2019
A NNU A L REPORT
Financial Highlights
As of or for the year ended December 31,
(in millions, except per share, ratio data and headcount)
2019
2018
2017
Selected income statement data
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
Book value
Tangible book value (TBVPS)(a)
Cash dividends declared
Selected ratios
Return on common equity
Return on tangible common equity (ROTCE)(a)
Liquidity coverage ratio (average)(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
$ 115,627
65,497
50,130
5,585
36,431
$
$ 109,029
63,394
45,635
4,871
$ 32,474
$ 100,705
59,515
41,190
5,290
24,441
$
$
$ 10.75
10.72
75.98
60.98
3.40
15 %
19
116
12.4
14.1
16.0
9.04
9.00
70.35
56.33
2.72
13 %
17
113
12.0
13.7
15.5
$ 959,769
2,687,379
1,562,431
234,337
261,330
$ 139.40
429,913
3,084.0
$ 984,554
2,622,532
1,470,666
230,447
256,515
97.62
$
319,780
3,275.8
$
6.35
6.31
67.04
53.56
2.12
10 %
12
119
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
Headcount
256,981
256,105
(a) TBVPS and ROTCE are each non-GAAP financial measures. Refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP
Financial Measures and Key Financial Performance Measures on pages 57–59 for additional information on these measures.
(b) Refer to Liquidity Risk Management on pages 93-98 for additional information on this measure.
(c) The ratios presented are calculated under the Basel III Fully Phased-In Approach. Refer to Capital Risk Management on pages 85-92
for additional information on these measures.
JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets
of $2.7 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.
$2B
AFFORDABLE HOUSING
~63M
U.S. HOUSEHOLDS
BUSINESS
LEADERSHIP
$2 billion in financing for affordable
housing projects in 2019
Serving nearly 63 million U.S.
households, including 4 million small
businesses
Named to Fortune magazine’s
Most Admired Companies and
Change the World lists
~$50B
CLEAN FINANCING
#1
CONSUMER BANK
#1
TRADITIONAL
MIDDLE MARKET LENDER
Facilitated nearly $50 billion in
clean financing in 2019
#1 primary bank in our
Consumer Bank footprint
# 1 traditional Middle Market
Bookrunner in the U.S.
#1
INVESTMENT BANK
#1
CREDIT CARD
#1 globally in both investment
banking fees and Markets revenue
#1 in total U.S. credit card sales
volume and outstandings
88%
RANKED IN TOP TWO QUARTILES
88% of long-term mutual fund
assets under management
ranked in the top two quartiles
over 10 years
#1
MULTIFAMILY LENDER
#1 U.S.
multifamily lender
#1
PRIVATE BANK
#1 U.S. Private Bank
90%
YOU INVEST
90% of You Invest customers are
first-time investors with Chase
Dear Fellow Shareholders,
Jamie Dimon,
Chairman and
Chief Executive Officer
As we prepare this year’s annual letter to shareholders, the world is confronting
one of the greatest health threats of a generation, one that profoundly
impacts the global economy and all of its citizens. Our thoughts remain with
the communities and individuals, including healthcare workers and first
responders, most deeply hit by the COVID-19 crisis.
Throughout our history, JPMorgan Chase has built its reputation on being
there for clients, customers and communities in the most critical times. This
unprecedented environment is no different. Our actions during this global crisis
are essential to keeping the global economy going and will be remembered for
years to come.
In these annual letters, I usually cover a range of topics, including a review of
JPMorgan Chase’s principles, priorities and performance, as well as the broader
geopolitical issues facing our company and the most critical public policy issues
2
affecting our country. When the time is right and the future is clearer, I will
provide a more complete and current view on how this crisis might change
our strategies around how we run the company, work with our clients and
governments, and develop public policy solutions. However, right now, as we
deal with the spiraling effects of this pandemic, I want to focus on what we as
a bank can do to remain strong, resilient and well-positioned to support our
colleagues, clients, customers and communities across the globe.
Looking back on the last two decades — starting from my time as CEO of Bank
One in 2000 — the firm has weathered some unprecedented challenges, as we
will with this current pandemic, but they did not stop us from accomplishing
some extraordinary things. Once again, you should know how grateful and
proud I am of our more than 200,000 employees around the world. I also want
to thank Daniel Pinto, Gordon Smith, our Operating Committee, our Board of
Directors and our senior leaders for the exceptional leadership they have shown
under the most difficult of circumstances.
We entered this crisis in a position of strength. 2019 was another strong year
for JPMorgan Chase, with the firm generating record revenue and net income,
as well as setting numerous other records across our lines of business. We
earned $36.4 billion in net income on revenue1 of $118.7 billion, reflecting
strong underlying performance across our businesses. We now have delivered
record results in nine of the last 10 years2 and are confident we will continue
to do so in the future, though it should be expected that our earnings will be
down meaningfully in 2020. Our largest businesses grew revenue and net
income for the year, while the firm continued to make significant investments
in products, people and technology. We grew core loans by 2%, increased
deposits overall by 5% and generally broadened market share across our
businesses, all while maintaining credit discipline and a fortress balance sheet.
In total, we extended credit and raised capital of $2.3 trillion for businesses,
institutional clients and U.S. customers.
3
1 Represents managed revenue.
2 Adjusted net income, a non-GAAP
financial measure, excludes
$2.4 billion from net income in
2017 as a result of the enactment
of the Tax Cuts and Jobs Act.
Earnings, Diluted Earnings per Share and Return on Tangible Common Equity
2004–2019
($ in billions, except per share and ratio data)
$36.4
$10.72
(cid:30)
Adjusted net income1
$32.5
$24.4
$24.7
$26.9
$24.4
$9.00
(cid:30)
24%
(cid:30)
22%
(cid:30)
(cid:30)
15%
$14.4
$15.4
(cid:30)
(cid:30)
$4.00
$4.33
(cid:30)
10%
(cid:30)
$4.5
$1.52
$8.5
(cid:30)
$2.35
10%
(cid:30)
$11.7
(cid:30)
$2.26
(cid:30)
6%
$5.6
(cid:30)
$1.35
$21.3
15%
(cid:30)
(cid:30)
$5.19
$17.9
11%
(cid:30)
(cid:30)
$4.34
$21.7
13%
(cid:30)
(cid:30)
$5.29
$19.0
(cid:30)
15%
(cid:30)
$4.48
$17.4
(cid:30)
15%
(cid:30)
$3.96
$6.00
(cid:30)
(cid:30)
13%
$6.19
(cid:30)
(cid:30)
13%
(cid:30)
$6.31
(cid:30)
12%
(cid:30)
19%
(cid:30)
17%
Adjusted
ROTCE1 was
13.6%
for 2017
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
(cid:31) Net income (cid:31) Diluted earnings per share (cid:31) Return on tangible common equity (ROTCE)
1 Adjusted net income, a non-GAAP financial measure, excludes $2.4 billion from net income in 2017 as a result of the enactment of the Tax Cuts and Jobs Act.
Tangible Book Value and Average Stock Price per Share
2004–2019
High: $140.08
Low: $ 95.94
$113.80
$110.72
$92.01
$47.75
$43.93
$38.70
$36.07
$58.17
$51.88
$39.83
$35.49
$40.36 $39.36 $39.22
$38.68 $40.72
$48.13
$44.60
$51.44 $53.56
$60.98
$56.33
$63.83 $65.62
$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
2018
2019
4
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 beneficiaries are individuals in our
communities. Approximately 100 million people in the United States own
stock, and a large percentage of these individuals, 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.
While we don’t run the company worrying about the stock price in the short
run, in the long run our stock price is a measure of the progress we have made
over the years. This progress is a function of continual investments, in good and
bad times, to build our capabilities — our people, systems and products. These
important 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 JPMorgan Chase and Bank One merger (15 years ago), our
stock has significantly outperformed the Standard & Poor’s 500 Index and the
Standard & Poor’s Financials Index.
Bank One/JPMorgan Chase & Co. tangible book value per share performance vs. S&P 500 Index
Performance since becoming CEO of Bank One
(3/27/2000—12/31/2019)1
Compounded annual gain
Overall gain
Performance since the Bank One
and JPMorgan Chase & Co. merger
(7/1/2004—12/31/2019)
Compounded annual gain
Overall gain
Bank One
(A)
S&P 500 Index
(B)
Relative Results
(A) — (B)
11.5%
688.3%
5.9%
210.8%
5.6%
477.5%
JPMorgan Chase & Co.
(A)
S&P 500 Index
(B)
Relative Results
(A) — (B)
12.2%
499.2%
9.2%
290.2%
3.0%
209.0%
Tangible book value over time captures the company’s use of capital, balance sheet and profitability. In this chart, we are looking at
heritage Bank One shareholders and JPMorgan Chase & Co. shareholders. The chart shows the increase in tangible book value per share;
it is an after-tax number that assumes all dividends were retained vs. the Standard & Poor’s 500 Index (S&P 500 Index), which is a
pretax number that includes reinvested dividends.
1 On March 27, 2000, Jamie Dimon was hired as CEO of Bank One.
5
Stock total return analysis
Performance since becoming CEO of Bank One
(3/27/2000—12/31/2019)1
Compounded annual gain
Overall gain
Performance since the Bank One
and JPMorgan Chase & Co. merger
(7/1/2004—12/31/2019)
Compounded annual gain
Overall gain
Performance for the period ended
December 31, 2019
Compounded annual gain
One year
Five years
Ten years
Bank One
S&P 500 Index
S&P Financials Index
12.8%
988.2%
5.9%
210.8%
4.4%
132.9%
JPMorgan Chase & Co.
S&P 500 Index
S&P Financials Index
11.5%
441.9%
9.2%
290.2%
4.1%
85.6%
47.3%
20.5%
15.6%
31.5%
11.7%
13.6%
32.1%
11.1%
12.2%
These charts show actual returns of the stock, with dividends reinvested, for heritage shareholders of Bank One and JPMorgan Chase & Co.
vs. the Standard & Poor’s 500 Index (S&P 500 Index) and the Standard & Poor’s Financials Index (S&P Financials Index).
1 On March 27, 2000, Jamie Dimon was hired as CEO of Bank One.
The results shown above use our stock price as of December 31, 2019. If you
compare that with our stock price as of March 31, 2020, you would see a
dramatic change. For example, the overall stock price gain from the date of the
JPMorgan Chase and Bank One merger was 442% at the end of last year, but
it dropped to 252% three months later. While that’s still far better than many
companies’ performance, it illustrates the volatility of returns.
Unlike past letters, the placement of charts about the performance of our lines
of business and our fortress balance sheet is different — they can be found in an
appendix following this letter to peruse at your leisure. Instead, I am going to
focus my comments in the rest of this letter on issues that relate to our current
crisis. And while I enjoy sharing my opinion on many other matters, I will avoid
doing so this year.
6
Within this letter, I discuss the following:
Dealing With an Extraordinary Crisis
1. We go to extraordinary lengths to help our customers — consumers,
small businesses, midsize companies, large corporations, and state
and local governments.
2. We take excellent care of our employees.
3. We make extraordinary efforts to lift up our communities, especially
in challenging times.
4. We are transparent with our shareholders: What they should expect
regarding our financial and operating performance in 2020.
5. We are working closely with all levels of government during this
crisis — and while we will participate in government programs to
address the severe economic challenges, we will not request any
regulatory relief for ourselves.
6. We need a plan to get safely back to work.
7. We need to come together: My fervent hope for America.
7
D EA LI NG WITH AN EXTRAORDINA RY CRISIS
A corporation – essentially any institution –
is a living, breathing organism made up of
people, technology, institutional knowledge
and relationships and is generally organized
around mission and purpose. Entering into
a crisis is not the time to figure out what
you want to be. You must already be a
well-functioning organization prepared to
rapidly mobilize your resources, take your
losses and survive another day for the good
of all your stakeholders.
No matter the challenge, we manage our
company consistently with principles that
have stood the test of time. I have written
about these inviolable principles often – the
need for extremely talented and motivated
employees; a fortress balance sheet that
allows us to invest in good times and in bad
times; clear, comprehensive and accurate
financial, risk and operating reporting to
let us make quick and accurate decisions; a
devotion to our customers and communi-
ties; and continuous investing in technology
to better serve both our employees and our
customers. (These principles also underlie
an organization’s preparedness for tough
competition – I was going to write this year
that the competition is back in all of its
facets. There’ll be more to come on that next
year.)
We are there for our customers, employees
and communities in good and bad times
– we are a port in the storm. It is in the
toughest of times that we need to use our
capital and liquidity to help clients – large
and small. COVID-19 is one of those extraor-
dinary times. Below are some of the things
we are doing to help our company and our
customers during this global crisis.
1. We go to extraordinary lengths to help our customers — consumers, small businesses,
midsize companies, large corporations, and state and local governments.
First and foremost, we have to be prepared to
operate under extremely adverse circumstances.
The significant economic fallout from this
crisis reinforces the critical need to keep the
global financial system fully functioning –
and we recognize that our firm is an
important part of the global economy.
Therefore, we incorporate plans for resil-
ience in everything we do – resilience for
hurricanes, data center failures, cyber attacks
and other issues. And while we had not
envisioned the effects of a pandemic like
this one, all of this preparation has paid off
– and we have been able to accomplish far
more and far more quickly than we origi-
nally thought possible. It is absolutely
essential that we be up and functioning for
all of our customers each and every day.
How else would we process $6 trillion in
payments or buy and sell approximately
$2 trillion in securities and foreign exchange
transactions for our clients on a daily basis?
And how else would we raise more than
$2 trillion of credit and capital for our
clients each year? Our branches, collectively,
have 1 million customer visits each day, and
our combined credit card and debit card
transaction volume totals $1.1 trillion a year.
During this crisis, we have been utilizing our
disaster recovery sites and implementing
alternative work arrangements globally.
We now have more than 180,000 employees
working from home (and quite effectively),
including traders, bankers, portfolio managers,
8
and operations and call center teams across
the globe. We are ensuring they continue
to operate at the highest standards with the
proper technological tools and access so they
can serve their clients safely and seamlessly.
Over the past few weeks, we have had nearly
150,000 concurrent virtual sessions – nearly
five times our pre-pandemic average – and we
have capacity in reserve to support signifi-
cantly more demand if necessary.
We’re taking significant steps to help our
consumer customers.
After Superstorm Sandy, Hurricane Harvey
and other devastating natural disasters
around the globe, after wildfires ravaged
California towns and after a number of
other tragic events, we stepped up for our
customers. Today, we are doing the same
across the country as we work individually
with customers facing COVID-19-related
hardships.
We have been helping our customers, who
tell us about their financial struggles as a
result of the crisis, and are offering relief
measures such as:
• Providing a 90-day grace period for
mortgage and auto loan/lease payments
and waiving any associated late fees.
Of our approximately 5,000 Chase branches,
we have managed to keep three-quarters of
them open – and safe – for our customers
who need our services. In every one of our
markets, almost all of our 2,300 branches
with drive-up windows have remained open
for business, allowing people to maintain
a safe distance. Our 17,000 bankers have
continued to take appointments and proac-
tively reach out to customers – helping them
manage their finances and use our digital
tools – often letting customers stay home.
In addition, the vast majority of our 16,850
ATMs are well-stocked and still functioning
to provide needed cash to our customers.
Our call centers have not fared as well;
many of them have been effectively shut
down by local restrictions. As the volume of
calls has increased from customers seeking
assistance, hold times have also increased.
We have mobilized quickly to address this
issue, reminding customers that our digital
self-service capabilities are always available
for them to check balances, deposit checks
or make payments. Additionally, we have
built new tools – digital and electronic – to
allow customers to request relief without
waiting for a specialist. And we are making it
possible for our displaced phone specialists
to work from home.
• Removing minimum payment require-
ments on credit cards and waiving
associated late fees.
We are also taking significant action to support
businesses — small, midsize and large — and state
and local governments.
• Not reporting payment deferrals such as
late payments to credit bureaus for up-to-
date clients.
• Continuing to responsibly lend to
qualified consumers.
• Waiving or refunding some fees, including
early withdrawal fees on certificates of
deposit.
You can learn more about our customer
response at: www.chase.com/stayconnected.
Clearly, some clients may be much more
vulnerable than others – for example, trans-
portation companies, hospitality enterprises,
hospitals, utilities and, in particular, small
businesses that do not have enough capital
to withstand sudden and sustained down-
turns in income. JPMorgan Chase Institute
research reveals that 50% of small busi-
nesses have less than 15 cash buffer days,
reinforcing why small businesses are being
heavily disrupted by the current crisis and
9
DEALING WITH AN EXTRAORDINARY CRISIS • Continuing to support vital institutions to
keep our communities strong: Increased
funding in March included, for example,
$1.9 billion for hospitals and healthcare
companies, $270 million for educational
institutions, $360 million for nonprofits,
and $240 million for state and local
governments.
• Continuing to fund construction projects
essential to our communities (affordable
housing, food banks and grocery stores)
through our $5 billion commitment.
Recognizing the extraordinary extension of
new credit, mentioned above, and knowing
there will be a major recession mean that we
are exposing ourselves to billions of dollars
of additional credit losses as we help both
consumer and business customers through
these difficult times. (We will provide more
detail on these actions later in this letter.) Of
course, we are in continual contact with our
regulators about our actions and efforts.
We stand ready to assist the government in
implementing stimulus package benefits to
support the economy.
We applaud the speed with which the federal
government and the Federal Reserve (the
Fed), as well as other central banks around
the world, put together a stimulus package
and other funding benefits to help individ-
uals, businesses, and state and local entities
across the United States and beyond. Much
remains to be done to assure these resources
can be quickly and effectively rolled out.
We hope to be at the forefront of using this
assistance to help our customers get through
what is certain to be a difficult next few
months. We will not use this relief funding
for ourselves.
will feel the effects for a significant period of
time – even as more capital from the recent
federal stimulus program reaches them.
To support businesses during this current
crisis, we are doing the following:
• Prudently extending credit to businesses
of all sizes for working capital and general
corporate purposes. For example, in the
past 60 days alone, we have extended $950
million in new loans to small businesses.
• Waiving and refunding fees for those
businesses in need and finding ways
to help more small businesses through
resources available at the Small Business
Administration.
• Servicing clients with additional credit
through revolving facilities, when appro-
priate, and stepping in to try to help with
credit when others can’t or won’t.
• Continuing in the ordinary course of busi-
ness to sustain consumers, businesses and
communities with about $500 billion of
credit and capital raised every quarter.
• Continuing to maintain undrawn
revolving commitments in our wholesale
businesses, which totaled approximately
$295 billion as of the close of business on
March 31, 2020. Companies have already
drawn down more than $50 billion of their
revolvers to prepare themselves for the
crisis (this already dramatically exceeds
what happened in the global financial
crisis). Many others have requested addi-
tional credit, which we have been offering
judiciously – more than $25 billion of new
credit extensions were approved in the
month of March alone.
• Continuing the issuance of bonds for
highly rated companies ($85 billion) – it
may surprise you that the first quarter of
2020 will be our largest quarter for invest-
ment grade issuance, led by J.P. Morgan.
10
DEALING WITH AN EXTRAORDINARY CRISIS 2. We take excellent care of our employees.
Times like these reinforce that our employees
are our most important asset – they are
fundamental to the vibrancy and success of
our company. Excellence in everything we do
– from operations and technology to service
and reputation – depends upon the abilities
and character of our employees. Our vast and
diverse team of people serves our customers
and communities, builds the technology,
makes the strategic decisions, manages the
risks, determines our investments and drives
innovation. Setting aside differing views of
our complex world and the risks and oppor-
tunities ahead, it is inarguable that having
such an extraordinary team – people with
guts, brains and enormous capabilities who
can navigate whatever circumstances bring –
is what ensures our future prosperity.
In last year’s letter, I wrote about the
many ways we take excellent care of our
employees: competitive wages and compen-
sation, 401(k) retirement benefits, health
benefits and wellness programs, extensive
training programs, volunteer and employee
engagement opportunities, generous parental
leave policies and much more.
During this pandemic, we have also taken
extensive steps to protect and support our
employees and their families. For example:
• We continue to pay employees who are
at home because they have had potential
exposure to the virus or whose health is
higher risk. Additionally, we provide paid
medical leave to employees who are unwell.
• We have clinical staff internally to support
our employees through this difficult time,
whether it is fielding general inquiries
related to COVID-19 or locating testing or
other medical facilities.
• All employees are receiving five additional
paid days off to help manage personal
needs, which may include dependent care,
child care or other issues.
• A special payment of up to $1,000 has
been granted to full- and part-time
employees whose job requires them to
continue working on-site and generally
whose annual cash compensation is less
than $60,000.
• All branch employees are being paid for
their regularly scheduled hours even if
those hours are reduced or their branch is
temporarily closed.
• For those who must go to work on-site, we
are reinforcing both basic and enhanced
personal and office hygiene measures
to keep them, their colleagues and their
clients safe. We have modified business
operations, staggered shifts, changed
seating arrangements, closed buildings to
nonessential visitors and provided addi-
tional equipment where possible. We have
also intensified nightly and daily cleaning
of all offices and branches worldwide that
remain open.
It’s amazing how quickly we have mobilized
and implemented work-from-home and other
resiliency measures – in weeks instead of
months or years. There are great lessons to
be learned from this experience.
While conditions may sometimes be unusual
and difficult, we are functioning smoothly. In
fact, over the last month in certain parts of
our company, we’ve had the highest volume
and transaction totals we have ever seen.
Needless to say, this success would be impos-
sible without our exceptional employees, and
we recognize our responsibility to support
both their professional and personal lives
now more than ever.
11
DEALING WITH AN EXTRAORDINARY CRISIS A DIVERSE AND INCLUSIVE COMPANY IS A STRONGER COMPANY
While the health crisis we are facing supersedes all other topics in this year’s letter, the subject of
diversity and inclusion is such an important one that I feel compelled to include it. As a firm, we have
an unwavering commitment to integrity, fairness and responsibility. That’s why any instances of racist
behavior and discrimination are so deeply unsettling.
Recently, Daniel Pinto and Gordon Smith, our Co-Presidents and Chief Operating Officers, sent a note to
employees about steps we’re taking to ensure our values reach all corners of our company.
Dear colleagues,
We are managing through uncertain times right now and recognize many of you are focusing much of your day on responding
to the ongoing spread of the COVID-19 coronavirus. While this is a top priority for all of us, we want to make sure you know we
haven’t lost sight of our commitment to keeping you informed about our ongoing efforts to strengthen our culture. Now, more
than ever, we need the best of everyone because only together will we get through these unprecedented times.
As you know, after the media reported on alleged discrimination in our firm last year, Jamie asked Gordon to lead an internal
team to take a hard look at how we do business so that we could gain a deeper understanding of what more we can do to root
out racism and discrimination anywhere it exists.
Challenging our people to be clear-eyed and open to change, we tasked many of our senior leaders from across the firm, from
multiple lines of business and control functions, to evaluate our policies, procedures and programs firmwide, to ensure they are
fair for all employees and customers. To be clear, we are looking across the whole firm and at everything we do.
As a result, we’ve identified a number of areas that, with enhanced, scaled or new programming or processes, would serve to
improve our culture in important ways. For example, we focused on employee and customer complaints — examining common
themes, where they originated and where opportunity exists to improve.
We also looked at how employee discretion may affect product accessibility across lines of business. We found opportunities
to increase awareness about the firm’s Diversity & Inclusion strategy, and we identified a need to expand our diversity
recruitment efforts to help us hire more diverse talent, and to implement mandatory firmwide training.
While this work is ongoing, here are five initial areas where work is now underway, including:
Enhancing our employee feedback process
We are looking hard at how we treat an employee complaint when it comes in. We are already working to simplify escalation
channels so employees are clear on where to submit complaints, in addition to further building out our capabilities across
complaints to better understand the full scope of the individual’s experience. Feedback suggests that employees are not
always clear on where to submit complaints, so we are working to identify where improvements are needed.
Employees are encouraged to use existing channels to report inappropriate conduct or discrimination. We will continue to
strengthen these “listening posts” and reporting channels in an effort to make sure every one of us feels safe and confident
identifying and reporting inappropriate behavior.
Making it easier for customers to access products and services
We regularly review the products and services we offer to customers, and we are looking for ways to boost customer
connectivity across our full spectrum of consumer products. To start, we are focusing on:
• Enhancing ease of navigating and guiding customers through our full range of products and services available across
our entire branch network; and
• Re-evaluating the qualification requirements for new product features and benefits.
We will improve product parameters and strengthen monitoring tools to ensure the exercise of discretion works as intended.
Bolstering our hiring systems to build a more robust pipeline of diverse talent
Attracting the best talent can only be achieved through a dedicated focus on inclusive recruiting, so we are recommitting
ourselves to this effort. We have made progress in this area, with programs such as Advancing Black Leaders, a program
12
focused specifically on increased hiring, retention and development of talent from within the black community. Over the past
four years, we have increased the number of black professionals in our most senior ranks, with the number of black managing
directors and executive directors up by more than 50 percent.
In addition, we are expanding our specialized team dedicated to conducting more targeted outreach to recruit diverse talent.
We will expand on our program to hold hiring managers and recruiters at the highest levels of the company accountable for
hiring a diverse group of professionals.
Instituting required firmwide Diversity & Inclusion Training
In order to drive more diverse and inclusive behaviors amongst our leaders, managers, employees and customers, we are
requiring diversity and inclusion training for all employees at various points throughout an employee lifecycle, including at the
time of hire, and periodically thereafter. We expect all employees to fulfill these requirements.
Because the role of the manager is arguably the most critical role in promoting our culture deep into the organization, we will
make additional manager training mandatory at the time of promotion to a people-manager role, and at the time of promotion
to a senior leader role, in addition to other developmental moments for managers. We already have training in many parts of
the organization, including programs like “Journey to Inclusive Teams” and the required unconscious bias training for branch
managers. We will continue to enhance and embed this required training throughout the manager’s career.
We know that it is essential for managers to be inclusive leaders and we will focus on helping them recognize ways they can be
intentional about inclusion as they recruit, hire, retain and develop diverse talent.
Increasing the diversity of the businesses we partner with firmwide
We are fully committed to a fair, equitable and inclusive company for our customers, our employees, our partners and our
suppliers. This is part of every manager’s job, and they will be held accountable.
The diversity of the businesses we partner with across the firm is just as important as our employee diversity — from the small
businesses to which we provide access to capital, to our asset managers, to our suppliers and to the companies we assist in
bringing public.
We intend to increase diverse representation through structural process improvements in how we select partners and build
our pipeline.
The firm will also continue to use data and research to further inform the development of products, services, employee
programs and community investments that help address racial disparities in wealth building.
This all goes to say our work described above is representative of our deep commitment and is ongoing. It is not a “one
and done” event. We will remain steadfast, continue to work now and in the future, and remain ever-vigilant in our effort to
maintain a culture where racism cannot live or thrive. Over the next 30 days, each business will review their current strategies
and contribute a plan to bring this to life and each business will be held accountable.
Let us say again, we are all the keepers of our culture and we are committed to ensuring that ours is one where all employees and
customers are treated equally and fairly, and where all of us receive the opportunity and mutual respect we deserve.
I can assure you, it did not take one particular story to make us realize that a diverse and inclusive culture
is important.
We know that too many people are being left behind – particularly in the black community. The Civil War
ended more than 150 years ago, and we still have not come even close to parity. We need to do more as a
nation, and we have more to do as a firm.
13
3. We make extraordinary efforts to lift up our communities, especially in challenging times.
I believe that our shareholders know
we make extraordinary efforts to lift up
our communities, both at a local level –
supporting schools and work skills training,
for example – and at the national level,
helping to formulate policies that are good
for countries. These policies affect healthcare,
infrastructure, education and employment,
including initiatives such as those that help
people with a criminal background get a
second chance.
We know that crises like COVID-19 create
further inequities in society so it is even
more important that we be present for those
communities hit hard by the pandemic.
JPMorgan Chase made a $50 million
commitment to help address the immediate
humanitarian crisis, as well as the long-term
economic challenges people face. Funding
will be deployed over time with particular
focus on the most vulnerable people and
communities, including:
• Immediate healthcare, food and other
humanitarian relief globally;
• Help for existing nonprofit partners
around the world that are responding to
the crisis in their communities;
• Assistance to small businesses vulnerable
to significant economic hardships in the
United States, China and Europe.
There is a tremendous amount we do day to
day – in addition to traditional banking – to
help the communities in which we operate,
including the following, some of which you
might be surprised to know:
• We finance more than $5.5 billion in
affordable housing each year (including
residential and commercial lending and
mortgages in low- and moderate-income
communities).
• We provide small business loans in low-
and moderate-income neighborhoods.
• We design products and services to
promote the financial health of lower-
income individuals.
• We support a number of employee- and
community-based initiatives and philan-
thropic activities, including:
– Office of Military and Veterans Affairs,
which sponsors mentorship, devel-
opment and recognition programs
to support the military and veterans
working at the firm;
– Women on the Move, our global
firmwide effort that empowers female
employees, clients and consumers;
– The Service Corps, which mobilizes
employee volunteers to help nonprofit
organizations around the world;
– Advancing Black Pathways, a compre-
hensive program focused on providing
more opportunities for black people
and black-owned businesses because
we know that opportunity is not always
created equally;
– Entrepreneurs of Color Fund, which
is expanding and provides minority
entrepreneurs with access to capital,
education and other resources.
• We expect to finance more than $100
billion in transactions aimed at supporting
development in emerging market coun-
tries – in infrastructure, education, health-
care, agribusiness and industry, among
other investments – to promote the United
Nations’ Sustainable Development Goals.
14
DEALING WITH AN EXTRAORDINARY CRISIS • We are huge supporters of regional and
community banks, which are critical to
many cities and small towns around the
country. We bank approximately 500 of
America’s 5,000 regional and commu-
nity banks. In 2019, we lent or raised a
total of $2.6 billion in capital for them. In
addition, we provide payment-processing
services for them, we finance some of their
mortgage activities, we advise on acqui-
sitions, and we buy and sell securities
for these banks. We also supply interest
rate swaps and foreign exchange both for
themselves – to help them hedge some of
their exposures – and for their clients. For
example, while many community banks
were seeking more liquidity to serve their
local communities amidst COVID-19 fears,
we were able to help approximately 100
community banks secure $775 million in
increased cash availability over a three-
week period in March, delivering $1.9
billion of cash to support their branches
and ATMs. This is not only a win for our
clients but also for the communities in
which they operate.
4. We are transparent with our shareholders: What they should expect regarding our
financial and operating performance in 2020.
Of course, we do not know how this crisis
will ultimately end, including how long it
will last, how much economic damage it will
do, or how fast or slow the recovery will be.
We have always been serious about stress
testing and run an enormous number of tests
per week so that we are prepared for most
crises. But as is often the case, this “actual
new crisis” – while it shares attributes with
what is being stress tested – is dramatically
different from the expected.
We stopped buying back our stock: We have
always held the position that the highest
and best use of our equity is to reinvest it in
our own business and, of course, to be able
to withstand tough times. Halting buybacks
was simply a very prudent action – we don’t
know exactly what the future will hold – but
at a minimum, we assume that it will include
a bad recession combined with some kind of
financial stress similar to the global financial
crisis of 2008. Our bank cannot be immune
to the effects of this kind of stress.
We will share in detail our latest thinking on
the impact this crisis will have on our finan-
cials in our first quarter earnings release in
mid-April; however, to put it in context, here
is how our shareholders can think broadly
about a reasonable range of outcomes.
Our 2019 pretax earnings were $48 billion1
– a huge and powerful earnings stream that
enables us to absorb the loss of revenues and
the higher credit costs that inevitably follow
a crisis. For comparison, the Comprehensive
Capital Analysis and Review (CCAR) results
for 2020 that we submitted to the Federal
Reserve in 2019 (which assumed outcomes
like U.S. unemployment peaking at 10%
and the stock market falling 50%) showed a
decline in revenue of almost 20% and credit
costs of approximately $20 billion more than
what we experienced in 2019. We believe we
would perform better than this if the Fed’s
scenario were to actually occur. But even in
the Fed’s scenario, we would be profitable
in every quarter.2 These stress test results
also show that following such a meaningful
reduction in our revenue (and assuming we
continue to pay dividends), our common
equity Tier 1 (CET1) ratio would likely hold
at a very strong 10%, and we would have in
excess of $500 billion of liquid assets.
Additionally, we have run an extremely
adverse scenario that assumes an even
deeper contraction of gross domestic
product, down as much as 35% in the
second quarter and lasting through the end
15
1 Represents managed pretax
income.
2 We are adjusting these CCAR results
for the global market shock trading
losses and operational losses — and
there have been none in this crisis.
DEALING WITH AN EXTRAORDINARY CRISIS of the year, and with U.S. unemployment
continuing to increase, peaking at 14% in
the fourth quarter. Even under this scenario,
the company would still end the year with
strong liquidity and a CET1 ratio of approx-
imately 9.5% (common equity Tier 1 capital
would still total $170 billion). This scenario is
quite severe and, we hope, unlikely. If it were
to play out, the Board would likely consider
suspending the dividend even though it is
a rather small claim on our equity capital
base. If the Board suspended the dividend, it
would be out of extreme prudence and based
upon continued uncertainty over what the
next few years will bring.
It is also important to be aware that in both
our central case scenario for 2020 results
and in our extremely adverse scenario, we
are lending – currently or plan to do so –
an additional $150 billion for our clients’
needs. Despite this, our capital resources and
liquidity are very strong in both models. We
have over $500 billion in total liquid assets
and an incremental $300+ billion borrowing
capacity at the Federal Reserve and Federal
Home Loan Banks, if needed, to support
these loans, as well as meet our liquidity
requirements (these numbers do not include
the potential use of some of the Fed’s newly
created facilities). We could, of course,
make our capital and liquidity buffer better
by restricting our activities, but we do not
intend to do that – our clients need us.
I would like to point out that, as we get closer
to the extremely adverse scenario, current
regulatory constraints will limit additional
actions we can take to help clients – in spite
of the extraordinary amount of capital and
liquidity we could deploy.
5. We are working closely with all levels of government during this crisis — and while we will
participate in government programs to address the severe economic challenges, we will
not request any regulatory relief for ourselves.
We are just beginning to analyze and work
with the government on all of their various
programs. For the most part, these initiatives
will need the deep involvement of the private
sector to be properly executed. We intend
to do everything we can – and as soon as
possible – to ensure that government support
is reaching the people who need it most.
We applaud and support the recent actions
the U.S. Department of the Treasury and the
Federal Reserve have taken to try to miti-
gate the economic impact of the COVID-19
turmoil. The Fed’s overwhelming actions have
already dramatically reduced the financial
stress in the system, and there is still more
they could do if they need to. For example,
balance sheet expansion, additional lending
facilities, and changes to capital and liquidity
requirements are steps designed to ensure
that more capital will flow through the
system, which will ultimately allow us to help
more families and small businesses. These
actions would bolster the U.S. economy with
no impact on safety, soundness or regulatory
oversight. We are working with the govern-
ment to make sure such crisis-relief measures
are structured to work effectively – there are
a significant number of details that need to be
resolved, which I will not go into here.
While we will aggressively help our
customers take advantage of these new
programs (though we must take action
to protect ourselves from ongoing – and,
more important, future – litigation risk),
we want our shareholders to know that we
have not requested any regulatory relief
for ourselves. Saying that we will not ask
for regulatory relief does not mean the
government shouldn’t change some rules
and regulations, however. For example,
some rules can improperly prevent healthy,
well-capitalized banks from lending freely
in times of stress. This can hurt customers
as the crisis deepens. Leaving high-quality,
available liquidity undeployed in times of
need is an opportunity forever lost.
16
DEALING WITH AN EXTRAORDINARY CRISIS I have written in detail in past letters that
the regulatory system is in need of both
reform and recalibration – not because we
want it to happen but because it would be
good for a deepening and widening of the
financial system – something that would
benefit all Americans. While a lot of the rules
were constructive and made the financial
system stronger, we are now seeing the
impact of poorly coordinated, poorly cali-
brated and poorly organized rulemaking.
After the crisis subsides (and it will), our
country should thoroughly review all aspects
of our preparedness and response. And we
should use the opportunity to closely review
the economic response and determine
whether any additional regulatory changes
are warranted to improve our financial and
economic system. There will be a time and
place for that – but not now.
6. We need a plan to get safely back to work.
It is hoped that the number of new COVID-19
cases will decrease soon and – coupled with
greatly enhanced medical capabilities (more
beds, proper equipment where it is needed,
adequate testing) – the healthcare system is
equipped to take care of all Americans, both
minimizing their suffering and maximizing
their chance of living. Once this occurs,
people can carefully start going back to work,
of course with proper social distancing,
vigilant hygiene, proper testing and other
precautions. There are many jobs that can be
safely done; however, employees in certain
companies should return to business as usual
only if the Centers for Disease Control and
Prevention (CDC) and other government
entities deem it safe to do so.
to be tested, and then for those who test
negative for the virus, we need to discover
whether virus antibodies appear through
serology testing. Both the CDC and private
companies are scrambling to produce such
tests: The U.K. has ordered 3.5 million
of them, Germany will use them to issue
immunity certificates to COVID-19 survi-
vors, and China and Singapore already are
using tests to determine how extensively the
virus spread in large populations in order
to measure the true infection rate. In the
United States, the Food and Drug Admin-
istration is allowing doctors to use these
serology tests to identify recovered patients
whose antibodies could treat emergency
cases of the disease.
In addition, this “return to work” process
could be accelerated if federal, state and local
governments make tests widely available
that allow people to certify that they have
contracted and recovered from the disease,
have the necessary antibodies to prevent
them from getting sick again and are not
infectious to anyone. Initially, we need a
buffer period of days or weeks for people
The country was not adequately prepared for
this pandemic – however, we can and should
be more prepared for what comes next. Done
right, a disciplined transition would maxi-
mize the health of Americans and minimize
the time, extent and suffering caused by the
economic downturn.
17
DEALING WITH AN EXTRAORDINARY CRISIS 7. We need to come together: My fervent hope for America.
Sometimes extraordinary events in history
can cause a change in the body politic. As a
nation, we were clearly not equipped for this
global pandemic, and the consequences have
been devastating. But it is forcing us to work
together, and it is improving civility and
reminding us that we all live on one planet.
E Pluribus Unum.
I am hoping that civility, humanity, empathy
and the goal of improving America will
break through.
We have the resources to emerge from this
crisis as a stronger country. America is still
the most prosperous nation the world has
ever seen. We are blessed with the natural
gifts of land; all the food, water and energy
we need; the Atlantic and Pacific oceans as
natural borders; and wonderful neighbors in
Canada and Mexico. And we are blessed with
the extraordinary gifts from our Founding
Fathers, which are still unequaled: freedom
of speech, freedom of religion, freedom
of enterprise, and the promise of equality
and opportunity. These gifts have led to the
most dynamic economy the world has ever
seen – one that nurtures vibrant businesses
large and small, exceptional universities, and
a welcoming environment for innovation,
science and technology. America was an idea
borne on principles, not based upon histor-
ical relationships and tribal politics. It has
and will continue to be a beacon of hope for
the world and a magnet for the world’s best
and brightest.
Of course, America has always had its flaws.
The current pandemic is only one example
of the bad planning and management that
have hurt our country: Our inner city schools
don’t graduate half of their students and
don’t give our children an education that
leads to a livelihood; our healthcare system
is increasingly costly with many of our citi-
zens lacking any access; and nutrition and
personal health aren’t even being taught at
many schools. Obesity has become a national
scourge. We have a litigation and regulatory
system that cripples small businesses with
red tape and bureaucracy; ineffective infra-
structure planning and investment; and huge
waste and inefficiency at both the state and
federal levels. We have failed to put proper
immigration policies in place; our social
safety nets are poorly designed; and the
share of wages for the bottom 30% of
Americans has effectively been going down.
We need to acknowledge these problems
and the damage they have done if we are
ever going to fix them.
There should have been a pandemic play-
book. Likewise, every problem I noted above
should have detailed and nonpartisan solu-
tions. As we have seen in past crises of this
magnitude, there will come a time when we
will look back and it will be clear how we –
at all levels of society, government, business,
healthcare systems, and civic and humani-
tarian organizations – could have been and
will be better prepared to face emergencies
of this scale. While the inclination of some
will be to finger-point and look for blame,
I hope we can avoid that. I also hope we can
avoid people using times of crisis to argue
for what they already believe. We need to
demand more of ourselves and our leaders
if we want to prevent or mitigate these
disasters. This can be a moment when we
all come together and recognize our shared
responsibility, acting in a way that reflects
the best of all of us. As President Kennedy
historically said, “Ask not what your country
can do for you – ask what you can do for
your country.”
My fervent hope is that America rolls up its
sleeves and starts to attack these problems.
Fixing them would better prepare us for
future catastrophes, create better economic
outcomes for everyone (with policies that
aim to maximize economic growth, driving
the best potential outcomes), improve
income inequality, protect the most vulner-
able and foster economic growth that is
more resilient, which would also strengthen
America’s role in the world. We must never
18
DEALING WITH AN EXTRAORDINARY CRISIS forget that America’s economic prosperity
is a necessary foundation for our military
capability, which keeps us free and strong
and is essential to world peace. These issues
could all be tackled while preserving the
freedoms ascribed by our Founding Fathers:
life, liberty and the pursuit of happiness,
freedom of speech, freedom of religion and
freedom of enterprise, which means the free
movement of capital and labor (meaning you
can work where you want and for whom you
want). At the end of the day, the pursuit of
happiness, our freedoms and free enterprise
are inseparable.
If we acknowledge our problems and work
together, we can lift up those who need help
and society as a whole. Business and govern-
ment collaborating together can conquer our
biggest challenges.
IN CLO SING
While I have a deep and abiding faith in the United States of America
and its extraordinary resiliency and capabilities, we do not have
a divine right to success. Our challenges are significant, and we should
not assume they will take care of themselves. Let us all do what
we can to strengthen our exceptional union.
I would like to express my deep gratitude and appreciation for
the employees of JPMorgan Chase, and I’d also like to
thank all of you who shared your good wishes with me while
I was recuperating from my recent heart surgery. From this letter,
I hope shareholders and all readers gain an appreciation for
the tremendous character and capabilities of our people and how
they have helped communities around the world. They have
faced these times of adversity with grace and fortitude. I hope you
are as proud of them as I am. Finally, the countries and citizens of
the global community will get through this unprecedented situation,
undoubtedly stronger for it. Together, we will rise to the challenge.
Jamie Dimon
Chairman and Chief Executive Officer
April 6, 2020
19
DEALING WITH AN EXTRAORDINARY CRISIS A P PEND IX
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 share4
2006
3.6%
2018
9.3%
2019
9.3%
Serve ~63 million U.S. households, including
11 (25)
14 (40)
8%
NM
16%
$661
3,079
~$80
5%
11%
22%
$1,366
5,036
$282
13 (40)
3%
12%
23%
$1,512
4,976
$358
5.1%
8.8%
9.4%
4.3 million small businesses5
52 million active digital customers6, including
37 million active mobile customers7
#1 primary bank within Chase footprint8
#1 U.S. credit card issuer based on sales and
outstandings9
#2 mortgage servicer10
#3 bank auto lender11
All-time high Net Promoter Score12
Corporate &
Investment
Bank
Global investment banking fees13
Market share13
Total Markets revenue14
Market share14
FICC14
Market share14
Equities14
Market share14
Assets under custody ($T)
Commercial
Banking
# of top 50 MSAs with dedicated teams
Bankers
New relationships (gross)
Average loans ($B)
Average deposits ($B)
Gross investment banking revenue ($B)18
Multifamily lending19
Ranking of 5-year cumulative net client
asset flows21
U.S. Private Bank (Euromoney)
Client assets ($T)
Active AUM market share22
North America Private Bank client
Asset & Wealth
Management
#2
8.7%
#8
6.3%
#7
7.0%
#8
5.0%
$13.9
26
1,203
NA
$53.6
$73.6
$0.7
#28
NA
#1
$1.3
#1
8.6%
#1
11.5%
#1
11.8%
co–#1
11.0%
$23.2
50
1,922
1,232
$205.5
$170.9
$2.5
#1
#1
9.0%
#1
12.0%
#1
12.3%
co–#1
11.3%
$26.8
50
2,101
1,706
$207.9
$172.7
$2.7
#1
#2
#1
$2.7
#2
#1
$3.2
1.8%
2.4%
2.5%
>80% of Fortune 500 companies do business with us
Presence in over 100 markets globally
#1 in 16 businesses — compared with 8 in 201415
#1 in global investment banking fees for the 11th
consecutive year13
Consistently ranked #1 in Markets revenue since 201214
#1 in USD payments volume16
#2 custodian globally17
142 locations across the U.S. and 30 international
locations
Credit, banking, and treasury services to ~18K
Commercial & Industrial clients and ~34K real estate
owners and investors
17 specialized industry coverage teams
#1 traditional Middle Market Bookrunner in the U.S.20
26,000 affordable housing units financed in 2019
Serve clients across the entire wealth spectrum
Clients include 59% of the world’s largest pension
funds, sovereign wealth funds and central banks
Serves as a fiduciary across all asset classes
88% of Asset Management's 10-year long-term mutual
fund AUM performed above peer median25
assets market share23
3%
4%
4%
Revenue and long-term AUM grew more than 90%
Average loans ($B)
# of Wealth Management client advisors
$26.5
1,506
$138.6
2,865
$149.7
2,890
since 2006
Refer to the 2020 Investor Day presentations for footnoted information, which is available on JPMorgan Chase & Co.’s website under the heading Investor Relations, Events & Presentations,
JPMorgan Chase 2020 Investor Day (www.jpmorganchase.com/corporate/investor-relations/event-calendar.htm), and on Form 8-K as furnished to the U.S. Securities and Exchange
Commission (SEC) on February 25, 2020, which is available on the SEC’s website (www.sec.gov), as follows: Refer to Firm Overview slide 3 for footnotes 1, 5, 9, 16, 17, 18, 22 and 25; refer to
Consumer & Community Banking slides 22, 3, 3, 2, 9, 9 and 7 for footnotes 2, 6, 7, 8, 10, 11 and 12, respectively; refer to Corporate & Investment Bank slides 5 and 4 for footnotes 13 and 15,
respectively; and refer to Asset & Wealth Management slide 3 for footnote 22.
Note: 2018 deposits market share and # of top 50 Chase markets where we are #1 (top 3) have been revised to conform with the 2019 methodology.
3 2006 reflects First Data joint venture.
4 Barlow Research Associates, Primary Bank Market Share Database as of 4Q19. Rolling 8-quarter average of small businesses with revenues of $100,000 – <$25 million.
14 Coalition, preliminary 2019 rank and market share analysis reflects JPMorgan Chase’s share of the global industry revenue pool and is based on JPMorgan Chase’s business structure.
2006 rank analysis is based on JPMorgan Chase analysis.
19 S&P Global Market Intelligence as of December 31, 2019.
20 Refinitiv LPC, 2019.
21 Source: Company filings and JPMorgan Chase estimates. Rankings reflect financial information publically reported by the following peers: Allianz Group, Bank of America Corporation,
Bank of New York Mellon Corporation, BlackRock, Inc., Credit Suisse Group AG, DWS Group, Franklin Resources, Inc., The Goldman Sachs Group, Inc., Invesco Ltd., Morgan Stanley, State
Street Corporation, T. Rowe Price Group, Inc. and UBS Group AG. JPMorgan Chase’s ranking reflects AWM client assets, Chase Wealth Management investments and new-to-the-firm
Chase Private Client deposits.
23 Source: Capgemini World Wealth Report 2019. Market share estimated based on 2018 data (latest available).
NM = Not meaningful
NA = Not available
FICC = Fixed Income, Currencies and Commodities
MSAs = Metropolitan statistical areas
AUM = Assets under management
USD = U.S. dollar
B = Billions
T = Trillions
K = Thousands
20
New and Renewed Credit and Capital for Our Clients
2008–2019
($ in billions)
$1,866
$1,820
$252
$222
$1,567
$312
$167
$1,494
$243
$136
$1,577
$252
$167
$2,357
$265
$2,044
$233
$399
$2,102
$274
$2,144
$197
$326
$2,496
$2,307
$227
$258
$430
$480
$2,263
$262
$476
$275
$309
$368
$281
$1,789
$1,693
$1,619
$1,525
$1,519
$1,621
$1,443
$1,392
$1,264
$1,088
$1,115
$1,158
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
(cid:31) Corporate clients (cid:31) Commercial clients (cid:31) Consumer
Assets Entrusted to Us by Our Clients
at December 31,
Deposits and client assets1
($ in billions)
$2,681
$365
$573
$2,811
$372
$558
$3,255
$439
$755
$3,011
$398
$730
$2,424
$361
$648
$1,415
$1,743
$1,881
$1,883
$2,061
$2,329
$2,376
$2,353
$2,427
$3,617
$464
$824
$3,740
$3,633
$503
$861
$558
$722
$3,802
$618
$757
$4,820
$4,227
$4,211
$718
$660
$679
$844
$784
$792
$3,258
$2,783
$2,740
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
(cid:31) Client assets (cid:31) Wholesale deposits (cid:31) Consumer deposits
Assets under custody2
($ in trillions)
$13.2
$14.9
$16.1
$16.9
$18.8
$20.5
$20.5
$19.9
$20.5
$23.5
$23.2
$26.8
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
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.
21
APPENDIX While we never expect to be best in class every year in every business, we normally compare
well with our best-in-class peers. The chart below shows our performance generally, by busi-
ness, versus our competitors in terms of efficiency and returns.
JPMorgan Chase Is in Line with Best-in-Class Peers in Both Efficiency and Returns
Efficiency
Returns
JPM 2019
overhead
ratio
Best-in-class
peer overhead
ratio1
JPM medium-term
target overhead
ratio
JPM 2019
ROTCE
Best-in-class
peer ROTCE2, 3
JPM medium-term
target ROTCE
Consumer &
Community
Banking
Corporate &
Investment
Bank
Commercial
Banking
Asset & Wealth
Management
52%
56%
39%
73%
46%
BAC–CB
54%
BAC–GB & GM
43%
USB–C & CB
50%+/-
31%
35%
BAC–CB
25%+
54%+/-
14%
15%
BAC–GB & GM
40%+/-
17%
17%
FITB
~16%
~18%
56%
CS–PB & GS–AM
<75%
26%
37%
MS–WM & MS–IM
25%+
JPMorgan Chase compared with peers4
Overhead ratio5
Target
<55%
JPM
C
BAC
GS
WFC
MS
55%
57%
60%
68%
68%
73%
ROTCE
JPM
BAC
MS
C
WFC
GS
19%
Target
~17%
15%
13%
12%
12%
11%
Achievement of medium-term targets may take time and require more
normalized GDP, unemployment and interest rates.
1 Best-in-class peer overhead ratio represents the comparable business segments of JPMorgan Chase (JPM) peers: Bank of America
Consumer Banking (BAC–CB), Bank of America Global Banking and Global Markets (BAC–GB & GM), US Bancorp Corporate and Com-
mercial Banking (USB–C & CB), Credit Suisse Private Banking (CS–PB) and Goldman Sachs Asset Management (GS–AM).
2 Best-in-class peer ROTCE represents implied net income minus preferred stock dividends of the comparable business segments of
JPM peers when available or of JPM peers on a firmwide basis when there is no comparable business segment: BAC–CB, BAC–GB & GM,
Fifth Third Bancorp (FITB), Morgan Stanley Wealth Management (MS–WM) and Morgan Stanley Investment Management (MS–IM).
3 Comparisons are at the applicable business segment level, when available; the allocation methodologies of peers may not be consis-
tent with JPM’s.
4 Bank of America Corporation (BAC), Citigroup Inc. (C), The Goldman Sachs Group, Inc. (GS), Morgan Stanley (MS), Wells Fargo &
Company (WFC).
5 Managed overhead ratio = total noninterest expense/managed revenue; revenue for GS and MS is reflected on a reported basis.
ROTCE = Return on tangible common equity
GDP = Gross domestic product
22
APPENDIX
Our Fortress Balance Sheet
at December 31,
CET1
Tangible
common equity
Total assets
RWA
Liquidity
2008
7.0%1
$84B
$2.2T
$1.2T1
+540 bps
+$104B
+$0.5T
+$0.3T
~$300B
+~$560B
1 CET1 reflects the Tier 1 common ratio under the Basel I measure.
2 Reflects the Basel III Standardized measure, which is the firm's current binding constraint.
3 Operational risk RWA is a component of RWA under the Basel III Advanced measure.
4 Represents quarterly average HQLA included in the liquidity coverage ratio. Refer to Liquidity Coverage Ratio
on page 94 for additional information.
2019
12.4%2
$188B
$2.7T
$1.5T2
$860B
B = Billions
T = Trillions
bps = basis points
2019 Basel III
Advanced is
13.4%, or 18.6%,
excluding $389B
of operational
risk RWA3
2019 Basel III
Advanced is $1.4T,
including $389B
of operational
risk RWA3
Reported HQLA
is $545B4
CET1 = Common equity Tier 1 ratio. Refer to Regulatory capital on pages 86-90 for additional information
RWA = Risk-weighted assets
Liquidity = HQLA plus unencumbered marketable securities, which includes excess liquidity at JPMorgan Chase Bank, N.A.
HQLA = High quality liquid assets include cash on deposit at central banks and highly liquid securities (predominantly U.S. Treasuries,
U.S. government-sponsored enterprises and U.S. government agency mortgage-backed securities, and sovereign bonds)
LCR = Liquidity coverage ratio
23
APPENDIX Consumer & Community Banking
largest and, on an absolute basis, the
fastest growing among U.S. banks:
37 million, up 12% year-over-year.
There was no way to predict that
credit performance would remain as
strong as it has over these last few
years, and that has positively contrib-
uted to the performance we deliv-
ered in 2019.
We achieved our 2019 results with
continued focus on six strategic prior-
ities that have remained consistent
and have proved to be effective. We
bring in new customers, drive engage-
ment across multiple channels and
always focus on improving their expe-
rience with us. We closely manage
expenses and simplify our business,
and we seek efficiency and greater
productivity. We’re intensely focused
on the regulatory and risk and control
environment. We work to hire the
best, diverse talent in the industry
that also reflects the diverse commu-
nities we serve.
Here are some highlights of what we
accomplished in 2019 in each of
these areas:
Acquire, deepen and retain
customer relationships by offering
compelling value propositions
We’re bringing in new customers
and earning more of their valuable
business. In 2019, we grew the total
number of households we serve and
increased the number of households
that have a relationship with more
than one Chase line of business even
faster than households overall.
Among our consumer households,
25% have a relationship with two or
more Chase lines of business.
Our lending businesses – Credit
Card, Home Lending and Auto – are
a significant acquisition funnel for
our deepest customer relationships,
We continue to make real progress
in Consumer & Community Banking,
and I am proud of what our great
team has accomplished. We have
built multiple market-leading busi-
nesses while de-risking and
simplifying them, and we worked
with regulators to close gaps and
make tough decisions. We do the
hard work each and every day to
put our customers first and do the
right thing.
Our performance in 2019 is the result
of that discipline and effort. We are
the #1 U.S. credit card issuer based
on sales and outstanding balances.
We are the #1 primary bank in our
footprint. We are the #1 business
bank based on primary relationships.
We are the #2 mortgage servicer and
the #3 bank auto lender.
We take nothing for granted and
remain humble and motivated as we
compete to be, or stay, best in class.
2019 financial results
In 2019, Consumer & Community
Banking delivered a 31% return on
equity on record net income of
$16.6 billion. Our $55.9 billion in
revenue was up 7% year-over-year.
We reduced our overhead ratio to
51.7% and self-funded significant
investments. We grew our customer
base to nearly 63 million U.S. house-
holds, including over 4 million
small businesses. This performance
is a direct result of the growth in
our business drivers and our sus-
tained focus on investing for the
medium and long term.
Our average deposits of $694 billion
were up 3% over 2018, and client
investment assets reached $358 bil-
lion, up 27%. We ended the year
with $464 billion in average loans,
reflecting $43 billion in loan sales
over the last two years. Our customer
base of active mobile users is the
#1
#1
~63M
#1 in total U.S. credit card sales
volume and outstandings
#1 primary bank
within our footprint
Nearly 63 million
U.S. households served
#1
28M
$1.1T
#1 most visited banking
portal in the U.S.
28 million daily visits, calls
and digital channel logins
More than $1 trillion
in credit and debit card
sales volume
24
10+
PERCENTAGE POINTS
52+M
37+M
ACTIVE MOBILE CUSTOMERS
10+ percentage point increase
in share of self-service Consumer
Banking transactions since 2014
More than 52 million
active digital customers
More than 37 million
active mobile customers
16
NEW MARKETS
ENTERED
$1.5+B
AUTOSAVE
Secure Banking checking
16 new markets entered and
$1.5+ billion saved by
account launched
90+ branches added since 2018
customers using Autosave
37+M
ACTIVE MOBILE CUSTOMERS
16
NEW MARKETS
ENTERED
NEW TOOLS FOR CUSTOMERS
We’ve started to bring together our digital
experiences to engage customers at an earlier
stage in their financial journey. Doing so can
help them reach their goals faster. Our already-
established digital tools give customers a clear
view and understanding of their finances.
Today, customers can better understand and
manage some of their most important financial
assets; for example, their home. In 2019, we
rolled out a digital mortgage offering, Chase
MyHome, allowing customers to apply for a loan
and initiate a mortgage origination digitally.
Customers can use features such as Credit Jour-
ney to receive a detailed view of their finances
and borrowing ability; Autosave allows them to
set a down payment savings goal. And with
Chase MyHome, they can review the value of
their current home and explore their neighbor-
hood before applying for a new loan.
These are just a few examples of how we con-
tinue to do more to help our customers with
their everyday finances. We plan to create
more of these experiences for customers with
similar opportunities, such as buying a car,
saving for a vacation and staying on top of
everyday purchases.
Credit Journey
Customers visit
Credit Journey to
understand their
borrowing ability.
Approximately 22
million customers
enrolled in Credit
Journey as of
December 2019.
Autosave
Customers can set
goals to save for
major purchases.
Autosave helped
our customers
save more than
$1.5 billion in 2019.
Chase MyHome
Users can get home value
information on Chase
MyHome and track prog-
ress through a simplified
mortgage experience.
More than 1 million
customers have visited
Chase MyHome since
April 2019, and about
80%1 of customers used
Chase MyHome in 4Q19.
1 Reflects percentage of consumer originations that used Chase MyHome for loan fulfillment in the fourth quarter of 2019.
bringing in more than half of all
new-to-Chase households. Our lend-
ing customers respond to Consumer
Banking marketing at three times the
rate of pure prospects; in branch
expansion markets, the response rate
is even better. Customers with these
deeper relationships are more satis-
fied and less likely to leave Chase.
We continually improve and sim-
plify the customer experience and
offer new, customer-centered digital
capabilities using our data to benefit
and protect our customers.
In Consumer & Business Banking,
our focus is to be our customers’
primary bank. Customers consider a
wide range of factors when choosing
their primary bank. Over 75% of our
checking households are primary
relationships, and we are the #1
business bank based on primary
bank relationships. The deposits
these customers bring to us are the
outcome of that relationship.
Drive engagement through
omnichannel, customer-centered
experiences
The scale of our distribution gives us
a competitive advantage. When we
bring new products and services to
the marketplace, we bring them to
nearly 63 million households that
engage with us on a regular basis.
On any given day in 2019, 28 million
customers visited us, called us or
logged in to our digital channels.
Two-thirds of our Consumer Bank-
ing customers used more than one
channel to interact with us during
the year. We are still committed to
our omnichannel strategy because
our customers are. And all of our
channels have evolved based upon
our customers’ preferences and
expectations. For example, we’re
able to build branches in new
markets farther apart than branches
in our legacy markets because of
our new tools and capabilities: our
digital account opening functional-
ity and data about our existing
customers in those markets.
In these newer markets, customers
can choose whether to open an
account in a branch or digitally.
Until 2018, our checking and sav-
ings accounts could only be opened
25
37+M
ACTIVE MOBILE CUSTOMERS
16
NEW MARKETS
ENTERED
#1
#1
~63M
#1 in total U.S. credit card sales
volume and outstandings
#1 primary bank
within our footprint
Nearly 63 million
U.S. households served
#1
28M
$1.1T
#1 most visited banking
portal in the U.S.
28 million daily visits, calls
and digital channel logins
More than $1 trillion
in credit and debit card
sales volume
10+
PERCENTAGE POINTS
52+M
37+M
ACTIVE MOBILE CUSTOMERS
10+ percentage point increase
in share of self-service Consumer
Banking transactions since 2014
More than 52 million
active digital customers
More than 37 million
active mobile customers
16
NEW MARKETS
ENTERED
$1.5+B
AUTOSAVE
Secure Banking checking
account launched
16 new markets entered and
90+ branches added since 2018
$1.5+ billion saved by
customers using Autosave
in a branch. In addition, we were
able to use the information we have
about where our customers live,
work and shop to determine the
optimal locations to place our new
branches and ATMs. This has
allowed us to enter markets with the
smartest possible footprint and
helps explain why the early-stage
performance of these branches has
exceeded our expectations.
In our digital channels, we are pro-
viding new features for our custom-
ers based on their relationship with
Chase. In Chase Mobile, our Snap-
shot feature offers personalized
insights to help customers make the
most of their money. One insight
that educates customers on how to
begin saving automatically – Auto-
save – enabled our customers to set
aside more than $1.5 billion in 2019.
Improve productivity, agility and
customer experience through data,
analytics and technology
We’re using data, analytics and tech-
nology to improve the customer
experience and drive productivity.
Over the last five years, our opera-
tional staff has become 20% more
productive, serving a larger cus-
tomer base with a smaller team.
The cost to serve each household
has declined 14% over the same
time period, as the share of transac-
tions completed through self-service
channels has grown more than
10 percentage points.
We are adopting more agile ways of
working, including a product- and
platform-based architecture. Product
and platform owners have end-to-
end ownership, which puts decision
making closer to the customer, help-
ing us move faster than we could in
an annual planning cycle.
26
These efforts have made us better at
providing the capabilities and fea-
tures that improve the customer
experience. As an example, we began
extending already-approved offers
to existing customers for whom we
had enough information to make
an approval decision. Being able to
show customers products they are
qualified for is a superior client
experience. Previously, these same
customers had been required to reap-
ply for products using the same
application as a new-to-Chase
customer. For certain customers –
10 million to date – that wasn’t nec-
essary; we wanted to save their time
and make it easier to do more busi-
ness with us. Customers value the
transparency and certainty of these
already-approved offers and the sim-
ple one-click experience to accept
them. Personalized offers such as
these convert at rates up to 20%
higher than our traditional market-
ing offers.
Manage expenses and simplify our
business while continuing to invest
for the future
We closely manage expenses, con-
tinuously simplifying and investing
for the medium and long term –
driving down our overhead ratio in
the process. Our 2019 overhead ratio
of 51.7% was 170 basis points better
than in 2018 and 6 percentage
points better than five years ago. In
areas where we have become more
efficient, we have been able to self-
fund some of our investments in
our businesses.
Many of the investments we made
have allowed us to reduce annual
expenses via automation and
enabled the improved productivity
described earlier. In Consumer
Banking, our investments in digital
self-service capabilities have reduced
everyday branch transactions per
customer by 49% since 2014 –
eliminating transactions that are
simple and easy for customers to
manage anywhere and at their con-
venience, such as depositing checks.
Our investments for the long term
have also led to revenue growth.
Examples include the 400 branches
we are in the process of opening in
new markets to extend our reach.
Our new branches in existing mar-
kets break even seven months faster
than they did five years ago, and the
branches in our newer markets are
trending even better than that.
Operate a disciplined risk and
control environment, protect the
firm’s systems, and safeguard
customer and employee privacy
As always, we are focused on manag-
ing risk appropriately and using
well-designed controls. This work is
never done. Investing in these efforts
remains our highest priority, and we
have done so consistently over time.
We are vigilant and never compla-
cent in this space.
Over the last five years, for example,
we’ve used technology and machine
learning to reduce fraud losses in the
credit card business by 50%.
We have made great strides to pro-
tect customer data, as well as our
own systems, when sharing data.
Previously, to share information with
approved third parties, customers
provided their Chase login creden-
tials, giving access to their entire
Chase profile. This enabled third
parties to obtain information beyond
the scope of the customer’s inten-
tion. That wasn’t safe for the cus-
tomer or for us. Now we require
these third parties to abide by our
data-sharing rules, and we securely
send data that customers choose
for us to provide on their behalf.
This reduces risk for all parties
while giving transparency and
control to our customers.
Attract, develop and retain the best
talent for today and the future,
harnessing the power of diversity
Our talent sets us apart, and we
work to attract and retain the best,
diverse talent for today and tomor-
row. Our team must represent and
reflect the diverse customers we
serve every day. We are proud that
more than 57% of our employees in
Consumer & Community Banking
are female and more than half of our
U.S. employees identify as a minor-
ity. The roles with the highest
minority representation are dispro-
portionately our customer-facing,
front-line roles rather than executive
management. We are mindful of this
imbalance and are working tirelessly
to correct it.
Representation is only part of the
equation when it comes to attracting
and retaining world-class talent. We
are focused on driving inclusiveness
and reinforcing the fact that we all
are responsible for keeping a culture
where everyone is respected and
valued for who they are and what
they contribute.
Conclusion
We have built tremendous busi-
nesses that deliver repeatable reve-
nue. Each year, we work hard to
bring in new customers, retain exist-
ing ones and generate earnings
throughout economic cycles. We are
experiencing turbulent times across
the country – and the world – as we
get set to publish this letter. We are
here for our customers in good times
and tough times, and that is true
now more than ever.
Over the last few weeks, we have
been offering relief to our customers
and small business clients who are
struggling financially. We have pro-
vided payment relief for credit cards,
auto loans and home loans. We also
continue to lend money.
And as we forge ahead through this
challenging time and get through it,
we still see opportunities to help
and support more people. Two
opportunities that stand out are:
helping a broader range of Ameri-
cans manage their financial lives
and earning the chance to manage
investments for the many millions
of households that work with Chase
as their primary bank.
Our Chase franchise is powerful and
differentiated from our peers. We will
continue to support our customers,
small business clients, communities
and employees now and in the future.
Gordon Smith
Co-President and Chief Operating Officer,
JPMorgan Chase & Co., and
CEO, Consumer & Community Banking
27
Corporate & Investment Bank
In 2019, the Corporate & Investment
Bank (CIB) generated earnings of
$11.9 billion on revenue of $38.3 bil-
lion – a record year for our business.
This standout performance is the cul-
mination of a journey that began
during the 2008 financial crisis when
clients turned to J.P. Morgan for capi-
tal, liquidity and a safe haven.
In 2009, 10 years ago, client business
drove earnings in our investment
bank to a record $6.9 billion. By 2019,
the CIB’s earnings had topped the
entire firm’s net income from 2009.
As we close out the decade, it is worth
reflecting on the strategy that brought
us to this point, helping us to gener-
ate record revenue and profits and a
consistently strong return on equity
(ROE) while adding $42 billion to the
CIB’s capital base and investing sub-
stantially in the business.
Global, complete and at scale
The success of our business over the
last decade has hinged chiefly on our
steadfast pursuit of three strategic
goals: being global, complete and at
scale. The benefits of these qualities
may seem obvious today but weren’t
quite so clear a decade ago.
Strong Returns on Higher Capital
($ in billions)
New regulations that followed the
financial crisis helped make the
banking system safer overall but also
made investment banking more
expensive. Banks had to hold a lot
more capital, which reduced leverage
and ROE. At the same time, major
investments were needed in technol-
ogy and compliance.
This created a predicament for banks
emerging from the crisis, and they
chose several different paths. Some
decided to cut back on businesses
that were less profitable or carried
too much capital. Others retreated
from traditional investment banking
businesses altogether.
At J.P. Morgan, we believed that cli-
ents would always need an array of
global banking products even though
margins on these products varied.
We looked at our client relationships
holistically and prioritized long-term
value for them over short-term
profitability for us. That decision –
to continue to provide a full suite
of products and services for clients
across the globe – has proved to be
mutually beneficial.
Having scale has been equally criti-
cal to our success. Following the
financial crisis, we believed that
clients would gravitate to the best
ideas and offerings, particularly if
they could be accessed anywhere
and at any time.
Over the years, that scale has become
a springboard for growth. In 2010,
we began to expand our interna-
tional corporate banking effort to
include multinational clients around
the globe, with 100 bankers dedi-
cated to serving 2,200 clients. Today,
our 400 corporate bankers cover
3,300 companies and their subsidiar-
ies worldwide. In addition, we are
partnering with Commercial Bank-
ing to extend our services to middle
market clients internationally.
Commitment and consistency
Supporting clients during periods of
crisis has always been a hallmark of
our business. A decade ago, when
investors were worried about bank
exposures in struggling economies
such as Ireland, Greece, Portugal,
Spain and Italy, we did not retrench.
On the contrary: In 2009 and 2010,
we stood by those countries, raising
CIB ROE
Capital
20151
12%
$62
2016
16%
$64
2017
14%
$70
$33.7
$8.1
64%
$35.3
$34.7
$10.8
54%
$10.8
56%
(cid:31) Revenue
(cid:31) Net income
Overhead ratio
1 Reported results for 2015 have been revised to reflect the adoption in 2018 of the new revenue recognition guidance.
28
2018
16%
$70
$36.4
$11.8
57%
2019
14%
$80
$38.3
$11.9
56%
BANKING
MARKETS
#1
#1
DEBT CAPITAL MARKETS
#1 in global Investment Banking
fees for the 11th consecutive year
#1 in global DCM, with #1 in bond
underwriting for 10 years in a row and
#1 in loan syndication since 2016
#1
#1 in Markets revenue
globally since 2012
13%
13%
return on equity
#1
EQUITY CAPITAL MARKETS
#1 in global ECM wallet,
with $13 billion raised for private markets
and #1 in IPO wallet
#1
#1 in subproducts including equity
derivatives, securitized products, and
G10 rates, FX and financing
€7.5 billion and €11 billion for Greece
and Italy, respectively. That support
continues to this day. Last year, we
opened a state-of-the-art office in
Dublin, which is now a thriving
center of technology and commerce.
SECURITIES SERVICES
#2
#2 custodian
globally
That commitment and consistency are
now spurring the firm’s expansion in
the world’s fastest-growing economies.
Ten years ago, regulatory constraints
on foreign banks severely restricted
what we could offer clients in China.
Today, we have approvals from Chi-
nese authorities to open a majority-
owned securities joint venture with a
path to 100% ownership. Bringing our
full suite of banking capabilities to
China will enable its companies to
20,000+ daily net asset valuations
grow beyond the country’s borders
provided to clients
and allow more investors to access its
market. This sets us up for tremen-
dous growth in one of the world’s
largest economies while retaining a
prudent approach to expansion.
20,000+
Stable returns and continuity
The diversity of our CIB businesses
has served us well, especially during
times of market stress, and we have
delivered consistent returns through
the entire economic and market
cycle. Our traditional investment
$XX
banking businesses of Markets and
$xxx
WHOLESALE PAYMENTS
Banking have delivered a combined
ROE ranging from 14% to 18% over
the past five years. Meanwhile, Secu-
rities Services and Treasury Services,
the traditional transaction banking
businesses, have delivered between
10% and 20% during the same
period. This means that for the past
five years, the combined CIB has
achieved an average ROE of 15%.
#1
$27T
And while we are more efficient
than we were five years ago, there is
still more output to be won per dol-
lar of investment. As we modernize
our infrastructure and scale our
technology capabilities, we will
continue to make key investments
required to “change the bank” while
deploying resources needed to “run
the bank” efficiently.
$6T
$27 trillion in assets under custody,
up 16% year-over-year
#1 in U.S. dollar
payments volume
2019 performance
$6 trillion in payments
processed daily
Equally critical to our long-term suc-
cess is attracting and, more important,
retaining top talent to ensure our
clients receive best-in-class execution
and consistency in their experience.
This is a particular priority in the
Investment Banking business, where
clients choose us to lead deals because
of trust earned over many years.
Our financial stability and continuity
of personnel enable us to build effec-
tively on our progress and invest
year after year. That investment
includes a firmwide technology bud-
get of about $12 billion, much of it
directed toward CIB systems. Not
only is technology the structural
underpinning of our business, but it
is also a power that we have learned
to scale and selectively share with cli-
ents who seek the same cutting-edge
analytical and risk mitigation tools
that our professionals use in-house.
#1
The CIB’s record 2019 earnings of
$11.9 billion on record revenue of
$38.3 billion allowed us to maintain
our position as the world’s top
investment banking franchise for
the 11th consecutive year. In addition,
we earned $7.6 billion in global
investment banking fees, narrowly
beating our all-time record of $7.5
billion in 2018.
#1 merchant acquirer
in the U.S.
In the context of generally flat
industry revenue, the CIB has won
more business and gained greater
wallet share than any other competi-
tor over the last five years, according
to Dealogic. We ended 2019 with a
global wallet share of 9.0%, the
highest attained in a decade.
By line of business, we ranked #1 in
wallet share for both Equity and
Debt Capital Markets during 2019,
29
CLIENT ASSETS
$TBD healthcare payments
sector more easily addressable
with Instamed acquisition
16
NEW MARKETS
ENTERED
BANKING
MARKETS
#1
#1
DEBT CAPITAL MARKETS
#1
#1 in global Investment Banking
#1 in global DCM, with #1 in bond
fees for the 11th consecutive year
underwriting for 10 years in a row and
#1 in Markets revenue
globally since 2012
#1 in loan syndication since 2016
13%
13%
return on equity
#1
EQUITY CAPITAL MARKETS
#1 in global ECM wallet,
with $13 billion raised for private markets
and #1 in IPO wallet
#1
#1 in subproducts including equity
derivatives, securitized products, and
G10 rates, FX and financing
SECURITIES SERVICES
WHOLESALE PAYMENTS
#2
#2 custodian
globally
$27T
#1
$6T
$27 trillion in assets under custody,
up 16% year-over-year
#1 in U.S. dollar
payments volume
$6 trillion in payments
processed daily
20,000+
20,000+ daily net asset valuations
provided to clients
#1
#1 merchant acquirer
in the U.S.
raising more than $530 billion for
clients around the world. J.P. Morgan
was bookrunner on more equity
deals than any other bank, a feat we
achieved in eight of the last 10 years.
And our 9.4% share of the global
wallet was the highest of any bank
during the last decade.
$TBD healthcare payments
sector more easily addressable
with Instamed acquisition
$xxx
J.P. Morgan brought 79 companies
public in 2019, including several
$XX
highly anticipated “unicorns,” finish-
ing the year as the #1 underwriter
CLIENT ASSETS
of initial public offerings (IPO) by
wallet share. At the same time, our
Private Capital Markets group raised
more than $13 billion for clients,
making it a fast-growing part of our
business last year.
In a year characterized by cross-border
deals, our Debt Capital Markets busi-
ness acted as the world’s leading
bookrunner and retained its #1 posi-
tion with 8.7% of global wallet share.
The business showed its strength
across product lines, ranking #1 for
wallet share in high-grade, high-yield
and investment-grade issuance, as
well as in leveraged loans.
In our Mergers and Acquisitions
(M&A) business, J.P. Morgan ranked
#2 globally in announced dollar vol-
ume and wallet share, as clients con-
30
tinued to turn to us for complex and
transformative deals. Although the
global M&A wallet decreased 10%
year-over-year, J.P. Morgan gained
share across regions, earning global
advisory fees of $2.4 billion, 5% shy
of our 2018 record.
In our Markets business, which
serves more than 6,500 clients, reve-
nue totaled nearly $21 billion in
2019, up 7% from the prior year. The
business achieved an overall ROE of
13% despite the additional capital we
invested in our trading businesses in
recent years.
NEW MARKETS
ENTERED
16
Approximately $46 billion of stocks
cross our Equities Markets trading
desks each day. The business gener-
ated $6.5 billion in revenue in 2019,
making J.P. Morgan the top bank by
wallet share, with 11.3%, up from
8.4% in 2015. Our Cash Equities
business continued to grow revenue
and share, and our balances in
Prime Finance finished the year at
all-time highs.
It was an exceptional year for our
Fixed Income Markets business.
Revenue rose 13% to $14.4 billion,
with a particularly good performance
in securitized products and a recov-
ery in the credit and rates markets
from the previous year.
Wholesale Payments celebrated its
first year as a combined business
that brought together the services we
offer to corporate treasurers with
those for global merchants. The busi-
ness performed well during a year in
which the Federal Reserve cut inter-
est rates multiple times and margins
on deposits tightened.
Wholesale Payments supports clients
across the bank; within the CIB alone,
Treasury Services revenue was up
39% since 2015. Cash management
and clearing were among the strong
revenue generators in 2019. In addi-
tion, the acquisition of Philadelphia-
based InstaMed, an innovative health-
care payments company, was the
firm’s largest since the financial crisis.
Ongoing investments in the busi-
ness, which processed $43 million in
payments per second last year across
more than 120 currencies, helped
drive organic growth and a healthy
pipeline. In basic terms, Wholesale
Payments enables clients to make,
manage and accept payments
securely anytime, anywhere and by
any method. Our opportunity here is
tremendous, particularly as business
gravitates to larger banks with
global scale.
Securities Services, which provides
post-trade services such as custody
and fund administration, generated
$4.2 billion in revenue during 2019,
down slightly from the previous
year but up 16% since 2015.
Although deposit margins narrowed
due to lower interest rates, we con-
tinued to invest in products, sys-
tems and services. The business has
generated record growth over the
last five years, with assets under
custody1 up 41% and assets under
administration2 up 55%.
Embedding sustainability
At J.P. Morgan, a readiness to adapt
has always characterized the way we
do business, and our approach to
environmental, social and gover-
nance issues is no different. The
issue of environmental sustainabil-
ity is gaining urgency by the day
and is among the growing risks
being evaluated by our business
and policymakers.
We understand the pressing nature
of climate change and believe that
companies like ours can add tremen-
dous value by helping global compa-
nies – and the global economy –
transition to cleaner energy.
Currently, around 80% of the world’s
energy is sourced from fossil fuels,
which remain the primary source for
heating homes and powering cars.
We are working to reduce this
dependency by committing billions
of dollars to sustainable projects in
2020 alone, including green technol-
ogies. Furthermore, we are embed-
ding sustainability into many of our
daily business practices, from assess-
ing risk to designing products to
advising clients.
We have also tightened restrictions on
certain activities, such as financing for
coal mining and Arctic drilling, and
are on track to meet our own commit-
ment from three years ago to source
renewable energy for our entire 2020
global power needs. These initiatives
are enthusiastically supported by
our employees, as well as by the next
generation of recruits, who want
J.P. Morgan to lead in this space.
That said, business alone cannot
ensure the transition to a lower-
carbon economy. Government policy
is crucial. Recently, we joined the
Climate Leadership Council, a group
promoting a bipartisan road map for
a revenue-neutral, carbon tax-and-
dividend framework for the U.S.
Conclusion
Our impressive 2019 performance
was not easily won, as competition
and geopolitical uncertainty intensi-
fied. The year 2020, however, has
already presented all of us with our
most challenging problem yet: a
pandemic of proportions not seen
for 100 years.
Across the firm, taking care of our
employees and standing by our
clients during events like the corona-
virus are critical priorities. With so
many companies, institutions and
governments relying on J.P. Morgan
for their own operations and eco-
nomic well-being, it’s essential that
we do the right things day to day,
staying focused on risk, costs and
making sure our clients have access to
the capital they need. We must also
think about optimizing the business
for the near future, continuously mak-
ing adjustments to ensure that we are
as efficient and effective as possible
while closing addressable gaps.
Finally, we must think creatively
about next-generation transforma-
tion and ways that our businesses
will change over the next five to 10
years. To that end, we are evaluating
emerging technologies and reshap-
ing our approach to data to bring the
power of artificial intelligence and
machine learning to all our busi-
nesses. We’re also building out our
infrastructure to reduce friction,
improve client service and offer
access to sophisticated analytics.
We have the most solid underpin-
nings for the enduring success of a
world-class business: the capital, the
brainpower and the hard-earned
experience to get things right.
Although we will be tested by any
number and variety of uncertainties
in the years to come, these qualities
make me confident and optimistic
about our shared future.
Daniel E. Pinto
Co-President and Chief Operating Officer,
JPMorgan Chase & Co., and
CEO, Corporate & Investment Bank
1 Assets under custody: Represents assets held directly or indirectly on behalf of clients under safekeeping, custody and servicing arrangements.
2 Assets under administration: Represents the market value of client assets for which administrative and other related services are performed.
31
Commercial Banking
Across JPMorgan Chase, we measure
our success not just by our financial
results, but by our ability to make a
positive difference for our clients,
employees, communities and share-
holders. Over the last several years in
Commercial Banking (CB), we’ve been
executing a consistent, long-term
strategy focused on doing just that.
Our shareholders: Investing for
long-term value
Strong 2019 financial performance
To create value in CB, we work hard
every day to add great clients and
deepen those relationships over time.
We’ve been making sustained invest-
ments in our people and capabilities
to drive results across our business.
In the last two years, we’ve hired
more than 300 bankers and
expanded our presence to 24 high-
potential locations. These invest-
ments have led to more client activ-
ity than ever before, and in 2019, we
added over 1,700 new client relation-
ships, a 60% increase since 2017.
MAINTAINING STRONG PERFORMANCE
Our intense client focus and disci-
plined execution have resulted in
consistent strong financial perfor-
mance across our business. In 2019,
CB generated $9.0 billion in reve-
nue, $3.9 billion in net income and
a return on equity of 17%. While
our overall results were affected by
lower interest rates, the fundamen-
tals of our business remained out-
standing, with record Treasury
Services fee revenue of $1.5 billion
and steady loan and deposit growth.
