and $1.4 billion at December 31, 2017 and 2016, respectively. See Note 28 for more information on lease commitments.

(f) At December 31, 2017 and 2016, included unfunded commitments of $40 million and $48 million, respectively, to third-party private equity funds, and

$714 million and $1.0 billion of unfunded commitments, respectively, to other equity investments.

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES AND KEY
PERFORMANCE MEASURES

Non-GAAP financial measures
The Firm prepares its Consolidated Financial Statements
using U.S. GAAP; these financial statements appear on
pages 148–152. That presentation, which is referred to as
“reported” basis, provides the reader with an
understanding 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.

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

income tax impact related to tax-exempt items is recorded
within income tax expense. These adjustments have no
impact on net income as reported by the Firm as a whole or
by the lines of business.

Management also uses certain non-GAAP financial
measures at the 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 particular
business segment, as the case may be, and, therefore,
facilitate a comparison of the Firm or the business segment
with the performance of its relevant competitors. For
additional information on these non-GAAP measures, see
Business Segment Results on pages 55–74.

Additionally, certain credit metrics and ratios disclosed by
the Firm exclude PCI loans, and are therefore non-GAAP
measures. For additional information on these non-GAAP
measures, see Credit and Investment Risk Management on
pages 99–120.

Non-GAAP financial measures used by the Firm may not be
comparable 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)

Reported
Results

Fully taxable-
equivalent
adjustments(a)

Managed
basis

Reported
Results

2017

2016

Fully taxable-
equivalent
adjustments(a)

2015

Managed
basis

Reported
Results

Fully taxable-
equivalent
adjustments(a)

Managed
basis

Other income

$ 3,639

2,704 (b) $ 6,343

$ 3,795

2,265

$ 6,060

$ 3,032

1,980

$ 5,012

Total noninterest revenue

Net interest income

Total net revenue

Pre-provision profit

Income before income tax

expense

Income tax expense

49,527

50,097

99,624

41,190

35,900

11,459

2,704

1,313

4,017

52,231

51,410

103,641

45,207

49,585

46,083

95,668

39,897

39,917

34,536

4,017 (b)

15,476

9,803

Overhead ratio

59%

56%

58%

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

2,265

1,209

3,474

51,850

47,292

99,142

43,371

38,010

13,277

50,033

43,510

93,543

34,529

30,702

6,260

56%

63%

1,980

1,110

3,090

52,013

44,620

96,633

37,619

33,792

9,350

61%

JPMorgan Chase & Co./2017 Annual Report

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

Certain U.S. GAAP and non-GAAP financial measures are calculated as
follows:

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

Net interest income excluding CIB’s Markets businesses
In addition to reviewing net interest income on a managed
basis, 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) and
deposit-raising activities. This net interest income is
referred to as non-markets related net interest income.
CIB’s Markets businesses are Fixed Income Markets and
Equity Markets. Management believes that disclosure of
non-markets related net interest income provides investors
and analysts with another measure by which to analyze the
non-markets-related business trends of the Firm and
provides a comparable measure to other financial
institutions that are primarily focused on lending, investing
and deposit-raising activities.

The data presented below are non-GAAP financial measures
due to the exclusion of markets related net interest income
arising from CIB.

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

Net interest income –
managed basis(a)(b)

Less: CIB Markets net
interest income(c)

2017

2016

2015

51,410

47,292

44,620

4,630

6,334

5,298

Net interest income

excluding CIB Markets(a) $

46,780

40,958

39,322

Average interest-earning

assets

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

Average interest-earning
assets excluding CIB
Markets

Net interest yield on

average interest-earning
assets – managed basis

Net interest yield on

average CIB Markets
interest-earning assets(c)

Net interest yield on

average interest-earning
assets excluding CIB
Markets

$2,180,592

$2,101,604

$ 2,088,242

540,835

520,307

510,292

$1,639,757

$1,581,297

$ 1,577,950

2.36%

2.25%

2.14%

0.86

1.22

1.04

2.85%

2.59%

2.49%

(a) Interest includes the effect of related hedges. Taxable-equivalent amounts are

used where applicable.

(b) For a reconciliation of net interest income on a reported and managed basis, see
reconciliation from the Firm’s reported U.S. GAAP results to managed basis on
page 52.

(c) The amounts in this table differ from the prior-period presentation to align with
CIB’s Markets businesses. For further information on CIB’s Markets businesses,
see page 65.

JPMorgan Chase & Co./2017 Annual Report

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 (other
than MSRs), net of related deferred tax liabilities. ROTCE measures the Firm’s net income applicable to common equity as a
percentage 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.

(in millions, except per share and ratio data)

Common stockholders’ equity

Less: Goodwill

Less: Other intangible assets

Add: Certain Deferred tax liabilities(a)(b)

Tangible common equity

Return on tangible common equity

Tangible book value per share

Period-end

Average

Dec 31,
2017

Dec 31,
2016

Year ended December 31,

2017

2016

2015

229,625 $

228,122

$ 230,350

$ 224,631

$ 215,690

47,507

47,288

47,317

47,310

47,445

855

2,204

862

3,230

832

3,116

922

3,212

1,092

2,964

183,467 $

183,202

$ 185,317

$ 179,611

$ 170,117

53.56 $

51.44

12%

13%

(a) Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted against goodwill and

other intangibles when calculating TCE.

(b) Includes the effect from the revaluation of the Firm’s net deferred tax liability as a result of the enactment of the TCJA.

Key performance measures
The Firm considers the following to be key regulatory
capital measures:

• Capital, risk-weighted assets (“RWA”), and capital and
leverage ratios presented under Basel III Standardized
and Advanced Fully Phased-In rules, and

• SLR calculated under Basel III Advanced Fully Phased-In

rules.

The Firm, as well as banking regulators, investors and
analysts, use these measures to assess the Firm’s regulatory
capital position and to compare the Firm’s regulatory
capital to that of other financial services companies.

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

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 and
portfolios the Firm has an intent to exit. Core loans is a
measure utilized by the Firm and its investors and analysts
in assessing actual growth in the loan portfolio.

JPMorgan Chase & Co./2017 Annual Report

BUSINESS SEGMENT RESULTS

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

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

Consumer Businesses

Wholesale Businesses

JPMorgan Chase

Consumer & Community Banking

Corporate & Investment Bank

Commercial
Banking

Asset & Wealth
Management

Consumer &
Business Banking

Home Lending(a)

Card, Merchant
Services & Auto(b)

Banking

Markets &
Investor Services

• Consumer
Banking/
Chase
Wealth
Management

• Business
Banking

• Home

Lending
Production

• Home

Lending
Servicing
• Real Estate
Portfolios

• Card

Services
– Credit Card
– Merchant
Services

• Auto

• Investment
Banking
• Treasury
Services
• Lending

• Fixed

Income
Markets

• Equity

Markets
• Securities
Services

• Credit

Adjustments
& Other

• Asset

Management

• Wealth

Management

• Middle
Market
Banking

• Corporate
Client
Banking

• Commercial

Term
Lending

• Real Estate
Banking

(a) Formerly Mortgage Banking
(b) Formerly Card, Commerce Solutions & Auto

Description of business segment reporting methodology
Results of the business segments are intended to reflect
each segment as if it were essentially a stand-alone
business. The management reporting process that derives
business segment results includes the allocation of certain
income and expense items described in more detail below.
The Firm also assesses the level of capital required for each
line of business on at least an annual basis.

The Firm periodically assesses the assumptions,
methodologies and reporting classifications used for
segment reporting, and further refinements may be
implemented in future periods.

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

Funds transfer pricing
Funds transfer pricing is used to assign interest income and
expense to each business segment and to transfer the
primary interest rate risk and liquidity risk exposures to
Treasury 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 it
were operating independently. This process is overseen by
senior management and reviewed by the Firm’s Asset-
Liability Committee (“ALCO”).

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

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

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

capital. For additional information on business segment
capital allocation, see Line of business equity on page 89.

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

Segment Results – Managed Basis
The following tables summarize the business segment results for the periods indicated.

Year ended December 31,

Total net revenue

Total noninterest expense

Pre-provision profit/(loss)

(in millions)

2017

2016

2015

2017

2016

2015

2017

2016

2015

Consumer & Community Banking

$ 46,485 $

44,915 $ 43,820

$ 26,062 $ 24,905 $ 24,909

$ 20,423 $ 20,010 $ 18,911

Corporate & Investment Bank

Commercial Banking

Asset & Wealth Management

Corporate

Total

Year ended December 31,

(in millions, except ratios)

34,493

8,605

12,918

1,140

35,216

33,542

19,243

18,992

21,361

15,250

16,224

12,181

7,453

6,885

12,045

12,119

(487)

267

3,327

9,301

501

2,934

8,478

462

2,881

8,886

977

5,278

3,617

639

4,519

3,567

4,004

3,233

(949)

(710)

$103,641 $

99,142 $ 96,633

$ 58,434 $ 55,771 $ 59,014

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

Provision for credit losses

Net income/(loss)

Return on equity

2017

2016

2015

2017

2016

2015

Consumer & Community Banking

5,572 $

4,494 $

3,059

9,395 $

9,714 $

9,789

Corporate & Investment Bank

Commercial Banking

Asset & Wealth Management

Corporate

Total

(45)

(276)

—

563

282

(4)

332

442

10,813

10,815

3,539

2,337

2,657

2,251

(10)

(1,643)

(704)

8,090

2,191

1,935

2,437

5,290 $

5,361 $

3,827

$ 24,441 $ 24,733 $ 24,442

2017

17%

2016

18%

2015

18%

10%

11%

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

JPMorgan Chase & Co./2017 Annual Report

CONSUMER & COMMUNITY BANKING

Consumer & Community Banking offers services to
consumers and businesses through bank branches,
ATMs, online, mobile and telephone banking. CCB is
organized into Consumer & Business Banking (including
Consumer Banking/Chase Wealth Management and
Business Banking), Home Lending (including Home
Lending Production, Home Lending Servicing and Real
Estate Portfolios) and Card, Merchant Services & Auto.
Consumer & Business Banking offers deposit and
investment products and services to consumers, and
lending, deposit, and cash management and payment
solutions to small businesses. Home Lending includes
mortgage origination and servicing activities, as well as
portfolios consisting of residential mortgages and
home equity loans. Card, Merchant Services & Auto
issues credit cards to consumers and small businesses,
offers payment processing services to merchants, and
originates and services auto loans and leases.

Selected income statement data
Year ended December 31,

(in millions, except ratios)

2017

2016

2015

Revenue

Lending- and deposit-related fees $ 3,431

$ 3,231

$ 3,137

Asset management,
administration and
commissions

Mortgage fees and related

income

Card income

All other income

Noninterest revenue

Net interest income

Total net revenue

2,212

2,093

2,172

1,613

4,024

3,430

14,710

31,775

46,485

2,490

4,364

3,077

15,255

29,660

44,915

2,511

5,491

2,281

15,592

28,228

43,820

Provision for credit losses

5,572

4,494

3,059

Noninterest expense

Compensation expense

Noncompensation expense(a)

Total noninterest expense

Income before income tax

expense

10,159

15,903

26,062

9,723

15,182

24,905

9,770

15,139

24,909

14,851

15,516

15,852

Income tax expense

5,456

5,802

6,063

Net income

$ 9,395

$ 9,714

$ 9,789

Revenue by line of business

Consumer & Business Banking

$ 21,104

$ 18,659

$ 17,983

Home Lending

5,955

7,361

6,817

Card, Merchant Services & Auto

19,426

18,895

19,020

Mortgage fees and related

income details:

Net production revenue

Net mortgage servicing
revenue(b)

Mortgage fees and related

income

Financial ratios

Return on equity

Overhead ratio

636

977

853

769

1,637

1,742

$ 1,613

$ 2,490

$ 2,511

17%

18%

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

(a) Included operating lease depreciation expense of $2.7 billion, $1.9 billion
and $1.4 billion for the years ended December 31, 2017, 2016 and 2015,
respectively.

(b) Included MSR risk management results of $(242) million, $217 million and

$(117) million for the years ended December 31, 2017, 2016 and 2015,
respectively.

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

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

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

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

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

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

Noninterest revenue was $15.3 billion, down 2%, driven by
higher new account origination costs and the impact of
renegotiated co-brand partnership agreements in Card and
lower mortgage servicing revenue predominantly as a result
of a lower level of third-party 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 15 for further information
regarding changes in value of the MSR asset and related
hedges, and mortgage fees and related income.

Noninterest expense of $24.9 billion was flat, driven by:
• lower legal expense and branch efficiencies

offset by

• higher auto lease depreciation, and

• higher investment in marketing.

The provision for credit losses was $4.5 billion, an increase
of 47%, reflecting:

• 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 in newer 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 the
allowance for loan losses was lower than the prior year.
The reduction in both periods reflected continued
improvements in home prices and lower delinquencies,
and

• a $150 million increase related to the auto and business
banking portfolio, due to additions to the allowance for
loan losses and higher net charge-offs, reflecting loan
growth in the portfolios.

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

Noninterest revenue was $14.7 billion, down 4%, driven by:
• higher new account origination costs in Card,
•
•

lower MSR risk management results,
the absence in the current year of a gain on the sale of
Visa Europe interests,
lower net production revenue reflecting lower mortgage
production margins and volumes, and
lower mortgage servicing revenue as a result of a lower
level of third-party loans serviced

•

largely offset by
• higher auto lease volume and
• higher card- and deposit-related fees.

See Note 15 for further information regarding changes in
value of the MSR asset and related hedges, and mortgage
fees and related income.

Noninterest expense was $26.1 billion, an increase of 5%,
driven by:
• higher auto lease depreciation, and
• continued business growth
partially offset by
•

two items totaling $175 million included in the prior
year related to liabilities from a merchant bankruptcy
and mortgage servicing reserves.

The provision for credit losses was $5.6 billion, an increase
of 24%, reflecting:
• $445 million of higher net charge-offs, primarily in the
credit card portfolio due to growth in newer vintages
which, as anticipated, have higher loss rates than the
more seasoned portion of the portfolio, partially offset
by a decrease in net charge-offs in the residential real
estate portfolio reflecting continued improvement in
home prices and delinquencies,

• a $415 million higher addition to the allowance for

credit losses related to the credit card portfolio driven
by higher loss rates and loan growth, and a lower
reduction in the allowance for the residential real estate
portfolio predominantly driven by continued
improvement in home prices and delinquencies, and
• a $218 million impact in connection with the sale of the

student loan portfolio.

The sale of the student loan portfolio during 2017 did not
have a material impact on the Firm’s Consolidated Financial
Statements.

JPMorgan Chase & Co./2017 Annual Report

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

(in millions, except headcount)

2017

2016

2015

(in millions, except ratio data)

2017

2016

2015

Selected balance sheet data

(period-end)

Total assets

Loans:

$552,601

$535,310

$502,652

Consumer & Business Banking

Home equity

25,789

42,751

24,307

50,296

22,730

58,734

Residential mortgage

197,339

181,196

164,500

Home Lending

240,090

231,492

223,234

Card

Auto

Student

Total loans

Core loans

Deposits

Equity

Selected balance sheet data

(average)

Total assets

Loans:

149,511

141,816

131,463

66,242

65,814

60,255

—

7,057

8,176

481,632

470,486

445,858

415,167

382,608

341,881

659,885

618,337

557,645

51,000

$532,756

$516,354

$472,972

Consumer & Business Banking

Home equity

24,875

46,398

23,431

54,545

21,894

63,261

Residential mortgage

190,242

177,010

140,294

Home Lending

236,640

231,555

203,555

140,024

131,165

125,881

65,395

2,880

63,573

56,487

7,623

8,763

469,814

457,347

416,580

393,598

361,316

301,700

640,219

586,637

530,938

Card

Auto

Student

Total loans

Core loans

Deposits

Equity

Headcount

Credit data and quality statistics

Nonaccrual loans(a)(b)

$ 4,084

$ 4,708

$ 5,313

Net charge-offs/(recoveries)(c)

Consumer & Business Banking

Home equity

Residential mortgage

Home Lending

Card

Auto

Student

Total net charge-offs/

(recoveries)

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

257

(16)

257

184

198

253

283

285

4,123

3,442

3,122

331

498

285

162

214

210

$ 5,256

$ 4,344

$ 4,084

Consumer & Business Banking

1.03% 1.10 %

1.16%

Home equity(d)

Residential mortgage(d)

Home Lending(d)

Card

Auto

Student

0.18

(0.01)

0.02

2.95

0.51

0.45

0.01

0.10

2.63

0.45

2.13

0.60

—

0.18

2.51

0.38

2.40

Total net charge-offs/(recovery)

rate(d)

1.21

1.04

1.10

30+ day delinquency rate

Home Lending(e)(f)

Card

Auto

Student(g)

90+ day delinquency rate - Card

1.19% 1.23%

1.57%

1.80

0.89

—

0.92

1.61

1.19

1.60

0.81

1.43

1.35

1.81

0.72

51,000

Allowance for loan losses

134,117

132,802

127,094

Consumer & Business Banking

796

$ 753

703

Home Lending, excluding PCI loans

Home Lending — PCI loans(c)

Card

Auto

Student

1,003

2,225

4,884

464

—

1,328

2,311

4,034

474

249

1,588

2,742

3,434

399

299

Total allowance for loan losses(c) $ 9,372

$ 9,149

$ 9,165

(a) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI

loans as each of the pools is performing.

(b) At December 31, 2017, 2016 and 2015, nonaccrual loans excluded loans 90 or
more days past due as follows: (1) mortgage loans insured by U.S. government
agencies of $4.3 billion, $5.0 billion and $6.3 billion, respectively; and (2)
student loans insured by U.S. government agencies under the Federal Family
Education Loan Program (“FFELP”) of zero, $263 million and $290 million,
respectively. These amounts have been excluded based upon the government
guarantee.

(c) Net charge-offs and the net charge-off rates for the years ended December 31,
2017, 2016 and 2015, excluded $86 million, $156 million and $208 million,
respectively, of write-offs in the PCI portfolio. These write-offs decreased the
allowance for loan losses for PCI loans. For further information on PCI write-offs,
see summary of changes in the allowance on page 118.

(d) Excludes the impact of PCI loans. For the years ended December 31, 2017, 2016
and 2015, the net charge-off rates including the impact of PCI loans were as
follows: (1) home equity of 0.14%, 0.34% and 0.45%, respectively; (2)
residential mortgage of (0.01)%, 0.01% and –%, respectively; (3) Home
Lending of 0.02%, 0.09% and 0.14%, respectively; and (4) total CCB of 1.12%,
0.95% and 0.99%, respectively.

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

(e) At December 31, 2017, 2016 and 2015, excluded mortgage loans insured by
U.S. government agencies of $6.2 billion, $7.0 billion and $8.4 billion,
respectively, that are 30 or more days past due. These amounts have been
excluded based upon the government guarantee.

(f) Excludes PCI loans. The 30+ day delinquency rate for PCI loans was 10.13%,
9.82% and 11.21% at December 31, 2017, 2016 and 2015, respectively.

(g) Excluded student loans insured by U.S. government agencies under FFELP of

$468 million and $526 million at December 31, 2016 and 2015, respectively,
that are 30 or more days past due. These amounts have been excluded based
upon the government guarantee.

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

(in billions, except ratios and
where otherwise noted)

Business Metrics

2017

2016

2015

CCB households (in millions)(a)
Number of branches

61.0

5,130

60.4

5,258

58.1

5,413

Active digital customers

(in thousands)(b)

Active mobile customers

(in thousands)(c)

Debit and credit card sales

volume(a)

Consumer & Business Banking

46,694

43,836

39,242

30,056

26,536

22,810

$ 916.9

$ 821.6

$ 754.1

Average deposits

Deposit margin

$ 625.6

$ 570.8

$ 515.2

1.98%

1.81%

1.90%

Business banking origination

volume

7.3

6.8

Client investment assets

273.3

234.5

218.6

Home Lending

Mortgage origination volume by

channel

Retail

Correspondent

40.3

57.3

44.3

59.3

36.1

70.3

Total mortgage origination

volume(d)

97.6

$ 103.6

$ 106.4

Total loans serviced

(period-end)

Third-party mortgage loans

serviced (period-end)

MSR carrying value
(period-end)

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

$ 816.1

$ 846.6

$ 910.1

553.5

591.5

674.0

6.0

6.1

6.6

1.08%

1.03%

0.98%

MSR revenue multiple(e)

3.09x

2.94x

2.80x

Card, excluding Commercial

Card

Credit card sales volume

$ 622.2

$ 545.4

$ 495.9

New accounts opened

(in millions)

Card Services

Net revenue rate

Merchant Services

8.4

10.4

8.7

10.57%

11.29%

12.33%

Merchant processing volume

$1,191.7

$1,063.4

$ 949.3

Auto

Loan and lease origination

volume

Average Auto operating lease

assets

33.3

35.4

32.4

15.2

11.0

7.8

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

presentation.

(b) Users of all web and/or mobile platforms who have logged in within the past 90

days.

(c) Users of all mobile platforms who have logged in within the past 90 days.
(d) Firmwide mortgage origination volume was $107.6 billion, $117.4 billion and
$115.2 billion for the years ended December 31, 2017, 2016 and 2015,
respectively.

(e) Represents the ratio of MSR carrying value (period-end) to third-party mortgage
loans serviced (period-end) divided by the ratio of loan servicing-related revenue
to third-party mortgage loans serviced (average).

JPMorgan Chase & Co./2017 Annual Report

Mortgage servicing-related matters
The Firm has resolved the majority of the consent orders and
settlements into which it entered with federal and state
governmental agencies and private parties related to
mortgage servicing, origination, and residential mortgage-
backed securities activities. On January 12, 2018, the Board
of Governors of the Federal Reserve System terminated its
mortgage servicing-related Consent Order with the Firm,
which had been outstanding since April 2011.

Some of the remaining obligations are overseen by an
independent reviewer, who publishes periodic reports
detailing the Firm’s compliance with the obligations.

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

CORPORATE & INVESTMENT BANK

The Corporate & Investment Bank, which consists of
Banking and Markets & Investor Services, offers a
broad 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 and
municipal entities. Banking offers a full range of
investment banking products and services in all major
capital markets, including advising on corporate
strategy and structure, capital-raising in equity and
debt markets, as well as loan origination and
syndication. 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 and
administration, 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)

Revenue

2017

2016

2015

Investment banking fees

7,192

6,424

6,736

Principal transactions

Lending- and deposit-related fees

Asset management,

administration and commissions

All other income

Noninterest revenue

Net interest income

Total net revenue(a)(b)

10,873

1,531

4,207

572

24,375

10,118

34,493

11,089

1,581

4,062

1,169

24,325

10,891

35,216

9,905

1,573

4,467

1,012

23,693

9,849

33,542

Provision for credit losses

(45)

563

332

Noninterest expense

Compensation expense

Noncompensation expense

9,535

9,708

9,546

9,446

Total noninterest expense

19,243

18,992

9,973

11,388

21,361

Income before income tax

expense

Income tax expense

Net income(a)

15,295

15,661

11,849

4,482

4,846

3,759

$ 10,813

$ 10,815

8,090

(a) The full year 2017 results reflect the impact of the enactment of the TCJA

including a decrease to net revenue of $259 million and a benefit to net
income of $141 million. For additional information related to the impact of
the TCJA, see Note 24.

(b) Included tax-equivalent adjustments, predominantly due to income tax

credits related to alternative energy investments; income tax credits and
amortization of the cost of investments in affordable housing projects; and
tax-exempt income from municipal bonds of $2.4 billion, $2.0 billion and
$1.7 billion for the years ended December 31, 2017, 2016 and 2015,
respectively.

Selected income statement data
Year ended December 31,

(in millions, except ratios)

2017

2016

2015

Financial ratios

Return on equity

Overhead ratio

Compensation expense as
percentage of total net
revenue

Revenue by business

Investment Banking

Treasury Services

Lending

Total Banking

Fixed Income Markets

Equity Markets

Securities Services

14%

16%

12%

$ 6,688

$ 5,950

$ 6,376

4,172

1,429

12,289

12,812

5,703

3,917

3,643

1,208

10,801

15,259

5,740

3,591

3,631

1,461

11,468

12,592

5,694

3,777

Credit Adjustments & Other(a)

(228)

(175)

Total Markets & Investor

Services

22,204

24,415

22,074

Total net revenue

$34,493

$35,216

$ 33,542

(a) Consists primarily of credit valuation adjustments (“CVA”) managed

centrally within CIB, funding valuation adjustments (“FVA”) and debit
valuation adjustments (“DVA”) on derivatives. Results are primarily
reported in principal transactions revenue. Results are presented net of
associated hedging activities and net of CVA and FVA amounts allocated to
Fixed Income Markets and Equity Markets. For additional information, see
Accounting and Reporting Developments on pages 141–144 and Notes
2, 3 and 23.

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

Net revenue was $34.5 billion, down 2%.

Banking revenue was $12.3 billion, up 14% compared with
the prior year. Investment banking revenue was $6.7 billion,
up 12% from the prior year, driven by higher debt and
equity underwriting fees. The Firm maintained its #1
ranking for Global Investment Banking fees, according to
Dealogic. Debt underwriting fees were $3.6 billion, up 16%
driven by a higher share of fees and an overall increase in
industry-wide fees; the Firm maintained its #1 ranking
globally in fees across high-grade, high-yield, and loan
products. Equity underwriting fees were $1.4 billion, up
20% driven by growth in industry-wide issuance including a
strong IPO market; the Firm ranked #2 in equity
underwriting fees globally. Advisory fees were $2.2 billion,
up 2%; the Firm maintained its #2 ranking for M&A.
Treasury Services revenue was $4.2 billion, up 15%, driven
by the impact of higher interest rates and growth in
operating deposits. Lending revenue was $1.4 billion, up

JPMorgan Chase & Co./2017 Annual Report

18% from the prior year, reflecting lower fair value losses
on hedges of accrual loans.

Markets & Investor Services revenue was $22.2 billion,
down 9% from the prior year. Fixed Income Markets
revenue was $12.8 billion, down 16%, as lower revenue
across products was driven by sustained low volatility,
tighter credit spreads, and the impact from the TCJA on tax-
oriented investments of $259 million, against a strong prior
year. Equity Markets revenue was $5.7 billion, down 1%
from the prior year, and included a fair value loss of $143
million on a margin loan to a single client. Excluding the fair
value loss, Equity Markets revenue was higher driven by
higher revenue in Prime Services and Cash Equities,
partially offset by lower revenue in derivatives. Securities
Services revenue was $3.9 billion, up 9%, driven by the
impact of higher interest rates and deposit growth, as well
as higher asset-based fees driven by higher market levels.
Credit Adjustments & Other was a loss of $228 million,
driven by valuation adjustments.

The provision for credit losses was a benefit of $45 million,
which included a net reduction in the allowance for credit
losses driven by the Oil & Gas and Metals & Mining
portfolios partially offset by a net increase in the allowance
for credit losses for a single client. The prior year was an
expense of $563 million, which included an addition to the
allowance for credit losses driven by the Oil & Gas and
Metals & Mining portfolios.

Noninterest expense was $19.2 billion, up 1% compared
with the prior year.

2016 compared with 2015
Net income was $10.8 billion, up 34% compared with the
prior 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% compared
with the prior year. Investment banking revenue was $6.0
billion, down 7% from the prior year, largely driven by
lower 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, the
Firm improved its market share and maintained its #1
ranking in equity underwriting fees globally as well as in
both North America and Europe and its #1 ranking by
volumes across all products, according to Dealogic. Advisory
fees were $2.1 billion, down 1%; the Firm maintained its
#2 ranking for M&A, according to Dealogic. Debt
underwriting fees were $3.2 billion; the Firm maintained its
#1 ranking globally in fees across high grade, high yield,
and loan products, according to Dealogic. Treasury Services
revenue was $3.6 billion. Lending revenue was $1.2 billion,
down 17% from the prior year, reflecting fair value losses
on hedges of accrual loans.

Markets & Investor Services revenue was $24.4 billion, up
11% from the prior year. Fixed Income Markets revenue
was $15.3 billion, up 21% from the prior year, driven by
broad strength across products. Rates performance was
strong, with increased client activity driven by high
issuance-based flows, global political developments, and
central 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 a
strong prior-year. Securities Services revenue was $3.6
billion, down 5% from the prior year, largely driven by
lower fees and commissions. Credit Adjustments and Other
was a loss of $175 million driven by valuation adjustments,
compared with an $11 million gain in the prior-year, which
included funding spread gains on fair value option elected
liabilities.

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 select
downgrades within the Oil & Gas portfolio.

Noninterest expense was $19.0 billion, down 11%
compared with the prior year, driven by lower legal and
compensation expenses.

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

Selected metrics

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

Selected balance sheet data

(period-end)

Assets

Loans:

2017

2016

2015

$ 826,384

$ 803,511

$ 748,691

Loans retained(a)

108,765

111,872

106,908

Loans held-for-sale and

loans at fair value

Total loans

Core loans

Equity

Selected balance sheet data

(average)

Assets

Trading assets-debt and equity

instruments

Trading assets-derivative

receivables

Loans:

4,321

3,781

3,698

113,086

115,653

110,606

112,754

115,243

110,084

70,000

64,000

62,000

$ 857,060

$ 815,321

$ 824,208

342,124

300,606

302,514

56,466

63,387

67,263

Loans retained(a)

108,368

111,082

98,331

Loans held-for-sale and

loans at fair value

Total loans

Core loans

Equity

Headcount

4,995

3,812

4,572

113,363

114,894

102,903

113,006

114,455

102,142

70,000

64,000

62,000

51,181

48,748

49,067

(a) Loans retained includes credit portfolio loans, loans held by consolidated

Firm-administered multi-seller conduits, trade finance loans, other held-for-
investment loans and overdrafts.

Investment banking fees

(in millions)

Advisory

Equity underwriting

Debt underwriting(a)

Total investment banking fees

(a) Includes loans syndication.

Selected metrics

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

Credit data and quality

statistics

Net charge-offs/
(recoveries)

Nonperforming assets:

Nonaccrual loans:

Nonaccrual loans

retained(a)

Nonaccrual loans held-
for-sale and loans at
fair value

Total nonaccrual loans

Derivative receivables

Assets acquired in loan

satisfactions

Total nonperforming

assets

Allowance for credit losses:

Allowance for loan

losses

Allowance for lending-
related commitments

Total allowance for credit

losses

Net charge-off/(recovery)

rate(b)

Allowance for loan losses to

period-end loans
retained

Allowance for loan losses to
period-end loans retained,
excluding trade finance
and conduits(c)

Allowance for loan losses to

nonaccrual loans
retained(a)

Nonaccrual loans to total

period-end loans

2017

2016

2015

168

(19)

812

—

812

130

1,027

467

428

109

576

223

878

438

204

704

1,379

1,420

1,258

727

801

569

2,106

2,221

1,827

0.07%

0.15%

(0.02)%

1.27

1.18

1.92

1.86

1.88

170

0.72

304

0.50

294

0.40

(a) Allowance for loan losses of $316 million, $113 million and $177
million were held against these nonaccrual loans at December 31,
2017, 2016 and 2015, respectively.

(b) Loans held-for-sale and loans at fair value were excluded when

calculating the net charge-off/(recovery) rate.

retained, excluding trade finance and conduits, a non-GAAP financial
measure, to provide a more meaningful assessment of CIB’s allowance
coverage ratio.

Year ended December 31,

2017

2016

2015

2,150

2,110

1,396

3,646

1,159

3,155

7,192

6,424

2,133

1,434

3,169

6,736

JPMorgan Chase & Co./2017 Annual Report

League table results – wallet share

Year ended
December 31,

Based on fees(a)

Debt, equity and equity-related

Global

U.S.

Long-term debt(b)

Global

U.S.

Equity and equity-related

Global(c)

U.S.

M&A(d)

Global

U.S.

Loan syndications

Global

U.S.

2017

2016

2015

Rank

7.4%

7.0%

11.2

7.6

10.9

7.1

11.7

8.6

9.2

9.5

11.3

11.9

6.7

11.1

7.4

13.3

8.3

9.8

9.3

11.9

7.6%

11.5

8.1

11.7

6.9

11.3

8.4

9.9

7.5

10.8

Global investment banking fees (e)

8.1%

7.9%

7.8%

(a) Source: Dealogic as of January 1, 2018. Reflects the ranking of revenue wallet and market share.
(b) Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities (“ABS”) and mortgage-backed securities (“MBS”);

and exclude money market, short-term debt, and U.S. municipal securities.

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

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

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 with market 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 the fair value of instruments
used by the Firm to actively manage the risk exposure
arising from such inventory. Principal transactions revenue
recognized upon executing new transactions with market
participants is driven by many factors including the level of
client activity, the bid-offer spread (which is the difference
between the price at which a market participant is willing 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 amount recognized
upon executing new transactions.

2017

2016

2015

Year ended December 31,
(in millions, except where
otherwise noted)

Fixed
Income
Markets

Equity
Markets

Total
Markets

Fixed
Income
Markets

Equity
Markets

Total
Markets

Fixed
Income
Markets

Equity
Markets

Total
Markets

Principal transactions
Lending- and deposit-related fees
Asset management,

administration and commissions

All other income

Noninterest revenue

Net interest income(a)
Total net revenue

Loss days(b)

7,393 $
191

3,855 $ 11,248
197

8,347 $
220

3,130 $ 11,477
222

6,899 $
194

3,038 $
—

390

1,635

2,025

388

1,551

1,939

383

1,704

9,937
194

2,087

436
8,410
4,402
$ 12,812 $

(21)
5,475
228

415
13,885
4,630
5,703 $ 18,515
4

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

1,027
13
14,665
4,696
1,044
6,334
5,740 $ 20,999
0

854
8,330
4,262
$ 12,592 $

770
(84)
12,988
4,658
1,036
5,298
5,694 $ 18,286
2

(a) Declines in Markets net interest income in 2017 were driven by higher funding costs.
(b) Loss days represent the number of days for which Markets posted losses. The loss days determined under this measure differ from the disclosure of daily market risk-related gains and losses

for the Firm in the value-at-risk (“VaR”) back-testing discussion on pages 123–125.

JPMorgan Chase & Co./2017 Annual Report

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

Equity

Other(a)

Total AUC

Client deposits and other third party liabilities (average)(b)

Trade finance loans (period-end)

2017

2016

2015

13,043

12,166

7,863

2,563

23,469

408,911

17,947

6,428

1,926

20,520

376,287

15,923

12,042

6,194

1,707

19,943

395,297

19,255

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

International metrics
Year ended December 31,

(in millions, except where
otherwise noted)

Total net revenue(a)

2017

2016

2015

Europe/Middle East/Africa

$ 11,328

$ 10,786

$ 10,894

Asia/Pacific

Latin America/Caribbean

Total international net revenue

North America

Total net revenue

4,525

1,125

16,978

17,515

4,915

1,225

16,926

18,290

4,901

1,096

16,891

16,651

$ 34,493

$ 35,216

$ 33,542

Loans retained (period-end)(a)

Europe/Middle East/Africa

$ 25,931

$ 26,696

$ 24,622

Asia/Pacific

Latin America/Caribbean

Total international loans

North America

15,248

14,508

6,546

47,725

61,040

7,607

48,811

63,061

17,108

8,609

50,339

56,569

Total loans retained

$108,765

$111,872

$ 106,908

Client deposits and other third-
party liabilities (average)(a)(b)

Europe/Middle East/Africa

$154,582

$135,979

$ 141,062

Asia/Pacific

Latin America/Caribbean

76,744

25,419

68,110

22,914

67,111

23,070

Total international

$256,745

$227,003

$ 231,243

North America

152,166

149,284

164,054

Total client deposits and other

third-party liabilities

AUC (period-end) (in billions)(a)

$408,911

$376,287

$ 395,297

North America

All other regions

Total AUC

$ 13,971

$ 12,290

$ 12,034

9,498

8,230

7,909

$ 23,469

$ 20,520

$ 19,943

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

(b) Client deposits and other third party liabilities pertain to the Treasury

Services and Securities Services businesses.

JPMorgan Chase & Co./2017 Annual Report

COMMERCIAL BANKING

Commercial Banking delivers extensive industry
knowledge, local expertise and dedicated service to
U.S. and U.S. multinational clients, including
corporations, municipalities, financial institutions 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.

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

2017

2016

2015

Revenue

Lending- and deposit-related fees
Asset management, administration

and commissions
All other income(a)
Noninterest revenue

Net interest income
Total net revenue(b)

919

917

944

1,535

2,522

6,083

8,605

1,334

2,320

5,133

7,453

1,333

2,365

4,520

6,885

Provision for credit losses

(276)

282

442

Noninterest expense

Compensation expense

Noncompensation expense

Total noninterest expense

Income before income tax expense

Income tax expense

Net income

1,470

1,857

3,327

5,554

2,015

1,332

1,602

2,934

4,237

1,580

1,238

1,643

2,881

3,562

1,371

$ 3,539

$ 2,657

$ 2,191

(a) Includes revenue from investment banking products and commercial card

transactions.

(b) Total net revenue included tax-equivalent adjustments from income tax

credits related to equity investments in designated community
development entities that provide loans to qualified businesses in low-
income communities, as well as tax-exempt income related to municipal
financing activities of $699 million, $505 million and $493 million for the
years ended December 31, 2017, 2016 and 2015, respectively. The 2017
results reflect the impact of the enactment of the TCJA including a benefit
to all other income of $115 million on certain investments in the
Community Development Banking business. For additional information
related to the impact of the TCJA, see Note 24.

2017 compared with 2016
Net income was $3.5 billion, an increase of 33% compared
with the prior year, driven by higher net revenue and a
lower provision for credit losses, partially offset by higher
noninterest expense.

Net revenue was $8.6 billion, an increase of 15% compared
with the prior year. Net interest income was $6.1 billion, an
increase of 19% compared with the prior year, driven by
higher deposit spreads and loan growth. Noninterest
revenue was $2.5 billion, an increase of 9% compared with
the prior year, predominantly driven by higher Community
Development Banking revenue, including a $115 million
benefit for the impact of the TCJA on certain investments,
and higher investment banking revenue.

Noninterest expense was $3.3 billion, an increase of 13%
driven by hiring of bankers and business-related support
staff, investments in technology, and an impairment of
approximately $130 million on certain leased equipment,
the majority of which was sold subsequent to year-end.

The provision for credit losses was a benefit of $276
million, driven by net reductions in the allowance for credit
losses, including in the Oil & Gas, Natural Gas Pipelines and
Metals & Mining portfolios. The prior year provision for
credit losses was $282 million driven by downgrades in the
Oil & Gas portfolio and select client downgrades in other
industries.

2016 compared with 2015
Net income was $2.7 billion, an increase of 21% compared
with the prior year, driven by higher net revenue and a
lower provision for credit losses, partially offset by higher
noninterest expense.

Net revenue was $7.5 billion, an increase of 8% compared
with the prior year. Net interest income was $5.1 billion, an
increase of 14% compared with the prior year, driven by
higher loan balances and deposit spreads. Noninterest
revenue was $2.3 billion, a decrease of 2% compared with
the prior year, largely driven by lower lending-and-deposit-
related 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 of
bankers 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 select
client downgrades in other industries.

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

CB product revenue consists of the following:

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

Treasury services includes revenue from a broad range of
products and services that enable CB clients to manage
payments and receipts, as well as invest and manage funds.

Investment banking includes revenue from a range of
products providing CB clients with sophisticated capital-
raising alternatives, as well as balance sheet and risk
management tools through advisory, equity underwriting,
and loan syndications. Revenue from Fixed Income and
Equity Markets products used by CB clients is also included.

Other product revenue primarily includes tax-equivalent
adjustments generated from Community Development
Banking activities and certain income derived from principal
transactions.

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 and
nonprofit 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 investment
banking needs.

Commercial Term Lending primarily provides term
financing to real estate investors/owners for multifamily
properties as well as office, retail and industrial properties.

Real Estate Banking provides full-service banking to
investors and developers of institutional-grade real estate
investment properties.

Other primarily includes lending and investment-related
activities within the Community Development Banking
business.

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

2017

2016

2015

Revenue by product

Lending

Treasury services
Investment banking(a)
Other(b)
Total Commercial Banking net

revenue

$ 4,094

$ 3,795

$ 3,429

3,444

2,797

2,581

805

262

785

730

145

$ 8,605

$ 7,453

$ 6,885

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

$ 2,286

$ 2,179

Revenue by client segment
Middle Market Banking(d)
Corporate Client Banking(d)
Commercial Term Lending

Real Estate Banking
Other(b)
Total Commercial Banking net

revenue

Financial ratios

Return on equity

Overhead ratio

$ 3,341

$ 2,848

$ 2,685

2,727

1,454

604

479

2,429

1,408

456

312

2,205

1,275

358

362

$ 8,605

$ 7,453

$ 6,885

17%

16%

15%

(a) Includes total Firm revenue from investment banking products sold to CB

clients, net of revenue sharing with the CIB.

(b) The 2017 results reflect the impact of the enactment of the TCJA including

a benefit of $115 million on certain investments in the Community
Development Banking business. For additional information related to the
impact of the TCJA, see Note 24.

clients.

(d) Certain clients were transferred from Middle Market Banking to Corporate

Client Banking in the second quarter of 2017. The prior period amounts
have been revised to conform with the current period presentation.

JPMorgan Chase & Co./2017 Annual Report

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

Selected balance sheet data

(period-end)

Total assets

Loans:

2017

2016

2015

$ 221,228

$ 214,341

$ 200,700

Loans retained

202,400

188,261

167,374

Loans held-for-sale and

loans at fair value

Total loans

Core loans

Equity

Period-end loans by client

segment

1,286

734

267

$ 203,686

$ 188,995

$ 167,641

203,469

188,673

166,939

20,000

16,000

14,000

Middle Market Banking(a)

$ 56,965

$ 53,929

$ 50,501

Corporate Client Banking(a)

Commercial Term Lending

Real Estate Banking

Other

Total Commercial Banking

loans

Selected balance sheet data

(average)

Total assets

Loans:

46,963

74,901

17,796

7,061

43,027

71,249

14,722

6,068

37,709

62,860

11,234

5,337

$ 203,686

$ 188,995

$ 167,641

$ 217,047

$ 207,532

$ 198,076

Loans retained

197,203

178,670

157,389

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

Credit data and quality statistics

2017

2016

2015

Net charge-offs/(recoveries)

163

Nonperforming assets

Nonaccrual loans:

Nonaccrual loans retained(a)

Nonaccrual loans held-for-sale

and loans at fair value

Total nonaccrual loans

Assets acquired in loan

satisfactions

Total nonperforming assets

Allowance for credit losses:

617

—

617

620

1,149

—

1,149

1,150

375

393

401

Allowance for loan losses

2,558

2,925

2,855

Allowance for lending-related

commitments

Total allowance for credit losses

300

2,858

248

3,173

198

3,053

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

0.02%

0.09%

0.01%

Allowance for loan losses to
period-end loans retained

Allowance for loan losses to
nonaccrual loans retained(a)

Nonaccrual loans to period-end

total loans

1.26

1.55

415

255

0.30

0.61

1.71

761

0.23

(a) Allowance for loan losses of $92 million, $155 million and $64 million was

held against nonaccrual loans retained at December 31, 2017, 2016 and
2015, respectively.

(b) Loans held-for-sale and loans at fair value were excluded when calculating

Loans held-for-sale and

loans at fair value

Total loans

Core loans

Client deposits and other
third-party liabilities

Equity

Average loans by client

segment

909

723

492

$ 198,112

$ 179,393

$ 157,881

the net charge-off/(recovery) rate.

197,846

178,875

156,975

177,018

174,396

191,529

20,000

16,000

14,000

Middle Market Banking(a)

$ 55,474

$ 52,242

$ 50,334

Corporate Client Banking(a)

Commercial Term Lending

Real Estate Banking

Other

Total Commercial Banking

loans

Headcount

46,037

73,428

16,525

6,648

41,756

66,700

13,063

5,632

34,497

58,138

9,917

4,995

$ 198,112

$ 179,393

$ 157,881

9,005

8,365

7,845

(a) Certain clients were transferred from Middle Market Banking to Corporate

Client Banking in the second quarter of 2017. The prior period amounts
have been revised to conform with the current period presentation.

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

ASSET & WEALTH MANAGEMENT

Asset & Wealth Management, with client assets of $2.8
trillion, is a global leader in investment and 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 of clients’ investment needs. For Wealth
Management clients, AWM also provides retirement
products and services, brokerage and banking services
including trusts and estates, loans, mortgages and
deposits. The majority of AWM’s client assets are in
actively managed portfolios.

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

2017

2016

2015

Revenue

Asset management, administration

and commissions

All other income

Noninterest revenue

Net interest income

Total net revenue

$ 8,946

$ 8,414

$ 9,175

593

9,539

3,379

598

9,012

3,033

388

9,563

2,556

12,918

12,045

12,119

Provision for credit losses

Noninterest expense

Compensation expense

Noncompensation expense

Total noninterest expense

Income before income tax expense

Income tax expense

Net income

Revenue by line of business

Asset Management

Wealth Management

Total net revenue

Financial ratios

Return on common equity

Overhead ratio

Pre-tax margin ratio:

Asset Management

Wealth Management

Asset & Wealth Management

5,318

3,983

9,301

3,578

1,241

5,065

3,413

8,478

3,541

1,290

5,113

3,773

8,886

3,229

1,294

$ 2,337

$ 2,251

$ 1,935

$ 6,340

$ 5,970

$ 6,301

6,578

6,075

5,818

$12,918

$ 12,045

$ 12,119

25%

24%

21%

Headcount

22,975

21,082

20,975

Number of Wealth Management
client advisors

2,605

2,504

2,778

2017 compared with 2016
Net income was $2.3 billion, an increase of 4% compared
with the prior year, reflecting higher revenue and a tax
benefit resulting from the vesting of employee share-based
awards, offset by higher noninterest expense.

Net revenue was $12.9 billion, an increase of 7%. Net
interest income was $3.4 billion, up 11%, driven by higher
deposit spreads. Noninterest revenue was $9.5 billion, up
6%, driven by higher market levels, partially offset by the
absence of a gain in the prior year on the disposal of an
asset.

Revenue from Asset Management was $6.3 billion, up 6%
from the prior year, driven by higher market levels, partially
offset by the absence of a gain in prior year on the disposal
of an asset. Revenue from Wealth Management was $6.6
billion, up 8% from the prior year, reflecting higher net
interest income from higher deposit spreads.

Noninterest expense was $9.3 billion, an increase of 10%,
predominantly driven by higher legal expense and
compensation expense on higher revenue and headcount.

2016 compared with 2015
Net income was $2.3 billion, a decrease of 16% compared
with the prior year, reflecting lower noninterest expense,
predominantly offset by lower net revenue.

Net revenue was $12.0 billion, a decrease of 1%. Net
interest income was $3.0 billion, up 19%, driven by higher
loan balances and spreads. Noninterest revenue was $9.0
billion, a decrease of 6%, reflecting the impact of lower
average equity market levels, a reduction in revenue related
to the disposal of assets at the beginning of 2016, and
lower performance fees and placement fees.

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

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

JPMorgan Chase & Co./2017 Annual Report

AWM’s lines of business consist of the following:

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

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

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.

Retail clients include financial intermediaries and individual investors.

Asset Management has two high-level measures of its
overall fund performance.
• Percentage of mutual fund assets under management in funds

rated 4- or 5-star: Mutual fund rating services rank funds based on
their risk-adjusted performance over various periods. A 5-star rating
is 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 industry-
wide ranked funds. A 2-star rating represents the next 22.5% of
industry-wide ranked funds. A 1-star rating is the worst rating and
represents the bottom 10% of industry-wide ranked funds. The
“overall Morningstar rating” is derived from a weighted average of the
performance associated with a fund’s three-, five- and ten-year (if
applicable) Morningstar Rating metrics. For U.S. domiciled funds,
separate star ratings are given at the individual share class level. The
Nomura “star rating” is based on three-year risk-adjusted
performance only. Funds with fewer than three years of history are
not rated and hence excluded from this analysis. All ratings, the
assigned peer categories and the asset values used to derive this
analysis are sourced from these fund rating providers mentioned in
footnote (a). The data providers re-denominate the asset values into
U.S. dollars. This % of AUM is based on star ratings at the share class
level for U.S. domiciled funds, and at a “primary share class” level to
represent 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 the
most retail version (based upon annual management charge,
minimum investment, currency and other factors). The performance
data could have been different if all funds/accounts would have been
included. Past performance is not indicative of future results.

• Percentage of mutual fund assets under management in funds
ranked in the 1st or 2nd quartile (one, three and five years): All
quartile rankings, the assigned peer categories and the asset values
used to derive this analysis are sourced from the fund ranking
providers mentioned in footnote (c). Quartile rankings are done on
the net-of-fee absolute return of each fund. The data providers re-
denominate the asset values into U.S. dollars. This % of AUM is based
on fund performance and associated peer rankings at the share class
level for U.S. domiciled funds, at a “primary share class” level to
represent the quartile ranking of the U.K., Luxembourg and Hong Kong
funds and at the fund level for all other funds. 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 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 “primary
share 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 been
different if all funds/accounts would have been included. Past
performance is not indicative of future results.

Selected metrics
As of or for the year ended

December 31,

(in millions, except ranking

data and ratios)

% of JPM mutual fund assets

rated as 4- or 5-star(a)(b)

% of JPM mutual fund assets

ranked in 1st or 2nd
quartile:(c)
1 year

3 years

5 years(b)

Selected balance sheet data

(period-end)

Total assets

Loans

Core loans

Deposits

Equity

Selected balance sheet data

(average)

Total assets

Loans

Core loans

Deposits

Equity

2017

2016

2015

60%

63%

52%

$ 151,909

$ 138,384

$ 131,451

130,640

118,039

130,640

118,039

146,407

161,577

9,000

111,007

146,766

9,000

$ 144,206

$ 132,875

$ 129,743

123,464

112,876

123,464

112,876

148,982

153,334

9,000

107,418

149,525

9,000

Credit data and quality

statistics

Net charge-offs

Nonaccrual loans

Allowance for credit losses:

Allowance for loan losses

Allowance for lending-
related commitments

Total allowance for credit

losses

375

290

300

390

274

278

Net charge-off rate

0.01%

Allowance for loan losses to

period-end loans

Allowance for loan losses to

nonaccrual loans

Nonaccrual loans to period-

end loans

0.22

0.23

0.29

0.33

218

266

271

0.01%

0.24

122

0.20

(a) Represents the “overall star rating” derived from Morningstar for the U.S.,

the U.K., Luxembourg, Hong Kong and Taiwan domiciled funds; and Nomura
“star rating” for Japan domiciled funds. Includes only Asset Management
retail open-ended mutual funds that have a rating. Excludes money market
funds, Undiscovered Managers Fund, and Brazil domiciled funds.

(b) The prior period amounts have been revised to conform with the current

period presentation.

(c) Quartile ranking sourced from: Lipper for the U.S. and Taiwan domiciled
funds; Morningstar for the U.K., Luxembourg and Hong Kong domiciled
funds; Nomura for Japan domiciled funds and Fund Doctor for South Korea
domiciled funds. Includes only Asset Management retail open-ended mutual
funds that are ranked by the aforementioned sources. Excludes money
market funds, Undiscovered Managers Fund, and Brazil domiciled funds.

JPMorgan Chase & Co./2017 Annual Report

2017

2016

2015

Market/performance/other impacts

Management’s discussion and analysis

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

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 by
asset sales at the beginning of 2016.

Client assets
December 31,
(in billions)

Assets by asset class

Liquidity(a)

Fixed income(a)

Equity

Multi-asset and alternatives

Custody/brokerage/

administration/deposits

459 $

436 $

474

428

673

420

351

564

430

376

353

564

Total assets under management

2,034

1,771

1,723

Memo:

Alternatives client assets(b)

Assets by client segment

Private Banking

Institutional

Retail

166 $

154 $

172

526 $

435 $

968

540

869

467

437

816

470

Private Banking

Institutional

Retail

1,256 $

1,098 $

1,050

990

543

886

469

824

476

Total client assets

2,789 $

2,453 $

2,350

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

period presentation.

(b) Represents assets under management, as well as client balances in

brokerage accounts.

Total assets under management $

2,034 $

1,771 $

1,723

Asia/Pacific

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

Assets under management

rollforward

Beginning balance

Net asset flows:

Liquidity

Fixed income

Equity

Multi-asset and alternatives

Market/performance/other impacts

2017

2016

2015

1,771 $

1,723 $

1,744

(11)

186

(29)

—

(8)

(36)

Ending balance, December 31

2,034 $

1,771 $

1,723

Client assets rollforward

Beginning balance

Net asset flows

2,453 $

2,350 $

2,387

243

(64)

Ending balance, December 31

2,789 $

2,453 $

2,350

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

2017

2016

2015

Latin America/Caribbean

Total international net revenue

1,162

844

4,027

1,077

726

3,652

1,130

795

3,871

North America

Total net revenue

8,891

8,393

8,248

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

Assets under management

Europe/Middle East/Africa

384 $

309 $

Latin America/Caribbean

Total international assets under
management

160

605

123

477

302

123

470

North America

1,429

1,294

1,253

Total assets under management

2,034 $

1,771 $

1,723

Client assets

Europe/Middle East/Africa

441 $

359 $

Asia/Pacific

Latin America/Caribbean

Total international client assets

225

154

820

177

114

650

351

173

110

634

North America

Total client assets

1,969

1,803

1,716

2,789 $

2,453 $

2,350

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

Total client assets

2,789 $

2,453 $

2,350

Asia/Pacific

755

682

627

Europe/Middle East/Africa

2,021 $

1,849 $

1,946

JPMorgan Chase & Co./2017 Annual Report

2017 compared with 2016
Net loss was $1.6 billion, compared with a net loss of $704
million in the prior year. The current year net loss included
a $2.7 billion increase to income tax expense related to the
impact of the TCJA.

Net revenue was $1.1 billion, compared with a loss of $487
million in the prior year. The increase in current year net
revenue was driven by a $645 million benefit from a legal
settlement with the FDIC receivership for Washington
Mutual and with Deutsche Bank as trustee of certain
Washington Mutual trusts and by the net impact of higher
interest rates.

Net interest income was $55 million, compared with a loss
of $1.4 billion in the prior year. The gain in the current year
was primarily driven by higher interest income on deposits
with banks due to higher interest rates and balances,
partially offset by higher interest expense on long-term
debt primarily driven by higher interest rates.

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

Net revenue was a loss of $487 million, compared with a
gain 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, compared
with a loss of $533 million in the prior year. The loss in the
current year was primarily driven by higher interest
expense on long-term debt and lower investment securities
balances during the year, partially offset by higher interest
income on deposits with banks and securities purchased
under resale agreements as a result of higher interest rates.

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

The prior year reflected tax benefits of $2.6 billion
predominantly from the resolution of various tax audits.

CORPORATE

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

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

2017

2016

2015

Revenue
Principal transactions
Securities gains/(losses)
All other income/(loss)(a)
Noninterest revenue
Net interest income
Total net revenue(b)

Provision for credit losses

Noninterest expense(c)
Income/(loss) before income

tax benefit

Income tax expense/(benefit)
Net income/(loss)
Total net revenue
Treasury and CIO
Other Corporate
Total net revenue
Net income/(loss)
Treasury and CIO
Other Corporate
Total net income/(loss)

Total assets (period-end)
Loans (period-end)

Core loans(d)

Headcount

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

—

501

639

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

(4)

462

(945)

41
190
569
800
(533)
267

(10)

977

(700)

2,282
$ (1,643) $

(241)
(704) $

(3,137)
2,437

566
574
1,140

(787)
300
(487) $

(493)
760
267

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

(715)
11
(704) $

(235)
2,672
2,437

$781,478
1,653
1,653
35,261

$ 799,426
1,592
1,589
32,358

$ 768,204
2,187
2,182
29,617

(a) Included revenue related to a legal settlement of $645 million for the year

ended December 31, 2017.

(b) Included tax-equivalent adjustments, predominantly due to tax-exempt
income from municipal bond investments of $905 million, $885 million
and $839 million for the years ended December 31, 2017, 2016 and
2015, respectively.

(c) Included legal expense/(benefit) of $(593) million, $(385) million and
$832 million for the years ended December 31, 2017, 2016 and 2015,
respectively.

(d) Average core loans were $1.6 billion, $1.9 billion and $2.5 billion for the

years ended December 31, 2017, 2016 and 2015, respectively.

JPMorgan Chase & Co./2017 Annual Report

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

2017

2016

2015

Securities gains/(losses)

(78) $

132

190

AFS investment securities
(average)
HTM investment securities
(average)

Investment securities portfolio

(average)

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

(period–end)

219,345

226,892

264,758

47,927

51,358

50,044

267,272

278,250

314,802

200,247

236,670

238,704

47,733

50,168

49,073

247,980

286,838

287,777

Management’s discussion and analysis

Treasury and CIO overview
Treasury and CIO is predominantly responsible for
measuring, monitoring, reporting and managing the Firm’s
liquidity, funding and structural interest rate and foreign
exchange risks, as well as executing the Firm’s capital plan.
The risks managed by Treasury and CIO arise from the
activities undertaken by the Firm’s four major reportable
business segments to serve their respective client bases,
which generate both on- and off-balance sheet assets and
liabilities.

Treasury and CIO seek to achieve the Firm’s asset-liability
management objectives generally by investing in high-
quality securities that are managed for the longer-term as
part of the Firm’s investment securities portfolio. Treasury
and CIO also use derivatives to meet the Firm’s asset-
liability management objectives. For further information on
derivatives, see Note 5. The investment securities portfolio
primarily consists of agency and nonagency mortgage-
backed securities, U.S. and non-U.S. government securities,
obligations of U.S. states and municipalities, other ABS and
corporate debt securities. At December 31, 2017, the
investment securities portfolio was $248.0 billion, and the
average credit rating of the securities comprising the
portfolio was AA+ (based upon external ratings where
available and where not available, based primarily upon
internal ratings that correspond to ratings as defined by
S&P and Moody’s). See Note 10 for further information on
the details of the Firm’s investment securities portfolio.
For further information on liquidity and funding risk, see
Liquidity Risk Management on pages 92–97. For
information on interest rate, foreign exchange and other
risks, see Market Risk Management on pages 121-128.

JPMorgan Chase & Co./2017 Annual Report

ENTERPRISE-WIDE RISK MANAGEMENT

Risk is an inherent part of JPMorgan Chase’s business
activities. When the Firm extends a consumer or wholesale
loan, advises customers on their investment decisions,
makes markets in securities, or offers other products or
services, the Firm takes on some degree of risk. The Firm’s
overall objective is to manage its businesses, and the
associated risks, in a manner that balances serving the
interests of its clients, customers and investors and protects
the safety and soundness of the Firm.

The Firm believes that effective risk management requires:

• Acceptance of responsibility, including identification and
escalation of risk issues, by all individuals within the
Firm;

• Ownership of risk identification, assessment, data and
management within each of the lines of business and
corporate functions; and

• Firmwide structures for risk governance.

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

Firmwide Risk Management is overseen and managed on an
enterprise-wide basis. The Firm’s approach to risk
management involves understanding drivers of risks, risk
types, and impacts of risks.

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

The Firm’s risks are generally categorized in the following
four risk types:

• Strategic risk is the risk associated with the Firm’s
current and future business plans and objectives,
including capital risk, liquidity risk, and the impact to
the Firm’s reputation.

• Credit and investment risk is the risk associated with the

default or change in credit profile of a client,
counterparty or customer; or loss of principal or a
reduction in expected returns on investments, including
consumer credit risk, wholesale credit risk, and
investment portfolio risk.

• Market risk is the risk associated with the effect of

changes in market factors, such as interest and foreign
exchange rates, equity and commodity prices, credit
spreads or implied volatilities, on the value of assets and
liabilities held for both the short and long term.

• Operational risk is the risk associated with inadequate or
failed internal processes, people and systems, or from
external events and includes compliance risk, conduct
risk, legal risk, and estimations and model risk.

There may be many consequences of risks manifesting,
including quantitative impacts such as reduction in earnings
and capital, liquidity outflows, and fines or penalties, or
qualitative impacts, such as reputation damage, loss of
clients, and regulatory and enforcement actions.

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

The Firm has established Firmwide risk management functions to manage different risk types. The scope of a particular risk
management function may include multiple risk types. For example, the Firm’s Country Risk Management function oversees
country risk which may be a driver of risk or an aggregation of exposures that could give rise to multiple risk types such as
credit or market risk. The following sections discuss how the Firm manages the key risks that are inherent in its business
activities.

Risk Oversight

Definition

Strategic risk

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

Capital risk

Liquidity risk

Reputation risk

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

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

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

Consumer credit risk

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

Wholesale credit risk

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

Investment portfolio
risk

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

Market risk

Country risk

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

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

Page
references

82–91

92–97

102–107

108–116

120

121–128

129–130

Operational risk

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

131–133

Compliance risk

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

Conduct risk

Legal risk

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

The risk of loss primarily caused by the actual or alleged failure to meet legal obligations that arise from the rule of law
in jurisdictions in which the Firm operates, agreements with clients and customers, and products and services offered by
the Firm.

134

135

136

Estimations and Model
risk

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

137

JPMorgan Chase & Co./2017 Annual Report

Governance and oversight
The Firm’s overall appetite for risk is governed by a “Risk
Appetite” framework. The framework and the Firm’s risk
appetite are set and approved by the Firm’s Chief Executive
Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief
Risk Officer (“CRO”). LOB-level risk appetite is set by the
respective LOB CEO, CFO and CRO and is approved by the
Firm’s CEO, CFO and CRO. Quantitative parameters and
qualitative factors are used to monitor and measure the
Firm’s capacity to take risk consistent with its stated risk
appetite. Quantitative parameters have been established to
assess select strategic risks, credit risks and market risks.
Qualitative factors have been established for select
operational risks, and for reputation risks. Risk Appetite
results are reported quarterly to the Board of Directors’
Risk Policy Committee (“DRPC”).

The Firm has an Independent Risk Management (“IRM”)
function, which consists of the Risk Management and
Compliance organizations. The CEO appoints, subject to
DRPC approval, the Firm’s CRO to lead the IRM organization
and manage the risk governance framework of the Firm.
The framework is subject to approval by the DRPC in the
form of the primary risk management policies. The Chief
Compliance Officer (“CCO”), who reports to the CRO, is also
responsible for reporting to the Audit Committee for the
Global Compliance Program. The Firm’s Global Compliance
Program focuses on overseeing compliance with laws, rules
and regulations applicable to the Firm’s products and
services to clients and counterparties.

The Firm places reliance on each of its LOBs and other
functional areas giving rise to risk. Each LOB and other
functional area giving rise to risk is expected to operate
within the parameters identified by the IRM function, and
within its own management-identified risk and control
standards. The LOBs, inclusive of LOB aligned Operations,
Technology and Oversight & Controls, are the “first line of
defense” in identifying and managing the risk in their
activities, including but not limited to applicable laws, rules
and regulations.

The IRM function is independent of the businesses and
forms “the second line of defense”. The IRM function sets
and oversees various standards for the risk governance
framework, including risk policy, identification,
measurement, assessment, testing, limit setting, monitoring
and reporting, and conducts independent challenge of
adherence to such standards.

The Internal Audit function operates independently from
other parts of the Firm and performs independent testing
and evaluation of firmwide processes and controls across
the entire enterprise as the Firm’s “third line of defense” in
managing risk. The Internal Audit Function is headed by the
General Auditor, who reports to the Audit Committee.

In addition, there are other functions that contribute to the
firmwide control environment including Finance, Human
Resources, Legal, and Corporate Oversight & Control.

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

The independent status of the IRM function is supported by a governance structure that provides for escalation of risk issues to
senior management, the Firmwide Risk Committee, and the Board of Directors, as appropriate.

The chart below illustrates the Board of Directors and key senior management level committees in the Firm’s risk governance
structure. In addition, there are other committees, forums and paths of escalation that support the oversight of risk, not shown
in the chart below.

The Firm’s Operating Committee, which consists of the
Firm’s CEO, CRO, CFO and other senior executives, is the
ultimate management escalation point in the Firm and may
refer matters to the Firm’s Board of Directors. The
Operating Committee is accountable to the Firm’s Board of
Directors.

The Board of Directors provides oversight of risk principally
through the DRPC, the Audit Committee and, with respect to
compensation and other management-related matters, the
Compensation & Management Development Committee.
Each committee of the Board oversees reputation risk and
conduct 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 of
management’s exercise of its responsibility to assess and
manage the Firm’s risks, and its capital and liquidity
planning and analysis. Breaches in risk appetite, liquidity
issues that may have a material adverse impact on the Firm
and other significant risk-related matters are escalated to
the DRPC.

JPMorgan Chase & Co./2017 Annual Report

The Audit Committee of the Board assists the Board in its
oversight of management’s responsibilities to assure that
there is an effective system of controls reasonably designed
to safeguard the assets and income of the Firm, assure the
integrity of the Firm’s financial statements and maintain
compliance with the Firm’s ethical standards, policies, plans
and 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 the
performance of the Firm’s Internal Audit function.

The Compensation & Management Development Committee
(“CMDC”) assists the Board in its oversight of the Firm’s
compensation programs and reviews and approves the
Firm’s overall compensation philosophy, incentive
compensation pools, and compensation practices consistent
with key business objectives and safety and soundness. The
CMDC reviews Operating Committee members’ performance
against their goals, and approves their compensation
awards. The CMDC also periodically reviews 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 that
are primarily responsible for key risk-related functions are:

The Firmwide Risk Committee (“FRC”) is the Firm’s highest
management-level risk committee. It provides oversight of
the risks inherent in the Firm’s businesses. The FRC is co-
chaired by the Firm’s CEO and CRO. The FRC serves as an
escalation point for risk topics and issues raised by its
members, the Line of Business Risk Committees, Firmwide
Control Committee, Firmwide Fiduciary Risk Governance
Committee, Firmwide Estimations Risk Committee, Culture
and Conduct Risk Committee and regional Risk Committees,
as appropriate. The FRC escalates significant issues to the
DRPC, as appropriate.

The Firmwide Control Committee (“FCC”) provides a forum
for senior management to review and discuss firmwide
operational risks, including existing and emerging issues
and operational risk metrics, and to review operational risk
management execution in the context of the Operational
Risk Management Framework (“ORMF”). The ORMF provides
the framework for the governance, risk identification and
assessment, measurement, 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 FCC relies on the prompt escalation of
operational risk and control issues from businesses and
functions as the primary owners of the operational risk.
Operational risk and control issues may be escalated by
business or function control committees to the FCC, which in
turn, may escalate to the FRC, as appropriate.

The Firmwide Fiduciary Risk Governance Committee
(“FFRGC”) is a forum for risk matters related to the Firm’s
fiduciary activities. The FFRGC oversees the firmwide
fiduciary risk governance framework, which supports the
consistent identification and escalation of fiduciary risk
issues by the relevant lines of business; approves risk or
compliance policy exceptions requiring FFRGC approval;
approves the scope and/or expansion of the Firm’s fiduciary
framework; and reviews metrics to track fiduciary activity
and issue resolution Firmwide. The FFRGC is co-chaired by
the Asset Management CEO and the Asset & Wealth
Management CRO. The FFRGC escalates significant fiduciary
issues to the FRC, the DRPC and the Audit Committee, as
appropriate.

The Firmwide Estimations Risk Committee (“FERC”) reviews
and oversees governance and execution activities related to
models and certain analytical and judgment based
estimations, such as those used in risk management, budget
forecasting and capital planning and analysis. The FERC is
chaired by the Firmwide Risk Executive for Model Risk
Governance and Review. The FERC serves as an escalation
channel for relevant topics and issues raised by its members
and the Line of Business Estimation Risk Committees. The
FERC escalates significant issues to the FRC, as appropriate.

The Culture and Conduct Risk Committee (“CCRC”) provides
oversight of culture and conduct initiatives to develop a
more holistic view of conduct risks and to connect key
programs across the Firm to identify opportunities and
emerging areas for focus. The CCRC is co-chaired by the
Chief Culture & Conduct Officer and the Conduct Risk
Compliance Executive. The CCRC escalates significant issues
to the FRC, as appropriate.

Line of Business and Regional Risk Committees review the
ways 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 these
committees. These committees may escalate to the FRC, as
appropriate. LOB risk committees are co-chaired by the LOB
CEO and the LOB CRO. Each LOB risk committee may create
sub-committees with requirements for escalation. The
regional committees are established similarly, as
appropriate, for the region.

In addition, each line of business and function is required to
have a Control Committee. These control committees
oversee the control environment of their respective
business or function. As part of that mandate, they are
responsible for reviewing data which indicates the quality
and stability of the processes in a business or function,
reviewing key operational risk issues and focusing on
processes with shortcomings and overseeing process
remediation. These committees escalate issues to the FCC,
as appropriate.

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

The Firmwide Asset Liability Committee (“ALCO”), chaired by
the Firm’s Treasurer and Chief Investment Officer under the
direction of the CFO, monitors the Firm’s balance sheet,
liquidity risk and structural interest rate risk. ALCO reviews
the Firm’s overall structural interest rate risk position, and
the Firm’s funding requirements and strategy. ALCO is
responsible for reviewing and approving the Firm’s Funds
Transfer Pricing Policy (through which lines of business
“transfer” interest rate risk and liquidity risk to Treasury
and CIO), the Firm’s Intercompany Funding and Liquidity
Policy and the Firm’s Contingency Funding Plan.

The Firmwide Capital Governance Committee, chaired by the
Head of the Regulatory Capital Management Office, is
responsible for reviewing the Firm’s Capital Management
Policy and the principles underlying capital issuance and
distribution alternatives and decisions. The Committee
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.

The Firmwide Valuation Governance Forum (“VGF”) is
composed of senior finance and risk executives and is
responsible for overseeing the management of risks arising
from 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 and
certain 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 the
principal standing committees of the Firm’s Board of
Directors. Risk and control oversight on behalf of JPMorgan
Chase Bank N.A. is primarily the responsibility of the DRPC
and the Audit Committee of the Firm’s Board of Directors,
respectively, and, with respect to compensation and other
management-related matters, the Compensation &
Management Development Committee of the Firm’s Board
of Directors.

Risk Identification
The Firm has a Risk Identification process in which the first
line of defense identifies material risks inherent to the Firm,
catalogs them in a central repository and reviews the most
material risks on a regular basis. The second line of
defense, at a firmwide level, establishes the risk
identification framework, coordinates the process,
maintains the central repository and reviews and challenges
the first line’s identification of risks.

JPMorgan Chase & Co./2017 Annual Report

The Firm’s balance sheet strategy, which focuses on risk-
adjusted returns, strong capital and robust liquidity, is key
to management of strategic risk. For further information on
capital risk, see Capital Risk Management on pages 82–91.
For further information on liquidity risk see, Liquidity Risk
Management on pages 92–97

For further information on reputation risk, see Reputation
Risk Management on page 98.

Governance and oversight
The Firm’s Operating Committee defines the most
significant strategic priorities and initiatives, including
those of the Firm, the LOBs and the Corporate functions, for
the coming year and evaluates performance against the
prior year. As part of the strategic planning process, IRM
conducts a qualitative assessment of those significant
initiatives to determine the impact on the risk profile of the
Firm. The Firm’s priorities, initiatives and IRM’s assessment
are provided to the Board for its review.

As part of its ongoing oversight and management of risk
across the Firm, IRM is regularly engaged in significant
discussions and decision-making across the Firm, including
decisions to pursue new business opportunities or modify
or exit existing businesses.

STRATEGIC RISK MANAGEMENT

Strategic risk is the risk associated with the Firm’s current
and future business plans and objectives. Strategic risk
includes the risk to current or anticipated earnings, capital,
liquidity, enterprise value, or the Firm’s reputation arising
from adverse business decisions, poor implementation of
business decisions, or lack of responsiveness to changes in
the industry or external environment.

Overview
The Operating Committee and the senior leadership of each
LOB are responsible for managing the Firm’s most
significant strategic risks. Strategic risks are overseen by
IRM through participation in business reviews, LOB senior
management committees, ongoing management of the
Firm’s risk appetite and limit framework, and other relevant
governance forums. The Board of Directors oversees
management’s strategic decisions, and the DRPC oversees
IRM and the Firm’s risk management framework.

The Firm’s strategic planning process, which includes the
development and execution of strategic priorities and
initiatives by the Operating Committee and the
management teams of the lines of business, is an important
process for managing the Firm’s strategic risk. Guided by
the Firm’s How We Do Business (“HWDB”) principles, the
strategic priorities and initiatives are updated annually and
include evaluating performance against prior year
initiatives, assessment of the operating environment,
refinement of existing strategies and development of new
strategies.

These strategic priorities and initiatives are then
incorporated in the Firm’s budget, and are reviewed by the
Board of Directors.

In the process of developing the strategic initiatives, line of
business leadership identify the strategic risks associated
with their strategic initiatives and those risks are
incorporated into the Firmwide Risk Identification process
and monitored and assessed as part of the Firmwide Risk
Appetite framework. For further information on Risk
Identification, see Enterprise-Wide Risk Management on
page 75. For further information on the Risk Appetite
framework see, Enterprise-Wide Risk Management on
page 77.

JPMorgan Chase & Co./2017 Annual Report

These objectives are achieved through the establishment of
minimum capital targets and a strong capital governance
framework. Capital risk 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
capital needs; an estimate of required capital under the
CCAR and Dodd-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 regular monitoring of the Firm’s capital positions,
stress testing and defining escalation protocols, both at the
Firm and material legal entity levels.

Management’s discussion and analysis

CAPITAL RISK MANAGEMENT

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

A strong capital position is essential to the Firm’s business
strategy and competitive position. Maintaining a strong
balance sheet to manage through economic volatility is
considered a strategic imperative of the Firm’s Board of
Directors, CEO and Operating Committee. The Firm’s
fortress balance sheet philosophy focuses on risk-adjusted
returns, strong capital and robust liquidity. The Firm’s
capital risk management strategy focuses on maintaining
long-term stability to enable it to build and invest in
market-leading businesses, even in a highly stressed
environment. Senior management considers the
implications on the Firm’s capital prior to making decisions
that could impact future business activities. In addition to
considering the Firm’s earnings outlook, senior
management evaluates all sources and uses of capital with
a view to preserving the Firm’s capital strength.

The Firm’s capital risk management objectives are to hold
capital sufficient to:
• Maintain “well-capitalized” status for the Firm and its
insured depository institution (“IDI”) subsidiaries;

• Support risks underlying business activities;

• Maintain sufficient capital in order to continue to build
and invest in its businesses through the cycle and in
stressed 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.

JPMorgan Chase & Co./2017 Annual Report

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

December 31, 2017
(in millions, except ratios)

Risk-based capital metrics:

CET1 capital

Tier 1 capital

Total capital

Risk-weighted assets

CET1 capital ratio

Tier 1 capital ratio

Total capital ratio

Leverage-based capital metrics:

Transitional

Fully Phased-In

Standardized

Advanced

Minimum
capital ratios

Standardized

Advanced

Minimum
capital ratios

183,300

183,244

208,644

238,395

208,644

227,933

1,499,506

1,435,825

208,564

237,960

208,564

227,498

1,509,762

1,446,696

12.2%

13.9

15.9

12.8%

14.5

15.9

7.5%

9.0

11.0

12.1%

13.8

15.8

12.7%

14.4

15.7

10.5%

12.0

14.0

Adjusted average assets(a)

$ 2,514,270

$ 2,514,822

Tier 1 leverage ratio(b)

Total leverage exposure

SLR(c)

8.3%

4.0%

$ 3,204,463

6.5%

8.3%

4.0%

$ 3,205,015

6.5%

5.0% (e)

December 31, 2016
(in millions, except ratios)

Risk-based capital metrics:

CET1 capital

Tier 1 capital

Total capital

Risk-weighted assets

CET1 capital ratio

Tier 1 capital ratio

Total capital ratio

Leverage based capital metrics:

Transitional

Fully Phased-In

Standardized

Advanced

Minimum
capital ratios

Standardized

Advanced

Minimum
capital ratios

182,967

181,734

208,112

239,553

208,112

228,592

1,483,132

(d)

1,476,915

12.3% (d)

14.0

16.2

(d)

12.4%

14.1

15.5

207,474

237,487

207,474

226,526

1,492,816

(d)

1,487,180

12.2% (d)

13.9

15.9

(d)

12.2%

14.0

15.2

6.25%

7.75

9.75

10.5%

12.0

14.0

Adjusted average assets(a)

$ 2,484,631

$ 2,485,480

Tier 1 leverage ratio(b)

Total leverage exposure

SLR(c)

8.4%

4.0%

$ 3,191,990

6.5%

8.3%

4.0%

$ 3,192,839

6.5%

5.0% (e)

Note: As of December 31, 2017 and 2016, the lower of the Standardized or Advanced capital ratios under each of the Transitional and Fully Phased-In Approaches in the
table above represents the Firm’s Collins Floor, as discussed in Risk-based capital regulatory minimums on page 85.
(a) Adjusted average assets, for purposes of calculating the Tier 1 leverage ratio, includes total quarterly average assets adjusted for unrealized gains/(losses) on

available-for-sale (“AFS”) securities, less deductions for goodwill and other intangible assets, defined benefit pension plan assets, and deferred tax assets related to
tax attributes, including net operating losses (“NOLs”).

(b) The Tier 1 leverage ratio is calculated by dividing Tier 1 capital by adjusted total average assets.
(c) The SLR leverage ratio is calculated by dividing Tier 1 capital by total leverage exposure. For additional information on total leverage exposure, see SLR on page 88.
(d) The prior period amounts have been revised to conform with the current period presentation.
(e) In the case of the SLR, the Fully Phased-In minimum ratio is effective January 1, 2018.

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

Strategy and governance
The Firm’s CEO, together with the Board of Directors and
the Operating Committee, establishes principles and
guidelines for capital planning, issuance, usage and
distributions, and minimum capital targets for the level and
composition of capital in business-as-usual and highly
stressed environments. The DRPC reviews and approves the
capital management and governance policy of the Firm. The
Firm’s Audit Committee is responsible for reviewing and
approving the capital stress testing control framework.

The Capital Governance Committee and the Regulatory
Capital Management Office (“RCMO”) support the Firm’s
strategic capital decision-making. The Capital Governance
Committee 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 and
monitoring the execution of its capital adequacy assessment
process. The Basel Independent Review function (“BIR”),
which reports to the RCMO, conducts independent
assessments of the Firm’s regulatory capital framework to
ensure compliance with the applicable U.S. Basel rules in
support of senior management’s responsibility for assessing
and managing capital and for the DRPC’s oversight of
management in executing that responsibility. For additional
discussion on the DRPC, see Enterprise-wide Risk
Management on pages 75–137.

Monitoring and management of capital
In its monitoring and management of capital, the Firm takes
into consideration an assessment of economic risk and all
regulatory capital requirements to determine the level of
capital needed to meet and maintain the objectives
discussed above, as well as to support the framework for
allocating capital to its business segments. While economic
risk is considered prior to making decisions on future
business activities, in most cases the Firm considers risk-
based 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 national
banks, including JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A. The U.S. capital requirements
generally follow the Capital Accord of the Basel Committee,
as amended from time to time.

Basel III overview
Capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. bank holding companies (“BHC”)
and banks, including the Firm and its IDI subsidiaries. Basel
III sets forth two comprehensive approaches for calculating
RWA: a standardized approach (“Basel III Standardized”),
and an advanced approach (“Basel III Advanced”). 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”).

Basel III establishes capital requirements for calculating
credit risk RWA and market risk RWA, and in the case of
Basel III Advanced, operational risk RWA. Key differences in
the calculation of credit risk RWA between the Standardized
and Advanced approaches are that for Basel III Advanced,
credit risk RWA is based on risk-sensitive approaches 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 risk-weightings
which vary primarily by counterparty type and asset class.
Market risk RWA is calculated on a generally consistent
basis between Basel III Standardized and Basel III
Advanced. In addition to the RWA calculated under these
methodologies, the Firm may supplement such amounts to
incorporate management judgment and feedback from its
regulators.

Basel III also includes a requirement for Advanced
Approach banking organizations, including the Firm, to
calculate the SLR. For additional information on the SLR,
see page 88.

On December 7, 2017, the Basel Committee issued the
Basel III Reforms. Potential changes to the requirements for
U.S. financial institutions are being considered by the U.S.
banking regulators. For additional information on Basel III
reforms, refer to Supervision & Regulation on pages 1–8.

Basel III Fully Phased-In
The Basel III transitional period will end on December 31,
2018, at which point the Firm will calculate its capital ratios
under both the Basel III Standardized and Advanced
Approaches on a Fully Phased–In basis. In the case of the
SLR, the Fully Phased-In well-capitalized ratio is effective
January 1, 2018. The Firm manages each of its lines of
business, as well as the corporate functions, primarily on a
Basel III Fully Phased-In basis.

For additional information on the Firm, JPMorgan Chase
Bank, N.A. and Chase Bank USA, N.A.’s capital, RWA and
capital ratios under Basel III Standardized and Advanced
Fully Phased-In rules and the SLR calculated under the
Basel III Advanced Fully Phased-In rules, all of which are
considered key regulatory capital measures, see
Explanation and Reconciliation of the Firm’s Use of Non-
GAAP Financial Measures and Key Performance Measures
on pages 52–54.

JPMorgan Chase & Co./2017 Annual Report

The Basel III Standardized and Advanced Fully Phased-In capital, RWA and capital ratios, and SLRs for the Firm, JPMorgan
Chase Bank, N.A. and Chase Bank USA, N.A. are based on the current published U.S. Basel III rules.
Risk-based capital regulatory minimums
The following chart presents the Basel III minimum CET1 capital ratio during the transitional periods and on a fully phased-in
basis under the Basel III rules currently in effect.
14

12/31/17
CET1: 12.1%

6.25%

1.125%

0.625%

9.00%

2.625%

1.875%

7.50%

1.750%

1.250%

10.50%

3.50%

2.50%

4.50%

4.5%

4.50%

2016

2017

2018

2019

Capital
conservation
buffer incl. GSIB

GSIB surcharge

Capital
conservation
buffer

Minimum
requirement

The Basel III rules include minimum capital ratio
requirements that are subject to phase-in periods through
the end of 2018. The capital adequacy of the Firm and its
IDI subsidiaries, both during the transitional period and
upon full phase-in, is evaluated against the Basel III
approach (Standardized or Advanced) which, for each
quarter, results in the lower ratio as required by the Collins
Amendment of the Dodd-Frank Act (the “Collins Floor”). The
Basel III Standardized Fully Phased-In CET1 ratio is the
Firm’s current binding constraint, and the Firm expects that
this will remain its binding constraint for the foreseeable
future.

Additional information regarding the Firm’s capital ratios, as
well as the U.S. federal regulatory capital standards to
which the Firm is subject, is presented in Note 26. For
further information on the Firm’s Basel III measures, see the
Firm’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 a
minimum capital ratio of 4.5% of risk weighted assets.
Certain banking organizations, including the Firm, are
required to hold additional amounts of capital to serve as a
“capital conservation buffer”. The capital conservation
buffer is intended to be used to absorb potential losses in
times of financial or economic stress. If not maintained, the
Firm could be limited in the amount of capital that may be
distributed, including dividends and common equity
repurchases. The capital conservation buffer is subject to a

phase-in period that began January 1, 2016 and continues
through the end of 2018.
As an expansion of the capital conservation buffer, the Firm
is also required to hold additional levels of capital in the
form of a GSIB surcharge and a countercyclical capital
buffer.
Under the Federal Reserve’s final rule, the Firm is required
to calculate its GSIB surcharge on an annual basis under two
separately prescribed methods, and is subject to the higher
of the two. The first (“Method 1”), reflects the GSIB
surcharge as prescribed by the Basel Committee’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 in
place of substitutability, and introduces a GSIB score
“multiplication factor”. The following table represents the
Firm’s GSIB surcharge.

Fully Phased-In:

Method 1

Method 2

Transitional(a)

2017

2016

2.50%

3.50%

1.75%

2.50%

4.50%

1.125%

(a) The GSIB surcharge is subject to transition provisions (in 25% increments)

through the end of 2018.

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

The Firm’s effective GSIB surcharge for 2018 is anticipated
to be 3.5%.

The countercyclical capital buffer takes into account the
macro financial environment in which large, internationally
active banks function. On September 8, 2016 the Federal
Reserve published the framework that will apply to the
setting of the countercyclical capital buffer. As of December
1, 2017, the Federal Reserve reaffirmed setting the U.S.
countercyclical capital buffer at 0%, and stated that it will
review the amount at least annually. The countercyclical
capital buffer can be increased if the Federal Reserve, FDIC
and OCC determine that credit growth in the economy has
become excessive and can be set at up to an additional
2.5% of RWA subject to a 12-month implementation period.

The Firm believes that it will operate with a Basel III CET1
capital ratio between 11% and 12% over the medium term.
It is the Firm’s intention that its capital ratios will continue
to meet regulatory minimums as they are fully phased in
2019 and thereafter.

