JPMorgan Chase
Annual Report 2020

Plain-text annual report

2020 ANNUAL REPORT more than 280K loans funded $30B to advance racial equity Financial Highlights As of or for the year ended December 31, (in millions, except per share, ratio data and headcount) 2020 2019 2018 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 per share Tangible book value per share (TBVPS)(a) Cash dividends declared per share 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 $ 119,543 66,656 52,887 17,480 29,131 $ $ 115,399 65,269 50,130 5,585 $ 36,431 $ 108,783 63,148 45,635 4,871 32,474 $ $ $ 8.89 8.88 81.75 66.11 3.60 12 % 14 110 13.1 15.0 17.3 10.75 10.72 75.98 60.98 3.40 15 % 19 116 12.4 14.1 16.0 $ 1,012,853 3,386,071 2,144,257 249,291 279,354 $ 127.07 387,492 3,049.4 $ 997,620 2,687,379 1,562,431 234,337 261,330 $ 139.40 429,913 3,084.0 $ 9.04 9.00 70.35 56.33 2.72 13 % 17 113 12.0 13.7 15.5 $ 1,015,760 2,622,532 1,470,666 230,447 256,515 $ 97.62 319,780 3,275.8 256,105 Headcount 255,351 256,981 (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 on pages 62–64 for additional information on these measures. (b) Refer to Liquidity Risk Management on pages 102–108 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 91–101 for additional information on these measures. JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets of $3.4 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. $30B ADVANCE RACIAL EQUITY #1 INVESTMENT BANK 100 HUMAN RIGHTS EQUALITY $30 billion to advance racial equity #1 globally in both investment banking fees and Markets revenue 100: Score on Human Rights Campaign’s Corporate Equality Index $200B SUSTAINABLE DEVELOPMENT $2.3T CREDIT AND CAPITAL RAISED Committed to finance and facilitate $200 billion to drive action on climate change and advance sustainable development $2.3 trillion in credit and capital raised for consumers and clients of all sizes, including those in some of the hardest-hit industries #1 CUSTOMER SATISFACTION #1 in customer satisfaction with online banking among national banks according to J.D. Power #1 TRADITIONAL MIDDLE MARKET LENDER TOP 10 #1 MULTIFAMILY LENDER #1 traditional Middle Market bookrunner in the U.S. Named to Fortune magazine’s Most Admired Companies list #1 U.S. multifamily lender #1 WEALTH MANAGEMENT APP $276B AWM CLIENT ASSET INFLOWS #1 COVID-19 RESPONSE #1 digital wealth management app according to J.D. Power $276 billion in total Asset & Wealth Management client asset inflows #1 bank for COVID-19 response according to JUST Capital Dear Fellow Shareholders, Jamie Dimon, Chairman and Chief Executive Officer 2020 was an extraordinary year by any measure. It was a year of a global pandemic, a global recession, unprecedented government actions, turbulent elections, and deeply felt social and racial injustice. It was a year in which each of us faced difficult personal challenges, and a staggering number of us lost loved ones. It was also a year when those among us with less were disproportionately hurt by joblessness and poverty. And it was a time when companies discovered what they really were and, sometimes, what they might become. Watching events unfold throughout the year, we were keenly focused on what we, as a company, could do to serve. As I begin this annual letter to shareholders, I am proud of what our company and our tens of thousands of employees around the world achieved, collectively and individually. As you know, we have long cham- pioned the essential role of banking in a community — its potential for bringing people together, for enabling companies and individuals to reach for their dreams, 2 and for being a source of strength in difficult times. Those opportunities were powerfully presented to us this year, and I am proud of how we stepped up. I discuss these themes later in this letter. As I look back on the last year and the last two decades — starting from my time as CEO of Bank One in 2000 — it is remarkable how much we persevered and have accomplished, not only in terms of financial performance but also in our stead- fast dedication to help clients, communities and countries throughout the world. 2020 was another strong year for JPMorgan Chase, with the firm generating record revenue, as well as numerous other records in each of our lines of business. We earned $29.1 billion in net income on revenue of $122.9 billion versus $36.4 billion on revenue of $118.5 billion in 2019, reflecting strong underlying performance across our businesses offset by additional reserves under new accounting rules. We gener- ally grew market share across our businesses and continued to make significant investments in products, people and technology, all while maintaining credit discipline and a fortress balance sheet. In total, we extended credit and raised $2.3 trillion in capital for businesses, institutional clients and U.S. customers. JPMorgan Chase stock is owned by large institutions, pension plans, mutual funds and directly by individual investors. However, it is important to remember that in almost all cases, the ultimate beneficiaries are the individuals in our commu- nities. More than 100 million people in the United States own stock, and a large percentage of these individuals, in one way or another, own JPMorgan Chase stock. Many of these people are veterans, teachers, police officers, firefighters, health- care workers, retirees or those saving for a home, school or retirement. Your management team goes to work every day recognizing the enormous responsibility that we have to perform for our shareholders. While we don’t run the company worrying about the stock price in the short run, in the long run our stock price is a measure of the progress we have made over the years. This progress is a function of continual investments in our people, systems and products, in good and bad times, to build our capabilities. Whether looking 3 21_JD_earnings_diluted_03 4/6/21 r2 4:50pm Footnotes adjusted for style TYPESET; 3/16/21; v.21_JD_earnings_diluted_03 Earnings, Diluted Earnings per Share and Return on Tangible Common Equity 2004–2020 ($ in billions, except per share and ratio data) Adjusted net income1 $32.5 $24.4 $24.7 $26.9 $24.4 $9.00 (cid:30) $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% 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 2004 2005 21_JD_TBVPS_02 (cid:31) Net income (cid:31) Diluted earnings per share (cid:31) Return on tangible common equity (ROTCE) 2007 2011 2012 2006 2013 2008 2009 2010 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. 4/6/21 r2 4:50pm Footnotes adjusted for style 2014 2015 2016 2017 2018 2019 2020 $36.4 $10.72 (cid:30) $29.1 (cid:30) $8.88 (cid:30) 14% Adjusted ROTCE1 was 13.6% for 2017 Tangible Book Value and Average Stock Price per Share 2004–2020 3-9-21 r1 TYPESET; 3/09/2021; v.21_JD_TBVPS_02 High: $141.10 Low: $76.91 $110.72 $113.80 $106.52 $92.01 $47.75 $43.93 $38.70 $36.07 $63.83 $65.62 $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 $66.11 $60.98 $56.33 $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 2020 4 21_JD_Stock_Total_Return_02 4/6/21 r2 4:50pm Footnotes adjusted for style 3/9/21 r1 Stock total return analysis Performance since becoming CEO of Bank One (3/27/2000—12/31/2020)1 Compounded annual gain Overall gain Performance since the Bank One and JPMorgan Chase & Co. merger (7/1/2004—12/31/2020) Compounded annual gain Overall gain Performance for the period ended December 31, 2020 Compounded annual gain/(loss) One year Five years Ten years TYPESET; 3/9/21 v. 21_JD_Stock_Total_Return_02 Bank One S&P 500 Index S&P Financials Index 11.9% 928.1% 6.5% 268.0% 4.1% 128.8% JPMorgan Chase & Co. S&P 500 Index S&P Financials Index 10.4% 412.0% 9.7% 362.0% 3.7% 82.3% (5.5)% 17.2% 14.7% 18.4% 15.2% 13.9% (1.8)% 11.1% 10.8% 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. back over five years, 10 years or since the JPMorgan Chase/Bank One merger (approximately 15 years ago), these investments mean our stock has significantly outperformed the Standard & Poor’s 500 Index and the Standard & Poor’s Financials Index. These important investments will also drive our company’s future prospects and position it to grow and prosper for decades. We have consistently described to you, our shareholders, the basic principles and strategies we use to build this company — from maintaining a fortress balance sheet, constantly investing, nurturing talent, fully satisfying regulators, and continually improving risk, governance and controls to serving customers and clients while lifting up communities worldwide. Adhering to these principles allows us to drive good organic growth and prop- erly manage our capital (including dividends and stock buybacks), which we have consistently demonstrated over the past decades. All of this is shown in the charts in this introduction. In addition, we urge you to read the CEO letters in this Annual Report, which will give you a lot more specific detail about our businesses and what our plans are for the future. 5 21_JD_client franchises_12 Client Franchises Built Over the Long Term Consumer & Community Banking 4/06/21 r2 Active digital customers (M) Active mobile customers (M) Active mobile customers growth rate % of digital payment transactions1 % of digital payment volume1 # of branches Average Consumer Banking deposits ($B)2 Average Business Banking deposits ($B) Average Consumer & Business Banking deposits ($B) Average Business Banking loans ($B) Client investment assets ($B) Deposits market share3 # of top 50 Chase markets where we 2006 2019 2020 4.9 — NM <25% <30% 3,079 $152 $37 $189 $13 ~$80 52.5 37.3 12% 64% 58% 4,976 $548 $136 $684 $24 $501 55.3 40.9 10% 72% 62% 4,908 $657 $175 $833 $38 $590 3.6% 9.3% 9.8% are #1 (top 3) 11 (25) 14 (40) 14 (41) Business Banking primary market share4 5.1% 9.4% 9.5% Credit card sales ($B) Debit card sales ($B) Debit & credit card sales volume ($B) Credit card loans ($B, EOP) Credit card sales market share5 $257 NA NA $153 $763 $352 $1,114 $169 $703 $379 $1,081 $144 16% 22% 22% 4/6/21 r2 4:50pm Footnotes adjusted for style (TYPESET; 4/6/21r2 v. 21_JD_client franchises_12  Serve >63 million U.S. households including 4.3 million small business relationships  55 million active digital customers6, including 41 million active mobile customers7  #1 primary bank within Chase footprint8  #1 U.S. credit card issuer based on sales and outstandings9  #4 mortgage servicer10  #2 bank auto lender11  Provided customer assistance to ~2.0M accounts, representing balances of ~$83B12  #1 PPP lender on a dollar basis Corporate & Investment Bank Global investment banking fees13 Market share13 Total Markets revenue14 Market share14 FICC14 Market share Equities14 Market share 14 14 Assets under custody ($T) Average deposits ($B)15 Daily payment processing ($T)16 Average daily security purchases and sales ($T) Average total deposits ($B) Commercial Banking # of top 75 MSAs with dedicated teams Bankers New relationships (gross) Average loans ($B) Average deposits ($B) Gross investment banking revenue ($B)20 Multifamily lending21 Asset & Wealth Management U.S. Private Bank (Euromoney)25 Ranking of 5-year cumulative net client asset flows26 China inbound funds AUM27 Global Funds AUM ($T) Global active long-term fund AUM market share 28 Global Institutional AUM ($T) Global Private Bank client assets ($T)29, 30 U.S. ultra-high-net-worth client assets market share31 Average loans ($B)29 Average deposits ($B)29 # of Global Private Bank client advisors29, 30 #2 8.7% #8 6.3% #7 7.0% #8 5.0% $13.9 $190 NA NA NA 36 1,203 NA $53.6 $73.6 $0.7 #28 #1 NA NA $0.3 1.8% $0.5 $0.5 #1 8.9% #1 11.4% #1 11.6% co–#1 11.0% $26.8 $465 >$7 #1 9.2% #1 12.9% #1 13.1% co–#1 12.3% $31.0 $611 >$8 $2.3 $516 $2.7 $655 67 2,101 1,706 $207.9 $172.7 $2.7 #1 67 2,020 1,856 $218.9 $237.8 $3.3 #1  >80% of Fortune 500 companies do business with us  Presence in over 100 markets globally  #1 in global investment banking fees for the 12th consecutive year13  Consistently ranked #1 in Markets revenue since 201214  J.P. Morgan Research ranked as the #1 Global Research Firm17  #1 in USD payments volume18  #2 custodian globally19  137 locations across the U.S. and 30 international locations  Credit, banking and treasury services to ~18K Commercial & Industrial clients22 and ~33K real estate owners and investors  17 specialized industry coverage teams  #1 traditional Middle Market Bookrunner in the U.S.23  23,000 affordable housing units financed in 202024 #1 #2 #6 $0.6 #1  80% of 10-year JPMAM long-term mutual fund AUM #2 #3 $0.8 performed above peer median32  183 4/5-star rated funds33  Business with 56% of the world’s largest pension funds, sovereign wealth funds and central banks  Positive client asset flows across all regions, segments 2.5% 2.7% and products $1.1 $1.4 $1.3 $1.6  63% of Asset Management AUM managed by female and/or diverse portfolio managers34 NA $26.5 $50.6 11% 12% $147.4 $135.3 $166.3 $162.0 1,506 2,419 2,462 NM = Not meaningful NA = Not available FICC = Fixed Income, Currencies and Commodities MSAs = Metropolitan statistical areas USD = U.S. dollar EOP = End of period PPP = Paycheck Protection Program AUM = Assets under management B = Billions T = Trillions M = Millions K = Thousands For footnoted information, refer to page 67 in this Annual Report. 6 21_JD_new_renew_01 4/6/21 r2 4:50pm Footnotes adjusted for style TYPESET; 3/30/21 r1 v. 21_JD_new_renew_01 4/3/21 r2 New and Renewed Credit and Capital for Our Clients 2008–2020 ($ in billions) $2,496 $2,357 $2,307 $227 $1,866 $1,820 $2,102 $274 $2,144 $197 $326 $265 $258 $2,044 $233 $399 $430 $480 $2,345 $226 $460 $2,263 $262 $476 $252 $222 $1,567 $312 $167 $1,494 $243 $136 $1,577 $252 $167 $275 $309 $368 $281 21_JD_assets entrusted_03.eps $1,088 $1,158 $1,115 $1,621 $1,519 $1,443 $1,392 $1,264 $1,789 $1,693 $1,619 $1,659 $1,525 4/6/21 r2 4:50pm Footnotes adjusted for style 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 (cid:31) Corporate clients (cid:31) Commercial clients (cid:31) Consumer TYPESET; 4/5/21 r7 v. 21_JD_assets entrusted_03 Assets Entrusted to Us by Our Clients at December 31, 4-5-21 r7 Deposits and client assets1 ($ in billions) $4,820 $4,227 $4,211 $718 $3,617 $464 $824 $3,255 $439 $755 $3,011 $398 $730 $3,740 $3,633 $3,802 $660 $679 $503 $861 $558 $722 $618 $757 $784 $792 $844 $3,258 $2,783 $2,740 $2,681 $365 $573 $2,811 $372 $558 $2,424 $361 $648 $1,415 $1,743 $1,881 $1,883 $2,329 $2,061 $2,376 $2,353 $2,427 $5,926 $959 $1,186 $3,781 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 (cid:31) Client assets (cid:31) Wholesale deposits (cid:31) Consumer deposits Assets under custody2 ($ in trillions) $13.2 $14.9 $16.1 $16.9 $18.8 $20.5 $20.5 $19.9 $20.5 $31.0 $26.8 $23.5 $23.2 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 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. 7 21_JD_best-in-class_peers_03 4/6/21 r2 4:50pm Footnotes adjusted for style 4-4-21 r2 (TYPESET; 4/4/21 r2; v. 21_JD_best-in-class_peers_03 JPMorgan Chase Is in Line with Best-in-Class Peers in Both Efficiency and Returns Efficiency JPM 2020 overhead ratio Best-in-class peer overhead ratio1 Returns JPM 2020 ROTCE Best-in-class peer ROTCE2, 3 Consumer & Community Banking Corporate & Investment Bank Commercial Banking Asset & Wealth Management 55% 48% 41% 70% 49% COF–CB & DC 53% C–ICG 39% USB–C & CB 60% CS–PB & TROW 15% 20% 11% 28% 17% BAC–CB 16% MS–IS 15% PNC 34% UBS–GWM & MS–IM Overhead ratio5 JPM C BAC GS MS WFC JPMorgan Chase compared with peers4 54% 58% 65% 65% 70% ROTCE MS JPM GS BAC C 80% WFC 1% 15% 14% 12% 9% 7% ROTCE = Return on tangible common equity For footnoted information, refer to page 67 in this Annual Report. footnotes on back page 8 Bar graphs 21_JD_best-in-class-percent-graphs_02.eps 21_JD_fortress_balance_sheet_06 4/6/21 r2 4:50pm Footnotes adjusted for style 4-5-21 r6 TYPESET; 4/5/21r6 v. 21_JD_fortress_balance_sheet_06 Our Fortress Balance Sheet at December 31, CET1 Tangible common equity Total assets RWA Liquidity 2008 7.0%1 $84B $2.2T $1.2T1 +610 bps +$118B +$1.2T +$0.4T 2020 13.1%2 $202B $3.4T $1.6T2 ~$300B +~$1,137B $1,437B 1 CET1 and RWA reflect the Tier 1 common ratio and risk weighted assets under the Basel I measures. 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. Total reported eligible HQLA excludes average excess eligible HQLA at JPMorgan Chase Bank, N.A. that are not transferable to nonbank affiliates. Refer to Liquidity coverage ratio on page 103 for additional information. CET1 = Common equity Tier 1 ratio. Refer to Regulatory capital on pages 92-98 for additional information RWA = Risk-weighted assets B = Billions T = Trillions bps = basis points Liquidity = HQLA plus unencumbered marketable securities, includes excess liquidity at JPMorgan Chase Bank, N.A. HQLA = High-quality liquid assets include cash on deposit at central banks and high-quality liquid securities as defined in the LCR rule (predominantly U.S. Treasuries, U.S. government-sponsored enterprises and government agency mortgage-backed securities, and sovereign bonds) LCR = Liquidity coverage ratio UST = United States Treasuries 2020 Basel III Advanced is 13.8%, or 18.7%, excluding $385B of operational risk RWA3 2020 Basel III Advanced is $1.5T, including $385B of operational risk RWA3 >~$450B of cash, ~$400B of UST, and ~$250B of US agency securities; reported HQLA is $697B4 If you look deeper, you will find that our success and accomplishments are founded on our commitment to our shareholders. Shareholder value can be built only if you maintain a healthy and vibrant company, which means doing a good job taking care of your customers, employees and communities. Conversely, how can you have a healthy company if you neglect any of these stakeholders? As we have learned in 2020, there are myriad ways an institution can demonstrate its compassion for its employees and its communities while still upholding shareholder value. Ultimately, the basis of our success is our people. They are the ones who serve our customers and communities, build the technology, make the strategic decisions, manage the risks, determine our investments and drive innovation. Whatever your view is of the world’s complexity and the risks and opportunities ahead, having a great team of people — with guts and brains and enormous capabilities who can navigate personally challenging circumstances while dedicating themselves to professional excellence — is what ensures our prosperity, now and in the future. 9 Within this letter, I discuss the following: I. The Corporate Citizen: The Purpose of a Corporation 1. Businesses must earn the trust of their customers and communities by acting ethically and morally. 2. Being a responsible community citizen locally is critical, and it is easy to understand why. 3. Being a responsible community citizen nationally, or globally, is more critical and more complex. II. Lessons from Leadership 1. Enforce a good decision-making process. 2. Examine raw data and focus on real numbers. 3. Understand when analysis is necessary and when it impedes change. 4. Before conducting an important analysis, assess all relevant factors involved. 5. Always deal with reality. 6. Remain open to learning how to become a better leader. III. Banks’ Enormous Competitive Threats — from Virtually Every Angle 1. Banks are playing an increasingly smaller role in the financial system. 2. The growth in shadow and fintech banking calls for level playing field regulation. 3. AI, the cloud and digital are transforming how we do business. 4. Fintech and Big Tech are here … big time! 5. JPMorgan Chase is aggressively adapting to new challenges. Page 13 Page 13 Page 14 Page 14 Page 21 Page 21 Page 21 Page 22 Page 22 Page 23 Page 24 Page 27 Page 28 Page 29 Page 30 Page 31 Page 31 10 IV. Specific Issues Facing Our Company 1. Cyber risk remains a significant threat. 2. Brexit was finally accomplished — but uncertainties linger. 3. New accounting requirements affect reserve reporting but not how we run our business. 4. While we disbanded Haven, we will continue to build on what we learned. V. COVID-19 and the Economy Page 32 Page 32 Page 32 Page 33 Page 34 Page 35 1. Bold action by the Fed and the U.S. government effectively reversed financial panic. Page 35 2. Banks entered this recent crisis in great shape and were part of the solution coming out. 3. The confusing interplay of monetary, fiscal and regulatory policy continues through recessions. 4. The regulatory system needs to keep up with the changing world — and finish Dodd-Frank to get it right. 5. The pandemic accelerated remote working capabilities, which will likely carry forward. VI. Public Policy American Exceptionalism, Competitiveness and Leadership: Challenged by China, COVID-19 and Our Own Competence 1. Laying out the problems is painful. 2. Why did — and didn’t — these failures happen? 3. We need a comprehensive, multi-year national Marshall Plan, and we must strive for healthy growth. 4. We need to take specific action steps. 5. America’s global role and engagement are indispensable to the health and well-being of America. Page 35 Page 38 Page 42 Page 45 Page 47 Page 49 Page 50 Page 54 Page 55 Page 63 11 Business Roundtable’s Statement on the Purpose of a Corporation In August 2019, Business Roundtable released the below Statement on the Purpose of a Corporation, signed by 181 CEOs, including Jamie Dimon, then chair of the association. This statement repositioned the definition of corporate success as serving shareholders principally to endorsing a modern standard of corporate responsibility: to serve all stakeholders — customers, employees, suppliers, communities and shareholders. Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. We believe the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all. Businesses play a vital role in the economy by creating jobs, fostering innovation and providing essential goods and services. Businesses make and sell consumer products; manufacture equipment and vehicles; support the national defense; grow and produce food; provide health care; generate and deliver energy; and offer financial, communications and other services that underpin economic growth. While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit to: • Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations. • Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect. • Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions. • Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses. • Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders. Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country. Released: August 19, 2019 12 I. THE CORPORAT E CIT IZEN: THE PURPOSE OF A CORPORATION We need to build and maintain a healthy and vibrant company, over the long run, to be able to deal with the uncertainties of life, to invest, to innovate and to grow. To be healthy and vibrant, a company must do many things well: It must do a great job for customers; attract, develop and retain talented employees; and serve its communities. The problem with the American public’s impression of “shareholder value” is that too many people interpret it to mean short-term, rapacious profit taking – which, ironically, is the last thing that leads to building real, long-term shareholder value. And when they hear the word “fiduciary,” they think we are standing behind our lawyers. It is vital that we do all of these things, as the failure to perform any one of them with excellence could lead to the failure of all. Over the years, we have extensively described the efforts we make to take care of our customers and our employees. The purpose of this section is to describe our corporate responsibility efforts in more detail and explain their importance. To be healthy and vibrant – and to create long- term shareholder value – a company must be financially successful over the long run. Obviously, companies have fiduciary respon- sibilities. However, legal and fiduciary language does not represent how most CEOs and boards actually run their companies. We should not be buttonholed by the debate about whether there are “fiduciary” reasons to think of “shareholder value” narrowly and to the exclusion of those who work at the company, our clients and communi- ties. When most CEOs and board members wake up each morning, they worry about all of the things that they need to do right to build a successful company. A company is like a team. We must do many things well to succeed, and, ultimately, that leads to creating shareholder value. 1. Businesses must earn the trust of their customers and communities by acting ethically and morally. To a good company, its reputation is every- thing. That reputation is earned day in and day out with every interaction with customers and communities. This is not to say that companies (and people) do not make mistakes – of course they do. Often a reputation is earned by how you deal with those mistakes. While all businesses are different, there are some fundamentals: good products, fair and transparent pricing, thoughtful and respon- sive service, and continuous innovation. Great companies constantly set high stan- dards, acknowledge their mistakes and prop- erly discipline or dismiss bad actors. Great companies are strict about having fair dealings with their customers. I have always loved that Home Depot’s company policy is not to raise lumber prices in the imme- diate aftermath of a hurricane, regardless of whether it can. (I want to remind readers that banks essentially did not raise the price of credit when they renewed loans during the financial crisis.) Pricing to customers should be what’s fair – not what a company can get away with. Banks, in particular, have to be rigorous about standards. Unlike many companies that will simply sell you a product if you can pay for it, banks must necessarily turn 13 customers down or enforce rules that a customer may not like (for example, cove- nants). This makes open and transparent dealings even more important. When I hear examples of people doing something that is wrong because they could be paid more, it makes my blood boil – and I don’t want them working here. And I can’t believe it when I hear about a company, or a hedge fund, causing loans and a company to default so they can trigger credit default swap hedges – it’s completely unethical. We must always strive, particularly in tough times, to earn the trust of our customers and communities. 