We continued to benefit from our
strong partnership with the Corpo-
rate & Investment Bank, delivering
record investment banking revenue
of $2.7 billion, up 10% from 2018.
Our credit discipline has served us
well, and by maintaining our strict
underwriting standards, our net
charge-off rate in 2019 was 8 basis
points. This marked the eighth
straight year in which net charge-offs
were less than 10 basis points.
Enormous growth potential
The overall potential to expand our
business is tremendous, and as we
enter into a new decade, we remain
focused on our multifaceted long-term
growth strategy. Our Middle Market
expansion effort is a terrific example
of identifying a market opportunity
and executing with purpose. Since
2008, we’ve nearly doubled our foot-
print across the country, moving into
47 metropolitan statistical areas
(MSAs), adding locations in over 20
states and hiring almost 500 bankers.
We’ve been able to compete and suc-
ceed in these new markets because of
the quality of our team, the strength
of our brand and JPMorgan Chase’s
unmatched capabilities, delivered at
a very local level. To date, we’ve selec-
tively added almost 3,300 clients,
over $15 billion of loans and over
$13 billion of deposits.
We’re equally excited about expand-
ing our business internationally. In
2019, we hired nearly 80 bankers to
serve non-U.S.-headquartered, multi-
Middle Market Expansion Revenue
($ in millions)
Commercial Banking Gross Investment Banking Revenue1
($ in billions)
$1,000
$723
C A G R 8 %
$2.2
$3.0
$2.7
$1.3
4 %
R 3
G
A
C
$354
$53
2010
2015
2019
Long-term target
2010
2015
2019
Long-term target
1 Represents total JPMorgan Chase revenue from investment banking products provided to CB clients.
CARG = Compound annual growth rate
32
MAKING A POSITIVE DIFFERENCE IN OUR COMMUNITIES
We take great pride in the work we do to
support our communities. We ended 2019
with over $54 billion in financing to local
companies, states and municipalities, schools,
nonprofits and healthcare providers. We also
originated over $2 billion in loans for the
construction of affordable housing for low-
income individuals. In addition, our teams are
very active civically and volunteered more
than 25,000 hours with local organizations.
national companies across 18 coun-
tries. We have a significant opportu-
nity to support these clients not
only in the U.S. but also in other key
geographies around the world. As
CB continues to build internation-
ally, we benefit greatly from the
firm’s existing local knowledge and
well-established risk, compliance
and control infrastructure. Similar
to our strategy in the U.S., we are
taking a long-term view, focused on
selecting only the best clients, and
will continue to execute with
patience and discipline.
Our clients: Relentlessly focused on
delivering solutions and capital to
drive their success
Clients are at the absolute center of
everything we do, and every day, we
strive to deliver differentiated advice,
tailored solutions and meaningful
capital to help them succeed. The
breadth and quality of our capabili-
ties, along with our outstanding
team, allow us to build deep, valuable
relationships over time. By being
part of JPMorgan Chase, we have the
ability to serve clients throughout
the life cycle of their businesses –
from opening their first operating
accounts and expanding overseas to
funding an important acquisition or
taking their company public. In 2019,
across our business, we made more
than 290,000 client calls and grew
loans by $2.4 billion, ending the
year with $208 billion in average
loan balances. Our long-term view,
unmatched solutions and enduring
commitment to our clients set us
apart in the industry.
As our clients’ expectations continue
to evolve, we have dedicated teams
designing new functionality that
will deliver even greater value to our
clients and enhance their experience.
This design-led approach has informed
our investments in technology, data,
digital and payments. To date, our
work has resulted in tangible bene-
fits, such as faster credit delivery,
reduced account opening time and
new integrated solutions.
We can uniquely bring our clients
an entire suite of wholly owned,
global treasury capabilities, includ-
ing merchant acquiring, commercial
cards and cross-border payments.
These integrated solutions allow
clients to accept any method of
payment, in any currency, around
the world. Moreover, clients can
connect with us however they want,
from a global exchange to applica-
tion programming interfaces. As a
result of the investments we are
making in our comprehensive pay-
ments platform, we can deliver valu-
able analytics and insights to clients
across all of their treasury activities
to optimize their businesses.
Our communities: Serving as a
positive force where we live and work
In CB, we embrace our obligation to
be a positive force in our communi-
ties. We ended 2019 with over $54
billion in financing to local compa-
nies, states and municipalities,
schools, nonprofits and healthcare
providers. We have dedicated teams
across the country, working hard to
support these vital institutions so
they can continue to keep our com-
munities strong.
Our Commercial Real Estate (CRE)
businesses are also at the forefront
of this important work. As the #1
multifamily lender in the U.S.1,
Commercial Term Lending (CTL)
provides capital to apartment build-
ing and workforce housing owners.
In 2019, more than 40% of the loans
originated in CTL funded properties
in low- to moderate-income neighbor-
1 S&P Global Market Intelligence as of December 31, 2019.
33
GROWING OUR CLIENT FRANCHISE
GROWING OUR CLIENT FRANCHISE
170+
NEW
BANKERS
290K+
CLIENT
CALLS
1700+
NEW CLIENT
RELATIONSHIPS
50
172
PRESENCE
IN TOP 50 MSAs
OFFICES IN
172 CITIES GLOBALLY
hoods. Our Community Development
Banking team had a record year, origi-
nating over $2 billion in loans for the
construction of affordable housing
and extending nearly $200 million in
financing to critical community devel-
opment institutions. In total, our CRE
business financed more than 25,000
housing units for low-income individ-
uals in 2019.
Across CB, our people best demon-
strate the positive impact we create
in our communities. Many of our
employees are active civically and
serve on philanthropic boards. Last
year, our team volunteered more
than 25,000 hours with local organi-
zations. We take great pride in the
work we do to support our commu-
nities and the firm’s commitment
to make a difference.
Our employees: Empowering and
enabling our teams
Our success wouldn’t be possible
without our incredible team. As such,
we’re focused on having the best,
diverse talent with the right skills to
lead our business forward. We’re
making significant investments in
our training and development pro-
grams to enhance our team’s exper-
tise in emerging technologies, data
and digital solutions. We have cre-
ated dedicated training centers that
host intensive credit and treasury
services programs to build upon crit-
290+K
CLIENT
CALLS MADE
34
ical knowledge and enable our teams
to provide even more value to our
clients. Overall, in 2019, CB employ-
ees completed more than 350,000
hours of training.
SECURITIES SERVICES
$27 trillion assets under custody,
up 16% YoY
#2
$27T
We’re also investing to empower
our teams with the best digital tools
and data resources to ensure their
success. Last year, we launched a
new client management system that
harnesses the power of cloud tech-
#2 custodian
nology and our firmwide data assets
globally
to better support our bankers. This
platform provides live dashboards
with real-time client information –
alerting our team on service needs,
product usage and the overall health
of their client portfolio. So far, we’ve
received tremendous feedback, as
>20,000 daily net asset
the tool meaningfully increases
valuations (NAVs) provided to clients
efficiency and allows more time
to be spent with our clients.
20,000+
Managing the market challenges
emerging in 2020
We have a long history of supporting
our clients and being a market leader
through challenging times. Our
approach to the current global crisis
is no different. As we navigate this
complex situation, I have never
been more proud of the entire CB
team and am so grateful for their
hard work, compassion and tenacity.
It’s inspiring to see everyone come
together to support one another,
and I am confident the work we
are doing for our clients and our
communities right now will be
remembered forever.
Looking forward: Continuing to
execute with patience and discipline
Focused on our strategic priorities
Looking ahead, our attention
remains focused on executing our
long-term strategic priorities. We
will continue to invest and drive
innovation across our businesses,
build deep client relationships,
maintain fortress principles, and
attract and retain the best talent.
CLIENT
Doing all of this with patience and
CALLS MADE
discipline will allow us to deliver
value for our clients, employees,
communities and shareholders
throughout the cycle.
290+K
290+K
CLIENT
CALLS MADE
Douglas B. Petno
CEO, Commercial Banking
Asset & Wealth Management
2019 marked my 10th year as CEO of
Asset & Wealth Management. During
this past decade, we have success-
fully helped millions of individuals
and institutions around the world
invest for their futures. Our clients
come to us for advice, ideas and solu-
tions for some of their most impor-
tant life events, and for help in navi-
gating through turbulent times. We
cherish our clients’ trust and never
take it for granted.
Strong investment performance for
clients
Our success begins with a focus on
investment performance, which
requires the unwavering, long-term
prioritization and retention of our
1,000+ investment professionals.
This has led to 88% of 10-year
long-term mutual fund assets under
management above peer median
and 196 mutual funds 4- or 5-star
rated1. It’s worth noting that our per-
formance is not concentrated in any
asset class or region. It represents
leading performance across all asset
classes globally.
We strive to be the best, not the
biggest. If you relentlessly work to
be the best, you will have years like
2019, in which we received $194
billion in net new client asset
flows2. In fact, since 2015, we
received half a trillion dollars in
net new client asset flows2. Similar
to our investment performance,
our flows are not concentrated in
any one asset class, region or client
segment, but come from a well-
diversified set of businesses.
Strong financial performance for
shareholders
I am proud of our results for our
clients, while, at the same time, we
continue to deliver strong financial
performance for our shareholders.
In 2019, Asset & Wealth Manage-
ment achieved record total client
assets of $3.2 trillion, record revenue
of $14.3 billion, record pretax income
of $3.7 billion and return on equity
of 26%. Our reliable and consistent
growth has been powered by
success across our diversified Asset
Management (AM) and Wealth
Management (WM) franchises.
88%
Given our long-term approach, we
are even prouder of our sustained
performance over the past 10 years.
2019 % of 10-year J.P. Morgan Asset Management Long-Term Mutual Fund AUM
Above Peer Median4
(net of fees)
88%
91%
Total J.P. Morgan
Asset Management
Equity
Fixed Income
$3.2T
Record client assets of $3.2 trillion
$14.3B
Record revenue of $14.3 billion
$3.7B
Record pretax income of $3.7 billion
$161B
Record end-of-period loan balances
of $161 billion
$100B
Record long-term AUM flows of
$100 billion
88%
88%
88% of 10-year AM long-term mutual
fund AUM above peer median
Retention rate of over 95% of top
talent3 and 39% of AM AUM managed
91%
by female portfolio managers
81%
Multi-Asset Solutions
& Alternatives
88%
91%
81%
90%
For footnoted information, refer to slides noted below in the 2020 Asset & Wealth Management Investor Day presentation, which is available at jpmorganchase.com/corporate/investor-relations/event-calendar.htm.
1 See slide 18; 2 See slide 25; 3 See slide 17; 4 See slide 20.
AUM = Assets under management
81%
90%
35
91%
81%
90%
90%
JPMorgan Chase Total Client Asset Flows: 2015-20191
T
C
U
D
O
R
P
/
S
S
A
L
C
T
E
S
S
A
L
E
N
N
A
H
C
I
N
O
G
E
R
Assets=
AUM+AUS
Assets
Assets
Fixed Income
Equity
AUM
Multi-Asset
Alternatives
Liquidity
Brokerage
AUS
Custody
Deposits
Wealth Management
Retail
Institutional
U.S.
LatAm
EMEA
Asia
≥$0 <$0
2015
2016
2017
2018
2019
For footnoted information, refer to slides noted below in the 2020 Asset & Wealth Management Investor Day presentation, which is available at jpmorganchase.com/corporate/investor-relations/event-calendar.htm.
1 See slide 25; 2 See slide 18; 3 See slide 19; 4 See slide 20.
AUS = Assets under supervision
Asset Management
Since 2009, AM grew revenue2 by
1.5x to $7.3 billion and pretax
income by 1.4x to $1.9 billion. That
success has been driven by a broad,
diversified platform. On long-term
AUM, we achieved record levels
across asset classes (Equity, Fixed
Income, Multi-Asset), segments
(Retail and Institutional) and geogra-
phies (U.S. and International). We
also achieved success in key growth
areas of the market, with Multi-Asset
AUM growing by 6.4x to $267 billion
and, in particular, Target Date AUS
growing by 25x to $125 billion.
Wealth Management
Growth since 2009 is an equally
powerful story in WM, where revenue
grew by 1.8x to a record $7.1 billion
and pretax income by 1.7x to $1.9 bil-
lion. We continue to differentiate our-
selves by providing the advice, solu-
tions and client experience that our
clients need. As an example of their
commitment, we’ve nearly tripled
the number of clients with over $100
million of total positions to a record
x = times
36
level. In addition, we’ve grown the
number of managed accounts by
7.6x to a record 730,000.
Growth priorities for the next
decade
Looking ahead to the next decade,
we are highlighting five major
drivers to continue our momentum:
• Focusing on U.S. Wealth Management:
This is one of the firm’s biggest
opportunities with the U.S. repre-
senting approximately $50 trillion
in market size3. For example,
Chase banks half of the 22 million
households within the $1 million
to $10 million net worth segment3,
but only 5% have investments
with us. We have a tremendous
opportunity to capture new clients
and deepen current relationships.
• Expanding the Global Private Bank:
Over the last five years, we’ve
hired approximately 1,300 advi-
sors, successfully converted
hundreds of referrals from around
the firm, attracted over 11,000 net
new clients and captured around
$200 billion in client asset flows.
We still have a significant expan-
sion opportunity, particularly
internationally, where we have less
than 2% market share3. We plan to
capture share by continuing to be
the go-to bank, delivering solutions
across the balance sheet.
• Scaling Asset Management: To scale,
we need strong, diversified long-
term investment performance,
which we have with 91% of Equity,
81% of Fixed Income and 90% of
Multi-Asset Solutions & Alternatives
10-year mutual fund AUM above
peer median. This performance has
driven our above-industry growth
over the last 10 years 4 and will con-
tinue to be our foundation to scale
over the next 10 years. And with
around 2% market share across
asset classes4, we have significant
opportunity to capture share.
• Building Alternatives: We are cele-
brating our 50th anniversary of
managing what is now nearly a
quarter of a trillion dollars in Alter-
native assets. I am excited about
the opportunities to continue build-
ing our franchise, from expanding
our leading core real estate capabil-
ities to building out our newly con-
solidated private credit capabilities.
Client Assets (EOP, $ in trillions)
Revenue ($ in billions)1
Pretax Income ($ in billions)
2009
$1.7
$1.2
2019
10-yr
CAGR
$3.2*
7%
2009
2019
10-yr
CAGR
$14.3*
5%
2009
2019
10-yr
CAGR
$3.7*
5%
AUS + AUM
$2.4*
7%
AUM
$8.6
$2.3
* Record
1 For footnoted information, refer to slide 17 in the 2020 Asset & Wealth Management Investor Day presentation, which is available at jpmorganchase.com/corporate/investor-relations/event-calendar.htm.
• Considering M&A: While we always
prefer organic growth, there are
times when the industry changes
drastically, and we need to be on
top of it, which is what we are
doing now. We are very selective,
evaluating every M&A opportunity
for an adjacent capability. But most
important, we always prioritize our
clients’ needs and increasing share-
holder value.
Continuing to invest in the business
Our long-term commitment means
that we will continue to serve our
clients and invest in making our
business better for the future:
• Front office: We will continue to
hire top front office talent. Addi-
tionally, we will continue to invest
in our investment capabilities,
spending around $320 million on
AM research and making thou-
sands of company visits annually.
• Technology: We are creating and
leveraging tools, such as You Invest
and machine learning, to help our
clients and employees focus on
higher-value activities and make
better decisions. We always look to
simplify our production processes
so that 50+% of our technology
spend is dedicated to new and excit-
ing capabilities that deliver stronger
client outcomes.
• Environmental, Social & Governance
(ESG): With the help of industry
experts we have hired, we are
doing more than ever before,
focusing on our clients’ needs
and delivering across AM and
WM. In AM, we are working
toward 100% of AUM being ESG-
integrated while we launch new
ESG-focused WM strategies.
• China: We’ve been in China since the
1970s, and we are set to become the
first foreign asset manager to fully
own a Chinese fund manager with
China International Fund Manage-
ment. Our increased stake will fur-
ther solidify our position in China
and better address our clients’ needs.
As I write this letter, we are at an
unprecedented moment in time.
The global COVID-19 pandemic has
caused many people to suffer, created
historic volatility and changed how
we work and live. However, we can
take comfort in knowing that people
around the world are coming together
to respond to these challenges in
powerful and inspiring ways.
As a fiduciary, we view events that
completely disrupt an industry, coun-
try or way of living as the times
when active security selection (and
deselection) is of the utmost impor-
tance. With all three of these areas
being impacted concurrently in
2020, now is the most important time
to have portfolios actively managed.
In times like these, I’m also reminded
of how fortunate I am to be part of
JPMorgan Chase. For more than 200
years, we have been at our best in the
most difficult of times. I am proud of,
and inspired by, how our colleagues
and partners have responded to this
crisis, and I remain incredibly opti-
mistic about the firm’s future.
Mary Callahan Erdoes
CEO, Asset & Wealth Management
37
Corporate Responsibility
As the world faces the health and eco-
nomic consequences of COVID-19, the
challenges ahead are a stark reminder
that too many people already struggle
with economic insecurity every day.
This struggle will likely escalate as
this public health crisis continues to
disrupt the global economy.
Now more than ever, business must
step up and collaborate with local,
civic and government leaders to lend
our expertise toward solutions that
support our customers, communities
and employees in need. Business
Roundtable’s recent Statement
on the Purpose of a Corporation
made clear that America’s largest
companies must operate for the
benefit of all stakeholders, and we
must be there for them in both good
and challenging times.
For JPMorgan Chase, this means
bringing the full force of our
business to lift up those we serve
around the world, focused on where
we can deliver the greatest impact
and reinvigorate the global economy
to benefit more people.
In response to COVID-19 and in addi-
tion to efforts across the firm to sup-
port our customers and employees in
need, we made an initial $50 million
philanthropic commitment to help
those most affected by humanitarian
challenges, as well as sustainable and
innovative solutions to help small
businesses and underserved commu-
nities recover when the crisis subsides.
We will continue to focus on areas
where we can leverage our core busi-
ness, philanthropy and policy exper-
tise to help the most vulnerable in
the short and long term. In addition
to supporting small businesses, this
approach has effectively informed
and scaled solutions across pillars
that will remain critical to helping
3838
those most vulnerable as they face
financial hardship and uncertain
work opportunities, including neigh-
borhood development, financial
health, and jobs and skills.
Our ongoing efforts to help prepare
workers for the future of work
exemplify this strategy in practice.
As technology alters nearly every
facet of work, the education and
skills that people need are rapidly
changing. We have combined our
resources and reach to give people
the education and skills they need to
succeed. We have committed $350
million globally to support and scale
the most effective local initiatives to
equip people with in-demand skills.
This investment will be even more
critical given the recent unforeseen
disruption in the global economy and
the longer-term need to rebuild the
labor market. From Delhi to Detroit,
efforts focused on opportunity and
inclusivity, like career and technical
education in high schools to appren-
ticeships in growing industries, are
preparing more people to launch
successful careers. Additionally, in
partnership with our Human
Resources team, we’re redefining
how we train and develop our
employees by identifying future-
critical skills.
Scaling the most effective programs
and creating greater economic oppor-
tunity for the most vulnerable will
require thoughtful and effective pub-
lic policy. Last year, we launched the
JPMorgan Chase PolicyCenter to
advance policies at the federal, state
and local levels that strengthen com-
munities and change lives.
Business leadership in developing
policy solutions is critical as we work
to address the longer-term impact of
this crisis. We have a track record
of supporting policies that provide
economic opportunity to more
people, including by giving those
who have a criminal history a second
chance. We are advocating at the
state and federal levels for reforms
including “banning the box,”
establishing automatic record
expungement for certain offenses
and promoting fair-chance hiring
in the financial services sector. In
2019, our firm gave second chances
to 3,000 people in the U.S. with
criminal backgrounds.
As the world responds to this health
and economic crisis, we will need to
be nimble and lean into our strengths
to best support those who have been
most vulnerable to economic disrup-
tion. We will continue to apply what
we learn to scale solutions, deepen
our impact and support our custom-
ers, communities and colleagues.
Make no mistake: An inclusive
economy is a stronger economy,
and we all have an interest in that.
Peter L. Scher
Head of Corporate Responsibility and
Chairman of the Mid-Atlantic Region
Creating an economy that works for
more people
Companies like ours have a responsibility to
step up and help solve pressing challenges.
When communities do well, our firm does well.
This conviction is reflected in how JPMorgan
Chase does business every day. We’re investing
in our customers, employees and communities
around the world to break down barriers to
opportunity and create an economy that works
for more people.
We are combining our business and policy
expertise, sustainable business practices, data,
capital and global presence to advance solu-
tions worldwide. Our efforts focus on five key
areas where we believe we can make the
greatest impact: jobs and skills, neighborhood
development, small business expansion,
financial health and sustainability.
Advancing policy solutions
Public policy is a critical tool to scale the most
innovative and impactful approaches that bring
about lasting change. In 2019, we launched the
JPMorgan Chase PolicyCenter to develop and
advance sustainable, evidence-based policy
solutions that drive inclusive economic growth
in the U.S. and around the world.
Through the PolicyCenter, we are advancing pol-
icy changes to remove barriers to employment
for people with a criminal background and
advocating for policy solutions that will enable
more young people — particularly those who
lack opportunity — to access high-quality career-
readiness programs that pave the way to well-
paying jobs. In 2020, the PolicyCenter will
expand its focus to tackle additional issue areas.
Harnessing the power of data
Sound public policy is informed by timely,
granular data. The JPMorgan Chase Institute is
dedicated to delivering data-rich analyses and
expert insights for the public good. Leveraging
the firm’s unique assets and proprietary data,
the Institute helps policymakers, businesses
and nonprofit leaders use timely data and
thoughtful analyses to address critical issues
and advance global prosperity.
Our data allow us to better understand and
answer important questions about the finan-
cial health and resilience of U.S. consumers,
businesses and communities, as well as study
labor and financial markets. In 2019, the
Institute shared valuable insights across a
range of areas, including how student loan
payments affect the financial lives of 4.6
million families; how Miami’s small businesses
turn a profit yet have limited cash buffers;
and how families are weathering financial
volatility on a monthly basis.
Preparing workers for the future of work
Technological change continues to transform
the world of work. By 2030, more than 30% of
American workers and 375 million workers
globally will need to change jobs or upgrade
their skills significantly in order to advance
within the workforce. We are investing $350 mil-
lion over the next five years to equip young
people and adults with the skills they need to be
successful in a rapidly changing economy. We
are working to create greater economic mobility
and career pathways for workers both inside
our firm and in our communities. Our firm is
investing in our employees through long-term
training and reskilling efforts. We are also
making long-term commitments to boost career
readiness. We invested $7 million in Denver,
Colorado’s youth apprenticeship system to
develop strong connections between high
schools and higher education, focused on well-
paying careers in the region’s growing industries.
Boosting small business growth
Through our long-term investments around the
world, we have seen firsthand how underserved,
minority entrepreneurs have the power to lift
up entire communities. Yet these populations
often face unique barriers that inhibit their suc-
cess. This is why our efforts focus on unleashing
their power as drivers of opportunity. We have
taken many insights learned from innovative
models, such as the Entrepreneurs of Color
Fund (EOCF), and are applying them to more
communities. For example, in Paris, we’re
working with nonprofit partners to help local
and diverse entrepreneurs in Seine-Saint-Denis
grow their businesses. In London, we’re giving a
boost to female entrepreneurs by providing
technical support and hands-on mentorship.
Cultivating thriving neighborhoods
Housing that individuals and families can
afford, in proximity to economic opportunity
and basic services, is the cornerstone of vibrant
and resilient neighborhoods. Producing, pre-
serving and protecting affordable housing is
essential to our strategy for creating thriving
neighborhoods. For example, we’re investing
$22 million to develop and preserve affordable
housing in San Francisco and Oakland. This
investment, which combines long-term, low-cost
loans and philanthropic capital, will provide
more affordable housing and protect local
residents from being displaced.
Advancing financial health
Sound financial health is the foundation on
which strong and resilient households, com-
munities and economies are built. We’re using
our data, expertise and capital to improve the
financial health of customers, employees and
communities. In 2019, JPMorgan Chase made
a $25 million commitment to the Financial
Solutions Lab, which supports technology-
based innovations that improve financial
health. This investment builds on our five-year
collaboration with the Financial Solutions Lab,
which has supported nearly 40 innovative
financial technology companies (fintechs) that
have raised over $500 million in capital since
joining the program, saving U.S. residents
more than $1 billion.
Transitioning to a low-carbon economy
JPMorgan Chase is committed to creating a
more sustainable future for our employees,
customers and communities. Our firm has
committed to facilitate $200 billion in financing
in 2020 to support the objectives of the United
Nations’ Sustainable Development Goals, with
a focus on addressing climate change and
advancing social and economic development.
We are also promoting bipartisan, market-
based policy solutions — such as a carbon
tax-and-dividend framework for the U.S. —
to reduce carbon emissions and protect
consumers. And we’ve expanded restrictions
on financing for coal mining and coal-fired
power and prohibited financing for new oil
and gas development in the Arctic. Finally,
we’re on track to source renewable energy
for 100% of our own global power needs by
the end of 2020.
3939
2019 HIGHLIGHTS AND ACCOMPLISHMENTS
Awards and recognition
• Ranked Top 10 on Fortune magazine’s
World’s Most Admired Companies list
• Named to Fortune magazine’s Change the
World list — third consecutive year
• Named to the Military Times’ Best for Vets
Employers list
• Earned 100% on the Human Rights
Campaign’s Corporate Equality Index —
17th consecutive year
• Inducted into the Billion Dollar Roundtable
for attaining at least $1 billion in diverse
supplier spend
Accomplishments
• AdvancingCities: Bolstering the long-term
vitality of the world’s cities through low-
cost, long-term loans and philanthropic
investments:
— Detroit: Six years into our $200 million
commitment:
14,728 people participated in workforce
training programs; 2,002 units of afford-
able housing were created or preserved;
17,255 people received services to
improve their financial health; 3,855
jobs were created or retained; and 7,718
small businesses received capital or
technical assistance
— Chicago’s South and West sides: Two
years into our $40 million commitment:
6,362 people participated in workforce
training programs; 48 units of affordable
housing were created or preserved;
49,314 people received services to
improve their financial health; 2,323 jobs
were created or retained; and 3,305
small businesses received capital or
technical assistance
4040
across the U.S. As of 2019, the winners
raised more than $870 million in outside
capital and made over 35,000 loans worth
in excess of $475 million dedicated to low-
and moderate-income communities.
• Small business expansion: We expanded
EOCF to five metros — Detroit, Chicago, the
South Bronx, the Bay Area and the Greater
Washington region — providing minority
entrepreneurs with access to capital, educa-
tion and other resources. Through 2019, we
committed over $17 million through EOCF,
resulting in more than 475 loans, totaling
$17 million in deployed loan capital that
created or retained over 3,000 jobs.
• Sustainable finance: In 2019, we provided
over $3 billion for wind and solar projects.
Since 2003, JPMorgan Chase has committed
or arranged $24 billion in financing for wind,
solar and geothermal projects.
• Employees serving our communities:
— Nearly 73,000 employees volunteered
467,000 hours in 2019. This includes 325
employee volunteers from 14 countries
who contributed nearly 20,000 hours
working with about 70 nonprofits through
the JPMorgan Chase Service Corps.
— More than 400 employees contributed to
the Board Match program, which doubles
the impact of eligible employees’ dona-
tions to nonprofits on whose boards they
serve, resulting in the firm matching more
than $1.6 million to those organizations.
— In 2019, our firm and employees donated
more than $2.8 million to disaster relief
efforts around the globe.
— Greater Paris: First year of our
$30 million commitment:
4,000 people participated in career-
readiness programs; 12 small businesses
received capital or technical assistance
— Greater Washington region: Two years
into our $25 million commitment:
224 people participated in workforce
training programs; 955 units of afford-
able housing were created or preserved;
1,120 jobs were created or retained; and
2,092 small businesses received capital
or technical assistance
— Bay Area: New $75 million, five-year
commitment to help address housing
affordability and displacement challenges
in San Francisco and Oakland.
— The inaugural AdvancingCities competi-
tion — which sources innovative and
sustainable solutions that address press-
ing challenges facing communities —
awarded a total of $15 million to winning
cities: Chicago, Louisville, Miami, San
Diego and Syracuse.
• Jobs and skills: Over the past six years, we
have helped more than 150,000 people
across 37 countries develop in-demand skills
for jobs in growing industries.
• Financial health: In India, the Financial
Inclusion Lab has supported 18 fintechs,
which have expanded their services to reach
more than 900,000 people in underserved
communities in the country. Additionally, we
committed $15 million to the Catalyst Fund,
in partnership with UK Aid, to advance
financial inclusion in emerging markets.
• Neighborhood development: To date,
we’ve hosted six Partnerships for Raising
Opportunity in Neighborhoods (PRO
Neighborhoods) competitions, awarding
more than $131 million to over 95 Commu-
nity Development Financial Institutions
Table of contents
Financial:
40 Five-Year Summary of Consolidated Financial
Highlights
Audited financial statements:
41 Five-Year Stock Performance
142 Management’s Report on Internal Control Over
Financial Reporting
143 Report of Independent Registered Public Accounting
Management’s discussion and analysis:
Firm
42 Introduction
43 Executive Overview
146 Consolidated Financial Statements
151 Notes to Consolidated Financial Statements
48 Consolidated Results of Operations
52 Consolidated Balance Sheets and Cash Flows Analysis
55 Off–Balance Sheet Arrangements and Contractual
Cash Obligations
57 Explanation and Reconciliation of the Firm’s Use of
Non-GAAP Financial Measures and Key Performance
Measures
Supplementary information:
60 Business Segment Results
287 Selected quarterly financial data (unaudited)
79 Firmwide Risk Management
288
–
Distribution of assets, liabilities and stockholders’
equity; interest rates and interest differentials
84 Strategic Risk Management
293 Glossary of Terms and Acronyms
85 Capital Risk Management
93 Liquidity Risk Management
100 Credit and Investment Risk Management
119 Market Risk Management
127 Country Risk Management
129 Operational Risk Management
136 Critical Accounting Estimates Used by the Firm
139 Accounting and Reporting Developments
141 Forward-Looking Statements
Note:
The following pages from JPMorgan Chase & Co.’s 2019
Form 10-K are not included herein: 1-38, 300-311
JPMorgan Chase & Co./2019 Form 10-K
39
Financial
FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL HIGHLIGHTS (unaudited)
As of or for the year ended December 31,
(in millions, except per share, ratio, headcount data and where otherwise noted)
Selected income statement data
Total net revenue
Total noninterest expense
Pre-provision profit
Provision for credit losses
Income before income tax expense
Income tax expense
Net income
Earnings per share data
Net income: Basic
Diluted
Average shares: Basic
Diluted
Market and per common share data
Market capitalization
Common shares at period-end
Book value per share
Tangible book value per share (“TBVPS”)(a)
Cash dividends declared per share
Selected ratios and metrics
Return on common equity (“ROE”)
Return on tangible common equity (“ROTCE”)(a)
Return on assets (“ROA”)
Overhead ratio
Loans-to-deposits ratio
Liquidity coverage ratio (“LCR”) (average)(b)
Common equity tier 1 (“CET1”) capital ratio(c)
Tier 1 capital ratio(c)
Total capital ratio(c)
Tier 1 leverage ratio(c)
Supplementary leverage ratio (“SLR”)(d)
Selected balance sheet data (period-end)
Trading assets
Investment securities
Loans
Core Loans
Average core loans
Total assets
Deposits
Long-term debt
Common stockholders’ equity
Total stockholders’ equity
Headcount
Credit quality metrics
Allowance for credit losses
Allowance for loan losses to total retained loans
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(e)
Nonperforming assets
Net charge-offs
Net charge-off rate
2019
2018
2017
2016
2015
$ 115,627
65,497
50,130
5,585
44,545
8,114
36,431
$
$ 109,029
63,394
45,635
4,871
40,764
8,290
32,474
$
$ 100,705
59,515
41,190
5,290
35,900
11,459
24,441
$
$
10.75
10.72
3,221.5
3,230.4
$
9.04
9.00
3,396.4
3,414.0
$
6.35
6.31
3,551.6
3,576.8
$
(f) $
$
96,569
56,672
39,897
5,361
34,536
9,803
24,733
6.24
6.19
3,658.8
3,690.0
$
$
$
94,440
59,911
34,529
3,827
30,702
6,260
24,442
6.05
6.00
3,741.2
3,773.6
$ 429,913
3,084.0
75.98
60.98
3.40
$ 319,780
3,275.8
70.35
56.33
2.72
$ 366,301
3,425.3
67.04
53.56
2.12
$ 307,295
3,561.2
64.06
51.44
1.88
$ 241,899
3,663.5
60.46
48.13
1.72
15%
19
1.33
57
61
116
12.4
14.1
16.0
7.9
6.3%
13%
17
1.24
58
67
113
12.0
13.7
15.5
8.1
6.4%
10%
12
0.96
59
64
119
12.2
13.9
15.9
8.3
6.5%
10%
13
1.00
59
65
N/A
12.3
14.0
15.5
8.4
6.5%
11%
13
0.99
63
65
N/A
11.8
13.5
15.1
8.5
6.5%
$ 411,103
398,239
959,769
916,144
906,606
2,687,379
1,562,431
291,498
234,337
261,330
256,981
$ 413,714
261,828
984,554
931,856
885,221
2,622,532
1,470,666
282,031
230,447
256,515
256,105
$ 381,844
249,958
930,697
863,683
829,558
2,533,600
1,443,982
284,080
229,625
255,693
252,539
$ 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
$
14,314
$
14,500
$
14,672
$
14,854
$
14,341
$
1.39%
1.31
4,497
5,629
0.60%
$
1.39%
1.23
5,190
4,856
0.52%
$
1.47%
1.27
6,426
5,387
0.60% (g)
$
1.55%
1.34
7,535
4,692
0.54%
$
1.63%
1.37
7,034
4,086
0.52%
(a) TBVPS and ROTCE are each non-GAAP financial measures. Refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key
Performance Measures on pages 57–59 for a further discussion of these measures.
(b) For the years ended December 31, 2019, 2018 and 2017, the percentage represents the Firm’s reported average LCR for the three months ended December
31, 2019, 2018 and 2017, which became effective April 1, 2017. Refer to Liquidity Risk Management on pages 93–98 for additional information on the
Firm’s LCR.
(c) The Basel III capital rules became fully phased-in effective January 1, 2019. Prior to this date, the required capital measures were subject to the transitional
rules which, as of December 31, 2018, were the same on a fully phased-in and transitional basis. Refer to Capital Risk Management on pages 85–92 for
additional information on these measures.
(d) The Basel III rule for the SLR became fully phased-in effective January 1, 2018. Prior to this date, the SLR was calculated under the transitional rules. Refer to
Capital Risk Management on pages 85–92 for additional information on these measures.
(e) This ratio is a non-GAAP financial measure as it excludes the impact of residential real estate purchased credit-impaired (“PCI”) loans. Refer to Explanation
and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 57–59, and the Allowance for credit losses on
pages 116–117 for further discussion of this measure.
(f) In December 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law. The Firm’s results for the year ended December 31, 2017 included a $2.4 billion
decrease to net income as a result of the enactment of the TCJA. Refer to Note 25 for additional information related to the impact of the TCJA.
(g) Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for the year ended December 31, 2017 would have
been 0.55%.
40
JPMorgan Chase & Co./2019 Form 10-K
FIVE-YEAR STOCK PERFORMANCE
The following table and graph compare the five-year cumulative total return for JPMorgan Chase & Co. (“JPMorgan Chase” or
the “Firm”) common stock with the cumulative return of the S&P 500 Index, the KBW Bank Index and the S&P Financials 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 Financials
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, 2014, in JPMorgan Chase common
stock and in each of the above indices. The comparison assumes that all dividends were reinvested.
December 31,
(in dollars)
JPMorgan Chase
KBW Bank Index
S&P Financials Index
S&P 500 Index
December 31,
(in dollars)
2014
2015
2016
2017
2018
2019
$ 100.00
$ 108.37
$ 145.82
$ 184.81
$ 172.52
$ 254.07
100.00
100.00
100.00
100.48
98.44
101.37
129.13
120.38
113.49
153.14
147.58
138.26
126.02
128.33
132.19
171.54
169.52
173.80
JPMorgan Chase & Co./2019 Form 10-K
41
Management’s discussion and analysis
The following is Management’s discussion and analysis of the financial condition and results of operations (“MD&A”) of JPMorgan
Chase for the year ended December 31, 2019. The MD&A is included in both JPMorgan Chase’s Annual Report for the year ended
December 31, 2019 (“Annual Report”) and its Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Form
10-K”) filed with the Securities and Exchange Commission (“SEC”). Refer to the Glossary of terms and acronyms on pages 293–299
for definitions of terms and acronyms used throughout the Annual Report and the 2019 Form 10-K.
The MD&A contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of
1995. These statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to
significant risks and uncertainties. Refer to Forward-looking Statements on page 141) and Part 1, Item 1A: Risk factors in the
2019 Form 10-K on pages 6–28 for a discussion of certain of those risks and uncertainties and the factors that could cause
JPMorgan Chase’s actual results to differ materially because of those risks and uncertainties.
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”).
Refer to Business Segment Results on pages 60–78, and
Note 32 for a description of the Firm’s business segments,
and the products and services they provide to their
respective client bases.
INTRODUCTION
JPMorgan Chase & Co. (NYSE: JPM), 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; JPMorgan Chase had
$2.7 trillion in assets and $261.3 billion in stockholders’
equity as of December 31, 2019. 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 globally many of the world’s most prominent
corporate, institutional and government clients.
JPMorgan Chase’s principal bank subsidiary is JPMorgan
Chase Bank, National Association (“JPMorgan Chase Bank,
N.A.”), a national banking association with U.S. branches in
38 states and Washington, D.C. as of December 31, 2019.
JPMorgan Chase’s principal nonbank subsidiary is J.P.
Morgan Securities LLC (“J.P. Morgan 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 outside the U.S. is J.P. Morgan Securities plc, a
U.K.-based subsidiary of JPMorgan Chase Bank, N.A.
42
JPMorgan Chase & Co./2019 Form 10-K
EXECUTIVE OVERVIEW
This executive overview of the MD&A highlights selected
information and does not contain all of the information that is
important to readers of this 2019 Form 10-K. 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 (“LOBs”), this 2019 Form 10-K
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
2019
2018
Change
Total net revenue
$115,627
$109,029
6%
Total noninterest expense
Pre-provision profit
Provision for credit losses
Net income
65,497
50,130
5,585
63,394
45,635
4,871
36,431
32,474
Diluted earnings per share
10.72
9.00
Selected ratios and metrics
Return on common equity
Return on tangible common equity
15%
19
13%
17
Book value per share
$
75.98
$
70.35
Tangible book value per share
60.98
56.33
3
10
15
12
19
8
8
Capital ratios(a)
CET1
Tier 1 capital
Total capital
12.4%
12.0%
14.1
16.0
13.7
15.5
(a) The Basel III capital rules became fully phased-in effective January 1, 2019.
Prior to this date, the required capital measures were subject to the
transitional rules which, as of December 31, 2018, were the same on a fully
phased-in and transitional basis. Refer to Capital Risk Management on
pages 85–92 for additional information on these measures.
Comparisons noted in the sections below are for the full year
of 2019 versus the full year of 2018, unless otherwise
specified.
Firmwide overview
JPMorgan Chase reported strong results for 2019, with
record revenue, net income and EPS of $115.6 billion,
$36.4 billion and $10.72 per share, respectively. The Firm
reported ROE of 15% and ROTCE of 19%.
• Net income was $36.4 billion, up 12%.
• Total net revenue increased 6%. Net interest income was
$57.2 billion, up 4%, driven by continued balance sheet
growth and mix as well as higher average short-term
rates, partially offset by higher deposit pay rates.
Noninterest revenue was $58.4 billion, up 8%, driven by
growth across CCB as well as higher Markets revenue in
CIB. Noninterest revenue included approximately $500
million of gains on the sales of certain mortgage loans in
Home Lending.
• Noninterest expense was $65.5 billion, up 3%, driven by
continued investments across the businesses including
employees, technology, real estate, and marketing, as
well as higher volume- and revenue-related expenses,
including depreciation expense on auto lease assets,
partially offset by lower FDIC charges.
• Income tax expense included $1.1 billion of tax benefits
related to the resolution of certain tax audits.
• The provision for credit losses was $5.6 billion, up $714
million, reflecting increases in both wholesale and
consumer. The increase in the wholesale provision
reflects additions to the allowance for credit losses in the
current year on select client downgrades. The prior year
reflected a benefit related to a single name in the Oil &
Gas portfolio and higher recoveries. The increase in the
consumer provision reflects higher net charge-offs and
additions to the allowance for loan losses in Card,
predominantly offset by a higher reduction in the
allowance for loan losses in Home Lending. The prior year
also benefited from larger recoveries in Home Lending on
loan sales.
• The total allowance for credit losses was $14.3 billion at
December 31, 2019, and the Firm had a loan loss
coverage ratio of 1.39%, flat compared with the prior
year; excluding the PCI portfolio, the equivalent ratio was
1.31% compared with 1.23% in the prior year. The
Firm’s nonperforming assets totaled $4.5 billion at
December 31, 2019, a decrease from $5.2 billion in the
prior year, primarily reflecting paydowns in the wholesale
portfolio and improved credit performance in the
consumer portfolio.
• Firmwide average total loans of $955 billion were up 1%,
or up 3% excluding the impact of certain loan sales in
Home Lending.
Selected capital-related metrics
• The Firm’s CET1 capital was $188 billion, and the
Standardized and Advanced CET1 ratios were 12.4% and
13.4%, respectively.
• The Firm’s SLR was 6.3%.
• The Firm continued to grow tangible book value per share
(“TBVPS”), ending 2019 at $60.98, up 8%.
ROTCE and TBVPS are non-GAAP financial measures. Refer
to Explanation and Reconciliation of the Firm’s Use of Non-
GAAP Financial Measures and Key Performance Measures
on pages 57–59, and Capital Risk Management on pages
85–92 for a further discussion of each of these measures.
JPMorgan Chase & Co./2019 Form 10-K
43
Management’s discussion and analysis
Business segment highlights
Selected business metrics for each of the Firm’s four LOBs
are presented below for the full year of 2019.
CCB
ROE
31%
• Record revenue of $55.9 billion, up 7%;
record net income of $16.6 billion, up 12%
• Average loans down 3%; Home Lending
loans down 9% impacted by loan sales;
Card loans up 7%
• Client investment assets up 27%; average
deposits up 3%
• Credit card sales volume up 10% and
merchant processing volume up 11%
• Record revenue of $38.3 billion, up 5%;
record net income of $11.9 billion, up 1%
• Maintained #1 ranking for Global
CIB
ROE
14%
Investment Banking fees with 9.0% wallet
share, up 40 basis points (“bps”)
• Investment Banking revenue of $7.2
billion, up 3%
• Total Markets revenue of $20.9 billion, up
7%
Credit provided and capital raised
JPMorgan Chase continues to support consumers,
businesses and communities around the globe. The Firm
provided new and renewed credit and raised capital for
wholesale and consumer clients during 2019, consisting of:
$2.3
trillion
$262
billion
$33
billion
$860
billion
Total credit provided and capital raised
Credit for consumers
Credit for U.S. small businesses
Credit for corporations
$1.0
trillion
Capital raised for corporate clients and
non-U.S. government entities
CB
ROE
17%
AWM
ROE
26%
• Record Investment Banking revenue of
$2.7 billion, up 10%
• Average loans and deposits each up 1%
• Strong credit quality with NCOs of 8 bps
$79
billion
Credit and capital raised for nonprofit and
U.S. government entities(a)
(a) Includes states, municipalities, hospitals and universities.
• Record revenue of $14.3 billion, up 2%
• Average loans up 8%; average deposits up
2%
• Assets under management (“AUM”) of $2.4
trillion, up 19%
Refer to the Business Segment Results on pages 60–61 for a
detailed discussion of results by business segment.
44
JPMorgan Chase & Co./2019 Form 10-K
Recent events
On February 25, 2020, JPMorgan Chase announced
additional steps in its initiatives to address climate change
and further promote sustainable development. This year,
JPMorgan Chase commits to facilitate $200 billion to
advance the objectives of the United Nations Sustainable
Development Goals (SDGs), including $50 billion toward
green initiatives. The new commitment is intended to
address a broader set of challenges in the developing world
and developed countries where social and economic
development gaps persist. As part of this commitment, the
Firm had previously announced the creation of the J.P.
Morgan Development Finance Institution to expand
its financing activities for developing countries.
On December 18, 2019, JPMorgan Chase announced that
the China Securities Regulatory Commission has approved
the application of J.P. Morgan Securities (China) Company
Limited for a Securities and Futures Business Permit. This
approval allows J.P. Morgan’s majority-owned securities
company in China to commence operations.
On December 11, 2019, JPMorgan Chase announced certain
organizational changes to its U.S. Wealth Management
business. The Firm’s advisors across Chase Wealth
Management and J.P. Morgan Securities will become one
business unit – U.S. Wealth Management.
2020 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. Refer to Forward-Looking Statements on page
141, and the Risk Factors section on pages 6–28 of the Firm’s
2019 Form 10-K, for a further discussion of certain of those
risks and uncertainties and the other factors that could cause
JPMorgan Chase’s actual results to differ materially because
of those risks and uncertainties. There is no assurance that
actual results in 2019 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 2020 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 factors will affect the performance of the Firm and
its LOBs. The Firm will continue to make appropriate
adjustments to its businesses and operations in response to
ongoing developments in the business, economic,
regulatory, and legal environments in which it operates.
Firmwide full-year 2020
• Management expects full-year 2020 net interest income,
on a managed basis, to be approximately $57 billion,
market dependent, reflecting the impact of lower interest
rates offset by balance sheet growth and mix.
• The Firm continues to take a disciplined approach to
managing expenses, while investing for growth and
innovation. As a result, management expects Firmwide
adjusted expense for the full-year 2020 to be
approximately $67 billion.
• The Firm continues to experience charge-off rates at very
low levels, reflecting favorable credit trends across the
consumer and wholesale portfolios. Management expects
full-year 2020 net charge-offs to be just over $6 billion,
an increase from prior year, driven by Card on growth and
mix.
• Management expects the full-year 2020 effective tax
rate, on a reported basis, to be approximately 20%, and
approximately 5 to 7 percentage points higher on a
managed basis.
First-quarter 2020
• Management expects first-quarter 2020 net interest
income, on a managed basis, to be approximately $14.2
billion, market dependent.
• Firmwide adjusted expense for the first-quarter 2020 is
expected to be approximately $17 billion.
• The effective tax rate, on a reported basis, for the first
quarter of 2020 is expected to be approximately 17%
largely as a result of tax benefits related to the vesting of
employee share-based awards.
• Markets revenue for the first-quarter of 2020 is expected
to be higher when compared with the prior-year quarter
by mid-teens percentage points, depending on market
conditions.
JPMorgan Chase & Co./2019 Form 10-K
45
The Firm is focused on the following key areas to ensure
continuation of service to its EU clients: regulatory and legal
entity readiness; client readiness; and business and
operational readiness. Following are the significant updates.
Regulatory and legal entity readiness
The Firm’s legal entities in Germany, Luxembourg and
Ireland are now prepared and licensed to provide services
to the Firm’s EU clients, including a branch network
covering locations such as Paris, Madrid and Milan.
Client readiness
The agreements covering a significant proportion of the
Firm’s EU client activity have been re-documented to other
EU legal entities to help facilitate continuation of service.
The Firm continues to actively engage with clients that have
not completed re-documentation to ensure preparedness
both in terms of documentation and any operational
changes that may be required. The Firm may be negatively
impacted by any operational disruption stemming from
delays of or lapses in the readiness of other market
participants or market infrastructures.
Business and operational readiness
The Firm relocated certain employees during 2019 and
added specific employees to certain EU legal entities, where
appropriate, to support the level of client activity that has
been migrated. The Firm’s longer term staffing plan will
develop in accordance with the increasing level of activity in
the EU entities and alongside the future legal and
regulatory framework between the U.K. and EU. The Firm
continues to closely monitor legislative developments, and
its implementation plan allows for flexibility given the
continued uncertainties.
Management’s discussion and analysis
Business Developments
Departure of the U.K. from the EU
The U.K.’s departure from the EU, which is commonly
referred to as “Brexit,” occurred on January 31, 2020.
Following this departure, the U.K. has entered a transition
period that is scheduled to expire on December 31, 2020.
The purpose of the transition period is to enable the U.K.
and the EU to negotiate the terms of their future
relationship. The transition period can be extended, but
both sides need to agree to extend it by July 1, 2020. It is
not clear whether the terms of the future relationship can
be agreed before the end of 2020, and so significant
uncertainty remains about the relationship between the
U.K. and the EU after the end of the transition period.
The Firm has a long-standing presence in the U.K., which
currently serves as the regional headquarters of the Firm’s
operations in over 30 countries across Europe, the Middle
East, and Africa (“EMEA”). In the region, the Firm serves
clients and customers across its business segments. The
Firm has approximately 17,000 employees in the U.K., of
which approximately two-thirds are in London, with
operational and technology support centers in locations
such as Bournemouth, Glasgow and Edinburgh.
In light of the ongoing uncertainty, the Firm continues to
execute the relevant elements of its Firmwide Brexit
Implementation program with the objective of being able to
continue delivering the Firm’s capabilities to its EU clients.
The program covers strategic implementation across all
impacted businesses and functions and includes an ongoing
assessment of implementation risks including political, legal
and regulatory risks and plans for addressing and mitigating
those risks under any scenario, including where the U.K. and
the EU fail to reach an agreement on their future
relationship by the end of 2020 and the transition period is
not extended.
The principal operational risks associated with Brexit
continue to be the potential for disruption caused by
insufficient preparations by individual market participants
or in the overall market ecosystem, and risks related to
potential disruptions of connectivity among market
participants. There continues to be regulatory and legal
uncertainty with respect to various matters including
contract continuity, access by market participants to
liquidity in certain products, such as products subject to
potentially conflicting U.K. and EU regulatory requirements
in relation to eligible trading venues, including certain
cross-border derivative contracts and equities that are
listed on both U.K. and EU exchanges, as well as ongoing
access to central banks. It is uncertain as to whether any of
these issues will be resolved in the negotiations, or whether
any of the previous temporary solutions will be available at
the end of the transition period to mitigate these risks.
46
JPMorgan Chase & Co./2019 Form 10-K
IBOR transition
As a result of the expected discontinuation of certain
unsecured benchmark interest rates, including the London
Interbank Offered Rate (“LIBOR”) and other Interbank
Offered Rates (“IBORs”) regulators and market participants
in various jurisdictions have been working to identify
alternative reference rates that are compliant with the
International Organization of Securities Commission’s
standards for transaction-based benchmarks. In the U.S.,
the Alternative Reference Rates Committee (the “ARRC”), a
group of market and official sector participants, identified
the Secured Overnight Financing Rate (“SOFR”) as its
recommended alternative benchmark rate. Other
alternative reference rates have been recommended in
other jurisdictions. Industry sources estimate that IBORs are
referenced in approximately $400 trillion of wholesale and
consumer transactions globally spanning a broad range of
financial products and contracts. The Firm has a significant
number of IBOR-referenced contracts, including derivatives,
bilateral and syndicated loans, securities, and debt and
preferred stock issuances.
To manage the risks associated with the transition from
IBORs, JPMorgan Chase established a Firmwide LIBOR
Transition program in early 2018 that is overseen by the
Firmwide CFO and the CEO of the CIB. When assessing risks
associated with IBOR transition, the program monitors a
variety of scenarios, including disorderly transition,
measured/regulated transition considering volatility along
the SOFR curve and clearinghouse plans to change their
discount rates to alternative reference rates, and IBOR in
continuity beyond December 2021.
The Firm continues to monitor and facilitate the transition
by clients from IBOR-referencing products to products
referencing alternative reference rates. The Firm’s
transition efforts to date include:
• ongoing implementation of new fallback provisions that
provide for the determination of replacement rates for
LIBOR-linked syndicated loans, securitizations, floating
rate notes and bi-lateral business loans based on the
recommendations of the ARRC, and introducing SOFR as a
replacement benchmark rate for certain of these
products;
• planning to adopt further fallback provisions
recommended by the ARRC, including for residential
ARMs, in conjunction with the adoption of these
provisions by market participants; and
• completing its first bilateral SOFR loan in the U.S. and
executing its first interest rate swap linked to the Euro
short-term rate in Europe.
Market participants are continuing to work closely with the
public sector as part of National Working Groups (“NWGs”)
towards the common goal of facilitating an orderly
transition from IBORs. Current NWG efforts include the
continued development of cash and derivative markets
referencing alternative reference rates, as well as the
development of industry consensus for fallback language
that would determine the replacement rates to use in
various IBOR-indexed contracts when a particular IBOR
ceases to be produced. The Firm is monitoring and
providing input in the development of the IBOR Fallbacks
Protocol of the International Swaps and Derivatives
Association (“ISDA”), which is expected to be published in
2020, and is encouraging its clients to actively participate
in ISDA and industry consultations in order to ensure the
broadest possible industry engagement in and
understanding of IBOR transition. The Firm continues to
monitor the development of alternative reference rates in
other jurisdictions with NWGs.
The Financial Accounting Standards Board (“FASB”) has
confirmed that it will issue an accounting standards update
in 2020 providing optional expedients and exceptions for
applying generally accepted accounting principles to
contracts and hedge relationships affected by benchmark
reform. The International Accounting Standards Board
(“IASB”) has made amendments to IFRS hedge accounting
requirements that provide relief to market participants on
the accounting treatment of IBOR-linked products in the
period leading up to the expected cessation of IBORs and is
also considering further relief for the accounting impacts
upon transition to an alternative reference rate.
The U.S. Treasury Department has issued proposed
regulations that are intended to avoid adverse tax
consequences in connection with the transition from IBORs.
Under the proposed regulations, amendments to contracts
meeting certain requirements will not be treated as taxable
for U.S. federal income tax purposes.
The Firm continues to monitor the transition relief being
considered by the FASB, IASB and U.S. Treasury Department
regarding accounting and tax implications of reference rate
reform. The Firm also continues to develop and implement
plans to appropriately mitigate the risks associated with
IBOR discontinuation as identified alternative reference
rates develop and liquidity in these rates increases. The
Firm will continue to engage with regulators and clients as
the transition from IBORs progresses.
JPMorgan Chase & Co./2019 Form 10-K
47
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 two-year period ended December 31, 2019,
unless otherwise specified. Refer to Consolidated Results of
Operations on pages 48-51 of the Firm’s Annual Report on
Form 10-K for the year ended December 31, 2018 (the
“2018 Form 10-K”) for a discussion of the 2018 versus 2017
results. Factors that relate primarily to a single business
segment are discussed in more detail within that business
segment. Refer to pages 136–138 for a discussion of the
Critical Accounting Estimates Used by the Firm that affect the
Consolidated Results of Operations.
Effective January 1, 2018, the Firm adopted several
accounting standards. Certain of the accounting standards
were applied retrospectively and, accordingly, prior period
amounts were revised. Refer to Note 1 for additional
information.
Revenue
Year ended December 31,
(in millions)
2019
2018
2017
Investment banking fees
$
7,501 $
7,550 $
7,412
Principal transactions
14,018
12,059
11,347
Lending- and deposit-related fees
6,369
6,052
5,933
Asset management, administration
and commissions
Investment securities gains/(losses)
Mortgage fees and related income
Card income
Other income(a)
Noninterest revenue
Net interest income
Total net revenue
17,165
17,118
16,287
258
2,036
5,304
5,731
58,382
57,245
(395)
(66)
1,254
4,989
5,343
53,970
55,059
1,616
4,433
3,646
50,608
50,097
$ 115,627 $ 109,029 $ 100,705
(a) Included operating lease income of $5.5 billion, $4.5 billion and $3.6
billion for the years ended December 31, 2019, 2018 and 2017,
respectively.
2019 compared with 2018
Investment banking fees were relatively flat, reflecting in
CIB:
• higher debt underwriting fees driven by wallet share
gains and increased activity in investment-grade and
high-yield bonds,
offset by
• lower advisory fees driven by a decline in industry-wide
fees despite wallet share gains.
Refer to CIB segment results on pages 66-70 and Note 6 for
additional information.
Principal transactions revenue increased reflecting:
• higher revenue in CIB, which included a gain on the initial
public offering (“IPO”) of Tradeweb in the second quarter
of 2019. Excluding this gain, the increase in CIB’s revenue
was driven by:
– higher revenue in Fixed Income Markets, reflecting an
overall strong performance, primarily in agency
mortgage trading within Securitized Products; the
increase in 2019 also reflected the impact of
challenging market conditions in Credit in the fourth
quarter of 2018; and
– the favorable impact of tighter funding spreads on
derivatives in Credit Adjustments & Other.
The net increase in CIB was partially offset by
• lower revenue in AWM related to hedges on certain
investments. The impact of these hedges was more than
offset by higher valuation gains on the related
investments reflected in other income
Principal transactions revenue in Corporate was relatively
flat, reflecting the combined impact of losses on cash
deployment transactions in Treasury and CIO, which were
more than offset by the related net interest income earned
on those transactions, and lower net markdowns on certain
legacy private equity investments.
Principal transactions revenue in CIB may in certain cases
have offsets across other revenue lines, including net
interest income. The Firm assesses its CIB Markets business
performance on a total revenue basis.
Refer to CIB, AWM and Corporate segment results on pages
66-70, pages 74–76 and pages 77–78, respectively, and
Note 6 for additional information.
Lending- and deposit-related fees increased primarily due
to higher deposit-related fees in CCB, reflecting growth in
customer accounts and transactions, and higher lending-
related commitment fees in the wholesale businesses.
Refer to CCB, CIB and CB segment results on pages 62–65,
pages 66-70 and pages 71–73, respectively, and Note 6 for
additional information.
Asset management, administration and commissions
revenue increased primarily due to higher asset
management fees from growth in client investment assets
in CCB.
Refer to CCB and AWM segment results on pages 62–65 and
pages 74–76, respectively, and Note 6 for additional
information.
Investment securities gains/(losses) in both periods reflect
the impact of repositioning the investment securities
portfolio. Refer to Corporate segment results on pages 77–
78 and Note 10 for additional information.
48
JPMorgan Chase & Co./2019 Form 10-K
Net interest income increased driven by continued balance
sheet growth and changes in mix, as well as higher average
short-term rates, partially offset by higher rates paid on
deposits.
The Firm’s average interest-earning assets were $2.3
trillion, up $133 billion, and the yield was 3.61%, up 14
bps. The net yield on these assets, on an FTE basis, was
2.46%, a decrease of 6 bps. The net yield excluding CIB
Markets was 3.27%, up 2bps.
Net yield excluding CIB Markets is a non-GAAP financial
measure. Refer to Explanation and Reconciliation of the
Firm’s Use of Non-GAAP Financial Measures and Key
Performance Measures on pages 57–59 for a further
discussion of this measure.
Mortgage fees and related income increased driven by:
• higher net mortgage production revenue reflecting
approximately $500 million of gains on sales of certain
loans, as well as higher mortgage production volumes
and margins,
partially offset by
• lower net mortgage servicing revenue driven by lower
operating revenue reflecting faster prepayment speeds
on lower rates and the impact of reclassifying certain
loans to held-for-sale.
Refer to CCB segment results on pages 62–65, Note 6 and
15 for further information.
Card income increased as the prior year included an
adjustment of approximately $330 million to the credit card
rewards liability. Excluding this item, Card income was
relatively flat. Refer to CCB segment results on pages 62–65
and Note 6 for further information.
Other income increased reflecting:
• higher operating lease income from growth in auto
operating lease volume in CCB, and
• higher investment valuation gains in AWM, which were
largely offset by the impact of the related hedges that
were reflected in principal transactions revenue,
largely offset by
• lower other income in CIB largely related to increased
amortization on a higher level of alternative energy
investments. The increased amortization was more than
offset by lower income tax expense from the associated
tax credits.
The prior year included:
• $505 million of fair value gains related to the adoption in
the first quarter of 2018 of the recognition and
measurement accounting guidance for certain equity
investments previously held at cost.
Refer to Note 6 for further information.
JPMorgan Chase & Co./2019 Form 10-K
49
Management’s discussion and analysis
Provision for credit losses
Year ended December 31,
(in millions)
2019
2018
Consumer, excluding credit card
$
(383) $
(63) $
Credit card
Total consumer
Wholesale
5,348
4,965
620
4,818
4,755
116
2017
620
4,973
5,593
(303)
Total provision for credit losses
$
5,585
$
4,871
$
5,290
2019 compared with 2018
The provision for credit losses increased driven by both the
wholesale and consumer portfolios.
The increase in the wholesale provision reflects additions to
the allowance for credit losses in the current year on select
client downgrades. The prior year reflected a benefit related
to a single name in the Oil & Gas portfolio and higher
recoveries.
The increase in the total consumer provision reflects:
• an increase in credit card due to
– higher net charge-offs on loan growth, in line with
expectations, and
– a $500 million addition to the allowance for loan losses
reflecting loan growth and higher loss rates, as newer
vintages season and become a larger part of the
portfolio, compared to a $300 million addition in the
prior year
largely offset by
• a decrease in consumer, excluding credit card, in CCB due
to
– a $650 million reduction in the allowance for loan
losses in the purchase credit-impaired (“PCI”)
residential real estate portfolio, reflecting continued
improvement in home prices and delinquencies, and a
$100 million reduction in the allowance for loan losses
in the non credit-impaired residential real estate
portfolio, compared to a $250 million reduction in the
PCI residential real estate portfolio in the prior year,
and
– a $50 million reduction in the allowance for loan losses
in the business banking portfolio
partially offset by
– lower net recoveries in the residential real estate
portfolio as the prior year benefited from larger
recoveries on loan sales.
Refer to the segment discussions of CCB on pages 62–65,
CIB on pages 66-70, CB on pages 71–73, the Allowance for
Credit Losses on pages 116–117 and Note 13 for further
discussion of the credit portfolio and the allowance for
credit losses.
50
JPMorgan Chase & Co./2019 Form 10-K
Income tax expense
Year ended December 31,
(in millions, except rate)
Income before income tax
expense
Income tax expense
Effective tax rate
2019
2018
2017
$ 44,545
$ 40,764
$ 35,900
8,114
8,290
11,459
18.2%
20.3%
31.9%
2019 compared with 2018
The effective tax rate decreased due to the recognition of
$1.1 billion of tax benefits related to the resolution of
certain tax audits, and changes in the mix of income and
expense subject to U.S. federal, and state and local taxes.
The decrease was partially offset by lower tax benefits
related to the vesting of employee share-based awards. In
addition, the prior year included a $302 million net tax
benefit resulting from changes in the estimates under the
TCJA related to the remeasurement of certain deferred
taxes and the deemed repatriation tax on non-U.S. earnings.
Refer to Note 25 for further information.
Noninterest expense
Year ended December 31,
(in millions)
2019
2018
2017
Compensation expense
$ 34,155 $ 33,117 $ 31,208
Noncompensation expense:
Occupancy
4,322
3,952
3,723
Technology, communications and
equipment
Professional and outside services
Marketing
Other(a)(b)
9,821
8,533
3,579
5,087
8,802
8,502
3,290
5,731
7,715
7,890
2,900
6,079
Total noncompensation expense
31,342
30,277
28,307
Total noninterest expense
$ 65,497 $ 63,394 $ 59,515
(a) Included Firmwide legal expense/(benefit) of $239 million, $72
million and $(35) million for the years ended December 31, 2019,
2018 and 2017, respectively.
(b) Included FDIC-related expense of $457 million, $1.2 billion and $1.5
billion for the years ended December 31, 2019, 2018 and 2017,
respectively.
2019 compared with 2018
Compensation expense increased driven by investments
across the businesses, including front office, as well as
technology staff hires.
Noncompensation expense increased as a result of:
• higher investments across the businesses, including
technology, real estate and marketing
• higher volume-related expense, including depreciation
from growth in auto lease assets in CCB, and brokerage
expense in certain businesses in CIB
• higher legal expense, and
• higher pension costs due to changes to actuarial
assumptions and estimates,
largely offset by
• lower FDIC charges as a result of the elimination of the
surcharge at the end of the third quarter of 2018
• the impact of efficiencies
• lower other regulatory-related assessments in CIB.
The prior year included a loss of $174 million on the
liquidation of a legal entity in Corporate recorded in other
expense. Refer to Note 24 for additional information on the
liquidation of a legal entity.
JPMorgan Chase & Co./2019 Form 10-K
51
Management’s discussion and analysis
CONSOLIDATED BALANCE SHEETS AND CASH FLOWS ANALYSIS
Consolidated balance sheets analysis
The following is a discussion of the significant changes between December 31, 2019 and 2018.
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
Investment 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
decreased primarily as a result of a shift in the deployment
of cash to investment securities, and net maturities of
short-term borrowings and long term debt in Treasury and
CIO, partially offset by an increase in deposits. Deposits with
banks reflect the Firm’s placements of its excess cash with
various central banks, including the Federal Reserve Banks.
Federal funds sold and securities purchased under resale
agreements decreased as a result of client-driven market-
making activities in Fixed Income Markets in CIB and a shift
in the deployment of cash in Treasury and CIO. Refer to
Liquidity Risk Management on pages 93–98 and Note 10 for
additional information.
Securities borrowed increased in CIB related to client-
driven market-making activities in Fixed Income Markets,
and to cover customer short positions in prime brokerage.
Refer to Liquidity Risk Management on pages 93–98 and
Note 10 for additional information.
Trading assets was relatively flat, reflecting:
• a reduction in short-term instruments associated with
cash deployment activities in Treasury and CIO,
offset by
• growth in client-driven activities in CIB Markets, primarily
debt instruments, and
• in CCB, growth related to originations of mortgage
warehouse loans, resulting from the favorable rate
environment.
Refer to Notes 2 and 5 for additional information.
2019
2018
Change
$
21,704
$
22,324
241,927
249,157
139,758
411,103
398,239
959,769
(13,123)
946,646
72,861
25,813
53,341
256,469
321,588
111,995
413,714
261,828
984,554
(13,445)
971,109
73,200
14,934
54,349
126,830
121,022
(3)%
(6)
(23)
25
(1)
52
(3)
(2)
(3)
—
73
(2)
5
$
2,687,379
$
2,622,532
2 %
Investment securities increased primarily due to net
purchases of U.S. Treasuries and U.S. GSE and government
agency MBS in Treasury and CIO. The net purchases were
primarily driven by cash deployment and interest rate risk
management activities. Refer to Corporate segment results
on pages 77–78, Investment Portfolio Risk Management on
page 118 and Notes 2 and 10 for additional information on
investment securities.
Loans decreased reflecting loan sales in Home Lending, and
lower loans in CIB, primarily driven by a loan syndication
and net paydowns, partially offset by growth in AWM and
Card.
The allowance for loan losses decreased driven by:
• an $800 million reduction in the CCB allowance for loan
losses, which included $650 million in the PCI residential
real estate portfolio, reflecting continued improvement in
home prices and delinquencies; $100 million in the non
credit-impaired residential real estate portfolio; and $50
million in the business banking portfolio; as well as
• a $151 million reduction for write-offs of PCI loans,
largely offset by
• a $500 million addition to the allowance for loan losses in
the credit card portfolio reflecting loan growth and
higher loss rates as newer vintages season and become a
larger part of the portfolio, and
• a $115 million addition in the wholesale allowance for
loan losses driven by select client downgrades.
Refer to Credit and Investment Risk Management on pages
100–118, and Notes 2, 3, 12 and 13 for further discussion
of loans and the allowance for loan losses.
52
JPMorgan Chase & Co./2019 Form 10-K
Premises and equipment increased primarily due to the
adoption of the new lease accounting guidance effective
January 1, 2019. Refer to Note 18 for additional
information.
Goodwill, MSRs and other intangibles decreased reflecting
lower MSRs as a result of the realization of expected cash
flows and faster prepayment speeds on lower rates,
partially offset by net additions to the MSRs. The decrease
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
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
in MSRs was partially offset by an increase in goodwill
related to the acquisition of InstaMed. Refer to Note 15 for
additional information.
Other assets increased reflecting higher cash collateral
placed with central counterparties in CIB, and higher auto
operating lease assets from growth in the business in CCB.
2019
2018
Change
$
1,562,431
$
1,470,666
183,675
40,920
119,277
210,407
17,841
291,498
182,320
69,276
144,773
196,710
20,241
282,031
2,426,049
261,330
2,366,017
256,515
$
2,687,379
$
2,622,532
6
1
(41)
(18)
7
(12)
3
3
2
2%
Deposits increased reflecting:
Accounts payable and other liabilities increased reflecting:
• continued growth driven by new accounts in CCB
• the impact of the adoption of the new lease accounting
• growth in operating deposits in CIB driven by client
activity, primarily in Treasury Services, and an increase in
client-driven net issuances of structured notes in Markets,
and
• higher deposits in CB and AWM from growth in interest-
bearing deposits; for AWM, the growth was partially offset
by migration, predominantly into the Firm’s investment-
related products.
Refer to the Liquidity Risk Management discussion on pages
93–98; and Notes 2 and 17 for more information.
Federal funds purchased and securities loaned or sold
under repurchase agreements was relatively flat,as the net
increase from the Firm’s participation in the Federal
Reserve’s open market operations was offset by client-
driven activities, and lower secured financing of trading
assets-debt instruments, all in CIB. Refer to the Liquidity
Risk Management discussion on pages 93–98 and Note 11
for additional information.
Short-term borrowings decreased reflecting lower
commercial paper issuances and short-term advances from
Federal Home Loan Banks (“FHLB”) in Treasury and CIO,
primarily driven by liquidity management. Refer to pages
93–98 for information on changes in Liquidity Risk
Management.
Trading liabilities decreased due to client-driven market-
making activities in CIB, which resulted in lower levels of
short positions in both debt and equity instruments in
Markets. Refer to Notes 2 and 5 for additional information.
guidance effective January 1, 2019, and
• higher client payables related to client-driven activities in
CIB.
Refer to Note 18 for additional information on Leases.
Beneficial interests issued by consolidated VIEs decreased
due to:
• maturities of credit card securitizations,
largely offset by
• higher levels of Firm-administered multi-seller conduit
commercial paper issued to third parties.
Refer to Off-Balance Sheet Arrangements on pages 55–56
and Note 14 and 28 for further information on Firm-
sponsored VIEs and loan securitization trusts.
Long-term debt increased as a result of client-driven net
issuances of structured notes in CIB’s Markets business,
partially offset by net maturities of FHLB advances in
Treasury and CIO.
Refer to Liquidity Risk Management on pages 93–98 and
Note 20 for additional information on the Firm’s long-term
debt activities.
Refer to page 149 for information on changes in
stockholders’ equity, and Capital actions on pages 90–91.
JPMorgan Chase & Co./2019 Form 10-K
53
Management’s discussion and analysis
Consolidated cash flows analysis
The following is a discussion of cash flow activities during
the years ended December 31, 2019 and 2018. Refer to
Consolidated cash flows analysis on page 54 of the Firm’s
2018 Form 10-K for a discussion of the 2017 activities.
Year ended December 31,
(in millions)
2019
2018
2017
Net cash provided by/(used in)
Operating activities
$
6,046
$ 14,187
$ (10,827)
Investing activities
Financing activities
Effect of exchange rate
changes on cash
Net increase/(decrease) in
cash and due from banks and
deposits with banks
(54,013)
(197,993)
32,987
34,158
28,249
14,642
(182)
(2,863)
8,086
$ (15,162) $(152,511) $ 40,150
Operating activities
JPMorgan Chase’s operating assets and liabilities primarily
support the Firm’s lending and capital markets activities.
These assets and liabilities can vary significantly in 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 that 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 its operating liquidity needs.
• In 2019, cash provided primarily reflected net income
excluding noncash adjustments and net proceeds of sales,
securitizations, and paydowns of loans held-for-sale,
partially offset by higher securities borrowed, an increase
in other assets and a decrease in trading liabilities.
• In 2018, cash provided primarily reflected net income
excluding noncash adjustments, increased trading
liabilities and accounts payable and other liabilities,
partially offset by an increase in trading assets and net
originations of loans held-for-sale.
Investing activities
The Firm’s investing activities predominantly include
originating held-for-investment loans and investing in the
investment securities portfolio and other short-term
instruments.
• In 2019, cash used reflected net purchases of investment
securities, partially offset by lower securities purchased
under resale agreements, and net proceeds from sales
and securitizations of loans held-for-investment.
• In 2018, cash used reflected an increase in securities
purchased under resale agreements, higher net
originations of loans and net purchases of investment
securities.
Financing activities
The Firm’s financing activities include acquiring customer
deposits and issuing long-term debt, as well as preferred
and common stock.
• In 2019, cash provided reflected higher deposits,
partially offset by a decrease in short-term borrowings
and net payments of long term borrowings.
• In 2018, cash provided reflected higher deposits, short-
term borrowings, and securities loaned or sold under
repurchase agreements, partially offset by net payments
of long term borrowings.
• For both periods, cash was used for repurchases of
common stock and cash dividends on common and
preferred stock.
* * *
Refer to Consolidated Balance Sheets Analysis on pages 52–
53, Capital Risk Management on pages 85–92, and Liquidity
Risk Management on pages 93–98 for a further discussion
of the activities affecting the Firm’s cash flows.
54
JPMorgan Chase & Co./2019 Form 10-K
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
In the normal course of business, the Firm enters into
various off-balance sheet arrangements and contractual
obligations that may require future cash payments. Certain
obligations are recognized on-balance sheet, while others
are disclosed off-balance sheet under accounting principles
generally accepted in the U.S. (“U.S. GAAP”).
Special-purpose entities
The Firm has several types of off–balance sheet
arrangements, including through nonconsolidated special-
purpose entities (“SPEs”), which are a type of VIE, and
through lending-related financial instruments (e.g.,
commitments and guarantees).
The Firm holds capital, as appropriate, against all SPE-
related transactions and related exposures, such as
derivative contracts 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 2019 Form 10-K a discussion of the Firm’s various off-balance sheet
arrangements can be found. Refer to Note 1 for additional 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
Refer to Note 14
Page references
242–249
Refer to Note 28
272–277
JPMorgan Chase & Co./2019 Form 10-K
55
Management’s discussion and analysis
Contractual cash obligations
The accompanying table summarizes, by remaining
maturity, JPMorgan Chase’s significant contractual cash
obligations at December 31, 2019. 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 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. Refer
to Note 28 for a discussion of mortgage repurchase
liabilities and other obligations.
Contractual cash obligations
By remaining maturity at December 31,
(in millions)
On-balance sheet obligations
2020
2021-2022
2019
2023-2024
After 2024
Total
2018
Total
Deposits(a)
$
1,546,142 $
5,840 $
3,550 $
2,508 $
1,558,040 $
1,468,031
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)
Operating leases(b)
Other(c)
183,304
35,107
13,628
35,031
1,604
8,695
Total on-balance sheet obligations
1,823,511
Off-balance sheet obligations
Unsettled resale and securities borrowed
agreements(d)
Contractual interest payments(e)
Equity investment commitments
Contractual purchases and capital expenditures
Obligations under co-brand programs
117,203
7,844
539
1,920
351
—
—
3,950
58,847
2,704
2,046
73,387
748
10,517
—
766
710
—
—
—
50,680
2,025
1,851
58,106
—
7,876
—
210
382
371
—
296
183,675
182,320
35,107
17,874
62,393
20,258
105,857
250,415
258,658
3,757
2,976
10,090
15,568
10,992
11,794
115,765
2,070,769
2,014,446
—
28,444
—
33
105
117,951
54,681
539
2,929
1,548
102,008
58,252
271
3,599
1,937
Total off-balance sheet obligations
127,857
12,741
8,468
28,582
177,648
166,067
Total contractual cash obligations
$
1,951,368 $
86,128 $
66,574 $
144,347 $
2,248,417 $
2,180,513
(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) Includes noncancelable operating leases for premises and equipment used primarily for business purposes. Excludes the benefit of noncancelable
sublease rentals of $846 million and $825 million at December 31, 2019 and 2018, respectively. Refer to Note 18 for further information on operating
leases.
(c) 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.
(d) Refer to unsettled resale and securities borrowed agreements in Note 28 for further information.
(e) Includes accrued interest and future contractual interest obligations. Excludes interest related to structured notes for which the Firm’s payment obligation
is based on the performance of certain benchmarks.
56
JPMorgan Chase & Co./2019 Form 10-K
EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES AND KEY
PERFORMANCE MEASURES
Non-GAAP financial measures
The Firm prepares its Consolidated Financial Statements in
accordance with U.S. GAAP; these financial statements
appear on pages 146–150. 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 LOBs 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 an
FTE basis. Accordingly, revenue from investments that
receive tax credits and tax-exempt securities is presented in
the managed results on a basis comparable to taxable
investments and securities. These 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 LOBs.
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. Refer to
Business Segment Results on pages 60–78 for additional
information on these non-GAAP measures. 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)
Fully taxable-
equivalent
adjustments(a)
Managed
basis
Reported
Reported
2019
2018
Fully taxable-
equivalent
adjustments(a)
2017
Managed
basis
Reported
Fully taxable-
equivalent
adjustments(a)
Managed
basis
Other income
$ 5,731
$
2,534
$ 8,265
$ 5,343
$
1,877 (b) $ 7,220
$ 3,646
$
2,704
$ 6,350
Total noninterest revenue
Net interest income
Total net revenue
Pre-provision profit
Income before income tax
expense
Income tax expense
Overhead ratio
58,382
57,245
115,627
50,130
44,545
8,114
57%
2,534
60,916
531
57,776
53,970
55,059
3,065
118,692
109,029
3,065
53,195
45,635
1,877
55,847
628 (b)
55,687
50,608
50,097
2,704
1,313
53,312
51,410
2,505
2,505
111,534
100,705
4,017
104,722
48,140
41,190
4,017
45,207
3,065
3,065
NM
47,610
11,179
40,764
8,290
2,505
43,269
2,505 (b)
10,795
35,900
11,459
55%
58%
NM
57%
59%
4,017
4,017
NM
39,917
15,476
57%
(a) Predominantly recognized in CIB, CB and Corporate.
(b) The decrease in fully taxable-equivalent adjustments for the year ended December 31, 2018, reflects the impact of the TCJA.
JPMorgan Chase & Co./2019 Form 10-K
57
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
The Firm also reviews adjusted expense, which is
noninterest expense excluding Firmwide legal expense and
is therefore a non-GAAP financial measure. Additionally,
certain credit metrics and ratios disclosed by the Firm
exclude PCI loans, and are therefore non-GAAP measures.
Management believes that these measures help investors
understand the effect of these items on reported results
and provide an alternate presentation of the Firm’s
performance. Refer to Credit and Investment Risk
Management on pages 100–118 for additional information
on credit metrics and ratios excluding PCI loans.
Management’s discussion and analysis
Net interest income and net yield excluding CIB’s Markets
businesses
In addition to reviewing net interest income and the net
yield on a managed basis, management also reviews these
metrics excluding CIB’s Markets businesses, as shown
below; these metrics, which exclude CIB’s Markets
businesses, are non-GAAP financial measures. Management
reviews these metrics to assess the performance of the
Firm’s lending, investing (including asset-liability
management) and deposit-raising activities. The resulting
metrics that exclude CIB’s Markets businesses are referred
to as non-markets-related net interest income and net yield.
CIB’s Markets businesses are Fixed Income Markets and
Equity Markets. Management believes that disclosure of
non-markets-related net interest income and net yield
provides investors and analysts with other measures 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.
Year ended December 31,
(in millions, except rates)
Net interest income –
reported
Fully taxable-equivalent
adjustments
Net interest income –
managed basis(a)
Less: CIB Markets net
interest income(b)
2019
2018
2017
$
57,245
$
55,059
$
50,097
531
628
1,313
$
57,776
$
55,687
$
51,410
3,120
3,087
4,630
Net interest income
excluding CIB Markets(a) $
54,656
$
52,600
$
46,780
Average interest-earning
assets(c)
Less: Average CIB Markets
interest-earning assets(b)(c)
Average interest-earning
assets excluding CIB
Markets
Net yield on average
interest-earning assets –
managed basis(c)
Net yield on average CIB
Markets interest-earning
assets(b)(c)
Net yield on average
interest-earning assets
excluding CIB Markets
$2,345,491
$2,212,908
$ 2,170,974
672,629
593,355
531,217
$1,672,862
$1,619,553
$ 1,639,757
2.46%
2.52%
2.37%
0.46
0.52
0.87
3.27%
3.25%
2.85%
(a) Interest includes the effect of related hedges. Taxable-equivalent
amounts are used where applicable.
(b) Refer to page 69 for further information on CIB’s Markets businesses.
(c) In the second quarter of 2019, the Firm reclassified balances related
to certain instruments from interest-earning to noninterest-earning
assets, as the associated returns are recorded in principal transactions
revenue and not in net interest income. These changes were applied
retrospectively and, accordingly, prior period amounts were revised to
conform with the current presentation.
58
JPMorgan Chase & Co./2019 Form 10-K
Tangible common equity, ROTCE and TBVPS
Tangible common equity (“TCE”), ROTCE and TBVPS are each non-GAAP financial measures. TCE represents the Firm’s common
stockholders’ equity (i.e., total stockholders’ equity less preferred stock) less goodwill and identifiable intangible assets (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)
Tangible common equity
Return on tangible common equity
Tangible book value per share
Period-end
Average
Dec 31,
2019
Dec 31,
2018
Year ended December 31,
2019
2018
2017
$
234,337 $
230,447
$ 232,907
$ 229,222
$ 230,350
47,823
47,471
47,620
47,491
47,317
819
2,381
748
2,280
789
2,328
807
2,231
832
3,116
$
188,076 $
184,508
$ 186,826
$ 183,155
$ 185,317
NA
NA
$
60.98 $
56.33
19%
NA
17%
NA
12%
NA
(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.