In addition to meeting the capital ratio requirements of
Basel III, the Firm also must maintain minimum capital and
leverage ratios in order to be “well-capitalized.” The
following table represents the ratios that the Firm and its
IDI subsidiaries must maintain in order to meet the
definition of “well-capitalized” under the regulations issued
by the Federal Reserve and the Prompt Corrective Action
(“PCA”) requirements of the FDIC Improvement Act
(“FDICIA”), respectively.

Well-capitalized ratios

Capital ratios

CET1

Tier 1 capital

Total capital

Tier 1 leverage

SLR(a)

BHC

—%

6.0

10.0

—

5.0

IDI

6.5%

8.0

10.0

5.0

6.0

(a) In the case of the SLR, the Fully Phased-In well-capitalized ratio is

effective January 1, 2018.

Capital
The following table presents reconciliations 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 as of December
31, 2017 and 2016. For additional information on the
components of regulatory capital, see Note 26.

Capital components

(in millions)

Total stockholders’ equity

Less: Preferred stock

Common stockholders’ equity

Less:

Add:

Goodwill

Other intangible assets

Certain Deferred tax liabilities(a)(b)

Less: Other CET1 capital adjustments(b)

Standardized/Advanced Fully Phased-In

CET1 capital

Preferred stock

Less:

December 31,
2017
255,693 $

December 31,
2016
254,190

26,068

229,625

26,068

228,122

47,507

855

2,204

223

47,288

862

3,230

1,468

183,244

26,068

181,734

26,068

Other Tier 1 adjustments(c)

748

328

Standardized/Advanced Fully Phased-In

Tier 1 capital

Long-term debt and other instruments

qualifying as Tier 2 capital

Qualifying allowance for credit losses

Other

Standardized Fully Phased-In Tier 2

capital

Standardized Fully Phased-in Total

capital

208,564 $

207,474

14,827 $

14,672

(103)

15,253

14,854

(94)

29,396 $

30,013

237,960 $

237,487

Adjustment in qualifying allowance for

credit losses for Advanced Tier 2 capital

(10,462)

(10,961)

Advanced Fully Phased-In Tier 2 capital $

18,934 $

19,052

Advanced Fully Phased-In Total capital

227,498 $

226,526

(a) Represents deferred tax liabilities related to tax-deductible goodwill

and identifiable intangibles created in nontaxable transactions, which
are netted against goodwill and other intangibles when calculating
TCE.

(b) Includes the effect from the revaluation of the Firm’s net deferred tax

liability as a result of the enactment of the TCJA.

covered funds (as defined by the Volcker Rule). The deduction was not
material as of December 31, 2017 and 2016.

JPMorgan Chase & Co./2017 Annual Report

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

(in millions)

Transitional CET1 capital

AOCI phase-in(a)

CET1 capital deduction phase-in(b)

Intangible assets deduction phase-in(c)

Other adjustments to CET1 capital(d)

December 31,
2017
183,300 $

December 31,
2016
182,967

128

(20)

(160)

(4)

(156)

(695)

(312)

(70)

Fully Phased-In CET1 capital

183,244 $

181,734

(a) Includes the remaining balance of accumulated other comprehensive
income (“AOCI”) related to AFS debt securities and defined benefit
pension and other postretirement employee benefit (“OPEB”) plans
that will qualify as Basel III CET1 capital upon full phase-in.

(b) Predominantly includes regulatory adjustments related to changes in
DVA, as well as CET1 deductions for defined benefit pension plan
assets and deferred tax assets related to tax attributes, including
NOLs.

(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 for
the year ended December 31, 2017.

Year Ended December 31, (in millions)

2017

Standardized/Advanced CET1 capital at December 31, 2016 $ 181,734

Net income applicable to common equity(a)

Dividends declared on common stock

Net purchase of treasury stock

Changes in additional paid-in capital

Changes related to AOCI

Adjustment related to DVA(b)

Changes related to other CET1 capital adjustments(c)

Increase in Standardized/Advanced CET1 capital

Standardized/Advanced CET1 capital at

December 31, 2017

Standardized/Advanced Tier 1 capital at

December 31, 2016

Change in CET1 capital

Net issuance of noncumulative perpetual preferred stock

Other

Increase in Standardized/Advanced Tier 1 capital

Standardized/Advanced Tier 1 capital at

December 31, 2017

22,778

(7,542)

(13,741)

(1,048)

536

468

1,510

$ 183,244

$ 207,474

1,510

—

(420)

1,090

$ 208,564

Standardized Tier 2 capital at December 31, 2016

$ 30,013

Change in long-term debt and other instruments qualifying

as Tier 2

Change in qualifying allowance for credit losses

Other

Decrease in Standardized Tier 2 capital

(426)

(182)

(9)

(617)

Standardized Tier 2 capital at December 31, 2017

Standardized Total capital at December 31, 2017

Advanced Tier 2 capital at December 31, 2016

$ 29,396

$ 237,960

$ 19,052

Change in long-term debt and other instruments qualifying

as Tier 2

Change in qualifying allowance for credit losses

Other

Decrease in Advanced Tier 2 capital

(426)

317

(9)

(118)

Advanced Tier 2 capital at December 31, 2017

Advanced Total capital at December 31, 2017

$ 18,934

$ 227,498

(a) Includes a $2.4 billion decrease to net income as a result of the
enactment of the TCJA. For additional information related to the
impact of the TCJA, see Note 24.

(b) Includes DVA related to structured notes recorded in AOCI.
(c) Includes the effect from the revaluation of the Firm’s net deferred tax

liability as a result of the enactment of the TCJA.

JPMorgan Chase & Co./2017 Annual Report

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 for
the year ended December 31, 2017. The amounts in the rollforward categories are estimates, based on the predominant
driver of the change.

Standardized

Advanced

Year ended December 31, 2017
(in millions)
December 31, 2016
Model & data changes(a)
Portfolio runoff(b)
Movement in portfolio levels(c)
Changes in RWA

Credit risk
RWA

$ 1,365,137 (d) $
(8,214)

(13,600)

42,737

20,923

Market risk
RWA
127,679 $ 1,492,816 (d) $

Total RWA

Credit risk
RWA
959,523 $

Market risk
RWA
127,657 $

Operational
risk
400,000 $ 1,487,180

Total RWA

1,739

—

(5,716)

(3,977)

(6,475)

(13,600)

37,021

16,946

(14,189)

(16,100)

(6,329)

(36,618)

1,739

—

(5,605)

(3,866)

—

(12,450)

(16,100)

(11,934)

(40,484)

December 31, 2017

$ 1,386,060

123,702 $ 1,509,762

922,905 $

123,791 $

400,000 $ 1,446,696

(a) Model & data changes refer to material movements in levels of RWA as a result of revised methodologies and/or treatment per regulatory guidance (exclusive of rule

changes).

(b) Portfolio runoff for credit risk RWA primarily reflects (under both the Standardized and Advanced approaches) reduced risk from position rolloffs in legacy portfolios
in Home Lending, the sale of the student loan portfolio during the second quarter of 2017, and the sale of reverse mortgages in CIB during the third quarter of
2017.

(c) Movement in portfolio levels for credit risk RWA refers to changes primarily in book size, composition, credit quality, and market movements; and for market risk

RWA refers to changes in position and market movements.

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

Supplementary leverage ratio
The SLR is defined as Tier 1 capital under Basel III divided
by the Firm’s total leverage exposure. Total leverage
exposure is calculated by taking the Firm’s total average on-
balance sheet assets, less amounts permitted to be
deducted for Tier 1 capital, and adding certain off-balance
sheet exposures, such as undrawn commitments and
derivatives potential future exposure.

The following table presents the components of the Firm’s
Fully Phased-In SLR as of December 31, 2017 and 2016.

(in millions, except ratio)

Tier 1 capital

Total average assets

Less: Adjustments for deductions

from Tier 1 capital

Total adjusted average assets(a)
Off-balance sheet exposures(b)
Total leverage exposure

SLR

December 31,
2017

December 31,
2016

208,564

207,474

2,562,155

2,532,457

47,333

2,514,822

690,193

46,977

2,485,480

707,359

3,205,015

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 assets
that 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 three

month-end spot balances during the reporting quarter.

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

Line of business equity
Each business segment is allocated capital by taking into
consideration stand-alone peer comparisons and regulatory
capital requirements. For 2016, capital was allocated to
each business segment for, among other things, goodwill
and other intangibles associated with acquisitions effected
by the line of business. ROE is measured and internal
targets for expected returns are established as key
measures of a business segment’s performance.

On at least an annual basis, the Firm assesses the level of
capital required for each line of business 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 Phased-In RWA), leverage, the GSIB
surcharge, and a simulation of 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 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 and
other 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 performance
indicator.

JPMorgan Chase & Co./2017 Annual Report

The table below reflects the Firm’s assessed level of capital
allocated to each line of business as of the dates indicated.

Line of business equity (Allocated capital)

(in billions)

January 1,
2018

Consumer & Community Banking

Corporate & Investment Bank

Commercial Banking

Asset & Wealth Management

Corporate

51.0

70.0

20.0

9.0

79.6

December 31,

2017

2016

$ 51.0 $ 51.0

70.0

20.0

9.0

79.6

64.0

16.0

9.0

88.1

Total common stockholders’ equity

229.6

$229.6 $228.1

Planning and stress testing

Comprehensive 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 and
Dodd-Frank Act stress test processes to ensure that large
BHCs have sufficient capital during periods of economic and
financial stress, and have robust, forward-looking capital
assessment and planning processes in place that address
each BHC’s unique risks to enable it to absorb losses under
certain stress scenarios. Through the CCAR, the Federal
Reserve evaluates each BHC’s capital adequacy and internal
capital adequacy assessment processes (“ICAAP”), as well
as its plans to make capital distributions, such as dividend
payments or stock repurchases.

On June 28, 2017, the Federal Reserve informed the Firm
that it did not object, on either a quantitative or qualitative
basis, to the Firm’s 2017 capital plan. For information on
actions taken by the Firm’s Board of Directors following the
2017 CCAR results, see Capital actions on pages 89-90.

The Firm’s CCAR process is integrated into and employs the
same 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 and
unexpected events on earnings, balance sheet positions,
reserves and capital. The Firm’s ICAAP integrates stress
testing protocols with capital planning.

The process assesses the potential impact of alternative
economic and business scenarios on the Firm’s earnings and
capital. Economic scenarios, and the parameters underlying
those scenarios, are defined centrally and applied uniformly
across the businesses. These scenarios are articulated in
terms of macroeconomic factors, which are key drivers of
business results; global market shocks, which generate
short-term but severe trading losses; and idiosyncratic
operational risk events. The scenarios are intended to
capture and stress key vulnerabilities and idiosyncratic risks
facing the Firm. However, when defining a broad range of
scenarios, actual events can always be worse. Accordingly,
management considers additional stresses outside these
scenarios, as necessary. ICAAP results are reviewed by
management and the Audit Committee.

Capital actions
Preferred stock
Preferred stock dividends declared were $1.7 billion for the
year ended December 31, 2017.

On October 20, 2017, the Firm issued $1.3 billion of fixed-
to-floating rate non-cumulative preferred stock, Series CC,
with an initial dividend rate of 4.625%. On December 1,
2017, the Firm redeemed all $1.3 billion of its outstanding
5.50% non-cumulative preferred stock, Series O.

For additional information on the Firm’s preferred stock,
see Note 20.

Trust preferred securities
On December 18, 2017, the Delaware trusts that issued
seven series of outstanding trust preferred securities were
liquidated, $1.6 billion of trust preferred and $56 million of
common securities originally issued by those trusts were
cancelled, and the junior subordinated debentures
previously held by each trust issuer were distributed pro
rata to the holders of the corresponding series of trust
preferred and common securities.

The Firm redeemed $1.6 billion of trust preferred securities
in the year ended December 31, 2016.

Common stock dividends
The Firm’s common stock dividend policy reflects JPMorgan
Chase’s earnings outlook, desired dividend payout ratio,
capital objectives, and alternative investment opportunities.

On September 19, 2017, the Firm announced that its Board
of Directors increased the quarterly common stock dividend
to $0.56 per share, effective with the dividend paid on
October 31, 2017. The Firm’s dividends are subject to the
Board of Directors’ approval on a quarterly basis.

For information regarding dividend restrictions, see Note 20
and Note 25.

JPMorgan Chase & Co./2017 Annual Report

For additional information regarding repurchases of the
Firm’s equity securities, see Part II, Item 5: Market for
Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities on page 28.

Other capital requirements
TLAC
On December 15, 2016, the Federal Reserve issued its final
TLAC rule which requires the top-tier holding companies of
eight U.S. GSIB holding companies, including the Firm, to
maintain minimum levels of external TLAC and external
long-term debt that satisfies certain eligibility criteria
(“eligible LTD”), effective January 1, 2019.

The minimum external TLAC and the minimum level of
eligible long-term debt requirements are shown below:

Minimum external TLAC

(a)

18% of RWA
+
applicable
buffers, including
Method 1 GSIB
surcharge

Greater
of

7.5%
of total
leverage
exposure
+
2.0% buffer

Minimum level of eligible
long-term debt

(a)

6% of RWA
+
Method 2 GSIB
surcharge

Greater
of

4.5%
of total
leverage
exposure

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

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

Management’s discussion and analysis

The following table shows the common dividend payout
ratio based on net income applicable to common equity.

Year ended December 31,

Common dividend payout ratio

2017

33%

2016

30%

2015

28%

Common equity
During the year ended December 31, 2017, warrant
holders exercised their right to purchase 9.9 million shares
of the Firm’s common stock. The Firm issued from treasury
stock 5.4 million shares of its common stock as a result of
these exercises. As of December 31, 2017, 15.0 million
warrants remained outstanding, compared with 24.9
million outstanding as of December 31, 2016.

Effective June 28, 2017, the Firm’s Board of Directors
authorized the repurchase of up to $19.4 billion of common
equity (common stock and warrants) between July 1, 2017
and June 30, 2018, as part of its annual capital plan.

As of December 31, 2017, $9.8 billion of authorized
repurchase capacity remained under the common equity
repurchase program.

The following table sets forth the Firm’s repurchases of
common equity for the years ended December 31, 2017,
2016 and 2015. There were no repurchases of warrants
during the years ended December 31, 2017, 2016 and
2015.

Year ended December 31, (in millions)

2017

2016

2015

Total number of shares of common stock

repurchased

Aggregate purchase price of common

stock repurchases

166.6

140.4

89.8

$15,410

$ 9,082

$ 5,616

The Firm may, from time to time, enter into written trading
plans under Rule 10b5-1 of the Securities Exchange Act of
1934 to facilitate repurchases in accordance with the
common equity repurchase program. A Rule 10b5-1
repurchase plan allows the Firm to repurchase its equity
during periods when it would not otherwise be repurchasing
common equity — for example, during internal trading
blackout periods. All purchases under Rule 10b5-1 plans
must be made according to predefined schedules
established when the Firm is not aware of material
nonpublic information.

The authorization to repurchase common equity will be
utilized at management’s discretion, and the timing of
purchases 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; the
Firm’s capital position (taking into account goodwill and
intangibles); internal capital generation; and alternative
investment opportunities. The repurchase program does not
include specific price targets or timetables; may be
executed through open market purchases or privately
negotiated transactions, or utilizing Rule 10b5-1 plans; and
may be suspended by management at any time.

JPMorgan Chase & Co./2017 Annual Report

Broker-dealer regulatory capital

JPMorgan Securities
JPMorgan Chase’s principal U.S. broker-dealer subsidiary is
JPMorgan Securities. JPMorgan Securities is subject to Rule
15c3-1 under the Securities Exchange Act of 1934 (the
“Net Capital Rule”). JPMorgan Securities is also registered
as a futures commission merchant 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.

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

December 31, 2017
(in billions)

JPMorgan Securities

Net capital

Actual Minimum

13.6 $

2.8

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

The following table presents J.P. Morgan Securities plc’s capital information:

December 31, 2017
(in billions, except ratios)

J.P. Morgan Securities plc

Total capital

Estimated

CET1 ratio

Total capital ratio

Estimated

Minimum

Estimated

Minimum

39.6

15.9%

4.5%

15.9%

8.0%

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

LIQUIDITY RISK MANAGEMENT

Liquidity risk is the risk that the Firm will be unable to meet
its contractual and contingent financial obligations as they
arise or that it does not have the appropriate amount,
composition and tenor of funding and liquidity to support
its assets and liabilities.

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 dedicated
firmwide Liquidity Risk Oversight group. The CIO, Treasury
and Corporate (“CTC”) CRO, who reports to the Firm’s CRO,
as part of the IRM function, is responsible for firmwide
Liquidity Risk Oversight. Liquidity Risk Oversight’s
responsibilities include:

• Establishing and monitoring limits, indicators, and

thresholds, including liquidity risk appetite tolerances;

• Monitoring internal firmwide and material legal entity
liquidity stress tests, and monitoring and reporting
regulatory defined liquidity stress testing;

• Approving or escalating for review liquidity stress

assumptions;

• Monitoring liquidity positions, balance sheet variances

and funding activities, and

• Conducting ad hoc analysis to identify potential

emerging liquidity risks.

Liquidity management
Treasury and CIO is responsible for liquidity management.
The primary objectives of effective liquidity management
are to:

• Ensure that the Firm’s core businesses and material legal
entities are able to operate in support of client needs
and meet contractual and contingent financial
obligations through normal economic cycles as well as
during stress events, and

• Manage an optimal funding mix and availability of

liquidity 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 characteristics
of the assets and liabilities of the Firm, lines of business
and legal entities, taking into account legal, regulatory,
and operational restrictions;

• Developing internal liquidity stress testing assumptions;
• Defining and monitoring firmwide and legal entity-
specific liquidity strategies, policies, guidelines,
reporting and contingency funding plans;

• Managing liquidity within the Firm’s approved liquidity

risk appetite tolerances and limits;

• Managing compliance with regulatory requirements

related to funding and liquidity risk, and

• Setting transfer pricing in accordance with underlying
liquidity characteristics of balance sheet assets and
liabilities as well as certain off-balance sheet items.

Risk governance and measurement
Specific committees responsible for liquidity governance
include the firmwide ALCO as well as line of business and
regional 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 risk-
related committees, see Enterprise-wide Risk Management
on pages 75–137.

Internal stress testing
Liquidity stress tests are intended to ensure that the Firm
has sufficient liquidity under a variety of adverse scenarios,
including scenarios analyzed as part of the Firm’s resolution
and recovery planning. Stress scenarios are produced for
JPMorgan Chase & Co. (“Parent Company”) and the Firm’s
material legal entities on a regular basis, and ad hoc stress
tests are performed, as needed, in response to specific
market events or concerns. Liquidity stress tests assume all
of the Firm’s contractual financial obligations are met and
take into consideration:

• Varying levels of access to unsecured and secured

funding markets,

• Estimated non-contractual and contingent cash outflows,

and

• Potential impediments to the availability 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 and currency dimensions and contemplate
both market and idiosyncratic stresses.

Results of stress tests are considered in the formulation of
the Firm’s funding plan and assessment of its liquidity
position. The Parent Company acts as a source of funding
for the Firm through equity and long-term debt issuances,
and the IHC provides funding support to the ongoing
operations of the Parent Company and its subsidiaries, as
necessary. The Firm maintains liquidity at the Parent
Company and the IHC, in addition to liquidity held at the
operating subsidiaries, at levels sufficient to comply with
liquidity risk tolerances and minimum liquidity
requirements, and to manage through periods of stress
where access to normal funding sources is disrupted.

JPMorgan Chase & Co./2017 Annual Report

For the three months ended December 31, 2017, the Firm’s
average LCR was 119%, compared with an average of
120% for the three months ended September 30, 2017.
The decrease in the ratio was largely attributable to a
decrease in average HQLA, driven primarily by long-term
debt maturities. The Firm’s average LCR may fluctuate from
period to period, due to changes in its HQLA and estimated
net cash outflows under the LCR as a result of ongoing
business activity. The Firm’s HQLA are expected to be
available to meet its liquidity needs in a time of stress.

Other liquidity sources
As of December 31, 2017, in addition to assets reported in
the Firm’s HQLA under the LCR rule, the Firm had
approximately $208 billion of unencumbered marketable
securities, such as equity securities and fixed income debt
securities, available to raise liquidity, if required. This
includes HQLA-eligible securities included as part of the
excess liquidity at JPMorgan Chase Bank, N.A. that are not
transferable to non-bank affiliates.

As of December 31, 2017, the Firm also had approximately
$277 billion of available borrowing capacity at various
Federal Home Loan Banks (“FHLBs”), discount windows at
Federal Reserve Banks and various other central banks as a
result of collateral pledged by the Firm to such banks. This
borrowing capacity excludes the benefit of securities
reported in the Firm’s HQLA or other unencumbered
securities that are currently pledged at Federal Reserve
Bank discount windows. Although available, the Firm does
not view the borrowing capacity at Federal Reserve Bank
discount windows and the various other central banks as a
primary source of liquidity.

NSFR
The net stable funding ratio (“NSFR”) is intended to
measure the adequacy of “available” and “required”
amounts of stable funding over a one-year horizon. On April
26, 2016, the U.S. NSFR proposal was released for large
banks and BHCs and was largely consistent with the Basel
Committee’s final standard.

While the final U.S. NSFR rule has yet to be released, as of
December 31, 2017 the Firm estimates that it was
compliant with the proposed 100% minimum NSFR based
on its current understanding of the proposed rule.

Contingency funding plan
The Firm’s contingency funding plan (“CFP”), which is
approved by the firmwide ALCO and the DRPC, is a
compilation of procedures and action plans for managing
liquidity through stress events. The CFP incorporates the
limits and indicators set by the Liquidity Risk Oversight
group. These limits and indicators are reviewed regularly to
identify the emergence of risks or vulnerabilities in the
Firm’s liquidity position. The CFP identifies the alternative
contingent funding and liquidity resources available to the
Firm and its legal entities in a period of stress.

LCR and HQLA
The LCR rule requires the Firm to maintain an amount of
unencumbered HQLA that is sufficient to meet its estimated
total net cash outflows over a prospective 30 calendar-day
period of significant stress. HQLA is the amount of liquid
assets that qualify for inclusion in the LCR. HQLA primarily
consist of unencumbered cash and certain high quality
liquid securities as defined in the LCR rule.

Under the LCR rule, the amount of HQLA held by JPMorgan
Chase Bank N.A. and Chase Bank USA, N.A that are in excess
of each entity’s standalone 100% minimum LCR
requirement, and that are not transferable to non-bank
affiliates, must be excluded from the Firm’s reported HQLA.
Effective January 1, 2017, the LCR is required to be a
minimum of 100%.

On December 19, 2016, the Federal Reserve published final
LCR public disclosure requirements for certain BHCs and
non-bank financial companies. Beginning with the second
quarter of 2017, the Firm disclosed its average LCR for the
quarter and the key quantitative components of the average
LCR, along with a qualitative discussion of material drivers
of the ratio, changes over time, and causes of such changes.
The Firm will continue to make available its U.S. LCR
Disclosure report on a quarterly basis on the Firm’s website
at: (https://investor.shareholder.com/jpmorganchase/
basel.cfm)

The following table summarizes the Firm’s average LCR for
the three months ended December 31, 2017 based on the
Firm’s current interpretation of the finalized LCR
framework.

Average amount
(in millions)

HQLA

Eligible cash(a)

Eligible securities(b)(c)

Total HQLA(d)

Net cash outflows

LCR

Net excess HQLA (d)

Three months ended
December 31, 2017

370,126

189,955

560,081

472,078

119%

88,003

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

Banks.

(b) Predominantly U.S. Agency MBS, U.S. Treasuries, and sovereign bonds net

of applicable haircuts under the LCR rules

purchased under resale agreements, trading assets, or securities on the
Firm’s Consolidated balance sheets.

(d) Excludes average excess HQLA at JPMorgan Chase Bank, N.A. and Chase

Bank USA, N.A. that are not transferable to non-bank affiliates.

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

Funding
Sources of funds
Management believes that the Firm’s unsecured and
secured funding capacity is sufficient to meet its on- and
off-balance sheet obligations.

The Firm funds its global balance sheet through diverse
sources of funding including a stable deposit franchise as
well as secured and unsecured funding in the capital
markets. The Firm’s loan portfolio is funded with a portion
of the Firm’s deposits, 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 the amount utilized to fund loans are primarily invested
in the Firm’s investment securities portfolio or deployed in
cash or other short-term liquid investments based on their
interest rate and liquidity risk characteristics. Securities

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

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

Deposits

As of or for the year ended December 31,

(in millions)

Consumer & Community Banking

Corporate & Investment Bank

Commercial Banking

Asset & Wealth Management

Corporate

Total Firm

A key strength of the Firm is its diversified deposit
franchise, through each of its lines of business, which
provides a stable source of funding and limits reliance on
the wholesale funding markets. A significant portion of the
Firm’s deposits are consumer and wholesale operating
deposits, which are both considered to be stable sources of
liquidity. Wholesale operating deposits are considered to be
stable sources of liquidity because they are generated from
customers that maintain operating service relationships
with the Firm.

The table below shows the loan and deposit balances, the
loans-to-deposits ratios, and deposits as a percentage of
total liabilities, as of December 31, 2017 and 2016.

As of December 31,
(in billions except ratios)

Deposits

Deposits as a % of total liabilities

Loans

Loans-to-deposits ratio

2017

2016

1,444.0

1,375.2

63%

930.7

64%

61%

894.8

65%

Year ended December 31,

Average

2017

2016

2017

2016

659,885 $

618,337

640,219 $

586,637

455,883

181,512

146,407

295

412,434

179,532

161,577

3,299

447,697

176,884

148,982

3,604

409,680

172,835

153,334

5,482

1,443,982 $

1,375,179

1,417,386 $

1,327,968

Deposits increased due to both higher consumer and
wholesale deposits. The higher consumer deposits reflect
the continuation of strong growth from new and existing
customers, and low attrition rates. The higher wholesale
deposits largely were driven by growth in client cash
management activity in CIB’s Securities Services business,
partially offset by lower balances in AWM reflecting balance
migration predominantly into the Firm’s investment-related
products.

The Firm believes average deposit balances are generally
more representative of deposit trends than period-end
deposit balances. The increase in average deposits for the
year ended December 31, 2017 compared with the year
ended December 31, 2016, was driven by an increase in
both consumer and wholesale deposits. For further
discussions of deposit and liability balance trends, see the
discussion of the Firm’s business segments results and the
Consolidated Balance Sheet Analysis on pages 55–74 and
pages 47-48, respectively.

JPMorgan Chase & Co./2017 Annual Report

The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2017 and 2016,
and average balances for the years ended December 31, 2017 and 2016. For additional information, see the Consolidated
Balance Sheets Analysis on pages 47-48 and Note 19.

Sources of funds (excluding deposits)
As of or for the year ended December 31,
(in millions)
Commercial paper
Other borrowed funds
Total short-term borrowings

Obligations of Firm-administered multi-seller conduits(a)

Securities loaned or sold under agreements to repurchase:

Securities sold under agreements to repurchase(b)
Securities loaned(c)

Total securities loaned or sold under agreements to repurchase(d)

Senior notes

Trust preferred securities(e)

Subordinated debt(e)

Structured notes

Total long-term unsecured funding

Credit card securitization(a)

Other securitizations(a)(f)

FHLB advances

Other long-term secured funding(g)

Total long-term secured funding

Preferred stock(h)

Common stockholders’ equity(h)

2017

2016

2017

2016

Average

24,186 $
27,616
51,802 $

11,738
22,705
34,443

3,045 $

2,719

146,432 $
7,910
154,342 $

149,826
12,137
161,963

155,852 $

151,042

690

16,553

45,727

2,345

21,940

37,292

218,822 $

212,619

21,278 $

31,181

—

60,617

4,641

1,527

79,519

3,107

19,920 $
26,612
46,532 $

15,001
21,139
36,140

3,206 $

5,153

171,973 $
11,526
183,499 $

160,458
13,195
173,653

154,352 $

153,768

2,276

18,832

42,918

3,724

24,224

35,978

218,378 $

217,694

25,933 $

29,428

626

69,916

3,195

1,669

73,260

4,619

86,536 $

115,334

99,670 $

108,976

26,068 $

26,068

26,212 $

26,068

229,625 $

228,122

230,350 $

224,631

(a) Included in beneficial interest issued by consolidated variable interest entities on the Firm’s Consolidated balance sheets.
(b) Excludes long-term structured repurchase agreements of $1.3 billion and $1.8 billion as of December 31, 2017 and 2016, respectively, and average balances of $1.5 billion

and $2.9 billion for the years ended December 31, 2017 and 2016, respectively.

(c) Excludes long-term securities loaned of $1.3 billion and $1.2 billion as of December 31, 2017 and 2016, respectively, and average balances of $1.3 billion for both the years

ended December 31, 2017 and 2016.

(d) Excludes federal funds purchased.
(e) Subordinated debt includes $1.6 billion of junior subordinated debentures distributed pro rata to the holders of the $1.6 billion of trust preferred securities which were

cancelled on December 18, 2017. For further information see Note 19 .

(f) Other securitizations includes securitizations of student loans. The Firm deconsolidated the student loan securitization entities in the second quarter of 2017 as it no longer had

a controlling financial interest in these entities as a result of the sale of the student loan portfolio. The Firm’s wholesale businesses also securitize loans for client-driven
transactions, which are not considered to be a source of funding for the Firm and are not included in the table.

(g) Includes long-term structured notes which are secured.
(h) For additional information on preferred stock and common stockholders’ equity see Capital Risk Management on pages 82–91, Consolidated statements of changes in

stockholders’ equity, Note 20 and Note 21.

Short-term funding
The Firm’s sources of short-term secured funding primarily
consist of securities loaned or sold under agreements to
repurchase. These instruments are secured predominantly
by high-quality securities collateral, including government-
issued debt and agency MBS, and constitute a significant
portion of the federal funds purchased and securities
loaned or sold under repurchase agreements on the
Consolidated balance sheets. The increase in the average
balance of securities loaned or sold under agreements to
repurchase for the year ended December 31, 2017,
compared to December 31, 2016, was largely due to client
activities in CIB. The balances associated with securities
loaned or sold under agreements to repurchase fluctuate
over time due to customers’ investment and financing
activities; the Firm’s demand for financing; the ongoing
management of the mix of the Firm’s liabilities, including its
secured and unsecured financing (for both the investment

securities and market-making portfolios); and other market
and portfolio factors.

The Firm’s sources of short-term unsecured funding
primarily consist of issuances of wholesale commercial
paper. The increase in short-term unsecured funding was
primarily due to higher issuance of commercial paper
reflecting in part a change in the mix of funding from
securities sold under repurchase agreements for CIB
Markets activities.

Long-term funding and issuance
Long-term funding provides additional sources of stable
funding and liquidity for the Firm. The Firm’s long-term
funding plan is driven primarily by expected client activity,
liquidity considerations, and regulatory requirements,
including TLAC. Long-term funding objectives include
maintaining diversification, maximizing market access and

JPMorgan Chase & Co./2017 Annual Report

Management’s discussion and analysis

optimizing funding costs. The Firm evaluates various
funding markets, tenors and currencies in creating its
optimal long-term funding plan.

The significant majority of the Firm’s long-term unsecured
funding is issued by the Parent Company to provide
maximum flexibility in support of both bank and non-bank
subsidiary funding needs. The Parent Company advances
substantially all net funding proceeds to its subsidiary, the
IHC. The IHC does not issue debt to external counterparties.
The following table summarizes long-term unsecured
issuance and maturities or redemptions for the years ended
December 31, 2017 and 2016. For additional information,
see Note 19.

Long-term unsecured funding
Year ended December 31,
(in millions)

Issuance

2017

2016

Senior notes issued in the U.S. market

$ 21,192 $ 25,639

Senior notes issued in non-U.S. markets

2,210

7,063

The following table summarizes the securitization issuance
and FHLB advances and their respective maturities or
redemption for the years ended December 31, 2017 and
2016.

Long-term secured funding
Year ended
December 31,

Issuance

Maturities/Redemptions

(in millions)

Credit card

securitization

2017

2016

2017

2016

$ 1,545 $ 8,277

$ 11,470 $

5,025

Other securitizations(a)

—

17,150

18,900

233

9,209

FHLB advances

Other long-term

secured funding(b)

Total long-term

secured funding

2,354

455

731

2,645

$ 3,899 $ 25,882

$ 31,156 $

17,112

(a) Other securitizations includes securitizations of student loans. The
Firm deconsolidated the student loan securitization entities in the
second quarter of 2017 as it no longer had a controlling financial
interest in these entities as a result of the sale of the student loan
portfolio.

23,402

32,702

(b) Includes long-term structured notes which are secured.

The Firm’s wholesale businesses also securitize loans for
client-driven transactions; those client-driven loan
securitizations are not considered to be a source of funding
for the Firm and are not included in the table above. For
further description of the client-driven loan securitizations,
see Note 14.

Total senior notes

Subordinated debt

Structured notes

—

1,093

29,040

22,865

Total long-term unsecured funding –

issuance

$ 52,442 $ 56,660

Maturities/redemptions

Senior notes

Trust preferred securities

Subordinated debt

Structured notes

Total long-term unsecured funding –

maturities/redemptions

$ 22,337 $ 29,989

—

6,901

1,630

3,596

22,581

15,925

$ 51,819 $ 51,140

The Firm raises secured long-term funding through
securitization of consumer credit card loans and advances
from the FHLBs.

JPMorgan Chase & Co./2017 Annual Report

Credit ratings
The cost and availability of financing are influenced by
credit 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 of
a credit ratings downgrade on the funding requirements for
VIEs, and on derivatives and collateral agreements, see
SPEs on page 50, and credit risk, liquidity risk and credit-
related contingent features in Note 5 on page 186.

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

JPMorgan Chase & Co.

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

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

December 31, 2017

Moody’s Investors Service

Standard & Poor’s

Fitch Ratings

Long-term
issuer

Short-term
issuer

A-

A+

P-2

A-2

Outlook

Stable

Long-term
issuer

Short-term
issuer

Aa3

A+

AA-

P-1

A-1

F1+

Outlook

Stable

Long-term
issuer

Short-term
issuer

A+

AA-

P-1

A-1

F1+

Outlook

Stable

On February 22, 2017, Moody’s published its updated
rating methodologies for securities firms. As a result of this
methodology change, J.P. Morgan Securities LLC’s long-term
issuer rating was downgraded by one notch from Aa3 to A1;
the short-term issuer rating was unchanged and the outlook
remained stable.

On June 1, 2017, JPMorgan Chase Bank, N.A. terminated its
guarantee of the payment of all obligations of J.P. Morgan
Securities plc arising after such termination. J.P. Morgan
Securities plc, whose credit ratings previously reflected the
benefit of this guarantee, is now rated on a stand-alone,
non-guaranteed basis.

Downgrades of the Firm’s long-term ratings by one or two
notches could result in an increase in its cost of funds, and
access to certain funding markets could be reduced as
noted above. The nature and magnitude of the impact of
ratings downgrades depends on numerous contractual and
behavioral factors which the Firm believes are incorporated
in its liquidity risk and stress testing metrics. The Firm
believes that it maintains sufficient liquidity to withstand a

potential decrease in funding capacity due to ratings
downgrades.

JPMorgan Chase’s unsecured debt does not contain
requirements that 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.

Critical factors in maintaining high credit ratings include a
stable and diverse earnings stream, strong capital ratios,
strong credit quality and risk management controls, diverse
funding sources, and disciplined liquidity monitoring
procedures. 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 & Co./2017 Annual Report

REPUTATION RISK MANAGEMENT

Reputation risk is the potential that an action, inaction,
transaction, investment or event will reduce trust in the
Firm’s integrity or competence by its various constituents,
including clients, counterparties, investors, regulators,
employees and the broader public. Maintaining the Firm’s
reputation is the responsibility of each individual 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. Because the types of events that could harm the
Firm’s reputation are so varied across the Firm’s lines of
business, each line of business has a separate reputation
risk governance infrastructure in place, which consists of

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

JPMorgan Chase & Co./2017 Annual Report

CREDIT AND INVESTMENT RISK MANAGEMENT

Credit and investment risk is the risk associated with the
default or change in credit profile of a client, counterparty
or customer; or loss of principal or a reduction in expected
returns on investments.

Credit risk management
Credit risk is the risk associated with the default or change
in credit profile of a client, counterparty or customer. The
Firm provides credit to a variety of customers, ranging from
large corporate and institutional clients to individual
consumers and small businesses. In its consumer
businesses, the Firm is exposed to credit risk primarily
through its home lending, credit card, auto, and business
banking businesses. In its wholesale businesses, the Firm is
exposed to credit risk through its underwriting, lending,
market-making, and hedging activities with and for clients
and counterparties, as well as through its operating services
activities (such as cash management and clearing
activities), securities financing activities, investment
securities portfolio, and cash placed with banks.

Credit risk management is an independent risk
management function that monitors, measures and
manages credit risk throughout the Firm and defines credit
risk policies and procedures. The credit risk function reports
to the Firm’s CRO. The Firm’s credit risk management
governance includes the following activities:

• Establishing a comprehensive credit risk policy

framework

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

• Setting industry concentration limits and establishing

underwriting guidelines

• Assigning and managing credit authorities in connection

with the approval of all credit exposure

• Managing criticized exposures and delinquent loans

• Estimating credit losses and ensuring appropriate credit

risk-based capital management

Risk identification and measurement
The Credit Risk Management function monitors, measures,
manages and limits credit risk across the Firm’s businesses.
To measure credit risk, the Firm employs several
methodologies for estimating the likelihood of obligor or
counterparty default. Methodologies for measuring credit
risk vary depending on several factors, including type of
asset (e.g., consumer versus wholesale), risk measurement
parameters (e.g., delinquency status and borrower’s credit
score versus wholesale risk-rating) and risk management
and collection processes (e.g., retail collection center versus
centrally managed workout groups). Credit risk
measurement is based on the probability of default of an
obligor or counterparty, the loss severity given a default
event and the exposure at default.

Based on these factors and related market-based inputs,
the Firm estimates credit losses for its exposures. Probable
credit losses inherent in the consumer and wholesale held-
for-investment loan portfolios are reflected in the allowance
for loan losses, and probable credit losses inherent in
lending-related commitments are reflected in the allowance
for lending-related commitments. These losses are
estimated using statistical analyses and other factors as
described in Note 13. In addition, potential and unexpected
credit 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 and
lending-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 Estimates
used by the Firm on pages 138–140.

The methodologies used to estimate credit losses depend
on the characteristics of the credit exposure, as described
below.

Scored exposure
The scored portfolio is generally held in CCB and
predominantly includes residential real estate loans, credit
card loans, and certain auto and business banking loans.
For the scored portfolio, credit loss estimates are based on
statistical analysis of credit losses over discrete periods 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 to current macroeconomic
and political conditions, the quality of underwriting
standards, and other internal and external factors. The
factors and analysis are updated on a quarterly basis or
more frequently as market conditions dictate.

Risk-rated exposure
Risk-rated portfolios are generally held in CIB, CB and AWM,
but also include certain business banking and auto dealer
loans held in CCB that are risk-rated because they have
characteristics similar to commercial loans. For the risk-
rated portfolio, credit loss estimates are based on estimates
of the probability of default (“PD”) and loss severity given a
default. The probability of default is the likelihood that a
borrower 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 each
borrower and credit facility to differentiate risk within the
portfolio. These risk ratings are reviewed regularly by Credit
Risk Management and revised as needed to reflect the
borrower’s current financial position, risk profile and
related collateral. The calculations and assumptions are

JPMorgan Chase & Co./2017 Annual Report

monitored as this risk could result in greater exposure at
default compared with a transaction with another
counterparty that does not have this risk.

Management of the Firm’s wholesale credit risk exposure is
accomplished 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 and
commercial-oriented retail credit portfolios, and
assessing the timeliness of risk grade changes initiated by
responsible business units; and

• Evaluating the effectiveness of business units’ credit

management processes, including the adequacy of credit
analyses and risk grading/LGD rationales, proper
monitoring and management of credit exposures, and
compliance with applicable grading policies and
underwriting guidelines.

For further discussion of consumer and wholesale loans, see
Note 12.

Risk reporting
To enable monitoring of credit risk and effective decision-
making, aggregate credit exposure, credit quality forecasts,
concentration levels and risk profile changes are reported
regularly to senior members of Credit Risk Management.
Detailed portfolio reporting of industry; clients,
counterparties and customers; product and geographic
concentrations occurs monthly, and the appropriateness of
the allowance for credit losses is reviewed by senior
management at least on a quarterly basis. Through the risk
reporting and governance structure, credit risk trends and
limit exceptions are provided regularly to, and discussed
with, risk committees, senior management and the Board of
Directors as appropriate.

Management’s discussion and analysis

based on both internal and external historical experience
and 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 process
assesses the potential impact of alternative economic and
business scenarios on estimated credit losses for the Firm.
Economic scenarios and the underlying parameters are
defined centrally, articulated in terms of macroeconomic
factors and applied across the businesses. The stress test
results may indicate credit migration, changes in
delinquency trends and potential losses in the credit
portfolio. In addition to the periodic stress testing
processes, management also considers additional stresses
outside these scenarios, including industry and country-
specific stress scenarios, as necessary. The Firm uses stress
testing to inform decisions on setting risk appetite both at a
Firm and LOB level, as well as to assess the impact of stress
on individual counterparties.

Risk monitoring and management
The Firm has developed policies and practices that are
designed to preserve the independence and integrity of the
approval and decision-making process of extending credit to
ensure credit risks are assessed accurately, approved
properly, monitored regularly and managed actively at both
the transaction and portfolio levels. The policy framework
establishes credit approval authorities, concentration limits,
risk-rating methodologies, portfolio review parameters and
guidelines 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 of
businesses.

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. Historical
and forecasted economic performance and trends are
incorporated into the modeling of estimated consumer
credit losses and are part of the monitoring of the credit
risk profile of the portfolio.

Wholesale credit risk is monitored regularly at an aggregate
portfolio, industry, and individual client and counterparty
level with established concentration limits that are reviewed
and revised as deemed appropriate by management,
typically on an annual basis. Industry and counterparty
limits, as measured in terms of exposure and economic risk
appetite, are subject to stress-based loss constraints. In
addition, wrong-way risk — the risk that exposure to a
counterparty is positively correlated with the impact of a
default by the same counterparty, which could cause
exposure to increase at the same time as the counterparty’s
capacity to meet its obligations is decreasing — is actively

100

JPMorgan Chase & Co./2017 Annual Report

CREDIT PORTFOLIO

In the following tables, reported loans include loans
retained (i.e., held-for-investment); loans held-for-sale; and
certain loans accounted for at fair value. The following
tables do not include certain loans the Firm accounts for at
fair value and classifies as trading assets. For further
information regarding these loans, see Note 2 and Note 3.
For additional information on the Firm’s loans, lending-
related commitments, and derivative receivables, including
the Firm’s accounting policies, see Note 12, Note 27, and
Note 5, 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 4,
Note 10, and Note 11, respectively.

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

Total credit portfolio

December 31,
(in millions)

Loans retained

Loans held-for-sale

Loans at fair value

Credit exposure

Nonperforming(e)(f)

2017

2016

2017

2016

$ 924,838 $ 889,907

$ 5,943 $ 6,721

3,351

2,508

2,628

2,230

Total loans – reported

930,697

894,765

Derivative receivables

56,523

64,078

—

5,943

130

162

—

6,883

223

Receivables from

customers and other (a)

Total credit-related

assets

Assets acquired in loan

satisfactions

Real estate owned

Other

Total assets acquired in

loan satisfactions

Lending-related
commitments

Total credit portfolio

Credit derivatives used in

credit portfolio
management
activities(b)

Liquid securities and

other cash collateral
held against
derivatives(c)

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

Net charge-offs(g)

Average retained loans

Loans

Loans – reported, excluding
residential real estate PCI loans

Net charge-off rates(g)

Loans

Loans – excluding PCI

26,272

17,560

—

1,013,492

976,403

6,073

7,106

991,482

975,152 (d)
$2,004,974 $1,951,555 (d)

311

353

731

370

429

506

$ 7,157 $ 8,041

$ (17,609) $ (22,114)

— $

—

(16,108)

(22,705)

2017

2016

5,387

4,692

898,979

861,345

865,887

822,973

0.60%

0.62

0.54%

0.57

(a) Receivables from customers and other primarily represents held-for-investment

margin loans to brokerage customers.

(b) Represents the net notional amount of protection purchased and sold through

credit derivatives used to manage both performing and nonperforming wholesale
credit exposures; these derivatives do not qualify for hedge accounting under
U.S. GAAP. For additional information, see Credit derivatives on pages 115–116
and Note 5.
Includes collateral related to derivative instruments where an appropriate legal
opinion has not been either sought or obtained.

(c)

(d) The prior period amounts have been revised to conform with the current period

presentation.

(e) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI

loans as each of the pools is performing.

(f) At December 31, 2017 and 2016, nonperforming assets excluded: (1) mortgage
loans insured by U.S. government agencies of $4.3 billion and $5.0 billion,
respectively, that are 90 or more days past due; (2) student loans insured by U.S.
government agencies under the FFELP of zero and $263 million, respectively,
that are 90 or more days past due; and (3) Real estate owned (“REO”) insured by
U.S. government agencies of $95 million and $142 million, respectively. 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 guidance issued by the Federal
Financial Institutions Examination Council (“FFIEC”).

(g) For the year ended December 31, 2017, excluding net charge-offs of $467

million related to the student loan portfolio sale, the net charge-off rate for loans
would have been 0.55% and for loans - excluding PCI would have been 0.57%.

JPMorgan Chase & Co./2017 Annual Report

101

Management’s discussion and analysis

CONSUMER CREDIT PORTFOLIO

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

102

JPMorgan Chase & Co./2017 Annual Report

The following table presents consumer credit-related information with respect to the credit portfolio held by CCB, prime
mortgage and home equity loans held by AWM, and prime mortgage loans held by Corporate. For further information about the
Firm’s nonaccrual and charge-off accounting policies, see Note 12.

Credit exposure

Nonaccrual loans(k)(l)

Net charge-offs/
(recoveries)(e)(m)(n)

Average annual net
charge-off rate(e)(m)(n)

2017

2016

2017

2016

2017

2016

2017

2016

Consumer credit portfolio

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

Consumer, excluding credit card

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

Residential mortgage(a)

Home equity

Auto(b)(c)

Consumer & Business Banking(a)(c)(d)

Student(a)(e)

216,496

192,486

$ 2,175 $ 2,256

(10) $

33,450

66,242

25,789

—

39,063

65,814

24,307

7,057

1,610

1,845

141

283

—

214

287

165

331

257

498

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

341,977

328,727

4,209

4,767

1,145

Loans – PCI

Home equity

Prime mortgage

Subprime mortgage

Option ARMs(f)

Total loans – PCI

Total loans – retained

Loans held-for-sale

Total consumer, excluding credit card loans

Lending-related commitments(g)

Receivables from customers(h)

10,799

6,479

2,609

10,689

30,576

12,902

7,602

2,941

12,234

35,679

372,553

364,406

4,209

4,767

1,145

128

372,681

48,553

133

238

—

364,644

4,209

4,820

1,145

53,247 (j)

120

Total consumer exposure, excluding credit card

421,367

418,011 (j)

189

285

257

162

909

—

909

—%

0.01%

0.19

0.51

1.03

0.34

0.31

—

0.31

0.45

1.10

2.13

0.28

0.25

—

0.25

Credit Card

Loans retained(i)

Loans held-for-sale

Total credit card loans

Lending-related commitments(g)

Total credit card exposure

Total consumer credit portfolio

149,387

141,711

124

149,511

572,831

722,342

105

141,816

553,891

695,707

—

4,123

3,442

—

4,123

3,442

2.95

—

2.95

2.63

—

2.63

$ 1,143,709

$ 1,113,718 (j)

$ 4,209 $ 4,820

$ 5,268 $

4,351

1.04%

1.11%

0.89%

0.96%

Memo: Total consumer credit portfolio, excluding PCI

$ 1,113,133

$ 1,078,039 (j)

$ 4,209 $ 4,820

$ 5,268 $

4,351

(a) Certain loan portfolios have been reclassified. The prior period amounts have been revised to conform with the current period presentation.
(b) At December 31, 2017 and 2016, excluded operating lease assets of $17.1 billion and $13.2 billion, respectively. These operating lease assets are included in other assets on the

Firm’s Consolidated balance sheets. The risk of loss on these assets relates to the residual value of the leased vehicles, which is managed through projection of the lease residual
value at lease origination, periodic review of residual values, and through arrangements with certain auto manufacturers that mitigates this risk.
Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses; these loans are managed by
CCB, and therefore, for consistency in presentation, are included within the consumer portfolio.

(c)

(d) Predominantly includes Business Banking loans.
(e) For the year ended December 31, 2017, excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for Total consumer, excluding

credit card and PCI loans and loans held-for-sale would have been 0.20%; Total consumer - retained excluding credit card loans would have been 0.18%; Total consumer credit
portfolio would have been 0.95%; and Total consumer credit portfolio, excluding PCI loans would have been 1.01%.

(f) At December 31, 2017 and 2016, approximately 68% and 66%, respectively, of the PCI option adjustable rate mortgages (“ARMs”) portfolio has been modified into fixed-rate,

fully amortizing loans.

(g) Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, and does not anticipate,

that all available lines of credit would be used at the same time. For credit card and home equity commitments (if certain conditions are met), the Firm can reduce or cancel these
lines of credit by providing the borrower notice or, in some cases as permitted by law, without notice. For further information, see Note 27.

(h) Receivables from customers represent held-for-investment margin loans to brokerage customers that are collateralized through assets maintained in the clients’ brokerage

accounts. These receivables are reported within accrued interest and accounts receivable on the Firm’s Consolidated balance sheets.
(i)
Includes billed interest and fees net of an allowance for uncollectible interest and fees.
(j) The prior period amounts have been revised to conform with the current period presentation.
(k) At December 31, 2017 and 2016, nonaccrual loans excluded loans 90 or more days past due as follows: (1) mortgage loans insured by U.S. government agencies of $4.3 billion
and $5.0 billion, respectively; and (2) student loans insured by U.S. government agencies under the FFELP of zero and $263 million, respectively. These amounts have been
excluded from nonaccrual loans based upon the government guarantee. In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual
status, as permitted by regulatory guidance issued by the FFIEC.

(l) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as each of the pools is performing.
(m) Net charge-offs and net charge-off rates excluded write-offs in the PCI portfolio of $86 million and $156 million for the years ended December 31, 2017 and 2016. These write-

offs decreased the allowance for loan losses for PCI loans. See Allowance for Credit Losses on pages 117–119 for further details.

(n) Average consumer loans held-for-sale were $1.5 billion and $496 million for the years ended December 31, 2017 and 2016, respectively. These amounts were excluded when

calculating net charge-off rates.

JPMorgan Chase & Co./2017 Annual Report

103

Management’s discussion and analysis

Consumer, excluding credit card
Portfolio analysis

Consumer loan balances increased from December 31,
2016 predominantly due to originations of high-quality
prime mortgage loans that have been retained on the
balance sheet, partially offset by the sale of the student
loan portfolio as well as paydowns and the charge-off or
liquidation of delinquent loans.

PCI loans are excluded from the following discussions of
individual 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, see
Note 12.

Residential mortgage: The residential mortgage portfolio
predominantly consists of high-quality prime mortgage
loans with a small component (approximately 1%) of
subprime mortgage loans. These subprime mortgage loans
continue to run-off and are performing in line with
expectations. The residential mortgage portfolio, including
loans held-for-sale, increased from December 31, 2016 due
to retained originations of primarily high-quality fixed rate
prime mortgage loans partially offset by paydowns.
Residential mortgage 30+ day delinquencies increased from
December 31, 2016 due to the impact of recent hurricanes.
Nonaccrual loans decreased from the prior year primarily as
a result of loss mitigation activities. There was a net
recovery for the year ended December 31, 2017 compared
to a net charge-off for the year ended December 31, 2016,
reflecting continued improvement in home prices and
delinquencies.

At December 31, 2017 and 2016, the Firm’s residential
mortgage portfolio, including loans held-for-sale, included
$8.6 billion and $9.5 billion, respectively, of mortgage
loans insured and/or guaranteed by U.S. government
agencies, of which $6.2 billion and $7.0 billion,
respectively, were 30 days or more past due (of these past
due loans, $4.3 billion and $5.0 billion, respectively, were
90 days or more past due). The Firm monitors its exposure
to certain potential unrecoverable claim payments related
to government insured loans and considers this exposure in
estimating the allowance for loan losses.

At December 31, 2017 and 2016, the Firm’s residential
mortgage portfolio included $20.2 billion and $19.1 billion,
respectively, of interest-only loans. These loans have an
interest-only payment period generally followed by an
adjustable-rate or fixed-rate fully amortizing payment
period to maturity and are typically originated as higher-
balance loans to higher-income borrowers. To date, losses
on this portfolio generally have been consistent with the
broader residential mortgage portfolio. The Firm continues
to monitor the risks associated with these loans.

Home equity: The home equity portfolio declined from
December 31, 2016 primarily reflecting loan paydowns.
The amount of 30+ day delinquencies decreased from
December 31, 2016 but was impacted by recent hurricanes.
Nonaccrual loans decreased from December 31, 2016
primarily as a result of loss mitigation activities. Net charge-
offs for the year ended December 31, 2017 declined when
compared with the prior year, partially as a result of lower
loan balances.

At December 31, 2017, approximately 90% of the Firm’s
home equity portfolio consists of home equity lines of credit
(“HELOCs”) and the remainder consists of home equity
loans (“HELOANs”). HELOANs are generally fixed-rate,
closed-end, amortizing loans, with terms ranging from 3–30
years. In general, HELOCs originated by the Firm are
revolving loans for a 10-year period, after which time the
HELOC recasts into a loan with a 20-year amortization
period.

The carrying value of HELOCs outstanding was $30 billion at
December 31, 2017. Of such amounts, $14 billion have
recast from interest-only to fully amortizing payments or
have been modified and $5 billion are interest-only balloon
HELOCs, which primarily mature after 2030. The Firm
manages the risk of HELOCs during their revolving period 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.

104

JPMorgan Chase & Co./2017 Annual Report

The Firm monitors risks associated with junior lien loans
where the borrower has a senior lien loan that is more than
90 days delinquent or has been modified. These loans are
considered “high-risk seconds” and are classified as
nonaccrual as they are considered to pose a higher risk of
default than other junior lien loans. At December 31, 2017,
the Firm estimated that the carrying value of its home
equity portfolio contained approximately $725 million of
current junior lien loans that were considered high-risk
seconds, compared with $1.1 billion at December 31,
2016. For further information, see Note 12.

Auto: The auto loan portfolio, which predominantly consists
of prime-quality loans, was relatively flat compared with
December 31, 2016, as new originations were largely offset
by paydowns and the charge-off or liquidation of delinquent
loans. Nonaccrual loans decreased compared with
December 31, 2016. Net charge-offs for the year ended
December 31, 2017 increased compared with the prior
year, primarily as a result of an incremental adjustment
recorded in accordance with regulatory guidance regarding
the timing of loss recognition for certain loans in
bankruptcy and loans where assets were acquired in loan
satisfaction.

Consumer & Business banking: Consumer & Business
Banking loans increased compared with December 31,
2016 as growth due to loan originations was partially offset
by paydowns and the charge-off or liquidation of delinquent
loans. Nonaccrual loans and net charge-offs were relatively
flat compared with prior year.

Student: The Firm wrote down and subsequently sold the
student loan portfolio during 2017. Net charge-offs for the
year ended December 31, 2017 increased as a result of the
write-down.

Purchased credit-impaired loans: PCI loans decreased as
the portfolio continues to run off. As of December 31,
2017, approximately 11% of the option ARM PCI loans
were delinquent and approximately 68% of the portfolio
had been modified into fixed-rate, fully amortizing loans.
The borrowers for substantially all of the remaining loans
are making amortizing payments, although such payments
are not necessarily fully amortizing. This latter group of
loans is subject to the risk of payment shock due to future
payment recast. Default rates generally increase on option
ARM loans when payment recast results in a payment
increase. The expected increase in default rates is
considered in the Firm’s quarterly impairment assessment.

The following table provides a summary of lifetime principal loss estimates included in either the nonaccretable difference or
the allowance for loan losses.

Summary of PCI loans lifetime principal loss estimates

December 31, (in billions)
Home equity
Prime mortgage
Subprime mortgage
Option ARMs
Total

Lifetime loss estimates(a)
2016
2017

Life-to-date liquidation losses(b)

2017

2016

14.2
4.0
3.3
10.0
31.5

14.4
4.0
3.2
10.0
31.6

12.9
3.8
3.1
9.7
29.5

12.8
3.7
3.1
9.7
29.3

(a) Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses plus additional principal losses recognized subsequent to
acquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses was $842 million and $1.1 billion at December 31,
2017 and 2016, respectively.

(b) Represents both realization of loss upon loan resolution and any principal forgiven upon modification.

For further information on the Firm’s PCI loans, including write-offs, see Note 12.

Geographic composition of residential real estate loans
At December 31, 2017, $152.8 billion, or 63% of the total
retained residential real estate loan portfolio, excluding
mortgage loans insured by U.S. government agencies and
PCI loans, were concentrated in California, New York,
Illinois, Texas and Florida, compared with $139.9 billion, or
63%, at December 31, 2016. For additional information on
the geographic composition of the Firm’s residential real
estate loans, see Note 12.

Current estimated loan-to-values of residential real
estate loans
Average current estimated loan-to-value (“LTV”) ratios have
declined consistent with improvements in home prices,
customer pay downs, and charge-offs or liquidations of
higher LTV loans. For further information on current
estimated LTVs of residential real estate loans, see Note 12.

Loan modification activities for 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 24% for residential mortgages and 21% for home
equity. The cumulative performance metrics for
modifications to the PCI residential real estate portfolio that
have been seasoned more than six months show weighted
average redefault rates of 20% for home equity, 19% for
prime mortgages, 16% for option ARMs and 34% for
subprime 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

JPMorgan Chase & Co./2017 Annual Report

105

Management’s discussion and analysis

(primarily the Firm’s modification program that was
modeled after HAMP) from October 1, 2009, through
December 31, 2017.

Certain loans that were modified under HAMP and the
Firm’s proprietary modification programs have interest rate
reset provisions (“step-rate modifications”). Interest rates
on these loans generally began to increase commencing in
2014 by 1% per year, and will continue to do so until the
rate reaches a specified cap. The cap on these loans is
typically at a prevailing market interest rate for a fixed-rate
mortgage loan as of the modification date. At December 31,
2017, the carrying value of non-PCI loans and the unpaid
principal balance of PCI loans modified in step-rate
modifications, which have not yet met their specified caps,
were $3 billion and $7 billion, respectively. The Firm
continues to monitor this risk exposure and the impact of
these potential interest rate increases is considered in the
Firm’s allowance for loan losses.

The following table presents information as of
December 31, 2017 and 2016, relating to modified
retained residential real estate loans for which concessions
have been granted to borrowers experiencing financial
difficulty. For further information on modifications for the
years ended December 31, 2017 and 2016, see Note 12.

Modified residential real estate loans

2017

2016

Retained
loans

Nonaccrual
retained
loans(d)

Retained
loans

Nonaccrual
retained
loans(d)

December 31,
(in millions)

Modified residential
real estate loans,
excluding PCI loans(a)(b)

Residential mortgage

5,620

1,743

6,032

$ 2,118 $

1,032 $ 2,264 $

Home equity

Total modified

residential real estate
loans, excluding PCI
loans

Modified PCI loans(c)

Home equity

Prime mortgage

Subprime mortgage

Option ARMs

$ 7,738 $

2,775 $ 8,296 $

2,871

$ 2,277

NA $ 2,447

4,490

2,678

8,276

5,052

2,951

9,295

1,755

1,116

Total modified PCI loans $17,721

NA $19,745

(a) Amounts represent the carrying value of modified residential real estate loans.
(b) At December 31, 2017 and 2016, $3.8 billion and $3.4 billion, respectively, of

loans modified subsequent to repurchase from Ginnie Mae in accordance with
the standards of the appropriate government agency (i.e., Federal Housing
Administration (“FHA”), U.S. Department of Veterans Affairs (“VA”), Rural
Housing Service of the U.S. Department of Agriculture (“RHS”)) are not included
in the table above. When such loans perform subsequent to modification in
accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie
Mae loan pools. Modified loans that do not re-perform become subject to
foreclosure. For additional information about sales of loans in securitization
transactions with Ginnie Mae, see Note 14.

(c) Amounts represent the unpaid principal balance of modified PCI loans.
(d) As of December 31, 2017 and 2016, nonaccrual loans included $2.2 billion and
$2.3 billion, respectively, of troubled debt restructuring (“TDRs”) for which the
borrowers were less than 90 days past due. For additional information about
loans modified in a TDR that are on nonaccrual status, see Note 12.

Nonperforming assets
The following table presents information as of
December 31, 2017 and 2016, about consumer, excluding
credit card, nonperforming assets.

Nonperforming assets(a)
December 31, (in millions)
Nonaccrual loans(b)
Residential real estate(c)
Other consumer(c)
Total nonaccrual loans

Assets acquired in loan satisfactions

Real estate owned

Other

Total assets acquired in loan satisfactions

2017

2016

$ 3,785

4,154

424

4,209

666

4,820

225

265

292

349

Total nonperforming assets

$ 4,474

5,169

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

been revised to conform with the current period presentation.

Nonaccrual loans in the residential real estate portfolio at
December 31, 2017 decreased to $3.8 billion from $4.2
billion at December 31, 2016, of which 26% and 29% were
greater than 150 days past due, respectively. In the
aggregate, the unpaid principal balance of residential real
estate loans greater than 150 days past due was charged
down by approximately 40% and 43% to the estimated net
realizable value of the collateral at December 31, 2017 and
2016, respectively.

Active and suspended foreclosure: For information on
loans that were in the process of active or suspended
foreclosure, see Note 12.

Nonaccrual loans: The following table presents changes in
the consumer, excluding credit card, nonaccrual loans for
the years ended December 31, 2017 and 2016.

Nonaccrual loan activity
Year ended December 31,
(in millions)
Beginning balance
Additions
Reductions:

Principal payments and other(a)
Charge-offs
Returned to performing status
Foreclosures and other liquidations

Total reductions
Net changes
Ending balance

(a) Other reductions includes loan sales.

2017
4,820 $
3,525

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

2016
5,413
3,858

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

106

JPMorgan Chase & Co./2017 Annual Report

Credit card
Total credit card loans increased from December 31, 2016
due to strong new account growth and higher sales volume.
The December 31, 2017 30+ day delinquency rate
increased to 1.80% from 1.61% at December 31, 2016,
while the December 31, 2017 90+ day delinquency rate
increased to 0.92% from 0.81% at December 31, 2016, in
line with expectations. Net charge-offs increased for the
year ended December 31, 2017 primarily due to growth in
newer vintages which, as anticipated, have higher loss rates
than the more seasoned portion of the portfolio. The credit
card portfolio continues to reflect a largely well-seasoned
portfolio that has strong U.S. geographic diversification.

Loans outstanding in the top five states of California, Texas,
New York, Florida and Illinois consisted of $67.2 billion in
receivables, or 45% of the retained loan portfolio, at
December 31, 2017, compared with $62.8 billion, or 44%,
at December 31, 2016. For more information on the
geographic and FICO composition of the Firm’s credit card
loans, see Note 12.

Modifications of credit card loans
At both December 31, 2017 and 2016, the Firm had $1.2
billion of credit card loans outstanding that have been
modified in TDRs. These balances included both credit card
loans with modified payment terms and credit card loans
that reverted back to their pre-modification payment terms
because the cardholder did not comply with the modified
payment terms.

Consistent with the Firm’s policy, all credit card loans
typically remain on accrual status until charged off.
However, the Firm establishes an allowance, which is offset
against loans and charged to interest income, for the
estimated uncollectible portion of accrued and billed
interest and fee income.

For additional information about loan modification
programs to borrowers, see Note 12.

JPMorgan Chase & Co./2017 Annual Report

107

Management’s discussion and analysis

WHOLESALE CREDIT PORTFOLIO

In its wholesale businesses, the Firm is exposed to credit
risk through its underwriting, lending, market-making, and
hedging activities with and for clients and counterparties,
as well as through its operating services activities (such as
cash management and clearing activities), securities
financing activities, investment securities portfolio, and
cash placed with banks. A portion of the loans originated or
acquired by the Firm’s wholesale businesses is generally
retained on the balance sheet. The Firm distributes a
significant percentage of the loans it originates into the
market as part of its syndicated loan business and to
manage portfolio concentrations and credit risk.

The wholesale credit portfolio was stable for the year ended
December 31, 2017, characterized by low levels of
criticized exposure, nonaccrual loans and charge-offs. See
industry discussion on pages 109–112 for further
information. The increase in retained loans was driven by
new originations in CB and higher loans to Private Banking
clients in AWM, which was partially offset by paydowns in
CIB. Discipline in underwriting across all areas of lending
continues to be a key point of focus. The wholesale portfolio
is actively managed, in part by conducting ongoing, in-
depth reviews of client credit quality and transaction
structure inclusive of collateral where applicable, and of
industry, product and client concentrations.

In the following tables, the Firm’s wholesale credit portfolio
includes exposure held in CIB, CB, AWM and Corporate, and
excludes all exposure managed by CCB.

Wholesale credit portfolio

December 31,
(in millions)

Loans retained

Loans held-for-sale

Loans at fair value

Credit exposure

Nonperforming(c)

2017

2016

2017

2016

$402,898 $383,790

$ 1,734 $ 1,954

3,099

2,508

2,285

2,230

—

109

—

Loans – reported

408,505

388,305

1,734

2,063

Derivative receivables

56,523

64,078

130

223

Receivables from

customers and other(a)

Total wholesale credit-

related assets

Lending-related
commitments

Total wholesale credit

exposure

Credit derivatives used

26,139

17,440

—

491,167

469,823

1,864

2,286

370,098

368,014

731

506

$861,265 $837,837

$ 2,595 $ 2,792

in credit portfolio
management activities(b) $ (17,609) $ (22,114) $

— $

—

Liquid securities and
other cash collateral
held against derivatives

(16,108)

(22,705)

(a) Receivables from customers and other include $26.0 billion and $17.3
billion of held-for-investment margin loans at December 31, 2017 and
2016, respectively, to brokerage customers in CIB Prime Services and
in AWM; these are classified in accrued interest and accounts
receivable on the Consolidated balance sheets.

(b) Represents the net notional amount of protection purchased and sold
through credit derivatives used to manage both performing and
nonperforming wholesale credit exposures; these derivatives do not
qualify for hedge accounting under U.S. GAAP. For additional
information, see Credit derivatives on pages 115–116, and Note 5.

108

JPMorgan Chase & Co./2017 Annual Report

Total derivative receivables, net of all collateral

9,882

10,463

Lending-related commitments

80,273

275,317

20,070

14,508

Subtotal

211,798

462,813

138,800

813,411

The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of December 31, 2017 and
2016. The ratings scale is based on the Firm’s internal risk ratings, which generally correspond to the ratings assigned by S&P
and Moody’s. For additional information on wholesale loan portfolio risk ratings, see Note 12.

Wholesale credit exposure – maturity and ratings profile

Maturity profile(d)

Ratings profile

Due in 1
year or less

Due after
1 year
through
5 years

Due after 5
years

Total

Investment-
grade

AAA/Aaa to
BBB-/Baa3

Noninvestment-
grade

BB+/Ba1 &
below

Total

Total %
of IG

$ 121,643 $ 177,033 $ 104,222 $ 402,898

311,681

91,217

$ 402,898

77%

December 31, 2017
(in millions, except ratios)

Loans retained

Derivative receivables

Less: Liquid securities and other cash collateral

held against derivatives

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

Receivables from customers and other

Total exposure – net of liquid securities and other

cash collateral held against derivatives

Credit derivatives used in credit portfolio

management activities(b)(c)

December 31, 2016
(in millions, except ratios)

Loans retained

Derivative receivables

Less: Liquid securities and other cash collateral

held against derivatives

Total derivative receivables, net of all collateral

Lending-related commitments

Subtotal

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

Receivables from customers and other

Total exposure – net of liquid securities and other

cash collateral held against derivatives

Credit derivatives used in credit portfolio

management activities (b)(c)

56,523

(16,108)

40,415

370,098

5,607

26,139

$ 845,157

32,373

274,127

618,181

8,042

95,971

195,230

56,523

(16,108)

40,415

370,098

813,411

5,607

26,139

$ 845,157

(1,807) $

(11,011) $

(4,791) $

(17,609) $

(14,984)

(2,625)

$ (17,609)

85%

Maturity profile(d)

Due in 1
year or less

Due after
1 year
through
5 years

Due after 5
years

Total

Investment-
grade

AAA/Aaa to
BBB-/Baa3

Ratings profile

Noninvestment-
grade

BB+/Ba1 &
below

Total

Total %
of IG

$ 117,238 $ 167,235 $

99,317 $ 383,790

289,923

93,867

$ 383,790

76%

64,078

(22,705)

14,019

88,399

8,510

18,844

41,373

271,825

7,790

368,014

219,656

447,570

125,951

793,177

33,081

269,820

592,824

8,292

98,194

200,353

4,515

17,440

$ 815,132

64,078

(22,705)

41,373

368,014

793,177

4,515

17,440

$ 815,132

(1,354) $

(16,537) $

(4,223) $

(22,114) $

(18,710)

(3,404)

$ (22,114)

85%

(a) Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value.
(b) These derivatives do not qualify for hedge accounting under U.S. GAAP.
(c) The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference entity on which

protection has been purchased. Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection used in credit portfolio management
activities, are executed with investment-grade counterparties.

(d) The maturity profile of retained loans, lending-related commitments and derivative receivables is based on remaining contractual maturity. Derivative contracts that are in a

receivable position at December 31, 2017, may become payable prior to maturity based on their cash flow profile or changes in market conditions.

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

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

JPMorgan Chase & Co./2017 Annual Report

109

Management’s discussion and analysis

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

Wholesale credit exposure – industries(a)

Noninvestment-grade

Credit
exposure(e)

Investment-
grade

Noncriticized

Criticized
performing

Criticized
nonperforming

Selected metrics

30 days or
more past
due and
accruing
loans

Net charge-
offs/
(recoveries)

Credit
derivative
hedges(f)

Liquid
securities
and other
cash
collateral
held against
derivative
receivables

139,409 $

115,401 $

23,012 $

859 $

137 $

254 $

(4) $

— $

87,679

55,737

29,619

1,791

59,274

55,997

55,272

49,037

41,317

32,531

29,317

28,633

19,182

15,945

15,797

14,820

14,171

14,089

5,036

4,113

36,510

42,643

37,198

34,654

21,430

28,029

24,486

27,977

18,741

11,107

9,870

9,321

6,989

11,028

4,775

2,559

20,453

12,731

16,770

13,767

14,854

4,484

4,383

656

376

4,764

5,302

5,278

6,822

2,981

261

1,553

2,258

585

1,159

612

4,046

227

—

527

221

321

—

532

145

987

221

—

150

—

147,900

134,110

13,283

260

247

901

(275)

(12)

(910)

—

(196)

(2)

(9)

(19)

(207)

(21)

(1)

—

(13)

—

(1,216)

(3,174)

(747)

(1)

—

(5,290)

(160)

(130)

(56)

(524)

(10,095)

(2,520)

—

(32)

(284)

(316)

(157)

—

(274)

—

(131)

—

(1)

(2,195)

(23)

(335)

(2,817)

(1,600)

As of or for the year ended
December 31, 2017
(in millions)

Real Estate

Consumer & Retail

Technology, Media &
Telecommunications

Healthcare

Industrials

Banks & Finance Cos

Oil & Gas

Asset Managers

Utilities

State & Municipal Govt(b)

Central Govt

Chemicals & Plastics

Transportation

Automotive

Metals & Mining

Insurance

Financial Markets Infrastructure

Securities Firms

All other(c)

Subtotal

829,519 $

632,565 $

181,349 $

13,010 $

2,595 $

1,524 $

119 $ (17,609) $

(16,108)

Loans held-for-sale and loans at fair

value

Receivables from customers and other

Total(d)

5,607

26,139

861,265

110

JPMorgan Chase & Co./2017 Annual Report

Noninvestment-grade

Credit
exposure(e)

Investment-
grade

Noncriticized

Criticized
performing

Criticized
nonperforming

Selected metrics

30 days or
more past
due and
accruing
loans

Net charge-
offs/
(recoveries)

Credit
derivative
hedges(f)

Liquid
securities
and other
cash
collateral
held against
derivative
receivables(g)

134,287 $

104,869 $

28,281 $

937 $

200 $

206 $

(7) $

(54) $

84,804

54,730

28,255

1,571

63,324

49,445

55,733

48,393

40,367

33,201

29,672

28,263

20,408

15,043

19,096

16,736

13,419

13,510

8,732

4,211

39,998

39,244

36,710

35,385

18,629

29,194

24,203

27,603

20,123

10,405

12,178

9,235

5,523

10,918

7,980

1,812

21,751

9,279

17,854

12,560

12,274

4,006

4,959

624

276

4,452

6,421

7,299

6,744

2,459

752

2,399

1,559

882

1,033

438

8,069

424

156

444

201

1,133

—

248

136

1,395

—

133

—

128

107

—

137,238

124,661

11,988

303

286

598

(424)

(589)

(286)

(434)

(11)

(69)

(30)

(246)

(40)

(2)

(1,336)

(7,337)

233

(1,532)

(18)

—

(1)

—

(5,737)

(306)

(130)

—

(11,691)

(4,183)

(35)

(93)

(401)

(621)

(275)

—

(273)

(3)

(188)

(14)

(62)

(2,538)

(390)

(491)

(3,634)

(1,348)

As of or for the year ended
December 31, 2016
(in millions)

Real Estate

Consumer & Retail

Technology, Media &

Telecommunications

Healthcare

Industrials

Banks & Finance Cos

Oil & Gas

Asset Managers

Utilities

State & Municipal Govt(b)

Central Govt

Chemicals & Plastics

Transportation

Automotive

Metals & Mining

Insurance

Financial Markets Infrastructure

Securities Firms

All other(c)

Subtotal

815,882 $

613,400 $

182,633 $

17,166 $

2,683 $

1,318 $

341 $ (22,114) $

(22,705)

Loans held-for-sale and loans at fair

value

Receivables from customers and other

Total(d)

4,515

17,440

837,837

(a) The industry rankings presented in the table as of December 31, 2016, are based on the industry rankings of the corresponding exposures at

December 31, 2017, not actual rankings of such exposures at December 31, 2016.

(b) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2017 and 2016, noted above, the

Firm held: $9.8 billion and $9.1 billion, respectively, of trading securities; $32.3 billion and $31.6 billion, respectively, of AFS securities; and $14.4 billion
and $14.5 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, see Note 2 and Note 10.

(c) All other includes: individuals; SPEs; and private education and civic organizations, representing approximately 59%, 37% and 4%, respectively, at both

December 31, 2017 and December 31, 2016.

(d) Excludes cash placed with banks of $421.0 billion and $380.2 billion, at December 31, 2017 and 2016, respectively, which is predominantly placed with

various central banks, primarily Federal Reserve Banks.

(e) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against

derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables.

(f) Represents the net notional amounts of protection purchased and sold through credit derivatives used to manage the credit exposures; these derivatives

do not qualify for hedge accounting under U.S. GAAP. The All other category includes purchased credit protection on certain credit indices.

(g) Prior period amounts have been revised to conform with the current period presentation.

JPMorgan Chase & Co./2017 Annual Report

111

Management’s discussion and analysis

Presented below is additional detail on certain industries to which the Firm has exposure.

Real Estate
Exposure to the Real Estate industry increased $5.1 billion during the year ended December 31, 2017, to $139.4 billion
predominantly driven by multifamily lending within CB. For the year ended December 31, 2017, the investment-grade
percentage of the portfolio was 83%, up from 78% for the year ended December 31, 2016. For further information on Real
Estate loans, see Note 12.

(in millions, except ratios)

Multifamily(a)
Other

Total Real Estate Exposure(b)

(in millions, except ratios)

Multifamily(a)
Other

Total Real Estate Exposure(b)

Loans and
Lending-related
Commitments

84,635

54,620

139,255

Loans and
Lending-related
Commitments

80,280

53,801

134,081

December 31, 2017

Derivative
Receivables

Credit
exposure

120

154

84,669

54,740

139,409

December 31, 2016

Derivative
Receivables

Credit
exposure

172

207

80,314

53,973

134,287

%
Investment-
grade

89%

%
Investment-
grade

82%

% Drawn(c)

92%

% Drawn(c)

90%

(a) Multifamily exposure is largely in California.
(b) Real Estate exposure is predominantly secured; unsecured exposure is largely investment-grade.
(c) Represents drawn exposure as a percentage of credit exposure.

Oil & Gas and Natural Gas Pipelines
Exposure to the Oil & Gas and Natural Gas Pipeline portfolios increased by $1.1 billion during the year ended December 31,
2017 to $45.9 billion. During the year ended December 31, 2017, the credit quality of this exposure continued to improve,
with the investment-grade percentage increasing from 48% to 53% and criticized exposure decreasing by $4.5 billion.

(in millions, except ratios)

Exploration & Production (“E&P”) and Oilfield Services

Other Oil & Gas(a)
Total Oil & Gas

Natural Gas Pipelines(b)
Total Oil & Gas and Natural Gas Pipelines(c)

(in millions, except ratios)

E&P and Oilfield Services
Other Oil & Gas(a)
Total Oil & Gas

Natural Gas Pipelines(b)
Total Oil & Gas and Natural Gas Pipelines(c)

December 31, 2017

Loans and
Lending-related
Commitments

Derivative
Receivables

Credit
exposure

20,558

19,032

39,590

4,507

44,097

Loans and
Lending-related
Commitments

20,971

17,518

38,489

4,253

42,742

1,175

552

1,727

1,765

21,733

19,584

41,317

4,545

45,862

December 31, 2016

Derivative
Receivables

Credit
exposure

1,256

622

1,878

106

1,984

22,227

18,140

40,367

4,359

44,726

%
Investment-
grade

% Drawn(d)

34%

33%

%
Investment-
grade

% Drawn(d)

27%

35%

(a) Other Oil & Gas includes Integrated Oil & Gas companies, Midstream/Oil Pipeline companies and refineries.
(b) Natural Gas Pipelines is reported within the Utilities Industry.
(c) Secured lending is $14.0 billion and $14.3 billion at December 31, 2017 and December 31, 2016, respectively, approximately half of which is reserve-
based lending to the Exploration & Production sub-sector; unsecured exposure is largely investment-grade.
(d) Represents drawn exposure as a percentage of credit exposure.

112

JPMorgan Chase & Co./2017 Annual Report

Loans
In the normal course of its wholesale business, the Firm
provides loans to a variety of clients, ranging from large
corporate and institutional clients to high-net-worth
individuals. For further discussion on loans, including
information on credit quality indicators and sales of loans,
see Note 12.

The following table presents the change in the nonaccrual
loan portfolio for the years ended December 31, 2017 and
2016.

Wholesale nonaccrual loan activity(a)
Year ended December 31, (in millions)

Beginning balance

Additions

Reductions:

Paydowns and other

Gross charge-offs

Returned to performing status

Sales

Total reductions

Net changes

Ending balance

2017

2016

2,063 $

1,016

1,482

2,981

1,137

1,148

200

189

285

1,811

(329)

385

242

159

1,934

1,047

1,734 $

2,063

(a) Loans are placed on nonaccrual status when management believes full

payment of principal or interest is not expected, regardless of delinquency
status, or when principal or interest have been in default for a period of 90
days or more unless the loan is both well-secured and in the process of
collection.

The following table presents net charge-offs/recoveries,
which are defined as gross charge-offs less recoveries, for
the years ended December 31, 2017 and 2016. 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)

2017

2016

Loans – reported

Average loans retained

$ 392,263

$ 371,778

Gross charge-offs

Gross recoveries

Net charge-offs

Net charge-off rate

212

(93)

119

398

(57)

341

0.03%

0.09%

Lending-related commitments
The Firm uses lending-related financial instruments, such as
commitments (including revolving credit facilities) and
guarantees, to meet the financing needs of its clients. The
contractual amounts of these financial instruments
represent the maximum possible credit risk should the
counterparties draw down on these commitments or the
Firm fulfill its obligations under these guarantees, and the
counterparties subsequently fail to perform according to
the terms of these contracts. Most of these commitments
and guarantees are refinanced, extended, cancelled, or
expire without being drawn upon or a default occurring. In
the Firm’s view, the total contractual amount of these
wholesale lending-related commitments is not
representative of the Firm’s expected future credit exposure
or funding requirements. For further information on
wholesale lending-related commitments, see Note 27.

Clearing services
The Firm provides clearing services for clients entering into
securities and derivative transactions. Through the
provision of these services the Firm is exposed to the risk of
non-performance by its clients and may be required to
share 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 and
can also cease provision of clearing services if clients do not
adhere to their obligations under the clearing agreement.
For further discussion of clearing services, see Note 27.

JPMorgan Chase & Co./2017 Annual Report

113

Management’s discussion and analysis

Derivative contracts
In the normal course of business, the Firm uses derivative
instruments predominantly for market-making activities.
Derivatives enable counterparties to manage exposures to
fluctuations 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 the
derivative affect the credit risk to which the Firm is
exposed. For OTC derivatives the Firm is exposed to the
credit risk of the derivative counterparty. For exchange-
traded derivatives (“ETD”), such as futures and options, and
“cleared” over-the-counter (“OTC-cleared”) derivatives, the
Firm is generally exposed to the credit risk of the relevant
CCP. Where possible, the Firm seeks to mitigate its credit
risk exposures arising from derivative transactions through
the use of legally enforceable master netting arrangements
and collateral agreements. For further discussion of
derivative contracts, counterparties and settlement types,
see Note 5.

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

Derivative receivables
December 31, (in millions)

Interest rate

Credit derivatives

Foreign exchange

Equity

Commodity

2017

2016

24,673 $

28,302

869

16,151

7,882

6,948

1,294

23,271

4,939

6,272

Total, net of cash collateral

56,523

64,078

Liquid securities and other cash collateral

held against derivative receivables(a)

(16,108)

(22,705)

Total, net of all collateral

40,415 $

41,373

(a) Includes collateral related to derivative instruments where an appropriate

legal opinion has not been either sought or obtained.

Derivative receivables reported on the Consolidated balance
sheets were $56.5 billion and $64.1 billion at
December 31, 2017 and 2016, respectively. Derivative
receivables decreased predominantly as a result of client-
driven market-making activities in CIB Markets, which
reduced foreign exchange and interest rate derivative
receivables, and increased equity derivative receivables,
driven by market movements.

Derivative receivables amounts represent the fair value 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 additional liquid 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 $16.1 billion and $22.7 billion
at December 31, 2017 and 2016, respectively, that may be
used as security when the fair value of the client’s exposure
is in the Firm’s favor.

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, and
corporate debt and equity securities) delivered by clients at
the initiation of transactions, as well as collateral related to
contracts that have a non-daily call frequency and collateral
that the Firm has agreed to return but has not yet settled as
of the reporting date. Although this collateral does not
reduce the balances and is not included in the table above,
it is available as security against potential exposure that
could arise should the fair value of the client’s derivative
transactions move in the Firm’s favor. The derivative
receivables fair value, net of all collateral, also does not
include other credit enhancements, such as letters of credit.
For additional information on the Firm’s use of collateral
agreements, see Note 5.

While useful as a current view of credit exposure, the net
fair value of the derivative receivables does not capture the
potential future variability of that credit exposure. To
capture the potential future variability of credit exposure,
the Firm calculates, on a client-by-client basis, three
measures of potential derivatives-related credit loss: Peak,
Derivative Risk Equivalent (“DRE”), and Average exposure
(“AVG”). These measures all incorporate netting and
collateral 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 life
of 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 the
risk of derivative exposure on a basis intended to be
equivalent to the risk of loan exposures. DRE is a less
extreme measure of potential credit loss than Peak and is
used for aggregating derivative credit risk exposures with
loans and other credit risk.

Finally, AVG is a measure of the expected fair value of the
Firm’s derivative receivables at future time periods,
including the benefit of collateral. AVG exposure over the
total life of the derivative contract is used as the primary
metric for pricing purposes and is used to calculate credit
risk capital and the CVA, as further described below. The
three year AVG exposure was $29.0 billion and $31.1
billion at December 31, 2017 and 2016, respectively,
compared with derivative receivables, net of all collateral,
of $40.4 billion and $41.4 billion at December 31, 2017
and 2016, respectively.