2. Being a responsible community citizen locally is critical, and it is easy to understand why. If you live in a small town and run a corner bakery, it is very easy to understand the value of being a responsible community citizen. Most businesses on “Main Street” keep the sidewalk in front of their store clean so people don’t slip and fall. They often participate in the community by supporting local sports teams or religious institutions. A bakery or a restaurant will often donate surplus food at the end of the day to a local homeless shelter. Most businesses under- stand that everyone doing their part to make the community a better place is both the moral thing to do and a driver of better commercial outcomes for the town. When JPMorgan Chase enters a community, we take great pride in being a responsible citizen at the local level – just like the local bakery. We lend to and support local busi- nesses. We help customers with banking, lending and saving. And our local corpo- rate responsibility efforts and philanthropic programs (examples of which are described in the following features in this section) help make these communities stronger. 3. Being a responsible community citizen nationally, or globally, is more critical and more complex. Most people consider corporate responsi- bility to be merely enhanced philanthropy. This is understandable. But it is far harder to understand what being a responsible community citizen means in terms of macro corporate responsibility. While we are devoted to philanthropy – we spend $330 million a year on these efforts – corporate responsibility is far more than that. JPMorgan Chase takes an active role in large-scale public policy issues. We are fully engaged in trying to solve some of the world’s biggest issues – climate change, poverty, economic development and racial inequality – and the accompanying features that follow describe the extensive efforts we are making. With well-designed policies, we think these problems can all be solved. In the last section of this letter, I detail certain policy issues, which – if forcefully and effectively addressed – would be great for America and the world at large. We engage at this level because companies (like ours) have an extraordinary capability to help. We help not just with funding but with devel- oping strong public policy, which can have a greater impact on society than the collec- tive effect of companies that are respon- sible community citizens locally. This year, for example, our PolicyCenter published research based on the actual experiences of our customers and communities, showing how new policies could drive a more inclu- sive economic recovery and help small businesses. JPMorgan Chase has always recognized that long-term business success depends on community success, and that is 14 I. THE CORPORATE CITIZEN: THE PURPOSE OF A CORPORATION one of the reasons for our enduring achieve- ment. When everyone has a fair shot at participating – and sharing – in the rewards of growth, the economy will be stronger, and our society will be better. We also believe that businesses’ extraordi- nary capabilities are even more powerful when put to use in collaboration with governments’ capabilities, particularly when seeking to solve our biggest economic and societal ills at the local level. As Washington, D.C., and central governments around the world struggle with partisan gridlock and an inability to get big things done, local communities are coming up with some of the best ideas to make civic society work for more people. Mayors, governors, educators, major employers, entrepreneurs, community leaders and nonprofits are making serious progress developing innovative approaches that address our greatest challenges, but their work often flies under the radar. We must elevate these thoughtful ideas and find ways to share them with others facing similar situ- ations, enabling more communities to benefit from proven, localized solutions. After busi- nesses have had success with some of these efforts locally, they can be adopted across the country and, in fact, around the world. Our effort is substantial and permanent and has support throughout the company. Importantly, these civic efforts are supported by senior leadership and are managed by some of our best people (these initiatives are not an afterthought and are sustainable). For our part, we are making significant, long- term, data-driven business and philanthropic investments. And while we try to be creative, we analyze everything, including philan- thropy, based on measurable results. Executing Our Corporate Purpose We go to great lengths to be there for our clients, customers, employees and communities. Moreover, this unwavering commitment has been a hallmark of our company since its founding. During this time of corporate self-reflection, it’s important to understand and reaffirm the magnitude of our contributions. Helping Clients and Customers in 2020 • We extended credit and raised capital totaling $2.3 trillion for consumers and clients of all sizes around the world, including some of the industries and communities most affected by the pandemic’s economic fallout. This includes critical financing for companies such as Boeing and its 145,000 employees. J.P. Morgan helped them raise $25 billion to help fund their ongoing operations as the pandemic led to less air travel. • We provided consumers with $226 billion in credit to help them afford some of their most important purchases, including new homes and vehicles. This included more than $32 billion to help customers in underserved communities purchase a new home. • We raised $1.1 trillion in capital for corporations and non-U.S. government entities and offered $865 billion in credit for corporations. For example, we helped Meals on Wheels build a new 36,000-square-foot commercial kitchen and food production facility to help maintain good nutritional health of older adults with limited financial resources. • We raised $103 billion in credit and capital for nonprofit and U.S. government entities, including states, cities, hospitals and universities. This included funding for NewYork-Presbyterian Health System — which saw a significant increase in patients as a result of COVID-19 — to help them acquire vital medical supplies and equipment and to bring on additional staff. 15 I. THE CORPORATE CITIZEN: THE PURPOSE OF A CORPORATION • We committed more than $45 billion in lending and investments to support community development, affordable housing and small business growth in underserved communities across the United States. This included Eden Housing, a nonprofit that provides low-income residents with safe, modern and affordable housing in California’s Bay Area. • We provided more than $18 billion in credit to small businesses around the country, as well as more than $32 billion in funding ($28 billion excluding Small Business Administration (SBA) safe harbor refunds) under the SBA’s Paycheck Protection Program (PPP). For example, we helped Kids Klub Child Development Centers — which offer preschool, daycare and after-school programming — revamp their centers to enable care for essential workers’ children. • We provided critical development financing and attracted additional investment, such as funding through our new development finance institution (DFI) to support sustainable development. In 2020, the DFI mobilized $140 billion toward these goals — helping, for example, with Uzbekistan’s first local currency issuance in international markets to finance the country’s health, education and transport sectors and with the Republic of Georgia’s debut green bond to support that country’s access to water, power and sanitation. Helping Communities • We have supported and continue to support a range of community initiatives — from assisting underserved small businesses outside of Paris to facilitating skills training for high-growth jobs in India to helping residents of Harlem increase savings and reduce debt. In 2020, we provided more than $500 million in low-cost loans, equity and philanthropic grants to address immediate needs brought on by the COVID-19 crisis, drive an inclusive recovery and advance racial equity. These efforts will help 1.3 million individuals receive financial coaching, enable 172,000 people to enroll in jobs and skills training programs, assist 64,000 underserved small businesses and create or preserve 43,000 affordable housing units. 16 • We raised $12 billion in capital and credit to help finance infrastructure projects across the United States. This included $1.3 billion in credit assistance to New York City’s Metropolitan Transportation Authority to help deal with the serious impacts of COVID-19 on the city’s transportation system and $800 million in capital for Michigan’s Department of Transportation to help rebuild the state’s roads and bridges. • We designed branches, products, services and digital solutions to help clients and customers better manage their financial daily lives, with particular focus on underserved communities and families. Examples include low-cost, low-fee accounts, such as Chase Secure BankingSM, and financial tools, such as Chase Credit Journey and Chase Autosave. In 2020, we continued to open new branches in new markets across the United States with 30% opening in low- to moderate-income communities by 2023. • We have committed employee time and talent to tackling communities’ greatest challenges. In 2020, employees participated in nearly 50 Service Corps programs to help local nonprofits; mentored hundreds of Black and Latinx young men as part of The Fellowship Initiative; and supported local organizations focused on racial equity. • We are dedicated to addressing climate change and sustainability around the world. In 2020, the firm committed to finance and facilitate $200 billion to drive action on climate change and advance sustainable development, including renewable energy, cleaner water and waste management; improve access to housing, education and healthcare; and promote infrastructure, innovation and growth around the globe. Supporting Employees • We have taken extensive steps to support our employees, who are our greatest strength. We offer 300 accredited skills and education programs and have helped 15,000 employees (to date) assess their skills, which may lead to opportunities for career mobility at the firm. And we have been increasing wages for thousands of employees, including branch and customer service employees, to between $16 and $20 an hour, depending on where they work in the United States, while providing an annual benefits package worth about $13,000. • As part of our strategy to diversify our talent pipeline, we have implemented a range of changes to expand opportunities for individuals with a criminal background. In 2020, we hired approximately 2,100 people with a criminal background — roughly 10% of our new hires in the United States. And through the JPMorgan Chase PolicyCenter, we are advancing federal and state policies that help qualified workers with an arrest or conviction record compete for employment in federal agencies and with federal contractors. We are reforming Federal Deposit Insurance Corporation (FDIC) hiring rules and setting up automatic record clearing for eligible offenses to help individuals move on from their record. We also supported a measure signed into federal law in 2020 restoring access to Pell Grants for incarcerated individuals, which allows them to pursue postsecondary education in prison and increase employment opportunities after their release. Our $30 Billion Path Forward Commitment JPMorgan Chase introduced The Path Forward in October 2020, committing $30 billion over the next five years to address the key drivers of the racial wealth divide, reduce systemic racism against Black and Latinx people, and support employees. The firm has made tangible progress to date. Promote and expand affordable housing and homeownership for underserved communities • Expanding affordable housing in underserved communities: The firm’s inaugural $1 billion social bond builds on its strategy to use its business expertise to create opportunity for underserved communities. The bond’s co-managers solely comprise minority- and women-owned businesses, as well as service- disabled, veteran-owned firms. • Helping Black and Latinx families buy homes and refinance loans: Our Home Lending business has committed to helping an additional 40,000 Black and Latinx families buy a home over the next five years, with the firm dedicating $8 billion in mortgages for this purpose. The firm is committing up to $4 billion in refinancing loans to help an additional 20,000 Black and Latinx households achieve lower mortgage payments. In addition, the firm is working to improve key home lending products and offerings: A $5,000 grant, for example, will help cover closing costs and down payments for people buying a home in 6,700 minority communities in the United States. 17 Grow Black- and Latinx-owned businesses • Helping small businesses thrive: A $350 million, five-year global commitment underscores our dedication to grow Black-, Latinx- and women-owned businesses among other underserved small businesses, help address the racial wealth divide and create a more inclusive recovery from the COVID-19 pandemic. This ambitious endeavor combines low-cost loans, equity investments and philanthropy and will help reduce barriers to capital for underserved small businesses to support their immediate needs and long-term growth. As part of this commitment, the firm is investing $42.5 million in low-cost loans and philanthropy to expand the Entrepreneurs of Color Fund to more cities in the United States, in collaboration with Local Initiatives Support Corporation and a network of community development financial institutions (CDFI). • Investing in middle-market businesses: The firm is co-investing up to $200 million alongside Ariel Alternatives and Project Black, an initiative that aims to close the racial wealth gap by investing in middle-market businesses that are minority-owned — or will become minority-owned — to develop a new class of Black and Latinx entrepreneurs. • Expanding our business with Black and Latinx suppliers: The firm’s internal Buy Black and Latinx Portal, led by Advancing Black Pathways, encourages our lines of business to purchase goods and services from diverse businesses. This year-long campaign is designed to support the firm’s commitment to spend $750 million with Black- and Latinx-owned suppliers over the next five years. Improve financial health and access to banking in Black and Latinx communities • Helping 1 million people open low-cost • Strengthening diverse-led financial checking or savings accounts: Chase will open 16 new community branches in traditionally underserved neighborhoods and hire 150 community managers by 2022. Branches in Chicago, Dallas, Minneapolis and New York (Harlem) have already been redesigned under this new model. This model has expanded outreach to local small businesses — and to consumers with financial education — and serves as a hub for overall community engagement. Another 100 new branches are being opened in low- to moderate-income communities across the United States as part of the firm’s market expansion initiative. We want to build trust in the communities we serve and become our customers’ primary bank. We offer Secure Banking — a low-cost, no overdraft checking account — for those new to banking, those who have had trouble getting or keeping a bank account, and for Black and Latinx unbanked and underbanked households, thereby expanding access to traditional banking. institutions: To promote financial institutions in underserved neighborhoods, we are providing additional access to capital, connections to institutional investors through new products and services, specialty support for Black-led commercial projects, and mentorship and training opportunities. In October 2020, the firm committed to investing $50 million in Black- and Latinx-led minority depository institutions and CDFIs. With $40 million of that investment already committed or deployed to Louisiana-based Liberty Bank, North Carolina- based M&F Bank, New York-based Carver Federal Savings Bank and Los Angeles-based Broadway Federal Bank, the total investment has been increased to $75 million, which could generate access to as much as $750 million in community lending. In addition, the firm’s new Empower money market share class will allow these institutions to develop new revenue streams by serving institutional clients. 18 Our Sustainability Efforts Climate change is a critical issue of our time. Reducing greenhouse gas (GHG) emissions — the main cause of climate change — requires collective ambition and cooperation across the public and private sectors. Coal, oil and natural gas — the primary sources of GHG emissions — have powered the world’s energy economy for many decades, advancing significant economic growth and social development for billions around the world. But our reliance on these resources now threatens the very growth they have enabled. The challenge we face is significant. While continuing to generate power for all of our needs, big and small — lighting and heating our homes, commuting to work, and charging our phones and computers, as well as operating manufacturing facilities that produce goods used around the world each day — we also need to bring energy to the nearly 800 million people who still don’t have reliable access to electricity. And we need to find a way to do all of these things while setting a path for achieving net-zero emissions by 2050. The fact is we’re long past debating whether climate change is real. But we need to acknowledge that the solution is not as simple as walking away from fossil fuels. We will need resources such as oil and natural gas until commercial, affordable and low-carbon alternatives can be developed to meet all of our global energy needs. This is where business and government leaders need to focus their time and attention. While wind and solar technologies have made huge strides, they’re principally deployed for electricity generation. We don’t have clean alternatives for industrial and manufacturing energy needs, for example. Nor do we yet have solutions for heavy transportation, such as trucking and air travel. What’s more, the projected growth of technologies like electric vehicles is going to place huge pressures on the need for rare earth minerals — which also presents geopolitical and environmental challenges. Policymakers have taken some important steps. The Paris Agreement is one such success, but we must put a price on carbon. A carbon tax (with a commensurate carbon dividend — directly returned to the people) is an excellent way to dramatically reduce carbon while investing in communities most adversely affected by this much-needed transition. Without a benchmark like this, businesses and economies won’t be able to properly factor the cost of carbon and the benefit of alternatives into their long-term strategic planning and capital investment decisions. Companies are figuring out how to manage amid these challenges. And many are also dealing with a growing chorus of pressure from customers, regulators, shareholders and activists with strong perspectives on how corporations and other institutions should address climate change. When we cut through all the noise, here’s what we know to be true: Traditional energy resources play an essential role in our global economy today. We can agree on the need to make our energy system much less carbon intensive. But abandoning companies that produce and consume these fuels is not a solution. Furthermore, it’s economically counterproductive. Instead, we must work with them. There’s huge opportunity in sustainable and low-carbon technologies and businesses. While many of these technologies and companies are mature, many more are just getting started — and more will need to be created in the coming decades. In addition, all companies will need capital and advice to help them innovate, evolve and become more efficient while staying competitive in a changing world. This is why we made a commitment in 2020 to align our financing activities in three carbon- intensive sectors — oil and gas, electric power and automotive manufacturing — with the Paris Agreement. To do so, we will measure our clients’ carbon performance against sector-based GHG reduction targets that we’re setting for 2030 — with the goal of helping them reduce emissions from their direct operations and, in the case of oil and gas and automotive companies, reduce GHGs from the use of their products. 19 Currently, we have plans to install 40 megawatts of solar capacity across our corporate office buildings in the United States and the United Kingdom. This includes a 14.8-megawatt rooftop and carport solar installation at our corporate campus in Columbus, Ohio, which will produce about 75% of its power needs. We’re also installing 30 megawatts of solar capacity at 900 retail branch locations across the United States, which will provide approximately 35% of each branch’s power needs. We have an opportunity to make the world a better place for ourselves, for our children and grandchildren, and for all living things that share this planet with us. The key metric we plan to use for evaluating climate performance is carbon intensity, which is a measure of GHG emissions per unit of output. Using intensity will enable us to evaluate the relative efficiency of companies and to adjust for factors such as size, clearly showing which are performing the best (or getting better). We also want to take advantage of the huge opportunity to support existing and new green companies and to help others lower their carbon footprint — all while advancing economic development and standards of living for people around the world. This includes helping our clients invest in significant and continuous performance improvements, new technologies, alternative energy solutions, and research and development (R&D). Through our recently launched Center for Carbon Transition, clients will have access to information resources, as well as advisory and financing solutions that will help them evolve in a changing world. We’re also working to make our own company as sustainable as possible. We’ve committed to becoming carbon neutral for the emissions generated to power our buildings, branches and data centers, as well as those related to employee travel. A big focus of our strategy is to generate our own power using solar. 20 II. LESSONS FROM LEADERSHIP Great management is critical to the long-term success of any large organization. Strong management is disciplined and rigorous. Facts, analysis, detail … facts, analysis, detail … repeat. You can never do enough, and it does not end. Complex activity requires hard work and no uneducated guesswork. Test, test, test and learn, learn, learn. And accept failure as a “normal” recurring outcome. Develop great models but under- stand they are not the answer – judgment has to be involved in matters related to human beings and extraordinary events. You need to have good decision-making processes. Force urgency and kill compla- cency. Know that there is competition everywhere, all the time. But even if you do all of this well, it is not enough. 1. Enforce a good decision-making process. A good decision-making process involves having the right people in the room with all information fully shared (all too often I have seen precisely the opposite). There is also the need for constant feedback and follow-up. A bad decision-making process kills. If neces- sary, review the information over and over – often the answer is simply waiting to be found – and if you don’t have to, don’t rush. While intuition matters, and it can be the final deciding factor, intuition is not guessing – it is usually based on years of experience, hard work and practice. 2. Examine raw data and focus on real numbers. It is helpful to try to separate and examine actual raw data versus calculated numbers. A few examples will suffice: You always learn a lot more when you dig deep into the numbers. Look at total car sales, the number of people employed or the actual price of goods compared with calculated data like gross domestic product (GDP), inflation or productivity. For the latter, examine all of the methodologies and assumptions that go into those calculations. For instance, productivity tries to adjust for (or simply sometimes can’t adjust for) new products that are superior to old products, such as smartphones versus dumb phones; similarly, calculations for inflation factor in something called “owners’ equivalent rent,” which generally differs substantially from actual home prices or rental costs. Applied to corporate operations, examine the details. Many companies look at “net new accounts,” which could be going up dramatically because of prices or marketing – masking attrition or consumers’ dissatis- faction with the product. In detail, look at errors, complaints, attrition, competitors and other new entrants. Look at market share by customer segment so as not to miss behavior shifts. Frequently, raw data tell a different story from what management may be saying: Too often management teams use the facts to justify what they already think or to celebrate what they believe is a great success. Being true to these principles requires relentless discipline – which you should expect of us. 21 3. Understand when analysis is necessary and when it impedes change. While I am fanatical about detail and multi- year analysis, it’s important to be cautious about its application. Assumptions are frequently involved, and small changes in a few variables can dramatically change an outcome. Even net present value analysis fails to capture the true value of something after a certain period of time. For instance, people commonly look at the five-year net present value of a customer acquisition, which can mask the true compounding effect of keeping that client for 20 years. And we have often seen net present value analysis fail to capture ancillary benefits (like customer happiness) that can often be more important than the analysis itself. Sometimes a new product or an investment should simply be considered table stakes – meaning there’s no need to do analysis at all. Think about banks adding the capa- bility of opening new accounts digitally, for example, or maintaining a strong technology infrastructure and adopting new technolo- gies, like cloud or artificial intelligence (AI). These could be life-or-death decisions for a company, so instead of focusing on net present value, the emphasis should be on getting the work done properly, efficiently and quickly. Bureaucrats can torture people with analysis, stifling innovation, new products, testing and intuition. In the last section, I go into further detail about how certain analyses fail to guide us to the right answer in public policy – particularly around complex issues like healthcare, job creation, mortgage markets and infrastructure. 