Key performance measures
Core loans is considered a key performance measure. Core
loans represents loans considered central to the Firm’s
ongoing businesses, and excludes loans classified as trading
assets, runoff portfolios, discontinued portfolios 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./2019 Form 10-K
59
Management’s discussion and analysis
BUSINESS SEGMENT RESULTS
The Firm is managed on an LOB basis. There are four major
reportable business segments – Consumer & Community
Banking, Corporate & Investment Bank, Commercial
Banking and Asset & Wealth Management. In addition, there
is a Corporate segment.
The business segments are determined based on the
products and services provided, or the type of customer
served, and they reflect the manner in which financial
information is currently evaluated by the Firm’s Operating
Committee. Segment results are presented on a managed
basis. Refer to Explanation and Reconciliation of the Firm’s
use of Non-GAAP Financial Measures and Key Performance
Measures, on pages 57–59 for a definition of managed
basis.
Consumer Businesses
Wholesale Businesses
JPMorgan Chase
Consumer & Community Banking
Corporate & Investment Bank
Commercial
Banking(a)
Asset & Wealth
Management
Consumer &
Business Banking
Home Lending
Card, Merchant
Services & Auto
Banking
Markets &
Securities Services
• Consumer
Banking/
Chase Wealth
Management
• Business
Banking
• Home
Lending
Production
• Home
Lending
Servicing
• Real Estate
Portfolios
• Card
Services
– Credit Card
– Merchant
Services(a)
• Auto
• Investment
Banking
• Treasury
Services(a)
• Lending
• Fixed
Income
Markets
• Equity
Markets
• Securities
Services
• Credit
Adjustments
& Other
• Asset
Management
• Wealth
Management
• Middle
Market
Banking
• Corporate
Client
Banking
• Commercial
Real Estate
Banking
(a) Effective in the first quarter of 2020, the Merchant Services business was realigned from CCB to CIB as part of the Firm’s Wholesale Payments business.
The revenue and expenses of the Merchant Services business will be reported across CCB, CIB and CB based primarily on client relationship.
Description of business segment reporting methodology
Results of the business segments are intended to present
each segment as if it were 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 LOB
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 may agree to share revenue from those
transactions. Revenue is generally recognized in the
segment responsible for the related product or service on a
gross basis, with an allocation to the other segment(s)
involved in the transaction. The segment results reflect
these revenue-sharing agreements.
60
JPMorgan Chase & Co./2019 Form 10-K
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 costs and investments related
to corporate support units, technology and operations not
currently leveraged by any LOB, 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.
Funds transfer pricing
Funds transfer pricing is the process by which the Firm
allocates interest income and expense to each business
segment and transfers 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
on a product-by-product basis within each business
segment. This process is overseen by senior management
and reviewed by the Firm’s Treasurer Committee.
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. Periodically, the assumptions and
methodologies used to allocate capital are assessed and as
a result, the capital allocated to the LOBs may change. Refer
to Line of business equity on page 90 for additional
information on business segment capital allocation.
Segment Results – Managed Basis
The following tables summarize the Firm’s results by segment for the periods indicated.
Year ended December 31,
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
(in millions, except ratios)
2019
2018
2017
2019
2018
2017
2019
2018
2017
Total net revenue
$ 55,883
$ 52,079
$ 46,485
$ 38,298
$ 36,448
$ 34,657
$
8,984
$
9,059
$
8,605
Total noninterest expense
Pre-provision profit/(loss)
Provision for credit losses
Net income/(loss)
Return on equity (“ROE”)
28,896
26,987
4,952
27,835
24,244
4,753
16,641
14,852
31%
28%
26,062
20,423
5,572
9,395
17%
21,519
16,779
277
20,918
15,530
19,407
15,250
(60)
(45)
11,922
11,773
10,813
14%
16%
14%
3,500
5,484
296
3,924
17%
Year ended December 31,
Asset & Wealth Management
Corporate
(in millions, except ratios)
2019
2018
2017
2019
2018
2017
2019
3,386
5,673
129
4,237
20%
Total
2018
3,327
5,278
(276)
3,539
17%
2017
Total net revenue
$ 14,316
$ 14,076
$ 13,835
$ 1,211
$
(128)
$ 1,140
$118,692
$111,534
$104,722
Total noninterest expense
10,515
10,353
10,218
Pre-provision profit/(loss)
3,801
3,723
3,617
Provision for credit losses
Net income/(loss)
Return on equity (“ROE”)
61
2,833
26%
53
2,853
31%
39
2,337
25%
1,067
144
(1)
902
(1,030)
(4)
501
639
—
65,497
53,195
5,585
63,394
48,140
4,871
59,515
45,207
5,290
1,111
(1,241)
(1,643)
36,431
32,474
24,441
NM
NM
NM
15%
13%
10%
Note: Net income in 2019 and 2018 for each of the business segments reflects the favorable impact of the reduction in the U.S. federal statutory income tax
rate as a result of the TCJA.
The following sections provide a comparative discussion of the Firms results by segment as of or for the years ended
December 31, 2019 and 2018.
JPMorgan Chase & Co./2019 Form 10-K
61
Management’s discussion and analysis
CONSUMER & COMMUNITY BANKING
Consumer & Community Banking offers services to
consumers and businesses through bank branches,
ATMs, digital (including mobile and online) 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)
2019
2018
2017
Revenue
Lending- and deposit-related fees $ 3,859
$ 3,624
$ 3,431
Asset management,
administration and
commissions
Mortgage fees and related
income
Card income
All other income
Noninterest revenue
Net interest income
Total net revenue
2,499
2,402
2,212
2,035
4,847
5,402
18,642
37,241
55,883
1,252
4,554
4,428
16,260
35,819
52,079
1,613
4,024
3,430
14,710
31,775
46,485
Provision for credit losses
4,952
4,753
5,572
Noninterest expense
Compensation expense
Noncompensation expense(a)
Total noninterest expense
Income before income tax
expense
10,700
18,196
28,896
10,534
17,301
27,835
10,133
15,929
26,062
22,035
19,491
14,851
Income tax expense
5,394
4,639
5,456
Net income
$ 16,641
$ 14,852
$ 9,395
Revenue by line of business
Consumer & Business Banking
$ 26,495
$ 24,805
$ 21,104
Home Lending
5,179
5,484
5,955
Card, Merchant Services & Auto
24,209
21,790
19,426
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
1,618
417
268
984
636
977
$ 2,035
$ 1,252
$ 1,613
31%
52
28%
53
17%
56
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 depreciation expense on leased assets of $4.1 billion, $3.4
billion and $2.7 billion for the years ended December 31, 2019, 2018
and 2017, respectively.
(b) Included MSR risk management results of $(165) million, $(111)
million and $(242) million for the years ended December 31, 2019,
2018 and 2017, respectively.
62
JPMorgan Chase & Co./2019 Form 10-K
The provision for credit losses was $5.0 billion, an increase of
4%, reflecting:
• an increase in credit card due to
– higher net charge-offs on loan growth, in line with
expectations, and
– a $500 million addition to the allowance for loan losses
reflecting loan growth and higher loss rates, as newer
vintages season and become a larger part of the portfolio,
compared to a $300 million addition in the prior year
largely offset by
• a decrease in consumer, excluding credit card due to
– a $650 million reduction in the allowance for loan losses
in the PCI residential real estate portfolio, reflecting
continued improvement in home prices and delinquencies,
and a $100 million reduction in the allowance for loan
losses in the non credit-impaired residential real estate
portfolio, compared to a $250 million reduction in the PCI
residential real estate portfolio in the prior year, and
– a $50 million reduction in the allowance for loan losses in
the business banking portfolio
partially offset by
– lower net recoveries in the residential real estate portfolio
as the prior year benefited from larger recoveries on loan
sales.
2019 compared with 2018
Net income was $16.6 billion, an increase of 12%.
Net revenue was $55.9 billion, an increase of 7%. Net
production revenue included approximately $500 million of
gains on the sales of certain mortgage loans that were
predominantly offset by charges in net interest income for the
unwind of the related internal funding from Treasury and CIO
associated with these loans. The charges reflect the net
present value of that funding and is recognized as interest
income in Treasury and CIO. Refer to Corporate on pages 77–
78 and Funds Transfer Pricing (“FTP”) on page 61 of this Form
10-K for further information.
Net interest income was $37.2 billion, up 4%, and included
charges from the loan sales mentioned above. Excluding these
charges, net interest income increased, driven by:
• higher loan balances and margin expansion in Card, as well
as higher deposit margins and growth in deposit balances in
CBB,
partially offset by
• lower loan balances due to loan sales, as well as loan spread
compression in Home Lending.
Noninterest revenue was $18.6 billion, up 15%, and included
gains from the loan sales mentioned above as well as the
impact of the prior-year adjustment of approximately $330
million to the credit card rewards liability. Excluding these
notable items, noninterest revenue increased 9%, driven by:
• higher auto lease volume, and
• higher net mortgage production revenue reflecting higher
production volumes and margins,
partially offset by
• lower net mortgage servicing revenue driven by lower
operating revenue reflecting faster prepayment speeds on
lower rates and the impact of reclassifying certain loans to
held-for-sale.
Refer to 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 $28.9 billion, up 4%, driven by:
• investments in the business including technology and
marketing and higher depreciation on auto lease assets,
partially offset by
• expense efficiencies and lower FDIC charges.
JPMorgan Chase & Co./2019 Form 10-K
63
Management’s discussion and analysis
Selected metrics
As of or for the year ended
December 31,
Selected metrics
As of or for the year ended
December 31,
(in millions, except headcount)
2019
2018
2017
(in millions, except ratio data)
2019
2018
2017
Selected balance sheet data
(period-end)
Total assets
Loans:
$ 539,090
$ 557,441
$ 552,601
Nonaccrual loans(a)(b)
$ 3,018
$ 3,339
$ 4,084
Credit data and quality
statistics
Consumer & Business Banking
Home equity
27,199
30,163
26,612
36,013
25,789
42,751
Residential mortgage
169,636
203,859
197,339
Home Lending
199,799
239,872
240,090
Card
Auto
Total loans
Core loans
Deposits
Equity
Selected balance sheet data
(average)
Total assets
Loans:
168,924
156,632
149,511
61,522
63,573
66,242
457,444
486,689
481,632
414,107
434,466
415,167
718,416
678,854
659,885
52,000
51,000
51,000
$ 542,191
$ 547,368
$ 532,756
Consumer & Business Banking
Home equity
26,608
32,975
26,197
39,133
24,875
46,398
Residential mortgage
186,557
202,624
190,242
Home Lending
219,532
241,757
236,640
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)
Consumer & Business
Banking
Home equity(d)
Residential mortgage(d)
Home Lending(d)
Card
Auto
Student
296
(48)
(50)
(98)
236
(7)
(287)
(294)
4,848
4,518
206
—
243
—
257
63
(16)
47
4,123
331
498
$ 5,252
$ 4,703
$ 5,256
(g)
(g)
1.11% 0.90 %
1.03%
(0.19)
(0.03)
(0.05)
3.10
0.33
—
(0.02)
(0.16)
(0.14)
3.10
0.38
—
0.18
(0.01)
0.02
2.95
0.51
NM
Total net charge-offs/
(recovery) rate(d)
1.20
1.04
1.21
(g)
Home Lending(e)(f)
0.76% 0.77%
1.19%
Card
Auto
1.87
0.94
1.83
0.93
1.80
0.89
0.92
Card
Auto
Student
Total loans
Core loans
Deposits
Equity
Headcount
464,327
478,281
469,814
30+ day delinquency rate
156,325
145,652
140,024
61,862
64,675
—
—
65,395
2,880
416,694
419,066
393,598
693,550
670,388
640,219
52,000
51,000
51,000
127,137
129,518
133,721
90+ day delinquency rate -
Card
0.95
0.92
Allowance for loan losses
Consumer & Business
Banking
Home Lending, excluding
PCI loans
Home Lending — PCI loans(c)
Card
Auto
$
746
$ 796
$
796
903
987
5,683
465
1,003
1,788
5,184
464
1,003
2,225
4,884
464
Total allowance for loan
losses(c)
$ 8,784
$ 9,235
$ 9,372
(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, 2019, 2018 and 2017, nonaccrual loans excluded mortgage
loans 90 or more days past due and insured by U.S. government agencies of
$961 million, $2.6 billion and $4.3 billion, respectively. These amounts have
been excluded based upon the government guarantee.
(c) Net charge-offs/(recoveries) and the net charge-off/(recovery) rates for the
years ended December 31, 2019, 2018 and 2017, excluded $151 million, $187
million and $86 million, respectively, of write-offs in the PCI portfolio. These
write-offs decreased the allowance for loan losses for PCI loans. Refer to
Summary of changes in the allowance for credit losses on page 117 for further
information on PCI write-offs.
(d) Excludes the impact of PCI loans. For the years ended December 31, 2019, 2018
and 2017, the net charge-off/(recovery) rates including the impact of PCI loans
were as follows: (1) home equity of (0.15)%, (0.02)% and 0.14%, respectively;
(2) residential mortgage of (0.03)%, (0.14)% and (0.01)%, respectively; (3)
64
JPMorgan Chase & Co./2019 Form 10-K
Home Lending of (0.05)%, (0.12)% and 0.02%, respectively; and (4) total CCB
of 1.14%, 0.98% and 1.12%, respectively.
(e) At December 31, 2019, 2018 and 2017, excluded mortgage loans insured by
U.S. government agencies of $1.7 billion, $4.1 billion and $6.2 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 8.44%,
9.16% and 10.13% at December 31, 2019, 2018 and 2017, respectively.
(g) Excluding net charge-offs of $467 million related to the student loan portfolio
transfer, the total net charge-off rates for the full year 2017 would have been
1.10%.
Selected metrics
As of or for the year ended
December 31,
(in billions, except ratios and
where otherwise noted)
Business Metrics
CCB households (in millions)
Number of branches
Active digital customers
(in thousands)(a)
Active mobile customers
(in thousands)(b)
Debit and credit card sales
volume
Consumer & Business Banking
2019
2018
2017
62.6
4,976
61.7
5,036
61.1
5,130
52,421
49,254
46,694
37,297
33,260
30,056
$ 1,114.4
$ 1,016.9
$
916.9
Average deposits
Deposit margin
$
678.9
$
656.5
$
625.6
2.49%
2.38%
1.98%
Business banking origination
volume
$
6.6
$
6.7
$
7.3
Client investment assets
358.0
282.5
273.3
Home Lending
Mortgage origination volume
by channel
Retail
Correspondent
Total mortgage
origination volume(c)
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)
$
$
$
51.0
54.2
105.2
761.4
$
$
$
38.3
41.1
79.4
789.8
$
$
$
40.3
57.3
97.6
816.1
520.8
519.6
553.5
4.7
6.1
6.0
0.90%
1.17%
1.08%
MSR revenue multiple(d)
2.65x
3.34x
3.09x
Card, excluding Commercial Card
Credit card sales volume
$
762.8
$
692.4
$
622.2
New accounts opened
(in millions)
Card Services
Net revenue rate
Merchant Services
7.8
7.8
8.4
11.52%
11.27%
10.57%
Merchant processing volume
$ 1,511.5
$ 1,366.1
$ 1,191.7
Auto
Loan and lease origination
volume
Average Auto operating lease
assets
$
34.0
$
31.8
$
33.3
21.6
18.8
15.2
(a) Users of all web and/or mobile platforms who have logged in within the past 90
days.
(b) Users of all mobile platforms who have logged in within the past 90 days.
(c) Firmwide mortgage origination volume was $115.9 billion, $86.9 billion and
$107.6 billion for the years ended December 31, 2019, 2018 and 2017,
respectively.
(d) Represents the ratio of MSR carrying value (period-end) to third-party mortgage
loans serviced (period-end) divided by the ratio of loan servicing-related revenue
to third-party mortgage loans serviced (average).
JPMorgan Chase & Co./2019 Form 10-K
65
Management’s discussion and analysis
CORPORATE & INVESTMENT BANK
The Corporate & Investment Bank, which consists of
Banking and Markets & Securities 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 &
Securities Services is a global market-maker in cash
securities and derivative instruments, and also offers
sophisticated risk management solutions, prime
brokerage, and research. Markets & Securities 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
2019
2018
2017
Investment banking fees
$
7,575
$
7,473
$
7,356
Principal transactions
Lending- and deposit-related fees
Asset management,
administration and commissions
All other income
Noninterest revenue
Net interest income
Total net revenue(a)
14,396
1,518
4,545
1,108
12,271
1,497
4,488
1,239
29,142
26,968
9,156
9,480
38,298
36,448
10,873
1,531
4,207
572
24,539
10,118
34,657
Provision for credit losses
277
(60)
(45)
Noninterest expense
Compensation expense
Noncompensation expense
Total noninterest expense
Income before income tax
expense
10,618
10,901
21,519
10,215
10,703
20,918
9,531
9,876
19,407
16,502
15,590
15,295
Income tax expense
4,580
3,817
4,482
Net income
$ 11,922
$ 11,773
$ 10,813
(a) Includes 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 $2.3 billion,
$1.7 billion and $2.4 billion for the years ended December 31, 2019,
2018 and 2017, respectively.
Selected income statement data
Year ended December 31,
(in millions, except ratios)
2019
2018
2017
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
Credit Adjustments & Other(a)
Total Markets & Securities
Services
14%
56
16%
57
14%
56
28
28
28
$ 7,215
$ 6,987
$ 6,852
4,565
1,331
13,111
14,418
6,494
4,154
121
4,697
1,298
12,982
12,706
6,888
4,245
4,172
1,429
12,453
12,812
5,703
3,917
(373)
(228)
25,187
23,466
22,204
Total net revenue
$38,298
$36,448
$ 34,657
(a) Includes credit valuation adjustments (“CVA”) managed centrally
within CIB and funding valuation adjustments (“FVA”) on derivatives,
which 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.
Refer to Notes 2, 3 and 24 for additional information.
2019 compared with 2018
Net income was $11.9 billion, up 1%.
Net revenue was $38.3 billion, up 5%.
Banking revenue was $13.1 billion, up 1%.
• Investment Banking revenue was $7.2 billion, up 3%,
with higher debt underwriting fees, largely offset by
lower advisory and equity underwriting fees. The Firm
maintained its #1 ranking for Global Investment Banking
fees with overall share gains, according to Dealogic.
– Debt underwriting fees were $3.5 billion, up 8%,
reflecting wallet share gains and increased activity in
investment-grade and high-yield bonds.
– Advisory fees were $2.4 billion, down 5%, and Equity
underwriting fees were $1.7 billion, down 1%, driven
by a decline in industry-wide fees despite wallet share
gains.
• Treasury Services revenue was $4.6 billion, down 3%,
driven by deposit margin compression predominantly
offset by higher balances and fee growth.
• Lending revenue was $1.3 billion, up 3%, with higher net
interest income largely offset by losses on hedges of
accrual loans.
66
JPMorgan Chase & Co./2019 Form 10-K
Markets & Securities Services revenue was $25.2 billion, up
7%. Markets revenue was $20.9 billion, up 7% which
included a gain on the IPO of Tradeweb in the second
quarter of 2019. Prior year results included approximately
$500 million of fair value gains recorded in the first quarter
of 2018 related to the adoption of the recognition and
measurement accounting guidance for certain equity
investments previously held at cost.
• Fixed Income Markets revenue was $14.4 billion, up
13%, reflecting an overall strong performance, notably in
Securitized Products. The increase in 2019 also reflected
the impact of challenging market conditions in Credit and
Rates in the fourth quarter of 2018.
• Equity Markets revenue was $6.5 billion, down 6%,
compared to a strong prior year, driven by lower client
activity in derivatives partially offset by higher client
activity in Cash Equities.
• Securities Services revenue was $4.2 billion, down 2%,
driven by deposit margin compression and the impact of
a business exit largely offset by organic growth.
• Credit Adjustments & Other was a gain of $121 million
reflecting tighter funding spreads on derivatives,
compared with a loss of $373 million in the prior year.
The provision for credit losses was $277 million, compared
with a $60 million net benefit in the prior year. This
increase reflects additions to the allowance for credit losses
in the current year on select client downgrades, and a
benefit related to a single name in the Oil & Gas portfolio
and higher recoveries, both in the prior year.
Noninterest expense was $21.5 billion, up 3%,
predominantly driven by higher volume-related expenses
and investments, including front office and technology staff
hires, as well as higher legal expense, partially offset by
lower FDIC charges.
JPMorgan Chase & Co./2019 Form 10-K
67
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:
2019
2018
2017
$ 908,153
$ 903,051
$ 826,384
Loans retained(a)
121,733
129,389
108,765
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:
10,112
13,050
4,321
131,845
142,439
113,086
131,672
142,122
112,754
80,000
70,000
70,000
$ 985,544
$ 922,758
$ 857,060
404,363
349,169
342,124
48,196
60,552
56,466
Loans retained(a)
122,371
114,417
108,368
Loans held-for-sale and
loans at fair value
Total loans
Core loans
Equity
Headcount
8,609
6,412
4,995
130,980
120,829
113,363
130,810
120,560
113,006
80,000
70,000
70,000
55,991
54,480
51,181
(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) Represents long-term debt and loan syndications.
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
2019
2018
2017
$
183
$
93
$
71
308
95
403
30
70
503
443
220
663
60
57
780
812
—
812
130
85
1,027
1,202
1,199
1,379
848
754
727
2,050
1,953
2,106
0.15%
0.08%
0.07%
0.99
0.93
1.27
1.31
1.24
1.92
390
0.31
271
0.47
170
0.72
(a) Allowance for loan losses of $110 million, $174 million and $316
million were held against these nonaccrual loans at December 31,
2019, 2018 and 2017, respectively.
(b) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
(c) Management uses allowance for loan losses to period-end loans
retained, excluding trade finance and conduits, a non-GAAP financial
measure, to provide a more meaningful assessment of CIB’s allowance
coverage ratio.
Year ended December 31,
2019
2018
2017
$
$
2,377
$
2,509
$
1,666
3,532
1,684
3,280
7,575
$
7,473
$
2,150
1,468
3,738
7,356
68
JPMorgan Chase & Co./2019 Form 10-K
League table results – wallet share
Year ended
December 31,
Based on fees(a)
M&A(b)
Global
U.S.
Equity and equity-related(c)
Global
U.S.
Long-term debt(d)
Global
U.S.
Loan syndications
Global
U.S.
Global investment banking fees(e)
2019
2018
2017
Rank
Share
Rank
Share
Rank
Share
#
#
2
2
1
1
1
1
1
1
1
9.2% #
9.4
9.4
13.4
7.8
12.0
10.1
12.8
9.0% #
2
2
1
1
1
1
1
1
1
8.7% #
8.9
9.0
12.3
7.2
11.2
9.7
12.3
8.6% #
2
2
2
1
1
2
1
1
1
8.4%
9.0
7.1
11.5
7.8
11.1
9.3
10.9
8.1%
(a) Source: Dealogic as of January 2, 2020. Reflects the ranking of revenue wallet and market share.
(b) Global M&A excludes any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S.
(c) Global equity and equity-related ranking includes rights offerings and Chinese A-Shares.
(d) 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.
(e) Global investment banking fees exclude money market, short-term debt and shelf deals.
Markets revenue
The following table summarizes select income statement
data for the Markets businesses. Markets includes both
Fixed Income Markets and Equity Markets. Markets revenue
comprises principal transactions, fees, commissions and
other income, as well as net interest income. 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 revenue. Refer to Notes 6
and 7 for a description of the composition of these income
statement line items.
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
and able to sell an instrument to the Firm and the price at
which another market participant is willing and able 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.
2019
2018
2017
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)
$
8,786 $
198
5,739 $ 14,525
205
7
$
7,560 $
197
5,566 $ 13,126
203
6
$
7,393 $
191
3,855 $ 11,248
197
6
407
1,775
2,182
410
1,794
2,204
390
1,635
2,025
872
10,263
4,155
$ 14,418 $
880
8
17,792
7,529
3,120
(1,035)
6,494 $ 20,912
952
9,119
3,587
$ 12,706 $
974
22
16,507
7,388
3,087
(500)
6,888 $ 19,594
436
8,410
4,402
$ 12,812 $
(21)
5,475
228
415
13,885
4,630
5,703 $ 18,515
1
5
4
(a) The decline in Markets net interest income in 2018 was 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 121–123.
JPMorgan Chase & Co./2019 Form 10-K
69
Management’s discussion and analysis
Selected metrics
As of or for the year ended
December 31,
(in millions, except where otherwise noted)
Assets under custody (“AUC”) by asset class (period-end) (in billions):
Fixed Income
Equity
Other(a)
Total AUC
Client deposits and other third party liabilities (average)(b)
2019
2018
2017
$
$
$
13,498
$
12,440
$
10,100
3,233
26,831
464,770
$
$
8,078
2,699
23,217
434,422
$
$
13,043
7,863
2,563
23,469
408,911
(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
As of or for the year ended
December 31,
(in millions, except where otherwise noted)
Total net revenue(a)
Europe/Middle East/Africa
Asia-Pacific
Latin America/Caribbean
Total international net revenue
North America
Total net revenue
Loans retained (period-end)(a)
Europe/Middle East/Africa
Asia-Pacific
Latin America/Caribbean
Total international loans
North America
Total loans retained
Client deposits and other third-party liabilities (average)(b)
Europe/Middle East/Africa
Asia-Pacific
Latin America/Caribbean
Total international
North America
Total client deposits and other third-party liabilities
AUC (period-end)(b)
(in billions)
North America
All other regions
Total AUC
2019
2018(c)
2017(c)
11,718
$
12,260
$
5,330
1,549
18,597
19,701
5,077
1,473
18,810
17,638
38,298
$
36,448
$
23,056
$
24,842
$
15,144
6,189
44,389
77,344
17,192
6,515
48,549
80,840
11,590
4,313
1,232
17,135
17,522
34,657
23,689
15,385
5,895
44,969
63,796
121,733
$
129,389
$
108,765
174,477
$
162,846
$
90,364
29,027
82,867
26,668
293,868
$
272,381
$
170,902
162,041
464,770
$
434,422
$
16,855
$
9,976
26,831
$
14,359
$
8,858
23,217
$
154,654
76,673
25,490
256,817
152,094
408,911
13,971
9,498
23,469
$
$
$
$
$
$
$
$
$
(a) Total net revenue and loans retained (excluding loans held-for-sale and loans at fair value) are based on the location of the trading desk, booking location,
or domicile of the client, as applicable.
(b) Client deposits and other third-party liabilities pertaining to the Treasury Services and Securities Services businesses, and AUC, are based on the domicile
of the client.
(c) The prior period amounts have been revised to conform with the current period presentation.
70
JPMorgan Chase & Co./2019 Form 10-K
2019 compared with 2018
Net income was $3.9 billion, a decrease of 7%.
Net revenue was $9.0 billion, a decrease of 1%. Net
interest income was $6.6 billion, a decrease of 2%,
predominantly driven by lower deposit margins. Noninterest
revenue was $2.4 billion, an increase of 4%, driven by
higher investment banking revenue, predominantly due to
increased equity underwriting and M&A activity, and growth
in lending and deposit related fees.
Noninterest expense was $3.5 billion, an increase of 3%,
driven by continued investments in the business, largely
offset by lower FDIC charges.
The provision for credit losses was $296 million, up from
$129 million in the prior year. The increase in the provision
reflects additions to the allowance for credit losses on select
client downgrades in the current year and higher recoveries
in the prior year.
COMMERCIAL BANKING
Commercial Banking provides comprehensive financial
solutions, including lending, treasury services,
investment banking and asset management products
across three primary client segments: Middle Market
Banking, Corporate Client Banking and Commercial
Real Estate Banking. Other includes amounts not
aligned with a primary client segment.
Middle Market Banking covers small business and
midsized corporations, local governments and
nonprofit clients.
Corporate Client Banking covers large corporations.
Commercial Real Estate Banking covers investors,
developers, and owners of multifamily, office, retail,
industrial and affordable housing properties.
Selected income statement data
Year ended December 31,
(in millions)
2019
2018
2017
Revenue
Lending- and deposit-related fees
All other income(a)
Noninterest revenue
Net interest income
Total net revenue(b)
$
913
$
870
$
919
1,517
2,430
6,554
8,984
1,473
2,343
6,716
9,059
1,603
2,522
6,083
8,605
Provision for credit losses
296
129
(276)
Noninterest expense
Compensation expense
Noncompensation expense
Total noninterest expense
Income before income tax expense
Income tax expense
Net income
1,785
1,715
3,500
5,188
1,264
1,694
1,692
3,386
5,544
1,307
1,534
1,793
3,327
5,554
2,015
$ 3,924
$ 4,237
$ 3,539
(a) Effective in the first quarter of 2019, includes revenue from
investment banking products, commercial card transactions and asset
management fees. The prior period amounts have been revised to
conform with the current period presentation.
(b) Total net revenue included tax-equivalent adjustments from income tax
credits related to equity investments in designated community
development entities and in entities established for rehabilitation of
historic properties, as well as tax-exempt income related to municipal
financing activities of $460 million, $444 million and $699 million for
the years ended December 31, 2019, 2018 and 2017, respectively.
JPMorgan Chase & Co./2019 Form 10-K
71
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.
Selected income statement data (continued)
Year ended December 31,
(in millions, except ratios)
2019
2018
2017
Revenue by product
Lending
Treasury services
Investment banking(a)
Other
Total Commercial Banking net
revenue
$ 4,057
$ 4,049
$ 4,094
3,920
4,074
3,444
919
88
852
84
805
262
$ 8,984
$ 9,059
$ 8,605
Investment banking revenue, gross(b) $ 2,744
$ 2,491
$ 2,385
Revenue by client segment
Middle Market Banking
$ 3,702
$ 3,708
$ 3,341
Corporate Client Banking
Commercial Real Estate Banking(c)
Other(c)
Total Commercial Banking net
revenue
2,994
2,169
119
2,984
2,249
118
2,727
2,416
121
$ 8,984
$ 9,059
$ 8,605
Financial ratios
Return on equity
Overhead ratio
17%
39
20%
37
17%
39
(a) Includes CB’s share of revenue from investment banking products sold
to CB clients through the CIB.
(b) Refer to page 60 for a discussion of revenue sharing.
(c) Effective in the first quarter of 2019, client segment data includes
Commercial Real Estate Banking which comprises the former
Commercial Term Lending and Real Estate Banking client segments,
and Community Development Banking (previously part of Other). The
prior period amounts have been revised to conform with the current
period presentation.
72
JPMorgan Chase & Co./2019 Form 10-K
Selected metrics
As of or for the year ended
December 31, (in millions,
except headcount)
Selected balance sheet data
(period-end)
Total assets
Loans:
2019
2018
2017
$ 220,514
$ 220,229
$ 221,228
Loans retained
207,287
204,219
202,400
Loans held-for-sale and
loans at fair value
Total loans
Core loans
Equity
Period-end loans by client
segment
1,009
1,978
1,286
$ 208,296
$ 206,197
$ 203,686
208,181
206,039
203,469
22,000
20,000
20,000
Middle Market Banking
$ 54,188
$ 56,656
$ 56,965
Corporate Client Banking
51,165
48,343
46,963
101,951
100,088
992
1,110
98,297
1,461
$ 208,296
$ 206,197
$ 203,686
Commercial Real Estate
Banking(a)
Other(a)
Total Commercial Banking
loans
Selected balance sheet data
(average)
Total assets
Loans:
Selected metrics
As of or for the year ended
December 31, (in millions, except
ratios)
Credit data and quality statistics
2019
2018
2017
Net charge-offs/(recoveries)
$
160
$
53
$
39
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:
498
—
498
25
523
511
—
511
2
513
617
—
617
3
620
Allowance for loan losses
2,780
2,682
2,558
Allowance for lending-related
commitments
Total allowance for credit losses
293
3,073
254
2,936
300
2,858
Net charge-off/(recovery) rate(b)
0.08%
0.03%
0.02%
Allowance for loan losses to
period-end loans retained
Allowance for loan losses to
nonaccrual loans retained(a)
1.34
1.31
558
525
1.26
415
0.30
$ 218,896
$ 218,259
$ 217,047
Nonaccrual loans to period-end
total loans
0.24
0.25
(a) Allowance for loan losses of $114 million, $92 million and $92 million
was held against nonaccrual loans retained at December 31, 2019,
2018 and 2017, respectively.
(b) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
Loans retained
206,837
204,243
197,203
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
1,082
1,258
909
$ 207,919
$ 205,501
$ 198,112
207,787
205,320
197,846
172,734
170,901
177,018
22,000
20,000
20,000
Middle Market Banking
$ 55,690
$ 57,092
$ 55,474
Corporate Client Banking
50,360
47,780
46,037
Commercial Real Estate
Banking(a)
Other(a)
Total Commercial Banking
loans
Headcount
100,884
985
99,243
1,386
95,038
1,563
$ 207,919
$ 205,501
$ 198,112
11,629
11,042
10,061
(a) Effective in the first quarter of 2019, client segment data includes
Commercial Real Estate Banking which comprises the former
Commercial Term Lending and Real Estate Banking client segments,
and Community Development Banking (previously part of Other). The
prior period amounts have been revised to conform with the current
period presentation.
JPMorgan Chase & Co./2019 Form 10-K
73
Management’s discussion and analysis
ASSET & WEALTH MANAGEMENT
Asset & Wealth Management, with client assets of $3.2
trillion, is a global leader in investment and wealth
management. AWM clients include institutions, high-
net-worth individuals and retail investors in 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)
2019
2018
2017
Revenue
Asset management, administration
and commissions
All other income
Noninterest revenue
Net interest income
Total net revenue
$10,212
$ 10,171
$ 9,856
604
368
600
10,816
10,539
10,456
3,500
3,537
3,379
14,316
14,076
13,835
Provision for credit losses
61
53
39
Noninterest expense
Compensation expense
Noncompensation expense
5,705
4,810
5,495
4,858
5,317
4,901
Total noninterest expense
10,515
10,353
10,218
2019 compared with 2018
Net income was $2.8 billion, a decrease of 1%.
Net revenue was $14.3 billion, an increase of 2%. Net
interest income was $3.5 billion, down 1%, driven by
deposit margin compression, predominantly offset by loan
and deposit growth. Noninterest revenue was $10.8 billion,
up 3%, driven by higher net investment valuation gains and
growth in fees on higher average market levels, partially
offset by a shift in the mix toward lower fee products.
Revenue from Asset Management was $7.3 billion, up 1%,
driven by higher investment valuation gains. The impact on
fees from higher average market levels was more than
offset by a shift in the mix toward lower fee products.
Revenue from Wealth Management was $7.1 billion, up 2%,
driven by loan and deposit growth, growth in fees on the
cumulative impact of net inflows and higher average market
levels and brokerage activity, largely offset by deposit
margin compression.
The provision for credit losses was $61 million, up from
$53 million in the prior year, reflecting higher net-charge
offs, as well as net additions to the allowance for loan
losses, predominantly due to loan growth.
Noninterest expense was $10.5 billion, an increase of 2%,
predominantly driven by investments in the business as well
as volume- and revenue-related expenses.
Income before income tax expense
3,740
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
3,670
817
3,578
1,241
907
$ 2,833
$ 2,853
$ 2,337
$ 7,254
$ 7,163
$ 7,257
7,062
6,913
6,578
$14,316
$ 14,076
$ 13,835
26%
73
31%
74
25%
74
26
26
26
26
26
26
22
30
26
Headcount
24,191
23,920
22,975
Number of Wealth Management
client advisors
2,890
2,865
2,605
74
JPMorgan Chase & Co./2019 Form 10-K
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 (b). 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 and at the “primary share class” level or
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.
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)
% of JPM mutual fund assets
ranked in 1st or 2nd
quartile:(b)
1 year
3 years
5 years
Selected balance sheet data
(period-end)(c)
Total assets
Loans
Core loans
Deposits
Equity
2019
2018
2017
61%
58%
60%
59
77
75
68
73
85
64
75
83
$ 182,004
$ 170,024
$ 151,909
160,535
147,632
160,535
147,632
147,804
138,546
10,500
9,000
130,640
130,640
146,407
9,000
Selected balance sheet data
(average)(c)
Total assets
Loans
Core loans
Deposits
Equity
$ 170,764
$ 160,269
$ 144,206
149,655
138,622
149,655
138,622
140,118
137,272
10,500
9,000
123,464
123,464
148,982
9,000
Credit data and quality
statistics(c)
Net charge-offs
Nonaccrual loans
Allowance for credit losses:
Allowance for loan losses
Allowance for lending-
related commitments
Total allowance for credit
losses
$
31
$
10
$
116
354
19
373
263
326
16
342
Net charge-off rate
0.02%
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
305
0.07
0.22
124
0.18
14
375
290
10
300
0.01%
0.22
77
0.29
(a) Represents the Nomura “star rating” for Japan domiciled funds and
Morningstar for all other 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) Quartile ranking sourced from Lipper, Morningstar, Nomura and Fund
Doctor based on country of domicile. 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.
(c) Loans, deposits and related credit data and quality statistics relate to
the Wealth Management business.
JPMorgan Chase & Co./2019 Form 10-K
75
Management’s discussion and analysis
Client assets
2019 compared with 2018
Client assets were $3.2 trillion, an increase of 18%. Assets
under management were $2.4 trillion, an increase of 19%
driven by the impact of higher market levels and net inflows
into both long-term and liquidity products.
Client assets
December 31,
(in billions)
Assets by asset class
Liquidity
Fixed income
Equity
Multi-asset and alternatives
2019
2018
2017
$
542 $
480 $
602
474
746
464
384
659
459
474
428
673
Total assets under management
2,364
1,987
2,034
Custody/brokerage/
administration/deposits
862
746
755
Total client assets
$
3,226 $
2,733 $
2,789
Memo:
Alternatives client assets(a)
Assets by client segment
Private Banking
Institutional
Retail
$
$
672 $
552 $
1,074
618
926
509
526
968
540
Total assets under management $
2,364 $
1,987 $
2,034
Private Banking
Institutional
Retail
$
1,504 $
1,274 $
1,256
1,099
623
946
513
990
543
International metrics
Year ended December 31,
(in billions, except where otherwise
noted)
Total net revenue (in millions)(a)
2019
2018
2017
Europe/Middle East/Africa(b)
$
2,869 $
2,850 $
2,837
Asia-Pacific(b)
Latin America/Caribbean(b)
Total international net revenue
1,509
724
5,102
1,538
755
5,143
1,405
702
4,944
North America
Total net revenue
9,214
8,933
8,891
$ 14,316 $ 14,076 $ 13,835
Assets under management
Europe/Middle East/Africa(b)
$
428 $
366 $
Asia-Pacific(b)
Latin America/Caribbean(b)
Total international assets under
management
192
62
682
163
51
580
393
161
51
605
North America
1,682
1,407
1,429
Total assets under management
$
2,364 $
1,987 $
2,034
Europe/Middle East/Africa(b)
$
520 $
440 $
Asia-Pacific(b)
Latin America/Caribbean(b)
Total international client assets
272
147
939
226
125
791
466
230
124
820
North America
Total client assets
2,287
1,942
1,969
$
3,226 $
2,733 $
2,789
(a) Regional revenue is based on the domicile of the client.
(b) The prior period amounts have been revised to conform with the
185 $
171 $
166
Client assets
Total client assets
$
3,226 $
2,733 $
2,789
current period presentation.
(a) Represents assets under management, as well as client balances in
brokerage accounts.
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
2019
2018
2017
$
1,987 $
2,034 $
1,771
60
106
(10)
4
217
31
(1)
2
24
(103)
9
36
(11)
43
186
Ending balance, December 31
$
2,364 $
1,987 $
2,034
Client assets rollforward
Beginning balance
Net asset flows
Market/performance/other impacts
$
2,733 $
2,789 $
2,453
178
315
88
(144)
93
243
Ending balance, December 31
$
3,226 $
2,733 $
2,789
76
JPMorgan Chase & Co./2019 Form 10-K
2019 compared with 2018
Net Income was $1.1 billion compared with a net loss of
$1.2 billion in the prior year.
Net revenue was $1.2 billion, compared with a net loss of
$128 million in the prior year driven by higher net interest
income and noninterest revenue. The increase in net
interest income was driven by balance sheet growth and
changes in mix, and also includes income related to the
unwind of the internal funding provided to CCB upon the
sale of certain mortgage loans. The income reflects the net
present value of that funding and is recognized as a charge
to net interest income in CCB. Refer to CCB on pages 62–65
and FTP on page 61 of this Form 10-K for further
information.
Noninterest revenue increased reflecting:
• investment securities gains, compared with losses in the
prior year, due to the repositioning of the investment
securities portfolio, and
• lower net markdowns on certain legacy private equity
investments,
partially offset by
• market-driven impacts on certain Corporate investments,
and
• higher losses on cash deployment transactions which
were more than offset by the related net interest income
earned on those transactions.
Noninterest expense of $1.1 billion was up $165 million
reflecting higher investments in technology and real estate,
and higher pension costs due to changes to actuarial
assumptions and estimates.
The prior year included a pre-tax loss of $174 million on
the liquidation of a legal entity.
The current period included $1.1 billion of tax benefits
related to the resolution of certain tax audits. The prior year
expense reflected a net benefit of $302 million resulting
from changes in estimates under the TCJA related to the
remeasurement of certain deferred taxes and the deemed
repatriation tax on non-U.S. earnings, which was more than
offset by changes to certain tax reserves and other tax
adjustments.
CORPORATE
The Corporate segment consists of Treasury and Chief
Investment Office and Other Corporate, which includes
corporate staff functions and expense that is centrally
managed. Treasury and CIO is predominantly
responsible for measuring, monitoring, reporting and
managing the Firm’s liquidity, funding, capital,
structural interest rate and foreign exchange risks. The
major Other Corporate functions include Real Estate,
Technology, Legal, Corporate Finance, Human
Resources, Internal Audit, Risk Management,
Compliance, Control Management, Corporate
Responsibility and various Other Corporate groups.
Selected income statement and balance sheet data
Year ended December 31,
(in millions, except headcount)
2019
2018
2017
Revenue
Principal transactions
Investment securities gains/
(losses)
All other income(a)
Noninterest revenue
Net interest income
Total net revenue(b)
Provision for credit losses
Noninterest expense(c)
Income/(loss) before income
tax expense/(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
$
(461) $
(426) $
284
258
89
(114)
1,325
1,211
(1)
1,067
(395)
558
(263)
135
(128)
(4)
902
145
(1,026)
(66)
867
1,085
55
1,140
—
501
639
(966)
1,111
215
2,282
$ (1,241) $ (1,643)
2,032
(821)
1,211
$
510
(638)
(128) $
566
574
1,140
1,394
(283)
1,111
(69)
(1,172)
60
(1,703)
$ (1,241) $ (1,643)
$
$
$
$837,618
1,649
1,649
38,033
$ 771,787
1,597
1,597
37,145
$ 781,478
1,653
1,653
34,601
(a) Included revenue related to a legal settlement of $645 million for the year
ended December 31, 2017.
(b) Included tax-equivalent adjustments, driven by tax-exempt income from
municipal bonds, of $314 million, $382 million and $905 million for the
years ended December 31, 2019, 2018 and 2017, respectively. The
decrease in taxable-equivalent adjustments for the year ended December
31, 2018, reflects the impact of the TCJA.
(c) Included a net legal benefit of $(214) million, $(241) million and $(593)
million for the years ended December 31, 2019, 2018 and 2017,
respectively.
(d) Average core loans were $1.7 billion, $1.7 billion and $1.6 billion for the
years ended December 31, 2019, 2018 and 2017, respectively.
JPMorgan Chase & Co./2019 Form 10-K
77
Selected income statement and balance sheet data
As of or for the year ended
December 31, (in millions)
2018
2019
2017
Investment securities gains/
(losses)
Available-for-sale (“AFS”)
investment securities
(average)
Held-to-maturity (“HTM”)
investment securities
(average)
Investment securities portfolio
(average)
AFS investment securities
(period-end)
HTM investment securities
(period-end)
Investment securities portfolio
(period–end)
$
258
$
(395) $
(78)
283,205
203,449
219,345
34,939
31,747
47,927
318,144
235,196
267,272
348,876
228,681
200,247
47,540
31,434
47,733
396,416
260,115
247,980
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, capital, structural interest rate and
foreign exchange risks. The risks managed by Treasury and
CIO arise from the activities undertaken by the Firm’s four
major reportable business segments to serve 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. Refer to Note 5 for further
information on derivatives. In addition, Treasury and CIO
manage the Firm’s cash position primarily through deposits
at central banks and investments in short-term instruments.
Refer to Liquidity Risk Management on pages 93–98 for
further information on liquidity and funding risk. Refer to
Market Risk Management on pages 119–126 for
information on interest rate, foreign exchange and other
risks.
The investment securities portfolio primarily consists of U.S.
GSE and government 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, 2019, the
investment securities portfolio was $396.4 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 risk ratings. Refer to Note 10 for further
information on the investment securities portfolio and
internal risk ratings.
78
JPMorgan Chase & Co./2019 Form 10-K
FIRMWIDE RISK MANAGEMENT
Risk is an inherent part of JPMorgan Chase’s business
activities. When the Firm extends a consumer or wholesale
loan, advises customers and clients 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,
among other things:
• 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 LOBs and Corporate;
and
• Firmwide structures for risk governance.
The Firm strives for continual improvement in its 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 oversight by the Board of Directors (the
“Board”). The impact of risk and control issues is carefully
considered in the Firm’s performance evaluation and
incentive compensation processes.
Risk governance and oversight framework
The Firm’s risk management governance and oversight
framework involves understanding drivers of risks, types of
risks, and impacts of risks.
Drivers of Risks are factors that cause a risk to exist. Drivers
of risks include the economic environment, regulatory and
government policy, competitor and market evolution,
business decisions, process and judgment error, deliberate
wrongdoing, dysfunctional markets, and natural disasters.
Types of Risks are categories by which risks manifest
themselves. Risks are generally categorized in the following
four risk types:
• Strategic risk is the risk to earnings, capital, liquidity or
reputation associated with poorly designed or failed
business plans or inadequate response to changes in the
operating environment.
• 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 an adverse
outcome resulting from inadequate or failed internal
processes or systems; human factors; or external events
impacting the Firm’s processes or systems; it includes
compliance, conduct, legal, and estimations and model
risk.
Impacts of Risks are consequences of risks, both
quantitative and qualitative. There may be many
consequences of risks manifesting, such as a reduction in
earnings and capital, liquidity outflows, and fines or
penalties, or qualitative impacts such as reputation
damage, loss of clients and customers, and regulatory and
enforcement actions.
The Firm’s risk governance and oversight framework is
managed on a Firmwide basis. The Firm has an Independent
Risk Management (“IRM”) function, which consists of the
Risk Management and Compliance organizations. The Chief
Executive Officer (“CEO”) appoints, subject to approval by
the Risk Committee of the Board (“Board Risk Committee”),
the Firm’s Chief Risk Officer (“CRO”) to lead the IRM
organization and manage the risk governance structure of
the Firm. The framework is subject to approval by the Board
Risk Committee in the form of the primary risk management
policies. The Firm’s CRO oversees and delegates authorities
to LOB CROs, Firmwide Risk Executives (“FREs”), and the
Firm’s Chief Compliance Officer (“CCO”), who each establish
Risk Management and Compliance organizations, set the
Firm’s risk governance policies and standards, and define
and oversee the implementation of the Firm’s risk
governance. The LOB CROs are responsible for risks that
arise in their LOBs, while FREs oversee risk areas that span
across the individual LOB, functions and regions.
Three lines of defense
The Firm relies upon each of its LOBs and Corporate areas
giving rise to risk to operate within the parameters
identified by the IRM function, and within its own
management-identified risk and control standards. Each
LOB and Treasury & CIO, including their aligned Operations,
Technology and Control Management are the Firm’s “first
line of defense” and own the identification of risks, as well
as the design and execution of controls to manage those
risks. The first line of defense is responsible for adherence
JPMorgan Chase & Co./2019 Form 10-K
79
Management’s discussion and analysis
to applicable laws, rules and regulations and for the
implementation of the risk management structure (which
may include policy, standards, limits, thresholds and
controls) established by IRM.
The IRM function is independent of the businesses and is
the Firm’s “second line of defense.” The IRM function sets
and oversees the risk management structure for Firmwide
risk governance, and independently assesses and challenges
the first line of defense risk management practices. IRM is
also responsible for its own adherence to applicable laws,
rules and regulations and for the implementation of policies
and standards established by IRM with respect to its own
processes.
The Internal Audit function operates independently from
other parts of the Firm and performs independent testing
and evaluation of processes and controls across the Firm as
the “third line of defense.” The Internal Audit Function is
headed by the General Auditor, who reports to the Audit
Committee and administratively to the CEO.
In addition, there are other functions that contribute to the
Firmwide control environment including Finance, Human
Resources, Legal and Control Management.
Risk identification and ownership
Each LOB and Corporate area owns the ongoing
identification of risks, as well as the design and execution of
controls, inclusive of IRM-specified controls, to manage
those risks. To support this activity, the Firm has a risk
identification process designed to facilitate their
responsibility to identify material risks inherent to the Firm,
catalog them in a central repository and review the most
material risks on a regular basis. The IRM function reviews
and challenges the LOB and Corporate’s identification of
risks, maintains the central repository and provides the
consolidated Firmwide results to the Firmwide Risk
Committee (“FRC”) and Board Risk Committee.
Risk appetite
The Firm’s overall appetite for risk is governed by a “Risk
Appetite” framework. The framework and the Firm’s risk
appetite are set and approved by the Firm’s CEO, Chief
Financial Officer (“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. Qualitative factors have been established to assess
select operational risks that impact the Firm’s reputation.
Risk Appetite results are reported to the Board Risk
Committee.
80
JPMorgan Chase & Co./2019 Form 10-K
Risk governance and oversight structure
The independent status of the IRM function is supported by a governance structure that provides for escalation of risk issues to
senior management, the FRC, 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 which are
not shown in the chart below or described in this Form 10-K.
The Firm’s Operating Committee, which consists of the
Firm’s CEO, CRO, CFO and other senior executives, is
accountable to and may refer matters to the Firm’s Board of
Directors. The Operating Committee is responsible for
escalating to the Board the information necessary to
facilitate the Board’s exercise of its duties.
Board oversight
The Firm’s Board of Directors provides oversight of risk. The
Board Risk Committee is the principal committee that
oversees risk matters. The Audit Committee oversees the
control environment, and the Compensation & Management
Development Committee oversees compensation and other
management-related matters. Each committee of the Board
oversees reputational risks and conduct risks within its
scope of responsibility.
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 Risk Committee and the
Audit Committee, respectively, and, with respect to
compensation and other management-related matters, the
Compensation & Management Development Committee.
JPMorgan Chase & Co./2019 Form 10-K
81
Management’s discussion and analysis
The Board Risk Committee assists the Board in its oversight
of management’s responsibility to implement a global risk
management framework reasonably designed to identify,
assess and manage the Firm’s risks. The Board Risk
Committee’s responsibilities include approval of applicable
primary risk policies and review of certain associated
frameworks, analysis and reporting established by
management. Breaches in risk appetite and parameters,
issues that may have a material adverse impact on the Firm,
including capital and liquidity issues, and other significant
risk-related matters are escalated to the Board Risk
Committee, as appropriate.
The Audit Committee assists the Board in its oversight of
management’s responsibility to ensure that there is an
effective system of controls reasonably designed to
safeguard the Firm’s assets and income, ensure 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. It also 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 principles and practices. The CMDC reviews
and approves the Firm’s compensation and benefits
programs. In addition, the Committee reviews Operating
Committee members’ performance against their goals, and
approves their compensation awards. The CMDC also
reviews the development of and succession for key
executives, and provides oversight of the Firm’s culture,
including reviewing updates from management regarding
significant conduct issues and any related employee
actions, including compensation actions.
The Public Responsibility Committee assists the Board in its
oversight of the Firm's positions and practices on public
responsibility matters such as community investment, fair
lending, sustainability, consumer practices and other public
policy issues that reflect the Firm's values and character
and could impact the Firm's reputation among all of its
stakeholders. The Committee also provides guidance on
these matters to management and the Board, as
appropriate.
The Corporate Governance & Nominating Committee
exercises general oversight with respect to the governance
of the Board. The Committee evaluates and recommends to
the Board corporate governance practices applicable to the
Firm. It also appraises the framework for assessing the
Board’s performance and self-evaluation.
Management oversight
The Firm’s senior management-level committees that are
primarily responsible for key risk-related functions include:
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 and serves as an
escalation point for risk topics and issues raised by
underlying committees and/or FRC members.
The Firmwide Control Committee (“FCC”) is an escalation
committee for senior management to review and discuss
the Firmwide operational risk environment including
identified issues, operational risk metrics and significant
events that have been escalated.
The Firmwide Fiduciary Risk Governance Committee
(“FFRGC”) provides oversight of the governance framework
for fiduciary risk or fiduciary-related conflict of interest risk
inherent in each of the Firm’s LOBs. The FFRGC approves
risk or compliance policy exceptions and reviews periodic
reports from the LOBs and control functions including
fiduciary metrics and control trends.
The Firmwide Estimations Risk Committee (“FERC”) provides
oversight of the governance framework for quantitative and
qualitative estimations and models as specified in the
Estimations and Model Risk Management Policy. The FERC
also has responsibility to set the prioritization of
estimations and model risk activities and drive consistency
through review of LOB activities and escalated issues.
The Conduct Risk Steering Committee (“CRSC”) is responsible
for reviewing, calibrating and consolidating Firmwide
Conduct Risk Appetite and setting overall direction for the
Firm’s Conduct Risk Program.
Line of Business and Regional Risk Committees are
responsible for providing oversight of the governance,
limits, and controls that are in place through the scope of
their activities. These committees review the ways in which
the particular LOB 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.
Line of Business and Corporate Control Committees oversee
the control environment of their respective business or
function. As part of that mandate, they are responsible for
reviewing indicators of elevated or emerging risks and other
data that may impact the quality and stability of the
processes in a business or function, addressing key
operational risk issues, focusing on processes with control
concerns and overseeing control remediation.
Line of Business Reputation Risk Committees review and
assess transactions, activities and clients that have the
potential for material reputation risk to the Firm.
82
JPMorgan Chase & Co./2019 Form 10-K
The Firmwide Asset and Liability Committee (“ALCO”) is
responsible for overseeing the Firm’s asset and liability
management (“ALM”) activities and the management of
liquidity risk, balance sheet, interest rate risk, and capital
risk. The ALCO is supported by the Treasurer Committee and
the Capital Governance Committee. The Treasurer
Committee is responsible for monitoring the Firm’s overall
balance sheet, liquidity risk and interest rate risk. The
Capital Governance Committee is responsible for overseeing
and providing guidance concerning the effectiveness of the
Firm’s capital framework, capital policies and regulatory
capital implementation.
The Firmwide Valuation Governance Forum (“VGF”) is
composed of senior finance and risk executives and is
responsible for overseeing the management of fair value
risks arising from valuation activities conducted across the
Firm.
Risk governance and oversight functions
The Firm manages its risk through risk governance and
oversight functions. The scope of a particular function may
include one or more drivers, types and/or impacts of risk.
For example, Country Risk Management oversees country
risk which may be a driver of risk or an aggregation of
exposures that could give rise to multiple risk types such as
credit or market risk.
The following sections discuss the risk governance and
oversight functions in place to manage the risks inherent in
the Firms business activities.
Risk governance and oversight functions
Strategic risk
Capital risk
Liquidity risk
Reputation risk
Consumer credit risk
Wholesale credit risk
Investment portfolio risk
Market risk
Country risk
Operational risk
Compliance risk
Conduct risk
Legal risk
Estimations and Model risk
Page
84
85–92
93–98
99
103–107
108–115
118
119–126
127–128
129–135
132
133
134
135
JPMorgan Chase & Co./2019 Form 10-K
83
Management’s discussion and analysis
STRATEGIC RISK MANAGEMENT
Strategic risk is the risk to earnings, capital, liquidity or
reputation associated with poorly designed or failed
business plans or inadequate response to changes in the
operating environment.
Management and oversight
The Operating Committee and the senior leadership of each
LOB and Corporate are responsible for managing the Firm’s
most significant strategic risks. Strategic risks are overseen
by IRM through participation in business reviews, LOB and
Corporate senior management committees and other
relevant governance forums and ongoing discussions. The
Board of Directors oversees management’s strategic
decisions, and the Board Risk Committee oversees IRM and
the Firm’s risk management framework.
In the process of developing business plans and strategic
initiatives, LOB and Corporate leadership identify the
associated risks that are incorporated into the Firmwide
Risk Identification process and monitored and assessed as
part of the Firmwide Risk Appetite framework.
In addition, IRM conducts a qualitative assessment of the
LOB and Corporate strategic initiatives to assess their
impact on the risk profile of the Firm.
The Firm’s strategic planning process, which includes the
development and execution of strategic initiatives, is one
component of managing the Firm’s strategic risk. Guided by
the Firm’s How We Do Business Principles (the “Principles”),
the Operating Committee and management teams in each
LOB and Corporate review and update the strategic plan
periodically. The process includes evaluating the high-level
strategic framework and performance against prior-year
initiatives, assessing the operating environment, refining
existing strategies and developing new strategies.
These strategic initiatives, along with IRM’s assessment, are
incorporated in the Firm’s budget and provided to the Board
for review.
The Firm’s balance sheet strategy, which focuses on risk-
adjusted returns, strong capital and robust liquidity, is also
a component in the management of strategic risk. Refer to
Capital Risk Management on pages 85–92 for further
information on capital risk. Refer to Liquidity Risk
Management on pages 93–98 for further information on
liquidity risk. In addition, for further information on
reputation risk, refer to Reputation Risk Management on
page 99.
84
JPMorgan Chase & Co./2019 Form 10-K
CAPITAL RISK MANAGEMENT
Capital risk is the risk the Firm has an insufficient level or
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 the Firm to build and invest in
market-leading businesses, including in highly stressed
environments. Senior management considers the
implications on the Firm’s capital prior to making any
significant 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 ensuring the Firm’s capital
strength.
Capital management oversight
The Firm has a Capital Management Oversight function
whose primary objective is to provide independent
assessment, measuring, monitoring and control of capital
risk across the Firm.
Capital Management Oversight’s responsibilities include:
• Defining, monitoring and reporting capital risk metrics;
• Establishing, calibrating and monitoring capital risk
limits and indicators, including capital risk appetite;
• Developing a process to classify, monitor and report
limit breaches; and
• Performing an independent assessment of the Firm’s
capital management activities, including changes made
to the contingency capital plan described below.
In addition, the Basel Independent Review function (“BIR”),
which is a part of the IRM function, conducts independent
assessments of the Firm’s regulatory capital framework.
These assessments are intended to ensure compliance with
the applicable regulatory capital rules in support of senior
management’s responsibility for managing capital and for
the Board Risk Committee’s oversight of management in
executing that responsibility.
Capital management
Treasury & CIO is responsible for capital management.
The primary objectives of effective capital management are
to:
• Maintain sufficient capital in order to continue to build
and invest in the Firm’s businesses through the cycle and
in stressed environments;
• Retain flexibility to take advantage of future investment
opportunities;
• Promote the Firm’s ability to serve as a source of
strength to its subsidiaries;
• Ensure the Firm operates above the minimum regulatory
capital ratios as well as maintain “well-capitalized”
status for the Firm and its insured depository institution
(“IDI”) subsidiaries at all times under applicable
regulatory capital requirements;
• Meet capital distribution objectives; and
• Maintain sufficient capital resources to operate
throughout a resolution period in accordance with the
Firm’s preferred resolution strategy.
The Firm addresses these objectives through establishing
internal minimum capital requirements and a strong capital
management governance framework, both in business as
usual conditions and in the event of stress.
Capital risk management is intended to be flexible in order
to react to a range of potential events. In its management of
capital, the Firm takes into consideration economic risk and
all applicable regulatory capital requirements to determine
the level of capital needed.
The Firm considers regulatory capital requirements as well
as an internal assessment of capital adequacy, in normal
economic cycles and in stress events, when setting its
minimum capital levels. 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.
Governance
Committees responsible for overseeing the Firm’s capital
management include the Capital Governance Committee,
the Treasurer Committee and the Firmwide ALCO. Capital
management oversight is governed through the CIO,
Treasury and Corporate (“CTC”) risk committee. In addition,
the Board Risk Committee periodically reviews the Firm’s
capital risk tolerance. Refer to Firmwide Risk Management
on pages 79–83 for additional discussion on the Board Risk
Committee and the ALCO.
Capital planning and stress testing
Comprehensive Capital Analysis and Review
The Federal Reserve requires large bank holding
companies, including the Firm, to submit on an annual basis
a capital plan that has been reviewed and approved by the
Board of Directors. The Federal Reserve uses
Comprehensive Capital Analysis and Review (“CCAR”) and
other stress testing processes to ensure that large bank
holding companies (“BHC”) 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 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.
JPMorgan Chase & Co./2019 Form 10-K
85
balance sheet assets and off-balance sheet exposures,
weighted according to risk. Two comprehensive approaches
are prescribed for calculating RWA: a standardized
approach (“Basel III Standardized”), and an advanced
approach (“Basel III Advanced”). Effective January 1, 2019,
the capital adequacy of the Firm is evaluated against the
fully phased-in measures under Basel III and represents the
lower of the Standardized or Advanced approaches. During
2018, the required capital measures were subject to the
transitional rules and as of December 31, 2018 the results
were the same on a fully phased-in and on a transitional
basis.
Basel III establishes capital requirements for calculating
credit risk RWA and market risk RWA, and in the case of
Basel III Advanced, operational risk RWA. Key differences in
the calculation of credit risk RWA between the Standardized
and Advanced approaches are that for Basel III Advanced,
credit risk RWA is based on risk-sensitive approaches 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
approaches, 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. Refer to SLR on page 90 for additional
information.
Key Regulatory Developments
Effective January 1, 2020, the Firm adopted the Financial
Instruments – Credit Losses (“CECL”) guidance under U.S.
GAAP. As provided by the U.S. banking agencies, the Firm
elected to phase-in the impact to retained earnings of $2.7
billion to regulatory capital, at 25 percent per year in each
of 2020 to 2023 (“CECL transitional period”). Based on the
Firm’s capital as of December 31, 2019, the estimated
impact to the Standardized CET1 capital ratio will be a
reduction of approximately 4 bps for each transitional year.
Refer to Accounting and Reporting Developments on pages
139-140 and Note 1 for further information.
Management’s discussion and analysis
On June 27, 2019, the Federal Reserve informed the Firm
that it did not object to the Firm’s 2019 capital plan. Refer
to Capital actions on pages 90-91 for information on
actions taken by the Firm’s Board of Directors following the
2019 CCAR results.
Internal Capital Adequacy Assessment Process
Annually, the Firm prepares the ICAAP, which informs the
Board of Directors of the ongoing assessment of the Firm’s
processes for managing the sources and uses of capital as
well as compliance with supervisory expectations for capital
planning and capital adequacy. The Firm’s ICAAP integrates
stress testing protocols with capital planning.
The CCAR and other stress testing processes assess 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. These results are reviewed by management and
the Board of Directors.
Contingency capital plan
The Firm’s contingency capital plan establishes the capital
management framework for the Firm and specifies the
principles underlying the Firm’s approach towards capital
management in normal economic conditions and during
stress. The contingency capital plan defines how the Firm
calibrates its targeted capital levels and meets minimum
capital requirements, monitors the ongoing appropriateness
of planned capital distributions, and sets out the capital
contingency actions that are expected to be taken or
considered at various levels of capital depletion during a
period of stress.
Regulatory capital
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The Office of the Comptroller of
the Currency (“OCC”) establishes similar minimum capital
requirements for the Firm’s IDI subsidiaries, including
JPMorgan Chase Bank, 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
The capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. BHCs and banks, including the
Firm and its IDI subsidiaries, including JPMorgan Chase
Bank, N.A. The minimum amount of regulatory capital that
must be held by BHCs and banks is determined by
calculating risk-weighted assets (“RWA”), which are on-
86
JPMorgan Chase & Co./2019 Form 10-K
Risk-based Capital Regulatory Minimums
The following chart presents the Firm’s Basel III minimum CET1 capital ratio during the Basel III transitional periods and on a
fully phased-in basis under the Basel III rules currently in effect.
The Firm’s Basel III Standardized risk-based ratios are
currently more binding than the Basel III Advanced risk-
based ratios, and the Firm expects that this will remain the
case for the foreseeable future.
Additional information regarding the Firm’s capital ratios, as
well as the U.S. federal regulatory capital standards to
which the Firm is subject, is presented in Note 27. Refer to
the Firm’s Pillar 3 Regulatory Capital Disclosures reports,
which are available on the Firm’s website, for further
information on the Firm’s Basel III measures.
All banking institutions are currently required to have a
minimum CET1 capital ratio of 4.5% of risk-weighted
assets. Certain banking organizations, including the Firm,
are also 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 losses
in times of financial or economic stress. The capital
conservation buffer was subject to a phase-in period that
began January 1, 2016 and continued 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 global systemically important bank (“GSIB”)
surcharge and a countercyclical capital buffer.
Under the Federal Reserve’s GSIB 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 presents the
Firm’s GSIB surcharge.
2019
2018
Fully Phased-In:
Method 1
Method 2
2.50%
3.50%
Transitional(a)
(a) The GSIB surcharge was subject to transition provisions (in 25%
N/A
increments) through the end of 2018.
2.50%
3.50%
2.625%
The Firm’s effective regulatory minimum GSIB surcharge
calculated under Method 2 remains unchanged at 3.5% for
2020.
The Federal Reserve's framework for setting the
countercyclical capital buffer takes into account the macro
financial environment in which large, internationally active
banks function. As of December 31, 2019, the U.S.
countercyclical capital buffer remained at 0%. The Federal
Reserve will continue to review the buffer at least annually.
The buffer can be increased if the Federal Reserve, FDIC and
OCC determine that systemic risks are meaningfully above
normal and can be calibrated up to an additional 2.5% of
RWA subject to a 12-month implementation period.
Failure to maintain regulatory capital equal to or in excess
of the risk-based regulatory capital minimum plus the
capital conservation buffer (inclusive of the GSIB surcharge)
and any countercyclical buffer may result in limitations to
the amount of capital that the Firm may distribute, such as
through dividends and common equity repurchases.
Leverage-based Capital Regulatory Minimums
Supplementary leverage ratio
The SLR is defined as Tier 1 capital under Basel III divided
by the Firm’s total leverage exposure. Total leverage
exposure is calculated by taking the Firm’s total average on-
balance sheet assets, less amounts permitted to be
JPMorgan Chase & Co./2019 Form 10-K
87
Management’s discussion and analysis
deducted for Tier 1 capital, and adding certain off-balance
sheet exposures, such as undrawn commitments and
derivatives potential future exposure.
Failure to maintain an SLR ratio equal to or greater than the
regulatory minimum may result in limitations on the
amount of capital that the Firm may distribute such as
through dividends and common equity repurchases.
Other regulatory capital
In addition to meeting the capital ratio requirements of
Basel III, the Firm and its IDI subsidiaries also must
maintain minimum capital and leverage ratios in order to be
“well-capitalized” under the regulations issued by the
Federal Reserve and the Prompt Corrective Action (“PCA”)
requirements of the FDIC Improvement Act (“FDICIA”),
respectively. Refer to Note 27 for additional information.
The following tables present the Firm’s risk-based and leverage-based capital measures under both the Basel III Standardized
and Advanced approaches.
(in millions)
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:
Adjusted average assets(a)
Tier 1 leverage ratio
Total leverage exposure
SLR
December 31, 2019
December 31, 2018
Standardized
Advanced
Minimum
capital ratios
Standardized(b)
Advanced(b)
Minimum
capital ratios
$
187,753
214,432
242,589
1,515,869
$
187,753
214,432
232,112
1,397,878
$
183,474
209,093
237,511
1,528,916
$
183,474
209,093
227,435
1,421,205
12.4%
14.1
16.0
13.4%
15.3
16.6
10.5%
12.0
14.0
12.0%
13.7
15.5
12.9%
14.7
16.0
9.0%
10.5
12.5
$ 2,730,239
$ 2,730,239
$ 2,589,887
$ 2,589,887
7.9%
NA
NA
7.9%
4.0%
$ 3,423,431
6.3%
5.0% (c)
8.1%
NA
NA
8.1%
4.0%
$ 3,269,988
6.4%
5.0% (c)
(a) Adjusted average assets, for purposes of calculating the Tier 1 leverage ratio, includes total quarterly average assets adjusted for on-balance sheet assets
that are subject to deduction from Tier 1 capital, predominantly goodwill and other intangible assets.
(b) The Firm’s capital ratios as of December 31, 2018 were equivalent whether calculated on a transitional or fully phased-in basis.
(c) Represents minimum SLR requirement of 3.0%, as well as supplementary leverage buffer of 2.0%.
The Firm believes that it will operate with a Basel III CET1 capital ratio between 11.5% and 12% over the medium term.
88
JPMorgan Chase & Co./2019 Form 10-K
Capital components
The following table presents reconciliations of total
stockholders’ equity to Basel III CET1 capital, Tier 1 capital
and Total capital as of December 31, 2019 and 2018.
Capital rollforward
The following table presents the changes in Basel III CET1
capital, Tier 1 capital and Tier 2 capital for the year ended
December 31, 2019.
(in millions)
Total stockholders’ equity
Less: Preferred stock
Common stockholders’ equity
Less:
Goodwill
Other intangible assets
Other CET1 capital adjustments
Add:
Certain deferred tax liabilities(a)
Standardized/Advanced CET1 capital
Preferred stock
Less: Other Tier 1 adjustments
December 31,
2019
261,330 $
December 31,
2018
256,515
$
26,993
234,337
26,068
230,447
47,823
819
323
2,381
187,753
26,993
314
47,471
748
1,034
2,280
183,474
26,068
449
Standardized/Advanced Tier 1 capital
214,432
209,093
Long-term debt and other instruments
qualifying as Tier 2 capital
Qualifying allowance for credit losses
Other
Standardized Tier 2 capital
13,733
14,314
110
28,157
13,772
14,500
146
28,418
Year Ended December 31, (in millions)
2019
Standardized/Advanced CET1 capital at December 31, 2018 $ 183,474
Net income applicable to common equity
Dividends declared on common stock
Net purchase of treasury stock
Changes in additional paid-in capital
Changes related to AOCI
Adjustment related to DVA(a)
Changes related to other CET1 capital adjustments
Change in Standardized/Advanced CET1 capital
Standardized/Advanced CET1 capital at
December 31, 2019
Standardized/Advanced Tier 1 capital at
December 31, 2018
Change in CET1 capital
Net issuance of noncumulative perpetual preferred stock
Other
Change in Standardized/Advanced Tier 1 capital
Standardized/Advanced Tier 1 capital at
December 31, 2019
34,844
(10,897)
(22,555)
(640)
2,904
1,103
(480)
4,279
187,753
209,093
4,279
925
135
5,339
214,432
Standardized Total capital
242,589
237,511
Standardized Tier 2 capital at December 31, 2018
28,418
Adjustment in qualifying allowance for
credit losses for Advanced Tier 2
capital
Advanced Tier 2 capital
Advanced Total capital
(10,477)
(10,076)
17,680
18,342
$
232,112 $
227,435
(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 CET1 capital.
Change in long-term debt and other instruments qualifying
as Tier 2
Change in qualifying allowance for credit losses
Other
Change in Standardized Tier 2 capital
Standardized Tier 2 capital at December 31, 2019
Standardized Total capital at December 31, 2019
Advanced Tier 2 capital at December 31, 2018
Change in long-term debt and other instruments qualifying
as Tier 2
Change in qualifying allowance for credit losses
Other
Change in Advanced Tier 2 capital
(39)
(186)
(36)
(261)
28,157
242,589
18,342
(39)
(587)
(36)
(662)
Advanced Tier 2 capital at December 31, 2019
Advanced Total capital at December 31, 2019
17,680
$ 232,112
(a) Includes DVA related to structured notes recorded in AOCI.
JPMorgan Chase & Co./2019 Form 10-K
89
Management’s discussion and analysis
RWA rollforward
The following table presents changes in the components of RWA under Basel III Standardized and Advanced approaches for the
year ended December 31, 2019. The amounts in the rollforward categories are estimates, based on the predominant driver of
the change.
Standardized
Advanced
Year ended December 31, 2019
(in millions)
December 31, 2018
Model & data changes(a)
Portfolio runoff(b)
Movement in portfolio levels(c)
Changes in RWA
Credit risk
RWA
$ 1,423,053 $
Market risk
RWA
105,863 $
Total RWA
1,528,916
$
Credit risk
RWA
926,647 $
Market risk
RWA
105,976 $
Operational risk
RWA
(6,406)
(5,800)
29,373
17,167
(24,433)
—
(5,781)
(30,214)
(30,839)
(5,800)
23,592
(13,047)
(34,584)
(5,500)
46,385
6,301
(24,433)
—
(5,891)
(30,324)
Total RWA
388,582 $
1,421,205
—
—
696
696
(59,017)
(5,500)
41,190
(23,327)
December 31, 2019
$ 1,440,220 $
75,649 $
1,515,869
$
932,948 $
75,652 $
389,278 $
1,397,878
(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); and an update to the wholesale credit risk Advanced Approach parameters.
(b) Portfolio runoff for credit risk RWA primarily reflects reduced risk from position rolloffs in legacy portfolios in Home Lending.
(c) Movement in portfolio levels (inclusive of rule changes) refers to: changes in book size, composition, credit quality, and market movements for credit risk RWA;
changes in position and market movements for market risk RWA; and updates to cumulative losses for operational risk RWA.
Supplementary leverage ratio
The following table presents the components of the Firm’s
SLR as of December 31, 2019 and 2018.
(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,
2019
December 31,
2018
$
214,432
2,777,270
$
$
209,093
2,636,505
47,031
2,730,239
693,192
46,618
2,589,887
680,101
$
3,423,431
$
3,269,988
6.3%
6.4%
(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.
Refer to Note 27 for JPMorgan Chase Bank, N.A.’s SLR
ratios.
Line of business equity
Each business segment is allocated capital by taking into
consideration a variety of factors including capital levels of
similarly rated peers and applicable regulatory capital
requirements. ROE is measured and internal targets for
expected returns are established as key measures of a
business segment’s performance.
The Firm’s allocation methodology incorporates Basel III
Standardized RWA, Basel III Advanced RWA, leverage, the
GSIB surcharge, and a simulation of capital in a severe
stress environment. Periodically, the assumptions and
methodologies used to allocate capital are assessed and as
a result, the capital allocated to the LOBs may change. The
Firm will assess impacts from any regulatory changes to the
capital framework as changes are finalized.
The table below presents the Firm’s assessed level of capital
allocated to each LOB as of the dates indicated.
Line of business equity (Allocated capital)
(in billions)
December 31,
January 1,
2020
2019
2018
Consumer & Community Banking
$
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
Corporate(a)
52.0
80.0
22.0
10.5
67.1
$
52.0 $
80.0
22.0
10.5
69.8
51.0
70.0
20.0
9.0
80.4
Total common stockholders’ equity $
231.6
$ 234.3 $ 230.4
(a) Includes the $2.7 billion (after-tax) impact to retained earnings upon
the adoption of CECL on January 1, 2020.
Capital actions
Preferred stock
Preferred stock dividends declared were $1.6 billion for the
year ended December 31, 2019.
During the year ended December 31, 2019 and through the
date of filing of the 2019 Form 10-K, the Firm issued and
redeemed several series of non-cumulative preferred stock.
Refer to Note 21 for additional information on the Firm’s
preferred stock, including issuances and redemptions.
Common stock dividends
The Firm’s common stock dividends are planned as part of
the Capital Management governance framework in line with
the Firm’s capital management objectives.
On September 17, 2019, the Firm announced that its Board
of Directors had declared a quarterly common stock
dividend of $0.90 per share, an increase from $0.80 per
share, effective with the dividend paid on October 31,
2019. The Firm’s dividends are subject to the Board of
Directors’ approval on a quarterly basis.
Refer to Note 21 and Note 26 for information regarding
dividend restrictions.
90
JPMorgan Chase & Co./2019 Form 10-K
The following table shows the common dividend payout
ratio based on net income applicable to common equity.
The minimum external TLAC and the minimum level of
eligible long-term debt requirements are shown below:
Year ended December 31,
Common dividend payout ratio
2019
31%
2018
30%
2017
33%
Common equity
The Firm’s Board of Directors has authorized the repurchase
of up to $29.4 billion of gross common equity between July
1, 2019 and June 30, 2020 as part of the Firm’s annual
capital plan. As of December 31, 2019, $15.6 billion of
authorized repurchase capacity remained under this
common equity repurchase program.
The following table sets forth the Firm’s repurchases of
common equity for the years ended December 31, 2019,
2018 and 2017.
Year ended December 31, (in millions)
2019
2018
2017
Total number of shares of common
stock repurchased
Aggregate purchase price of common
stock repurchases
213.0
181.5
166.6
$ 24,121
$ 19,983
$ 15,410
The Firm from time to time enters into written trading plans
under Rule 10b5-1 of the Securities Exchange Act of 1934
to facilitate repurchases in accordance with the common
equity repurchase program. A Rule 10b5-1 repurchase plan
allows the Firm to repurchase its equity during periods
when it may otherwise not be repurchasing common equity
— for example, during internal trading blackout periods.
The authorization to repurchase common equity is 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.
Refer to Part II, Item 5: Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities on page 30 of the 2019 Form 10-K for
additional information regarding repurchases of the Firm’s
equity securities.
Other capital requirements
Total Loss-Absorbing Capacity (“TLAC”)
Effective January 1, 2019, the Federal Reserve’s TLAC rule
requires the U.S. GSIB top-tier holding companies, including
JPMorgan Chase & Co., to maintain minimum levels of
external TLAC and eligible long-term debt (“eligible LTD”).
(a) RWA is the greater of Standardized and Advanced.
Failure to maintain TLAC equal to or in excess of the
regulatory minimum plus applicable buffers may result in
limitations to the amount of capital that the Firm may
distribute, such as through dividends and common equity
repurchases.
The following table presents the eligible external TLAC and
LTD amounts, as well as a representation of the amounts as
a percentage of the Firm’s total RWA and total leverage
exposure.
December 31, 2019
(in billions, except ratio)
Total eligible TLAC & LTD
% of RWA
Minimum requirement
Surplus/(shortfall)
% of total leverage exposure
Minimum requirement
Surplus/(shortfall)
Eligible
external TLAC
Eligible LTD
$
$
$
386.4
$
161.8
25.5%
10.7%
23.0
37.7
$
11.3%
9.5
61.2
$
9.5
17.8
4.7%
4.5
7.8
Refer to Part I, Item 1A: Risk Factors on pages 6–28 of the
2019 Form 10-K for information on the financial
consequences to holders of the Firm’s debt and equity
securities in a resolution scenario.
JPMorgan Chase & Co./2019 Form 10-K
91
Management’s discussion and analysis
Broker-dealer regulatory capital
J.P. Morgan Securities
JPMorgan Chase’s principal U.S. broker-dealer subsidiary is
J.P. Morgan Securities. J.P. Morgan Securities is subject to
Rule 15c3-1 under the Securities Exchange Act of 1934
(the “Net Capital Rule”). J.P. Morgan Securities is also
registered as a futures commission merchant and subject to
the Rules of the Commodity Futures Trading Commission
(“CFTC”).
J.P. Morgan Securities has elected to compute its minimum
net capital requirements in accordance with the “Alternative
Net Capital Requirements” of the Net Capital Rule.
The following table presents J.P. Morgan Securities’ net
capital:
December 31, 2019
(in millions)
Net Capital
Actual
Minimum
$
21,050 $
3,751
In addition to its alternative minimum net capital
requirements, J.P. Morgan Securities is required to hold
“tentative net capital” in excess of $1.0 billion and is also
required to notify the SEC in the event that its tentative net
capital is less than $5.0 billion. Tentative net capital is net
capital before deducting market and credit risk charges as
defined by the Net Capital Rule. As of December 31, 2019,
J.P. Morgan Securities maintained tentative net capital in
excess of the minimum and notification requirements.
J.P. Morgan Securities plc
J.P. Morgan Securities plc is a wholly-owned subsidiary of
JPMorgan Chase Bank, N.A. and has authority to engage in
banking, investment banking and broker-dealer activities.
J.P. Morgan Securities plc is jointly regulated by the U.K.
Prudential Regulation Authority (“PRA”) and the Financial
Conduct Authority (“FCA”). J.P. Morgan Securities plc is
subject to the European Union Capital Requirements
Regulation and the PRA capital rules, each of which
implemented Basel III and thereby subject J.P. Morgan
Securities plc to its requirements.
The Bank of England requires, on a transitional basis, that
U.K. banks, including U.K. regulated subsidiaries of overseas
groups, maintain a minimum requirement for own funds
and eligible liabilities (“MREL”). As of December 31, 2019,
J.P. Morgan Securities plc was compliant with the
requirements of the MREL rule.
The following table presents J.P. Morgan Securities plc’s
capital metrics:
December 31, 2019
(in millions, except ratios)
Total capital
CET1 ratio
Total capital ratio
Estimated
Minimum ratios
$
52,983
16.5%
21.3%
4.5%
8.0%
92
JPMorgan Chase & Co./2019 Form 10-K
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 independent assessment,
measurement, monitoring, and control of liquidity risk
across the Firm. Liquidity Risk Oversight’s responsibilities
include:
• Defining, monitoring and reporting liquidity risk metrics;
• Establishing and monitoring limits and indicators,
including Liquidity Risk Appetite;
• Developing a process to classify, monitor and report
limit breaches;
• Performing an independent review of liquidity risk
management processes;
• Monitoring and reporting internal firmwide and legal
entity liquidity stress tests as well as regulatory defined
liquidity stress tests;
• Approving or escalating for review new or updated
liquidity stress assumptions; and
• Monitoring liquidity positions, balance sheet variances
and funding activities;
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.