The fair value of the Firm’s derivative receivables
incorporates CVA to reflect the credit quality of
counterparties. CVA is based on the Firm’s AVG to a
counterparty and the counterparty’s credit spread in the
credit derivatives market. The Firm believes that active risk
management is essential to controlling the dynamic credit
risk in the derivatives portfolio. In addition, the Firm’s risk
management process takes into consideration the potential

114

JPMorgan Chase & Co./2017 Annual Report

impact of wrong-way risk, which is broadly defined as the
potential for increased correlation between the Firm’s
exposure to a counterparty (AVG) and the counterparty’s
credit quality. Many factors may influence the nature and
magnitude 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 Firm
risk manages exposure to changes in CVA by entering into
credit derivative transactions, as well as interest rate,
foreign exchange, equity and commodity derivative
transactions.

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

Exposure profile of derivatives measures
December 31, 2017
(in billions)

140

120

100

1 year

2 years

5 years

10 years

The following table summarizes the ratings profile by derivative counterparty of the Firm’s derivative receivables, including credit
derivatives, net of all collateral, at the dates indicated. The ratings scale is based on the Firm’s internal ratings, which generally
correspond to the ratings as assigned by S&P and Moody’s.

Ratings profile of derivative receivables
Rating equivalent

December 31,
(in millions, except ratios)

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

As previously noted, the Firm uses collateral agreements to
mitigate counterparty credit risk. The percentage of the
Firm’s over-the-counter derivatives transactions subject to
collateral agreements — excluding foreign exchange spot
trades, which are not typically covered by collateral
agreements due to their short maturity and centrally
cleared trades that are settled daily — was approximately
90% as of December 31, 2017, largely unchanged
compared with December 31, 2016.

Credit derivatives
The Firm uses credit derivatives for two primary purposes:
first, in its capacity as a market-maker, and second, as an
end-user to manage the Firm’s own credit risk associated
with various exposures. For a detailed description of credit
derivatives, see Credit derivatives in Note 5.

2017

2016

Exposure net of
all collateral

% of exposure net
of all collateral

Exposure net of
all collateral

% of exposure net
of all collateral

11,529
6,919

13,925
7,397
645

40,415

29% $
17

34
18
2

100% $

11,449
8,505

13,127
7,308
984

41,373

28%
20

32
18
2

100%

Credit portfolio management activities
Included in the Firm’s end-user activities are credit
derivatives used to mitigate the credit risk associated with
traditional lending activities (loans and unfunded
commitments) and derivatives counterparty exposure in the
Firm’s wholesale businesses (collectively, “credit portfolio
management” activities). Information on credit portfolio
management activities is provided in the table below. For
further information on derivatives used in credit portfolio
management activities, see Credit derivatives in Note 5.

The Firm also uses credit derivatives as an end-user to
manage other exposures, including credit risk arising from
certain 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 in
credit derivatives, see Credit derivatives in Note 5.

JPMorgan Chase & Co./2017 Annual Report

115

Management’s discussion and analysis

Credit derivatives used in credit portfolio management
activities

December 31, (in millions)

Credit derivatives used to manage:

Notional amount of
protection
purchased (a)

2017

2016

Loans and lending-related commitments

1,867

2,430

Derivative receivables

15,742

19,684

Credit derivatives used in credit portfolio

management activities

17,609

22,114

(a) Amounts are presented net, considering the Firm’s net protection

purchased or sold with respect to each underlying reference entity or
index.

The credit derivatives used in credit portfolio management
activities do not qualify for hedge accounting under U.S.
GAAP; these derivatives are reported at fair value, with
gains and losses recognized in principal transactions
revenue. In contrast, the loans and lending-related
commitments being risk-managed are accounted for on an
accrual basis. This asymmetry in accounting treatment,

between loans and lending-related commitments and the
credit derivatives used in credit portfolio management
activities, causes earnings volatility that is not
representative, in the Firm’s view, of the true changes in
value 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 a
number of factors, including the named reference entity
(i.e., the Firm may experience losses on specific exposures
that are different than the named reference entities in the
purchased CDS); the contractual terms of the CDS (which
may have a defined credit event that does not align with an
actual loss realized by the Firm); and the maturity of the
Firm’s CDS protection (which in some cases may be shorter
than the Firm’s exposures). However, the Firm generally
seeks to purchase credit protection with a maturity date
that is the same or similar to the maturity date of the
exposure for which the protection was purchased, and
remaining differences in maturity are actively monitored
and managed by the Firm.

116

JPMorgan Chase & Co./2017 Annual Report

ALLOWANCE FOR CREDIT LOSSES

JPMorgan Chase’s allowance for credit losses covers the
retained consumer and wholesale loan portfolios, as well as
the Firm’s wholesale and certain consumer lending-related
commitments.

For a further discussion of the components of the allowance
for credit losses and related management judgments, see
Critical Accounting Estimates Used by the Firm on pages
138–140 and Note 13.

At least quarterly, the allowance for credit losses is
reviewed by the CRO, the CFO and the Controller of the
Firm, and discussed with the Board of Directors’ Risk Policy
Committee (“DRPC”) and the Audit Committee. As of
December 31, 2017, JPMorgan Chase deemed the
allowance for credit losses to be appropriate and sufficient
to absorb probable credit losses inherent in the portfolio.

The allowance for credit losses decreased as of December
31, 2017, driven by:
• a net reduction in the wholesale allowance, reflecting

credit quality improvements in the Oil & Gas, Natural Gas
Pipelines, and Metals & Mining portfolios (compared with
additions to the allowance in the prior year driven by
downgrades in the same portfolios)

largely offset by
• a net increase in the consumer allowance, reflecting
– additions to the allowance for the credit card and

business banking portfolios, driven by loan growth in
both of these portfolios and higher loss rates in the
credit card portfolio,

largely offset by
– a reduction in the allowance for the residential real
estate portfolio, predominantly driven by continued
improvement in home prices and delinquencies, and
– the utilization of the allowance in connection with the

sale of the student loan portfolio.

For additional information on the consumer and wholesale
credit portfolios, see Consumer Credit Portfolio on pages
102-107, Wholesale Credit Portfolio on pages 108–116 and
Note 12.

JPMorgan Chase & Co./2017 Annual Report

117

Management’s discussion and analysis

Summary of changes in the allowance for credit losses

Year ended December 31,

(in millions, except ratios)

Allowance for loan losses

2017

2016

Consumer,
excluding
credit card

Credit card

Wholesale

Total

Consumer,
excluding
credit card

Credit card

Wholesale

Total

Beginning balance at January 1,

5,198

4,034

4,544

$ 13,776

5,806

3,434

4,315

$ 13,555

Gross charge-offs

Gross recoveries

Net charge-offs(a)

Write-offs of PCI loans(b)

Provision for loan losses

Other

Ending balance at December 31,

Impairment methodology

Asset-specific(c)

Formula-based

PCI

Total allowance for loan losses

Allowance for lending-related commitments

Beginning balance at January 1,

Provision for lending-related commitments

Other

Ending balance at December 31,

Impairment methodology

Asset-specific

Formula-based

Total allowance for lending-related

commitments(d)

Total allowance for credit losses

Memo:

1,779

(634)

1,145

613

(1)

4,579

246

2,108

2,225

4,521

(398)

4,123

—

4,973

—

4,884

383

4,501

—

212

(93)

119

—

(286)

6,512

(1,125)

5,387

5,300

4,141

$ 13,604

461

1,090

3,680

—

10,289

2,225

4,579

4,884

4,141

$ 13,604

— $

1,052

1,078

—

(17)

—

— $

1,035

— $

4,612

— $

—

187

848

— $

1,035

1,068

4,884

5,176

$ 14,672

(10)

—

1,068

187

881

1,500

(591)

909

156

467

(10)

5,198

308

2,579

2,311

3,799

(357)

3,442

—

4,042

—

4,034

358

3,676

—

398

(57)

341

—

571

(1)

5,697

(1,005)

4,692

156

5,080

(11)

4,544

$ 13,776

342

1,008

4,202

—

10,457

2,311

5,198

4,034

4,544

$ 13,776

—

5,224

—

4,034

772

281

(1)

1,052

169

883

786

281

1,078

169

909

1,052

1,078

5,596

$ 14,854

Retained loans, end of period

$ 372,553

$ 149,387

$ 402,898

$ 924,838

$ 364,406

$ 141,711

$ 383,790

$ 889,907

Retained loans, average

PCI loans, end of period

Credit ratios

366,798

139,918

392,263

898,979

358,486

131,081

371,778

861,345

30,576

—

30,579

35,679

—

35,682

Allowance for loan losses to retained loans

1.23%

3.27%

1.03%

1.47%

1.43%

2.85%

1.18%

1.55%

Allowance for loan losses to retained nonaccrual

loans(e)

Allowance for loan losses to retained nonaccrual

loans excluding credit card

Net charge-off rate(a)

Credit ratios, excluding residential real estate

PCI loans

Allowance for loan losses to

retained loans

Allowance for loan losses to retained

nonaccrual loans(e)

Allowance for loan losses to retained nonaccrual
loans excluding credit card

109

0.31

2.95

0.69

3.27

239

0.03

1.03

239

229

147

0.60

1.27

191

109

0.25

2.63

0.88

2.85

233

0.09

1.18

233

205

145

0.54

1.34

171

111

Net charge-off rate(a)

0.34%

2.95%

0.03%

0.62%

0.28%

2.63%

0.09%

0.57%

Note: In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures.

(a) For the year ended December 31, 2017, excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for
Consumer, excluding credit card would have been 0.18%; total Firm would have been 0.55%; Consumer, excluding credit card and PCI loans would have
been 0.20%; and total Firm, excluding PCI would have been 0.57%.

(b) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded 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).

(c) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. The asset-specific credit card allowance
for loan losses modified in a TDR is calculated based on the loans’ original contractual interest rates and does not consider any incremental penalty rates.

(d) The allowance for lending-related commitments is reported in accounts payable and other liabilities on the Consolidated balance sheets.
(e) The Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.

118

JPMorgan Chase & Co./2017 Annual Report

Provision for credit losses
The following table presents the components of the Firm’s provision for credit losses:

Year ended December 31,
(in millions)

Provision for loan losses

Provision for
lending-related commitments

Total provision for credit losses

2017

2016

2015

2017

2016

2015

2017

2016

2015

Consumer, excluding credit card

613 $

467 $

(82) $

7 $

— $

Credit card

Total consumer

Wholesale

Total

4,973

5,586

(286)

4,042

4,509

571

3,122

3,040

623

—

(17)

281

5,300 $

5,080 $

3,663

(10) $

281 $

—

163

164

620 $

467 $

(81)

4,973

5,593

(303)

4,042

4,509

852

3,122

3,041

786

5,290 $

5,361 $

3,827

Provision for credit losses
The provision for credit losses decreased as of December
31, 2017 as a result of:

• a net $422 million reduction in the wholesale allowance

The decrease was predominantly offset by

• a higher consumer provision driven by

– a $218 million impact in connection with the sale of

the student loan portfolio, and

– a $416 million higher addition to the allowance for

credit losses.

Current year additions to the consumer allowance
included:

an $850 million addition to the allowance for credit
losses in the credit card portfolio, compared to a
$600 million addition in the prior year, due to higher
loss rates and loan growth in both years, and

a $50 million addition to the allowance for credit
losses in the business banking portfolio, driven by
loan growth

the additions were partially offset by

a $316 million net reduction in the allowance for
credit losses in the residential real estate portfolio,
compared to a $517 million net reduction in the
prior year, reflecting continued improvement in home
prices and delinquencies in both years.

JPMorgan Chase & Co./2017 Annual Report

119

Management’s discussion and analysis

INVESTMENT PORTFOLIO RISK MANAGEMENT

Investment portfolio risk is the risk associated with the loss
of principal or a reduction in expected returns on
investments arising from the investment securities portfolio
held by Treasury and CIO in connection with the Firm’s
balance sheet or asset-liability management objectives or
from principal investments managed in various LOBs in
predominantly privately-held financial assets and
instruments. Investments are typically intended to be held
over extended periods and, accordingly, the Firm has no
expectation for short-term realized gains with respect to
these investments.

Investment securities risk
Investment securities risk includes the exposure associated
with the default of principal plus coupon payments. This risk
is minimized given that Treasury and CIO generally invest in
high-quality securities. At December 31, 2017, the
investment securities portfolio was $248.0 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). For further information on the
investment securities portfolio, see Note 10 on pages
203-208. For further information on the market risk
inherent in the portfolio, see Market Risk Management on
pages 121-128. For further information on related liquidity
risk, see Liquidity Risk on pages 92–97.

Governance and oversight
Investment securities risks are governed by the Firm’s Risk
Appetite framework, and discussed at the CIO, Treasury and
Corporate (CTC) Risk Committee with regular updates to the
DRPC.

The Firm’s independent control functions are responsible
for reviewing the appropriateness of the carrying value of
investment securities in accordance with relevant policies.
Approved levels for investment securities are established
for each risk category, including capital and credit risks.

Principal investment risk
Principal investments are typically private non-traded
financial instruments representing ownership or other
forms of junior capital. Principal investments cover multiple
asset classes and are made either in stand-alone investing
businesses or as part of a broader business platform. As of
December 31, 2017, the carrying value of the principal
investment portfolios included tax-oriented investments
(e.g., affordable housing and alternative energy
investments) of $14.0 billion and private equity and various
debt and equity instruments of $5.5 billion. Increasingly,
new principal investment activity seeks to enhance or
accelerate LOB strategic business initiatives. The Firm’s
principal investments are managed under various LOBs and
are reflected within the respective LOB financial results.

Governance and oversight
The Firm’s approach to managing principal risk is consistent
with the Firm’s general risk governance structure. A
Firmwide risk policy framework exists for all principal
investing activities. All investments are approved 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 the carrying value of
investments in accordance with relevant policies. Approved
levels for investments are established for each relevant
business in order to manage the overall size of the
portfolios.

Industry, geographic and position level concentration limits
have been set and are intended to ensure diversification of
the portfolios. The Firm also conducts stress testing on
these portfolios using specific scenarios that estimate losses
based on significant market moves and/or other risk events.

120

JPMorgan Chase & Co./2017 Annual Report

MARKET RISK MANAGEMENT

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

Market Risk Management
Market Risk Management monitors market risks throughout
the Firm and defines market risk policies and procedures.
The Market Risk Management function reports to the Firm’s
CRO.

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 of

line of business and firmwide market risk

• Definition, approval and monitoring of limits

• Performance of stress testing and qualitative risk

assessments

Risk measurement
Tools used to measure risk
There is no single measure to capture market risk and
therefore the Firm uses various metrics, both statistical and
nonstatistical, to assess risk including:
• VaR
• Economic-value stress testing
• Nonstatistical risk measures
• Loss advisories
• Profit and loss drawdowns
• Earnings-at-risk
• Other sensitivities

Risk monitoring and control
Market risk exposure is managed primarily through a series
of limits set in the context of the market environment and
business strategy. In setting limits, the Firm takes into
consideration factors such as market volatility, product
liquidity and accommodation of client business, and
management experience. The Firm maintains different
levels of limits. Corporate level limits include VaR and stress
limits. Similarly, line of business limits include VaR and
stress limits and may be supplemented by loss advisories,
nonstatistical measurements and profit and loss
drawdowns. Limits may also be set within the lines of
business, 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 for
adhering to established limits against which exposures are
monitored and reported.

Limit breaches are required to be reported in a timely
manner to limit approvers, Market Risk Management and
senior management. In the event of a breach, Market Risk
Management consults with senior management of the Firm
and the line of business senior management to determine
the appropriate course of action required to return the
applicable positions to compliance, which may include a
reduction in risk in order to remedy the breach. Certain
Firm or line of business-level limits that have been breached
for three business days or longer, or by more than 30%, are
escalated to senior management and the Firmwide Risk
Committee.

JPMorgan Chase & Co./2017 Annual Report

121

Management’s discussion and analysis

The following table summarizes by line of business the predominant business activities that give rise to market risk, and
certain market risk tools used to measure those risks.

Risk identification and classification by line of business
Line of
Business

Predominant business activities
and related market risks

Positions included in Risk Management
VaR

Positions included in
earnings-at-risk

Positions included in other
sensitivity-based measures

CCB

CIB

• Services mortgage loans which
give rise to complex, non-linear
interest rate and basis risk
• Non-linear risk arises primarily

from prepayment options
embedded in mortgages and
changes in the probability of
newly originated mortgage
commitments actually closing

• Basis risk results from

differences in the relative
movements of the rate indices
underlying mortgage exposure
and other interest rates
• Originates loans and takes

deposits

• Mortgage pipeline loans, classified as

derivatives

• Warehouse loans, classified as trading

• Retained loan portfolio
• Deposits

assets – debt instruments

• MSRs
• Hedges of pipeline loans,

warehouse loans and MSRs, classified
as derivatives

• Interest-only securities, classified as

trading assets - debt instruments, and
related hedges, classified as
derivatives

• Makes markets and services
clients across fixed income,
foreign exchange, equities and
commodities

• Trading assets/liabilities – debt and
marketable equity instruments, and
derivatives, including hedges of the
retained loan portfolio

• Market risk arises from changes in
market prices (e.g., rates and
credit spreads) resulting in a
potential decline in net income

• Originates loans and takes

deposits

• Certain securities purchased, loaned or
sold under resale agreements and
securities borrowed

• Fair value option elected liabilities
• Derivative CVA and associated hedges

• Retained loan portfolio
• Deposits

• Private equity investments
measured at fair value

• Derivatives FVA and fair value
option elected liabilities DVA

• Engages in traditional wholesale
banking activities which include
extensions of loans and credit
facilities and taking deposits
• Risk arises from changes in

interest rates and prepayment
risk with potential for adverse
impact on net interest income and
interest-rate sensitive fees

• Retained loan portfolio
• Deposits

AWM

• Provides initial capital

investments in products such as
mutual funds, which give rise to
market risk arising from changes
in market prices in such products

• Originates loans and takes

deposits

• Debt securities held in advance of
distribution to clients, classified as
trading assets - debt instruments

• Retained loan portfolio
• Deposits

Corporate

• Manages the Firm’s liquidity,

funding, structural interest rate
and foreign exchange risks arising
from activities undertaken by the
Firm’s four major reportable
business segments

• Derivative positions measured at fair
value through noninterest revenue in
earnings

• Marketable equity investments
measured at fair value through
noninterest revenue in earnings

• Deposits with banks
•

Investment securities
portfolio and related
interest rate hedges
• Long-term debt and
related interest rate
hedges

•

Initial seed capital investments
and related hedges, classified as
derivatives

• Capital invested alongside third-
party investors, typically in
privately distributed collective
vehicles managed by AWM (i.e.,
co-investments)

• Private equity investments
measured at fair value

• Foreign exchange exposure

related to Firm-issued non-USD
long-term debt (“LTD”) and
related hedges

122

JPMorgan Chase & Co./2017 Annual Report

Value-at-risk
JPMorgan Chase utilizes VaR, a statistical risk measure, to
estimate the potential loss from adverse market moves in a
normal 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 historical
simulation based on data for the previous 12 months. The
framework’s approach assumes that historical changes in
market values are representative of the distribution of
potential outcomes in the immediate future. The Firm
believes the use of Risk Management VaR provides a stable
measure of VaR that is closely aligned to the day-to-day risk
management decisions made by the lines of business, and
provides the appropriate information needed to respond to
risk 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 to
measure risk profiles and levels of diversification across
product types and is used for aggregating risks and
monitoring limits across businesses. VaR results are
reported to senior management, the Board of Directors and
regulators.

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 VaR
estimates, an average of five times every 100 trading days.
The number of VaR back-testing exceptions observed can
differ from the statistically expected number of back-testing
exceptions if the current level of market volatility is
materially 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 for
individual 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 to
market risk. These VaR models are granular and incorporate
numerous risk factors and inputs to simulate daily changes
in market values over the historical period; inputs are
selected based on the risk profile of each portfolio, as
sensitivities and historical time series used to generate daily
market values may be different across product types or risk
management systems. The VaR model results across all
portfolios are aggregated at the Firm level.

As VaR is based on historical data, it is an imperfect
measure 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 stress
events. 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 measure
certain 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 not
captured in VaR due to the lack of inherent liquidity and
availability of appropriate historical data. The Firm uses
proxies to estimate the VaR for these and other products
when daily time series are not available. It is likely that
using 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 stress
testing and nonstatistical measures, 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 where
proxies are used in VaR historical time series, the data
sources may differ (see Valuation process in Note 2 for
further information on the Firm’s valuation process).
Because VaR model calculations require daily data and a
consistent source for valuation, it may not be practical to
use the data collected in the VCG monthly valuation process
for VaR model calculations.

The Firm’s VaR model calculations are periodically
evaluated and enhanced in response to changes in the
composition of the Firm’s portfolios, changes in market
conditions, improvements in the Firm’s modeling techniques
and measurements, and other factors. Such changes may
affect historical comparisons of VaR results. For information
regarding model reviews and approvals, see Model Risk
Management on page 137.

The Firm calculates separately a daily aggregated VaR in
accordance with regulatory rules (“Regulatory VaR”), which
is used to derive the Firm’s regulatory VaR-based capital
requirements under Basel III. This Regulatory VaR model
framework currently assumes a ten business-day holding
period and an expected tail loss methodology which
approximates a 99% confidence level. Regulatory VaR is
applied to “covered” positions as defined by Basel 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 the
Firm’s Risk Management VaR, Regulatory VaR currently
excludes the diversification benefit for certain VaR models.

JPMorgan Chase & Co./2017 Annual Report

123

Management’s discussion and analysis

For additional information on Regulatory VaR and the other
components of market risk regulatory capital for the Firm
(e.g., VaR-based measure, stressed VaR-based measure and
the respective backtesting), see JPMorgan Chase’s Basel III

Pillar 3 Regulatory Capital Disclosures reports, which are
available on the Firm’s website at: (http://
investor.shareholder.com/jpmorganchase/basel.cfm).

The table below shows the results of the Firm’s Risk Management VaR measure using a 95% confidence level.

Total VaR
As of or for the year ended December 31,

(in millions)

CIB trading VaR by risk type

Fixed income

Foreign exchange

Equities

Commodities and other

Diversification benefit to CIB trading VaR

CIB trading VaR

Credit portfolio VaR

Diversification benefit to CIB VaR

CIB VaR

CCB VaR

Corporate VaR

AWM VaR

Diversification benefit to other VaR

Other VaR

Diversification benefit to CIB and other VaR

Total VaR

Avg.

(30) (a)

7
(6) (a)
28

—
(1) (a)
5
(4) (a)
29

2017

Min

Max

Avg.

2016

Min

NM (b)
14 (b)
3
NM (b)
17 (b)

—
NM (b)
2 (b)
NM (b)
17 (b) $

NM (b)
38 (b)
12
NM (b)
39 (b)

16 (c)

—
NM (b)
16 (b)
NM (b)
42 (b)

(36) (a)

12
(10) (a)
45

2
(3) (a)
8
(8) (a)
45

NM (b)
28 (b)
10
NM (b)
32 (b)

—
NM (b)
4 (b)
NM (b)
33 (b) $

Max

NM (b)
79 (b)
16
NM (b)
81 (b)

13 (c)

4
NM (b)
16 (b)
NM (b)
78 (b)

(a) Average portfolio VaR is less than the sum of the VaR of the components described above, which is due to portfolio diversification. The diversification effect reflects

that the risks are not perfectly correlated.

(b) Diversification benefit represents the difference between the total VaR and each reported level and the sum of its individual components. Diversification benefit

reflects the non-additive nature of VaR due to imperfect correlation across lines of business and risk types. The maximum and minimum VaR for each portfolio may
have occurred on different trading days than the components and consequently diversification benefit is not meaningful.

(c) Maximum Corporate VaR was higher than the prior year, due to a Private Equity position that became publicly traded in the fourth quarter of 2017. Previously, this

position was included in other sensitivity-based measures.

Average Total VaR decreased $16 million for the year-ended
December 31, 2017 as compared with the prior year. The
reduction is a result of refinements made to VaR models for
certain asset-backed products, changes made to the scope
of positions included in VaR in the third quarter of 2016,
and lower volatility in the one-year historical look-back
period.

In addition, Credit Portfolio VaR declined by $5 million
reflecting the sale of select positions and lower volatility in
the one-year historical look-back period.

In the first quarter of 2017, the Firm refined the historical
proxy time series inputs to certain VaR models. These
refinements are intended to more appropriately reflect the
risk exposure from certain asset-backed products. In the
absence of this refinement, the average Total VaR, CIB fixed
income VaR, CIB trading VaR and CIB VaR would have each
been higher by $4 million for the year ended December 31,
2017.

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 actually
recognized on market-risk related revenue.

The Firm’s definition of market risk-related gains and losses
is consistent with the definition used by the banking
regulators under Basel III. Under this definition market risk-
related gains and losses are defined as: gains and losses on
the positions included in the Firm’s Risk Management VaR,
excluding fees, commissions, certain valuation adjustments
(e.g., liquidity and FVA), net interest income, and gains and
losses arising from intraday trading.

124

JPMorgan Chase & Co./2017 Annual Report

The following chart compares actual daily market risk-related gains and losses with the Firm’s Risk Management VaR for the
year ended December 31, 2017. 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 to
covered positions. The chart shows that for the year ended December 31, 2017 the Firm observed 15 VaR back-testing
exceptions and posted gains on 145 of the 258 days.

Daily Market Risk-Related Gains and Losses
vs. Risk Management VaR (1-day, 95% Confidence level)
Year ended December 31, 2017

125

100

-25

-50

-75

-100

-125

JPMorgan Chase & Co./2017 Annual Report

125

Management’s discussion and analysis

Other risk measures
Economic-value stress testing
Along with VaR, stress testing is an important tool in
measuring and controlling risk. While VaR reflects the risk
of loss due to adverse changes in markets using recent
historical market behavior as an indicator of losses, stress
testing is intended to capture the Firm’s exposure to
unlikely but plausible events in abnormal markets. The Firm
runs weekly stress tests on market-related risks across the
lines 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 and
extreme tail events. The stress framework calculates
multiple magnitudes of potential stress for both market
rallies and market sell-offs for each risk factor and
combines them in multiple ways to capture different market
scenarios. For example, certain scenarios assess the
potential 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 the
stress testing framework allows risk managers to construct
new, 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 the
relationships between market prices under extreme
scenarios. Stress scenarios are defined and reviewed by
Market Risk Management, and significant changes are
reviewed 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 the
respective LOBs and the Firm’s senior management to allow
them to better understand the sensitivity of positions to
certain defined events and to enable them to manage their
risks with more transparency. Results are also reported to
the Board of Directors.

The Firm’s stress testing framework is utilized in calculating
results for the Firm’s CCAR and ICAAP processes. In
addition, the results are incorporated into the quarterly
assessment of the Firm’s Risk Appetite Framework and are
also presented to the DRPC.

Nonstatistical risk measures
Nonstatistical risk measures include sensitivities to
variables used to value positions, such as credit spread
sensitivities, 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 of
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 the
decline in net profit and loss since the year-to-date peak
revenue level.

Earnings-at-risk
The VaR and sensitivity measures illustrate the economic
sensitivity of the Firm’s Consolidated balance sheets 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 traditional banking activities, which include extension
of loans and credit facilities, taking deposits and issuing
debt. The Firm evaluates its structural interest rate risk
exposure through earnings-at-risk, which measures the
extent to which changes in interest rates will affect the
Firm’s net interest income and interest rate-sensitive fees.
For a summary by line of business, identifying positions
included in earnings-at-risk, see the table on page 122.

The CTC Risk Committee establishes the Firm’s structural
interest 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 with
senior management including the CTC Risk Committee and
the 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 around
assumptions and establishing and monitoring limits for
structural interest rate risk. The Firm manages structural
interest rate risk generally through its investment securities
portfolio and interest rate derivatives.

126

JPMorgan Chase & Co./2017 Annual Report

Structural interest rate risk can occur due to a variety of
factors, including:

The Firm’s U.S. dollar sensitivities are presented in the table
below.

JPMorgan Chase’s 12-month earnings-at-risk sensitivity
profiles
U.S. dollar

Instantaneous change in rates

(in billions)

+200 bps

+100 bps

December 31, 2017

December 31, 2016

2.4

4.0

1.7

2.4

-100 bps
(3.6) (a)
NM (b)

-200 bps
NM (b)
NM (b)

(a) As a result of the 2017 increase in the Fed Funds target rate to
between 1.25% and 1.50%, the -100 bps sensitivity has been
included.

(b) Given the level of market interest rates, these downward parallel

earnings-at-risk scenarios are not considered to be meaningful.

The non-U.S. dollar sensitivities for an instantaneous
increase in rates by 200 and 100 basis points results in a
12-month benefit to net interest income of approximately
$800 million and $500 million, respectively, at December
31, 2017 and were not material at December 31, 2016.
The non-U.S. dollar sensitivities for an instantaneous
decrease in rates by 200 and 100 basis points were not
material to the Firm’s earnings-at-risk at December 31,
2017 and 2016.

The Firm’s sensitivity to rates is largely a result of assets
repricing at a faster pace than deposits.

The Firm’s net U.S. dollar sensitivities for an instantaneous
increase in rates by 200 and 100 basis points decreased by
approximately $1.6 billion and $700 million, respectively,
when compared to December 31, 2016. The primary driver
of that decrease was the updating of the Firm’s baseline to
reflect higher interest rates. As higher interest rates are
reflected in the Firm’s baselines, the magnitude of the
sensitivity to further increases in rates would be expected
to be less significant.

Separately, another U.S. dollar interest rate scenario used
by the Firm — involving a steeper yield curve with long-term
rates rising by 100 basis points and short-term rates
staying at current levels — results in a 12-month benefit to
net interest income of approximately $700 million and
$800 million at December 31, 2017 and 2016,
respectively. The increase in net interest income under this
scenario reflects the Firm reinvesting at the higher long-
term rates, with funding costs remaining unchanged. The
results of the comparable non-U.S. dollar scenarios were
not material to the Firm at December 31, 2017 and 2016.

• 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 off-

balance sheet instruments that are repricing at the same
time

• Differences in the amounts by which short-term and long-
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

The Firm manages interest rate exposure related to its
assets and liabilities on a consolidated, firmwide basis.
Business units transfer their interest rate risk to Treasury
and CIO through funds transfer pricing, which takes into
account the elements of interest rate exposure that can be
risk-managed in financial markets. These elements include
asset and liability balances and contractual rates of interest,
contractual principal payment schedules, expected
prepayment experience, interest rate reset dates and
maturities, rate indices used for repricing, and any interest
rate ceilings or floors for adjustable rate products. All
transfer-pricing assumptions are dynamically reviewed.

The Firm generates a baseline for net interest income and
certain interest rate-sensitive fees, and then conducts
simulations of changes for interest rate-sensitive assets and
liabilities denominated in U.S. dollars and other currencies
(“non-U.S. dollar” currencies). This simulation primarily
includes, retained loans, deposits, deposits with banks,
investment securities, long term debt and any related
interest rate hedges, and excludes other positions in risk
management VaR and other sensitivity-based measures as
described on page 122.

Earnings-at-risk scenarios estimate the potential change in
this baseline, over the following 12 months utilizing
multiple assumptions. These scenarios consider the impact
on exposures as a result of changes in interest rates from
baseline rates, as well as pricing sensitivities of deposits,
optionality and changes in product mix. The scenarios
include forecasted balance sheet changes, 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 compared with underlying
contractual rates, the time since origination, and other
factors which are updated periodically based on historical
experience. The pricing sensitivity of deposits in the
baseline and scenarios use assumed rates paid which may
differ from actual rates paid due to timing lags and other
factors. The Firm’s earnings-at-risk scenarios are
periodically evaluated and enhanced in response to changes
in the composition of the Firm’s balance sheet, changes in
market conditions, improvements in the Firm’s simulation
and other factors.

JPMorgan Chase & Co./2017 Annual Report

127

Non-U.S. dollar foreign exchange risk
Non-U.S. dollar FX risk is the risk that changes in foreign
exchange 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 of
business, primarily manage these risks on behalf of the
Firm. Treasury and CIO may hedge certain of these risks
using derivatives within risk limits governed by the CTC Risk
Committee.

Other sensitivity-based measures
The Firm quantifies the market risk of certain investment and funding activities by assessing the potential impact on net
revenue and OCI due to changes in relevant market variables. For additional information on the positions captured in other
sensitivity-based measures, please refer to the Risk identification and classification table on page 122.

The table below represents the potential impact to net revenue or OCI for market risk sensitive instruments that are not
included in VaR or earnings-at-risk. Where appropriate, instruments used for hedging purposes are reported along with the
positions being hedged. The sensitivities disclosed in the table below may not be representative of the actual gain or loss that
would have been realized at December 31, 2017, as the movement in market parameters across maturities may vary and are
not intended to imply management’s expectation of future deterioration in these sensitivities.

Gain/(loss) (in millions)

Activity

Description

Sensitivity measure

December 31,
2017

December 31,
2016

Investment activities

Investment management activities

Consists of seed capital and related hedges;
and fund co-investments

10% decline in market
value

(110) $

Other investments

Consists of private equity and other
investments held at fair value

10% decline in market
value

Funding activities

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 of cross currency
basis

Non-USD LTD hedges foreign currency

(“FX”) exposure

Derivatives – funding spread risk

Primarily represents the foreign exchange
revaluation on the fair value of the
derivative hedges

10% depreciation of
currency

Impact of changes in the spread related to
derivatives FVA

1 basis point parallel
increase in spread

Fair value option elected liabilities –
funding spread risk

Impact of changes in the spread related to
fair value option elected liabilities DVA(a)

1 basis point parallel
increase in spread

Fair value option elected liabilities –

interest rate sensitivity

Interest rate sensitivity on fair value option
liabilities resulting from a change in the
Firm’s own credit spread(a)

1 basis point parallel
increase in spread

(a) Impact recognized through OCI.

(338)

(10)

(13)

(6)

(1)

(166)

(358)

(7)

(23)

(4)

128

JPMorgan Chase & Co./2017 Annual Report

COUNTRY RISK MANAGEMENT

The Firm has a country risk management framework for
monitoring and assessing how financial, economic, political
or other significant developments adversely affect the value
of the Firm’s exposures related to a particular country or
set of countries. The Country Risk Management group
actively monitors the various portfolios which may be
impacted by these developments to ensure the Firm’s
exposures are diversified and that exposure levels are
appropriate given the Firm’s strategy and risk tolerance
relative to a country.

Organization and management

Country Risk Management is an independent risk
management function that assesses, manages and monitors
country risk originated across the Firm. The Firmwide Risk
Executive for Country Risk reports to the Firm’s CRO.

The Firm’s country risk management function includes the
following activities:
• Establishing policies, procedures and standards

consistent with a comprehensive country risk framework
• Assigning sovereign ratings, and assessing country risks
and establishing risk tolerance relative to a country
• Measuring and monitoring country risk exposure and

stress across the Firm

• Managing and approving country limits and reporting
trends and limit breaches to senior management

• Developing surveillance tools, such as signaling models

and ratings indicators, for early identification of
potential country risk concerns

• Providing country risk scenario analysis

Sources and measurement
The Firm is exposed to country risk through its lending and
deposits, investing, and market-making activities, whether
cross-border or locally funded. Country exposure includes
activity with both government and private-sector entities in
a country. Under the Firm’s internal country risk
management approach, country exposure is reported based
on the country where the majority of the assets of the
obligor, counterparty, issuer or guarantor are located or
where the majority of its revenue is derived, which may be
different than the domicile (legal residence) or country of
incorporation of the obligor, counterparty, issuer or
guarantor. Country exposures are generally measured by
considering the Firm’s risk to an immediate default of the
counterparty or obligor, with zero recovery. Assumptions
are sometimes required in determining the measurement
and allocation of country exposure, particularly in the case
of certain non-linear or index exposures. The use of
different measurement approaches or assumptions could
affect the amount of reported country exposure.

Under the Firm’s internal country risk measurement
framework:
• Lending exposures are measured at the total committed
amount (funded and unfunded), net of the allowance for
credit losses and cash and marketable securities
collateral received

• Deposits are measured as the cash balances placed with

central and commercial banks

• Securities financing exposures are measured at their

receivable balance, net of collateral received

• Debt and equity securities are measured at the fair value
of all positions, including both long and short positions

• Counterparty exposure on derivative receivables is

measured at the derivative’s fair value, net of the fair
value of the related collateral. Counterparty exposure on
derivatives can change significantly because of market
movements

• Credit derivatives protection purchased and sold is

reported based on the underlying reference entity and is
measured at the notional amount of protection
purchased or sold, net of the fair value of the recognized
derivative receivable or payable. Credit derivatives
protection purchased and sold in the Firm’s market-
making activities is measured on a net basis, as such
activities often result in selling and purchasing
protection related to the 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 the
normal 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 the
reporting provided under the FFIEC bank regulatory
requirements. For further information on the FFIEC’s
reporting methodology, see Cross-border outstandings on
page 296 of the 2017 Form 10-K.

Stress testing
Stress testing is an important component of the Firm’s
country risk management framework, which aims to
estimate and limit losses arising from a country crisis by
measuring the impact of adverse asset price movements to
a country based on market shocks combined with
counterparty specific assumptions. Country Risk
Management periodically designs and runs tailored stress
scenarios to test vulnerabilities to individual countries, or
groups of countries, in response to specific or potential
market events, sector performance concerns and
geopolitical risks. These tailored stress results are used to
assess potential risk reduction across the Firm, as
necessary.

JPMorgan Chase & Co./2017 Annual Report

129

Management’s discussion and analysis

Risk Reporting
To enable effective risk management of country risk to the
Firm, country nominal exposure and stress are measured
and reported weekly, and used by Country Risk
Management to identify trends, and monitor high usages
and breaches against limits.

The following table presents the Firm’s top 20 exposures by
country (excluding the U.S.) as of December 31, 2017. The
selection of countries represents the Firm’s largest total
exposures by country, based on the Firm’s internal country
risk management approach, and does not represent the
Firm’s view of any actual or potentially adverse credit
conditions. Country exposures may fluctuate from period to
period due to client activity and market flows.

Top 20 country exposures (excluding the U.S.)(a)

December 31, 2017

(in billions)

Germany

United Kingdom

Japan

France

China

Canada

Switzerland

India

Australia

Luxembourg

Netherlands

Spain

South Korea

Italy

Singapore

Mexico

Brazil

Hong Kong

Saudi Arabia

Belgium

Lending and
deposits(b)

Trading and
investing(c)(d)

Other(e)

Total
exposure

43.3 $

13.8 $

0.3 $

32.0

24.7

12.5

9.6

12.2

8.5

5.3

5.8

8.7

6.6

4.7

4.6

3.5

4.0

3.2

2.3

3.8

2.7

11.5

5.7

6.6

5.5

2.5

1.5

6.1

5.6

0.8

2.1

1.9

3.1

1.2

1.4

0.9

0.7

1.5

2.8

0.4

0.3

1.2

0.2

3.9

0.9

—

0.6

0.1

0.3

0.1

1.1

—

0.5

1.6

—

57.4

46.3

30.8

19.4

16.3

14.9

13.9

12.3

11.4

9.5

8.0

6.9

6.8

6.7

6.3

5.2

5.1

4.8

4.5

4.2

(a) Country exposures above reflect 86% of total firmwide non U.S.

exposure.

(b) Lending and deposits includes loans and accrued interest receivable
(net of collateral and the allowance for loan losses), deposits with
banks (including central banks), acceptances, other monetary assets,
issued letters of credit net of participations, and unused commitments
to extend credit. Excludes intra-day and operating exposures, such as
from settlement and clearing activities.

exposure on derivative and securities financings net of collateral and
hedging.

(d) Includes single reference entity (“single-name”), index and other

multiple reference entity transactions for which one or more of the
underlying reference entities is in a country listed in the above table.

(e) Includes capital invested in local entities and physical commodity

inventory.

130

JPMorgan Chase & Co./2017 Annual Report

OPERATIONAL RISK MANAGEMENT

Operational risk is the risk associated with inadequate or
failed internal processes, people and systems, or from
external events; operational risk includes cybersecurity risk,
business and technology resiliency risk, payment fraud risk,
and third-party outsourcing risk. Operational risk is
inherent in the Firm’s activities and can manifest 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 their arrangements.
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 position, the characteristics of its
businesses, and the markets and regulatory environments
in which it operates.

Operational Risk Management Framework
To monitor and control operational risk, the Firm has an
Operational Risk Management Framework (“ORMF”) which
is designed to enable the Firm to maintain a sound and
well-controlled operational environment. The ORMF has
four main components: Governance, Risk Identification and
Assessment, Measurement, and Monitoring and Reporting.

Governance
The lines of business and corporate functions are
responsible for owning and managing their operational
risks. The Firmwide Oversight and Control Group, which
consists of control officers within each line of business and
corporate 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, as
appropriate. For additional information on the FCC, see
Enterprise-wide Risk Management on pages 75–137.

The Firmwide Risk Executive for Operational Risk
Governance (“ORG”), a direct report to the CRO, is
responsible for defining the ORMF and establishing
minimum standards for its execution. Operational Risk
Officers report to both the line of business CROs and to the
Firmwide Risk Executive for ORG, and are independent of
the respective businesses or corporate functions they
oversee.

The Firm’s Operational Risk Governance Policy is approved
by the DRPC. This policy establishes the Operational Risk
Management Framework for the Firm.

Risk identification and assessment
The Firm utilizes several tools to identify, assess, mitigate
and manage its operational risk. One such tool is the Risk
and Control Self-Assessment (“RCSA”) program which is
executed by LOBs and corporate functions in accordance
with the minimum standards established by ORG. As part of
the RCSA program, lines of business and corporate
functions identify key operational risks inherent in their
activities, evaluate the effectiveness of relevant controls in
place to mitigate identified risks, and define actions to
reduce residual risk. Action plans are developed for
identified control issues and businesses and corporate
functions are held accountable for tracking and resolving
issues in a timely manner. Operational Risk Officers
independently challenge the execution of the RCSA program
and evaluate the appropriateness of the residual risk
results.

In addition to the RCSA program, the Firm tracks and
monitors events that have led to or could lead to actual
operational risk losses, including litigation-related events.
Responsible businesses and corporate functions analyze
their losses to evaluate the effectiveness of their control
environment to assess where controls have failed, and to
determine where targeted remediation efforts may be
required. 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 risk-
based capital and operational risk loss projections under
both baseline and stressed conditions.

The primary component of the operational risk capital
estimate is the Loss Distribution Approach (“LDA”)
statistical model, which simulates the frequency and
severity of future operational risk loss projections based on
historical data. The LDA model is used to estimate an
aggregate 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 the
quarter following the period in which those losses were
realized, 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 the
Advanced Measurement Approach, incorporates internal
and external losses as well as management’s view of tail risk
captured through operational risk scenario analysis, and
evaluation of key business environment and internal control
metrics.

JPMorgan Chase & Co./2017 Annual Report

131

Management’s discussion and analysis

The Firm considers the impact of stressed economic
conditions on operational risk losses and develops a
forward looking view of material operational risk events
that may occur in a stressed environment. The Firm’s
operational risk stress testing framework is utilized in
calculating results for the Firm’s CCAR and ICAAP processes.

For information related to operational risk RWA, CCAR or
ICAAP, see Capital Risk Management section, pages 82–91.

Monitoring and reporting
ORG has established standards for consistent operational
risk monitoring and 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.

Subcategories and examples of operational risks
As mentioned previously, operational risk can manifest itself
in various ways. Operational risk subcategories such as
Compliance risk, Conduct risk, Legal risk and Estimations
and Model risk, as well as other operational risks, can lead
to losses which are captured through the Firm’s operational
risk measurement processes. More information on
Compliance risk, Conduct risk, Legal risk and Estimations
and Model risk subcategories are discussed on pages 134,
135, 136 and 137, respectively. Details on other select
examples of operational risks are provided below.

Cybersecurity risk
Cybersecurity risk is an important, continuous and evolving
focus for the Firm. The Firm devotes significant resources to
protecting and continuing to improve the security of the
Firm’s computer systems, software, networks and other
technology assets. The Firm’s security efforts are intended
to protect against, among other things, cybersecurity
attacks by unauthorized 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
cyberdefense capabilities and to strengthen its partnerships
with the appropriate government and law enforcement
agencies and other businesses in order to understand the
full spectrum of cybersecurity risks in the operating
environment, enhance defenses and improve resiliency
against cybersecurity threats. The Firm actively participates
in discussions of cybersecurity risks with law enforcement,
government officials, peer and industry groups, and has
significantly increased efforts to educate employees and
certain clients on the topic. Third parties with which the
Firm does business or that facilitate the Firm’s business
activities (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, or
cyberattacks could affect their ability to deliver a product or
service to the Firm or result in lost or compromised
information of the Firm or its clients. Clients can also be

sources of cybersecurity risk to the Firm, particularly when
their activities and systems are beyond the Firm’s own
security and control systems. As a result, the Firm engages
in regular and ongoing discussions with certain vendors and
clients regarding cybersecurity risks and opportunities to
improve security. 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, the
Firm leverages the ORMF to ensure risks are identified and
managed within defined corporate tolerances. The Firm’s
Board of Directors and the Audit Committee are regularly
briefed on the Firm’s cybersecurity policies and practices
and ongoing efforts to improve security, as well as its
efforts regarding significant cybersecurity events.

Business and technology resiliency risk
Business disruptions can occur due to forces beyond the
Firm’s control such as severe weather, power or
telecommunications loss, flooding, transit strikes, terrorist
threats or infectious disease. The safety of the Firm’s
employees and customers is of the highest priority. The
Firm’s global resiliency program is intended to enable the
Firm to recover its critical business functions and
supporting assets (i.e., staff, technology and facilities) in
the event of a business interruption. The program includes
corporate governance, awareness and training, as well as
strategic and tactical initiatives to identify, assess, and
manage business interruption and public safety risks.

The strength and proficiency of the Firm’s global resiliency
program has played an integral role in maintaining the
Firm’s business operations during and after various events.

Payment fraud risk
Payment fraud risk is the risk of external and internal
parties unlawfully obtaining personal monetary benefit
through misdirected or otherwise improper payment, and
exposing the Firm to financial or reputational harm. Over
the past year, the risk of payment fraud remained at a
heightened level across the industry. The complexities of
these attacks along with perpetrators’ strategies continue
to evolve. A Payments Control Program has been
established that includes Cybersecurity, Operations,
Technology, Risk and the lines of business to manage the
risk, implement controls and provide employee and client
education and awareness training. In addition, a new
wholesale fraud detection solution has been introduced
which monitors high value payments for certain anomalies.
The Firm’s monitoring of customer behavior is periodically
evaluated and enhanced, and attempts to detect and
mitigate new strategies implemented by fraud perpetrators.
The Firm’s consumer and wholesale businesses collaborate
closely to deploy risk mitigation controls across their
businesses.

132

JPMorgan Chase & Co./2017 Annual Report

Third-party outsourcing risk
To identify and manage the operational risk inherent in its
outsourcing activities, the Firm has a Third-Party Oversight
(“TPO”) framework to assist lines of business and corporate
functions in selecting, documenting, onboarding,
monitoring and managing their supplier relationships. The
objective of the TPO framework is to hold third parties to
the same high level of operational performance as is
expected of the Firm’s internal operations. The Corporate
Third-Party Oversight group is responsible for Firmwide TPO
training, monitoring, reporting and standards.

Insurance
One of the ways in which operational risk may be mitigated
is through insurance maintained by the Firm. The Firm
purchases insurance from commercial insurers and utilizes
a wholly-owned captive insurer, Park Assurance Company,
to ensure compliance with local laws and regulations (e.g.,
workers compensation), as well as to serve other needs
(e.g., property loss and public liability). Insurance may also
be required by third parties with whom the Firm does
business. The insurance purchased is reviewed and
approved by senior management.

JPMorgan Chase & Co./2017 Annual Report

133

COMPLIANCE RISK MANAGEMENT

Compliance risk, a subcategory of operational risk, is the
risk of failure to comply with applicable laws, rules and
regulations.

Governance and oversight
Compliance is led by the Firms’ CCO who reports to the
Firm’s CRO.

Overview
Each line of business and function is accountable for
managing its compliance risk. The Firm’s Compliance
Organization (“Compliance”), which is independent of the
lines of business, works closely with senior management to
provide independent review, monitoring and oversight of
business operations with a focus on compliance with the
legal and regulatory obligations applicable to the delivery
of the Firm’s products and services to clients and
customers.

These compliance risks relate to a wide variety of legal and
regulatory obligations, depending on the line of business
and the jurisdiction, and include those related to ﬁnancial
products and services, relationships and interactions with
clients and customers, and employee activities. For
example, compliance risks include those associated with
anti-money laundering compliance, trading activities,
market conduct, and complying with the rules and
regulations related to the offering of products and services
across jurisdictional borders, among others. Compliance
risk is also inherent in the Firm’s ﬁduciary activities,
including the failure to exercise the applicable high
standard of care (such as the duties of loyalty or care), to
act in the best interest of clients and customers or to treat
clients and customers fairly.

Other Functions provide oversight of signiﬁcant regulatory
obligations that are speciﬁc to their respective areas of
responsibility.

Compliance implements various practices designed to
identify and mitigate compliance risk by establishing
policies, testing, monitoring, training and providing
guidance.

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 of
business and regions. The Firm’s CCO is a member of the
FCC and the FRC. The Firm’s CCO also provides regular
updates to the Audit Committee and DRPC. In addition,
certain Special Purpose Committees of the Board have been
established to oversee the Firm’s compliance with
regulatory Consent Orders.

The Firm has a Code of Conduct (the “Code”). Each
employee is given annual training on the Code and is
required annually to afﬁrm his or her compliance with the
Code. All new hires must complete Code training shortly
after their start date with the Firm. The Code sets forth the
Firm’s expectation that employees will conduct themselves
with integrity at all times and provides the principles that
govern employee conduct with clients, customers,
shareholders and one another, as well as with the markets
and communities in which the Firm does business. The Code
requires employees to promptly report any known or
suspected violation of the Code, any internal Firm policy, or
any law or regulation applicable to the Firm’s business. It
also requires employees to report any illegal conduct, or
conduct that violates the underlying principles of the Code,
by any of the Firm’s employees, customers, suppliers,
contract workers, business partners, or agents. The Code
prohibits retaliation against anyone who raises an issue or
concern in good faith. Speciﬁed compliance ofﬁcers are
specially trained and designated as “code specialists” who
act as a resource to employees on questions related to the
Code. Employees can report any known or suspected
violations of the Code through the Code Reporting Hotline
by phone or the internet. The Hotline is anonymous, except
in certain non-U.S. jurisdictions where laws prohibit
anonymous reporting, and is available 24/7 globally, with
translation services. It is maintained by an outside service
provider. Annually, the Chief Compliance Ofﬁce and Human
Resources report to the Audit Committee on the Code of
Conduct program and provide an update on the employee
completion rate for Code of Conduct training and
afﬁrmation.

134

JPMorgan Chase & Co./2017 Annual Report

CONDUCT RISK MANAGEMENT

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

Overview
Each line of business or function is accountable for
identifying and managing its conduct risk to provide
appropriate engagement, ownership and sustainability of a
culture consistent with the Firm’s How We Do Business
Principles (“Principles”). The Principles serve as a guide for
how employees are expected to conduct themselves. With
the Principles serving as a guide, the Firm’s Code sets out
the Firm’s expectations for each employee and provides
information and resources to help employees conduct
business ethically and in compliance with the law
everywhere the Firm operates. For further discussion of the
Code, see Compliance Risk Management on page 134.

Governance and oversight
The CMDC is the Board-level Committee with primary
oversight of the firm’s Culture and Conduct Program. The
Audit Committee is responsible for reviewing the program
established by management to monitor compliance with 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 meets
annually with the CMDC to review and discuss aspects of the

Firm’s compensation practices. Finally, the Culture &
Conduct Risk Committee provides oversight of certain
culture and conduct risk initiatives at the Firm.

Conduct risk management is incorporated into various
aspects of people management practices throughout the
employee life cycle, including recruiting, onboarding,
training and development, performance management,
promotion and compensation processes. Businesses
undertake annual RCSA assessments, and, as part of these
reviews, identify their respective key inherent operational
risks (including conduct risks), evaluate the design and
effectiveness of their controls, identify control gaps and
develop associated action plans. Each LOB and designated
corporate function completes an assessment of conduct risk
quarterly, reviews metrics and issues which may involve
conduct risk, and provides business conduct training as
appropriate.

The Firm’s Know Your Employee framework generally
addresses how the Firm manages, oversees and responds to
workforce conduct related matters that may otherwise
expose the Firm to financial, 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 not limited to promotion and compensation
actions.

JPMorgan Chase & Co./2017 Annual Report

135

Management’s discussion and analysis

LEGAL RISK MANAGEMENT

Legal risk, a subcategory of operational risk, is the risk of
loss primarily caused by the actual or alleged failure to
meet legal obligations that arise from the rule of law in
jurisdictions in which the Firm operates, agreements with
clients and customers, and products and services offered by
the Firm.

Overview
The global Legal function (“Legal”) provides legal services
and advice to the Firm. Legal is responsible for managing
the Firm’s exposure to Legal risk by:

• managing actual and potential litigation and

enforcement matters, including internal reviews and
investigations related to such matters

• advising on products and services, including contract

negotiation and documentation

• advising on offering and marketing documents and new

business initiatives

• managing dispute resolution

•

interpreting existing laws, rules and regulations, and
advising on changes thereto

• advising on advocacy in connection with contemplated

and proposed laws, rules and regulations, and

• providing legal advice to the LOBs and corporate
functions, in alignment with the lines of defense
described under Enterprise-wide Risk Management.

Legal selects, engages and manages outside counsel for the
Firm on all matters in which outside counsel is engaged. In
addition, Legal advises the Firm’s Conflicts Office which
reviews the Firm’s wholesale transactions that may have the
potential to create conflicts of interest for the Firm.

Governance and oversight
The Firm’s General Counsel reports to the CEO and is a
member of the Operating Committee, the Firmwide Risk
Committee and the Firmwide Control Committee. The
General Counsel’s leadership team 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. Each region (e.g., Latin America, Asia
Pacific) has a General Counsel who is responsible for
managing legal risk across all lines of business and
functions in the region.

The Firm’s General Counsel and other members of Legal
report on significant legal matters at each meeting of the
Firm’s Board of Directors, at least quarterly to the Audit
Committee, and periodically to the DRPC.

Legal serves on and advises various committees (including
new business initiative and reputation risk committees) and
advises the Firm’s businesses to protect the Firm’s
reputation beyond any particular legal requirements.

136

JPMorgan Chase & Co./2017 Annual Report

ESTIMATIONS AND MODEL RISK MANAGEMENT

Estimations and Model risk, a subcategory of operational
risk, is the potential for adverse consequences from
decisions based on incorrect or misused estimation outputs.

The Firm uses models and other analytical and judgment-
based estimations across various businesses and functions.
The estimation methods are of varying levels of
sophistication and are used for many purposes, such as the
valuation of positions and measurement of risk, assessing
regulatory capital requirements, conducting stress testing,
and making business decisions. A dedicated independent
function, Model Risk Governance and Review (“MRGR”),
defines and governs the Firm’s model risk management
policies and certain analytical and judgment-based
estimations, such as those used in risk management, budget
forecasting and capital planning and analysis. MRGR reports
to the Firm’s CRO.

Model risks are owned by the users of the models within the
various businesses and functions in the Firm based on the
specific purposes of such models. Users and developers of
models are responsible for developing, implementing and
testing their models, as well as referring models to the
Model 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 the
performance 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 and
market developments, as well as to capture improvements
in available modeling techniques and systems capabilities.

Models are tiered based on an internal standard according
to their complexity, the exposure associated with the model
and 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 the
model accurately reflects the characteristics of the product
and its significant risks, the selection and reliability of
model inputs, consistency with models for similar products,
the appropriateness of any model-related adjustments, and
sensitivity to input parameters and assumptions that cannot
be observed from the market. When reviewing a model, the
Model Risk function analyzes and challenges the model
methodology and the reasonableness of model assumptions
and may perform or require additional testing, including
back-testing of model outcomes. Model reviews are
approved by the appropriate level of management within
the Model Risk function based on the relevant model tier.

Under the Firm’s Estimations and Model Risk Management
Policy, the Model Risk function reviews and approves 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 policy to allow a model
to be used prior to review or approval. The Model Risk
function may also require the user to take appropriate
actions to mitigate the model risk if it is to be used in the
interim. These actions will depend on the model and may
include, for example, limitation of trading activity.

The governance of analytical and judgment-based
estimations, such as those used in risk management, budget
forecasting, and capital planning and analysis, within
MRGR’s scope, follows a consistent approach to the
governance of models.

For a summary of valuations based on valuation models and
other valuation techniques, see Critical Accounting
Estimates Used by the Firm on pages 138–140 and Note 2.

JPMorgan Chase & Co./2017 Annual Report

137

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 has
established policies and control procedures intended to
ensure that estimation methods, including any judgments
made as part of such methods, are well-controlled,
independently reviewed and applied consistently from
period to period. The methods used and judgments made
reflect, 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 and
portfolios. In addition, the policies and procedures are
intended 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 a
brief description of the Firm’s critical accounting estimates
involving significant judgments.

Allowance for credit losses
JPMorgan Chase’s allowance for credit losses covers the
retained consumer and wholesale loan portfolios, as well as
the Firm’s wholesale and certain consumer lending-related
commitments. The allowance for loan losses is intended to
adjust 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 lending-
related 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 these
components involves significant judgment on a number of
matters. For further discussion of these components, areas
of judgment and methodologies used in establishing the
Firm’s allowance for credit losses, see Note 13.

Allowance for credit losses sensitivity
The Firm’s allowance for credit losses is sensitive to
numerous factors, which may differ depending on the
portfolio. Changes in economic conditions or in the Firm’s
assumptions and estimates could affect its estimate of
probable credit losses inherent in the portfolio at the
balance sheet date. The Firm uses its best judgment to
assess these economic conditions and loss data in
estimating the allowance for credit losses and these
estimates are subject to periodic refinement based on
changes to underlying external or Firm-specific historical
data. The use of alternate estimates, data sources,
adjustments to modeled loss estimates for model
imprecision and other factors would result in a different
estimated allowance for credit losses, as well as impact any
related sensitivities described below. During the second
quarter of 2017, the Firm refined its loss estimates relating
to the wholesale credit portfolio. See Note 13 for further
discussion.

To illustrate the potential magnitude of certain alternate
judgments, the Firm estimates that changes in the following
inputs would have the following effects on the Firm’s
modeled credit loss estimates as of December 31, 2017,
without consideration of any offsetting or correlated effects
of other inputs in the Firm’s allowance for loan losses:
• A combined 5% decline in housing prices and a 100

basis point increase in unemployment rates from current
levels could imply:
an increase to modeled credit loss estimates of

approximately $525 million for PCI loans.

an increase to modeled annual credit loss estimates
of approximately $100 million for residential real
estate, excluding PCI loans.

• For credit card loans, a 100 basis point increase in

unemployment rates from current levels could imply an
increase to modeled annual loss estimates of
approximately $1.0 billion.

• An increase in PD factors consistent with a one-notch
downgrade in the Firm’s internal risk ratings for its
entire wholesale loan portfolio could imply an increase
in the Firm’s modeled credit loss estimates of
approximately $1.4 billion.

• A 100 basis point increase in estimated loss given

default (“LGD”) for the Firm’s entire wholesale loan
portfolio could imply an increase in the Firm’s modeled
credit loss estimates of approximately $175 million.

The purpose of these sensitivity analyses is to provide an
indication of the isolated impacts of hypothetical
alternative assumptions on modeled loss estimates. The
changes in the inputs presented above are not intended to
imply management’s expectation of future deterioration of
those risk factors. In addition, these analyses are not
intended to estimate changes in the overall allowance for
loan losses, which would also be influenced by the judgment
management applies to the modeled loss estimates to
reflect the uncertainty and imprecision of these modeled
loss estimates based on then-current circumstances and
conditions.

It is difficult to estimate how potential changes in specific
factors might affect the overall allowance for credit losses
because management considers a variety of factors and
inputs in estimating the allowance for credit losses.
Changes in these factors and inputs may not occur at the
same rate and may not be consistent across all geographies
or product types, and changes in factors may be
directionally inconsistent, such that improvement in one
factor may offset deterioration in other factors. In addition,
it is difficult to predict how changes in specific economic
conditions or assumptions could affect borrower behavior
or other factors considered by management in estimating
the allowance for credit losses. Given the process the Firm
follows and the judgments made in evaluating the risk
factors related to its loss estimates, management believes
that its current estimate of the allowance for credit losses is
appropriate.

138

JPMorgan Chase & Co./2017 Annual Report

Fair value of financial instruments, MSRs and commodities
inventory
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. The majority of such assets and liabilities are
measured 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 other
loans, where the carrying value is based on the fair value of
the underlying collateral.

Assets measured at fair value
The following table includes the Firm’s assets measured at
fair value and the portion of such assets that are classified
within level 3 of the valuation hierarchy. For further
information, see Note 2.

December 31, 2017
(in billions, except ratio data)

Total assets at
fair value

Total level
3 assets

Trading debt and equity instruments
Derivative receivables(a)
Trading assets
AFS securities

Loans

MSRs

Other

Total assets measured at fair value on

a recurring basis

Total assets measured at fair value on a

nonrecurring 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)

325.3

56.5

381.8
202.2

2.5

6.0

33.2

625.7

1.3

627.0

2,533.6

5.4

6.0

11.4
0.3

0.3

6.0

1.2

19.2

0.8

20.0

0.8%

3.2%

(a) For purposes of the table above, the derivative receivables total reflects the impact
of netting adjustments; however, the $6.0 billion of derivative receivables classified
as level 3 does not reflect the netting adjustment as such netting is not relevant 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 associated with cash collateral.

Valuation
Details of the Firm’s processes for determining fair value
are set out in Note 2. Estimating fair value requires the
application of judgment. The type and level of judgment
required is largely dependent on the amount of observable
market information available to the Firm. For instruments
valued using internally developed valuation models and
other valuation techniques that use significant
unobservable inputs and are therefore classified within
level 3 of the valuation hierarchy, judgments used to
estimate 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 the
appropriate valuation technique to use. Second, the lack of
observability of 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 of comparable instruments, foreign exchange
rates and credit curves. For further discussion of the
valuation of level 3 instruments, including unobservable
inputs used, see Note 2.

For instruments classified in levels 2 and 3, management
judgment must be applied to assess the appropriate level of
valuation 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 typically
affected by the type of product and its specific contractual
terms, and the level of liquidity for the product or within the
market as a whole. For further discussion of valuation
adjustments applied by the Firm see Note 2.

Imprecision in estimating unobservable market inputs or
other factors can affect the amount of gain or loss recorded
for a particular position. Furthermore, while the Firm
believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm’s businesses and
portfolios.

The Firm uses various methodologies and assumptions in
the determination of fair value. The use of methodologies
or assumptions different than those used by the Firm could
result in a different estimate of fair value at the reporting
date. For a detailed discussion of the Firm’s valuation
process and hierarchy, and its determination of fair value
for individual financial instruments, see Note 2.

Goodwill impairment
Under U.S. GAAP, goodwill must be allocated to reporting
units and tested for impairment at least annually. The Firm’s
process and methodology used to conduct goodwill
impairment testing is described in Note 15.

Management applies significant judgment when estimating
the fair value of its reporting units. Estimates of fair value
are dependent upon estimates of the future earnings
potential of the Firm’s reporting units, long-term growth
rates and the estimated market cost of equity. Imprecision
in estimating these factors can affect the 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, 2017.
The fair values of these reporting units exceeded their
carrying values by approximately 15% or higher and did
not indicate a significant risk of goodwill impairment based
on current projections and valuations. Such valuations do
not reflect the impact of the TCJA that was enacted in
December 2017 as such impact would not alter the
conclusion that goodwill is not impaired.

The projections for all of the Firm’s reporting units are
consistent with management’s current short-term business
outlook 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

JPMorgan Chase & Co./2017 Annual Report

139

Management’s discussion and analysis

businesses. Where possible, the Firm uses third-party and
peer data to benchmark its assumptions and estimates.

Declines in business performance, increases in credit losses,
increases in 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 the estimated
fair values of the Firm’s reporting units or their associated
goodwill to decline in the future, which could result in a
material impairment charge to earnings in a future period
related to some portion of the associated goodwill.

For additional information on goodwill, see Note 15.

Credit card rewards liability
JPMorgan Chase offers credit cards with various reward
programs which allow cardholders to earn reward points
based on their account activity and the terms and
conditions of the rewards program. Generally, there are no
limits on the points that an eligible cardholder can earn, nor
do they expire, and these points can be redeemed for a
variety of rewards, including cash (predominantly in the
form of account credits), gift cards and travel.

The Firm maintains a rewards liability which represents the
estimated cost of reward points earned and expected to be
redeemed by cardholders. The rewards liability is sensitive
to various assumptions, including cost per point and
redemption rates for each of the various reward programs,
which are evaluated periodically. The liability is accrued as
the cardholder earns the benefit and is reduced when the
cardholder redeems points. This liability was $4.9 billion
and $3.8 billion at December 31, 2017 and 2016,
respectively, and is recorded in accounts payable and other
liabilities on the Consolidated balance sheets.

Income taxes
JPMorgan Chase is subject to the income tax laws of the
various jurisdictions in which it operates, including U.S.
federal, state and local, and non-U.S. jurisdictions. These
laws are often complex and may be subject to different
interpretations. To determine the financial statement
impact of accounting for income taxes, including the
provision for income tax expense and unrecognized tax
benefits, JPMorgan Chase must make assumptions and
judgments about how to interpret and apply these complex
tax laws to numerous transactions and business events, as
well as make judgments regarding the timing of when
certain items may affect taxable income in the U.S. and
non-U.S. tax jurisdictions.

JPMorgan Chase’s interpretations of tax laws around the
world 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 a
tax position. These disputes over interpretations with the
various taxing authorities may be settled by audit,
administrative appeals or adjudication in the court systems
of the tax jurisdictions in which the Firm operates.
JPMorgan Chase regularly reviews whether it may be
assessed additional income taxes as a result of the
resolution 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 operations
in any reporting period.

The Firm’s provision for income taxes is composed of
current and deferred taxes. Deferred taxes arise from
differences between assets and liabilities measured for
financial reporting versus income tax return purposes.
Deferred tax assets are recognized if, in management’s
judgment, their realizability is determined to be more likely
than not. The Firm has also recognized deferred tax assets
in connection with certain tax attributes, including NOLs.
The Firm performs regular reviews to ascertain whether its
deferred tax assets are realizable. These reviews include
management’s estimates and assumptions regarding future
taxable income, which also incorporates various tax
planning strategies, including strategies that may be
available to utilize NOLs before they expire. In connection
with these reviews, if it is 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 on
revised estimates of future taxable income or changes in
tax planning strategies, it is more likely than not that all or
part of the deferred tax asset will become realizable. As of
December 31, 2017, management has determined it is
more likely than not that the Firm will realize its deferred
tax assets, net of the existing valuation allowance.

Prior to December 31, 2017, U.S. federal income taxes had
not been provided on the undistributed earnings of certain
non-U.S. subsidiaries, to the extent that such earnings had
been reinvested abroad for an indefinite period of time. The
Firm will no longer maintain the indefinite reinvestment
assertion on the undistributed earnings of those non-U.S.
subsidiaries in light of the enactment of the TCJA. The U.S.
federal and state and local income taxes associated with the
undistributed and previously untaxed earnings of those
non-U.S. subsidiaries was included in the deemed
repatriation charge recorded as of December 31, 2017.

The Firm adjusts its unrecognized tax benefits as necessary
when additional information becomes available. Uncertain
tax positions that meet the more-likely-than-not recognition
threshold are measured to determine the amount of benefit
to recognize. An uncertain tax position is measured at the
largest amount of benefit that management believes is
more 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 the
reassessment occurs.

The income tax expense for the current year includes a
reasonable estimate recorded under SEC Staff Accounting
Bulletin No. 118 resulting from the enactment of the TCJA.

For additional information on income taxes, see Note 24.

Litigation reserves
For a description of the significant estimates and judgments
associated with establishing litigation reserves, see
Note 29.

140

JPMorgan Chase & Co./2017 Annual Report

ACCOUNTING AND REPORTING DEVELOPMENTS

SEC Staff Accounting Bulletin adopted during 2017

Bulletin

Summary of guidance

Effects on financial statements

Application of U.S.
GAAP related to the
Tax Cuts and Jobs Act
(“TCJA”) (SEC Staff
Accounting Bulletin
No. 118)

Issued December 2017

• Provides guidance on the accounting for
income taxes in the context of the TCJA.

• For impacts of the tax law changes that
are reasonably estimable, requires the
recognition of provisional amounts in
year-end 2017 financial statements.

• Provides a 1-year measurement period
in which to refine previously recorded
provisional amounts based on new
information or interpretations.

• The TCJA resulted in a $2.4 billion decrease in net income driven by a deemed
repatriation charge and adjustments to the value of the Firm’s tax oriented
investments, partially offset by a benefit from the revaluation of the Firm’s net
deferred tax liability. Certain of these amounts may be refined in accordance with
SEC Staff Accounting Bulletin No. 118.

• Refer to Note 24 for additional information related to the impacts of the TCJA.

FASB Standards issued but not adopted as of December 31, 2017

Standard

Summary of guidance

Effects on financial statements

Revenue recognition –
revenue from
contracts with
customers

Issued May 2014

• Requires that revenue from contracts
with customers be recognized upon
transfer of control of a good or service
in the amount of consideration
expected to be received.

• 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 to existing
contracts as of the date of initial
application, and to new contracts
transacted after that date.

• Adopted January 1, 2018.

• The Firm adopted the revenue recognition guidance using the full retrospective

method of adoption.

• The adoption of the guidance did not result in any material changes in the timing
of the Firm’s revenue recognition, but will require gross presentation of certain
costs currently offset against revenue. This change in presentation will be
reflected in the first quarter of 2018 and will increase both noninterest revenue
and noninterest expense for the Firm by $1.1 billion and $900 million for the
years ended December 31, 2017 and 2016, respectively. The increase is
predominantly associated with certain distribution costs in AWM (currently offset
against Asset management, administration and commissions), with the remainder
of the increase associated with certain underwriting costs in CIB (currently offset
against Investment banking fees).

• The Firm’s Note 6 qualitative disclosures are consistent with the guidance.

Recognition and
measurement of
financial assets and
financial liabilities

Issued January 2016

• Requires that certain equity

• The Firm early adopted the provisions of this guidance related to presenting DVA

instruments be measured at fair value,
with changes in fair value recognized in
earnings.

in OCI for financial liabilities where the fair value option has been elected,
effective January 1, 2016. The Firm adopted the portions of the guidance that
were not eligible for early adoption on January 1, 2018.

• Upon adoption, the Firm elected the measurement alternative for its equity

securities that do not have readily determinable fair values, and the Firm did not
record a cumulative-effect adjustment related to the adoption of this guidance.

• Provides a measurement alternative
for equity securities without readily
determinable fair values to be
measured at cost less impairment (if
any), plus or minus observable price
changes from an identical or similar
investment of the same issuer. Any such
price changes will be reflected in
earnings beginning in the period of
adoption.

• Generally requires a cumulative-effect
adjustment to retained earnings as of
the beginning of the reporting period of
adoption, except for those equity
securities that are eligible for the
measurement alternative.

JPMorgan Chase & Co./2017 Annual Report

141

Management’s discussion and analysis

FASB Standards issued but not adopted as of December 31, 2017 (continued)

Standard

Summary of guidance

Effects on financial statements

Classification of
certain cash receipts
and cash payments in
the statement of cash
flows

Issued August 2016

• Provides targeted amendments to the
classification of certain cash flows,
including treatment of cash payments
for settlement of zero-coupon debt
instruments and distributions received
from equity method investments.

• Requires retrospective application to all

periods presented.

Treatment of
restricted cash on the
statement of cash
flows

• Requires inclusion of restricted cash in
the cash and cash equivalents balances
in the Consolidated statements of cash
flows.

Issued November 2016

• Requires additional disclosures to
supplement the Consolidated
statements of cash flows.

• Adopted January 1, 2018.

• No material impact upon adoption as the Firm was either in compliance with the

amendments or the amounts to which it is applied are immaterial.

• Adopted January 1, 2018.

• The adoption of the guidance will result in reclassification of restricted cash

balances into Cash and restricted cash on the Consolidated statements of cash
flows in the first quarter of 2018. The Firm will include Cash and due from banks
and Deposits with banks in Cash and restricted cash in the Consolidated
statements of cash flows, resulting in Deposits with banks no longer being
reflected in Investing activities.

Definition of a
business

Issued January 2017

Presentation of net
periodic pension cost
and net periodic
postretirement benefit
cost

Issued March 2017

Premium amortization
on purchased callable
debt securities

Issued March 2017

• Requires retrospective application to all

• In addition, to align with the presentation of Cash and restricted cash on the

periods presented.

Consolidated statements of cash flows, the Firm will reclassify restricted cash
balances to Cash and due from banks and to Deposits with banks from Other
assets and disclose the total for Cash and restricted cash on the Firm’s
Consolidated balance sheets in the first quarter of 2018.

• Narrows the definition of a business and

• Adopted January 1, 2018.

• No impact upon adoption because the guidance is to be applied prospectively.
Subsequent to adoption, fewer transactions will be treated as acquisitions or
dispositions of a business.

clarifies that, to be considered a
business, the fair value of the gross
assets acquired (or disposed of) may
not be substantially all concentrated in
a single 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.

• Requires the service cost component of

• Adopted January 1, 2018.

net periodic pension and
postretirement benefit cost to be
reported separately in the consolidated
results of operations from the other
components (e.g., expected return on
assets, interest costs, amortization of
gains/losses and prior service costs).

• Requires retrospective application and

presentation in the consolidated results
of operations of the service cost
component in the same line item as
other employee compensation costs
and presentation of the other
components in a different line item
from the service cost component.

• Requires amortization of premiums to
the earliest call date on debt securities
with call features that are explicit,
noncontingent and callable at fixed
prices and on preset dates.

• Does not impact securities held at a

discount; the discount continues to be
amortized to the contractual maturity.

• Requires adoption on a modified
retrospective basis through a
cumulative-effect adjustment directly
to retained earnings as of the beginning
of the period of adoption.

• The adoption of the guidance in the first quarter of 2018 will result in an increase
in compensation expense and a reduction in other expense of $223 million and
$250 million for the years ended December 31, 2017 and 2016, respectively.

• The Firm early adopted the new guidance on January 1, 2018.
• The new guidance primarily impacts obligations of U.S. states and municipalities

held in the Firm’s investment securities portfolio.

• The adoption of this guidance resulted in a cumulative-effect adjustment that

reduced retained earnings by approximately $505 million as of January 1, 2018,
with a corresponding increase of $261 million (after tax) in AOCI and related
adjustments to securities and tax liabilities.

• Subsequent to adoption, although the guidance will reduce the interest income
recognized prior to the earliest call date for callable debt securities held at a
premium, the effect of this guidance on the Firm’s net interest income is not
expected to be material.

142

JPMorgan Chase & Co./2017 Annual Report

FASB Standards issued but not adopted as of December 31, 2017 (continued)

Standard

Summary of guidance

Effects on financial statements

Hedge accounting

Issued August 2017

• Reduces earnings volatility by better
aligning the accounting with the
economics of the risk management
activities.

• Expands the ability for certain hedges

of interest rate risk to qualify for hedge
accounting.

• Allows recognition of ineffectiveness in
cash flow hedges and net investment
hedges in OCI.

• Allows a one-time election at adoption
to transfer certain securities classified
as held-to-maturity to available-for-
sale.

• Simplifies hedge documentation

requirements.

• The Firm early adopted the new guidance on January 1, 2018.

• The adoption of the guidance resulted in a cumulative-effect adjustment that

increased retained earnings in the amount of $34 million, with related
adjustments to debt carrying values and AOCI.

• The Firm will also amend its qualitative and quantitative disclosures within its

derivative instruments note to the Consolidated Financial Statements in the first
quarter of 2018.

• In accordance with the new guidance, the Firm elected to transfer certain

securities from HTM to AFS. The amendments provide the Firm with
additional hedge accounting alternatives for its AFS securities (including those
transferred under the election) to be considered as the Firm manages it structural
interest rate risk and regulatory capital. The Firm is currently evaluating those
risk management alternatives and intends to manage the transferred securities in
a manner consistent with its existing AFS securities. This transfer is a non-cash
transaction at fair value.

• The Firm early adopted the new guidance on January 1, 2018.

• The adoption of the guidance resulted in a cumulative-effect adjustment that

increased retained earnings in the amount of $288 million in the first quarter of
2018. This amount is an estimate that may be refined in accordance with SEC
Staff Accounting Bulletin No. 118, and represents the removal of the stranded tax
effects from AOCI, thereby allowing the tax effects within AOCI to reflect the new
respective corporate income tax rates.

• Refer to Note 24 for additional information related to the impacts of the TCJA.

• Required effective date: January 1, 2019.(a)

• The Firm is in the process of its implementation which has included an initial
evaluation of its leasing contracts and activities. As a lessee, the Firm is
developing its methodology to estimate the right-of-use assets and lease
liabilities, which is based on the present value of lease payments. The Firm
expects to recognize lease liabilities and corresponding right-of-use assets (at
their present value) related to predominantly all of the $10 billion of future
minimum payments required under operating leases as disclosed in Note 28.
However, the population of contracts subject to balance sheet recognition and
their initial measurement remains under evaluation. The Firm does not expect
material changes to the recognition of operating lease expense in its Consolidated
statements of income.

• The Firm plans to adopt the new guidance in the first quarter of 2019.

Reclassification of
Certain Tax Effects
from AOCI

Issued February 2018

Leases

Issued February 2016

• Provides an election to reclassify from
AOCI to retained earnings stranded tax
effects due to the revaluation of
deferred tax assets and liabilities as a
result of changes in applicable tax rates
under the TCJA.

• Requires additional disclosures related
to the Firm’s election to reclassify
amounts from AOCI to retained
earnings and the Firm’s policy for
releasing income tax effects from AOCI.

• The guidance may be applied on a

modified retrospective basis through a
cumulative-effect adjustment directly
to retained earnings as of the beginning
of the period of adoption.

• Requires lessees to recognize all leases
longer than twelve months on the
Consolidated balance sheets as lease
liabilities with corresponding 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.

• Permits the Firm to generally account
for its existing leases consistent with
current guidance, except for the
incremental balance sheet recognition.

• Expands qualitative and quantitative

disclosures regarding leasing
arrangements.

• May be adopted using a modified

cumulative effect approach wherein the
guidance is applied only to existing
contracts as of the date of initial
application, and to new contracts
transacted after that date.

JPMorgan Chase & Co./2017 Annual Report

143

Management’s discussion and analysis

FASB Standards issued but not adopted as of December 31, 2017 (continued)

Standard

Summary of guidance

Effects on financial statements

Financial instruments
– credit losses

Issued June 2016

• Replaces existing incurred loss

• Required effective date: January 1, 2020.(a)

• The Firm has begun its implementation efforts by establishing a Firmwide, cross-

discipline governance structure. The Firm is currently identifying key interpretive
issues, and is assessing existing credit loss forecasting models and processes
against the new guidance to determine what modifications may be required.

• The Firm expects that the new guidance will result in an increase in its allowance

for credit losses due to several factors, including:

1. The allowance related to the Firm’s loans and commitments will increase to
cover credit losses over the full remaining expected life of the portfolio, and
will consider expected future changes in macroeconomic conditions

2. The nonaccretable difference on PCI loans will be recognized as an allowance,

offset by an increase in the carrying value of the related loans

3. An allowance will be established for estimated credit losses on HTM securities

• The extent of the increase is under evaluation, but will depend upon the nature

and characteristics of the Firm’s portfolio at the adoption date, and the
macroeconomic conditions and forecasts at that date.

impairment guidance and establishes a
single allowance framework for
financial assets carried at amortized
cost (including HTM securities), which
will reflect management’s estimate of
credit losses over the full remaining
expected life of the financial assets.

• Eliminates existing guidance for PCI

loans, and requires recognition of an
allowance for expected credit losses on
financial assets purchased with more
than insignificant credit deterioration
since origination.

• Amends existing impairment guidance
for AFS securities to incorporate 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.

Goodwill

• Requires an impairment loss to be

• Required effective date: January 1, 2020.(a)

Issued January 2017

recognized when the estimated fair
value of a reporting unit falls below its
carrying value.

• Eliminates the second condition in the
current guidance that requires an
impairment loss to be recognized only if
the estimated implied fair value of the
goodwill is below its carrying value.

(a) Early adoption is permitted.

• Based on current impairment test results, the Firm does not expect a material

effect on the Consolidated Financial Statements.

• After adoption, the guidance may result in more frequent goodwill impairment

losses due to the removal of the second condition.

• The Firm is evaluating the timing of adoption.

144

JPMorgan Chase & Co./2017 Annual Report

FORWARD-LOOKING STATEMENTS

From time to time, the Firm has made and will make
forward-looking statements. These statements can be
identified by the fact that they do not relate strictly to
historical or current facts. Forward-looking statements
often use words such as “anticipate,” “target,” “expect,”
“estimate,” “intend,” “plan,” “goal,” “believe,” or other
words of similar meaning. Forward-looking statements
provide JPMorgan Chase’s current expectations or forecasts
of future events, circumstances, results or aspirations.
JPMorgan Chase’s disclosures in this Annual Report contain
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The Firm
also may make forward-looking statements in its other
documents filed or furnished with the SEC. In addition, the
Firm’s senior management may make forward-looking
statements orally to investors, analysts, representatives of
the 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 are
certain factors which could cause actual results to differ
from those in the forward-looking statements:

• Local, regional and global business, economic and

political 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 those
requirements;

• Heightened regulatory and governmental oversight and

scrutiny 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, including

changes in market liquidity and volatility;

• Changes in investor sentiment or consumer spending or

savings behavior;

• Ability of the Firm to manage effectively its capital and
liquidity, including approval of its capital plans by
banking regulators;

• Changes in credit ratings assigned to the Firm or its

subsidiaries;

• Damage to the Firm’s reputation;
• Ability of the Firm to deal effectively with an economic
slowdown or other economic or market disruption;

• Technology changes instituted by the Firm, its

counterparties or competitors;

• The success of the Firm’s business simplification

initiatives and the effectiveness of its control agenda;

• Ability of the Firm to develop new products and services,
and the extent to which products or services previously
sold by the Firm (including but not limited to mortgages
and asset-backed securities) require the Firm to incur
liabilities or absorb losses not contemplated at their
initiation or origination;

• Acceptance of the Firm’s new and existing products and
services by the marketplace and the ability of the Firm
to innovate and to increase market share;

• Ability of the Firm to attract and retain qualified

employees;

• Ability of the Firm to control expenses;
• Competitive pressures;
• Changes in the credit quality of the Firm’s customers

and counterparties;

• Adequacy of the Firm’s risk management framework,

disclosure controls and procedures and internal control
over financial reporting;

• Adverse judicial or regulatory proceedings;
• Changes in applicable accounting policies, including the

introduction of new accounting standards;

• Ability of the Firm to determine accurate values of

certain assets and liabilities;

• Occurrence of natural or man-made disasters or

calamities 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 and
other operational systems and facilities;

• Ability of the Firm to withstand disruptions that may be
caused by any failure of its operational systems or those
of third parties;

• Ability of the Firm to effectively defend itself against
cyberattacks and other attempts by unauthorized
parties to access information of the Firm or its
customers or to disrupt the Firm’s systems; and

• The other risks and uncertainties detailed in Part I, Item
1A: Risk Factors in the Firm’s Annual Report on Form
10-K for the year ended December 31, 2017.

Any forward-looking statements made by or on behalf of
the Firm speak only as of the date they are made, and
JPMorgan Chase does not undertake to update forward-
looking statements. The reader should, however, consult
any further disclosures of a forward-looking nature the
Firm may make in any subsequent Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, or Current Reports
on Form 8-K.

JPMorgan Chase & Co./2017 Annual Report

145

Management’s report on internal control over financial reporting

Management of JPMorgan Chase & Co. (“JPMorgan Chase”
or the “Firm”) is responsible for establishing and
maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a
process 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 and
other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with accounting principles generally accepted in the United
States 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 and
dispositions of the Firm’s assets; (2) provide reasonable
assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance
with generally accepted accounting principles, and that
receipts and expenditures of the Firm are being made only
in accordance with authorizations of JPMorgan Chase’s
management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized 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 over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Management has
completed an assessment of the effectiveness of the Firm’s
internal control over financial reporting as of December 31,
2017. In making the assessment, management used the
“Internal Control — Integrated Framework” (“COSO 2013”)
promulgated by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”).

Based upon the assessment performed, management
concluded that as of December 31, 2017, JPMorgan Chase’s
internal control over financial reporting was effective based
upon the COSO 2013 framework. Additionally, based upon
management’s assessment, the Firm determined that there
were no material weaknesses in its internal control over
financial reporting as of December 31, 2017.