4. Before conducting an important analysis, assess all relevant factors involved. I frequently see people trying to understand a complex situation without considering all the factors involved. In the final section, I attempt to analyze China as a strategic competitor. It’s critical to weigh all the factors: cultural, psychological and historical. Also, what are the legal factors, and how is the rule of law applied? What is the coun- try’s situation with raw materials? What is the country’s geography and relationship with its neighbors? It is important to lay out all the important variables before you start an assessment to ensure that they are all carefully reviewed and that one’s judgment is not clouded early on by overfocusing on just a few issues. In business, this type of assessment should also be applied to your competitors and to those you deem to be future competitors, as well as to your own strengths and weak- nesses. In the next section, I describe the evolving competitive landscape for banks. 22 II. LESSONS FROM LEADERSHIPWhile we also try to keep things as stream- lined as possible, making things simpler than they really are is equally flawed. Too many times people seek simple, cookie-cutter solu- tions that sound good but just don’t work. For example, class size in schools matters but not necessarily in all types of classes. In Vietnam, when a major city once had a rat population problem, the government devised what it thought was an easy, foolproof solu- tion: Pay people to kill rats. All people had to do was bring in a rat tail to be paid. What the government didn’t consider was that people would breed rats for a supply of rat tails to sell. (All compensation schemes should be continuously re-evaluated.) 5. Always deal with reality. In business, as in life, we must deal with both certainty and uncertainty. A simple look at history and our economic past illustrates the rather unpredictable nature of things. As a result, at the firm we try to look at all the possibilities, as well as their probabili- ties. For example, we conduct well over 100 stress tests each week to make sure we are prepared for what we are not predicting. We even evaluate the laws and regulations we live under today and project how they might be interpreted 10 years from now – we call this “reinterpretation risk.” We look at a broad range of possibilities and probabil- ities to ensure that we understand, as best as we can, all of the possible outcomes – recognizing that we are not trying to make a forecast with certainty. Sometimes the action you take may not be the one that gives you the best outcome but the one that gives you a good outcome and reduces the possibilities of bad outcomes. It also is often very difficult to capture the inflection points in the economy. Most people imagine the future as being roughly equiva- lent to the past, give or take a bit. However, we know there are significant inflection points, which are sometimes easy to see in hindsight but almost impossible to predict. 23 II. LESSONS FROM LEADERSHIP6. Remain open to learning how to become a better leader. In addition to the above thoughts on anal- ysis, assessment and good decision making, some softer leadership lessons are equally important. As companies get bigger and more complex, leaders need to be more like coaches and conductors than players. If CEOs are running a smaller business, they can literally be involved in virtually everything and make most of the decisions – they often rely on traditional command-and-control tactics. This approach does not work as companies get bigger – the CEOs simply cannot be involved in every major decision. Command and constant feedback may be better than command and control. Here is where leaders would be better off providing clear direction and letting people do their job, including making mistakes along the way. Soft power – essentially trust and maturity – may become more important than hard power. Soft power creates respect among team members, with the coach offering honest assessment and support while allowing flexibility. Here the boss makes fewer but tougher decisions, such as removing people – when it must be done – and even then, it is handled respectfully. People will give to the best of their ability for leaders they respect and who they know are trying to help them succeed. Respect and learn from your people. Managers and leaders get spread pretty thin. While they should have a wide grasp of many subjects, they could not possibly know everything their people know. Leaders should continually be learning from their people. They should go to a sales conference and ask lots of questions of their salespeople. Gather technology people in the room with branch managers and ask, “How are things working?” Taking a road trip should not be only for the purpose of showing the flag but also for learning from your employees and customers. Have curiosity. It’s important to ask questions to try to understand varying points of view. Be willing to change your mind. Read every- thing. Don’t defend decisions of the past. Leaders should be happy when their people prove them wrong. Do not have a rigid mindset. And do not be complacent. Skip hierarchy. If everything in a large orga- nization must go up and down the hierar- chical ladder, bureaucratic arteriosclerosis along with CYA sets in, and that company’s life expectancy is substantially shortened. It should be routine that data, memos and ideas are shared – skipping hierarchies – and aren’t vetted by all in the chain of command. This makes people more responsible for what they are doing, improves the dissem- ination of new information and new ideas, and speeds things up overall. In addition, it’s good to have a few mavericks who are not afraid to shake things up. The ones who challenge authority or convention often get far more done than the ones who go along to get along. Collaboration is wonderful, but it can be overdone. Act at the speed of relevance. When leaders have plenty of time to make decisions, they should analyze all factors over and over – take the necessary time, as choices can be hard to reverse. And there are other deci- sions that are more like “battlefield promo- tions” where there’s no luxury of time, and, in fact, going slow may make things much worse. I’ve also seen people take a tremen- dous amount of time to make an unim- portant decision, which just wastes time and slows things down. In business, some decisions should be made carefully – for instance, putting the right people in the right job. But others, such as making pricing decisions, dealing with customer problems and handling reputa- tional issues, must be done quickly, for these problems do not age well. 24 II. LESSONS FROM LEADERSHIPThe Importance of Developing Leaders Reprinted from my 2009 Letter to Shareholders Earlier in this section, I mentioned that my number one priority is to put a healthy and productive succession process in place. As I will be increasingly focused on this process, I would like to share my thoughts about the essential qualities a leader must have, particularly as they relate to a large multinational corporation like JPMorgan Chase. Leadership is an honor, a privilege and a deep obligation. When leaders make mistakes, a lot of people can get hurt. Being true to oneself and avoiding self-deception are as important to a leader as having people to turn to for thoughtful, unbiased advice. I believe social intelligence and “emotional quotient,” or EQ, matter in management. EQ can include empathy, clarity of thought, compassion and strength of character. Good people want to work for good leaders. Bad leaders can drive out almost anyone who’s good because they are corrosive to an organization; and since many are manipulative and deceptive, it often is a challenge to find them and root them out. At many of the best companies throughout history, the constant creation of good leaders is what has enabled the organizations to stand the true test of greatness — the test of time. Below are some essential hallmarks of a good leader. While we cannot be great at all of these traits — I know I’m not — to be successful, a leader needs to get most of them right. Discipline This means holding regular business reviews, talent reviews and team meetings and constantly striving for improvement — from having a strong work ethic to making lists and doing real, detailed follow-up. Leadership is like exercise; the effect has to be sustained for it to do any good. Fortitude This attribute often is missing in leaders: They need to have a fierce resolve to act. It means driving change, fighting bureaucracy and politics, and taking ownership and responsibility. High Standards Leaders must set high standards of performance all the time, at a detailed level and with a real sense of urgency. Leaders must compare themselves with the best. Huge institutions have a tendency toward slowing things down, which demands that leaders push forward constantly. True leaders must set the highest standards of integrity — those standards are not embedded in the business but require conscious choices. Such standards demand that we treat customers and employees the way we would want to be treated ourselves or the way we would want our own mother to be treated. Ability to Face Facts In a cold-blooded, honest way, leaders emphasize the negatives at management meetings and focus on what can be improved (of course, it’s okay to celebrate the successes, too). All reporting must be accurate, and all relevant facts must be reported, with full disclosure and on one set of books. Openness Sharing information all the time is vital — we should debate the issues and alternative approaches, not the facts. The best leaders kill bureaucracy — it can cripple an organization — and watch for signs of politics, like sidebar meetings after the real meeting because people wouldn’t speak their mind at the right time. Equally important, leaders get out in the field regularly so as not to lose touch. Anyone in a meeting should feel free to speak his or her mind without fear of offending anyone else. I once heard someone describe the importance of having “at least one truth-teller at the table.” Well, if there is just one truth-teller at the table, you’re in trouble — everyone should be a truth-teller. 25 Setup for Success Fair Treatment The best leaders treat all people properly and respectfully, from clerks to CEOs. Everyone needs to help everyone else at the company because everyone’s collective purpose is to serve clients. When strong leaders consider promoting people, they pick those who are respected and ask themselves, Would I want to work for him? Would I want my kid to report to her? Humility Leaders need to acknowledge those who came before them and helped shape the enterprise — it’s not all their own doing. There’s a lot of luck involved in anyone’s success, and a little humility is important. The overall goal must be to help build a great company — then we can do more for our employees, our customers and our communities. An effective leader makes sure all the right people are in the room — from Legal, Systems and Operations to Human Resources, Finance and Risk. It’s also necessary to set up the right structure. When tri-heads report to co-heads, all decisions become political — a setup for failure, not success. Morale-Building High morale is developed through fixing problems, dealing directly and honestly with issues, earning respect and winning. It does not come from overpaying people or delivering sweet talk, which permits the avoidance of hard decision making and fosters passive-aggressive behaviors. Loyalty, Meritocracy and Teamwork While I deeply believe in loyalty, it often is misused. Loyalty should be to the principles for which someone stands and to the institution: Loyalty to an individual frequently is another form of cronyism. Leaders demand a lot from their employees and should be loyal to them — but loyalty and mutual respect are two-way streets. Loyalty to employees does not mean that a manager owes them a particular job. Loyalty to employees means building a healthy, vibrant company; telling them the truth; and giving them meaningful work, training and opportunities. If employees fall down, we should get them the help they need. Meritocracy and teamwork also are critical but frequently misunderstood. Meritocracy means putting the best person in the job, which promotes a sense of justice in the organization rather than the appearance of cynicism: “Here they go again, taking care of their friends.” Finally, while teamwork is important and often code for “getting along,” equally important is an individual’s ability to have the courage to stand alone and do the right thing. 26 III. BANKS’ ENORMO US COMP ET ITIVE THREATS — FROM VIRTUALLY EVERY ANGLE I am completely in favor of open compe- tition, and much of the competition that I cover in this section will be good for America. One of the necessities for a healthy economy, and one at the core of America’s success, is a strong, vibrant financial system. The disciplined allocation of capital, and the constant search for new opportunities for capital, is critical to growth (a corollary of the free and intelligent movement of capital is the free movement of human talent, which, ultimately, may be even more important). America’s financial system is the best the world has ever seen, from our regulatory system and rule of law to exchanges, venture capital and private capital, banks and shadow banks. As our system changes, our govern- ment and regulators need to understand that maintaining the vibrancy, safety and soundness of this system is critical – and this includes maintaining a relatively fair and balanced playing field. While I am still confident that JPMorgan Chase can grow and earn a good return for its shareholders, the competition will be intense, and we must get faster and be more creative. To fairly assess the competitive landscape for banks, you must fairly evaluate their strengths and weaknesses to deal with both the current competition and evolving compe- tition. Banks have significant strengths – brand, economies of scale, profitability, and deep roots with their customers and within their communities. Many companies, including banks, have flaws of their own making – usually due to bureaucracy, compla- cency and lack of a deep competitive spirit. Banks have other weaknesses, born somewhat out of their success – for example, inflexible “legacy systems” that need to be moved to the cloud if they are to remain competitive. Banks are also required to deal with extensive regu- lations, which can hinder new competition and/or create an opening for both existing and evolving competitors. Banks fiercely compete with each other and now face fierce competi- tion from multiple vectors. Banks already compete against a large and powerful shadow banking system. And they are facing extensive competition from Silicon Valley, both in the form of fintechs and Big Tech companies (Amazon, Apple, Facebook, Google and now Walmart), that is here to stay. As the importance of cloud, AI and digital platforms grows, this competi- tion will become even more formidable. As a result, banks are playing an increasingly smaller role in the financial system. 27 1. Banks are playing an increasingly smaller role in the financial system. In the chart below, you will see that U.S. banks (and European banks) have become much smaller in size relative to multiple measures, ranging from shadow banks to fintech competi- tors and to markets in general. Size of the Financial Sector / Industry ($ in trillions) Size of banks U.S. banks market capitalization1 U.S. GSIB market capitalization European banks market capitalization1 U.S. bank loans2 Total U.S. broker dealer inventories U.S. bank common equity3 U.S. bank liquid assets2, 4 Market size Total U.S. debt and equity market Total U.S. GDP5 Shadow banks Total private direct credit Total U.S. passives and ETFs6 Total U.S. money market funds Hedge fund and private equity AUM7 Size of evolving competitors Google, Amazon, Facebook, Apple8 Payments9 Private and public fintech companies9 2000 2010 2020 1.2 0.9 1.1 3.7 2.0 0.4 1.1 33.6 13.3 7.6 6.9 1.8 0.6 NM NA NA 1.3 0.8 1.5 6.6 3.5 1.0 2.8 57.2 15.8 13.8 13.6 2.8 3.0 0.5 0.1 NA 2.2 1.2 1.1 10.5 3.7 1.5 7.0 118.4 18.8 18.4 30.8 4.3 8.0 5.6 1.2 0.8 Sources: FactSet, S&P Global Market Intelligence, Federal Reserve Z.1, Federal Reserve H.8, Preqin and Federal Reserve Economic Data (FRED) GSIB = Global Systemically Important Banks NA = Not applicable NM = Not material For footnoted information, refer to page 67 in this Annual Report. Whether you look at the chart above over 10 or 20 years, U.S. banks have become much smaller relative to U.S. financial markets and to the size of most of the shadow banks. You can also see the rapid growth of payment and fintech companies and the extraordinary size of Big Tech companies. (As an aside, capital and global systemically important financial institution (G-SIFI) capital rules were supposed to reflect the economy’s increased size and banks’ reduced size within the economy. This simply has not happened in the United States.) Some regulators will look at the chart above and point out that risk has been moved out of the banking system, which they wanted and which clearly makes banks safer. That may be true, but there is a flip side – banks are reliable, less-costly and consistent credit providers throughout good times and in bad times, whereas many of the credit providers listed in the chart above are not. More important, transactions made by well-controlled, well-supervised and well-capitalized banks may be less risky to the system than those transactions that are pushed into the shadows. 28 III. BANKS’ ENORMOUS COMPETITIVE THREATS — FROM VIRTUALLY EVERY ANGLE 4-05-21 r7 2. The growth in shadow and fintech banking calls for level playing field regulation. The chart below shows the potential regula- tory differences between being a bank and being a nonbank or a fintech company – though this varies for each type of company on each item depending upon its legal and regulatory status. In some cases, these regula- tory differences may be completely appro- priate, but certainly not in all cases. When I make a list like this, I know I will be accused of complaining about bank regula- 21_JD_bank_nonbank regulations_07 tions. But I am simply laying out the facts for our shareholders in trying to assess the competitive landscape going forward. It is completely clear that, increasingly, many banking products, such as payments and certain forms of deposits among others, are moving out of the banking system. In addition, lending in many forms – including mortgage, student, leveraged, consumer and non-credit card consumer – is moving out of the banking system. Neobanks and nonbanks are gaining share in consumer accounts, which effectively hold cash-like deposits. Bank and Nonbank Regulation Requirements Payments are also moving out of the banking system in merchant processing and in debit or alternative payment systems. 4/6/21 r2 4:50pm Footnotes adjusted for style We believe that many of these new compet- itors have done a terrific job in easing customers’ pain points and making digital platforms extremely simple to use. But growth in shadow banking has also partially been made possible because rules and regulations imposed upon banks are not necessarily imposed upon these nonbanks. While some of this may have been deliberate, sometimes the rules were accidentally calibrated to move risk in an unintended way. We should remember that the quantum of risk may not have changed – it just got moved to a less-regu- lated environment. And new risks get created. While it is not clear that the rise in nonbanks and shadow banking has reached the point of systemic risk, this trend is accelerating and needs to be assiduously monitored, which we do regularly as part of our own business. TYPESET; 4/5/21r7 v. 21_JD_bank_nonbank regulations_07 Bank Fintech / Nonbank 1. Higher capital requirements (which also require expensive debt and non-tax-deductible preferreds), even on deposits 1. Lower capital requirements, set by market 2. Operational risk capital 3. Extensive liquidity requirements 4. FDIC insurance (this cost JPM ~$12B over the last 10 years — and not tax deductible beginning in 2018) 2. No operational risk capital 3. No liquidity requirements 4. No FDIC insurance 5. U.K. bank levy and surcharges (this cost JPM $3.2B over 5. No U.K. bank levy or surcharges the last 10 years) 6. More costly regulations (e.g., loans, CFPB, OCC), including 6. Less costly regulations resolution planning and CCAR 7. Heavy restrictions around privacy and use of data 7. Fewer privacy restrictions, virtually no data restrictions 8. Extensive KYC / AML requirements 8. Less extensive KYC / AML requirements 9. Substantial social requirements (CRA) 9. No social requirements (CRA) 10. Extensive public and regulatory reporting requirements 10. Limited public and regulatory reporting requirements (e.g., disclosure, compensation) 11. Lower revenue opportunities (i.e., Durbin — this cost 11. Higher debit card income JPM ~$17B over the last 10 years) FDIC = Federal Deposit Insurance Corporation CFPB = Consumer Financial Protection Bureau OCC = Office of the Comptroller of the Currency CCAR = Comprehensive Capital Analysis and Review KYC = Know your customer AML = Anti-money laundering CRA = Community Reinvestment Act 29 III. BANKS’ ENORMOUS COMPETITIVE THREATS — FROM VIRTUALLY EVERY ANGLEA few items need further explanation. On capital requirements, you should always remember that the market determines this level, not regulators, and to the extent that capital requirements in one entity are much higher than another, activities will move. Ironically, because standardized capital and G-SIFI capital do not recognize credit risk, banks have a peculiar incentive to hold higher risk credit rather than lower risk credit. All companies have operational risk, and most companies absorb operating losses through earnings. Banks are required to hold substantial capital against this risk. (I’m not debating that there is operational risk.) And because of the Durbin Amendment, if a bank has a customer with a small checking account who spends $20,000 a year on a debit card, the bank will only receive $120 in debit revenue – while a small bank or nonbank would receive $240. This differ- ence may determine whether you can even compete in certain customer segments. It’s important to note that while some of the fintechs have done an excellent job, they may actually be more expensive to the customer. Finally, it’s important to point out that not only has private credit been moving to the private markets but so have companies them- selves. The number of public companies in the United States has been dropping dramat- ically over the past two decades, which has corresponded to an even larger increase in the number of private companies. Following its peak at 8,000 in 1997, the number of public companies is now around 6,000, and if you exclude non-operating companies, such as investment funds and trust compa- nies, the decline is even more dramatic. This is worthy of serious study. The reasons are complex and may include factors such as onerous reporting requirements; higher litigation expenses; annual shareholder meetings focused on matters that most share- holders view as frivolous or inappropriate for company actions; costly regulations; less compensation flexibility; and heightened public scrutiny. It’s incumbent upon us to figure out why so many companies and so much capital are being moved out of the transparent public markets to the less trans- parent private markets and whether this is in the country’s long-term interest. We need competition – because it makes banking better – and we need to manage the emerging risks with level playing field regulation in a way that ensures safety and soundness across the industry. 3. AI, the cloud and digital are transforming how we do business. We cannot overemphasize the extraordinary importance of new technology in the new world. Today, all technology is built “cloud- enabled,” which means the applications and their associated data can run on the cloud. This brings many extraordinary advantages, but the one that I’d like to spotlight is the immediate ability to access data and associ- ated machine learning with virtually unlim- ited compute power. Essentially, in the cloud, you can “access” hundreds of databases and deploy machine learning in a split second – something mainframes and legacy systems and databases simply cannot do. To go from the legacy world to the cloud, applications not only have to be “refactored,” but, more important, data also must be “re-platformed” so it is accessible. This availability of data – and banks have a tremendous amount of data – makes data enormously valuable and digitally accessible. All of this work takes time and money, but it’s absolutely essential that we do it. We already extensively use AI, quite success- fully, in fraud and risk, marketing, pros- pecting, idea generation, operations, trading and in other areas – to great effect, but we are still at the beginning of this journey. And we are training our people in machine learning – there simply is no speed fast enough. 