As part of the Firm’s overall liquidity management strategy,
the Firm manages liquidity and funding using a centralized,
global approach in order to:
•
Optimize liquidity sources and uses;
• Monitor exposures;
•
Identify constraints on the transfer of liquidity between
the Firm’s legal entities; and
• Maintain the appropriate amount of surplus liquidity at
a firmwide and legal entity level, where relevant.
In the context of the Firm’s liquidity management, Treasury
and CIO is responsible for:
• Analyzing and understanding the liquidity characteristics
of the assets and liabilities of the Firm, LOBs 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, 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.
Governance
Committees responsible for liquidity governance include the
firmwide ALCO as well as LOB and regional ALCOs, the
Treasurer Committee, and the CTC Risk Committee. In
addition, the Board Risk Committee reviews and
recommends to the Board of Directors, for formal approval,
the Firm’s liquidity risk tolerances, liquidity strategy, and
liquidity policy. Refer to Firmwide Risk Management on
pages 79–83 for further discussion of ALCO and other risk-
related committees.
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 other stress
tests are performed 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 its intermediate holding company, JPMorgan Chase
Holdings LLC (the “IHC”) provides funding support to the
ongoing operations of the Parent Company and its
subsidiaries. The Firm maintains liquidity at the Parent
Company, IHC, and operating subsidiaries at levels sufficient
to comply with liquidity risk tolerances and minimum
JPMorgan Chase & Co./2019 Form 10-K
93
The Firm’s average LCR increased during the three months
ended December 31, 2019, compared with both the three-
month periods ended September 30, 2019 and December
31, 2018, due to an increase in HQLA from unsecured long-
term debt issuances. Additionally, liquidity in JPMorgan
Chase Bank, N.A. increased during the fourth quarter and
from the prior year period primarily due to growth in stable
deposits. This increase in excess liquidity is excluded from
the Firm’s reported LCR under the LCR rule.
The Firm’s average LCR fluctuates from period to period,
due to changes in its HQLA and estimated net cash outflows
as a result of ongoing business activity. Refer to the Firm’s
U.S. LCR Disclosure reports, which are available on the
Firm’s website for a further discussion of the Firm’s LCR.
Other liquidity sources
In addition to the assets reported in the Firm’s HQLA above,
the Firm had unencumbered marketable securities, such as
equity securities and fixed income debt securities, that the
Firm believes would be available to raise liquidity of
approximately $315 billion and $226 billion as of
December 31, 2019 and 2018, respectively. This includes
securities included as part of the excess liquidity at
JPMorgan Chase Bank, N.A. that are not transferable to non-
bank affiliates, as described above. The amount of such
securities increased from the prior year.
The Firm also had available borrowing capacity at FHLBs
and the discount window at the Federal Reserve Bank as a
result of collateral pledged by the Firm to such banks of
approximately $322 billion and $276 billion as of
December 31, 2019 and 2018, respectively. This borrowing
capacity excludes the benefit of cash and securities
reported in the Firm’s HQLA or other unencumbered
securities that are currently pledged at the Federal Reserve
Bank discount window and other central banks. Available
borrowing capacity increased from the prior year primarily
as a result of an increase in collateral available to be
pledged as a result of the merger of Chase Bank USA, N.A.
with and into JPMorgan Chase Bank, N.A., and an increase
in available collateral as a result of maturities of borrowings
from FHLBs. Although available, the Firm does not view this
borrowing capacity at the Federal Reserve Bank discount
window and the other central banks as a primary source of
liquidity.
Management’s discussion and analysis
liquidity requirements, and to manage through periods of
stress when access to normal funding sources may be
disrupted.
Contingency funding plan
The Firm’s contingency funding plan (“CFP”), which is
approved by the firmwide ALCO and the Board Risk
Committee, 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 emerging 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.
Liquidity Coverage Ratio
The LCR rule requires that the Firm maintain an amount of
unencumbered High Quality Liquid Assets (“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. that is in excess of its stand-alone 100%
minimum LCR requirement, and that is not transferable to
non-bank affiliates, must be excluded from the Firm’s
reported HQLA.
Estimated net cash outflows are based on standardized
stress outflow and inflow rates prescribed in the LCR rule,
which are applied to the balances of the Firm’s assets,
sources of funds, and obligations. The LCR is required to be
a minimum of 100%.
The following table summarizes the Firm’s average LCR for
the three months ended December 31, 2019, September
30, 2019 and December 31, 2018 based on the Firm’s
interpretation of the finalized LCR framework.
Average amount
(in millions)
December 31,
2019
September
30, 2019
December 31,
2018
Three months ended
HQLA
Eligible cash(a)
$
203,296
$
199,757
Eligible securities(b)(c)
Total HQLA(d)
Net cash outflows
LCR
Net excess HQLA (d)
341,990
545,286
469,402
116%
75,884
$
$
$
337,704
537,461
468,452
115%
69,009
$
$
$
$
$
$
$
297,069
232,201
529,270
467,704
113%
61,566
(a) Represents cash on deposit at central banks, primarily the Federal
Reserve Banks.
(b) Predominantly U.S. Treasuries, U.S. GSE and government agency MBS,
and sovereign bonds net of applicable haircuts under the LCR rule.
(c) HQLA eligible securities may be reported in securities borrowed or
purchased under resale agreements, trading assets, or investment
securities on the Firm’s Consolidated balance sheets.
(d) Excludes average excess HQLA at JPMorgan Chase Bank, N.A. that are
not transferable to non-bank affiliates.
94
JPMorgan Chase & Co./2019 Form 10-K
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 stable deposits, secured and
unsecured funding in the capital markets and stockholders’
equity. Deposits are the primary funding source for JPMorgan
Chase Bank, N.A. Additionally, JPMorgan Chase Bank, N.A.
may also access funding through short- or long-term secured
borrowings, through the issuance of unsecured long-term
debt, or from borrowings from the Parent company or the
IHC. The Firm’s non-bank subsidiaries are primarily funded
from long-term unsecured borrowings and short-term
secured borrowings, primarily securities loaned or sold under
repurchase agreements. Excess funding is invested by
Treasury and CIO in the Firm’s investment securities portfolio
or deployed in cash or other short-term liquid investments
based on their interest rate and liquidity risk characteristics.
Deposits
The table below summarizes, by LOB, the period-end and average deposit balances as of and for the years ended December 31,
2019 and 2018.
As of or for the year ended December 31,
Average
(in millions)
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
Corporate
Total Firm
Deposits provide a stable source of funding and reduce the
Firm’s reliance on the wholesale funding markets. A
significant portion of the Firm’s deposits are consumer
deposits 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, 2019 and 2018.
As of December 31,
(in billions except ratios)
Deposits
Deposits as a % of total liabilities
Loans
Loans-to-deposits ratio
2019
2018
$
1,562.4
$
1,470.7
64%
959.8
61%
62%
984.6
67%
2019
2018
2019
2018
$
718,416 $
678,854
$
693,550 $
670,388
511,843
184,115
147,804
253
482,084
170,859
138,546
323
515,913
172,666
140,118
820
477,250
170,822
137,272
729
$
1,562,431 $
1,470,666
$
1,523,067 $
1,456,461
The Firm believes that average deposit balances are
generally more representative of deposit trends than period-
end deposit balances.
Average deposits across the Firm increased for the year
ended December 31, 2019.
The increase in CIB reflects growth in operating deposits
driven by client activity, primarily in Treasury Services, and
an increase in client-driven net issuances of structured notes
in Markets. The increase in CCB was driven by continued
growth in new accounts. The increases in AWM and CB were
primarily driven by growth in interest-bearing deposits; for
AWM, the growth was partially offset by migration,
predominantly into the Firm’s investment-related products.
Refer to the discussion of the Firm’s Business Segment
Results and the Consolidated Balance Sheets Analysis on
pages 60–78 and pages 52–53, respectively, for further
information on deposit and liability balance trends.
JPMorgan Chase & Co./2019 Form 10-K
95
Management’s discussion and analysis
The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2019 and 2018,
and average balances for the years ended December 31, 2019 and 2018. Refer to the Consolidated Balance Sheets Analysis on
pages 52–53 and Note 20 for additional information.
Sources of funds (excluding deposits)
As of or for the year ended December 31,
(in millions)
Commercial paper
Other borrowed funds
Total short-term unsecured funding
Securities sold under agreements to repurchase(a)
Securities loaned(a)
Other borrowed funds(b)
Obligations of Firm-administered multi-seller conduits(c)
Total short-term secured funding
Senior notes
Trust preferred securities
Subordinated debt
Structured notes(d)
Total long-term unsecured funding
Credit card securitization(c)
FHLB advances
Other long-term secured funding(e)
Total long-term secured funding
Preferred stock(f)
Common stockholders’ equity(f)
2019
2018
2019
2018
Average
$
$
$
$
$
$
$
$
$
$
14,754 $
7,544
22,298 $
175,709 $
5,983
18,622
9,223
209,537 $
30,059
8,789
38,848
171,975
9,481
30,428
4,843
216,727
166,185 $
162,733
—
17,591
74,724
—
16,743
53,090
258,500 $
232,566
6,461 $
13,404
28,635
4,363
44,455
5,010
39,459 $
62,869
26,993 $
26,068
234,337 $
230,447
$
$
$
$
$
$
$
$
$
$
22,977 $
10,369
33,346 $
217,807 $
8,816
26,050
10,929
263,602 $
27,834
11,369
39,203
177,629
10,692
24,320
3,396
216,037
168,546 $
153,162
—
17,387
65,487
471
16,178
49,640
251,420 $
219,451
9,707 $
15,900
34,143
4,643
52,121
4,842
48,493 $
72,863
27,511 $
26,249
232,907 $
229,222
(a) Primarily consists of short-term securities loaned or sold under agreements to repurchase.
(b) There were no FHLB advances with original maturities of less than one year as of December 31, 2019. As of December 31, 2018, includes FHLB advances with
original maturities of less than one year of $11.4 billion.
(c) Included in beneficial interests issued by consolidated variable interest entities on the Firm’s Consolidated balance sheets.
(d) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
(e) Includes long-term structured notes which are secured.
(f) Refer to Capital Risk Management on pages 85–92, Consolidated statements of changes in stockholders’ equity on page 149, and Note 21 and Note 22 for additional
information on preferred stock and common stockholders’ equity.
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, U.S. GSE and government agency MBS.
Securities loaned or sold under agreements to repurchase
were relatively flat at December 31, 2019, compared with
December 31, 2018, as the net increase from the Firm’s
participation in the Federal Reserve’s open market
operations was offset by client-driven activities, and lower
secured financing of trading assets-debt instruments, all 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 issuance of wholesale commercial
paper. The decrease in commercial paper at December 31,
2019, from December 31, 2018, was due to lower net
issuance primarily for short-term liquidity management.
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
optimizing funding costs. The Firm evaluates various
funding markets, tenors and currencies in creating its
optimal long-term funding plan.
96
JPMorgan Chase & Co./2019 Form 10-K
The significant majority of the Firm’s long-term unsecured funding is issued by the Parent Company to provide 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, 2019 and 2018. Refer to Note
20 for additional information on long-term debt.
Long-term unsecured funding
Year ended December 31,
(Notional in millions)
Issuance
Senior notes issued in the U.S. market
Senior notes issued in non-U.S. markets
Total senior notes
Structured notes(a)
Total long-term unsecured funding – issuance
Maturities/redemptions
Senior notes
Subordinated debt
Structured notes
2019
2018
2019
2018
Parent Company
Subsidiaries
$
14,000 $
22,000
$
1,750 $
9,562
5,867
19,867
5,844
1,502
23,502
2,444
—
1,750
33,563
—
9,562
25,410
25,711 $
25,946
$
35,313 $
34,972
18,098 $
19,141
$
5,367 $
4,466
183
2,944
136
2,678
—
—
19,271
15,049
$
$
Total long-term unsecured funding – maturities/redemptions
$
21,225 $
21,955
$
24,638 $
19,515
(a) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
The Firm can also raise secured long-term funding through securitization of consumer credit card loans and advances from the
FHLBs. The following table summarizes the securitization issuance and FHLB advances and their respective maturities or
redemptions for the years ended December 31, 2019 and 2018.
Long-term secured funding
Year ended December 31,
(in millions)
Credit card securitization
FHLB advances
Other long-term secured funding(a)
Total long-term secured funding
Issuance
Maturities/Redemptions
2019
2018
2019
2018
$
$
— $
1,396
$
6,975 $
9,250
—
204
9,000
377
15,817
25,159
927
289
204 $
10,773
$
23,719 $
34,698
(a) 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. Refer to Note 14 for further
description of the client-driven loan securitizations.
JPMorgan Chase & Co./2019 Form 10-K
97
Management’s discussion and analysis
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. 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.
Additionally, the Firm’s funding requirements for VIEs and
other third- party commitments may be adversely affected
by a decline in credit ratings.
The credit ratings of the Parent Company and the Firm’s principal bank and non-bank subsidiaries as of December 31, 2019,
were as follows.
JPMorgan Chase & Co.
JPMorgan Chase Bank, N.A.(a)
J.P. Morgan Securities LLC
J.P. Morgan Securities plc
December 31, 2019
Moody’s Investors Service
Standard & Poor’s
Fitch Ratings
Long-term
issuer
Short-term
issuer
A2
A-
AA-
P-1
A-2
F1+
Outlook
Stable
Stable
Stable
Long-term
issuer
Short-term
issuer
Aa2
A+
AA
P-1
A-1
F1+
Outlook
Stable
Stable
Stable
Long-term
issuer
Short-term
issuer
Aa3
A+
AA
P-1
A-1
F1+
Outlook
Stable
Stable
Stable
(a) On May 18, 2019, Chase Bank USA, N.A. merged with and into JPMorgan Chase Bank, N.A., with JPMorgan Chase Bank, N.A. as the surviving bank. The
credit rating for JPMorgan Chase Bank, N.A. reflects the credit rating of the merged entity.
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 and
liquidity ratios, strong credit quality and risk management
controls, and diverse funding sources. Rating agencies
continue to evaluate economic and geopolitical trends,
regulatory developments, future profitability, risk
management practices, and litigation matters, as well as
their broader ratings methodologies. Changes in any of
these factors could lead to changes in the Firm’s credit
ratings.
98
JPMorgan Chase & Co./2019 Form 10-K
Governance and oversight
The Firm’s Reputation Risk Governance policy establishes
the principles for managing reputation risk for the Firm. It is
the responsibility of employees in each LOB and Corporate
to consider the reputation of the Firm when deciding
whether to offer a new product, engage in a transaction or
client relationship, enter a new jurisdiction, initiate a
business process or other matters. Increasingly,
sustainability, social responsibility and environmental
impacts are important considerations in assessing the
Firm’s reputation risk, and are considered as part of
reputation risk governance.
Reputation risk issues deemed material are escalated as
appropriate.
REPUTATION RISK MANAGEMENT
Reputation risk is the risk that an action or inaction may
negatively impact the Firm’s integrity and reduce
confidence in the Firm’s competence held by various
constituents, including clients, counterparties, customers,
investors, regulators, employees, communities or the
broader public.
Organization and management
Reputation Risk Management is an independent risk
management function that establishes the governance
framework for managing reputation risk across the Firm. As
reputation risk is inherently difficult to identify, manage,
and quantify, an independent reputation risk management
governance function is critical.
The Firm’s reputation risk management function includes
the following activities:
•
Establishing a Firmwide Reputation Risk Governance
policy and standards consistent with the reputation risk
framework
• Managing the governance infrastructure and processes
that support consistent identification, escalation,
management and monitoring of reputation risk issues
Firmwide
•
Providing guidance to LOB Reputation Risk Offices
(“RRO”), as appropriate
The types of events that give rise to reputation risk are
broad and could be introduced in various ways, including by
the Firm’s employees and the clients, customers and
counterparties with which the Firm does business. These
events could result in financial losses, litigation and
regulatory fines, as well as other damages to the Firm.
JPMorgan Chase & Co./2019 Form 10-K
99
Management’s discussion and analysis
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, including consumer credit risk,
wholesale credit risk, and investment portfolio risk.
Credit risk management
Credit risk is the risk associated with the default or change
in credit profile of a client, counterparty or customer. The
Firm provides credit to a variety of customers, ranging 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 Firm’s credit risk
management governance includes the following activities:
• Establishing a credit risk policy framework
• Monitoring, measuring and managing credit risk across all
portfolio segments, including transaction and exposure
approval
• Setting industry and geographic concentration limits, as
appropriate, and establishing underwriting guidelines
• Assigning and managing credit authorities in connection
with the approval of 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 the methodology and estimates
described in Note 13, the Firm estimates credit losses for its
exposures. The allowance for loan losses reflects credit
losses related to the consumer and wholesale held-for-
investment loan portfolios, and the allowance for lending-
related commitments reflects credit losses related to the
Firm’s lending-related commitments. Refer to Note 13 and
Critical Accounting Estimates used by the Firm on pages
136-138 for further information.
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.
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.
100
JPMorgan Chase & Co./2019 Form 10-K
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.
Refer to Note 12 for further discussion of consumer and
wholesale loans.
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 geography are
prepared, 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.
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 LOBs.
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 periodically as deemed appropriate by
management. 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, that is the risk that exposure to a
counterparty is positively correlated with the impact of a
default by the same counterparty, which could cause
exposure to increase at the same time as the counterparty’s
capacity to meet its obligations is decreasing - is actively
monitored as this risk could result in greater exposure 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
JPMorgan Chase & Co./2019 Form 10-K
101
Management’s discussion and analysis
CREDIT PORTFOLIO
Credit risk is the risk associated with the default or change
in credit profile of a client, counterparty or customer.
In the following tables, reported loans include loans
retained (i.e., held-for-investment); loans held-for-sale; and
certain loans accounted for at fair value. The following
tables do not include loans which the Firm accounts for at
fair value and classifies as trading assets; refer to Notes 2
and 3 for further information regarding these loans. Refer
to Notes 12, 28, and 5 for additional information on the
Firm’s loans, lending-related commitments and derivative
receivables, including the Firm’s accounting policies.
Refer to Note 10 for information regarding the credit risk
inherent in the Firm’s investment securities portfolio; and
refer to Note 11 for information regarding credit risk
inherent in the securities financing portfolio. Refer to
Consumer Credit Portfolio on pages 103–107 and Note 12
for a further discussion of the consumer credit environment
and consumer loans. Refer to Wholesale Credit Portfolio on
pages 108–115 and Note 12 for a further discussion of the
wholesale credit environment and wholesale loans.
Total credit portfolio
December 31,
(in millions)
Credit exposure
Nonperforming(d)(e)
2019
2018
2019
2018
Loans retained
$
945,601 $
969,415
$
3,983 $
4,611
Loans held-for-sale
Loans at fair value
Total loans – reported
Derivative receivables
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
7,064
7,104
959,769
49,766
11,988
3,151
984,554
54,213
33,706
30,217
7
90
—
220
4,080
4,831
30
—
60
—
1,043,241
1,068,984
4,110
4,891
NA
NA
NA
NA
NA
NA
1,106,247
1,039,258
344
43
387
474
269
30
299
469
Total credit portfolio
$ 2,149,488 $ 2,108,242
$
4,971 $
5,659
$
(18,030) $
(12,682) $
— $
—
(16,009)
(15,322)
NA
NA
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
Average retained loans
Loans
Loans – reported, excluding
residential real estate PCI loans
Net charge-off rates
Loans
Loans – excluding PCI
2019
2018
$
5,629
$
4,856
941,919
936,829
919,702
909,386
0.60%
0.61
0.52%
0.53
(a) Receivables from customers and other primarily represents brokerage-
related held-for-investment customer receivables.
(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. Refer to Credit
derivatives on page 115 and Note 5 for additional information.
(c) Includes collateral related to derivative instruments where appropriate
legal opinions have not been either sought or obtained with respect to
master netting agreements.
(d) Excludes PCI loans. The Firm is recognizing interest income on each
pool of PCI loans as each of the pools is performing.
(e) At December 31, 2019 and 2018, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $961 million and $2.6 billion, respectively,
and real estate owned (“REO”) insured by U.S. government agencies of
$41 million and $75 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”).
102
JPMorgan Chase & Co./2019 Form 10-K
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 low unemployment
and increasing home prices. Refer to Note 12 for further
information on the consumer loan portfolio. Refer to Note 28
for further information on lending-related commitments.
JPMorgan Chase & Co./2019 Form 10-K
103
Management’s discussion and analysis
The following table presents consumer credit-related information with respect to the credit portfolio held by CCB, scored prime
mortgage and scored home equity loans held by AWM, and scored prime mortgage loans held by Corporate. Refer to Note 12 for
further information about the Firm’s nonaccrual and charge-off accounting policies.
Total loans, excluding PCI loans and loans held-for-sale
311,675
349,603
3,140
3,461
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
Home equity
Auto(a)(b)
Consumer & Business Banking(b)(c)
Loans – PCI
Home equity
Prime mortgage
Subprime mortgage
Option ARMs
Total loans – PCI
Total loans – retained
Loans held-for-sale
Total consumer, excluding credit card loans
Lending-related commitments(d)
Receivables from customers
Total consumer exposure, excluding credit card
Credit Card
Loans retained(e)
Loans held-for-sale
Total credit card loans
Lending-related commitments(d)
Total credit card exposure
Total consumer credit portfolio
Memo: Total consumer credit portfolio, excluding PCI
Credit exposure
Nonaccrual loans(f)(g)
Net charge-offs/
(recoveries)(h)
Net charge-off/
(recovery) rate(h)(i)
2019
2018
2019
2018
2019
2018
2019
2018
$
199,037
$
231,078
$
1,618 $
1,765
$
(44) $
(291)
(0.02)% (0.13)%
23,917
61,522
27,199
28,340
63,573
26,612
1,162
1,323
113
247
128
245
7,377
3,965
1,740
7,281
20,363
332,038
3,002
335,040
51,412
—
386,452
8,963
4,690
1,945
8,436
24,034
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
373,637
3,140
3,461
95
2
—
373,732
3,142
3,461
46,066
154
419,952
(46)
206
296
412
NA
NA
NA
NA
NA
412
NA
412
(5)
(0.18)
(0.02)
243
236
183
NA
NA
NA
NA
NA
183
NA
183
0.33
1.11
0.13
NA
NA
NA
NA
NA
0.12
NA
0.12
0.38
0.90
0.05
NA
NA
NA
NA
NA
0.05
NA
0.05
168,924
156,616
—
168,924
650,720
819,644
16
156,632
605,379
762,011
—
—
—
—
—
—
4,848
4,518
NA
NA
4,848
4,518
3.10
NA
3.10
3.10
NA
3.10
$
$
1,206,096
1,185,733
$
$
1,181,963
1,157,929
$
$
3,142 $
3,461
3,142 $
3,461
$
$
5,260 $
4,701
1.04 %
0.90 %
5,260 $
4,701
1.09 %
0.95 %
(a) At December 31, 2019 and 2018, excluded operating lease assets of $22.8 billion and $20.5 billion, respectively. These operating lease assets are included
in other assets on the Firm’s Consolidated balance sheets. Refer to Note 18 for further information.
(b) Includes certain business banking and auto dealer risk-rated loans for which the wholesale methodology is applied 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) Predominantly includes Business Banking loans.
(d) Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, and
does not anticipate, that all available lines of credit would be used at the same time. For credit card commitments, and if certain conditions are met, home
equity commitments, the Firm can reduce or cancel these lines of credit by providing the borrower notice or, in some cases as permitted by law, without
notice. Refer to Note 28 for further information.
(e) Includes billed interest and fees net of an allowance for uncollectible interest and fees.
(f) At December 31, 2019 and 2018, nonaccrual loans excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $961
million and $2.6 billion, respectively. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In addition, the
Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status, as permitted by regulatory guidance issued by the FFIEC.
(g) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as each of the pools is performing.
(h) Net charge-offs/(recoveries) and net charge-off/(recovery) rates excluded write-offs in the PCI portfolio of $151 million and $187 million for the years
ended December 31, 2019 and 2018, respectively. These write-offs decreased the allowance for loan losses for PCI loans. Refer to Allowance for Credit
Losses on pages 116–117 for further information.
(i) Average consumer loans held-for-sale were $2.9 billion and $387 million for the years ended December 31, 2019 and 2018, respectively. These amounts
were excluded when calculating net charge-off/(recovery) rates.
104
JPMorgan Chase & Co./2019 Form 10-K
Consumer, excluding credit card
Portfolio analysis
Loan balances decreased from December 31, 2018 due to
lower residential real estate loans, predominantly driven by
loan sales.
The following discussions provide information concerning
individual loan products, excluding PCI loans which are
addressed separately. Refer to Note 12 for further
information about this portfolio, including information
about delinquencies, loan modifications and other credit
quality indicators.
Residential mortgage: The residential mortgage portfolio,
including loans held-for-sale, predominantly consists of
prime mortgage loans. The portfolio decreased from
December 31, 2018 driven by paydowns as well as loan
sales in Home Lending, largely offset by originations of
prime mortgage loans that have been retained on the
balance sheet. Net recoveries for the year ended
December 31, 2019 were lower when compared with the
prior year as the prior year benefited from larger recoveries
on loan sales.
At December 31, 2019 and 2018, the Firm’s residential
mortgage portfolio included $22.4 billion and $21.6 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, predominantly
in AWM. Performance of this portfolio for the year ended
December 31, 2019 was consistent with the performance of
the broader residential mortgage portfolio for the same
period.
The following table provides a summary of the Firm’s
residential mortgage portfolio insured and/or guaranteed
by U.S. government agencies, including loans held-for-sale.
The Firm monitors its exposure to certain potential
unrecoverable claim payments related to government
insured loans and considers this exposure in estimating the
allowance for loan losses.
(in millions)
Current
30-89 days past due
90 or more days past due
December 31,
2019
December 31,
2018
$
1,280 $
695
961
2,884
1,528
2,600
7,012
Total government guaranteed loans
$
2,936 $
Home equity: The home equity portfolio declined from
December 31, 2018 primarily reflecting paydowns.
At December 31, 2019, approximately 90% of the Firm’s
home equity portfolio consists of home equity lines of credit
(“HELOCs”) and the remainder consisted of home equity
loans (“HELOANs”). HELOANs are generally fixed-rate,
closed-end, amortizing loans, with terms ranging from 3–30
years. In general, HELOCs originated by the Firm are
revolving loans for a 10-year period, after which time the
HELOC recasts into a loan with a 20-year amortization
period.
The carrying value of HELOCs outstanding was $22 billion at
December 31, 2019. This amount included $10 billion of
HELOCs that have recast from interest-only to fully
amortizing payments or have been modified and $3 billion
of 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.
Auto: The auto portfolio predominantly consists of prime-
quality loans. The portfolio declined when compared with
December 31, 2018, as paydowns and charge-offs or
liquidation of delinquent loans were predominantly offset
by new originations.
Consumer & Business Banking: Consumer & Business
Banking loans increased when compared with
December 31, 2018 as loan originations were
predominantly offset by paydowns and charge-offs of
delinquent loans. Net charge-offs for the year ended
December 31, 2019 increased when compared with the
prior year primarily due to higher deposit overdraft losses.
Purchased credit-impaired loans: PCI loans represent
certain loans that were acquired and deemed to be credit-
impaired on the acquisition date. PCI loans decreased from
December 31, 2018 due to portfolio run-off. As of
December 31, 2019, approximately 9% of the option ARM
PCI loans were delinquent and approximately 71% of the
portfolio has been modified into fixed-rate, fully amortizing
loans. The borrowers for substantially all of the remaining
option ARM loans are making amortizing payments,
although such payments are not necessarily fully
amortizing. This latter group of loans is subject to the risk of
payment shock due to future payment recast. Default rates
generally increase on option ARM loans when payment
recast results in a payment increase. The expected increase
in default rates is considered in the Firm’s quarterly
impairment assessment.
JPMorgan Chase & Co./2019 Form 10-K
105
Management’s discussion and analysis
The following table provides a summary of lifetime principal loss estimates included in either the nonaccretable difference or
the allowance for loan losses.
Summary of PCI loans lifetime principal loss estimates
December 31, (in billions)
Home equity
Prime mortgage
Subprime mortgage
Option ARMs
Total
Lifetime loss estimates(a)
2018
2019
Life-to-date liquidation losses(b)
2019
2018
$
$
13.9
4.1
3.4
10.3
31.7
$
$
14.1
4.1
3.3
10.3
31.8
$
$
13.0
3.9
3.2
10.0
30.1
$
$
13.0
3.9
3.2
9.9
30.0
(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
$466 million and $512 million at December 31, 2019 and 2018, respectively.
(b) Represents both realization of loss upon loan resolution and any principal forgiven upon modification.
Refer to Note 12 for further information on the Firm’s PCI loans, including write-offs.
Geographic composition of residential real estate loans
At December 31, 2019, $142.7 billion, or 64% 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 $160.3 billion, or
63%, at December 31, 2018. Refer to Note 12 for
additional information on the geographic composition of the
Firm’s residential real estate loans.
Current estimated loan-to-values of residential real
estate loans
Average current estimated loan-to-value (“LTV”) ratios have
declined consistent with recent improvements in home
prices, customer pay-downs, and charge-offs or liquidations
of higher LTV loans. Refer to Note 12 for further
information on current estimated LTVs of residential real
estate loans.
Modified residential real estate loans
The following table presents information as of
December 31, 2019 and 2018, relating to modified
retained residential real estate loans for which concessions
have been granted to borrowers experiencing financial
difficulty. Refer to Note 12 for further information on
modifications for the years ended December 31, 2019 and
2018.
2019
2018
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
$ 4,005 $
1,367 $ 4,565 $
1,459
Home equity
Total modified
residential real estate
loans, excluding PCI
loans
Modified PCI loans(c)
Home equity
Prime mortgage
Subprime mortgage
Option ARMs
1,921
965
2,058
963
$ 5,926 $
2,332 $ 6,623 $
2,422
$ 1,986
NA $ 2,086
2,825
1,869
5,692
NA
NA
NA
3,179
2,041
6,410
NA
NA
NA
NA
NA
Total modified PCI loans $12,372
NA $13,716
(a) Amounts represent the carrying value of modified residential real
estate loans.
(b) At December 31, 2019 and 2018, $14 million and $4.1 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. Refer to Note 14 for additional
information about sales of loans in securitization transactions with
Ginnie Mae.
(c) Amounts represent the unpaid principal balance of modified PCI loans.
(d) As of December 31, 2019 and 2018, nonaccrual loans included $1.9
billion and $2.0 billion, respectively, of troubled debt restructurings
(“TDRs”) for which the borrowers were less than 90 days past due.
Refer to Note 12 for additional information about loans modified in a
TDR that are on nonaccrual status.
106
JPMorgan Chase & Co./2019 Form 10-K
Nonperforming assets
The following table presents information as of
December 31, 2019 and 2018, about consumer, excluding
credit card, nonperforming assets.
Nonperforming assets(a)
December 31, (in millions)
Nonaccrual loans(b)
Residential real estate
Other consumer
Total nonaccrual loans
Assets acquired in loan satisfactions
Real estate owned(c)
Other
Total assets acquired in loan satisfactions
2019
2018
$ 2,782
$
3,088
360
3,142
373
3,461
214
24
238
196
30
226
Total nonperforming assets
$ 3,380
$
3,687
(a) At December 31, 2019 and 2018, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $961 million and $2.6 billion, respectively,
and real estate owned (“REO”) insured by U.S. government agencies of
$41 million and $75 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) The prior period amount has been revised to conform with the current
period presentation.
Nonaccrual loans: The following table presents changes in
the consumer, excluding credit card, nonaccrual loans for
the years ended December 31, 2019 and 2018.
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.
2019
3,461 $
2,210
1,026
421
834
248
2,529
(319)
3,142 $
2018
4,209
2,799
1,407
468
1,399
273
3,547
(748)
3,461
$
$
Active and suspended foreclosure: Refer to Note 12 for
information on loans that were in the process of active or
suspended foreclosure.
Credit card
Total credit card loans increased from December 31, 2018
due to higher sales volume from existing customers and
new account growth. Net charge-offs increased for the year
ended December 31, 2019 when compared with the prior
year, due to loan growth, in line with expectations.
Consistent with the Firm’s policy, all credit card loans
typically remain on accrual status until charged off.
However, the Firm establishes an allowance, which is offset
against loans and reduces interest income, for the
estimated uncollectible portion of accrued and billed
interest and fee income. Refer to Note 12 for further
information about this portfolio, including information
about delinquencies.
Geographic and FICO composition of credit card loans
At December 31, 2019, $77.5 billion, or 46% of the total
retained credit card loan portfolio, was concentrated in
California, Texas, New York, Florida and Illinois, compared
with $71.2 billion, or 45%, at December 31, 2018. Refer to
Note 12 for additional information on the geographic and
FICO composition of the Firm’s credit card loans.
Modifications of credit card loans
At December 31, 2019 and 2018, the Firm had $1.5 billion
and $1.3 billion, respectively, of credit card loans
outstanding that have been modified in TDRs. Refer to Note
12 for additional information about loan modification
programs for borrowers.
JPMorgan Chase & Co./2019 Form 10-K
107
Management’s discussion and analysis
WHOLESALE CREDIT PORTFOLIO
In its wholesale businesses, the Firm is exposed to credit
risk primarily through its underwriting, lending, market-
making, and hedging activities with and for clients and
counterparties, as well as through various operating
services (such as cash management and clearing activities),
securities financing activities and cash placed with banks. A
portion of the loans originated or acquired by the Firm’s
wholesale businesses is generally retained on the balance
sheet. The Firm distributes a significant percentage of the
loans that it originates into the market as part of its
syndicated loan business and to manage portfolio
concentrations and credit risk.
The credit performance of the wholesale portfolio remained
favorable for the year ended December 31, 2019,
characterized by continued low levels of criticized exposure,
nonaccrual loans and charge-offs. Refer to the industry
discussion on pages 109–111 for further information.
Loans held-for-sale decreased, driven by a loan syndication
in CIB. 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. It
excludes all exposure managed by CCB, scored prime
mortgage and scored home equity loans held in AWM and
scored prime mortgage loans held in Corporate.
Wholesale credit portfolio
December 31,
(in millions)
Loans retained
Loans held-for-sale
Loans at fair value
Credit exposure
Nonperforming
2019
2018
2019
2018
$444,639 $439,162
$
843 $ 1,150
4,062
7,104
11,877
3,151
Loans – reported
455,805
454,190
Derivative receivables
49,766
54,213
5
90
938
30
—
—
220
1,370
60
—
Receivables from
customers and other(a)
Total wholesale credit-
related assets
Assets acquired in loan
satisfactions
Real estate owned
Other
Total assets acquired in
loan satisfactions
Lending-related
commitments
Total wholesale credit
portfolio
Credit derivatives used
33,706
30,063
539,277
538,466
968
1,430
NA
NA
NA
NA
NA
NA
130
19
149
73
—
73
404,115
387,813
474
469
$943,392 $926,279
$ 1,591 $ 1,972
in credit portfolio
management activities(b) $ (18,030) $ (12,682) $
— $
—
Liquid securities and
other cash collateral
held against derivatives
(16,009)
(15,322)
NA
NA
(a) Receivables from customers and other include $33.7 billion and $30.1
billion of brokerage-related held-for-investment customer receivables
at December 31, 2019 and 2018, respectively, to clients in CIB and
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. Refer to Credit
derivatives on page 115 and Note 5 for additional information.
108
JPMorgan Chase & Co./2019 Form 10-K
Total derivative receivables, net of all collateral
6,561
6,960
Lending-related commitments
77,298
314,281
20,236
12,536
Subtotal
212,289
530,638
139,584
882,511
The following tables present the maturity and internal risk ratings profiles of the wholesale credit portfolio as of
December 31, 2019 and 2018. The Firm considers internal ratings equivalent to BBB-/Baa3 or higher as investment grade.
Refer to Note 12 for further information on internal risk ratings.
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
Noninvestment
-grade
Total
Total %
of IG
$ 128,430 $ 209,397 $ 106,812 $ 444,639
$ 344,199
$
100,440
$ 444,639
77%
December 31, 2019
(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, 2018
(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)
49,766
(16,009)
33,757
404,115
11,166
33,706
$ 927,383
26,966
288,864
660,029
6,791
115,251
222,482
49,766
(16,009)
33,757
404,115
882,511
11,166
33,706
$ 927,383
80
71
75
$
(4,912) $
(10,031) $
(3,087) $
(18,030) $
(16,276)
$
(1,754)
$ (18,030)
90%
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
Noninvestment-
grade
Total
Total %
of IG
$ 138,458 $ 196,974 $ 103,730 $ 439,162
$
339,729
$
99,433
$ 439,162
77%
11,038
79,400
9,169
294,855
18,684
13,558
54,213
(15,322)
38,891
387,813
228,896
500,998
135,972
865,866
31,794
288,724
660,247
7,097
99,089
205,619
15,028
30,063
$ 910,957
54,213
(15,322)
38,891
387,813
865,866
15,028
30,063
$ 910,957
82
74
76
$
(447) $
(9,318) $
(2,917) $
(12,682) $
(11,213)
$
(1,469)
$ (12,682)
88%
(a) Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value.
(b) These derivatives do not 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, 2019, 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
$14.3 billion at December 31, 2019, compared with $12.1
billion at December 31, 2018. The increase was driven by
select client downgrades.
JPMorgan Chase & Co./2019 Form 10-K
109
Management’s discussion and analysis
Below are summaries of the Firm’s exposures as of December 31, 2019 and 2018. The industry of risk category is generally
based on the client or counterparty’s primary business activity. Refer to Note 4 for additional information on industry
concentrations.
Wholesale credit exposure – industries(a)
As of or for the year ended
December 31, 2019
(in millions)
Credit
exposure(f)
Investment-
grade
Noncriticized
Criticized
performing
Criticized
nonperforming
Noninvestment-grade
Selected metrics
30 days or
more past
due and
accruing
loans
Net charge-
offs/
(recoveries)
Credit
derivative
hedges(g)
Liquid
securities
and other
cash
collateral
held against
derivative
receivables
Real Estate
$
149,267 $
121,283 $
26,534 $
1,401 $
49 $
98 $
12 $
(100) $
Individuals and Individual Entities(b)
Consumer & Retail
Technology, Media &
Telecommunications
Industrials
Asset Managers
Banks & Finance Cos
Healthcare
Oil & Gas
Utilities
State & Municipal Govt(c)
Automotive
Chemicals & Plastics
Metals & Mining
Central Govt
Transportation
Insurance
Securities Firms
Financial Markets Infrastructure
All other(d)
Subtotal
102,292
99,331
59,021
58,250
51,775
50,091
46,638
41,570
34,753
26,697
17,317
17,276
15,337
14,843
13,917
12,202
7,335
4,116
90,865
57,587
35,602
38,760
45,208
34,599
36,231
22,221
22,196
26,195
10,000
11,984
7,020
14,502
8,644
9,413
5,969
3,969
76,492
72,565
11,219
39,524
20,368
18,264
6,550
14,692
9,248
17,780
12,246
502
6,759
5,080
7,620
341
4,863
2,768
1,339
147
3,548
171
2,062
2,923
1,050
4
795
1,074
992
301
—
558
212
658
—
347
17
27
—
376
37
158
128
176
13
5
85
577
10
—
—
—
39
—
63
4
—
—
3
386
80
13
161
18
—
79
—
1
29
5
3
1
—
29
3
—
—
4
28
112
26
41
—
—
6
98
39
—
—
—
(1)
—
7
—
—
—
1
—
(235)
(658)
(746)
—
(834)
(405)
(429)
(414)
—
(194)
(10)
(33)
—
(641)
(11)
(17)
(9)
(4,785)
(2,112)
(145)
(10)
(50)
(46)
—
(13)
(6)
(9,018)
(1,963)
(37)
(36)
(48)
—
(4,833)
(37)
(1,998)
(3,201)
(6)
(959)
$
898,520 $
674,813 $
209,392 $
12,968 $
1,347 $
910 $
369 $ (18,030) $
(16,009)
Loans held-for-sale and loans at fair
value
Receivables from customers and other
Total(e)
11,166
33,706
$
943,392
110
JPMorgan Chase & Co./2019 Form 10-K
As of or for the year ended
December 31, 2018
(in millions)
Credit
exposure(f)
Investment-
grade
Noncriticized
Criticized
performing
Criticized
nonperforming
Noninvestment-grade
Selected metrics
30 days or
more past
due and
accruing
loans
Net charge-
offs/
(recoveries)
Credit
derivative
hedges(g)
Liquid
securities
and other
cash
collateral
held against
derivative
receivables
Real Estate
$
143,316 $
117,988 $
24,174 $
1,019 $
135 $
70 $
(20) $
(2) $
Individuals and Individual Entities(b)
Consumer & Retail
Technology, Media &
Telecommunications
Industrials
Asset Managers
Banks & Finance Cos
Healthcare
Oil & Gas
Utilities
State & Municipal Govt(c)
Automotive
Chemicals & Plastics
Metals & Mining
Central Govt
Transportation
Insurance
Securities Firms
Financial Markets Infrastructure
All other(d)
Subtotal
97,077
94,815
72,646
58,528
42,807
49,920
48,142
42,600
28,172
27,351
17,339
16,035
15,359
18,456
15,660
12,639
4,558
7,484
86,581
60,678
46,334
38,487
36,722
34,120
36,687
23,356
23,558
26,746
9,637
11,490
8,188
18,251
10,508
9,777
3,099
6,746
68,284
64,664
10,164
31,901
24,081
18,594
6,067
15,496
10,625
17,451
4,326
603
7,310
4,427
6,767
124
4,699
2,830
1,459
738
3,606
174
2,033
2,170
1,311
4
299
761
1,158
138
2
392
118
385
81
393
—
—
—
12
158
203
61
136
14
5
69
635
150
—
—
—
19
—
60
32
—
—
2
703
43
8
171
10
11
23
6
—
18
1
4
1
4
21
—
—
—
2
12
55
12
20
—
—
(5)
36
38
(1)
—
—
—
—
6
—
—
—
2
—
(248)
(1,011)
(207)
—
(575)
(150)
(248)
(142)
—
(125)
—
(174)
(7,994)
(31)
(36)
(158)
—
(1,581)
(1)
(915)
(14)
(12)
(29)
(5,829)
(2,290)
(133)
—
(60)
(42)
—
—
(22)
(2,130)
(112)
(2,080)
(823)
(26)
(804)
$
881,188 $
673,617 $
195,442 $
10,450 $
1,679 $
1,096 $
155 $ (12,682) $
(15,322)
Loans held-for-sale and loans at fair
value
Receivables from customers and other
Total(e)
15,028
30,063
$
926,279
(a) The industry rankings presented in the table as of December 31, 2018, are based on the industry rankings of the corresponding exposures at
December 31, 2019, not actual rankings of such exposures at December 31, 2018.
(b) Individuals and Individual Entities predominantly consists of Wealth Management clients within AWM and includes exposure to personal investment
companies and personal and testamentary trusts.
(c) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2019 and 2018, noted above, the
Firm held: $6.5 billion and $7.8 billion, respectively, of trading assets; $29.8 billion and $37.7 billion, respectively, of AFS securities; and $4.8 billion at
both periods of held-to-maturity (“HTM”) securities, issued by U.S. state and municipal governments. Refer to Note 2 and Note 10 for further information.
(d) All other includes: SPEs and Private education and civic organizations, representing approximately 92% and 8%, respectively, at both December 31, 2019
and 2018.
(e) Excludes cash placed with banks of $254.0 billion and $268.1 billion, at December 31, 2019 and 2018, 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 the net notional amounts of protection purchased and sold through credit derivatives used to manage the credit exposures; these derivatives
do not qualify for hedge accounting under U.S. GAAP. The All other category includes purchased credit protection on certain credit indices.
JPMorgan Chase & Co./2019 Form 10-K
111
Management’s discussion and analysis
Real Estate
Presented below is additional information on the Real Estate industry, to which the Firm has significant exposure.
Real Estate exposure increased $6.0 billion to $149.3 billion during the year ended December 31, 2019, and the investment
grade percentage of the portfolio remained relatively flat at 81%. Refer to Note 12 for further information on Real Estate
loans.
(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
$
86,326
62,322
148,648
Loans and
Lending-related
Commitments
$
85,683
57,469
143,152
December 31, 2019
Derivative
Receivables
Credit
exposure
$
$
58
561
619
$
86,384
62,883
149,267
December 31, 2018
Derivative
Receivables
Credit
exposure
33
131
164
$
85,716
57,600
143,316
%
Investment-
grade
91%
68
81
%
Investment-
grade
89%
72
82
% Drawn(c)
92%
59
78
% Drawn(c)
92%
63
81
(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.
Loans
In its wholesale businesses, the Firm provides loans to a
variety of clients, ranging from large corporate and
institutional clients to high-net-worth individuals. Refer to
Note 12 for a further discussion on loans, including
information about delinquencies, loan modifications and
other credit quality indicators.
The following table presents the change in the nonaccrual
loan portfolio for the years ended December 31, 2019 and
2018.
Wholesale nonaccrual loan activity
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
2019
2018
$
1,370 $
1,734
2,141
1,188
1,435
376
556
206
2,573
(432)
692
299
234
327
1,552
(364)
$
938 $
1,370
The following table presents net charge-offs/recoveries,
which are defined as gross charge-offs less recoveries, for
the years ended December 31, 2019 and 2018. 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)
2019
2018
Loans – reported
Average loans retained
$ 435,876
$ 416,828
Gross charge-offs
Gross recoveries
Net charge-offs/(recoveries)
411
(42)
369
313
(158)
155
Net charge-off/(recovery) rate
0.08%
0.04%
112
JPMorgan Chase & Co./2019 Form 10-K
Lending-related commitments
The Firm uses lending-related financial instruments, such as
commitments (including revolving credit facilities) and
guarantees, to address the financing needs of its clients.
The contractual amounts of these financial instruments
represent the maximum possible credit risk should the
clients draw down on these commitments or when the Firm
fulfills its obligations under these guarantees, and the
clients 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. As a
result, the Firm does not believe that the total contractual
amount of these wholesale lending-related commitments is
representative of the Firm’s expected future credit exposure
or funding requirements. Refer to Note 28 for further
information on wholesale lending-related commitments.
Receivables from Customers
Receivables from customers primarily represent held-for-
investment margin loans to brokerage clients in CIB and
AWM that are collateralized by assets maintained in the
clients’ brokerage accounts (e.g., cash on deposit, liquid and
readily marketable debt or equity securities), as such no
allowance is held against these receivables. To manage its
credit risk the Firm establishes margin requirements and
monitors the required margin levels on an ongoing basis,
and requires clients to deposit additional cash or other
collateral, or to reduce positions, when appropriate. These
receivables are reported within accrued interest and
accounts receivable on the Firm’s Consolidated balance
sheets.
Clearing services
The Firm provides clearing services for clients entering into
certain securities and derivative contracts. 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 CCPs. Where possible, the Firm
seeks to mitigate its credit risk to its clients through the
collection of adequate margin at inception and throughout
the life of the transactions and can also cease the provision
of clearing services if clients do not adhere to their
obligations under the clearing agreement. Refer to Note 28
for a further discussion of clearing services.
Derivative contracts
Derivatives enable clients and counterparties to manage
risks including credit risk and risks arising from fluctuations
in interest rates, foreign exchange, equities, and
commodities. The Firm makes markets in derivatives in
order to meet these needs and uses derivatives to manage
certain risks associated with net open risk positions from its
market-making activities, including the counterparty credit
risk arising from derivative receivables. The Firm also uses
derivative instruments to manage its own credit and 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 contracts through the use of legally enforceable
master netting arrangements and collateral agreements.
Refer to Note 5 for a further discussion of derivative
contracts, counterparties and settlement types.
The following table summarizes the net derivative
receivables for the periods presented.
Derivative receivables
December 31, (in millions)
Total, net of cash collateral
Liquid securities and other cash collateral
held against derivative receivables(a)
Total, net of all collateral
2019
2018
49,766 $
54,213
(16,009)
(15,322)
33,757 $
38,891
$
$
(a) Includes collateral related to derivative instruments where appropriate
legal opinions have not been either sought or obtained with respect to
master netting agreements.
The fair value of derivative receivables reported on the
Consolidated balance sheets were $49.8 billion and $54.2
billion at December 31, 2019 and 2018, respectively.
Derivative receivables 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 securities) and other cash
collateral held by the Firm aggregating $16.0 billion and
$15.3 billion at December 31, 2019 and 2018,
respectively, that may be used as security when the fair
value of the client’s exposure is in the Firm’s favor.
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 contracts
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. Refer to Note 5 for
additional information on the Firm’s use of collateral
agreements.
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
JPMorgan Chase & Co./2019 Form 10-K
113
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 contracts, as well as interest rate, foreign
exchange, equity and commodity derivative contracts.
The below 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, 2019
(in billions)
Management’s discussion and analysis
(“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 credit limits for derivative contracts, 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 as an input 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 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 CVA, as further described below.
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
impact of wrong-way risk, which is broadly defined as the
potential for increased correlation between the Firm’s
The following table summarizes the ratings profile of the Firm’s derivative receivables, including credit derivatives, net of all
collateral, at the dates indicated. The Firm considers internal ratings equivalent to BBB-/Baa3 or higher as investment grade.
Refer to Note 12 for further information on internal risk ratings.
2019
2018
Exposure net of
all collateral
% of exposure net
of all collateral
Exposure net of
all collateral
% of exposure net
of all collateral
$
$
8,347
5,471
13,148
6,225
566
33,757
25% $
16
39
18
2
100% $
11,831
7,428
12,536
6,373
723
38,891
31%
19
32
16
2
100%
Ratings profile of derivative receivables
Internal 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 derivative 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% at both December 31, 2019 and 2018.
114
JPMorgan Chase & Co./2019 Form 10-K
Credit derivatives
The Firm uses credit derivatives for two primary purposes:
first, in its capacity as a market-maker, and second, as an
end-user, to manage the Firm’s own credit risk associated
with various exposures.
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.
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.
Credit derivatives used in credit portfolio management
activities
December 31, (in millions)
Credit derivatives used to manage:
Notional amount of
protection
purchased and sold (a)
2019
2018
Loans and lending-related commitments
$
2,047
$
1,272
Derivative receivables
15,983
11,410
Credit derivatives used in credit portfolio
management activities
$
18,030
$
12,682
(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. Refer to Credit derivatives in
Note 5 for a detailed description of credit derivatives.
JPMorgan Chase & Co./2019 Form 10-K
115
Management’s discussion and analysis
ALLOWANCE FOR CREDIT LOSSES
The Firm’s allowance for credit losses covers the retained
consumer and wholesale loan portfolios, as well as the
Firm’s wholesale and certain consumer lending-related
commitments.
Refer to Critical Accounting Estimates Used by the Firm on
pages 136–138 and Note 13 for further information on the
components of the allowance for credit losses and related
management judgments.
At least quarterly, the allowance for credit losses is
reviewed by the CRO, the CFO and the Controller of the
Firm. As of December 31, 2019, 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 compared with
December 31, 2018 driven by:
• an $800 million reduction in the CCB allowance for loan
losses, which included $650 million in the PCI residential
real estate portfolio, reflecting continued improvement in
home prices and delinquencies; $100 million in the non
credit-impaired residential real estate portfolio; and $50
million in the business banking portfolio; as well as
• a $151 million reduction for write-offs of PCI loans,
predominantly offset by
• a $500 million addition to the allowance for loan losses in
the credit card portfolio reflecting loan growth and
higher loss rates as newer vintages season and become a
larger part of the portfolio, and
• a $251 million addition in the wholesale allowance for
credit losses driven by select client downgrades.
Refer to Consumer Credit Portfolio on pages 103–107,
Wholesale Credit Portfolio on pages 108–115 and Note 12
for additional information on the consumer and wholesale
credit portfolios.
116
JPMorgan Chase & Co./2019 Form 10-K
Summary of changes in the allowance for credit losses
Year ended December 31,
(in millions, except ratios)
Allowance for loan losses
2019
2018
Consumer,
excluding
credit card
Credit card
Wholesale
Total
Consumer,
excluding
credit card
Credit card
Wholesale
Total
Beginning balance at January 1,
$
4,146
$
5,184
$
4,115
$ 13,445
$
4,579
$
4,884
$
4,141
$ 13,604
Gross charge-offs
Gross recoveries
Net charge-offs
Write-offs of PCI loans(a)
Provision for loan losses
Other
Ending balance at December 31,
Impairment methodology
Asset-specific(b)
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(c)
Total allowance for credit losses
Memo:
$
$
$
$
$
$
$
$
963
(551)
412
151
(383)
(1)
3,199
136
2,076
987
$
$
5,436
(588)
4,848
—
5,348
(1)
5,683
477
5,206
—
411
(42)
369
—
484
11
6,810
(1,181)
5,629
151
5,449
9
$
$
4,241
$ 13,123
234
$
847
4,007
11,289
—
987
3,199
$
5,683
$
4,241
$ 13,123
33
$
— $
1,022
$
1,055
—
—
—
—
136
—
33
$
— $
1,158
— $
33
33
3,232
$
$
— $
—
102
1,056
— $
1,158
$
1,191
5,683
$
5,399
$ 14,314
136
—
1,191
102
1,089
$
$
1,025
(842)
183
187
(63)
—
4,146
196
2,162
1,788
$
$
5,011
(493)
4,518
—
4,818
—
5,184
440
4,744
—
313
(158)
155
—
130
(1)
6,349
(1,493)
4,856
187
4,885
(1)
$
$
4,115
$ 13,445
297
$
933
3,818
—
10,724
1,788
4,146
$
5,184
$
4,115
$ 13,445
33
$
—
—
33
—
33
33
4,179
$
$
$
$
—
—
—
—
—
—
—
5,184
$
1,035
$
1,068
(14)
1
1,022
99
923
$
$
(14)
1
1,055
99
956
1,022
$
1,055
5,137
$ 14,500
$
$
$
$
$
$
$
$
$
$
$
$
Retained loans, end of period
$ 332,038
$ 168,924
$ 444,639
$ 945,601
$ 373,637
$ 156,616
$ 439,162
$ 969,415
Retained loans, average
PCI loans, end of period
Credit ratios
349,724
156,319
435,876
941,919
374,395
145,606
416,828
936,829
20,363
—
—
20,363
24,034
—
3
24,037
Allowance for loan losses to retained loans
0.96%
3.36%
0.95%
1.39%
1.11%
3.31%
0.94%
1.39%
Allowance for loan losses to retained nonaccrual
loans(d)
Allowance for loan losses to retained nonaccrual
loans excluding credit card
Net charge-off rates
Credit ratios, excluding residential real estate
PCI loans
Allowance for loan losses to
retained loans
Allowance for loan losses to retained
nonaccrual loans(d)
Allowance for loan losses to retained nonaccrual
loans excluding credit card
102
102
0.12
NM
NM
3.10
0.71
3.36
70
70
NM
NM
503
503
0.08
0.95
503
503
329
187
0.60
1.31
305
162
120
120
0.05
NM
NM
3.10
0.67
3.31
68
68
NM
NM
358
358
0.04
0.94
358
358
292
179
0.52
1.23
253
140
Net charge-off rates
0.13%
3.10%
0.08%
0.61%
0.05%
3.10%
0.04%
0.53%
Note: In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures.
(a) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as
purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool.
(b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. The asset-specific credit card allowance
for loan losses modified in a TDR is calculated based on the loans’ original contractual interest rates and does not consider any incremental penalty rates.
(c) The allowance for lending-related commitments is reported in accounts payable and other liabilities on the Consolidated balance sheets.
(d) The Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.
JPMorgan Chase & Co./2019 Form 10-K
117
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
or from principal investments. The investment securities
portfolio is predominantly held by Treasury and CIO in
connection with the Firm's balance sheet or asset-liability
management objectives. Principal investments are
predominantly privately-held financial instruments and are
managed in the LOBs and Corporate. 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 a default in the payment of principal and interest. This
risk is mitigated given that the investment securities
portfolio held by Treasury and CIO is predominantly
invested in high-quality securities. At December 31, 2019,
the Treasury and CIO investment securities portfolio was
$396.4 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 risk ratings. Refer to
Corporate segment results on pages 77–78 and Note 10 for
further information on the investment securities portfolio
and internal risk ratings. Refer to Market Risk Management
on pages 119–126 for further information on the market
risk inherent in the portfolio. Refer to Liquidity Risk
Management on pages 93–98 for further information on
related liquidity risk.
Governance and oversight
Investment securities risks are governed by the Firm’s Risk
Appetite framework, and reviewed at the CTC Risk
Committee with regular updates to the Board Risk
Committee.
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 span multiple
asset classes and are made either in stand-alone investing
businesses or as part of a broader business platform. In
general, new principal investments include tax-oriented
investments, as well as investments made to enhance or
accelerate LOB and Corporate strategic business initiatives.
The Firm’s principal investments are managed by the LOBs
and Corporate and are reflected within their respective
financial results.
As of December 31, 2019 and 2018, the aggregate
carrying values of the principal investment portfolios were
$24.2 billion and $22.2 billion, respectively, which included
tax-oriented investments (e.g., affordable housing and
alternative energy investments) of $18.2 billion and $16.6
billion, respectively, and private equity, various debt and
equity instruments, and real assets of $6.0 billion and $5.6
billion, respectively.
Governance and oversight
The Firm’s approach to managing principal risk is consistent
with the Firm’s risk governance structure. A Firmwide risk
policy framework exists for all principal investing activities
and includes approval by executives who are independent
from the investing businesses, as appropriate.
The Firm’s independent control functions are responsible
for reviewing the appropriateness of the carrying value of
investments in accordance with relevant policies. As part of
the risk governance structure, approved levels for
investments are established and monitored for each
relevant business or segment in order to manage the overall
size 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.
118
JPMorgan Chase & Co./2019 Form 10-K
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.
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:
• Establishing a market risk policy framework
• Independently measuring, monitoring and controlling
LOB, Corporate, and Firmwide market risk
• Defining, approving and monitoring of limits
• Performing stress testing and qualitative risk assessments
Risk measurement
Measures used to capture market risk
There is no single measure to capture market risk and
therefore Market Risk Management uses various metrics,
both statistical and nonstatistical, to assess risk including:
• Value-at-risk (VaR)
• Stress testing
• Profit and loss drawdowns
• Earnings-at-risk
• Other sensitivity-based measures
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, Market Risk
Management takes into consideration factors such as
market volatility, product liquidity, accommodation of client
business, and management experience. Market Risk
Management maintains different levels of limits. Firm level
limits include VaR and stress limits. Similarly, LOB and
Corporate limits include VaR and stress limits and may be
supplemented by certain nonstatistical risk measures such
as profit and loss drawdowns. Limits may also be set within
the LOBs and Corporate, as well as at the legal entity level.
Market Risk Management sets limits and regularly reviews
and updates them as appropriate. Senior management is
responsible for reviewing and approving certain of these
risk limits on an ongoing basis. Limits that have not been
reviewed within specified time periods by Market Risk
Management are escalated to senior management. The
LOBs and Corporate 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, which include Market Risk
Management and senior management. In the event of a
breach, Market Risk Management consults with appropriate
members of the Firm to determine the suitable course of
action required to return the applicable positions to
compliance, which may include a reduction in risk in order
to remedy the breach or granting a temporary increase in
limits to accommodate an expected increase in client
activity and/or market volatility. Certain Firm, Corporate or
LOB-level limit breaches are escalated as appropriate.
JPMorgan Chase & Co./2019 Form 10-K
119
Management’s discussion and analysis
The following table summarizes the predominant business activities and related market risks, as well as positions which give
rise to market risk and certain measures used to capture those risks, for each LOB and Corporate.
In addition to the predominant business activities, each LOB and Corporate may engage in principal investing activities. To the
extent principal investments are deemed market risk sensitive, they are reflected in relevant risk measures (i.e., VaR or Other
sensitivity-based measures) and captured in the table below. Refer to Investment Portfolio Risk Management on page 118 for
additional discussion on principal investments.
Related market risks
Positions included in Risk
Management VaR
Positions included in
earnings-at-risk
Positions included in other
sensitivity-based measures
LOBs and
Corporate
Predominant business
activities
CCB
• Services mortgage
loans
• Originates loans and
takes deposits
• Risk from changes in the
probability of newly
originated mortgage
commitments closing
Interest rate risk and
prepayment risk
•
• Retained loan portfolio
• Deposits
• Retained loan portfolio
• Deposits
• Privately held equity and
other investments
measured at fair value
• Derivatives FVA and fair
value option elected
liabilities DVA
• Mortgage commitments,
classified as derivatives
• Warehouse loans, classified
as trading assets – debt
instruments
• MSRs
• Hedges of mortgage
•
commitments, warehouse
loans and MSRs, classified
as derivatives
Interest-only securities,
classified as trading assets
debt instruments, and
related hedges, classified as
derivatives
• Fair value option elected
liabilities
• Trading assets/liabilities –
debt and marketable equity
instruments, and
derivatives, including
hedges of the retained loan
portfolio
• Certain securities
purchased, loaned or sold
under resale agreements
and securities borrowed
• Fair value option elected
liabilities
• Derivative CVA and
associated hedges
• Marketable equity
investments
CIB
• Makes markets and
services clients across
fixed income, foreign
exchange, equities and
commodities
• Originates loans and
takes deposits
• Risk of loss from adverse
movements in market
prices and implied
volatilities across interest
rate, foreign exchange,
credit, commodity and
equity instruments
• Basis and correlation risk
from changes in the way
asset values move
relative to one another
Interest rate risk and
prepayment risk
•
CB
• Originates loans and
•
takes deposits
Interest rate risk and
prepayment risk
• Marketable equity
investments(a)
• Retained loan portfolio
• Deposits
AWM
• Provides initial capital
• Risk from adverse
• Debt securities held in
investments in
products such as
mutual funds and
capital invested
alongside third-party
investors
• Originates loans and
takes deposits
movements in market
factors (e.g., rates and
credit spreads)
Interest rate risk and
prepayment risk
•
advance of distribution to
clients, classified as trading
assets - debt instruments(a)
• Retained loan portfolio
• Deposits
•
Initial seed capital
investments and related
hedges, classified as
derivatives
• Capital invested alongside
third-party investors,
typically in privately
distributed collective
vehicles managed by AWM
(i.e., co-investments)
Corporate
• Manages the Firm’s
liquidity, funding,
capital, structural
interest rate and
foreign exchange risks
• Structural interest rate
risk from the Firm’s
traditional banking
activities
• Structural non-USD
foreign exchange risks
• Derivative positions
measured at fair value
through noninterest
revenue in earnings
• Marketable equity
investments
• Deposits with banks
•
Investment securities
portfolio and related
interest rate hedges
• Long-term debt and
related interest rate
hedges
• Privately held equity and
other investments
measured at fair value
• Foreign exchange exposure
related to Firm-issued non-
USD long-term debt (“LTD”)
and related hedges
(a) The AWM and CB contributions to Firmwide average VaR were not material for the year ended December 31, 2019 and 2018.
120
JPMorgan Chase & Co./2019 Form 10-K
Value-at-risk
JPMorgan Chase utilizes VaR, a statistical risk measure, to
estimate the potential loss from adverse market moves in
the current market environment. The Firm has a single VaR
framework used as a basis for calculating Risk Management
VaR and Regulatory VaR.
The framework is employed across the Firm using 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 daily
measure of risk that is closely aligned to risk management
decisions made by the LOBs and Corporate and, along with
other market risk measures, provides the appropriate
information needed to respond to risk events.
The Firm’s Risk Management VaR is calculated assuming a
one-day holding period and an expected tail-loss
methodology which approximates a 95% confidence level.
Risk Management VaR provides a consistent framework 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 risk factors and/or product types. 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 future
losses. In addition, based on their reliance on available
historical data, limited time horizons, and other factors, VaR
measures are inherently limited in their ability to 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 nonstatistical measures such
as stress testing, in addition to VaR, to capture and manage
its market risk positions.
The daily market data used in VaR models may be different
than the independent third-party data collected for VCG
price testing in its monthly valuation process. For example,
in cases where market prices are not observable, or where
proxies are used in VaR historical time series, the data
sources may differ. Refer to Valuation process in Note 2 for
further information on the Firm’s valuation process. As 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. Refer to
Estimations and Model Risk Management on page 135 for
information regarding model reviews and approvals.
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./2019 Form 10-K
121
Management’s discussion and analysis
Refer to JPMorgan Chase’s Basel III Pillar 3 Regulatory
Capital Disclosures reports, which are available on the
Firm’s website, 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).
The table below shows the results of the Firm’s Risk Management VaR measure using a 95% confidence level. VaR can vary
significantly as positions change, market volatility fluctuates, and diversification benefits change.
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 and other LOB VaR
Diversification benefit to other VaR
Other VaR
Diversification benefit to CIB and other VaR
Total VaR
$
Avg.
40
7
20
8
(33) (a)
42
5
(5) (a)
42
5
10
(4) (a)
11
(10) (a)
43
$
2019
Min
$
31
4
13
6
NM (b)
29 (b)
3
NM (b)
29 (b)
1
9
NM (b)
8 (b)
NM (b)
30 (b) $
$
Max
Avg.
$
50
15
31
12
$
33
6
17
8
NM (b)
61 (b)
7
NM (b)
63 (b)
11
13
NM (b)
17 (b)
NM (b)
65 (b)
(26) (a)
38
3
(2) (a)
39
1
12
(1) (a)
12
(10) (a)
41
$
2018
Min
$
25
3
13
4
NM (b)
26 (b)
3
NM (b)
26 (b)
—
9
NM (b)
9 (b)
NM (b)
28 (b) $
$
$
Max
46
15
26
13
NM (b)
58 (b)
4
NM (b)
59 (b)
3
14
NM (b)
14 (b)
NM (b)
62 (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 LOBs, Corporate, 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.
Average Total VaR increased $2 million for the year-ended
December 31, 2019 as compared with the prior year. This
was predominantly due to increased exposure in the Fixed
Income risk type, increases in the Equities risk type driven
by the inclusion of Tradeweb following its IPO in the second
quarter of 2019, and increased volatility in the one-year
historical look-back period, partially offset by increases in
diversification benefit.
In addition, average CCB VaR increased by $4 million, driven
by MSR risk management activities.
VaR back-testing
The Firm performs daily VaR model 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 select components of revenue
such as fees, commissions, certain valuation adjustments,
net interest income, and gains and losses arising from
intraday trading.
122
JPMorgan Chase & Co./2019 Form 10-K
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, 2019. 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
the Firm’s covered positions. For the year ended December 31, 2019 the Firm observed eight VaR back-testing exceptions and
posted market risk-related gains on 141 of the 259 days.
Daily Market Risk-Related Gains and Losses
vs. Risk Management VaR (1-day, 95% Confidence level)
Year ended December 31, 2019
Market Risk-Related Gains and Losses
Risk Management VaR
First Quarter
2019
Second Quarter
2019
Third Quarter
2019
Fourth Quarter
2019
JPMorgan Chase & Co./2019 Form 10-K
123
Management’s discussion and analysis
Other risk measures
Stress testing
Along with VaR, stress testing is an important tool used to
assess risk. While VaR reflects the risk of loss due to
adverse changes in markets using recent historical market
behavior, stress testing reflects the risk of loss from
hypothetical changes in the value of market risk sensitive
positions applied simultaneously. Stress testing measures
the Firm’s vulnerability to losses under a range of stressed
but possible economic and market scenarios. The results
are used to understand the exposures responsible for those
potential losses and are measured against limits.
The Firm’s stress framework covers Corporate and all LOBs
with market risk sensitive positions. The framework is used
to calculate multiple magnitudes of potential stress for both
market rallies and market sell-offs, assuming significant
changes in market factors such as credit spreads, equity
prices, interest rates, currency rates and commodity prices,
and combines them in multiple ways to capture an array of
hypothetical economic and market scenarios.
The Firm generates a number of scenarios that focus on tail
events in specific asset classes and geographies, including
how the event may impact multiple market factors
simultaneously. Scenarios also incorporate specific
idiosyncratic risks and stress basis risk between different
products. The flexibility in the stress framework allows the
Firm to construct new scenarios that can test the outcomes
against possible future stress events. Stress testing results
are reported on a regular basis to senior management of
the Firm, as appropriate.
Stress scenarios are governed by an overall stress
framework and are subject to the standards outlined in the
Firm’s policies related to model risk management.
Significant changes to the framework are reviewed as
appropriate.
The Firm’s stress testing framework is utilized in calculating
the Firm’s CCAR and other stress test results, which are
reported to the Board of Directors. In addition, stress
testing results are incorporated into the Firm’s Risk Appetite
framework, and are reported periodically to the Board Risk
Committee.
Profit and loss drawdowns
Profit and loss drawdowns are used to highlight trading
losses above certain levels of risk tolerance. A profit and
loss drawdown is a decline in revenue from its year-to-date
peak level.
Earnings-at-risk
The effect of interest rate exposure on the Firm’s reported
net income is 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 as well as from the investment securities portfolio.
Refer to the table on page 120 for a summary by LOB and
Corporate, identifying positions included in earnings-at-risk.
The CTC Risk Committee establishes the Firm’s structural
interest rate risk policy and related limits, which are subject
to approval by the Board Risk Committee. Treasury and CIO,
working in partnership with the LOBs, calculates the Firm’s
structural interest rate risk profile and reviews it with senior
management, including the CTC Risk Committee. In addition,
oversight of structural interest rate risk is managed through
a dedicated risk function reporting to the CTC. 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.
Structural interest rate risk can occur due to a variety of
factors, including:
• Differences in 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 maturing or 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.
124
JPMorgan Chase & Co./2019 Form 10-K
The Firm’s U.S. dollar sensitivities are presented in the table
below.
December 31,
(in billions)
Parallel shift:
+100 bps shift in rates
-100 bps shift in rates
Steeper yield curve:
2019
2018
$
0.3
$
(2.0)
+100 bps shift in long-term rates
-100 bps shift in short-term rates
Flatter yield curve:
+100 bps shift in short-term rates
-100 bps shift in long-term rates
1.2
(0.2)
(0.9)
(1.8)
0.9
(2.1)
0.5
(1.2)
0.4
(0.9)
The change in the Firm’s U.S. dollar sensitivities as of
December 31, 2019 compared to December 31, 2018
reflected updates to the Firm’s baseline for lower short-
term and long-term rates as well as the impact of changes
in the Firm’s balance sheet. The Firm’s sensitivity to short-
term rates reflected updates to the Firm’s baseline for lower
rates but changes in the Firm’s balance sheet more than
offset the impacts of the lower rates. The Firm’s sensitivity
to long-term rates increased as a result of updates to the
Firm’s baseline to reflect lower rates in addition to changes
in the Firm’s balance sheet. The increased sensitivity to
long-term rates is more impactful to the downward scenario
due to the Firm’s sensitivity to mortgage prepayments.
The Firm’s non-U.S. dollar sensitivities are presented in the
table below.
December 31,
(in billions)
Parallel shift:
2019
2018
+100 bps shift in rates
$
0.5
$
Flatter yield curve:
+100 bps shift in short-term rates
0.5
0.5
0.5
The results of the non-U.S. dollar interest rate scenario
involving a steeper yield curve with long-term rates rising
by 100 basis points and short-term rates staying at current
levels were not material to the Firm’s earnings-at-risk at
December 31, 2019 and 2018.
One way the Firm evaluates its structural interest rate risk is
through earnings-at-risk. Earnings-at-risk estimates the
Firm’s interest rate exposure for a given interest rate
scenario. It is presented as a sensitivity to a baseline, which
includes net interest income and certain interest rate
sensitive fees. The baseline uses market interest rates and
in the case of deposits, pricing assumptions. The Firm
conducts simulations of changes to this baseline for interest
rate-sensitive assets and liabilities denominated in U.S.
dollars and other currencies (“non-U.S. dollar” currencies).
These simulations primarily include retained loans,
deposits, deposits with banks, investment securities, long-
term debt and any related interest rate hedges, and exclude
other positions in risk management VaR and other
sensitivity-based measures as described on page 120.
Earnings-at-risk scenarios estimate the potential change to
a net interest income baseline, over the following 12
months, utilizing multiple assumptions. These scenarios
include a parallel shift involving changes to both short-term
and long-term rates by an equal amount; a steeper yield
curve involving holding short-term rates constant and
increasing long-term rates or decreasing short-term rates
and holding long-term rates constant; and a flatter yield
curve involving increasing short-term rates and holding
long-term rates constant or holding short-term rates
constant and decreasing long-term rates. These scenarios
consider many different factors, including:
• The impact on exposures as a result of instantaneous
changes in interest rates from baseline rates.
• Forecasted balance sheet, 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 the interest rates used in the scenarios 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, using normalized
deposit betas which represent the amount by which
deposit rates paid could change upon a given change in
market interest rates over the cycle. The deposit rates
paid in these scenarios differ from actual deposit rates
paid, particularly for retail deposits, due to repricing 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. While a relevant measure of the Firm’s interest rate
exposure, the earnings at risk analysis does not represent a
forecast of the Firm’s net interest income (Refer to the
2020 Outlook on page 45 for additional information).
JPMorgan Chase & Co./2019 Form 10-K
125
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 LOBs,
primarily manage these risks on behalf of the
Firm. Treasury and CIO may hedge certain of these risks
using derivatives.
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 other comprehensive income (“OCI”) due to changes in relevant market variables. Refer to the table Predominant
business activities that give rise to market risk on page 120 for additional information on the positions captured in other
sensitivity-based measures.
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, 2019 and 2018, as the movement in market parameters across maturities may
vary and are not intended to imply management’s expectation of future changes in these sensitivities.
Year ended December 31,
Gain/(loss) (in millions)
Activity
Description
Sensitivity measure
2019
2018
Investment activities(a)
Investment management activities
Other investments
Funding activities
Non-USD LTD cross-currency basis
Consists of seed capital and related hedges;
and fund co-investments
10% decline in market
value
$
(68) $
Consists of privately held equity and other
investments held at fair value
10% decline in market
value
(192)
(102)
(218)
Represents the basis risk on derivatives
used to hedge the foreign exchange risk on
the non-USD LTD(b)
1 basis point parallel
tightening of cross currency
basis
(17)
(13)
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(b)
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(b)
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(b)
1 basis point parallel
increase in spread
15
(5)
29
(2)
17
(4)
30
1
(a) Excludes equity securities without readily determinable fair values that are measured under the measurement alternative. Refer to Note 2 for additional
information.
(b) Impact recognized through OCI.
126
JPMorgan Chase & Co./2019 Form 10-K
Under the Firm’s internal country risk measurement
framework:
• Lending exposures are measured at the total committed
amount (funded and unfunded), net of the allowance for
credit losses and eligible cash and marketable securities
collateral received
• Deposits are measured as the cash balances placed with
central and commercial banks
• Securities financing exposures are measured at their
receivable balance, net of eligible 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 eligible collateral received
• 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. Refer to Cross-border outstandings on page
306 of the 2019 Form 10-K for further information on the
FFIEC’s reporting methodology.
COUNTRY RISK MANAGEMENT
The Firm, through its LOBs and Corporate, may be exposed
to country risk resulting from financial, economic, political
or other significant developments which adversely affect
the value of the Firm’s exposures related 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 and measures the extent
to which the Firm’s exposures are diversified 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 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, 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, attribution of exposure to a specific
country is based on the country where the largest
proportion of the assets of the counterparty, issuer, obligor
or guarantor are located or where the largest proportion of
its revenue is derived, which may be different than the
domicile (i.e. legal residence) or country of incorporation of
the counterparty, issuer, obligor or guarantor. Country
exposures are generally measured by considering the Firm’s
risk to an immediate default of the counterparty, issuer,
obligor or guarantor, with zero recovery. Assumptions are
sometimes required in determining the measurement 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.
JPMorgan Chase & Co./2019 Form 10-K
127
Management’s discussion and analysis
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
sets of countries in response to specific or potential market
events, sector performance concerns, sovereign actions and
geopolitical risks. These tailored stress results are used to
inform potential risk reduction across the Firm, as
necessary.
Risk reporting
Country exposure and stress are measured and reported
regularly, and used by Country Risk Management to identify
trends, and monitor high usages and breaches against
limits.
For country risk management purposes, the Firm may
report exposure to jurisdictions that are not fully
autonomous, including Special Administrative Regions
(“SAR”) and dependent territories, separately from the
independent sovereign states with which they are
associated.
The following table presents the Firm’s top 20 exposures by
country (excluding the U.S.) as of December 31, 2019, and
their comparative exposures as of December 31, 2018. 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. The increase in exposure
in Japan is largely due to increased cash balances placed
with the central bank of Japan, driven by client activity.
Top 20 country exposures (excluding the U.S.)(a)
December 31,
(in billions)
2019
2018(e)
Lending
and
deposits(b)
Trading and
investing(c)
Other(d)
Total
exposure
Total
exposure
Germany
$
45.8 $
5.4 $
0.4 $
51.6
$
62.1
Japan
United Kingdom
China
Switzerland
France
Canada
Luxembourg
Australia
India
Netherlands
Brazil
Singapore
Italy
South Korea
Spain
Saudi Arabia
Hong Kong SAR
Mexico
Malaysia
35.5
31.0
11.3
10.9
10.7
12.0
12.1
6.9
4.6
4.4
4.8
4.3
2.4
4.5
3.2
4.7
2.6
3.9
1.8
8.0
9.9
6.5
0.8
6.5
1.1
0.8
4.8
3.6
0.8
2.4
1.6
4.2
1.8
2.6
0.5
1.7
0.8
0.8
0.3
1.5
1.4
6.6
0.9
0.1
—
—
3.1
3.8
—
0.9
0.2
0.1
—
—
0.8
—
0.8
43.8
42.4
19.2
18.3
18.1
13.2
12.9
11.7
11.3
9.0
7.2
6.8
6.8
6.4
5.8
5.2
5.1
4.7
3.4
29.1
40.7
19.3
12.8
17.9
14.3
11.0
13.0
11.8
5.8
7.3
6.8
6.4
7.6
5.1
5.3
5.4
5.5
4.3
(a) Top 20 country exposures reflect approximately 88% and 87% of
total Firmwide non-U.S. exposure, where exposure is attributed to a
specific country, at December 31, 2019 and 2018, respectively.
(b) Lending and deposits includes loans and accrued interest receivable
(net of eligible collateral and the allowance for loan losses), deposits
with banks (including central banks), acceptances, other monetary
assets, issued letters of credit net of participations, and unused
commitments to extend credit. Excludes intra-day and operating
exposures, such as those from settlement and clearing activities.
(c) Includes market-making inventory, AFS securities, and counterparty
exposure on derivative and securities financings net of eligible
collateral and hedging. Includes exposure from 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.
(d) Predominantly includes physical commodity inventory.
(e) The country rankings presented in the table as of December 31, 2018,
are based on the country rankings of the corresponding exposures at
December 31, 2019, not actual rankings of such exposures at
December 31, 2018.
128
JPMorgan Chase & Co./2019 Form 10-K
OPERATIONAL RISK MANAGEMENT
Operational risk is the risk associated with an adverse
outcome resulting from inadequate or failed internal
processes or systems; human factors; or external events
impacting the Firm’s processes or systems; it includes
compliance, conduct, legal, and estimations and model risk.
Operational risk is inherent in the Firm’s activities and can
manifest itself in various ways, including fraudulent acts,
business interruptions, cybersecurity attacks, inappropriate
employee behavior, failure to comply with applicable laws
and regulations or failure of vendors to perform in
accordance with their agreements. Operational Risk
Management attempts to manage 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
The Firm’s Compliance, Conduct, and Operational Risk
(“CCOR”) Management Framework is designed to enable the
Firm to govern, identify, measure, monitor and test,
manage and report on the Firm’s operational risk.
Operational Risk Governance
The LOBs and Corporate hold ownership, responsibility and
accountability for the management of operational risk. The
Control Management Organization, which consists of control
managers within each LOB and Corporate, is responsible for
the day-to-day execution of the CCOR Framework and the
evaluation of the effectiveness of their control
environments to determine where targeted remediation
efforts may be required.
LOBs and Corporate control committees are responsible for
reviewing data that indicates the quality and stability of
processes, addressing key operational risk issues, focusing
on processes with control concerns, and overseeing control
remediation.
The Firm’s Global Chief Compliance Officer (“CCO”) and FRE
for Operational Risk is responsible for defining the CCOR
Management Framework and establishing minimum
standards for its execution. Operational Risk Officers
(“OROs”) report to both the LOB CROs and to the FRE for
Operational Risk, and are independent of the respective
businesses or functions they oversee.
The Firm’s CCOR Management policy establishes the CCOR
Management Framework for the Firm. The CCOR
Management Framework is articulated in the Risk
Governance and Oversight Policy which is reviewed and
approved by the Board Risk Committee periodically.
Operational Risk identification
The Firm utilizes a structured risk and control self-
assessment process that is executed by the LOBs and
Corporate. As part of this process, the LOBs and Corporate
evaluate the effectiveness of their control environment to
assess where controls have failed, and to determine where
remediation efforts may be required. CCOR Management
provides oversight of these activities and may also perform
independent assessments of significant operational risk
events and areas of concentrated or emerging risk.
Operational Risk Measurement
CCOR Management performs independent risk assessments
of the Firm’s operational risks, which includes assessing the
effectiveness of the control environment and reporting the
results to senior management.
In addition, 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 (“AMA”), 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. The Firm does not reflect the
impact of insurance in its AMA estimate of operational risk
capital.