The effectiveness of the Firm’s internal control over
financial reporting as of December 31, 2017, has been
audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report
which appears herein.

James Dimon
Chairman and Chief Executive Officer

Marianne Lake
Executive Vice President and Chief Financial Officer

February 27, 2018

146

JPMorgan Chase & Co./2017 Annual Report

Report of independent registered public accounting firm

To the Board of Directors and Stockholders of JPMorgan
Chase & Co.:
Opinions on the Financial Statements and Internal Control
over Financial Reporting
We have audited the accompanying consolidated balance
sheets of JPMorgan Chase & Co. and its subsidiaries (the
“Firm”) as of December 31, 2017 and 2016, and the related
consolidated statements of income, comprehensive income,
changes in stockholders’ equity and cash flows for each of the
three years in the period ended December 31, 2017,
including the related notes (collectively referred to as the
“consolidated financial statements”). We also have audited
the Firm’s internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO).

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Firm as of December 31, 2017 and 2016, and
the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2017 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 of December 31, 2017, based on
criteria established in Internal Control – Integrated Framework
(2013) issued by the COSO.

Basis for Opinions
The Firm’s management is responsible for these consolidated
financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Management’s report on
internal control over financial reporting. Our responsibility is
to express opinions on the Firm’s consolidated financial
statements and on the Firm’s internal control over financial
reporting based on our audits. We are a public accounting
firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required
to be independent with respect to the Firm in accordance
with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission
and the PCAOB.

We conducted our audits in accordance with the standards of
the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and
whether effective internal control over financial reporting
was maintained in all material respects.

Our audits of the consolidated financial statements included
performing procedures to assess the risks of material
misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used
and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over
financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included
performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial
Reporting
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the
company are being made only in accordance with
authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a
material effect on the financial statements.

February 27, 2018

We have served as the Firm’s auditor since 1965.

PricewaterhouseCoopers LLP

300 Madison Avenue

New York, NY 10017

JPMorgan Chase & Co./2017 Annual Report

147

Consolidated statements of income

Year ended December 31, (in millions, except per share data)

2017

2016

2015

Revenue

Investment banking fees

Principal transactions

Lending- and deposit-related fees

Asset management, administration and commissions

Securities gains/(losses)

Mortgage fees and related income

Card income

Other income

Noninterest revenue

Interest income

Interest expense

Net interest income

Total net revenue

Provision for credit losses

Noninterest expense

Compensation expense

Occupancy expense

Technology, communications and equipment expense

Professional and outside services

Marketing

Other expense

Total noninterest expense

Income before income tax expense

Income tax expense

Net income

Net income applicable to common stockholders(a)

Net income per common share data

Basic earnings per share

Diluted earnings per share

Weighted-average basic shares(a)

Weighted-average diluted shares(a)

Cash dividends declared per common share

7,248

6,448

11,347

5,933

15,377

(66)

1,616

4,433

3,639

49,527

64,372

14,275

50,097

99,624

5,290

11,566

5,774

14,591

141

2,491

4,779

3,795

49,585

55,901

9,818

46,083

95,668

5,361

6,751

10,408

5,694

15,509

202

2,513

5,924

3,032

50,033

50,973

7,463

43,510

93,543

3,827

31,009

29,979

29,750

3,723

7,706

6,840

2,900

6,256

58,434

35,900

11,459

24,441

22,567

6.35

6.31

3,551.6

3,576.8

3,638

6,846

6,655

2,897

5,756

55,771

34,536

9,803

24,733

22,834

6.24

6.19

3,658.8

3,690.0

2.12

1.88

3,768

6,193

7,002

2,708

9,593

59,014

30,702

6,260

24,442

22,651

6.05

6.00

3,741.2

3,773.6

1.72

(a) The prior period amounts have been revised to conform with the current period presentation. The revision had no impact on the Firm’s reported earnings

per share.

The Notes to Consolidated Financial Statements are an integral part of these statements.

148

JPMorgan Chase & Co./2017 Annual Report

Consolidated statements of comprehensive income

Year ended December 31, (in millions)

Net income

Other comprehensive income/(loss), after–tax

Unrealized gains/(losses) on investment securities

Translation adjustments, net of hedges

Cash flow hedges

Defined benefit pension and OPEB plans

DVA on fair value option elected liabilities

Total other comprehensive income/(loss), after–tax

Comprehensive income

2017

2016

24,441

24,733

2015

24,442

640

(306)

176

738

(192)

1,056

(1,105)

(2,144)

(2)

(56)

(28)

(330)

(1,521)

(15)

111

—

(1,997)

22,445

25,497

23,212

The Notes to Consolidated Financial Statements are an integral part of these statements.

JPMorgan Chase & Co./2017 Annual Report

149

Consolidated balance sheets

December 31, (in millions, except share data)

2017

2016

Assets
Cash and due from banks

Deposits with banks

Federal funds sold and securities purchased under resale agreements (included $14,732 and $21,506 at fair value)

Securities borrowed (included $3,049 and $0 at fair value)

Trading assets (included assets pledged of $110,061 and $115,847)

Securities (included $202,225 and $238,891 at fair value and assets pledged of $17,969 and $16,115)

Loans (included $2,508 and $2,230 at fair value)

Allowance for loan losses

Loans, net of allowance for loan losses

Accrued interest and accounts receivable

Premises and equipment

Goodwill, MSRs and other intangible assets

Other assets (included $16,128 and $7,557 at fair value and assets pledged of $1,526 and $1,603)
Total assets(a)
Liabilities

Deposits (included $21,321 and $13,912 at fair value)

Federal funds purchased and securities loaned or sold under repurchase agreements (included $697 and $687 at fair

value)

Short-term borrowings (included $9,191 and $9,105 at fair value)

Trading liabilities

Accounts payable and other liabilities (included $9,208 and $9,120 at fair value)

Beneficial interests issued by consolidated VIEs (included $45 and $120 at fair value)

Long-term debt (included $47,519 and $37,686 at fair value)
Total liabilities(a)
Commitments and contingencies (see Notes 27, 28 and 29)

Stockholders’ equity

Preferred stock ($1 par value; authorized 200,000,000 shares: issued 2,606,750 shares)

Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income

Shares held in restricted stock units (“RSU”) trust, at cost (472,953 shares)

Treasury stock, at cost (679,635,064 and 543,744,003 shares)

Total stockholders’ equity

Total liabilities and stockholders’ equity

25,827

404,294

198,422

105,112

381,844

249,958

930,697

(13,604)

917,093

67,729

14,159

54,392

23,873

365,762

229,967

96,409

372,130

289,059

894,765

(13,776)

880,989

52,330

14,131

54,246

114,770

2,533,600

1,443,982

112,076

2,490,972

1,375,179

158,916

51,802

123,663

189,383

26,081

284,080

165,666

34,443

136,659

190,543

39,047

295,245

2,277,907

2,236,782

26,068

4,105

90,579

26,068

4,105

91,627

177,676

162,440

(119)

(21)

(42,595)

255,693

(1,175)

(21)

(28,854)

254,190

2,533,600

2,490,972

(a) The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at December 31, 2017 and 2016. The difference between total

VIE assets and liabilities represents the Firm’s interests in those entities, which were eliminated in consolidation.

December 31, (in millions)

2017

2016

Assets
Trading assets

Loans

All other assets

Total assets

Liabilities

Beneficial interests issued by consolidated VIEs

All other liabilities

Total liabilities

1,449

68,995

2,674

73,118

26,081

349

26,430

3,185

75,614

3,321

82,120

39,047

490

39,537

The assets of the consolidated VIEs are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general credit of JPMorgan
Chase. At December 31, 2017 and 2016, the Firm provided limited program-wide credit enhancement of $2.7 billion and $2.4 billion, respectively, related to its Firm-administered
multi-seller conduits, which are eliminated in consolidation. For further discussion, see Note 14.

The Notes to Consolidated Financial Statements are an integral part of these statements.

150

JPMorgan Chase & Co./2017 Annual Report

Consolidated statements of changes in stockholders’ equity

Year ended December 31, (in millions, except per share data)

2017

2016

2015

Preferred stock

Balance at January 1

Issuance

Redemption

Balance at December 31

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 share-based compensation awards

Other

Balance at December 31

Retained earnings

Balance at January 1

Cumulative effect of change in accounting principle

Net income

Dividends declared:

Preferred stock

Common stock ($2.12, $1.88 and $1.72 per share for 2017, 2016 and 2015, respectively)

Balance at December 31

Accumulated other comprehensive income

Balance at January 1

Cumulative effect of change in accounting principle

Other comprehensive income/(loss)

Balance at December 31

Shares held in RSU Trust, at cost

Balance at January 1 and December 31

Treasury stock, at cost

Balance at January 1

Repurchase

Reissuance

Balance at December 31

Total stockholders’ equity

26,068

20,063

1,258

(1,258)

26,068

—

6,005

—

26,068

4,105

91,627

92,500

93,270

(734)

(314)

(334)

(539)

(436)

(334)

90,579

91,627

92,500

162,440

146,420

129,977

—

(154)

—

24,441

24,733

24,442

(1,663)

(7,542)

(1,647)

(6,912)

(1,515)

(6,484)

177,676

162,440

146,420

(1,175)

—

1,056

(119)

192

154

(1,521)

(1,175)

2,189

—

(1,997)

192

(21)

(28,854)

(21,691)

(17,856)

(15,410)

1,669

(9,082)

1,919

(5,616)

1,781

(42,595)

(28,854)

(21,691)

$ 255,693

$ 254,190

$ 247,573

The Notes to Consolidated Financial Statements are an integral part of these statements.

JPMorgan Chase & Co./2017 Annual Report

151

Consolidated statements of cash flows

Year ended December 31, (in millions)

Operating activities

Net income

Adjustments to reconcile net income to net cash provided by/(used in) operating activities:

Provision for credit losses

Depreciation and amortization

Deferred tax expense

Other

Originations and purchases of loans held-for-sale

Proceeds from sales, securitizations and paydowns of loans held-for-sale

Net change in:

Trading assets

Securities borrowed

Accrued interest and accounts receivable

Other assets

Trading liabilities

Accounts payable and other liabilities

Other operating adjustments

Net cash provided by/(used in) operating activities

Investing activities

Net change in:

Deposits with banks

Federal funds sold and securities purchased under resale agreements

Held-to-maturity securities:

Proceeds from paydowns and maturities

Purchases

Available-for-sale securities:

Proceeds from paydowns and maturities

Proceeds from sales

Purchases

Proceeds from sales and securitizations of loans held-for-investment

Other changes in loans, net

All other investing activities, net

Net cash provided by/(used in) investing activities

Financing activities

Net change in:

Deposits

Federal funds purchased and securities loaned or sold under repurchase agreements

Short-term borrowings

Beneficial interests issued by consolidated VIEs

Proceeds from long-term borrowings

Payments of long-term borrowings

Proceeds from issuance of preferred stock

Redemption of preferred stock

Treasury stock repurchased

Dividends paid

All other financing activities, net

Net cash provided by/(used in) financing activities

Effect of exchange rate changes on cash and due from banks

Net increase/(decrease) in cash and due from banks

Cash and due from banks at the beginning of the period

Cash and due from banks at the end of the period

Cash interest paid

Cash income taxes paid, net

2017

2016

2015

24,441

24,733

24,442

5,290

6,179

2,312

2,136

5,361

5,478

4,651

1,799

3,827

4,940

1,333

1,785

(94,628)

(61,107)

(48,109)

93,270

60,196

49,363

5,673

(20,007)

(8,653)

(15,868)

4,318

(26,256)

(8,518)

7,803

2,313

(5,815)

(4,517)

5,198

3,740

(1,827)

(2,501)

20,196

62,212

12,165

22,664

(3,701)

(28,972)

(23,361)

(5,122)

73,466

(38,532)

(25,747)

144,462

31,448

(17,468)

3,190

4,563

(2,349)

6,218

(143)

6,099

(6,204)

56,117

90,201

65,950

48,592

76,448

40,444

(105,309)

(123,959)

(70,804)

15,791

15,429

18,604

(61,650)

(80,996)

(108,962)

(563)

(2,825)

3,703

(10,283)

(114,949)

106,980

57,022

(6,739)

16,540

(1,377)

56,271

97,336

13,007

(2,461)

(5,707)

83,070

(88,678)

(39,415)

(57,828)

(5,632)

79,611

(83,079)

(68,949)

(67,247)

1,258

(1,258)

(15,410)

(8,993)

407

—

(9,082)

(8,476)

(467)

5,893

—

(5,616)

(7,873)

(726)

14,642

98,271

(187,511)

1,954

23,873

25,827

14,153

4,325

(135)

3,383

20,490

23,873

9,508

2,405

(276)

(7,341)

27,831

20,490

7,220

9,423

The Notes to Consolidated Financial Statements are an integral part of these statements.

152

JPMorgan Chase & Co./2017 Annual Report

Note 1 – Basis of presentation
JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”), a
financial holding company incorporated under Delaware law
in 1968, is a leading global financial services firm and one
of the largest banking institutions in the U.S., with
operations worldwide. The Firm is a leader in investment
banking, financial services for consumers and small
business, commercial banking, financial transaction
processing and asset management. For a discussion of the
Firm’s business segments, see Note 31.

The accounting and financial reporting policies of JPMorgan
Chase and its subsidiaries conform to U.S. GAAP.
Additionally, where applicable, the policies conform to the
accounting and reporting guidelines prescribed by
regulatory authorities.

Certain amounts reported in prior periods have been
reclassified to conform with the current presentation.

Consolidation
The Consolidated Financial Statements include the accounts
of 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 not
included on the Consolidated balance sheets.

The Firm determines whether it has a controlling financial
interest in an entity by first evaluating whether the entity is
a voting interest entity or a variable interest entity.

Voting Interest Entities
Voting interest entities are entities that have sufficient
equity and provide the equity investors voting rights that
enable them to make significant decisions relating to the
entity’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 rights
that 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) are
accounted 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, with
income or loss included in other income.

Certain Firm-sponsored asset management funds are
structured as limited partnerships or certain limited liability
companies. For many of these entities, the Firm is the
general partner or managing member, but the non-affiliated
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-affiliated partners or members have rights to
participate in important decisions. Accordingly, the Firm
does not consolidate these voting interest entities. However,
in the limited cases where the non-managing partners or
members do not have substantive kick-out or participating
rights, the Firm evaluates the funds as VIEs and
consolidates if it is the general partner or managing
member and has a potentially significant interest.

The Firm’s investment companies have investments in both
publicly-held and privately-held entities, including
investments in buyouts, growth equity and venture
opportunities. These investments are accounted for under
investment company guidelines and accordingly,
irrespective of the percentage of equity ownership interests
held, are carried on the Consolidated balance sheets at fair
value, and are recorded in other assets, with income or loss
included in noninterest revenue.

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 other
parties, or (2) have equity investors that do not have the
ability to make significant decisions relating to the entity’s
operations through voting rights, or do not have the
obligation to absorb the expected losses, or do not have the
right to receive the residual returns of the entity.

The most common type of VIE is an SPE. SPEs are commonly
used in securitization transactions in order to isolate certain
assets and distribute the cash flows from those assets to
investors. 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 other
entities, including the creditors of the seller of the assets.

The primary beneficiary of a VIE (i.e., the party that has a
controlling financial interest) is required to consolidate the
assets and liabilities of the VIE. The primary beneficiary is
the party that has both (1) the power to direct the activities
of the VIE that most significantly impact the VIE’s economic
performance; and (2) through its interests in the VIE, the
obligation 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 the
activities of a VIE that most significantly impact the VIE’s
economic performance, the Firm considers all the facts and
circumstances, including its role in establishing the VIE and
its ongoing rights and responsibilities. This assessment
includes, first, identifying the activities that most
significantly impact the VIE’s economic performance; and

JPMorgan Chase & Co./2017 Annual Report

153

Notes to consolidated financial statements

second, identifying which party, if any, has power over those
activities. In general, the parties that make the most
significant decisions affecting the VIE (such as asset
managers, collateral managers, servicers, or owners of call
options or liquidation rights over the VIE’s assets) or have
the 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 and
equity investments, servicing fees, and derivatives or other
arrangements deemed to be variable interests in the VIE.
This assessment requires that the Firm apply judgment in
determining whether these interests, in the aggregate, are
considered potentially significant to the VIE. Factors
considered in assessing significance include: the design of
the VIE, including its capitalization structure; subordination
of interests; payment priority; relative share of interests
held across various classes within the VIE’s capital
structure; and the reasons why the interests are held by the
Firm.

The Firm performs on-going reassessments of: (1) whether
entities previously evaluated under the majority voting-
interest framework have become VIEs, based on certain
events, and are therefore subject to the VIE consolidation
framework; and (2) whether changes in the facts and
circumstances regarding the Firm’s involvement with a VIE
cause the Firm’s consolidation conclusion to change.

Use of estimates in the preparation of consolidated
financial statements
The preparation of the Consolidated Financial Statements
requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
revenue and expense, and disclosures of contingent assets
and liabilities. Actual results could be different from these
estimates.

Foreign currency translation
JPMorgan Chase revalues assets, liabilities, revenue and
expense 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 the
related cash collateral receivables and payables on a net
basis on the Consolidated balance sheets when a legally
enforceable master netting agreement exists. U.S. GAAP
also permits securities sold and purchased under
repurchase agreements and securities borrowed or loaned

under securities loan agreements to be presented net when
specified conditions are met, including the existence of 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
derivative, securities repurchase and reverse repurchase,
and securities loaned and borrow transactions. A master
netting agreement is a single agreement with a
counterparty that permits multiple transactions governed
by that agreement to be terminated or accelerated and
settled through a single payment in a single currency in the
event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due). Upon the exercise of derivatives
termination rights by the non-defaulting party (i) all
transactions are terminated, (ii) all transactions are valued
and the positive values of “in the money” transactions are
netted against the negative values of “out of the money”
transactions and (iii) the only remaining payment obligation
is of one of the parties to pay the netted termination
amount. Upon exercise of default rights under repurchase
agreements and securities loan agreements in general (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 each other and (iii) the
only remaining payment obligation is of one of the parties
to pay the netted termination amount.

Typical master netting agreements for these types of
transactions also often contain a collateral/margin
agreement 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 requires
a 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 the
master 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 the
right to liquidate collateral/margin and to apply the
proceeds to an amount payable by the counterparty.

For further discussion of the Firm’s derivative instruments,
see Note 5. For further discussion of the Firm’s repurchase
and reverse repurchase agreements, and securities
borrowing and lending agreements, see Note 11.

Statements of cash flows
For JPMorgan Chase’s Consolidated statements of cash
flows, cash is defined as those amounts included in cash
and due from banks.

154

JPMorgan Chase & Co./2017 Annual Report

Significant accounting policies
The following table identifies JPMorgan Chase’s other
significant accounting policies and the Note and page where
a detailed description of each policy can be found.

consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm’s businesses and
portfolios.

The Firm uses various methodologies and assumptions in
the determination of fair value. The use of different
methodologies or assumptions by other market participants
compared with those used by the Firm could result in the
Firm deriving a different estimate of fair value at the
reporting date.

Valuation process
Risk-taking functions are responsible for providing fair value
estimates for assets and liabilities carried on the
Consolidated balance sheets at fair value. The Firm’s VCG,
which is part of the Firm’s Finance function and
independent of the risk-taking functions, is responsible for
verifying 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 of
senior finance and risk executives and is responsible for
overseeing 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.

Fair value measurement

Fair value option

Derivative instruments

Noninterest revenue

Note 2

Page 155

Note 3

Page 174

Note 5

Page 179

Note 6

Page 192

Interest income and interest expense

Note 7

Page 195

Pension and other postretirement
employee benefit plans

Employee share-based incentives

Securities

Securities financing activities

Loans

Allowance for credit losses

Variable interest entities

Note 8

Page 195

Note 9

Page 201

Note 10

Page 203

Note 11

Page 208

Note 12

Page 211

Note 13

Page 231

Note 14

Page 236

Goodwill and Mortgage servicing rights

Note 15

page 244

Premises and equipment

Long-term debt

Income taxes

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

Litigation

Note 16

page 248

Note 19

page 249

Note 24

page 255

Note 27

page 261

Note 29

page 268

Note 2 – Fair value measurement
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. These assets and liabilities are predominantly
carried at fair value on a recurring basis (i.e., assets and
liabilities that are measured and reported at fair value on
the Firm’s Consolidated balance sheets). Certain assets
(e.g., held-for-sale loans), liabilities and unfunded lending-
related commitments are measured at fair value on a
nonrecurring basis; that is, they are not measured at fair
value 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 to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date. Fair value is based on quoted market
prices or inputs, where available. If prices or quotes are not
available, fair value is based on valuation models and other
valuation techniques that consider relevant transaction
characteristics (such as maturity) and use as inputs
observable or unobservable market parameters, including
yield curves, interest rates, volatilities, equity or debt
prices, foreign exchange rates and credit curves. Valuation
adjustments may be made to ensure that financial
instruments are recorded at fair value, as described below.

The level of precision in estimating unobservable market
inputs or other factors can affect the amount of gain or loss
recorded for a particular position. Furthermore, while the
Firm believes its valuation methods are appropriate and

JPMorgan Chase & Co./2017 Annual Report

155

Notes to consolidated financial statements

Price verification process
The VCG verifies fair value estimates provided by the risk-
taking functions by leveraging independently derived prices,
valuation inputs and other market data, where available.
Where independent prices or inputs are not available, the
VCG performs additional review to ensure the
reasonableness of the estimates. The additional review may
include evaluating the limited market activity including
client unwinds, benchmarking valuation inputs to those
used 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 be
required to the estimates provided by the risk-taking
functions. No adjustments to quoted prices are applied for
instruments classified within level 1 of the fair value
hierarchy (see below for further information on the fair
value hierarchy). For other positions, judgment is required
to assess the need for 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 and
determined based on current market conditions. Factors
that may be considered in determining the liquidity
adjustment include analysis of: (1) the estimated bid-
offer spread for the instrument being traded; (2)
alternative pricing points for similar instruments in
active 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 the
fair value of such portfolios on the basis of a transfer of
the entire net open risk position in an orderly
transaction. 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 the
net open risk position to a normal market-size.

• Unobservable parameter valuation adjustments may be
made when positions are valued using prices or input
parameters to valuation models that are unobservable
due to a lack of market activity or because they cannot
be implied from observable market data. Such prices or
parameters must be estimated and are, therefore,
subject to management judgment. Unobservable

parameter valuation adjustments are applied to reflect
the uncertainty inherent in the resulting valuation
estimate.

• Where appropriate, the Firm also applies adjustments to
its estimates of fair value in order to appropriately
reflect counterparty credit quality (CVA), the Firm’s own
creditworthiness (DVA) and the impact of funding (FVA),
using a consistent framework across the Firm. For more
information on such adjustments see Credit and funding
adjustments on page 171 of this Note.

Valuation model review and approval
If prices or quotes are not available for an instrument or a
similar instrument, fair value is generally determined using
valuation models that consider relevant transaction data
such as maturity and use as inputs market-based or
independently sourced parameters. Where this is the case
the price verification process described above is applied to
the inputs to those models.

Valuation hierarchy
A three-level valuation hierarchy has been established
under 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 the
measurement date. The three levels are defined as follows.

• Level 1 – inputs to the valuation methodology are
quoted 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 the
full term of the financial instrument.

• Level 3 – one or more inputs to the valuation

methodology are unobservable and significant to the fair
value measurement.

A financial instrument’s categorization within the valuation
hierarchy is based on the lowest level of input that is
significant to the fair value measurement.

156

JPMorgan Chase & Co./2017 Annual Report

The following table describes the valuation methodologies generally used by the Firm to measure its significant products/
instruments at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.

Product/instrument

Valuation methodology

Classifications in the valuation
hierarchy

Securities financing agreements

Valuations are based on discounted cash flows, which consider:

Predominantly level 2

• Derivative features: for further information refer to the discussion

of derivatives below.

• Market rates for the respective maturity
• Collateral characteristics

Loans and lending-related commitments — wholesale

Loans carried at fair value
(e.g., trading loans and non-
trading loans) and associated
lending-related commitments

Loans held-for-investment and
associated lending-related
commitments

Where observable market data is available, valuations are based on:

Level 2 or 3

• Observed market prices (circumstances are infrequent)
• Relevant broker quotes
• Observed market prices for similar instruments

Where observable market data is unavailable or limited, valuations
are based on discounted cash flows, which consider the following:

• Credit spreads derived from the cost of CDS; or benchmark credit

curves developed by the Firm, by industry and credit rating

• Prepayment speed
• Collateral characteristics

Valuations are based on discounted cash flows, which consider:

Predominantly level 3

• Credit spreads, derived from the cost of CDS; or benchmark credit

curves developed by the Firm, by industry and credit rating

• Prepayment speed

Lending-related commitments are valued similarly to loans and reflect
the portion of an unused commitment expected, based on the Firm’s
average portfolio historical experience, to become funded prior to an
obligor default.

For information regarding the valuation of loans measured at
collateral value, see Note 12.

Loans — consumer

Held-for-investment consumer
loans, excluding credit card

Valuations are based on discounted cash flows, which consider:

Predominantly level 2

• Credit losses – which consider expected and current default rates,

and loss severity
• Prepayment speed
• Discount rates
• Servicing costs

For information regarding the valuation of loans measured at
collateral value, see Note 12.

Held-for-investment credit card
receivables

Valuations are based on discounted cash flows, which consider:
• Credit costs - the allowance for loan losses is considered a

Level 3

reasonable proxy for the credit cost

• Projected interest income, late-fee revenue and loan repayment

rates

• Discount rates

• Servicing costs

Trading loans — conforming
residential mortgage loans
expected to be sold (CCB, CIB)

Fair value is based on observable prices for mortgage-backed
securities with similar collateral and incorporates adjustments to
these prices to account for differences between the securities and the
value of the underlying loans, which include credit characteristics,
portfolio composition, and liquidity.

Predominantly level 2

JPMorgan Chase & Co./2017 Annual Report

157

Notes to consolidated financial statements

Product/instrument

Valuation methodology, inputs and assumptions

Classifications in the valuation
hierarchy

Investment and trading
securities

Quoted market prices are used where available.

Level 1

In the absence of quoted market prices, securities are valued based on:

Level 2 or 3

• Observable market prices for similar securities
• Relevant broker quotes
• Discounted cash flows

In addition, the following inputs to discounted cash flows are used for
the 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

Physical commodities
Derivatives

Valued using observable market prices or data.
Exchange-traded derivatives that are actively traded and valued using
the exchange price.

Predominantly level 1 and 2
Level 1

Level 2 or 3

Derivatives that are valued using models such as the Black-Scholes
option pricing model, simulation models, or a combination of models
that may use observable or unobservable valuation inputs as well as
considering the contractual terms.
The key valuation inputs used will depend on the type of derivative and
the nature of the underlying instruments and may include equity prices,
commodity prices, interest rate yield curves, foreign exchange rates,
volatilities, correlations, CDS spreads and recovery rates. Additionally,
the credit quality of the counterparty and of the Firm as well as market
funding levels may also be considered.

In addition, specific inputs used for derivatives that are valued based on
models with significant unobservable inputs are as follows:

Structured credit derivatives specific inputs include:

• CDS spreads and recovery rates
• Credit correlation between the underlying debt instruments

Equity option specific inputs include:

• Equity volatilities
• Equity correlation
• Equity-FX correlation
• Equity-IR correlation

Interest rate and FX exotic options specific inputs include:

• Interest rate spread volatility
• Interest rate correlation
• Foreign exchange correlation
• Interest rate-FX correlation

Commodity derivatives specific inputs include:

• Commodity volatility
• Forward commodity price

Additionally, adjustments are made to reflect counterparty credit quality
(CVA) and the impact of funding (FVA). See page 171 of this Note.

158

JPMorgan Chase & Co./2017 Annual Report

Product/instrument

Valuation methodology, inputs and assumptions

Classification in the valuation
hierarchy

Mortgage servicing rights

See Mortgage servicing rights in Note 15.

Level 3

Private equity direct investments Fair value is estimated using all available information; the range of

Level 2 or 3

Fund investments (e.g., mutual/
collective investment funds,
private equity funds, hedge
funds, and real estate funds)

Beneficial interests issued by
consolidated VIEs

Long-term debt, not carried at
fair value

Structured notes (included in
deposits, short-term borrowings
and long-term debt)

potential inputs include:

• Transaction prices
• Trading multiples of comparable public companies
• Operating performance of the underlying portfolio company
• Adjustments as required, since comparable public companies are
not identical to the company being valued, and for company-
specific issues and lack of liquidity.

• 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

(e.g., lock-up periods or withdrawal limitations) or where
observable activity is limited.

Level 2 or 3(a)

Valued using observable market information, where available.

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.

Valuations are based on discounted cash flows, which consider:

Predominantly level 2

Level 2 or 3

• Market rates for respective maturity
• Valuations are based on discounted cash flow analyses that

consider the embedded derivative and the terms and payment
structure of the note.

• The embedded derivative features are considered using models
such as the Black-Scholes option pricing model, simulation
models, or a combination of models that may use observable or
unobservable 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 made
to this base valuation to reflect the Firm’s own credit risk (DVA).
See page 171 of this Note.

(a) Excludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient.

JPMorgan Chase & Co./2017 Annual Report

159

Notes to consolidated financial statements

The following table presents the assets and liabilities reported at fair value as of December 31, 2017 and 2016, by major
product category and fair value hierarchy.

Assets and liabilities measured at fair value on a recurring basis

Fair value hierarchy

December 31, 2017 (in millions)

Level 1

Level 2

Level 3

— $

—

14,732

3,049

—

Derivative
netting
adjustments

Total fair value

— $

—

14,732

3,049

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)
Other

Total debt and equity instruments(d)
Derivative receivables:

Interest rate

Credit

Foreign exchange

Equity

Commodity

Total derivative receivables(e)(f)

Total trading assets(g)
Available-for-sale securities:

Mortgage-backed securities:

U.S. government agencies(a)
Residential – nonagency

Commercial – nonagency

Total mortgage-backed securities
U.S. Treasury and government agencies(a)
Obligations of U.S. states and municipalities

Certificates of deposit

Non-U.S. government debt securities

Corporate debt securities

Asset-backed securities:

Collateralized loan obligations

Other

Equity securities

Total available-for-sale securities

Loans

Mortgage servicing rights
Other assets(g)
Total assets measured at fair value on a recurring basis

Deposits

Federal funds purchased and securities loaned or sold under repurchase agreements

Short-term borrowings

Trading liabilities:

Debt and equity instruments(d)
Derivative payables:

Interest rate

Credit

Foreign exchange

Equity

Commodity

Total derivative payables(e)(f)

Total trading liabilities

Accounts payable and other liabilities

Beneficial interests issued by consolidated VIEs

Long-term debt

—

30,758

—

28,887

—

59,645

87,346

4,924

—

151,915

181

—

841

—

1,022

152,937

—

22,745

—

18,140

—

170

—

794

—

—
964

65,628

9,074

—

Total liabilities measured at fair value on a recurring basis

74,702 $

547

41,432

—

13,795

208,164 $

— $

—

64,664

21,183

41,515

1,835

1,645

44,995

6,475

9,067

226

28,831

24,146

35,242

3,284

152,266

197

1,322

14,197

167,982

314,107

21,995

158,834

37,722

19,875

552,533

720,515

70,280

11,366

5,025

86,671

—

32,338

9,154

2,757

20,720

8,817

—

160,516

2,232

—

343

901,387

17,179

697

7,526

282,825

22,009

154,075

39,668

21,017
519,594

540,777

121

31,394

597,700

307

378

744

—

312

2,719

153

4,385

295

—

690

5,370

1,704

1,209

557

2,318

210

5,998

11,368

—

276

—

277

276

6,030

1,265

19,216

4,142

—

1,665

1,440

1,244

953

5,727

884
10,248

10,287

16,125

32,271

—

(291,319)

(22,335)

(144,081)

(32,158)

(13,137)

(503,030)

—

(503,030) $

— $

—

(277,306)

(21,954)

(143,349)

(36,203)

(14,217)
(493,029)

(493,029)

—

(493,029) $

41,822

1,895

1,656

45,373

37,234

9,811

226

57,796

24,458

37,961

3,437

216,296

87,838

6,246

14,887

325,267

24,673

869

16,151

7,882

6,948

56,523

381,790

70,280

11,367

5,025

86,672

22,745

32,338

27,294

2,757

20,996

8,817

547

202,225

2,508

6,030

15,403

625,737

21,321

697

9,191

85,886

7,129

1,299

12,473

9,192

7,684
37,777

123,663

9,208

47,519

211,644

160

JPMorgan Chase & Co./2017 Annual Report

December 31, 2016 (in millions)

Level 1

Level 2

Level 3

Derivative
netting
adjustments

Fair value hierarchy

— $

—

21,506

—

Total fair value

21,506

—

19,554

—

28,443

—

48,010

96,759

5,341

—

40,586

1,552

1,321

43,459

5,201

8,403

1,649

23,076

22,751

28,965

5,250

138,754

281

1,620

9,341

150,110

149,996

715

—

812

—

158

1,685

151,795

—

44,072

—

22,793

—

926

67,791

—

4,357

602,747

28,256

231,743

34,032

18,360

915,138

1,065,134

64,005

14,442

9,104

87,551

31,592

106

12,495

4,958

26,738

6,967

—

170,436

1,660

—

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)
Other

Total debt and equity instruments(d)
Derivative receivables:

Interest rate

Credit

Foreign exchange

Equity

Commodity

Total derivative receivables(e)

Total trading assets(g)
Available-for-sale securities:

Mortgage-backed securities:

U.S. government agencies(a)
Residential – nonagency

Commercial – nonagency

Total mortgage-backed securities
U.S. Treasury and government agencies(a)
Obligations of U.S. states and municipalities

Certificates of deposit

Non-U.S. government debt securities

Corporate debt securities

Asset-backed securities:

Collateralized loan obligations

Other

Equity securities

Total available-for-sale securities

Loans

Mortgage servicing rights
Other assets(g)
Total assets measured at fair value on a recurring basis

Deposits

Federal funds purchased and securities loaned or sold under repurchase agreements

Short-term borrowings

Trading liabilities:

Debt and equity instruments(d)
Derivative payables:

Interest rate

Credit

Foreign exchange

Equity

Commodity

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

—

(577,661)

(28,351)

(210,154)

(30,001)

(12,371)

(858,538)

—

392

492

—

649

—

576

4,837

302

6,902

231

—

761

7,894

2,501

1,389

870

908

125

5,793

13,687

—

663

—

664

570

6,096

2,223

23,240

2,117

—

1,134

1,238

1,291

2,254

3,160

210

8,153

8,196

40,991

1,635

1,338

43,964

24,755

9,052

1,649

51,565

23,327

33,802

5,552

193,666

97,271

6,961

10,102

308,000

28,302

1,294

23,271

4,939

6,272

64,078

372,078

64,005

14,443

9,104

87,552

44,101

31,592

106

35,288

4,958

27,401

6,967

926

238,891

2,230

6,096

6,580

647,381

13,912

687

9,105

87,428

10,815

1,411

20,508

8,140

8,357

49,231

136,659

9,120

120

37,686
207,289

223,943 $

1,258,736

— $

—

11,795

687

7,971

68,304

19,081

539

—

902

—

173

1,614

69,918

9,107

—

569,001

27,375

231,815

35,202

20,079

883,472

902,553

—

(858,538)

—

(559,963)

(27,255)

(214,463)

(30,222)

(12,105)

(844,008)

—

—
79,025 $

24,836
947,914

(h)

12,850
24,358

(h)

—
(844,008)

(a) At December 31, 2017 and 2016, included total U.S. government-sponsored enterprise obligations of $78.0 billion and $80.6 billion, respectively, which were predominantly

mortgage-related.

(b) At December 31, 2017 and 2016, included within trading loans were $11.4 billion and $16.5 billion, respectively, of residential first-lien mortgages, and $4.2 billion and $3.3
billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell to U.S. government
agencies of $5.7 billion and $11.0 billion, respectively, and reverse mortgages of $836 million and $2.0 billion, respectively.

(c) Physical commodities inventories are generally accounted for at the lower of cost or net realizable value. “Net realizable value” is a term defined in U.S. GAAP as not exceeding
fair value less costs to sell (“transaction costs”). Transaction costs for the Firm’s physical commodities inventories are either not applicable or immaterial to the value of the
inventory. Therefore, net realizable value approximates fair value for the Firm’s physical commodities inventories. When fair value hedging has been applied (or when net

JPMorgan Chase & Co./2017 Annual Report

161

Notes to consolidated financial statements

realizable value is below cost), the carrying value of physical commodities approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for
changes in fair value. For a further discussion of the Firm’s hedge accounting relationships, see Note 5. To provide consistent fair value disclosure information, all 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 of
an asset or liability. The level 3 balances would be reduced if netting were applied, including the netting benefit associated with cash collateral.

(f) Reflects the Firm’s adoption of rulebook changes made by two CCPs that require or allow the Firm to treat certain OTC-cleared derivative transactions as daily settled. For

further information, see Note 5.

(g) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be classified in the fair
value hierarchy. At December 31, 2017 and 2016, the fair values of these investments, which include certain hedge funds, private equity funds, real estate and other funds,
were $779 million and $1.0 billion, respectively. Included in these balances at December 31, 2017 and 2016, were trading assets of $54 million and $52 million, respectively,
and other assets of $725 million and $977 million, respectively.

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

Transfers between levels for instruments carried at
fair value on a recurring basis
For the years ended December 31, 2017 and 2016, there
were no significant transfers between levels 1 and 2.

During the year ended December 31, 2017, transfers from
level 3 to level 2 included the following:

• $1.5 billion of trading loans driven by an increase in

observability.

• $1.2 billion of gross equity derivative payables as a

result of an increase in observability and a decrease in
the significance of unobservable inputs.

During the year ended December 31, 2017, transfers from
level 2 to level 3 included the following:

• $1.0 billion of gross equity derivative receivables and
$2.5 billion of gross equity derivative payables as a
result of a decrease in observability and an increase in
the significance of unobservable inputs.

• $1.7 billion of long-term debt driven by a decrease in
observability and an increase in the significance of
unobservable inputs for certain structured notes.

During the year ended December 31, 2016, transfers from
level 3 to level 2 included the following:

• $1.4 billion of long-term debt driven by an increase in
observability and a reduction in the significance of
unobservable inputs for certain structured notes.

During the year ended December 31, 2016, transfers from
level 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 a
result of an decrease in observability and an increase in
the significance of unobservable inputs.

• $1.0 billion of trading loans driven by a decrease in

observability.

During the year ended December 31, 2015, transfers from
level 3 to level 2 included the following:

• $3.1 billion of long-term debt and $1.0 billion of
deposits driven by an increase in observability on
certain structured notes with embedded interest rate
and FX derivatives and a reduction in the significance of
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 in
observability and a decrease in the significance of
unobservable inputs; partially offset by transfers into
level 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 in
observability of certain collateralized financing
transactions.

• $2.4 billion of corporate debt driven by a decrease in

the significance of unobservable inputs and an increase
in observability for certain structured products.

During the year ended December 31, 2015, there were no
significant transfers from level 2 to level 3.

All transfers are assumed to occur at the beginning of the
quarterly reporting period in which they occur.

162

JPMorgan Chase & Co./2017 Annual Report

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 the characteristics of the
various instruments held by the Firm and the relative
distribution of instruments within the range of
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 and
weighted average values will therefore vary from period-to-
period and parameter-to-parameter based on the
characteristics of the instruments held by the Firm at each
balance sheet date.

For the Firm’s derivatives and structured notes positions
classified within level 3 at December 31, 2017, interest rate
correlation inputs used in estimating fair value were
concentrated towards the upper end of the range; equity
correlation, equity-FX and equity-IR correlation inputs were
concentrated in the middle of the range; commodity
correlation inputs were concentrated in the middle of the
range; credit correlation inputs were concentrated towards
the lower end of the range; and the interest rate-foreign
exchange (“IR-FX”) correlation inputs were concentrated
towards the lower end of the range. In addition, the interest
rate spread volatility inputs used in estimating fair value were
distributed across the range; equity volatilities and
commodity volatilities were concentrated towards the lower
end of the range; and forward commodity prices used in
estimating the fair value of commodity derivatives were
concentrated towards the lower end of the range. Recovery
rate, yield, prepayment speed, conditional default rate, loss
severity and price inputs used in estimating the fair value of
credit derivatives were distributed across the range; and
credit spreads were concentrated towards the lower end of
the range.

Level 3 valuations
The Firm has established well-structured processes for
determining fair value, including for instruments where fair
value is estimated using significant unobservable inputs
(level 3). For further information on the Firm’s valuation
process and a detailed discussion of the determination of fair
value for individual financial instruments, see pages 155–159
of this Note.

Estimating fair value requires the application of judgment.
The type and level of judgment required is largely dependent
on the amount of observable market information available to
the Firm. For instruments valued using internally developed
valuation models and other valuation techniques that use
significant unobservable inputs and are therefore classified
within level 3 of the fair value hierarchy, judgments used to
estimate 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 the
appropriate valuation model or other valuation technique to
use. Second, due to the lack of observability of significant
inputs, management must assess all relevant empirical data
in deriving valuation inputs including transaction details,
yield curves, interest rates, prepayment speed, default rates,
volatilities, correlations, equity or debt prices, valuations of
comparable instruments, foreign exchange rates and credit
curves.

The following table presents the Firm’s primary level 3
financial instruments, the valuation techniques used to
measure the fair value of those financial instruments, the
significant unobservable inputs, the range of values for those
inputs and, for certain instruments, the weighted averages of
such inputs. While the determination to classify an
instrument within level 3 is based on the significance of the
unobservable inputs to the overall fair value measurement,
level 3 financial instruments typically include observable
components (that is, components that are actively quoted
and can be validated to external sources) in addition to the
unobservable components. The level 1 and/or level 2 inputs
are not included in the table. In addition, the Firm manages
the risk of the observable components of level 3 financial
instruments using securities and derivative positions that are
classified within levels 1 or 2 of the fair value hierarchy.

The range of values presented in the table is representative
of the highest and lowest level input used to value the
significant groups of instruments within a product/instrument
classification. Where provided, the weighted averages of the
input values presented in the table are calculated based on
the fair value of the instruments that the input is being used
to value.

JPMorgan Chase & Co./2017 Annual Report

163

Notes to consolidated financial statements

Level 3 inputs(a)

December 31, 2017

Product/Instrument

Residential mortgage-backed securities

and loans(b)

Fair value
(in millions)

Principal valuation
technique

Unobservable inputs(g)

Range of input values

Weighted
average

1,418

Discounted cash flows

Yield

Prepayment speed

Conditional default rate

Loss severity

3% –

0% –

16%

13%

84%

$100

$111

$103

$94

$98

$82

$84

205bps

20%

30%

$79

$160

38bps

98%

70%

30%

Commercial mortgage-backed securities

and loans(c)

714 Market comparables

Obligations of U.S. states and

municipalities

Corporate debt securities

Loans(d)

744 Market comparables

312 Market comparables

1,242 Market comparables

Price

$ 59

Asset-backed securities

276

Discounted cash flows

Credit spread

204bps

–

–
–

–

Net interest rate derivatives

Option pricing

Interest rate spread
volatility

153 Market comparables

Price

Prepayment speed

Conditional default rate

Loss severity

20%

30%

27bps

–

236

Discounted cash flows

Prepayment speed

IR-FX correlation

60% –

0% –

Interest rate correlation

(50)% –

Net credit derivatives

(37) Discounted cash flows

Credit correlation

Credit spread

Recovery rate

Yield

Prepayment speed

Conditional default rate

Loss severity

40 % –

75%

6bps

– 1,489bps

20% –

1% –

4% –

70%

20%

21%

0% –

100%

4% –

100%

Net foreign exchange derivatives

(200) Option pricing

IR-FX correlation

(50)% –

70%

2 Market comparables

Price

$ 10

$98

(196) Discounted cash flows

Prepayment speed

Net equity derivatives

(3,409) Option pricing

Equity volatility

Equity correlation

Equity-FX correlation

Equity-IR correlation

20% –

0 % –

(50 )% –

10 % –

55%

85%

30%

40%

Net commodity derivatives

(674) Option pricing

Forward commodity price

$ 54

– $68 per barrel

Commodity volatility

5 %

Commodity correlation

(40 )% –

MSRs

Other assets

6,030

Discounted cash flows

Refer to Note 15

984

Discounted cash flows

Credit spread

971 Market comparables

EBITDA multiple

Yield

Long-term debt, short-term borrowings,

and deposits(e)

21,932

Option pricing

Interest rate spread
volatility

Interest rate correlation

IR-FX correlation

Equity correlation

Equity-FX correlation

Equity-IR correlation

40bps

4.7x

27bps

–

(50)% –

0% –

(50)% –

10% –

55bps

47%

8.9x

46%

70%

70bps

60%

10.6x

38bps

98%

70%

85%

30%

40%

Other level 3 assets and liabilities, net(f)

283

(a) The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated

balance sheets. Furthermore, the inputs presented for each valuation technique in the table are, in some cases, not applicable to every instrument valued
using the technique as the characteristics of the instruments can differ.

164

JPMorgan Chase & Co./2017 Annual Report

(b) Includes U.S. government agency securities of $297 million, nonagency securities of $61 million and trading loans of $1.1 billion.
(c) Includes U.S. government agency securities of $10 million, nonagency securities of $11 million, trading loans of $417 million and non-trading loans of $276

million.

(d) Includes trading loans of $1.2 billion.
(e) Long-term debt, short-term borrowings and deposits include structured notes issued by the Firm that are predominantly financial instruments containing

embedded derivatives. The estimation of the fair value of structured notes includes the derivative features embedded within the instrument. The significant
unobservable inputs are broadly consistent with those presented for derivative receivables.

(f) Includes level 3 assets and liabilities that are insignificant both individually and in aggregate.
(g) Price is a significant unobservable input for certain instruments. When quoted market prices are not readily available, reliance is generally placed on price-

based internal valuation techniques. The price input is expressed assuming a par value of $100.

Changes in and ranges of unobservable inputs
The following discussion provides a description of the impact
on a fair value measurement of a change in each
unobservable input in isolation, and the interrelationship
between unobservable inputs, where relevant and significant.
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 (for example, as
observable interest rates rise, unobservable prepayment
rates decline); such relationships have not been included in
the discussion below. In addition, for each of the individual
relationships described below, the inverse relationship would
also generally apply.

The following discussion also provides a description of
attributes of the underlying instruments and external market
factors that affect the range of inputs used in the valuation of
the Firm’s positions.

Yield – The yield of an asset is the interest rate used to
discount future cash flows in a discounted cash flow
calculation. An increase in the yield, in isolation, would result
in a decrease in a fair value measurement.

Credit spread – The credit spread is the amount of additional
annualized return over the market interest rate that a market
participant would demand for taking exposure to the credit
risk of an instrument. The credit spread for an instrument
forms part of the discount rate used in a discounted cash flow
calculation. Generally, an increase in the credit spread would
result in a decrease in a fair value measurement.

The yield and the credit spread of a particular mortgage-
backed security primarily reflect the risk inherent in the
instrument. The yield is also impacted by the absolute level of
the coupon paid by the instrument (which may not
correspond directly to the level of inherent risk). Therefore,
the range of yield and credit spreads reflects the range of risk
inherent in various instruments owned by the Firm. The risk
inherent in mortgage-backed securities is driven by the
subordination of the security being valued and the
characteristics of the underlying mortgages within the
collateralized pool, including borrower FICO scores, LTV ratios
for residential mortgages and the nature of the property and/
or any tenants for commercial mortgages. For corporate debt
securities, obligations of U.S. states and municipalities and
other similar instruments, credit spreads reflect the credit
quality of the obligor and the tenor of the obligation.

Prepayment speed – The prepayment speed is a measure of
the voluntary unscheduled principal repayments of a
prepayable obligation in a collateralized pool. Prepayment
speeds generally decline as borrower delinquencies rise. An
increase in prepayment speeds, in isolation, would result in a
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 to
collateral pool, and are driven by the type and location of the
underlying borrower, and the remaining tenor of the
obligation 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 a
measure of the reduction in the outstanding collateral
balance underlying a collateralized obligation as a result of
defaults. While there is typically no direct relationship
between 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 a
decrease in a fair value measurement. Conditional default
rates reflect the quality of the collateral underlying a
securitization and the structure of the securitization itself.
Based on the types of securities owned in the Firm’s market-
making portfolios, conditional default rates are most typically
at the lower end of the range presented.

Loss severity – The loss severity (the inverse concept is the
recovery rate) is the expected amount of future realized
losses resulting from the ultimate liquidation of a particular
loan, expressed as the net amount of loss relative to the
outstanding 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 the
underlying mortgages, including the LTV ratio, the nature of
the lender’s lien on the property and other instrument-
specific factors.

JPMorgan Chase & Co./2017 Annual Report

165

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 of
adjustments, would result in an increase in a fair value
measurement.

Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the Consolidated
balance sheets amounts (including changes in fair value) for
financial instruments classified by the Firm within level 3 of
the fair value hierarchy for the years ended December 31,
2017, 2016 and 2015. When a determination is made to
classify a financial instrument within level 3, the
determination is based on the significance of the
unobservable parameters to the overall fair value
measurement. However, level 3 financial instruments
typically include, in addition to the unobservable or level 3
components, observable components (that is, components
that are actively quoted and can be validated to external
sources); accordingly, the gains and losses in the table below
include changes in fair value due in part to observable factors
that are part of the valuation methodology. Also, the Firm
risk-manages the observable components of level 3 financial
instruments using securities and derivative positions that are
classified within level 1 or 2 of the fair value hierarchy; as
these level 1 and level 2 risk management instruments are
not included below, the gains or losses in the following tables
do not reflect the effect of the Firm’s risk management
activities related to such level 3 instruments.

Notes to consolidated financial statements

Correlation – Correlation is a measure of the relationship
between the movements of two variables (e.g., how the
change in one variable influences the change in the other).
Correlation is a pricing input for a derivative product where
the payoff is driven by one or more underlying risks.
Correlation inputs are related to the type of derivative (e.g.,
interest rate, credit, equity and foreign exchange) due to the
nature of the underlying risks. When parameters are
positively correlated, an increase in one parameter will result
in an increase in the other parameter. When parameters are
negatively correlated, an increase in one parameter will
result in a decrease in the other parameter. An increase in
correlation can result in an increase or a decrease in a fair
value measurement. Given a short correlation position, an
increase in correlation, in isolation, would generally result in
a decrease in a fair value measurement. The 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 of
factors including the nature of those risks. For example, the
correlation 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 much dependent on
market conditions and could have a relatively wide range of
levels within or across asset classes over time, particularly in
volatile market conditions.

Volatility – Volatility is a measure of the variability in possible
returns for an instrument, parameter or market index given
how much the particular instrument, parameter or index
changes in value over time. Volatility is a pricing input for
options, including equity options, commodity options, and
interest rate options. Generally, the higher the volatility of
the underlying, the riskier the instrument. Given a long
position in an option, an increase in volatility, in isolation,
would generally result in an increase in a fair value
measurement.

The level of volatility used in the valuation of a particular
option-based derivative depends on a number of factors,
including the nature of the risk underlying the option (e.g.,
the volatility of a particular equity security may be
significantly different from that of a particular commodity
index), the tenor of the derivative as well as the strike price
of the option.

166

JPMorgan Chase & Co./2017 Annual Report

Residential – nonagency

Commercial – nonagency

Total mortgage-backed

securities

U.S. Treasury and government

agencies

Obligations of U.S. states and

municipalities

Non-U.S. government debt

securities

Corporate debt securities

Loans

Asset-backed securities

Total debt instruments

Equity securities

Other

Total trading assets – debt and

equity instruments

Net derivative receivables:(a)

Interest rate

Credit

Foreign exchange

Equity

Commodity

Fair value measurements using significant unobservable inputs

Fair
value at
January
1, 2017

Total
realized/
unrealized
gains/
(losses)

Purchases(f)

Sales

Settlements(g)

Transfers into
level 3(h)

Transfers (out
of) level 3(h)

Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31,
2017

Fair
value at
Dec. 31,
2017

Year ended
December 31, 2017
(in millions)

Assets:

Trading assets:

Debt instruments:

Mortgage-backed securities:

U.S. government agencies

392 $ (11)

161 $

(171)

(70) $

49 $

(43) $

307

(20)

492

—

649

576

4,837

302

6,902

231

761

—

333

411

100

(30)

(44)

241

(245)

—

152

559

872

—

(70)

(518)

(612)

2,389

(2,832)

354

(356)

4,567

(4,633)

176

(148)

(46)

(64)

(13)

(147)

—

(5)

—

(497)

(1,323)

(56)

(2,028)

(4)

(162)

132

245

—

157

806

(133)

(49)

(225)

378

—

(71)

(195)

744

312

(1,491)

2,719

(198)

153

1,346

(2,180)

4,385

(58)

(10)

295

690

(8)

—

7,894

550 (c)

4,773

(4,827)

(2,194)

1,422

(2,248)

5,370

128 (c)

1,263

(164)

(1,384)

(2,252)

(417)

(85)

(149)

(82)

(6)

(10)

1,116

(551)

—

Total net derivative receivables

(2,360)

(615) (c)

1,190

(649)

Available-for-sale securities:

Asset-backed securities

Other

Total available-for-sale securities

Loans

Mortgage servicing rights

Other assets

663

664

570

—

15 (d)

35 (c)

—

6,096

(232) (e)

2,223

244 (c)

1,103

(50)

—

(50)

(26)

(140)

(177)

(1,040)

—

854

(245)

(433)

(864)

(352)

—

(352)

(303)

(797)

(870)

(8)

(61)

(1,482)

(6)

(1,480)

—

(1)

(41)

149

422

264

(35)

(396)

(3,409)

(1)

(674)

(473)

(161)

(718)

528

(4,250)

(1,278) (c)

—

276

277

276

—

14 (d)

3 (c)

6,030

(232) (e)

(221)

1,265

74 (c)

Fair value measurements using significant unobservable inputs

Fair
value at
January
1, 2017

Total
realized/
unrealized
(gains)/
losses

Purchases

Sales

Issuances Settlements(g)

Transfers into
level 3(h)

Transfers (out
of) level 3(h)

Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31,
2017

Fair
value at
Dec. 31,
2017

$ 2,117 $ 152 (c)(i)

— $

— $ 3,027 $

(291) $

11 $

(874) $ 4,142

$ 198 (c)(i)

Year ended
December 31, 2017
(in millions)

Liabilities:(b)

Deposits

Federal funds purchased and

securities loaned or sold under
repurchase agreements

—

Short-term borrowings

1,134

42 (c)(i)

Trading liabilities – debt and equity

instruments

Accounts payable and other liabilities

Beneficial interests issued by

consolidated VIEs

(3) (c)

(2)

2 (c)

Long-term debt

12,850

1,067 (c)(i)

JPMorgan Chase & Co./2017 Annual Report

—

(46)

(1)

(122)

—

3,289

—

(2,748)

—

(6)

12,458

(10,985)

—

150

—

1,660

—

(202)

1,665

(9)

—

7 (c)(i)

— (c)

(2)

— (c)

(925)

16,125

552 (c)(i)

167

Notes to consolidated financial statements

Fair value measurements using significant unobservable inputs

Total
realized/
unrealized
gains/
(losses)

Fair value
at January
1, 2016

Purchases(f)

Sales

Settlements(g)

Transfers
into
level 3(h)

Transfers
(out of)
level 3(h)

Fair
value at
Dec.
31,
2016

Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31,
2016

Year ended
December 31, 2016
(in millions)

Assets:

Trading assets:

Debt instruments:

Mortgage-backed securities:

U.S. government agencies

$ 715

$ (20)

135 $ (295)

(115) $

111 $

(139) $ 392

(36)

Residential – nonagency

Commercial – nonagency

Total mortgage-backed

securities

Obligations of U.S. states and

municipalities

Non-U.S. government debt

securities

Corporate debt securities

Loans

Asset-backed securities

194

115

1,024

651

736

6,604

1,832

(11)

(27)

(4)

(343)

252

(319)

(29)

456

(643)

149

(132)

445

(97)

(359)

2,228

(2,598)

655

(712)

Total debt instruments

10,921

(314)

4,024

(4,541)

Equity securities

Other

265

744

—

649

(108)

(287)

(20)

(3)

(138)

(38)

(7)

(189)

(1,311)

(968)

(2,651)

(40)

(360)

173

351

—

148

1,044

288

1,850

(95)

(297)

(531)

492

—

649

(30)

(207)

576

(787)

4,837

(832)

302

(2,387)

6,902

(5)

(90)

231

761

(28)

—

(7)

(22)

(169)

(207)

11,930

(235) (c)

4,763

(4,936)

(3,051)

1,905

(2,482)

7,894

(172) (c)

Total trading assets – debt and

equity instruments

Net derivative receivables:(a)

Interest rate

Credit

Foreign exchange

Equity

Commodity

—

876

549

(725)

756

(742)

(1,514)

(145)

(935)

194

193

277

(57)

(2)

(124)

(852)

Total net derivative receivables

(1,749)

130 (c)

545

(1,025)

Available-for-sale securities:

Asset-backed securities

Other

Total available-for-sale securities

Loans

Mortgage servicing rights

Other assets

823

824

1,518

6,608

2,401

—

1 (d)

(49) (c)

(163) (e)

130 (c)

—

259

679

487

—

(7)

(109)

(496)

(713)

211

(649)

213

645

(293)

(119)

—

(119)

(838)

(919)

(299)

(14)

(48)

—

222

1,263

(1,384)

(325)

(2,252)

(8)

(85)

(144)

(622)

(350)

(86)

(36)

(44)

(2,360)

(1,238) (c)

(42)

663

—

(42)

(313)

664

570

—

6,096

2,223

—

1 (d)

— (c)

(163) (e)

48 (c)

Fair value measurements using significant unobservable inputs

Fair
value at
January
1, 2016

Total
realized/
unrealized
(gains)/
losses

Purchases

Sales

Issuances

Settlements(g)

Transfers
into
level 3(h)

Transfers
(out of)
level 3(h)

Fair
value at
Dec.
31,
2016

Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31,
2016

$ 2,950

$ (56) (c)

— $

— $ 1,375

(1,283) $

— $

(869) $ 2,117

23 (c)

Year ended
December 31, 2016
(in millions)

Liabilities:(b)

Deposits

Federal funds purchased and

securities loaned or sold under
repurchase agreements

Short-term borrowings

Trading liabilities – debt and equity

instruments

Accounts payable and other

liabilities

Beneficial interests issued by

consolidated VIEs

Long-term debt

—

639

—

(230) (c)

(12) (c)

—

549

(31) (c)

11,447 (j)

147 (c)(j)

—

1,876

(15)

—

143

8,140 (j)

(2)

(1,210)

(22)

(6)

(613)

(5,810)

114

—

(4)

—

(55)

1,134

(70) (c)

(7)

—

(18) (c)

—

6 (c)

315

(1,389) 12,850 (j)

639 (c)(j)

168

JPMorgan Chase & Co./2017 Annual Report

Fair value measurements using significant unobservable inputs

Fair
value at
January
1, 2015

Total
realized/
unrealized
gains/
(losses)

Purchases(f)

Sales

Settlements(g)

Transfers
into
level 3(h)

Transfers
(out of)
level 3(h)

Fair value
at
Dec. 31,
2015

Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31,
2015

Year ended
December 31, 2015
(in millions)

Assets:

Trading assets:

Debt instruments:

$ (303)

(132)

25 $

(96) $ 715

(27)

Mortgage-backed securities:

U.S. government agencies

$ 922 $ (28)

Residential – nonagency

Commercial – nonagency

Total mortgage-backed

securities

Obligations of U.S. states and

municipalities

Non-U.S. government debt

securities

663

306

130

(14)

1,891

1,273

302

Corporate debt securities

2,989

(77)

Loans

Asset-backed securities

Total debt instruments

Equity securities

Physical commodities

13,287

(174)

1,264

(41)

21,006

(181)

431

(2)

327

253

246

826

352

205

1,171

3,532

1,920

8,006

—

(611)

(262)

(1,176)

(133)

(123)

(1,038)

(4,661)

(1,229)

(8,360)

(193)

—

Other

1,050

119

1,581

(1,313)

Total trading assets – debt and

equity instruments

Net derivative receivables:(a)

Interest rate

Credit

Foreign exchange

Equity

Commodity

626

189

(526)

(1,785)

962

118

657

731

(565)

(856)

513

129

890

(173)

(136)

(149)

(1,262)

(24)

Total net derivative receivables

(2,061) 1,612 (c)

1,552

(1,744)

Available-for-sale securities:

Asset-backed securities

Other

—

908

129

(32)

—

Total available-for-sale securities

1,037

(32) (d)

—

Loans

Mortgage servicing rights

Other assets

2,541

(133) (c)

1,290

7,436

(405) (e)

3,184

(29) (c)

985

346

(43)

—

(43)

(92)

(486)

(509)

(23)

(22)

(177)

(27)

(64)

(125)

(3,112)

(35)

(3,540)

(26)

—

192

180

117

322

179

509

205

(398)

(256)

194

115

(750)

1,024

(833)

651

(271)

(2,363)

736

(2,777)

6,604

(252)

1,832

1,236

(7,246) 10,921

—

(183)

265

—

(918)

744

(5)

(28)

(1)

(16)

(181)

(32)

(256)

—

(732)

165

(296)

(158)

512

(509)

(61)

(29)

(90)

(1,241)

(922)

(411)

(30)

—

(326)

876

549

(466)

(725)

(1,514)

(935)

263

260

(41)

(657)

(1,749)

536 (c)

—

(99)

823

824

(847)

1,518

—

6,608

(180)

2,401

(28)

—

(28) (d)

(32) (c)

(405) (e)

(289) (c)

22,489

32 (c)

9,676

(9,866)

(3,374)

1,320

(8,347) 11,930

(89) (c)

Fair value measurements using significant unobservable inputs

Fair
value at
January
1, 2015

Total
realized/
unrealized
(gains)/
losses

Purchases

Sales

Issuances Settlements(g)

Transfers
into
level 3(h)

Transfers
(out of)
level 3(h)

Fair value
at Dec. 31,
2015

Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31,
2015

Year ended
December 31, 2015
(in millions)

Liabilities:(b)

Deposits

$ 2,859 $ (39) (c)

— $

1,993 $

(850)

— $

(1,013) $ 2,950

(29) (c)

Short-term borrowings

1,453

(697) (c)

—

3,334

(2,963)

Trading liabilities – debt and equity

instruments

Accounts payable and other liabilities

Beneficial interests issued by

consolidated VIEs

— (c)

1,146

(82) (c)

15 (c)

(163)

160

—

286

9,359

—

(17)

(7)

(574)

—

243

—

(731)

639

(57) (c)

(16)

—

(4) (c)

—

(227)

549

(63) (c)

Long-term debt

11,877

(480) (c)

(58)

(6,465) (j)

315

(3,101) 11,447 (j)

385 (c)(j)

(a) All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty.

JPMorgan Chase & Co./2017 Annual Report

169

Notes to consolidated financial statements

(b) Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis) were 15%, 12% and 13% at

December 31, 2017, 2016 and 2015, respectively.

(c) Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans, and lending-related commitments originated with the intent to sell, 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, zero, and $(7) million for the
years ended December 31, 2017, 2016 and 2015, respectively. Unrealized gains/(losses) recorded on AFS securities in OCI were $15 million, $1 million and $(25) million for the years
ended December 31, 2017, 2016 and 2015, respectively.

(e) Changes in fair value for CCB MSRs are reported in mortgage fees and related income.
(f) Loan originations are included in purchases
(g)

Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, and deconsolidation associated with beneficial interests in VIEs and other
items.

(h) All transfers into and/or out of level 3 are based on changes in the observability of the valuation inputs and are assumed to occur at the beginning of the quarterly reporting period in which

they occur.

(i) Realized (gains)/losses due to DVA for fair value option elected liabilities are reported in principal transactions revenue. Unrealized (gains)/losses are reported in OCI. Unrealized gains

were $48 million for the year ended December 31, 2017. There were no realized gains for the year ended December 31, 2017.

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

Level 3 analysis
Consolidated balance sheets changes
Level 3 assets (including assets measured at fair value on a
nonrecurring basis) were 0.8% of total Firm assets at
December 31, 2017. The following describes significant
changes to level 3 assets since December 31, 2016, for those
items measured at fair value on a recurring basis. For further
information on changes impacting items measured at fair
value on a nonrecurring basis, see Assets and liabilities
measured at fair value on a nonrecurring basis on page 172.

For the year ended December 31, 2017
Level 3 assets were $19.2 billion at December 31, 2017,
reflecting a decrease of $4.0 billion from December 31,
2016, largely due to the following:

• $2.5 billion decrease in trading assets — debt and equity
instruments was predominantly driven by a decrease of
$2.1 billion in trading loans largely due to settlements,
and a $1.0 billion decrease in other assets due to
settlements and transfers from level 3 to level 2 as a
result of increased observability in 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, 2017, 2016 and 2015. For further
information on these instruments, see Changes in level 3
recurring fair value measurements rollforward tables on
pages 166–170.

2017
• $1.3 billion of net losses on liabilities largely driven by

market movements in long-term debt

2016
• There were no individually significant movements for the

year 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

170

JPMorgan Chase & Co./2017 Annual Report

The following table provides the impact of credit and
funding adjustments on principal transactions revenue in
the respective periods, excluding the effect of any
associated hedging activities. The FVA reported below
include the impact of the Firm’s own credit quality on the
inception value of liabilities as well as the impact of changes
in the Firm’s own credit quality over time.

Year ended December 31,
(in millions)

Credit and funding adjustments:

2017

2016

2015

Derivatives CVA

Derivatives FVA

802

(84) $

(295)

620

Valuation adjustments on fair value option elected
liabilities
The valuation of the Firm’s liabilities for which the fair value
option has been elected requires consideration of the Firm’s
own credit risk. DVA on fair value option elected liabilities
reflects changes (subsequent to the issuance of the liability)
in the Firm’s probability of default and LGD, which are
estimated based on changes in the Firm’s credit spread
observed in the bond market. Effective January 1, 2016,
the effect of DVA on fair value option elected liabilities is
recognized in OCI. See Note 23 for further information.

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 as
counterparty nonperformance risk, the Firm’s own credit
quality, and funding costs. Therefore, it is generally
necessary to make adjustments to the base estimate of fair
value to reflect these factors.

CVA represents the adjustment, relative to the relevant
benchmark interest rate, necessary to reflect counterparty
nonperformance risk. The Firm estimates CVA using a
scenario analysis to estimate the expected positive credit
exposure across all of the Firm’s existing positions with each
counterparty, and then estimates losses based on the
probability of default and estimated recovery rate as a
result of a counterparty credit event considering
contractual factors designed to mitigate the Firm’s credit
exposure, such as collateral and legal rights of offset. The
key inputs to this methodology are (i) the probability of a
default event occurring for each counterparty, as derived
from observed or estimated CDS spreads; and (ii) estimated
recovery rates implied by CDS spreads, adjusted to consider
the differences in recovery rates as a derivative creditor
relative to those reflected in CDS spreads, which generally
reflect senior unsecured creditor risk.

FVA represents the adjustment to reflect the impact of
funding and is recognized where there is evidence that a
market participant in the principal market would
incorporate it in a transfer of the instrument. The Firm’s
FVA framework, applied to uncollateralized (including
partially collateralized) over-the-counter (“OTC”)
derivatives incorporates key inputs such as: (i) the expected
funding requirements arising from the Firm’s positions with
each counterparty and collateral arrangements; and (ii) the
estimated market funding cost in the principal market
which, for derivative liabilities, considers the Firm’s credit
risk (DVA). For collateralized derivatives, the fair value is
estimated by discounting expected future cash flows at the
relevant overnight indexed swap rate given the underlying
collateral agreement with the counterparty, and therefore a
separate FVA is not necessary.

JPMorgan Chase & Co./2017 Annual Report

171

Notes to consolidated financial statements

Assets and liabilities measured at fair value on a nonrecurring basis
The following tables present the assets reported on a nonrecurring basis at fair value as of December 31, 2017 and 2016, by
major product category and fair value hierarchy.

December 31, 2017 (in millions)

Loans

Other assets

Total assets measured at fair value on a nonrecurring basis

December 31, 2016 (in millions)

Loans

Other assets

Total assets measured at fair value on a nonrecurring basis

Fair value hierarchy

Level 1

Level 2

Level 3

Total fair
value

— $

—

— $

238

283

521

596 (a) $

183

834

466

779 (a) $

1,300

Fair value hierarchy

Level 1

Level 2

Level 3

Total fair
value

— $

—

— $

730

735

590

232

822

1,320

237

1,557

(a) Of the $779 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2017, $442 million related to residential real estate loans carried at the
net realizable value of the underlying collateral (e.g., collateral-dependent loans and other loans charged off in accordance with regulatory guidance). These amounts are
classified as level 3 as they are valued using a broker’s price opinion and discounted based upon the Firm’s experience with actual liquidation values. These discounts to the
broker price opinions ranged from 13% to 48% with a weighted average of 27%.

There were no material liabilities measured at fair value on a nonrecurring basis at December 31, 2017 and 2016.

deposit intangibles and credit card relationships. In the
opinion 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 approximates
fair value
Certain financial instruments that are not carried at fair
value on the Consolidated balance sheets are carried at
amounts that approximate fair value, due to their short-
term nature and generally negligible credit risk. These
instruments include cash and due from banks, deposits with
banks, federal funds sold, securities purchased under resale
agreements and securities borrowed, short-term
receivables and accrued interest receivable, short-term
borrowings, federal funds purchased, securities loaned and
sold under repurchase agreements, accounts payable, and
accrued liabilities. In addition, U.S. GAAP requires that the
fair value of deposit liabilities with no 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.

Nonrecurring fair value changes
The following table presents the total change in value of
assets and liabilities for which a fair value adjustment has
been recognized for the years ended December 31, 2017
2016 and 2015, related to financial instruments held at
those dates.

December 31, (in millions)

2017

2016

2015

Loans

Other Assets

Accounts payable and other liabilities

Total nonrecurring fair value gains/

(losses)

$ (159)

$ (209)

$ (226)

(148)

(1)

—

(60)

(8)

$ (308)

$ (172)

$ (294)

For further information about the measurement of impaired
collateral-dependent loans, and other loans where the
carrying value is based on the fair value of the underlying
collateral (e.g., residential mortgage loans charged off in
accordance with regulatory guidance), see Note 12.

Additional disclosures about the fair value of financial
instruments that are not carried on the Consolidated
balance sheets at fair value
U.S. GAAP requires disclosure of the estimated fair value of
certain financial instruments, and the methods and
significant 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 disclosures
provided in the following table include only a partial
estimate of the fair value of JPMorgan Chase’s assets and
liabilities. For example, the Firm has developed long-term
relationships with its customers through its deposit base
and credit card accounts, commonly referred to as core

172

JPMorgan Chase & Co./2017 Annual Report

The following table presents by fair value hierarchy classification the carrying values and estimated fair values at
December 31, 2017 and 2016, of financial assets and liabilities, excluding financial instruments that are carried at fair value
on a recurring basis, and their classification within the fair value hierarchy. For additional information regarding the financial
instruments within the scope of this disclosure, and the methods and significant assumptions used to estimate their fair value,
see pages 156–159 of this Note.

December 31, 2017

Estimated fair value hierarchy

December 31, 2016

Estimated fair value hierarchy

Carrying
value

Level 1

Level 2

Level 3

Total
estimated
fair value

Carrying
value

Level 1

Level 2

Level 3

Total
estimated
fair value

(in billions)

Financial assets

Cash and due from banks

25.8 $

— $

25.8

23.9 $

— $

23.9

Deposits with banks

404.3

401.8

2.5

Accrued interest and accounts

receivable

Federal funds sold and

securities purchased under
resale agreements

Securities borrowed

Securities, held-to-maturity

Loans, net of allowance for

loan losses(a)(b)

Other

Financial liabilities

Deposits

Federal funds purchased and
securities loaned or sold
under repurchase agreements

Short-term borrowings

Accounts payable and other

liabilities

Beneficial interests issued by

consolidated VIEs

Long-term debt and junior
subordinated deferrable
interest debentures

67.0

183.7

102.1

47.7

914.6

62.9

—

67.0

183.7

102.1

48.7

213.2

52.9

—

707.1

16.5

404.3

365.8

362.0

3.8

—

365.8

67.0

52.3

183.7

102.1

48.7

920.3

69.4

208.5

96.4

50.2

878.8

71.4

—

0.1

52.2

0.1

52.3

208.3

96.4

50.9

24.1

60.8

0.2

208.5

—

851.0

14.3

96.4

50.9

875.1

75.2

$ 1,422.7 $

— $ 1,422.7 $

— $ 1,422.7

$ 1,361.3 $

— $ 1,361.3 $

— $ 1,361.3

158.2

42.6

152.0

26.0

236.6

—

158.2

42.4

148.9

26.0

—

0.2

2.9

—

158.2

42.6

165.0

25.3

151.8

148.0

26.0

38.9

240.3

3.2

243.5

257.5

—

165.0

25.3

—

165.0

25.3

144.8

3.4

148.2

38.9

—

38.9

260.0

2.0

262.0

(a) 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, and primary 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 to determine fair value as compared with carrying value. For
example, credit losses are estimated for a financial asset’s remaining life in a fair value calculation but are estimated for a loss emergence period in the allowance 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 156–
159.

(b) For the year ended December 31, 2017, the Firm transferred certain residential mortgage loans from Level 3 to Level 2 as a result of an increase in observability.

The majority of the Firm’s lending-related commitments are not carried at fair value on a recurring basis on the Consolidated
balance sheets. 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.

December 31, 2017

Estimated fair value hierarchy

December 31, 2016

Estimated fair value hierarchy

Carrying
value(a)

Level 1

Level 2

Level 3

Total
estimated
fair value

Carrying
value(a)

Level 1

Level 2

Level 3

Total
estimated
fair value

(in billions)

Wholesale lending-

related commitments $

1.1 $

— $

1.6 $

1.6

1.1 $

— $

2.1 $

2.1

(a) Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which is recognized at fair value at the inception of the

guarantees.

The Firm does not estimate the fair value of consumer lending-related commitments. In many cases, the Firm can reduce or
cancel these commitments by providing the borrower notice or, in some cases as permitted by law, without notice. For a further
discussion of the valuation of lending-related commitments, see page 157 of this Note.

JPMorgan Chase & Co./2017 Annual Report

173

Notes to consolidated financial statements

Note 3 – Fair value option
The fair value option provides an option to elect fair value
as an alternative measurement for selected financial assets,
financial liabilities, unrecognized firm commitments, and
written loan commitments.

The Firm has elected to measure certain instruments at fair
value for several reasons including to mitigate income
statement volatility caused by the differences between the
measurement 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 are
managed on a fair value basis.

The Firm’s election of fair value includes the following
instruments:

• Loans purchased or originated as part of securitization
warehousing activity, subject to bifurcation accounting,
or managed on a fair value basis, including lending-
related commitments

• Certain securities financing arrangements with an

embedded derivative and/or a maturity of greater than
one year

• Owned beneficial interests in securitized financial assets
that contain embedded credit derivatives, which would
otherwise be required to be separately accounted for as
a derivative instrument

• Structured notes, which are predominantly financial

instruments that contain embedded derivatives, that are
issued 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

174

JPMorgan Chase & Co./2017 Annual Report

Changes in fair value under the fair value option election
The following table presents the changes in fair value included in the Consolidated statements of income for the years ended
December 31, 2017, 2016 and 2015, for items for which the fair value option was elected. The profit and loss information
presented below only includes the financial instruments that were elected to be measured at fair value; related risk
management instruments, which are required to be measured at fair value, are not included in the table.

2017

2016

2015

Principal
transactions

All other
income

Total
changes
in fair
value
recorded

Principal
transactions

All other
income

Total
changes
in fair
value
recorded

Principal
transactions

All other
income

Total
changes
in fair
value
recorded

(97) $

—

(97) $

(76) $

—

(76) $

(38) $

(6)

—

(38)

(6)

1,943

2 (c)

1,945

120

(1) (c)

119

756

(10) (c)

746

330

217

14 (c)

747 (c)

(1)

(12)

(533)

(747)

(1)

—

(2,022)

—

3 (c)
(55) (d)
—

—

344

964

(1)

(9)

(44)

(533)

(747)

(1)

—

461

43 (c)

684 (c)

(7)

(134)

(236)

—

—
62 (d)
—

—

504

763

(7)

(134)

(236)

(773)

138

232

41 (c)

818 (c)

179

1,050

1,996

(20)

1,388

—

—
(1) (d)
—

—

1,996

(20)

1,388

(2,022)

(773)

December 31, (in millions)

Federal funds sold and securities

purchased under resale
agreements

Securities borrowed

Trading assets:

Debt and equity instruments,

excluding loans

Loans reported as trading
assets:

Changes in instrument-
specific credit risk

Other changes in fair value

Loans:

Changes in instrument-specific

credit risk

Other changes in fair value

Other assets
Deposits(a)
Federal funds purchased and

securities loaned or sold under
repurchase agreements

Short-term borrowings(a)
Trading liabilities

Beneficial interests issued by

consolidated VIEs
Long-term debt(a)(b)

(a) Unrealized gains/(losses) due to instrument-specific credit risk (DVA) for liabilities for which the fair value option has been elected is recorded in OCI, while realized
gains/(losses) are recorded in principal transactions revenue. DVA for 2015 was included in principal transactions revenue, and includes the impact of the Firm’s
own credit quality on the inception value of liabilities as well as the impact of changes in the Firm’s own credit quality subsequent to issuance. See Notes 2 and 23 for
further information. Realized gains/(losses) due to instrument-specific credit risk recorded in principal transaction revenue were not material for the years ended
December 31, 2017 and 2016.

(b) Long-term debt measured at fair value predominantly relates to structured notes. Although the risk associated with the structured notes is actively managed, the

gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage such risk.

Determination of instrument-specific credit risk for items
for which a fair value election was made
The 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 floating-

rate instruments, all changes in value are attributed to
instrument-specific credit risk. For fixed-rate
instruments, an allocation of the changes in value for the
period is made between those changes in value that are
interest 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 principally
from 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 a
requirement that collateral be maintained with a market
value equal to or in excess of the principal amount
loaned; as a result, there would be no adjustment or an
immaterial adjustment for instrument-specific credit risk
related to these agreements.

JPMorgan Chase & Co./2017 Annual Report

175

Notes to consolidated financial statements

Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal
balance outstanding as of December 31, 2017 and 2016, for loans, long-term debt and long-term beneficial interests for
which the fair value option has been elected.

2017

2016

Contractual
principal
outstanding

Fair value

Fair value
over/
(under)
contractual
principal
outstanding

Contractual
principal
outstanding

Fair value

Fair value
over/
(under)
contractual
principal
outstanding

December 31, (in millions)

Loans(a)

Nonaccrual loans

Loans reported as trading assets

4,219

1,371 $

(2,848) $

3,338

748 $

(2,590)

Loans

Subtotal

All other performing loans

Loans reported as trading assets

Loans

Total loans

Long-term debt

Principal-protected debt

Nonprincipal-protected debt(b)

Total long-term debt

Long-term beneficial interests

Nonprincipal-protected debt

Total long-term beneficial interests

4,258

38,157

2,539

—

(39)

1,371

(2,887)

—

3,338

36,590

2,508

(1,567)

(31)

35,477

2,259

—

748

33,054

2,228

—

(2,590)

(2,423)

(31)

44,954

40,469 $

(4,485) $

41,074

36,030 $

(5,044)

26,297 (c) $

23,848 $

(2,449) $

21,602 (c) $

19,195 $

(2,407)

23,671

47,519

18,491

37,686

120

(a) There were no performing loans that were ninety days or more past due as of December 31, 2017 and 2016.
(b) Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is

obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return a
stated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in the
note. However, investors are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal protected notes.

(c) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if

applicable, the contractual principal payment at the Firm’s next call date.

At December 31, 2017 and 2016, the contractual amount of lending-related commitments for which the fair value option was
elected was $7.4 billion and $4.6 billion respectively, with a corresponding fair value of $(76) million and $(118) million,
respectively. For further information regarding off-balance sheet lending-related financial instruments, see Note 27.

176

JPMorgan Chase & Co./2017 Annual Report

Structured note products by balance sheet classification and risk component
The following table presents the fair value of the structured notes issued by the Firm, by balance sheet classification and the
primary risk type.

(in millions)

Risk exposure

Interest rate

Credit

Foreign exchange

Equity

Commodity

December 31, 2017

December 31, 2016

Long-term
debt

Short-term
borrowings Deposits

Total

Long-
term debt

Short-term
borrowings Deposits

Total

$ 22,056 $

69 $ 8,058 $ 30,183

$ 16,296 $

184 $ 4,296 $ 20,776

4,329

2,841

17,581

230

1,312

147

7,106

—

6,548

4,468

5,641

3,026

3,267

2,365

225

135

31,235

14,831

8,234

4,713

488

—

5,481

1,811

3,492

2,506

28,546

2,336

Total structured notes

$ 47,037 $

8,649 $ 19,112 $ 74,798

$ 37,247 $

8,815 $ 11,594 $ 57,656

Note 4 – Credit risk concentrations
Concentrations of credit risk arise when a number of clients,
counterparties or customers are engaged in similar
business activities or activities in the same geographic
region, or when they have similar economic features that
would cause their ability to meet contractual obligations to
be similarly affected by changes in economic conditions.

JPMorgan Chase regularly monitors various segments of its
credit portfolios to assess potential credit risk
concentrations and to obtain additional collateral when
deemed necessary and permitted under the Firm’s
agreements. Senior management is significantly involved in
the credit approval and review process, and risk levels are
adjusted as needed to reflect the Firm’s risk appetite.

In the Firm’s consumer portfolio, concentrations are
evaluated primarily by product and by U.S. geographic
region, with a key focus on trends and concentrations at the
portfolio 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 and
monitored regularly on both an aggregate portfolio level
and on an individual client or counterparty basis. The Firm’s
wholesale exposure is managed through loan syndications
and participations, loan sales, securitizations, credit
derivatives, master netting agreements, collateral and other
risk-reduction techniques. For additional information on
loans, see Note 12.

The Firm does not believe that its exposure to any
particular loan product (e.g., option ARMs), or industry
segment (e.g., real estate), or its exposure to residential
real estate loans with high LTV ratios, results in a significant
concentration of credit risk.

Terms of loan products and collateral coverage are included
in the Firm’s assessment when extending credit and
establishing its allowance for loan losses.

JPMorgan Chase & Co./2017 Annual Report

177

Notes to consolidated financial statements

The table below presents both on–balance sheet and off–balance sheet consumer and wholesale-related credit exposure by the
Firm’s three credit portfolio segments as of December 31, 2017 and 2016.

In 2017 the Firm revised its methodology for the assignment of industry classifications, to better monitor and manage
concentrations. This largely resulted in the re-assignment of holding companies from Other to the industry of risk category
based on the primary business activity of the holding company's underlying entities. In the tables and industry discussions
below, the prior period amounts have been revised to conform with the current period presentation.