30 III. BANKS’ ENORMOUS COMPETITIVE THREATS — FROM VIRTUALLY EVERY ANGLE4. Fintech and Big Tech are here … big time! Fintech companies here and around the world are making great strides in building both digital and physical banking products and services. From loans to payment systems to investing, they have done a great job in developing easy-to-use, intuitive, fast and smart products. We have spoken about this for years, but this competition now is every- where. Fintech’s ability to merge social media, use data smartly and integrate with other platforms rapidly (often without the disadvan- tages of being an actual bank) will help these companies win significant market share. Importantly, Big Tech (Amazon, Apple, Face- book, Google – and, as I said, now I’d include Walmart) is here, too. Their strengths are extraordinary, with ubiquitous platforms and endless data. At a minimum, they will all embed payments systems within their ecosystems and create a marketplace of bank products and services. Some may create exclusive white label banking relationships, and it is possible some will use various banking licenses to do it directly. Though their strengths may be substantial, Big Tech companies do have some issues to deal with that may, in fact, slow them down. Their regulatory environment, globally, is heating up, and they will have to confront major issues in the future (banks have faced similar scrutiny). Issues include data privacy and use, how taxes are paid on digital products, and antitrust and anticompetitive issues – such as favoring their own products and services over others on their platform and how they price products and access to their platforms. In addition, Big Tech will have very strong competition – not just from JPMorgan Chase in banking but also from each other. And that competition is far bigger than just banking – Big Tech companies now compete with each other in advertising, commerce, search and social. 5. JPMorgan Chase is aggressively adapting to new challenges. As tough as the competition will be, JPMorgan Chase is well-positioned for the challenge. But our eyes are wide open as the landscape changes rapidly and dramat- ically. We have an extraordinary number of products and services, a large, existing client base, huge economies of scale, a fortress balance sheet and a great, trusted brand. We also have an extraordinary amount of data, and we need to adopt AI and cloud as fast as possible so we can make better use of it to better serve our customers. We need to make our extraordinary number of products and services a huge plus by improving ease of use and reducing complexity. We need to move faster and bolder in how we attack new markets while protecting our existing ones. Sometimes new markets look too small or appear not to be critical to our customer base – until they are. We intend to be a little more aggressive here. While we will argue for a level playing field, both in terms of how products and services are treated by regulators and possibly how competition should be treated across plat- forms, we are not relying on much to change. So we will simply have to contend with the hand we are dealt and adjust our strategies as appropriate. We have mentioned that our highest and best use of capital is to expand our busi- nesses, and we would prefer to make great acquisitions instead of buying back stock. We are somewhat constrained by how much we can grow our balance sheet because our capital charges will grow with our size, so sometimes buying back stock may still be the best option. But acquisitions are in our future, and fintech is an area where some of that cash could be put to work – this could include payments, asset management, data, and relevant products and services. We will continue to do everything in our power to make JPMorgan Chase successful – and are confident we can do so. 31 III. BANKS’ ENORMOUS COMPETITIVE THREATS — FROM VIRTUALLY EVERY ANGLEIV. SP EC IFIC ISSUES FACING OUR COMPAN Y In this section, I review and analyze some of the current critical issues that affect our company. 1. Cyber risk remains a significant threat. We cannot overemphasize the importance of cyber risk, not just to our bank (we spend more than $600 million a year on cybersecurity) but also to our customers, countries, economies and critical industries (i.e., telecom and power). We have pointed out to our shareholders before that having disciplined cyber hygiene is almost as important as the money you spend. Threats to our cybersecurity need urgent attention from our government as issues of national security and impediments to trade. Govern- ments should build on prior agreements in the United Nations, recognizing the appli- cability of international law to cyberspace and enforcing obligations to hold bad actors accountable. Acknowledging that govern- ments and their regulatory agencies are prime targets for cyber criminals, these agencies need to provide transparency to those affected by incidents (e.g., financial institutions and others that hold sensitive data), invest in the uplift to cybersecurity, and adopt safe and sound practices for data protection and handling. Much of our extraordinary cyber capabil- ities are also used to train and protect our customers, particularly in the areas of risk and fraud. 2. Brexit was finally accomplished — but uncertainties linger. Brexit was accomplished, but many issues still need to be negotiated. And in those negotiations, Europe has had, and will continue to have, the upper hand. In the short run (i.e., the next few years), this cannot possibly be a positive for the United Kingdom’s GDP – the effect after that will be completely based upon whether the United Kingdom has a comprehensive and well- executed strategic plan that is acceptable to Europe. Included among the unresolved questions is how financial services will operate. London has been a major financial center that, under all laws and regulations, could conduct business throughout Europe. For most of us, the bulk of our operations (i.e., risk, compliance, audit, legal, regula- tory, market-making, investment banking, research and asset management) were performed centrally in London. It was hugely efficient for all of Europe – and for finan- cial services companies as well. London is a magnificent place to do business in terms of the rule of law, human capital, tech- nology, transportation, language and many other facets. But future financial regulations were left uncertain in Brexit; and it is clear that, over time, European politicians and regulators will make many understandable demands to move functions into European jurisdictions. Because of this – and because of strong European efforts to compete with London – Paris, Frankfurt, Dublin and Amsterdam will grow in importance as more financial functions are performed there. Even so, few winners are likely to emerge from this fragmentation. During this transition, our costs (most of which will probably be passed on to customers in one form or another) will go up as functions become duplicated. We may reach a tipping point many years out when it may make sense to move all functions that service Europe out of the United Kingdom and into continental Europe. But London still has the opportunity to adapt and reinvent itself, particularly as the digital landscape continues to revolutionize financial services. Innovation is key to preparing for doing the business of tomorrow versus relying on the shifting ways of the past. 32 3. New accounting requirements affect reserve reporting but not how we run our business. Hundreds of variables go into the scenarios and calculations shown in the chart below. During periods of stress, the firm leaned more heavily to the downside to reflect uncertainties not fully captured by the scenarios themselves. Uncertainties included a substantial drop in headline employment without corresponding job creation, the degree of permanent job losses, the extent and timing of federal government assis- tance, unknowns around vaccine efficacy against new virus strains, and the poten- tial for economic scarring from changes in consumer behavior and the recovery of directly impacted sectors. 4/6/21 r2 4:50pm Footnotes adjusted for style A new loan loss reserving method called the current expected credit losses (CECL) standard was adopted by large financial institutions, effective January 1, 2020. To oversimplify, there were two main changes. First, you must reserve for expected credit losses over the full remaining expected life of the loan, whereas in the past, we reserved for losses that had already been incurred using a forecast over a loss emergence period, for example the ensuing 12 months or so for credit cards. Second, you were to incorporate different reasonable and supportable macro- economic forecasts (for multiple scenarios) 21_JD_allowance_range_of_downside_04 in estimating losses. Given the benign macro- economic environment when this new CECL standard was adopted, it increased reserves by only $4.3 billion, which was primarily attributed to moving to lifetime loss coverage for Card, with only a small amount of reserves for the probability of a far worse economic environment. TYPESET; 4/04/21r3 v. 21_JD_allowance_range_of_downside_04 Allowance: Range of Downside Uncertainty ($ in billions) 4-04-21 r3 $19 $14 Actual UER 3.6% 4Q19 (Incurred loss) 1/1/2020 (CECL adoption) $25 3.8% 1Q20 $52 $34 $28 20.7% 10.8% 13.1% 2Q20 $34 8.8% 3Q20 (cid:31) Reported allowance (cid:31) Extreme adverse case (cid:31) Central case (cid:31) Unexpected downside (cid:31) Expected downside Extreme Adverse UER, next 4Q average Central UER, next 4Q average CECL = Current expected credit losses UER = Unemployment rate $45 $31 $22 12.5% 6.5% 6.8% 4Q20 33 IV. SPECIFIC ISSUES FACING OUR COMPANYThe best way to look at this is to analyze our loan loss reserves as of December 31, 2020. Our central case is essentially our baseline forecast (and is roughly similar to the Federal Reserve’s current forecast at the time), which would have unemployment over the ensuing 12 months at 6.5%. If we reserved to this case, our reserves would total $22 billion. But we run multiple scenarios – one of which is an extreme adverse case. This worst case, which is slightly more severe than the Federal Reserve’s extreme adverse case, would have unemployment over the ensuing 12 months at 12.5% (among other variables). If we reserved as if this scenario had a 100% chance of happening, we would require $45 billion in reserves. After proba- bility weighting multiple scenarios, we ended the year with $31 billion in reserves. Clearly in turbulent times, these scenarios and the probabilities assigned to them are highly uncertain and volatile. The following are also clear and extremely important: The firm earns almost $50 billion +/- pre- provision profit annually; it is able to easily handle large increases in reserves; and we could easily have done substantially more while maintaining high capital and high liquidity. This is also why we saw no reason to cut our dividend. If, however, the worst- case scenario had happened (which means it could have gotten even worse from there), we might have cut our dividend to retain capital out of prudence. Importantly, CECL does not change risk management or the way we run the company. We have been lending, and will continue to lend, to our clients and customers throughout the pandemic with prudent risk management. Our credit risk decisions and broader risk appetite are mostly driven by our clients’ needs and market conditions rather than solely by reserve methodology. While reserve levels are an estimate reflecting management’s expectations of credit losses at the balance sheet date, they may not reflect the amount of losses ultimately realized. 4. While we disbanded Haven, we will continue to build on what we learned. Although the United States has some of the best healthcare in the world (i.e., doctors, pharmaceutical care and innovation) and many people from other countries come here when they need serious medical attention, the problems associated with healthcare are serious, rampant and obvious. Our costs are more than twice those of the developed world without justification by better outcomes. There is no transparency in pricing, with patients legitimately complaining of hidden costs. And chronic care is not necessarily managed properly. More than 30 million Americans are uninsured, and we are falling short in basic wellness. Amazon, Berkshire Hathaway and JPMorgan Chase set up Haven to address some of these problems, and, in the process, we learned a lot about how the healthcare system could be improved. Although we decided to disband Haven, JPMorgan Chase will continue to build on what we learned. We will invest in healthcare innovation and other approaches to improve the health and well-being of our employees and address this critical national issue. More details will be shared as we progress. 34 IV. SPECIFIC ISSUES FACING OUR COMPANYV. COVID-19 AN D THE ECONOMY Within days of realizing that COVID-19 was a global pandemic that would virtually close down large parts of the world’s economies, the U.S. government moved with unprece- dented speed. Fortunately, banks were part of the solution – unlike in the Great Recession. And unlike the Great Recession, the U.S. economy was actually in good shape going into the COVID-19 recession. Though there are many differences, it’s instructive to compare the recovery from the Great Recession with the expected recovery from the COVID-19 recession. 1. Bold action by the Fed and the U.S. government effectively reversed financial panic. The Federal Reserve (critically, with the support of the U.S. Treasury) immediately rolled out facilities that financed Treasuries, corporate bonds, mortgage-backed secu- rities and other securities that effectively reversed the financial panic taking place. A full-blown financial crisis would have made the COVID-19 recession far worse, deeper and longer. Markets reacted extremely posi- tively, and companies, over the next nine months, raised an unprecedented $2 trillion in debt and equity at good prices, dramati- cally improving their financial condition and balance sheets. the sidebar on page 36 for more detail on the Paycheck Protection Program. Suffice it to say while real damage was done, the size and scope of these programs dramatically reversed the deterioration of the economy and unemployment, which hit 14.8% in April 2020 but made steady prog- ress back to 6.7% by the end of the year – though this number underrepresents the damage that was done because of the large deterioration in labor force participation and the potential permanent loss of many small businesses. Congress, importantly, also took immediate action to provide fiscal stimulus, the Corona- virus Aid, Relief, and Economic Security Act, also known as the CARES Act, totaling $2.2 trillion. This largely consisted of stimulus payments to individuals, enhanced unem- ployment insurance and loans, which could be forgiven, to small businesses. Please see One last important point: The speed and breadth of the programs were critical, and there is no way they could have been done perfectly. While it always makes sense to do a thorough postmortem review and to prop- erly punish those who deliberately misuse emergency government programs, we should try to avoid excessive finger-pointing. 2. Banks entered this recent crisis in great shape and were part of the solution coming out. The banking system was in excellent shape going into this crisis, and just about every bank took extensive actions to help their customers, employees and communities. The sidebar on page 37 details how JPMorgan Chase responded to support various stake- holders. It’s important to note that many of these programs went far beyond what was requested by the government. Of course, banks are always affected, for the better and worse, by just about everything that impacts the economy. Some have said that banks were helped, or even bailed out, by the government’s actions. The govern- ment took these actions to help those who needed it – not to help the banks. These actions helped just about everyone – and they had a collateral benefit to the banks. 35 The Paycheck Protection Program The Paycheck Protection Program, while not perfect, was a tremendous achievement. In the spring of 2020, lenders had seven frantic days to get ready to accept applications for $349 billion in loans through the newly created Paycheck Protection Program. Often known simply as PPP, the federal program provided desperately needed cash to help businesses sustain payroll so their employees could put food on their tables and make their rent or mortgage payments. If a business used the loan to pay its employees and certain other permitted expenses, the Small Business Administration would fully forgive the loan. Not surprisingly, there were bumps in the road as the SBA and lenders worked around the clock to establish and implement specific rules and processes, as well as develop the technology to support the program. Ultimately, though, it was a lifesaver for millions of U.S. businesses. In Business Banking, we processed more than four years’ worth of loan applications in 23 days — a combination of digital prowess and the efforts of more than 1,000 people who manually reviewed applications and contacted clients after hours and on weekends to correct errors. All told, in 2020, we funded over 280,000 PPP loans for more than $32 billion — the most of any lender — to companies that employ a total of 3+ million people. We are especially proud that we helped some of America’s smallest businesses: childcare centers, social service agencies, schools, grocery stores, physicians’ offices and restaurants. In fact, half of our loans went to companies with fewer than five employees. And we’re fully engaged in the 2021 edition of PPP: Through March 2021, we’ve funded in excess of 130,000 loans for more than $10 billion — again, the most of any lender. And more than 90% of those loans went to businesses with fewer than 25 employees. Given that most small businesses keep just two weeks of cash on hand, the government and lenders had to act with exceptional speed. What they created in record time was unprecedented and really quite extraordinary. The program accomplished what it set out to do. Together, we helped many small businesses survive and kept a painful recession from becoming far, far worse. JPMorgan Chase Helped Thousands of Small Businesses in 2020 more than 280K loans funded more than $32B¹ in relief more than 3M employee jobs $112K average loan amount ~80% ~80% ~50% ~30% of loans were for less than $100K of loans went to businesses with fewer than 10 employees of loans went to businesses with fewer than 5 employees of loans went to businesses in majority-minority census tracts 1 $28 billion excluding Small Business Administration safe harbor refunds. 36 JPMorgan Chase: Supporting the “Real Economy” during the COVID-19 Crisis To support the “real economy” — our customers, clients, employees and communities impacted by the global crisis — JPMorgan Chase has brought the full force of its core business and expertise. In 2020, we raised capital and provided credit totaling $2.3 trillion for customers and businesses of all sizes, helping them meet payroll, avoid layoffs and support operations. Through March 2021, we’ve provided more than $40 billion to more than 400,000 small businesses through the PPP program. Since March 13, 2020, we’ve delayed payments and refunded fees for customers on over 2 million accounts. We committed $250 million in global business and philanthropic initiatives, with particular focus on the most vulnerable people and communities hardest hit by the pandemic. Our ability to do all this, and more, is the result of the actions and investments we’ve made over many years to build a strong and resilient company. CUSTOMERS SMALL BUSINESSES EMPLOYEES • Offered delayed payments and • Supported distribution of funds forbearance options for around 2 million mortgage, auto and credit card accounts representing $85 billion in loans • Refunded $120 million in fees on consumer deposit accounts for nearly 1 million customers • Streamlined relief benefit enrollment and renewal processes and required no evidence of hardship through the SBA PPP • Provided $18 billion in new and renewed credit for U.S. small businesses (outside of PPP) in 2020 • Delayed payments for 21,000 loans and refunded $24 million in deposit fees for more than 130,000 small businesses • Committed $350 million to support underserved small businesses, including Black and Latinx companies • Continued to pay employees for regularly scheduled hours even if hours were reduced by temporary site closures or other circumstances • Provided a special payment to select full- and part-time employees whose role required continuing on-site work • Enhanced support for working parents, including childcare and tutoring • Expanded access to medical resources LARGE EMPLOYERS AND ESSENTIAL SERVICES • Helped many large employers avoid layoffs and furloughs for countless Americans LANDLORDS AND RENTERS COMMUNITIES • Provided more than $70 million in loan relief through nearly 1,500 multifamily loans, affecting housing for more than 27,000 tenants • Committed $200 million to help underserved small businesses and nonprofits access low-cost capital through community partners • Extended funding to nonprofit and • Offered landlord borrowers periods • Committed $50 million to address government services, such as hospitals and transportation, to support continued essential services for their communities of interest-only payments, deferral of mortgage payments and the ability to capitalize prior deferred payments over two years or more • Provided $865 billion in credit for corporations that, collectively, employ tens of millions of workers • Provided payment assistance to millions of Chase customers, freeing up capital for rent or other critical expenses public health and long-term economic challenges resulting from COVID-19 37 But many companies, large and small, may not have survived had JPMorgan Chase not taken extraordinary efforts to help them. While the government’s actions were a benefit to banks, there is no question the banks were able to weather a terrible storm while reserving extensively for potential future loan losses. Importantly, the Fed conducted two additional severely adverse Comprehensive Capital Analysis and Review (CCAR) stress tests, which projected bank results under extreme unemployment, GDP loss, market disruption and a smaller government stimulus. The result showed that banks could withstand this extreme outcome while continuing to finance the economy. I also have very little doubt that if the severely adverse scenario played out, JPMorgan Chase would perform far better than the stress test projections. 3. The confusing interplay of monetary, fiscal and regulatory policy continues through recessions. Prior to the Great Recession in 2008, banks operated under a completely different regu- latory, capital and liquidity regime. Banks held less capital (for many banks, it was too little), they left virtually no money deposited at the Fed, they generally lent out an amount roughly equal to their deposits and they had less liquidity, mostly in the form of Trea- suries and mortgages (the securities portfolio was also used for interest rate exposure). This completely changed with Dodd-Frank (the Dodd-Frank Wall Street Reform and Consumer Protection Act) capital/liquidity rules in 2010, and it changed again dramati- cally with the COVID-19 recession of 2020. The quantitative easing and fiscal stimulus taken after the Great Recession were partially offset by changes in regulatory policy. As the chart on the next page illustrates, until the Great Recession of 2008, banks were generally able to lend out 100% of their deposits. In addition, they maintained liquidity in the form of securities. Dodd- Frank created a new rule called the liquidity coverage ratio (LCR), which required banks to permanently “lock up” a lot more liquidity and also created more restrictions around what counted as liquidity. The new regula- tions generally limited liquidity sources to cash deposits at central banks, Treasuries and a portion of government-guaranteed securi- ties. It should be noted that while the historic bank reserve requirement is now zero, it has effectively been replaced with LCR, which is substantially the same thing as a reserve requirement but far more stringent. In addi- tion, we obviously saw an increase in capital requirements and their complexity. Taken together, these changes resulted in the loan- to-deposit ratio dropping to approximately 75% – and it is likely to stay approximately there unless regulations are changed. While loans are, of course, subject to supply and demand, this is a structural reduction that was clearly due to regulatory changes. The effect was also enduring: As banks phased in these rules, this new restriction limited their ability to extend credit, and that, in turn, may have held back the economy from reaching its maximum potential output. To understand this in more specific terms, look at the chart on the next page that shows, prior to the COVID-19 recession, banks had $13 trillion in deposits and only $10 trillion in loans. This $3 trillion in “lost” lending (this is, in part, directly related to the new liquidity requirements) may very well have contributed to the secular stagnation experi- enced in the last decade. If $3 trillion more had been lent, the banking sector would have fostered a more dynamic economy, and GDP growth over the past decade would almost certainly have been faster. 