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 other stress
testing processes.
Refer to Capital Risk Management section, on pages 85–92
for information related to operational risk RWA, and CCAR.
Operational Risk Monitoring and testing
The results of risk assessments performed by CCOR
Management are leveraged as one of the key criteria in the
independent monitoring and testing of the LOBs and
Corporate’s compliance with laws and regulation. Through
monitoring and testing, CCOR Management independently
identifies areas of operational risk and tests the
effectiveness of controls within the LOBs and Corporate.
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129
Management’s discussion and analysis
Management of Operational Risk
The operational risk areas or issues identified through
monitoring and testing are escalated to the LOBs and
Corporate to be remediated through action plans, as
needed, to mitigate operational risk. CCOR Management
may advise the LOBs and Corporate in the development and
implementation of action plans.
Operational Risk Reporting
Escalation of risks is a fundamental expectation for
employees at the Firm. Risks identified by CCOR
Management are escalated to the appropriate LOB and
Corporate Control Committees, as needed. CCOR
Management has established standards to ensure that
consistent operational risk reporting and operational risk
reports are produced on a Firmwide basis as well as by
LOBs and Corporate. Reporting includes the evaluation of
key risk indicators and key performance indicators against
established thresholds as well as the assessment of
different types of operational risk against stated risk
appetite. The standards reinforce escalation protocols to
senior management and to the Board of Directors.
Subcategories and examples of operational risks
Operational risk can manifest itself in various ways.
Operational risk subcategories such as Compliance risk,
Conduct risk, Legal risk, and Estimations and Model risk as
well as other operational risks, can lead to losses which are
captured through the Firm’s operational risk measurement
processes. Refer to pages 132, 133, and 134, respectively
for more information on Compliance, Conduct, Legal, and
Estimations and Model risk. 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 its
computer systems, software, networks and other
technology assets. The Firm’s security efforts are designed
to protect against, among other things, cybersecurity
attacks by unauthorized parties attempting 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) are also 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 are also 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 occur as a result of client failures to
maintain the security of their own systems and processes,
clients are responsible for losses incurred.
To protect the confidentiality, integrity and availability of
the Firm’s infrastructure, resources and information, the
Firm maintains a cybersecurity program designed to
prevent, detect, and respond to cyberattacks. The Audit
Committee is updated periodically on the Firm’s Information
Security Program, recommended changes, cybersecurity
policies and practices, ongoing efforts to improve security,
as well as its efforts regarding significant cybersecurity
events. In addition, the Firm has a cybersecurity incident
response plan (“IRP”) designed to enable the Firm to
respond to attempted cybersecurity incidents, coordinate
such responses with law enforcement and other
government agencies, and notify clients and customers, as
applicable. Among other key focus areas, the IRP is
designed to mitigate the risk of insider trading connected to
a cybersecurity incident, and includes various escalation
points.
The Cybersecurity and Technology Control functions are
responsible for governance and oversight of the Firm’s
Information Security Program. In partnership with the
Firm’s LOBs and Corporate, the Cybersecurity and
Technology Control organization identifies information
security risk issues and oversees programs for the
technological protection of the Firm’s information resources
including applications, infrastructure as well as confidential
and personal information related to the Firm’s customers.
The Cybersecurity and Technology organization is
comprised of business aligned information security
managers that are supported within the organization by the
following products that execute the Information Security
Program for the Firm:
• Cyber Defense & Fraud
• Data Management, Protection & Privacy
•
Identity & Access Management
• Governance & Controls
• Production Management & Resiliency
• Software & Platform Enablement
The Global Cybersecurity and Technology Control
governance structure is designed to identify, escalate, and
mitigate information security risks. This structure uses key
governance forums to disseminate information and monitor
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evaluated and enhanced in an effort to detect and mitigate
new strategies implemented by fraud perpetrators.
Third-party outsourcing risk
The Firm‘s Third-Party Oversight (“TPO”) and Inter-affiliates
Oversight (“IAO”) framework assist the LOBs and Corporate
in selecting, documenting, onboarding, monitoring and
managing their supplier relationships including services
provided by affiliates. The objectives of the TPO framework
is to hold suppliers to a high level of operational
performance and to mitigate key risks including data loss
and business disruption. The Corporate Third-Party
Oversight group is responsible for Firmwide 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
maintains a wholly-owned captive insurer, Park Assurance
Company. Insurance may also be required by third parties
with whom the Firm does business.
technology efforts. These forums are established at
multiple levels throughout the Firm and include
representatives from each LOB and Corporate. Reports
containing overviews of key technology risks and efforts to
enhance related controls are produced for these forums,
and are reviewed by management at multiple levels. The
forums are used to escalate information security risks or
other matters as appropriate.
The IRM function provides oversight of the activities
designed to identify, assess, measure, and mitigate
cybersecurity risk.
The Firm’s Security Awareness Program includes training
that reinforces the Firm's Information Technology Risk and
Security Management policies, standards and practices, as
well as the expectation that employees comply with these
policies. The Security Awareness Program engages
personnel through training on how to identify potential
cybersecurity risks and protect the Firm’s resources and
information. This training is mandatory for all employees
globally on a periodic basis, and it is supplemented by
Firmwide testing initiatives, including periodic phishing
tests. Finally, the Firm’s Global Privacy Program requires all
employees to take periodic awareness training on data
privacy. This privacy-focused training includes information
about confidentiality and security, as well as responding to
unauthorized access to or use of information.
Business and technology resiliency risk
Business disruptions can occur due to forces beyond the
Firm’s control such as severe weather, power or
telecommunications loss, accidents, failure of a third party
to provide expected services, cyberattack, flooding, transit
strikes, terrorism, health emergencies, the spread of
infectious diseases or pandemics. The safety of the Firm’s
employees and customers is of the highest priority. The
Firmwide 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 governance,
awareness training, and testing of recovery strategies, as
well as strategic and tactical initiatives to identify, assess,
and manage business interruption and public safety risks.
The strength and proficiency of the Firmwide 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. The
risk of payment fraud remains at a heightened level across
the industry. The complexities of these incidents and the
strategies used by perpetrators continue to evolve. Under
the Payments Control Program, methods are developed for
managing the risk, implementing controls, and providing
employee and client education and awareness trainings. The
Firm’s monitoring of customer behavior is periodically
JPMorgan Chase & Co./2019 Form 10-K
131
Management’s discussion and analysis
COMPLIANCE RISK MANAGEMENT
Compliance risk, a subcategory of operational risk, is the
risk of failing to comply with laws, rules, regulations or
codes of conduct and standards of self-regulatory
organizations.
Overview
Each LOB and Corporate hold primary ownership of and
accountability for managing compliance risk. The Firm’s
Compliance Organization (“Compliance”), which is
independent of the LOBs, provides 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 LOB and the
jurisdiction, and include risks 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. Compliance risk is also inherent in the Firm’s
fiduciary activities, including the failure to exercise the
applicable 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.
CCOR Management implements policies and standards
designed to govern, identify, measure, monitor and test,
manage, and report compliance risk.
Governance and oversight
Compliance is led by the Firm’s Global CCO and FRE for
Operational Risk.
The Firm maintains oversight and coordination of its
compliance risk through the implementation of the CCOR
Risk Management Framework. The Firm’s CCO also provides
regular updates to the Audit Committee and the Board Risk
Committee. In addition, certain Special Purpose Committees
of the Board have previously been established to oversee
the Firm’s compliance with regulatory Consent Orders.
Code of Conduct
The Firm has a Code of Conduct (the “Code”) that 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, clients,
customers, suppliers, contract workers, business partners,
or agents. All newly hired employees are assigned Code
training and current employees are periodically assigned
Code training on an ongoing basis. Employees are required
to affirm their compliance with the Code periodically.
Employees can report any potential or actual 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 at all times globally, with
translation services. It is administered by an outside service
provider. The Code prohibits retaliation against anyone who
raises an issue or concern in good faith. Periodically, the
Audit Committee receives reports on the Code of Conduct
program.
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JPMorgan Chase & Co./2019 Form 10-K
CONDUCT RISK MANAGEMENT
Conduct risk, a subcategory of operational risk, is the risk
that any action or inaction by an employee or employees
could lead to unfair client or customer outcomes, impact
the integrity of the markets in which the Firm operates, or
compromise the Firm’s reputation.
Overview
Each LOB and Corporate 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
(the “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 laws
everywhere the Firm operates. Refer to Compliance Risk
Management on page 132 for further discussion of the
Code.
Governance and oversight
The Conduct Risk Program is governed by the CCOR
Management policy, which establishes the framework for
governance, identification, measurement, monitoring and
testing, management and reporting conduct risk in the
Firm.
The Conduct Risk Steering Committee (CRSC) provides
oversight of the Firm’s conduct initiatives to develop a more
holistic view of conduct risks and to connect key programs
across the Firm in order to identify opportunities and
emerging areas of focus.
Each committee of the Board oversees conduct risks within
its scope of responsibilities, and the CRSC may escalate to
such committees as appropriate.
Conduct risk management encompasses various aspects of
people management practices throughout the employee life
cycle, including recruiting, onboarding, training and
development, performance management, promotion and
compensation processes. Each LOB, Treasury and CIO, and
designated corporate functions completes an assessment of
conduct risk periodically, reviews metrics and issues which
may involve conduct risk, and provides business conduct
training as appropriate.
JPMorgan Chase & Co./2019 Form 10-K
133
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, in
alignment with the lines of defense described under
Firmwide Risk Management on pages 79–83.
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 Firm’s
General Counsel and other members of Legal report on
significant legal matters to the Firm’s Board of Directors
and periodically to the Audit Committee.
Legal serves on and advises various committees (including
new business initiative and reputation risk committees) and
advises the Firm’s LOBs and Corporate on potential
reputation risk issues.
134
JPMorgan Chase & Co./2019 Form 10-K
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 policies relating to the
management of model risk and risks associated with certain
analytical and judgment-based estimations, such as those
used in risk management, budget forecasting and capital
planning and analysis.
The governance of analytical and judgment-based
estimations within MRGR’s scope follows a consistent
approach to the approach used for models, which is
described in detail below.
Model risks are owned by the users of the models within the
Firm based on the specific purposes of such models. 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. In its review of a
model, the Model Risk function considers whether the
model is suitable for the specific purposes for which it will
be used. 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 exceptions may be granted 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.
Refer to Critical Accounting Estimates Used by the Firm on
pages 136–138 and Note 2 for a summary of model-based
valuations and other valuation techniques.
JPMorgan Chase & Co./2019 Form 10-K
135
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
The Firm’s allowance for credit losses covers the retained
consumer and wholesale loan portfolios, as well as the
Firm’s wholesale and certain consumer lending-related
commitments. The allowance for loan losses is intended to
adjust the carrying value of the Firm’s loans 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. Refer to Allowance for credit losses on pages 116–
117 and Note 13 for further information on these
components, areas of judgment and methodologies used in
establishing the Firm’s allowance for credit losses.
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. Refer to Note 13 for further discussion.
To illustrate the potential magnitude of certain alternate
judgments, the Firm estimates that changes in the following
inputs would have the following effects on the Firm’s
modeled credit loss estimates as of December 31, 2019,
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
expectations could imply:
an increase to modeled credit loss estimates of
approximately $250 million for PCI loans.
an increase to modeled annual credit loss estimates
of approximately $50 million for residential real
estate loans, excluding PCI loans.
• For credit card loans, a 100 basis point increase in
unemployment rates from expectations could imply an
increase to modeled annual credit loss estimates of
approximately $850 million.
• An increase in probability of default (“PD”) factors
consistent with a one-notch downgrade in the Firm’s
internal risk ratings for its entire wholesale loan
portfolio could imply an increase in the Firm’s modeled
credit loss estimates of approximately $1.6 billion.
• A 100 basis point increase in estimated loss given
default (“LGD”) for the Firm’s entire wholesale loan
portfolio could imply an increase in the Firm’s modeled
credit loss estimates of approximately $200 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.
Fair value
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, including,
derivatives and structured note products. Certain assets
and liabilities are measured at fair value on a nonrecurring
basis, including certain mortgage, home equity and other
136
JPMorgan Chase & Co./2019 Form 10-K
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. Refer to Note 2 for
further information.
December 31, 2019
(in billions, except ratios)
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)
$
361.3
49.7
411.0
350.7
7.1
4.7
29.3
802.8
4.8
$
$
807.6
$
2,687.4
3.4
4.7
8.1
—
—
4.7
0.7
13.5
1.3
14.8
0.6%
1.8%
(a) For purposes of the table above, the derivative receivables total reflects the impact
of netting adjustments; however, the $4.7 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. Refer to Note 2 for a further
discussion of the valuation of level 3 instruments, including
unobservable inputs used.
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. Refer to Note 2 for a further discussion
of valuation adjustments applied by the Firm.
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. Refer to Note 2 for a detailed discussion of the Firm’s
valuation process and hierarchy, and its determination of
fair value for individual financial instruments.
Goodwill impairment
Under U.S. GAAP, goodwill must be allocated to reporting
units and tested for impairment at least annually. The Firm’s
process and methodology used to conduct goodwill
impairment testing is described in Note 15.
Management applies significant judgment when testing
goodwill for impairment. The goodwill associated with each
business combination is allocated to the related reporting
units for goodwill impairment testing.
For the year ended December 31, 2019, the Firm reviewed
current economic conditions, estimated market cost of equity,
as well as actual and projections of business performance for
all its businesses. Based upon such reviews, the Firm
concluded that the goodwill allocated to its reporting units
was not impaired as of December 31, 2019. 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.
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
businesses. Where possible, the Firm uses third-party and
peer data to benchmark its assumptions and estimates.
Refer to Note 15 for additional information on goodwill,
including the goodwill impairment assessment as of
December 31, 2019.
Credit card rewards liability
JPMorgan Chase offers credit cards with various rewards
programs which allow cardholders to earn rewards points
based on their account activity and the terms and
conditions of the rewards program. Generally, there are no
limits on the points that an eligible cardholder can earn, nor
JPMorgan Chase & Co./2019 Form 10-K
137
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, 2019,
management has determined it is more likely than not that
the Firm will realize its deferred tax assets, net of the
existing valuation allowance.
The Firm adjusts its unrecognized tax benefits as necessary
when additional information becomes available. Uncertain
tax positions that meet the more-likely-than-not recognition
threshold are measured to determine the amount of benefit
to recognize. An uncertain tax position is measured at 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.
Refer to Note 25 for additional information on income
taxes.
Litigation reserves
Refer to Note 30 for a description of the significant
estimates and judgments associated with establishing
litigation reserves.
Management’s discussion and analysis
do the points expire, and the 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 rewards 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 rewards 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 $6.4 billion
and $5.8 billion at December 31, 2019 and 2018,
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 net
operating loss (“NOL”) carryforwards and foreign tax credit
(“FTC”) carryforwards. 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
138
JPMorgan Chase & Co./2019 Form 10-K
ACCOUNTING AND REPORTING DEVELOPMENTS
Financial Accounting Standards Board (“FASB”) Standards Adopted during 2019
Standard
Summary of guidance
Effects on financial statements
Leases
• Requires lessees to recognize all leases longer
• Adopted January 1, 2019.
Issued February
2016
than twelve months on the Consolidated balance
sheets as a lease liability with a corresponding
right-of-use asset.
• Requires lessees and lessors to classify most
leases using principles similar to existing lease
accounting, but eliminates the “bright line”
classification tests.
• Expands qualitative and quantitative leasing
disclosures.
• The Firm elected the available practical expedient to not
reassess whether existing contracts contain a lease or
whether classification or unamortized initial lease costs
would be different under the new lease guidance. The Firm
elected the modified retrospective transition method, through
a cumulative-effect adjustment to retained earnings without
revising prior periods.
• Refer to Note 18 for further information.
JPMorgan Chase & Co./2019 Form 10-K
139
Management’s discussion and analysis
FASB Standards Issued but not adopted as of December 31, 2019
Standard
Summary of guidance
Financial
Instruments –
Credit Losses
(“CECL”)
Issued June 2016
• Establishes a single allowance framework for all
financial assets carried at amortized cost and
certain off-balance sheet credit exposures. This
framework requires that management’s estimate
reflects credit losses over the full remaining
expected life and considers expected future
changes in macroeconomic conditions.
• Eliminates existing guidance for PCI loans, and
requires recognition of the nonaccretable
difference as an increase to the allowance for
expected credit losses on financial assets
purchased with more than insignificant credit
deterioration since origination, with a
corresponding increase in the recorded
investment of the related loans.
• Requires inclusion of expected recoveries,
limited to the cumulative amount of prior write-
offs, when estimating the allowance for credit
losses for in scope financial assets (including
collateral dependent assets).
• Amends existing impairment guidance for AFS
securities to incorporate an allowance, which will
allow for reversals of credit impairments 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.
Effects on financial statements
• Adopted January 1, 2020.
• The adoption of this guidance resulted in a net increase to the
allowance for credit losses of $4.3 billion and a decrease to
retained earnings of $2.7 billion, primarily driven by Card.
Under the CECL framework, the Firm estimates losses over a
two-year forecast period using the weighted-average of a
range of macroeconomic scenarios (established on a
Firmwide basis), and then reverts to longer term historical
loss experience to estimate losses over more extended
periods.
• The Firm elected to phase-in the impact to retained earnings
of $2.7 billion to regulatory capital, at 25 percent per year in
each of 2020 to 2023 (“CECL transitional period”). Based on
the Firm’s capital as of December 31, 2019, the estimated
impact to the Standardized CET1 capital ratio will be a
reduction of approximately 4 bps for each transitional year.
• As permitted by the guidance, the Firm elected the fair value
option for certain securities financing agreements. The
difference between their carrying amount and fair value was
immaterial and was recorded as part of the Firm’s
cumulative-effect adjustment.
• Refer to Note 1 for further information.
Goodwill
Issued January
2017
• Requires recognition of an impairment loss when
the estimated fair value of a reporting unit falls
below its carrying value.
• Eliminates the requirement that an impairment
loss be recognized only if the estimated implied
fair value of the goodwill is below its carrying
value.
• Adopted January 1, 2020.
• No impact upon adoption as the guidance is to be applied
prospectively.
140
JPMorgan Chase & Co./2019 Form 10-K
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 2019 Form 10-K
contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. The
Firm also may make forward-looking statements in its 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 appropriately address social,
environmental and sustainability concerns that may arise
from its business activities;
• Ability of the Firm to deal effectively with an economic
slowdown or other economic or market disruption,
including, but not limited to, in the interest rate
environment;
• Technology changes instituted by the Firm, its
counterparties or competitors;
• The effectiveness of the Firm’s control agenda;
• Ability of the Firm to develop or discontinue products and
services, and the extent to which products 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 clients,
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, including health emergencies, the spread of
infectious diseases, pandemics or outbreaks of hostilities,
or the effects of climate change, 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 JPMorgan Chase’s 2019 Form 10-
K.
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 any forward-looking
statements. The reader should, however, consult any further
disclosures of a forward-looking nature the Firm may make
in any subsequent Form 10-Ks, Quarterly Reports on Form
10-Qs, or Current Reports on Form 8-K.
JPMorgan Chase & Co./2019 Form 10-K
141
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 (“U.S. GAAP”).
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 U.S. GAAP, 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,
2019. 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, 2019, 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, 2019.
The effectiveness of the Firm’s internal control over
financial reporting as of December 31, 2019, 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
Jennifer Piepszak
Executive Vice President and Chief Financial Officer
February 25, 2020
142
JPMorgan Chase & Co./2019 Form 10-K
Report of Independent Registered Public Accounting Firm
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.
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.
To the Board of Directors and Shareholders of JPMorgan
Chase & Co.:
Opinions on the Financial Statements and Internal Control
over Financial Reporting
We have audited the accompanying consolidated balance
sheets of JPMorgan Chase & Co. and its subsidiaries (the
“Firm”) as of December 31, 2019 and 2018, 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, 2019,
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, 2019, 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, 2019 and 2018, and
the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2019 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, 2019, 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.
PricewaterhouseCoopers LLP
300 Madison Avenue
New York, NY 10017
JPMorgan Chase & Co./2019 Form 10-K
143
Report of Independent Registered Public Accounting Firm
Critical Audit Matters
Fair Value of Mortgage Servicing Rights Assets
The critical audit matters communicated below are matters
arising from the current period audit of the consolidated
financial statements that were communicated or required to
be communicated to the audit committee and that (i) relate
to accounts or disclosures that are material to the
consolidated financial statements and (ii) involved our
especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any
way our opinion on the consolidated financial statements,
taken as a whole, and we are not, by communicating the
critical audit matters below, providing separate opinions on
the critical audit matters or on the accounts or disclosures to
which they relate.
Fair Value of Certain Level 3 Financial Instruments
As described in Notes 2 and 3 to the consolidated financial
statements, the Firm carries $802.8 billion of its assets and
$233.8 billion of its liabilities at fair value on a recurring
basis. Included in these balances are $8.1 billion of trading
assets and $37.7 billion of liabilities measured at fair value
on a recurring basis, collectively financial instruments, which
are classified as level 3 as they contain one or more inputs to
valuation which are unobservable and significant to their fair
value measurement. The Firm utilized internally developed
valuation models and unobservable inputs to estimate fair
value of the level 3 financial instruments. The unobservable
inputs used by management to estimate the fair value of
certain of these financial instruments include volatility
relating to interest rates and correlation relating to interest
rates, equity prices and foreign exchange rates.
The principal considerations for our determination that
performing procedures relating to the fair value of certain
level 3 financial instruments is a critical audit matter are (i)
there was significant judgment and estimation by
management in determining the inputs to estimate fair value,
which in turn led to a high degree of auditor judgment,
subjectivity, and effort in performing procedures related to
the fair value of these financial instruments, and (ii) the audit
effort involved professionals with specialized skill and
knowledge to assist in evaluating the audit evidence obtained
from these procedures.
Addressing the matter involved performing procedures and
evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements.
These procedures included testing the effectiveness of
controls relating to the Firm’s processes for determining fair
value which include controls over models, inputs, and data.
These procedures also included, among others, the
involvement of professionals with specialized skill and
knowledge to assist in developing an independent estimate of
fair value for a sample of these financial instruments.
Developing the independent estimate involved testing the
completeness and accuracy of data provided by management,
developing independent inputs and, as appropriate,
evaluating and utilizing management’s aforementioned
unobservable inputs; and comparing management’s estimate
to the independently developed estimate of fair value.
As described in Note 15 to the consolidated financial
statements, the Firm has elected to account for the Firm’s
mortgage servicing rights assets at fair value, with balances
of $4.7 billion as of December 31, 2019. Management
estimates the fair value of mortgage servicing rights using an
option-adjusted spread model, which projects 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 key economic assumptions used to
determine the fair value of mortgage servicing rights are
prepayment speeds and option adjusted spread.
The principal considerations for our determination that
performing procedures relating to the fair value of mortgage
servicing rights assets is a critical audit matter are (i) there
was significant judgment and estimation by management in
determining the fair value of mortgage servicing rights,
which in turn led to a high degree of auditor judgment,
subjectivity and effort in performing procedures and in
evaluating the audit evidence obtained related to the
prepayment speed and option adjusted spread assumptions,
and (ii) the audit effort involved professionals with
specialized skill and knowledge to assist in evaluating the
audit evidence obtained from these procedures.
Addressing the matter involved performing procedures and
evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements.
These procedures included testing the effectiveness of
controls relating to the valuation of mortgage servicing
rights, including controls over the Firm’s models,
assumptions, and data. These procedures also included,
among others, the involvement of professionals with
specialized skill and knowledge to assist in testing
management’s process including testing and evaluating the
reasonableness of prepayment speed and option adjusted
spread assumptions used in the model.
Allowance for Loan Losses - Wholesale Loan, Credit Card Loan
and Consumer Loan Portfolios
As described in Note 13 to the consolidated financial
statements, the Firm’s allowance for loan losses represents
management’s estimate of probable credit losses inherent in
the Firm’s retained loan portfolios, which primarily consists
of wholesale loans, credit card loans and consumer loans. As
of December 31, 2019, the allowance for loan losses was
$13.1 billion on total retained loans of $945.6 billion. The
Firm’s allowance for loan losses is determined for each of the
retained loan portfolios utilizing a statistical credit loss
estimate. These statistical credit loss estimates are calculated
using statistical credit loss factors, specifically the probability
of default and loss severity for the credit card and consumer
loans and the probability of default and loss given default for
the wholesale loans. Management then applies judgment to
adjust these statistical loss estimates to take into
consideration model imprecision, external factors and
economic events that have occurred but are not yet reflected
in the loss factors.
The principal considerations for our determination that
performing procedures relating to the allowance for loan
losses for the wholesale loan, credit card loan, and consumer
loan portfolios is a critical audit matter are (i) there was
144
JPMorgan Chase & Co./2019 Form 10-K
Report of Independent Registered Public Accounting Firm
significant judgment and estimation by management in
determining the modeling techniques utilized in their
statistical credit loss estimates, which in turn led to a high
degree of auditor judgment, subjectivity and effort in
performing procedures and in evaluating audit evidence
obtained relating to the statistical credit loss estimates and
the appropriateness of the adjustments to the statistical loss
estimates, and (ii) the audit effort involved professionals with
specialized skill and knowledge to assist in evaluating the
audit evidence.
Addressing the matter involved performing procedures and
evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements.
These procedures included testing the effectiveness of
controls relating to the Firm’s allowance for loan losses
estimation processes. These procedures also included, among
others, testing management’s process for estimating the
allowance for loan losses, which included evaluating the
appropriateness of the models and methodologies used in the
statistical credit loss estimates for the wholesale, credit card
and consumer loan portfolios; testing the completeness and
accuracy of data; and evaluating the reasonableness of
assumptions and judgments used in the statistical credit loss
estimate and the adjustments to the statistical credit loss
estimates. This included, as relevant, evaluating the
reasonableness of probabilities of default, loss severities and
loss given default. Evaluating management’s adjustment to
the statistical credit loss estimate included evaluating the
reasonableness of the impacts of model imprecision and
external factors and economic events which have occurred
but are not yet otherwise reflected in the statistical credit
loss estimate. The procedures included the use of
professionals with specialized skill and knowledge to assist in
evaluating the appropriateness of certain models,
methodologies and inputs into the statistical credit loss
estimates.
February 25, 2020
We have served as the Firm’s auditor since 1965.
JPMorgan Chase & Co./2019 Form 10-K
145
Consolidated statements of income
Year ended December 31, (in millions, except per share data)
2019
2018
2017
Revenue
Investment banking fees
Principal transactions
Lending- and deposit-related fees
Asset management, administration and commissions
Investment securities gains/(losses)
Mortgage fees and related income
Card income
Other income
Noninterest revenue
Interest income(a)
Interest expense(a)
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
Net income per common share data
Basic earnings per share
Diluted earnings per share
Weighted-average basic shares
Weighted-average diluted shares
$
7,501
$
7,550
$
14,018
6,369
17,165
258
2,036
5,304
5,731
58,382
84,040
26,795
57,245
12,059
6,052
17,118
(395)
1,254
4,989
5,343
53,970
76,100
21,041
55,059
7,412
11,347
5,933
16,287
(66)
1,616
4,433
3,646
50,608
63,971
13,874
50,097
115,627
109,029
100,705
5,585
4,871
5,290
34,155
33,117
31,208
4,322
9,821
8,533
3,579
5,087
65,497
44,545
8,114
36,431
34,642
$
$
10.75
$
10.72
3,221.5
3,230.4
3,952
8,802
8,502
3,290
5,731
63,394
40,764
8,290
32,474
30,709
9.04
9.00
3,396.4
3,414.0
$
$
$
3,723
7,715
7,890
2,900
6,079
59,515
35,900
11,459
24,441
22,567
6.35
6.31
3,551.6
3,576.8
$
$
$
(a) In the second quarter of 2019, the Firm implemented certain presentation changes that impacted interest income and interest expense, but had no effect
on net interest income. These changes were applied retrospectively and, accordingly, prior period amounts were revised to conform with the current
presentation. Refer to Note 7 for additional information.
The Notes to Consolidated Financial Statements are an integral part of these statements.
146
JPMorgan Chase & Co./2019 Form 10-K
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
Fair value 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
2019
2018
$
36,431
$
32,474
$
2,855
(1,858)
20
30
172
964
(965)
3,076
20
(107)
(201)
(373)
1,043
(1,476)
$
39,507
$
30,998
$
2017
24,441
640
(306)
NA
176
738
(192)
1,056
25,497
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2019 Form 10-K
147
Consolidated balance sheets
December 31, (in millions, except share data)
2019
2018
Assets
Cash and due from banks
Deposits with banks
Federal funds sold and securities purchased under resale agreements (included $14,561 and $13,235 at fair value)
Securities borrowed (included $6,237 and $5,105 at fair value)
Trading assets (included assets pledged of $111,522 and $89,073)
Investment securities (included $350,699 and $230,394 at fair value and assets pledged of $10,325 and $11,432)
Loans (included $7,104 and $3,151 at fair value)
Allowance for loan losses
Loans, net of allowance for loan losses
Accrued interest and accounts receivable
Premises and equipment
Goodwill, MSRs and other intangible assets
Other assets (included $9,111 and $9,630 at fair value and assets pledged of $3,349 and $3,457)
Total assets(a)
Liabilities
Deposits (included $28,589 and $23,217 at fair value)
Federal funds purchased and securities loaned or sold under repurchase agreements (included $549 and $935 at fair
value)
Short-term borrowings (included $5,920 and $7,130 at fair value)
Trading liabilities
Accounts payable and other liabilities (included $3,728 and $3,269 at fair value)
Beneficial interests issued by consolidated VIEs (included $36 and $28 at fair value)
Long-term debt (included $75,745 and $54,886 at fair value)
Total liabilities(a)
Commitments and contingencies (refer to Notes 28, 29 and 30)
Stockholders’ equity
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 2,699,250 and 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/loss
Shares held in restricted stock units (“RSU”) trust, at cost (472,953 shares)
Treasury stock, at cost (1,020,912,567 and 829,167,674 shares)
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
21,704
$
241,927
249,157
139,758
411,103
398,239
959,769
(13,123)
946,646
72,861
25,813
53,341
22,324
256,469
321,588
111,995
413,714
261,828
984,554
(13,445)
971,109
73,200
14,934
54,349
126,830
2,687,379
1,562,431
$
$
$
$
121,022
2,622,532
1,470,666
183,675
40,920
119,277
210,407
17,841
291,498
182,320
69,276
144,773
196,710
20,241
282,031
2,426,049
2,366,017
26,993
4,105
88,522
26,068
4,105
89,162
223,211
199,202
1,569
(21)
(83,049)
261,330
(1,507)
(21)
(60,494)
256,515
$
2,687,379
$
2,622,532
(a) The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at December 31, 2019 and 2018. 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. The assets and liabilities in the table below include third-party assets and liabilities of consolidated VIEs and exclude intercompany
balances that eliminate in consolidation. Refer to Note 14 for a further discussion.
December 31, (in millions)
2019
2018
Assets
Trading assets
Loans
All other assets
Total assets
Liabilities
Beneficial interests issued by consolidated VIEs
All other liabilities
Total liabilities
$
$
$
$
2,633
$
42,931
881
46,445
17,841
447
18,288
$
$
$
1,966
59,456
1,013
62,435
20,241
312
20,553
The Notes to Consolidated Financial Statements are an integral part of these statements.
148
JPMorgan Chase & Co./2019 Form 10-K
Consolidated statements of changes in stockholders’ equity
Year ended December 31, (in millions, except per share data)
2019
2018
2017
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, and
related tax effects
Other
Balance at December 31
Retained earnings
Balance at January 1
Cumulative effect of change in accounting principles
Net income
Dividends declared:
Preferred stock
Common stock ($3.40, $2.72 and $2.12 per share for 2019, 2018 and 2017, respectively)
Balance at December 31
Accumulated other comprehensive income
Balance at January 1
Cumulative effect of change in accounting principles
Other comprehensive income/(loss), after-tax
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
$
26,068
$
26,068
5,000
1,696
1,258
(4,075)
26,993
(1,696)
26,068
(1,258)
26,068
4,105
4,105
4,105
89,162
90,579
91,627
(591)
(49)
(738)
(679)
(734)
(314)
88,522
89,162
90,579
199,202
177,676
162,440
62
(183)
—
36,431
32,474
24,441
(1,587)
(10,897)
(1,551)
(9,214)
(1,663)
(7,542)
223,211
199,202
177,676
(1,507)
—
3,076
1,569
(119)
88
(1,476)
(1,507)
(1,175)
—
1,056
(119)
(21)
(21)
(21)
(60,494)
(42,595)
(28,854)
(24,121)
(19,983)
(15,410)
1,566
2,084
1,669
(83,049)
(60,494)
(42,595)
$ 261,330
$ 256,515
$ 255,693
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2019 Form 10-K
149
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:
2019
2018
2017
$
36,431
$
32,474
$
24,441
5,585
8,368
949
1,996
4,871
7,791
1,721
2,717
5,290
6,179
2,312
2,136
(70,980)
(102,141)
(94,628)
79,182
93,453
93,270
(652)
(38,371)
(27,631)
(78)
(17,949)
(14,516)
(352)
5,693
6,046
(6,861)
(5,849)
(8,833)
18,290
14,630
295
5,673
(8,653)
(15,868)
3,982
(26,256)
(16,508)
7,803
14,187
(10,827)
Federal funds sold and securities purchased under resale agreements
72,396
(123,201)
31,448
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 financing activities
Effect of exchange rate changes on cash and due from banks and deposits with banks
Net increase/(decrease) in cash and due from banks and deposits with banks
Cash and due from banks and deposits with banks at the beginning of the period
Cash and due from banks and deposits with banks at the end of the period
Cash interest paid
Cash income taxes paid, net
3,423
(13,427)
2,945
(9,368)
4,563
(2,349)
52,200
70,181
37,401
46,067
56,117
90,201
(242,149)
(95,091)
(105,309)
62,095
29,826
15,791
(53,697)
(81,586)
(61,650)
(5,035)
(4,986)
(563)
(54,013)
(197,993)
28,249
101,002
1,347
(28,561)
4,289
61,085
26,728
23,415
18,476
1,712
71,662
57,022
(6,739)
16,540
(1,377)
56,271
(69,610)
(76,313)
(83,079)
5,000
(4,075)
1,696
(1,696)
1,258
(1,258)
(24,001)
(19,983)
(15,410)
(12,343)
(10,109)
(8,993)
(1,146)
32,987
(182)
(1,430)
34,158
(2,863)
(15,162)
(152,511)
407
14,642
8,086
40,150
278,793
431,304
391,154
$ 263,631
$ 278,793
$ 431,304
$
29,918
$
21,152
$
14,153
5,624
3,542
4,325
The Notes to Consolidated Financial Statements are an integral part of these statements.
150
JPMorgan Chase & Co./2019 Form 10-K
Notes to consolidated financial statements
Note 1 – Basis of presentation
JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”), a
financial holding company incorporated under Delaware law
in 1968, is a leading global financial services firm and 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. Refer to Note 32 for a
discussion of the Firm’s business segments.
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 noninterest revenue.
Certain Firm-sponsored asset management funds are
structured as limited partnerships or 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 the funds if the Firm is the general partner or
managing member and has a potentially significant interest.
The Firm’s investment companies and asset management
funds 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.
If consolidated, the Firm retains such specialized investment
company guidelines.
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
JPMorgan Chase & Co./2019 Form 10-K
151
Notes to consolidated financial statements
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
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.
Refer to Note 14 for further discussion of the Firm’s VIEs.
Revenue recognition
Interest income
The Firm recognizes interest income on loans, debt
securities, and other debt instruments, generally on a level-
yield basis, based on the underlying contractual rate. Refer
to Note 7 for further discussion of interest income.
Revenue from contracts with customers
JPMorgan Chase recognizes noninterest revenue from
certain contracts with customers, in investment banking
fees, deposit-related fees, asset management
administration and commissions, and components of card
income, when the Firm’s related performance obligations
are satisfied. Refer to Note 6 for further discussion of the
Firm’s revenue from contracts with customers.
Principal transactions revenue
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. Changes in fair value are reported primarily in
principal transactions revenue. Refer to Notes 2 and 3 for
further discussion of fair value measurement. Refer to Note
6 for further discussion of principal transactions revenue.
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 the
Consolidated statements of comprehensive income. 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 contracts, resale, repurchase, securities
borrowed and securities loaned agreements. 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.
152
JPMorgan Chase & Co./2019 Form 10-K
Accounting standards adopted January 1, 2018
Effective January 1, 2018, the Firm adopted several
accounting standards resulting in a net decrease of $183
million to retained earnings and a net increase of $88
million to AOCI. Certain of these standards were adopted
retrospectively and, accordingly, prior period amounts were
revised. The adoption of the recognition and measurement
guidance resulted in $505 million of fair value gains in the
first quarter of 2018, recorded in total net revenue, on
certain equity investments that were previously held at
cost.
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.
Fair value measurement
Fair value option
Derivative instruments
Noninterest revenue and noninterest
expense
Note 2
page 154
Note 3
page 175
Note 5
page 180
Note 6
page 195
Interest income and Interest expense
Note 7
page 198
Pension and other postretirement
employee benefit plans
Employee share-based incentives
Investment securities
Securities financing activities
Loans
Allowance for credit losses
Variable interest entities
Note 8
page 199
Note 9
page 206
Note 10
page 208
Note 11
page 214
Note 12
page 217
Note 13
page 237
Note 14
page 242
Goodwill and Mortgage servicing rights
Note 15
page 250
Premises and equipment
Leases
Long-term debt
Income taxes
Off–balance sheet lending-related
financial instruments, guarantees and
other commitments
Litigation
Note 16
page 254
Note 18
page 254
Note 20
page 257
Note 25
page 265
Note 28
page 272
Note 30
page 279
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.
Refer to Note 5 for further discussion of the Firm’s
derivative instruments. Refer to Note 11 for further
discussion of the Firm’s securities financing agreements.
Statements of cash flows
For JPMorgan Chase’s Consolidated statements of cash
flows, cash is defined as those amounts included in cash
and due from banks and deposits with banks.
Accounting standard adopted January 1, 2020
Financial Instruments – Credit Losses (“CECL”)
The adoption of this guidance established a single
allowance framework for all financial assets carried at
amortized cost and certain off-balance sheet credit
exposures. This framework requires that management’s
estimate reflects credit losses over the full remaining
expected life and considers expected future changes in
macroeconomic conditions.
The following table presents the impacts to the allowance
for credit losses and retained earnings upon adoption of
this guidance on January 1, 2020:
(in billions)
Allowance for credit losses
December
31, 2019
CECL
adoption
impact
January 1,
2020
Consumer, excluding credit card $
3.2 $
0.2 $
Credit card
Wholesale
Firmwide
5.7
5.4
5.5
(1.4)
$
14.3 $
4.3 $
3.4
11.2
4.0
18.6
Retained earnings
Firmwide allowance increase
Balance sheet reclassification(a)
Total pre-tax impact
Tax effect
Decrease to retained earnings
$
$
4.3
(0.8)
3.5
(0.8)
2.7
(a) Represents the recognition of the nonaccretable difference on
purchased credit deteriorated assets and the Firm's election to
recognize the reserve for uncollectible accrued interest on credit card
loans in the allowance, both of which resulted in a corresponding
increase to loans.
JPMorgan Chase & Co./2019 Form 10-K
153
Notes to consolidated financial statements
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,
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, prices (such as
commodity, equity or debt prices), correlations, 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
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 Firmwide 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.
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 (refer to the discussion 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 made 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.
• Uncertainty adjustments related to unobservable
parameters 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.
154
JPMorgan Chase & Co./2019 Form 10-K
Adjustments are made 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. Refer to
Credit and funding adjustments on page 171 of this Note
for more information on such adjustments.
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 terms
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 in those models.
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 exceptions may be granted 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.
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 observability 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.
JPMorgan Chase & Co./2019 Form 10-K
155
Notes to consolidated financial statements
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: refer to the discussion of derivatives below
for further information.
• 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
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
Loans — consumer
Trading loans — conforming
residential mortgage loans
expected to be sold
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
Investment and trading
securities
Quoted market prices
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
Valued using observable market prices or data.
Level 1 or 2
156
JPMorgan Chase & Co./2019 Form 10-K
Product/instrument
Valuation methodology
Classifications in the valuation
hierarchy
Derivatives
Exchange-traded derivatives that are actively traded and valued using
the exchange price.
Level 1
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:
• Forward equity price
• Equity volatility
• Equity correlation
• Equity-FX correlation
• Equity-IR correlation
Interest rate and FX exotic options specific inputs include:
• Interest rate volatility
• Interest rate spread volatility
• Interest rate correlation
• Foreign exchange correlation
• Interest rate-FX correlation
Commodity derivatives specific inputs include:
• Commodity volatility
• Forward commodity price
Additionally, adjustments are made to reflect counterparty credit quality
(CVA) and the impact of funding (FVA). Refer to page 171 of this Note.
Mortgage servicing rights
Refer to Mortgage servicing rights in Note 15.
Private equity direct
investments
Fund investments (e.g.,
mutual/collective investment
funds, private equity funds,
hedge funds, and real estate
funds)
Beneficial interests issued by
consolidated VIEs
Fair value is estimated using all available information; the range of
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.
• Adjustments to the NAV as required, for restrictions on redemption
(e.g., lock-up periods or withdrawal limitations) or where observable
activity is limited.
Valued using observable market information, where available.
In the absence of observable market information, valuations are based
on the fair value of the underlying assets held by the VIE.
Level 3
Level 2 or 3
Level 1
Level 2 or 3(a)
Level 2 or 3
(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./2019 Form 10-K
157
Notes to consolidated financial statements
Product/instrument
Valuation methodology
Classification in the valuation
hierarchy
Structured notes (included in
deposits, short-term
borrowings and long-term
debt)
• Valuations are based on discounted cash flow analyses that consider
the embedded derivative and the terms and payment structure of
the note.
Level 2 or 3
• 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). Refer to page
171 of this Note.
158
JPMorgan Chase & Co./2019 Form 10-K
The following table presents the assets and liabilities reported at fair value as of December 31, 2019 and 2018, by major
product category and fair value hierarchy.
Assets and liabilities measured at fair value on a recurring basis
Fair value hierarchy
December 31, 2019 (in millions)
Level 1
Level 2
Level 3
Federal funds sold and securities purchased under resale agreements
$
Securities borrowed
Trading assets:
Debt instruments:
— $
—
14,561
6,237
$
$
—
—
Derivative
netting
adjustments(f)
Total fair value
— $
—
14,561
6,237
Mortgage-backed securities:
U.S. GSEs and government agencies(a)
Residential – nonagency
Commercial – nonagency
Total mortgage-backed securities
U.S. Treasury, GSEs 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
Total trading assets(e)
Available-for-sale securities:
Mortgage-backed securities:
U.S. GSEs and government agencies(a)
Residential – nonagency
Commercial – nonagency
Total mortgage-backed securities
U.S. Treasury and government agencies
Obligations of U.S. states and municipalities
Certificates of deposit
Non-U.S. government debt securities
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
Other
Total available-for-sale securities
Loans
Mortgage servicing rights
Other assets(e)
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
Total trading liabilities
Accounts payable and other liabilities
Beneficial interests issued by consolidated VIEs
Long-term debt
—
—
—
—
78,289
—
—
26,600
—
—
—
104,889
71,890
3,638
—
180,417
721
—
117
—
—
838
181,255
—
—
—
—
139,436
—
—
12,966
—
—
—
152,402
—
—
7,305
340,962 $
— $
—
—
$
$
44,510
1,977
1,486
47,973
10,295
6,468
252
27,169
17,956
47,047
2,593
159,753
244
3,579
13,896
177,472
311,173
14,252
137,938
43,642
17,058
524,063
701,535
110,117
12,989
5,188
128,294
—
29,810
77
8,821
845
24,991
5,458
198,296
7,104
—
452
928,185
25,229
549
4,246
59,047
16,481
795
—
109
—
—
904
59,951
3,231
—
—
276,746
14,358
143,960
47,261
19,685
502,010
518,491
452
36
52,406
601,409
797
23
4
824
—
10
—
155
558
1,382
37
2,966
196
—
232
3,394
1,400
624
432
2,085
184
4,725
8,119
—
1
—
1
—
—
—
—
—
—
—
1
—
4,699
724
13,543
3,360
—
1,674
41
1,732
763
1,039
5,480
200
9,214
9,255
45
—
23,339
37,673
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(285,873)
(14,175)
(129,482)
(39,250)
(11,080)
(479,860)
(479,860)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
(479,860) $
— $
—
—
—
(270,670)
(13,469)
(131,950)
(40,204)
(12,127)
(468,420)
(468,420)
—
—
—
$
(468,420) $
$
$
$
45,307
2,000
1,490
48,797
88,584
6,478
252
53,924
18,514
48,429
2,630
267,608
72,330
7,217
14,128
361,283
27,421
701
9,005
6,477
6,162
49,766
411,049
110,117
12,990
5,188
128,295
139,436
29,810
77
21,787
845
24,991
5,458
350,699
7,104
4,699
8,481
802,830
28,589
549
5,920
75,569
8,603
1,652
13,158
12,537
7,758
43,708
119,277
3,728
36
75,745
233,844
159
Total liabilities measured at fair value on a recurring basis
$
63,182 $
JPMorgan Chase & Co./2019 Form 10-K
Notes to consolidated financial statements
December 31, 2018 (in millions)
Level 1
Level 2
Level 3
Derivative
netting
adjustments(f)
Fair value hierarchy
Federal funds sold and securities purchased under resale agreements
$
Securities borrowed
Trading assets:
Debt instruments:
— $
—
13,235
5,105
$
$
—
—
Total fair value
$
13,235
5,105
Mortgage-backed securities:
U.S. GSEs and government agencies(a)
Residential – nonagency
Commercial – nonagency
Total mortgage-backed securities
U.S. Treasury, GSEs 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
Total trading assets(e)
Available-for-sale securities:
Mortgage-backed securities:
U.S. GSEs and government agencies(a)
Residential – nonagency
Commercial – nonagency
Total mortgage-backed securities
U.S. Treasury and government agencies
Obligations of U.S. states and municipalities
Certificates of deposit
Non-U.S. government debt securities
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
Other
Total available-for-sale securities
Loans
Mortgage servicing rights
Other assets(e)
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
Total trading liabilities
Accounts payable and other liabilities
Beneficial interests issued by consolidated VIEs
Long-term debt
—
—
—
—
51,477
—
—
27,878
—
—
—
79,355
71,119
5,182
—
155,656
682
—
771
—
—
1,453
157,109
—
—
—
—
56,059
—
—
15,313
—
—
—
—
71,372
—
—
7,810
236,291 $
— $
—
—
$
$
76,249
1,798
1,501
79,548
7,702
7,121
1,214
27,056
18,655
40,047
2,756
184,099
482
1,855
13,192
199,628
266,380
19,235
166,238
46,777
20,339
518,969
718,597
68,646
8,519
6,654
83,819
—
37,723
75
8,789
1,918
—
19,437
7,260
159,021
3,029
—
195
899,182
19,048
935
5,607
$
$
80,199
22,755
1,526
—
695
—
—
2,221
82,420
3,063
—
—
239,576
19,309
163,549
46,462
21,158
490,054
512,809
196
27
35,468
574,090
549
64
11
624
—
689
—
155
334
1,706
127
3,635
232
—
301
4,168
1,642
860
676
2,508
131
5,817
9,985
—
1
—
1
—
—
—
—
—
—
—
—
1
122
6,130
927
17,165
4,169
—
1,523
50
1,680
967
973
4,733
1,260
9,613
9,663
10
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(245,490)
(19,483)
(154,235)
(39,339)
(13,479)
(472,026)
(472,026)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
(472,026)
—
—
—
—
(234,998)
(18,609)
(152,432)
(41,034)
(13,046)
(460,119)
(460,119)
—
—
—
$
(460,119)
$
76,798
1,862
1,512
80,172
59,179
7,810
1,214
55,089
18,989
41,753
2,883
267,089
71,833
7,037
13,493
359,452
23,214
612
13,450
9,946
6,991
54,213
413,665
68,646
8,520
6,654
83,820
56,059
37,723
75
24,102
1,918
—
19,437
7,260
230,394
3,151
6,130
8,932
680,612
23,217
935
7,130
103,004
7,784
1,667
12,785
10,161
9,372
41,769
144,773
3,269
28
54,886
234,238
Total liabilities measured at fair value on a recurring basis
$
85,483 $
19,418
34,784
$
(a) At December 31, 2019 and 2018, included total U.S. GSE obligations of $104.5 billion and $92.3 billion, respectively, which were mortgage-related.
(b) At December 31, 2019 and 2018, included within trading loans were $19.8 billion and $13.2 billion, respectively, of residential first-lien mortgages, and
$3.4 billion and $2.3 billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated
with the intent to sell to U.S. GSEs and government agencies of $13.6 billion and $7.6 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 realizable value is below cost), the carrying value of physical commodities
160
JPMorgan Chase & Co./2019 Form 10-K
approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. Refer to Note 5 for a further
discussion of the Firm’s hedge accounting relationships. 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) 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, 2019 and 2018, the fair values of these investments, which include certain hedge funds, private
equity funds, real estate and other funds, were $684 million and $747 million, respectively. Included in these balances at December 31, 2019 and 2018,
were trading assets of $54 million and $49 million, respectively, and other assets of $630 million and $698 million, respectively.
(f) 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. The level 3 balances would be reduced if netting were applied, including the netting benefit
associated with cash collateral.
JPMorgan Chase & Co./2019 Form 10-K
161
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, 2019, interest rate
correlation inputs used in estimating fair value were
distributed across 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 forward equity prices and the interest rate-foreign
exchange (“IR-FX”) correlation inputs were distributed across
the range. In addition, the interest rate volatility and 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 in the middle of the range. Prepayment speed
inputs used in estimating the fair value of interest rate
derivatives were concentrated towards the lower end of the
range. Recovery rate inputs used in estimating the fair value
of credit derivatives were distributed across the range; credit
spreads were concentrated towards the lower end of the
range; conditional default rates and loss severity inputs were
concentrated towards the upper end of the range and price
inputs were concentrated towards the lower end of the range.
Notes to consolidated financial statements
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). Refer to pages 154–158 of this Note for further
information on the Firm’s valuation process and a detailed
discussion of the determination of fair value for individual
financial instruments.
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 relevant empirical data in
deriving valuation inputs including transaction details, yield
curves, interest rates, prepayment speed, default rates,
volatilities, correlations, prices (such as commodity, 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.
162
JPMorgan Chase & Co./2019 Form 10-K
Fair value
(in millions)
Principal valuation
technique
Unobservable inputs(g)
Range of input values
Weighted
average
Level 3 inputs(a)
December 31, 2019
Product/Instrument
Residential mortgage-backed securities and
loans(b)
Commercial mortgage-backed securities and
loans(c)
Obligations of U.S. states and municipalities
Corporate debt securities
Loans(d)
Asset-backed securities
Net interest rate derivatives
$
976
Discounted cash flows
Yield
Prepayment speed
Conditional default rate
Loss severity
99
Market comparables
10
Market comparables
558
193
939
Market comparables
Discounted cash flows
Market comparables
37
Market comparables
Price
Price
Price
Yield
Price
Price
(395) Option pricing
Interest rate volatility
Net credit derivatives
63
Discounted cash flows
(174) Discounted cash flows
Interest rate spread volatility
Interest rate correlation
IR-FX correlation
Prepayment speed
Credit correlation
Credit spread
Recovery rate
Conditional default rate
Loss severity
35
Market comparables
Price
Net foreign exchange derivatives
(469) Option pricing
Net equity derivatives
(138) Discounted cash flows
(3,395) Option pricing
IR-FX correlation
Prepayment speed
Forward equity price(h)
Equity volatility
Equity correlation
Equity-FX correlation
Equity-IR correlation
Net commodity derivatives
(16) Option pricing
Forward commodity price
MSRs
Other assets
Long-term debt, short-term borrowings, and
deposits(e)
4,699
Discounted cash flows
222
Discounted cash flows
734
Market comparables
28,373
Option pricing
Commodity volatility
Commodity correlation
Refer to Note 15
Credit spread
Yield
Price
Interest rate volatility
Interest rate correlation
IR-FX correlation
Equity correlation
Equity-FX correlation
Equity-IR correlation
6%
13%
0%
5%
$79
$95
$72
8%
$70
$71
45bps
12%
$37
2%
0%
0%
0%
$0
$71
$4
5%
$2
$1
6%
20bps
(65)%
(58)%
4%
31%
3bps
15%
2%
$1
(58)%
92%
9%
10%
(81)%
25%
$39
5%
(48)%
$17
6%
(65)%
(58)%
10%
(81)%
25%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100%
–
–
9%
–
–
–
18%
26%
5%
100%
$100
$100
$112
28%
$116
$102
44%
30bps
94%
40%
30%
59%
1,308bps
70%
18%
$115
65%
105%
93%
97%
60%
–
–
– $ 76 per barrel
35%
–
–
105%
95%
45bps
12%
–
–
–
–
–
–
–
$117
44%
94%
40%
97%
60%
35%
Other level 3 assets and liabilities, net(f)
265
(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.
(b) Comprises U.S. GSEs and government agency securities of $797 million, nonagency securities of $24 million and trading loans of $155 million.
(c) Comprises nonagency securities of $4 million and trading loans of $95 million.
(d) Comprises trading loans.
(e) Long-term debt, short-term borrowings and deposits include structured notes issued by the Firm that are financial instruments that typically contain
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.
(h) Forward equity price is expressed as a percentage of the current equity price.
JPMorgan Chase & Co./2019 Form 10-K
163
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.
Notes to consolidated financial statements
Changes in and ranges of unobservable inputs
The following discussion provides a description of the impact
on a fair value measurement of a change in each
unobservable input in isolation, and the 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
164
JPMorgan Chase & Co./2019 Form 10-K
Forward price - Forward price is the price at which the buyer
agrees to purchase the asset underlying a forward contract
on the predetermined future delivery date, and is such that
the value of the contract is zero at inception.
The forward price is used as an input in the valuation of
certain derivatives and depends on a number of factors
including interest rates, the current price of the underlying
asset, and the expected income to be received and costs to be
incurred by the seller as a result of holding that asset until
the delivery date. An increase in the forward can result in an
increase or a decrease 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,
2019, 2018 and 2017. When a determination is made to
classify a financial instrument within level 3, the
determination is based on the significance of the
unobservable inputs to the overall fair value measurement.
However, level 3 financial instruments typically include, in
addition to the unobservable or level 3 components,
observable components (that is, components that are actively
quoted and can be validated to external sources);
accordingly, the gains and losses in the table below include
changes in fair value due in part to observable factors 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.
Correlation – Correlation is a measure of the relationship
between the movements of two variables. Correlation is a
pricing input for a derivative product where the payoff is
driven by one or more underlying risks. Correlation inputs are
related to the type of derivative (e.g., interest rate, credit,
equity, foreign exchange and commodity) 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 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.
JPMorgan Chase & Co./2019 Form 10-K
165
Notes to consolidated financial statements
Fair value measurements using significant unobservable inputs
Fair
value at
January
1, 2019
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,
2019
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31,
2019
$
549 $ (62)
$
773 $
(310)
$
(134) $
1 $
(20) $
797
$
(58)
64
11
25
2
83
20
(86)
(26)
624
(35)
876
(422)
—
689
155
334
—
13
1
47
1,706
132
127
—
3,635
158
232
301
(41)
(36)
—
85
290
437
727
37
—
(159)
(287)
(247)
(708)
(93)
2,452
(1,916)
58
50
(103)
(26)
(20)
(14)
(168)
—
(8)
—
(52)
(562)
(40)
(830)
(22)
(54)
15
15
31
—
—
14
112
625
28
810
181
2
(58)
(4)
23
4
2
1
(82)
824
(55)
—
(610)
(18)
(73)
—
10
155
558
(538)
1,382
(22)
37
(1,343)
2,966
(109)
(5)
196
232
—
13
4
40
51
(3)
50
(18)
91
4,168
81 (c)
2,560
(2,045)
(906)
993
(1,457)
3,394
123 (c)
Year ended
December 31, 2019
(in millions)
Assets:(a)
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. GSEs and government
agencies
Residential – nonagency
Commercial – nonagency
Total mortgage-backed
securities
U.S. Treasury, GSEs 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:(b)
Interest rate
Credit
Foreign exchange
Equity
Commodity
(38)
(394)
(107)
(36)
(297)
(551)
(2,225)
(310)
(1,129)
497
Total net derivative receivables
(3,796)
(794) (c)
Available-for-sale securities:
Mortgage-backed securities
Asset-backed securities
Total available-for-sale securities
Loans
Mortgage servicing rights
Other assets
1
—
1
—
—
—
122
4 (c)
6,130 (1,180) (d)
927
(198) (c)
109
20
17
397
36
579
—
—
—
—
(125)
(9)
(67)
(573)
(348)
(1,122)
—
—
—
—
1,489
194
(789)
(165)
5
8
312
(503)
89
(89)
—
—
—
(125)
(951)
(33)
(7)
29
(22)
(405)
(6)
118
(44)
1
224
845
(332)
(139)
(607)
(599)
(127)
(380)
(3,395)
(1,608)
(16)
130
(411)
1,144
(4,489)
(2,584) (c)
—
—
—
—
—
6
—
—
—
(1)
—
(7)
1
—
1
—
—
—
—
—
4,699
(1,180) (d)
724
(180) (c)
Fair value measurements using significant unobservable inputs
Fair
value at
January
1, 2019
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,
2019
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31,
2019
Year ended
December 31, 2019
(in millions)
Liabilities:(a)
Deposits
$ 4,169 $ 278 (c)(e)
$
— $
916 $
(806) $
12 $
(1,209) $ 3,360
$ 307 (c)(e)
Short-term borrowings
1,523
229 (c)(e)
Trading liabilities – debt and equity
instruments
Accounts payable and other
liabilities
Beneficial interests issued by
consolidated VIEs
50
10
1
2 (c)
(2) (c)
(1) (c)
Long-term debt
19,418
2,815 (c)(e)
— $
—
(22)
—
41
(84)
115
—
—
—
—
3,441
(3,356)
—
—
—
1
—
—
85
16
6
—
(248)
1,674
155 (c)(e)
(47)
—
—
41
45
—
3 (c)
29 (c)
—
10,441
(8,538)
651
(1,448)
23,339
2,822 (c)(e)
166
JPMorgan Chase & Co./2019 Form 10-K
Fair value measurements using significant unobservable inputs
Fair
value at
January
1, 2018
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,
2018
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31,
2018
$
307 $ (23)
$
478 $ (164)
$
(73) $
94 $
(70) $
549
$
(21)
60
11
(2)
2
78
18
(50)
(18)
378
(23)
574
(232)
1
—
—
—
744
(17)
78
312
2,719
153
4,385
295
690
(22)
(18)
26
28
(26)
(40)
(285)
112
459
364
(70)
(277)
(309)
1,364
(1,793)
98
(41)
2,971
(2,722)
118
55
(120)
(40)
(7)
(17)
(97)
—
(80)
(12)
(48)
(658)
(55)
(950)
(1)
(118)
59
36
(74)
(21)
64
11
189
(165)
624
—
—
23
262
813
45
(1)
—
—
689
(94)
(229)
155
334
(765)
1,706
(101)
127
1,332
(1,355)
3,635
107
3
(127)
(4)
232
301
1
(2)
(22)
—
(17)
(9)
(1)
(1)
22
(28)
9
(301)
5,370
(351) (c)
3,144
(2,882)
(1,069)
1,442
(1,486)
4,168
(320) (c)
Year ended
December 31, 2018
(in millions)
Assets:(a)
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. GSEs and government
agencies
Residential – nonagency
Commercial – nonagency
Total mortgage-backed
securities
U.S. Treasury, GSEs 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:(b)
Interest rate
Credit
Foreign exchange
Equity
Commodity
264
150
(35)
(40)
(396)
(3,409)
103
198
(674)
(73)
107
(133)
5
52
(7)
(20)
1,676
(2,208)
1
(72)
Total net derivative receivables
(4,250)
338 (c)
1,841
(2,440)
Available-for-sale securities:
Mortgage-backed securities
Asset-backed securities
Total available-for-sale securities
Loans
Mortgage servicing rights
Other assets
1
276
277
276
—
1
1 (i)
(7) (c)
—
—
—
123
—
—
—
—
6,030
1,265
230 (d)
(328) (c)
1,246
(636)
61
(37)
(430)
(57)
30
1,805
(301)
1,047
—
(277)
(277)
(196)
(740)
(37)
(15)
4
(108)
(617)
7
(729)
—
—
—
—
—
4
19
23
42
(38)
(107)
(297)
330
(2,225)
(17)
(1,129)
187
(28)
(63)
561
146
397
(3,796)
803 (c)
—
—
—
1
—
1
(74)
122
—
(1)
6,130
927
—
—
—
(7) (c)
230 (d)
(340) (c)
Fair value measurements using significant unobservable inputs
Fair
value at
January
1, 2018
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,
2018
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31,
2018
$ 4,142 $ (136) (c)(e) $
— $
— $ 1,437 $
(736) $
2 $
(540) $ 4,169
$ (204) (c)(e)
Year ended
December 31, 2018
(in millions)
Liabilities:(a)
Deposits
Short-term borrowings
1,665
(329) (c)(e)
—
—
3,455
(3,388)
272
(152)
1,523
(131) (c)(e)
Trading liabilities – debt and equity
instruments
Accounts payable and other
liabilities
Beneficial interests issued by
consolidated VIEs
39
13
39
—
—
Long-term debt
16,125 (1,169) (c)(e)
19 (c)
(99)
114
(12)
—
—
5
1
—
—
—
—
(1)
—
(39)
14
4
—
(36)
—
—
50
10
1
16 (c)
—
—
11,919
(7,769)
1,143
(831) 19,418
(1,385) (c)(e)
JPMorgan Chase & Co./2019 Form 10-K
167
Notes to consolidated financial statements
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)
Fair
value at
Dec. 31,
2017
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31,
2017
$ 392 $ (11)
$
161
$ (171)
$
83
17
492
—
649
46
576
19
9
17
—
18
—
11
4,837
333
302
32
6,902
411
231
761
39
100
53
27
(30)
(44)
241
(245)
—
152
559
872
2,389
354
4,567
176
30
—
(70)
(518)
(612)
(2,832)
(356)
(4,633)
(148)
(46)
(70)
(64)
(13)
(147)
—
(5)
—
(497)
(1,323)
(56)
(2,028)
(4)
(162)
$
49 $
(43) $
307
$
(20)
132
64
245
1
—
62
157
806
75
(133)
(49)
60
11
(225)
378
—
—
(71)
(195)
1
744
78
312
(1,491)
2,719
(198)
153
1,346
(2,180)
4,385
59
17
(58)
(10)
295
690
11
1
(8)
—
15
—
18
43
—
68
21
39
7,894
550 (c)
4,773
(4,827)
(2,194)
1,422
(2,248)
5,370
128 (c)
1,263
72
98
(164)
(1,384)
43
(2,252)
(417)
(85)
(149)
1
663
664
570
—
15
15 (i)
35 (c)
60
1
13
1,116
—
1,190
—
—
—
—
6,096
(232) (d)
2,223
244 (c)
1,103
66
(82)
(6)
(10)
(551)
—
(649)
—
(50)
(50)
(26)
(140)
(177)
(1,040)
—
854
(245)
(433)
(864)
—
(352)
(352)
(303)
(797)
(870)
(8)
77
(61)
(1,482)
(1)
(41)
149
422
264
(35)
(396)
(3,409)
(6)
(1)
(674)
(473)
32
42
(161)
(718)
(1,480)
528
(4,250)
(1,278) (c)
—
—
—
—
—
—
—
—
—
—
—
1
276
277
276
—
14
14 (i)
3 (c)
6,030
(232) (d)
(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)
Fair
value at
Dec. 31,
2017
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31,
2017
Year ended
December 31, 2017
(in millions)
Assets:(a)
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. GSEs and government
agencies
Residential – nonagency
Commercial – nonagency
Total mortgage-backed
securities
U.S. Treasury, GSEs 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:(b)
Interest rate
Credit
Foreign exchange
Equity
Commodity
Available-for-sale securities:
Mortgage-backed securities
Asset-backed securities
Total available-for-sale securities
Loans
Mortgage servicing rights
Other assets
Year ended
December 31, 2017
(in millions)
Liabilities:(a)
Deposits
$ 2,117 $ 152 (c)(e) $
Short-term borrowings
1,134
42 (c)(e)
Trading liabilities – debt and equity
instruments
Accounts payable and other
liabilities
Beneficial interests issued by
consolidated VIEs
43
13
48
(3) (c)
(2) (c)
2 (c)
Long-term debt
12,850 1,067 (c)(e)
—
—
(46)
(1)
(122)
—
$
— $ 3,027
$
(291)
$
11 $
(874) $ 4,142
$ 198 (c)(e)
—
48
—
39
—
3,289
(2,748)
150
(202)
1,665
7 (c)(e)
—
—
—
3
3
(6)
12,458
(10,985)
3
—
78
1,660
(9)
—
—
39
13
39
—
(2) (c)
—
(925)
16,125
552 (c)(e)
168
JPMorgan Chase & Co./2019 Form 10-K
Total net derivative receivables
(2,360)
(615) (c)
(a) Level 3 assets as a percentage of total Firm assets accounted for at fair value (including assets measured at fair value on a nonrecurring basis) were 2%, 3% and 3% at December 31,
2019, 2018 and 2017, respectively. Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis)
were 16%, 15% and 15% at December 31, 2019, 2018 and 2017, respectively.
(b) All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty.
(c) Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans, and lending-related commitments originated with the intent to
sell, and mortgage loan purchase commitments, which are reported in mortgage fees and related income.
(d) Changes in fair value for MSRs are reported in mortgage fees and related income.
(e) Realized (gains)/losses due to DVA for fair value option elected liabilities are reported in principal transactions revenue, and they were not material for the years ended December
31, 2019, 2018 and 2017, respectively. Unrealized (gains)/losses are reported in OCI, and they were $319 million, $(277) million and $(48) million for the years ended December
31, 2019, 2018 and 2017, respectively.
(f) Loan originations are included in purchases.
(g) Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, 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 and/or significance of the valuation inputs and are assumed to occur at the beginning of the
quarterly reporting period in which they occur.
(i) Realized gains/(losses) on AFS securities, as well as other-than-temporary impairment (“OTTI”) losses that are recorded in earnings, are reported in investment securities gains/
(losses). Unrealized gains/(losses) are reported in OCI. There were no realized gains/(losses) and foreign exchange hedge accounting adjustments recorded in income on AFS
securities for the years ended December 31, 2019 and 2017, respectively and $1 million recorded for the year ended December 31, 2018. There were no unrealized gains/(losses)
recorded on AFS securities in OCI for the years ended December 31, 2019 and 2018, respectively and $15 million recorded for the year ended December 31, 2017.
Level 3 analysis
Consolidated balance sheets changes
Level 3 assets (including assets measured at fair value on a
nonrecurring basis) were 0.6% of total Firm assets at
December 31, 2019. The following describes significant
changes to level 3 assets since December 31, 2018, for those
items measured at fair value on a recurring basis. Refer to
Assets and liabilities measured at fair value on a
nonrecurring basis on page 172 for further information on
changes impacting items measured at fair value on a
nonrecurring basis.
For the year ended December 31, 2019
Level 3 assets were $13.5 billion at December 31, 2019,
reflecting a decrease of $3.6 billion from December 31,
2018, partially due to a $1.4 billion decrease in MSRs. Refer
to the Gains and losses section below for additional
information.
Transfers between levels for instruments carried at
fair value on a recurring basis
During the year ended December 31, 2019, significant
transfers from level 2 into level 3 included the following:
• $993 million of total debt and equity instruments, the
majority of which were trading loans, driven by a decrease
in observability.
• $904 million of gross equity derivative payables as a
result of a decrease in observability and an increase in the
significance of unobservable inputs.
During the year ended December 31, 2019, significant
transfers from level 3 into level 2 included the following:
• $1.5 billion of total debt and equity instruments, the
majority of which were obligations of U.S. states and
municipalities and trading loans, driven by an increase in
observability.
• $1.1 billion of gross equity derivative receivables and
$1.3 billion of gross equity derivative payables as a result
of an increase in observability and a decrease in the
significance of unobservable inputs.
• $962 million of gross commodities derivative payables as
a result of an increase in observability.
• $1.2 billion of deposits as a result of an increase in
observability and a decrease in the significance of
unobservable inputs.
• $1.4 billion of long-term debt as a result of an increase in
observability and a decrease in the significance of
unobservable inputs.
During the year ended December 31, 2018, significant
transfers from level 2 into level 3 included the following:
• $1.4 billion of total debt and equity instruments, the
majority of which were trading loans, driven by a decrease
in observability.
• $1.0 billion of gross equity derivative receivables and
$1.6 billion of gross equity derivative payables as a result
of a decrease in observability and an increase in the
significance of unobservable inputs.
• $1.1 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, 2018, significant
transfers from level 3 into level 2 included the following:
• $1.5 billion of total debt and equity instruments, the
majority of which were trading loans, driven by an
increase in observability.
• $1.2 billion of gross equity derivative receivables and
$1.5 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, significant
transfers from level 2 into level 3 included the following:
• $1.0 billion of gross equity derivative receivables and
$2.5 billion of gross equity derivative payables as a result
of 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, 2017, significant
transfers from level 3 into 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.
JPMorgan Chase & Co./2019 Form 10-K
169
Notes to consolidated financial statements
All transfers are based on changes in the observability and/or
significance of the valuation inputs and are assumed to occur
at the beginning of the quarterly reporting period in which
they occur.
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, 2019, 2018 and 2017. These amounts
exclude any effects of the Firm’s risk management activities
where the financial instruments are classified as level 1 and 2
of the fair value hierarchy. Refer to Changes in level 3
recurring fair value measurements rollforward tables on
pages 165–169 for further information on these instruments.
2019
• $2.1 billion of net losses on assets largely due to MSRs
reflecting faster prepayment speeds on lower rates. Refer
to Note 15 for additional information on MSRs.
• $3.3 billion of net losses on liabilities predominantly
driven by market movements in long-term debt.
2018
• $1.6 billion of net gains on liabilities largely driven by
market movements in long-term debt.
2017
• $1.3 billion of net losses on liabilities predominantly
driven by market movements in long-term debt.
170
JPMorgan Chase & Co./2019 Form 10-K
Credit and funding adjustments – derivatives
Derivatives are generally valued using models that use as
their basis observable market parameters. These market
parameters generally do not consider factors such 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.
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 presented below
includes the impact of the Firm’s own credit quality on the
inception value of liabilities as well as the impact of changes
in the Firm’s own credit quality over time.
Year ended December 31,
(in millions)
Credit and funding adjustments:
2019
2018
2017
Derivatives CVA
Derivatives FVA
$
241
199
$
193
$
802
(74)
(295)
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. 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. Refer to page 169 in this Note and Note
24 for further information.
JPMorgan Chase & Co./2019 Form 10-K
171
Assets and liabilities measured at fair value on a nonrecurring basis
The following tables present the assets held as of December 31, 2019 and 2018, respectively, for which a nonrecurring fair
value adjustment was recorded during the years ended December 31, 2019 and 2018, respectively, by major product category
and fair value hierarchy.
December 31, 2019 (in millions)
Loans
Other assets(a)
Total assets measured at fair value on a nonrecurring basis
December 31, 2018 (in millions)
Loans
Other assets
Total assets measured at fair value on a nonrecurring basis
$
$
$
$
— $
3,476
$
Fair value hierarchy
Level 1
Level 2
— $
—
— $
273
8
281
$
$
Total fair
value
3,731
1,043
4,774
Total fair
value
537
823
1,360
1,029
1,298
Level 3
264
815
1,079
$
$
$
Fair value hierarchy
Level 1
Level 2
Level 3
3,462 (b) $
269 (c) $
— $
—
14
(a) Primarily includes equity securities without readily determinable fair values that were adjusted based on observable price changes in orderly transactions
from an identical or similar investment of the same issuer (measurement alternative). Of the $1.0 billion in level 3 assets measured at fair value on a
nonrecurring basis as of December 31, 2019, $787 million related to such equity securities. These equity securities are classified as level 3 due to the
infrequency of the observable prices and/or the restrictions on the shares.
(b) Primarily includes certain mortgage loans that were reclassified to held-for-sale.
(c) Of the $269 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2019, $248 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 information from broker’s price opinions, appraisals and automated
valuation models and discounted based upon the Firm’s experience with actual liquidation values. These discounts ranged from 14% to 49% with a
weighted average of 28%.
There were no liabilities measured at fair value on a nonrecurring basis at December 31, 2019 and 2018.
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, 2019,
2018 and 2017, related to assets and liabilities held at
those dates.
December 31, (in millions)
2019
2018
2017
Loans
Other assets
Accounts payable and other
liabilities
Total nonrecurring fair value
gains/(losses)
$ (274) (a) $ (68)
$ (159)
168 (b)
132 (b)
(148)
—
—
(1)
$ (106)
$ 64
$ (308)
(a)Primarily includes the impact of certain mortgage loans that were
reclassified to held-for-sale.
(b)Included $187 million and $149 million for the years ended December
31, 2019 and 2018, respectively, of net gains as a result of the
measurement alternative.
Refer to Note 12 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).
172
JPMorgan Chase & Co./2019 Form 10-K
Equity securities without readily determinable fair values
The Firm measures certain equity securities without readily determinable fair values at cost less impairment (if any), plus or
minus observable price changes from an identical or similar investment of the same issuer, with such changes recognized in
other income.
In its determination of the new carrying values upon observable price changes, the Firm may adjust the prices if deemed
necessary to arrive at the Firm’s estimated fair values. Such adjustments may include adjustments to reflect the different rights
and obligations of similar securities, and other adjustments that are consistent with the Firm’s valuation techniques for private
equity direct investments.
The following table presents the carrying value of equity securities without readily determinable fair values held as of
December 31, 2019 and 2018, that are measured under the measurement alternative and the related adjustments recorded
during the periods presented for those securities with observable price changes. These securities are included in the
nonrecurring fair value tables when applicable price changes are observable.
As of or for the year ended December 31,
(in millions)
Other assets
Carrying value
Upward carrying value changes(a)
Downward carrying value changes/impairment(b)
2019
2018
$
2,441 $
229
(42)
1,510
309
(160)
(a) The cumulative upward carrying value changes between January 1, 2018 and December 31, 2019 were $528 million.
(b) The cumulative downward carrying value changes/impairment between January 1, 2018 and December 31, 2019 were $(200) million.
Included in other assets above is the Firm’s interest in approximately 40 million Visa Class B shares, recorded at a nominal
carrying value. These shares are subject to certain transfer restrictions currently and will be convertible into Visa Class A
shares upon final resolution of certain litigation matters involving Visa. The conversion rate of Visa Class B shares into Visa
Class A shares is 1.6228 at December 31, 2019, and may be adjusted by Visa depending on developments related to the
litigation matters.
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, which are included in the
following table. However, this table does not include other
items, such as nonfinancial assets, intangible assets, certain
financial instruments, and customer 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 table.
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.
JPMorgan Chase & Co./2019 Form 10-K
173
Accrued interest and accounts
receivable
Federal funds sold and
securities purchased under
resale agreements
Securities borrowed
Investment securities, held-to-
maturity
Loans, net of allowance for
loan losses(a)
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
Notes to consolidated financial statements
The following table presents by fair value hierarchy classification the carrying values and estimated fair values at
December 31, 2019 and 2018, 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.
December 31, 2019
Estimated fair value hierarchy
December 31, 2018
Estimated fair value hierarchy
Carrying
value
Level 1
Level 2
Level 3
Total
estimated
fair value
Carrying
value
Level 1
Level 2
Level 3
(in billions)
Financial assets
Cash and due from banks
$
21.7 $
21.7 $
Deposits with banks
241.9
241.9
— $
—
— $
21.7
$
22.3 $
22.3 $
241.9
256.5
256.5
71.3
234.6
133.5
—
—
—
71.2
234.6
133.5
47.5
0.1
48.8
—
0.1
—
—
—
71.3
72.0
234.6
133.5
308.4
106.9
48.9
31.4
939.5
61.3
—
—
214.1
60.6
734.9
0.8
949.0
61.4
968.0
60.5
Total
estimated
fair value
— $
22.3
—
0.1
—
—
—
728.5
1.0
256.5
72.0
308.4
106.9
31.5
970.0
60.6
— $
—
71.9
308.4
106.9
31.5
241.5
59.6
—
—
—
—
—
—
$ 1,533.8 $
— $ 1,534.1 $
— $ 1,534.1
$ 1,447.4 $
— $ 1,447.5 $
— $ 1,447.5
183.1
35.0
164.0
17.8
215.5
—
—
183.1
35.0
—
—
183.1
35.0
181.4
62.1
—
—
181.4
62.1
—
—
181.4
62.1
0.1
160.0
3.5
163.6
160.6
0.2
157.0
3.0
160.2
—
—
17.9
—
17.9
20.2
218.3
3.5
221.8
227.1
—
—
20.2
—
20.2
224.6
3.3
227.9
(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 losses 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.
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, 2019
Estimated fair value hierarchy
December 31, 2018
Estimated fair value hierarchy
(in billions)
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(b)
Wholesale lending-
related commitments $
1.2 $
— $
— $
1.9 $
1.9
$
1.0 $
— $
— $
2.2 $
2.2
(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.
(b) The prior period amounts have been revised to conform with the current period presentation.
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. Refer to
page 156 of this Note for a further discussion of the valuation of lending-related commitments.
174
JPMorgan Chase & Co./2019 Form 10-K
Note 3 – Fair value option
The fair value option provides an option to elect fair value
as an alternative measurement for selected financial assets,
financial liabilities, unrecognized firm commitments, 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 that otherwise would be 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 agreements, such as those
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 client-driven activities
• Certain long-term beneficial interests issued by CIB’s
consolidated securitization trusts where the underlying
assets are carried at fair value
JPMorgan Chase & Co./2019 Form 10-K
175
Notes to consolidated financial statements
Changes in fair value under the fair value option election
The following table presents the changes in fair value included in the Consolidated statements of income for the years ended
December 31, 2019, 2018 and 2017, 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.
2019
2018
2017
Principal
transactions
All other
income
Total
changes in
fair value
recorded(e)
Principal
transactions
All other
income
Total
changes in
fair value
recorded(e)
Principal
transactions
All other
income
Total
changes in
fair value
recorded(e)
$
(36) $
133
—
—
$
(36) $
(35) $
133
22
—
—
$
(35) $
(97) $
22
50
—
—
$
(97)
50
2,482
(1) (c)
2,481
(1,680)
1 (c)
(1,679)
1,943
2 (c)
1,945
763
254
2 (c)
1,224 (c)
765
1,478
414
160
1 (c)
185 (c)
(26)
1
5
(1,730)
(8)
(693)
6
(16)
—
—
6 (d)
—
—
—
—
—
(26)
1
11
(1,730)
(8)
(693)
6
(16)
(1)
(1)
5
181
11
862
1
—
(6,173)
1 (c)
(6,172)
2,695
—
—
(45) (d)
—
—
—
—
—
—
415
345
(1)
(1)
(40)
181
11
862
1
—
330
217
14 (c)
747 (c)
(1)
(12)
11
(533)
11
(747)
(1)
—
—
3 (c)
(55) (d)
—
—
—
—
—
—
344
964
(1)
(9)
(44)
(533)
11
(747)
(1)
—
(2,022)
2,695
(2,022)
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
Other liabilities
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. Realized gains/(losses) due to instrument-specific credit risk recorded in
principal transactions revenue were not material for the years ended December 31, 2019, 2018 and 2017.
(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.
(c) Reported in mortgage fees and related income.
(d) Reported in other income.
(e) Changes in fair value exclude contractual interest, which is included in interest income and interest expense for all instruments other than hybrid financial
instruments. Refer to Note 7 for further information regarding interest income and interest expense.
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 as
observed in the bond market.
• Securities financing 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.
176
JPMorgan Chase & Co./2019 Form 10-K
Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal
balance outstanding as of December 31, 2019 and 2018, for loans, long-term debt and long-term beneficial interests for
which the fair value option has been elected.
2019
2018
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
$
3,717
$
1,111 $
(2,606) $
4,240
$
1,350 $
(2,890)
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(b)
Total long-term beneficial interests
$
$
178
3,895
48,570
7,046
139
1,250
47,318
6,965
(39)
(2,645)
(1,252)
(81)
39
4,279
42,215
3,186
—
(39)
1,350
(2,929)
40,403
3,151
(1,812)
(35)
59,511
$
55,533 $
(3,978) $
49,680
$
44,904 $
(4,776)
40,124 (c) $
39,246 $
(878) $
32,674 (c) $
28,718 $
(3,956)
NA
NA
NA
NA
36,499
$
75,745
$
$
36
36
NA
NA
NA
NA
NA
NA
NA
NA
26,168
$
54,886
$
$
28
28
NA
NA
NA
NA
(a) There were no performing loans that were ninety days or more past due as of December 31, 2019 and 2018.
(b) Remaining contractual principal is not applicable to nonprincipal-protected structured notes and long-term beneficial interests. Unlike principal-protected
structured notes and long-term beneficial interests, for which the Firm is obligated to return a stated amount of principal at maturity, nonprincipal-
protected structured notes and long-term beneficial interests do not obligate the Firm to return a stated amount of principal at maturity, but for structured
notes to return an amount based on the performance of an underlying variable or derivative feature embedded in the note. However, investors are
exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal-protected notes.
(c) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if
applicable, the contractual principal payment at the Firm’s next call date.