December 31, (in millions)

Credit
exposure(f)

On-balance sheet

Loans

Derivatives

Off-balance
sheet(g)

Credit
exposure

On-balance sheet

Loans

Derivatives

Off-balance
sheet(g)

Consumer, excluding credit card

$ 421,234 $ 372,681 $

— $

48,553

$ 417,891 $ 364,644 $

— $

53,247 (h)

2017

2016

Receivables from customers(a)

133

—

Total Consumer, excluding credit card

421,367

372,681

Credit Card

Total consumer-related

Wholesale-related(b)

Real Estate

Consumer & Retail

Technology, Media & Telecommunications

Healthcare

Industrials

Banks & Finance Cos

Oil & Gas

Asset Managers

Utilities

State & Municipal Govt(c)

Central Govt

Chemicals & Plastics

Transportation

Automotive

Metals & Mining

Insurance

Financial Markets Infrastructure

Securities Firms

All other(d)

Subtotal

722,342

149,511

1,143,709

522,192

139,409

113,648

87,679

59,274

55,997

55,272

49,037

41,317

32,531

29,317

28,633

19,182

15,945

15,797

14,820

14,171

14,089

5,036

4,113

31,044

13,665

16,273

18,161

25,879

12,621

11,480

6,187

12,134

3,375

5,654

6,733

4,903

4,728

1,411

351

952

147,900

113,699

—

120

—

48,553

418,011

364,644

572,831

695,707

141,816

621,384

1,113,718

506,460

—

53,247 (h)

553,891

607,138 (h)

153

1,114

2,265

2,191

1,163

6,816

1,727

7,998

2,084

2,888

13,937

208

977

342

702

2,804

3,499

1,692

3,963

25,608

55,521

43,344

37,533

35,948

16,342

26,969

13,053

21,046

13,611

1,870

10,083

8,087

9,575

8,741

9,874

1,186

1,469

134,287

105,802

84,804

63,324

49,445

55,733

48,393

40,367

33,201

29,672

28,263

20,408

15,043

19,096

16,736

13,419

13,510

8,732

4,211

29,929

14,063

15,545

17,295

22,714

13,253

10,339

7,208

12,416

3,964

5,292

8,996

4,964

4,350

1,119

347

1,059

30,238

137,238

105,135

207

1,082

1,293

2,280

1,658

12,257

1,878

10,820

888

2,096

14,235

271

751

1,196

439

3,382

3,884

1,913

3,548

28,278

53,793

47,968

31,620

36,780

13,422

25,236

12,042

21,576

13,751

2,209

9,480

9,349

10,576

8,630

9,009

4,501

1,239

28,555

829,519

402,898

56,523

370,098

815,882

383,790

64,078

368,014

Loans held-for-sale and loans at fair value

Receivables from customers and other(a)

5,607

26,139

5,607

—

4,515

17,440

4,515

—

Total wholesale-related

Total exposure(e)(f)

861,265

408,505

56,523

370,098

837,837

388,305

64,078

368,014

$ 2,004,974 $ 930,697 $

56,523 $ 991,482

$ 1,951,555 $ 894,765 $

64,078 $ 975,152 (h)

(a) Receivables from customers primarily represent held-for-investment margin loans to brokerage customers (Prime Services in CIB, AWM and CCB) 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, 2016, are based on the industry rankings of the corresponding exposures at December 31, 2017,

not actual rankings of such exposures at December 31, 2016.

(c) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2017 and 2016, noted above, the Firm held:
$9.8 billion and $9.1 billion, respectively, of trading securities; $32.3 billion and $31.6 billion, respectively, of AFS securities; and $14.4 billion and $14.5 billion,
respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, see Note 2 and Note 10.

(d) All other includes: individuals; SPEs; and private education and civic organizations. For more information on exposures to SPEs, see Note 14.
(e) Excludes cash placed with banks of $421.0 billion and $380.2 billion, at December 31, 2017 and 2016, respectively, which is predominantly placed with various

central banks, primarily Federal Reserve Banks.

(f) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against derivative

receivables or loans and liquid securities and other cash collateral held against derivative receivables.

(g) Represents lending-related financial instruments.
(h) The prior period amounts have been revised to conform with the current period presentation.

178

JPMorgan Chase & Co./2017 Annual Report

Note 5 – Derivative instruments
Derivative contracts derive their value from underlying
asset prices, indices, reference rates, other inputs or a
combination of these factors and may expose
counterparties to risks and rewards of an underlying asset
or liability without having to initially invest in, own or
exchange the asset or liability. JPMorgan Chase makes
markets in derivatives for clients and also uses derivatives
to hedge or manage its own risk exposures. Predominantly
all of the Firm’s derivatives are entered into for market-
making or risk management purposes.

Market-making derivatives
The majority of the Firm’s derivatives are entered into for
market-making purposes. Clients use derivatives to mitigate
or modify interest rate, credit, foreign exchange, equity and
commodity risks. The Firm actively manages the risks from
its exposure to these derivatives by entering into other
derivative transactions or by purchasing or selling other
financial instruments that partially or fully offset the
exposure from client derivatives.

Risk management derivatives
The Firm manages certain market and credit risk exposures
using derivative instruments, including derivatives in hedge
accounting relationships and other derivatives that are used
to manage risks associated with specified assets and
liabilities.

Interest rate contracts are used to minimize fluctuations in
earnings that are caused by changes in interest rates. Fixed-
rate assets and liabilities appreciate or depreciate in market
value as interest rates change. Similarly, interest income
and expense increases or decreases as a result of variable-
rate assets and liabilities resetting to current market rates,
and as a result of the repayment and subsequent
origination or issuance of fixed-rate assets and liabilities at
current market rates. Gains or losses on the derivative
instruments that are related to such assets and liabilities
are expected to substantially offset this variability in
earnings. 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 the
foreign exchange risk associated with certain foreign
currency–denominated (i.e., non-U.S. dollar) assets and
liabilities 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 a
result of fluctuations in foreign currencies, the U.S. dollar–
equivalent values of the foreign currency–denominated
assets and liabilities or the forecasted revenues or expenses
increase or decrease. Gains or losses on the derivative
instruments related to these foreign currency–denominated
assets or liabilities, or forecasted transactions, are expected
to substantially offset this variability.

Commodities contracts are used to manage the price risk of
certain commodities inventories. Gains or losses on these
derivative 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 a
credit 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 the
discussion in the Credit derivatives section on pages 189–
191 of this Note.

For more information about risk management derivatives,
see the risk management derivatives gains and losses table
on page 189 of this Note, and the hedge accounting gains
and losses tables on pages 187–189 of this Note.

Derivative counterparties and settlement types
The Firm enters into OTC derivatives, which are negotiated
and 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 the
transactions. OTC-cleared derivatives are traded on a
bilateral basis and then novated to the CCP for clearing.

Derivative clearing services
The Firm provides clearing services for clients in which the
Firm acts as a clearing member at certain derivative
exchanges and clearing houses. The Firm does not reflect
the clients’ derivative contracts in its Consolidated Financial
Statements. For further information on the Firm’s clearing
services, see Note 27.

Accounting for derivatives
All free-standing derivatives that the Firm executes for its
own account are required to be recorded on the
Consolidated 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 the
derivative counterparty. For further discussion of the
offsetting of assets and liabilities, see Note 1. The
accounting for changes in value of a derivative depends on
whether or not the transaction has been designated and
qualifies for hedge accounting. Derivatives that are not
designated as hedges are reported and measured at fair
value through earnings. The tabular disclosures on pages
183–189 of this Note provide additional information on the
amount of, and reporting for, derivative assets, liabilities,
gains and losses. For further discussion of derivatives
embedded in structured notes, see Notes 2 and 3.

JPMorgan Chase & Co./2017 Annual Report

179

Notes to consolidated financial statements

Derivatives designated as hedges
The Firm applies hedge accounting to certain derivatives
executed for risk management purposes – generally interest
rate, foreign exchange and commodity derivatives.
However, JPMorgan Chase does not seek to apply hedge
accounting to all of the derivatives involved in the Firm’s
risk management activities. For example, the Firm does not
apply hedge accounting to purchased CDS used to manage
the credit risk of loans and lending-related commitments,
because of the difficulties in qualifying such contracts as
hedges. 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 designated
as 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, and
how 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 dollar-
value comparisons of the change in the fair value of the
derivative to the change in the fair value or cash flows of
the hedged item. The extent to which a derivative has been,
and is expected to continue to be, effective at offsetting
changes 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 or
loss on the designated derivative instrument does not
exactly offset the change in the hedged item attributable to
the 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.

There are three types of hedge accounting designations: fair
value 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 the
value of the hedged item for the risk being hedged, are
recognized in earnings. If the hedge relationship is
terminated, 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 amortized
to earnings as a yield adjustment. Derivative amounts
affecting earnings are recognized consistent with the
classification of the hedged item – primarily net interest
income and principal transactions revenue.

JPMorgan Chase uses cash flow hedges primarily to hedge
the exposure to variability in forecasted cash flows from
floating-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 value
of the derivative is recorded in OCI and recognized in the
Consolidated statements of income when the hedged cash
flows affect earnings. Derivative amounts affecting earnings
are recognized consistent with the classification of the
hedged item – primarily interest income, interest expense,
noninterest revenue and compensation expense. The
ineffective portions of cash flow hedges are immediately
recognized in earnings. If the hedge relationship is
terminated, then the value of the derivative recorded in
AOCI is recognized in earnings when the cash flows that
were hedged affect earnings. For hedge relationships that
are discontinued because a forecasted transaction is not
expected to occur according to the original hedge forecast,
any related derivative values recorded in AOCI are
immediately recognized in earnings.

JPMorgan Chase uses net investment hedges to protect the
value of the Firm’s net investments in certain non-U.S.
subsidiaries or branches whose functional currencies are
not the U.S. dollar. For foreign currency qualifying net
investment hedges, changes in the fair value of the
derivatives are recorded in the translation adjustments
account within AOCI.

180

JPMorgan Chase & Co./2017 Annual Report

The following table outlines the Firm’s primary uses of derivatives and the related hedge accounting designation or disclosure
category.

Type of Derivative

Use of Derivative

Designation and disclosure

Manage specifically identified risk exposures in qualifying hedge accounting relationships:

Affected
segment or unit

Page
reference

• Interest rate

Hedge fixed rate assets and liabilities

Hedge floating-rate assets and liabilities

• Foreign exchange

Hedge foreign currency-denominated assets and liabilities

• Foreign exchange

Hedge foreign currency-denominated forecasted revenue and
expense

• Foreign exchange

• Commodity

Hedge the value of the Firm’s investments in non-U.S. dollar
functional currency entities
Hedge commodity inventory

Manage specifically identified risk exposures not designated in qualifying hedge accounting

Fair value hedge

Cash flow hedge

Fair value hedge

Cash flow hedge

Corporate

Net investment hedge

Corporate

Fair value hedge

CIB

relationships:

• Interest rate

• Credit

• Commodity

• Interest rate and
foreign exchange

Manage the risk of the mortgage pipeline, warehouse loans and MSRs Specified risk management

CCB

Manage the credit risk of wholesale lending exposures

Manage the risk of certain commodities-related contracts and
investments
Manage the risk of certain other specified assets and liabilities

Specified risk management

CIB

Specified risk management

Corporate

Market-making derivatives and other activities:

• Various

Market-making and related risk management

Market-making and other

CIB

Other derivatives

Market-making and other

CIB, Corporate

187

188

187

188

189

187

189

JPMorgan Chase & Co./2017 Annual Report

181

Notes to consolidated financial statements

Notional amount of derivative contracts
The following table summarizes the notional amount of
derivative contracts outstanding as of December 31, 2017
and 2016.

December 31, (in billions)

Interest rate contracts

Swaps

Futures and forwards

Written options

Purchased options

Total interest rate contracts

Credit derivatives(a)

Foreign exchange contracts

Cross-currency swaps

Spot, futures and forwards

Written options

Purchased options

Notional amounts(b)

2017

2016

$ 21,043

$ 22,000

4,904

3,576

3,987

5,289

3,091

3,482

33,510

33,862

1,522

2,032

3,953

5,923

786

776

3,359

5,341

734

721

Total foreign exchange contracts

11,438

10,155

Equity contracts

Swaps

Futures and forwards

Written options

Purchased options

Total equity contracts

Commodity contracts

Swaps

Spot, futures and forwards

Written options

Purchased options

Total commodity contracts

367

531

453

258

417

345

1,441

1,079

116

168

475

102

130

409

Total derivative notional amounts

$ 48,386

$ 47,537

(a) For more information on volumes and types of credit derivative

contracts, see the Credit derivatives discussion on pages 189–191.
(b) Represents the sum of gross long and gross short third-party notional

derivative contracts.

While the notional amounts disclosed above give an
indication of the volume of the Firm’s derivatives activity,
the notional amounts significantly exceed, in the Firm’s
view, the possible losses that could arise from such
transactions. For most derivative transactions, the notional
amount is not exchanged; it is used simply as a reference to
calculate payments.

182

JPMorgan Chase & Co./2017 Annual Report

Impact of derivatives on the Consolidated balance sheets
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that
are reflected on the Firm’s Consolidated balance sheets as of December 31, 2017 and 2016, by accounting designation (e.g.,
whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.

Gross derivative balances as of December 31, 2017, reflect the Firm’s adoption of rulebook changes made by two CCPs, that
require or allow the Firm to treat certain OTC-cleared derivative transactions with that CCP as settled each day. If such rulebook
changes had been in effect as of December 31, 2016, the impact would have been a reduction in gross derivative receivables
and payables of $227.1 billion and $224.7 billion, respectively, and a corresponding decrease in amounts netted, with no
impact to the Consolidated balance sheets.

Free-standing derivative receivables and payables(a)

December 31, 2017
(in millions)

Trading assets and
liabilities

Interest rate

Credit

Foreign exchange

Equity

Commodity

Total fair value of trading
assets and liabilities

December 31, 2016
(in millions)

Trading assets and
liabilities

Interest rate

Credit

Foreign exchange

Equity

Commodity

Total fair value of trading
assets and liabilities

Gross derivative receivables

Gross derivative payables

Not
designated
as hedges

Designated
as hedges

Total
derivative
receivables

Net
derivative
receivables(b)

Not
designated
as hedges

Designated
as hedges

Total
derivative
payables

Net
derivative
payables(b)

$ 313,276

2,716

$ 315,992

24,673

$ 283,092

1,344 $ 284,436

7,129

23,205

159,740

40,040

20,066

—

491

—

23,205

160,231

40,040

20,085

869

16,151

7,882

6,948

23,252

154,601

45,395

21,498

—

23,252

1,221

155,822

—

403

45,395

21,901

1,299

12,473

9,192

7,684

$ 556,327

3,226

$ 559,553

56,523

$ 527,838

2,968 $ 530,806

$ 37,777

Gross derivative receivables

Gross derivative payables

Not
designated
as hedges

Designated
as hedges

Total
derivative
receivables

Net
derivative
receivables(b)

Not
designated
as hedges

Designated
as hedges

Total
derivative
payables

Net
derivative
payables(b)

$ 601,557

4,406

$ 605,963

28,302

$ 567,894

2,884 $ 570,778

$ 10,815

29,645

232,137

34,940

18,505

—

1,289

—

137

29,645

233,426

34,940

18,642

1,294

23,271

4,939

6,272

28,666

233,823

38,362

20,283

—

28,666

1,148

234,971

—

179

38,362

20,462

1,411

20,508

8,140

8,357

$ 916,784

5,832

$ 922,616

64,078

$ 889,028

4,211 $ 893,239

$ 49,231

(a) Balances exclude structured notes for which the fair value option has been elected. See Note 3 for further information.
(b) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and

payables when a legally enforceable master netting agreement exists.

JPMorgan Chase & Co./2017 Annual Report

183

Notes to consolidated financial statements

Derivatives netting
The following tables present, as of December 31, 2017 and 2016, gross and net derivative receivables and payables by
contract 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 and
payables, the Firm receives and transfers additional collateral (financial instruments and cash). These amounts mitigate
counterparty credit risk associated with the Firm’s derivative instruments, but are not eligible for net presentation:
• collateral that consists of non-cash financial instruments (generally U.S. government and agency securities and other G7
government securities) and cash collateral held at third party custodians, which are shown separately as “Collateral not
nettable on the Consolidated balance sheets” in the tables below, up to the fair value exposure amount.

• the amount of collateral held or transferred that exceeds the fair value exposure at the individual counterparty level, as of

the 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 not
been either sought or obtained with respect to the master netting agreement, which is excluded from the tables below.

December 31, (in millions)

U.S. GAAP nettable derivative receivables

Interest rate contracts:

Over-the-counter (“OTC”)

OTC–cleared

Exchange-traded(a)

2017

Amounts netted
on the
Consolidated
balance sheets

Gross
derivative
receivables

Net
derivative
receivables

Gross
derivative
receivables

2016

Amounts netted
on the
Consolidated
balance sheets

Net
derivative
receivables

$ 305,569 $ (284,917)

20,652

$ 365,227

$ (342,173)

23,054

6,531

185

(6,318)

(84)

213

101

235,399

(235,261)

241

(227)

138

Total interest rate contracts

312,285

(291,319)

20,966

600,867

(577,661)

23,206

Credit contracts:

OTC

OTC–cleared

Total credit contracts

Foreign exchange contracts:

OTC

OTC–cleared

Exchange-traded(a)

15,390

(15,165)

7,225

(7,170)

22,615

(22,335)

225

280

23,130

5,746

28,876

(22,612)

(5,739)

(28,351)

518

525

155,289

(142,420)

12,869

226,271

(208,962)

17,309

1,696

141

(1,654)

(7)

134

1,238

104

(1,165)

(27)

Total foreign exchange contracts

157,126

(144,081)

13,045

227,613

(210,154)

17,459

Equity contracts:

OTC

Exchange-traded(a)

Total equity contracts

Commodity contracts:

OTC

Exchange-traded(a)

22,024

14,188

36,212

10,903

8,854

(19,917)

(12,241)

(32,158)

(4,436)

(8,701)

Total commodity contracts

19,757

(13,137)

2,107

1,947

4,054

6,467

153

6,620

20,868

11,439

32,307

11,571

6,794

18,365

(20,570)

(9,431)

(30,001)

(5,605)

(6,766)

(12,371)

298

2,008

2,306

5,966

5,994

Derivative receivables with appropriate legal

opinion

Derivative receivables where an appropriate legal
opinion has not been either sought or obtained

Total derivative receivables recognized on the

Consolidated balance sheets

Collateral not nettable on the Consolidated balance

sheets(c)(d)

Net amounts

184

547,995

(503,030) (b)

44,965

908,028

(858,538) (b)

49,490

11,558

14,588

$ 559,553

56,523

$ 922,616

(13,363)

43,160

14,588

64,078

(18,638)

45,440

JPMorgan Chase & Co./2017 Annual Report

December 31, (in millions)

U.S. GAAP nettable derivative payables

Interest rate contracts:

OTC

OTC–cleared

Exchange-traded(a)

2017

Amounts netted
on the
Consolidated
balance sheets

Gross
derivative
payables

Net
derivative
payables

Gross
derivative
payables

2016

Amounts netted
on the
Consolidated
balance sheets

Net
derivative
payables

276,960 $ (271,294)

5,666

$ 338,502

$ (329,325)

9,177

6,004

127

(5,928)

(84)

230,464

(230,463)

196

(175)

Total interest rate contracts

283,091

(277,306)

5,785

569,162

(559,963)

9,199

Credit contracts:

OTC

OTC–cleared

Total credit contracts

Foreign exchange contracts:

OTC

OTC–cleared

Exchange-traded(a)

16,194

6,801

22,995

(15,170)

(6,784)

(21,954)

1,024

1,041

22,366

5,641

28,007

(21,614)

(5,641)

(27,255)

752

—

752

150,966

(141,789)

9,177

228,300

(213,296)

15,004

1,555

(1,553)

(7)

1,158

328

(1,158)

(9)

—

319

Total foreign exchange contracts

152,619

(143,349)

9,270

229,786

(214,463)

15,323

Equity contracts:

OTC

Exchange-traded(a)

Total equity contracts

Commodity contracts:

OTC

Exchange-traded(a)

Total commodity contracts

28,193

12,720

40,913

12,645

8,870

21,515

(23,969)

(12,234)

(36,203)

(5,508)

(8,709)

(14,217)

4,224

486

4,710

7,137

161

7,298

24,688

10,004

34,692

12,885

7,099

19,984

(20,808)

(9,414)

(30,222)

(5,252)

(6,853)

(12,105)

3,880

590

4,470

7,633

246

7,879

Derivative payables with appropriate legal opinion

521,133

(493,029) (b)

28,104

881,631

(844,008) (b)

37,623

Derivative payables where an appropriate legal
opinion has not been either sought or obtained

Total derivative payables recognized on the

Consolidated balance sheets

Collateral not nettable on the Consolidated balance

sheets(c)(d)

Net amounts

9,673

11,608

530,806

37,777

$ 893,239

(4,180)

33,597

11,608

49,231

(8,925)

40,306

(a) Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b) Net derivatives receivable included cash collateral netted of $55.5 billion and $71.9 billion at December 31, 2017 and 2016, respectively. Net derivatives
payable included cash collateral netted of $45.5 billion and $57.3 billion related to OTC and OTC-cleared derivatives at December 31, 2017 and 2016,
respectively.

(c) Represents liquid security collateral as well as cash collateral held at third-party custodians related to derivative instruments where an appropriate legal
opinion has been obtained. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative
payables balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances with
that counterparty.

(d) Derivative collateral relates only to OTC and OTC-cleared derivative instruments.

JPMorgan Chase & Co./2017 Annual Report

185

Notes to consolidated financial statements

Liquidity risk and credit-related contingent features
In addition to the specific market risks introduced by each
derivative contract type, derivatives expose JPMorgan
Chase to credit risk — the risk that derivative counterparties
may fail to meet their payment obligations under the
derivative 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 to
mitigate derivative counterparty credit risk. The amount of
derivative receivables reported on the Consolidated balance
sheets is the fair value of the derivative contracts after
giving effect to legally enforceable master netting
agreements and cash collateral held by the Firm.

While derivative receivables expose the Firm to credit risk,
derivative payables expose the Firm to liquidity risk, as the
derivative contracts typically require the Firm to post cash
or securities collateral with counterparties as the fair value

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 a
downgrade of either the Firm or the counterparty, at the
fair value of the derivative contracts. The following table
shows the aggregate fair value of net derivative payables
related to OTC and OTC-cleared derivatives that contain
contingent collateral or termination features that may be
triggered upon a ratings downgrade, and the associated
collateral the Firm has posted in the normal course of
business, at December 31, 2017 and 2016.

OTC and OTC-cleared derivative payables containing
downgrade triggers
December 31, (in millions)

2017

2016

Aggregate fair value of net derivative payables

$ 11,916 $ 21,550

Collateral posted

9,973

19,383

The following table shows the impact of a single-notch and two-notch downgrade of the long-term issuer ratings of JPMorgan
Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), at
December 31, 2017 and 2016, related to OTC and OTC-cleared derivative contracts with contingent collateral or termination
features that may be triggered upon a ratings downgrade. Derivatives contracts generally require additional collateral to be
posted 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

December 31, (in millions)

2017

2016

Single-notch
downgrade

Two-notch
downgrade

Single-notch
downgrade

Two-notch
downgrade

Amount of additional collateral to be posted upon downgrade(a)

79 $

1,989

Amount required to settle contracts with termination triggers upon downgrade(b)

320

650

560 $

606

2,497

1,049

(a) Includes the additional collateral to be posted for initial margin.
(b) Amounts represent fair values of derivative payables, and do not reflect collateral posted.

Derivatives executed in contemplation of a sale of the underlying financial asset
In certain instances the Firm enters into transactions in which it transfers financial assets but maintains the economic exposure
to the transferred assets by entering into a derivative with the same counterparty in contemplation of the initial transfer. The
Firm generally accounts for such transfers as collateralized financing transactions as described in Note 11, but in limited
circumstances they may qualify to be accounted for as a sale and a derivative under U.S. GAAP. There were no such transfers
accounted for as a sale where the associated derivative was outstanding at December 31, 2017, and such transfers at
December 31, 2016 were not material.

186

JPMorgan Chase & Co./2017 Annual Report

Impact of derivatives on the Consolidated statements of income
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting
designation or purpose.

Fair value hedge gains and losses
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well
as pre-tax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 2017,
2016 and 2015, respectively. The Firm includes gains/(losses) on the hedging derivative and the related hedged item in the
same line item in the Consolidated statements of income.

Year ended December 31, 2017 (in millions)

Derivatives

Hedged items

Total income
statement
impact

Hedge
ineffectiveness(e)

Excluded
components(f)

Gains/(losses) recorded in income

Income statement impact due to:

Contract type

Interest rate(a)(b)

Foreign exchange(c)

Commodity(d)

Total

(481)

(3,509)

(1,275)

(5,265)

1,359

3,507

1,348

6,214

878

(18)

(2)

949

—

896

(2)

938

Gains/(losses) recorded in income

Income statement impact due to:

Year ended December 31, 2016 (in millions)

Derivatives Hedged items

Total income
statement
impact

Hedge
ineffectiveness(e)

Excluded
components(f)

Contract type

Interest rate(a)(b)

Foreign exchange(c)

Commodity(d)

Total

Year ended December 31, 2015 (in millions)

Contract type

Interest rate(a)(b)

Foreign exchange(c)

Commodity(d)

Total

(482)

1,338

2,435

(536)

(2,261)

586

856

174

1,417

(337)

1,080

—

(9)

(3)

850

174

1,083

Gains/(losses) recorded in income

Income statement impact due to:

Derivatives Hedged items

Total income
statement
impact

Hedge
ineffectiveness(e)

Excluded
components(f)

911

949

6,030

1,153

7,221

(6,006)

(1,142)

(6,237)

984

—

(13)

(10)

946

994

(a) Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate (“LIBOR”)) interest rate risk of fixed-rate long-term debt and AFS

securities. Gains and losses were recorded in net interest income.

(b) Excludes the amortization expense associated with the inception hedge accounting adjustment applied to the hedged item. This expense is recorded in net

interest income and substantially offsets the income statement impact of the excluded components.

(c) Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses
related to the derivatives and the hedged items, due to changes in foreign currency rates, were recorded primarily in principal transactions revenue and
net interest income.

(d) Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or net realizable value (net

realizable value approximates fair value). Gains and losses were recorded in principal transactions revenue.

(e) Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on the

hedged item attributable to the hedged risk.

(f) The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward

points on foreign exchange forward contracts and time values.

JPMorgan Chase & Co./2017 Annual Report

187

Notes to consolidated financial statements

Cash flow hedge gains and losses
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and
the pre-tax gains/(losses) recorded on such derivatives, for the years ended December 31, 2017, 2016 and 2015,
respectively. The Firm includes the gain/(loss) on the hedging derivative and the change in cash flows on the hedged item in
the same line item in the Consolidated statements of income.

Year ended December 31, 2017
(in millions)

Contract type

Interest rate(a)

Foreign exchange(b)

Total

Year ended December 31, 2016
(in millions)

Contract type

Interest rate(a)

Foreign exchange(b)

Total

Year ended December 31, 2015
(in millions)

Contract type

Interest rate(a)

Foreign exchange(b)

Total

Gains/(losses) recorded in income and other comprehensive income/(loss)

Derivatives –
effective portion
reclassified from
AOCI to income

Hedge
ineffectiveness
recorded directly
in income(c)

Total income
statement impact

Derivatives –
effective
portion
recorded in OCI

Total change
in OCI
for period

(17)

(117)

(134)

—

(17)

(117)

(134)

135

147

252

281

Gains/(losses) recorded in income and other comprehensive income/(loss)

Derivatives –
effective portion
reclassified from
AOCI to income

Hedge
ineffectiveness
recorded directly
in income(c)

Total income
statement impact

Derivatives –
effective
portion
recorded in OCI

Total change
in OCI
for period

(74)

(286)

(360)

—

(74)

(286)

(360)

(55)

(395)

(450)

(109)

(90)

Gains/(losses) recorded in income and other comprehensive income/(loss)

Derivatives –
effective portion
reclassified from
AOCI to income

Hedge
ineffectiveness
recorded directly
in income(c)

Total income
statement impact

Derivatives –
effective
portion
recorded in OCI

Total change
in OCI
for period

(99)

(81)

(180)

—

(99)

(81)

(180)

(44)

(53)

(97)

(a) Primarily consists of benchmark interest rate hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in

net interest income.

(b) Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of gains

and losses follows the hedged item – primarily noninterest revenue and compensation expense.

(c) Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the

cumulative expected change in cash flows on the hedged item attributable to the hedged risk.

The Firm did not experience any forecasted transactions that failed to occur for the years ended 2017 and 2016. In 2015, the
Firm reclassified approximately $150 million of net losses from AOCI to other income because the Firm determined that it was
probable that the forecasted interest payment cash flows would not occur as a result of the planned reduction in wholesale
non-operating deposits.

Over the next 12 months, the Firm expects that approximately $96 million (after-tax) of net gains recorded in AOCI at
December 31, 2017, related to cash flow hedges will be recognized in income. For terminated cash flow hedges, the maximum
length of time over which forecasted transactions are remaining is approximately five years. For open cash flow hedges, the
maximum length of time over which forecasted transactions are hedged is approximately seven years. The Firm’s longer-dated
forecasted transactions relate to core lending and borrowing activities.

188

JPMorgan Chase & Co./2017 Annual Report

Net investment hedge gains and losses
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting
relationships, and the pre-tax gains/(losses) recorded on such instruments for the years ended December 31, 2017, 2016 and
2015.

Year ended December 31,
(in millions)

Foreign exchange derivatives

Gains/(losses) recorded in income and other comprehensive income/(loss)

2017

2016

2015

Excluded
components
recorded
directly in
income(a)

Effective
portion
recorded in OCI

Excluded
components
recorded
directly in
income(a)

Effective
portion
recorded in OCI

Excluded
components
recorded
directly in
income(a)

Effective
portion
recorded in OCI

$(172)

$(1,294)

$(282)

$262

$(379)

$1,885

(a) Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign
exchange forward contracts. Amounts related to excluded components are recorded in other income. The Firm measures the ineffectiveness of net
investment hedge accounting relationships based on changes in spot foreign currency rates and, therefore, there was no significant ineffectiveness for net
investment hedge accounting relationships during 2017, 2016 and 2015.

Gains and losses on derivatives used for specified risk
management purposes
The following table presents pre-tax gains/(losses) recorded
on a limited number of derivatives, not designated in hedge
accounting relationships, that are used to manage risks
associated with certain specified assets and liabilities,
including certain risks arising from the mortgage pipeline,
warehouse loans, MSRs, wholesale lending exposures,
foreign currency denominated assets and liabilities, and
commodities-related contracts and investments.

Year ended December 31,
(in millions)

2017

2016

2015

Derivatives gains/(losses)
recorded in income

Contract type
Interest rate(a)
Credit(b)
Foreign exchange(c)
Commodity(d)
Total

331 $

1,174 $

(74)

(33)

—

(282)

—

224 $

919 $

853

(12)

936

(a) Primarily represents interest rate derivatives used to hedge the

interest rate risk inherent in the mortgage pipeline, warehouse loans
and MSRs, as well as written commitments to originate warehouse
loans. Gains and losses were recorded predominantly in mortgage fees
and related income.

(b) Relates to credit derivatives used to mitigate credit risk associated

with 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 is
included in gains and losses on derivatives related to market-making
activities and other derivatives. Gains and losses were recorded in
principal transactions revenue.

(c) Primarily relates to derivatives used to mitigate foreign exchange risk
of specified foreign currency-denominated assets and liabilities. Gains
and losses were recorded in principal transactions revenue.

(d) Primarily relates to commodity derivatives used to mitigate energy

price risk associated with energy-related contracts and investments.
Gains and losses were recorded in principal transactions revenue.

Gains and losses on derivatives related to market-making
activities and other derivatives
The Firm makes markets in derivatives in order to meet the
needs 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 not
included in the hedge accounting or specified risk
management categories above are included in this category.
Gains and losses on these derivatives are primarily recorded
in principal transactions revenue. See Note 6 for
information on principal transactions revenue.

Credit derivatives
Credit derivatives are financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) and which allow
one party (the protection purchaser) to transfer that risk to
another party (the protection seller). Credit derivatives
expose the protection purchaser to the creditworthiness of
the protection seller, as the protection seller is required to
make payments under the contract when the reference
entity experiences a credit event, such as a bankruptcy, a
failure to pay its obligation or a restructuring. The seller of
credit 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 the
credit 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 of
customers. 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 from
certain financial instruments in the Firm’s market-making
businesses. Following is a summary of various types of
credit derivatives.

JPMorgan Chase & Co./2017 Annual Report

189

Notes to consolidated financial statements

Credit default swaps
Credit derivatives may reference the credit of either a single
reference entity (“single-name”) or a broad-based index.
The Firm purchases and sells protection on both single-
name and index-reference obligations. Single-name CDS and
index 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 with
the broader credit markets or credit market segments. Like
the S&P 500 and other market indices, a CDS index consists
of a portfolio of CDS across many reference entities. New
series of CDS indices are periodically established with a new
underlying portfolio of reference entities to reflect changes
in the credit markets. If one of the reference entities in the
index experiences a credit event, then the reference entity
that defaulted is removed from the index. CDS can also be
referenced against specific portfolios of reference names or
against customized exposure levels based on specific client
demands: for example, to provide protection against the
first $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 the
terms 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 the
difference between the face value of the CDS contract and
the 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 the
debt instrument of the underlying reference entity in order
to receive amounts due under the CDS contract when a
credit event occurs.

Credit-related notes
A credit-related note is a funded credit derivative where the
issuer 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 par
value 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 at
maturity 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, the
issuer pays the investor the difference between the par
value 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 notional
amounts of credit derivatives and credit-related notes the
Firm sold and purchased as of December 31, 2017 and
2016. Upon a credit event, the Firm as a seller of protection
would typically pay out only a percentage of the full
notional amount of net protection sold, as the amount
actually 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 on
contracts to sell protection by purchasing protection with
identical 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.

190

JPMorgan Chase & Co./2017 Annual Report

The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives,
because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value
of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm’s view, the
risks associated with such derivatives.

Total credit derivatives and credit-related notes

December 31, 2017 (in millions)

Credit derivatives

Credit default swaps

Other credit derivatives(a)

Total credit derivatives

Credit-related notes

Total

December 31, 2016 (in millions)

Credit derivatives

Credit default swaps

Other credit derivatives(a)

Total credit derivatives

Credit-related notes

Total

Maximum payout/Notional amount

Protection
sold

Protection purchased
with identical
underlyings(b)

Net protection
(sold)/
purchased(c)

Other
protection
purchased(d)

(690,224)

702,098

11,874 $

5,045

(54,157)

(744,381)

(18)

59,158

761,256

—

5,001

16,875

(18)

11,747

16,792

7,915

(744,399)

761,256

16,857 $

24,707

Maximum payout/Notional amount

Protection
sold

Protection purchased
with identical
underlyings(b)

Net protection
(sold)/
purchased(c)

Other
protection
purchased(d)

(961,003)

974,252

13,249 $

7,935

(36,829)

(997,832)

(41)

31,859

1,006,111

—

(4,970)

8,279

(41)

19,991

27,926

4,505

(997,873)

1,006,111

8,238 $

32,431

(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 notional

amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold.

(c) Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to the

buyer of protection in determining settlement value.

(d) Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on the identical reference

instrument.

The following tables summarize the notional amounts by the ratings, maturity profile, and total fair value, of credit derivatives
and credit-related notes as of December 31, 2017 and 2016, where JPMorgan Chase is the seller of protection. The maturity
profile is based on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the
rating of the reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit
derivatives and credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profile
reflected below.

Protection sold – credit derivatives and credit-related notes ratings(a)/maturity profile
December 31, 2017
(in millions)

Total notional
amount

1–5 years

>5 years

<1 year

Fair value of
receivables(b)

Fair value of
payables(b)

Net fair
value

Risk rating of reference entity

Investment-grade

$ (159,286)

$ (319,726)

$ (39,429)

Noninvestment-grade

(73,394)

(134,125)

(18,439)

Total

$ (232,680)

$ (453,851)

$ (57,868)

(518,441)

(225,958)

(744,399)

8,516

7,407

15,923

(1,134)

$ 7,382

(5,313)

2,094

(6,447)

$ 9,476

December 31, 2016
(in millions)

Risk rating of reference entity

<1 year

1–5 years

>5 years

Total notional
amount

Fair value of
receivables(b)

Fair value of
payables(b)

Net fair
value

Investment-grade

$ (273,688)

$ (383,586)

$ (39,281)

Noninvestment-grade

(107,955)

(170,046)

(23,317)

Total

$ (381,643)

$ (553,632)

$ (62,598)

(696,555)

(301,318)

(997,873)

7,841

8,184

(3,055)

$ 4,786

(8,570)

(386)

16,025

(11,625)

$ 4,400

(a) The ratings scale is primarily based on external credit ratings defined by S&P and Moody’s.
(b) Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral received by the Firm.

JPMorgan Chase & Co./2017 Annual Report

191

Notes to consolidated financial statements

Note 6 – Noninterest revenue and noninterest expense
Investment banking fees
This revenue category includes debt and equity
underwriting and advisory fees. As an underwriter, the Firm
helps clients raise capital via public offering and private
placement of various types of debt instruments and equity
securities. Underwriting fees are primarily based on the
issuance price and quantity of the underlying instruments,
and are recognized as revenue typically upon execution of
the client’s transaction. The Firm also manages and
syndicates loan arrangements. Credit arrangement and
syndication fees, included within debt underwriting fees,
are recorded as revenue after satisfying certain retention,
timing and yield criteria.

The Firm also provides advisory services, assisting its clients
with mergers and acquisitions, divestitures, restructuring
and other complex transactions. Advisory fees are
recognized as revenue typically upon execution of the
client’s transaction.

Year ended December 31,
(in millions)

2017

2016

2015

Underwriting

Equity

Debt

Total underwriting

Advisory

$ 1,394

$ 1,146

$ 1,408

3,710

5,104

2,144

3,207

4,353

2,095

3,232

4,640

2,111

Total investment banking fees

$ 7,248

$ 6,448

$ 6,751

Investment banking fees are earned primarily by CIB. See
Note 31 for segment results.

Principal transactions
Principal transactions revenue is driven by many factors,
including the bid-offer spread, which is the difference
between the price at which the Firm is willing to buy a
financial or other instrument and the price at which the
Firm is willing to sell that instrument. It also consists of the
realized (as a result of the sale of instruments, closing out
or termination of transactions, or interim cash payments)
and unrealized (as a result of changes in valuation) gains
and losses on financial and other instruments (including
those accounted for under the fair value option) primarily
used in client-driven market-making activities and on
private equity investments. In connection with its client-
driven market-making activities, the Firm transacts in debt
and equity instruments, derivatives and commodities
(including physical commodities inventories and financial
instruments that reference commodities).

Principal transactions revenue also includes certain realized
and unrealized gains and losses related to hedge accounting
and specified risk-management activities, including: (a)
certain derivatives designated in qualifying hedge
accounting relationships (primarily fair value hedges of
commodity and foreign exchange risk), (b) certain
derivatives used for specific risk management purposes,
primarily to mitigate credit risk, foreign exchange risk and
commodity risk, and (c) other derivatives. For further
information on the income statement classification of gains
and losses from derivatives activities, see Note 5.

In the financial commodity markets, the Firm transacts in
OTC derivatives (e.g., swaps, forwards, options) and ETD
that reference a wide range of underlying commodities. In
the physical commodity markets, the Firm primarily
purchases and sells precious and base metals and may hold
other commodities inventories under financing and other
arrangements with clients.

The following table presents all realized and unrealized
gains and losses recorded in principal transactions revenue.
This table excludes interest income and interest expense on
trading assets and liabilities, which are an integral part of
the overall performance of the Firm’s client-driven market-
making activities. See Note 7 for further information on
interest income and interest expense. Trading revenue is
presented primarily by instrument type. The Firm’s client-
driven market-making businesses generally utilize a variety
of instrument types in connection with their market-making
and related risk-management activities; accordingly, the
trading revenue presented in the table below is not
representative of the total revenue of any individual line of
business.

Year ended December 31,
(in millions)

Trading revenue by instrument
type

Interest rate

Credit

Foreign exchange

Equity

Commodity

Total trading revenue

Private equity gains

2017

2016

2015

$ 2,479

$ 2,325

$ 1,933

1,329

2,746

3,873

661

2,096

2,827

2,994

1,067

1,735

2,557

2,990

842

11,088

11,309

10,057

259

257

351

Principal transactions

$ 11,347

$ 11,566

$ 10,408

Principal transactions revenue is earned primarily by CIB.
See Note 31 for segment results.

Lending- and deposit-related fees
Lending-related fees include fees earned from loan
commitments, standby letters of credit, financial
guarantees, and other loan-servicing activities. Deposit-
related fees include fees earned in lieu of compensating
balances, and fees earned from performing cash
management activities and other deposit account services.
Lending- and deposit-related fees in this revenue category
are recognized over the period in which the related service
is provided.

Year ended December 31, (in millions)

2017

2016

2015

Lending-related fees

Deposit-related fees

$ 1,110

$ 1,114

$ 1,148

4,823

4,660

4,546

Total lending- and deposit-related fees

$ 5,933

$ 5,774

$ 5,694

Lending- and deposit-related fees are earned by CCB, CIB,
CB, and AWM. See Note 31 for segment results.

192

JPMorgan Chase & Co./2017 Annual Report

Asset management, administration and commissions
This revenue category includes fees from investment
management and related services, custody, brokerage
services and other products. The Firm manages assets on
behalf of its clients, including investors in Firm-sponsored
funds and owners of separately managed investment
accounts. Management fees are typically based on the value
of assets under management and are collected and
recognized at the end of each period over which the
management services are provided and the value of the
managed assets is known. The Firm also receives
performance-based management fees, which are earned
based on exceeding certain benchmarks or other
performance targets and are accrued and recognized when
the probability of reversal is remote, typically at the end of
the related billing period. The Firm has contractual
arrangements with third parties to provide distribution and
other services in connection with its asset management
activities. Amounts paid to third-party service providers are
recorded in professional and outside services expense.

Year ended December 31,
(in millions)

Asset management fees

2017

2016

2015

Investment management fees

$ 9,526

$ 8,865

$ 9,403

All other asset management fees(a)

Total asset management fees

294

9,820

336

9,201

Total administration fees(b)

2,029

1,915

Commissions and other fees

Brokerage commissions(c)

All other commissions and fees

Total commissions and fees

Total asset management,

administration and
commissions

2,239

1,289

3,528

2,151

1,324

3,475

$ 15,377

$ 14,591

$ 15,509

(a) The Firm receives other asset management fees for services that are
ancillary to investment management services, including commissions
earned on sales or distribution of mutual funds to clients. These fees are
recorded as revenue at the time the service is rendered or, in the case of
certain distribution fees based on the underlying fund’s asset value and/or
investor redemption, recorded over time as the investor remains in the fund
or upon investor redemption.

(b) The Firm receives administrative fees predominantly from custody,

securities lending, fund services and securities clearance fees. These fees
are recorded as revenue over the period in which the related service is
provided.

(c) The Firm acts as a broker, facilitating its clients’ purchase and sale of
securities and other financial instruments. It collects and recognizes
brokerage commissions as revenue upon occurrence of the client
transaction. The Firm reports certain costs paid to third-party clearing
houses and exchanges net against commission revenue.

Asset management, administration and commissions are
earned primarily by AWM, CIB, CCB, and CB. See Note 31 for
segment results.

352

9,755

2,015

2,304

1,435

3,739

Mortgage fees and related income
This revenue category primarily reflects CCB’s Home
Lending production and servicing revenue, including fees
and income derived from mortgages originated with the
intent to sell; mortgage sales and servicing including losses
related to the repurchase of previously sold loans; the
impact of risk-management activities associated with the
mortgage 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 as
changes in fair value for mortgage loans originated with the
intent 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 discussion
of MSRs, see Note 15. Net interest income from mortgage
loans is recorded in interest income.

Card income
This revenue category includes interchange income from
credit and debit cards and fees earned from processing card
transactions for merchants, both of which are recognized
when purchases are made by a cardholder. Card income
also includes annual and other lending fees and costs, which
are deferred and recognized on a straight-line basis over a
12-month period.

Certain Chase credit card products offer the cardholder the
ability to earn points based on account activity, which the
cardholder can choose to redeem for cash and non-cash
rewards. The cost to the Firm related to these proprietary
rewards programs varies based on multiple factors
including the terms and conditions of the rewards
programs, cardholder activity, cardholder reward
redemption rates and cardholder reward selections. The
Firm maintains a liability for its obligations under its
rewards programs and reports the current-period cost as a
reduction of card income.

Credit card revenue sharing agreements
The Firm has contractual agreements with numerous co-
brand partners that grant the Firm exclusive rights to issue
co-branded credit card products and market them to the
customers of such partners. These partners endorse the co-
brand credit card programs and provide their customer or
member lists to the Firm. The partners may also conduct
marketing activities and provide rewards redeemable under
their own loyalty programs that the Firm will grant to co-
brand credit cardholders based on account activity. The
terms of these agreements generally range from five to ten
years.

JPMorgan Chase & Co./2017 Annual Report

193

Notes to consolidated financial statements

The Firm typically makes payments to the co-brand credit
card partners based on the cost of partners' marketing
activities and loyalty program rewards provided to credit
cardholders, new account originations and sales volumes.
Payments to partners based on marketing efforts
undertaken by the partners are expensed by the Firm as
incurred and reported as noninterest expense. Payments for
partner rewards are reported as a reduction of card income
when incurred. Payments to partners based on new credit
card account originations are accounted for as direct loan
origination costs and are deferred and recognized as a
reduction of card income on a straight-line basis over a 12-
month period. Payments to partners based on sales
volumes are reported as a reduction of card income when
the related interchange income is earned.

Card income is earned primarily by CCB and CB. See Note
31 for segment results.

Other income
Other income on the Firm’s Consolidated statements of
income included the following:

Year ended December 31, (in millions)

2017

2016

2015

Operating lease income

$ 3,613

$ 2,724

$ 2,081

Operating lease income is recognized on a straight–line
basis over the lease term.

Noninterest expense
Other expense
Other expense on the Firm’s Consolidated statements of
income included the following:

Year ended December 31,
(in millions)

2017

2016

2015

Legal expense/(benefit)

(35) $

(317) $

2,969

FDIC-related expense

1,492

1,296

1,227

194

JPMorgan Chase & Co./2017 Annual Report

Note 7 – Interest income and Interest expense
Interest income and interest expense are recorded in the
Consolidated 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)

Interest Income

Loans

Taxable securities

Non-taxable securities(a)

Total securities

Trading assets

Federal funds sold and securities

purchased under resale
agreements

Securities borrowed(b)

Deposits with banks

All other interest-earning assets(c)

2017

2016

2015

$ 41,008 $ 36,634 $ 33,134

5,535

1,847

7,382

7,610

2,327

(37)

4,219

1,863

5,538

1,766

7,304

7,292

2,265

(332)

1,863

875

6,550

1,706

8,256

6,621

1,592

(532)

1,250

652

Total interest income

$ 64,372 $ 55,901 $ 50,973

Interest expense

Interest bearing deposits

2,857 $

1,356 $

1,252

Federal funds purchased and

securities loaned or sold under
repurchase agreements

Short-term borrowings(d)

Trading liabilities - debt and all

other interest-bearing liabilities(e)

Long-term debt

Beneficial interest issued by

consolidated VIEs

1,611

481

2,070

6,753

1,089

203

1,102

5,564

609

175

557

4,435

503

504

435

Total interest expense

$ 14,275 $

9,818 $

7,463

Net interest income

$ 50,097 $ 46,083 $ 43,510

Provision for credit losses

5,290

5,361

3,827

Net interest income after

provision for credit losses

$ 44,807 $ 40,722 $ 39,683

(a) Represents securities that are tax-exempt for U.S. federal income tax

purposes.

(b) Negative interest income is related to client-driven demand for certain

securities combined with the impact of low interest rates. This is matched
book activity and the negative interest expense on the corresponding
securities loaned is recognized in interest expense.

accrued interest and accounts receivable, and all other interest-earning
assets included in other assets.

(d) Includes commercial paper.
(e) Other interest-bearing liabilities include brokerage customer payables.

Interest income and interest expense includes the current-
period 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, are
reported in principal transactions revenue. For financial
instruments that are not measured at fair value, the related
interest is included within interest income or interest
expense, as applicable. For further information on

accounting for interest income and interest expense related
to loans, securities, securities financing (i.e. securities
purchased or sold under resale or repurchase agreements;
securities borrowed; and securities loaned) and long-term
debt, see Notes 12, 10, 11 and 19, respectively.

Note 8 – Pension and other postretirement
employee benefit plans
The Firm has various defined benefit pension plans and
OPEB plans that provide benefits to its employees. The Firm
has a qualified noncontributory U.S. defined benefit pension
plan that provides benefits to substantially all U.S.
employees. The Firm also has defined benefit pension plans
that are offered in certain non-U.S. locations based on
factors such as eligible compensation, age and/or years of
service. It is the Firm’s policy to fund the pension plans in
amounts sufficient to meet the requirements under
applicable laws. The Firm does not anticipate at this time
any contribution to the U.S. defined benefit pension plan in
2018. The 2018 contributions to the non-U.S. defined
benefit pension plans are expected to be $46 million of
which $30 million are contractually required.

The Firm also has a number of nonqualified
noncontributory defined benefit pension plans that are
unfunded. These plans provide supplemental defined
pension benefits to certain employees.

The Firm currently provides two qualified defined
contribution plans in the U.S. and maintains other similar
arrangements in certain non-U.S. locations.

The Firm offers postretirement medical and life insurance
benefits to certain U.S. retirees and postretirement medical
benefits to qualifying U.S. and U.K. employees.

The Firm defrays the cost of its U.S. OPEB obligation
through corporate-owned life insurance (“COLI”) 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 to
reimburse the Firm for its net postretirement benefit claim
payments and related administrative expense. The Firm has
generally funded its postretirement benefit obligations
through contributions to the relevant trust on a pay-as-you
go basis. On December 21, 2017, the Firm contributed
$600 million of cash to the trust as a prefunding of a
portion of its postretirement benefit obligations. The U.K.
OPEB plan is unfunded.

Pension and OPEB accounting generally requires that the
difference between plan assets at fair value and the benefit
obligation be measured and recorded on the balance sheet.
Plans that are overfunded (excess of plan assets over
benefit obligation) are recorded in other assets and plans
that are underfunded (excess benefit obligation over plan
assets) are recorded within other liabilities. Gains or losses
resulting from changes in the benefit obligation and the
value of plan assets are recorded in other comprehensive
income (“OCI”) and recognized as part of the net periodic

JPMorgan Chase & Co./2017 Annual Report

195

Notes to consolidated financial statements

benefit cost over subsequent periods as discussed in the
Gains and losses section of this Note. Additionally, service
cost, interest cost, and investment returns that would

otherwise be classified separately are aggregated and
reported net within compensation expense.

The following table presents the changes in benefit obligations, plan assets, the net funded status, and the pretax pension and
OPEB amounts recorded in AOCI on the Consolidated balance sheets for the Firm’s defined benefit pension and OPEB plans, and
the weighted-average actuarial annualized assumptions for the projected and accumulated postretirement benefit obligations.

As of or for the year ended December 31,

(in millions)

Change in benefit obligation

Benefit obligation, beginning of year

Benefits earned during the year

Interest cost on benefit obligations

Employee contributions

Net gain/(loss)

Benefits paid

Plan settlements

Expected Medicare Part D subsidy receipts

Foreign exchange impact and other

Benefit obligation, end of year(a)

Change in plan assets

Fair value of plan assets, beginning of year

Actual return on plan assets

Firm contributions

Employee contributions

Benefits paid

Plan settlements

Foreign exchange impact and other

Fair value of plan assets, end of year (a)(b)(c)

Net funded status (d)

Accumulated benefit obligation, end of year

Pretax pension and OPEB amounts recorded in AOCI

Net gain/(loss)

Prior service credit/(loss)

Accumulated other comprehensive income/(loss), pretax, end of year

Weighted-average actuarial assumptions used to determine benefit obligations

Discount Rate (e)

Rate of compensation increase (e)

Health care cost trend rate:

Assumed for next year

Ultimate

Year when rate will reach ultimate

Defined benefit
pension plans

OPEB plans(f)

2017

2016

2017

2016

(15,594)

(15,259)

(708)

(744)

(330)

(598)

(7)

(721)

841

(321)

(332)

(629)

(7)

(743)

851

504

—

(28)

(16)

(4)

—

(1)

(3)

—

(31)

(19)

—

(684)

(708)

1,956

1,855

(16,700)

(15,594)

17,703

17,636

2,356

1,375

(841)

(30)

330

(851)

(21)

(529)

19,603

2,903

(16,530)

(2,800)

(2,794)

17,703

2,109

(15,421)

(3,667)

(3,625)

233

602

—

(34)

—

2,757

2,073

271

—

271

0.60 - 3.70% 0.60 - 4.30%

2.25 – 3.00

3.70%

5.00

2018

131

—

(32)

—

1,956

1,248

138

—

138

4.20%

5.00

2017

(a) At December 31, 2017 and 2016, included non-U.S. benefit obligations of $(3.8) billion and $(3.4) billion, and plan assets of $3.9 billion and $3.4 billion, respectively,

predominantly in the U.K.

(b) At December 31, 2017 and 2016, approximately $302 million and $390 million, respectively, of U.S. defined benefit pension plan assets included participation rights under

participating annuity contracts.

(c) At December 31, 2017 and 2016, defined benefit pension plan amounts that were not measured at fair value included $377 million and $130 million, respectively, of accrued

receivables, and $587 million and $224 million, respectively, of accrued liabilities, for U.S. plans.

(d) Represents plans with an aggregate overfunded balance of $5.6 billion and $4.0 billion at December 31, 2017 and 2016, respectively, and plans with an aggregate

underfunded balance of $612 million and $639 million at December 31, 2017 and 2016, respectively.

(e) For the U.S. defined benefit pension plans, the discount rate assumption is 3.70% and 4.30%, and the rate of compensation increase is 2.30% and 2.30%, for 2017 and 2016

respectively.
Includes an unfunded postretirement benefit obligation of $32 million and $35 million at December 31, 2017 and 2016, respectively, for the U.K. plan.

(f)

196

JPMorgan Chase & Co./2017 Annual Report

Gains and losses
For the Firm’s defined benefit pension plans, fair value is
used 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 amortized
over the average future service period of defined benefit
pension plan participants, which for the U.S. defined benefit
pension plan is currently eight years and for the non-U.S.
defined benefit pension plans is the period appropriate for
the affected plan. In addition, prior service costs are
amortized over the average remaining service period of
active employees expected to receive benefits under the
plan when the prior service cost is 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 that
recognizes changes in fair value over a five-year period is
used to determine the expected return on plan assets. This
value is referred to as the market-related value of assets.
Amortization of net gains and losses, adjusted for gains and
losses not yet recognized, 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 accumulated
postretirement benefit obligation or the market-related
value of assets. Any excess net gain or loss is amortized
over the average expected lifetime of retired participants,
which is currently eleven years; however, prior service costs
resulting from plan changes are amortized over the average
years of service remaining to full eligibility age, which is
currently two years.

The following table presents the components of net periodic benefit costs reported in the Consolidated statements of income
for the Firm’s defined benefit pension, defined contribution and OPEB plans, and in other comprehensive income for the
defined benefit pension and OPEB plans, and the weighted-average annualized actuarial assumptions for the net periodic
benefit cost.

Pension plans

OPEB plans

2017

2016

2015

2017

2016

2015

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 in compensation expense

330

598

(968)

250

(36)

—

176

200

814

1,014

Changes in plan assets and benefit obligations recognized in other comprehensive income

Net (gain)/loss arising during the year

(669)

Amortization of net loss

Amortization of prior service (cost)/credit

Settlement loss

Foreign exchange impact and other

(250)

(2)

Total recognized in other comprehensive income

Total recognized in net periodic benefit cost and other

comprehensive income

(831)

(655)

Weighted-average assumptions used to determine net periodic benefit costs

332

629

377

610

(1,030)

(1,079)

257

(36)

—

156

181

789

970

395

(257)

(4)

(77)

249

282

(36)

—

155

179

769

948

(50)

(282)

—

(33)

(329)

(174)

—

(105)

(106)

— $

(97)

—

(69) $

(74) $

(69) $

(74) $

(69) $

(74) $

—

(74)

(133) $

(29) $

—

(133) $

(29) $

(202) $

(103) $

(53)

Discount rate(b)

0.60 - 4.30 % 0.90 – 4.50% 1.00 – 4.00%

4.20%

4.40%

4.10%

Expected long-term rate of return on plan assets (b)

0.70 - 6.00

0.80 – 6.50

0.90 – 6.50

Rate of compensation increase (b)

Health care cost trend rate

Assumed for next year

Ultimate

Year when rate will reach ultimate

2.25 - 3.00

2.25 – 4.30

2.75 – 4.20

5.00

2017

5.75

5.50

5.00

2017

6.00

5.00

2017

(a) Includes various defined benefit pension plans which are individually immaterial.
(b) The rate assumptions for the U.S. defined benefit pension plans are at the upper end of the range, except for the rate of compensation increase, which is 2.30% for 2017 and

3.50% for 2016 and 2015, respectively.

JPMorgan Chase & Co./2017 Annual Report

197

Investment strategy and asset allocation
The assets of the Firm’s defined benefit pension plans are
held in various trusts and are invested in well-diversified
portfolios of equity and fixed income securities, cash and
cash equivalents, and alternative investments (e.g., hedge
funds, private equity, real estate and real assets). The trust-
owned assets of the Firm's U.S. OPEB plan are invested in
cash and cash equivalents. COLI policies used to defray the
cost of the Firm's U.S. OPEB plan are invested in separate
accounts of an insurance company and are allocated to
investments intended to replicate equity and fixed income
indices.

The investment policies for the assets of the Firm’s defined
benefit pension plans are to optimize the risk-return
relationship as appropriate to the needs and goals of each
plan using a global portfolio of various asset classes
diversified by market segment, economic sector, and issuer.
Assets are managed by a combination of internal and
external investment managers. The Firm regularly reviews
the asset allocations and asset managers, as well as other
factors that impact the portfolios, which are rebalanced
when deemed necessary.

Investments held by the plans include financial instruments
which are exposed to various risks such as interest rate,
market and credit risks. Exposure to a concentration of
credit risk is mitigated by the broad diversification of both
U.S. and non-U.S. investment instruments. Additionally, the
investments in each of the common/collective trust funds
and/or registered investment companies are further
diversified into various financial instruments. As of
December 31, 2017, assets held by the Firm's defined
benefit pension and OPEB plans do not include JPMorgan
Chase common stock, except through indirect exposures
through investments in third-party stock-index funds. The
plans hold investments in funds that are sponsored or
managed by affiliates of JPMorgan Chase in the amount of
$6.0 billion and $4.6 billion, as of December 31, 2017 and
2016, respectively.

Notes to consolidated financial statements

The estimated pretax amounts that will be amortized from
AOCI into net periodic benefit cost in 2018 are as follows.

(in millions)

Net loss/(gain)

Prior service cost/(credit)

Total

Defined benefit
pension plans

106

(25)

Plan assumptions
JPMorgan Chase’s expected long-term rate of return for
defined benefit pension and OPEB plan assets is a blended
weighted average, by asset allocation of the projected long-
term returns for the various asset classes, taking into
consideration local market conditions and the specific
allocation of plan assets. Returns on asset classes are
developed using a forward-looking approach and are not
strictly based on historical returns. Consideration is also
given to current market conditions and the short-term
portfolio mix of each plan.

The discount rate used in determining the benefit obligation
under the U.S. defined benefit pension and OPEB plans was
provided by the Firm’s actuaries. This rate was selected by
reference to the yields on portfolios of bonds with maturity
dates and coupons that closely match each of the plan’s
projected cash flows. The discount rate for the U.K. defined
benefit pension plan represents a rate of appropriate
duration from the analysis of yield curves provided by the
Firm’s actuaries.

At December 31, 2017, the Firm decreased the discount
rates 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 by
approximately $66 million in 2018. The 2018 expected
long-term rate of return on U.S. defined benefit pension
plan assets and U.S. OPEB plan assets are 5.50% and
4.00%, respectively. As of December 31, 2017, the interest
crediting rate assumption remained at 5.00%.

As of December 31, 2017, the effect of a one-percentage-
point increase or decrease in the assumed health care cost
trend rate is not material to the accumulated
postretirement benefit obligation or total service and
interest cost.

The following table represents the effect of a 25-basis point
decline in the three listed rates below on estimated 2018
defined benefit pension and OPEB plan expense, as well as
the effect on the postretirement benefit obligations.

(in millions)

Expected long-term rate of return

Discount rate

Defined benefit
pension and OPEB
plan expense

Benefit
obligation

583

Interest crediting rate for U.S. plans $

(41) $

(193)

198

JPMorgan Chase & Co./2017 Annual Report

The following table presents the weighted-average asset allocation of the fair values of total plan assets at December 31 for
the years indicated, as well as the respective approved asset allocation ranges by asset class.

December 31,

Asset class

Debt securities(a)

Equity securities

Real estate

Alternatives (b)

Total

Defined benefit pension plans

OPEB plan(c)

Asset

% of plan assets

Asset

% of plan assets

Allocation

2017

2016

Allocation

2017(d)

2016

0-80%

42%

35%

30-70%

61%

50%

0-85

0-10

0-35

30-70

—

100%

(a) Debt securities primarily include cash, corporate debt, U.S. federal, state, local and non-U.S. government, and mortgage-backed securities.
(b) Alternatives primarily include limited partnerships.
(c) Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded.
(d) Change in percentage of plan assets due to the contribution to the U.S. OPEB plan.

Fair value measurement of the plans’ assets and liabilities
For information on fair value measurements, including descriptions of level 1, 2, and 3 of the fair value hierarchy and the
valuation methods employed by the Firm, see Note 2.

Pension and OPEB plan assets and liabilities measured at fair value

December 31,
(in millions)

Level 1

Level 2

Level 3

Total fair
value

Level 1

Level 2

Level 3

Total fair
value

Cash and cash equivalents

173

— $

174

196

— $

198

Defined benefit pension plans

2017

2016

Equity securities

Mutual funds

Common/collective trust funds(a)

Limited partnerships(b)

Corporate debt securities(c)

U.S. federal, state, local and non-U.S.

government debt securities

Mortgage-backed securities

Derivative receivables

Other(d)

6,407

194

325

778

—

1,096

—

2,353

—

2,644

784

100

203

6,603

6,158

166

—

325

778

2,648

—

384

—

1,880

1,139

194

203

—

302

2,715

1,497

—

2,506

804

243

—

6,326

—

384

2,510

1,943

117

243

390

1,940

Total assets measured at fair value(e)

$ 11,284

3,986

310

$ 15,580

9,478

3,849

396

$ 13,723

Derivative payables

— $

(141) $

— $

(141) $

— $

(208) $

— $

(208)

Total liabilities measured at fair value(e) $

— $

(141) $

— $

(141) $

— $

(208) $

— $

(208)

(a) At December 31, 2017 and 2016, common/collective trust funds primarily included a mix of short-term investment funds, domestic and international equity

investments (including index) and real estate funds.

(b) Unfunded commitments to purchase limited partnership investments for the plans were $605 million and $735 million for 2017 and 2016, respectively.
(c) Corporate debt securities include debt securities of U.S. and non-U.S. corporations.
(d) Other consists primarily of money market funds and participating and non-participating annuity contracts. Money market funds are primarily classified within
level 1 of the fair value hierarchy given they are valued using market observable prices. Participating and non-participating annuity contracts are classified
within level 3 of the fair value hierarchy due to a lack of market mechanisms for transferring each policy and surrender restrictions.

(e) At December 31, 2017 and 2016, excludes $4.4 billion and $4.2 billion of certain investments that are measured at fair value using the net asset value per
share (or its equivalent) as a practical expedient, which are not required to be classified in the fair value hierarchy, $377 million and $130 million of defined
benefit pension plan receivables for investments sold and dividends and interest receivables, $561 million and $203 million of defined benefit pension plan
payables for investments purchased, and $26 million and $21 million of other liabilities, respectively.

The assets of the U.S. OPEB plan consisted of $600 million and $0 million in cash and cash equivalents classified in level
1 of the valuation hierarchy and $2.2 billion and $2.0 billion of COLI policies classified in level 3 of the valuation
hierarchy at December 31, 2017 and 2016, respectively.

JPMorgan Chase & Co./2017 Annual Report

199

Notes to consolidated financial statements

Changes in level 3 fair value measurements using significant unobservable inputs

(in millions)

Year ended December 31, 2017
U.S. defined benefit pension plan
Annuity contracts and other (a)

U.S. OPEB plan
COLI policies

Year ended December 31, 2016
U.S. defined benefit pension plan
Annuity contracts and other (a)

U.S. OPEB plan
COLI policies

Fair value,
Beginning
balance

Actual return on plan assets

Realized
gains/(losses)

Unrealized
gains/(losses)

Purchases, sales
and settlements,
net

Transfers in
and/or out
of level 3

Fair value,
Ending
balance

396

1,957

539

1,855

— $

200

(87) $

— $

310

— $

2,157

(157) $

— $

396

102

— $

1,957

(a) Substantially all are participating and non-participating annuity contracts.

Estimated future benefit payments
The following table presents benefit payments expected to
be paid, which include the effect of expected future service,
for the years indicated. The OPEB medical and life insurance
payments are net of expected retiree contributions.

Year ended December 31,
(in millions)

Defined
benefit
pension
plans

OPEB
before
Medicare
Part D
subsidy

Medicare
Part D
subsidy

2018

2019

2020

2021

2022

926

922

927

944

960

Years 2023–2027

4,925

235

—

200

JPMorgan Chase & Co./2017 Annual Report

The Firm separately recognizes compensation expense for
each 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 date
until 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 the
estimated 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 each
tranche granted to employees who will become full-career
eligible during the vesting period, compensation expense is
recognized on a straight-line basis from the grant date until
the earlier of the employee’s full-career eligibility date or
the vesting date of the respective tranche.

The Firm’s policy for issuing shares upon settlement of
employee share-based incentive awards is to issue either
new shares of common stock or treasury shares. During
2017, 2016 and 2015, the Firm settled all of its employee
share-based awards by issuing treasury shares.

In January 2008, the Firm awarded to its Chairman and
Chief Executive Officer up to 2 million SARs. The terms of
this award are distinct from, and more restrictive than,
other equity grants regularly awarded by the Firm. On July
15, 2014, the Compensation & Management Development
Committee and Board of Directors determined that all
requirements for the vesting of the 2 million SAR awards
had been met and thus, the awards became exercisable. The
SARs, which had an expiration date of January 2018, were
exercised by Mr. Dimon in October 2017 at the exercise
price of $39.83 per share (the price of JPMorgan Chase
common stock on the date of grant).

Note 9 – Employee share-based incentives
Employee share-based awards
In 2017, 2016 and 2015, JPMorgan Chase granted long-
term share-based awards to certain employees under its
LTIP, as amended and restated effective May 19, 2015.
Under the terms of the LTIP, as of December 31, 2017, 67
million shares of common stock were available for issuance
through May 2019. The LTIP is the only active plan under
which the Firm is currently granting share-based incentive
awards. In the following discussion, the LTIP, plus prior Firm
plans and plans assumed as the result of acquisitions, are
referred to collectively as the “LTI Plans,” and such plans
constitute the Firm’s share-based incentive plans.

RSUs are awarded at no cost to the recipient upon their
grant. Generally, RSUs are granted annually and vest at a
rate of 50% after two years and 50% after three years and
are converted into shares of common stock as of the vesting
date. In addition, RSUs typically include full-career eligibility
provisions, which allow employees to continue to vest upon
voluntary termination based on age or service-related
requirements, subject to post-employment and other
restrictions. All RSU awards are subject to forfeiture until
vested and contain clawback provisions that may result in
cancellation under certain specified circumstances.
Generally, RSUs entitle the recipient to receive cash
payments equivalent to any dividends paid on the
underlying common stock during the period the RSUs are
outstanding and, as such, are considered participating
securities as discussed in Note 22.

In January 2017 and 2016, the Firm’s Board of Directors
approved the grant of performance share units (“PSUs”) to
members of the Firm’s Operating Committee under the
variable compensation program for performance years
2016 and 2015. PSUs are subject to the Firm’s achievement
of specified performance criteria over a three-year period.
The number of awards that vest can range from zero to
150% of the grant amount. The awards vest and are
converted into shares of common stock in the quarter after
the end of the performance period, which is generally three
years. In addition, dividends are notionally reinvested in the
Firm’s common stock and will be delivered only in respect of
any earned shares.

Once the PSUs have vested, the shares of common stock
that are delivered, after applicable tax withholding, must be
held for an additional two-year period, typically for a total
combined vesting and holding period of five years from the
grant date.

Under the LTI Plans, stock options and stock appreciation
rights (“SARs”) have generally been granted with an
exercise price equal to the fair value of JPMorgan Chase’s
common stock on the grant date. The Firm periodically
grants employee stock options to individual employees.
There were no material grants of stock options or SARs
in 2017, 2016 and 2015. SARs generally expire ten years
after the grant date.

JPMorgan Chase & Co./2017 Annual Report

201

Notes to consolidated financial statements

RSUs, PSUs, employee stock options and SARs activity
Generally, compensation expense for RSUs and PSUs is measured based on the number of units granted multiplied by the stock
price at the grant date, and for employee stock options and SARs, is measured at the grant date using the Black-Scholes
valuation model. Compensation expense for these awards is recognized in net income as described previously. The following
table summarizes JPMorgan Chase’s RSUs, PSUs, employee stock options and SARs activity for 2017.

Year ended December 31, 2017

(in thousands, except weighted-average data, and

where otherwise stated)

Outstanding, January 1

Granted

Exercised or vested

Forfeited

Canceled

Outstanding, December 31

Exercisable, December 31

RSUs/PSUs

Options/SARs

Number of
units

Weighted-
average grant
date fair value

Number of
awards

Weighted-
average
exercise
price

Weighted-average
remaining
contractual life
(in years)

Aggregate
intrinsic
value

81,707 $

26,017

(32,961)

(2,030)

72,733 $

57.15

84.30

57.80

63.34

66.36

30,267

109

(12,816)

(54)

(13)

17,493

15,828

40.65

90.94

40.50

55.82

405.47

40.76

40.00

3.4 $ 1,169,470

3.3

1,070,212

The total fair value of RSUs that vested during the years ended December 31, 2017, 2016 and 2015, was $2.9 billion, $2.2
billion and $2.8 billion, respectively. The total intrinsic value of options exercised during the years ended December 31, 2017,
2016 and 2015, was $651 million, $338 million and $335 million, respectively.

Compensation expense
The Firm recognized the following noncash compensation
expense related to its various employee share-based
incentive plans in its Consolidated statements of income.

Year ended December 31, (in millions)

2017

2016

2015

Cost of prior grants of RSUs, PSUs and
SARs that are amortized over their
applicable vesting periods

Accrual of estimated costs of share-

based awards to be granted in future
periods including those to full-career
eligible employees

Total noncash compensation expense
related to employee share-based
incentive plans

$ 1,125

$ 1,046

$ 1,109

945

894

878

$ 2,070

$ 1,940

$ 1,987

At December 31, 2017, approximately $704 million
(pretax) of compensation expense related to unvested
awards had not yet been charged to net income. That cost is
expected to be amortized into compensation expense over a
weighted-average period of 1 year. The Firm does not
capitalize any compensation expense related to share-based
compensation awards to employees.

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 the
Consolidated statements of income. In prior years these tax
benefits were recorded as increases to additional paid-in
capital. Income tax benefits related to share-based
incentive arrangements recognized in the Firm’s
Consolidated statements of income for the years ended
December 31, 2017, 2016 and 2015, were $1.0 billion,
$916 million and $746 million, respectively.

The following table sets forth the cash received from the
exercise of stock options under all share-based incentive
arrangements, and the actual income tax benefit related to
tax deductions from the exercise of the stock options.

Year ended December 31, (in millions)

2017

2016

2015

Cash received for options exercised

Tax benefit

190

202

JPMorgan Chase & Co./2017 Annual Report

Note 10 – Securities
Securities are classified as trading, AFS or HTM. Securities
classified as trading assets are discussed in Note 2.
Predominantly all of the Firm’s AFS and HTM securities are
held by Treasury and CIO in connection with its asset-
liability management activities. At December 31, 2017, the
investment securities portfolio consisted of debt securities
with an average credit rating of AA+ (based upon external
ratings where available, and where not available, based
primarily upon internal ratings which correspond to ratings
as defined by S&P and Moody’s). AFS securities are carried
at 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 to
determine realized gains and losses on AFS securities,
which are included in securities gains/(losses) on the
Consolidated statements of income. HTM debt securities,
which management has the intent and ability to hold until
maturity, are carried at amortized cost on the Consolidated
balance sheets. For both AFS and HTM debt securities,
purchase discounts or premiums are generally amortized
into interest income over the contractual life of the security.

The amortized cost and estimated fair value of the investment securities portfolio were as follows for the dates indicated.

2017

2016

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses

Fair
value

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses

Fair
value

December 31, (in millions)

Available-for-sale debt securities

Mortgage-backed securities:

U.S. government agencies(a)

$ 69,879 $

736 $

335

$ 70,280

$ 63,367 $

1,112 $

474

$ 64,005

Residential:

U.S(b)

Non-U.S.

Commercial

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

8,193

2,882

4,932

85,886

22,510

30,490

26,900

2,657

20,928

8,764

185

122

1,141

266

1,881

—

426

101

Total available-for-sale debt securities

198,194

3,961

Available-for-sale equity securities

547

—

Total available-for-sale securities

198,741

3,961

Held-to-maturity debt securities

Mortgage-backed securities

U.S. government agencies(c)

Commercial

Total mortgage-backed securities

Obligations of U.S. states and municipalities

Total held-to-maturity debt securities

27,577

5,783

33,360

14,373

47,733

558

559

554

1,113

Total securities

$ 246,474 $

5,074 $

355

—

477

—

477

114

194

671

8,364

3,003

5,025

86,672

22,745

32,338

27,294

2,757

20,996

8,817

8,171

6,049

9,002

86,589

44,822

30,284

106

34,497

4,916

27,352

6,950

100

158

122

1,492

—

836

529

796

184

—

8,243

6,200

9,104

87,552

44,101

31,592

106

35,288

4,958

27,401

6,967

201,678

235,516

4,096

1,647

237,965

547

914

—

926

202,225

236,430

4,108

1,647

238,891

28,095

5,710

33,805

14,847

48,652

29,910

5,783

35,693

14,475

50,168

638

—

638

374

1,012

129

166

125

291

30,511

5,654

36,165

14,724

50,889

$ 250,877

$ 286,598 $

5,120 $ 1,938

$ 289,780

(a) Includes total U.S. government-sponsored enterprise obligations with a fair value of $45.8 billion for the years ended December 31, 2017 and 2016, which were

predominantly mortgage-related.

(b) Prior period amounts have been revised to conform with the current period presentation.
(c) Included total U.S. government-sponsored enterprise obligations with amortized cost of $22.0 billion and $25.6 billion at December 31, 2017 and 2016,

respectively, which were mortgage-related.

JPMorgan Chase & Co./2017 Annual Report

203

Notes to consolidated financial statements

Securities impairment
The following tables present the fair value and gross unrealized losses for the investment securities portfolio by aging category
at December 31, 2017 and 2016.

December 31, 2017 (in millions)

Fair value

Gross unrealized
losses

Fair value

Gross unrealized
losses

Total fair
value

Total gross
unrealized losses

Less than 12 months

12 months or more

Securities with gross unrealized losses

Available-for-sale debt securities

Mortgage-backed securities:

U.S. government agencies

36,037 $

139

7,711 $

196 $

43,748 $

Residential:

U.S

Non-U.S.

Commercial

Total mortgage-backed securities

U.S. Treasury and government agencies

Obligations of U.S. states and municipalities

Certificates of deposit

Non-U.S. government debt securities

Corporate debt securities

Asset-backed securities:

Collateralized loan obligations

Other

Total available-for-sale debt securities

Available-for-sale equity securities

Held-to-maturity securities

Mortgage-backed securities

U.S. government securities

Commercial

Total mortgage-backed securities

Obligations of U.S. states and municipalities

Total held-to-maturity securities

1,112

—

528

37,677

1,834

949

—

6,500

—

3,521

50,481

—

4,070

3,706

7,776

584

8,360

—

148

—

201

—

596

266

335

8,908

373

1,652

—

811

276

720

12,792

—

205

1,882

2,087

2,131

4,218

1,708

266

863

207

46,585

—

276

—

2,207

2,601

—

7,311

276

4,241

63,273

—

4,275

5,588

9,863

2,715

106

12,578

Total securities with gross unrealized losses $

58,841 $

289

17,010 $

382 $

75,851 $

335

355

—

477

—

114

194

671

204

JPMorgan Chase & Co./2017 Annual Report

December 31, 2016 (in millions)

Fair value

Gross unrealized
losses

Fair value

Gross unrealized
losses

Total fair
value

Total gross
unrealized losses

Less than 12 months

12 months or more

Securities with gross unrealized losses

Available-for-sale debt securities

Mortgage-backed securities:

U.S. government agencies

29,856 $

463

506 $

11 $

30,362 $

Residential:

U.S.(a)

Non-U.S.

Commercial

Total mortgage-backed securities

U.S. Treasury and government agencies

Obligations of U.S. states and municipalities

Certificates of deposit

Non-U.S. government debt securities

Corporate debt securities

Asset-backed securities:

Collateralized loan obligations

Other

Total available-for-sale 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

1,373

—

2,328

33,557

23,543

7,215

—

4,436

797

766

739

71,053

—

3,129

5,163

8,292

4,702

12,994

—

486

796

181

—

1,509

—

114

151

125

276

1,073

886

1,078

3,543

—

421

829

5,263

1,992

12,103

—

441

—

441

—

138

—

2,446

886

3,406

37,100

23,543

7,270

—

4,857

1,626

6,029

2,731

83,156

—

3,129

5,604

8,733

4,702

13,435

474

529

796

184

—

1,647

—

129

166

125

291

Total securities with gross unrealized losses $

84,047 $

1,785

12,544 $

153 $

96,591 $

1,938

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

Gross unrealized losses
The Firm has recognized unrealized losses on securities that
it intends to sell as OTTI. The Firm does not intend to sell
any of the remaining securities with an unrealized loss in
AOCI as of December 31, 2017, and it is not likely that the
Firm will be required to sell these securities before recovery
of their amortized cost basis. Except for the securities for
which credit losses have been recognized in income, the
Firm believes that the securities with an unrealized loss in
AOCI are not other-than-temporarily impaired as of
December 31, 2017.

Other-than-temporary impairment
AFS debt and equity securities and HTM debt securities in
unrealized loss positions are analyzed as part of the Firm’s
ongoing assessment of OTTI. For most types of debt
securities, the Firm considers a decline in fair value to be
other-than-temporary when the Firm does not expect to
recover the entire amortized cost basis of the security. For
beneficial interests in securitizations that are rated below
“AA” at 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 other-

than-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 a
security; payment structure of the security; changes to the
rating of the security by a rating agency; the volatility of the
fair value changes; and the Firm’s intent and ability to hold
the security until recovery.

For AFS debt securities, the Firm recognizes OTTI losses in
earnings 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 amortized
cost basis. In these circumstances the impairment loss is
equal to the full difference between the amortized cost
basis 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

JPMorgan Chase & Co./2017 Annual Report

205

Notes to consolidated financial statements

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 in
income. Amounts relating to factors other than credit losses
are recorded in OCI.

The Firm’s cash flow evaluations take into account the
factors 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 estimates
cash flows considering underlying loan-level data and
structural features of the securitization, such as
subordination, excess spread, overcollateralization or other
forms 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 stress
scenarios.

For equity securities, OTTI losses are recognized in earnings
if the Firm intends to sell the security. In other cases the
Firm considers the relevant factors noted above, as well as
the Firm’s intent and ability to retain its investment for a
period 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 cost
basis. Any impairment loss on an equity security is equal to
the full difference between the cost basis and the fair value
of 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)

2017

2016

2015

Realized gains

$ 1,013

401

351

Realized losses
OTTI losses(a)
Net securities gains/(losses)

(1,072)

(7)

(66)

OTTI losses

Credit losses recognized in income

Securities the Firm intends to sell(a)

—

(7)

(232)

(28)

141

(1)

(27)

(127)

(22)

202

(1)

(21)

Total OTTI losses recognized in

income

(7)

(28)

(22)

(a) Excludes realized losses on securities sold of $6 million, $24 million and $5

million for the years ended December 31, 2017, 2016 and 2015,
respectively that had been previously reported as an OTTI loss due to the
intention to sell the securities.

Changes in the credit loss component of credit-impaired
debt securities
The cumulative credit loss component, including any
changes therein, of OTTI losses that have been recognized in
income related to AFS debt securities was not material as of
and during the years ended December 31, 2017, 2016 and
2015.

206

JPMorgan Chase & Co./2017 Annual Report

Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at December 31, 2017, of JPMorgan Chase’s
investment securities portfolio by contractual maturity.

By remaining maturity
December 31, 2017 (in millions)

Available-for-sale debt securities
Mortgage-backed securities(a)

Amortized cost
Fair value
Average yield(b)

U.S. Treasury and government agencies

Amortized cost
Fair value
Average yield(b)

Obligations of U.S. states and municipalities

Amortized cost
Fair value
Average yield(b)
Certificates of deposit
Amortized cost
Fair value
Average yield(b)

Non-U.S. government debt securities

Amortized cost
Fair value
Average yield(b)
Corporate debt securities

Amortized cost
Fair value
Average yield(b)
Asset-backed securities
Amortized cost
Fair value
Average yield(b)

Total available-for-sale debt securities

Amortized cost
Fair value
Average yield(b)

Available-for-sale equity securities

Amortized cost
Fair value
Average yield(b)

Total available-for-sale securities

Amortized cost
Fair value
Average yield(b)

Held-to-maturity debt securities
Mortgage-backed securities(a)

Amortized Cost
Fair value
Average yield(b)

Obligations of U.S. states and municipalities

Amortized cost
Fair value
Average yield(b)

Total held-to-maturity securities

Amortized cost
Fair value
Average yield(b)

Due in one
year or less

Due after one year
through five years

Due after five years
through 10 years

Due after
10 years(c)

Total

3
3
4.76%

60
60
1.72%

73
72
1.78%

59
59
0.50%

5,020
5,022

3.09%

150
151
3.07%

—
—
—%

5,365
5,367

3.03%

—
—
—%

5,365
5,367

3.03%

—
—
—%

698
708
2.10%

—
—
—%

750
765
3.28%

—
—
—%

13,665
13,845

1.55%

1,159
1,197

3.60%

3,372
3,353

2.14%

19,644
19,868

1.86%

—
—
—%

19,644
19,868

1.86%

—
—
—%

66
65
4.74%

66
65
4.75%

6,134
6,294

3.10%

17,437
17,542

1.96%

1,265
1,324

5.40%

—
—
—%

8,215
8,427

1.19%

1,203
1,255

3.58%

13,046
13,080

2.58%

47,300
47,922

2.28%

—
—
—%

47,300
47,922

2.28%

49
49
2.88%

2,019
2,067

4.30%

2,068
2,116

4.26%

79,051
79,667

3.35%

5,013
5,143

1.76%

28,402
30,177

5.50%

—
—
—%

145
154
3.22%

13,274
13,380

2.36%

125,885
128,521

3.66%

547
547
0.71%

126,432
129,068

3.65%

33,311
33,756

3.27%

12,288
12,715

4.72%

45,599
46,471

3.66%

85,886
86,672

3.32%

22,510
22,745

1.91%

30,490
32,338

5.43%

59
59
0.50%

26,900
27,294

1.73%

2,657
2,757

3.54%

29,692
29,813

2.43%

198,194
201,678

3.14%

547
547
0.71%

198,741
202,225

3.13%

33,360
33,805

3.27%

14,373
14,847

4.66%

47,733
48,652

3.69%

(a) As of December 31, 2017, mortgage-backed securities issued by Fannie Mae exceeded 10% of JPMorgan Chase’s total stockholders’ equity; the amortized cost and

fair value of such securities was $55.1 billion and $56.0 billion, respectively.

(b) Average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each security. The effective yield

considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging derivatives. Taxable-equivalent amounts are used

JPMorgan Chase & Co./2017 Annual Report

207

Notes to consolidated financial statements

(c)

where applicable and reflect the estimated impact of the enactment of the Tax Cuts and Jobs Act (“TCJA”). The effective yield excludes unscheduled principal prepayments; and
accordingly, actual maturities of securities may differ from their contractual or expected maturities as certain securities may be prepaid.
Includes securities with no stated maturity. Substantially all of the Firm’s U.S. residential MBS and collateralized mortgage obligations are due in 10 years or more, based on
contractual maturity. The estimated weighted-average life, which reflects anticipated future prepayments, is approximately six years for agency residential MBS, three years for
agency residential collateralized mortgage obligations and three years for nonagency residential collateralized mortgage obligations.

Note 11 – Securities financing activities
JPMorgan Chase enters into resale agreements, repurchase
agreements, 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 other
securities obligations.

Securities financing agreements are treated as
collateralized 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 and
securities loaned transactions are generally carried at the
amount of cash collateral advanced or received. Where
appropriate under applicable accounting guidance, resale
and repurchase agreements with the same counterparty are
reported on a net basis. For further discussion of the
offsetting 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 the
Consolidated statements of income.

The Firm has elected the fair value option for certain
securities financing agreements. For further information
regarding the fair value option, see Note 3. The securities
financing agreements for which the fair value option has
been elected are reported within securities purchased
under resale agreements, securities loaned or sold under
repurchase agreements, and securities borrowed on the
Consolidated balance sheets. Generally, for agreements
carried at fair value, current-period interest accruals are
recorded within interest income and interest expense, with
changes in fair value reported in principal transactions
revenue. However, for financial instruments containing
embedded derivatives that would be separately accounted
for in accordance with accounting guidance for hybrid
instruments, all changes in fair value, including any interest
elements, are reported in principal transactions revenue.