3838 V. COVID-19 AND THE ECONOMY21_JD_bank_bank deposits and loans through time_05 4/6/21 r2 4:50pm Footnotes adjusted for style TYPESET; 4/6/21r2 v. 21_JD_bank_bank deposits and loans through time_05 Bank Deposits and Loans through Time ($ in trillions) 4-06-21 r2 99% $3.8 $3.7 2000 76% 64% $16.3 $13.3 $10.1 $10.5 2005 2010 2015 2019 2020 (cid:31) Deposits (cid:31) Loans (cid:31) Loan-to-deposit ratio Source: Federal Reserve H.8 data for all commercial banks in the U.S. If you aren’t convinced yet – consider how surprising it is that $3.4 trillion of quan- titative easing (QE) and deficit spending averaging 5% of GDP over the 10-year period 4/6 7:00pm correction: Sources was changed to Source after the Great Recession did not result in higher GDP growth and possibly higher infla- tion. As a reference point, in the mid-1970s, there was no QE – and deficit spending hit 4%, which many people thought was the main reason for the overheated economy and inflation, which, at its peak, was over 12%. And so why did all this quantitative easing not have the effect you would have thought? QE was never effectively tried prior to the Great Recession, and it is different from fiscal spending. QE is the purchase of securi- ties from security holders who tend to rein- vest in the same or similar securities. Clearly, QE reduces interest rates, pushes up asset prices and creates some spending (through the wealth effect). QE, on the one hand, may have some inflationary effects, mostly on asset prices. But on the other hand, it also may have some disinflationary effects – lower interest rates themselves, which is an input cost for businesses, and lower income to savers – which may reduce consumption and may increase the propensity to save (e.g., we may need to set aside more money to protect retirement income). And finally, in this most recent round of QE, much of the money simply made a round trip – because of the new liquidity rules, it ended up back as deposits at the Fed, not as loans. The fiscal deficit is, pure and simple, giving various individuals and institutions money to spend – which they will spend over time. All things being equal, this is, and always has been, inflationary. Of course, in a reces- sionary environment with low inflation, like after the Great Recession, this might be precisely what is needed without causing overheating or excessive inflation. My own view: The anemic growth in the decade after the Great Recession was due to some of the factors I mention above but also due to many of the public policy failures that I outline in the next section. 3939 V. COVID-19 AND THE ECONOMY4-05-21 r6 The QE and deficit-spending response to the COVID-19 pandemic is of a completely different magnitude and without some of the offsetting drags that trailed the Great Recession. The chart below shows that for the United States, QE actual in 2020 and QE projected for 2021 total $4.6 trillion or almost 25% of GDP. Deficit spending for the two years combined is projected to total $6.8 trillion, or about 35% of GDP. These numbers are far 21_JD_deficit spending-QE_ALT_03 larger than the first couple of years of the Great Recession, and it is important to note that the rest of the world is showing similar actions, compounding the global effect. As another reference point, during World War II the deficit hit almost 30%, and it averaged 16% over the five-year period from 1941 to 1946. This period did not create lasting inflation as the circumstances were completely different – we were coming out of a deep depression, and the money was spent financing a war. Circumstances and starting points matter. Before the Great Recession, you had an over- leveraged financial system and overleveraged consumers. For years after the Great Reces- sion, there was a massive deleveraging in the United States by consumers, many investors and financial institutions, somewhat due to regulations. Today, this is not the case. In the United States, the average consumer balance sheet is in excellent shape. The consumer’s leverage is lower than it has been in 40 years. In fact, prior to the last $1.9 trillion stimulus package, we estimate that consumers had excess savings of approxi- mately $2 trillion. Corporations also have an extraordinary amount of cash on their balance sheet, estimated to be approxi- mately $3 trillion. And the financial system and investors have already adopted more conservative leverage requirements due to regulations – so they have very little need to deleverage. The QE in this go-around will have created more than $3 trillion in deposits at U.S. banks, and, unlike the QE after the Great Recession, a portion of this can be lent out. 4/6/21 r2 4:50pm Footnotes adjusted for style I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE, a new potential infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the U.S. economy will likely boom. This boom could easily run into 2023 because all the spending could extend well into 2023. The permanent effect of this boom will be fully known only when we see the quality, effectiveness and sustainability of the infrastructure and other government investments. I hope there is extraordinary Quantitative Easing and Deficit Spending of G4 Nations TYPESET; 4/5/21r6 v. 21_JD_deficit spending-QE_ALT_03 Quantitative Easing Deficit Spending 2020 % of GDP 17% 22% 20% $T 3.2 4.5 7.7 2021 Estimate $T 1.4 2.0 3.4 % of GDP 7% 9% 8% 2020 % of GDP 17% 14% 15% $T 3.1 2.9 6.0 2021 Estimate $T 3.7 1.7 5.4 % of GDP 19% 8% 13% U.S. Other G4 nations Total G4 nations T = Trillions GDP = Gross Domestic Product 4040 V. COVID-19 AND THE ECONOMYdiscipline on how all of this money is spent. Spent wisely, it will create more economic opportunity for everyone. While equity valuations are quite high (by almost all measures, except against interest rates), historically, a multi-year booming economy could justify their current price. Equity markets look ahead, and they may very well be pricing in not only a booming economy but also the technical factor that lots of the excess liquidity will find its way into stocks. Clearly, there is some froth and speculation in parts of the market, which no one should find surprising. As Captain Louis Renault said in Casablanca, “I’m shocked, shocked to find that gambling is going on in here!” Conversely, in this boom scenario it’s hard to justify the price of U.S. debt (most people consider the 10-year bond as the key refer- ence point for U.S. debt). This is because of two factors: first, the huge supply of debt that needs to be absorbed; and second, the not-unreasonable possibility that an increase in inflation will not be just temporary. In 2020, the Federal Reserve bought essen- tially 100% of all new issuance of Treasury notes and bonds. In 2021, with the Fed’s current QE commitments, the market (not the Fed) will have to absorb $2.2 trillion in government debt – approximately 85% of which will be in longer duration maturities. This is a large number, even for the United States. We should also remember that many, if not most, buyers of U.S. debt are essen- tially required to buy; i.e., foreign central banks, banks, insurance companies, foreign exchange reserve managers and duration hedgers. A notable exception is investors who buy the 10-year bond to take risk-off positions. However, all of these buyers will seek out alternatives – and there are always some – if they become worried about the long-term, sustainable value of Treasury bonds. And remember, annual inflation is already running at 1.7%. We don’t know what the future holds, and it is possible that we will have a Goldi- locks moment – fast and sustained growth, inflation that moves up gently (but not too much) and interest rates that rise (but not too much). A booming economy makes managing U.S. debt much easier and makes it much easier for the Fed to reverse QE and begin raising rates – because doing so may cause a little market turmoil, but it will not stop a roaring economy. And, of course, being who we are, while we are going to hope for the Goldilocks scenario – and we think there is a chance for that to happen – we will anticipate and be prepared for two other negative scenarios: 1) the new COVID-19 variants may be more virulent and resistant to the vaccine, which could obvi- ously reverse a booming economy, damage the equity markets and reduce interest rates as there is a rush to safety, and 2) the increase in inflation may not be temporary and may not be slow, forcing the Fed to raise rates sooner and faster than people expect. Much of the stimulus may very well hit when the economy is doing quite well. During the pandemic, it was appropriate that fiscal and monetary policy be fairly well- coordinated – working in concert to counter the pandemic-related downturn. In an infla- tionary case, fiscal and monetary policy may very well be at odds. I am reminded of when Paul Volcker effectively raised interest rates by 200 basis points on a Saturday night. Also in this case, the cost of interest on U.S. debt could go up fairly dramatically making things a little worse. Rapidly raising rates to offset an overheating economy is a typical cause of a recession. One other negative: In this case, we would be going into a recession with an already very high U.S. deficit. The government did the right thing by moving extraordinarily quickly to stop the COVID-19 recession from being extremely damaging. If we spend this money wisely, react quickly to changing circumstances and fix many of the public policy failures that are outlined in the next section, we can build a stronger and more equitable nation. 4141 V. COVID-19 AND THE ECONOMY4. The regulatory system needs to keep up with the changing world — and finish Dodd-Frank to get it right. We have a lot of experienced and hard- working regulators in the United States and globally. But I’m afraid that we gave them a virtually impossible job. The financial world 21_JD_spaghetti chart_04 is complex and rapidly changing. We gave them a regulatory system that is slow and backward-looking. A few years ago, my letter to shareholders included a “spaghetti chart” to illustrate how complex the regulatory environ- ment in the United States had become. We’re republishing it here to make a few points. 4/6/21 r2 4:50pm Footnotes adjusted for style TYPESET; 4/5/21r7 v. 21_JD_spaghetti chart_04 Complexities of the Regulatory System Complexities of the Regulatory System Reprinted from the 2011 Chairman and CEO Letter to Shareholders Reprinted from 2011 Chairman and CEO Letter to Shareholders 4-05-21 r7 (cid:31) New agency or new powers and authority (cid:31) Old agency Authority to request information but no examination authority OFAC/FinCEN SEC CFTC Market oversight and enforcement functions. Authority over swaps, swap dealers and major swap participants. Regulates trading markets, clearing organizations and intermediaries. Regulates securities exchanges; mutual funds and investment advisors. Examination authority for broker-dealers. Authority over security-based swaps, security-based swap dealers and major security-based swap participants. FINRA Regulates brokerage firms and registered securities representatives. Writes and enforces rules. Examination authority over securities firms. Financial Stability Oversight Council Identify risks to the financial stability of the United States from activities of large, interconnected financial companies. Authority to gather information from financial institutions.1 Make recommendations to the Fed and other primary financial regulatory agencies regarding heightened prudential standards. State Regulatory Authorities and AGs Power to enforce rules promulgated by Consumer Financial Protection Bureau Office of the Comptroller of the Currency Focus on safety and soundness. Primary regulator of national banks and federal savings associations. Examination authority. Examines loan portfolio, liquidity, internal controls, risk management, audit, compliance, foreign branches. Federal Reserve Focus on safety and soundness. Supervisor for bank holding companies; monetary policy; payment systems. Supervisor for systemically important financial institutions and their subsidiaries. Establish heightened prudential standards on its own and based on Council recommendations. Examination authority. Office of Financial Research Office within Treasury, which may collect data from financial institutions on behalf of Council. No examination authority. FDIC Focus on protecting deposits through insurance fund; safety and soundness; manage bank receiverships. Examination authority.2 Orderly liquidation of systemically important financial institutions.3 Consumer Financial Protection Bureau Focus on protecting consumers in the financial products and services markets. Authority to write rules, examine institutions and enforcement. No prudential mandate. 4/6/21 r2 4:50pm Footnotes adjusted for style Investment Advisory Mutual and money market funds; wealth management; trust services Derivatives Futures, commodities and derivatives Consumer Lending Credit cards; student and auto loans Commercial Lending Commercial and industrial lending Broker-Dealer Retail Banking Institutional and retail brokerage; securities lending; prime broker services Deposit products; mortgages and home equity Alternative Investments Hedge funds; private equity Investment Banking Payment and Clearing Systems Securities underwriting; M&A financial advisory services Payments processing; custody and clearing Note: Green lines from SEC and CFTC represent enhanced authority over existing relationships This chart assumes these activities are conducted in a systemically important bank holding company (BHC) For footnoted information, refer to page 67 in this Annual Report. Timeline of U.S. Capital and Liquidity Regulation TYPESET; 4/6/21r2 v. 21_JD_timeline_08 4-06-21 r2 2011 Banks required to submit capital plans Resolution/“living wills” effective 2013 Implementation of Basel III 2015 GSIB final 2017 TLAC final 2019 Tailoring rule final Resolution modified frequency 2021+ Basel III finalization proposal SLR modifications proposal (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) 2010 Dodd-Frank is finalized SCAP ÒCCAR 2012 DFAST and stress testing final 2014 LCR final eSLR final 2016 CCAR enhancements Resolution enhancements 2018 eSLR modifications proposal 2020 SCB final CECL capital impact NSFR final TLAC enhancements CCAR = Comprehensive Capital Analysis and Review CECL = Current Expected Credit Losses DFAST = Dodd-Frank Act Stress Tests eSLR = Enhanced Supplementary Leverage Ratio GSIB = Global Systemically Important Banks LCR = Liquidity Coverage Ratio SCAP = Supervisory Capital Assessment Program SCB = Stress Capital Buffer NSFR = Net Stable Funding Ratio TLAC = Total Loss-Absorbing Capacity 4242 V. COVID-19 AND THE ECONOMY We have multiple regulators with overlap- ping rulemaking, oversight and examination authorities. All of the agencies are indepen- dent, and there is no one real authority that can coordinate all the moving parts and bridge differences. The Financial Stability Oversight Council, chaired by the U.S. Secretary of the Treasury, is really just a convening body – no one agency has the ability to adjudicate deci- sions. Any one agency can hold up major deci- sions – and this unnecessarily politicizes and slows the regulatory policymaking process. We don’t give our regulators the political cover they need. Proper regulation requires a finely tuned, thoughtful and often-changing balance between competing needs and risks. This, in particular, puts the Federal Reserve, the key oversight regulator, in a terrible position. Monetary policy is so critical to our country that the Fed must necessarily subju- gate and sacrifice regulatory policy to achieve its monetary policy goals. That said, I will look at the regulatory system from the regulators’ point of view and describe what I would want to do if I were in their shoes. Let’s start with basic regulatory principles: • Ensure that safety and soundness come first but not at the expense of maximum long-term growth • Keep the banks funding their clients through the inevitable downturns and crises • Create a fairly level international playing field (we don’t need to see perfection here, but it needs to be fair) • Constantly assess emerging risk to the system Dodd-Frank worked. While Dodd-Frank included a lot of things that had nothing to do with safety and soundness and the Great Recession, to be fair, it accom- plished its basic objectives – higher levels and quality of capital and liquidity, more strin- gent stress testing, strong resolution capabil- ities and better governance that created a far healthier banking system, which we’ve just seen. Nothing like what happened to the banks in the Great Recession can happen again. But it’s bogged down in the past — it needs to focus on the future. It is obvious, however, that we are bogged down. Ten years after the financial crisis, we still have not put the finishing touches on Basel III (aka Basel IV). And it’s not clear when it’s finished if it will be an international level playing field. In addition, there are many things that need to be recalibrated. For example, we have not corrected mortgage rules to make mortgages more accessible to more Americans. Not only are we slow in dealing with the past, but it distracts us from dealing with the future. There are serious emerging issues that need to be dealt with – and rather quickly: the growth of shadow banking, the legal and regulatory status of cryptocurren- cies, the proper and improper use of financial data, the tremendous risk that cybersecurity poses to the system, the proper and ethical use of AI, the effective regulation of payment systems, disclosures in private markets, and effective regulations around market structure and transparency (payment for order flow, high-frequency trading and exchanges). We need to actively decide what we want in the regulatory system. Regulators need to decide what they want included in the regulatory system – and what they don’t want included. They can do this by product and by service; however, to do so, they need to apply the same rules to everyone. We need to recognize that if a regulated system has higher capital require- ments than the market demands, then the product will move outside of the regulated system. If we are going to do this, we should do it deliberately and with aforethought. Today, there are extensive differences between the requirements placed on banks versus nonbanks engaging in the same activity. I will give one example of the impact of market capital versus regulatory capital. Under standardized capital, whether we 4343 V. COVID-19 AND THE ECONOMYmake a AA loan or a BB loan, approximately 10% of equity capital is required to support it (plus other expensive debt). In the nonbank market, institutions and securitizations can possibly finance the investment grade debt effectively with 5% equity capital. Ironically, this pushes high-grade credit out of banks and incentivizes more risky lending. We need to calibrate how much liquidity and capital should be required for banks in a way that balances what you want in the regulatory system while maximizing both safety and soundness of banks and the growth of the economy. One day, someone is going to ask why the banking system has $4 trillion either in the form of cash or deposits at the Fed or as Treasury securities. Shouldn’t we use some of this liquidity to help the economy grow? It’s a good question, and I’ve yet to see agreement on the right answer. Under the old regulatory regime, banks could turn to the Fed’s discount window to create a tremendous amount of liquidity by pledging their securities and loans at times of surging demand – it no longer works this way. In today’s regime, using the discount window is so stigmatized that far fewer banks consider it a viable option, meaning that liquidity never reaches the banking system and, by default, the broader economy. This calibration will be one of the main factors in determining what ends up in the regulatory system – and what doesn’t. It is a fine balance. Too much capital and liquidity could possibly slow down the economy and push lots more to the shadow banking system. Too little capital and liquidity could make banks riskier and more subject to failure. And remember, products and services inside a well-regulated system will generally have higher scrutiny, transparency and reporting supporting them. This decision will be a key factor in determining the probability of a large bank’s failure, which raises the question … Should large banks be allowed to fail? It is very easy to take one side of this argu- ment. After the Great Recession of 2008, the answer was generally “never again!” 4444 The system was rebuilt to minimize the odds so that no large bank would ever fail again – regardless of the consequences. The Fed has to decide if it is willing to accept a large bank failure, provided that failure isn’t going to bring the market down or put the average customer in harm’s way. To me, the obvious answer should be “yes.” The market can easily absorb a bank failure, particularly since the government now has the tools to have an orderly unwind of even the largest financial institutions. In addition, if you look at the market price of bank debt, failure is priced in (just like all other corporates) – bank debt and bank preferreds are not cheap. The market can deal with the failure of bank debt – in fact, resolution maximizes the odds of recovering your money. The cost to the economy of having fail-safe banks may not be worth it. Dodd-Frank accomplished two very important things. First, the chance of a bank failure is dramatically lower. Second, and maybe more important, a failing large bank can be managed in a way that it does not affect the economy any more than any other large company that fails. A yoke that is too tight may throttle the economy. Finally, banks need to be allowed to properly manage their capital to maintain any kind of premium in the market. Proper capital management means consistent dividends, the ability to reinvest in your business and incentives to buy back stock when it’s cheap – not when it’s expensive. The procyclicality of both accounting and bank regulatory management virtually assures the opposite. It is one of the reasons that bank stocks may not trade particularly well. We need to decide who we want to intermediate in the markets when there is stress. Several times in the last few years you have seen dislocation in our repo markets, Trea- sury markets and, in March 2020, all of our markets. In many cases, the Fed has had to step in to intermediate and help finance these markets. Part of the reason for this is the probably unintended confluence of new regulations. We now manage our bank to try to maxi- V. COVID-19 AND THE ECONOMYmize and optimize across more than 20 capital and liquidity factors (we run the bank to serve customers, but we maximize capital and liquidity requirements for economic reasons). But the confluence of three main constraints (the LCR, the supplementary leverage ratio (SLR) rule and G-SIFI) created red lines that we cannot cross. Over the past two years, we saw significant dislocation in the U.S. Treasury (UST) repo markets, which were certainly linked to these regulations. At those moments of stress, by simply reducing the regulatory cost of UST repo, we could have supplied hundreds of billions of dollars in additional UST financing to the market (this activity would be properly collateral- ized and very safe) – and remember, we are only one market player. In addition, when the market had high stress, we could also have lent hundreds of billions of dollars against corporate bonds, mortgage securi- ties or equities to help market participants sell or deleverage in an orderly way. We did much of this in the Great Recession, but today’s new rules precluded us from taking these actions this time. JPMorgan Chase was essentially “the discount window” for the marketplace before Dodd-Frank – we would lend freely against good collateral just as the central bank was the discount window for banks in a crisis. This system is broken. The main point is that if large players cannot intermediate in markets because of regula- tory requirements, the Fed will have to do it – and far more frequently than just in the worst crises. I do not believe that this is good, long-term central bank policy. Finally, more thought should be given to how stress tests and buffers can and should be used in a financial crisis. The main question is when you are in the depths of a crisis, how do you stress test without going down a rabbit hole? And is that the time when bank boards are going to allow people to reduce their capital buffers? Plain and simple, coun- tercyclical buffers do not work. Public rhetoric and the politicization of complex regulations aside, proper design of these systems should be done to maxi- mize the health of the U.S. economy for all. Overall, the banks – and, importantly, your bank – stand ready to do more. 5. The pandemic accelerated remote working capabilities, which will likely carry forward. While we are continually preparing for multiple business resiliency scenarios (i.e., data center failures, closures of cities, major storms, even pandemic planning), we never prepared for a global pandemic, which also entailed a large-scale shutdown of the global economy. And while many of our employees, particularly in the branches, continued to work on our premises every day, it was amazing how quickly we were able to set up the technology – from call centers and opera- tions to trading and investment banking – to enable our employees to work from home. We learned that we could function virtually with Zoom and Cisco and maintain produc- tivity, at least in the short run. The COVID-19 pandemic changed the way we work in many ways, but, for the most part, it only accelerated ongoing trends. And while working from home will become more permanent in American business, it needs to work for both the company and its clients. I believe our firm’s on-site versus remote work will sort out something like this: • Generally speaking, we envision a model that will find many employees working in a location full time. That would include nearly all of the employees in our retail bank branches, as well as jobs in check processing, vaults, lockbox, sales and trading, critical operations functions and facilities, amenities, security, medical staff and many others. 