At December 31, 2019 and 2018, the contractual amount of lending-related commitments for which the fair value option was
elected was $4.6 billion and $6.9 billion, respectively, with a corresponding fair value of $(94) million and $(92) million,
respectively. Refer to Note 28 for further information regarding off-balance sheet lending-related financial instruments.
Structured note products by balance sheet classification and risk component
The following table presents the fair value of structured notes, by balance sheet classification and the primary risk type.
(in millions)
Risk exposure
Interest rate
Credit
Foreign exchange
Equity
Commodity
December 31, 2019
December 31, 2018
Long-term
debt
Short-term
borrowings Deposits
Total
Long-term
debt
Short-term
borrowings Deposits
Total
$ 35,470 $
34 $ 16,692 $ 52,196
$ 24,137 $
62 $ 12,372 $ 36,571
5,715
3,862
875
48
29,294
4,852
472
32
—
5
8,177
1,454
6,590
3,915
4,009
3,169
995
157
42,323
21,382
5,422
1,958
372
34
—
38
7,368
1,207
5,004
3,364
34,172
1,613
Total structured notes
$ 74,813 $
5,841 $ 26,328 $ 106,982
$ 53,069 $
6,670 $ 20,985 $ 80,724
JPMorgan Chase & Co./2019 Form 10-K
177
Notes to consolidated financial statements
Note 4 – Credit risk concentrations
Concentrations of credit risk arise when a number of clients,
counterparties or customers are engaged in 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
managed 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. Refer to Note 12 for additional
information on the geographic composition of the Firm’s
consumer loan portfolios. 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. Refer to Note 12 for
additional information on loans.
The Firm does not believe that its exposure to any
particular loan product 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.
178
JPMorgan Chase & Co./2019 Form 10-K
The table below presents both on–balance sheet and off–balance sheet consumer and wholesale-related credit exposure by the
Firm’s three credit portfolio segments as of December 31, 2019 and 2018.
December 31, (in millions)
Credit
exposure(g)
On-balance sheet
Loans
Derivatives
Off-balance
sheet(h)
Credit
exposure(g)
On-balance sheet
Loans
Derivatives
Off-balance
sheet(h)
Consumer, excluding credit card
$ 386,452 $ 335,040 $
— $
51,412
$ 419,798 $ 373,732 $
— $
46,066
2019
2018
Receivables from customers
—
—
Total Consumer, excluding credit card
386,452
335,040
Credit card
Total consumer-related
Wholesale-related(a)
Real Estate
819,644
168,924
1,206,096
503,964
149,267
116,244
Individuals and Individual Entities(b)
102,292
—
—
—
—
—
154
—
51,412
419,952
373,732
650,720
762,011
156,632
702,132
1,181,963
530,364
—
—
—
—
—
46,066
605,379
651,445
619
694
1,424
2,766
878
7,160
5,165
2,078
852
2,573
2,000
368
459
402
10,477
715
2,282
4,507
2,482
1,865
32,404
143,316
115,737
9,618
67,028
41,575
38,276
20,676
14,287
30,609
27,654
27,095
14,773
11,541
12,107
9,733
1,548
8,398
8,651
2,076
1,625
97,077
94,815
72,646
58,528
42,807
49,920
48,142
42,600
28,172
27,351
17,339
16,035
15,359
18,456
15,660
12,639
4,558
7,484
86,586
36,921
16,980
19,126
16,806
28,825
16,347
13,008
5,591
10,319
5,170
4,902
5,370
3,867
6,391
1,356
645
18
24,441
68,284
45,197
164
1,017
1,093
2,667
958
9,033
5,903
1,874
559
1,740
2,000
399
181
488
12,869
1,102
2,569
2,029
5,941
1,627
27,415
9,474
56,801
52,999
38,444
16,968
15,192
29,921
29,033
20,841
15,032
11,770
10,952
9,501
1,720
8,167
8,714
1,884
1,525
21,460
99,331
59,021
58,250
51,775
50,091
46,638
41,570
34,753
26,697
17,317
17,276
15,337
14,843
13,917
12,202
7,335
4,116
91,980
30,879
14,680
19,096
23,939
30,639
13,951
13,064
5,085
9,924
5,408
4,710
5,202
2,818
4,804
1,269
752
9
Consumer & Retail
Technology, Media & Telecommunications
Industrials
Asset Managers
Banks & Finance Cos
Healthcare
Oil & Gas
Utilities
State & Municipal Govt(c)
Automotive
Chemicals & Plastics
Metals & Mining
Central Govt
Transportation
Insurance
Securities Firms
Financial Markets Infrastructure
All other(d)
Subtotal
76,492
50,186
898,520
444,639
49,766
404,115
881,188
439,162
54,213
387,813
Loans held-for-sale and loans at fair value
Receivables from customers and other(e)
11,166
33,706
11,166
—
—
—
—
—
15,028
30,063
15,028
—
—
—
—
—
Total wholesale-related
Total exposure(f)(g)
943,392
455,805
49,766
404,115
926,279
454,190
54,213
387,813
$2,149,488 $ 959,769 $
49,766 $1,106,247
$2,108,242 $ 984,554 $
54,213 $1,039,258
(a) The industry rankings presented in the table as of December 31, 2018, are based on the industry rankings of the corresponding exposures at December 31,
2019, not actual rankings of such exposures at December 31, 2018.
(b) Individuals and Individual Entities predominantly consists of Wealth Management clients within AWM and includes exposure to personal investment companies
and personal and testamentary trusts.
(c) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2019 and 2018, noted above, the Firm
held: $6.5 billion and $7.8 billion, respectively, of trading assets; $29.8 billion and $37.7 billion, respectively, of AFS securities; and $4.8 billion at both
periods of held-to-maturity (“HTM”) securities, issued by U.S. state and municipal governments. Refer to Note 2 and Note 10 for further information.
(d) All other includes: SPEs and Private education and civic organizations, representing approximately 92% and 8%, respectively, at both December 31, 2019
and 2018. Refer to Note 14 for more information on exposures to SPEs.
(e) Receivables from customers primarily represent held-for-investment margin loans to brokerage clients in CIB and AWM that are collateralized by assets
maintained in the clients’ brokerage accounts (e.g., cash on deposit, liquid and readily marketable debt or equity securities), as such no allowance is held
against these receivables. To manage its credit risk the Firm establishes margin requirements and monitors the required margin levels on an ongoing basis,
and requires clients to deposit additional cash or other collateral, or to reduce positions, when appropriate. These receivables are reported within accrued
interest and accounts receivable on the Firm’s Consolidated balance sheets.
(f) Excludes cash placed with banks of $254.0 billion and $268.1 billion, at December 31, 2019 and 2018, respectively, which is predominantly placed with
various central banks, primarily Federal Reserve Banks.
(g) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against derivative
receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(h) Represents lending-related financial instruments.
JPMorgan Chase & Co./2019 Form 10-K
179
Notes to consolidated financial statements
Note 5 – Derivative instruments
Derivative contracts derive their value from underlying
asset prices, indices, reference rates, other inputs or a
combination of these factors and may expose
counterparties to risks and rewards of an underlying asset
or liability without having to initially invest in, own or
exchange the asset or liability. JPMorgan Chase makes
markets in derivatives for clients and also uses derivatives
to hedge or manage its own risk exposures. Predominantly
all of the Firm’s derivatives are entered into for 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 contracts 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.
The Firm generally uses interest rate derivatives to manage
the risk associated with changes in interest rates. Fixed-rate
assets and liabilities appreciate or depreciate in market
value as interest rates change. Similarly, interest income
and expense increase or decrease 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 and losses on the derivative
instruments related to these assets and liabilities are
expected to substantially offset this variability.
Foreign currency derivatives 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 derivatives 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. Refer to the discussion in the Credit derivatives section
on pages 191–194 of this Note for a further discussion of
credit derivatives.
Refer to the risk management derivatives gains and losses
table on page 191 of this Note, and the hedge accounting
gains and losses tables on pages 188–191 of this Note for
more information about risk management derivatives.
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. Refer to Note 28 for further information on the
Firm’s clearing services.
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. Refer to Note 1 for further
discussion of the offsetting of assets and liabilities. 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
184–191 of this Note provide additional information on the
amount of, and reporting for, derivative assets, liabilities,
gains and losses. Refer to Notes 2 and 3 for further
discussion of derivatives embedded in structured notes.
180
JPMorgan Chase & Co./2019 Form 10-K
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, nonstatistical methods such as dollar-value
comparisons of the change in the fair value of the derivative
to the change in the fair value or cash flows of the hedged
item, and qualitative comparisons of critical terms and the
evaluation of any changes in those terms. The extent to
which a derivative has been, and is expected to continue to
be, highly effective at offsetting changes in the fair value or
cash flows of the hedged item must be assessed and
documented at least quarterly. 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. Certain amounts excluded from the
assessment of effectiveness are recorded in OCI and
recognized in earnings over the life of the derivative. 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, changes in the fair value of the derivative are
recorded in OCI and recognized in earnings as the hedged
item affects earnings. Derivative amounts affecting
earnings are recognized consistent with the classification of
the hedged item – primarily noninterest revenue, net
interest income and compensation expense. If the hedge
relationship is terminated, then the change in 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 qualifying net investment hedges,
changes in the fair value of the derivatives due to changes
in spot foreign exchange rates are recorded in OCI as
translation adjustments. Amounts excluded from the
assessment of effectiveness are recorded directly in
earnings.
JPMorgan Chase & Co./2019 Form 10-K
181
Notes to consolidated financial statements
The following table outlines the Firm’s primary uses of derivatives and the related hedge accounting designation or disclosure
category.
Type of Derivative
Use of Derivative
Designation and disclosure
Manage specifically identified risk exposures in qualifying hedge accounting relationships:
Affected
segment or unit
Page
reference
• Interest rate
• 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
Corporate
Corporate
Corporate
Net investment hedge
Corporate
Fair value hedge
CIB
relationships:
• Interest rate
Manage the risk associated with mortgage commitments, warehouse
Specified risk management
CCB
loans and MSRs
• Credit
Manage the credit risk associated with wholesale lending exposures
Specified risk management
CIB
• Interest rate and
foreign exchange
Manage the risk associated with certain other specified assets and
liabilities
Specified risk management
Corporate
Market-making derivatives and other activities:
• Various
• Various
Market-making and related risk management
Market-making and other
CIB
Other derivatives
Market-making and other
CIB, AWM,
Corporate
188
190
188
190
191
188
191
191
191
191
191
182
JPMorgan Chase & Co./2019 Form 10-K
Notional amount of derivative contracts
The following table summarizes the notional amount of
derivative contracts outstanding as of December 31, 2019
and 2018.
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)
2019
2018
$
21,228
$
21,763
3,152
3,938
4,361
32,679
1,242
3,604
5,577
700
718
3,562
3,997
4,322
33,644
1,501
3,548
5,871
835
830
Total foreign exchange contracts
10,599
11,084
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
406
142
646
611
346
101
528
490
1,805
1,465
147
211
135
124
617
134
156
135
120
545
Total derivative notional amounts
$
46,942
$
48,239
(a) Refer to the Credit derivatives discussion on pages 191–194 for more
information on volumes and types of credit derivative contracts.
(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 contracts, the notional
amount is not exchanged; it is simply a reference amount
used to calculate payments.
JPMorgan Chase & Co./2019 Form 10-K
183
Notes to consolidated financial statements
Impact of derivatives on the Consolidated balance sheets
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that
are reflected on the Firm’s Consolidated balance sheets as of December 31, 2019 and 2018, by accounting designation (e.g.,
whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
Free-standing derivative receivables and payables(a)
December 31, 2019
(in millions)
Trading assets and
liabilities
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total fair value of trading
assets and liabilities
December 31, 2018
(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)
$ 312,451
$
14,876
138,179
45,727
16,914
843
—
308
—
328
$ 313,294
$
27,421
$ 279,272
$
14,876
138,487
45,727
17,242
701
9,005
6,477
6,162
15,121
144,125
52,741
19,736
1
—
983
—
149
$ 279,273
$
15,121
145,108
52,741
19,885
8,603
1,652
13,158
12,537
7,758
$ 528,147
$
1,479
$ 529,626
$
49,766
$ 510,995
$
1,133
$ 512,128
$ 43,708
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)
$ 267,871
$
20,095
167,057
49,285
20,223
833
—
628
—
247
$ 268,704
$
23,214
$ 242,782
$
20,095
167,685
49,285
20,470
612
20,276
13,450
164,392
9,946
6,991
51,195
22,297
—
—
825
—
121
$ 242,782
$
20,276
165,217
51,195
22,418
7,784
1,667
12,785
10,161
9,372
$ 524,531
$
1,708
$ 526,239
$
54,213
$ 500,942
$
946
$ 501,888
$ 41,769
(a) Balances exclude structured notes for which the fair value option has been elected. Refer to Note 3 for further information.
(b) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and
payables when a legally enforceable master netting agreement exists.
184
JPMorgan Chase & Co./2019 Form 10-K
Derivatives netting
The following tables present, as of December 31, 2019 and 2018, 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:
OTC
OTC–cleared
Exchange-traded(a)
2019
Amounts
netted on the
Consolidated
balance sheets
Gross
derivative
receivables
Net
derivative
receivables
Gross
derivative
receivables
2018
Amounts
netted on the
Consolidated
balance sheets
Net
derivative
receivables
$
299,205 $ (276,255)
$
22,950
$ 258,227
$ (239,498)
$ 18,729
9,442
347
(9,360)
(258)
82
89
6,404
322
(5,856)
(136)
548
186
Total interest rate contracts
308,994
(285,873)
23,121
264,953
(245,490)
19,463
Credit contracts:
OTC
OTC–cleared
Total credit contracts
Foreign exchange contracts:
OTC
OTC–cleared
Exchange-traded(a)
10,743
(10,317)
3,864
(3,858)
14,607
(14,175)
426
6
432
12,648
7,267
19,915
(12,261)
(7,222)
(19,483)
387
45
432
136,252
(129,324)
6,928
163,862
(153,988)
9,874
185
10
(152)
(6)
33
4
235
32
(226)
(21)
9
11
Total foreign exchange contracts
136,447
(129,482)
6,965
164,129
(154,235)
9,894
Equity contracts:
OTC
Exchange-traded(a)
Total equity contracts
Commodity contracts:
OTC
OTC–cleared
Exchange-traded(a)
Total commodity contracts
23,106
19,654
42,760
(20,820)
(18,430)
(39,250)
7,093
(5,149)
28
(28)
6,154
(5,903)
13,275
(11,080)
2,286
1,224
3,510
1,944
—
251
2,195
26,178
18,876
45,054
7,448
—
8,815
16,263
(23,879)
(15,460)
(39,339)
2,299
3,416
5,715
(5,261)
2,187
—
(8,218)
—
597
(13,479)
2,784
Derivative receivables with appropriate legal opinion
516,083
(479,860)
36,223 (d)
510,314
(472,026)
38,288 (d)
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(b)(c)
Net amounts
13,543
13,543
15,925
$
529,626
$
49,766
$ 526,239
(14,226)
$
35,540
JPMorgan Chase & Co./2019 Form 10-K
15,925
$ 54,213
(13,046)
$ 41,167
185
Notes to consolidated financial statements
December 31, (in millions)
U.S. GAAP nettable derivative payables
Interest rate contracts:
OTC
OTC–cleared
Exchange-traded(a)
2019
Amounts
netted on the
Consolidated
balance sheets
Gross
derivative
payables
Net
derivative
payables
Gross
derivative
payables
2018
Amounts
netted on the
Consolidated
balance sheets
Net
derivative
payables
$
267,311 $ (260,229)
$
7,082
$ 233,404
$ (228,369)
$ 5,035
10,217
(10,138)
365
(303)
79
62
7,163
210
(6,494)
(135)
669
75
Total interest rate contracts
277,893
(270,670)
7,223
240,777
(234,998)
5,779
Credit contracts:
OTC
OTC–cleared
Total credit contracts
Foreign exchange contracts:
OTC
OTC–cleared
Exchange-traded(a)
11,570
(10,080)
3,390
(3,389)
14,960
(13,469)
1,490
1
1,491
13,412
6,716
20,128
(11,895)
1,517
(6,714)
2
(18,609)
1,519
142,360
(131,792)
10,568
160,930
(152,161)
8,769
186
12
(152)
(6)
34
6
274
16
(268)
(3)
6
13
Total foreign exchange contracts
142,558
(131,950)
10,608
161,220
(152,432)
8,788
Equity contracts:
OTC
Exchange-traded(a)
Total equity contracts
Commodity contracts:
OTC
OTC–cleared
Exchange-traded(a)
Total commodity contracts
27,594
20,216
47,810
(21,778)
(18,426)
(40,204)
8,714
(6,235)
30
(30)
6,012
(5,862)
14,756
(12,127)
5,816
1,790
7,606
2,479
—
150
2,629
29,437
16,285
45,722
8,930
—
8,259
17,189
(25,544)
(15,490)
(41,034)
3,893
795
4,688
(4,838)
4,092
—
(8,208)
—
51
(13,046)
4,143
Derivative payables with appropriate legal opinion
497,977
(468,420)
29,557 (d)
485,036
(460,119)
24,917 (d)
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(b)(c)
Net amounts
14,151
14,151
16,852
$
512,128
$
43,708
$ 501,888
(7,896)
$
35,812
16,852
$ 41,769
(4,449)
$ 37,320
(a) Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b) Represents liquid security collateral as well as cash collateral held at third-party custodians related to derivative instruments where an appropriate legal
opinion has been obtained. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative
payables balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances with
that counterparty.
(c) Derivative collateral relates only to OTC and OTC-cleared derivative instruments.
(d) Net derivatives receivable included cash collateral netted of $65.9 billion and $55.2 billion at December 31, 2019 and 2018, respectively. Net derivatives
payable included cash collateral netted of $54.4 billion and $43.3 billion at December 31, 2019 and 2018, respectively. Derivative cash collateral relates
to OTC and OTC-cleared derivative instruments.
186
JPMorgan Chase & Co./2019 Form 10-K
Liquidity risk and credit-related contingent features
In addition to the specific market risks introduced by each derivative contract type, derivatives expose JPMorgan Chase to
credit risk — the risk that derivative counterparties may fail to meet their payment obligations under 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 inherent in derivative receivables.
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, 2019 and 2018.
OTC and OTC-cleared derivative payables containing downgrade triggers
December 31, (in millions)
Aggregate fair value of net derivative payables
Collateral posted
$
2019
14,819
13,329
$
2018
9,396
8,907
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, N.A., at December 31, 2019 and 2018, 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)
2019
2018
Single-notch
downgrade
Two-notch
downgrade
Single-notch
downgrade
Two-notch
downgrade
Amount of additional collateral to be posted upon downgrade(a)
$
189 $
1,467
$
Amount required to settle contracts with termination triggers upon downgrade(b)
104
1,398
76 $
172
947
764
(a) Includes the additional collateral to be posted for initial margin.
(b) Amounts represent fair values of derivative payables, and do not reflect collateral posted.
Derivatives executed in contemplation of a sale of the underlying financial asset
In certain instances the Firm enters into transactions in which it transfers financial assets but maintains the economic exposure
to the transferred assets by entering into a derivative with the same counterparty in contemplation of the initial transfer. The
Firm generally accounts for such transfers as collateralized financing transactions as described in Note 11, but in limited
circumstances they may qualify to be accounted for as a sale and a derivative under U.S. GAAP. The amount of such transfers
accounted for as a sale where the associated derivative was outstanding was not material at both December 31, 2019 and
2018.
JPMorgan Chase & Co./2019 Form 10-K
187
Notes to consolidated financial statements
Impact of derivatives on the Consolidated statements of income
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting
designation or purpose.
Fair value hedge gains and losses
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well
as pre-tax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 2019,
2018 and 2017, respectively. The Firm includes gains/(losses) on the hedging derivative in the same line item in the
Consolidated statements of income as the related hedged item.
Year ended December 31, 2019
(in millions)
Derivatives
Hedged items
Income
statement
impact
Amortization
approach
Changes in fair
value
Gains/(losses) recorded in income
Income statement impact of
excluded components(f)
OCI impact
Derivatives -
Gains/(losses)
recorded in OCI(g)
Contract type
Interest rate(a)(b)
Foreign exchange(c)
Commodity(d)
Total
Year ended December 31, 2018
(in millions)
Contract type
Interest rate(a)(b)
Foreign exchange(c)
Commodity(d)
Total
Year ended December 31, 2017
(in millions)
Contract type
Interest rate(a)(b)
Foreign exchange(c)
Commodity(d)
Total
$
$
$
$
$
$
3,204 $
(2,373) $
154
(77)
328
148
831
482
71
$
— $
(866)
—
$
828
482
63
3,281 $
(1,897) $
1,384
$
(866) $
1,373
$
—
39
—
39
Gains/(losses) recorded in income
Income statement impact of
excluded components(f)
Derivatives
Hedged items
Income
statement
impact
Amortization
approach
Changes in fair
value
OCI impact
Derivatives -
Gains/(losses)
recorded in OCI(g)
(1,145) $
1,782 $
1,092
789
(616)
(754)
637
476
35
$
— $
(566)
—
$
623
476
26
736 $
412 $
1,148
$
(566) $
1,125
$
—
(140)
—
(140)
Gains/(losses) recorded in income
Income statement impact due to:
Derivatives
Hedged items
Income
statement
impact
Hedge
ineffectiveness(e)
Excluded
components(f)
(481) $
1,359 $
878
$
(18) $
(3,509)
(1,275)
3,507
1,348
(2)
73
(5,265) $
6,214 $
949
$
—
29
11 $
896
(2)
44
938
(a) Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate (“LIBOR”)) interest rate risk of fixed-rate long-term debt and AFS
securities. Gains and losses were recorded in net interest income.
(b) Excludes the amortization expense associated with the inception hedge accounting adjustment applied to the hedged item. This expense is recorded in net
interest income and substantially offsets the income statement impact of the excluded components. Also excludes the accrual of interest on interest rate
swaps and the related hedged items.
(c) Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses
related to the derivatives and the hedged items due to changes in foreign currency rates and the income statement impact of excluded components 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, time values and cross-currency basis spreads. Excluded components may impact earnings either through
amortization of the initial amount over the life of the derivative or through fair value changes recognized in the current period.
(g) Represents the change in value of amounts excluded from the assessment of effectiveness under the amortization approach, predominantly cross-currency
basis spreads. The amount excluded at inception of the hedge is recognized in earnings over the life of the derivative.
188
JPMorgan Chase & Co./2019 Form 10-K
As of December 31, 2019, the following amounts were recorded on the Consolidated balance sheets related to certain
cumulative fair value hedge basis adjustments that are expected to reverse through the income statement in future periods as
an adjustment to yield.
December 31, 2019
(in millions)
Assets
Investment securities - AFS
Liabilities
Long-term debt
Beneficial interests issued by consolidated VIEs
December 31, 2018
(in millions)
Assets
Investment securities - AFS
Liabilities
Long-term debt
Beneficial interests issued by consolidated VIEs
Cumulative amount of fair value hedging adjustments
included in the carrying amount of hedged items:
Carrying amount
of the hedged
items(a)(b)
Active hedging
relationships
Discontinued
hedging
relationships(d)
Total
$
$
125,860 (c) $
2,110 $
278 $
2,388
157,545
$
6,719 $
2,365
—
161 $
(8)
6,880
(8)
Cumulative amount of fair value hedging adjustments
included in the carrying amount of hedged items:
Carrying amount
of the hedged
items(a)(b)
Active hedging
relationships
Discontinued
hedging
relationships(d)
Total
$
$
55,313 (c) $
(1,105) $
381 $
(724)
139,915
$
6,987
141 $
—
8 $
(33)
149
(33)
(a) Excludes physical commodities with a carrying value of $6.5 billion and $6.8 billion at December 31, 2019 and 2018, respectively, to which the Firm
applies fair value hedge accounting. As a result of the application of hedge accounting, these inventories are carried at fair value, thus recognizing
unrealized gains and losses in current periods. Since the Firm exits these positions at fair value, there is no incremental impact to net income in future
periods.
(b) Excludes hedged items where only foreign currency risk is the designated hedged risk, as basis adjustments related to foreign currency hedges will not
reverse through the income statement in future periods. At December 31, 2019 and 2018, the carrying amount excluded for available-for-sale securities
is $14.9 billion and $14.6 billion, respectively, and for long-term debt is $2.8 billion and $7.3 billion, respectively.
(c) Carrying amount represents the amortized cost.
(d) Represents hedged items no longer designated in qualifying fair value hedging relationships for which an associated basis adjustment exists at the balance
sheet date.
JPMorgan Chase & Co./2019 Form 10-K
189
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, 2019, 2018 and 2017,
respectively. The Firm includes the gain/(loss) on the hedging derivative in the same line item in the Consolidated statements
of income as the change in cash flows on the related hedged item.
Year ended December 31, 2019
(in millions)
Contract type
Interest rate(a)
Foreign exchange(b)
Total
Year ended December 31, 2018
(in millions)
Contract type
Interest rate(a)
Foreign exchange(b)
Total
Year ended December 31, 2017
(in millions)
Contract type
Interest rate(a)
Foreign exchange(b)
Total
Derivatives gains/(losses) recorded in income and other
comprehensive income/(loss)
Amounts
reclassified from
AOCI to income
Amounts recorded
in OCI
Total change
in OCI
for period
(28) $
(75)
(103) $
(3) $
125
122 $
25
200
225
Derivatives gains/(losses) recorded in income and other
comprehensive income/(loss)
Amounts
reclassified from
AOCI to income
Amounts recorded
in OCI
Total change
in OCI
for period
44 $
(26)
18 $
(44) $
(201)
(245) $
(88)
(175)
(263)
Derivatives gains/(losses) recorded in income and other
comprehensive income/(loss)
Amounts
reclassified from
AOCI to income
Amounts recorded
in OCI(c)
Total change
in OCI
for period
(17) $
(117)
(134) $
12 $
135
147 $
29
252
281
$
$
$
$
$
$
(a) Primarily consists of hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in net interest income.
(b) Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of gains
and losses follows the hedged item – primarily noninterest revenue and compensation expense.
(c) Represents the effective portion of changes in value of the related hedging derivative. Hedge ineffectiveness is the amount by which the cumulative gain 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 recognize any ineffectiveness on cash flow hedges during 2017.
The Firm did not experience any forecasted transactions that failed to occur for the years ended 2019, 2018 and 2017.
Over the next 12 months, the Firm expects that approximately $(8) million (after-tax) of net losses recorded in AOCI at
December 31, 2019, related to cash flow hedges will be recognized in income. For cash flow hedges that have been
terminated, the maximum length of time over which the derivative results recorded in AOCI will be recognized in earnings is
approximately five years, corresponding to the timing of the originally hedged forecasted cash flows. For open cash flow
hedges, the maximum length of time over which forecasted transactions are hedged is approximately seven years. The Firm’s
longer-dated forecasted transactions relate to core lending and borrowing activities.
190
JPMorgan Chase & Co./2019 Form 10-K
Net investment hedge gains and losses
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting
relationships, and the pre-tax gains/(losses) recorded on such instruments for the years ended December 31, 2019, 2018 and
2017.
Year ended December 31,
(in millions)
Foreign exchange derivatives
2019
2018
2017
Amounts
recorded in
income(a)(b)
$72
Amounts
recorded in
OCI
$64
Amounts
recorded in
income(a)(b)
$11
Amounts
recorded in
OCI
$1,219
Amounts
recorded in
income(a)(b)
$(152)
Amounts
recorded in
OCI(c)
$(1,244)
(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. The Firm elects to record changes in fair value of these amounts directly in other income.
(b) Excludes amounts reclassified from AOCI to income on the sale or liquidation of hedged entities. The Firm reclassified net pre-tax gains/(losses) of $18
million to other income, $(17) million and $50 million to other expense related to the liquidation of certain legal entities during the years ended
December 31, 2019, 2018 and 2017, respectively. Refer to Note 24 for further information.
(c) Represents the effective portion of changes in value of the related hedging derivative. The Firm did not recognize any ineffectiveness on net investment
hedges directly in income during 2017.
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 mortgage commitments,
warehouse loans, MSRs, wholesale lending exposures, and
foreign currency denominated assets and liabilities.
Year ended December 31,
(in millions)
Contract type
Interest rate(a)
Credit(b)
Foreign exchange(c)
Total
Derivatives gains/(losses)
recorded in income
2019
2018
2017
$ 1,491
$
79
$
(30)
(5)
$ 1,456
$
(21)
117
175
331
(74)
(107)
$
150
(a) Primarily represents interest rate derivatives used to hedge the
interest rate risk inherent in mortgage commitments, 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.
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. Refer to 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./2019 Form 10-K
191
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, 2019 and
2018. 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.
192
JPMorgan Chase & Co./2019 Form 10-K
The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives,
because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery 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, 2019 (in millions)
Credit derivatives
Credit default swaps
Other credit derivatives(a)
Total credit derivatives
Credit-related notes
Total
December 31, 2018 (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)
$
(562,338)
$
571,892
$
9,554 $
(44,929)
(607,267)
—
52,007
623,899
—
7,078
16,632
—
3,936
7,364
11,300
9,606
$
(607,267)
$
623,899
$
16,632 $
20,906
Maximum payout/Notional amount
Protection
sold
Protection purchased
with identical
underlyings(b)
Net protection
(sold)/
purchased(c)
Other
protection
purchased(d)
$
(697,220)
$
707,282
$
10,062 $
(41,244)
(738,464)
—
42,484
749,766
—
1,240
11,302
—
4,053
8,488
12,541
8,425
$
(738,464)
$
749,766
$
11,302 $
20,966
(a) Other credit derivatives predominantly consist of credit swap options and total return swaps.
(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.
JPMorgan Chase & Co./2019 Form 10-K
193
Notes to consolidated financial statements
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, 2019 and 2018, 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, 2019
(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
$ (114,460)
$ (311,407)
$ (42,129)
Noninvestment-grade
(41,661)
(87,769)
(9,841)
Total
$ (156,121)
$ (399,176)
$ (51,970)
$
$
(467,996)
(139,271)
(607,267)
$
$
6,153
4,281
10,434
$
$
(911)
$ 5,242
(2,882)
1,399
(3,793)
$ 6,641
December 31, 2018
(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
$ (115,443)
$ (402,325)
$ (43,611)
Noninvestment-grade
(45,897)
(119,348)
(11,840)
Total
$ (161,340)
$ (521,673)
$ (55,451)
$
$
(561,379)
(177,085)
(738,464)
$
$
5,720
4,719
10,439
$
$
(2,791)
$ 2,929
(5,660)
(941)
(8,451)
$ 1,988
(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.
194
JPMorgan Chase & Co./2019 Form 10-K
Note 6 – Noninterest revenue and noninterest expense
Noninterest revenue
The Firm records noninterest revenue from certain
contracts with customers in investment banking fees,
deposit-related fees, asset management, administration,
and commissions, and components of card income. The
related contracts are often terminable on demand and the
Firm has no remaining obligation to deliver future services.
For arrangements with a fixed term, the Firm may commit
to deliver services in the future. Revenue associated with
these remaining performance obligations typically depends
on the occurrence of future events or underlying asset
values, and is not recognized until the outcome of those
events or values are known.
Investment banking fees
This revenue category includes debt and equity
underwriting and advisory fees. As an underwriter, the Firm
helps clients raise capital via public offering and private
placement of various types of debt and equity instruments.
Underwriting fees are primarily based on the issuance 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, by 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.
The following table presents the components of investment
banking fees.
Year ended December 31,
(in millions)
2019
2018
2017
Underwriting
Equity
Debt
Total underwriting
Advisory
$ 1,648
$ 1,684
$ 1,466
3,513
5,161
2,340
3,347
5,031
2,519
3,802
5,268
2,144
Total investment banking fees
$ 7,501
$ 7,550
$ 7,412
Investment banking fees are earned primarily by CIB. Refer
to Note 32 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 a market participant is willing and able to
sell an instrument to the Firm and the price at which
another market participant is willing and able to buy it
from the Firm, and vice versa; and
• realized and unrealized gains and losses on financial
instruments and commodities transactions, including
those accounted for under the fair value option, primarily
used in client-driven market-making activities, and on
private equity investments.
– Realized gains and losses result from the sale of
instruments, closing out or termination of transactions,
or interim cash payments.
– Unrealized gains and losses result from changes in
valuation.
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 realized and
unrealized gains and losses related to:
• derivatives designated in qualifying hedge accounting
relationships, primarily fair value hedges of commodity
and foreign exchange risk;
• derivatives used for specific risk management purposes,
primarily to mitigate credit risk and foreign exchange
risk.
Refer to Note 5 for further information on the income
statement classification of gains and losses from derivatives
activities.
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 in CIB and cash deployment activities in
Treasury and CIO. Refer to 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 LOB.
JPMorgan Chase & Co./2019 Form 10-K
195
Notes to consolidated financial statements
Year ended December 31,
(in millions)
Trading revenue by instrument
type
Interest rate
Credit
Foreign exchange
Equity
Commodity
2019
2018
2017
The following table presents the components of Firmwide
asset management, administration and commissions.
$
2,552
$
1,961
$
2,479
1,611
3,171
5,812
1,122
1,395
3,222
4,924
906
1,329
2,746
3,873
661
Year ended December 31,
(in millions)
Asset management fees
2019
2018
2017
Investment management fees(a)
$ 10,865
$ 10,768
$ 10,434
All other asset management fees(b)
315
270
296
Total asset management fees
11,180
11,038
10,730
Total trading revenue
14,268
12,408
11,088
Total administration fees(c)
2,197
2,179
2,029
Private equity gains/(losses)
(250)
(349)
259
Principal transactions
$ 14,018
$ 12,059
$ 11,347
Principal transactions revenue is earned primarily by CIB.
Refer to Note 32 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.
The following table presents the components of lending-
and deposit-related fees.
Year ended December 31, (in millions)
2019
2018
2017
Lending-related fees
Deposit-related fees
$ 1,184
$ 1,117
$ 1,110
5,185
4,935
4,823
Total lending- and deposit-related fees
$ 6,369
$ 6,052
$ 5,933
Lending- and deposit-related fees are earned by CCB, CIB,
CB, and AWM. Refer to Note 32 for segment results.
Asset management, administration and commissions
This revenue category includes fees from investment
management and related services, custody, brokerage
services and other products. The Firm manages assets 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 these third-party service
providers are generally recorded in professional and outside
services expense.
Commissions and other fees
Brokerage commissions(d)
All other commissions and fees
Total commissions and fees
Total asset management,
administration and
commissions
2,439
1,349
3,788
2,505
1,396
3,901
2,239
1,289
3,528
$ 17,165
$ 17,118
$ 16,287
(a) Represents fees earned from managing assets on behalf of the Firm’s
clients, including investors in Firm-sponsored funds and owners of
separately managed investment accounts.
(b) Represents fees for services that are ancillary to investment
management services, such as commissions earned on the sales or
distribution of mutual funds to clients. 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.
(c) Predominantly includes fees for custody, securities lending, funds
services and securities clearance. These fees are recorded as revenue
over the period in which the related service is provided.
(d) Represents commissions earned when the Firm acts as a broker, by
facilitating its clients’ purchases and sales of securities and other
financial instruments. Brokerage commissions are collected and
recognized 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. Refer to Note
32 for segment results.
Mortgage fees and related income
This revenue category primarily reflects CCB’s Home
Lending net production and net mortgage servicing
revenue.
Net production revenue includes fees and income
recognized as earned on mortgage loans originated with the
intent to sell, and the impact of risk management activities
associated with the mortgage pipeline and warehouse
loans. Net production revenue also includes gains and
losses on sales and lower of cost or fair value adjustments
on mortgage loans held-for-sale (excluding certain
repurchased loans insured by U.S. government agencies),
and changes in the fair value of financial instruments
measured under the fair value option.
196
JPMorgan Chase & Co./2019 Form 10-K
Net mortgage servicing revenue includes operating revenue
earned from servicing third-party mortgage loans, which is
recognized over the period in which the service is provided;
changes in the fair value of MSRs; the impact of risk
management activities associated with MSRs; and gains and
losses on securitization of excess mortgage servicing. Net
mortgage servicing revenue also includes gains and losses
on sales and lower of cost or fair value adjustments of
certain repurchased loans insured by U.S. government
agencies.
Refer to Note 15 for further information on risk
management activities and MSRs.
Net interest income from mortgage loans is recorded in
interest income.
Card income
This revenue category includes interchange and other
income from credit and debit card transactions, and fees
earned from processing card transactions for merchants,
both of which are recognized when purchases are made by
a cardholder and presented net of certain transaction-
related costs. Card income also includes account origination
costs and annual fees, which are deferred and recognized
on a straight-line basis over a 12-month period.
Certain Chase credit card products offer the cardholder 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.
The Firm typically makes payments to the co-brand credit
card partners based on the cost of partners’ marketing
activities and loyalty program rewards provided to credit
cardholders, new account originations and sales volumes.
Payments to partners based on marketing efforts
undertaken by the partners are expensed by the Firm as
incurred and reported as marketing expense. Payments for
partner loyalty program 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.
The following table presents the components of card income:
Year ended December 31,
(in millions)
Interchange and merchant
processing income
Reward costs and partner
payments
Other card income(a)
Total card income
2019
2018
2017
$ 20,370
$ 18,808
$ 17,080
(14,312)
(13,074) (b)
(10,820)
(754)
(745)
(1,827)
$ 5,304
$ 4,989
$ 4,433
(a) Predominantly represents account origination costs and annual fees,
which are deferred and recognized on a straight-line basis over a 12-
month period.
Includes an adjustment to the credit card rewards liability of
approximately $330 million, recorded in the second quarter of 2018.
(b)
Card income is earned primarily by CCB and CB. Refer to
Note 32 for segment results.
Refer to Note 18 for information on operating lease income
included within other income.
Noninterest expense
Other expense
Other expense on the Firm’s Consolidated statements of
income included the following:
Year ended December 31,
(in millions)
Legal expense/(benefit)
$
FDIC-related expense
2019
239
457
2018
2017
$
72
$
(35)
1,239
1,492
JPMorgan Chase & Co./2019 Form 10-K
197
Notes to consolidated financial statements
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(a)
Taxable securities
Non-taxable securities(b)
Total investment securities(a)
Trading assets - debt instruments
10,800
Federal funds sold and securities
purchased under resale
agreements
Securities borrowed(c)
Deposits with banks
All other interest-earning assets(c)(d)
6,146
1,574
3,887
1,967
2019
2018
2017
$ 50,375 $ 47,620 $ 41,008
7,962
1,329
9,291
5,653
1,595
7,248
8,703
3,819
913
5,907
1,890
5,534
1,848
7,382
7,610
2,327
94
4,238
1,312
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. Refer to Notes 12, 10, 11 and 20,
for further information on accounting for interest income
and interest expense related to loans, investment securities,
securities financing activities (i.e., securities purchased or
sold under resale or repurchase agreements; securities
borrowed; and securities loaned) and long-term debt,
respectively.
Total interest income(c)
$ 84,040 $ 76,100 $ 63,971
Interest expense
Interest bearing deposits
$
8,957 $
5,973 $
2,857
Federal funds purchased and
securities loaned or sold under
repurchase agreements
Short-term borrowings(e)
Trading liabilities - debt and all
other interest-bearing liabilities(c)(f)
Long-term debt
Beneficial interest issued by
consolidated VIEs
4,630
1,248
2,585
8,807
3,066
1,144
2,387
7,978
1,611
481
1,669
6,753
568
493
503
Total interest expense(c)
$ 26,795 $ 21,041 $ 13,874
Net interest income
$ 57,245 $ 55,059 $ 50,097
Provision for credit losses
5,585
4,871
5,290
Net interest income after provision
for credit losses
$ 51,660 $ 50,188 $ 44,807
(a) Includes the amortization/accretion of unearned income (e.g.,
purchase premiums/discounts, net deferred fees/costs, etc.).
(b) Represents securities that are tax-exempt for U.S. federal income tax
purposes.
(c) In the second quarter of 2019, the Firm implemented certain
presentation changes that impacted interest income and interest
expense, but had no effect on net interest income. These changes were
made to align the accounting treatment between the balance sheet
and the related interest income or expense, primarily by offsetting
interest income and expense for certain prime brokerage-related held-
for-investment customer receivables and payables that are currently
presented as a single margin account on the balance sheet. These
changes were applied retrospectively and, accordingly, prior period
amounts were revised to conform with the current presentation.
(d) Includes interest earned on prime brokerage-related held-for-
investment customer receivables, which are classified in accrued
interest and accounts receivable, and all other interest-earning assets,
which are classified in other assets on the Consolidated balance sheets.
(e) Includes commercial paper.
(f) Other interest-bearing liabilities includes interest expense on prime
brokerage-related customer payables.
198
JPMorgan Chase & Co./2019 Form 10-K
Note 8 – Pension and other postretirement
employee benefit plans
The Firm has various defined benefit pension plans and
OPEB plans that provide benefits to its employees in the
U.S. and certain non-U.S. locations. The Firm also provides a
qualified defined contribution plan in the U.S. and maintains
other similar arrangements in certain non-U.S. locations.
The principal defined benefit pension plan in the U.S. is a
qualified noncontributory plan that provides benefits to
substantially all U.S. employees. In connection with changes
to the U.S. Retirement Savings Program during the fourth
quarter of 2018, the Firm announced that it will freeze the
U.S. defined benefit pension plan (the “Plan Freeze”).
Commencing on January 1, 2020 (and January 1, 2019 for
new hires), new pay credits are directed to the U.S. defined
contribution plan. Interest credits on the U.S. defined
benefit pension plan will continue to accrue. As a result, a
curtailment was triggered and a remeasurement of the U.S.
defined benefit pension obligation and plan assets occurred
as of November 30, 2018. The plan design change did not
have a material impact on the U.S. defined benefit pension
plan or the Firm’s Consolidated Financial Statements.
The Firm also has defined benefit pension plans that are
offered in certain non-U.S. locations based on factors 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 making any
contribution to the U.S. defined benefit pension plan in
2020. The 2020 contributions to the non-U.S. defined
benefit pension plans are expected to be $49 million, of
which $34 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 offers postretirement medical and life insurance
benefits to certain U.S. retirees and postretirement medical
benefits to certain qualifying U.S. and U.K. employees.
The Firm partially 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, certain 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 prefunded its U.S.
postretirement benefit obligations. The U.K. OPEB plan is
unfunded.
Pension and OPEB accounting guidance 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 in other liabilities. Gains or
losses resulting from changes in the benefit obligation and
the value of plan assets are recorded in OCI and recognized
as part of the net periodic benefit cost over subsequent
periods as discussed in the Gains and losses section of this
Note. Additionally, benefits earned during the year are
reported in compensation expense; all other components of
net periodic defined benefit costs are reported in other
expense in the Consolidated statements of income.
JPMorgan Chase & Co./2019 Form 10-K
199
Notes to consolidated financial statements
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.
Fair value of plan assets, beginning of year
$
18,052
$
19,603
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
Plan amendments
Plan curtailment
Employee contributions
Net gain/(loss)
Benefits paid
Plan settlements
Foreign exchange impact and other
Benefit obligation, end of year(a)
Change in plan assets
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)
Net funded status (c)(d)
Accumulated benefit obligation, end of year
Pretax pension and OPEB amounts recorded in AOCI
Net gain/(loss)
Prior service credit/(cost)
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)
Interest crediting rate(e)
Health care cost trend rate(f)
Assumed for next year
Ultimate
Year when rate will reach ultimate
Defined benefit
pension plans
OPEB plans
2019
2018
2019
2018
$
(15,512)
$
(16,700)
$
(612)
$
(684)
(356)
(596)
(5)
—
(8)
(1,296)
(g)
820
—
(116)
(354)
(556)
(29)
123
(7)
938
873
15
185
(g)
$
(17,069)
$
(15,512)
2,932
80
8
(820)
—
121
20,373
3,304
(17,047)
(2,260)
(26)
(2,286)
$
$
$
$
$
(548)
75
7
(873)
(15)
(197)
$
$
$
$
$
18,052
2,540
(15,494)
(3,134)
(23)
(3,157)
—
(24)
—
—
(14)
(51)
67
—
(2)
—
(24)
—
—
(15)
40
69
—
2
$
$
$
$
$
$
(636)
$
(612)
2,633
454
2
14
(110)
—
—
2,993
2,357
NA
470
—
470
$
2,757
(28)
2
15
(113)
—
—
$
2,633
$
2,021
NA
184
—
184
$
$
0.20 - 3.30%
0.60 - 4.30 %
3.20%
4.20%
2.25 - 3.00
2.25 – 3.00
1.78 - 4.65%
1.81 - 4.90%
NA
NA
NA
NA
NA
NA
NA
NA
5.00
5.00
2020
NA
NA
5.00
5.00
2019
(a) At December 31, 2019 and 2018, included non-U.S. benefit obligations of $(3.8) billion and $(3.3) billion, and plan assets of $4.0 billion and $3.5 billion,
respectively, predominantly in the U.K.
(b) At December 31, 2019 and 2018, defined benefit pension plan amounts that were not measured at fair value included $1.3 billion and $340 million, respectively, of
accrued receivables, and $1.7 billion and $503 million, respectively, of accrued liabilities.
(c) Represents plans with an aggregate overfunded balance of $6.3 billion and $5.1 billion at December 31, 2019 and 2018, respectively, and plans with an aggregate
underfunded balance of $618 million and $547 million at December 31, 2019 and 2018, respectively.
(d) For pension plans with a projected benefit obligation exceeding plan assets, the projected benefit obligation and fair value of plan assets was $1.5 billion and $885
million at December 31, 2019, respectively and $1.3 billion and $762 million at December 31, 2018, respectively. For pension plans with an accumulated benefit
obligation exceeding plan assets, the accumulated benefit obligation and fair value of plan assets was $1.4 billion and $885 million at December 31, 2019,
respectively, and $1.3 billion and $762 million at December 31, 2018, respectively. For OPEB plans with a projected benefit obligation exceeding plan assets, the
projected benefit obligation was $43 million and $26 million at December 31, 2019 and 2018, respectively, and they had no plan assets.
(e) For the U.S. defined benefit pension plans, the discount rate assumption was 3.30% and 4.30%, and the interest crediting rate was 4.65% and 4.90%, for 2019
and 2018, respectively. The rate of compensation increase was not applicable to the U.S. plan in 2019 due to the Plan Freeze, and was 2.30% in 2018. The rate of
compensation increase presented in the table for 2019 applies to the non-U.S. plans.
(f) Excludes participants whose benefits under the plan are capped.
(g) At December 31, 2019 and 2018, the gain/(loss) was primarily attributable to the change in the discount rate.
200
JPMorgan Chase & Co./2019 Form 10-K
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
projected benefit obligation 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. As a
result of the Plan Freeze, beginning in 2020, any excess for
the U.S. defined benefit pension plan will be amortized over
the average expected lifetime of plan participants which is
currently 38 years. 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.
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 is amortized over the average
expected lifetime of retired participants, which is currently
eleven years.
JPMorgan Chase & Co./2019 Form 10-K
201
Notes to consolidated financial statements
The following table presents the components of net periodic benefit costs reported in the Consolidated statements of income
for the Firm’s U.S. and non-U.S. defined benefit pension, defined contribution and OPEB plans, and in other comprehensive
income for the defined benefit pension and OPEB plans, and the weighted-average annualized actuarial assumptions for the
net periodic benefit cost.
Pension plans
OPEB plans
2019
2018
2017
2019
2018
2017
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 (credit)/cost
Curtailment (gain)/loss
Settlement (gain)/loss
Net periodic defined benefit cost(a)
Other defined benefit pension plans(b)
Total defined benefit plans
Total defined contribution plans
Total pension and OPEB cost included in noninterest expense
$
$
$
$
356
596
(915)
167
3
—
—
207
25
232
952
1,184
$
$
$
$
Changes in plan assets and benefit obligations recognized in other comprehensive income
Prior service (credit)/cost arising during the year
Net (gain)/loss arising during the year
Amortization of net loss
Amortization of prior service (cost)/credit
Curtailment gain/(loss)
Settlement gain/(loss)
Foreign exchange impact and other
Total recognized in other comprehensive income
Total recognized in net periodic benefit cost and other
comprehensive income
5
(719)
(167)
(3)
—
—
13
$
$
(871)
(664)
$
$
354
556
(981)
103
(23)
21
2
32
20
52
872
924
29
467
(103)
23
(21)
(2)
(30)
363
395
$
$
$
$
$
$
330
598
(968)
250
(36)
—
2
176
24
200
814
1,014
—
(669)
(250)
36
—
(2)
54
(831)
(655)
$
$
$
$
$
Weighted-average assumptions used to determine net periodic benefit costs
Discount rate(c)
0.60 - 4.30% 0.60 - 4.50 % 0.60 - 4.30 %
Expected long-term rate of return on plan assets (c)
0.00 - 5.50
0.70 - 5.50
0.70 - 6.00
Rate of compensation increase (c)
Interest crediting rate(c)
Health care cost trend rate(d)
Assumed for next year
Ultimate
Year when rate will reach ultimate
2.25 - 3.00
2.25 - 3.00
2.25 - 3.00
1.81 - 4.90% 1.81- 4.90% 1.81- 4.90%
NA
NA
NA
NA
NA
NA
NA
NA
NA
$
— $
24
(112)
$
—
24
(103)
—
28
(97)
—
—
—
—
(69)
NA
(69)
NA
(69)
—
(133)
—
—
—
—
—
$
$
(133)
(202)
4.20%
5.00
NA
NA
5.00
5.00
2017
—
—
—
—
—
—
—
—
(88) $
(79) $
NA
NA
(88) $
(79) $
NA
NA
(88) $
(79) $
—
(286)
—
—
—
—
—
(286) $
(374) $
4.20%
4.30
NA
NA
5.00
5.00
2019
—
91
—
—
—
—
(4)
87
8
3.70%
4.00
NA
NA
5.00
5.00
2018
(a) Benefits earned during the year are reported in compensation expense; all other components of net periodic defined benefit costs are reported within
other expense in the Consolidated statements of income.
(b) Includes various defined benefit pension plans which are individually immaterial.
(c) The rate assumptions for the U.S. defined benefit pension plans are at the upper end of the range, except for the rate of compensation increase, which was
2.30% for 2019, 2018 and 2017, respectively.
(d) Excludes participants whose benefits under the plan are capped.
Plan assumptions
The Firm’s expected long-term rate of return for defined
benefit pension and OPEB plan assets is a blended weighted
average, by asset allocation of the projected long-term
returns for the various asset classes, taking into
consideration local market conditions and the 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, 2019, the Firm decreased the discount
rates used to determine its benefit obligations for the U.S.
202
JPMorgan Chase & Co./2019 Form 10-K
defined benefit pension and OPEB plans in light of current
market interest rates, which is expected to decrease
expense by approximately $69 million in 2020. The 2020
expected long-term rate of return on U.S. defined benefit
pension plan assets and U.S. OPEB plan assets are 4.00%
and 4.11%, respectively.
The following table represents the effect of a 25-basis point
decline in the two listed rates below on estimated 2020
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
$
$
57
6
$
NA
544
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. The trust-
owned assets of the Firm’s U.S. OPEB plan are invested
primarily in fixed income securities. COLI policies used to
partially 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. investments. Additionally, the investments
in each of the collective investment funds and/or registered
investment companies are further diversified into various
financial instruments. As of December 31, 2019, assets
held by the Firm’s defined benefit pension and OPEB plans
do not include securities issued by JPMorgan Chase or its
affiliates, except through indirect exposures through
investments in ETFs, mutual funds and collective investment
funds managed by third-parties. The plans hold investments
that are sponsored or managed by affiliates of JPMorgan
Chase in the amount of $3.1 billion and $3.7 billion, as of
December 31, 2019 and 2018, respectively.
JPMorgan Chase & Co./2019 Form 10-K
203
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(b)
Equity securities
Real estate
Alternatives (c)
Total
Defined benefit pension plans(a)
OPEB plan(d)
Asset
% of plan assets
Asset
% of plan assets
Allocation
2019
2018
Allocation
2019
2018
42-100%
0-40
0-6
0-24
74%
16
1
9
48%
30-70%
60%
61%
37
2
13
30-70
—
—
40
—
—
39
—
—
100%
100%
100%
100%
100%
100%
(a) Represents the U.S. defined benefit pension plan only, as that is the most significant plan.
(b) Debt securities primarily includes cash and cash equivalents, corporate debt, U.S. federal, state, local and non-U.S. government, asset-backed and
mortgage-backed securities.
(c) Alternatives primarily include limited partnerships.
(d) Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded.
Fair value measurement of the plans’ assets and liabilities
Refer to Note 2 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.
Pension and OPEB plan assets and liabilities measured at fair value
Defined benefit pension plans
2019
2018
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
$
157
$
1
$
— $
158
$
343
$
1
$
— $
344
Equity securities
Collective investment 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)
Total assets measured at fair value(e)
Derivative payables
$
$
3,240
265
187
—
184
—
—
7,090
1,790
1,054
314
—
785
701
337
132
2
—
—
2
—
4
—
250
3,426
265
187
7,092
2,844
1,019
337
1,167
5,342
161
40
—
1,191
82
—
885
162
—
—
3,540
743
272
143
80
2
—
—
3
—
3
—
5,506
161
40
3,543
1,934
357
143
302
1,267
6,738
$
9,499
$
258
$ 16,495
$
8,044
$
4,941
$
310
$ 13,295
Total liabilities measured at fair value(e) $
— $
(118) $
— $
(118) $
— $
(118) $
— $
(118) $
— $
— $
(96) $
(96) $
— $
— $
(96)
(96)
(a) At December 31, 2019 and 2018, collective investment funds primarily included a mix of short-term investment funds, U.S. and non-U.S. equity
investments (including index) and real estate funds.
(b) Unfunded commitments to purchase limited partnership investments for the plans were $451 million and $521 million for 2019 and 2018,
respectively.
(c) Corporate debt securities include debt securities of U.S. and non-U.S. corporations.
(d) Other consists primarily of mutual funds, money market funds and participating annuity contracts. Mutual funds and money market funds are
primarily classified within level 1 of the fair value hierarchy given they are valued using market observable prices. Participating 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, 2019 and 2018, excludes $4.4 billion and $5.0 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, $1.3 billion and $340
million of defined benefit pension plan receivables for investments sold and dividends and interest receivables, $1.7 billion and $479 million of
defined benefit pension plan payables for investments purchased, and $25 million and $24 million of other liabilities, respectively.
At December 31, 2019 and 2018, the assets of the U.S. OPEB plan consisted of $562 million and $561 million,
respectively, in cash and cash equivalents, corporate debt securities, U.S. federal, state, local and non-U.S. government
debt securities and other assets classified in level 1 and level 2 of the valuation hierarchy and $2.4 billion and $2.1
billion, respectively, of COLI policies classified in level 3 of the valuation hierarchy.
204
JPMorgan Chase & Co./2019 Form 10-K
Changes in level 3 fair value measurements using significant unobservable inputs
(in millions)
Year ended December 31, 2019
U.S. defined benefit pension plan
Annuity contracts and other (a)
U.S. OPEB plan
COLI policies
Year ended December 31, 2018
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)(b)
Purchases, sales
and settlements,
net(b)
Transfers in
and/or out
of level 3
Fair value,
Ending
balance
$
$
$
$
310
2,072
310
2,157
$
$
$
$
— $
— $
— $
— $
31
401
$
$
(85) $
2
$
258
(42) $
— $
2,431
— $
(1) $
1
$
310
(42) $
(43) $
— $
2,072
(a) Substantially all are participating annuity contracts.
(b) The prior period amounts have been revised to conform with the current period presentation.
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)
2020
2021
2022
2023
2024
Years 2025–2029
Defined
benefit
pension
plans
OPEB
before
Medicare
Part D
subsidy
Medicare
Part D
subsidy
$
1,030
$
1,020
1,020
980
970
4,613
$
59
57
54
52
50
211
1
1
—
—
—
1
JPMorgan Chase & Co./2019 Form 10-K
205
Notes to consolidated financial statements
Note 9 – Employee share-based incentives
Employee share-based awards
In 2019, 2018 and 2017, JPMorgan Chase granted long-
term share-based awards to certain employees under its
LTIP, as amended and restated effective May 15, 2018.
Under the terms of the LTIP, as of December 31, 2019, 75
million shares of common stock were available for issuance
through May 2022. 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.
Predominantly all 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.
Performance share units (“PSUs”) are granted annually, and
approved by the Firm’s Board of Directors, to members of
the Firm’s Operating Committee under the variable
compensation program. 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. In addition, dividends
that accrue during the vesting period are reinvested in
dividend equivalent share units. PSUs and the related
dividend equivalent share units are converted into shares of
common stock after vesting.
Once the PSUs and dividend equivalent share units have
vested, the shares of common stock that are delivered, after
applicable tax withholding, must be held for an additional
two-year period, for a total combined vesting and holding
period of approximately five to eight years from the grant
date depending on regulations in certain countries.
Under the LTI Plans, stock appreciation rights (“SARs”) and
stock options have generally been granted with an exercise
price equal to the fair value of JPMorgan Chase’s common
stock on the grant date. SARs and stock options generally
expire ten years after the grant date. There were no
material grants of employee SARs or stock options in 2019,
2018 and 2017.
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
2019, 2018 and 2017, the Firm settled all of its employee
share-based awards by issuing treasury shares.
Refer to Note 23 for further information on the
classification of share-based awards for purposes of
calculating earnings per share.
206
JPMorgan Chase & Co./2019 Form 10-K
RSUs, PSUs, employee SARs and stock options 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 SARs and stock options, 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 SARs and stock options activity for 2019.
Year ended December 31, 2019
(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
SARs/Options
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
58,809 $
23,811
(28,754)
(1,627)
NA
52,239 $
NA
85.04
99.79
69.98
98.58
NA
99.62
NA
12,463
$
41.46
18
(6,923)
—
(31)
5,527
$
5,522
111.01
41.50
—
89.71
41.36
41.29
1.9 $ 539,071
1.9
538,971
The total fair value of RSUs that vested during the years ended December 31, 2019, 2018 and 2017, was $2.9 billion, $3.6
billion and $2.9 billion, respectively. The total intrinsic value of options exercised during the years ended December 31, 2019,
2018 and 2017, was $503 million, $370 million and $651 million, respectively.
Tax benefits
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. Income tax benefits related to share-
based incentive arrangements recognized in the Firm’s
Consolidated statements of income for the years ended
December 31, 2019, 2018 and 2017, were $895 million,
$1.1 billion and $1.0 billion, 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)
2019
2018
2017
Cost of prior grants of RSUs, PSUs, SARs
and employee stock options 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
$ 1,141
$ 1,241
$ 1,125
1,115
1,081
945
$ 2,256
$ 2,322
$ 2,070
At December 31, 2019, approximately $693 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 1.6 years. The Firm does not
capitalize any compensation expense related to share-based
compensation awards to employees.
JPMorgan Chase & Co./2019 Form 10-K
207
Notes to consolidated financial statements
Note 10 – Investment securities
Investment securities consist of debt securities that are
classified as AFS or HTM. Debt securities classified as
trading assets are discussed in Note 2. Predominantly all of
the Firm’s AFS and HTM securities are held by Treasury and
CIO in connection with its asset-liability management
activities. At December 31, 2019, 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). The Firm’s internal risk ratings generally align with
the qualitative characteristics (e.g., borrower capacity to
meet financial commitments and vulnerability to changes in
the economic environment) defined by S&P and Moody’s,
however the quantitative characteristics (e.g., PDs and
LGDs) may differ as they reflect internal historical
experiences and assumptions.
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 the Firm 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 on a
level-yield basis over the contractual life of the security.
However, premiums on certain callable debt securities are
amortized to the earliest call date.
During the fourth quarter of 2019, the Firm transferred
$6.2 billion of collateralized loan obligations from AFS to
HTM for capital management purposes. These securities
were transferred at fair value in a non-cash transaction.
208
JPMorgan Chase & Co./2019 Form 10-K
The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
2019
2018
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 securities
Mortgage-backed securities:
U.S. GSEs and government agencies(a)
$ 107,811 $
2,395 $
89
$ 110,117
$ 69,026 $
594 $
974
$ 68,646
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
10,223
2,477
5,137
125,648
139,162
27,693
77
21,427
823
25,038
5,438
233
64
64
2,756
449
2,118
—
377
22
9
40
Total available-for-sale securities
345,306
5,771
Held-to-maturity securities
Mortgage-backed securities:
U.S. GSEs and government agencies(a)
Total mortgage-backed securities
U.S. Treasury and government agencies
Obligations of U.S. states and municipalities
Asset-backed securities:
Collateralized loan obligations
Total held-to-maturity securities
36,523
36,523
51
4,797
6,169
47,540
1,165
1,165
—
299
—
1,464
6
1
13
109
175
1
—
17
—
56
20
378
62
62
1
—
—
63
10,450
2,540
5,188
128,295
139,436
29,810
77
21,787
845
24,991
5,458
5,877
2,529
6,758
84,190
55,771
36,221
75
23,771
1,904
19,612
7,225
79
72
43
788
366
1,582
—
351
23
31
6
147
1,158
78
80
—
20
9
1
57
176
22
5,925
2,595
6,654
83,820
56,059
37,723
75
24,102
1,918
19,437
7,260
350,699
228,769
3,168
1,543
230,394
37,626
37,626
50
5,096
6,169
48,941
26,610
26,610
—
4,824
—
31,434
134
134
—
105
—
239
200
200
—
15
—
215
26,544
26,544
—
4,914
—
31,458
Total investment securities
$ 392,846 $
7,235 $
441
$ 399,640
$ 260,203 $
3,407 $ 1,758
$ 261,852
(a) Includes AFS U.S. GSE obligations with fair values of $78.5 billion and $50.7 billion, and HTM U.S. GSE obligations with amortized cost of $31.6 billion and
$20.9 billion, at December 31, 2019 and 2018, respectively. As of December 31, 2019, mortgage-backed securities issued by Fannie Mae and Freddie
Mac each exceeded 10% of JPMorgan Chase’s total stockholders’ equity; the amortized cost and fair value of such securities were $69.4 billion and $71.4
billion, and $38.7 billion and $39.6 billion, respectively.
JPMorgan Chase & Co./2019 Form 10-K
209
Notes to consolidated financial statements
Investment securities impairment
The following tables present the fair value and gross unrealized losses for investment securities by aging category at
December 31, 2019 and 2018.
December 31, 2019 (in millions)
Fair value
Gross unrealized
losses
Fair value
Gross unrealized
losses
Total fair
value
Total gross
unrealized losses
Investment securities with gross unrealized losses
Less than 12 months
12 months or more
Available-for-sale securities
Mortgage-backed securities:
U.S. GSEs and government agencies
$
16,966 $
53
$
3,058 $
36 $
20,024 $
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 securities
Held-to-maturity securities
Mortgage-backed securities:
U.S. GSEs and government agencies
Total mortgage-backed securities
U.S. Treasury and government agencies
Obligations of U.S. states and municipalities
Asset-backed securities:
Collateralized loan obligations
Total held-to-maturity securities
Total investment securities with gross
unrealized losses
1,072
13
1,287
19,338
23,003
186
77
3,970
—
10,364
1,639
58,577
5,186
5,186
50
—
3,421
8,657
3
—
12
68
145
1
—
13
—
11
9
247
62
62
1
—
—
63
423
420
199
4,100
5,695
—
—
1,406
—
7,756
753
19,710
81
81
—
—
1,375
1,456
3
1
1
41
30
—
—
4
—
45
11
131
—
—
—
—
—
—
1,495
433
1,486
23,438
28,698
186
77
5,376
—
18,120
2,392
78,287
5,267
5,267
50
—
4,796
10,113
$
67,234 $
310
$
21,166 $
131 $
88,400 $
441
89
6
1
13
109
175
1
—
17
—
56
20
378
62
62
1
—
—
63
210
JPMorgan Chase & Co./2019 Form 10-K
December 31, 2018 (in millions)
Fair value
Gross unrealized
losses
Fair value
Gross unrealized
losses
Total fair
value
Total gross
unrealized losses
Investment securities with gross unrealized losses
Less than 12 months
12 months or more
Available-for-sale securities
Mortgage-backed securities:
U.S. GSEs and government agencies
17,656
318
22,728
656
40,384
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 securities
Held-to-maturity securities
Mortgage-backed securities:
U.S. GSEs and government agencies
Total mortgage-backed securities
Obligations of U.S. states and municipalities
Total held-to-maturity securities
Total investment securities with gross
unrealized losses
623
907
974
20,160
4,792
1,808
75
3,123
478
18,681
1,208
50,325
4,385
4,385
12
4,397
4
5
6
333
7
15
—
5
8
176
6
550
23
23
—
23
1,445
165
3,172
27,510
2,391
2,477
—
1,937
37
—
2,354
36,706
7,082
7,082
1,114
8,196
27
1
141
825
71
65
—
15
1
—
16
993
177
177
15
192
2,068
1,072
4,146
47,670
7,183
4,285
75
5,060
515
18,681
3,562
87,031
11,467
11,467
1,126
12,593
974
31
6
147
1,158
78
80
—
20
9
176
22
1,543
200
200
15
215
54,722
573
44,902
1,185
99,624
1,758
Other-than-temporary impairment
AFS and HTM debt securities in unrealized loss positions are
analyzed as part of the Firm’s ongoing assessment of OTTI.
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 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 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.
Factors considered in evaluating potential OTTI include
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.
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.
When assessing securities issued in a securitization for OTTI,
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 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.
JPMorgan Chase & Co./2019 Form 10-K
211
Notes to consolidated financial statements
The Firm recognizes unrealized losses on investment
securities that it intends to sell as OTTI. The Firm does not
intend to sell any of the remaining investment securities
with an unrealized loss in AOCI as of December 31, 2019,
and it is not likely that the Firm will be required to sell these
securities before recovery of their amortized cost basis.
Further, the Firm did not recognize any credit-related OTTI
losses during the year ended December 31, 2019. Based on
its assessment, the Firm believes that the investment
securities with an unrealized loss in AOCI as of December
31, 2019, are not other-than-temporarily impaired.
Investment securities gains and losses
The following table presents realized gains and losses and
OTTI from AFS securities that were recognized in income.
Year ended December 31,
(in millions)
Realized gains
Realized losses
OTTI losses(a)
Net investment securities gains/
(losses)
2019
2018
2017
$
650
$
211
$ 1,013
(392)
(606)
(1,072)
—
—
258
(395)
(7)
(66)
(a) Represents OTTI losses recognized in income on investment securities
the Firm intends to sell. Excludes realized losses on securities sold of
$22 million and $6 million for the years ended December 31, 2018
and 2017, 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 securities was not material as of and
during the years ended December 31, 2019, 2018 and
2017.
212
JPMorgan Chase & Co./2019 Form 10-K
Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at December 31, 2019, of JPMorgan Chase’s investment
securities portfolio by contractual maturity.
By remaining maturity
December 31, 2019 (in millions)
Available-for-sale securities
Mortgage-backed securities
Amortized cost
Fair value
Average yield(a)
U.S. Treasury and government agencies
Amortized cost
Fair value
Average yield(a)
Obligations of U.S. states and municipalities
Amortized cost
Fair value
Average yield(a)
Certificates of deposit
Amortized cost
Fair value
Average yield(a)
Non-U.S. government debt securities
Amortized cost
Fair value
Average yield(a)
Corporate debt securities
Amortized cost
Fair value
Average yield(a)
Asset-backed securities
Amortized cost
Fair value
Average yield(a)
Total available-for-sale securities
Amortized cost
Fair value
Average yield(a)
Held-to-maturity securities
Mortgage-backed securities
Amortized Cost
Fair value
Average yield(a)
U.S. Treasury and government agencies
Amortized cost
Fair value
Average yield(a)
Obligations of U.S. states and municipalities
Amortized cost
Fair value
Average yield(a)
Asset-backed securities
Amortized cost
Fair value
Average yield(a)
Total held-to-maturity securities
Amortized cost
Fair value
Average yield(a)
Due in one
year or less
Due after one year
through five years
Due after five years
through 10 years
Due after
10 years(b)
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1
1
1.99%
10,687
10,700
1.82%
123
124
4.13%
77
77
0.50%
6,672
6,682
2.17%
205
207
4.49%
17
17
0.62%
17,782
17,808
1.99%
—
—
—%
—
—
—%
—
—
—%
—
—
—%
—
—
—%
$
$
$
$
$
$
$
$
$
$
$
$
$
58
58
2.78%
92,805
93,039
1.84%
193
202
4.68%
—
—
—%
11,544
11,791
1.84%
206
212
4.14%
2,352
2,353
2.78%
107,158
107,655
1.87%
—
—
—%
51
50
1.47%
—
—
—%
—
—
—%
51
50
1.47%
$
$
$
$
$
$
$
$
$
$
$
$
$
11,073
11,251
2.76%
26,353
26,446
1.90%
825
883
5.28%
—
—
—%
2,898
3,001
1.29%
412
426
3.50%
7,184
7,177
2.86%
48,745
49,184
2.27%
5,850
6,114
3.06%
—
—
—%
99
106
3.91%
5,296
5,296
3.19%
11,245
11,516
3.13%
$
$
$
$
$
$
$
$
$
$
$
$
$
114,516
116,985
3.40%
9,317
9,251
1.98%
26,552
28,601
4.86%
—
—
—%
313
313
1.67%
—
—
—%
20,923
20,902
2.77%
171,621
176,052
3.47%
30,673
31,512
3.10%
—
—
—%
4,698
4,990
4.04%
873
873
3.11%
36,244
37,375
3.23%
125,648
128,295
3.34%
139,162
139,436
1.86%
27,693
29,810
4.87%
77
77
0.50%
21,427
21,787
1.87%
823
845
3.91%
30,476
30,449
2.79%
345,306
350,699
2.73%
36,523
37,626
3.10%
51
50
1.47%
4,797
5,096
4.04%
6,169
6,169
3.18%
47,540
48,941
3.20%
(a) 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
where applicable. The effective yield excludes unscheduled principal prepayments; and accordingly, actual maturities of securities may differ from their contractual or
expected maturities as certain securities may be prepaid.
(b) 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 6 years for agency residential MBS, 3 years for agency residential collateralized
mortgage obligations and 3 years for nonagency residential collateralized mortgage obligations.
JPMorgan Chase & Co./2019 Form 10-K
213
Notes to consolidated financial statements
Note 11 – Securities financing activities
JPMorgan Chase enters into resale, repurchase, securities
borrowed and securities loaned agreements (collectively,
“securities financing agreements”) primarily to finance the
Firm’s inventory positions, acquire securities to cover short
sales, accommodate customers’ financing needs, settle
other securities obligations and to deploy the Firm’s excess
cash.
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 agreements are generally carried at the
amount of cash collateral advanced or received. Where
appropriate under applicable accounting guidance,
securities financing agreements with the same counterparty
are reported on a net basis. Refer to Note 1 for further
discussion of the offsetting of assets and liabilities. Fees
received and paid in connection with securities financing
agreements are recorded over the life of the agreement 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. Refer to Note 3 for further
information regarding the fair value option. 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 agreements expose the Firm primarily
to credit and liquidity risk. To manage these risks, the Firm
monitors the value of the underlying securities
(predominantly high-quality securities collateral, including
government-issued debt and U.S. GSEs and government
agencies 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 and securities borrowed agreements, the Firm is
exposed to credit risk to the extent that the value of the
securities received is less than initial cash principal
advanced and any collateral amounts exchanged. In
repurchase and securities loaned agreements, credit risk
exposure arises to the extent that the value of underlying
securities advanced exceeds the value of the initial cash
principal received, and any collateral amounts exchanged.
Additionally, the Firm typically enters into master netting
agreements and other similar arrangements with its
counterparties, which provide for the right to liquidate 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 and securities borrowed agreements.
Refer to Note 29 for further information regarding assets
pledged and collateral received in securities financing
agreements.
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, 2019 and 2018.
214
JPMorgan Chase & Co./2019 Form 10-K
The table below summarizes the gross and net amounts of the Firm’s securities financing agreements, as of December 31,
2019 and 2018. When the Firm has obtained an appropriate legal opinion with respect to a 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 counterparty to reduce the economic exposure with the counterparty, but
such collateral is not eligible for net Consolidated balance sheet presentation. Where the Firm has obtained an appropriate
legal opinion with respect to the counterparty master netting agreement, such collateral, along with securities financing
balances that do not meet all these relevant netting criteria under U.S. GAAP, is presented in the table below as “Amounts not
nettable on the Consolidated balance sheets,” and reduces the “Net amounts” presented. Where a legal opinion has not been
either sought or obtained, the securities financing balances are presented gross in the “Net amounts” below.
December 31, (in millions)
Gross amounts
2019
Amounts netted
on the
Consolidated
balance sheets
Amounts
presented on the
Consolidated
balance sheets
Amounts not
nettable on the
Consolidated
balance sheets(b)
Net amounts(c)
Assets
Securities purchased under resale agreements
Securities borrowed
Liabilities
Securities sold under repurchase agreements
Securities loaned and other(a)
$
$
628,609 $
(379,463) $
249,146 $
(233,818) $
166,718
(26,960)
139,758
(104,990)
15,328
34,768
555,172 $
(379,463) $
175,709 $
(151,566) $
24,143
36,649
(26,960)
9,689
(9,654)
35
December 31, (in millions)
Gross amounts
2018
Amounts netted
on the
Consolidated
balance sheets
Amounts
presented on the
Consolidated
balance sheets
Amounts not
nettable on the
Consolidated
balance sheets(b)
Net amounts(c)
Assets
Securities purchased under resale agreements
Securities borrowed
Liabilities
Securities sold under repurchase agreements
Securities loaned and other(a)
$
$
691,116 $
(369,612) $
321,504 $
(308,854) $
132,955
(20,960)
111,995
(79,747)
12,650
32,248
541,587 $
(369,612) $
171,975 $
(149,125) $
22,850
33,700
(20,960)
12,740
(12,358)
382
(a) Includes securities-for-securities lending agreements of $3.7 billion and $3.3 billion at December 31, 2019 and 2018, respectively, accounted for at fair
value, where the Firm is acting as lender. In the Consolidated balance sheets, the Firm recognizes the securities received at fair value within other assets
and the obligation to return those securities within accounts payable and other liabilities.
(b) In some cases, collateral exchanged with a counterparty exceeds the net asset or liability balance with that counterparty. In such cases, the amounts
reported in this column are limited to the related net asset or liability with that counterparty.
(c) 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, 2019 and 2018, included $11.0 billion and $7.9 billion, respectively, of securities
purchased under resale agreements; $31.9 billion and $30.3 billion, respectively, of securities borrowed; $22.7 billion and $21.5 billion, respectively, of
securities sold under repurchase agreements; and $7 million and $25 million, respectively, of securities loaned and other.
JPMorgan Chase & Co./2019 Form 10-K
215
Notes to consolidated financial statements
The tables below present as of December 31, 2019 and 2018 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:
Gross liability balance
2019
2018
Securities sold
under repurchase
agreements
Securities loaned
and other
Securities sold
under repurchase
agreements
Securities loaned
and other
U.S. GSEs and government agencies
$
34,119
$
Residential - nonagency
Commercial - nonagency
U.S. Treasury, GSEs and government agencies
Obligations of U.S. states and municipalities
Non-U.S. government debt
Corporate debt securities
Asset-backed securities
Equity securities
Total
1,239
1,612
334,398
1,181
145,548
13,826
1,794
21,455
$
555,172
$
—
—
—
29
—
1,528
1,580
—
33,512
36,649
$
34,311 (a) $
2,165
1,390
317,578 (a)
1,150
154,900
13,898
3,867
12,328
$
541,587
$
—
—
—
69
—
4,313
428
—
28,890
33,700
(a) The prior period amounts have been revised to conform with the current period presentation.
2019 (in millions)
Overnight and
continuous
Up to 30 days
30 – 90 days
Greater than
90 days
Total
Total securities sold under repurchase agreements
$
225,134
$
199,870
$
57,305 $
72,863 $
555,172
Total securities loaned and other
32,028
1,706
937
1,978
36,649
Remaining contractual maturity of the agreements
Remaining contractual maturity of the agreements
2018 (in millions)
Overnight and
continuous
Up to 30 days
30 – 90 days
Greater than
90 days
Total
Total securities sold under repurchase agreements
$
247,579
$
174,971
$
71,637 $
47,400 $
541,587
Total securities loaned and other
28,402
997
2,132
2,169
33,700
Transfers not qualifying for sale accounting
At December 31, 2019 and 2018, the Firm held $743 million and $2.1 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. The prior period amount has been revised to conform with the current period presentation.
216
JPMorgan Chase & Co./2019 Form 10-K
Note 12 – Loans
Loan accounting framework
The accounting for a loan depends on management’s
strategy for the loan, and on whether the loan was 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 as an adjustment of yield.
Nonaccrual loans
Nonaccrual loans are those on which the accrual of interest
has been suspended. Loans (other than credit card loans
and certain consumer loans insured by U.S. government
agencies) are placed on nonaccrual status and 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. The Firm separately establishes an allowance, which
reduces loans and is charged to interest income, for the
estimated uncollectible portion of accrued and billed
interest and fee income on credit card 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. Refer to Note 13 for further information on the
Firm’s accounting policies for the allowance for loan losses.
Charge-offs
Consumer loans, other than risk-rated business banking 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 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.
Other than in certain limited circumstances, the Firm
typically does not recognize charge-offs on government-
guaranteed loans.
JPMorgan Chase & Co./2019 Form 10-K
217
Notes to consolidated financial statements
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 generally 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 utilizes a broker’s price opinion, appraisal and/or an
automated valuation model of the home based on an
exterior-only valuation (“exterior opinions”), which is then
updated at least every twelve months, or more frequently
depending on various market factors. As soon as practicable
after the Firm receives the property in satisfaction of a debt
(e.g., by taking legal title or physical possession), the Firm
generally obtains an appraisal based on an inspection that
includes the interior of the home (“interior appraisals”).
Exterior opinions and interior appraisals are discounted
based upon the Firm’s experience with actual liquidation
values as compared with the estimated values provided 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
Loans held-for-sale 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.
Because these 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. However, loans
held-for-sale are subject to the nonaccrual policies
described above.
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. However, loans at fair value are
subject to the nonaccrual policies described above.
Refer to Note 3 for further information on the Firm’s
elections of fair value accounting under the fair value
option. Refer to Note 2 and Note 3 for further information
on loans carried at fair value and classified as trading
assets.
PCI loans
PCI loans held-for-investment are initially measured at 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. Refer to page 229 of this Note for
information on accounting for PCI loans subsequent to their
acquisition.
218
JPMorgan Chase & Co./2019 Form 10-K
Loan classification changes
Loans in the held-for-investment portfolio that management
decides to sell are transferred to the held-for-sale portfolio
at the lower of cost or fair value on the date of transfer.
Credit-related losses are charged against the allowance 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. Refer to Note 13 for a further discussion of
the methodologies used in establishing the Firm’s allowance
for loan losses.
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). Refer to Note 13 for further discussion of the
methodology used to estimate the Firm’s asset-specific
allowance.
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./2019 Form 10-K
219
Notes to consolidated financial statements
Loan portfolio
The Firm’s loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine
the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment the
Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class.
Consumer, excluding
credit card(a)
Residential real estate – excluding PCI
• Residential mortgage(b)
• Home equity(c)
Other consumer loans(d)
• Auto
• Consumer & Business Banking(e)
Residential real estate – PCI
• Home equity
• Prime mortgage
• Subprime mortgage
• Option ARMs
Credit card
Wholesale(f)
• Credit card loans
• Commercial and industrial
• Real estate
• Financial institutions
• Governments & Agencies
• Other(g)
(a) Includes loans held in CCB, scored prime mortgage and scored home equity loans held in AWM and scored prime mortgage loans held in Corporate.
(b) Predominantly includes prime loans (including option ARMs).
(c) Includes senior and junior lien home equity loans.
(d) Includes certain business banking and auto dealer risk-rated loans for which the wholesale methodology is applied 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 scored prime mortgage and scored home equity loans held in AWM and scored prime
mortgage loans held in Corporate. Classes are internally defined and may not align with regulatory definitions.
(g) Includes loans to: individuals and individual entities (predominantly consists of Wealth Management clients within AWM and includes loans to personal
investment companies and personal and testamentary trusts), SPEs and Private education and civic organizations. Refer to Note 14 for more information
on SPEs.
The following tables summarize the Firm’s loan balances by portfolio segment.
December 31, 2019
(in millions)
Retained
Held-for-sale
At fair value
Total
December 31, 2018
(in millions)
Retained
Held-for-sale
At fair value
Total
Consumer, excluding
credit card
$ 332,038
3,002
—
Credit card(a)
$
168,924
Wholesale
Total
$ 444,639
$
945,601 (b)
—
—
4,062
7,104
7,064
7,104
$ 335,040
$
168,924
$ 455,805
$
959,769
Consumer, excluding
credit card
$ 373,637
Credit card(a)
$
156,616
Wholesale
Total
$ 439,162
$
969,415 (b)
95
—
16
—
11,877
3,151
11,988
3,151
$ 373,732
$
156,632
$ 454,190
$
984,554
(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, 2019 and 2018.
220
JPMorgan Chase & Co./2019 Form 10-K
The following tables provide information about the carrying value of retained loans purchased, sold and reclassified to held-
for-sale during the periods indicated. Reclassifications of loans to held-for sale are non-cash transactions. The Firm manages its
exposure to credit risk on an ongoing basis. Selling loans is one way that the Firm reduces its credit exposures. Loans that were
reclassified to held-for-sale and sold in a subsequent period are excluded from the sales line of this table.