Securities financing transactions expose the Firm primarily
to credit and liquidity risk. To manage these risks, the Firm
monitors the value of the underlying securities
(predominantly high-quality securities collateral, including
government-issued debt and agency MBS) that it 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 when appropriate. 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 the
value 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 that
the value of underlying securities exceeds the value of the
initial 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 the
underlying securities and any collateral amounts exchanged
in the event of a counterparty default. It is also the Firm’s
policy to take possession, where possible, of the securities
underlying resale agreements and securities borrowed
transactions. For further information regarding assets
pledged and collateral received in securities financing
agreements, see Note 28.

As a result of the Firm’s credit risk mitigation practices with
respect 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 of
December 31, 2017 and 2016.

208

JPMorgan Chase & Co./2017 Annual Report

The table below summarizes the gross and net amounts of the Firm’s securities financing agreements, as of December 31,
2017, and 2016. When the Firm has obtained an appropriate legal opinion with respect to the master netting agreement with
a counterparty and where other relevant netting criteria under U.S. GAAP are met, the Firm nets, on the Consolidated balance
sheets, the balances outstanding under its securities financing agreements with the same counterparty. In addition, the Firm
exchanges securities and/or cash collateral with its counterparties; this collateral also reduces the economic exposure with 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 with the
counterparty. Where a legal opinion has not been either sought or obtained, the securities financing balances are presented
gross in the “Net amounts” below, and related collateral does not reduce the amounts presented.

December 31, (in millions)

Gross amounts

2017

Amounts netted
on the
Consolidated
balance sheets

Amounts
presented on the
Consolidated
balance sheets(b)

Amounts not
nettable on the
Consolidated
balance sheets(c)

Net amounts(d)

Assets

Securities purchased under resale agreements

Securities borrowed

Liabilities

Securities sold under repurchase agreements

Securities loaned and other(a)

448,608 $

(250,505) $

198,103 $

(188,502) $

113,926

(8,814)

105,112

(76,805)

9,601

28,307

398,218 $

(250,505) $

147,713 $

(129,178) $

18,535

27,228

(8,814)

18,414

(18,151)

263

December 31, (in millions)

Gross amounts

2016

Amounts netted
on the
Consolidated
balance sheets

Amounts
presented on the
Consolidated
balance sheets(b)

Amounts not
nettable on the
Consolidated
balance sheets(c)

Net amounts(d)

Assets

Securities purchased under resale agreements

Securities borrowed

Liabilities

Securities sold under repurchase agreements

Securities loaned and other(a)

480,735 $

(250,832) $

229,903 $

(222,413) $

96,409

—

96,409

(66,822)

7,490

29,587

402,465 $

(250,832) $

151,633 $

(133,300) $

18,333

22,451

—

22,451

(22,177)

274

(a) Includes securities-for-securities lending transactions of $9.2 billion and $9.1 billion at December 31, 2017 and 2016, respectively, accounted for at fair
value, where the Firm is acting as lender. These amounts are presented within accounts payable and other liabilities in the Consolidated balance sheets.

(b) Includes securities financing agreements accounted for at fair value. At December 31, 2017 and 2016, included securities purchased under resale
agreements of $14.7 billion and $21.5 billion, respectively, and securities sold under agreements to repurchase of $697 million and $687 million,
respectively. There were $3.0 billion of securities borrowed at December 31, 2017 and there were no securities borrowed at December 31, 2016. There
were no securities loaned accounted for at fair value in either period.

(c) In some cases, collateral exchanged with a counterparty exceeds the net asset or liability balance with that counterparty. In such cases, the amounts

reported in this column are limited to the related asset or liability with that counterparty.

(d) Includes securities financing agreements that provide collateral rights, but where an appropriate legal opinion with respect to the master netting

agreement has not been either sought or obtained. At December 31, 2017 and 2016, included $7.5 billion and $4.8 billion, respectively, of securities
purchased under resale agreements; $25.5 billion and $27.1 billion, respectively, of securities borrowed; $16.5 billion and $15.9 billion, respectively, of
securities sold under agreements to repurchase; and $29 million and $90 million, respectively, of securities loaned and other.

JPMorgan Chase & Co./2017 Annual Report

209

Notes to consolidated financial statements

The tables below present as of December 31, 2017 and 2016 the types of financial assets pledged in securities financing
agreements and the remaining contractual maturity of the securities financing agreements.

December 31, (in millions)

Mortgage-backed securities:

U.S. government agencies(a)

Residential - nonagency

Commercial - nonagency

U.S. Treasury and government agencies(a)

Obligations of U.S. states and municipalities

Non-U.S. government debt

Corporate debt securities

Asset-backed securities

Equity securities

Total

Gross liability balance

2017

2016

Securities sold
under repurchase
agreements

Securities loaned
and other(b)

Securities sold
under repurchase
agreements

Securities loaned
and other(b)

13,100 $

2,972

1,594

177,581

1,557

170,196

14,231

3,508

13,479

—

2,485

287

—

24,442

14,034 $

6,224

4,173

185,145

2,491

149,008

18,140

7,721

15,529

398,218 $

27,228

402,465 $

Remaining contractual maturity of the agreements

—

1,279

108

—

21,064

22,451

Total

398,218

27,228

Total

402,465

22,451

2017 (in millions)
Total securities sold under repurchase agreements

Overnight and
continuous

Up to 30 days

30 – 90 days

Greater than
90 days

166,425 $

156,434 $

41,611 $

33,748 $

Total securities loaned and other(b)

22,876

375

2,328

1,649

2016 (in millions)

Overnight and
continuous

Up to 30 days

30 – 90 days

Greater than
90 days

Total securities sold under repurchase agreements

140,318 $

157,860 $

55,621 $

48,666 $

Total securities loaned and other(b)

13,586

1,371

2,877

4,617

Remaining contractual maturity of the agreements

(a) Prior period amounts were revised to conform with the current period presentation.
(b) Includes securities-for-securities lending transactions of $9.2 billion and $9.1 billion at December 31, 2017 and 2016, respectively, accounted for at fair

value, where the Firm is acting as lender. These amounts are presented within accounts payable and other liabilities on the Consolidated balance sheets.

Transfers not qualifying for sale accounting
At December 31, 2017 and 2016, the Firm held $1.5 billion and $5.9 billion, respectively, of financial assets for which the
rights have been transferred to third parties; however, the transfers did not qualify as a sale in accordance with U.S. GAAP.
These transfers have been recognized as collateralized financing transactions. The transferred assets are recorded in trading
assets and loans, and the corresponding liabilities are recorded predominantly in short-term borrowings on the Consolidated
balance sheets.

210

JPMorgan Chase & Co./2017 Annual Report

Note 12 – Loans
Loan accounting framework
The accounting for a loan depends on management’s
strategy for the loan, and on whether the loan was credit-
impaired at the date of acquisition. The Firm accounts for
loans 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 of
these loan categories:

Loans held-for-investment (other than PCI loans)
Originated or purchased loans held-for-investment, other
than PCI loans, are recorded at the principal amount
outstanding, 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 price
discounts or premiums, as well as net deferred loan fees or
costs, are amortized into interest income over the
contractual 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 considered
nonperforming when full payment of principal and interest
is not expected, regardless of delinquency status, or when
principal and interest has been in default for a period of 90
days 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 the
borrower by the contractually specified due date or for
certain loans (e.g., residential real estate loans), when a
monthly payment is due and unpaid for 30 days or more.
Finally, collateral-dependent loans are typically maintained
on nonaccrual status.

On the date a loan is placed on nonaccrual status, all
interest accrued but not collected is reversed against
interest 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 is
deemed fully collectible; however, if there is doubt
regarding the ultimate collectibility of the recorded loan
balance, all interest cash receipts are applied to reduce the

carrying value of the loan (the cost recovery method). For
consumer loans, application of this policy typically results in
the Firm recognizing interest income on nonaccrual
consumer loans on a cash basis.

A loan may be returned to accrual status when repayment is
reasonably 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 in
full. 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 estimated
probable credit losses inherent in the held-for-investment
loan portfolio at the balance sheet date and is recognized
on the balance sheet as a contra asset, which brings the
recorded 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 of
income. See Note 13 for further information on the Firm’s
accounting policies for the allowance for loan losses.

Charge-offs
Consumer loans, other than risk-rated business banking and
auto loans, and PCI loans, are generally charged off or
charged down to the net realizable value of the underlying
collateral (i.e., fair value less costs to sell), with an offset to
the allowance for loan losses, upon reaching specified
stages of delinquency in accordance with standards
established by the FFIEC. Residential real estate loans and
non-modified credit card loans are generally charged off no
later than 180 days past due. Scored auto, student and
modified credit card loans are charged off no later than 120
days past due.

Certain consumer loans will be charged off or charged down
to their net realizable value earlier than the FFIEC charge-
off standards in certain circumstances as follows:

• Loans modified in a TDR that are determined to be

collateral-dependent.

• Loans to borrowers who have experienced an event that
suggests a loss is either known or highly certain are
subject to accelerated charge-off standards (e.g.,
residential real estate and auto loans are charged off
within 60 days of receiving notification of a bankruptcy
filing).

• Auto loans upon repossession of the automobile.

JPMorgan Chase & Co./2017 Annual Report

211

Notes to consolidated financial statements

Other than in certain limited circumstances, the Firm
typically does not recognize charge-offs on government-
guaranteed loans.

Wholesale loans, risk-rated business banking loans and risk-
rated auto loans are charged off when it is highly certain
that a loss has been realized, including situations where a
loan is determined to be both impaired and collateral-
dependent. The determination of whether to recognize a
charge-off includes many factors, including the
prioritization of the Firm’s claim in bankruptcy, expectations
of 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 realizable
value, the determination of the fair value of the collateral
depends on the type of collateral (e.g., securities, real
estate). 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 likely
that a borrower is either unable or unwilling to pay, the
Firm obtains a broker’s price opinion of the home based on
an exterior-only valuation (“exterior opinions”), which is
then updated at least every six months thereafter. As soon
as practicable after the Firm receives the property in
satisfaction of a debt (e.g., by taking legal title or physical
possession), the Firm generally obtains an appraisal based
on an inspection that includes the interior of the home
(“interior appraisals”). Exterior opinions and interior
appraisals are discounted based upon the Firm’s experience
with actual liquidation values as compared with the
estimated values provided by exterior opinions and interior
appraisals, considering state-specific factors.

For commercial real estate loans, collateral values are
generally based on appraisals from internal and external
valuation sources. Collateral values are typically updated
every six to twelve months, either by obtaining a new
appraisal or by performing an internal analysis, in
accordance with the Firm’s policies. The Firm also considers
both borrower- and market-specific factors, which may
result in obtaining appraisal updates or broker price
opinions at more frequent intervals.

Loans held-for-sale
Held-for-sale loans are measured at the lower of cost or fair
value, with valuation changes recorded in noninterest
revenue. For consumer loans, the valuation is performed on
a portfolio basis. For wholesale loans, the valuation is
performed on an individual loan basis.

Interest income on loans held-for-sale is accrued and
recognized based on the contractual rate of interest.

Loan origination fees or costs and purchase price discounts
or premiums are deferred in a contra loan account until the
related loan is sold. The deferred fees or costs and
discounts or premiums are an adjustment to the basis of the
loan and therefore are included in the periodic
determination of the lower of cost or fair value adjustments
and/or the gain or loss recognized at the time of sale.

Held-for-sale loans are subject to the nonaccrual policies
described above.

Because held-for-sale loans are recognized at the lower of
cost or fair value, the Firm’s allowance for loan losses and
charge-off policies do not apply to these loans.

Loans at fair value
Loans used in a market-making strategy or risk managed on
a fair value basis are measured at fair value, with changes
in fair value recorded in noninterest revenue.

Interest income on these loans is accrued and recognized
based on the contractual rate of interest. Changes in fair
value are recognized in noninterest revenue. Loan
origination fees are recognized 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 3 for further information on the Firm’s elections of
fair value accounting under the fair value option. See Note 2
and Note 3 for further information on loans carried at fair
value and classified as trading assets.

PCI loans
PCI loans held-for-investment are initially measured at fair
value. PCI loans have evidence of credit deterioration since
the loan’s origination date and therefore it is probable, at
acquisition, that all contractually required payments will not
be collected. Because PCI loans are initially measured at fair
value, which includes an estimate of future credit losses, no
allowance for loan losses related to PCI loans is recorded at
the acquisition date. See page 223 of this Note for
information on accounting for PCI loans subsequent to their
acquisition.

212

JPMorgan Chase & Co./2017 Annual Report

Loan classification changes
Loans in the held-for-investment portfolio that management
decides to sell are transferred to the held-for-sale portfolio
at the lower of cost or fair value on the date of transfer.
Credit-related losses are charged against the allowance for
loan losses; non-credit related losses such as those due to
changes 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 the
held-for-investment portfolio at the lower of cost or fair
value on the date of transfer. These loans are subsequently
assessed for impairment based on the Firm’s allowance
methodology. For a further discussion of the methodologies
used in establishing the Firm’s allowance for loan losses,
see Note 13.

Loan modifications
The Firm seeks to modify certain loans in conjunction with
its loss-mitigation activities. Through the modification,
JPMorgan Chase grants one or more concessions to a
borrower who is experiencing financial difficulty in order to
minimize the Firm’s economic loss and avoid foreclosure or
repossession of the collateral, and to ultimately maximize
payments received by the Firm from the borrower. The
concessions granted vary by program and by borrower-
specific characteristics, and may include interest rate
reductions, term extensions, payment deferrals, principal
forgiveness, or the acceptance of equity or other assets in
lieu 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 is
otherwise 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 that
the loan subsequently performs under its modified terms
and the Firm expects to collect all contractual principal and
interest cash flows, the loan is disclosed as impaired and as
a TDR only during the year of the modification; in
subsequent years, the loan is not disclosed as an impaired
loan or as a TDR so long as repayment of the restructured
loan under its modified terms is reasonably assured.

Loans, except for credit card loans, modified in a TDR are
generally placed on nonaccrual status, although in many
cases such loans were already on nonaccrual status prior to
modification. 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 the
modified 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 based
on, for example, the borrower’s debt capacity and level of
future earnings, collateral values, LTV ratios, and other
current market considerations. In certain limited and well-
defined circumstances in which the loan is current at the
modification 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 allowance
methodology, which considers the expected re-default rates
for the modified loans. A loan modified in a TDR generally
remains subject to the asset-specific allowance
methodology throughout its remaining life, regardless of
whether the loan is performing and has been returned to
accrual status and/or the loan has been removed from the
impaired loans disclosures (i.e., loans restructured at
market rates). For further discussion of the methodology
used to estimate the Firm’s asset-specific allowance, see
Note 13.

Foreclosed property
The Firm acquires property from borrowers through loan
restructurings, workouts, and foreclosures. Property
acquired may include real property (e.g., residential real
estate, 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 or
physical 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 of
foreclosure transaction with the borrower. Foreclosed
assets are reported in other assets on the Consolidated
balance sheets and initially recognized at fair value less
costs to sell. Each quarter the fair value of the acquired
property is reviewed and adjusted, if necessary, to the lower
of cost or fair value. Subsequent adjustments to fair value
are charged/credited to noninterest revenue. Operating
expense, such as real estate taxes and maintenance, are
charged to other expense.

JPMorgan Chase & Co./2017 Annual Report

213

Notes to consolidated financial statements

Loan portfolio
The Firm’s loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine
the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment the
Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class.

Consumer, excluding
credit card(a)

Credit card

Wholesale(f)

Residential real estate – excluding PCI

• Residential mortgage(b)
• Home equity(c)
Other consumer loans

• Auto(d)
• Consumer & Business Banking(d)(e)
• Student

• Credit card loans

• Commercial and industrial
• Real estate
• Financial institutions
• Government agencies
• Other(g)

Residential real estate – PCI

• Home equity
• Prime mortgage
• Subprime mortgage
• Option ARMs

(a) Includes loans held in CCB, prime mortgage and home equity loans held in AWM and prime mortgage loans held in Corporate.
(b) Predominantly includes prime (including option ARMs) and subprime loans.
(c) Includes senior and junior lien home equity loans.
(d) Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses;

these loans are managed by CCB, and therefore, for consistency in presentation, are included with the other consumer loan classes.

(e) Predominantly includes Business Banking loans.
(f) Includes loans held in CIB, CB, AWM and Corporate. Excludes prime mortgage and home equity loans held in AWM and prime mortgage loans held in

Corporate. Classes are internally defined and may not align with regulatory definitions.

(g) Includes loans to: individuals; SPEs; and private education and civic organizations. For more information on SPEs, see Note 14.

The following tables summarize the Firm’s loan balances by portfolio segment.

December 31, 2017

(in millions)

Retained

Held-for-sale

At fair value

Total

December 31, 2016

(in millions)

Retained

Held-for-sale

At fair value

Total

Consumer, excluding
credit card

$ 372,553

Credit card(a)

149,387

Wholesale

Total

$ 402,898

924,838 (b)

128

—

124

—

3,099

2,508

3,351

2,508

$ 372,681

149,511

$ 408,505

930,697

Consumer, excluding
credit card

$ 364,406

Credit card(a)

141,711

Wholesale

Total

$ 383,790

889,907 (b)

238

—

105

—

2,285

2,230

2,628

2,230

$ 364,644

141,816

$ 388,305

894,765

(a) Includes accrued interest and fees net of an allowance for the uncollectible portion of accrued interest and fee income.
(b) Loans (other than PCI loans and those for which the fair value option has been elected) are presented net of unamortized discounts and premiums and net

deferred loan fees or costs. These amounts were not material as of December 31, 2017 and 2016.

214

JPMorgan Chase & Co./2017 Annual Report

The following table provides information about the carrying value of retained loans purchased, sold and reclassified to held-
for-sale during the periods indicated. This table excludes loans recorded at fair value. The Firm manages its exposure to credit
risk on an ongoing basis. Selling loans is one way that the Firm reduces its credit exposures.

Year ended December 31,
(in millions)

Purchases

Sales

Retained loans reclassified to held-for-sale

Consumer, excluding
credit card

3,461 (a)(b)

3,405

6,340 (c)

Credit card

Wholesale

—

1,799

11,063

1,229

Total

5,260

14,468

7,569

2017

Year ended December 31,
(in millions)

Purchases

Sales

Retained loans reclassified to held-for-sale

Consumer, excluding
credit card

4,116 (a)(b)

6,368

321

Year ended December 31,
(in millions)

Purchases

Sales

Retained loans reclassified to held-for-sale

Consumer, excluding
credit card

Credit card

5,279 (a)(b)

5,099

1,514

—

2016

Credit card

Wholesale

Total

—

2015

1,448

8,739

2,381

Wholesale

2,154

9,188

642

5,564

15,107

2,702

Total

7,433

14,287

2,235

(a) Purchases predominantly represent the Firm’s voluntary repurchase of certain delinquent loans from loan pools as permitted by Government National
Mortgage Association (“Ginnie Mae”) guidelines. The Firm typically elects to repurchase these delinquent loans as it continues to service them and/or
manage the foreclosure process in accordance with applicable requirements of Ginnie Mae, FHA, RHS, and/or VA.

(b) Excludes purchases of retained loans sourced through the correspondent origination channel and underwritten in accordance with the Firm’s standards.

Such purchases were $23.5 billion, $30.4 billion and $50.3 billion for the years ended December 31, 2017, 2016 and 2015, respectively.

The following table provides information about gains and losses on loan sales, including lower of cost or fair value adjustments,
on loan sales by portfolio segment.

Year ended December 31, (in millions)

2017

2016

2015

Net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)(a)

Consumer, excluding credit card(b)

Credit card

Wholesale

Total net gains/(losses) on sales of loans (including lower of cost or fair value

adjustments)

(a) Excludes sales related to loans accounted for at fair value.
(b) Includes amounts related to the Firm’s student loan portfolio which was sold in 2017.

(126)

(8)

231

(12)

(93)

245

305

340

JPMorgan Chase & Co./2017 Annual Report

215

Notes to consolidated financial statements

Consumer, excluding credit card, loan portfolio
Consumer loans, excluding credit card loans, consist
primarily of residential mortgages, home equity loans and
lines of credit, auto loans, consumer and business banking
loans and student loans, with a focus on serving the prime
consumer credit market. The portfolio also includes home
equity loans secured by junior liens, prime mortgage loans
with an interest-only payment period, and certain payment-
option loans that may result in negative amortization.

The table below provides information about retained
consumer loans, excluding credit card, by class. In 2017,
the Firm sold its student loan portfolio.

December 31, (in millions)

2017

2016

Residential real estate – excluding PCI

Residential mortgage(a)

Home equity

Other consumer loans

Auto

Consumer & Business Banking(a)

Student(a)

Residential real estate – PCI

Home equity

Prime mortgage

Subprime mortgage

Option ARMs

Total retained loans

$ 216,496 $ 192,486

33,450

39,063

66,242

25,789

—

65,814

24,307

7,057

10,799

12,902

6,479

2,609

7,602

2,941

10,689

12,234

$ 372,553 $ 364,406

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

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 be
unable or unwilling to repay the loan. As the loan continues
to age, it becomes more clear whether 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
liquidation transaction. In addition to delinquency rates,
other credit quality indicators for consumer loans vary
based on the class of loan, as follows:

• For residential real estate loans, including both non-PCI
and PCI portfolios, the current estimated LTV ratio, or
the combined LTV ratio in the case of junior lien loans, is
an indicator of the potential loss severity in the event of
default. Additionally, LTV or combined LTV ratios can
provide insight into a borrower’s continued willingness
to pay, as the delinquency rate of high-LTV loans tends
to be greater than that for loans where the borrower has
equity in the collateral. The geographic distribution of
the loan collateral also provides insight as to the credit
quality of the portfolio, as factors such as the regional
economy, home price changes and specific events such
as natural disasters, will affect credit quality. The
borrower’s current or “refreshed” FICO score is a
secondary credit-quality indicator for certain loans, as
FICO scores are an indication of the borrower’s credit
payment history. Thus, a loan to a borrower with a low
FICO score (less than 660 ) is considered to be of higher
risk than a loan to a borrower with a higher FICO score.
Further, a loan to a borrower with a high LTV ratio and a
low FICO score is at greater risk of default than a loan to
a borrower that has both a high LTV ratio and a high
FICO score.

• For scored auto and scored business banking loans,
geographic distribution is an indicator of the credit
performance of the portfolio. Similar to residential real
estate loans, geographic distribution provides insights
into the portfolio performance based on regional
economic activity and events.

• Risk-rated business banking and auto loans are similar
to wholesale loans in that the primary credit quality
indicators are the risk rating that is assigned to the loan
and whether the loans are considered to be criticized
and/or nonaccrual. Risk ratings are reviewed on a
regular 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 loan
credit quality indicators, see page 228 of this Note.

216

JPMorgan Chase & Co./2017 Annual Report

Residential real estate — excluding PCI loans
The following table provides information by class for residential real estate — excluding retained PCI loans.

Residential real estate – excluding PCI loans

December 31,
(in millions, except ratios)

Loan delinquency(a)

Current

30–149 days past due

150 or more days past due

Total retained loans

% of 30+ days past due to total retained loans(b)

90 or more days past due and government guaranteed(c)

Nonaccrual loans

Current estimated LTV ratios(d)(e)

Greater than 125% and refreshed FICO scores:

Equal to or greater than 660

Less than 660

101% to 125% and refreshed FICO scores:

Equal to or greater than 660

Less than 660

80% to 100% and refreshed FICO scores:

Equal to or greater than 660

Less than 660

Less than 80% and refreshed FICO scores:

Equal to or greater than 660

Less than 660

No FICO/LTV available

U.S. government-guaranteed

Total retained loans

Geographic region

California

New York

Illinois

Texas

Florida

New Jersey

Washington

Colorado

Massachusetts

Arizona

All other(f)

Residential mortgage(g)

Home equity

Total residential real
estate – excluding PCI

2017

2016

2017

2016

2017

2016

$ 208,713

$ 184,133

$ 32,391

$ 37,941

$ 241,104

$ 222,074

4,234

3,549

3,828

4,525

671

388

646

476

4,905

3,937

4,474

5,001

$ 216,496

$ 192,486

$ 33,450

$ 39,063

$ 249,946

$ 231,549

0.77%

0.75%

3.17%

2.87%

1.09%

1.11%

4,172

4,858

2,175

2,256

—
1,610

—
1,845

4,172

4,858

3,785

4,101

135

177

4,369

483

4,026

718

296

1,676

569

668

221

2,961

945

332

183

6,045

1,052

100

803

398

6,987

1,663

194,758

169,579

25,262

27,317

220,020

196,896

6,952

1,259

8,495

6,759

1,650

9,364

3,850

1,689

—

4,380

2,486

—

10,802

11,139

2,948

8,495

4,136

9,364

$ 216,496

$ 192,486

$ 33,450

$ 39,063

$ 249,946

$ 231,549

$ 68,855

$ 59,802

6,582

7,644

$ 75,437

$ 67,446

27,473

14,501

12,508

9,598

7,142

6,962

7,335

6,323

4,109

24,916

13,126

10,772

8,395

6,374

5,451

6,306

5,834

3,595

51,690

47,915

6,866

2,521

2,021

1,847

1,957

1,026

632

295

1,439

8,264

7,978

2,947

2,225

2,133

2,253

1,229

677

371

1,772

9,834

34,339

17,022

14,529

11,445

9,099

7,988

7,967

6,618

5,548

32,894

16,073

12,997

10,528

8,627

6,680

6,983

6,205

5,367

59,954

57,749

Total retained loans

$ 216,496

$ 192,486

$ 33,450

$ 39,063

$ 249,946

$ 231,549

(a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $2.4 billion and $2.5 billion; 30–149 days past

due included $3.2 billion and $3.1 billion; and 150 or more days past due included $2.9 billion and $3.8 billion at December 31, 2017 and 2016, respectively.

(b) At December 31, 2017 and 2016, residential mortgage loans excluded mortgage loans insured by U.S. government agencies of $6.1 billion and $6.9 billion, respectively, that

are 30 or more days past due. These amounts have been excluded based upon the government guarantee.

(c) These balances, which are 90 days or more past due, were excluded from nonaccrual loans as the loans are guaranteed by U.S government agencies. Typically the principal

balance of the loans is insured and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. At December 31, 2017 and
2016, these balances included $1.5 billion and $2.2 billion, respectively, of loans that are no longer accruing interest based on the agreed-upon servicing guidelines. For the
remaining balance, interest is being accrued at the guaranteed reimbursement rate. There were no loans that were not guaranteed by U.S. government agencies that are 90 or
more days past due and still accruing interest at December 31, 2017 and 2016.

(d) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly,

based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where
actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and
should be viewed as estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as unused lines, related to the
property.

(e) Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(f) At December 31, 2017 and 2016, included mortgage loans insured by U.S. government agencies of $8.5 billion and $9.4 billion, respectively.
(g) Certain loan portfolios have been reclassified. The prior period amounts have been revised to conform with the current period presentation.

JPMorgan Chase & Co./2017 Annual Report

217

Notes to consolidated financial statements

The following table represents the Firm’s delinquency statistics for junior lien home equity loans and lines as of December 31,
2017 and 2016.

December 31, (in millions except ratios)

HELOCs:(a)

Within the revolving period(b)

Beyond the revolving period

HELOANs

Total

Total loans

Total 30+ day delinquency rate

2017

2016

2017

2016

6,363 $

13,532

1,371

21,266 $

10,304

13,272

1,861

25,437

0.50%

3.56

3.50

2.64%

1.27%

3.05

2.85

2.32%

(a) These HELOCs are predominantly revolving loans for a 10-year period, after which time the HELOC converts to a loan with a 20-year amortization period, but also include HELOCs that

allow interest-only payments beyond the revolving period.

(b) The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are experiencing financial

difficulty.

HELOCs beyond the revolving period and HELOANs have higher delinquency rates than HELOCs within the revolving period.
That is primarily because the fully-amortizing payment that is generally required for those products is higher than the
minimum payment options available for HELOCs within the revolving period. The higher delinquency rates associated with
amortizing 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-specific
allowance as described in Note 13.

December 31,
(in millions)

Impaired loans

With an allowance

Without an allowance(a)

Total impaired loans(b)(c)

Allowance for loan losses related to impaired loans

Unpaid principal balance of impaired loans(d)

Impaired loans on nonaccrual status(e)

Residential mortgage

Home equity

Total residential real estate
– excluding PCI

2017

2016

2017

2016

2017

2016

4,407 $

1,213

5,620 $

62 $

7,741

1,743

4,689

1,343

6,032

8,285

1,755

1,236 $

882

2,118 $

111 $

3,701

1,032

1,266

998

2,264

121

3,847

1,116

5,643 $

2,095

7,738 $

173 $

11,442

2,775

5,955

2,341

8,296

189

12,132

2,871

(a) Represents collateral-dependent residential real estate loans that are charged off to the fair value of the underlying collateral less costs to sell. The Firm reports, in accordance with
regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower (“Chapter 7 loans”) as collateral-
dependent nonaccrual TDRs, regardless of their delinquency status. At December 31, 2017, Chapter 7 residential real estate loans included approximately 12% of home equity and
15% of residential mortgages that were 30 days or more past due.

(b) At December 31, 2017 and 2016, $3.8 billion and $3.4 billion, respectively, of loans modified subsequent to repurchase from Ginnie Mae in accordance with the standards of the
appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent to modification in accordance with Ginnie Mae
guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure.

(c) Predominantly all residential real estate impaired loans, excluding PCI loans, are in the U.S.
(d) Represents the contractual amount of principal owed at December 31, 2017 and 2016. The unpaid principal balance differs from the impaired loan balances due to various factors

including charge-offs, net deferred loan fees or costs, and unamortized discounts or premiums on purchased loans.

(e) As of December 31, 2017 and 2016, nonaccrual loans included $2.2 billion and $2.3 billion, respectively, of TDRs for which the borrowers were less than 90 days past due. For

additional information about loans modified in a TDR that are on nonaccrual status refer to the Loan accounting framework on pages 211–213 of this Note.

218

JPMorgan Chase & Co./2017 Annual Report

The following table presents average impaired loans and the related interest income reported by the Firm.

Year ended December 31,
(in millions)

Residential mortgage

Home equity

Total residential real estate – excluding PCI

Average impaired loans

Interest income on
impaired loans(a)

Interest income on impaired
loans on a cash basis(a)

2017

2016

2015

2017

2016

2015

2017

2016

2015

5,797 $

6,376 $

2,189

2,311

7,697

2,369

7,986 $

8,687 $ 10,066

287 $

305 $

127

125

414 $

430 $

348

128

476

75 $

77 $

155 $

157 $

172

(a) Generally, interest income on loans modified in TDRs is recognized on a cash basis until such time as the borrower has made a minimum of six payments under the new terms,

unless the loan is deemed to be collateral-dependent.

Loan modifications
Modifications of residential real estate loans, excluding PCI
loans, are generally accounted for and reported as TDRs.
There were no additional commitments to lend 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)

Residential mortgage

Home equity

Total residential real estate – excluding

PCI

2017

2016

2015

373 $

254 $

321

385

267

401

694 $

639 $

668

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 the
terms of the original agreement.

The following table provides information about how residential real estate loans, excluding PCI loans, were modified under the
Firm’s loss mitigation programs described above during the periods presented. This table excludes Chapter 7 loans where the
sole concession granted is the discharge of debt.

Year ended December 31,

2017

2016

2015

2017

2016

2015

2017

2016

2015

Residential mortgage

Home equity

Total residential real estate
– excluding PCI

Number of loans approved for a trial

modification

Number of loans permanently modified

Concession granted:(a)

Interest rate reduction

Term or payment extension

Principal and/or interest deferred

Principal forgiveness

Other(b)

1,283

2,628

1,945

3,338

2,711

3,145

2,321

5,624

3,760

4,824

3,933

4,296

3,604

8,252

5,705

8,162

6,644

7,441

63%

76%

71%

59%

75%

66%

60%

76%

68%

—

(a) Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages exceeds 100% because
predominantly all of the modifications include more than one type of concession. A significant portion of trial modifications include interest rate reductions and/or term or
payment extensions.

(b) Predominantly represents variable interest rate to fixed interest rate modifications.

JPMorgan Chase & Co./2017 Annual Report

219

Year ended
December 31,
(in millions, except weighted-average data and
number of loans)

Weighted-average interest rate of loans with

interest rate reductions – before TDR

Weighted-average interest rate of loans with

interest rate reductions – after TDR

Weighted-average remaining contractual term

(in years) of loans with term or payment
extensions – before TDR

Weighted-average remaining contractual term

(in years) of loans with term or payment
extensions – after TDR

Charge-offs recognized upon permanent

modification

Principal deferred

Principal forgiven

Notes to consolidated financial statements

Financial effects of modifications and redefaults
The following table provides information about the financial effects of the various concessions granted in modifications of
residential real estate loans, excluding PCI, under the loss mitigation programs described above and about redefaults of
certain loans modified in TDRs for the periods presented. The following table presents only the final financial effects of
permanent modifications and does not include temporary concessions offered through trial modifications. This table also
excludes Chapter 7 loans where the sole concession granted is the discharge of debt.

Residential mortgage

Home equity

Total residential real estate –
excluding PCI

2017

2016

2015

2017

2016

2015

2017

2016

2015

5.15%

5.59%

5.67%

4.94%

4.99%

5.20%

5.06%

5.36%

5.51%

2.99

2.93

2.79

2.64

2.34

2.35

2.83

2.70

2.64

180

138

154

Balance of loans that redefaulted within one

year of permanent modification(a)

124

133

(a) Represents loans permanently modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred within one year of the
modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which such loans defaulted. For residential real estate loans
modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments past due. In the event that a modified loan redefaults, it is probable 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, 2017, the weighted-average estimated
remaining lives of residential real estate loans, excluding
PCI loans, permanently modified in TDRs were 14 years for
residential mortgage and 10 years for home equity. The
estimated remaining lives of these loans reflect estimated
prepayments, both voluntary and involuntary (i.e.,
foreclosures and other forced liquidations).

Active and suspended foreclosure
At December 31, 2017 and 2016, the Firm had non-PCI
residential real estate loans, excluding those insured by U.S.
government agencies, with a carrying value of $787 million
and $932 million, respectively, that were not included in
REO, but were in the process of active or suspended
foreclosure.

220

JPMorgan Chase & Co./2017 Annual Report

Other consumer loans
The table below provides information for other consumer retained loan classes, including auto and business banking loans.
This table excludes student loans that were sold in 2017.

December 31,
(in millions, except ratios)

Loan delinquency

Current

30–119 days past due

120 or more days past due

Total retained loans

% of 30+ days past due to total retained loans

Nonaccrual loans(a)

Geographic region

California

Texas

New York

Illinois

Florida

Arizona

Ohio

Michigan

New Jersey

Louisiana

All other

Total retained loans

Loans by risk ratings(b)

Noncriticized

Criticized performing

Criticized nonaccrual

Auto

Consumer & Business Banking(c)

2017

2016

2017

2016

65,651

584

66,242

0.89%

141

8,445

7,013

4,023

3,916

3,350

2,221

2,105

1,418

2,044

1,656

30,051

66,242

15,604

65,029

25,454

773

213

122

65,814

25,789

1.19%

214

1.30%

283

7,975

7,041

4,078

3,984

3,374

2,209

2,194

1,567

2,031

1,814

29,547

65,814

13,899

201

5,032

2,916

4,195

2,017

1,424

1,383

1,380

1,357

721

849

4,515

25,789

17,938

791

213

23,920

247

140

24,307

1.59%

287

4,426

2,954

3,979

1,758

1,195

1,307

1,402

1,343

623

979

4,341

24,307

16,858

816

217

(a) There were no loans that were 90 or more days past due and still accruing interest at December 31, 2017, and December 31, 2016.
(b) For risk-rated business banking and auto loans, the primary credit quality indicator is the risk rating of the loan, including whether the loans are considered to be criticized and/or

nonaccrual.

(c) Certain loan portfolios have been reclassified. The prior period amounts have been revised to conform with the current period presentation.

JPMorgan Chase & Co./2017 Annual Report

221

Notes to consolidated financial statements

Other consumer impaired loans and loan modifications
The following table sets forth information about the Firm’s other consumer impaired loans, including risk-rated business
banking and auto loans that have been placed on nonaccrual status, and loans that have been modified in TDRs.

December 31, (in millions)

2017

2016

Impaired loans

With an allowance

272 $

614

Without an allowance(a)
Total impaired loans(b)(c)
Allowance for loan losses related to impaired loans $

Unpaid principal balance of impaired loans(d)

Impaired loans on nonaccrual status

298 $

73 $

402

268

644

119

753

508

(a) When discounted cash flows, collateral value or market price equals or exceeds

the recorded investment in the loan, the loan does not require an allowance. This
typically occurs when the impaired loans have been partially charged off and/or
there have been interest payments received and applied to the loan balance.

(b) Predominantly all other consumer impaired loans are in the U.S.
(c) Other consumer average impaired loans were $427 million, $635 million and
$566 million for the years ended December 31, 2017, 2016 and 2015,
respectively. The related interest income on impaired loans, including those on a
cash basis, was not material for the years ended December 31, 2017, 2016 and
2015.

(d) Represents the contractual amount of principal owed at December 31, 2017 and
2016. The unpaid principal balance differs from the impaired loan balances due
to various factors, including charge-offs, interest payments received and applied
to the principal balance, net deferred loan fees or costs and unamortized
discounts or premiums on purchased loans.

Loan modifications
Certain other consumer loan modifications are considered
to be TDRs as they provide various concessions to
borrowers who are experiencing financial difficulty. All of
these TDRs are reported as impaired loans. 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, 2017 and
2016.

December 31, (in millions)
Loans modified in TDRs(a)(b)

TDRs on nonaccrual status

2017

2016

102 $

362

226

(a) The impact of these modifications was not material to the Firm for the years

ended December 31, 2017 and 2016.

(b) Additional commitments to lend to borrowers whose loans have been modified in

TDRs as of December 31, 2017 and 2016 were immaterial.

222

JPMorgan Chase & Co./2017 Annual Report

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 be
reported as nonaccrual loans; however, since the timing and
amounts of expected cash flows for the Firm’s PCI consumer
loan pools are reasonably estimable, interest is being
accreted and the loan pools are being reported as
performing loans.

The liquidation of PCI loans, which may include sales of
loans, receipt of payment in full from the borrower, or
foreclosure, results in removal of the loans from the
underlying PCI pool. When the amount of the liquidation
proceeds (e.g., cash, real estate), if any, is less than the
unpaid principal balance of the loan, the difference is first
applied against the PCI pool’s nonaccretable difference for
principal losses (i.e., the lifetime credit loss estimate
established as a purchase accounting adjustment at the
acquisition date). When the nonaccretable difference for a
particular 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 for
loan losses. Write-offs of PCI loans also include other
adjustments, primarily related to interest forgiveness
modifications. Because the Firm’s PCI loans are accounted
for at a pool level, the Firm does not recognize charge-offs
of PCI loans when they reach specified stages of
delinquency (i.e., unlike non-PCI consumer loans, these
loans are not charged off based on FFIEC standards).

The PCI portfolio affects the Firm’s results of operations
primarily through: (i) contribution to net interest margin;
(ii) expense related to defaults and servicing resulting from
the liquidation of the loans; and (iii) any provision for loan
losses. The PCI loans acquired in the Washington Mutual
transaction were funded based on the interest rate
characteristics of the loans. For example, variable-rate
loans were funded with variable-rate liabilities and fixed-
rate loans were funded with fixed-rate liabilities with a
similar maturity profile. A net spread will be earned on the
declining balance of the portfolio, which is estimated as of
December 31, 2017, to have a remaining weighted-average
life of 9 years.

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 to
the 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, the
amounts and timing of prepayments and other factors that
reflect 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 through
the provision for credit losses and an increase in the
allowance for loan losses. Probable and significant
increases in expected cash flows (e.g., decreased credit
losses, the net benefit of modifications) would first reverse
any previously recorded allowance for loan losses with any
remaining increases recognized prospectively as a yield
adjustment over the remaining estimated lives of the
underlying loans. The impacts of (i) prepayments, (ii)
changes in variable interest rates, and (iii) any other
changes in the timing of expected cash flows are generally
recognized prospectively as adjustments to interest income.

The Firm continues to modify certain PCI loans. The impact
of these modifications is incorporated into the Firm’s
quarterly 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 forgone
interest and also considers the potential for redefault. The
Firm develops product-specific probability of default
estimates, which are used to compute expected credit
losses. In developing these probabilities of default, the Firm
considers the relationship between the credit quality
characteristics of the underlying loans and certain
assumptions about home prices and unemployment based
upon industry-wide data. The Firm also considers its own
historical loss experience to-date based on actual
redefaulted modified PCI loans.

The excess of cash flows expected to be collected over the
carrying value of the underlying loans is referred to as the
accretable yield. This amount is not reported on the Firm’s
Consolidated balance sheets but is accreted into interest
income at a level rate of return over the remaining
estimated lives of the underlying pools of loans.

JPMorgan Chase & Co./2017 Annual Report

223

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.

December 31,
(in millions, except ratios)

Carrying value(a)

Home equity

Prime mortgage

Subprime mortgage

Option ARMs

Total PCI

2017
$10,799

2016
$12,902

2017
$ 6,479

2016
$ 7,602

2017
$ 2,609

2016
$ 2,941

2017
$10,689

2016
$12,234

2017
$30,576

2016
$35,679

Related allowance for loan losses(b)

1,133

1,433

863

829

150

—

2,225

2,311

Loan delinquency (based on unpaid principal balance)

Current

30–149 days past due

150 or more days past due

$10,272

$12,423

$ 5,839

$ 6,840

$ 2,640

$ 3,005

$ 9,662

$11,074

$28,413

$33,342

356

392

291

478

336

327

336

451

381

176

361

240

547

689

555

917

1,620

1,584

1,543

2,086

Total loans

$11,020

$13,192

$ 6,502

$ 7,627

$ 3,197

$ 3,606

$10,898

$12,546

$31,617

$36,971

% of 30+ days past due to total loans

6.79%

5.83%

10.20% 10.32%

17.42% 16.67%

11.34% 11.73%

10.13%

9.82%

Current estimated LTV ratios (based on unpaid principal balance)(c)(d)

Greater than 125% and refreshed FICO scores:

Equal to or greater than 660

Less than 660

101% to 125% and refreshed FICO scores:

Equal to or greater than 660

Less than 660

80% to 100% and refreshed FICO scores:

Equal to or greater than 660

Less than 660

Lower than 80% and refreshed FICO scores:

Equal to or greater than 660

Less than 660

No FICO/LTV available

221

230

442

381

3,967

2,287

391

119

309

135

214

439

895

919

1,608

1,645

149

177

316

371

6,113

3,499

470

144

558

609

353

320

105

729

619

1,851

1,469

3,074

2,233

6,754

3,783

585

16,693

18,316

9,305

1,515

9,898

1,903

274

132

555

256

1,195

1,860

559

804

6,134

2,095

577

6,676

2,183

750

3,551

2,103

319

Total unpaid principal balance

$11,020

$13,192

$ 6,502

$ 7,627

$ 3,197

$ 3,606

$10,898

$12,546

$31,617

$36,971

Geographic region (based on unpaid principal balance)

California

Florida

New York

Washington

Illinois

New Jersey

Massachusetts

Maryland

Arizona

Virginia

All other

$ 6,555

$ 7,899

$ 3,716

$ 4,396

1,137

1,306

607

532

273

242

203

697

673

314

280

241

1,269

1,547

428

457

135

200

178

149

129

106

123

881

501

515

167

226

210

173

144

124

142

797

296

330

161

110

132

899

332

363

178

125

110

145

$ 6,225

$ 7,128

$17,293

$20,322

878

628

238

249

336

307

232

156

280

1,026

711

290

282

401

346

267

181

314

2,739

2,022

966

883

866

633

550

525

520

3,165

2,286

1,198

1,000

1,016

723

620

614

589

1,029

1,101

1,262

1,369

1,600

4,620

5,438

Total unpaid principal balance

$11,020

$13,192

$ 6,502

$ 7,627

$ 3,197

$ 3,606

$10,898

$12,546

$31,617

$36,971

(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 expected

cash flows. As a result, an allowance for loan losses for impairment of these pools has been recognized.

(c) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on
home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not
available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as
estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as unused lines, related to the property.

(d) Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.

224

JPMorgan Chase & Co./2017 Annual Report

Approximately 25% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANs or
HELOCs. The following table sets forth delinquency statistics for PCI junior lien home equity loans and lines of credit based on
the unpaid principal balance as of December 31, 2017 and 2016.

December 31,

(in millions, except ratios)

HELOCs:(a)

Within the revolving period(b)

Beyond the revolving period(c)

HELOANs

Total

Total loans

Total 30+ day delinquency rate

2017

2016

2017

2016

51 $

7,875

360

2,126

7,452

465

8,286 $

10,043

1.96%

4.63

5.28

4.65%

3.67%

4.03

5.38

4.01%

(a) In general, these HELOCs are revolving loans for a 10-year period, after which time the HELOC converts to an interest-only loan with a balloon payment at the end of

the loan’s term.

(b) Substantially all undrawn HELOCs within the revolving period have been closed.
(c) Includes loans modified into fixed rate amortizing loans.

The table below sets forth the accretable yield activity for the Firm’s PCI consumer loans for the years ended December 31,
2017, 2016 and 2015, and represents the Firm’s estimate of gross interest income expected to be earned over the remaining
life of the PCI loan portfolios. The table excludes the cost to fund the PCI portfolios, and therefore the accretable yield does not
represent net interest income expected to be earned on these portfolios.

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

Beginning balance

Accretion into interest income

Changes in interest rates on variable-rate loans

Other changes in expected cash flows(a)

Reclassification from nonaccretable difference(b)

Balance at December 31

Accretable yield percentage

2017

Total PCI

2016

11,768

13,491

(1,396)

503

284

—

(1,555)

260

(428)

—

2015

14,592

(1,700)

279

230

11,159

11,768

13,491

4.53%

4.35%

4.20%

(a) Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model, for example cash flows expected to be

collected due to the impact of modifications and changes in prepayment assumptions.

(b) Reclassifications from the nonaccretable difference in the year ended December 31, 2015 were driven by continued improvement in home prices and delinquencies,

as well as increased granularity in the impairment estimates.

Active and suspended foreclosure
At December 31, 2017 and 2016, the Firm had PCI residential real estate loans with an unpaid principal balance of $1.3
billion and $1.7 billion, respectively, that were not included in REO, but were in the process of active or suspended foreclosure.

JPMorgan Chase & Co./2017 Annual Report

225

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 the
portfolio based on the regional economy.

While the borrower’s credit score is another general
indicator of credit quality, the Firm does not view credit
scores as a primary indicator of credit quality because the
borrower’s credit score tends to be a lagging indicator. The
distribution of such scores provides a general indicator of
credit quality trends within the portfolio; however, the score
does not capture all factors that would be predictive of
future credit performance. Refreshed FICO score
information, which is obtained at least quarterly, for a
statistically significant random sample of the credit card
portfolio is indicated in the following table. FICO is
considered to be the industry benchmark for credit scores.

The Firm generally originates new card accounts to prime
consumer borrowers. However, certain cardholders’ FICO
scores may decrease over time, depending on the
performance of the cardholder and changes in credit score
calculation.

The table below sets forth information about the Firm’s
credit card loans.

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

Net charge-offs

2017

2016

4,123

3,442

% of net charge-offs to retained loans

2.95%

2.63%

Loan delinquency

Current and less than 30 days past due

and still accruing

$ 146,704

$ 139,434

30–89 days past due and still accruing

1,305

1,134

90 or more days past due and still accruing
Total retained credit card loans

1,378
$ 149,387

1,143
$ 141,711

Loan delinquency ratios

% of 30+ days past due to total retained loans

% of 90+ days past due to total retained loans

1.80%

0.92

1.61%

0.81

Credit card loans by geographic region

California
Texas
New York
Florida
Illinois
New Jersey
Ohio
Pennsylvania
Colorado
Michigan
All other

$ 22,245
14,200
13,021
9,138
8,585
6,506
4,997
4,883
4,006
3,826
57,980

$ 20,571
13,220
12,249
8,585
8,189
6,271
4,906
4,787
3,699
3,741
55,493

Total retained credit card loans

$ 149,387

$ 141,711

Percentage of portfolio based on carrying

value with estimated refreshed FICO scores

Equal to or greater than 660
Less than 660

No FICO available

84.0%
14.6

1.4

84.4%
14.2

1.4

226

JPMorgan Chase & Co./2017 Annual Report

If the cardholder does not comply with the modified
payment terms, then the credit card loan continues to age
and will ultimately be charged-off in accordance with the
Firm’s standard charge-off policy. In most cases, the Firm
does not reinstate the borrower’s line of credit.

New enrollments in these loan modification programs for
the years ended December 31, 2017, 2016 and 2015, were
$756 million, $636 million and $638 million, respectively.

Financial effects of modifications and redefaults
The following table provides information about the financial
effects of the concessions granted on credit card loans
modified in TDRs and redefaults for the periods presented.

Year ended December 31,
(in millions, except
weighted-average data)

Weighted-average interest rate

of loans – before TDR

Weighted-average interest rate

of loans – after TDR

Loans that redefaulted within
one year of modification(a)

2017

2016

2015

16.58%

15.56%

15.08%

4.88

4.76

4.40

(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 balance
of such loans as of the end of the quarter in which they defaulted.

For credit card loans modified in TDRs, a substantial portion
of these loans are 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 31.54%, 28.87% and 25.61% as of December 31,
2017, 2016 and 2015, respectively.

Credit card impaired loans and loan modifications
The table below sets forth information about the Firm’s
impaired credit card loans. All of these loans are considered
to be impaired as they have been modified in TDRs.

December 31, (in millions)

2017

2016

Impaired credit card loans with an

allowance(a)(b)

Credit card loans with modified payment

terms(c)

Modified credit card loans that have

reverted to pre-modification payment
terms(d)

Total impaired credit card loans(e)

Allowance for loan losses related to

impaired credit card loans

1,135 $

1,098

142

1,215 $

1,240

383 $

358

(a) The carrying value and the unpaid principal balance are the same for credit

card impaired loans.

(b) There were no impaired loans without an allowance.
(c) Represents credit card loans outstanding to borrowers enrolled in a credit

card modification program as of the date presented.

(d) Represents credit card loans that were modified in TDRs but that have

subsequently reverted back to the loans’ pre-modification payment terms.
At December 31, 2017 and 2016, $43 million and $94 million,
respectively, of loans have reverted back to the pre-modification payment
terms of the loans due to noncompliance with the terms of the modified
loans. The remaining $37 million and $48 million at December 31, 2017
and 2016, respectively, of these loans are to borrowers who have
successfully completed a short-term modification program. The Firm
continues to report these loans as TDRs since the borrowers’ credit lines
remain closed.

(e) Predominantly all impaired credit card loans are in the U.S.

The following table presents average balances of impaired
credit card loans and interest income recognized on those
loans.

Year ended December 31,
(in millions)

2017

2016

2015

Average impaired credit card loans

$ 1,214 $ 1,325 $ 1,710

Interest income on
impaired credit card loans

Loan modifications
JPMorgan Chase may offer one of a number of loan
modification programs to credit card borrowers who are
experiencing financial difficulty. Most of the credit card
loans have been modified under long-term programs for
borrowers who are experiencing financial difficulties.
Modifications under long-term programs involve placing the
customer 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- and
long-term programs typically include reducing the interest
rate on the credit card. Substantially all modifications are
considered to be TDRs.

JPMorgan Chase & Co./2017 Annual Report

227

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 the
industry in which the obligor conducts its operations. As
part of the overall credit risk management framework, the
Firm focuses on the management and diversification of its
industry and client exposures, with particular attention paid
to industries with actual or potential credit concern. See
Note 4 for further detail on industry concentrations.

Notes to consolidated financial statements

Wholesale loan portfolio
Wholesale loans include loans made to a variety of clients,
ranging from large corporate and institutional clients 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 that
would be realized upon the default of the borrower and
takes into consideration collateral and structural support
for each credit facility.

Management considers several factors to determine an
appropriate risk rating, including the obligor’s debt capacity
and financial flexibility, the level of the obligor’s earnings,
the amount and sources for repayment, the level and nature
of 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 defined
by S&P and Moody’s. Investment-grade ratings range from
“AAA/Aaa” to “BBB-/Baa3.” Noninvestment-grade ratings
are classified as noncriticized (“BB+/Ba1 and B-/B3”) and
criticized (“CCC+”/“Caa1 and below”), and the criticized
portion is further subdivided into performing and
nonaccrual loans, representing management’s assessment
of the collectibility of principal and interest. Criticized loans
have a higher probability of default than noncriticized
loans.

228

JPMorgan Chase & Co./2017 Annual Report

The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment.

Below are summaries of the Firm’s exposures as of December 31, 2017 and 2016. For additional information on industry
concentrations, see Note 4.

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

ratings

Investment-

grade

Noninvestment-
grade:

Noncriticized
Criticized

performing

Criticized

nonaccrual

Total
noninvestment-

grade

Total retained

loans

% of total

criticized to
total retained
loans

% of nonaccrual
loans to total
retained loans

Loans by

geographic
distribution(a)

Total non-U.S.
Total U.S.
Total retained

loans

Net charge-offs/
(recoveries)

% of net

charge-offs/
(recoveries) to
end-of-period
retained loans

Loan

delinquency(b)

Current and less
than 30 days
past due and
still accruing
30–89 days past
due and still
accruing

90 or more days
past due and
still accruing(c)

Criticized

nonaccrual

Total retained

loans

Commercial
and industrial

Real estate

Financial
institutions

Government agencies

Other(d)

Total
retained loans

2017

2016

2017

2016

2017

2016

2017

2016

2017

2016

2017

2016

$ 68,071

$ 65,687

$ 98,467

$ 88,649

$ 26,791

$24,294

$ 15,140

$ 15,935

$103,212

$ 95,358

$ 311,681

$ 289,923

46,558

47,531

14,335

16,155

13,071

11,075

369

439

9,988

9,360

84,321

84,560

3,983

6,186

1,357

1,491

710

136

798

200

210

200

—

259

239

163

254

5,162

7,353

1,734

1,954

51,898

55,208

15,181

17,153

13,283

11,284

369

445

10,486

9,777

91,217

93,867

$119,969

$120,895

$ 113,648

$105,802

$ 40,074

$35,578

$ 15,509

$ 16,380

$113,698

$105,135

$ 402,898

$ 383,790

4.45%

6.35%

0.74%

0.94%

0.53%

0.59%

—%

0.04%

0.44%

0.40%

1.71%

2.43%

1.13

1.23

0.12

0.19

—

0.03

—

0.21

0.24

0.43

0.51

$ 28,470
91,499

$ 30,563
90,332

3,101
110,547

3,302
102,500

$ 16,790
23,284

$15,147
20,431

$ 2,906
12,603

$ 3,726
12,654

$ 44,112
69,586

$ 38,776
66,359

$ 95,379
307,519

$ 91,514
292,276

$119,969

$120,895

$ 113,648

$105,802

$ 40,074

$35,578

$ 15,509

$ 16,380

$113,698

$105,135

$ 402,898

$ 383,790

117

345

(4) $

(7)

(1)

(5) $

119

341

0.10%

0.28%

—%

(0.01)%

0.01% (0.01)%

0.03%

(0.01)%

—%

0.01%

0.03%

0.09%

$118,288

$119,050

$ 113,258

$105,396

$ 40,042

$35,523

$ 15,493

$ 16,269

$112,559

$104,280

$ 399,640

$ 380,518

216

268

242

204

108

1,357

1,491

136

200

107

898

582

1,383

1,186

—

239

254

141

132

1,734

1,954

$119,969

$120,895

$ 113,648

$105,802

$ 40,074

$35,578

$ 15,509

$ 16,380

$113,698

$105,135

$ 402,898

$ 383,790

(a) The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
(b) The credit quality of wholesale loans is assessed primarily through ongoing review and monitoring of an obligor’s ability to meet contractual obligations rather than relying on

the past due status, which is generally a lagging indicator of credit quality.

(c) Represents loans that are considered well-collateralized and therefore still accruing interest.
(d) Other includes individuals, SPEs, holding companies, and private education and civic organizations. For more information on exposures to SPEs, see Note 14.

JPMorgan Chase & Co./2017 Annual Report

229

Notes to consolidated financial statements

The following table presents additional information on the real estate class of loans within the Wholesale portfolio for the
periods 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 real
estate investment trusts (“REITs”). Other commercial lending largely includes financing for acquisition, leasing and
construction, largely for office, retail and industrial real estate, and includes exposure to REITs. Included in real estate loans is
$10.8 billion and $9.2 billion as of December 31, 2017 and 2016, respectively, of construction and development exposure
consisting of loans originally purposed for construction and development, general purpose loans for builders, as well as loans
for land subdivision and pre-development.

December 31,
(in millions, except ratios)

Real estate retained loans

Criticized

% of criticized to total real estate retained loans

Criticized nonaccrual

Multifamily

Other Commercial

Total real estate loans

2017

2016

2017

2016

2017

2016

77,597

72,143

36,051

33,659

$ 113,648

$ 105,802

491

0.63%

539

0.75%

355

0.98%

459

1.36%

846

0.74%

998

0.94%

143

136

200

% of criticized nonaccrual to total real estate retained loans

0.06%

0.08%

0.26%

0.42%

0.12%

0.19%

Wholesale impaired loans and loan modifications
Wholesale impaired loans consist of loans that have been placed on nonaccrual status and/or that have been modified in a TDR.
All impaired loans are evaluated for an asset-specific allowance as described in Note 13.

The table below sets forth information about the Firm’s wholesale impaired loans.

December 31,
(in millions)

Impaired loans

Commercial
and industrial

Real estate

Financial
institutions

Government
agencies

Other

Total
retained loans

2017

2016

2017

2016

2017

2016

2017

2016

2017

2016

2017

2016

With an allowance

$ 1,170 $ 1,127

Without an allowance(a)

228

414

Total impaired loans

$ 1,398 $ 1,541

Allowance for loan losses related

to impaired loans

404 $

258

78 $

124

138 $

211

11 $

93 $

—

93 $

4 $

—

— $

—

— $

Unpaid principal balance of

impaired loans(b)

1,604

1,754

201

295

—

168 $

180

$ 1,509

$ 1,440

358

577

238 $

256

$ 1,867 (c) $ 2,017 (c)

42 $

461

342

255

284

2,154

2,345

(a) When the discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This typically

occurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied to the loan balance.

(b) Represents the contractual amount of principal owed at December 31, 2017 and 2016. The unpaid principal balance differs from the impaired loan balances due to various
factors, including charge-offs; interest payments received and applied to the carrying value; net deferred loan fees or costs; and unamortized discount or premiums on
purchased loans.

The following table presents the Firm’s average impaired
loans for the years ended 2017, 2016 and 2015.

Year ended December 31, (in millions)

2017

2016

2015

Commercial and industrial

1,145 $

1,480 $

Real estate

Financial institutions

Government agencies

Other

Total(a)

164

—

231

217

—

213

1,560 $

1,923 $

453

250

—

129

845

(a) The related interest income on accruing impaired loans and interest income

recognized on a cash basis were not material for the years ended December 31,
2017, 2016 and 2015.

Certain loan modifications are considered to be TDRs as
they provide various concessions to borrowers who are
experiencing financial difficulty. All TDRs are reported as
impaired loans in the tables above. TDRs were $614 million
and $733 million as of December 31, 2017 and 2016.

230

JPMorgan Chase & Co./2017 Annual Report

Note 13 – Allowance for credit losses
JPMorgan Chase’s allowance for loan losses represents
management’s estimate of probable credit losses inherent
in the Firm’s retained loan portfolio, which consists of the
two consumer portfolio segments (primarily scored) and
the wholesale portfolio segment (risk-rated). The allowance
for loan losses includes a formula-based component, an
asset-specific component, and a component related to PCI
loans, as described below. Management also estimates an
allowance for wholesale and certain consumer lending-
related commitments using methodologies similar to those
used to estimate the allowance on the underlying loans.

During the second quarter of 2017, the Firm refined its
credit loss estimates relating to the wholesale portfolio by
incorporating the use of internal historical data versus
external credit rating agency default statistics to estimate
PD. In addition, an adjustment to the statistical calculation
for wholesale lending-related commitments was
incorporated similar to the adjustment applied for
wholesale loans. The impacts of these refinements were not
material to the allowance for credit losses.

The Firm’s policies used to determine its allowance for
credit losses are described in the following paragraphs.

Determining the appropriateness of the allowance is
complex and requires judgment by management about the
effect of matters that are inherently uncertain. Subsequent
evaluations of the loan portfolio, in light of the factors then
prevailing, may result in significant changes in the
allowances for loan losses and lending-related
commitments in future periods. At least quarterly, the
allowance for credit losses is reviewed by the CRO, the CFO
and the Controller of the Firm and discussed with the DRPC
and the Audit Committee. As of December 31, 2017,
JPMorgan Chase deemed the allowance for credit losses to
be appropriate (i.e., sufficient to absorb probable credit
losses inherent in the portfolio).

Formula-based component
The formula-based component is based on a statistical
calculation to provide for incurred credit losses in all
consumer loans and performing risk-rated loans. All loans
restructured in TDRs as well as any impaired risk-rated
loans have an allowance assessed as part of the asset-
specific component, while PCI loans have an allowance
assessed as part of the PCI component. See Note 12 for
more information on TDRs, Impaired loans and PCI loans.

Formula-based component - Consumer loans and certain
lending-related commitments
The formula-based allowance for credit losses for the
consumer portfolio segments is calculated by applying
statistical credit loss factors (estimated PD and loss
severities) to the recorded investment balances or loan-
equivalent amounts of pools of loan exposures with similar
risk characteristics over a loss emergence period to arrive
at an estimate of incurred credit losses. Estimated loss
emergence periods may vary by product and may change

over time; management applies judgment in estimating loss
emergence periods, using available credit information and
trends. In addition, management applies judgment to the
statistical loss estimates for each loan portfolio category,
using delinquency trends and other risk characteristics to
estimate the total incurred credit losses in the portfolio.
Management uses additional statistical methods and
considers actual portfolio performance, including actual
losses recognized on defaulted loans and collateral
valuation trends, to review the appropriateness of the
primary statistical loss estimate. The economic impact of
potential modifications of residential real estate loans is not
included in the statistical calculation because of the
uncertainty regarding the type and results of such
modifications.

The statistical calculation is then adjusted to take into
consideration model imprecision, external factors and
current economic events that have occurred but that are not
yet reflected in the factors used to derive the statistical
calculation; these adjustments are accomplished in part by
analyzing 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 of
underwriting standards, borrower behavior, and other
relevant internal and external factors affecting the credit
quality of the portfolio. In certain instances, the
interrelationships between these factors create further
uncertainties. The application of different inputs into the
statistical calculation, and the assumptions used by
management to adjust the statistical calculation, are subject
to management judgment, and emphasizing one input or
assumption over another, 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 consumer
portfolios is sensitive to changes in the economic
environment (e.g., unemployment rates), delinquency rates,
the realizable value of collateral (e.g., housing prices), FICO
scores, borrower behavior and other risk factors. While all
of these factors are important determinants of overall
allowance levels, changes in the various factors may not
occur at the same time or at the same rate, or changes may
be directionally inconsistent such that improvement in one
factor may offset deterioration in another. In addition,
changes in these factors would not necessarily be consistent
across all geographies or product types. Finally, it is difficult
to predict the extent to which changes in these factors
would ultimately affect the frequency of losses, the severity
of losses or both.

JPMorgan Chase & Co./2017 Annual Report

231

Notes to consolidated financial statements

Formula-based component - Wholesale loans and lending-
related commitments
The Firm’s methodology for determining the allowance for
loan losses and the allowance for lending-related
commitments involves the early identification of credits that
are deteriorating. The formula-based component of the
allowance for wholesale loans and lending-related
commitments is calculated by applying statistical credit loss
factors (estimated PD and LGD) to the recorded investment
balances or loan-equivalent over a loss emergence period to
arrive at an estimate of incurred credit losses in the
portfolio. Estimated loss emergence periods may vary by
funded versus unfunded status of the instrument and may
change over time.

The Firm assesses the credit quality of its borrower or
counterparty 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, the
level of the obligor’s earnings, the amount and sources for
repayment, the level and nature of contingencies,
management strength, and the industry and geography in
which the obligor operates. These factors are based on an
evaluation of historical and current information and involve
subjective assessment and interpretation. Determining risk
ratings involves significant judgment; emphasizing one
factor over another or considering additional factors could
affect the risk rating assigned by the Firm.

A PD estimate is determined based on the Firm’s history of
defaults over more than one credit cycle.

LGD estimate is a judgment-based estimate assigned to
each loan or lending-related commitment. The estimate
represents the amount of economic loss if the obligor were
to default. The type of obligor, quality of collateral, and the
seniority of the Firm’s lending exposure in the obligor’s
capital structure affect LGD.

The Firm applies judgment in estimating PD, LGD, loss
emergence period and loan-equivalent used in calculating
the allowance for credit losses. Estimates of PD, LGD, loss
emergence period and loan-equivalent used are subject to
periodic refinement based on any changes to underlying
external or Firm-specific historical data. Changes to the
time period used for PD and LGD estimates could also affect
the allowance for credit losses. The use of different inputs,
estimates or methodologies could change the amount of the
allowance for credit losses determined appropriate by the
Firm.

In addition to the statistical credit loss estimates applied to
the wholesale portfolio, management applies its judgment
to adjust the statistical estimates for wholesale loans and
lending-related commitments, taking into consideration
model imprecision, external factors and economic events
that have occurred but are not yet reflected in the loss
factors. Historical experience of both LGD and PD are

considered when estimating these adjustments. Factors
related to concentrated and deteriorating industries also
are incorporated where relevant. These estimates are based
on management’s view of uncertainties that relate to
current macroeconomic conditions, quality of underwriting
standards and other relevant internal and external factors
affecting the credit quality of the current portfolio.

Asset-specific component
The asset-specific component of the allowance relates to
loans considered to be impaired, which includes loans that
have been modified in TDRs as well as risk-rated loans that
have been placed on nonaccrual status. To determine the
asset-specific component of the allowance, larger risk-rated
loans (primarily loans in the wholesale portfolio segment)
are evaluated individually, while smaller loans (both risk-
rated and scored) are evaluated as pools using historical
loss experience for the respective class of assets.

The Firm generally measures the asset-specific allowance as
the difference between the recorded investment in the loan
and the present value of the cash flows expected to be
collected, 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 an
observable market price, and the allowance is measured as
the difference between the recorded investment in the loan
and the loan’s fair value. Collateral-dependent loans are
charged down to the fair value of collateral less costs 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), and either the expected cash
flows or fair value of collateral. See Note 12 for more
information about charge-offs and collateral-dependent
loans.

The asset-specific component of the allowance for impaired
loans that have been modified in TDRs (including forgone
interest, principal forgiveness, as well as other concessions)
incorporates the effect of the modification on the loan’s
expected cash flows, which considers the potential for
redefault. For residential real estate loans modified in TDRs,
the Firm develops product-specific probability of default
estimates, which are applied at a loan level to compute
expected losses. In developing these probabilities of
default, the Firm considers the relationship between the
credit quality characteristics of the underlying loans and
certain assumptions about home prices and unemployment,
based upon industry-wide data. The Firm also considers its
own historical loss experience to-date based on actual
redefaulted modified loans. For credit card loans modified
in TDRs, expected losses incorporate projected redefaults
based on the Firm’s historical experience by type of
modification program. For wholesale loans modified in
TDRs, expected losses incorporate management’s
expectation of the borrower’s ability to repay under the
modified terms.

232

JPMorgan Chase & Co./2017 Annual Report

Estimating the timing and amounts of future cash flows is
highly judgmental as these cash flow projections rely upon
estimates such as loss severities, asset valuations, default
rates (including redefault rates on modified loans), the
amounts and timing of interest or principal payments
(including any expected prepayments) or other factors that
are 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, the
expected outcome of insolvency proceedings as well as, in
certain circumstances, other economic factors, including
the level of future home prices. All of these estimates and
assumptions require significant management judgment and
certain assumptions are highly subjective.

PCI loans
In connection with the acquisition of certain PCI loans,
which are accounted for as described in Note 12, the
allowance for loan 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 lives of the loans.

These cash flow projections are based on estimates
regarding default rates (including redefault rates on
modified loans), loss severities, the amounts and timing of
prepayments and other factors that are reflective of current
and expected future market conditions. These estimates are
dependent on assumptions regarding the level of future
home prices, and the duration of current overall economic
conditions, among other factors. These estimates and
assumptions require significant management judgment and
certain assumptions are highly subjective.

JPMorgan Chase & Co./2017 Annual Report

233

Notes to consolidated financial statements

Allowance for credit losses and related information

The table below summarizes information about the allowances for loan losses and lending-relating commitments, and includes
a breakdown of loans and lending-related commitments by impairment methodology.

Year ended December 31,
(in millions)

Allowance for loan losses

Beginning balance at January 1,

Gross charge-offs

Gross recoveries

Net charge-offs

Write-offs of PCI loans(a)

Provision for loan losses

Other

Ending balance at December 31,

Allowance for loan losses by impairment methodology

Asset-specific(b)

Formula-based

PCI

Total allowance for loan losses

Loans by impairment methodology

Asset-specific

Formula-based

PCI

Total retained loans

Impaired collateral-dependent loans

Net charge-offs

Loans measured at fair value of collateral less cost to sell

Allowance for lending-related commitments

Beginning balance at January 1,

Provision for lending-related commitments

Other

Ending balance at December 31,

Allowance for lending-related commitments by impairment methodology

Asset-specific

Formula-based

Total allowance for lending-related commitments

Lending-related commitments by impairment methodology

Asset-specific

Formula-based

Total lending-related commitments

4,884

4,141

2017

Consumer,
excluding
credit card

Credit card

Wholesale

Total

4,544

13,776

5,198

1,779

(634)

1,145

613

(1)

4,579

246

2,108

2,225

4,579

8,036

333,941

30,576

372,553

2,133

—

48,553

4,034

4,521

(398)

4,123

—

4,973

—

383 (c) $

4,501

—

4,884

1,215

148,172

—

149,387

—

572,831

212

(93)

119

—

(286)

461

3,680

—

4,141

1,867

401,028

402,898

233

6,512

(1,125)

5,387

5,300

13,604

1,090

10,289

2,225

13,604

11,118

883,141

30,579

924,838

2,366

1,052

1,078

(17)

—

1,035

187

848

1,035

731

369,367

370,098

(10)

—

1,068

187

881

1,068

731

990,751

991,482

(a) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting

adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool.

(b) Includes risk-rated loans that have been placed on nonaccrual status and all loans that have been modified in a TDR.
(c) The asset-specific credit card allowance for loan losses is related to loans that have been modified in a TDR; such allowance is calculated based on the loans’ original contractual

interest rates and does not consider any incremental penalty rates.

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

234

JPMorgan Chase & Co./2017 Annual Report

(table continued from previous page)

2016

2015

Consumer,
excluding
credit card

Credit card

Wholesale

Total

Consumer,
excluding
credit card

Credit card

Wholesale

Total

5,806

1,500

(591)

909

156

467

(10)

5,198

308

2,579

2,311

5,198

8,940

319,787

35,679

364,406

2,391

—

358 (c) $

342

460 (c) $

274

3,434

3,799

(357)

3,442

—

4,042

—

4,315

13,555

398

(57)

341

—

571

(1)

5,697

(1,005)

4,692

156

5,080

(11)

4,034

4,544

13,776

4,202

—

1,008

10,457

2,311

4,544

13,776

2,017

12,197

381,770

842,028

35,682

383,790

889,907

300

105

2,691

772

281

(1)

786

281

1,052

1,078

169

883

169

909

1,052

1,078

506

3,676

—

4,034

1,240

140,471

—

141,711

—

7,050

1,658

(704)

954

208

(82)

—

5,806

364

2,700

2,742

5,806

9,606

293,751

40,998

344,355

104

2,566

—

3,439

3,488

(366)

3,122

—

3,122

(5)

3,696

14,185

(85)

—

623

5,241

(1,155)

4,086

208

3,663

3,434

4,315

13,555

2,974

—

3,434

1,465

129,922

—

131,387

—

4,041

—

1,098

9,715

2,742

4,315

13,555

1,024

12,095

356,022

779,695

41,002

357,050

832,792

283

120

2,849

609

163

—

772

699

772

622

164

—

786

713

786

193

366,206

938,589 (d)

366,399

938,782 (d)

53,247 (d)

553,891

53,247 (d) $

553,891

367,508

974,646 (d)

56,865 (d)

515,518

368,014

975,152 (d) $

56,865 (d) $

515,518

JPMorgan Chase & Co./2017 Annual Report

235

Notes to consolidated financial statements

Note 14 – Variable interest entities
For a further description of JPMorgan Chase’s accounting policies regarding consolidation of VIEs, see Note 1.

The following table summarizes the most significant types of Firm-sponsored VIEs by business segment. The Firm considers a
“sponsored” VIE to include any entity where: (1) JPMorgan Chase is the primary beneficiary of the structure; (2) the VIE is
used 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

Transaction Type

Activity

CCB

Credit card securitization trusts

Mortgage securitization trusts

Mortgage and other securitization trusts

CIB

Multi-seller conduits

Securitization of originated credit card receivables

Servicing and securitization of both originated and
purchased residential mortgages

Securitization of both originated and purchased
residential and commercial mortgages and other
consumer loans

Assist clients in accessing the financial markets in a
cost-efficient manner and structures transactions to
meet investor needs

Municipal bond vehicles

Financing of municipal bond investments

Annual Report
page references

236-237

237-239

239

239-240

The Firm’s other business segments are also involved with VIEs (both third-party and Firm-sponsored), but to a lesser extent,
as follows:

• Asset & Wealth Management: AWM sponsors and manages certain funds that are deemed VIEs. As asset manager of the

funds, 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 variable
interests that result in consolidation of the financial results of these entities.

• Commercial Banking: CB provides financing and lending-related services to a wide spectrum of clients, including certain

third party-sponsored entities that may meet the definition of a VIE. CB does not control the activities of these entities and
does not consolidate these entities. CB’s maximum loss exposure, regardless of whether the entity is a VIE, is generally
limited to loans and lending-related commitments which are reported and disclosed in the same manner as any other third-
party transaction.

• Corporate: Corporate is involved with entities that may meet the definition of VIEs; however these entities are generally

subject to specialized investment company accounting, which does not require the consolidation of investments, including
VIEs. In addition, Treasury and CIO invest in securities generally issued by third parties which may meet the definition of
VIEs (e.g., issuers of asset-backed securities). In general, the Firm does not have the power to direct the significant
activities of these entities and therefore does not consolidate these entities. See Note 10 for further information on the
Firm’s investment securities portfolio.

In addition, CIB also invests in and provides financing and other services to VIEs sponsored by third parties. See pages
241-242 of this Note for more information on the VIEs sponsored by third parties.

Significant Firm-sponsored variable interest entities
Credit card securitizations
CCB’s Card business securitizes originated credit card loans,
primarily through the Chase Issuance Trust (the “Trust”).
The Firm’s continuing involvement in credit card
securitizations includes servicing the receivables, retaining
an undivided seller’s interest in the receivables, retaining
certain senior and subordinated securities and maintaining
escrow accounts.

The Firm is considered to be the primary beneficiary of
these Firm-sponsored credit card securitization trusts based
on 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 are
transferred into those trusts and as to any related
modifications and workouts. Additionally, the nature and
extent of the Firm’s other continuing involvement with the
trusts, 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 be
significant.

The underlying securitized credit card receivables and other
assets 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’s
other 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 interest
in the credit card trusts (generally 5%). As of December 31,
2017 and 2016, the Firm held undivided interests in Firm-
sponsored credit card securitization trusts of $15.8 billion
and $8.9 billion, respectively. The Firm maintained an
average undivided interest in principal receivables owned
by those trusts of approximately 26% and 16% for the
years ended December 31, 2017 and 2016. As of both

236

JPMorgan Chase & Co./2017 Annual Report

December 31, 2017 and 2016, the Firm did not retain any
senior securities and retained $4.5 billion and $5.3 billion
of subordinated securities in certain of its credit card
securitization trusts as of December 31, 2017 and 2016,
respectively. The Firm’s undivided interests in the credit
card trusts and securities retained are eliminated in
consolidation.

Firm-sponsored mortgage and other securitization trusts

The Firm securitizes (or has securitized) originated and
purchased residential mortgages, commercial mortgages
and other consumer loans primarily in its CCB and CIB
businesses. Depending on the particular transaction, as well
as the respective business involved, 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 (including amounts required to be
held pursuant to credit risk retention rules), recourse or guarantee arrangements, and derivative transactions. In certain
instances, the Firm’s only continuing involvement is servicing the loans. See Securitization activity on page 242 of this Note for
further information regarding the Firm’s cash flows with and interests retained in nonconsolidated VIEs, and page 243 of this
Note for information on the Firm’s loan sales to U.S. government agencies.

Principal amount outstanding

Total assets
held by
securitization
VIEs

Assets
held in
consolidated
securitization
VIEs

Assets held in
nonconsolidated
securitization
VIEs with
continuing
involvement

JPMorgan Chase interest in securitized assets in
nonconsolidated VIEs(c)(d)(e)

Trading
assets

Securities

Other
financial
assets

Total
interests
held by
JPMorgan
Chase

December 31, 2017 (in millions)

Securitization-related(a)

Residential mortgage:

Prime/Alt-A and option ARMs

68,874 $

3,615 $

Subprime

Commercial and other(b)

Total

December 31, 2016(in millions)

Securitization-related(a)

Residential mortgage:

18,984

94,905

52,280

17,612

63,411

410 $

943 $

— $

1,353

745

—

1,133

—

157

2,035

182,763 $

3,685 $

133,303

1,248 $

2,076 $

157 $

3,481

Principal amount outstanding

Total assets
held by
securitization
VIEs

Assets
held in
consolidated
securitization
VIEs

Assets held in
nonconsolidated
securitization
VIEs with
continuing
involvement

JPMorgan Chase interest in securitized assets in
nonconsolidated VIEs(c)(d)(e)

Trading
assets

Securities

Other
financial
assets

Total
interests
held by
JPMorgan
Chase

Prime/Alt-A and option ARMs

76,789 $

4,209 $

226 $

1,334 $

— $

1,560

Subprime

Commercial and other(b)

Total

21,542

101,265

—

107

509

—

2,064

—

199,596 $

4,316 $

148,910

811 $

3,398 $

— $

2,573

4,209

57,543

19,903

71,464

(a) Excludes U.S. government agency securitizations and re-securitizations, which are not Firm-sponsored. See page 243 of this Note for information on the

Firm’s loan sales to U.S. government agencies.

(b) Consists of securities backed by commercial loans (predominantly real estate) and non-mortgage-related consumer receivables purchased from third

parties.

(c) Excludes the following: retained servicing (see Note 15 for a discussion of MSRs); securities retained from loan sales to U.S. government agencies; interest
rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities (See Note 5 for further
information on derivatives); senior and subordinated securities of $88 million and $48 million, respectively, at December 31, 2017, and $180 million and
$49 million, respectively, at December 31, 2016, which the Firm purchased in connection with CIB’s secondary market-making activities.

(d) Includes interests held in re-securitization transactions.
(e) As of December 31, 2017 and 2016, 61% and 61%, respectively, of the Firm’s retained securitization interests, which are predominantly carried at fair
value and include amounts required to be held pursuant to credit risk retention rules, were risk-rated “A” or better, on an S&P-equivalent basis. The
retained interests in prime residential mortgages consisted of $1.3 billion and $1.5 billion of investment-grade and $48 million and $77 million of
noninvestment-grade retained interests at December 31, 2017 and 2016, respectively. The retained interests in commercial and other securitizations
trusts consisted of $1.6 billion and $2.4 billion of investment-grade and $412 million and $210 million of noninvestment-grade retained interests at
December 31, 2017 and 2016, respectively.

JPMorgan Chase & Co./2017 Annual Report

237

Notes to consolidated financial statements

Residential mortgage
The Firm securitizes residential mortgage loans originated
by CCB, as well as residential mortgage loans purchased
from 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-sponsored
securitization trusts. As a result, CIB at times retains senior
and/or subordinated interests (including residual interests
and amounts required to be held pursuant to credit risk
retention rules) in residential mortgage securitizations at
the time of securitization, and/or reacquires positions in the
secondary market in the normal course of business. In
certain instances, as a result of the positions retained or
reacquired by CIB or held by CCB, when considered together
with the servicing arrangements entered into by CCB, the
Firm is deemed to be the primary beneficiary of certain
securitization trusts. See the table on page 241 of this Note
for more information on consolidated residential mortgage
securitizations.

The Firm does not consolidate a residential mortgage
securitization (Firm-sponsored or third-party-sponsored)
when it is not the servicer (and therefore does not have the
power to direct the most significant activities of the trust)
or does not hold a beneficial interest in the trust that could
potentially be significant to the trust. See the table on page
241 of this Note for more information on the consolidated
residential mortgage securitizations, and the table on the
previous page of this Note for further information on
interests held in nonconsolidated residential mortgage
securitizations.

Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans,
and engages in underwriting and trading activities involving
the securities issued by securitization trusts. CIB may retain
unsold senior and/or subordinated interests (including
amounts required to be held pursuant to credit risk
retention rules) in commercial mortgage securitizations at
the time of securitization but, generally, the Firm does 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 specified class of securities (“controlling
class”). The Firm generally does not retain an interest in the
controlling class in its sponsored commercial mortgage
securitization transactions. See the table on page 241 of
this Note for more information on the consolidated
commercial mortgage securitizations, and the table on the
previous page of this Note for further information on
interests held in nonconsolidated securitizations.

Re-securitizations
The Firm engages in certain re-securitization transactions in
which debt securities are transferred to a VIE in exchange
for new beneficial interests. These transfers occur in
connection 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 by
either residential or commercial mortgages. The Firm’s
consolidation analysis is largely dependent on the Firm’s
role and interest in the re-securitization trusts.

The following table presents the principal amount of
securities transferred to re-securitization VIEs.

Year ended December 31,
(in millions)

Transfers of securities to

VIEs

2017

2016

2015

Firm-sponsored private-label

— $

647

Agency

$ 12,617

11,241

777

21,908

Most re-securitizations with which the Firm is involved are
client-driven transactions in which a specific client or group
of clients is seeking a specific return or risk profile. For
these transactions, the Firm has concluded that the
decision-making power of the entity is shared between the
Firm and its clients, considering the joint effort and
decisions in establishing the re-securitization trust and its
assets, as well as the significant economic interest the client
holds in the re-securitization trust; therefore the Firm does
not consolidate the re-securitization VIE.

In more limited circumstances, the Firm creates a
nonagency re-securitization trust independently and not in
conjunction with specific clients. In these circumstances, the
Firm is deemed to have the unilateral ability to direct the
most significant activities of the re-securitization trust
because of the decisions made during the establishment
and design of the trust; therefore, the Firm consolidates the
re-securitization VIE if the Firm holds an interest that could
potentially be significant.

Additionally, the Firm may invest in beneficial interests of
third-party re-securitizations and generally purchases these
interests in the secondary market. In these circumstances,
the Firm does not have the unilateral ability to direct the
most significant activities of the re-securitization trust,
either because it was not involved in the initial design of the
trust, or the Firm is involved with an independent third-
party sponsor and demonstrates shared power over the
creation of the trust; therefore, the Firm does not
consolidate the re-securitization VIE.

238

JPMorgan Chase & Co./2017 Annual Report

The following table presents information on
nonconsolidated re-securitization VIEs.

Year ended December 31,
(in millions)

Firm-sponsored private-label

Assets held in VIEs with continuing involvement(a)

Interest in VIEs

Agency

Interest in VIEs

2017

2016

783

875

2,250

1,986

(a) Represents the principal amount and includes the notional amount of

interest-only securities.

As of December 31, 2017 and 2016, the Firm did not
consolidate any agency re-securitizations or any Firm-
sponsored 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 their
financing facilities through the issuance of highly rated
commercial paper. The primary source of repayment of the
commercial paper is the cash flows from the pools of assets.
In most instances, the assets are structured with deal-
specific credit enhancements provided to the conduits by
the customers (i.e., sellers) or other third parties. Deal-
specific credit enhancements are generally structured to
cover a multiple of historical losses expected on the pool of
assets, and are typically in the 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, and
to provide the conduits with funding to provide financing to
customers in the event that the conduits do not obtain
funding in the commercial paper market, each asset pool
financed by the conduits has a minimum 100% deal-
specific liquidity facility 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 is
based 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 the
significant activities of the conduits and a potentially
significant economic interest in the conduits. As
administrative agent and in its role in structuring
transactions, the Firm makes decisions regarding asset
types and credit quality, and manages the commercial
paper funding needs of the conduits. The Firm’s interests
that could potentially be significant to the VIEs include the
fees received as administrative agent and liquidity and
program-wide credit enhancement provider, as well as the
potential exposure created by the liquidity and credit

enhancement facilities provided to the conduits. See page
241 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
$20.4 billion and $21.2 billion of the commercial paper
issued by the Firm-administered multi-seller conduits at
December 31, 2017 and 2016, respectively, which have
been eliminated in consolidation. The Firm’s investments
reflect the Firm’s funding needs and capacity and were not
driven by market illiquidity. Other than the amounts
required to be held pursuant to credit risk retention rules,
the Firm is not obligated under any agreement to purchase
the commercial paper issued by the Firm-administered
multi-seller conduits.