4545 V. COVID-19 AND THE ECONOMY• Some employees will be working under a hybrid model (e.g., some days per week in a location and the other days at home). • And a small percentage of employees, maybe 10%, will possibly be working full time from home for very specific roles. In all cases, these decisions depend upon what is optimal for our company and our clients, and we will extensively monitor and analyze outcomes to ensure this is the case. Of course, we will also continue to reopen following health authority and govern- ment guidelines and our own established processes. Remote work will change how we manage our real estate. We will quickly move to a more “open seating” arrangement, in which digital tools will help manage seating arrangements, as well as needed amenities, such as conference room space. As a result, for every 100 employees, we may need seats for only 60 on average. This will significantly reduce our need for real estate. The virtual world also presented some serious weaknesses. For example: • Performing jobs remotely is more successful when people know one another and already have a large body of existing work to do. It does not work as well when people don’t know one another. • Most professionals learn their job through an apprenticeship model, which is almost impossible to replicate in the Zoom world. Over time, this drawback could dramati- cally undermine the character and culture you want to promote in your company. • A heavy reliance on Zoom meetings actu- ally slows down decision making because there is little immediate follow-up. • And remote work virtually eliminates spontaneous learning and creativity because you don’t run into people at the coffee machine, talk with clients in unplanned scenarios, or travel to meet with customers and employees for feed- back on your products and services. Finally, we still intend to build our new head- quarters in New York City. We will, of course, consolidate even more employees into this building, which will house between 12,000 to 14,000 employees. We are extremely excited about the building’s public spaces, state-of- the-art technology, and health and wellness amenities, among many other features. It’s in the best location in one of the world’s greatest cities. 4646 V. COVID-19 AND THE ECONOMYVI. PUBLIC PO LICY AM ERI CA N EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA , COVI D-19 AND O UR OWN COM PE TEN CE Our nation is clearly under a lot of stress and strain from various events: the COVID-19 pandemic, of course, which has taken more American lives than the total lost in World War II, the Korean War and the Vietnam War combined, resulting in acute economic distress for millions more; the brutal murder of George Floyd and the racial unrest that followed; the divisive 2020 presidential election, culminating in the storming of the Capitol and the attempt to disrupt our democ- racy; and the seemingly inevitable, but none- theless alarming and unnerving, rise of China, threatening America’s global preeminence. America has faced tough times before – the Civil War, World War I, the U.S. stock market crash of 1929 and the Great Depression that followed, and World War II, among others. As recently as the late 1960s and 1970s, we struggled with the loss of the Vietnam War, political and racial injustice, recessions, inflation and the emergence of Japan as an economic power. But in each case, Ameri- ca’s might and resiliency strengthened our position in the world, particularly in relation to our major international competitors. This time may be different. China’s leaders believe that America is in decline. They believe this not only because their country’s sheer size will make them the largest economy on the planet by 2030 but also because they believe their long-term thinking and competent, consistent leader- ship have outshone America’s in so many ways. The Chinese see an America that is losing ground in technology, infrastructure and education – a nation torn and crippled by politics, as well as racial and income inequality – and a country unable to coordi- nate government policies (fiscal, monetary, industrial, regulatory) in any coherent way to accomplish national goals. Unfortunately, recently, there is a lot of truth to this. Perhaps we were lulled into a false sense of security and complacency in the last two decades of the 20th century as we enjoyed relative peace in the world and a position of global dominance, validated by the fall of the Soviet Union. During those two decades, we experienced relatively unin- terrupted and strong growth, resulting in broad improvement in income for almost all Americans. That stability was shattered by the September 11, 2001, terrorist attacks, which were followed by nearly 20 years of overseas combat for American soldiers. Economic growth over the last two decades (including the Great Recession of 2008) has been painfully slow, with increasing income inequality and virtually no growth in income at the lower rungs of the economic ladder. The COVID-19 pandemic, for which our nation was totally unprepared, capped by the horrific murder of George Floyd, shoved into the spotlight our country’s profound inequities and their devastating effects – inequities that had been there for a long time. Once more, our country suffered, and its least well-off individuals suffered the most. Unfortunately, the tragedies of this past year are only the tip of the iceberg – they merely expose enormous failures that have existed for decades and have been deeply damaging to America.  Today, the United States and other countries around the world are grappling with many other critical issues. To name just a few: capitalism versus other economic systems; access to healthcare; immigration policy; the role of business in our society; and how, or even whether, the United States intends to exercise global leadership. Many Americans have lost faith in their government’s ability to solve these and other problems – in fact, most people would describe government as ineffective, bureaucratic and often biased. Almost all institutions – governments, schools, media and businesses – have lost credibility in the eyes of the public. And 47 perhaps for good reason: Many of our prob- lems have been around for a long time and are not aging well. Politics is increasingly divisive, and government is increasingly dysfunctional, leading to a number of poli- cies that simply don’t work. Americans know that something has gone terribly wrong, and they blame this coun- try’s leadership: the elite, the powerful, the decision makers – in government, in business and in civic society. This is completely appropriate, for who else should take the blame? And people are right to be angry and feel let down. Our failures fuel the populism on both the political left and right. But populism is not policy, and we cannot let it drive another round of poor planning and bad leadership that will simply make our country’s situation worse. To explain how and why this all happened, we tend to look for convenient reasons – some blame greed and “short-termism,” some blame immigration and others blame the uncontrolled effects of new technolo- gies, trade or China. Many of our citizens are unsettled, and the fault line for all this discord is a fraying American dream – the enormous wealth of our country is accruing to the very few. In other words, the fault line is inequality. And its cause is staring us in the face: our own failure to move beyond our differences and self-interest and act for the greater good. The good news is that this is fixable. Some Americans think that the country’s can-do attitude, innovative entrepreneurism and great resiliency, which served us so well in prior crises, still exist and will re-emerge to help us self-correct. At the other end of the spectrum, there are those who think we are simply a great empire whose glory days have passed and we should cede global leadership to China. These advocates would add that democracy itself does not work – our failures being prime evidence of democracy’s ineffec- tiveness. Both views fall short. The problems that are tearing at the fabric of American society require all of us – govern- ment, business and civic society – to work together with a common purpose. And that common purpose should be our ongoing quest to be a more perfect union and to maintain America’s preeminent role in the world. To do this, we need to demand more of both ourselves and of our leaders. And we can’t fix our problems if we don’t acknowl- edge them and the damage they have caused. Hoping that things will self-correct is not a strategy – working on solutions is. One last thing: The raw power of America is often represented by our incredible military might. In reality, however, our raw power emanates from our economic vitality and strength, which have always been predi- cated upon freedom, free enterprise, and the promise of increasing equality and opportu- nity for all. If income inequality is the fault line, returning to the basic morality at the core of America’s founding principles can lead us to a common purpose and help bind us together again. 48 VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE1. Laying out the problems is painful. What actually are our problems? If we can agree on what they are, as well as their symptoms and their causes, then we can start to address them. I hope you find what I’m about to say as painful as I do. While the average American high school graduates approximately 85% of its students, many of our inner city schools don’t grad- uate half of their students and often don’t give our children an education that leads to a livelihood. No one can claim that the promise of equal opportunity is being offered to all Americans through our educa- tion systems. Our healthcare system is increasingly costly – now over $11,000 per person, more than twice our global compet- itors. In addition, almost a decade after the adoption of the Affordable Care Act, over 30 million Americans still don’t have any medical insurance. And, shockingly, life expectancy has gotten worse – particularly for poor and minority communities – nutri- tion and personal health aren’t being taught at enough schools, and obesity, a main driver of diabetes, cancer, stroke, heart disease and depression, has become a national scourge. Our education and health issues come together in this alarming statistic: Seventy percent of today’s youth (ages 17-24) are not eligible for military service, essentially due to a lack of proper education (basic reading and writing skills) or health issues (commonly obesity or diabetes). Of course, there’s a litany of other problems. I’ll give some examples, but if I tried to address them all, this letter would become a book. We have a litigation and regula- tory system that is costly, crippling small businesses with red tape and bureaucracy; terrible infrastructure planning and invest- ment; and huge waste and inefficiency at both the federal and state levels. We have failed to put effective immigration policies in place; our social safety nets are poorly designed; and we fail to properly fund pension obligations. The growth in American incomes from 1980 to 2000 was healthy, and for the lowest and second-lowest quintiles, it was 18% and 19%, respectively, both cumula- tively and inflation-adjusted. Growth slowed dramatically in the decades from 2000 to 2019, but it was the worst for the lower two quintiles, which were up only 1% and 8%, respectively. Income inequality has gotten worse. Nearly 30% of American workers earn less than $15 an hour, which is barely a living wage even if two adults are working in a family of four. Another key driver of growth has dropped over the past 20 years: Labor force participation of prime working age men peaked at 92% in 2000; in 2020, it was 88%. If we returned to the peak year, 2 million more men would be working. (An estimated 1.6 million Americans were addicted to opioids in 2019, which some studies show is one of the major reasons why men aged 25-54 are permanently out of work.) In addition, 30% of Americans don’t have enough savings to deal with unexpected expenses that total as little as $400, such as medical or car repair bills. This obviously adds to the economic anxiety of our lower- paid people. Trillions of government dollars were spent on social programs even before these latest crises – clearly, our broken systems leave too many of our fellow citizens trapped. Simply put, the social needs of far too many of our citizens are not being met. And, surprisingly, approximately 25% of those eligible for various types of federal assistance programs don’t get the help to which they’re entitled. 49 VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCEGovernments, both federal and state, fight to keep military bases open that we don’t need and Veterans Affairs hospitals functioning that are broken – making the military more costly and less effective. Our shortcom- ings are not just about inefficiencies; they border on being immoral. In an incredibly depressing story, former Secretary of Defense Bob Gates describes how Congress took years longer than it should have to approve the building of U.S. Army personnel carriers that we needed in Iraq and Afghanistan to protect our soldiers from improvised explo- sive devices. While we dallied, many of our soldiers died or received terrible lifelong injuries. Although the government does certain things well, no one believes that it does most things well or that it gives an honest accounting of what it does do. We merely throw up our hands in frustration. All of this broken policy may explain why, over the last 10 years, the U.S. economy has grown cumulatively only about 18%. Some think that this sounds satisfactory, but it must be put into context: In prior sharp downturns (1974, 1982 and 1990), economic growth was 40% over the ensuing 10 years. Had we had 20% more growth, our GDP would have added $3 trillion, which certainly would have driven wages higher and given us the wherewithal to broadly build a better country. Tax receipts would have been higher, and we easily could have afforded better social safety nets. Anemic growth may account for our wors- ening productivity and income inequality. Included among the common explanations for this growth is that “secular stagnation” is the new normal or that there is a “savings glut.” Faster growth would not only have spurred higher incomes, more jobs and increased opportunities but also would have created far more consumption and increased demand for investment, eliminating any potential “savings glut” or secular stagnation. It is hard to look at these issues in their totality and not conclude that they have a significant negative effect on the great Amer- ican economic engine. My view is if you add it all up, this dysfunction could easily have been a 1% drag on our growth rate. And, unfortunately, our extraordinary strengths as a nation cover up our weaknesses. This is the new normal – and it does not need to be this way. We should first look at how and why we became so inept at public policy. 2. Why did — and didn’t — these failures happen? Before we discuss how to fix our problems, it would be helpful to understand why some of them happened – and why we failed to design and implement good public policies. Clearly, increasing political partisanship – possibly structural – deserves part of the blame, but I’ll leave that subject to others. It’s also clear that our failings are not deliberate since no one wants these terrible outcomes. What has changed, however, is the scale of our challenges: They are bigger, global and increasingly complex, and they are happening in a world that is transforming itself far more rapidly than before. History teaches us that as a successful society ages, the common social purpose that binds it becomes less important. Instead, the society becomes more balkanized and often is crip- pled by powerful agendas of special interest groups – even if they all have good inten- tions. Let’s examine some of the reasons why we have failed to design effective policies. We are hampered by short-term thinking that’s never comprehensive. As a nation, we don’t think long term, which hampers our ability to design proper policies that are based on thoughtful analysis. In my view, we don’t perform the deep analysis required to fully understand what we’re trying to solve. One of the reasons for this is that our outlook is often too limited; i.e., examining only how things have changed 50 VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCEyear-over-year or even quarter-over-quarter. We frequently fail to look at trends over a multi-year period or across decades – and we miss the forest for the trees. When you step back and take a comprehen- sive multi-year view, considering the situa- tion in its totality, it is the cumulative effect of many of our policies that has resulted in our present-day failures. We are over-reliant on economic models and use them inappropriately. Economic models are a great discipline that force you to think through the interplay of many factors, often over many years. Unfor- tunately, however, a lot of people use models like they do certain facts: to justify what they already believe. While we should definitely use models as tools, they should not be deter- minative, as they simply cannot account for much of humankind. Certain pivotal factors are too complex or qualitative to incorporate into a model. In evaluating a company or the economy, for example, models quite often fail to prop- erly account for culture and morality, the character of players involved, the increasing importance of education and skills, the value of dignity of work, the power of self-confi- dence as a secret sauce and the emergence of new technologies, just to name a few. Even worse, many models use inputs that are so inaccurate that their outputs cannot be remotely relied upon. For instance, accounting itself (particularly government accounting) may be the worst culprit. Good investments are treated as expenses (including education, R&D and infrastruc- ture) – indistinguishable from incarcera- tion costs and homelessness. And incred- ibly, federal government budgeting rules, like PAYGO (or Pay-As-You-Go) or budget caps, mandate that many expenses have to be offset by revenue increases or have to be traded off against other priorities. The economy is frustratingly complex, and many times overusing models devalues basic commonsense. We cloud debate with unfair thinking and arguing. One of the best pieces of advice I have ever received was that people should use their intelligence to seek out the answers, not to justify what they already think or to win the argument. Here are some of the favorite tricks people use to win the argument and obviate issues: • Presenting issues as if they are binary. This is a habit of sloppy thinking. Two of my favorite quotes illuminate this. One by Albert Einstein: “Everything should be made as simple as possible, but not simpler.” And the second by H.L. Mencken: “For every complex problem there is an answer that is clear, simple and wrong.” We frequently seek out conve- nient and simplistic answers, which are often wrong. The same is true for how we listen. Instead, we should try to find common ground with parts of someone’s argument as opposed to rejecting the entirety of it offhand. • Creating and blaming scapegoats like trade, China, immigration or capitalism. While scapegoating is easy, it mostly hides the truth – in fact, when you dig a little deeper (which we do in the following pages), other causes, possibly self-inflicted, become clear. • Unfairly assigning motives to people, which may or may not be true. The goal is simply to denigrate an individual and/or win an argument – but this tactic has nothing to do with the actual facts. • Creating strawmen (representing your opponent). This strategy makes it easier to attack foes for things they did not actually think or say. Media hype and people’s willingness to be weaponized derail thoughtful strategies. Much has been said about the role of social media, but some things are clear. Most media and individuals barely have time to focus on the issues – and often default to overly 51 VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCEsimplistic, binary and incorrect conclusions that neatly fit into false political narratives. The urgency of today and the hyperactive and frequently hysterical focus on irrelevant issues crowd out thoughtful strategy and policy for tomorrow. Lack of civility and humility make it hard to work together and to respect each other. Moral indignation is blinding – it stops you from trying to agree on what the problems are; it disguises itself as policy, and it turns expertise into elitism. I am often surprised how people allow themselves to be completely riled up – yes, it happens to me, too. And when politics and media meet, we are whipsawed by false argu- ments of fanatics, the certitude of ideologues and cycles of intolerance. We all should try not to be drawn into this vortex. We are stymied by self-interest, selfishness, and the buildup of bureaucratic plaque and institutional sclerosis. Now willingly, I’m about to go down a slippery slope. I’m going to cite some very specific examples, but I essentially apply them to all of us and make my point as simply and strongly as possible: We are bogged down, sometimes crippling our nation, because of self-interest and the asso- ciated bureaucracy and bad thinking that follow. Much of this is not done deliberately – it’s just built up over time – like arterio- sclerosis. Historians sometimes point to this disease as a cause of the decline and fall of great empires. This self-interest is virtually everywhere. There are 17,000 registered lobbyist contracts for special interest groups in Washington, D.C., including business-related groups and banking and financial services. We all deserve our share of the blame for using the balkan- ized government, bureaucracy and lack of transparency to further our own interests – not necessarily the country’s. This includes business, unions, state and local governments, and individuals. All of us failed to properly heed President John F. Kennedy’s appeal: “Ask not what your country can do for you – ask what you can do for your country.” 52 For years, business, government and commu- nity leaders, including myself, voiced concerns about the inequities and other crises in our economy and communities. Business did not cause many of these soci- etal issues – large companies, generally, pay their workers a higher-than-average salary, offer more training, provide more extensive insurance and medical and pension bene- fits for their employees and fundamentally drive our country’s growth and competi- tiveness, as these companies account for approximately 80% of capital expenditures and R&D. Frankly, we punted too much of the responsibility to our government. But we are partly responsible – for we priori- tized shareholder interests and sometimes narrow self-interests over creating broader opportunity for all in America. Successful businesses can literally and figuratively “drive by” our worst problems (think inner cities) and still thrive. These large companies can and should be more aggressively part of the solution because they can uniquely help with job planning, skills training, infrastruc- ture investment and community develop- ment. And doing so, over the long run, is both morally right and commercially right because it will be good for business. State and local governments are equally to blame. Take, for instance, five states (Cali- fornia, Connecticut, Illinois, New Jersey and New York) that continue to fight for unlim- ited state and local tax deductions (because those five states reap 40% of the benefit) even though they are aware that over 80% of those deductions will accrue to people earning more than $339,000 a year. Few of our institutions are blameless. Hospi- tals fighting to keep their prices unpublished and teachers’ unions arguing to continue to keep failed schools open are just two such examples. Then there’s our tax code – buried in it are an extraordinary number of loopholes, credits and exemptions that aren’t about competitiveness or good tax policy: Private equity, venture capital and real estate still VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCEget carried interest, and sugar and cotton, for some unknown reason, still get government subsidies. Suffice it to say, industry gets its share of tax breaks and forms of protection from legitimate competition. Our public policy failures are not partisan issues. Our problems are neither Democratic nor Republican – nor are the solutions. Unfor- tunately, however, partisan politics is preventing collaborative policy from being designed and implemented, particularly at the federal level. We would do better if we listened to one another. Democrats should acknowledge Republi- cans’ legitimate concerns that money sent to Washington often ends up in large wasteful programs, ultimately offering little value to local communities. They could acknowledge that while we need good government, it is not the answer to everything. Democrats could also acknowledge that a healthy fear of a large central government is not irrational (like a Leviathan). Republicans need to acknowledge that America can and should afford to provide a proper safety net for our elderly, our sick and our poor, as well as help create an environ- ment that generates more opportunities and more income for more Americans. Republi- cans could acknowledge that if the govern- ment can demonstrate that it is spending money wisely, we should spend more – think infrastructure and education funding. And that may very well mean higher taxes for the wealthy. Should that happen, the wealthy should keep in mind that if tax monies improve our society and our economy, those same individuals will be, in effect, among the main beneficiaries. Democrats and Republicans often seem to be ships passing in the night – with both parties talking at cross purposes even when they may share the same goals. Compro- mise is not incompatible with democracy – in fact, compromise is a core principle of democracy. When major policies are enacted on a purely partisan basis (think healthcare and tax reform), it virtually guar- antees decades of fighting. It’s not unrea- sonable to think that major policies should be bipartisan or not at all. We must remember that the concepts of free enterprise, rugged individualism and entrepreneurship are not incompatible with meaningful safety nets and the desire to lift up our disadvantaged citizens. We can acknowledge the exceptional history of America and also acknowledge our flaws, which need redress. Our problems are complex and frustrating — but they are fixable with hard work. If our Founding Fathers were here today, they would be very proud that the Constitu- tion they enacted has survived, thrived and helped to build this great country. But I also believe they would be disappointed. Those leaders were students of history, society and economics (just read the Federalist Papers) and drew upon that knowledge to structure a government that would function properly. Our country would do well to study the successes of the rest of the world. Germany and Switzerland have created impressive work apprenticeship programs; Singapore has developed effective healthcare programs; Hong Kong has excelled with infrastruc- ture; and some countries, with no natural resources and starting from terrible base- line positions (think South Korea after the Korean War), have done a terrific job in growing their economies and lifting up all of their people. Another inspiring example is Ireland. After decades of sectarian strife and terrorism, a poor, male-dominated country was transformed. A few years ago, the country elected an Indian immigrant who is gay as Prime Minister – Ireland is now a melting pot with a thriving economy due to good government policies. Bad government is prevalent in some countries, and we would also do well to study those examples: Argen- tina, Cuba and Venezuela, to name a few – all countries with tremendous natural resources that allowed, in the name of their people, their economies to be destroyed. 