Year ended December 31,
(in millions)
Purchases
Sales
Retained loans reclassified to held-for-sale
Consumer, excluding
credit card
$
1,282 (a)(b)
$
30,484
9,188
Credit card
Wholesale
—
—
—
$
1,291
23,435
2,371
Total
$
2,573
53,919
11,559
2019
Year ended December 31,
(in millions)
Purchases
Sales
Retained loans reclassified to held-for-sale
Consumer, excluding
credit card
$
2,543 (a)(b)
$
9,984
36
Year ended December 31,
(in millions)
Purchases
Sales
Retained loans reclassified to held-for-sale
Consumer, excluding
credit card
Credit card
$
3,461 (a)(b)
$
3,405
6,340
(c)
2018
Credit card
Wholesale
Total
2017
—
—
—
—
—
—
$
$
2,354
16,741
2,276
Wholesale
1,799
11,063
1,229
$
$
4,897
26,725
2,312
Total
5,260
14,468
7,569
(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 $16.6 billion, $18.6 billion and $23.5 billion for the years ended December 31, 2019, 2018 and 2017, respectively.
(c) Includes the Firm’s student loan portfolio which was sold in 2017.
Gains and losses on sales of loans
Net gains on sales of loans (including adjustments to record loans held-for-sale at the lower of cost or fair value) recognized in
noninterest revenue was $394 million for the year ended December 31, 2019. Gains and losses on sales of loans were not
material for the years ended December 31, 2018 and 2017. In addition, the sale of loans may also result in write downs,
recoveries or changes in the allowance recognized in the provision for credit losses.
JPMorgan Chase & Co./2019 Form 10-K
221
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 and consumer and business
banking 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 following table provides information about retained
consumer loans, excluding credit card, by class.
December 31, (in millions)
2019
2018
Residential real estate – excluding PCI
Residential mortgage
Home equity
Other consumer loans
Auto
Consumer & Business Banking
Residential real estate – PCI
Home equity
Prime mortgage
Subprime mortgage
Option ARMs
Total retained loans
$ 199,037 $ 231,078
23,917
28,340
61,522
27,199
63,573
26,612
7,377
3,965
1,740
7,281
8,963
4,690
1,945
8,436
$ 332,038 $ 373,637
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 internal risk ratings that are 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. Refer to page 234 of this Note for further
information about risk-rated wholesale loan credit
quality indicators.
222
JPMorgan Chase & Co./2019 Form 10-K
Residential real estate — excluding PCI loans
The following table provides information by class for retained residential real estate — excluding PCI loans.
Residential real estate – excluding PCI loans
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(f)
California
New York
Illinois
Texas
Florida
Washington
Colorado
New Jersey
Massachusetts
Arizona
All other(g)
Residential mortgage
Home equity
Total residential real
estate – excluding PCI
2019
2018
2019
2018
2019
2018
$ 198,024
$ 225,899
$ 23,385
$ 27,611
$ 221,409
$ 253,510
604
409
2,763
2,416
336
196
453
276
940
605
3,216
2,692
$ 199,037
$ 231,078
$ 23,917
$ 28,340
$ 222,954
$ 259,418
0.49%
0.48%
2.22%
2.57%
0.67%
0.71%
$
38
$
2,541
1,618
1,765
—
1,162
—
1,323
$
38
$
2,541
2,780
3,088
$
$
18
8
31
35
$
25
13
37
53
5,013
207
3,977
281
4
1
56
19
606
191
$
$
6
1
111
38
986
326
$
22
9
87
54
31
14
148
91
5,619
398
4,963
607
186,972
212,505
6,001
689
63
6,457
813
6,917
19,597
2,776
667
—
22,632
3,355
885
—
206,569
235,137
8,777
1,356
63
9,812
1,698
6,917
$ 199,037
$ 231,078
$ 23,917
$ 28,340
$ 222,954
$ 259,418
$ 66,278
$ 74,759
$
4,831
$
5,695
$ 71,109
$ 80,454
25,706
13,204
12,601
10,454
7,708
7,777
5,792
5,596
3,929
28,847
15,249
13,769
10,704
8,304
8,140
7,302
6,574
4,434
39,992
52,996
4,885
1,788
1,599
1,325
720
444
1,394
202
932
5,797
5,769
2,131
1,819
1,575
869
521
1,642
236
1,158
6,925
30,591
14,992
14,200
11,779
8,428
8,221
7,186
5,798
4,861
34,616
17,380
15,588
12,279
9,173
8,661
8,944
6,810
5,592
45,789
59,921
Total retained loans
$ 199,037
$ 231,078
$ 23,917
$ 28,340
$ 222,954
$ 259,418
(a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $17 million and $2.8 billion; 30–149
days past due included $20 million and $2.1 billion; and 150 or more days past due included $26 million and $2.0 billion at December 31, 2019 and 2018,
respectively.
(b) At December 31, 2019 and 2018, residential mortgage loans excluded mortgage loans insured by U.S. government agencies of $46 million and $4.1 billion,
respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee.
(c) These balances are 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, 2019 and 2018, these balances
included $34 million and $999 million, 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, 2019 and 2018.
(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) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2019.
(g) At December 31, 2019 and 2018, included mortgage loans insured by U.S. government agencies of $63 million and $6.9 billion, respectively. These amounts have
been excluded from the geographic regions presented based upon the government guarantee.
JPMorgan Chase & Co./2019 Form 10-K
223
Notes to consolidated financial statements
Approximately 37% of the home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANs or
HELOCs. The following table provides the Firm’s delinquency statistics for junior lien home equity loans and lines as of
December 31, 2019 and 2018.
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
2019
2018
2019
2018
$
$
5,488 $
8,724
754
14,966 $
5,608
11,286
1,030
17,924
0.35%
2.48
2.52
1.70%
0.25%
2.80
2.82
2.00%
(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 provides information about the Firm’s residential real estate impaired loans, excluding PCI loans. These loans
are considered to be impaired as they have been modified in a TDR. All impaired loans are evaluated for an asset-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
2019
2018
2019
2018
2019
2018
$
$
$
2,851 $
1,154
4,005 $
52 $
5,438
1,367
$
$
$
3,381
1,184
4,565
88
6,207
1,459
1,042 $
879
1,921 $
13 $
3,301
965
$
$
$
1,151
907
2,058
45
3,531
963
3,893 $
2,033
5,926 $
65 $
8,739
2,332
4,532
2,091
6,623
133
9,738
2,422
(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, 2019, Chapter 7
residential real estate loans included approximately 9% of residential mortgages and approximately 7% of home equity that were 30 days or more past
due.
(b) At December 31, 2019 and 2018, $14 million and $4.1 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 impaired loans in the table above are in the U.S.
(d) Represents the contractual amount of principal owed at December 31, 2019 and 2018. 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, 2019 and 2018, nonaccrual loans included $1.9 billion and $2.0 billion, respectively, of TDRs for which the borrowers were less than
90 days past due. Refer to the Loan accounting framework on pages 217–219 of this Note for additional information about loans modified in a TDR that
are on nonaccrual status.
224
JPMorgan Chase & Co./2019 Form 10-K
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)
2019
2018
2017
2019
2018
2017
2019
2018
2017
$
$
4,307 $
5,082 $
5,797
2,007
2,123
2,222
6,314 $
7,205 $
8,019
$
$
224 $
257 $
132
131
356 $
388 $
287
127
414
$
$
68 $
75 $
83
84
75
80
151 $
159 $
155
(a) Generally, interest income on loans modified in TDRs is recognized on a cash basis until the borrower has made a minimum of six payments under the 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
$
490 $
736 $
2019
2018
2017
$
234 $
401 $
256
335
373
383
756
Nature and extent of modifications
The Firm’s proprietary modification programs as well as government programs, including U.S. GSEs, 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,
2019
2018
2017
2019
2018
2017
2019
2018
2017
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)
2,105
1,448
2,570
2,907
1,283
2,628
3,767
3,470
4,605
(c)
5,765
(c)
5,872
7,175
(c)
7,048
(c)
4,946
5,624
4,918
7,853
8,252
66%
40%
63%
90
26
6
45
55
44
8
38
72
15
16
33
81%
64
7
5
70
62%
59%
77%
54%
60%
66
20
7
58
69
10
13
31
71
13
5
63
62
29
7
51
70
12
14
32
(a) Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages
exceeds 100% because predominantly all of the modifications include more than one type of concession. Concessions offered on trial modifications are
generally consistent with those granted on permanent modifications.
(b) Includes variable interest rate to fixed interest rate modifications for the years ended December 31, 2019, 2018 and 2017. Also includes forbearances
that meet the definition of a TDR for the years ended December 31, 2019 and 2018. Forbearances suspend or reduce monthly payments for a specific
period of time to address a temporary hardship.
(c) The prior period amounts have been revised to conform with the current period presentation. This revision also impacted home equity impaired loans and
new TDRs in this note, as well as loans by impairment methodology in Note 13.
JPMorgan Chase & Co./2019 Form 10-K
225
Year ended
December 31,
(in millions, except weighted-average data)
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 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
2019
2018
2017
2019
2018
2017
2019
2018
2017
5.88%
5.65%
5.15%
5.53%
5.39%
4.94%
5.68%
5.50%
5.06%
4.21
3.80
2.99
3.53
3.46
2.64
3.81
3.60
2.83
21
39
1
15
4
$
24
38
1
21
10
$
24
38
2
12
20
$
19
40
$
— $
4
3
19
39
1
9
7
$
21
39
1
10
13
56
20
39
1
19
7
$
21
38
$
2
$
30
17
23
38
3
22
33
$
166
$
161
$
180
Balance of loans that redefaulted within one
year of permanent modification(a)
$
107
$
97
$
124
$
59
$
64
$
(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, 2019, the weighted-average estimated
remaining lives of residential real estate loans, excluding
PCI loans, permanently modified in TDRs were 9 years for
residential mortgage and 8 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, 2019 and 2018, the Firm had non-PCI
residential real estate loans, excluding those insured by U.S.
government agencies, with a carrying value of $529 million
and $653 million, respectively, that were not included in
REO, but were in the process of active or suspended
foreclosure.
226
JPMorgan Chase & Co./2019 Form 10-K
Other consumer loans
The table below provides information for other consumer retained loan classes, including auto and business banking loans.
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(b)
California
Texas
New York
Illinois
Florida
Arizona
Ohio
New Jersey
Michigan
Louisiana
All other
Total retained loans
Loans by risk ratings(c)
Noncriticized
Criticized performing
Criticized nonaccrual
Auto
Consumer &
Business Banking
Total other consumer
2019
2018
2019
2018
2019
2018
$ 60,944
$ 62,984
$ 26,842
$ 26,249
$ 87,786
$ 89,233
578
—
589
—
240
117
252
111
818
117
841
111
$ 61,522
$ 63,573
$ 27,199
$ 26,612
$ 88,721
$ 90,185
0.94%
113
0.93%
128
1.31%
247
1.36%
245
1.05%
360
1.06%
373
$
8,081
$
6,804
3,639
3,360
3,262
2,024
1,986
1,905
1,215
1,617
8,330
6,531
3,863
3,716
3,256
2,084
1,973
1,981
1,357
1,587
27,629
28,895
$
5,902
$
3,110
4,432
1,745
1,609
1,276
1,139
798
1,253
741
5,194
5,520
2,993
4,381
2,046
1,502
1,491
1,305
723
1,329
860
4,462
$ 13,983
$ 13,850
9,914
8,071
5,105
4,871
3,300
3,125
2,703
2,468
2,358
9,524
8,244
5,762
4,758
3,575
3,278
2,704
2,686
2,447
32,823
33,357
$ 61,522
$ 63,573
$ 27,199
$ 26,612
$ 88,721
$ 90,185
$ 14,178
$ 15,749
$ 19,156
$ 18,743
$ 33,334
$ 34,492
360
—
273
—
727
198
751
191
1,087
198
1,024
191
(a) There were no loans that were 90 or more days past due and still accruing interest at December 31, 2019 and December 31, 2018.
(b) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2019.
(c) For risk-rated business banking and auto loans, the primary credit quality indicator is the internal risk rating of the loan, including whether the loans are
considered to be criticized and/or nonaccrual.
JPMorgan Chase & Co./2019 Form 10-K
227
Notes to consolidated financial statements
Other consumer impaired loans and loan modifications
The following table provides information about the Firm’s other consumer impaired loans, including risk-rated business
banking and auto loans that have been placed on nonaccrual status, and loans that have been modified in TDRs.
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. At
December 31, 2019 and 2018, other consumer loans
modified in TDRs were $76 million and $79 million,
respectively. The impact of these modifications, as well as
new TDRs, were not material to the Firm for the years
ended December 31, 2019, 2018 and 2017. Additional
commitments to lend to borrowers whose loans have been
modified in TDRs as of December 31, 2019 and 2018 were
not material. TDRs on nonaccrual status were $54 million
and $57 million at December 31, 2019 and 2018,
respectively.
December 31, (in millions)
2019
2018
Impaired loans
With an allowance
$
227 $
222
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
19
29
246 $
251
71 $
342
224
63
355
229
(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 $246 million, $275
million and $427 million for the years ended December 31, 2019,
2018 and 2017, respectively. The related interest income on impaired
loans, including those on a cash basis, was not material for the years
ended December 31, 2019, 2018 and 2017.
(d) Represents the contractual amount of principal owed at December 31,
2019 and 2018. 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.
228
JPMorgan Chase & Co./2019 Form 10-K
Since the timing and amounts of expected cash flows for the
Firm’s PCI consumer loan pools are reasonably estimable,
interest is being accreted and the loan pools are being
reported as performing loans. No interest would be
accreted and the PCI loan pools would be reported as
nonaccrual loans if the timing and/or amounts of expected
cash flows on the loan pools were determined not to be
reasonably estimable.
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 principal 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.
Purchased credit-impaired loans
PCI loans are initially recorded at fair value at acquisition.
PCI loans acquired in the same fiscal quarter may be
aggregated into one or more pools, provided that the loans
have common risk characteristics. A pool is then accounted
for as a single asset with a single composite interest rate
and an aggregate expectation of cash flows. All of the Firm’s
residential real estate PCI loans were acquired in the same
fiscal quarter and aggregated into pools of loans with
common risk characteristics.
On a quarterly basis, the Firm estimates the total cash flows
(both principal and interest) expected to be collected over
the remaining life of each pool. These estimates incorporate
assumptions regarding default rates, loss severities, 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./2019 Form 10-K
229
Notes to consolidated financial statements
Residential real estate – PCI loans
The table below provides information about the Firm’s consumer, excluding credit card, PCI loans.
December 31,
(in millions, except ratios)
Carrying value(a)
Home equity
Prime mortgage
Subprime mortgage
Option ARMs
Total PCI
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
$ 7,377
$ 8,963
$ 3,965
$ 4,690
$ 1,740
$ 1,945
$ 7,281
$ 8,436
$ 20,363
$ 24,034
Loan delinquency (based on unpaid principal balance)
Current
30–149 days past due
150 or more days past due
Total loans
$ 7,203
$ 8,624
$ 3,593
$ 4,226
$ 1,864
$ 2,033
$ 6,606
$ 7,592
$ 19,266
$ 22,475
217
148
278
242
219
172
259
223
230
101
286
123
356
333
398
457
1,022
754
1,221
1,045
$ 7,568
$ 9,144
$ 3,984
$ 4,708
$ 2,195
$ 2,442
$ 7,295
$ 8,447
$ 21,042
$ 24,741
% of 30+ days past due to total loans
4.82%
5.69%
9.81% 10.24%
15.08% 16.75%
9.44% 10.12%
8.44%
9.16%
Current estimated LTV ratios (based on unpaid principal balance)(b)(c)
Greater than 125% and refreshed FICO scores:
Equal to or greater than 660
$
12
$
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
$
17
13
135
65
805
388
2
6
3
17
47
65
9
86
39
588
261
4,803
1,562
208
5,548
1,908
265
2,429
1,250
165
$
1
7
6
22
75
112
2,689
1,568
228
$
$
$
—
7
6
20
—
9
4
35
$
1
7
14
18
3
7
17
33
47
100
784
1,136
95
54
161
739
1,327
113
85
113
4,710
2,093
254
119
190
5,111
2,622
345
$
$
15
29
109
94
767
539
21
36
162
155
1,053
851
12,726
14,087
6,041
722
7,425
951
Total unpaid principal balance
$ 7,568
$ 9,144
$ 3,984
$ 4,708
$ 2,195
$ 2,442
$ 7,295
$ 8,447
$ 21,042
$ 24,741
Geographic region (based on unpaid principal balance)(d)
California
Florida
New York
Illinois
Washington
New Jersey
Massachusetts
Maryland
Virginia
Arizona
All other
$ 4,475
$ 5,420
$ 2,166
$ 2,578
$
833
451
200
326
174
53
40
44
130
842
976
525
233
419
210
65
48
54
165
1,029
288
324
134
80
112
97
86
77
57
332
365
154
98
134
113
95
91
69
$
531
212
245
113
37
78
67
87
33
37
593
234
268
123
44
88
73
96
37
43
$ 4,189
$ 4,798
$ 11,361
$ 13,389
604
441
175
143
219
206
157
180
93
888
713
502
199
177
258
240
178
211
112
1,937
1,461
2,255
1,660
622
586
583
423
370
334
317
709
738
690
491
417
393
389
1,059
3,048
3,610
563
679
755
843
Total unpaid principal balance
$ 7,568
$ 9,144
$ 3,984
$ 4,708
$ 2,195
$ 2,442
$ 7,295
$ 8,447
$ 21,042
$ 24,741
(a) Carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition.
(b) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at 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.
(c) Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(d) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2019.
230
JPMorgan Chase & Co./2019 Form 10-K
Approximately 27% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANs or
HELOCs. The following table provides delinquency statistics for PCI junior lien home equity loans and lines of credit based on
the unpaid principal balance as of December 31, 2019 and 2018.
December 31,
(in millions, except ratios)
HELOCs:(a)(b)
HELOANs
Total
Total loans
Total 30+ day delinquency rate
2019
2018
2019
2018
$
$
5,337 $
220
5,557 $
6,531
280
6,811
3.52%
3.64
3.53%
4.00%
3.57
3.98%
(a) In general, these HELOCs are revolving loans for a 10-year period, after which time the HELOC converts to an interest-only loan with a balloon payment at
the end of the loan’s term. Substantially all HELOCs are beyond the revolving period.
(b) Includes loans modified into fixed rate amortizing loans.
The table below presents the accretable yield activity for the Firm’s PCI consumer loans for the years ended December 31,
2019, 2018 and 2017, 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)
Balance at December 31
Accretable yield percentage
2019
8,422
(1,093)
(575)
(589)
Total PCI
2018
$
11,159
$
(1,249)
(109)
(1,379)
2017
11,768
(1,396)
503
284
6,165
$
8,422
$
11,159
5.28%
4.92%
4.53%
$
$
(a) Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model, for example cash flows expected
to be collected due to the impact of modifications and changes in prepayment assumptions.
Active and suspended foreclosure
At December 31, 2019 and 2018, the Firm had PCI residential real estate loans with an unpaid principal balance of
$721 million and $964 million, respectively, that were not included in REO, but were in the process of active or suspended
foreclosure.
JPMorgan Chase & Co./2019 Form 10-K
231
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 the credit
score calculation.
The table below provides information about the Firm’s
credit card loans.
As of or for the year ended December 31,
(in millions, except ratios)
Net charge-offs
Net charge-off rate
Loan delinquency
2019
2018
$
4,848
$
4,518
3.10%
3.10%
Current and less than 30 days past due
and still accruing
$ 165,767
$ 153,746
30–89 days past due and still accruing
1,550
1,426
90 or more days past due and still accruing
Total retained loans
1,607
$ 168,924
1,444
$ 156,616
Loan delinquency ratios
% of 30+ days past due to total retained loans
% of 90+ days past due to total retained loans
1.87%
0.95
1.83%
0.92
Geographic region(a)
California
Texas
New York
Florida
Illinois
New Jersey
Ohio
Pennsylvania
Colorado
Michigan
All other
$ 25,783
16,728
14,544
10,830
9,579
7,165
5,406
5,245
4,763
4,164
64,717
$ 23,757
15,085
13,601
9,770
8,938
6,739
5,094
4,996
4,309
3,912
60,415
Total retained loans
$ 168,924
$ 156,616
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%
15.4
0.6
84.2%
15.0
0.8
(a) The geographic regions presented in the table are ordered based on
the magnitude of the corresponding loan balances at December 31,
2019.
232
JPMorgan Chase & Co./2019 Form 10-K
Credit card impaired loans and loan modifications
The table below provides information about the Firm’s
impaired credit card loans. All of these loans are considered
to be impaired as they have been modified in TDRs.
December 31, (in millions)
2019
2018
Impaired credit card loans with an
allowance(a)(b)(c)
Allowance for loan losses related to
impaired credit card loans
$
1,452 $
1,319
477
440
(a) The carrying value and the unpaid principal balance are the same for
credit card impaired loans.
(b) There were no impaired loans without an allowance.
(c) Predominantly all impaired credit card loans are in the U.S.
The following table presents average balances of impaired
credit card loans and interest income recognized on those
loans.
Year ended December 31,
(in millions)
2019
2018
2017
Average impaired credit card loans
$ 1,389 $ 1,260 $ 1,214
Interest income on
impaired credit card loans
72
65
59
Loan modifications
The Firm may offer one of a number of loan modification
programs to credit card borrowers who are experiencing
financial difficulty. Most of the credit card loans have been
modified under long-term programs for borrowers who are
experiencing financial difficulties. These modifications
involve placing the customer on a fixed payment plan,
generally for 60 months, and typically include reducing the
interest rate on the credit card. Substantially all
modifications are considered to be TDRs.
If the cardholder does not comply with the modified
payment terms, then the credit card loan 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, 2019, 2018 and 2017, were
$961 million, $866 million and $756 million, respectively.
For all periods disclosed, new enrollments were less than
1% of total retained credit card loans.
Financial effects of modifications and redefaults
The following table provides information about the financial
effects of the concessions granted on credit card loans
modified in TDRs and redefaults for the periods presented.
Year ended December 31,
(in millions, except
weighted-average data)
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)
2019
2018
2017
19.07%
17.98%
16.58%
4.70
5.16
4.88
$
148
$
116
$
93
(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, payment default is
deemed to have occurred when the borrower misses two
consecutive contractual payments. 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 32.89%, 33.38% and 31.54% as of December 31,
2019, 2018 and 2017, respectively.
JPMorgan Chase & Co./2019 Form 10-K
233
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. Refer
to 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 internal 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 internal 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 internal risk ratings generally align with the
qualitative characteristics (e.g., borrower capacity to meet
financial commitments and vulnerability to changes in the
economic environment) defined by S&P and Moody’s,
however the quantitative characteristics (e.g., PDs and
LGDs) may differ as they reflect internal historical
experiences and assumptions. The Firm considers internal
ratings equivalent to BBB-/Baa3 or higher as investment
grade, and these ratings have a lower PD and/or lower LGD
than non-investment grade ratings.
Noninvestment-grade ratings are further classified as
noncriticized and criticized, 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 PD
than noncriticized loans. The Firm’s definition of criticized
aligns with the U.S. banking regulatory definition of
criticized exposures, which consist of special mention,
substandard and doubtful categories.
234
JPMorgan Chase & Co./2019 Form 10-K
The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment. Refer to
Note 4 for additional information on industry concentrations.
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 criticized
nonaccrual 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
Governments &
Agencies
Other(d)
Total
retained loans
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
$ 60,700
$ 73,497
$ 101,354
$100,107
$ 40,263
$ 32,178
$ 12,616
$ 13,984
$129,266
$119,963
$ 344,199
$ 339,729
51,356
51,720
13,841
14,876
15,768
15,316
126
201
12,411
11,478
93,502
93,591
4,071
3,738
1,001
752
851
48
620
134
574
150
3
4
—
—
2
—
449
40
182
161
6,095
4,692
843
1,150
56,179
56,309
14,890
15,630
16,345
15,470
126
203
12,900
11,821
100,440
99,433
$116,879
$129,806
$ 116,244
$115,737
$ 56,608
$ 47,648
$ 12,742
$ 14,187
$142,166
$131,784
$ 444,639
$ 439,162
4.13%
3.54%
0.90%
0.65%
1.02%
0.32%
—%
0.01%
0.34%
0.26%
1.56%
1.33%
0.64
0.66
0.04
0.12
0.01
0.01
—
—
0.03
0.12
0.19
0.26
$ 28,253
88,626
$ 29,572
100,234
$
4,123
112,121
$
2,967
112,770
$ 16,800
39,808
$ 18,524
29,124
$ 2,232
10,510
$ 3,150
11,037
$ 49,966
92,200
$ 48,433
83,351
$ 101,374
343,265
$ 102,646
336,516
$116,879
$129,806
$ 116,244
$115,737
$ 56,608
$ 47,648
$ 12,742
$ 14,187
$142,166
$131,784
$ 444,639
$ 439,162
$
329
$
165
$
12
$
(20)
$
—
$
—
$
—
$
—
$
28
$
10
$
369
$
155
0.28%
0.13%
0.01%
(0.02)%
—%
—%
—%
—%
0.02%
0.01%
0.08%
0.04%
$115,753
$128,678
$ 116,098
$115,533
$ 56,583
$ 47,622
$ 12,713
$ 14,165
$141,739
$130,918
$ 442,886
$ 436,916
339
109
35
752
168
851
94
4
48
67
3
134
20
2
3
12
10
4
28
18
387
702
868
908
1
—
4
—
—
40
3
161
42
188
843
1,150
$116,879
$129,806
$ 116,244
$115,737
$ 56,608
$ 47,648
$ 12,742
$ 14,187
$142,166
$131,784
$ 444,639
$ 439,162
(a) The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
(b) The credit quality of wholesale loans is assessed primarily through ongoing review and monitoring of an obligor’s ability to meet contractual obligations
rather than relying on the past due status, which is generally a lagging indicator of credit quality.
(c) Represents loans that are considered well-collateralized and therefore still accruing interest.
(d) Other includes individuals and individual entities (predominantly consists of Wealth Management clients within AWM and includes loans to personal
investment companies and personal and testamentary trusts), SPEs and Private education and civic organizations. Refer to Note 14 for more information
on SPEs.
JPMorgan Chase & Co./2019 Form 10-K
235
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, which 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 loans 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 loans to REITs. Included in real estate loans is $8.2 billion and
$10.5 billion as of December 31, 2019 and 2018, respectively, of construction and development 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 total criticized to total real estate retained loans
Multifamily
Other Commercial
Total real estate loans
2019
2018
2019
2018
2019
2018
$
79,402
$
79,184
$
36,842
$
36,553
$ 116,244
$ 115,737
407
0.51%
388
0.49%
642
1.74%
366
1.00%
1,049
0.90%
754
0.65%
Criticized nonaccrual
$
38
$
57
$
10
$
77
$
48
$
134
% of criticized nonaccrual loans to total real estate retained loans
0.05%
0.07%
0.03%
0.21%
0.04%
0.12%
Wholesale impaired retained loans and loan modifications
Wholesale impaired retained loans consist of loans that have been placed on nonaccrual status and/or that have been modified
in a TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 13.
The table below sets forth information about the Firm’s wholesale impaired retained loans.
December 31,
(in millions)
Impaired loans
With an allowance
Without an allowance(a)
Total impaired loans
Allowance for loan losses related
to impaired loans
Unpaid principal balance of
impaired loans(b)
Commercial
and industrial
Real estate
Financial
institutions
Other
Total
retained loans
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
$
$
$
637 $
177
814 $
807
140
947
221 $
252
$
$
$
49 $
—
49 $
107
27
134
9 $
25
$
$
$
974
1,043
72
203
3 $
—
3 $
1 $
4
$
$
$
4
—
4
1
4
42 $
4
46 $
152
13
165
3 $
19
$
$
$
731
181
$
1,070
180
912 (c) $
1,250 (c)
234
$
297
54
473
1,104
1,723
(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, 2019 and 2018. 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.
(c) Based upon the domicile of the borrower, largely consists of loans in the U.S.
The following table presents the Firm’s average impaired
retained loans for the years ended 2019, 2018 and 2017.
Year ended December 31, (in millions)
2019
2018
2017
Commercial and industrial
$
1,086 $
1,027 $
1,256
Real estate
Financial institutions
Other
Total(a)
94
11
168
133
57
199
165
48
241
$
1,359 $
1,416 $
1,710
(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, 2019, 2018 and 2017.
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 $460 million
and $576 million as of December 31, 2019 and 2018,
respectively. The impact of these modifications, as well as
new TDRs, were not material to the Firm for the years
ended December 31, 2019, 2018 and 2017.
236
JPMorgan Chase & Co./2019 Form 10-K
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.
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.
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. As of December 31, 2019,
JPMorgan Chase deemed the allowance for credit losses to
be appropriate and sufficient to absorb probable credit
losses inherent in the portfolio.
Formula-based component
The formula-based component is based on a statistical
calculation to provide for incurred credit losses in all
consumer loans and performing risk-rated loans. All loans
restructured in TDRs as well as any impaired risk-rated
loans have an allowance assessed as part of the asset-
specific component, while PCI loans have an allowance
assessed as part of the PCI component. Refer to 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
JPMorgan Chase & Co./2019 Form 10-K
237
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
the funded versus unfunded status of the instrument and
may change over time.
The Firm assesses the credit quality of a borrower or
counterparty and assigns an internal 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. Refer to 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.
238
JPMorgan Chase & Co./2019 Form 10-K
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./2019 Form 10-K
239
Notes to consolidated financial statements
Allowance for credit losses and related information
The table below summarizes information about the allowances for loan losses and lending-relating commitments, and includes
a breakdown of loans and lending-related commitments by impairment methodology.
(Table continued on next page)
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
Consumer,
excluding
credit card
$
4,146
$
963
(551)
412
151
(383)
(1)
3,199
136
2,076
987
3,199
6,172
305,503
20,363
332,038
57
2,059
33
—
—
33
—
33
33
—
51,412
51,412
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2019
Credit card
Wholesale
Total
$
4,115
$
13,445
5,683
$
4,241
5,184
5,436
(588)
4,848
—
5,348
(1)
477 (c) $
5,206
—
5,683
1,452
167,472
—
168,924
—
—
—
—
—
—
—
—
—
—
650,720
650,720
$
$
$
$
$
$
$
$
$
$
411
(42)
369
—
484
11
234
4,007
—
4,241
912
443,727
—
444,639
25
81
6,810
(1,181)
5,629
151
5,449
9
13,123
847
11,289
987
13,123
8,536
916,702
20,363
945,601
82
2,140
$
$
$
$
$
$
1,022
$
1,055
136
—
1,158
102
1,056
1,158
474
$
$
$
$
136
—
1,191
102
1,089
1,191
474
403,641
1,105,773
404,115
$ 1,106,247
(a) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as
purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool.
(b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
(c) The asset-specific credit card allowance for loan losses is related to loans that have been modified in a TDR; such allowance is calculated based on the
loans’ original contractual interest rates and does not consider any incremental penalty rates.
240
JPMorgan Chase & Co./2019 Form 10-K
(table continued from previous page)
2018
2017
Consumer,
excluding
credit card
Credit card
Wholesale
Total
Consumer,
excluding
credit card
Credit card
Wholesale
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
4,579
1,025
(842)
183
187
(63)
—
4,146
196
2,162
1,788
4,146
6,874
342,729
24,034
373,637
24
2,080
33
—
—
33
—
33
33
—
46,066
46,066
$
$
$
$
$
$
$
$
$
$
$
$
$
440 (c) $
297
$
383 (c) $
461
$
4,884
5,011
(493)
4,518
—
4,818
—
$
4,141
$
13,604
$
313
(158)
155
—
130
(1)
6,349
(1,493)
4,856
187
4,885
(1)
5,184
$
4,115
$
13,445
4,744
—
5,184
1,319
155,297
—
156,616
—
—
—
—
—
—
—
—
—
—
605,379
605,379
3,818
—
933
10,724
1,788
$
$
$
$
$
$
$
$
$
$
4,115
$
13,445
1,250
$
9,443
437,909
3
935,935
24,037
439,162
$
969,415
21
$
202
45
2,282
1,035
$
1,068
(14)
1
(14)
1
1,022
$
1,055
99
$
923
99
956
1,022
$
1,055
469
$
469
387,344
1,038,789
387,813
$ 1,039,258
5,198
1,779
(634)
1,145
86
613
(1)
4,579
246
2,108
2,225
4,579
8,078
333,899
30,576
372,553
64
2,133
26
7
—
33
—
33
33
—
48,553
48,553
$
$
$
$
$
$
$
$
$
$
$
$
$
4,034
4,521
(398)
4,123
—
4,973
—
$
4,544
$
13,776
212
(93)
119
—
(286)
2
6,512
(1,125)
5,387
86
5,300
1
4,884
$
4,141
$
13,604
4,501
—
4,884
1,215
148,172
—
149,387
—
—
—
—
—
—
—
—
—
—
572,831
572,831
3,680
—
1,090
10,289
2,225
$
$
$
$
$
$
$
$
$
$
4,141
$
13,604
1,867
$
11,160
401,028
3
883,099
30,579
402,898
$
924,838
31
$
233
95
2,366
1,052
$
1,078
(17)
—
(10)
—
1,035
$
1,068
$
187
848
187
881
1,035
$
1,068
731
$
731
369,367
990,751
370,098
$
991,482
$
$
$
$
$
$
$
$
$
$
$
$
JPMorgan Chase & Co./2019 Form 10-K
241
Notes to consolidated financial statements
Note 14 – Variable interest entities
Refer to Note 1 on page 151 for a further description of JPMorgan Chase’s accounting policies regarding consolidation of VIEs.
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
2019 Form 10-K
page references
242–243
243–245
243–245
245
245–246
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. Refer to Note 10 for further information on the
Firm’s investment securities portfolio.
In addition, CIB also invests in and provides financing and other services to VIEs sponsored by third parties. Refer to page 247
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 may securitize 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,
2019 and 2018, the Firm held undivided interests in Firm-
sponsored credit card securitization trusts of $5.3 billion
and $15.1 billion, respectively. The Firm maintained an
average undivided interest in principal receivables owned
by those trusts of approximately 50% and 37% for the
years ended December 31, 2019 and 2018. The Firm did
242
JPMorgan Chase & Co./2019 Form 10-K
not retain any senior securities and retained $3.0 billion of
subordinated securities in certain of its credit card
securitization trusts as of both December 31, 2019 and
2018, 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 contracts. In certain
instances, the Firm’s only continuing involvement is servicing the loans. The Firm’s maximum loss exposure from retained and
purchased interests is the carrying value of these interests. Refer to Securitization activity on page 248 of this Note for further
information regarding the Firm’s cash flows associated with and interests retained in nonconsolidated VIEs, and pages 248–
249 of this Note for information on the Firm’s loan sales and securitization activity related to U.S. GSEs and 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
Investment
securities
Other
financial
assets
Total
interests
held by
JPMorgan
Chase
December 31, 2019
(in millions)
Securitization-related(a)
Residential mortgage:
Prime/Alt-A and option ARMs
$
60,348 $
2,796 $
14,661
111,903
—
—
48,734
13,490
80,878
$
535 $
625 $
— $
1,160
7
785
—
773
—
241
7
1,799
$
186,912 $
2,796 $
143,102
$
1,327 $
1,398 $
241 $
2,966
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
Investment
securities
Other
financial
assets
Total
interests
held by
JPMorgan
Chase
Prime/Alt-A and option ARMs
$
63,350 $
3,237 $
$
623 $
647 $
— $
1,270
16,729
102,961
32
—
53
783
—
801
—
210
$
183,040 $
3,269 $
145,500
$
1,459 $
1,448 $
210 $
53
1,794
3,117
50,679
15,434
79,387
(a) Excludes U.S. GSEs and government agency securitizations and re-securitizations, which are not Firm-sponsored. Refer to pages 248–249 of this Note for
information on the Firm’s loan sales and securitization activity related to U.S. GSEs and government agencies.
(b) Consists of securities backed by commercial real estate loans and non-mortgage-related consumer receivables purchased from third parties.
(c) Excludes the following: retained servicing (refer to Note 15 for a discussion of MSRs); securities retained from loan sales and securitization activity related
to U.S. GSEs and government agencies; interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of
securitization entities (refer to Note 5 for further information on derivatives); senior and subordinated securities of $106 million and $94 million,
respectively, at December 31, 2019, and $87 million and $28 million, respectively, at December 31, 2018, 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, 2019 and 2018, 63% and 60%, 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 $1.1 billion and $1.3 billion of investment-grade, and $72 million and $16 million of
noninvestment-grade at December 31, 2019 and 2018, respectively. The retained interests in commercial and other securitizations trusts consisted of
$1.2 billion of investment-grade for both periods, and $575 million and $623 million of noninvestment-grade retained interests at December 31, 2019
and 2018, respectively.
JPMorgan Chase & Co./2019 Form 10-K
243
Subprime
Commercial and other(b)
Total
December 31, 2018
(in millions)
Securitization-related(a)
Residential mortgage:
Subprime
Commercial and other(b)
Total
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 U.S. GSEs and government agency
sponsored VIEs, which are backed by residential 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
U.S. GSEs and government
agencies
2019
2018
2017
25,852
15,532
12,617
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.
The Firm did not transfer any private label securities to re-
securitization VIEs during 2019, 2018 and 2017,
respectively, and retained interests in any such Firm-
sponsored VIEs as of December 31, 2019 and 2018 were
immaterial.
Additionally, the Firm may invest in beneficial interests of
third-party-sponsored 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.
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. Refer to the table on page 246 of this
Note for more information on consolidated residential
mortgage securitizations.
The Firm does not consolidate residential mortgage
securitizations (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. Refer to the table on
page 246 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. Refer to the table on page 246
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.
244
JPMorgan Chase & Co./2019 Form 10-K
The following table presents information on
nonconsolidated re-securitization VIEs.
December 31,
(in millions)
U.S. GSEs and government agencies
Nonconsolidated
re-securitization VIEs
2019
2018
Interest in VIEs
2,928
3,058
As of December 31, 2019 and 2018, the Firm did not
consolidate any U.S. GSE and government agency re-
securitization VIEs or any Firm-sponsored private-label re-
securitization VIEs.
Multi-seller conduits
Multi-seller conduit entities are separate bankruptcy
remote entities that provide secured financing,
collateralized by pools of receivables and other financial
assets, to customers of the Firm. The conduits fund 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. Refer to
page 246 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
$16.3 billion and $20.1 billion of the commercial paper
issued by the Firm-administered multi-seller conduits at
December 31, 2019 and 2018, 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
$8.9 billion and $8.0 billion at December 31, 2019 and
2018, respectively, and are reported as off-balance sheet
lending-related commitments in other unfunded
commitments to extend credit. Refer to Note 28 for more
information on off-balance sheet lending-related
commitments.
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; refer to page 247 of 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. Floaters
held by the Firm were not material during 2019 and 2018.
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
JPMorgan Chase & Co./2019 Form 10-K
245
Notes to consolidated financial statements
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.
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,
2019 and 2018.
December 31, 2019
(in millions)
VIE program type
Assets
Liabilities
Trading
assets
Loans
Other(b)
Total
assets(c)
Beneficial
interests in
VIE assets(d)
Other(e)
Total
liabilities
Firm-sponsored credit card trusts
$
— $
14,986 $
266 $
15,252
$
6,461 $
6 $
Firm-administered multi-seller conduits
Municipal bond vehicles
Mortgage securitization entities(a)
Other
1
1,903
66
663
25,183
—
2,762
—
355
4
64
192
25,539
1,907
2,892
855
9,223
1,881
276
—
36
3
130
272
6,467
9,259
1,884
406
272
Total
$
2,633 $
42,931 $
881 $
46,445
$
17,841 $
447 $
18,288
December 31, 2018
(in millions)
VIE program type
Assets
Liabilities
Trading
assets
Loans
Other(b)
Total
assets(c)
Beneficial
interests in
VIE assets(d)
Other(e)
Total
liabilities
Firm-sponsored credit card trusts
$
— $
31,760 $
491 $
32,251
$
13,404 $
12 $
13,416
Firm-administered multi-seller conduits
Municipal bond vehicles
Mortgage securitization entities(a)
Other
—
1,779
53
134
24,411
—
3,285
—
300
4
40
178
24,711
1,783
3,378
312
4,842
1,685
308
2
33
3
161
103
4,875
1,688
469
105
Total
$
1,966 $
59,456 $
1,013 $
62,435
$
20,241 $
312 $
20,553
(a) Includes residential and commercial mortgage securitizations.
(b) Includes assets classified as cash and other assets on the Consolidated balance sheets.
(c) The assets of the consolidated VIEs included in the program types above are used to settle the liabilities of those entities. The assets and liabilities include
third-party assets and liabilities of consolidated VIEs and exclude intercompany balances that eliminate in consolidation.
(d) The interest-bearing beneficial interest liabilities issued by consolidated VIEs are classified in the line item on the Consolidated balance sheets titled,
“Beneficial interests issued by consolidated variable interest entities.” The holders of these beneficial interests generally do not have recourse to the
general credit of JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $6.7 billion and $13.7 billion at
December 31, 2019 and 2018, respectively. Refer to Note 20 for additional information on interest-bearing long-term beneficial interests.
(e) Includes liabilities classified as accounts payable and other liabilities on the Consolidated balance sheets.
246
JPMorgan Chase & Co./2019 Form 10-K
Loan securitizations
The Firm has securitized and sold a variety of loans,
including residential mortgage, credit card, and commercial
mortgage. The purposes of these securitization transactions
were to satisfy investor demand and to generate liquidity
for the Firm.
For loan securitizations in which the Firm is not required 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.
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 own and operate affordable housing, energy, and other
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 $19.1
billion and $16.5 billion, of which $5.5 billion and $4.0
billion was unfunded at December 31, 2019 and 2018,
respectively. In order to reduce the risk of loss, the Firm
assesses each project and withholds varying amounts of its
capital investment until the project qualifies for tax credits.
Refer to Note 25 for further information on affordable
housing tax credits. Refer to Note 28 for more information
on off-balance sheet lending-related commitments.
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, 2019 and 2018, was
$5.5 billion and $4.8 billion, respectively. The fair value of
assets held by such VIEs at December 31, 2019 and 2018
was $8.6 billion and $7.7 billion, respectively. Refer to Note
28 for more information on off-balance sheet lending-
related commitments.
JPMorgan Chase & Co./2019 Form 10-K
247
Notes to consolidated financial statements
Securitization activity
The following table provides information related to the Firm’s securitization activities for the years ended December 31, 2019,
2018 and 2017, 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.
2019
2018
2017
Year ended December 31,
(in millions)
Principal securitized
All cash flows during the period:(a)
Proceeds received from loan sales as financial
instruments(b)(c)
Servicing fees collected(d)
Cash flows received on interests
Residential
mortgage(e)
Commercial
and other(f)
Residential
mortgage(e)
Commercial
and other(f)
Residential
mortgage(e)
Commercial
and other(f)
$
$
9,957 $
9,390
10,238 $
9,544
287
507
2
237
$
$
6,431 $
10,159
6,449 $
10,218
319
411
2
301
$
$
5,532 $
10,252
5,661 $
10,340
338
463
3
918
(a) Excludes re-securitization transactions.
(b) Predominantly includes Level 2 assets.
(c) The carrying value of the loans accounted for at fair value approximated the proceeds received upon loan sale.
(d) The prior period amounts have been revised to conform with the current period presentation.
(e) Includes prime mortgages only. Excludes loan securitization activity related to U.S. GSEs and government agencies.
(f) 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,
2019
2018
2017
Residential mortgage retained interest:
Weighted-average life (in years)
Weighted-average discount rate
4.8
7.6
4.8
7.4%
3.6%
2.9%
Commercial mortgage retained interest:
Weighted-average life (in years)
Weighted-average discount rate
6.4
5.3
7.1
4.1%
4.0%
4.4%
Loans and excess MSRs sold to U.S. government-
sponsored enterprises and loans in securitization
transactions pursuant to Ginnie Mae guidelines
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. 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. Refer to Note 28 for additional
information about the Firm’s loan sales- and securitization-
related indemnifications. Refer to Note 15 for additional
information about the impact of the Firm’s sale of certain
excess MSRs.
248
JPMorgan Chase & Co./2019 Form 10-K
The following table summarizes the activities related to
loans sold to the U.S. GSEs, and loans in securitization
transactions pursuant to Ginnie Mae guidelines.
Year ended December 31,
(in millions)
Carrying value of loans sold
Proceeds received from loan
sales as cash
Proceeds from loan sales as
securities(a)(b)
Total proceeds received from
loan sales(c)
$
$
2019
2018
2017
92,349 $
44,609 $
64,542
73 $
9 $
117
91,422
43,671
63,542
$
91,495 $
43,680 $
63,659
Gains/(losses) on loan sales(d)(e) $
499 $
(93) $
163
(a) Includes securities from U.S. GSEs and Ginnie Mae that are generally
sold shortly after receipt or retained as part of the Firm’s investment
securities portfolio.
(b) Included in level 2 assets.
(c) Excludes the value of MSRs retained upon the sale of loans.
(d) Gains/(losses) on loan sales include the value of MSRs.
(e) 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 28, 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. Refer to Note 12 for additional information.
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, 2019 and 2018. Substantially all of
these loans and real estate are insured or guaranteed by
U.S. government agencies.
December 31,
(in millions)
2019
2018
Loans repurchased or option to repurchase(a)
$
2,941 $
7,021
Real estate owned
Foreclosed government-guaranteed residential
mortgage loans(b)
41
75
198
361
(a) Predominantly all of these amounts relate to loans that have been
repurchased from Ginnie Mae loan pools.
(b) Relates to voluntary repurchases of loans, which are included in
accrued interest and accounts receivable.
Loan delinquencies and liquidation losses
The table below includes information about components of nonconsolidated securitized financial assets held in Firm-sponsored
private-label securitization entities, in which the Firm has continuing involvement, and delinquencies as of December 31, 2019
and 2018.
As of or for the year ended December 31, (in millions)
2019
2018
2019
2018
2019
2018
Securitized assets
90 days past due
Net liquidation losses(a)
Securitized loans
Residential mortgage:
Prime/ Alt-A & option ARMs
Subprime
Commercial and other
Total loans securitized
$ 48,734 $ 50,679
$
2,449 $
3,354
$
579 $
13,490
80,878
15,434
79,387
1,813
187
2,478
225
532
445
$ 143,102 $ 145,500
$
4,449 $
6,057
$
1,556 $
610
(169)
280
721
(a) Includes liquidation gains as a result of private label mortgage settlement payments during the first quarter of 2018, which were reflected as asset recoveries by
trustees.
JPMorgan Chase & Co./2019 Form 10-K
249
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)
2019
2018
2017
Consumer & Community Banking
$ 31,041 $ 30,984 $ 31,013
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
6,942
2,982
6,858
6,770
2,860
6,857
6,776
2,860
6,858
Total goodwill
$ 47,823 $ 47,471 $ 47,507
The following table presents changes in the carrying
amount of goodwill.
Year ended December 31, (in
millions)
2019
2018
2017
Balance at beginning of period
$ 47,471
$ 47,507
$ 47,288
Changes during the period from:
Business combinations(a)
Other(b)
349
3
—
(36)
199
20
Balance at December 31,
$ 47,823
$ 47,471
$ 47,507
(a) For 2019, represents goodwill associated with the acquisition of
InstaMed. This goodwill was allocated to CIB, CB and CCB. For 2017,
represents CCB goodwill in connection with an acquisition.
(b) Primarily relates to foreign currency adjustments.
Goodwill impairment testing
The Firm’s goodwill was not impaired at December 31,
2019, 2018, and 2017.
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. If the fair value is in
excess of the carrying value, then the reporting unit’s
goodwill is considered not to be 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 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 LOBs which takes into consideration a variety of factors
including capital levels of similarly rated peers and
applicable regulatory capital requirements. Proposed LOB
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 periodically and
updated as needed.
250
JPMorgan Chase & Co./2019 Form 10-K
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 Firm’s 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, 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./2019 Form 10-K
251
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, 2019, 2018 and 2017.
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)
2019
6,130
$
2018
$
6,030
$
1,384
105
(789)
700
(951)
931
315
(636)
610
(740)
2017
6,096
1,103
—
(140)
963
(797)
(893)
300
(202)
(333) (e)
153
(107)
(287)
(1,180)
4,699
(1,180)
1,639
522.0
2.0
$
$
15
24
(109)
(70)
230
6,130
230
1,778
521.0
3.0
$
$
(102)
(19)
91
(30)
(232)
6,030
(232)
1,886
555.0
4.0
$
$
(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.
(e) The decrease in projected cash flows was largely related to default servicing assumption updates.
252
JPMorgan Chase & Co./2019 Form 10-K
The following table presents the components of mortgage
fees and related income (including the impact of MSR risk
management activities) for the years ended December 31,
2019, 2018 and 2017.
Year ended December 31,
(in millions)
CCB mortgage fees and related
income
2019
2018
2017
Net production revenue
$ 1,618
$
268
$
636
Net mortgage servicing revenue:
Operating revenue:
Loan servicing revenue
1,533
1,835
2,014
The table below outlines the key economic assumptions
used to determine the fair value of the Firm’s MSRs at
December 31, 2019 and 2018, 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 (constant prepayment rate)
2019
2018
11.67%
8.78%
Impact on fair value of 10% adverse change $ (200)
$ (205)
Impact on fair value of 20% adverse change
Weighted-average option adjusted spread(a)(b)
(384)
7.93%
(397)
7.87%
Impact on fair value of 100 basis points
adverse change
$ (169)
$ (235)
Changes in MSR asset fair value
due to collection/realization of
expected cash flows
Total operating revenue
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
Total CCB mortgage fees and
related income
All other
(951)
582
(740)
(795)
Impact on fair value of 200 basis points
1,095
1,219
adverse change
(326)
(452)
(a) Includes the impact of operational risk and regulatory capital.
(b) The prior period amount has been revised to conform with the current
period presentation.
Changes in fair value based on variations 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.
(893)
300
(202)
(287)
(70)
(30)
1,015
(165)
(341)
(111)
(10)
(242)
417
984
977
2,035
1,252
1,613
1
2
3
Mortgage fees and related income
$ 2,036
$ 1,254
$ 1,616
(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./2019 Form 10-K
253
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, 2019 and 2018, noninterest-bearing and
interest-bearing deposits were as follows.
December 31, (in millions)
2019
2018
U.S. offices
Noninterest-bearing (included $22,637
and $17,204 at fair value)(a)(b)
Interest-bearing (included $2,534 and
$2,487 at fair value)(a)(b)
$ 395,667
$ 386,709
876,156
813,881
Total deposits in U.S. offices
1,271,823
1,200,590
Non-U.S. offices
Noninterest-bearing (included $1,980 and
$2,367 at fair value)(a)(b)
20,087
21,459
Interest-bearing (included $1,438 and
$1,159 at fair value)(a)(b)
Total deposits in non-U.S. offices
Total deposits
270,521
290,608
248,617
270,076
$ 1,562,431
$1,470,666
(a) Includes structured notes classified as deposits for which the fair value
option has been elected. Refer to Note 3 for further discussion.
(b) In the second quarter of 2019, the Firm reclassified balances related
to certain structured notes from interest-bearing to noninterest-
bearing deposits as the associated returns are recorded in principal
transactions revenue and not in net interest income. This change was
applied retrospectively and, accordingly, prior period amounts were
revised to conform with the current presentation.
At December 31, 2019 and 2018, time deposits in
denominations of $250,000 or more were as follows.
December 31, (in millions)
U.S. offices
Non-U.S. offices
Total
2019
2018
$ 44,127
$ 25,119
50,840
41,661
$ 94,967
$ 66,780
At December 31, 2019, the maturities of interest-bearing
time deposits were as follows.
December 31, 2019
(in millions)
2020
2021
2022
2023
2024
After 5 years
Total
U.S.
Non-U.S.
Total
$ 60,614
$ 49,443
$ 110,057
3,700
709
175
534
301
123
89
13
357
39
3,823
798
188
891
340
$ 66,033
$ 50,064
$ 116,097
Note 18 - Leases
Lease commitments
Effective January 1, 2019, the Firm adopted new guidance
that requires lessees to recognize on the Consolidated
balance sheets all leases with lease terms greater than
twelve months as a lease liability with a corresponding
right-of-use (“ROU”) asset. Accordingly, the Firm recognized
operating lease liabilities and ROU assets of $8.2 billion and
$8.1 billion, respectively. The adoption of the new lease
guidance did not have a material impact on the Firm’s
Consolidated statements of income. The change in
accounting due to the adoption of the new lease guidance
did not result in a material change to the future net
minimum rental payments/receivables or to the net rental
expense when compared to December 31, 2018.
Firm as lessee
At December 31, 2019, JPMorgan Chase and its
subsidiaries were obligated under a number of
noncancelable leases, predominantly operating leases for
premises and equipment used primarily for business
purposes. These leases generally have terms of 20 years or
less, determined based on the contractual maturity of the
lease, and include periods covered by options to extend or
terminate the lease when the Firm is reasonably certain
that it will exercise those options. None of these lease
agreements impose restrictions on the Firm’s ability to pay
dividends, engage in debt or equity financing transactions
or enter into further lease agreements. Certain of these
leases contain escalation clauses that will increase rental
payments based on maintenance, utility and tax increases,
which are non-lease components. The Firm elected not to
separate lease and non-lease components of a contract for
its real estate leases. As such, real estate lease payments
represent payments on both lease and non-lease
components.
254
JPMorgan Chase & Co./2019 Form 10-K
Operating lease liabilities and ROU assets are recognized at
the lease commencement date based on the present value
of the future minimum lease payments over the lease term.
The future lease payments are discounted at a rate that
represents the Firm’s collateralized borrowing rate for
financing instruments of a similar term and are included in
accounts payable and other liabilities. The operating lease
ROU asset, included in premises and equipment, also
includes any lease prepayments made, plus initial direct
costs incurred, less any lease incentives received. Rental
expense associated with operating leases is recognized on a
straight-line basis over the lease term, and generally
included in occupancy expense in the Consolidated
statements of income. The following tables provide
information related to the Firm’s operating leases:
December 31,
(in millions, except where otherwise noted)
Right-of-use assets
Lease liabilities
Weighted average remaining lease term (in years)
Weighted average discount rate
2019
$
8,190
8,505
8.8
3.68%
Supplemental cash flow information
Cash paid for amounts included in the measurement of
lease liabilities - operating cash flows
$
1,572
Supplemental non-cash information
Right-of-use assets obtained in exchange for operating
lease obligations
$
1,413
Year ended December 31,
(in millions)
Rental expense
Gross rental expense
Sublease rental income
Net rental expense
2019
$
$
2,057
(184)
1,873
The following table presents future payments under
operating leases as of December 31, 2019:
Firm as lessor
The Firm provides auto and equipment lease financing to its
customers through lease arrangements with lease terms
that may contain renewal, termination and/or purchase
options. Generally, the Firm’s lease financings are operating
leases. These assets are recognized in other assets on the
Firm’s Consolidated balance sheets and are depreciated on
a straight-line basis over the lease term to reduce the asset
to its estimated residual value. Depreciation expense is
included in technology, communications and equipment
expense in the Consolidated statements of income. The
Firm’s lease income is generally recognized on a straight-
line basis over the lease term and is included in other
income in the Consolidated statements of income.
On a periodic basis, the Firm assesses leased assets for
impairment, and if the carrying amount of the leased asset
exceeds the undiscounted cash flows from the lease
payments and the estimated residual value upon disposition
of the leased asset, an impairment loss is recognized.
The risk of loss on auto and equipment leased assets
relating to the residual value of the leased assets is
monitored through projections of the asset residual values
at lease origination and periodic review of residual values,
and is mitigated through arrangements with certain
manufacturers or lessees.
The following table presents the carrying value of assets
subject to leases reported on the Consolidated balance
sheets:
December 31,
(in millions)
2019
2018
Carrying value of assets subject to
operating leases, net of accumulated
depreciation
$
23,587 $
21,428
Accumulated depreciation
6,121
5,303
The following table presents the Firm’s operating lease
income and the related depreciation expense on the
Consolidated statements of income:
Year ended December 31, (in millions)
2020
2021
2022
2023
2024
After 2024
Total future minimum lease payments
Less: Imputed interest
Total
1,447
1,257
1,081
944
3,757
10,090
(1,585)
$
8,505
In addition to the table above, as of December 31, 2019,
the Firm had additional future operating lease
commitments of $1.2 billion that were signed but had not
yet commenced. These operating leases will commence
between 2020 and 2022 with lease terms up to 25 years.
Year ended December 31,
(in millions)
2019
2018
$
1,604
Operating lease income
$
5,455 $
4,540 $
Depreciation expense
4,157
3,522
2017
3,611
2,808
The following table presents future receipts under operating
leases as of December 31, 2019:
Year ended December 31, (in millions)
2020
2021
2022
2023
2024
After 2024
$
4,168
2,733
1,025
86
37
52
Total future minimum lease receipts
$
8,101
JPMorgan Chase & Co./2019 Form 10-K
255
Notes to consolidated financial statements
Note 19 – 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
2019
2018
$ 118,375
$ 114,794
92,032
81,916
$ 210,407
$ 196,710
(a) Includes credit card rewards liability of $6.4 billion and $5.8 billion at
December 31, 2019 and 2018, respectively.
256
JPMorgan Chase & Co./2019 Form 10-K
Note 20 – 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,
2019.
2018
Total
145,820
22,978
0.17-6.40%
14,308
9
3.38-8.53%
183,115
155
44,300
2.36-2.96%
16,434
35,601
1.00-7.50%
301
—
8.25%
96,791
659
1,466
3.04-8.75%
2,125
$
$
$
$
$
$
$
$
$
$
$
7,611
6,103
0.00-4.62%
13,714
By remaining maturity at
December 31,
(in millions, except rates)
Parent company
Senior debt:
Under 1 year
1-5 years
After 5 years
Total
2019
Fixed rate
$
13,580
$
51,982
$
95,636
$
161,198
Variable rate
2,788
12,708
3,119
18,615
Interest rates(a)
0.15-4.95%
0.50-4.63%
0.45-6.40%
0.15-6.40%
Subordinated debt:
Fixed rate
$
Variable rate
Interest rates(a)
—
—
$
5,109
$
10,046
$
15,155
—
9
9
—%
3.38-3.88%
3.63-8.00%
3.38-8.00%
Subsidiaries
Federal Home Loan Banks
advances:
Senior debt:
69,799
$
108,810
$
194,977
Subtotal
$
16,368
Fixed rate
$
Variable rate
4
9,500
$
$
35
$
19,000
96
—
—%
$
135
28,500
1.67-2.24%
Interest rates(a)
1.88-2.18%
1.67-2.24%
Fixed rate
Variable rate
Interest rates(a)
761
$
6,955
$
11,881
$
19,597
24,938
9,273
45,861
2.15-9.43%
1.00-7.50%
1.00-9.43%
$
$
$
$
$
$
$
11,650
7.50%
—
—
—%
21,915
—
—
—%
—
38,283
1,621
900
$
$
$
$
$
$
305
—
8.25%
51,233
—
—
—%
—
121,032
1,369
2,572
$
$
$
—
—
—%
21,250
693
1,430
$
$
$
305
—
8.25%
94,398
693
1,430
2.41-8.75%
2.41-8.75%
$
$
$
2,123
132,183
—
276
$
$
$
2,123
2,990
3,748
291,498
(f)(g) $
282,031
Subordinated debt:
Fixed rate
Variable rate
Interest rates(a)
Subtotal
Junior subordinated debt:
Fixed rate
Variable rate
Interest rates(a)
Subtotal
Fixed rate
Variable rate
Total long-term debt(b)(c)(d)
Long-term beneficial
interests:
Total long-term beneficial
interests(e)
Interest rates
1.49-2.19%
0.00-2.77%
0.84-4.06%
0.00-4.06%
$
2,521
$
3,941
$
276
$
6,738
(a) The interest rates shown are the range of contractual rates in effect at December 31, 2019 and 2018, 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, 2019, for total long-term debt was (0.02)% to 9.43%, versus the
contractual range of 0.15% to 9.43% presented in the table above. The interest rate ranges shown exclude structured notes accounted for at fair value.
(b) Included long-term debt of $32.0 billion and $47.7 billion secured by assets totaling $186.1 billion and $207.0 billion at December 31, 2019 and 2018,
respectively. The amount of long-term debt secured by assets does not include amounts related to hybrid instruments.
(c) Included $75.7 billion and $54.9 billion of long-term debt accounted for at fair value at December 31, 2019 and 2018, respectively.
(d) Included $13.6 billion and $11.2 billion of outstanding zero-coupon notes at December 31, 2019 and 2018, respectively. The aggregate principal amount
of these notes at their respective maturities is $39.3 billion and $37.4 billion, respectively. The aggregate principal amount reflects the contractual
principal payment at maturity, which may exceed the contractual principal payment at the Firm’s next call date, if applicable.
(e) Included on the Consolidated balance sheets in beneficial interests issued by consolidated VIEs. Also included $36 million and $28 million accounted for at
fair value at December 31, 2019 and 2018, respectively. Excluded short-term commercial paper and other short-term beneficial interests of $11.1 billion
and $6.5 billion at December 31, 2019 and 2018, respectively.
(f) At December 31, 2019, long-term debt in the aggregate of $141.3 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.
(g) The aggregate carrying values of debt that matures in each of the five years subsequent to 2019 is $38.3 billion in 2020, $45.8 billion in 2021, $19.6
billion in 2022, $29.7 billion in 2023 and $25.9 billion in 2024.
JPMorgan Chase & Co./2019 Form 10-K
257
Notes to consolidated financial statements
The weighted-average contractual interest rates for total
long-term debt excluding structured notes accounted for at
fair value were 3.13% and 3.28% as of December 31,
2019 and 2018, 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 3.19% and 3.64%
as of December 31, 2019 and 2018, 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 $14.4 billion and $10.9 billion at
December 31, 2019 and 2018, 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.
258
JPMorgan Chase & Co./2019 Form 10-K
Note 21 – Preferred stock
At December 31, 2019 and 2018, 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, 2019 and 2018.
Shares(a)
Carrying value
(in millions)
December 31,
December 31,
2019
2018
2019
2018
Issue date
Contractual rate
in effect at
December 31,
2019
Earliest
redemption
date(b)
Floating
annualized
rate of
three-month
LIBOR/Term
SOFR plus:
Dividend declared per share(c)
Year ended December 31,
2019
2018
2017
90,000
$
— $
—
—
—
92,500
88,000
143,000
143,000
142,500
142,500
115,000
115,000
169,625
169,625
185,000
90,000
—
—
293,375
430,375
150,000
150,000
150,000
150,000
200,000
200,000
100,000
100,000
250,000
250,000
160,000
160,000
200,000
200,000
125,750
125,750
225,000
—
900
925
880
2/5/2013
1/30/2014
6/23/2014
—% 3/1/2018
—
—
3/1/2019
9/1/2019
1,430
2/12/2015
6.125
3/1/2020
1,425
6/4/2015
6.100
9/1/2020
1,150
7/29/2015
6.150
9/1/2020
1,696
9/21/2018
5.750
12/1/2023
—
—
1/24/2019
11/7/2019
6.000
3/1/2024
4.750
12/1/2024
NA
NA
NA
NA
NA
NA
NA
NA
NA
$545.00
$545.00
$545.00
167.50
472.50
612.52
610.00
615.00
575.00
511.67
—
670.00
630.00
612.52
610.00
615.00
111.81
—
—
670.00
630.00
612.52
610.00
615.00
—
—
—
(d)
(e)
4,304
4/23/2008
LIBOR + 3.47% 4/30/2018 LIBOR + 3.47% $593.23
$646.38
$790.00
(f)
1,500
4/23/2013
5.150
5/1/2023
LIBOR + 3.25
1,500
7/29/2013
6.000
8/1/2023
LIBOR + 3.30
2,000
1/22/2014
6.750
2/1/2024
LIBOR + 3.78
1,000
3/10/2014
6.125
4/30/2024
LIBOR + 3.33
2,500
6/9/2014
LIBOR + 3.32% 7/1/2019
LIBOR + 3.32
1,600
9/23/2014
6.100
10/1/2024
LIBOR + 3.33
2,000
4/21/2015
5.300
5/1/2020
LIBOR + 3.80
1,258
10/20/2017
4.625
11/1/2022
LIBOR + 2.58
515.00
600.00
675.00
612.50
534.09
610.00
530.00
462.50
515.00
600.00
675.00
612.50
500.00
610.00
530.00
462.50
515.00
600.00
675.00
612.50
500.00
(g)
610.00
530.00
129.76
—
7/31/2019
5.000
8/1/2024
SOFR + 3.38
251.39
—
—
(h)
—
—
1,430
1,425
1,150
1,696
1,850
900
2,934
1,500
1,500
2,000
1,000
2,500
1,600
2,000
1,258
2,250
Fixed-to-floating-rate:
Fixed-rate:
Series P
Series T
Series W
Series Y
Series AA
Series BB
Series DD
Series EE
Series GG
Series I
Series Q
Series R
Series S
Series U
Series V
Series X
Series Z
Series CC
Series FF
Total
preferred
stock
2,699,250 2,606,750
$ 26,993 $ 26,068
(a) Represented by depositary shares.
(b) Fixed-to-floating rate notes convert to a floating rate at the earliest redemption date.
(c) Dividends are declared quarterly. Dividends are payable quarterly on fixed-rate preferred stock. Dividends are payable semiannually on fixed-to-floating-
rate preferred stock while at a fixed rate, and payable quarterly after converting to a floating rate.
(d) Dividends in the amount of $211.67 per share were declared on April 12, 2019 and include dividends from the original issue date of January 24, 2019
through May 31, 2019. Dividends in the amount of $150.00 per share were declared thereafter on July 10, 2019 and October 9, 2019.
(e) No dividends were declared for Series GG from the original issue date of November 7, 2019 through December 31, 2019.
(f) The dividend rate for Series I preferred stock became floating and payable quarterly starting on April 30, 2018; prior to which the dividend rate was fixed
at 7.90% or $395.00 per share payable semi annually.
(g) The dividend rate for Series V preferred stock became floating and payable quarterly starting on July 1, 2019; prior to which the dividend rate was fixed at
5% or $250.00 per share payable semi annually. The Firm declared a dividend of $144.11 and $139.98 per share on outstanding Series V preferred
stock on August 15, 2019 and November 15, 2019, respectively.
(h) Dividends in the amount of $126.39 per share were declared on September 9, 2019 and include dividends from the original issue date of July 31, 2019
through October 31, 2019. Dividends in the amount of $125.00 per share were declared thereafter on December 10, 2019.
Each series of preferred stock has a liquidation value and
redemption price per share of $10,000, plus accrued but
unpaid dividends. The aggregate liquidation value was
$27.3 billion at December 31, 2019.
On February 24, 2020, the Firm issued $1.5 billion of fixed-
to- floating rate non-cumulative preferred stock, Series II.
On January 31, 2020, the Firm announced that it will
redeem all $1.43 billion of its 6.125% non-cumulative
preferred stock, Series Y on March 1, 2020.
On January 23, 2020, the Firm issued $3.0 billion of fixed-
to-floating rate non-cumulative preferred stock, Series HH.
On December 1, 2019, the Firm redeemed all $900 million
of its 5.45% non-cumulative preferred stock, Series P.
On November 7, 2019, the Firm issued $900 million of
4.75% non-cumulative preferred stock, Series GG.
On October 30, 2019, the Firm redeemed $1.37 billion of
its fixed-to-floating rate non-cumulative perpetual preferred
stock, Series I.
JPMorgan Chase & Co./2019 Form 10-K
259
Notes to consolidated financial statements
On September 1, 2019, the Firm redeemed all $880 million
of its 6.30% non-cumulative preferred stock, Series W.
On July 31, 2019, the Firm issued $2.25 billion of fixed-to-
floating rate non-cumulative preferred stock, Series FF.
On March 1, 2019, the Firm redeemed $925 million of its
6.70% non-cumulative preferred stock, Series T.
On January 24, 2019, the Firm issued $1.85 billion of
6.00% non-cumulative preferred stock, Series EE.
On October 30, 2018, the Firm redeemed $1.7 billion of its
fixed-to-floating rate non-cumulative perpetual preferred
stock, Series I.
On September 21, 2018, the Firm issued $1.7 billion of
5.75% non-cumulative preferred stock, Series DD.
Dividends in the amount of $550.00 per share were
declared for series O from January 1, 2017 through
redemption on December 1, 2017.
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”).
260
JPMorgan Chase & Co./2019 Form 10-K
Note 22 – Common stock
At December 31, 2019 and 2018, 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, 2019, 2018 and 2017 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
2019
2018
2017
4,104.9
4,104.9
4,104.9
(829.1)
(213.0)
(679.6)
(181.5)
(543.7)
(166.6)
20.4
—
0.8
21.2
21.7
9.4
0.9
32.0
24.5
5.4
0.8
30.7
(1,020.9)
(829.1)
(679.6)
Outstanding at December 31
3,084.0
3,275.8
3,425.3
There were no warrants to purchase shares of common
stock (“Warrants”) outstanding at December 31, 2019, as
any Warrants that were not exercised on or before October
29, 2018, have expired. At December 31, 2017, the Firm
had 15.0 million Warrants outstanding.
On June 27, 2019, in conjunction with the Federal Reserve’s
release of its 2019 CCAR results, the Firm’s Board of
Directors authorized a $29.4 billion common equity
repurchase program. As of December 31, 2019, $15.6
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.
The following table sets forth the Firm’s repurchases of
common equity for the years ended December 31, 2019,
2018 and 2017. There were no Warrants repurchased
during any of the years.
Year ended December 31, (in millions)
2019
2018
2017
Total number of shares of common stock
repurchased
Aggregate purchase price of common
stock repurchases
213.0
181.5
166.6
$24,121
$19,983
$15,410
The Firm from time to time enters into written trading plans
under Rule 10b5-1 of the Securities Exchange Act of 1934
to facilitate repurchases in accordance with the common
equity repurchase program. A Rule 10b5-1 repurchase plan
allows the Firm to repurchase its equity during periods
when it would not otherwise be repurchasing common
equity — for example, during internal trading “blackout
periods.” All purchases under a Rule 10b5-1 plan must be
made according to a predefined plan established when the
Firm is not aware of material nonpublic information. Refer
to Part II, Item 5: Market for registrant’s common equity,
related stockholder matters and issuer purchases of equity
securities, on page 30 for additional information regarding
repurchases of the Firm’s equity securities.
As of December 31, 2019, approximately 70.5 million
shares of common stock were reserved for issuance under
various employee incentive, compensation, option and stock
purchase plans, and directors’ compensation plans.
JPMorgan Chase & Co./2019 Form 10-K
261
Management’s discussion and analysis
Note 23 – Earnings per share
Basic earnings per share (“EPS”) is calculated using the
two-class method. Under the two-class method, all earnings
(distributed and undistributed) are allocated to common
stock and participating securities. JPMorgan Chase grants
RSUs under its share-based compensation programs,
predominantly all of which entitle recipients to receive
nonforfeitable dividends during the vesting period on a
basis equivalent to dividends paid to holders of the Firm’s
common stock. These unvested RSUs meet the definition of
participating securities based on their respective rights to
receive nonforfeitable dividends, and they are treated as a
separate class of securities in computing basic EPS.
Participating securities are not included as incremental
shares in computing diluted EPS; refer to Note 9 for
additional information.
Diluted EPS incorporates the potential impact of
contingently issuable shares, including awards which
require future service as a condition of delivery of the
underlying common stock. Diluted EPS is calculated under
both the two-class and treasury stock methods, and the
more dilutive amount is reported. For each of the periods
presented in the table below, diluted EPS calculated under
the two-class method was more dilutive.
The following table presents the calculation of net income
applicable to common stockholders and basic and diluted
EPS for the years ended December 31, 2019, 2018 and
2017.
Year ended December 31,
(in millions,
except per share amounts)
Basic earnings per share
2019
2018
2017
Net income
$ 36,431 $ 32,474 $ 24,441
Less: Preferred stock dividends
1,587
1,551
1,663
Net income applicable to common
equity
Less: Dividends and undistributed
earnings allocated to participating
securities
Net income applicable to common
stockholders
34,844
30,923
22,778
202
214
211
$ 34,642 $ 30,709 $ 22,567
Total weighted-average basic shares
outstanding
3,221.5
3,396.4
3,551.6
Net income per share
$ 10.75 $
9.04 $
6.35
Diluted earnings per share
Net income applicable to common
stockholders
Total weighted-average basic shares
outstanding
Add: Dilutive impact of SARs and
employee stock options, unvested
PSUs and non-dividend-earning
RSUs, and warrants
Total weighted-average diluted
shares outstanding
$ 34,642 $ 30,709 $ 22,567
3,221.5
3,396.4
3,551.6
8.9
17.6
25.2
3,230.4
3,414.0
3,576.8
Net income per share
$ 10.72 $
9.00 $
6.31
262
JPMorgan Chase & Co./2019 Form 10-K
Note 24 – Accumulated other comprehensive income/(loss)
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation
adjustments (including the impact of related derivatives), fair value changes of excluded components on fair value hedges, cash
flow hedging activities, net loss and prior service costs/(credit) related to the Firm’s defined benefit pension and OPEB plans, and
fair value option-elected liabilities arising from changes in the Firm’s own credit risk (DVA).
Year ended
December 31,
(in millions)
Balance at
December 31,
2016
Net change
Balance at
December 31,
2017
Cumulative effect of
changes in
accounting
principles:(a)
Net change
Balance at
December 31,
2018
Net change
Balance at
December 31,
2019
Unrealized
gains/(losses)
on investment
securities
Translation
adjustments,
net of hedges
Fair value
hedges
Cash flow
hedges
Defined benefit pension
and OPEB plans
DVA on fair value
option elected
liabilities
Accumulated
other
comprehensive
income/(loss)
$ 1,524
$
640
(164)
(306)
NA
NA
$
(100)
$
(2,259)
176
738
$ 2,164
$
(470)
$
—
$
76
$
(1,521)
896
(1,858)
$ 1,202
2,855
(277)
20
(54)
(107)
16
(201)
(414)
(373)
$
(727)
$
(161) $
(109)
$
(2,308)
20
30
172
964
$ 4,057
$
(707)
$
(131) $
63
$
(1,344)
$
$
$
$
(176)
(192)
$
(1,175)
1,056
(368)
$
(119)
(79)
1,043
88
(1,476)
596
(965)
$
(1,507)
3,076
(369)
$
1,569
(a) Represents the adjustment to AOCI as a result of the accounting standards adopted in the first quarter of 2018. Refer to Note 1 for additional information.
JPMorgan Chase & Co./2019 Form 10-K
263
Notes to consolidated financial statements
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:
2019
Tax
effect
After-tax
Pre-tax
2018
Tax
effect
After-tax
Pre-tax
2017
Tax
effect
After-tax
Net unrealized gains/(losses) arising during the period
$ 4,025
$
(974) $ 3,051
$ (2,825) $
665
$ (2,160) $
944
$
(346) $
598
Reclassification adjustment for realized (gains)/losses
(258)
3,767
62
(196)
395
(912)
2,855
(2,430)
included in net income(a)
Net change
Translation adjustments(b):
Translation
Hedges
Net change
Fair value hedges, net change(c):
Cash flow hedges:
Net unrealized gains/(losses) arising during the period
Reclassification adjustment for realized (gains)/losses
included in net income(d)
Net change
Defined benefit pension and OPEB plans:
(49)
46
(3)
39
122
103
225
33
(10)
23
(9)
(28)
(25)
(53)
Prior service credit/(cost) arising during the period
(5)
1
Net gain/(loss) arising during the period
1,005
(169)
Reclassification adjustments included in net income(e):
Amortization of net loss
Amortization of prior service cost/(credit)
Curtailment (gain)/loss
Settlement (gain)/loss
Foreign exchange and other
Net change
167
3
—
—
(13)
1,157
(36)
(1)
—
—
12
(193)
(93)
572
156
(294)
(138)
33
58
4
62
7
102
(24)
6
(5)
—
(9)
77
302
66
(1,858)
1,010
(922)
1,313
942
20
(107)
(187)
(14)
(201)
(22)
(456)
79
(17)
16
2
25
(373)
(1,294)
19
NA
147
134
281
—
802
250
(36)
—
2
(54)
964
(24)
(370)
(801)
476
(325)
NA
(55)
(50)
(105)
—
(160)
(90)
13
—
(1)
12
(226)
42
640
512
(818)
(306)
NA
92
84
176
—
642
160
(23)
—
1
(42)
738
(16)
(1,078)
36
20
30
94
78
172
(4)
836
131
2
—
—
(1)
964
1,236
158
(140)
(245)
(18)
(263)
(29)
(558)
103
(23)
21
2
34
(450)
DVA on fair value option elected liabilities, net change: $ (1,264) $
299
$ (965) $ 1,364
$ (321) $ 1,043
$ (303) $
111
$
(192)
Total other comprehensive income/(loss)
$ 3,921
$
(845) $ 3,076
$ (1,761) $
285
$ (1,476) $ 1,971
$
(915) $ 1,056
(a) The pre-tax amount is reported in investment securities gains/(losses) in the Consolidated statements of income.
(b) Reclassifications of pre-tax realized gains/(losses) on translation adjustments and related hedges are reported in other income/expense in the
Consolidated statements of income. During the year ended December 31, 2019, the Firm reclassified net pre-tax gains of $7 million to other income and
$1 million to other expense, respectively. These amounts, which related to the liquidation of certain legal entities, are comprised of $18 million related to
net investment hedge gains and$10 million related to cumulative translation adjustments. During the year ended December 31, 2018, the Firm
reclassified a net pre-tax loss of $168 million to other expense related to the liquidation of certain legal entities, $17 million related to net investment
hedge losses and $151 million related to cumulative translation adjustments. During the year ended December 31, 2017, the Firm reclassified a net pre-
tax loss of $25 million to other expense related to the liquidation of a legal entity, $50 million related to net investment hedge gains and $75 million
related to cumulative translation adjustments.
(c) Represents changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads, which are excluded from the assessment
of hedge effectiveness and recorded in other comprehensive income. The initial cost of cross-currency basis spreads is recognized in earnings as part of
the accrual of interest on the cross-currency swap.
(d) The pre-tax amounts are primarily recorded in noninterest revenue, net interest income and compensation expense in the Consolidated statements of
income.
(e) The pre-tax amount is reported in other expense in the Consolidated statements of income.
264
JPMorgan Chase & Co./2019 Form 10-K
Note 25 – 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
The following table presents a reconciliation of the
applicable statutory U.S. federal income tax rate to the
effective tax rate.
Effective tax rate
Year ended December 31,
2019
2018
2017
Statutory U.S. federal tax rate
21.0%
21.0%
35.0%
Increase/(decrease) in tax rate
resulting from:
U.S. state and local income
taxes, net of U.S. federal
income tax benefit
Tax-exempt income
Non-U.S. earnings
Business tax credits
Tax audit resolutions
Impact of the TCJA
Other, net
3.5
(1.4)
1.8
(4.4)
(2.3)
—
—
4.0
(1.5)
0.6
(3.5)
(0.1)
(0.7)
0.5
(a)
2.2
(3.3)
(3.1)
(4.2)
(0.3)
5.4
0.2
Effective tax rate
18.2%
20.3%
31.9%
(a) Predominantly includes earnings of U.K. subsidiaries that were deemed
to be reinvested indefinitely through December 31, 2017.
Impact of the TCJA
2018
The Firm’s effective tax rate decreased in 2018 due to the
TCJA, including the reduction in the U.S. federal statutory
income tax rate as well as a $302 million net tax benefit
recorded in 2018 resulting from changes in the estimates
related to the remeasurement of certain deferred taxes and
the deemed repatriation tax on non-U.S. earnings. The
change in estimate was recorded under SEC Staff
Accounting Bulletin No. 118 (“SAB 118”) and the
accounting under SAB 118 is complete.
2017
The Firm’s effective tax rate increased in 2017 driven by a
$1.9 billion income tax expense representing the 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.
Adjustments were also recorded in 2017 to income tax
expense for certain tax-oriented investments. These
adjustments were driven by changes to affordable housing
proportional amortization resulting from the reduction of
the federal income tax rate under the TCJA. SAB 118 did not
apply to these adjustments.
JPMorgan Chase & Co./2019 Form 10-K
265
Prior to December 31, 2017, U.S. federal income taxes had
not been provided on the undistributed earnings of certain
non-U.S. subsidiaries, to the extent that such earnings had
been reinvested abroad for an indefinite period of time. The
Firm is no longer maintaining the indefinite reinvestment
assertion on the undistributed earnings of those non-U.S.
subsidiaries in light of the enactment of the TCJA. The U.S.
federal and state and local income taxes associated with 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 will recognize any taxes it may incur on global
intangible low tax income as income tax expense in the
period in which the tax is incurred.
Affordable housing tax credits
The Firm recognized $1.5 billion, $1.5 billion and $1.7
billion of tax credits and other tax benefits associated with
investments in affordable housing projects within income
tax expense for the years 2019, 2018 and 2017,
respectively. The amount of amortization of such
investments reported in income tax expense was $1.1
billion, $1.2 billion and $1.7 billion, respectively. The
carrying value of these investments, which are reported in
other assets on the Firm’s Consolidated balance sheets, was
$8.6 billion and $7.9 billion at December 31, 2019 and
2018, 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 $2.8 billion and $2.3 billion at December 31,
2019 and 2018, respectively.
The following table reflects the components of income tax
expense/(benefit) included in the Consolidated statements
of income.
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)
2019
2018
2017
$ 3,284
$ 2,854
$ 5,718
2,103
1,778
2,077
1,638
2,400
1,029
7,165
6,569
9,147
709
20
220
1,359
2,174
(93)
455
(144)
282
949
1,721
2,312
Total income tax expense
$ 8,114
$ 8,290
$ 11,459
Total income tax expense includes $1.1 billion, $54 million
and $252 million of tax benefits recorded in 2019, 2018,
and 2017, respectively, resulting from the resolution of tax
audits.