Deal-specific liquidity facilities, program-wide liquidity and
credit enhancement provided by the Firm have been
eliminated in consolidation. The Firm or the Firm-
administered multi-seller conduits provide lending-related
commitments to certain clients of the Firm-administered
multi-seller conduits. The unfunded commitments were
$8.8 billion and $7.4 billion at December 31, 2017 and
2016, respectively, and are reported as off-balance sheet
lending-related commitments. For more information on off-
balance sheet lending-related commitments, see Note 27.

Municipal bond vehicles
Municipal bond vehicles or tender option bond (“TOB”)
trusts allow institutions to finance their municipal bond
investments at short-term rates. In a typical TOB
transaction, the trust purchases highly rated municipal
bond(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 typically
purchased by money market funds or other short-term
investors and may be tendered, with requisite notice, to the
TOB trust. The Residuals are retained by the investor
seeking to finance its municipal bond investment. TOB
transactions where the Residual is held by a third party
investor are typically known as Customer TOB trusts, and
Non-Customer TOB trusts are transactions where the
Residual is retained by the Firm. Customer TOB trusts are
sponsored by a third party; see page 242 on this Note for
further information. The Firm serves as sponsor for all Non-
Customer TOB transactions. The Firm may provide various
services to a TOB trust, including remarketing agent,
liquidity or tender option provider, and/or sponsor.

J.P. Morgan Securities LLC may serve as a remarketing
agent on the Floaters for TOB trusts. The remarketing agent
is responsible for establishing the periodic variable rate on
the Floaters, conducting the initial placement and
remarketing tendered Floaters. The remarketing agent may,
but is not obligated to, make markets in Floaters. The Firm
held an insignificant amount of Floaters during 2017 and
2016.

JPMorgan Chase & Co./2017 Annual Report

239

Notes to consolidated financial statements

JPMorgan Chase Bank, N.A. or J.P. Morgan Securities LLC
often serves as the sole liquidity or tender option provider
for the TOB trusts. The liquidity provider’s obligation to
perform is conditional and is limited by certain events
(“Termination Events”), which include bankruptcy or failure
to pay by the municipal bond issuer or credit enhancement
provider, an event of taxability on the municipal bonds or
the immediate downgrade of the municipal bond to below
investment grade. In addition, the liquidity provider’s
exposure is typically further limited by the high credit
quality of the underlying municipal bonds, the excess
collateralization in the vehicle, or, in certain transactions,
the reimbursement agreements with the Residual holders.

Holders of the Floaters may “put,” or tender, their Floaters
to the TOB trust. If the remarketing agent cannot
successfully remarket the Floaters to another investor, the
liquidity provider either provides a loan to the TOB trust for
the TOB trust’s purchase of the Floaters, or it directly
purchases the tendered Floaters.

TOB trusts are considered to be variable interest entities.
The Firm consolidates Non-Customer TOB trusts because as
the Residual holder, the Firm has the right to make
decisions that significantly impact the economic
performance of the municipal bond vehicle, and it has the
right to receive benefits and bear losses that could
potentially be significant to the municipal bond vehicle. See
page 241 of this Note for further information on
consolidated municipal bond vehicles.

240

JPMorgan Chase & Co./2017 Annual Report

Consolidated VIE assets and liabilities
The following table presents information on assets and liabilities related to VIEs consolidated by the Firm as of December 31,
2017 and 2016.

December 31, 2017 (in millions)

VIE program type(a)
Firm-sponsored credit card trusts

Assets

Liabilities

Trading
assets

Loans

Other(d)

Total
assets(e)

Beneficial
interests in
VIE assets(f)

Other(g)

Total
liabilities

— $

41,923 $

652 $

42,575

21,278 $

16 $

21,294

Firm-administered multi-seller conduits

—

23,411

Municipal bond vehicles
Mortgage securitization entities(b)
Student loan securitization entities(c)
Other

Total

December 31, 2016 (in millions)

VIE program type(a)
Firm-sponsored credit card trusts

Municipal bond vehicles
Mortgage securitization entities(b)
Student loan securitization entities (c)
Other

Total

1,278

—

105

—

3,661

—

1,916

23,459

1,281

3,782

—

2,021

3,045

1,265

359

—

134

199

—

104

3,073

1,267

558

—

238

1,449 $

68,995 $

2,674 $

73,118

26,081 $

349 $

26,430

Assets

Liabilities

Trading
assets

Loans

Other(d)

Total
assets(e)

Beneficial
interests in
VIE assets(f)

Other(g)

Total
liabilities

— $

45,919 $

790 $

46,709

31,181 $

18 $

31,199

2,897

143

—

145

—

4,246

1,689

—

103

2,318

23,803

2,905

4,492

1,748

2,463

2,719

2,969

468

1,527

183

313

120

2,752

2,971

781

1,531

303

3,185 $

75,614 $

3,321 $

82,120

39,047 $

490 $

39,537

Firm-administered multi-seller conduits

—

23,760

(a) Excludes intercompany transactions, which are eliminated in consolidation.
(b) Includes residential and commercial mortgage securitizations.
(c) The Firm deconsolidated the student loan securitization entities in the second quarter of 2017 as it no longer had a controlling financial interest in these

entities as a result of the sale of the student loan portfolio.

(d) Includes assets classified as cash and other assets on the Consolidated balance sheets.
(e) The assets of the consolidated VIEs included in the program types above are used to settle the liabilities of those entities. The difference between total

assets and total liabilities recognized for consolidated VIEs represents the Firm’s interest in the consolidated VIEs for each program type.

(f) The interest-bearing beneficial interest liabilities issued by consolidated VIEs are classified in the line item on the Consolidated balance sheets titled,

“Beneficial interests issued by consolidated variable interest entities.” The holders of these beneficial interests do not have recourse to the general credit
of JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $21.8 billion and $33.4 billion at December 31,
2017 and 2016, respectively. For additional information on interest bearing long-term beneficial interest, see Note 19.

(g) Includes liabilities classified as accounts payable and other liabilities on the Consolidated balance sheets.

VIEs sponsored by third parties
The Firm enters into transactions with VIEs structured by
other 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’s-
length, and individual credit decisions are based on the
analysis of the specific VIE, taking into consideration the
quality of the underlying assets. Where the Firm does not
have the power to direct the activities of the VIE that most
significantly impact the VIE’s economic performance, or a
variable interest that could potentially be significant, the
Firm generally does not consolidate the VIE, but it records
and reports these positions on its Consolidated balance
sheets in the same manner it would record and report
positions in respect of any other third-party transaction.

Tax credit vehicles
The Firm holds investments in unconsolidated tax credit
vehicles, which are limited partnerships and similar entities
that construct, own and operate affordable housing, wind,
solar and other alternative energy projects. These entities
are primarily considered VIEs. A third party is typically the
general partner or managing member and has control over
the significant activities of the tax credit vehicles, and
accordingly the Firm does not consolidate tax credit
vehicles. The Firm generally invests in these partnerships as
a limited partner and earns a return primarily through the
receipt of tax credits allocated to the projects. The
maximum loss exposure, represented by equity investments
and funding commitments, was $13.4 billion and $14.8
billion, of which $3.2 billion and $3.8 billion was unfunded
at December 31, 2017 and 2016 respectively. In order to
reduce the risk of loss, the Firm assesses each project and
withholds varying amounts of its capital investment until
qualification of the project for tax credits. See Note 24 for

JPMorgan Chase & Co./2017 Annual Report

241

Notes to consolidated financial statements

further information on affordable housing tax credits. For
more information on off-balance sheet lending-related
commitments, see Note 27.

Customer municipal bond vehicles (TOB trusts)
The Firm may provide various services to Customer TOB
trusts, including remarketing agent, liquidity or tender
option provider. In certain Customer TOB transactions, the
Firm, as liquidity provider, has entered into a
reimbursement agreement with the Residual holder. In
those transactions, upon the termination of the vehicle, the
Firm has recourse to the third party Residual holders for
any shortfall. The Firm does not have any intent to protect
Residual holders from potential losses on any of the
underlying municipal bonds. The Firm does not consolidate
Customer TOB trusts, since the Firm does not have the
power to make decisions that significantly impact the
economic performance of the municipal bond vehicle. The
Firm’s maximum exposure as a liquidity provider to
Customer TOB trusts at December 31, 2017 and 2016, was
$5.3 billion and $5.0 billion, respectively. The fair value of
assets held by such VIEs at December 31, 2017 and 2016
was $9.2 billion and $8.9 billion, respectively. For more
information on off-balance sheet lending-related
commitments, see Note 27.

Loan securitizations
The Firm has securitized and sold a variety of loans,
including residential mortgage, credit card, student and
commercial (primarily related to real estate) loans, as well
as debt securities. The purposes of these securitization
transactions were to satisfy investor demand and to
generate liquidity for the Firm.

For loan securitizations in which the Firm is not required to
consolidate the trust, the Firm records the transfer of the
loan receivable to the trust as a sale when all of the
following accounting criteria for a sale are met: (1) the
transferred financial assets are legally isolated from the
Firm’s creditors; (2) the transferee or beneficial interest
holder can pledge or exchange the transferred financial
assets; and (3) the Firm does not maintain effective control
over the transferred financial assets (e.g., the Firm cannot
repurchase the transferred assets before their maturity and
it does not have the ability to unilaterally cause the holder
to return the transferred assets).

For loan securitizations accounted for as a sale, the Firm
recognizes a gain or loss based on the difference between
the value of proceeds received (including cash, beneficial
interests, or servicing assets received) and the carrying
value of the assets sold. Gains and losses on securitizations
are reported in noninterest revenue.

Securitization activity
The following table provides information related to the Firm’s securitization activities for the years ended December 31, 2017,
2016 and 2015, related to assets held in Firm-sponsored securitization entities that were not consolidated by the Firm, and
where sale accounting was achieved at the time of the securitization.

2017

2016

2015

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

Principal securitized
All cash flows during the period:(a)

Proceeds received from loan sales as financial

instruments(b)

Servicing fees collected

Purchases of previously transferred financial assets (or

the underlying collateral)(c)

Cash flows received on interests

Residential
mortgage(d)

Commercial
and other(e)

Residential
mortgage(d)

Commercial
and other(e)

Residential
mortgage(d)

Commercial
and other(e)

5,532 $

10,252

5,661 $

10,340

525

463

—

918

1,817 $

8,964

1,831 $

9,094

477

482

—

1,441

3,008 $

11,933

3,022 $

12,011

528

407

—

597

(a) Excludes re-securitization transactions.
(b) Predominantly includes Level 2 assets.
(c) Includes cash paid by the Firm to reacquire assets from off–balance sheet, nonconsolidated entities – for example, loan repurchases due to representation and

warranties and servicer “clean-up” calls.

(d) Includes prime/Alt-A, subprime, and option ARMs. Excludes certain loan securitization transactions entered into with Ginnie Mae, Fannie Mae and Freddie Mac.
(e) Includes commercial mortgage and other consumer loans.

Key assumptions used to value retained interests originated
during the year are shown in the table below.

Year ended December 31,

2017

2016

2015

Residential mortgage retained interest:

Weighted-average life (in years)

Weighted-average discount rate

4.8

4.5

4.2

2.9%

4.2%

2.9%

Commercial mortgage retained interest:

Weighted-average life (in years)
Weighted-average discount rate

7.1
4.4%

6.2
5.8%

6.2
4.1%

242

JPMorgan Chase & Co./2017 Annual Report

Loans and excess MSRs sold to U.S. government-
sponsored enterprises, loans in securitization
transactions pursuant to Ginnie Mae guidelines, and other
third-party-sponsored securitization entities
In addition to the amounts reported in the securitization
activity tables above, the Firm, in the normal course of
business, 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 sold
primarily for the purpose of securitization by the U.S. GSEs,
who provide certain guarantee provisions (e.g., credit
enhancement of the loans). The Firm also sells loans into
securitization transactions pursuant to Ginnie Mae
guidelines; these loans are typically insured or guaranteed
by another U.S. government agency. The Firm does not
consolidate the securitization vehicles underlying these
transactions as it is not the primary beneficiary. For a
limited number of loan sales, the Firm is obligated to share
a portion of the credit risk associated with the sold loans
with the purchaser. See Note 27 for additional information
about the Firm’s loan sales- and securitization-related
indemnifications.

See Note 15 for additional information about the impact of
the Firm’s sale of certain excess MSRs.

The following table summarizes the activities related to
loans sold to the U.S. GSEs, loans in securitization
transactions pursuant to Ginnie Mae guidelines, and other
third-party-sponsored securitization entities.

(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 and
warranties as discussed in Note 27, the Firm also has the
option 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 typically
elects to repurchase delinquent loans from Ginnie Mae loan
pools as it continues to service them and/or manage the
foreclosure process in accordance with the applicable
requirements, and such loans continue to be insured or
guaranteed. When the Firm’s repurchase option becomes
exercisable, such loans must be reported on the
Consolidated balance sheets as a loan with a corresponding
liability.

The following table presents loans the Firm repurchased or
had an option to repurchase, real estate owned, and
foreclosed government-guaranteed residential mortgage
loans recognized on the Firm’s Consolidated balance sheets
as of December 31, 2017 and 2016. Substantially all of
these loans and real estate are insured or guaranteed by
U.S. government agencies. For additional information, refer
to Note 12.

December 31,
(in millions)

2017

2016

Loans repurchased or option to repurchase(a)

8,629 $

9,556

Year ended December 31,
(in millions)

Carrying value of loans sold

Proceeds received from loan

sales as cash

Proceeds from loans sales as

securities(a)

Total proceeds received from

loan sales(b)

Gains on loan sales(c)(d)

2017

2016

2015

Real estate owned

Foreclosed government-guaranteed residential

64,542 $

52,869 $

42,161

mortgage loans(b)

142

527

1,007

117 $

592 $

313

63,542

51,852

41,615

63,659 $

52,444 $

41,928

163 $

222 $

299

(a) Predominantly all of these amounts relate to loans that have been

repurchased from Ginnie Mae loan pools.

(b) Relates to voluntary repurchases of loans, which are included in

accrued interest and accounts receivable.

(a) Predominantly includes securities from U.S. GSEs and Ginnie Mae that

are generally sold shortly after receipt.

Loan delinquencies and liquidation losses
The table below includes information about components of nonconsolidated securitized financial assets held in Firm-sponsored
private-label securitization entities, in which the Firm has continuing involvement, and delinquencies as of December 31, 2017
and 2016.

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

2017

2016

2017

2016

2017

2016

Securitized assets

90 days past due

Liquidation losses

Securitized loans

Residential mortgage:

Prime/ Alt-A & option ARMs

Subprime

Commercial and other

Total loans securitized

$ 52,280 $ 57,543

4,870 $

6,169

790 $

1,160

17,612

63,411

19,903

71,464

3,276

957

4,186

1,755

719

114

1,087

643

$ 133,303 $ 148,910

9,103 $ 12,110

1,623 $

2,890

JPMorgan Chase & Co./2017 Annual Report

243

Notes to consolidated financial statements

Note 15 – Goodwill and Mortgage servicing rights
Goodwill
Goodwill is recorded upon completion of a business
combination as the difference between the purchase price
and the fair value of the net assets acquired. Subsequent to
initial 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 is
allocated to the related reporting units, which are
determined based on how the Firm’s businesses are
managed 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)

2017

2016

2015

Consumer & Community Banking

$ 31,013 $ 30,797 $ 30,769

Corporate & Investment Bank
Commercial Banking

Asset & Wealth Management

6,776
2,860

6,858

6,772
2,861

6,858

6,772
2,861

6,923

Total goodwill

$ 47,507 $ 47,288 $ 47,325

The following table presents changes in the carrying
amount of goodwill.

Year ended December 31, (in
millions)

2017

2016

2015

Balance at beginning of period

$ 47,288

$ 47,325

$ 47,647

Changes during the period from:

Business combinations(a)

Dispositions(b)

Other(c)

199

—

(72)

(160)

(190)

Balance at December 31,

$ 47,507

$ 47,288

$ 47,325

(a) For 2017, represents CCB goodwill in connection with an acquisition.
(b) For 2016, represents AWM goodwill, which was disposed of as part of
an AWM sales transaction. For 2015 includes $101 million of Private
Equity goodwill, which was disposed of as part of the Private Equity
sale.

related adjustments.

Impairment testing
The Firm’s goodwill was not impaired at December 31,
2017, 2016, and 2015.

The goodwill impairment test is performed in two steps. In
the first step, the current fair value of each reporting unit is
compared with its carrying value, including goodwill and
other intangible assets. If the fair value is in excess of the
carrying value, then the reporting unit’s goodwill is
considered to be not impaired. If the fair value is less than
the carrying value, then a second step is performed. In the
second step, the implied current fair value of the reporting
unit’s goodwill is determined by comparing the fair 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 business
combination. The resulting implied current fair value of
goodwill is then compared with the carrying value of the
reporting 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 the
carrying value of goodwill is less than its implied current
fair value, then no goodwill impairment is recognized.

The Firm uses the reporting units’ allocated capital plus
goodwill and other intangible assets capital as a proxy for
the carrying values of equity for the reporting units in the
goodwill impairment testing. Reporting unit equity is
determined on a similar basis as the allocation of capital to
the Firm’s lines of business, which takes into consideration
the capital the business segment would require if it were
operating independently, incorporating sufficient capital to
address regulatory capital requirements (including Basel
III) and capital levels for similarly rated peers. Proposed
line of business equity levels are incorporated into the
Firm’s annual budget process, which is reviewed by the
Firm’s Board of Directors. Allocated capital is further
reviewed on a periodic basis and updated as needed.

244

JPMorgan Chase & Co./2017 Annual Report

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, and
generally declines over time as net servicing cash flows are
received, effectively amortizing the MSR asset against
contractual servicing and ancillary fee income. MSRs are
either purchased from third parties or recognized upon sale
or securitization of mortgage loans if servicing is retained.

As permitted by U.S. GAAP, the Firm has elected to account
for its MSRs at fair value. The Firm treats its MSRs as a
single class of servicing assets based on the availability of
market inputs used to measure the fair value of its MSR
asset and its treatment of MSRs as one aggregate pool for
risk management purposes. The Firm estimates the fair
value of MSRs using an option-adjusted spread (“OAS”)
model, which projects MSR cash flows over multiple interest
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, late
charges and other ancillary revenue, and other economic
factors. The Firm compares fair value estimates and
assumptions to observable market data where available,
and also considers recent market activity and actual
portfolio experience.

The primary method the Firm uses to estimate the fair
value of its reporting units is the income approach. This
approach projects cash flows for the forecast period and
uses the perpetuity growth method to calculate terminal
values. These cash flows and terminal values are then
discounted using an appropriate discount rate. Projections
of cash flows are based on the reporting units’ earnings
forecasts which are reviewed with senior management of
the Firm. The discount rate used for each reporting unit
represents an estimate of the cost of equity for 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 the business or
management’s forecasts and assumptions). To assess the
reasonableness of the discount rates used for each
reporting unit management compares the discount rate to
the estimated cost of equity for publicly traded institutions
with similar businesses and risk characteristics. In addition,
the weighted average cost of equity (aggregating 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 and
transaction multiples for relevant competitors. Trading and
transaction comparables are used as general indicators to
assess the general reasonableness of the estimated fair
values, although precise conclusions generally cannot be
drawn due to the differences that naturally exist between
the Firm’s businesses and competitor institutions.
Management also takes into consideration a comparison
between the aggregate fair 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 a
market transaction, (ii) factors related to the level of
execution 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.

Declines in business performance, increases in credit losses,
increases in capital requirements, as well as deterioration
in economic or market conditions, estimates of adverse
regulatory or legislative changes or increases in the
estimated market cost of equity, could cause the estimated
fair values of the Firm’s reporting units or their associated
goodwill to decline in the future, which could result in a
material impairment charge to earnings in a future period
related to some portion of the associated goodwill.

JPMorgan Chase & Co./2017 Annual Report

245

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 and
securities to manage the risk of changes in the fair value of
MSRs. The intent is to offset any interest-rate related
changes in the fair value of MSRs with changes in the fair
value of the related risk management instruments.

The following table summarizes MSR activity for the years ended December 31, 2017, 2016 and 2015.

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

Fair value at beginning of period

MSR activity:

Originations of MSRs

Purchase of MSRs

Disposition of MSRs(a)

Net additions

Changes due to collection/realization of expected cash flows

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,

Change in unrealized gains/(losses) included in income related to MSRs held at December 31,

Contractual service fees, late fees and other ancillary fees included in income

Third-party mortgage loans serviced at December 31, (in billions)

Servicer advances, net of an allowance for uncollectible amounts, at December 31, (in billions)(d)

2017

6,096

2016

2015

6,608

7,436

1,103

—

(140)

963

(797)

(202)

(102)

(19)

(30)

(232)

6,030

(232)

1,886

555.0

4.0

679

—

(109)

570

(919)

(72)

(35)

(63)

(91)

(163)

6,096

(163)

2,124

593.3

4.7

550

435

(486)

499

(922)

(160)

(112)

(10)

(123)

(245)

(405)

6,608

(405)
2,533

677.0

6.5

(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 short
period of time after the advance from future cash flows from the trust or the underlying loans. The Firm’s credit risk associated with these servicer advances is
minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right to stop payment to
investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if they were not made in
accordance with applicable rules and agreements.

246

JPMorgan Chase & Co./2017 Annual Report

The following table presents the components of mortgage
fees and related income (including the impact of MSR risk
management activities) for the years ended December 31,
2017, 2016 and 2015.

Year ended December 31,
(in millions)

CCB mortgage fees and related

income

2017

2016

2015

Net production revenue

$ 636

$ 853

$ 769

Net mortgage servicing revenue:

Operating revenue:

Loan servicing revenue

2,014

2,336

2,776

Changes in MSR asset fair value
due to collection/realization of
expected cash flows

The table below outlines the key economic assumptions
used to determine the fair value of the Firm’s MSRs at
December 31, 2017 and 2016, and outlines the
sensitivities of those fair values to immediate adverse
changes in those assumptions, as defined below.

December 31,
(in millions, except rates)

Weighted-average prepayment speed

assumption (“CPR”)

2017

2016

9.35%

9.41%

Impact on fair value of 10% adverse change $ (221)

$ (231)

Impact on fair value of 20% adverse change

Weighted-average option adjusted spread

Impact on fair value of 100 basis points

adverse change

(427)

9.04%

(445)

8.55%

$ (250)

$ (248)

(795)

(916)

(917)

Impact on fair value of 200 basis points

Total operating revenue

1,219

1,420

1,859

adverse change

(481)

(477)

CPR: Constant prepayment rate.

Changes in fair value based on variation in assumptions
generally cannot be easily extrapolated, because the
relationship of the change in the assumptions to the change
in fair value are often highly interrelated and may not be
linear. In this table, 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.

Risk management:

Changes in MSR asset fair value
due to market interest rates

and other(a)

Other changes in MSR asset fair
value due to other inputs and
assumptions in model(b)

Change in derivative fair value

and other

Total risk management

Total net mortgage servicing

revenue

(202)

(72)

(160)

(30)

(91)

(245)

(10)

(242)

380

217

288

(117)

977

1,637

1,742

Total CCB mortgage fees and

related income

All other

1,613

2,490

2,511

Mortgage fees and related income

$1,616

$ 2,491

$2,513

(a) 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.

(b) Represents the aggregate impact of changes in model inputs and
assumptions such as projected cash flows (e.g., cost to service),
discount rates and changes in prepayments other than those
attributable to changes in market interest rates (e.g., changes in
prepayments due to changes in home prices).

JPMorgan Chase & Co./2017 Annual Report

247

Notes to consolidated financial statements

Note 16 – Premises and equipment
Premises and equipment, including leasehold
improvements, are carried at cost less accumulated
depreciation and amortization. JPMorgan Chase computes
depreciation using the straight-line method over the
estimated useful life of an asset. For leasehold
improvements, the Firm uses the straight-line method
computed over the lesser of the remaining term of the
leased facility or the estimated useful life of the leased
asset.

JPMorgan Chase capitalizes certain costs associated with
the acquisition or development of internal-use software.
Once the software is ready for its intended use, these costs
are amortized on a straight-line basis over the software’s
expected useful life and reviewed for impairment on an
ongoing basis.

Note 17 – Deposits
At December 31, 2017 and 2016, noninterest-bearing and
interest-bearing deposits were as follows.

December 31, (in millions)

2017

2016

U.S. offices

Noninterest-bearing

$ 393,645

$ 400,831

Interest-bearing (included $14,947, and

$12,245 at fair value)(a)

793,618

737,949

Total deposits in U.S. offices

1,187,263

1,138,780

Non-U.S. offices

Noninterest-bearing

Interest-bearing (included $6,374 and

$1,667 at fair value)(a)

Total deposits in non-U.S. offices

Total deposits

15,576

14,764

241,143

256,719

221,635

236,399

$ 1,443,982

$1,375,179

(a) Includes structured notes classified as deposits for which the fair value

option has been elected. For further discussion, see Note 3.

At December 31, 2017 and 2016, time deposits in
denominations of $250,000 or more were as follows.

December 31, (in millions)

U.S. offices

Non-U.S. offices(a)

Total(a)

2017

2016

$ 30,671

$ 26,180

29,049

29,652

$ 59,720

$ 55,832

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

current period presentation.

At December 31, 2017, the maturities of interest-bearing
time deposits were as follows.

December 31, 2017
(in millions)

2018

2019

2020

2021

2022

After 5 years

Total

248

U.S.

Non-U.S.

Total

$ 37,645

$ 27,621

65,266

3,487

2,332

4,275

2,297

3,391

349

443

1,697

3,836

2,354

4,301

2,740

5,088

$ 53,427

$ 30,158

83,585

Note 18 – Accounts payable and other liabilities
Accounts payable and other liabilities consist of brokerage
payables, which includes payables to customers, dealers
and clearing organizations, and payables from security
purchases that did not settle; accrued expenses, including
income tax payables and credit card rewards liability; and
all other liabilities, including obligations to return securities
received as collateral and litigation reserves.

The following table details the components of accounts
payable and other liabilities.

December 31, (in millions)

Brokerage payables
Other payables and liabilities(a)
Total accounts payable and other

liabilities

2017

2016

$ 102,727

$ 109,842

86,656

80,701

$ 189,383

$ 190,543

(a) Includes credit card rewards liability of $4.9 billion and $3.8 billion at

December 31, 2017 and 2016, respectively.

JPMorgan Chase & Co./2017 Annual Report

Note 19 – Long-term debt
JPMorgan Chase issues long-term debt denominated in various currencies, predominantly U.S. dollars, with both fixed and
variable interest rates. Included in senior and subordinated debt below are various equity-linked or other indexed instruments,
which the Firm has elected to measure at fair value. Changes in fair value are recorded in principal transactions revenue in the
Consolidated statements of income, except for unrealized gains/(losses) due to DVA which are recorded in OCI. The following
table is a summary of long-term debt carrying values (including unamortized premiums and discounts, issuance costs,
valuation adjustments and fair value adjustments, where applicable) by remaining contractual maturity as of December 31,
2017.

By remaining maturity at
December 31,
(in millions, except rates)

Parent company

Senior debt:

Under 1 year

1-5 years

After 5 years

Total

2017

2016

Total

Fixed rate

15,084

53,939

72,528

$ 141,551

$ 128,967

Variable rate

5,547

12,802

8,112

26,461

34,766

Interest rates(a)

0.38-7.25%

0.16-6.30%

0.45-6.40%

0.16-7.25%

0.09-7.25%

Subordinated debt:

Fixed rate

Variable rate
Interest rates(a)

—

—%

149

—

14,497

14,646

16,811

1,245

8.53%

3.38-8.00%

3.38-8.53%

0.82-8.53%

Subtotal

20,631

66,890

95,146

$ 182,667

$ 181,789

Subsidiaries

Federal Home Loan Banks

advances:

Senior debt:

Subordinated debt:

Fixed rate

Variable rate

Interest rates(a)

Fixed rate

Variable rate

Interest rates(a)

Fixed rate

Variable rate

Interest rates(a)

Subtotal

Junior subordinated debt (b):

Fixed rate

Variable rate

Interest rates(a)

Subtotal

Total long-term debt(c)(d)(e)

Long-term beneficial interests: Fixed rate

Variable rate

12,450

37,000

1.58-1.75%

1.46-2.00%

1,122

8,967

3,970

13,287

129

11,000

167

179

60,450

79,340

1.18-1.47%

1.18-2.00%

0.41-1.21%

6,898

3,964

11,990

8,329

26,218

19,379

0.22-7.50%

1.65-7.50%

1.00-7.50%

0.22-7.50%

0.00-7.50%

—

—%

22,543

—

—%

—

—%

54,291

—

—%

—

43,174

$ 121,181

5,927

3,399

7,652

4,472

313

8.25%

22,304

690

1,585

313

—

8.25%

99,138

690

1,585

3,884

—

6.00-8.25%

$ 111,111

706

1,639

1.88-8.75%

1.39-8.75%

2,275

$ 119,725

—

321

2,275

2,345

$ 284,080

(g)(h) $ 295,245

13,579

18,678

8,192

14,681

Total long-term beneficial

interests(f)

9,326

12,124

321

21,771

33,359

Interest rates

1.10-2.50%

1.27-6.54%

0.00-3.75%

0.00-6.54%

0.39-7.87%

(a) The interest rates shown are the range of contractual rates in effect at December 31, 2017 and 2016, respectively, including non-U.S. dollar fixed- and variable-rate issuances,

which excludes the effects of the associated derivative instruments used in hedge accounting relationships, if applicable. The use of these derivative instruments modifies the
Firm’s exposure to the contractual interest rates disclosed in the table above. Including the effects of the hedge accounting derivatives, the range of modified rates in effect at
December 31, 2017, for total long-term debt was (0.19)% to 8.88%, versus the contractual range of 0.16% to 8.75% presented in the table above. The interest rate ranges
shown exclude structured notes accounted for at fair value.

(b) As of December 31, 2017, includes $0.7 billion of fixed rate junior subordinated debentures issued to an issuer trust and $1.6 billion of variable rate junior subordinated

(c)

debentures distributed pro rata to the holders of the $1.6 billion of trust preferred securities which were cancelled on December 18, 2017.
Included long-term debt of $63.5 billion and $82.2 billion secured by assets totaling $208.4 billion and $205.6 billion at December 31, 2017 and 2016, respectively. The
amount of long-term debt secured by assets does not include amounts related to hybrid instruments.

(d) Included $47.5 billion and $37.7 billion of long-term debt accounted for at fair value at December 31, 2017 and 2016, respectively.
(e) Included $10.3 billion and $7.5 billion of outstanding zero-coupon notes at December 31, 2017 and 2016, respectively. The aggregate principal amount of these notes at their
respective maturities is $33.5 billion and $25.1 billion, respectively. The aggregate principal amount reflects the contractual principal payment at maturity, which may exceed
the contractual principal payment at the Firm’s next call date, if applicable.
Included on the Consolidated balance sheets in beneficial interests issued by consolidated VIEs. Also included $45 million and $120 million accounted for at fair value at
December 31, 2017 and 2016, respectively. Excluded short-term commercial paper and other short-term beneficial interests of $4.3 billion and $5.7 billion at December 31,
2017 and 2016, respectively.

(f)

(g) At December 31, 2017, long-term debt in the aggregate of $111.2 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior to maturity, based on the

terms specified in the respective instruments.

(h) The aggregate carrying values of debt that matures in each of the five years subsequent to 2017 is $43.2 billion in 2018, $34.7 billion in 2019, $39.3 billion in 2020, $33.8

billion in 2021 and $13.4 billion in 2022.

JPMorgan Chase & Co./2017 Annual Report

249

Notes to consolidated financial statements

The weighted-average contractual interest rates for total
long-term debt excluding structured notes accounted for at
fair value were 2.87% and 2.49% as of December 31,
2017 and 2016, respectively. In order to modify exposure
to interest rate and currency exchange rate movements,
JPMorgan Chase utilizes derivative instruments, primarily
interest rate and cross-currency interest rate swaps, in
conjunction with some of its debt issuances. The use of
these instruments modifies the Firm’s interest expense on
the associated debt. The modified weighted-average
interest rates for total long-term debt, including the effects
of related derivative instruments, were 2.56% and 2.01%
as of December 31, 2017 and 2016, respectively.

JPMorgan Chase & Co. has guaranteed certain long-term
debt of its subsidiaries, including both long-term debt and
structured notes. These guarantees rank on parity with the
Firm’s other unsecured and unsubordinated indebtedness.
The amount of such guaranteed long-term debt and
structured notes was $7.9 billion and $3.9 billion at
December 31, 2017 and 2016, respectively.

The Firm’s unsecured debt does not contain requirements
that would call for an acceleration of payments, maturities
or changes in the structure of the existing debt, provide any
limitations on future borrowings or require additional
collateral, based on unfavorable changes in the Firm’s credit
ratings, financial ratios, earnings or stock price.

Junior subordinated deferrable interest debentures
At December 31, 2016, the Firm had outstanding eight
wholly-owned Delaware statutory business trusts (“issuer
trusts”) that had issued trust preferred securities. On
December 18, 2017, seven of the eight issuer trusts were
liquidated, $1.6 billion of trust preferred and $56 million of
common securities originally issued by those trusts were
cancelled, and the junior subordinated debentures
previously held by each trust issuer were distributed pro
rata to the holders of the corresponding series of trust
preferred and common securities.

Beginning in 2014, the junior subordinated debentures
issued to the issuer trusts by the Firm, less the common
capital securities of the issuer trusts, began being phased
out from inclusion as Tier 1 capital under Basel III and they
were fully phased out as of December 31, 2016. As of
December 31, 2017 and 2016, $300 million and $1.4
billion, respectively, qualified as Tier 2 capital.

The Firm redeemed $1.6 billion of trust preferred securities
in the year ended December 31, 2016.

250

JPMorgan Chase & Co./2017 Annual Report

Note 20 – Preferred stock
At December 31, 2017 and 2016, JPMorgan Chase was
authorized 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 to
the payment of dividends and the distribution of assets.

The following is a summary of JPMorgan Chase’s non-cumulative preferred stock outstanding as of December 31, 2017 and 2016.

Shares at December 31,(a)

Carrying value
(in millions)
at December 31,

Fixed-rate:

Series O

Series P

Series T

Series W

Series Y

Series AA

Series BB

Fixed-to-floating-rate:

Series I

Series Q

Series R

Series S

Series U

Series V

Series X

Series Z

Series CC

2017

2016

2017

2016

Issue date

—

125,750

— $ 1,258

8/27/2012

90,000

92,500

88,000

143,000

142,500

115,000

600,000

150,000

200,000

100,000

250,000

160,000

200,000

125,750

90,000

92,500

88,000

143,000

142,500

115,000

600,000

150,000

200,000

100,000

250,000

160,000

200,000

—

900

925

880

1,430

1,425

1,150

6,000

1,500

2,000

1,000

2,500

1,600

2,000

1,258

900

925

880

1,430

1,425

1,150

6,000

1,500

2,000

1,000

2,500

1,600

2,000

2/5/2013

1/30/2014

6/23/2014

2/12/2015

6/4/2015

7/29/2015

4/23/2008

4/23/2013

7/29/2013

1/22/2014

3/10/2014

6/9/2014

9/23/2014

4/21/2015

—

10/20/2017

Contractual
rate
in effect at
December 31,
2017

N/A

5.450%

6.700

6.300

6.125

6.100

6.150

Earliest
redemption
date

9/1/2017

3/1/2018

3/1/2019

9/1/2019

3/1/2020

9/1/2020

Date at
which
dividend
rate
becomes
floating

Floating
annual
rate of
three-month
LIBOR plus:

7.900%

4/30/2018 4/30/2018 LIBOR + 3.47%

5.150

6.000

6.750

6.125

5.000

6.100

5.300

4.625

5/1/2023

LIBOR + 3.25

8/1/2023

LIBOR + 3.30

2/1/2024

LIBOR + 3.78

4/30/2024 4/30/2024 LIBOR + 3.33

7/1/2019

LIBOR + 3.32

10/1/2024 10/1/2024 LIBOR + 3.33

5/1/2020

LIBOR + 3.80

11/1/2022 11/1/2022 LIBOR + 2.58

Total preferred stock

2,606,750

$26,068 $26,068

(a) Represented by depositary shares.

Each series of preferred stock has a liquidation value and
redemption 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 preferred
stock are payable semiannually while at a fixed rate, and
become payable quarterly after converting to a floating
rate.

On October 20, 2017, the Firm issued $1.3 billion of fixed
to-floating rate non-cumulative preferred stock, Series CC,
with an initial dividend rate of 4.625%. On December 1,
2017, The Firm redeemed all $1.3 billion of its outstanding
5.50% non-cumulative preferred stock, Series O.

Redemption rights
Each series of the Firm’s preferred stock may be redeemed
on any dividend payment date on or after the earliest
redemption date for that series. All outstanding preferred
stock series except Series I may also be redeemed following
a “capital treatment event,” as described in the terms of
each series. Any redemption of the Firm’s preferred stock is
subject to non-objection from the Board of Governors of the
Federal Reserve System (the “Federal Reserve”).

JPMorgan Chase & Co./2017 Annual Report

251

The following table sets forth the Firm’s repurchases of
common equity for the years ended December 31, 2017,
2016 and 2015. There were no warrants repurchased
during the years ended December 31, 2017, 2016 and
2015.

Year ended December 31, (in millions)

2017

2016

2015

Total number of shares of common stock

repurchased

Aggregate purchase price of common

stock repurchases

166.6

140.4

89.8

$15,410

$ 9,082

$ 5,616

The Firm may, from time to time, enter into written trading
plans under Rule 10b5-1 of the Securities Exchange Act of
1934 to facilitate repurchases in accordance with the
common equity repurchase program. A Rule 10b5-1
repurchase plan allows the Firm to repurchase its equity
during periods when it would not otherwise be repurchasing
common equity — for example, during internal trading
“blackout periods.” All purchases under a Rule 10b5-1 plan
must be made according to a predefined plan established
when the Firm is not aware of material nonpublic
information. For additional information regarding
repurchases of the Firm’s equity securities, see Part II,
Item 5: Market for registrant’s common equity, related
stockholder matters and issuer purchases of equity
securities, on page 28.

As of December 31, 2017, approximately 120 million
shares of common stock were reserved for issuance under
various employee incentive, compensation, option and stock
purchase plans, director compensation plans, and the
Warrants.

Notes to consolidated financial statements

Note 21 – Common stock
At December 31, 2017 and 2016, JPMorgan Chase was
authorized to issue 9.0 billion shares of common stock with
a par value of $1 per share.

Common shares issued (newly issued or reissuance from
treasury) by JPMorgan Chase during the years ended
December 31, 2017, 2016 and 2015 were as follows.

Year ended December 31,
(in millions)

Total issued – balance at

January 1

Treasury – balance at January 1

Repurchase

Reissuance:

Employee benefits and
compensation plans

Warrant exercise

Employee stock purchase plans

Total reissuance

Total treasury – balance at

December 31

2017

2016

2015

4,104.9

(543.7)

(166.6)

(441.4)

(140.4)

(390.1)

(89.8)

24.5

5.4

0.8

30.7

26.0

11.1

1.0

38.1

32.8

4.7

1.0

38.5

(679.6)

(543.7)

(441.4)

Outstanding at December 31

3,425.3

3,561.2

3,663.5

At December 31, 2017, 2016, and 2015, respectively, the
Firm had 15.0 million, 24.9 million and 47.4 million
warrants outstanding to purchase shares of common stock
(the “Warrants”). The Warrants are currently traded on the
New York Stock Exchange, and they are exercisable, in
whole 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 the
exercise of each warrant and the warrant exercise price is
subject to adjustment upon the occurrence of certain
events, including, but not limited to, the extent to which
regular quarterly cash dividends exceed $0.38 per share.
As of December 31, 2017 the exercise price was $41.834
and the Warrant share number was 1.01.

On June 28, 2017, in conjunction with the Federal Reserve’s
release of its 2017 CCAR results, the Firm’s Board of
Directors authorized a $19.4 billion common equity (i.e.,
common stock and warrants) repurchase program. As of
December 31, 2017, $9.8 billion of authorized repurchase
capacity remained under the program. This authorization
includes shares repurchased to offset issuances under the
Firm’s share-based compensation plans.

252

JPMorgan Chase & Co./2017 Annual Report

Note 22 – Earnings per share
Earnings per share (“EPS”) is calculated under the two-class
method under which all earnings (distributed and
undistributed) are allocated to each class of common stock
and participating securities based on their respective rights
to receive dividends. JPMorgan Chase grants RSUs to
certain employees under its share-based compensation
programs, which entitle recipients to receive nonforfeitable
dividends during the vesting period on a basis equivalent to
the dividends paid to holders of common stock; these
unvested awards meet the definition of participating
securities.

The following table presents the calculation of basic and
diluted EPS for the years ended December 31, 2017, 2016
and 2015.

Year ended December 31,
(in millions,
except per share amounts)

Basic earnings per share

2017

2016

2015

Net income

$ 24,441 $ 24,733 $ 24,442

Less: Preferred stock dividends

1,663

1,647

1,515

Net income applicable to common

equity

Less: Dividends and undistributed

earnings allocated to participating
securities(a)

Net income applicable to common

stockholders(a)

22,778

23,086

22,927

211

252

276

$ 22,567 $ 22,834 $ 22,651

Total weighted-average basic

shares outstanding(a)

3,551.6

3,658.8

3,741.2

Net income per share

6.35 $

6.24 $

6.05

Diluted earnings per share

Net income applicable to common

stockholders(a)

Total weighted-average basic shares

outstanding(a)

Add: Employee stock options, SARs,

warrants and PSUs(a)

Total weighted-average diluted

shares outstanding(a)(b)

$ 22,567 $ 22,834 $ 22,651

3,551.6

3,658.8

3,741.2

25.2

31.2

32.4

3,576.8

3,690.0

3,773.6

Net income per share

6.31 $

6.19 $

6.00

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

current period presentation. The revision had no impact on the Firm’s
reported earnings per share.

(b) Participating securities were included in the calculation of diluted EPS
using the two-class method, as this computation was more dilutive
than the calculation using the treasury stock method.

JPMorgan Chase & Co./2017 Annual Report

253

Notes to consolidated financial statements

Note 23 – Accumulated other comprehensive income/(loss)
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation
adjustments (including the impact of related derivatives), cash flow hedging activities, and net loss and prior service costs/(credit)
related to the Firm’s defined benefit pension and OPEB plans.

Year ended December 31,
(in millions)

Unrealized
gains/(losses)
on investment
securities(b)

Translation
adjustments,
net of hedges

Cash flow
hedges

Defined benefit pension
and OPEB plans

Balance at December 31, 2014

$ 4,773

Net change
Balance at December 31, 2015

(2,144)
$ 2,629

Cumulative effect of change in

accounting principle(a)

Net change
Balance at December 31, 2016

Net change

—

(1,105)
$ 1,524

640

Balance at December 31, 2017

$ 2,164

(147)

(15)
(162)

—

(2)
(164)

(306)

(470)

(95)

51
(44)

—

(56)
(100)

176

(2,342)

111
(2,231)

—

(28)
(2,259)

738

(1,521)

DVA on fair value
option elected
liabilities

Accumulated
other
comprehensive
income/(loss)

—

—
—

154

(330)
(176)

(192)

(368)

2,189

(1,997)
192

154

(1,521)
(1,175)

1,056

(119)

(a) Effective January 1, 2016, the Firm adopted new accounting guidance related to the recognition and measurement of financial liabilities where the fair value option has been
elected. This guidance requires the portion of the total change in fair value caused by changes in the Firm’s own credit risk (DVA) to be presented separately in OCI; previously
these amounts were recognized in net income.

(b) Represents the after-tax difference between the fair value and amortized cost of securities accounted for as AFS, including net unamortized unrealized gains and losses related

to AFS securities transferred to HTM.

The following table presents the pre-tax and after-tax changes in the components of OCI.

Year ended December 31, (in millions)

Pre-tax

Unrealized gains/(losses) on investment securities:

2017

Tax
effect

After-tax

Pre-tax

2016

Tax
effect

After-tax

Pre-tax

2015

Tax
effect

After-tax

Net unrealized gains/(losses) arising during the period

944

(346) $

598

$ (1,628) $

611

$ (1,017) $ (3,315) $ 1,297

$ (2,018)

Reclassification adjustment for realized (gains)/losses

included in net income(a)

Net change

Translation adjustments(b):

Translation

Hedges

Net change

Cash flow hedges:

Net unrealized gains/(losses) arising during the period

Reclassification adjustment for realized (gains)/losses

included in net income(c)(d)

Net change

Defined benefit pension and OPEB plans:

1,010

1,313

(1,294)

147

134

281

(24)

(370)

(801)

476

(325)

640

(141)

(1,769)

512

(818)

(306)

(261)

262

664

(102)

(3)

(88)

(202)

(126)

(1,105)

(3,517)

1,373

(2,144)

(162)

(1,876)

160

(2)

1,885

682

(706)

(24)

(1,194)

1,179

(15)

(55)

(450)

168

(282)

(97)

(62)

(50)

(105)

176

360

(90)

(134)

226

(56)

180

(67)

(32)

113

Net gains/(losses) arising during the period

802

(160)

642

(366)

145

(221)

(47)

(18)

Reclassification adjustments included in net income(e):

Amortization of net loss

Prior service costs/(credits)

Settlement loss/(gain)

Foreign exchange and other

Net change

250

(36)

(54)

964

(90)

(1)

(226)

160

(23)

(42)

738

257

(36)

(64)

DVA on fair value option elected liabilities, net change: $ (303) $

111

$ (192) $

(529) $

Total other comprehensive income/(loss)

$ 1,971

(915) $ 1,056

$ (2,451) $

(97)

(1)

(25)

199

930

160

(22)

(28)

282

(36)

—

308

(106)

—

(58)

(197)

176

(22)

—

(25)

111

(330) $

—

$ (1,521) $ (3,117) $ 1,120

$ (1,997)

(a) The pre-tax amount is reported in securities gains/(losses) in the Consolidated statements of income.
(b) Reclassifications of pre-tax realized gains/(losses) on translation adjustments and related hedges are reported in other income/expense in the Consolidated statements of

income. The amounts were not material for the periods presented.

(c) The pre-tax amounts are primarily recorded in noninterest revenue, net interest income and compensation expense in the Consolidated statements of income.
(d) In 2015, the Firm reclassified approximately $150 million of net losses from AOCI to other income because the Firm determined that it is probable that the forecasted interest

payment cash flows would not occur. For additional information, see Note 5.

(e) The pre-tax amount is reported in compensation expense in the Consolidated statements of income.

254

JPMorgan Chase & Co./2017 Annual Report

Impact of the TCJA
On December 22, 2017, the TCJA was signed into law. The
Firm’s effective tax rate increased in 2017 driven by a $1.9
billion income tax expense representing the estimated
impact of the enactment of the TCJA. The $1.9 billion tax
expense was predominantly driven by a deemed
repatriation of the Firm’s unremitted non-U.S. earnings and
adjustments to the value of certain tax-oriented
investments partially offset by a benefit from the
revaluation of the Firm’s net deferred tax liability.

The deemed repatriation of the Firm’s unremitted non-U.S.
earnings is based on the post-1986 earnings and profits of
each controlled foreign corporation. The calculation
resulted in an estimated income tax expense of $3.7 billion.
Furthermore, accounting for income taxes requires the
remeasurement of certain deferred tax assets and liabilities
based on the rates at which they are expected to reverse in
the future. The Firm remeasured its deferred tax asset and
liability balances in the fourth quarter of 2017 to the new
statutory U.S. federal income tax rate of 21% as well as any
federal benefit associated with state and local deferred
income taxes. The remeasurement resulted in an estimated
income tax benefit of $2.1 billion.

The deemed repatriation and remeasurement of deferred
taxes were calculated based on all available information
and published legislative guidance. These amounts are
considered to be estimates under SEC Staff Accounting
Bulletin No. 118 as the Firm anticipates refinements to both
calculations. Anticipated refinements will result from the
issuance of future legislative and accounting guidance as
well as those in the normal course of business, including
true-ups to the tax liability on the tax return as filed and the
resolution of tax audits.

Adjustments were also recorded to income tax expense for
certain tax-oriented investments. These adjustments were
driven by changes to affordable housing proportional
amortization resulting from the reduction of the federal
income tax rate under the TCJA. SEC Staff Accounting
Bulletin No. 118 does not apply to these adjustments.

Note 24 – Income taxes
JPMorgan Chase and its eligible subsidiaries file a
consolidated U.S. federal income tax return. JPMorgan
Chase uses the asset and liability method to provide income
taxes on all transactions recorded in the Consolidated
Financial Statements. This method requires that income
taxes reflect the expected future tax consequences of
temporary differences between the carrying amounts of
assets 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 of
income and expense are realized. JPMorgan Chase’s
expense for income taxes includes the current and deferred
portions of that expense. A valuation allowance is
established 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 and
being taxed in a substantial number of jurisdictions,
significant judgments and estimates are required to be
made. Agreement of tax liabilities between JPMorgan Chase
and the many tax jurisdictions in which the Firm files tax
returns may not be finalized for several years. Thus, the
Firm’s final tax-related assets and liabilities may ultimately
be different from those currently reported.

Effective tax rate and expense
A reconciliation of the applicable statutory U.S. federal
income tax rate to the effective tax rate for each of the
years ended December 31, 2017, 2016 and 2015, is
presented in the following table.

Effective tax rate
Year ended December 31,

Statutory U.S. federal tax rate

Increase/(decrease) in tax rate

resulting from:

U.S. state and local income
taxes, net of U.S. federal
income tax benefit

Tax-exempt income

Non-U.S. subsidiary earnings(a)

Business tax credits

Nondeductible legal expense

Tax audit resolutions

Impact of the TCJA

Other, net

Effective tax rate

2017

35.0%

2016

35.0%

2015

35.0%

2.2

(3.3)

(3.1)

(4.2)

—

5.4

(0.1)

31.9%

2.4

(3.1)

(1.7)

(3.9)

0.3

—

1.5

(3.3)

(3.9)

(3.7)

0.8

(5.7)

—

(0.6)

28.4%

(0.3)

20.4%

(a) Predominantly includes earnings of U.K. subsidiaries that were deemed

to be reinvested indefinitely through December 31, 2017.

JPMorgan Chase & Co./2017 Annual Report

255

JPMC will treat any tax it may incur on global intangible low
tax income as a period cost to tax expense when the tax is
incurred.

Affordable housing tax credits
The Firm recognized $1.7 billion, $1.7 billion and $1.6
billion of tax credits and other tax benefits associated with
investments in affordable housing projects within income
tax expense for the years 2017, 2016 and 2015,
respectively. The amount of amortization of such
investments reported in income tax expense under the
current period presentation during these years was $1.7
billion, $1.2 billion and $1.1 billion, respectively. The
carrying value of these investments, which are reported in
other assets on the Firm’s Consolidated balance sheets, was
$7.8 billion and $8.8 billion at December 31, 2017 and
2016, respectively. The amount of commitments related to
these investments, which are reported in accounts payable
and other liabilities on the Firm’s Consolidated balance
sheets, was $2.4 billion and $2.8 billion at December 31,
2017 and 2016, respectively. The results are inclusive of
any impacts from the TCJA.

The components of income tax expense/(benefit) included
in the Consolidated statements of income were as follows
for each of the years ended December 31, 2017, 2016, and
2015.

Income tax expense/(benefit)

Year ended December 31,
(in millions)

Current income tax expense/(benefit)

U.S. federal

Non-U.S.

U.S. state and local

Total current income tax expense/

(benefit)

Deferred income tax expense/(benefit)

U.S. federal

Non-U.S.

U.S. state and local

Total deferred income tax
expense/(benefit)

2017

2016

2015

$ 5,718

$ 2,488

$ 3,160

2,400

1,029

1,760

1,220

904

547

9,147

5,152

4,927

2,174

4,364

1,213

(144)

282

(73)

360

(95)

215

2,312

4,651

1,333

Total income tax expense

$ 11,459

$ 9,803

$ 6,260

Total income tax expense includes $252 million, $55
million and $2.4 billion of tax benefits recorded in 2017,
2016, and 2015, respectively, as a result of tax audit
resolutions.

Tax effect of items recorded in stockholders’ equity
The preceding table does not reflect the tax effect of certain
items that are recorded each period directly in
stockholders’ equity. The tax effect of all items recorded
directly to stockholders’ equity resulted in a decrease of
$915 million in 2017, an increase of $925 million in 2016,
and an increase of $1.5 billion in 2015. Effective January 1,
2016, the Firm adopted new accounting guidance related to
employee share-based payments. As a result of the
adoption of this new guidance, all excess tax benefits
(including tax benefits from dividends or dividend
equivalents) on share-based payment awards are
recognized within income tax expense in the Consolidated
statements of income. In prior years these tax benefits were
recorded 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 the
years ended December 31, 2017, 2016 and 2015.

Year ended December 31,
(in millions)

U.S.

Non-U.S.(a)

2017

2016

2015

$ 27,103

$ 26,651

$ 23,191

8,797

7,885

7,511

Income before income tax expense

$ 35,900

$ 34,536

$ 30,702

(a) For purposes of this table, non-U.S. income is defined as income

generated from operations located outside the U.S.

256

JPMorgan Chase & Co./2017 Annual Report

Deferred taxes
Deferred income tax expense/(benefit) results from
differences between assets and liabilities measured for
financial reporting purposes 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. If a deferred tax asset is
determined to be unrealizable, a valuation allowance is
established. The significant components of deferred tax
assets and liabilities are reflected in the following table as
of December 31, 2017 and 2016.

December 31, (in millions)

2017

2016

Deferred tax assets

Allowance for loan losses

3,395

Employee benefits

Accrued expenses and other

Non-U.S. operations

Tax attribute carryforwards

Gross deferred tax assets

Valuation allowance

688

3,528

327

219

8,157

(46)

5,534

2,911

6,831

5,368

2,155

22,799

(785)

Deferred tax assets, net of valuation

allowance

Deferred tax liabilities

Depreciation and amortization

Mortgage servicing rights, net of

hedges

Leasing transactions

Non-U.S. operations

Other, net

8,111

22,014

2,299

3,294

2,757

3,483

200

3,502

4,807

4,053

4,572

5,493

Unrecognized tax benefits
At December 31, 2017, 2016 and 2015, JPMorgan Chase’s
unrecognized tax benefits, excluding related interest
expense and penalties, were $4.7 billion, $3.5 billion and
$3.5 billion, respectively, of which $3.5 billion, $2.6 billion
and $2.1 billion, respectively, if recognized, would reduce
the annual effective tax rate. Included in the amount of
unrecognized tax benefits are certain items that would not
affect the effective tax rate if they were recognized in the
Consolidated statements of income. These unrecognized
items include the tax effect of certain temporary
differences, the portion of gross state and local
unrecognized tax benefits that would be offset by the
benefit 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 as
summarized in the Tax examination status table below. As
JPMorgan Chase is presently under audit by a number of
taxing authorities, it is reasonably possible that over the
next 12 months the resolution of these examinations may
increase or decrease the gross balance of unrecognized tax
benefits by as much as $1.3 billion. Upon settlement of an
audit, the change in the unrecognized tax benefit would
result from payment or income statement recognition.

The following table presents a reconciliation of the
beginning and ending amount of unrecognized tax benefits
for the years ended December 31, 2017, 2016 and 2015.

Gross deferred tax liabilities

12,241

22,219

Net deferred tax (liabilities)/assets

(4,130) $

(205)

Year ended December 31,
(in millions)

2017

2016

2015

Balance at January 1,

$ 3,450

$ 3,497

$ 4,911

JPMorgan Chase has recorded deferred tax assets of $219
million at December 31, 2017, in connection with U.S.
federal and non-U.S. net operating loss (“NOL”)
carryforwards and state and local capital loss
carryforwards. At December 31, 2017, total U.S. federal
NOL carryforwards were approximately $769 million, non-
U.S. NOL carryforwards were approximately $142 million
and state and local capital loss carryforwards were $660
million. If not utilized, the U.S. federal NOL carryforwards
will expire between 2025 and 2036 and the state and local
capital loss carryforwards will expire between 2020 and
2021. Certain non-U.S. NOL carryforwards will expire
between 2028 and 2034 whereas others have an unlimited
carryforward period.

The valuation allowance at December 31, 2017, was due to
the state and local capital loss carryforwards and certain
non-U.S. NOL carryforwards.

Increases based on tax positions
related to the current period

Increases based on tax positions

related to prior periods

Decreases based on tax positions

related to prior periods

Decreases related to cash

1,355

262

408

626

583

1,028

(350)

(785)

(2,646)

settlements with taxing authorities

(334)

(56)

(204)

Decreases related to a lapse of

applicable statute of limitations

—

(51)

—

Balance at December 31,

$ 4,747

$ 3,450

$ 3,497

After-tax interest expense/(benefit) and penalties related to
income tax liabilities recognized in income tax expense were
$102 million, $86 million and $(156) million in 2017,
2016 and 2015, respectively.

At December 31, 2017 and 2016, in addition to the liability
for unrecognized tax benefits, the Firm had accrued $639
million and $687 million, respectively, for income tax-
related interest and penalties.

JPMorgan Chase & Co./2017 Annual Report

257

Tax examination status
JPMorgan Chase is continually under examination by the
Internal Revenue Service, by taxing authorities throughout
the world, and by many state and local jurisdictions
throughout the U.S. The following table summarizes the
status of significant income tax examinations of JPMorgan
Chase and its consolidated subsidiaries as of December 31,
2017.

December 31, 2017

JPMorgan Chase – U.S.

Periods under
examination

2003 – 2005

2006 – 2010

JPMorgan Chase – U.S.

JPMorgan Chase –

California

2011 – 2013

2011 – 2012

JPMorgan Chase – U.K.

2006 – 2015

Status

At Appellate level

Field examination of
amended returns;
certain matters at
Appellate level

Field Examination

Field examination of
certain select entities

Note 25 – Restrictions on cash and
intercompany 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 to
maintain cash reserves with a Federal Reserve Bank. The
average required amount of reserve balances deposited by
the Firm’s bank subsidiaries with various Federal Reserve
Banks was approximately $24.9 billion and $19.3 billion in
2017 and 2016, respectively.

Restrictions imposed by U.S. federal law prohibit JPMorgan
Chase & Co. (“Parent Company”) and certain of its affiliates
from 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 other
transactions with such affiliate (collectively referred to as
“covered transactions”), are generally limited to 10% of the
banking subsidiary’s total capital, as determined by the risk-
based capital guidelines; the aggregate amount of covered
transactions between any banking subsidiary and all of its
affiliates is limited to 20% of the banking subsidiary’s total
capital.

The Parent Company’s two principal subsidiaries are
JPMorgan Chase Bank, N.A. and JPMorgan Chase Holdings
LLC, an intermediate holding company (the “IHC”). The IHC
holds the stock of substantially all of JPMorgan Chase’s
subsidiaries other than JPMorgan Chase Bank, N.A. and its
subsidiaries. The IHC also owns other assets and
intercompany indebtedness owing to the holding company.
The Parent Company is obligated to contribute to the IHC
substantially all the net proceeds received from securities
issuances (including issuances of senior and subordinated
debt securities and of preferred and common stock).

The principal sources of income and funding for the Parent
Company are dividends from JPMorgan Chase Bank, N.A.
and dividends and extensions of credit from the IHC.
In addition to dividend restrictions set forth in statutes and
regulations, the Federal Reserve, the OCC and the FDIC have
authority under the Financial Institutions Supervisory Act to
prohibit or to limit the payment of dividends by the banking
organizations they supervise, including JPMorgan Chase and
its subsidiaries that are banks or bank holding companies,
if, in the banking regulator’s opinion, payment of a dividend
would constitute an unsafe or unsound practice in light of
the financial condition of the banking organization. The IHC
is prohibited from paying dividends or extending credit to
the Parent Company if certain capital or liquidity
“thresholds” are breached or if limits are otherwise
imposed by JPMorgan Chase’s management or Board of
Directors.

At January 1, 2018, JPMorgan Chase’s banking subsidiaries
could pay, in the aggregate, approximately $17 billion in
dividends to their respective bank holding companies
without the prior approval of their relevant banking
regulators. The capacity to pay dividends in 2018 will be
supplemented by the banking subsidiaries’ earnings during
the year.

In compliance with rules and regulations established by U.S.
and non-U.S. regulators, as of December 31, 2017 and
2016, cash in the amount of $16.8 billion and $13.4
billion, respectively, were segregated in special bank
accounts for the benefit of securities and futures brokerage
customers. Also, as of December 31, 2017 and 2016, the
Firm had:

• Receivables and securities of $18.0 billion and $18.2
billion, respectively, consisting of cash and securities
pledged with clearing organizations for the benefit of
customers.

• Securities with a fair value of $3.5 billion and $19.3

billion, respectively, were also restricted in relation to
customer activity.

In addition, as of December 31, 2017 and 2016, the Firm
had other restricted cash of $3.3 billion and $3.6 billion,
respectively, primarily representing cash reserves held at
non-U.S. central banks and held for other general purposes.

258

JPMorgan Chase & Co./2017 Annual Report

Note 26 – Regulatory capital
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
minimum capital requirements and standards for the Firm’s
IDI, including JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A.

Capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. bank holding companies and
banks, including the Firm and its IDI subsidiaries. Basel III
set forth two comprehensive approaches for calculating
RWA: a standardized approach (“Basel III Standardized”)
and an advanced approach (“Basel III Advanced”). 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”).

The three categories of risk-based capital and their
predominant components under the Basel III Transitional
rules are illustrated below:

Total
capital

Common stockholder’s equity
including capital for AOCI related to:
• AFS debt and equity securities
• Deﬁned beneﬁt pension and OPEB
plans

Less certain deductions for:
• Goodwill
• MSRs
• Deferred tax assets that arise from
NOL and tax credit carryforwards

CET1
capital

Tier 1
capital

• Perpetual preferred stock

• Long-term debt qualifying as
Tier 2
• Qualifying allowance for
credit losses

Add'l
Tier 1
capital

Tier 2
capital

The following tables present the regulatory capital, assets
and risk-based capital ratios for JPMorgan Chase and its
significant IDI subsidiaries under both Basel III Standardized
Transitional and Basel III Advanced Transitional at
December 31, 2017 and 2016.

JPMorgan Chase & Co.

Basel III Standardized
Transitional

Basel III Advanced
Transitional

Dec 31,
2017

Dec 31,
2016

Dec 31,
2017

Dec 31,
2016

(in millions,
except ratios)

Regulatory
capital

CET1 capital

$ 183,300

$ 182,967

$ 183,300

$ 182,967

Tier 1 capital(a)

Total capital

208,644

238,395

208,112

239,553

208,644

227,933

208,112

228,592

Assets

Risk-weighted

1,499,506

1,483,132

(e)

1,435,825

1,476,915

Adjusted

average(b)

Capital ratios(c)

CET1

Tier 1(a)

Total

Tier 1 leverage(d)

(in millions,
except ratios)

Regulatory
capital

2,514,270

2,484,631

2,514,270

2,484,631

12.2%

12.3% (e)

12.8%

12.4%

13.9

15.9

8.3

(e)

14.0

16.2

8.4

14.5

15.9

8.3

14.1

15.5

8.4

JPMorgan Chase Bank, N.A.

Basel III Standardized
Transitional

Basel III Advanced
Transitional

Dec 31,
2017

Dec 31,
2016

Dec 31,
2017

Dec 31,
2016

CET1 capital

$ 184,375

$ 179,319

$ 184,375

$ 179,319

Tier 1 capital(a)

Total capital

184,375

195,839

179,341

191,662

184,375

189,419

179,341

184,637

Assets

Risk-weighted

1,335,809

1,311,240

(e)

1,226,534

1,262,613

Adjusted

average(b)

Capital ratios(c)

CET1

Tier 1(a)

Total

Tier 1 leverage(d)

2,116,031

2,088,851

2,116,031

2,088,851

13.8%

13.7% (e)

15.0%

14.2%

13.8

14.7

8.7

(e)

13.7

14.6

8.6

15.0

15.4

8.7

14.2

14.6

8.6

JPMorgan Chase & Co./2017 Annual Report

259

The following table presents the minimum ratios to which
the Firm and its IDI subsidiaries are subject as of
December 31, 2017.

Minimum capital ratios

Well-capitalized ratios

BHC(a)(e)

IDI(b)(e)

BHC(c)

IDI(d)

7.50%

5.75%

—%

6.50%

9.00

11.00

4.00

7.25

9.25

4.00

6.00

10.00

—

8.00

10.00

5.00

Capital ratios

CET1

Tier 1

Total

Tier 1 leverage

Note: The table above is as defined by the regulations issued by the Federal
Reserve, OCC and FDIC and to which the Firm and its IDI subsidiaries are subject.

(a) Represents the Transitional minimum capital ratios applicable to the Firm

under Basel III at December 31, 2017. At December 31, 2017, the CET1
minimum capital ratio includes 1.25% resulting from the phase-in of the
Firm’s 2.5% capital conservation buffer, and 1.75% resulting from the
phase-in of the Firm’s 3.5% GSIB surcharge.

(b) Represents requirements for JPMorgan Chase’s IDI subsidiaries. The CET1
minimum capital ratio includes 1.25% resulting from the phase-in of the
2.5% capital conservation buffer that is applicable to the IDI subsidiaries.
The IDI subsidiaries are not subject to the GSIB surcharge.

regulations issued by the Federal Reserve.

(d) Represents requirements for IDI subsidiaries pursuant to regulations issued

under the FDIC Improvement Act.

(e) For the period ended December 31, 2016 the CET1, Tier 1, Total and Tier 1
leverage minimum capital ratios applicable to the Firm were 6.25%,
7.75%, 9.75% and 4.0% and the CET1, Tier 1, Total and Tier 1 leverage
minimum capital ratios applicable to the Firm’s IDI subsidiaries were
5.125%, 6.625%, 8.625% and 4.0% respectively.

As of December 31, 2017 and 2016, JPMorgan Chase and
all of its IDI subsidiaries were well-capitalized and met all
capital requirements to which each was subject.

Notes to consolidated financial statements

Chase Bank USA, N.A.

Basel III Standardized
Transitional

Basel III Advanced
Transitional

Dec 31,
2017

Dec 31,
2016

Dec 31,
2017

Dec 31,
2016

(in millions,
except ratios)

Regulatory
capital

CET1 capital

$ 21,600

$ 16,784

$ 21,600

$ 16,784

Tier 1 capital

Total capital

Assets

21,600

27,691

16,784

22,862

21,600

26,250

16,784

21,434

Risk-weighted

113,108

112,297

190,523

186,378

Adjusted

average(b)

Capital ratios(c)

CET1

Tier 1

Total

Tier 1 leverage(d)

126,517

120,304

126,517

120,304

19.1%

14.9%

11.3%

9.0%

19.1

24.5

17.1

14.9

20.4

14.0

11.3

13.8

17.1

9.0

11.5

14.0

(a)

Includes the deduction associated with the permissible holdings of
covered funds (as defined by the Volcker Rule). The deduction was not
material as of December 31, 2017 and 2016.

(b) Adjusted average assets, for purposes of calculating the Tier 1 leverage

(c)

ratio, includes total quarterly average assets adjusted for unrealized
gains/(losses) on AFS securities, less deductions for goodwill and other
intangible assets, defined benefit pension plan assets, and deferred tax
assets related to tax attributes, including NOLs.
For each of the risk-based capital ratios, the capital adequacy of the Firm
and its IDI subsidiaries is evaluated against the lower of the two ratios as
calculated under Basel III approaches (Standardized or Advanced) as
required by the Collins Amendment of the Dodd-Frank Act (the “Collins
Floor”)

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

(e)

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 a
minimum leverage ratio (which is defined as Tier 1 capital
divided by adjusted quarterly average assets). Failure to
meet these minimum requirements could cause the Federal
Reserve to take action. IDI subsidiaries also are subject to
these capital requirements by their respective primary
regulators.

260

JPMorgan Chase & Co./2017 Annual Report

Note 27 – Off–balance sheet lending-related
financial instruments, guarantees, and
other commitments

JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to meet
the financing needs of its clients or customers. The
contractual amount of these financial instruments
represents the maximum possible credit risk to the Firm
should the counterparty draw upon the commitment or the
Firm be required to fulfill its obligation under the
guarantee, and should the counterparty subsequently fail to
perform according to the terms of the contract. Most of
these commitments 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 expected future credit exposure or
funding requirements.

To provide for probable credit losses inherent in wholesale
and certain consumer lending-commitments, an allowance
for credit losses on lending-related commitments is
maintained. See Note 13 for further information regarding
the allowance for credit losses on lending-related
commitments. The following table summarizes the
contractual amounts and carrying values of off-balance
sheet lending-related financial instruments, guarantees and
other commitments at December 31, 2017 and 2016. The
amounts in the table below for credit card and home equity
lending-related commitments represent the total available
credit for these products. The Firm has not experienced,
and does not anticipate, that all available lines of credit for
these 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.

JPMorgan Chase & Co./2017 Annual Report

261

Notes to consolidated financial statements

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

Contractual amount

Expires in
1 year or
less

Expires
after
1 year
through
3 years

2017

Expires
after
3 years
through
5 years

Expires
after 5
years

Total

2016

Carrying value(i)
2016
2017

2,165 $

1,370 $

1,379 $ 15,446 $ 20,360

$ 21,714

12 $

5,723

8,007

11,642

27,537

572,831

600,368

—

872

926

—

292

112

522

3,168

1,783

16,065

5,736

9,255

13,202

48,553

—

572,831

3,168

1,783

16,065

621,384

10,332

8,468

12,733
53,247 (h)
553,891
607,138 (h)

—

15,278

3,459

9,905

114

7,963

139

2,080

35,226

—

3,712

35,947

3,570

636

586

80,273

128,926

146,391

14,508

370,098

$ 680,641 $ 132,094 $ 148,174 $ 30,573 $ 991,482

368,014

1,493
$ 975,152 (h) $ 1,512 $ 1,519

1,479

By remaining maturity at December 31,
(in millions)

Lending-related

Consumer, excluding credit card:

Home equity
Residential mortgage(a)(b)
Auto
Consumer & Business Banking(b)

Total consumer, excluding credit card

Credit card
Total consumer(c)
Wholesale:

Standby letters of credit and other financial

guarantees(d)

Other letters of credit(d)

Total wholesale(e)
Total lending-related

Other guarantees and commitments

Securities lending indemnification agreements and

guarantees(f)

Other unfunded commitments to extend credit(d)

61,536

118,907

138,289

12,428

331,160

328,497

840

905

Derivatives qualifying as guarantees

4,529

101

12,479

40,065

57,174

51,966

304

$ 179,490 $

— $

— $ 179,490

$ 137,209

— $

Unsettled reverse repurchase and securities

borrowing agreements

Unsettled repurchase and securities lending

agreements

Loan sale and securitization-related indemnifications:

Mortgage repurchase liability

Loans sold with recourse

76,859

44,205

—

Other guarantees and commitments(g)

7,668

1,084

—

434

—

76,859

50,722

44,205

26,948

—

2,681

1,169

11,867

2,730

5,715

111

133

(76)

(118)

—

(a) Includes certain commitments to purchase loans from correspondents.
(b) Certain loan portfolios have been reclassified. The prior period amounts have been revised to conform with the current period presentation.
(c) Predominantly all consumer lending-related commitments are in the U.S.
(d) At December 31, 2017 and 2016, reflected the contractual amount net of risk participations totaling $334 million and $328 million, respectively, for other unfunded

commitments to extend credit; $10.4 billion and $11.1 billion, respectively, for standby letters of credit and other financial guarantees; and $405 million and $265
million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk participations.

(e) At December 31, 2017 and 2016, the U.S. portion of the contractual amount of total wholesale lending-related commitments was 77% and 79%, respectively.
(f) At December 31, 2017 and 2016, collateral held by the Firm in support of securities lending indemnification agreements was $188.7 billion and $143.2 billion,

respectively. Securities lending collateral consist of primarily cash and securities issued by governments that are members of G7 and U.S. government agencies.
(g) At December 31, 2017, primarily includes letters of credit hedged by derivative transactions and managed on a market risk basis, unfunded commitments related to

institutional lending and commitments associated with the Firm’s membership in certain clearing houses. Additionally, includes unfunded commitments predominantly
related to certain tax-oriented equity investments.

(h) The prior period amounts have been revised to conform with the current period presentation.
(i) For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-related products, the

carrying value represents the fair value.

262

JPMorgan Chase & Co./2017 Annual Report

Other unfunded commitments to extend credit
Other unfunded commitments to extend credit generally
consist of commitments for working capital and general
corporate purposes, extensions of credit to support
commercial paper facilities and bond financings in the event
that those obligations cannot be remarketed to new
investors, as well as committed liquidity facilities to clearing
organizations. The Firm also issues commitments under
multipurpose facilities which could be drawn upon in
several forms, including the issuance of a standby letter of
credit.

The Firm acts as a settlement and custody bank in the U.S.
tri-party repurchase transaction market. In its role as
settlement and custody bank, the Firm is exposed to the
intra-day credit risk of its cash borrower clients, usually
broker-dealers. This exposure arises under secured
clearance advance facilities that the Firm extends to its
clients (i.e. cash borrowers); these facilities contractually
limit the Firm’s intra-day credit risk to the facility amount
and must be repaid by the end of the day. As of
December 31, 2017 and 2016, the secured clearance
advance facility maximum outstanding commitment amount
was $1.5 billion and $2.4 billion, respectively.

Guarantees
U.S. GAAP requires that a guarantor recognize, at the
inception of a guarantee, a liability in an amount equal to
the fair value of the obligation undertaken in issuing the
guarantee. 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) a
third 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 amount
in other liabilities with an offsetting entry recorded in cash
(for premiums received), or other assets (for premiums
receivable). Any premium receivable recorded in other
assets is reduced as cash is received under the contract, and
the fair value of the liability recorded at inception is
amortized 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 sale
proceeds is allocated to the guarantee, which adjusts the
gain or loss that would otherwise result from the
transaction. For these indemnifications, the initial liability is
amortized to income as the Firm’s risk is reduced (i.e., over
time or when the indemnification expires). Any contingent
liability that exists as a result of issuing the guarantee or
indemnification is recognized when it becomes probable
and reasonably estimable. The contingent portion of the
liability is not recognized if the estimated amount is less
than the carrying amount of the liability recognized at
inception (adjusted for any amortization). The recorded
amounts of the liabilities related to guarantees and
indemnifications at December 31, 2017 and 2016,
excluding the allowance for credit losses on lending-related
commitments, are discussed below.

Standby letters of credit and other financial guarantees
Standby letters of credit and other financial guarantees are
conditional lending commitments issued by the Firm to
guarantee the performance of a client or customer to a
third party under certain arrangements, such as
commercial paper facilities, bond financings, acquisition
financings, trade and similar transactions. The carrying
values of standby and other letters of credit were $639
million and $588 million at December 31, 2017 and 2016,
respectively, which were classified in accounts payable and
other liabilities on the Consolidated balance sheets; these
carrying values included $195 million and $147 million,
respectively, for the allowance for lending-related
commitments, and $444 million and $441 million,
respectively, for the guarantee liability and corresponding
asset.

The following table summarizes the types of facilities under which standby letters of credit and other letters of credit
arrangements are outstanding by the ratings profiles of the Firm’s clients, as of December 31, 2017 and 2016.

Standby letters of credit, other financial guarantees and other letters of credit

2017

2016

Standby letters of credit and
other financial guarantees

Other letters
of credit

Standby letters of credit and
other financial guarantees

Other letters
of credit

December 31,
(in millions)

Investment-grade(a)

Noninvestment-grade(a)

Total contractual amount

Allowance for lending-related commitments

Guarantee liability

Total carrying value

Commitments with collateral

28,492

6,734

35,226

192

444

636

17,421

2,646

1,066

3,712

—

878

28,245

7,702

35,947

145

441

586

19,346

(a) The ratings scale is based on the Firm’s internal ratings, which generally correspond to ratings as defined by S&P and Moody’s.

JPMorgan Chase & Co./2017 Annual Report

2,781

789

3,570

—

940

263

Notes to consolidated financial statements

Securities lending indemnifications
Through the Firm’s securities lending program,
counterparties’ securities, via custodial and non-custodial
arrangements, may be lent to third parties. As part of this
program, the Firm provides an indemnification in the
lending agreements which protects the lender against the
failure of the borrower 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 to help 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 of overcollateralization. If a
borrower defaults, the Firm would use the collateral held to
purchase replacement securities in the market or to credit
the lending client or counterparty with the cash equivalent
thereof.

Derivatives qualifying as guarantees
The Firm transacts certain derivative contracts that have
the 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 meet
client needs, or for other trading purposes. The terms of
written put options are typically five years or less.

Derivatives deemed to be guarantees also includes stable
value contracts, commonly referred to as “stable value
products”, 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 less than book value and certain other
conditions have been met. Stable value products are
transacted in order to allow investors to realize investment
returns with less volatility than an unprotected portfolio.
These contracts are typically longer-term or may have no
stated maturity, but allow the Firm to elect to terminate the
contract under certain conditions.

The notional value of derivatives guarantees generally
represents the Firm’s maximum exposure. However,
exposure to certain stable value products is contractually
limited to a substantially lower percentage of the notional
amount.

The fair value of derivative guarantees reflects the
probability, in the Firm’s view, of whether the Firm will be
required to perform under the contract. The Firm reduces
exposures to these contracts by entering into offsetting
transactions, or by entering into contracts that hedge the
market risk related to the derivative guarantees.

The following table summarizes the derivatives qualifying as
guarantees as of December 31, 2017, and 2016.

(in millions)

Notional amounts

Derivative guarantees

Stable value contracts with

contractually limited exposure

Maximum exposure of stable

value contracts with
contractually limited exposure

Fair value

Derivative payables

Derivative receivables

December 31,
2017

December 31,
2016

57,174

51,966

29,104

28,665

3,053

3,012

304

—

In addition to derivative contracts that meet the
characteristics of a guarantee, the Firm is both a purchaser
and seller of credit protection in the credit derivatives
market. For a further discussion of credit derivatives, see
Note 5.

Unsettled reverse repurchase and securities borrowing
agreements, and unsettled repurchase and securities
lending agreements
In the normal course of business, the Firm enters into
reverse repurchase agreements and securities borrowing
agreements, which are secured financing agreements. Such
agreements settle at a future date. At settlement, these
commitments result in the Firm advancing cash to and
receiving 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, and
therefore, are not recorded on the Consolidated balance
sheets until settlement date. These agreements
predominantly consist of agreements with regular-way
settlement periods. For a further discussion of securities
purchased under resale agreements and securities
borrowed, and securities sold under repurchase agreements
and securities loaned, see Note 11.

264

JPMorgan Chase & Co./2017 Annual Report

Loan sales- and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm’s mortgage loan sale and
securitization activities with GSEs, as described in Note 14,
the Firm has made representations and warranties that the
loans sold meet certain requirements that may require the
Firm to repurchase mortgage loans and/or indemnify the
loan 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 to
seek 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 the
unpaid principal balance of such loans that are deemed to
have defects that were sold to purchasers (including
securitization-related SPEs) plus, in certain circumstances,
accrued interest on such loans and certain expenses.

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

For additional information regarding litigation, see Note 29.

Loans sold with recourse
The Firm provides servicing for mortgages and certain
commercial lending products on both a recourse and
nonrecourse 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 Mae
or Freddie Mac or a private investor, insurer or guarantor.
Losses on recourse servicing predominantly occur when
foreclosure sales proceeds of the property underlying a
defaulted loan are less than the sum of the outstanding
principal balance, plus accrued interest on the loan and the
cost of holding and disposing of the underlying property.
The Firm’s securitizations are predominantly nonrecourse,
thereby effectively transferring the risk of future credit
losses to the purchaser of the mortgage-backed securities
issued by the trust. At December 31, 2017 and 2016, the
unpaid principal balance of loans sold with recourse totaled
$1.2 billion and $2.7 billion, respectively. The carrying
value of the related liability that the Firm has recorded,
which is representative of the Firm’s view of the likelihood it
will have to perform under its recourse obligations, was
$38 million and $64 million at December 31, 2017 and
2016, respectively.

Other off-balance sheet arrangements
Indemnification agreements – general
In connection with issuing securities to investors outside the
U.S., the Firm may agree to pay additional amounts to the
holders of the securities in the event that, due to a change
in tax law, certain types of withholding taxes are imposed

on payments on the securities. The terms of the securities
may also give the Firm the right to redeem the securities if
such additional amounts are payable. The enactment of the
TCJA will not cause the Firm to become obligated to pay any
such additional amounts. The Firm may also enter into
indemnification clauses in connection with the licensing of
software to clients (“software licensees”) or when it sells a
business 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 taken
by the Firm prior to the sale of the business or assets. It is
difficult to estimate the Firm’s maximum exposure under
these indemnification arrangements, since this would
require an assessment of future changes in tax law and
future claims that may be made against the Firm that have
not yet occurred. However, based on historical experience,
management expects the risk of loss to be remote.

Card charge-backs .
Under the rules of Visa USA, Inc., and MasterCard
International, JPMorgan Chase Bank, N.A., is primarily liable
for the amount of each processed card sales transaction
that is the subject of a dispute between a cardmember and
a merchant. If a dispute is resolved in the cardmember’s
favor, Merchant Services will (through the cardmember’s
issuing bank) credit or refund the amount to the
cardmember and will charge back the transaction to the
merchant. If Merchant Services is unable to collect the
amount from the merchant, Merchant Services will bear the
loss for the amount credited or refunded to the
cardmember. Merchant Services mitigates this risk by
withholding future settlements, retaining cash reserve
accounts or by obtaining other security. However, in the
unlikely event that: (1) a merchant ceases operations and is
unable to deliver products, services or a refund; (2)
Merchant Services does not have sufficient collateral from
the merchant to provide cardmember refunds; and (3)
Merchant Services does not have sufficient financial
resources to provide cardmember refunds, JPMorgan Chase
Bank, N.A., would recognize the loss.

Merchant Services incurred aggregate losses of $28 million,
$85 million, and $12 million on $1,191.7 billion, $1,063.4
billion, and $949.3 billion of aggregate volume processed
for the years ended December 31, 2017, 2016 and 2015,
respectively. Incurred losses from merchant charge-backs
are charged to other expense, with the offset recorded in a
valuation allowance against accrued interest and accounts
receivable on the Consolidated balance sheets. The carrying
value of the valuation allowance was $7 million and $45
million at December 31, 2017 and 2016, respectively,
which the Firm believes, based on historical experience and
the collateral held by Merchant Services of $141 million
and $125 million at December 31, 2017 and 2016,
respectively, is representative of the payment or
performance risk to the Firm related to charge-backs.

JPMorgan Chase & Co./2017 Annual Report

265

of the residual losses after applying the guarantee fund.
Additionally, certain clearing houses require the Firm as a
member to pay a pro rata share of losses that may result
from the clearing house’s investment of guarantee fund
contributions and initial margin, unrelated to and
independent of the default of another member. Generally a
payment would only be required should such losses exceed
the resources of the clearing house or exchange that are
contractually required to absorb the losses in the first
instance. 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.

Guarantees of subsidiaries
In the normal course of business, the Parent Company may
provide counterparties with guarantees of certain of the
trading and other obligations of its subsidiaries on a
contract-by-contract basis, as negotiated with the Firm’s
counterparties. The obligations of the subsidiaries are
included on the Firm’s Consolidated balance sheets or are
reflected as off-balance sheet commitments; therefore, the
Parent Company has not recognized a separate liability for
these guarantees. The Firm believes that the occurrence of
any event that would trigger payments by the Parent
Company under these guarantees is remote.

The Parent Company has guaranteed certain long-term debt
and structured notes of its subsidiaries, including JPMorgan
Chase Financial Company LLC (“JPMFC”), a 100%-owned
finance subsidiary. All securities issued by JPMFC are fully
and unconditionally guaranteed by the Parent Company.
These guarantees, which rank on a parity with the Firm’s
unsecured and unsubordinated indebtedness, are not
included in the table on page 262 of this Note. For
additional information, see Note 19.