53 VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCEAny economic society, not just capitalism, involves billions of decisions made by indi- viduals and institutions every day. These interactions are complex and can operate in mysterious ways. Capitalism has lifted billions of people out of poverty. Capitalism, and the continuous and free movement of capital and, more important, of human talent, in the pursuit of happiness (the invis- ible hand of Adam Smith), creates a contin- uous exchange of information and ideas – and constant innovation. But, of course, capi- talism has always had its shortcomings. Good government and the guardrails of properly designed laws and regulation have always been necessary for the process to work fairly and efficiently. Fixing America’s problems is going to take hard work. But if we divide them into their component parts, we will find many viable solutions. With thoughtful analysis, common- sense and pragmatism, there is hope. 3. We need a comprehensive, multi-year national Marshall Plan, and we must strive for healthy growth. We need a coherent, consistent national strategy to match the severity of the existing structural challenges that are driving our country’s racial and economic crises. Just as careful planning and analysis would have prepared us for the current pandemic, careful planning and analysis can address many of the challenges we face. These plans need to be comprehensive, integrated, sustainable and regularly reported on. If we throw a lot of money at infrastructure without fixing the regulations that cripple it, it won’t work. If we throw a lot of money at education but don’t report on the outcome (i.e., good jobs), we will lose credibility. Lurching from policy to policy and having boondoggles and special interest groups abound will make things worse. We need to do the right things and the hard things very competently. We need to recognize the essential and irre- placeable importance of healthy growth and our global competitiveness. The best way to address our problems, and perhaps the only way to solve them without accelerating inequality further, is to promote healthy economic growth. A healthy growth strategy should be the primary economic policy of both political parties. Healthy growth may be the only way out of our current situation (slow income growth and rapidly increasing debt). We must unleash the extraordi- nary vibrancy of the American economy. Economic growth will give us the where- withal to deal with the issues stemming from inequality in ways that are sustainable. It is the engine that will drive and secure Ameri- ca’s global leadership. This can be a moment when we all come together and recognize our shared responsi- bility – acting in a way that reflects the best of all of us. During this terrible COVID-19 crisis, we are, in some ways, being forced to count on each other. It is moving to see the respect and gratitude that most of us now show our essential workers – and that is something we should do for all of our workers, all of the time. This crisis also reminds us that we all live on one planet. Let’s hope that civility, humanity and empathy will drive us forward toward the goal of improving America. We have the resources, and the solutions are there – just waiting to be found. 54 VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE4. We need to take specific action steps. In this section, I offer my views and anal- ysis on specific solutions to our problems. Neither the diagnosis nor the proposed cures are purely my own. Our nation’s issues have been studied intensively by many people with deep knowledge. And given the space and other constraints of this letter, I admit to violating Einstein’s maxim about simplicity. I do make some of these issues simpler than they are, sometimes by giving only conclu- sions instead of providing reasoned analysis. In the following pages, we review 15 policies (many of which, of course, are interrelated) where we believe we need to – and can do – a far better job. We would do all of them if we could, but fixing even some of them will make a significant difference. Training for Jobs: We need to build an education system that includes training for skills that lead to good jobs (and this will improve labor force participation). Our high schools and community colleges (and all colleges) need to provide our youth with training for certified and apprenticed skills that lead to good paying jobs. With nearly 7 million job openings and 10 million workers unemployed in the United States, creating an effective training and retraining program is a high-impact opportunity. Busi- ness must be involved in this process, and it needs to be coordinated locally because that is where the actual jobs are. Proper training and retraining mean being sensitive to our rapidly changing technological world. Expanding digital skills and training oppor- tunities for workers and students will be critical, as the pace of AI will likely accelerate to meet future business demands and foster innovation in high-risk jobs, especially across healthcare and the supply chain. Many students in our high schools and colleges are unaware that, with a little bit of training, they can qualify for jobs paying $65,000 or more a year. You can major in philosophy or history, but taking a few courses in coding will help to ensure you a good job. Our education system should bear responsibility for our children to graduate with an educa- tion that leads to a good livelihood. Germany has one of the strongest educa- tion and training systems in the world, with about 1.3 million young people annu- ally participating in paid apprenticeship programs that provide them opportunities to gain in-demand skills along with an educa- tion. Vocational school and apprenticeship programs work directly with local businesses to ensure students are connected to avail- able jobs upon graduation. Germany’s youth unemployment rate is one of the lowest in the world. Many companies have numerous jobs for which a “college degree is required,” but this often turns out to be unnecessary and even harmful. Much more can be done in terms of making a degree requirement truly relevant for specific jobs. Over 80 Busi- ness Roundtable member companies – and counting – are participating in a new multi- year targeted effort to reform companies’ hiring and talent management practices to emphasize the value of skills, rather than just degrees, and to improve equity, diver- sity and workplace culture. The initiative will support measures that address inequity in employment practices, including how people are hired and how they advance, and it will work toward eliminating bias that may prove to be a barrier to hiring and advance- ment. According to a recent study, employers frequently require a four-year college degree for 74% of new jobs in America – this screening excludes roughly two-thirds of American workers, and its impact is most pronounced on minority applicants. In addition to the Business Roundtable initiative, companies are partnering with educators in regions throughout the country. For example, in New York City, the New York Jobs CEO Council is working with City University of New York (CUNY) to develop new two-year associate degrees. 55 VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCEThese degrees are explicitly designed to enable students to graduate with a market- able college degree (and paid apprenticeship experience) in two years, debt free and with an employment opportunity in an in-demand, high-potential field of their choosing. ment rates, to make further adjustments. Simply stated, our policy goals should focus on maximizing incentives to get more people working while minimizing incentives for employers to lay off workers, especially low-paid employees. One last point: Although there are wide variations across the United States, teachers in public institutions, on average, earn 33% less than their peers with equivalent degrees (college level and above) – this is the lowest ratio in the OECD (Organisation for Economic Co-operation and Development). While we should attack waste in the system, we should pay teachers more money and base their salaries upon clear standards that will measure success – not just graduation rates and standardized test scores but certi- fication of skills – and lead to actual good paying jobs. Paying for Jobs: We need to improve wages for low-skilled work (again, this would improve labor force participation). Decades ago, an unskilled worker, who may not have graduated from high school but was willing to work hard, could get a job at a manufacturing plant that would soon lead to a living wage and the ability to earn a middle-class income. That may no longer be the case. Today, it may be that unskilled or low-skilled workers would not natu- rally earn a living wage. All jobs are good jobs: They bring dignity; people who start working generally continue working; and the first job is often the first rung on the employment ladder. Jobs also lead to better social outcomes – less crime, more household formation and less mental illness. While a living wage differs by state, the national average is currently $68,000 a year for a family of four. With two adults working full time, each would need to earn $16.50 an hour to reach that level. We should strive to make every job generate a living wage – and do two things to accomplish this goal. First, we should, at the very least, increase the federal minimum wage and allow states, based on local conditions and unemploy- 56 Second, we should ensure that federal efforts, like the Earned Income Tax Credit (EITC) and the Child Tax Credit, are effective enough so that every job essentially pays a living wage. The higher wages resulting from these credits would go a long way toward improving our labor force participation, which is a key driver of productivity and economic growth. Opportunities for Jobs: We need to make it easier for those with a criminal record to get a job (which will also improve labor force participation). We need to reduce recidivism, reform the criminal justice system and eliminate barriers to a good job. One such barrier is a criminal record, which one in three adults (more than 70 million people) in our country has. Our criminal justice system disproportionately impacts people of color – Black adults are over five times more likely to be incarcerated than white adults. This is institutional racism in its clearest form. Reforms to the criminal justice system and business screening and hiring practices can open the door of opportunity to significantly more people. JPMorgan Chase supported a measure signed into federal law in 2020 restoring access to Pell Grants for incarcerated individuals, which allows them to pursue postsecondary education in prison and increase employment opportunities after their release. Other steps that we can – and must – take are: adopting “ban the box” measures for employment applications and reforming clean slate laws so anyone with a record of minor offenses can more easily qualify for a job. JPMorgan Chase has taken many of these steps, and, in 2020 alone, we hired more than 2,000 people with a criminal background. America believes in second chances and redemption. Getting a second chance will give people dignity and enable them to earn a higher lifetime income while reducing recidivism and all of its related costs. VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCEWe need to reform and improve our social safety net programs (which can also improve labor force participation). Our varied and various public assistance programs (Medicaid, food assistance, income support, unemployment, housing and util- ities benefits for individuals who cannot work, due to disability or childcare respon- sibilities, to name a few) are a complete mishmash of uncoordinated federal, state and local policies. People qualifying for public benefits may be eligible for various programs but often don’t apply because they are unaware, ill-informed or unable to navigate the complexities. These programs frequently have different applications and application processes, including different places to apply, with benefits often disap- pearing at different income levels and at different speeds. It is accurate to say that the complexity and variability in eligibility rules have negative consequences for both program administration and access to assistance. For example, beneficiaries often have to provide the same information for different federal programs and visit multiple offices in order to apply. The Government Accountability Office has provided reports about this maze of programs to Congress; in addition, the Center on Budget and Policy Priorities has created guides for state and local use to help streamline the application and enrollment process, utilizing eligibility determinations made by other programs to jump-start approvals. Public assistance programs need to be coordinated, consolidated and connected to trends in the larger economy, as well as to the individual’s transition to employ- ment. For example, unemployment insur- ance should have automatic stabilizers that increase benefits when and where jobs are lacking and reduce them when and where jobs are abundant. Application to all social welfare benefits should be available through one single form and phased in and phased out on a common grid, not on a cliff. Coordi- nated with an individual’s transition to work, benefits should gradually be reduced, making them a true safety net. Finally, providing affordable childcare programs or lowering the starting age for public school would make it far easier for parents to work. Some countries are now implementing universal access to preschool for children at three years of age. This is a wonderful policy. It makes childcare less expensive and has proved to be extraordi- narily good for student education over the short and long term. Parents like it, too. Of course, the benefits may not be fully realized for years, but this is precisely the type of long-term thinking in policymaking that we need. Women, in particular, suffered in the COVID-19 crisis as an estimated 2.5 million left the workplace, largely because they had to become full-time caregivers for their children or elderly parents. Many of the programs listed above will make it easier for women to return to the workforce if they so choose. We need to try to make the healthcare system work better (better health drives both productivity and labor force participation). We have the best healthcare in the world in terms of doctors, hospitals, and pharmaceu- tical and medical device companies, but we certainly do not have the best outcomes. As I discussed earlier, 30 million Americans do not have any insurance; obesity, high blood pressure, asthma, diabetes and other condi- tions are rampant; and costs are far too high with little transparency into their calculation. Annual medical costs per person in the United States are now $11,000 versus $4,000 for other developed nations. There are ways we can make significant improvements. Here are a few: allow bigger incentives for becoming and staying healthy; eliminate bureaucracy and waste in the healthcare system, including administrative complexity and fraud (this represents approximately 25% of total health- care spending in the United States); empower employees to make better choices through more transparent employer plan pricing and options that include the actual cost of medical procedures; eliminate surprise bills (these usually come from unexpected out-of-network services); develop better corporate wellness programs that target obesity and smoking; create better tools to enable comparison shop- 57 VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCEping for nonemergency care and help manage healthcare expenses; and reduce the extraor- dinary expense for unwanted end-of-life care. There should be national, not state-by-state, insurance exchanges, which would be far more efficient. And exchanges should also offer a low-cost, catastrophic-only insurance package as an option. Plus all healthcare data should belong to the individual, not to various healthcare companies. Another obvious incen- tive is to dramatically enhance how effectively wellness, nutrition, health and exercise are taught in K-12 classrooms nationwide. We need proper, rigorous and multi-year budgeting, planning and reporting. Companies perform extensive budgeting, planning and reporting, some of it conducted on a multi-year basis. Real investments – in training, data centers, manufacturing plants and other categories – are needed on a multi- year basis and cannot be stopped and started without incurring enormous additional costs. But this stopping and starting is exactly what takes place in the federal government, which inevitably leads to waste and inefficiency. One striking example: The military esti- mates that it spends more money per year on procurement than is necessary because of this inefficiency. In total, the stop-start nature of our government’s budgeting processes most certainly costs us tens of billions of dollars a year in complete waste. Proper budgeting and planning – on a multi-year basis – should be implemented at all levels of government. It is particularly important that most federal programs – think military, infrastructure and education – have good long-term plans and be held accountable to execute them. When the government talks about spending money, it should not lead with the amount spent or budgeted to be spent – as if that’s the measure of success. Instead, the expected outcome of the spending and then the actual outcome should be described. We desperately need honest and transparent accounting, accountability and evaluation about every- thing we fund with government dollars. Every department should have an outcome report. 58 It would be beneficial to review government accounting practices and look for a better way to differentiate between investments and expenses, for instance. There are also examples that show it would be good if the government conformed to public company accounting, particularly around how it accounts for loans and guarantees. An honest accounting would go a long way to rebuilding trust in government – and in government spending. We need proper management and periodic review of regulatory red tape and bureaucracy. The American can-do system is now being bogged down in a maze of regulatory red tape and bureaucracy. All you need to do is to take 10 small business owners out to lunch and ask them what they need to do to meet local, state and federal regulations, and you will understand the problem. And while we all want a legal system that brings justice to all our citizens, our litigation system now costs 1.6% of GDP, 1% more than what it costs in the average OECD nation. And most business- people think that it is excessively litigious, slow, and somewhat arbitrary and capricious. One example, which works in many other countries, is to have the losing party pay in some circumstances. Clearly, this would have to be done in such a way as to ensure that the aggrieved parties are not denied appropriate access to our justice system. The cost of the now over 1 million federal regulations is estimated at approximately $14,000 per household. And while we want good regulations and good “guardrails,” there is an excessive amount of licensing, paperwork, employment laws and insurance requirements, and anyone who deals with the application process knows how wasteful and unnecessary it can be. Red tape like this cripples small businesses and, worse, reduces the formation of new enterprises. Very often local regulations are simply a form of low-level corruption in which bureaucrats are paid to slowly … move … paper … around. Smart regulation includes continual improvement, constant cost-benefit anal- ysis and a review of purpose and objectives, VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCEwhich are reported honestly. Bad regula- tion often stifles competition – think of the airlines and telecom industries before they were deregulated. Here are few examples. The Federal Avia- tion Administration is unable to adopt new technology for air traffic control, which most of the world has already adopted, that would reduce the average flight time by more than 10 minutes and reduce greenhouse gases by 12%. President Dwight D. Eisenhower’s Feder- al-Aid Highway Act of 1956 was 29 pages long and originally authorized $25 billion for the construction of the interstate highway system during a 13-year period, creating a 41,000- mile interstate highway network. And 13 years later, the interstate highway system was largely built. Fast forward to current times, it took 10 years and 47 local, state and federal approvals to rebuild the Bayonne Bridge connecting Staten Island and New Jersey, which was badly in need of replacement and was, in fact, quite dangerous to cross. If this is the way we are going to go about fixing our infrastructure, we will never get it done. And it’s not just the time element – long delays increase the costs and risks involved. We need to properly invest, on an ongoing basis, in modernizing infrastructure. Virtually everyone agrees that we have done a woefully inadequate job investing in our infrastructure – from highways, ports and water systems to airport modernization and other projects. One study examined the effect of poor infrastructure on efficiency (for example, poorly constructed highways, congested airports with antiquated air traffic control systems, aging electrical grids and old water pipes) and concluded this could all be costing us hundreds of billions of dollars per year. Some economists estimate that a proper infrastructure investment plan could add 0.3% growth annually to our GDP – and it would improve competitiveness across many industries while opening up new investment opportunities. Such a plan would also create many new jobs with competitive salaries and spur workforce innovation. It could intentionally provide employment opportunities for disadvantaged and young workers, including those with a criminal background. There are many efficient ways to properly build and finance infrastruc- ture, from the local, state and federal level or public-private partnerships, which have the added benefit of increasing the invest- ment discipline. It is important to point out, however, that building ineffective “bridges to nowhere” while temporarily creating jobs is actually a huge value destructor. This kind of waste would ultimately undermine Ameri- cans’ faith in our system. We need proper and consistent tax and fiscal policy — done right, it can actually help drive healthy growth and improve income equality. It would be good to have a tax and fiscal strategy, which is premised upon maxi- mizing healthy growth and redistributing income effectively. It would include the following features: 1. A system that is consistent, highly trans- parent and as simple as possible. 