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
$862 million in 2019, an increase of $172 million in 2018,
and a decrease of $915 million in 2017.
Results from Non-U.S. earnings
The following table presents the U.S. and non-U.S.
components of income before income tax expense.
Year ended December 31,
(in millions)
U.S.
Non-U.S.(a)
2019
2018
2017
$ 36,670
$ 33,052
$ 27,103
7,875
7,712
8,797
Income before income tax expense
$ 44,545
$ 40,764
$ 35,900
(a) For purposes of this table, non-U.S. income is defined as income
generated from operations located outside the U.S.
266
JPMorgan Chase & Co./2019 Form 10-K
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.
December 31, (in millions)
2019
2018
Deferred tax assets
Allowance for loan losses
$
3,400
$
Employee benefits
Accrued expenses and other
Non-U.S. operations
Tax attribute carryforwards
Gross deferred tax assets
Valuation allowance
1,039
2,767
949
605
8,760
(557)
3,433
1,129
2,701
629
163
8,055
(89)
Deferred tax assets, net of valuation
allowance
Deferred tax liabilities
Depreciation and amortization
Mortgage servicing rights, net of
$
$
hedges
Leasing transactions
Other, net
8,203
$
7,966
2,852
$
2,533
2,354
5,598
4,683
2,586
4,719
3,713
Gross deferred tax liabilities
15,487
13,551
Net deferred tax (liabilities)/assets
$
(7,284) $
(5,585)
JPMorgan Chase has recorded deferred tax assets of $605
million at December 31, 2019, in connection with U.S.
federal and non-U.S. NOL carryforwards, foreign tax credit
(“FTC”) carryforwards, and state and local capital loss
carryforwards. At December 31, 2019, total U.S. federal
NOL carryforwards were $1.0 billion, non-U.S. NOL
carryforwards were $80 million, FTC carryforwards were
$329 million, and state and local capital loss carryforwards
were $1.1 billion. If not utilized, a portion of the U.S.
federal NOL carryforwards will expire between 2022 and
2036 whereas others have an unlimited carryforward
period. Similarly, certain non-U.S. NOL carryforwards will
expire between 2029 and 2037 whereas others have an
unlimited carryforward period. The FTC carryforwards will
expire in 2029 and the state and local capital loss
carryforwards will expire between 2020 and 2022.
The valuation allowance at December 31, 2019, was due to
the state and local capital loss carryforwards, FTC
carryforwards, and certain non-U.S. deferred tax assets,
including NOL carryforwards.
Unrecognized tax benefits
At December 31, 2019, 2018 and 2017, JPMorgan Chase’s
unrecognized tax benefits, excluding related interest
expense and penalties, were $4.0 billion, $4.9 billion and
$4.7 billion, respectively, of which $2.8 billion, $3.8 billion
and $3.5 billion, respectively, if recognized, would reduce
the annual effective tax rate. Included in the amount of
unrecognized tax benefits are certain items that would 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 $0.5 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.
Year ended December 31,
(in millions)
2019
2018
2017
Balance at January 1,
$ 4,861
$ 4,747
$ 3,450
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
871
980
1,355
10
649
626
(706)
(1,249)
(350)
settlements with taxing authorities
(1,012)
(266)
(334)
Balance at December 31,
$ 4,024
$ 4,861
$ 4,747
After-tax interest expense/(benefit) and penalties related to
income tax liabilities recognized in income tax expense were
$(52) million, $192 million and $102 million in 2019,
2018 and 2017, respectively.
At December 31, 2019 and 2018, in addition to the liability
for unrecognized tax benefits, the Firm had accrued $817
million and $887 million, respectively, for income tax-
related interest and penalties.
JPMorgan Chase & Co./2019 Form 10-K
267
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,
2019.
Periods under
examination
JPMorgan Chase – U.S.
2011 – 2013
JPMorgan Chase – U.S.
JPMorgan Chase – New
York State
2014 - 2016
2012 - 2014
Status
Field Examination
completed; JPMorgan
Chase intends to file
amended returns
Field Examination
Field Examination
JPMorgan Chase – New
2012 - 2014
Field Examination
York City
JPMorgan Chase –
California
2011 – 2012
Field Examination
JPMorgan Chase – U.K.
2006 – 2017
Field examination of
certain select entities
268
JPMorgan Chase & Co./2019 Form 10-K
Note 26 – Restricted cash, other restricted
assets and intercompany funds transfers
Restricted cash and other restricted assets
Certain of the Firm’s cash and other assets are restricted as
to withdrawal or usage. These restrictions are imposed by
various regulatory authorities based on the particular
activities of the Firm’s subsidiaries.
The business of 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 is deposited
by the Firm’s bank subsidiaries. In addition, the Firm is
required to maintain cash reserves at certain non-US
central banks.
The Firm is also subject to rules and regulations established
by other U.S. and non U.S. regulators. As part of its
compliance with the respective regulatory requirements,
the Firm’s broker-dealers (principally J.P. Morgan Securities
LLC in the U.S and J.P. Morgan Securities plc in the U.K.) are
subject to certain restrictions on cash and other assets.
The following table presents the components of the Firm’s
restricted cash:
December 31, (in billions)
2019
2018
$
26.6 $
22.1
Cash reserves – Federal Reserve
Banks
Segregated for the benefit of
securities and cleared derivative
customers
Cash reserves at non-U.S. central
banks and held for other general
purposes
Total restricted cash(a)
$
16.0
3.9
46.5 $
14.6
4.1
40.8
(a) Comprises $45.3 billion and $39.6 billion in deposits with banks as of
December 31, 2019 and 2018, respectively, and $1.2 billion in cash
and due from banks as of December 31, 2019 and 2018, on the
Consolidated balance sheets.
Also, as of December 31, 2019 and 2018, the Firm had the
following other restricted assets:
• Cash and securities pledged with clearing organizations
for the benefit of customers of $24.7 billion and $20.6
billion, respectively.
• Securities with a fair value of $8.8 billion and $9.7
billion, respectively, were also restricted in relation to
customer activity.
Intercompany funds transfers
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 owes
intercompany indebtedness 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 the Parent Company
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 the Parent Company’s management or Board of
Directors.
At January 1, 2020, the Parent Company’s banking
subsidiaries could pay, in the aggregate, approximately $9
billion in dividends to their respective bank holding
companies without the prior approval of their relevant
banking regulators. The capacity to pay dividends in 2020
will be supplemented by the banking subsidiaries’ earnings
during the year.
JPMorgan Chase & Co./2019 Form 10-K
269
Notes to consolidated financial statements
Note 27 – 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 subsidiaries, including JPMorgan Chase Bank, N.A.
The 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, including
JPMorgan Chase Bank, N.A. Two comprehensive approaches
are prescribed for calculating RWA: a standardized
approach (“Basel III Standardized”), and an advanced
approach (“Basel III Advanced”). Effective January 1, 2019,
the capital adequacy of the Firm and JPMorgan Chase Bank,
N.A. is evaluated against the fully phased-in measures
under Basel III that represents the lower of the
Standardized or Advanced approaches. During 2018, the
required capital measures were subject to the transitional
rules and as of December 31, 2018 were the same on a
fully phased-in and on a transitional basis.
The three components of regulatory capital under the Basel
III rules are as illustrated below:
The following table presents the minimum and well-
capitalized ratios to which the Firm and its IDI subsidiaries
were subject as of December 31, 2019.
Minimum capital ratios
Well-capitalized ratios
BHC(a)(e)(f)
IDI(b)(e)(f)
BHC(c)
IDI(d)
10.5%
7.0%
12.0
14.0
4.0
5.0
8.5
10.5
4.0
6.0
N/A
6.0
10.0
N/A
N/A
6.5%
8.0
10.0
5.0
6.0
Capital ratios
CET1
Tier 1
Total
Tier 1 leverage
SLR
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 minimum capital ratios applicable to the Firm under
Basel III. The CET1 minimum capital ratio includes a capital
conservation buffer of 2.5% and GSIB surcharge of 3.5% as calculated
under Method 2.
(b) Represents requirements for JPMorgan Chase’s IDI subsidiaries. The
CET1 minimum capital ratio includes a capital conservation buffer of
2.5% that is applicable to the IDI subsidiaries. The IDI subsidiaries are
not subject to the GSIB surcharge.
(c) Represents requirements for bank holding companies pursuant to
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, 2018, the CET1, Tier 1, Total and
Tier 1 leverage minimum capital ratios applicable to the Firm were
9.0%, 10.5%, 12.5%, and 4.0% and the CET1, Tier 1, Total and Tier 1
leverage minimum capital ratios applicable to the Firm’s IDI
subsidiaries were 6.375%, 7.875%, 9.875%, and 4.0%, respectively.
(f) Represents minimum SLR requirement of 3.0%, as well as,
supplementary leverage buffers of 2.0% and 3.0% for BHC and IDI,
respectively.
Under the risk-based capital and leverage-based guidelines
of the Federal Reserve, JPMorgan Chase is required to
maintain minimum ratios for CET1, Tier 1, Total, Tier 1
leverage and the SLR. Failure to meet these minimum
requirements could cause the Federal Reserve to take
action. IDI subsidiaries are also subject to these capital
requirements by their respective primary regulators.
270
JPMorgan Chase & Co./2019 Form 10-K
The following tables present the risk-based and leverage-based capital metrics for JPMorgan Chase and JPMorgan Chase Bank,
N.A. under both the Basel III Standardized and Basel III Advanced Approaches. As of December 31, 2019 and 2018, JPMorgan
Chase and JPMorgan Chase Bank, N.A. were well-capitalized and met all capital requirements to which each was subject.
December 31, 2019
(in millions, except ratios)
Regulatory capital
CET1 capital
Tier 1 capital
Total capital
Assets
Risk-weighted
Adjusted average(a)
Capital ratios(b)
CET1
Tier 1
Total
Tier 1 leverage(c)
December 31, 2018
(in millions, except ratios)
Regulatory capital
CET1 capital
Tier 1 capital
Total capital
Assets
Risk-weighted
Adjusted average(a)
Capital ratios(b)
CET1
Tier 1
Total
Tier 1 leverage(c)
Basel III Standardized Fully Phased-In
Basel III Advanced Fully Phased-In
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
$
187,753
$
206,848
$
187,753
$
214,432
242,589
206,851
224,390
214,432
232,112
206,848
206,851
214,091
1,515,869
2,730,239
1,457,689
2,353,432
1,397,878
2,730,239
1,269,991
2,353,432
12.4%
14.1
16.0
7.9
14.2%
14.2
15.4
8.8
13.4%
15.3
16.6
7.9
16.3%
16.3
16.9
8.8
Basel III Standardized Transitional
Basel III Advanced Transitional
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.(d)
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.(d)
$
183,474
$
211,671
$
183,474
$
209,093
237,511
211,671
229,952
209,093
227,435
211,671
211,671
220,025
1,528,916
2,589,887
1,446,529
2,250,480
1,421,205
2,589,887
1,283,146
2,250,480
12.0%
13.7
15.5
8.1
14.6%
14.6
15.9
9.4
12.9%
14.7
16.0
8.1
16.5%
16.5
17.1
9.4
(a) Adjusted average assets, for purposes of calculating the Tier 1 leverage ratio, includes total quarterly average assets adjusted for on-balance sheet assets
that are subject to deduction from Tier 1 capital, predominantly goodwill and other intangible assets.
(b) For each of the risk-based capital ratios, the capital adequacy of the Firm and JPMorgan Chase Bank, N.A. is evaluated against the lower of the two ratios
as calculated under Basel III approaches (Standardized or Advanced).
(c) The Tier 1 leverage ratio is not a risk-based measure of capital.
(d) On May 18, 2019, Chase Bank USA, N.A. merged with and into JPMorgan Chase Bank, N.A., with JPMorgan Chase Bank, N.A as the surviving entity. The
December 31, 2018 amounts reported for JPMorgan Chase Bank, N.A. retrospectively reflect the impact of the merger.
(in millions, except ratios)
Total leverage exposure
SLR
December 31, 2019
December 31, 2018
Basel III Advanced Fully Phased-In
Basel III Advanced Fully Phased-In
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.(a)
3,423,431
$
3,044,509
$
3,269,988
$
2,915,541
6.3%
6.8%
6.4%
7.3%
(a) On May 18, 2019, Chase Bank USA, N.A. merged with and into JPMorgan Chase Bank, N.A., with JPMorgan Chase Bank, N.A as the surviving entity. The
December 31, 2018 amounts reported for JPMorgan Chase Bank, N.A. retrospectively reflect the impact of the merger.
JPMorgan Chase & Co./2019 Form 10-K
271
Notes to consolidated financial statements
Note 28 – Off–balance sheet lending-related
financial instruments, guarantees, and
other commitments
JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to address
the financing needs of its customers and clients. The
contractual amount of these financial instruments
represents the maximum possible credit risk to the Firm
should the customer or client draw upon the commitment
or the Firm be required to fulfill its obligation under the
guarantee, and should the customer or client 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. Refer to 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, 2019 and 2018. 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.
272
JPMorgan Chase & Co./2019 Form 10-K
Off–balance sheet lending-related financial instruments, guarantees and other commitments
Expires in
1 year or
less
Expires
after
1 year
through
3 years
Contractual amount
2019
Expires
after
3 years
through
5 years
Expires
after 5
years
2018
Carrying value(g)
2018
2019
Total
Total
$
680 $
1,187 $
2,548 $ 16,704 $
21,119
$
20,901
$
12 $
12
9,086
8,296
9,994
28,056
650,720
678,776
—
600
646
—
197
105
12
195
1,162
2,433
2,850
18,073
—
—
—
2,433
2,850
18,073
9,098
9,288
11,907
51,412
650,720
702,132
5,481
8,011
11,673
46,066
605,379
651,445
—
2
19
33
—
33
—
2
19
33
—
33
By remaining maturity at December 31,
(in millions)
Lending-related
Consumer, excluding credit card:
Home equity
Residential mortgage(a)
Auto
Consumer & Business Banking
Total consumer, excluding credit card
Credit card
Total consumer(b)
Wholesale:
Other unfunded commitments to extend credit(c)
58,645
129,414
168,400
10,791
367,250
351,490
938
852
Standby letters of credit and other financial
guarantees(c)
Other letters of credit(c)
Total wholesale(b)
Total lending-related
Other guarantees and commitments
Securities lending indemnification agreements and
guarantees(d)
15,919
11,127
5,117
1,745
2,734
183
40
—
33,908
2,957
33,498
2,825
618
4
521
3
77,298
140,724
173,557
12,536
404,115
387,813
1,560
1,376
$ 756,074 $ 143,157 $ 176,407 $ 30,609 $ 1,106,247
$1,039,258
$ 1,593 $ 1,409
Derivatives qualifying as guarantees
1,403
144
11,299
40,243
53,089
55,271
159
$ 204,827 $
— $
— $
— $ 204,827
$ 186,077
$
— $
Unsettled resale and securities borrowed
agreements
Unsettled repurchase and securities loaned
agreements
Loan sale and securitization-related
indemnifications:
Mortgage repurchase liability
Loans sold with recourse
Exchange & clearing house guarantees and
commitments(e)
Other guarantees and commitments (f)
117,203
72,790
NA
NA
206,432
2,684
748
561
NA
NA
—
841
—
—
NA
NA
—
293
—
—
NA
NA
117,951
102,008
73,351
57,732
NA
944
NA
1,019
58,960
8,183
—
206,432
3,399
7,217
—
367
—
—
89
30
—
—
—
59
27
—
(73)
(73)
(a) Includes certain commitments to purchase loans from correspondents.
(b) Predominantly all consumer and wholesale lending-related commitments are in the U.S.
(c) At December 31, 2019 and 2018, reflected the contractual amount net of risk participations totaling $76 million and $282 million, respectively, for other
unfunded commitments to extend credit; $9.8 billion and $10.4 billion, respectively, for standby letters of credit and other financial guarantees; and $546
million and $385 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk
participations.
(d) At December 31, 2019 and 2018, collateral held by the Firm in support of securities lending indemnification agreements was $216.2 billion and $195.6
billion, respectively. Securities lending collateral primarily consists of cash, G7 government securities, and securities issued by U.S. GSEs and government
agencies.
(e) At December 31, 2019 and 2018, includes guarantees to the Fixed Income Clearing Corporation under the sponsored member repo program and
commitments and guarantees associated with the Firm’s membership in certain clearing houses.
(f) At December 31, 2019 and 2018, primarily includes letters of credit hedged by derivative transactions and managed on a market risk basis, and unfunded
commitments related to institutional lending. Additionally, includes unfunded commitments predominantly related to certain tax-oriented equity
investments.
(g) 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.
JPMorgan Chase & Co./2019 Form 10-K
273
Notes to consolidated financial statements
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.
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 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, certain derivative contracts and the
guarantees under the sponsored member repo program.
As required by U.S. GAAP, the Firm initially records
guarantees at the inception date fair value of the obligation
assumed (e.g., the amount of consideration received or the
net present value of the premium receivable). For certain
types of guarantees, the Firm records this fair value 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 contractual
amount and carrying value of guarantees and
indemnifications are included in the table on page 273. For
additional information on the guarantees, see 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 following table summarizes the contractual amount and carrying value of standby letters of credit and other financial
guarantees and other letters of credit arrangements as of December 31, 2019 and 2018.
Standby letters of credit, other financial guarantees and 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
2019
2018
Standby letters of credit and
other financial guarantees
Other letters
of credit
Standby letters of credit and
other financial guarantees
Other letters
of credit
$
$
$
$
$
26,647
7,261
33,908
216
402
618
17,582
$
$
$
$
$
2,136
821
2,957
4
—
4
726
$
$
$
$
$
26,420
7,078
33,498
167
354
521
17,400
$
$
$
$
$
2,079
746
2,825
3
—
3
583
(a) The ratings scale is based on the Firm’s internal risk ratings. Refer to Note 12 for further information on internal risk ratings.
274
JPMorgan Chase & Co./2019 Form 10-K
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.
The cash collateral held by the Firm may be invested on
behalf of the client in indemnified resale agreements,
whereby the Firm indemnifies the client against the loss of
principal invested. To minimize its liability under these
agreements, the Firm obtains collateral with a market value
exceeding 100% of the principal invested.
Derivatives qualifying as guarantees
The Firm transacts in 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, 2019 and 2018.
(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
December 31,
2019
December 31,
2018
$
53,089
$
55,271
28,877
28,637
2,967
2,963
159
367
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. Refer to Note 5 for a further discussion of credit
derivatives.
Unsettled securities financing agreements
In the normal course of business, the Firm enters into resale
and securities borrowed agreements. At settlement, these
commitments result in the Firm advancing cash to and
receiving securities collateral from the counterparty. The
Firm also enters into repurchase and securities loaned
agreements. At settlement, these commitments result in the
Firm receiving cash from and providing securities collateral
to the counterparty. Such agreements settle at a future
date. 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 have regular-way
settlement terms. Refer to Note 11 for a further discussion
of securities financing agreements.
Loan sales- and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm’s mortgage loan sale and
securitization activities with U.S. GSEs the Firm has made
representations and warranties that the loans sold meet
certain requirements, and that may require the Firm to
repurchase mortgage loans and/or indemnify the loan
purchaser if such representations and warranties are
breached by the Firm. Further, although the Firm’s
securitizations are predominantly nonrecourse, the Firm
does provide recourse servicing in certain limited cases
where it agrees to share credit risk with the owner of 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.
JPMorgan Chase & Co./2019 Form 10-K
275
Notes to consolidated financial statements
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.
Refer to Note 30 for additional information regarding
litigation.
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, 2019 and 2018, the
unpaid principal balance of loans sold with recourse totaled
$944 million and $1.0 billion, respectively. The carrying
value of the related liability that the Firm has recorded in
accounts payable and other liabilities on the Consolidated
balance sheets, which is representative of the Firm’s view of
the likelihood it will have to perform under its recourse
obligations, was $27 million and $30 million at
December 31, 2019 and 2018, 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 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.
Merchant charge-backs
Under the rules of payment networks, the Firm, in its role as
a merchant acquirer, retains a contingent liability for
disputed processed credit and debit card transactions that
result in a charge-back to the merchant. If a dispute is
resolved in the cardholder’s favor, Merchant Services will
(through the cardholder’s issuing bank) credit or refund the
amount to the cardholder 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
cardholder. Merchant Services mitigates this risk by
withholding future settlements, retaining cash reserve
accounts or obtaining other collateral. In addition, Merchant
Services recognizes a valuation allowance that covers the
payment or performance risk to the Firm related to charge-
backs.
For the years ended December 31, 2019, 2018 and 2017,
Merchant Services processed an aggregate volume of
$1,511.5 billion, $1,366.1 billion, and $1,191.7 billion,
respectively, and the related losses from merchant charge-
backs were not material.
Clearing Services – Client Credit Risk
The Firm provides clearing services for clients by entering
into securities purchases and sales and derivative contracts
with CCPs, including ETDs such as futures and options, 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.
276
JPMorgan Chase & Co./2019 Form 10-K
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.
Refer to Note 5 for information on the derivatives that the
Firm executes for its own account and records in its
Consolidated Financial Statements.
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 to its clients.
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 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 also
include a pro rata share of the residual losses after applying
the guarantee fund. Additionally, certain clearing houses
require the Firm as a member to pay a pro rata share 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. In certain cases, 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 the Firm to be remote. Where the Firm’s maximum
possible exposure can be estimated, the amount is disclosed
in the table on page 273, in the Exchange & clearing house
guarantees and commitments line.
Sponsored member repo program
In 2018 the Firm commenced the sponsored member repo
program, wherein the Firm acts as a sponsoring member to
clear eligible overnight resale and repurchase agreements
through the Government Securities Division of the Fixed
Income Clearing Corporation (“FICC”) on behalf of clients
that become sponsored members under the FICC’s rules.
The Firm also guarantees to the FICC the prompt and full
payment and performance of its sponsored member clients’
respective obligations under the FICC’s rules. The Firm
minimizes its liability under these overnight guarantees by
obtaining a security interest in the cash or high-quality
securities collateral that the clients place with the clearing
house; therefore, the Firm expects the risk of loss to be
remote. The Firm’s maximum possible exposure, without
taking into consideration the associated collateral, is
included in the Exchange & clearing house guarantees and
commitments line on page 273. Refer to Note 11 for
additional information on credit risk mitigation practices on
resale agreements and the types of collateral pledged under
repurchase agreements.
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 273 of this Note. Refer to
Note 20 for additional information.
JPMorgan Chase & Co./2019 Form 10-K
277
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 and other
securities financing agreements, prime brokerage-related
held-for-investment customer receivables and derivative
contracts. Collateral is generally used under repurchase and
other securities financing agreements, to cover short sales,
and to collateralize derivative contracts and deposits.
The following table presents the fair value of collateral
accepted.
December 31, (in billions)
2019
2018
Collateral permitted to be sold or repledged,
delivered, or otherwise used
Collateral sold, repledged, delivered or
otherwise used
$ 1,282.5
$ 1,245.3
1,000.5
998.3
Notes to consolidated financial statements
Note 29 – Pledged assets and collateral
Pledged assets
The Firm pledges financial assets that it owns to maintain
potential borrowing capacity at discount windows with
Federal Reserve banks, various other central banks and
FHLBs. Additionally, the Firm pledges assets for other
purposes, including to collateralize repurchase and other
securities financing agreements, to cover short sales and to
collateralize derivative contracts and deposits. Certain of
these pledged assets may be sold or repledged or otherwise
used by the secured parties and are parenthetically
identified on the Consolidated balance sheets as assets
pledged.
The following table presents the Firm’s pledged assets.
December 31, (in billions)
2019
2018
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 pledged assets
$ 125.2
$ 104.0
80.2
83.7
478.9
475.3
$ 684.3
$ 663.0
Total pledged assets do not include assets of consolidated
VIEs; these assets are used to settle the liabilities of those
entities. Refer to Note 14 for additional information on
assets and liabilities of consolidated VIEs. Refer to Note 11
for additional information on the Firm’s securities financing
activities. Refer to Note 20 for additional information on the
Firm’s long-term debt. The significant components of the
Firm’s pledged assets were as follows.
December 31, (in billions)
Investment securities
Loans
Trading assets and other
Total pledged assets
2019
2018
$
35.9
$
59.5
460.4
188.0
440.1
163.4
$ 684.3
$ 663.0
278
JPMorgan Chase & Co./2019 Form 10-K
Note 30 – Litigation
Contingencies
As of December 31, 2019, the Firm and its subsidiaries and
affiliates are defendants, putative defendants or
respondents 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 several 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 $1.3 billion at December 31, 2019. This
estimated aggregate range of reasonably possible losses
was based upon information available as of that date 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
(if any) 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.
Federal Republic of Nigeria Litigation. JPMorgan Chase Bank,
N.A. operated an escrow and depository account for the
Federal Government of Nigeria (“FGN”) and two major
international oil companies. The account held
approximately $1.1 billion in connection with a dispute
among the clients over rights to an oil field. Following the
settlement of the dispute, JPMorgan Chase Bank, N.A. paid
out the monies in the account in 2011 and 2013 in
accordance with directions received from its clients. In
November 2017, the Federal Republic of Nigeria (“FRN”)
commenced a claim in the English High Court for
approximately $875 million in payments made out of the
accounts. The FRN, claiming to be the same entity as the
FGN, alleges that the payments were instructed as part of a
complex fraud not involving JPMorgan Chase Bank, N.A., but
that JPMorgan Chase Bank, N.A. was or should have been on
notice that the payments may be fraudulent. JPMorgan
Chase Bank, N.A. applied for summary judgment and was
unsuccessful. The claim is ongoing and no trial date has
been set.
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
and a term of probation ending in January 2020. The term
of probation has concluded, with the Firm remaining in
good standing throughout the probation period. The
Department of Labor has granted the Firm a five-year
exemption of disqualification that allows the Firm and its
affiliates to continue to rely on the Qualified Professional
Asset Manager exemption under the Employee Retirement
Income Security Act (“ERISA”) until January 2023. The Firm
will need to reapply in due course for a further exemption
to cover the remainder of the ten-year disqualification
period. In addition, the Firm has paid fines totaling
approximately $265 million in connection with the
settlement of FX-related investigations conducted by the
European Commission and the Swiss Competition
Commission which were announced in May 2019 and June
2019, respectively. 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.
JPMorgan Chase & Co./2019 Form 10-K
279
Notes to consolidated financial statements
In August 2018, the United States District Court for the
Southern District of New York granted final approval to the
Firm’s settlement of a consolidated class action brought by
U.S.-based plaintiffs, which principally alleged violations of
federal antitrust laws based on an alleged conspiracy to
manipulate foreign exchange rates and also sought
damages on behalf of persons who transacted in FX futures
and options on futures. Certain members of the settlement
class filed requests to the Court to be excluded from the
class, and certain of them filed a complaint against the Firm
and a number of other foreign exchange dealers in
November 2018. A number of these actions remain
pending. Further, putative class actions have been filed
against the Firm and a number of other foreign exchange
dealers on behalf of certain consumers who purchased
foreign currencies at allegedly inflated rates and purported
indirect purchasers of FX instruments; these actions also
remain pending in the District Court. In addition, some FX-
related individual and putative class actions based on
similar alleged underlying conduct have been filed outside
the U.S., including in the U.K., Israel and Australia.
Interchange Litigation. Groups 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 related rules in violation of
antitrust laws. In 2012, the parties initially settled the cases
for a cash payment, a temporary reduction of credit card
interchange, and modifications to certain credit card
network rules. In 2017, after the approval of that
settlement was reversed on appeal, the case was remanded
to the District Court for further proceedings consistent with
the appellate decision.
The original class action was divided into two separate
actions, one seeking primarily monetary relief and the other
seeking primarily injunctive relief. In September 2018, the
parties to the class action seeking monetary relief finalized
an agreement which amends and supersedes the prior
settlement agreement. Pursuant to this settlement, the
defendants collectively contributed an additional $900
million to the approximately $5.3 billion previously held in
escrow from the original settlement. In December 2019, the
amended agreement was approved by the District Court.
Certain merchants filed notices of appeal of the District
Court’s approval order. Based on the percentage of
merchants that opted out of the amended class settlement,
$700 million has been returned to the defendants from the
settlement escrow in accordance with the settlement
agreement. The class action seeking primarily injunctive
relief continues separately.
In addition, certain merchants have filed individual actions
raising similar allegations against Visa and Mastercard, as
well as against the Firm and other banks, and those actions
are proceeding.
LIBOR and Other Benchmark Rate Investigations and
Litigation. JPMorgan Chase has responded to inquiries from
various governmental agencies and entities around the
world relating primarily to the British Bankers Association’s
London Interbank Offered Rate (“LIBOR”) for various
currencies and the European Banking Federation’s Euro
Interbank Offered Rate (“EURIBOR”). The Swiss Competition
Commission’s investigation relating to EURIBOR, to which
the Firm and other banks are subject, continues. In
December 2016, the European Commission issued a
decision against the Firm and other banks finding an
infringement of European antitrust rules relating to
EURIBOR. The Firm has filed an appeal of that decision with
the European General Court, and that appeal is pending.
In addition, the Firm has been named as a defendant along
with other banks in a series of individual and putative class
actions related to benchmarks, including U.S. dollar LIBOR
during the period that it was administered by the BBA and,
in a separate consolidated putative class action, during the
period that it was administered by ICE Benchmark
Administration. 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 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
actions are in various stages of litigation.
In actions related to U.S. dollar LIBOR during the period that
it was administered by the BBA, the District Court dismissed
certain claims, including antitrust claims brought by some
plaintiffs whom the District Court found did not have
standing to assert such claims, and permitted certain claims
to proceed, including antitrust, Commodity Exchange Act,
Section 10(b) of the Securities Exchange Act and common
law claims. The plaintiffs whose antitrust claims were
dismissed for lack of standing have filed an appeal. The
District Court granted class certification of antitrust claims
related to bonds and interest rate swaps sold directly by the
defendants and denied class certification motions filed by
other plaintiffs. The Firm’s settlements of putative class
actions related to Swiss franc LIBOR, the Singapore
Interbank Offered Rate and the Singapore Swap Offer Rate
(“SIBOR”), the Australian Bank Bill Swap Reference Rate,
and certain of the putative class actions related to U.S.
dollar LIBOR remain subject to court approval. In the class
actions related to SIBOR and Swiss franc LIBOR, the District
Court concluded that the Court lacked subject matter
jurisdiction, and plaintiffs’ appeals of those decisions are
pending.
Metals and U.S. Treasuries Investigations and Litigation and
Related Inquiries. Various authorities, including the
Department of Justice’s Criminal Division, are conducting
investigations relating to trading practices in the metals
markets and related conduct. The Firm also is responding to
280
JPMorgan Chase & Co./2019 Form 10-K
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. The Firm’s legal expense/(benefit) was $239
million, $72 million and $(35) million for the years ended
December 31, 2019, 2018 and 2017, 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
consequences related to those matters. JPMorgan Chase
believes, based upon its current knowledge and after
consultation with counsel, consideration of the material
legal proceedings described above and after taking into
account its current litigation reserves and its estimated
aggregate range of possible losses, that the other 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.
related requests concerning similar trading-practices issues
in markets for other financial instruments, such as U.S.
Treasuries. The Firm continues to cooperate with these
investigations and is currently engaged in discussions with
various regulators about resolving their respective
investigations. There is no assurance that such discussions
will result in settlements. Several putative class action
complaints have been filed in the United States District
Court for the Southern District of New York against the Firm
and certain former employees, alleging a precious metals
futures and options price manipulation scheme in violation
of the Commodity Exchange Act. Some of the complaints
also allege unjust enrichment and deceptive acts or
practices under the General Business Law of the State of
New York. The Court consolidated these putative class
actions in February 2019. The Firm is also a defendant in a
consolidated action filed in the United States District Court
for the Southern District of New York alleging
monopolization of silver futures in violation of the Sherman
Act.
Wendel. Since 2012, the French criminal authorities 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. In January 2018, the Paris
Court of Appeal issued a decision cancelling the mise en
examen of JPMorgan Chase Bank, N.A. The Court of
Cassation, France’s highest court, ruled in September 2018
that a mise en examen is a prerequisite for an ordonnance
de renvoi and in January 2020 ordered the annulment of
the ordonnance de renvoi referring JPMorgan Chase Bank,
N.A. to the French tribunal correctionnel. 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.
JPMorgan Chase & Co./2019 Form 10-K
281
Notes to consolidated financial statements
Note 31 – 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,
booking location 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 32.
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(c)
Expense(d)
Income before
income tax
expense
Net income
Total assets
2019
Europe/Middle East/Africa
Asia-Pacific
Latin America/Caribbean
Total international
North America(a)
Total
2018(b)
Europe/Middle East/Africa
Asia-Pacific
Latin America/Caribbean
Total international
North America(a)
Total
2017(b)
Europe/Middle East/Africa
Asia-Pacific
Latin America/Caribbean
Total international
North America(a)
Total
$
15,902
$
9,977
$
5,925
$
4,084
$
388,353 (e)
$
$
$
$
7,270
2,411
25,583
90,044
5,014
1,561
16,552
54,530
2,256
850
9,031
1,511
613
6,208
183,408
47,836
619,597
35,514
30,223
2,067,782
115,627
$
71,082
$
44,545
$
36,431
$ 2,687,379
16,468
$
10,033
$
6,435
$
4,583
$
426,129 (e)
6,997
2,365
25,830
83,199
4,877
1,301
16,211
52,054
2,120
1,064
9,619
1,491
745
6,819
171,637
43,870
641,636
31,145
25,655
1,980,896
109,029
$
68,265
$
40,764
$
32,474
$ 2,622,532
15,505
$
9,235
$
6,270
$
4,320
$
409,204 (e)
5,835
1,959
23,299
77,406
4,523
1,527
15,285
49,520
1,312
432
8,014
27,886
725
274
5,319
19,122
163,823
42,403
615,430
1,918,170
$
100,705
$
64,805
$
35,900
$
24,441
$ 2,533,600
(a) Substantially reflects the U.S.
(b) The prior period amounts have been revised to conform with the current period presentation.
(c) Revenue is composed of net interest income and noninterest revenue.
(d) Expense is composed of noninterest expense and the provision for credit losses.
(e) Total assets for the U.K. were approximately $305 billion, $297 billion, and $310 billion at December 31, 2019, 2018 and 2017, respectively.
282
JPMorgan Chase & Co./2019 Form 10-K
Note 32 – Business segments
The Firm is managed on an LOB basis. There are four major
reportable business segments – Consumer & Community
Banking, Corporate & Investment Bank, Commercial
Banking and Asset & Wealth Management. In addition, there
is a Corporate segment. The business segments are
determined based on the products and services provided, or
the type of customer served, and they reflect the manner in
which financial information is currently evaluated by the
Firm’s Operating Committee. Segment results are presented
on a managed basis. Refer to Segment results of this
footnote for a further discussion of JPMorgan Chase’s
business segments.
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
Consumer & Community Banking offers services to
consumers and businesses through bank branches, ATMs,
digital (including mobile and online) 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 Corporate & Investment Bank, which consists of
Banking and Markets & Securities 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 & Securities
Services is a global market-maker in cash securities and
derivative instruments, and also offers sophisticated risk
management solutions, prime brokerage, and
research. Markets & Securities 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
Commercial Banking provides comprehensive financial
solutions, including lending, treasury services, investment
banking and asset management products across three
primary client segments: Middle Market Banking, Corporate
Client Banking and Commercial Real Estate Banking. Other
includes amounts not aligned with a primary client
segment.
Middle Market Banking covers small business and midsized
corporations, local governments and nonprofit clients.
Corporate Client Banking covers large corporations.
Commercial Real Estate Banking covers investors,
developers, and owners of multifamily, office, retail,
industrial and affordable housing properties.
Asset & Wealth Management
Asset & Wealth Management, with client assets of $3.2
trillion, is a global leader in investment and wealth
management. AWM clients include institutions, high-net-
worth individuals and retail investors in 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 Chief
Investment Office and Other Corporate, which includes
corporate staff functions and expense that is centrally
managed. Treasury and CIO is predominantly responsible
for measuring, monitoring, reporting and managing the
Firm’s liquidity, funding, capital, structural interest rate and
foreign exchange risks. The major Other Corporate functions
include Real Estate, Technology, Legal, Corporate Finance,
Human Resources, Internal Audit, Risk Management,
Compliance, Control Management, Corporate Responsibility
and various Other Corporate groups.
JPMorgan Chase & Co./2019 Form 10-K
283
As of or for the year ended
December 31,
(in millions, except ratios)
Noninterest revenue
Net interest income
Total net revenue
Notes to consolidated financial statements
Segment results
The following table provides a summary of the Firm’s
segment results as of or for the years ended December 31,
2019, 2018 and 2017, 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 for the Firm (and each of the
reportable business segments) on an FTE basis. Accordingly,
revenue from investments that receive tax credits and tax-
exempt securities is presented in the managed results on a
basis comparable to taxable investments and securities.
This allows 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/(benefit). These adjustments have no impact on
net income as reported by the Firm as a whole or by the
LOBs.
Segment results and reconciliation
(Table continued on next page)
Business segment capital allocation
Each business segment is allocated capital by taking into
consideration a variety of factors including capital levels of
similarly rated peers and applicable regulatory capital
requirements. ROE is measured and internal targets for
expected returns are established as key measures of a
business segment’s performance.
The Firm’s allocation methodology incorporates Basel III
Standardized RWA, Basel III Advanced RWA, leverage, the
GSIB surcharge, and a simulation of capital in a severe
stress environment. Periodically, the assumptions and
methodologies used to allocate capital are assessed and as
a result, the capital allocated to the LOBs may change.
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
2017
$ 18,642
$ 16,260
$ 14,710
$ 29,142
$ 26,968
$ 24,539
$
2,430
$
2,343
$
2,522
$ 10,816
$ 10,539
$ 10,456
Provision for credit losses
4,952
4,753
5,572
277
(60)
(45)
37,241
35,819
31,775
9,156
9,480
10,118
55,883
52,079
46,485
38,298
36,448
34,657
6,554
8,984
296
6,716
9,059
6,083
8,605
3,500
3,537
3,379
14,316
14,076
13,835
129
(276)
61
53
39
Noninterest expense
28,896
27,835
26,062
21,519
20,918
19,407
3,500
3,386
3,327
10,515
10,353
10,218
Income/(loss) before income
tax expense/(benefit)
22,035
19,491
14,851
16,502
15,590
15,295
Income tax expense/(benefit)
5,394
4,639
5,456
4,580
3,817
4,482
5,188
1,264
5,544
1,307
5,554
2,015
Net income/(loss)
Average equity
Total assets
Return on equity
Overhead ratio
$ 16,641
$ 14,852
$
9,395
$ 11,922
$ 11,773
$ 10,813
$
3,924
$
4,237
$
3,539
$
2,833
$ 52,000
$ 51,000
$ 51,000
$ 80,000
$ 70,000
$ 70,000
$ 22,000
$ 20,000
$ 20,000
$ 10,500
539,090
557,441
552,601
908,153
903,051
826,384
220,514
220,229
221,228
182,004
170,024
151,909
31%
52
28%
53
17%
56
14%
16%
56
57
14%
56
17%
39
20%
37
17%
39
26%
73
31%
74
25%
74
3,740
3,670
907
817
2,853
9,000
$
$
$
$
3,578
1,241
2,337
9,000
284
JPMorgan Chase & Co./2019 Form 10-K
(Table continued from previous page)
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
Corporate
Reconciling Items(a)
Total
2019
2018
2017
2019
2018
2017
2019
2018
2017
$
(114) $
(263) $
1,085
$
(2,534) $
(1,877)
$
(2,704) (b) $
58,382
$
53,970
$
50,608
1,325
1,211
(1)
1,067
145
(966)
135
(128)
(4)
902
(1,026)
215
55
1,140
—
501
639
2,282
(531)
(628)
(3,065)
(2,505)
—
—
—
—
(1,313)
(4,017)
—
—
57,245
55,059
50,097
115,627
109,029
100,705
5,585
4,871
5,290
65,497
63,394
59,515
(3,065)
(2,505)
(4,017)
44,545
40,764
(3,065)
(2,505)
(4,017) (b)
8,114
8,290
$
$
1,111 $
(1,241) $
(1,643)
68,407 $
79,222 $
80,350
837,618
771,787
781,478
$
$
NM
NM
NM
NM
NM
NM
— $
— $
NA
NM
NM
—
—
$
$
NA
NM
NM
—
—
NA
NM
NM
$
36,431
$
32,474
$ 232,907
$ 229,222
2,687,379
2,622,532
2,533,600
15%
57
13%
58
10%
59
35,900
11,459
24,441
230,350
$
$
(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./2019 Form 10-K
285
Note 33 – Parent Company
The following tables present Parent Company-only financial
statements.
Statements of income and comprehensive income
Year ended December 31,
(in millions)
2019
2018
2017
Income
Dividends from subsidiaries and
affiliates:
Bank and bank holding company
Non-bank(a)
Interest income from subsidiaries
Other interest income
$ 26,000
—
223
—
$ 32,501
2
216
—
$ 13,000
540
72
41
Other income from subsidiaries:
Bank and bank holding company
Non-bank
Other income
Total income
Expense
Interest expense to subsidiaries
and affiliates(a)
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
2,738
197
(1,731)
27,427
(5,303)
13,246
1,992
9,935
515
(444)
888
33,678
2,291
4,581
1,793
8,665
1,553
(88)
(623)
14,495
400
5,202
(1,897)
3,705
17,492
2,033
25,013
1,838
10,790
1,007
16,906
5,623
12,644
Net income
Other comprehensive income, net
Comprehensive income
$ 36,431
3,076
$ 39,507
$ 32,474
(1,476)
$ 30,998
$ 24,441
1,056
$ 25,497
Balance sheets
December 31, (in millions)
Assets
2019
2018
Cash and due from banks
$
32
$
Deposits with banking subsidiaries
Trading assets
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
Other assets
Total assets
Liabilities and stockholders’ equity
Borrowings from, and payables to, subsidiaries
and affiliates(a)
Short-term borrowings
Other liabilities
Long-term debt(b)(c)
Total liabilities(c)
Total stockholders’ equity
5,309
3,011
2,358
84
55
5,315
3,304
3,334
74
471,207
449,628
1,044
10,699
1,077
10,478
$ 493,744
$ 473,265
2,616
9,288
197,100
232,414
261,330
2,672
8,821
185,240
216,750
256,515
Total liabilities and stockholders’ equity
$ 493,744
$ 473,265
Statements of cash flows
Year ended December 31,
(in millions)
Operating activities
Net income
Less: Net income of subsidiaries
and affiliates(a)
Parent company net loss
Cash dividends from subsidiaries
and affiliates(a)
Other operating adjustments
Net cash provided by/(used in)
operating activities
Investing activities
Net change in:
2019
2018
2017
$ 36,431
$ 32,474
$ 24,441
42,906
(6,475)
26,000
9,862
38,125
26,185
(5,651)
(1,744)
32,501
13,540
(4,400)
4,635
29,387
22,450
16,431
Other changes in loans, net
—
—
78
Advances to and investments in
subsidiaries and affiliates, net
All other investing activities, net
Net cash provided by/(used in)
investing activities
Financing activities
Net change in:
Borrowings from subsidiaries
and affiliates(a)
Short-term borrowings
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 used in financing
activities
Net decrease in cash and due
from banks and deposits with
banking subsidiaries
Cash and due from banks and
deposits with banking
subsidiaries at the beginning of
the year
Cash and due from banks and
deposits with banking
subsidiaries at the end of the
year
Cash interest paid
Cash income taxes paid, net(d)
(6) (e)
8,036
71
65
63
8,099
(280)
49
(153)
2,941
(56)
(2,273)
13,862
(678)
(481)
25,569
25,845
25,855
(21,226)
(21,956)
(29,812)
5,000
(4,075)
(24,001)
(12,343)
(1,290)
1,696
1,258
(1,696)
(1,258)
(19,983)
(15,410)
(10,109)
(1,526)
(8,993)
(1,361)
(29,481)
(30,680)
(16,340)
(29)
(131)
(62)
5,370
5,501
5,563
$
$
5,341
7,957
3,910
$
$
5,370
$ 5,501
6,911
$ 5,426
1,782
1,775
(a) Affiliates include trusts that issued guaranteed capital debt securities (“issuer
trusts”).
(b) At December 31, 2019, long-term debt that contractually matures in 2020
through 2024 totaled $16.4 billion, $20.4 billion, $12.7 billion, $18.6 billion,
and $18.2 billion, respectively.
(c) Refer to Notes 20 and 28 for information regarding the Parent Company’s
(d) Represents payments, net of refunds, made by the Parent Company to various
taxing authorities and includes taxes paid on behalf of certain of its subsidiaries
that are subsequently reimbursed. The reimbursements were $6.4 billion, $1.2
billion, and $4.1 billion for the years ended December 31, 2019, 2018, and
2017, respectively.
(e) As a result of the merger of Chase Bank USA, N.A. with and into JPMorgan Chase
Bank, N.A., JPMorgan Chase Bank, N.A. distributed $13.5 billion to the Parent
company as a return of capital, which the Parent company contributed to the
IHC.
$ 23,410
$ 20,017
guarantees of its subsidiaries’ obligations.
286
JPMorgan Chase & Co./2019 Form 10-K
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 noted)
Selected income statement data
Total net revenue
Total noninterest expense
Pre-provision profit
Provision for credit losses
Income before income tax expense
Income tax expense
Net income
Earnings per share data
Net income: Basic
Diluted
Average shares: Basic
Diluted
Market and per common share data
Market capitalization
Common shares at period-end
Book value per share
TBVPS(a)
Cash dividends declared per share
Selected ratios and metrics
ROE(b)
ROTCE(a)(b)
ROA(b)
Overhead ratio
Loans-to-deposits ratio
LCR (average)(c)
CET1 capital ratio(d)
Tier 1 capital ratio(d)
Total capital ratio(d)
Tier 1 leverage ratio(d)
SLR(e)
Selected balance sheet data (period-end)
Trading assets
Investment Securities
Loans
Core loans
Average core loans
Total assets
Deposits
Long-term debt
Common stockholders’ equity
Total stockholders’ equity
Headcount
Credit quality metrics
2019
2018
4th quarter
3rd quarter
2nd quarter
1st quarter
4th quarter
3rd quarter
2nd quarter
1st quarter
$
$
$
$
$
$
$
$
$
$
28,331
16,339
11,992
1,427
10,565
2,045
8,520
2.58
2.57
3,140.7
3,148.5
429,913
3,084.0
75.98
60.98
0.90
14%
17
1.22
58
61
116
12.4
14.1
16.0
7.9
6.3
411,103
398,239
959,769
916,144
903,707
2,687,379
1,562,431
291,498
234,337
261,330
256,981
29,341
16,422
12,919
1,514
11,405
2,325
9,080
2.69
2.68
3,198.5
3,207.2
369,133
3,136.5
75.24
60.48
0.90
15%
18
1.30
56
62
115
12.3
14.1
15.9
7.9
6.3
495,875
394,251
945,218
899,572
900,567
2,764,661
1,525,261
296,472
235,985
264,348
257,444
$
$
$
$
$
$
$
$
$
$
28,832
16,341
12,491
1,149
11,342
1,690
9,652
2.83
2.82
3,250.6
3,259.7
357,479
3,197.5
73.88
59.52
0.80
16%
20
1.41
57
63
113
12.2
14.0
15.8
8.0
6.4
523,373
307,264
956,889
908,971
905,786
2,727,379
1,524,361
288,869
236,222
263,215
254,983
29,123
16,395
12,728
1,495
11,233
2,054
9,179
2.65
2.65
3,298.0
3,308.2
328,387
3,244.0
71.78
57.62
0.80
$
$
$
$
26,109
15,720
10,389
1,548
8,841
1,775
7,066
1.99
1.98
3,335.8
3,347.3
319,780
3,275.8
70.35
56.33
0.80
16%
19
1.39
56
64
111
12.1
13.8
15.7
8.1
6.4
12%
14
1.06
60
67
113
12.0
13.7
15.5
8.1
6.4
533,402
267,365
956,245
905,943
916,567
2,737,188
1,493,441
290,893
232,844
259,837
255,998
$
$
$
413,714
261,828
984,554
931,856
907,271
2,622,532
1,470,666
282,031
230,447
256,515
256,105
$
$
$
$
$
27,260
15,623
11,637
948
10,689
2,309
8,380
2.35
2.34
3,376.1
3,394.3
375,239
3,325.4
69.52
55.68
0.80
14%
17
1.28
57
65
115
12.0
13.6
15.4
8.2
6.5
419,827
231,398
954,318
899,006
894,279
2,615,183
1,458,762
270,124
231,192
258,956
255,313
$
$
$
$
$
$
$
$
$
$
27,753
15,971
11,782
1,210
10,572
2,256
8,316
2.31
2.29
3,415.2
3,434.7
350,204
3,360.9
68.85
55.14
0.56
14%
17
1.28
58
65
115
12.0
13.6
15.5
8.2
6.5
418,799
233,015
948,414
889,433
877,640
2,590,050
1,452,122
273,114
231,390
257,458
252,942
27,907
16,080
11,827
1,165
10,662
1,950
8,712
2.38
2.37
3,458.3
3,479.5
374,423
3,404.8
67.59
54.05
0.56
15%
19
1.37
58
63
115
11.8
13.5
15.3
8.2
6.5
412,282
238,188
934,424
870,536
861,089
2,609,785
1,486,961
274,449
230,133
256,201
253,707
Allowance for credit losses
Allowance for loan losses to total retained loans
Allowance for loan losses to retained loans
excluding purchased credit-impaired loans(f)
Nonperforming assets
Net charge-offs
Net charge-off rate
$
14,314
$
14,400
$
14,295
$
14,591
$
14,500
$
14,225
$
14,367
$
14,482
1.39%
1.42%
1.39%
1.43%
1.39%
1.39%
1.41%
1.44%
$
1.31
4,497
1,494
$
1.32
5,343
1,371
$
1.28
5,260
1,403
$
1.28
5,616
1,361
$
1.23
5,190
1,236
$
1.23
5,034
1,033
$
1.22
5,767
1,252
$
1.25
6,364
1,335
0.63%
0.58%
0.60%
0.58%
0.52%
0.43%
0.54%
0.59%
(a) TBVPS and ROTCE are non-GAAP financial measures. Refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance
Measures on pages 57–59 for further discussion of these measures.
(b) Quarterly ratios are based upon annualized amounts.
(c) The percentage represents the Firm’s reported average LCR.
(d) The Basel III capital rules became fully phased-in effective January 1, 2019. Prior to this date, the required capital measures were subject to the transitional rules
which, as of December 31, 2018 and September 30, 2018, were the same on a fully phased-in and transitional basis. Refer to Capital Risk Management on pages
85–92 for additional information on these measures.
(e) The Basel III rule for the SLR became fully phased-in effective January 1, 2018. Refer to Capital Risk Management on pages 85–92 for additional information on
these measures.
(f) This ratio is a non-GAAP financial measure as it excludes the impact of residential real estate PCI loans. Refer to Explanation and Reconciliation of the Firm’s Use of
Non-GAAP Financial Measures and Key Performance Measures on pages 57–59, and the Allowance for credit losses on pages 116–117 for further discussion of this
measure.
JPMorgan Chase & Co./2019 Form 10-K
287
Distribution of assets, liabilities and stockholders’ equity; interest rates and interest differentials
Consolidated average balance sheets, interest and rates
Provided below is a summary of JPMorgan Chase’s
consolidated average balances, interest and rates on a
taxable-equivalent basis for the years 2017 through 2019.
Income computed on a taxable-equivalent basis is the
income reported in the Consolidated statements of income,
adjusted to present interest income and 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 24% in both
2019 and 2018, and 37% in 2017.
(Table continued on next page)
(Unaudited)
Year ended December 31,
(Taxable-equivalent interest and rates; in millions, except rates)
Assets
Deposits with banks
Federal funds sold and securities purchased under resale agreements
Securities borrowed(a)
Trading assets – debt instruments(a)
Taxable securities
Non-taxable securities(b)
Total investment securities
Loans
All other interest-earning assets(a)(c)
Total interest-earning assets(a)
Allowance for loan losses
Cash and due from banks
Trading assets – equity and other instruments(a)
Trading assets – derivative receivables
Goodwill, MSRs and other intangible assets
All other noninterest-earning assets
Total assets
Liabilities
Interest-bearing deposits(a)
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings(a)(d)
Trading liabilities – debt and all other interest-bearing liabilities(a)(e)(f)
Beneficial interests issued by consolidated VIEs
Long-term debt(a)
Total interest-bearing liabilities(a)
Noninterest-bearing deposits(a)
Trading liabilities – equity and other instruments(a)(f)
Trading liabilities – derivative payables
All other liabilities, including the allowance for lending-related commitments(a)
Total liabilities
Stockholders’ equity
Preferred stock
Common stockholders’ equity
Total stockholders’ equity
Total liabilities and stockholders’ equity
Interest rate spread(a)
Net interest income and net yield on interest-earning assets(a)
Rate
1.39%
2.23
1.20
3.25
2.80
4.63
3.01
5.29
3.93
3.61
(j)
0.80%
2.03
2.38
1.42
2.52
3.55
1.45
Average
balance
2019
Interest(h)
3,887
6,146
1,574
10,848
7,962
1,655
9,617
50,532 (i)
1,967
84,571
8,957
4,630
1,248
2,585
568
8,807
26,795
$
$
$
$
$
280,004
275,429
131,291
334,269
284,127
35,748
319,875
954,539
50,084
2,345,491
(13,331)
20,645
114,323
53,786
53,683
167,244
2,741,841
1,115,848
227,994
52,426
182,105
22,501
247,968
1,848,842
407,219
31,085
42,560
151,717
2,481,423
27,511
232,907
260,418 (g)
$
2,741,841
$
57,776
2.16%
2.46
(a) In the second quarter of 2019, the Firm implemented certain presentation changes that impacted interest income and interest expense, but had no effect on net
interest income. These changes were made to align the accounting treatment between the balance sheet and the related interest income or expense, primarily by
offsetting interest income and expense for certain prime brokerage-related held-for-investment customer receivables and payables that are currently presented as a
single margin account on the balance sheet. In addition, the Firm reclassified balances related to certain instruments and structured notes from interest-earning/
bearing to noninterest-earning/bearing assets and liabilities as the associated returns are recorded in principal transactions revenue and not in net interest income.
These changes were applied retrospectively and, accordingly, prior period amounts were revised to conform with the current presentation.
(b) Represents securities that are tax-exempt for U.S. federal income tax purposes.
(c) Includes prime brokerage-related held-for-investment customer receivables, which are classified in accrued interest and accounts receivable, and all other interest-
earning assets, which are classified in other assets on the Consolidated Balance Sheets.
(d) Includes commercial paper.
(e) All other interest-bearing liabilities include prime brokerage-related customer payables.
288
JPMorgan Chase & Co./2019 Form 10-K
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.
Refer to Note 12 for additional information on nonaccrual
loans, including interest accrued.
(Table continued from previous page)
2018
2017
Average
balance
Interest(h)
Rate
Average
balance
Interest(h)
Rate
5,907
3,819
913
8,763
5,653
1,987
7,640
47,796 (i)
1,890
76,728
5,973
3,066
1,144
2,387
493
7,978
21,041
1.46%
1.76
0.79
3.58
2.91
4.68
3.23
5.06
3.87
3.47
(j)
0.57%
1.62
2.08
1.34
2.34
3.28
1.22
$
$
$
$
$
405,514
217,150
115,082
244,771
194,232
42,456
236,688
944,885
48,818
2,212,908
(13,269)
21,694
118,152
60,734
54,669
154,010
2,608,898
1,045,037
189,282
54,993
177,788
21,079
243,246
1,731,425
411,424
34,667
43,075
132,836
2,353,427
26,249
229,222
255,471 (g)
$
2,608,898
4,238
2,327
94
7,714
5,534
2,769
8,303
41,296 (i)
1,312
65,284
2,857
1,611
481
1,669
503
6,753
13,874
0.96%
1.21
0.10
3.39
2.48
6.14
3.09
4.56
3.16
3.01
(j)
0.28%
0.86
1.26
0.97
1.55
2.56
0.82
$
$
$
$
$
439,663
191,820
95,324
227,588
223,592
45,086
268,678
906,397
41,504
2,170,974
(13,453)
20,432
125,530
59,588
53,999
138,992
2,556,062
1,006,184
187,386
38,095
171,731
32,457
263,928
1,699,781
411,202
21,104
44,122
123,291
2,299,500
26,212
230,350
256,562 (g)
$
2,556,062
$
55,687
2.25%
2.52
$
51,410
2.19%
2.37
(f) The combined balance of trading liabilities – debt and equity instruments was $101.0 billion, $107.0 billion and $90.7 billion for the years ended December 31,
2019, 2018 and 2017, respectively.
(g) The ratio of average stockholders’ equity to average assets was 9.5%, 9.8% and 10.0% for the years ended December 31, 2019, 2018 and 2017, respectively.
The return on average stockholders’ equity, based on net income, was 14.0%, 12.7% and 9.5% for the years ended December 31, 2019, 2018 and 2017,
respectively.
(h) Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(i) Fees and commissions on loans included in loan interest amounted to $1.2 billion each for the years ended December 31, 2019 and 2018, and $1.0 billion for
2017.
(j) The annualized rate for securities based on amortized cost was 3.05%, 3.25% and 3.13% for the years ended December 31, 2019, 2018 and 2017, respectively,
and does not give effect to changes in fair value that are reflected in AOCI.
JPMorgan Chase & Co./2019 Form 10-K
289
Interest rates and interest differential analysis of net interest income – U.S. and non-U.S.
Presented below is a summary of interest and rates
segregated between U.S. and non-U.S. operations for the
years 2017 through 2019. 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)
(Unaudited)
Year ended December 31,
(Taxable-equivalent interest and rates; in millions, except rates)
Interest-earning assets
Deposits with banks:
U.S.
Non-U.S.
Federal funds sold and securities purchased under resale agreements:
U.S.
Non-U.S.
Securities borrowed:(a)
U.S.
Non-U.S.
Trading assets – debt instruments:
U.S.
Non-U.S.
Investment securities:
U.S.
Non-U.S.
Loans:
U.S.
Non-U.S.
All other interest-earning assets, predominantly U.S.(a)
Total interest-earning assets(a)
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)(b)
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(a)
Noninterest-bearing liabilities(c)
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
2019
Average balance
Interest
Rate
$
165,066 $
114,938
150,205
125,224
92,625
38,666
223,270
110,999
287,961
31,914
875,869
78,670
50,084
2,345,491
850,493
265,355
164,284
63,710
147,247
87,284
22,501
241,914
6,054
(42,947)
42,947
1,848,842
496,649
2,345,491 $
$
$
3,588
299
4,068
2,078
1,423
151
7,125
3,723
8,963
654
48,097
2,435
1,967
84,571
6,896
2,061
3,989
641
2,574
1,259
568
8,766
41
(1,414)
1,414
26,795
26,795
57,776
52,217
5,559
2.17%
0.26
2.71
1.66
1.54
0.39
3.19
3.35
3.11
2.05
5.49
3.10
3.93
3.61
0.81
0.78
2.43
1.01
1.75
1.44
2.52
3.62
0.68
—
—
1.45
1.14%
2.46%
2.86
1.07
24.5
22.1
(a) In the second quarter of 2019, the Firm implemented certain presentation changes that impacted interest income and interest expense, but had no effect on net
interest income. These changes were made to align the accounting treatment between the balance sheet and the related interest income or expense, primarily by
offsetting interest income and expense for certain prime brokerage-related held-for-investment customer receivables and payables that are currently presented as a
single margin account on the balance sheet. These changes were applied retrospectively and, accordingly, prior period amounts were revised to conform with the
current presentation.
(b) Includes commercial paper.
(c) Represents the amount of noninterest-bearing liabilities funding interest-earning assets.
290
JPMorgan Chase & Co./2019 Form 10-K
Refer to the “Net interest income” discussion in Consolidated Results of Operations on pages 48–51 for further information.
(Table continued from previous page)
2018
2017
Average balance
Interest
Rate
Average balance
Interest
Rate
$
305,117 $
100,397
102,144
115,006
77,027
38,055
140,221
104,550
200,883
35,805
864,149
80,736
48,818
2,212,908
802,786
242,251
117,754
71,528
147,512
85,269
21,079
239,718
3,528
(51,933)
51,933
1,731,425
481,483
2,212,908 $
$
$
5,703
204
2,427
1,392
825
88
5,068
3,695
6,943
697
45,395
2,401
1,890
76,728
4,562
1,411
2,562
504
2,225
1,306
493
7,954
24
(746)
746
21,041
21,041
55,687
50,236
5,451
1.87%
0.20
$
366,814 $
72,849
90,879
100,941
68,110
27,214
128,157
99,431
223,140
45,538
832,608
73,789
41,504
2,170,974
769,596
236,588
115,574
71,812
134,826
75,000
32,457
262,817
1,111
(2,874)
2,874
1,699,781
471,193
2,170,974 $
$
$
2.38
1.21
1.07
0.23
3.61
3.53
3.46
1.95
5.25
2.97
3.87
3.47
0.57
0.58
2.18
0.70
1.51
1.53
2.34
3.32
0.68
—
—
1.22
0.95%
2.52%
2.95
1.05
24.7
22.3
4,093
145
1,360
967
65
29
4,186
3,528
7,490
813
39,439
1,857
1,312
65,284
2,223
634
1,349
262
927
1,223
503
6,745
8
(25)
25
13,874
13,874
51,410
46,059
5,351
1.12%
0.20
1.50
0.96
0.11
0.11
3.27
3.55
3.36
1.79
4.74
2.52
3.16
3.01
0.29
0.27
1.17
0.37
0.69
1.63
1.55
2.57
0.72
—
—
0.82
0.64%
2.37%
2.69
1.16
22.5
21.1
JPMorgan Chase & Co./2019 Form 10-K
291
Changes in net interest income, volume and rate analysis
The table below presents an attribution of net interest income between volume and rate. The attribution between volume and rate
is calculated using annual average balances for each category of assets and liabilities shown in the table and the corresponding
annual rates (refer to pages 288–292 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 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.
(Unaudited)
2019 versus 2018
2018 versus 2017
Increase/(decrease) due
to change in:
Increase/(decrease) due
to change in:
Year ended December 31,
(On a taxable-equivalent basis; in millions)
Volume
Rate
Net
change
Volume
Rate
Net
change
Interest-earning assets
Deposits with banks:
U.S.
Non-U.S.
Federal funds sold and securities purchased under resale
$
(3,030) $
35
$
915
60
(2,115)
95
$
(1,141) $
59
$
2,751
—
1,610
59
agreements:
U.S.
Non-U.S.
Securities borrowed:(a)
U.S.
Non-U.S.
Trading assets – debt instruments:
U.S.
Non-U.S.
Investment securities:
U.S.
Non-U.S.
Loans:
U.S.
Non-U.S.
All other interest-earning assets, predominantly U.S.(a)
Change in interest income(a)
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)(b)
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.
1,304
168
236
2
2,646
216
2,723
(79)
628
(71)
48
4,826
337
518
362
61
(589)
(188)
(703)
36
2,074
105
29
3,017
407
165
1,927
485
1,133
(85)
(5)
30
37
93
17
294
222
354
(77)
38
719
—
1,641
686
598
63
2,057
28
2,020
(43)
2,702
34
77
7,843
2,334
650
1,427
137
349
(47)
75
812
17
267
173
106
26
446
187
(770)
(189)
1,710
212
283
1,369
184
44
46
5
203
158
800
252
654
33
436
(20)
223
73
4,246
332
295
1,067
425
760
59
882
167
(547)
(116)
5,956
544
578
10,075
11,444
2,155
733
1,167
237
1,095
(75)
2,339
777
1,213
242
1,298
83
(266)
256
(10)
(762)
16
1,971
—
1,209
16
293
(293)
1,792
(961)
961
3,962
(668)
668
5,754
(704)
704
(372)
(17)
17
7,539
(721)
721
7,167
Change in interest expense(a)
4,277
Change in net interest income
(a) In the second quarter of 2019, the Firm implemented certain presentation changes that impacted interest income and interest expense, but had no effect on net interest
income. These changes were made to align the accounting treatment between the balance sheet and the related interest income or expense, primarily by offsetting
interest income and expense for certain prime brokerage-related held-for-investment customer receivables and payables that are currently presented as a single margin
account on the balance sheet. These changes were applied retrospectively and, accordingly, prior period amounts were revised to conform with the current presentation.
(945) $
1,741
3,034
2,089
2,536
$
$
$
$
$
(b) Includes commercial paper.
292
JPMorgan Chase & Co./2019 Form 10-K
Glossary of Terms and Acronyms
2019 Form 10-K: Annual report on Form 10-K for year
ended December 31, 2019, filed with the U.S. Securities
and Exchange Commission.
CFP: Contingency funding plan
Chase Bank USA, N.A.: Chase Bank USA, National
Association
ABS: Asset-backed securities
AFS: Available-for-sale
ALCO: Asset Liability Committee
AWM: Asset & Wealth Management
AOCI: Accumulated other comprehensive income/(loss)
ARM: Adjustable rate mortgage(s)
AUC: Assets under custody
AUM: “Assets under management”: Represent assets
managed by AWM on behalf of its Private Banking,
Institutional and Retail clients. Includes “Committed capital
not Called.”
Auto loan and lease origination volume: Dollar amount of
auto loans and leases originated.
Beneficial interests issued by consolidated VIEs:
Represents the interest of third-party holders of debt,
equity securities, or other obligations, issued by VIEs that
JPMorgan Chase consolidates.
Benefit obligation: Refers to the projected benefit
obligation for pension plans and the accumulated
postretirement benefit obligation for OPEB plans.
BHC: Bank holding company
Card Services includes the Credit Card and 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 a counterparty to trades with market participants
through novation, an open offer system, or another legally
binding arrangement.
CDS: Credit default swaps
CECL: Current Expected Credit Losses
CEO: Chief Executive Officer
CET1 Capital: Common equity Tier 1 capital
CFTC: Commodity Futures Trading Commission
CFO: Chief Financial Officer
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.
Commercial Card: provides a wide range of payment
services to corporate and public sector clients worldwide
through the commercial card products. Services include
procurement, corporate travel and entertainment, expense
management services, and business-to-business payment
solutions.
Core loans: Represents loans 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
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
JPMorgan Chase & Co./2019 Form 10-K
293
Glossary of Terms and Acronyms
mention, substandard and doubtful categories for
regulatory purposes.
CRO: Chief Risk Officer
CRSC: Conduct Risk Steering Committee
CTC: CIO, Treasury and Corporate
CVA: Credit valuation adjustment
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.
Dodd-Frank Act: Wall Street Reform and Consumer
Protection Act
DVA: Debit valuation adjustment
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.
ERISA: Employee Retirement Income Security Act of 1974
EPS: Earnings per share
FFIEC: Federal Financial Institutions Examination Council
FHA: Federal Housing Administration
FHLB: Federal Home Loan Bank
FICC: The Fixed Income Clearing Corporation
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.
Firm: JPMorgan Chase & Co.
Forward points: Represents the interest rate differential
between two currencies, which is either added to or
subtracted from the current exchange rate (i.e., “spot rate”)
to determine the forward exchange rate.
FRC: Firmwide Risk Committee
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
G7: Group of Seven nations: Countries in the G7 are
Canada, France, Germany, Italy, Japan, the U.K. and the U.S.
G7 government bonds: Bonds issued by the government of
one of the G7 nations.
Ginnie Mae: Government National Mortgage Association
GSIB: Global systemically important banks
Headcount-related expense: Includes salary and benefits
(excluding performance-based incentives), and other
noncompensation costs related to employees.
ETD: “Exchange-traded derivatives”: Derivative contracts
that are executed on an exchange and settled via a central
clearing house.
HELOAN: Home equity loan
HELOC: Home equity line of credit
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
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 number.
Federal Reserve: The Board of the Governors of the Federal
Reserve System
HQLA: High-quality liquid assets
HTM: Held-to-maturity
294
JPMorgan Chase & Co./2019 Form 10-K
Glossary of Terms and Acronyms
IBOR: Interbank Offered Rate
date.
ICAAP: Internal capital adequacy assessment process
IDI: Insured depository institutions
IHC: JPMorgan Chase Holdings LLC, an intermediate holding
company
Impaired loan: Impaired loans are loans measured 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
Investment-grade: An indication of credit quality based on
JPMorgan Chase’s internal risk assessment. The Firm
considers ratings of BBB-/Baa3 or higher as investment-
grade.
IPO: Initial public offering
ISDA: International Swaps and Derivatives Association
JPMorgan Chase: JPMorgan Chase & Co.
JPMorgan Chase Bank, N.A.: JPMorgan Chase Bank,
National Association
JPMorgan Securities: J.P. Morgan Securities LLC
Loan-equivalent: Represents the portion of the unused
commitment or other contingent exposure that is expected,
based on historical portfolio experience, to become drawn
prior to an event of a default by an obligor.
LCR: Liquidity coverage ratio
LDA: Loss Distribution Approach
LGD: Loss given default
LIBOR: London Interbank Offered Rate
LLC: Limited Liability Company
LOB: Line of business
LOB CROs: Line of Business and CTC Chief Risk Officers
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
Current estimated LTV ratio
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 Firmwide
financial results that includes reclassifications to present
revenue on a fully taxable-equivalent basis. Management
also uses this financial measure at the segment level,
because it believes this provides information to enable
investors to understand the underlying operational
performance and trends of the particular business segment
and facilitates a comparison of the business segment 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).
Measurement alternative: Measures equity securities
without readily determinable fair values at cost less
impairment (if any), plus or minus observable price changes
from an identical or similar investment of the same issuer.
MBS: Mortgage-backed securities
MD&A: Management’s discussion and analysis
Merchant Services: is a business that primarily processes
transactions for merchants.
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.
JPMorgan Chase & Co./2019 Form 10-K
295
Glossary of Terms and Acronyms
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
296
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 interchange income includes the following
components:
• Interchange income: Fees earned by credit and debit
card issuers on sales transactions.
• Reward costs: The cost to the Firm for points earned by
cardholders enrolled in credit card rewards programs.
• Partner payments: Payments to co-brand credit card
partners based on the cost of loyalty program rewards
earned by cardholders on credit card transactions.
Net mortgage servicing revenue: Includes operating
revenue earned from servicing third-party mortgage loans,
which is recognized over the period in which the service is
provided; changes in the fair value of MSRs; the impact of
risk management activities associated with MSRs; and gains
and losses on securitization of excess mortgage servicing.
Net mortgage servicing revenue also includes gains and
losses on sales and lower of cost or fair value adjustments
of certain repurchased loans insured by U.S. government
agencies.
Net production revenue: Includes fees and income
recognized as earned on mortgage loans originated with the
intent to sell, and the impact of risk management activities
associated with the mortgage pipeline and warehouse
loans. Net production revenue also includes gains and
losses on sales and lower of cost or fair value adjustments
on mortgage loans held-for-sale (excluding certain
repurchased loans insured by U.S. government agencies),
and changes in the fair value of financial instruments
measured under the fair value option.
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.
JPMorgan Chase & Co./2019 Form 10-K
Glossary of Terms and Acronyms
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
OAS: Option-adjusted spread
OCC: Office of the Comptroller of the Currency
OCI: Other comprehensive income/(loss)
OPEB: Other postretirement employee benefit
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 Regulation 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 a market participant is willing and able to
sell an instrument to the Firm and the price at which
another market participant is willing and able to buy it
from the Firm, and vice versa; and
• realized and unrealized gains and losses on financial
instruments and commodities transactions, including
those accounted for under the fair value option, primarily
used in client-driven market-making activities, and on
private equity investments.
– Realized gains and losses result from the sale of
instruments, closing out or termination of transactions,
or interim cash payments.
– Unrealized gains and losses result from changes in
valuation.
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 realized and
unrealized gains and losses related to:
• derivatives designated in qualifying hedge accounting
relationships, primarily fair value hedges of commodity
and foreign exchange risk;
• derivatives used for specific risk management purposes,
primarily to mitigate credit risk and foreign exchange
risk.
PSUs: Performance share units
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.
Regulatory VaR: Daily aggregated VaR calculated in
accordance with regulatory rules.
REO: Real estate owned
Reported basis: Financial statements prepared under U.S.
JPMorgan Chase & Co./2019 Form 10-K
297
Glossary of Terms and Acronyms
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.
ROA: Return on assets
ROE: Return on equity
ROTCE: Return on tangible common equity
ROU assets: Right-of-use assets
RSU(s): Restricted stock units
RWA: “Risk-weighted assets”: Basel III establishes two
comprehensive approaches 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
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
Securities financing agreements: Include resale,
repurchase, securities borrowed and securities loaned
agreements
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.
Shelf Deals: Shelf offerings are SEC provisions that allow
issuers to register for new securities without selling the
entire issuance at once. Since these issuances are filed with
the SEC but are not yet priced in the market, they are not
included in the league tables until the actual securities are
issued.
Single-name: Single reference-entities
SLR: Supplementary leverage ratio
SMBS: Stripped mortgage-backed securities
SOFR: Secured Overnight Financing Rate
SPEs: Special purpose entities
Structural interest rate risk: Represents interest rate risk
of the non-trading assets and liabilities of the Firm.
Structured notes: Structured notes are financial
instruments whose cash flows are linked to the movement
in one or more indexes, interest rates, foreign exchange
rates, commodities prices, prepayment rates, or other
market variables. The notes typically contain embedded
(but not separable or detachable) derivatives. Contractual
cash flows for principal, interest, or both can vary in
amount and timing throughout the life of the note based on
non-traditional indexes or non-traditional uses of traditional
interest rates or indexes.
Taxable-equivalent basis: In presenting results on a
managed basis, the total net revenue for each of 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
298
JPMorgan Chase & Co./2019 Form 10-K
Glossary of Terms and Acronyms
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. government agencies: U.S. government agencies
include, but are not limited to, agencies such as Ginnie Mae
and FHA, and do not include Fannie Mae and Freddie Mac
which are U.S. government-sponsored enterprises (“U.S.
GSEs”). In general, obligations of U.S. government agencies
are fully and explicitly guaranteed as to the timely payment
of principal and interest by the full faith and credit of the
U.S. government in the event of a default.
U.S. GAAP: Accounting principles generally accepted in the
U.S.
U.S. GSE(s): “U.S. government-sponsored enterprises” are
quasi-governmental, privately-held entities established or
chartered by the U.S. government to serve public purposes
as specified by the U.S. 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
or FHA. 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
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.
JPMorgan Chase & Co./2019 Form 10-K
299
Board of Directors
Linda B. Bammann4
Retired Deputy Head of Risk
Management
JPMorgan Chase & Co.
(Financial services)
James A. Bell1
Retired Executive Vice President
The Boeing Company
(Aerospace)
Stephen B. Burke2, 3
Chairman
NBCUniversal, LLC
(Television and entertainment)
Todd A. Combs2, 3, 5
Investment Officer
Berkshire Hathaway Inc.
(Conglomerate)
James S. Crown4
Chairman and
Chief Executive Officer
Henry Crown and Company
(Diversified investments)
James Dimon
Chairman and
Chief Executive Officer
JPMorgan Chase & Co.
(Financial services)
Timothy P. Flynn 1, 5
Retired Chairman and
Chief Executive Officer
KPMG
(Professional services)
Mellody Hobson4, 5
Co-CEO and President
Ariel Investments, LLC
(Investment management)
Member of:
1 Audit Committee
2 Compensation & Management
Development Committee
3 Corporate Governance &
Nominating Committee
4 Risk Committee
5 Public Responsibility Committee
Laban P. Jackson, Jr.1
Chairman and Chief Executive Officer
Clear Creek Properties, Inc.
(Real estate development)
Michael A. Neal 4
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)
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
Robin Leopold
Head of Human Resources
Lori A. Beer
Chief Information Officer
Douglas B. Petno
CEO, Commercial Banking
Mary Callahan Erdoes
CEO, Asset & Wealth Management
Jennifer A. Piepszak
Chief Financial Officer
Gordon A. Smith
Co-President and
Chief Operating Officer;
CEO, Consumer & Community Banking
Stacey Friedman
General Counsel
Marianne Lake
CEO, Consumer Lending
Peter L. Scher
Head of Corporate Responsibility;
Chairman of the Mid-Atlantic Region
Other Corporate Officers
Molly Carpenter
Secretary
Nicole Giles
Firmwide Controller
Jason R. Scott
Investor Relations
Joseph M. Evangelisti
Corporate Communications
Lou Rauchenberger
General Auditor
300
JPMorgan Chase & Co./2019 Annual Report
Regional Chief Executive Officers
Asia Pacific
Filippo Gori
Europe/Middle East/Africa
Latin America/Canada
Viswas Raghavan
Martin G. Marrón
Senior Country Officers and Location Heads
Asia Pacific
Europe/Middle East/Africa
Latin America/Caribbean
Saudi Arabia
Bader Alamoudi
Sub-Saharan Africa
Kevin Latter
Switzerland
Nick Bossart
Turkey
Mustafa Bagriacik
Andean, Caribbean and Central
America
Moises Mainster
Colombia
Angela Hurtado
Argentina
Facundo D. Gómez Minujin
Brazil
José Berenguer
Chile
Alfonso Eyzaguirre
Mexico
Felipe García-Moreno
North America
Canada
David E. Rawlings
Australia and New Zealand
Robert Bedwell
Austria
Anton J. Ulmer
China
Mark Leung
Hong Kong
Filippo Gori
Japan
Steve Teru Rinoie
Korea
Tae Jin Park
South and South East Asia
Kalpana Morparia
Indonesia
Haryanto T. Budiman
Malaysia
Steve R. Clayton
Bahrain, Egypt and Lebanon
Ali Moosa
Belgium
Tanguy A. Piret
France
Kyril Courboin
Germany
Dorothee Blessing
Iberia
Ignacio de la Colina
Ireland
Carin Bryans
Israel
Roy Navon
Philippines
Carlos Ma. G Mendoza
Italy
Francesco Cardinali
Singapore
Edmund Y. Lee
Thailand
M.L. Chayotid Kridakon
Taiwan
Carl K. Chien
Vietnam
Van Bich Phan
Luxembourg
Pablo Garnica
Middle East and North Africa
Khaled Hobballah
Karim Tannir
The Netherlands
Cassander Verwey
Russia and Kazakhstan
Yan Tavrovsky
JPMorgan Chase Vice Chairs
Phyllis J. Campbell
John L. Donnelly
Mark S. Garvin
Vittorio U. Grilli
Walter A. Gubert
Mel R. Martinez
David Mayhew
E. John Rosenwald
301
JPMorgan Chase & Co./2019 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
Rice, Hadley, Gates & Manuel LLC
Washington, District of Columbia
Bernard Arnault
Chairman and Chief Executive Officer
LVMH Moët Hennessy — Louis Vuitton
Paris, France
Paul Bulcke
Chairman of the Board of Directors
Nestlé S.A.
Vevey, Switzerland
Jamie Dimon*
Chairman and Chief Executive Officer
JPMorgan Chase & Co.
New York, New York
John Elkann
Chairman and Chief Executive Officer
EXOR N.V.
Turin, Italy
Ignacio S. Galán
Chairman and Chief Executive Officer
Iberdrola, S.A.
Madrid, Spain
The Hon. Henry A. Kissinger
Chairman
Kissinger Associates, Inc.
New York, New York
Ratan Naval Tata
Chairman Emeritus
Tata Sons Ltd
Mumbai, India
Armando Garza Sada
Chairman of the Board
ALFA, S.A.B. of C.V.
San Pedro Garza García, Mexico
Jorge Paulo Lemann
Director
The Kraft Heinz Company
Pittsburgh, Pennsylvania
Joseph C. Tsai
Executive Vice Chairman
Alibaba Group
Hong Kong, China
Alex Gorsky
Chairman and Chief Executive Officer
Johnson & Johnson
New Brunswick, New Jersey
Herman Gref
Chief Executive Officer,
Chairman of the Executive Board
Sberbank
Moscow, Russia
Nancy McKinstry
Chief Executive Officer and
Chairman of the Executive Board
Wolters Kluwer
Alphen aan den Rijn, The Netherlands
The Hon. Tung Chee Hwa GBM
Vice Chairman
National Committee of the Chinese
People’s Political Consultative Conference
Hong Kong, China
Amin H. Nasser
President and Chief Executive Officer
Saudi Aramco
Dhahran, Saudi Arabia
Masahiko Uotani
President and
Group Chief Executive Officer
Shiseido Co., Ltd.
Tokyo, Japan
The Hon. Carla A. Hills
Chairman and Chief Executive Officer
Hills & Company International Consultants
Washington, District of Columbia
The Hon. Condoleezza Rice
Partner
Rice, Hadley, Gates & Manuel LLC
Stanford, California
The Hon. John Howard OM AC
Former Prime Minister of Australia
Sydney, Australia
Joe Kaeser
President and Chief Executive Officer
Siemens AG
Munich, Germany
Paolo Rocca
Chairman and Chief Executive Officer
Tenaris
Buenos Aires, Argentina
Nassef Sawiris
Chief Executive Officer
OCI N.V.
London, United Kingdom
Cees J.A. van Lede
Former Chairman and Chief Executive
Officer, Board of Management
AkzoNobel
Amsterdam, The Netherlands
Jaime Augusto Zobel de Ayala
Chairman and Chief Executive Officer
Ayala Corporation
Makati City, Philippines
*Ex-officio
302
JPMorgan Chase & Co./2019 Annual Report Corporate headquarters
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New York, NY 10179-0001
Telephone: 212-270-6000
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