Notes to consolidated financial statements

Clearing Services – Client Credit Risk
The Firm provides clearing services for clients by entering
into securities purchases and sales and derivative
transactions with CCPs, including ETDs such as futures and
options, as well as OTC-cleared derivative contracts. As a
clearing member, the Firm stands behind the performance
of its clients, collects cash and securities collateral (margin)
as well as any settlement amounts due from or to clients,
and remits them to the relevant CCP or client in whole or
part. There are two types of margin: variation margin is
posted on a daily basis based on the value of clients’
derivative contracts and initial margin is posted at inception
of a derivative contract, generally on the basis of the
potential changes in the variation margin requirement for
the contract.

As a clearing member, the Firm is exposed to the risk of
nonperformance by its clients, but is not liable to clients for
the performance of the CCPs. Where possible, the Firm
seeks to mitigate its risk to the client through the collection
of appropriate amounts of margin at inception and
throughout the life of the transactions. The Firm can also
cease providing clearing services if clients do not adhere to
their obligations under the clearing agreement. In the event
of nonperformance by a client, the Firm would close out the
client’s positions and access available margin. The CCP
would utilize any margin it holds to make itself whole, with
any remaining shortfalls required to be paid by the Firm as
a clearing member.

The Firm reflects its exposure to nonperformance risk of the
client through the recognition of margin receivables from
clients and margin payables to CCPs; the clients’ underlying
securities or derivative contracts are not reflected in the
Firm’s Consolidated Financial Statements.

It is difficult to estimate the Firm’s maximum possible
exposure through its role as a clearing member, as this
would require an assessment of transactions that clients
may execute in the future. However, based upon historical
experience, and the credit risk mitigants available to the
Firm, management believes it is unlikely that the Firm will
have to make any material payments under these
arrangements 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 5.

Exchange & Clearing House Memberships
The Firm is a member of several securities and derivative
exchanges and clearing houses, both in the U.S. and other
countries, and it provides clearing services. Membership in
some of these organizations requires the Firm to pay a pro
rata share of the losses incurred by the organization as a
result of the default of another member. Such obligations
vary with different organizations. These obligations may be
limited 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 to
cover any losses in the event of a member default.
Alternatively, these obligations may include a pro rata share

266

JPMorgan Chase & Co./2017 Annual Report

Note 28 – Commitments, pledged assets and
collateral
Lease commitments
At December 31, 2017, JPMorgan Chase and its
subsidiaries were obligated under a number of
noncancelable operating leases for premises and equipment
used primarily for banking purposes. 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 on leased premises. No lease agreement
imposes restrictions on the Firm’s ability to pay dividends,
engage in debt or equity financing transactions or enter into
further lease agreements.

The following table presents required future minimum
rental payments under operating leases with noncancelable
lease terms that expire after December 31, 2017.

Year ended December 31, (in millions)

2018

2019

2020

2021

2022

After 2022

Total minimum payments required

1,526

1,450

1,300

1,029

815

3,757

9,877

Less: Sublease rentals under noncancelable subleases

(1,034)

Net minimum payment required

8,843

Total rental expense was as follows.

Year ended December 31,
(in millions)

Gross rental expense

Sublease rental income

Net rental expense

2017

2016

2015

1,853

1,860

2,015

(251)

(241)

(411)

1,602

1,619

1,604

Pledged assets
The Firm may pledge financial assets that it owns to
maintain potential borrowing capacity with central banks
and for other purposes, including to secure borrowings and
public deposits, collateralize repurchase and other
securities financing agreements, and 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 to
various parties) on the Consolidated balance sheets.

The following table presents the Firm’s pledged assets.

December 31, (in billions)

2017

2016

Assets that may be sold or repledged or
otherwise used by secured parties

Assets that may not be sold or repledged or
otherwise used by secured parties

Assets pledged at Federal Reserve banks and
FHLBs

Total assets pledged

$ 129.6

$ 133.6

67.9

53.5

493.7

441.9

$ 691.2

$ 629.0

Total assets pledged do not include assets of consolidated
VIEs; these assets are used to settle the liabilities of those
entities. See Note 14 for additional information on assets
and liabilities of consolidated VIEs. For additional
information on the Firm’s securities financing activities, see
Note 11. For additional information on the Firm’s long-term
debt, see Note 19. The significant components of the Firm’s
pledged assets were as follows.

December 31, (in billions)

Securities

Loans

Trading assets and other

Total assets pledged

2017

2016

86.2

$ 101.1

437.7

167.3

374.9

153.0

$ 691.2

$ 629.0

Collateral
The Firm accepts financial assets as collateral that it is
permitted to sell or repledge, deliver or otherwise use. This
collateral is generally obtained under resale agreements,
securities borrowing agreements, customer margin loans
and derivative agreements. Collateral is generally used
under repurchase agreements, securities lending
agreements or to cover customer short sales and to
collateralize deposits and derivative agreements.

The following table presents the fair value of collateral
accepted.

December 31, (in billions)

2017

2016

Collateral permitted to be sold or repledged,
delivered, or otherwise used

$ 968.8

$ 914.1

Collateral sold, repledged, delivered or
otherwise used

775.3

746.6

JPMorgan Chase & Co./2017 Annual Report

267

Notes to consolidated financial statements

Note 29 – Litigation
Contingencies
As of December 31, 2017, the Firm and its subsidiaries and
affiliates are defendants or putative defendants in
numerous 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 of
class members. Investigations involve both formal and
informal proceedings, by both governmental agencies and
self-regulatory organizations. These legal proceedings are
at varying stages of adjudication, arbitration or
investigation, and involve each of the Firm’s lines of
business and geographies and a wide variety of claims
(including common law tort and contract claims and
statutory antitrust, securities and consumer protection
claims), some of which present novel legal theories.

The Firm believes the estimate of the aggregate range of
reasonably possible losses, in excess of reserves
established, for its legal proceedings is from $0 to
approximately $1.7 billion at December 31, 2017. This
estimated aggregate range of reasonably possible losses
was based upon currently available information for those
proceedings in which the Firm believes that an estimate of
reasonably possible loss can be made. For certain matters,
the Firm does not believe that such an estimate can be
made, as of that date. The Firm’s estimate of the aggregate
range of reasonably possible losses involves significant
judgment, given the number, variety and varying stages of
the proceedings (including the fact that many are in
preliminary stages), the existence in many such
proceedings of multiple defendants (including the Firm)
whose share of liability has yet to be determined, the
numerous yet-unresolved issues in many of the proceedings
(including issues regarding class certification and the scope
of many of the claims) and the attendant uncertainty of the
various potential outcomes of such proceedings, including
where the Firm has made assumptions concerning future
rulings by the court or other adjudicator, or about the
behavior or incentives of adverse parties or regulatory
authorities, and those assumptions prove to be incorrect. In
addition, the outcome of a particular proceeding may be a
result which the Firm did not take into account in its
estimate because the Firm had deemed the likelihood of
that outcome to be remote. Accordingly, the Firm’s estimate
of the aggregate range of reasonably possible losses will
change from time to time, and actual losses may vary
significantly.

Set forth below are descriptions of the Firm’s material legal
proceedings.

Foreign Exchange Investigations and Litigation. The Firm
previously reported settlements with certain government
authorities relating to its foreign exchange (“FX”) sales and
trading activities and controls related to those activities. FX-
related investigations and inquiries by government
authorities, including competition authorities, are ongoing,

and the Firm is cooperating with and working to resolve
those matters. In May 2015, the Firm pleaded guilty to a
single violation of federal antitrust law. In January 2017,
the Firm was sentenced, with judgment entered thereafter.
The Department of Labor has granted the Firm a five-year
exemption of disqualification, effective upon expiration of a
temporary one-year exemption previously granted, that
allows the Firm and its affiliates to continue to rely on the
Qualified Professional Asset Manager exemption under the
Employee Retirement Income Security Act (“ERISA”). The
Firm will need to reapply in due course for a further
exemption to cover the remainder of the ten-year
disqualification period. Separately, in February 2017 the
South Africa Competition Commission referred its FX
investigation of the Firm and other banks to the South
Africa Competition Tribunal, which is conducting civil
proceedings concerning that matter.

The Firm is also one of a number of foreign exchange
dealers defending a class action filed in the United States
District Court for the Southern District of New York by U.S.-
based plaintiffs, principally alleging violations of federal
antitrust laws based on an alleged conspiracy to manipulate
foreign exchange rates (the “U.S. class action”). In January
2015, the Firm entered into a settlement agreement in the
U.S. class action. Following this settlement, a number of
additional putative class actions were filed seeking damages
for persons who transacted FX futures and options on
futures (the “exchanged-based actions”), consumers who
purchased foreign currencies at allegedly inflated rates (the
“consumer action”), participants or beneficiaries of
qualified ERISA plans (the “ERISA actions”), and purported
indirect purchasers of FX instruments (the “indirect
purchaser action”). Since then, the Firm has entered into a
revised settlement agreement to resolve the consolidated
U.S. class action, including the exchange-based actions, and
that 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 indirect
purchaser action remain pending in the District Court.

General Motors Litigation. JPMorgan Chase Bank, N.A.
participated in, and was the Administrative Agent on behalf
of 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 Creditors
of 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 Court
of Appeals for the Second Circuit reversed the Bankruptcy
Court’s dismissal of the Creditors Committee’s claim and

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remanded the case to the Bankruptcy Court with
instructions to enter partial summary judgment for the
Creditors 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 filing
of the termination statement at issue. In connection with
that additional collateral, a trial in the Bankruptcy Court
regarding the value of certain representative assets
concluded in May 2017, and a ruling was issued in
September 2017. The Bankruptcy Court found that 33 of
the 40 representative assets are fixtures and that these
fixtures generally should be valued on a “going concern”
basis. The Creditors Committee is seeking leave to appeal
the Bankruptcy Court’s ruling that the fixtures should be
valued on a “going concern” basis rather than on a
liquidation basis. In addition, certain Term Loan lenders
filed cross-claims in the Bankruptcy Court against JPMorgan
Chase Bank, N.A. seeking indemnification and asserting
various claims. The parties are engaged in mediation
concerning, among other things, the characterization and
value of the remaining additional collateral, in light of the
Bankruptcy Court’s ruling regarding the representative
assets, as well as other issues, including the cross-claims.

Hopper Estate Litigation. The Firm is a defendant in an
action in connection with its role as an independent
administrator of an estate. The plaintiffs sought in excess of
$7 million in compensatory damages, primarily relating to
attorneys’ fees incurred by the plaintiffs. After a trial in
probate court in Dallas, Texas that ended in September
2017, the jury returned a verdict against the Firm,
awarding plaintiffs their full compensatory damages and
multiple billions in punitive damages. Notwithstanding the
jury verdict, in light of legal limitations on the availability of
damages, certain of the plaintiffs moved for entry of
judgment in the total amount of approximately $71 million,
including punitive damages, while another plaintiff has not
yet moved for judgment. The court has not yet entered a
judgment in this matter. The parties are engaged in post-
trial briefing.

Interchange Litigation. A group of merchants and retail
associations filed a series of class action complaints alleging
that Visa and MasterCard, as well as certain banks,
conspired to set the price of credit and debit card
interchange fees and enacted respective rules in violation of
antitrust laws. The parties settled the cases for a cash
payment of $6.1 billion to the class plaintiffs (of which the
Firm’s share is approximately 20%) and an amount equal to
ten basis points of credit card interchange for a period of 8
months to be measured from a date within 60 days of the
end of the opt-out period. The settlement also provided for
modifications to each credit card network’s rules, including
those that prohibit surcharging credit card transactions. In
December 2013, the District Court granted final approval of
the settlement.

A number of merchants appealed to the United States Court
of Appeals for the Second Circuit, which, in June 2016,
vacated the District Court’s certification of the class action
and reversed the approval of the class settlement. In March
2017, the U.S. Supreme Court declined petitions seeking
review of the decision of the Court of Appeals. The case has
been remanded to the District Court for further proceedings
consistent with the appellate decision.

In addition, certain merchants have filed individual actions
raising similar allegations against Visa and MasterCard, as
well as against the Firm and other banks, and those actions
are proceeding.

LIBOR and Other Benchmark Rate Investigations and
Litigation. JPMorgan Chase has received subpoenas and
requests for documents and, in some cases, interviews,
from federal and state agencies and entities, including the
U.S. Commodity Futures Trading Commission (“CFTC”) and
various state attorneys general, as well as the European
Commission (“EC”), the Swiss Competition Commission
(“ComCo”) and other regulatory authorities and banking
associations around the world relating primarily to the
process by which interest rates were submitted to the
British Bankers Association (“BBA”) in connection with the
setting of the BBA’s London Interbank Offered Rate
(“LIBOR”) for various currencies, principally in 2007 and
2008. Some of the inquiries also relate to similar processes
by which information on rates was submitted to the
European Banking Federation (“EBF”) in connection with
the setting of the EBF’s Euro Interbank Offered Rates
(“EURIBOR”) and to the Japanese Bankers’ Association for
the setting of Tokyo Interbank Offered Rates (“TIBOR”)
during similar time periods, as well as processes for the
setting of U.S. dollar ISDAFIX rates and other reference
rates in various parts of the world during similar time
periods, including through 2012. The Firm continues to
cooperate with these ongoing investigations, and is
currently engaged in discussions with the CFTC about
resolving its U.S. dollar ISDAFIX-related investigation with
respect to the Firm. There is no assurance that such
discussions will result in a settlement. As previously
reported, the Firm has resolved EC inquiries relating to Yen
LIBOR and Swiss Franc LIBOR. In December 2016, the Firm
resolved ComCo inquiries relating to these same rates.
ComCo’s investigation relating to EURIBOR, to which the
Firm and other banks are subject, continues. In December
2016, the EC issued a decision against the Firm and other
banks finding an infringement of European antitrust rules
relating to EURIBOR. The Firm has filed an appeal with the
European General Court.

In addition, the Firm has been named as a defendant along
with other banks in a series of individual and putative class
actions 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 the
Southern District of New York. In these actions, plaintiffs
make varying allegations that in various periods, starting in
2000 or later, defendants either individually or collectively

JPMorgan Chase & Co./2017 Annual Report

269

Notes to consolidated financial statements

manipulated various benchmark rates by submitting rates
that were artificially low or high. Plaintiffs allege that they
transacted in loans, derivatives or other financial
instruments whose values are affected by changes in these
rates and assert a variety of claims including antitrust
claims seeking treble damages. These matters are in various
stages of litigation.

The Firm has agreed to settle a putative class action related
to Swiss franc LIBOR, and that settlement remains subject
to final court approval.

In an action related to EURIBOR, the District Court
dismissed all claims except a single antitrust claim and two
common law claims, and dismissed all defendants except
the Firm and Citibank.

In actions related to U.S. dollar LIBOR, the District Court
dismissed certain claims, including antitrust claims brought
by some plaintiffs whom the District Court found did not
have standing to assert such claims, and permitted antitrust
claims, claims under the Commodity Exchange Act and
common law claims to proceed. The plaintiffs whose
antitrust claims were dismissed for lack of standing have
filed an appeal. In May 2017, plaintiffs in three putative
class actions moved in the District Court for class
certification, and the Firm and other defendants have
opposed that motion. In January 2018, the District Court
heard oral arguments on the class certification motions and
reserved decision.

In an action related to the Singapore Interbank Offered Rate
and the Singapore Swap Offer Rate, the District Court
dismissed without prejudice all claims except a single
antitrust claim, and dismissed without prejudice all
defendants except the Firm, Bank of America and Citibank.
The plaintiffs filed an amended complaint in September
2017, which the Firm and other defendants have moved to
dismiss.

The Firm is one of the defendants in a number of putative
class actions alleging that defendant banks and ICAP
conspired to manipulate the U.S. dollar ISDAFIX rates. In
April 2016, the Firm settled this litigation, along with
certain other banks. Those settlements have been
preliminarily approved by the Court.

Mortgage-Backed Securities and Repurchase Litigation and
Related Regulatory Investigations. The Firm and affiliates
(together, “JPMC”), Bear Stearns and affiliates (together,
“Bear Stearns”) and certain Washington Mutual affiliates
(together, “Washington Mutual”) have been named as
defendants in a number of cases in their various roles in
offerings of MBS. The remaining civil cases include one
investor action and actions for repurchase of mortgage
loans. The Firm and certain of its current and former
officers and Board members have also been sued in a
shareholder derivative action relating to the Firm’s MBS
activities, which remains pending.

Issuer Litigation – Individual Purchaser Actions. With the
exception of one remaining action, the Firm has resolved all
of the individual actions brought against JPMC, Bear Stearns
and Washington Mutual as MBS issuers (and, in some cases,
also as underwriters of their own MBS offerings).

Repurchase Litigation. The Firm is defending a few actions
brought by trustees and/or securities administrators of
various MBS trusts on behalf of purchasers of securities
issued by those trusts. These cases generally allege
breaches of various representations and warranties
regarding securitized loans and seek repurchase of those
loans or equivalent monetary relief, as well as
indemnification of attorneys’ fees and costs and other
remedies. The trustees and/or securities administrators
have accepted settlement offers on these MBS transactions,
and these settlements are subject to court approval.

In addition, the Firm and a group of 21institutional MBS
investors made a binding offer to the trustees of MBS issued
by 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 asserted
with respect to 330 MBS trusts created between 2005 and
2008. The offer does not resolve claims relating to
Washington Mutual MBS. The trustees (or separate and
successor trustees) for this group of 330 trusts have
accepted the settlement for 319 trusts in whole or in part
and excluded from the settlement 16 trusts in whole or in
part. The trustees’ acceptance received final approval from
the court and the Firm paid the settlement in December
2017.

Additional actions have been filed against third-party
trustees that relate to loan repurchase and servicing claims
involving trusts sponsored by JPMC, Bear Stearns and
Washington Mutual.

In actions against the Firm involving offerings of MBS issued
by the Firm, the Firm has contractual rights to
indemnification from sellers of mortgage loans that were
securitized in such offerings. However, certain of those
indemnity rights may prove effectively unenforceable in
various situations, such as where the loan sellers are now
defunct.

The Firm has entered into agreements with a number of
MBS trustees or entities that purchased MBS that toll
applicable statute of limitations periods with respect to
their claims, and has settled, and in the future may settle,
tolled claims. There is no assurance that the Firm will not be
named as a defendant in additional MBS-related litigation.

Derivative Action. A shareholder derivative action against
the Firm, as nominal defendant, and certain of its current
and former officers and members of its Board of Directors
relating to the Firm’s MBS activities was filed in California
federal court in 2013. In June 2017, the court granted
defendants’ motion to dismiss the cause of action that
alleged material misrepresentations and omissions in the

270

JPMorgan Chase & Co./2017 Annual Report

Firm’s proxy statement, found that the court did not have
personal jurisdiction over the individual defendants with
respect to the remaining causes of action, and transferred
that remaining portion of the case to the United States
District Court for the Southern District of New York without
ruling on the merits. The motion by the defendants to
dismiss is pending.

Municipal Derivatives Litigation. Several civil actions were
commenced 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 for
being chosen to underwrite more than $3.0 billion in
warrants issued by the County and to act as the
counterparty 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-described
actions 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 Chase
and certain of its affiliates, including One Equity Partners
(“OEP”), were named as defendants in several actions filed
in connection with the receivership and bankruptcy
proceedings pertaining to Thomas J. Petters and certain
affiliated entities (collectively, “Petters”) and the Polaroid
Corporation. The principal actions against JPMorgan Chase
and its affiliates were brought by a court-appointed receiver
for Petters and the trustees in bankruptcy proceedings for
three Petters entities. These actions generally sought to
avoid certain putative transfers in connection with (i) the
2005 acquisition by Petters of Polaroid, which at the time
was majority-owned by OEP; (ii) two credit facilities that
JPMorgan Chase and other financial institutions entered
into with Polaroid; and (iii) a credit line and investment
accounts held by Petters. In January 2017, the Court
substantially denied the defendants’ motion to dismiss an
amended complaint filed by the plaintiffs. In October 2017,
JPMorgan Chase and its affiliates reached an agreement in
principle to settle the litigation brought by the Petters
bankruptcy trustees, or their successors, and the receiver
for Thomas J. Petters. The settlement is subject to final
documentation and Court approval.

Wendel. Since 2012, the French criminal authorities have
been investigating a series of transactions entered into by
senior 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 a
number of managers of Wendel in 2007. JPMorgan Chase
has cooperated with the investigation. The investigating
judges issued an ordonnance de renvoi in November 2016,
referring JPMorgan Chase Bank, N.A. to the French tribunal
correctionnel for alleged complicity in tax fraud. No date for
trial has been set by the court. The Firm has been
successful in legal challenges made to the Court of
Cassation, France’s highest court, with respect to the
criminal proceedings. In January 2018, the Paris Court of
Appeal issued a decision cancelling the mise en examen of
JPMorgan Chase Bank, N.A. The Firm is requesting
clarification from the Court of Cassation concerning the
Court of Appeal’s decision before seeking direction on next
steps in the criminal proceedings. In addition, a number of
the managers have commenced civil proceedings against
JPMorgan Chase Bank, N.A. The claims are separate, involve
different allegations and are at various stages of
proceedings.

* * *

In addition to the various legal proceedings discussed
above, JPMorgan Chase and its subsidiaries are named as
defendants or are otherwise involved in a substantial
number of other legal proceedings. The Firm believes it has
meritorious defenses to the claims asserted against it in its
currently outstanding legal proceedings and it intends to
defend itself vigorously. Additional legal proceedings may
be initiated from time to time in the future.

The Firm has established reserves for several hundred of its
currently outstanding legal proceedings. In accordance with
the provisions of U.S. GAAP for contingencies, the Firm
accrues for a litigation-related liability when it is probable
that 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 with
counsel. During the years ended December 31, 2017, 2016
and 2015, the Firm’s legal expense was a benefit of $(35)
million, a benefit of $(317) million, and an expense of $3.0
billion, respectively. There is no assurance that the Firm’s
litigation reserves will not need to be adjusted in the future.

In view of the inherent difficulty of predicting the outcome
of legal proceedings, particularly where the claimants seek
very large or indeterminate damages, or where the matters
present novel legal theories, involve a large number of
parties or are in early stages of discovery, the Firm cannot
state with confidence what will be the eventual outcomes of
the currently pending matters, the timing of their ultimate
resolution or the eventual losses, fines, penalties or

JPMorgan Chase & Co./2017 Annual Report

271

Notes to consolidated financial statements

consequences related to those matters. JPMorgan Chase
believes, based upon its current knowledge, after
consultation with counsel and after taking into account its
current litigation reserves, that the legal proceedings
currently pending against it should not have a material
adverse effect on the Firm’s consolidated financial
condition. The Firm notes, however, that in light of the
uncertainties involved in such proceedings, there is no
assurance that the ultimate resolution of these matters will
not significantly exceed the reserves it has currently
accrued or that a matter will not have material reputational
consequences. As a result, the outcome of a 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.

272

JPMorgan Chase & Co./2017 Annual Report

Note 30 – International operations
The following table presents income statement- and balance
sheet-related information for JPMorgan Chase by major
international geographic area. The Firm defines
international 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 the Firm’s operations are highly integrated, estimates
and subjective assumptions have been made to apportion
revenue and expense between U.S. and international
operations. These estimates and assumptions are consistent
with the allocations used for the Firm’s segment reporting
as set forth in Note 31.

The Firm’s long-lived assets for the periods presented are
not considered by management to be significant in relation
to total assets. The majority of the Firm’s long-lived assets
are located in the U.S.

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

Revenue(b)

Expense(c)

Income before
income tax
expense

Net income

Total assets

2017

Europe/Middle East/Africa

Asia/Pacific

Latin America/Caribbean

Total international

North America(a)

Total

2016

Europe/Middle East/Africa

Asia/Pacific

Latin America/Caribbean

Total international

North America(a)

Total

2015

Europe/Middle East/Africa

Asia/Pacific

Latin America/Caribbean

Total international

North America(a)

Total

14,426

8,653

5,773

4,007

407,145 (d)

5,805

1,994

22,225

77,399

4,277

1,523

14,453

49,271

1,528

471

7,772

28,128

852

299

5,158

19,283

163,718

44,569

615,432

1,918,168

99,624

63,724

35,900

24,441

2,533,600

13,842

8,550

5,292

3,783

394,134 (d)

6,112

1,959

21,913

73,755

4,213

1,632

14,395

46,737

1,899

327

7,518

27,018

1,212

208

5,203

156,946

42,971

594,051

19,530

1,896,921

95,668

61,132

34,536

24,733

2,490,972

14,206

8,871

5,335

4,158

347,647 (d)

6,151

1,923

22,280

71,263

4,241

1,508

14,620

48,221

1,910

415

7,660

23,042

1,285

253

5,696

138,747

48,185

534,579

18,746

1,817,119

93,543

62,841

30,702

24,442

2,351,698

(a) Substantially reflects the U.S.
(b) Revenue is composed of net interest income and noninterest revenue.
(c) Expense is composed of noninterest expense and the provision for credit losses.
(d) Total assets for the U.K. were approximately $310 billion, $310 billion, and $306 billion at December 31, 2017, 2016 and 2015, respectively.

JPMorgan Chase & Co./2017 Annual Report

273

Notes to consolidated financial statements

Note 31 – Business segments
The Firm is managed on a line of business basis. There are
four major reportable business segments – Consumer &
Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset & Wealth Management. In
addition, there is a Corporate segment. The business
segments are determined based on the products and
services provided, or the type of customer served, and they
reflect the manner in which financial information is
currently evaluated by management. Results of these lines
of 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 business
segments, and the products and services they provide to
their respective client bases.

Consumer & Community Banking
CCB offers services to consumers and businesses through
bank branches, ATMs, online, mobile and telephone
banking. CCB is organized into Consumer & Business
Banking (including Consumer Banking/Chase Wealth
Management and Business Banking), Home Lending
(including Home Lending Production, Home Lending
Servicing and Real Estate Portfolios) and Card, Merchant
Services & Auto. Consumer & Business Banking offers
deposit and investment products and services to
consumers, and lending, deposit, and cash management
and payment solutions to small businesses. Home Lending
includes mortgage origination and servicing activities, as
well as portfolios consisting of residential mortgages and
home equity loans. Card, Merchant Services & Auto issues
credit cards to consumers and small businesses, offers
payment processing services to merchants, and originates
and services auto loans and leases.

Corporate & Investment Bank
The CIB, which consists of Banking and Markets & Investor
Services, offers a broad 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
and municipal entities. Banking offers a full range of
investment banking products and services in all major
capital markets, including advising on corporate strategy
and structure, capital-raising in equity and debt markets, as
well as loan origination and syndication. 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 and
administration, and securities lending products principally
for asset managers, insurance companies and public and
private investment funds.

Commercial Banking
CB delivers extensive industry knowledge, local expertise
and dedicated service to U.S. and U.S. multinational clients,
including corporations, municipalities, financial institutions
and nonprofit entities with annual revenue generally
ranging from $20 million to $2 billion. In addition, CB
provides financing to real estate investors and owners.
Partnering with the Firm’s other businesses, CB provides
comprehensive financial solutions, including lending,
treasury services, investment banking and asset
management to meet its clients’ domestic and international
financial needs.

Asset & Wealth Management
AWM, with client assets of $2.8 trillion, is a global leader in
investment 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 of
clients’ investment needs. For Wealth Management clients,
AWM also provides retirement products and services,
brokerage and banking services including trusts and
estates, 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 and
Other Corporate, which includes corporate staff units and
expense that is centrally managed. Treasury and CIO are
predominantly responsible for measuring, monitoring,
reporting and managing the Firm’s liquidity, funding and
structural interest rate 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.

274

JPMorgan Chase & Co./2017 Annual Report

Segment results
The following tables provide a summary of the Firm’s
segment results as of or for the years ended December 31,
2017, 2016 and 2015 on a managed basis. The Firm’s
definition of managed basis starts with the reported U.S.
GAAP results and includes certain reclassifications to
present total net revenue (noninterest revenue and net
interest income) for each of the reportable business
segments on a FTE basis. Accordingly, revenue from
investments 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 from
year-to-year arising from both taxable and tax-exempt

Segment results and reconciliation

sources. The corresponding income tax impact related to
tax-exempt items is recorded within income tax expense/
(benefit).

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 Phased-In RWA), leverage, the GSIB
surcharge, and a simulation of 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 the best proxy for economic risk.

Consumer & Community Banking

Corporate & Investment Bank

Commercial Banking

Asset & Wealth Management

2017

2016

2015

2017

2016

2015

2017

2016

2015

2017

2016

2015

$ 14,710

$ 15,255

$ 15,592

$ 24,375

$ 24,325

$ 23,693

2,522

2,320

2,365

9,539

9,012

9,563

Provision for credit losses

5,572

4,494

3,059

(45)

563

332

(276)

282

31,775

29,660

28,228

10,118

10,891

9,849

46,485

44,915

43,820

34,493

35,216

33,542

6,083

8,605

5,133

7,453

4,520

6,885

442

3,379

3,033

2,556

12,918

12,045

12,119

Noninterest expense

26,062

24,905

24,909

19,243

18,992

21,361

3,327

2,934

2,881

9,301

8,478

8,886

Income/(loss) before income

tax expense/(benefit)

14,851

15,516

15,852

15,295

15,661

11,849

Income tax expense/(benefit)

5,456

5,802

6,063

4,482

4,846

3,759

5,554

2,015

4,237

1,580

3,562

1,371

9,395

9,714

9,789

$ 10,813

$ 10,815

8,090

3,539

2,657

2,191

$ 51,000

$ 70,000

$ 64,000

$ 62,000

$ 20,000

$ 16,000

$ 14,000

3,578

1,241

2,337

9,000

3,541

1,290

2,251

9,000

3,229

1,294

1,935

9,000

552,601

535,310

502,652

826,384

803,511

748,691

221,228

214,341

200,700

151,909

138,384

131,451

17%

18%

14%

16%

12%

17%

16%

15%

25%

24%

21%

Corporate

Reconciling Items(a)

Total

2017

2016

2015

2017

2016

2015

2017

2016

2015

1,085 $

938 $

800

(2,704) (b) $

(2,265) $

(1,980)

49,527

49,585

50,033

(1,425)

(533)

(1,313)

(1,209)

(1,110)

50,097

46,083

43,510

1,140

—

501

639

2,282

(487)

(4)

462

(945)

(241)

267

(10)

977

(4,017)

(3,474)

(3,090)

99,624

95,668

93,543

—

5,290

5,361

3,827

58,434

55,771

59,014

(700)

(4,017)

(3,474)

(3,090)

35,900

34,536

30,702

(3,137)

(4,017) (b)

(3,474)

(3,090)

11,459

9,803

6,260

(1,643) $

(704) $

2,437

80,350 $

84,631 $

79,690

781,478

799,426

768,204

—

— $

—

24,441

24,733

24,442

$ 230,350

$ 224,631

$ 215,690

2,533,600

2,490,972

2,351,698

10%

11%

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

Noninterest revenue

Net interest income

Total net revenue

Net income/(loss)

Average equity

Total assets

Return on equity

Overhead ratio

(table continued from above)

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

Noninterest revenue

Net interest income

Total net revenue

Provision for credit losses

Noninterest expense

Income/(loss) before income

tax expense/(benefit)

Income tax expense/(benefit)

Net income/(loss)

Average equity

Total assets

Return on equity

Overhead ratio

(a) Segment results on a managed basis reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/(benefit). These adjustments

are eliminated in reconciling items to arrive at the Firm’s reported U.S. GAAP results.

(b) Included $375 million related to tax-oriented investments as a result of the enactment of the TCJA.

JPMorgan Chase & Co./2017 Annual Report

275

Note 32 – Parent Company
The following tables present Parent Company-only financial
statements.

Statements of income and comprehensive income(a)
Year ended December 31,
(in millions)

2017

Income
Dividends from subsidiaries and

affiliates:

Bank and bank holding company
Non-bank(b)

Interest income from subsidiaries
Other interest income
Other income from subsidiaries,

primarily fees:

Bank and bank holding company
Non-bank
Other income
Total income
Expense
Interest expense to subsidiaries

and affiliates(b)

Other interest expense
Noninterest expense
Total expense

Income before income tax benefit
and undistributed net income of
subsidiaries

Income tax benefit
Equity in undistributed net income

of subsidiaries

$ 13,000
540
72
41

$ 10,000
3,873
794
207

$ 10,653
8,172
443
234

1,553
(88)
(623)
14,495

400

5,202
(1,897)
3,705

10,790

1,007

852
1,165
(846)
16,045

1,438
(1,402)
1,773
21,311

105

4,413
1,643
6,161

9,884

876

3,720
2,611
6,429

14,882

1,640

12,644

13,973

7,920

Net income
Other comprehensive income, net
Comprehensive income

$ 24,441
1,056
$ 25,497

$ 24,733
(1,521)
$ 23,212

$ 24,442
(1,997)
$ 22,445

Balance sheets(a)
December 31, (in millions)

Assets

2017

2016

Cash and due from banks

163

Deposits with banking subsidiaries

Trading assets

Available-for-sale securities

Loans

Advances to, and receivables from, subsidiaries:

Bank and bank holding company

Non-bank

Investments (at equity) in subsidiaries and

affiliates:

Bank and bank holding company

Non-bank(b)

Other assets

Total assets

5,306

4,773

—

2,106

113

5,450

10,326

2,694

524

451,713

422,028

422

10,458

13,103

10,257

$ 475,023

$ 464,618

Liabilities and stockholders’ equity

Borrowings from, and payables to, subsidiaries

and affiliates(b)

$ 23,426

$ 13,584

Short-term borrowings

Other liabilities

Long-term debt(c)(d)

Total liabilities(d)

Total stockholders’ equity

3,350

8,302

184,252

219,330

255,693

3,831

11,224

181,789

210,428

254,190

Total liabilities and stockholders’ equity

$ 475,023

$ 464,618

2016

2015

Less: Net income of subsidiaries

and affiliates(b)

26,185

27,846

26,745

Statements of cash flows(a)

Year ended December 31,
(in millions)

Operating activities

Net income

2017

2016

2015

$ 24,441

$ 24,733

$ 24,442

Parent company net loss

(1,744)

(3,113)

(2,303)

Cash dividends from subsidiaries

and affiliates(b)

13,540

13,873

Other operating adjustments

4,635

(18,166)

17,023

2,483

Net cash provided by/(used in)

operating activities

16,431

(7,406)

17,203

Investing activities

Net change in:

Deposits with banking

subsidiaries

Available-for-sale securities:

Proceeds from paydowns and

maturities

Other changes in loans, net

Advances to and investments in
subsidiaries and affiliates, net

144

60,349

30,085

—

353

1,793

(280)

(51,967)

120

321

(81)

153

All other investing activities, net

114

Net cash provided by/(used in)

investing activities

Financing activities

Net change in:

Borrowings from subsidiaries

and affiliates(b)

(41)

10,642

30,598

13,862

2,957

(4,062)

Short-term borrowings

(481)

109

(47,483)

Proceeds from long-term

borrowings

25,855

41,498

42,121

Payments of long-term borrowings

(29,812)

(29,298)

(30,077)

Proceeds from issuance of

preferred stock

Redemption of preferred stock

Treasury stock repurchased

Dividends paid

All other financing activities, net

Net cash used in financing

activities

Net increase/(decrease) in cash

and due from banks

Cash and due from banks at the

beginning of the year

Cash and due from banks at the

end of the year

Cash interest paid

Cash income taxes paid, net

1,258

(1,258)

(15,410)

(8,993)

(1,361)

—

(9,082)

(8,476)

(905)

5,893

—

(5,616)

(7,873)

(840)

(16,340)

(3,197)

(47,937)

113

(137)

211

163

5,426

1,775

113

4,550

1,053

3,873

8,251

(a) In 2016, in connection with the Firm’s 2016 Resolution Submission, the Parent
Company established the IHC, and contributed substantially all of its direct
subsidiaries (totaling $55.4 billion) other than JPMorgan Chase Bank, N.A., as
well as most of its other assets (totaling $160.5 billion) and intercompany
indebtedness to the IHC. Total noncash assets contributed were $62.3 billion. In
2017, the Parent Company transferred $16.2 billion of noncash assets to the IHC
to complete the contributions to the IHC.

(b) Affiliates include trusts that issued guaranteed capital debt securities (“issuer

trusts”). For further discussion on these issuer trusts, see Note 19.

through 2022 totaled $20.6 billion, $13.3 billion, $22.4 billion, $20.6 billion
and $10.5 billion, respectively.

(d) For information regarding the Parent Company’s guarantees of its subsidiaries’

obligations, see Notes 19 and 27.

276

JPMorgan Chase & Co./2017 Annual Report

Supplementary information

Selected quarterly financial data (unaudited)

As of or for the period ended
(in millions, except per share, ratio,
headcount data and where otherwise
Selected income statement data

Total net revenue
Total noninterest expense
Pre-provision profit

Provision for credit losses

Income before income tax expense

Income tax expense
Net income(a)

Per common share data
Net income: Basic

Diluted

Average shares: Basic

Diluted

Market and per common share data

Market capitalization
Common shares at period-end
Share price:(b)

High
Low
Close

Book value per share
TBVPS(c)
Cash dividends declared per share
Selected ratios and metrics

ROE
ROTCE(c)
ROA
Overhead ratio
Loans-to-deposits ratio
HQLA (in billions)(d)
LCR (average)
CET1 capital ratio(e)
Tier 1 capital ratio(e)
Total capital ratio(e)
Tier 1 leverage ratio(e)
Selected balance sheet data (period-end)

Trading assets
Securities
Loans

Core loans
Average core loans

Total assets
Deposits
Long-term debt(f)
Common stockholders’ equity
Total stockholders’ equity
Headcount

Credit quality metrics

Allowance for credit losses
Allowance for loan losses to total retained

loans

Allowance for loan losses to retained
loans excluding purchased credit-
impaired loans(g)
Nonperforming assets
Net charge-offs(h)

4th quarter

3rd quarter

2nd quarter

1st quarter

4th quarter

3rd quarter

2nd quarter

1st quarter

2017

2016

24,153
14,591
9,562

1,308

8,254

4,022

4,232

1.08
1.07
3,489.7
3,512.2

25,326
14,318
11,008

1,452

9,556

2,824

6,732

1.77
1.76
3,534.7
3,559.6

25,470
14,506
10,964

1,215

9,749

2,720

7,029

1.83
1.82
3,574.1
3,599.0

24,675
15,019
9,656

1,315

8,341

1,893

6,448

1.66
1.65
3,601.7
3,630.4

23,376
13,833
9,543

864

8,679

1,952

6,727

1.73
1.71
3,611.3
3,646.6

24,673
14,463
10,210

1,271

8,939

2,653

6,286

1.60
1.58
3,637.7
3,669.8

24,380
13,638
10,742

1,402

9,340

3,140

6,200

1.56
1.55
3,675.5
3,706.2

23,239
13,837
9,402

1,824

7,578

2,058

5,520

1.36
1.35
3,710.6
3,737.6

$ 366,301
3,425.3

$ 331,393
3,469.7

$ 321,633
3,519.0

$ 312,078
3,552.8

$ 307,295
3,561.2

$ 238,277
3,578.3

$ 224,449
3,612.0

$ 216,547
3,656.7

108.46
94.96
106.94
67.04
53.56
0.56

7%
8
0.66
60
64
560
119%
12.2
13.9
15.9
8.3

95.88
88.08
95.51
66.95
54.03
0.56

11%
13
1.04
57
63
568
120%
12.5
14.1
16.1
8.4

92.65
81.64
91.40
66.05
53.29
0.50

93.98
83.03
87.84
64.68
52.04
0.50

12%
14
1.10
57
63
541
115%
12.5
14.2
16.0
8.5

(i)

11%
13
1.03
61
63
528
NA%
12.4
14.1
15.6
8.4

(i)

87.39
66.10
86.29
64.06
51.44
0.48

11%
14
1.06
59
65
524
NA%
12.3
14.0
15.5
8.4

67.90
58.76
66.59
63.79
51.23
0.48

10%
13
1.01
59
65
539
NA%
12.0
13.6
15.1
8.5

(i)

66.20
57.05
62.14
62.67
50.21
0.48

10%
13
1.02
56
66
516
NA%
12.0
13.6
15.2
8.5

64.13
52.50
59.22
61.28
48.96
0.44

12
0.93
60
64
505
NA%
11.9
13.5
15.1
8.6

$ 381,844
249,958
930,697
863,683
850,166
2,533,600
1,443,982
284,080
229,625
255,693
252,539

$ 420,418
263,288
913,761
843,432
837,522
2,563,074
1,439,027
288,582
232,314
258,382
251,503

$ 407,064
263,458
908,767
834,935
824,583
2,563,174
1,439,473
292,973
232,415
258,483
249,257

$ 402,513
281,850
895,974
812,119
805,382
2,546,290
1,422,999
289,492
229,795
255,863
246,345

$ 372,130
$ 289,059
$ 894,765
806,152
799,698
2,490,972
1,375,179
295,245
228,122
254,190
243,355

$ 374,837
272,401
888,054
795,077
779,383
2,521,029
1,376,138
309,418
228,263
254,331
242,315

$ 380,793
278,610
872,804
775,813
760,721
2,466,096
1,330,958
295,627
226,355
252,423
240,046

$ 366,153
285,323
847,313
746,196
737,297
2,423,808
1,321,816
290,754
224,089
250,157
237,420

14,672

14,648

14,480

14,490

14,854

15,304

15,187

15,008

1.47%

1.49%

1.52%

1.55%

1.61%

1.64%

1.66%

1.27

6,426

1,264

1.29

6,154

1,265

1.28

6,432

1,204

1.31

6,826

1,654

1.34

7,535

1,280

1.37

7,779

1,121

1.40

7,757

1,181

1.40

8,023

1,110

Net charge-off rate(h)

0.55%

0.56%

0.54%

0.76%

0.58%

0.51%

0.56%

0.53%

(a) The Firm’s results for the three months ended December 31, 2017, included a $2.4 billion decrease to net income as a result of the enactment of the TCJA. For additional information related to the impact of

the TCJA, see Note 24.

(b) Based on daily prices reported by the New York Stock Exchange.
(c) TBVPS and ROTCE are non-GAAP financial measures. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Financial

Performance Measures on pages 52–54.

(d) HQLA represents the amount of assets that qualify for inclusion in the liquidity coverage ratio. For December 31, 2017, September 30,2017 and June 30, 2017 the balance represents the average of
quarterly reported results per the U.S. LCR public disclosure requirements effective April 1, 2017 and period-end balances for the remaining periods. For additional information, see HQLA on page 93.
(e) Ratios presented are calculated under the Basel III Transitional rules and for the capital ratios represent the Collins Floor. See Capital Risk Management on pages 82–91 for additional information on Basel III.
(f)
Included unsecured long-term debt of $218.8 billion, $221.7 billion, $221.0 billion, $212.0 billion, $212.6 billion, $226.8 billion, $220.6 billion, $216.1 billion respectively, for the periods presented.
(g) Excludes the impact of residential real estate PCI loans, a non-GAAP financial measure. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial

Measures and Key Performance Measures on pages 52–54, and the Allowance for credit losses on pages 117–119.

(h) Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rates for the three months ended March 31, 2017 would have been 0.54%.
(i)

The prior period ratios have been revised to conform with the current period presentation.

JPMorgan Chase & Co./2017 Annual Report

277

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

Consolidated average balance sheet, interest and rates
Provided below is a summary of JPMorgan Chase’s
consolidated average balances, interest rates and interest
differentials on a taxable-equivalent basis for the years
2015 through 2017. Income computed on a taxable-
equivalent basis is the income reported in the Consolidated

statements of income, adjusted to present interest income
and average rates earned on assets exempt from income
taxes (i.e. federal taxes) on a basis comparable with other
taxable investments. The incremental tax rate used for
calculating the taxable-equivalent adjustment was
approximately 37% in 2017, and 38% in 2016 and 2015.

(Table continued on next page)

Year ended December 31,
(Taxable-equivalent interest and rates; in millions, except rates)

Average
balance

2017

Interest(g)

Average
rate

Assets
Deposits with banks
Federal funds sold and securities purchased under resale agreements
Securities borrowed
Trading assets – debt instruments
Taxable securities
Non-taxable securities(a)
Total securities
Loans
All other interest-earning assets(b)
Total interest-earning assets
Allowance for loan losses
Cash and due from banks
Trading assets – equity instruments
Trading assets – derivative receivables
Goodwill, MSRs and other intangible assets
Other assets
Total assets
Liabilities
Interest-bearing deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings(c)
Trading liabilities – debt and other interest-bearing liabilities(d)(e)
Beneficial interests issued by consolidated VIEs
Long-term debt
Total interest-bearing liabilities
Noninterest-bearing deposits
Trading liabilities – equity instruments(e)
Trading liabilities – derivative payables
All other liabilities, including the allowance for lending-related commitments
Total liabilities
Stockholders’ equity
Preferred stock
Common stockholders’ equity
Total stockholders’ equity
Total liabilities and stockholders’ equity
Interest rate spread
Net interest income and net yield on interest-earning assets

4,219
2,327

(37) (h)

7,714
5,534
2,769
8,303
41,296 (i)
1,863
65,685

2,857
1,611
481
2,070
503
6,753
14,275

0.96%
1.21
(0.04)
3.25
2.48
6.14
3.09
4.56
4.34
3.01

(j)

0.28%
0.86
1.03
1.21
1.55
2.32
0.82

438,240
191,819
95,324
237,206
223,592
45,086
268,678
906,397
42,928
2,180,592
(13,453)
20,364
115,913
59,588
53,999
139,059
2,556,062

1,013,221
187,386
46,532
171,814
32,457
291,489
1,742,899
404,165
21,022
44,122
87,292
2,299,500

26,212
230,350
256,562 (f)

2,556,062

51,410

2.19%
2.36

(a) Represents securities that are tax-exempt for U.S. federal income tax purposes.
(b) Includes held-for-investment margin loans, which are classified in accrued interest and accounts receivable, and all other interest-earning assets included in other assets.
(c)
(d) Other interest-bearing liabilities include brokerage customer payables.
(e) Included trading liabilities – debt and equity instruments of $90.7 billion, $92.8 billion and $81.4 billion for the twelve months ended December 31, 2017, 2016 and 2015,

Includes commercial paper.

respectively.

(f) The ratio of average stockholders’ equity to average assets was 10.0% for 2017, 10.2% for 2016, and 9.7% for 2015. The return on average stockholders’ equity, based on net

income, was 9.5% for 2017, 9.9% for 2016, and 10.2% for 2015.

(g) Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(h) Negative interest income and yield is related to client-driven demand for certain securities combined with the impact of low interest rates; this is matched book activity and the
negative interest expense on the corresponding securities loaned is recognized in interest expense and reported within trading liabilities – debt, short-term and other liabilities.

(i) Fees and commissions on loans included in loan interest amounted to $1.0 billion in 2017, $808 million in 2016, and $936 million in 2015.
(j) The annualized rate for securities based on amortized cost was 3.13% in 2017, 2.99% in 2016, and 2.94% in 2015, and does not give effect to changes in fair value that are

reflected in AOCI.

278

JPMorgan Chase & Co./2017 Annual Report

Within the Consolidated average balance sheets, interest and rates summary, the principal amounts of nonaccrual loans have
been included in the average loan balances used to determine the average interest rate earned on loans. For additional
information on nonaccrual loans, including interest accrued, see Note 12.

(Table continued from previous page)

Average
balance

2016

Interest(g)

Average
rate

Average
balance

2015

Interest(g)

Average
rate

1,863
2,265
(332) (h)
7,373
5,538
2,662
8,200
36,866 (i)
875
57,110

1,356
1,089
203
1,102
504
5,564
9,818

0.48%
1.10
(0.32)
3.42
2.35
6.03
2.94
4.26
2.20
2.72

(j)

0.15%
0.61
0.56
0.62
1.25
1.88
0.59

392,160
205,368
102,964
215,565
235,211
44,176
279,387
866,378
39,782
2,101,604
(13,965)
18,660
95,528
70,897
53,752
135,143
2,461,619

925,270
178,720
36,140
177,765
40,180
295,573
1,653,648
402,698
20,737
55,927
77,910
2,210,920

26,068
224,631
250,699 (f)

2,461,619

1,250
1,592
(532) (h)
6,694
6,550
2,556
9,106
33,321 (i)
652
52,083

1,252
609
175
557
435
4,435
7,463

0.29%
0.77
(0.50)
3.24
2.39
6.07
2.88
4.23
1.68
2.49

(j)

0.14%
0.32
0.26
0.31
0.88
1.56
0.45

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
73,290
55,439
138,792
2,469,409

876,840
192,510
66,956
178,994
49,200
284,940
1,649,440
418,948
17,282
64,716
79,293
2,229,679

24,040
215,690
239,730 (f)

2,469,409

47,292

2.13%
2.25

44,620

2.04%
2.14

JPMorgan Chase & Co./2017 Annual Report

279

Interest rates and interest differential analysis of net interest income – U.S. and non-U.S.

Presented below is a summary of interest rates and interest
differentials segregated between U.S. and non-U.S.
operations for the years 2015 through 2017. The
segregation of U.S. and non-U.S. components is based on

the location of the office recording the transaction.
Intercompany funding generally consists of dollar-
denominated deposits originated in various locations that
are centrally managed by Treasury and CIO.

(Table continued on next page)

Year ended December 31,
(Taxable-equivalent interest and rates; in millions, except rates)

Average balance

Interest

Average rate

2017

Interest-earning assets
Deposits with banks:

U.S.
Non-U.S.

Federal funds sold and securities purchased under resale agreements:

366,177 $
72,063

U.S.
Non-U.S.

Securities borrowed:

U.S.
Non-U.S.

Trading assets – debt instruments:

U.S.
Non-U.S.
Securities:

U.S.
Non-U.S.

Loans:
U.S.
Non-U.S.

All other interest-earning assets, predominantly U.S.
Total interest-earning assets
Interest-bearing liabilities
Interest-bearing deposits:

U.S.
Non-U.S.

Federal funds purchased and securities loaned or sold under repurchase agreements:

U.S.
Non-U.S.

Trading liabilities – debt, short-term and all other interest-bearing liabilities:(a)

U.S.
Non-U.S.

Beneficial interests issued by consolidated VIEs, predominantly U.S.
Long-term debt:

U.S.
Non-U.S.

Intercompany funding:

U.S.
Non-U.S.

Total interest-bearing liabilities
Noninterest-bearing liabilities(b)
Total investable funds
Net interest income and net yield:

U.S.
Non-U.S.

Percentage of total assets and liabilities attributable to non-U.S. operations:

Assets
Liabilities

90,878
100,941

68,110
27,214

128,293
108,913

223,140
45,538

832,608
73,789
42,928
2,180,592

776,049
237,172

115,574
71,812

138,470
79,876
32,457

276,750
14,739

(2,874)
2,874
1,742,899
437,693
2,180,592 $
$

4,091
128

1,360
967

(66) (c)
29

4,186
3,528

7,490
813

39,439
1,857
1,863
65,685

2,223
634

1,349
262

1,271
1,280
503

6,745
8

(25)
25
14,275

14,275
51,410
46,059
5,351

1.12%
0.18

1.50
0.96

(0.10)
0.11

3.26
3.24

3.36
1.79

4.74
2.52
4.34
3.01

0.29
0.27

1.17
0.37

0.92
1.60
1.55

2.44
0.05

—
—
0.82

0.65%
2.36%
2.68
1.15

22.5
21.1

(a) Includes commercial paper.
(b) Represents the amount of noninterest-bearing liabilities funding interest-earning assets.
(c) Negative interest income and yield is related to client-driven demand for certain securities combined with the impact of low interest rates; this is matched book
activity and the negative interest expense on the corresponding securities loaned is recognized in interest expense and reported within trading liabilities – debt,
short-term and other liabilities.

280

JPMorgan Chase & Co./2017 Annual Report

For further information, see the “Net interest income” discussion in Consolidated Results of Operations on pages 44–46.

(Table continued from previous page)

2016

2015

Average balance

Interest

Average rate

Average balance

Interest

Average rate

328,831 $
63,329

112,902
92,466

73,297
29,667

116,211
99,354

216,726
62,661

788,213
78,165
39,782
2,101,604

703,738
221,532

121,945
56,775

133,788
80,117
40,180

283,169
12,404

(20,405)
20,405
1,653,648

447,956
2,101,604 $
$

1,708
155

1,166
1,099

(341) (c)
9

3,825
3,548

6,971
1,229

35,110
1,756
875
57,110

1,029
327

773
316

86
1,219
504

5,533
31

10
(10)
9,818

9,818
47,292
40,705
6,587

388,833 $
39,130

118,945
87,692

78,815
26,458

106,465
99,920

200,240
115,615

699,664
87,654
38,811
2,088,242

638,756
238,084

140,609
51,901

166,838
79,112
49,200

273,033
11,907

(50,517)
50,517
1,649,440

438,802
2,088,242 $
$

1,021
229

900
692

(562) (c)
30

3,572
3,122

6,676
2,430

31,468
1,853
652
52,083

761
491

366
243

(394) (c)
1,126
435

4,386
49

7
(7)
7,463

7,463
44,620
38,033
6,587

0.52%
0.25

1.03
1.19

(0.46)
0.03

3.29
3.57

3.22
1.97

4.45
2.25
2.20
2.72

0.15
0.15

0.63
0.56

0.06
1.52
1.25

1.95
0.25

—
—
0.59

0.47%
2.25%
2.49
1.42

23.1
20.7

0.26%
0.59

0.76
0.79

(0.71)
0.11

3.35
3.12

3.33
2.10

4.50
2.11
1.68
2.49

0.12
0.21

0.26
0.47

(0.24)
1.42
0.88

1.61
0.41

—
—
0.45

0.36%
2.14%
2.34
1.42

24.7
21.1

JPMorgan Chase & Co./2017 Annual Report

281

Changes in net interest income, volume and rate analysis

The table below presents an attribution of net interest income between volume and rate. The attribution between volume and
rate is calculated using annual average balances for each category of assets and liabilities shown in the table and the
corresponding annual average rates (see pages 278-282 for more information on average balances and rates). In this analysis,
when the change cannot be isolated to either volume or rate, it has been allocated to volume. The average annual rates include
the impact of changes in market rates as well as the impact of any change in composition of the various products within each
category of asset or liability. This analysis is calculated separately for each category without consideration of the relationship
between categories (for example, the net spread between the rates earned on assets and the rates paid on liabilities that fund
those assets). As a result, changes in the granularity or groupings considered in this analysis would produce a different
attribution result, and due to the complexities involved, precise allocation of changes in interest rates between volume and
rates is inherently complex and judgmental.

Year ended December 31,
(On a taxable-equivalent basis; in millions)

Volume

Rate

Net
change

Volume

Rate

Net
change

2017 versus 2016

2016 versus 2015

Increase/(decrease) due
to change in:

Interest-earning assets

Deposits with banks:

U.S.

Non-U.S.

Federal funds sold and securities purchased under resale

agreements:

U.S.

Non-U.S.

Securities borrowed:

U.S.

Non-U.S.

Trading assets – debt instruments:

U.S.

Non-U.S.

Securities:

U.S.

Non-U.S.

Loans:

U.S.

Non-U.S.

All other interest-earning assets, predominantly U.S.

Change in interest income

Interest-bearing liabilities

Interest-bearing deposits:

U.S.

Non-U.S.

Federal funds purchased and securities loaned or sold under

repurchase agreements:

U.S.

Non-U.S.

Trading liabilities – debt, short-term and other interest-bearing

liabilities: (a)
U.S.

Non-U.S.

Beneficial interests issued by consolidated VIEs, predominantly

U.S.

Long-term debt:

U.S.

Non-U.S.

Intercompany funding:

U.S.

Non-U.S.

Change in interest expense
Change in net interest income

(a) Includes commercial paper.

282

410

1,973

2,383

(324) $

1,011

(44)

(27)

(133)

(337)

(4)

396

308

216

(303)

2,043

(110)

137

2,865

209

(83)

(3)

531

(213)

264

(35)

(328)

303

(113)

2,286

211

851

5,710

985

266

659

(108)

1,140

(122)

121

(176)

151

(151)

(33)
2,898

1,388

(25)

(186)

186

4,490
1,220

194

(132)

275

361

(20)

519

(416)

4,329

101

988

8,575

1,194

307

576

(54)

1,185

(1)

1,212

(23)

(35)

4,457
4,118

687

(74)

266

407

221

(21)

253

426

295

(1,201)

3,642

(97)

223

321

351

197

(21)

(64)

450

(220)

(150)

(350)

123

202

1,717

5,027

192

(143)

268

(164)

520

504

182

928

(19)

(20)

407

480

1,147

(18)

(3)

(55)

—

317

(24)

515

(1,051)

3,992

(220)

3,310

(21)

(113)

(24)

(113)

219

(17)

65
3,245

2,290
(573) $

2,355
2,672

JPMorgan Chase & Co./2017 Annual Report

Glossary of Terms and Acronyms

2017 Annual Report or 2017 Form 10-K: Annual report on
Form 10-K for year ended December 31, 2017, filed with
the U.S. Securities and Exchange Commission.

ABS: Asset-backed securities

through novation, an open offer system, or another legally
binding arrangement.

CDS: Credit default swaps

CEO: Chief Executive Officer

Active foreclosures: Loans referred to foreclosure where
formal foreclosure proceedings are ongoing. Includes both
judicial and non-judicial states.

CET1 Capital: Common equity Tier 1 Capital

CFTC: Commodity Futures Trading Commission

AFS: Available-for-sale

ALCO: Asset Liability Committee

Allowance for loan losses to total loans: Represents
period-end allowance for loan losses divided by retained
loans.

Alternative assets: The following types of assets constitute
alternative investments – hedge funds, currency, real estate,
private equity and other investment funds designed to focus
on nontraditional strategies.

AWM: Asset & Wealth Management

AOCI: Accumulated other comprehensive income/(loss)

ARM: Adjustable rate mortgage(s)

AUC: Assets under custody

AUM: “Assets under management”: Represent assets
managed by AWM on behalf of its Private Banking,
Institutional and Retail clients. Includes “Committed capital
not Called.”

Auto loan and lease origination volume: Dollar amount of
auto loans and leases originated.

Beneficial interests issued by consolidated VIEs:
Represents the interest of third-party holders of debt,
equity securities, or other obligations, issued by VIEs that
JPMorgan Chase consolidates.

Benefit obligation: Refers to the projected benefit
obligation for pension plans and the accumulated
postretirement benefit obligation for OPEB plans.

BHC: Bank holding company

Card Services includes the Credit Card and Merchant
Services 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 that
interposes itself between counterparties to contracts traded
in one or more financial markets, becoming the buyer to
every 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

CFO: Chief Financial Officer

Chase Bank USA, N.A.: Chase Bank USA, National
Association

CIB: Corporate & Investment Bank

CIO: Chief Investment Office

Client assets: Represent assets under management as well
as 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 repurchase
agreements) as part of client cash management programs.

CLO: Collateralized loan obligations

CLTV: Combined loan-to-value

Collateral-dependent: A loan is considered to be collateral-
dependent when repayment of the loan is expected to be
provided solely by the underlying collateral, rather than by
cash flows from the borrower’s operations, income or other
resources.

Merchant Services: is a business that primarily processes
transactions for merchants.

Commercial Card: provides a wide range of payment
services to corporate and public sector clients worldwide
through the commercial card products. Services include
procurement, corporate travel and entertainment, expense
management services, and business-to-business payment
solutions.

COO: Chief Operating Officer

Core loans: Represents loans considered central to the
Firm’s ongoing businesses; core loans exclude loans
classified 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 vice
versa). The duration of a credit cycle can vary from a couple
of years to several years.

Credit derivatives: Financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) which allow one
party (the protection purchaser) to transfer that risk to
another party (the protection seller). Upon the occurrence
of a credit event by the reference entity, which may include,
among other events, the bankruptcy or failure to pay its

JPMorgan Chase & Co./2017 Annual Report

283

Glossary of Terms and Acronyms

obligations, or certain restructurings of the debt of the
reference entity, neither party has recourse to the reference
entity. The protection purchaser has recourse to the
protection seller for the difference between the face value
of the CDS contract and the fair value at the time of settling
the credit derivative contract. The determination as to
whether 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 for
regulatory purposes and are generally consistent with a
rating of CCC+/Caa1 and below, as defined by S&P and
Moody’s.

CRO: Chief Risk Officer

CTC: CIO, Treasury and Corporate

CVA: Credit valuation adjustments

Debit and credit card sales volume: Dollar amount of card
member purchases, net of returns.

Deposit margin/deposit spread: Represents net interest
income expressed as a percentage of average deposits.

Distributed denial-of-service attack: The use of a large
number of remote computer systems to electronically send
a high volume of traffic to a target website to create a
service outage at the target. This is a form of cyberattack.

ERISA: Employee Retirement Income Security Act of 1974

EPS: Earnings per share

ETD: “Exchange-traded derivatives”: Derivative contracts
that are executed on an exchange and settled via a central
clearing house.

EU: European Union

Fannie Mae: Federal National Mortgage Association

FASB: Financial Accounting Standards Board

FCA: Financial Conduct Authority

FCC: Firmwide Control Committee

FDIA: Federal Depository Insurance Act

FDIC: Federal Deposit Insurance Corporation

Federal Reserve: The Board of the Governors of the Federal
Reserve System

Fee share: Proportion of fee revenue based on estimates of
investment banking fees generated across the industry from
investment banking transactions in M&A, equity and debt
underwriting, and loan syndications. Source: Dealogic, a
third-party provider of investment banking fee competitive
analysis and volume-based league tables for the above
noted industry products.

FFELP: Federal Family Education Loan Program

FFIEC: Federal Financial Institutions Examination Council

DFAST: Dodd-Frank Act Stress Test

FHA: Federal Housing Administration

Dodd-Frank Act: Wall Street Reform and Consumer
Protection Act

DOJ: U.S. Department of Justice

DOL: U.S. Department of Labor

FHLB: Federal Home Loan Bank

FICO score: A measure of consumer credit risk provided by
credit bureaus, typically produced from statistical models
by Fair Isaac Corporation utilizing data collected by the
credit bureaus.

DRPC: Board of Directors’ Risk Policy Committee

Firm: JPMorgan Chase & Co.

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 or
features 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 the
issuer to redeem the debt issue at a specified date for a
specified amount (i.e., the embedded derivative). However,
a floating rate instrument is not a hybrid composed of a
fixed-rate instrument and an interest rate swap.

Forward points: Represents the interest rate differential
between two currencies, which is either added to or
subtracted from the current exchange rate (i.e., “spot rate”)
to determine the forward exchange rate.

FRC: Firmwide Risk Committee

Freddie Mac: Federal Home Loan Mortgage Corporation

Free standing derivatives: a derivative contract entered
into either separate and apart from any of the Firm’s other
financial instruments or equity transactions. Or, in
conjunction with some other transaction and is legally
detachable and separately exercisable.

FSB: Financial Stability Board

FTE: Fully taxable equivalent

FVA: Funding valuation adjustment

FX: Foreign exchange

284

JPMorgan Chase & Co./2017 Annual Report

Glossary of Terms and Acronyms

G7: Group of Seven nations: Countries in the G7 are
Canada, France, Germany, Italy, Japan, the U.K. and the U.S.

JPMorgan Chase Bank, N.A.: JPMorgan Chase Bank,
National Association

G7 government bonds: Bonds issued by the government of
one of the G7 nations.

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 other
noncompensation costs related to employees.

JPMorgan Clearing: J.P. Morgan Clearing Corp.

JPMorgan Securities: J.P. Morgan Securities LLC

Loan-equivalent: Represents the portion of the unused
commitment or other contingent exposure that is expected,
based on historical portfolio experience, to become drawn
prior to an event of a default by an obligor.

LCR: Liquidity coverage ratio

LDA: Loss Distribution Approach

LGD: Loss given default

HELOAN: Home equity loan

LIBOR: London Interbank Offered Rate

HELOC: Home equity line of credit

LLC: Limited Liability Company

Home equity – senior lien: Represents loans and
commitments where JPMorgan Chase holds the first
security interest on the property.

Home equity – junior lien: Represents loans and
commitments 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

LOB: Line of business

Loss emergence period: Represents the time period
between the date at which the loss is estimated to have
been incurred and the ultimate realization of that loss.

LTIP: Long-term incentive plan

LTV: “Loan-to-value”: For residential real estate loans, the
relationship, expressed as a percentage, between the
principal amount of a loan and the appraised value of the
collateral (i.e., residential real estate) securing the loan.

Origination date LTV ratio

The LTV ratio at the origination date of the loan. Origination
date LTV ratios are calculated based on the actual appraised
values of collateral (i.e., loan-level data) at the origination
date.

IHC: JPMorgan Chase Holdings LLC, an intermediate holding
company

Current estimated LTV ratio

Impaired loan: Impaired loans are loans measured at
amortized cost, for which it is probable that the Firm will be
unable to collect all amounts due, including principal and
interest, according to the contractual terms of the
agreement. 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 in
the clearing and settlement of a sales or cash advance
transaction.

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 defined
by independent rating agencies.

ISDA: International Swaps and Derivatives Association

JPMorgan Chase: JPMorgan Chase & Co.

An estimate of the LTV as of a certain date. The current
estimated LTV ratios are calculated using estimated
collateral values derived from a nationally recognized home
price 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 estimated
collateral values used to calculate these ratios do not
represent actual appraised loan-level collateral values; as
such, the resulting LTV ratios are necessarily imprecise and
should therefore be viewed as estimates.

Combined LTV ratio

The LTV ratio considering all available lien positions, as well
as 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 on
a fully taxable-equivalent basis. Management uses this non-
GAAP financial measure at the segment level, because it
believes this provides information to enable investors to
understand the underlying operational performance and

JPMorgan Chase & Co./2017 Annual Report

285

Glossary of Terms and Acronyms

trends of the particular business segment and facilitates a
comparison of the business segment with the performance
of competitors.

Master netting agreement: A single agreement with a
counterparty that permits multiple transactions governed
by that agreement to be terminated or accelerated and
settled through a single payment in a single currency in the
event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due).

MBS: Mortgage-backed securities

MD&A: Management’s discussion and analysis

MMDA: Money Market Deposit Accounts

Moody’s: Moody’s Investor Services

Mortgage origination channels:

Retail – Borrowers who buy or refinance a home through
direct 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 by
a banker in a Chase branch, real estate brokers, home
builders or other third parties.

Correspondent – Banks, thrifts, other mortgage banks and
other financial institutions that sell closed loans to the Firm.

Mortgage product types:

Alt-A

Alt-A loans are generally higher in credit quality than
subprime loans but have characteristics that would
disqualify the borrower from a traditional prime loan. Alt-A
lending characteristics may include one or more of the
following: (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 a
borrower does not provide complete documentation of his
or her assets or the amount or source of his or her income.

Option ARMs

The option ARM real estate loan product is an adjustable-
rate mortgage loan that provides the borrower with the
option each month to make a fully amortizing, interest-only
or 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 usually
significantly below the fully indexed rate. The fully indexed
rate is calculated using an index rate plus a margin. Once
the introductory period ends, the contractual interest rate
charged on the loan increases to the fully indexed rate and
adjusts 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 is
deferred and added to the principal balance of the loan.
Option ARM loans are subject to payment recast, which
converts the loan to a variable-rate fully amortizing loan

upon meeting specified loan balance and anniversary date
triggers.

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 have
reliable 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 or
poor payment histories; (ii) a high LTV ratio of greater than
80% (without borrower-paid mortgage insurance); (iii) a
high debt-to-income ratio; (iv) an occupancy type for the
loan is other than the borrower’s primary residence; or (v) a
history of delinquencies or late payments on the loan.

MSA: Metropolitan statistical areas

MSR: Mortgage servicing rights

Multi-asset: Any fund or account that allocates assets under
management to more than one asset class.

NA: Data is not applicable or available for the period
presented.

NAV: Net Asset Value

Net Capital Rule: Rule 15c3-1 under the Securities
Exchange Act of 1934.

Net charge-off/(recovery) rate: Represents net charge-
offs/(recoveries) (annualized) divided by average retained
loans for the reporting period.

Net mortgage servicing revenue includes the following
components:

Operating revenue predominantly represents the return on

Home Lending Servicing’s MSR asset and includes:

– Actual gross income earned from servicing third-party

mortgage loans, such as contractually specified
servicing fees and ancillary income; and

– The change in the fair value of the MSR asset due to
the collection or realization of expected cash flows.

Risk management represents the components of

Home Lending Servicing’s MSR asset that are subject to
ongoing risk management activities, together with
derivatives and other instruments used in those risk
management activities.

Net production revenue: Includes net gains or losses on
originations and sales of mortgage loans, other production-
related fees and losses related to the repurchase of
previously sold loans.

286

JPMorgan Chase & Co./2017 Annual Report

Glossary of Terms and Acronyms

Net revenue rate: Represents Card Services net revenue
(annualized) expressed as a percentage of average loans for
the period.

Net yield on interest-earning assets: The average rate for
interest-earning assets less the average rate paid for all
sources of funds.

NM: Not meaningful

NOL: Net operating loss

Nonaccrual loans: Loans for which interest income is not
recognized on an accrual basis. Loans (other than credit
card loans and certain consumer loans insured by U.S.
government agencies) are placed on nonaccrual status
when full payment of principal and interest is not expected,
regardless of delinquency status, or when principal and
interest have been in default for a period of 90 days or
more unless the loan is both well-secured and in the
process 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 real
estate 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 both
counterparties is a derivatives dealer.

Over-the-counter cleared (“OTC-cleared”) derivatives:
Derivative contracts that are negotiated and executed
bilaterally, but subsequently settled via a central clearing
house, such that each derivative counterparty is only
exposed to the default of that clearing house.

Overhead ratio: Noninterest expense as a percentage of
total net revenue.

Parent Company: JPMorgan Chase & Co.

Participating securities: Represents unvested share-based
compensation awards containing nonforfeitable rights to
dividends or dividend equivalents (collectively, “dividends”),
which are included in the earnings per share calculation

using the two-class method. JPMorgan Chase grants RSUs to
certain employees under its share-based compensation
programs, which entitle the recipients to receive
nonforfeitable dividends during the vesting period on a
basis equivalent to the dividends paid to holders of common
stock. These unvested awards meet the definition of
participating securities. Under the two-class method, all
earnings (distributed and undistributed) are allocated 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 certain
loans that were acquired and deemed to be credit-impaired
on the acquisition date in accordance with the guidance of
the FASB. The guidance allows purchasers to aggregate
credit-impaired loans acquired in the same fiscal quarter
into one or more pools, provided that the loans have
common risk characteristics(e.g., product type, LTV ratios,
FICO scores, past due status, geographic location). A pool is
then accounted for as a single asset 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 this
financial measure is useful in assessing the ability of a
lending 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, in
management’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 and
the 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) and
unrealized (as a result of changes in valuation) gains and
losses on financial and other instruments (including those
accounted for under the fair value option) primarily used in
client-driven market-making activities and on private equity
investments. In connection with its client-driven market-
making activities, the Firm transacts in debt and equity
instruments, derivatives and commodities (including
physical commodities inventories and financial instruments
that reference commodities).

Principal transactions revenue also includes certain realized
and unrealized gains and losses related to hedge accounting
and specified risk-management activities, including: (a)

JPMorgan Chase & Co./2017 Annual Report

287

Glossary of Terms and Acronyms

certain derivatives designated in qualifying hedge
accounting relationships (primarily fair value hedges of
commodity and foreign exchange risk), (b) certain
derivatives used for specific risk management purposes,
primarily to mitigate credit risk, foreign exchange risk and
commodity risk, and (c) other derivatives.

ROA: Return on assets

ROE: Return on equity

ROTCE: Return on tangible common equity

RSU(s): Restricted stock units

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 real
estate purposes.

REIT: “Real estate investment trust”: A special purpose
investment vehicle that provides investors with the ability to
participate directly in the ownership or financing of real-
estate related assets by pooling their capital to purchase
and 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 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.

Regulatory VaR: Daily aggregated VaR calculated in
accordance with regulatory rules.

REO: Real estate owned

Reported basis: Financial statements prepared under U.S.
GAAP, which excludes the impact of taxable-equivalent
adjustments.

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 the
industry (i.e., the revenue wallet) from investment banking
transactions in M&A, equity and debt underwriting, and
loan syndications. Source: Dealogic, a third-party provider
of investment banking competitive analysis and volume-
based league tables for the above noted industry products.

RHS: Rural Housing Service of the U.S. Department of
Agriculture

Risk-rated portfolio: Credit loss estimates are based on
estimates of the probability of default (“PD”) and loss
severity given a default. The probability of default is the
likelihood that a borrower 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.

RWA: “Risk-weighted assets”: Basel III establishes two
comprehensive methodologies for calculating RWA (a
Standardized approach and an Advanced approach) which
include capital requirements for credit risk, market risk, and
in the case of Basel III Advanced, also operational risk. Key
differences in the calculation of credit risk RWA between the
Standardized and Advanced approaches are that for Basel
III Advanced, credit risk RWA is based on risk-sensitive
approaches 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 risk-
weightings which vary primarily by counterparty type and
asset class. Market risk RWA is calculated on a generally
consistent basis between Basel III Standardized and Basel III
Advanced.

S&P: Standard and Poor’s 500 Index

SAR(s): Stock appreciation rights

SCCL: single-counterparty credit limits

Scored portfolio: The scored portfolio predominantly
includes residential real estate loans, credit card loans and
certain auto and business banking loans where credit loss
estimates are based on statistical analysis of credit losses
over discrete periods of time. The statistical analysis uses
portfolio modeling, credit scoring and decision-support
tools.

SEC: Securities and Exchange Commission

Seed capital: Initial JPMorgan capital invested in products,
such as mutual funds, with the intention of ensuring the
fund is of sufficient size to represent a viable offering to
clients, enabling pricing of its shares, and allowing the
manager to develop a track record. After these goals are
achieved, the intent is to remove the Firm’s capital from the
investment.

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 of
such 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 risk
of the non-trading assets and liabilities of the Firm.

288

JPMorgan Chase & Co./2017 Annual Report

VIEs: Variable interest entities

Warehouse loans: Consist of prime mortgages originated
with 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 the
banking operations of Washington Mutual Bank
(“Washington Mutual”) from the FDIC.

Glossary of Terms and Acronyms

Structured notes: Structured notes are predominantly
financial instruments containing embedded derivatives.

Suspended foreclosures: Loans referred to foreclosure
where formal foreclosure proceedings have started but are
currently on hold, which could be due to bankruptcy or loss
mitigation. Includes both judicial and non-judicial states.

Taxable-equivalent basis: In presenting results on a
managed basis, the total net revenue for each of the
business segments and the Firm is presented on a tax-
equivalent basis. Accordingly, revenue from investments
that receive tax credits and tax-exempt securities is
presented in managed basis results on a level comparable
to taxable investments and securities; the corresponding
income tax impact related to tax-exempt items is recorded
within income tax expense.

TBVPS: Tangible book value per share

TCE: Tangible common equity

TDR: “Troubled debt restructuring” is deemed to occur
when the Firm modifies the original terms of a loan
agreement by granting a concession to a borrower that is
experiencing financial difficulty.

TLAC: Total Loss Absorbing Capacity

U.K.: United Kingdom

Unaudited: Financial statements and information that have
not been subjected to auditing procedures sufficient to
permit an independent certified public accountant to
express an opinion.

U.S.: United States of America

U.S. GAAP: Accounting principles generally accepted in the
U.S.

U.S. government-sponsored enterprises (“U.S. GSEs”) and
U.S. GSE obligations: In the U.S., GSEs are quasi-
governmental, 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 the
timely payment of principal and interest by the full faith and
credit 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 of
potential loss from adverse market moves in an ordinary
market environment.

VCG: Valuation Control Group

VGF: Valuation Governance Forum

JPMorgan Chase & Co./2017 Annual Report

289

Member of:

1 Audit Committee

2 Compensation &
Management Development
Committee

3 Corporate Governance &
Nominating Committee

4 Public Responsibility
Committee

5 Directors’ Risk Policy Committee

Board of Directors

Linda B. Bammann 5
Retired Deputy Head of Risk
Management
JPMorgan Chase & Co.
(Financial services)

James A. Bell 1
Retired Executive Vice President
The Boeing Company
(Aerospace)

Crandall C. Bowles 1, 4
Chairman Emeritus
The Springs Company
(Diversified investments)

Stephen B. Burke 2, 3
Chief Executive Officer
NBCUniversal, LLC
(Television and entertainment)

Todd A. Combs 4, 5
Investment Officer
Berkshire Hathaway Inc.
(Conglomerate)

James S. Crown 5
President
Henry Crown and Company
(Diversified investments)

James Dimon
Chairman and
Chief Executive Officer
JPMorgan Chase & Co.
(Financial services)

Timothy P. Flynn 1, 4
Retired Chairman and
Chief Executive Officer
KPMG
(Professional services)

Mellody Hobson
President
Ariel Investments, LLC
(Investment management)

Laban P. Jackson, Jr. 1
Chairman and Chief Executive Officer
Clear Creek Properties, Inc.
(Real estate development)

Michael A. Neal 5
Retired Vice Chairman
General Electric Company;
Retired Chairman and
Chief Executive Officer
GE Capital
(Industrial and financial services)

Lee R. Raymond 2, 3
Lead Independent Director
JPMorgan Chase & Co.;
Retired Chairman and
Chief Executive Officer
Exxon Mobil Corporation
(Oil and gas)

William C. Weldon 2, 3
Retired Chairman and
Chief Executive Officer
Johnson & Johnson
(Healthcare products)

Operating Committee

James Dimon
Chairman and
Chief Executive Officer

Daniel E. Pinto
Co-President and
Chief Operating Officer;
CEO, Corporate & Investment Bank

Ashley Bacon
Chief Risk Officer

Marianne Lake
Chief Financial Officer

Lori Beer
Chief Information Officer

Robin Leopold
Head of Human Resources

Mary Callahan Erdoes
CEO, Asset & Wealth Management

Douglas B. Petno
CEO, Commercial Banking

Gordon A. Smith
Co-President and
Chief Operating Officer;
CEO, Consumer & Community Banking

Stacey Friedman
General Counsel

Peter Scher
Head of Corporate Responsibility;
Chair of the Mid-Atlantic Region

Other Corporate Officers

Molly Carpenter
Secretary

Nicole Giles
Controller

Jason R. Scott
Investor Relations

Joseph M. Evangelisti
Corporate Communications

Lou Rauchenberger
General Auditor

290

JPMorgan Chase & Co./2017 Annual ReportRegional Chief Executive Officers

Asia Pacific

Europe/Middle East/Africa

Latin America/Canada

Nicolas Aguzin

Viswas Raghavan

Martin G. Marron

Senior Country Officers

Asia Pacific

Europe/Middle East/Africa

Latin America/Caribbean

Updated 4/2/18

Australia and New Zealand
Paul Uren

Bangladesh, India, Indonesia,
Malaysia, Philippines, Singapore,
Sri Lanka and Thailand
Kalpana Morparia

Indonesia
Haryanto T. Budiman

Malaysia
Steve R. Clayton

Philippines
Roberto L. Panlilio

Singapore
Edmund Y. Lee

Thailand
M.L. Chayotid Kridakon

Africa, Central Asia, Central &
Eastern Europe, Middle East,
Russia and Turkey
Sjoerd Leenart

Bahrain, Egypt, Jordan and
Lebanon
Ali Moosa

Kazakhstan and Russia
Yan L. Tavrovsky

Saudi Arabia
Bader A. Alamoudi

Sub-Saharan Africa
Marc J. Hussey
Kevin G. Latter

Turkey
Mustafa Bagriacik

China
David Li

Hong Kong
Kam Shing Kwang

Japan
Steve Teru Rinoie

Korea and Taiwan
Carl K. Chien

Korea
Tae Jin Park

Vietnam
Van Bich Phan

Austria, Germany, Ireland, Israel,
Nordics and Switzerland
Dorothee Blessing

Andean, Caribbean and Central
America
Moises Mainster

Columbia
Angela Hurtado

Argentina
Facundo D. Gomez Minujin

Brazil
José Berenguer

Chile
Alfonso Eyzaguirre

Mexico
Eduardo F. Cepeda

North America

Canada
David E. Rawlings

Austria
Anton J. Ulmer

Ireland
Carin Bryans

Israel
Roy Navon

Switzerland
Nick Bossart

Belgium, France, Greece,
Iberia, Italy, Luxembourg and
the Netherlands
Kyril Courboin

Belgium
Tanguy A. Piret

Iberia
Ignacio de la Colina

Italy
Guido M. Nola

The Netherlands
Peter A. Kerckhoffs

JPMorgan Chase Vice Chairs

Melissa L. Bean

Phyllis J. Campbell

John L. Donnelly

Jacob A. Frenkel

Vittorio U. Grilli

Walter A. Gubert

Mel R. Martinez

David Mayhew

E. John Rosenwald

291

JPMorgan Chase & Co./2017 Annual Report

J.P. Morgan International Council

Rt. Hon. Tony Blair
Chairman of the Council
Former Prime Minister of Great Britain
and Northern Ireland
London, United Kingdom

The Hon. Robert M. Gates
Vice Chairman of the Council
Partner
RiceHadleyGates LLC
Washington, District of Columbia

Bernard Arnault
Chairman and Chief Executive Officer
LVMH Moët Hennessy — Louis Vuitton
Paris, France

Paul Bulcke
Member of the Board of Directors
Nestlé S.A.
Vevey, Switzerland

Jamie Dimon*
Chairman and Chief Executive Officer
JPMorgan Chase & Co.
New York, New York

Martin Feldstein
Professor of Economics
Harvard University
Cambridge, Massachusetts

Armando Garza Sada
Chairman of the Board
ALFA
Nuevo León, Mexico

Herman Gref
Chief Executive Officer,
Chairman of the Executive Board
Sberbank
Moscow, Russia

William B. Harrison, Jr.
Former Chairman and
Chief Executive Officer
JPMorgan Chase & Co.
New York, New York

The Hon. Carla A. Hills
Chairman and Chief Executive Officer
Hills & Company International Consultants
Washington, District of Columbia

The Hon. John Howard OM AC
Former Prime Minister of Australia
Sydney, Australia

Joe Kaeser
President and Chief Executive Officer
Siemens AG
Munich, Germany

The Hon. Henry A. Kissinger
Chairman
Kissinger Associates, Inc.

New York, New York

Jorge Paulo Lemann
Director
The Kraft Heinz Company
Pittsburgh, Pennsylvania

Sergio Marchionne
Chief Executive Officer
Fiat Chrysler Automobiles
Auburn Hills, Michigan

Gérard Mestrallet
Chairman of the Board
ENGIE
Paris la Défense, France

Amin H. Nasser
President and Chief Executive Officer
Saudi Aramco
Dhahran, Saudi Arabia

The Hon. Condoleezza Rice
Partner
RiceHadleyGates LLC
Stanford, California

Paolo Rocca
Chairman and Chief Executive Officer
Tenaris
Buenos Aires, Argentina

Nassef Sawiris
Chief Executive Officer
OCI N.V.
London, United Kingdom

Ratan Naval Tata
Chairman
Tata Trusts
Mumbai, India

The Hon. Tung Chee Hwa GBM
Vice Chairman
National Committee of the Chinese
People’s Political Consultative Conference
Hong Kong, China

Masahiko Uotani
President and Group Chief Executive Officer
Shiseido., Ltd.
Tokyo, Japan

Cees J.A. van Lede
Former Chairman and Chief Executive
Officer, Board of Management
Akzo Nobel
Amsterdam, The Netherlands

Douglas A. Warner III
Former Chairman of the Board
JPMorgan Chase & Co.
New York, New York

Yang Yuanqing
Chairman and Chief Executive Officer
Lenovo
Beijing, China

Jaime Augusto Zobel de Ayala
Chairman and Chief Executive Officer
Ayala Corporation
Makati City, Philippines

*Ex-officio

292

JPMorgan Chase & Co./2017 Annual ReportCorporate headquarters
270 Park Avenue
New York, NY 10017-2070
Telephone: 212-270-6000
jpmorganchase.com

Principal subsidiaries
JPMorgan Chase Bank,
National Association
Chase Bank USA,
National Association
JPMorgan Chase Holdings LLC
J.P. Morgan Securities LLC
J.P. Morgan Securities plc

Annual Report on Form 10-K
The Annual Report on Form 10-K of
JPMorgan Chase & Co. as filed with the
U.S. Securities and Exchange Commission
will be made available without charge
upon request to:

Office of the Secretary
JPMorgan Chase & Co.
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New York, NY 10017-2070

Stock listing
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symbol for the common stock of
JPMorgan Chase & Co. is JPM.

Financial information about JPMorgan
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the Investor Relations website at
jpmorganchase.com. Additional
questions should be addressed to:

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Telephone: 212-270-7325

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or symbols in this report that identify
JPMorgan Chase services are service marks
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Board committees, the Code of Conduct,
the Code of Ethics for Finance Professionals
and other governance information can
be accessed by visiting our website at
jpmorganchase.com and clicking on
“Governance” under the “About us” tab.

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