2. A tax collection system that enables collec- tion of all taxes owed. My view is that everyone should pay the taxes they owe, and it should be strictly enforced. Many estimates project that with increased head- count and greater input from data scien- tists, we could collect between $30 billion and $100 billion more per year. 3. A target for what the federal government should expect to collect in taxes over time. A good starting point would be 18% of GDP (it has been running at an average of about 16% over the last decade). In good times, we should run a small surplus (~1%), and in bad times, we should have a small deficit (~4%-5%), such that debt to GDP stays fairly constant over time. A side benefit of this is that the government would know that it would have more money to spend – but only if we grow. We should think about good taxes and bad taxes in terms of spurring growth. Taxing primary capital formation or labor are growth reducers. Having capital retained and reinvested in the United States should 59 VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCEbe a sine qua non for healthy growth, and that means that our business tax rates should be globally competitive. Today, the average corporate tax rate for OECD nations is around 22% versus our 21%. The retention and reinvestment by businesses of capital in the United States is ultimately the primary driver of productivity and growth. Even if that capital is distributed in dividends or stock buybacks, it is simply being put to a higher and better use – this is completely normal capital reallocation. The free flow of money capital and human capital is funda- mental to our growth and innovation (and fundamental to our freedoms as individuals). Unfortunately, taxes that minimize damage to growth would involve taxing high incomes. The wealthy are less likely to complain about taxes if the money is actually used to help the less fortunate or help build a better country. Even with the redistribution of income, there will be items that help growth and items that hurt growth. Redistributing income through the EITC will be money spent to improve labor force participation. Redistributing money to inefficient and poorly run bureau- cracies will not improve growth. In addition, there is a maze of tax breaks in the tax code that should be eliminated. There are hundreds of examples, but I will mention just a few: carried interest, the special tax breaks for race cars, private jets and horse racing, and a special land conser- vation tax break for golf courses. Hidden tax breaks have the additional stigma of being perceived by the American public as just another example of institutional bias and favoritism toward special interest groups. If the wealthy paid more in taxes and the money was put to good use, they would be the main beneficiaries of a stronger economy. Due to government stimulus packages as a result of the COVID-19 crisis, external government debt to GDP is now a high 102%. We can afford that percentage and even more, particularly because interest rates are low. But in 10 to 20 years, mostly because of out-of-control healthcare expenses, the debt-to-GDP ratio will start to rise dramati- 60 cally – and at some point, that will become a problem. The sooner we deal with it, the better. The best way to counteract that is with healthy growth. After World War II, in 1946, the United States still had a 120% debt-to-GDP ratio, which over the next 10 years fell to 60%. This was not because the government raised taxes or dramatically cut expenses but because the country grew at almost 4% for the decade. We need intelligent industrial policy. Being a free market economy, the United States has never been a great believer in government-driven industrial policy. But we have done it and ought to do it intelligently in discrete areas that make sense (and where free markets alone don’t necessarily provide needed products or services), such as rural broadband, healthcare and cybersecurity. We also need to boost our investment in R&D; we’re now #8 in the world in terms of GDP spend on R&D. Government R&D could focus on AI and quantum computing, climate innovation and other areas. We need thoughtful trade policies. The United States needs to take a leadership role in establishing global free and fair trade rules. If we don’t, they will likely be estab- lished to the detriment of American busi- ness. Free and fair trade rules do not have to be completely equivalent and reciprocal – just fair. Working with our allies and other countries, we should negotiate the gold stan- dard of trade – not just rules around tariffs but fair regulations that address subsidies to state-controlled enterprises and other forms of unfair competition, bilateral investment and protection for intellectual property, among other issues. In addition, we should recognize that trade, while positive for the United States as a whole, has caused the loss of jobs, both in specific geographies and in specific industries. Americans who have been affected by these disruptions need better support in terms of income assistance, retraining and relocation. VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCEWe need to maintain a strong financial system. The United States has the best financial system in the world. This financial system encompasses asset managers, investors, banks, investment banks, private equity, hedge funds, pension plans and shadow banking. It is protected and enhanced by the rule of law (including banking laws), and it offers investor protections and transparency around gover- nance and accounting and provides complete and free access to global investors. While nothing is ever perfect and can always be improved upon, most of the world would give an arm and a leg for our system. The free flow of credit and investments – disci- plined capital allocation – is critical to being globally competitive. It is the flywheel of the economy as capital is seeking out good invest- ments (across the risk spectrum) and individ- uals and ideas that drive growth and innova- tion. A country’s economy can hardly be better than its financial system and vice versa. The United States’ extraordinary and open economy gives us the extraordinary privilege of being the world’s reserve currency. The U.S. dollar is the currency of choice for the majority of trade transactions, and it is held by governments, central banks and corpora- tions as the reserve currency (approximately $7 trillion, or 60% of total world reserves). This helps provide cheaper financing for the United States and gives us enormous clout in foreign and economic policy. However, we should not overly “weaponize” the dollar, and we should use this authority judiciously and in support of building a healthy, global economy (see accompanying feature that follows). The United States has the best financial system in the world, and we must strive to maintain it. The U.S. Dollar Is the World’s Reserve Currency for a Reason While there may be faith involved, the U.S. dollar is the reserve currency of the world for a reason. First, the dollar is supported by the full faith and credit of the United States. The dollar, which is a liability of the Federal Reserve (i.e., the federal government) in digital or in currency form, is always supported by an asset — and that asset is generally Treasury bonds. Treasury bonds are supported by the full taxing authority of the U.S. government, which, in turn, is supported and paid for by the full power of the U.S. economy. These assets and liabilities, including the economy, are supported by powerful institutions, the rule of law and, ultimately, the full might of the U.S. military. Of course, a central bank can debase a currency, but our central bank, the Federal Reserve, is meant to protect the currency’s value. Faith is only a small part of these calculations. Second, and equally important, the U.S. dollar is the world’s reserve currency because anyone who legally has a U.S. dollar can move it freely around the world, buy and sell what they want, and invest in the United States. By comparison, the Chinese currency, the renminbi (RMB), cannot be freely moved around the world; it can leave China only in limited amounts and can be invested only as the Chinese see fit. It is subject to their laws and regulations. While the Chinese have done a good job building their economy and are slowly moving toward a more transparent society and financial system, they are a long way from having a currency that is fully “convertible” like the U.S. dollar. As an aside, JPMorgan Chase moves more than $8 trillion (99% digital) a day for more than 52 million payments (94% digital). Approximately 98% of value is done the same day, 78% is done in real time and 20% is executed the same day. When these dollars are moved, they go through extensive screening for risk and fraud matters. While systems can always be improved upon, this process seems to be safe and efficient. 61 VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCEWe need proper immigration policies. Thirty percent of foreign students who receive an advanced degree in science, tech- nology or math (300,000 students annually) have no legal way of staying here, although many would choose to do so. Most students from countries outside the United States pay full freight to attend our universities, but many are forced to take the skills they learned here back home. From my vantage point, that means one of our largest exports is brainpower. We need more thoughtful immigration policies that will prevent such a brain drain. In addition, 43% of the growth of our workforce over the past 10 years has come from immigrants. Today, we have 10 million undocumented people living and working in our country; on average, they have resided in the United States for more than 15 years. Most Americans would like a permanent solution to DACA (Deferred Action for Childhood Arrivals), as well as a path to legal status for law-abiding, tax-paying undocumented immigrants. Americans also would like to see, and deserve to see, border security, and there would be far more support for immigration reform if it included proper border security. These issues are tearing the body politic apart. The Congressional Budget Office esti- mates that the failure to pass immigration reform earlier this decade is costing us 0.3% of GDP a year. Immigration has been one of the great strengths of this country – and we should never forget that. Affordable housing remains out of reach for too many Americans. Prior to the COVID-19 pandemic, the demand for affordable housing significantly outpaced supply in nearly every U.S. county. In addi- tion, rising home prices made it increasingly difficult for individuals and families to live near their workplace or within easy access to grocery stores, pharmacies and other essential services. There are many legisla- tive actions that could dramatically increase the availability and affordability of housing (offering tax credits and changing local zoning laws are two examples). While the subprime mortgage crisis and the recession that followed were terrible, the overreac- tion to it made housing too costly for many individuals (without creating more safety). Excessive origination, servicing and securiti- zation requirements have increased the cost of the average mortgage by approximately 20 basis points. This has mostly affected smaller mortgages and lower-income individ- uals who have a slightly higher delinquent rate – but who still deserve a mortgage. In fact, J.P. Morgan analysis shows that, conser- vatively, more than $1 trillion in additional loans might have been made over a five- year period had we reformed our mortgage system. Our analysis also indicates that the cost of not reforming the mortgage markets could be as high as 0.2% of GDP per year. We believe that percentage includes an addi- tional $500 billion a year in mortgages that could be written predominantly for lower-in- come households. This alone could dramat- ically lead to growth in America and help lower-income individuals build wealth. We need to implement several additional programs and policies specifically to assist Black and Latinx communities. We need to address hiring and advancement targets, help develop minority-owned small businesses and improve financial educa- tion products for the unbanked. In addition, minority-owned small businesses, which employ nearly 9 million people and generate $1 trillion in annual economic output, have been hit especially hard by COVID-19 and will need serious assistance going forward, including capital to restart and run their businesses. We should consider requiring companies, such as grocery stores, pharma- cies and other retailers, to provide locations in low-income neighborhoods, as banks must do (this would reduce the cost of goods purchased by minority individuals and increase local hiring and engagement). These efforts would be a form of redress for the low-income community that is sustainable and reinforcing. 62 VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCECompanies can go further by building a more diverse and inclusive workforce, including in their top ranks; tying executive compensation to diversity commitments; developing a more robust pipeline of diverse talent; improving supplier diversity; cutting ties with customers who make racist comments and treat employees disrespect- fully; helping young men and women of color get ahead personally and profession- ally; and increasing the diversity of busi- nesses with whom they partner. Above all, it means building a company culture that respects and listens to everyone. Compa- nies might not always get it right, but they should keep trying. The feature in The Path Forward in Section I outlines many of the specific efforts underway at JPMorgan Chase to help advance racial equity. The cumulative, multi-year effect of doing just some of the measures mentioned above would lead to a healthier, more resilient and robust, and fairer America. It is my belief that the underlying U.S. economy is so strong that it could over- come many of the things we have failed to do and still grow at 2%. If we could grow at 3% versus 2% over a 10-year period, that would lead to $2.3 trillion in additional GDP by the end of the decade or an increase in household income of about $18,000. A 3% growth rate is what we used to have – and it is achievable again. This growth will help all Americans, but particularly poor and disad- vantaged citizens (even before implementing special assistance programs) by increasing opportunities for better jobs, higher incomes, affordable housing and other benefits. We owe it to ourselves to restore our compet- itiveness, our common purpose and our true sense of civility in the pursuit of building a more perfect union. 5. America’s global role and engagement are indispensable to the health and well-being of America. One of the biggest uncertainties today is America’s role on the world stage. A more secure and prosperous world is not only good for the rest of the world but also for our country’s long-term security and pros- perity. Our role in building that more secure world has been, and will likely continue to be, indispensable. It is a complex role, and if we don’t fulfill it, others will – and not with our best interests in mind. It is even more complex now because since the Cold War, the United States has not had to deal with another great world power. Now we have the relentless rise of China, which will likely overtake America in the next 20 years as both the world’s largest economy and the largest financial market. Throughout history, the rise of a second great power has always been disruptive. Increasingly and appropriately, most of the world, including Americans, looks at our global position, particularly our economic and military strength, and compares it with that of China. There is no question that the relationship with (and intense competition between) the United States and China will be the most critical relationship for the next 100 years so it is important to deeply understand all of China’s strengths and weaknesses. China has done a good job in building its economy — but it still has a way to go. Over the last 40 years, China has done a highly effective job of maneuvering itself to this point of economic development. China’s leadership has been strategic, consistent 63 VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCEand coherent. And unlike developed demo- cratic nations, it can both macromanage and micromanage its economy and move very fast. Government officials can pull, in a coor- dinated way, fiscal, monetary and industrial policy levers to maintain the growth and employment metrics they want, and they have the control and wherewithal to do it. Unlike Western democracies that frequently, and increasingly, have changes in govern- ment leadership and policy approaches, China’s system allows for consistent lead- ership and consistent execution of policies and regulations over the long term. But their most important economic advantage is their huge home market, which they can use to develop their economy and their companies. They have, as a result, been able to use this home market to subsidize some very compet- itive industries. But in the next 40 years, the country will have to confront some serious issues: The Chinese lack enough food, water and energy to support their population; pollution is rampant; corruption continues to be a problem; state-owned enterprises are often inefficient; corporate and government debt levels are growing rapidly; financial markets lack depth, transparency and adequate rule of law; income inequality is higher than in the rest of the world; and their working age population has been declining since 2012. America’s demographics, by contrast, will remain strong, particularly if we continue to have healthy immigration. China will continue to face pressure from the United States and other Western governments over human rights, democracy and freedom in Hong Kong, and activity in the South China Sea and Taiwan. Asia is a very tangled part of the world, geopolitically speaking. Unlike America, which is at peace with its neighbors and is protected by the Atlantic and Pacific oceans, many of China’s neighbors (Afghanistan, India, Indonesia, Japan, Korea, Pakistan, the Philippines, Russia and Vietnam) are large, complicated and not always friendly to China – in fact, China has had border skirmishes 64 and wars with India, the Soviet Union and Vietnam since World War II. These neigh- bors do not all look at the rise of China as being completely beneficial. Autocratic and authoritative leadership works well when you can manage top down and you are starting from a very low base. China’s recent success definitely has its leadership feeling confident. Many believe that America is in permanent decline and that democracy is failing. Regardless of their opinions, we should neither over- nor underestimate them. Only 100 million people in China effectively participate in the nation’s one-party political system. No other developed nation has such low participa- tion. Growing middle classes almost always demand political power, which helps explain why autocratic leadership almost always falters in a larger, more complex economy. Under autocratic leadership, a major risk is the allocation of economic assets (capital and people), which are, over time, used to further political interests, leading to ineffi- cient companies and markets, favoritism and corruption. In addition, autocratic leadership diminishes the rule of law and transparency – damaging the ability to create a well- functioning financial system (this certainly restricts the internationalizing of the RMB). Disruption of trade is another risk China faces. The United States’ trade issues with China are substantial and real. They include the theft or forced transfer of intellec- tual property; lack of bilateral investment rights, transfer of ownership or control of investments; onerous non-tariff barriers; unfair subsidies or benefits for state-owned enterprises; and the lack of rapid enforce- ment of any disagreements. Our position is supported, though, in an uncoordinated way, by our Japanese and European allies. We should expect China to do only what is in its own self-interest. Near term, we expect challenge and conflict to characterize the relationship between China and the West over a range of economic, human rights and strategic issues. There may, however, be areas VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCEwhere we will simply never agree. As the two largest economies in the world, China and the United States should continue to have a long-term interest in collaborating where we can on critical global issues, including climate change, global health and stability on the Korean Peninsula. This will not be easy, but we will need to mature the management of this relationship so we can deal head on with our differences while continuing to seek common ground on our common challenges. China does not have a straight road to becoming the dominant economic power. To put this in perspective, America’s GDP per person in 2019 was $65,000 and China’s was $10,000. Even if we do a rather poor job at managing our economy (growing at 2%), our GDP per person in 20 years would be $85,000. And if the Chinese do a good job managing their economy, their GDP per person in 2040 would still be under $35,000. While China is well on its way to becoming a fully developed nation, it may face more uncertainty and moments of slower growth in the future (like the rest of us) than in the past. For the near term, if China and the United States can maintain a healthy strategic and economic relationship, it could greatly benefit both countries – as well as the rest of the world. America is in a very strong position. We have the resources to emerge from this latest economic crisis as a stronger country. Sometimes we forget how blessed we already are. 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, the sanc- tity of the individual, and the promise of equality and opportunity for all. These gifts have led to a bold and dynamic economy – 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. America has strong and deep economic and geopolitical relationships with a large part of the world – mainly, but not exclusively, with our allies, including Canada and Mexico, countries of the European Union, Great Britain, Japan, South Korea and Australia, to name a few. With these allies, we respect the values of democracy, individual rights and economic freedoms. Collectively, we need to reassert our foundational strengths, which are grounded in our common principles, mutual trust and cooperation, and shared prosperity. As a nation, America needs to reassert its confidence in democracy and re-establish that it can function competently in the interest of our people. Fundamentally, we need not fear the success of China; we need to fear only our own failure because that is the only thing that will truly limit us. America should engage and exercise its power and influence – cautiously, judiciously and respectfully – with various international organizations (the North Atlantic Treaty Organization, the United Nations and the World Trade Organization). While there are many legitimate complaints about these organizations, the world is better off with these institutions. Americans should under- stand that global laws, standards and norms will be established whether or not we partic- ipate in setting them. However, it is certain that we will be happier with the evolution of global standards around trade, immigration, corporate governance and other important issues if we help craft and implement them. We should not abdicate this role – if we do, that void will simply be filled by China and 65 VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCEothers. Our engagement and leadership in the world are as important for our country as they are for the rest of the globe. My fervent hope is that America will roll up its sleeves and bring bold leadership to our self-inflicted problems. Business and govern- ment collaborating together can conquer our biggest challenges – income inequality, economic opportunity, education and health- care for all, infrastructure, affordable housing and disaster preparedness, to name a few. We can be unabashed about the exception- alism of America while acknowledging that we have problems. As we work together for an inclusive recovery that is long lasting, we must never 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. America is still the arsenal of democracy. While I have a deep and abiding faith in the United States of America and its extraordi- nary resiliency and capabilities, we do not have a divine right to success. Our chal- lenges 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. IN CLOSIN G I would like to express my deep gratitude and appreciation for the employees of JPMorgan Chase. 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, we sincerely hope that all the citizens of the global community will be able to move beyond this unprecedented pandemic and look forward to a brighter future. Jamie Dimon Chairman and Chief Executive Officer April 7, 2021 66 VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE Client Franchises Built Over the Long Term (page 6) 1 Digital includes outflows for ACH, BillPay, PayChase, QuickPay, Real-time Payments, external transfers and some wires. 2 2019 and 2020 Consumer Banking deposits include JPM Wealth Management 3 FDIC 2020 Summary of Deposits survey per S&P Global Market Intelligence. Limits all branches to $500 million deposits. Includes all commercial banks, savings banks and savings institutions as defined by the FDIC. 2006 excludes non-retail branch locations and all branches with over $500 million in deposits within the last two years (excluded branches are assumed to include a significant level of commercial deposits or are headquarter branches for direct banks). 4 Barlow Research Associates, Primary Bank Market Share Database, as of 4Q20. Rolling 8-quarter average of small businesses with revenue of more than $100,000 and less than $25 million. 5 Represents 2020 general purpose credit card spend, which excludes private label and Commercial Card. Based on company filings and JPMorgan Chase estimates. 6 Represents users of all web and/or mobile platforms who have logged in within the past 90 days. 7 Represents users of all mobile platforms who have logged in within the past 90 days. 8 Chase is tied with one other bank for first place, as per the Kantar 2020 Retail Banking Monitor (~3,000 surveys per quarter or ~12,000 per rolling 4 quarters). Data are based on Chase footprint, excluding recent expansion markets. 9 Based on 2020 sales volume and loans outstanding disclosures by peers (American Express Company (AXP), Bank of America Corporation, Capital One Financial Corporation, Citigroup Inc. and Discover Financial Services) and JPMorgan Chase estimates. Sales volume excludes private label and Commercial Card. AXP reflects the U.S. Consumer segment and JPMorgan Chase estimates for AXP’s U.S. small business sales. Loans outstanding exclude private label, AXP Charge Card and Citi Retail Cards. 10 Inside Mortgage Finance and JPMorgan Chase internal data, as of 4Q20. 11 Experian AutoCount data for 4Q20. Reflects financing market share for new and used loan and lease units at franchised and independent dealers. 12 ~$83 billion represents the December 31, 2020 balances for accounts provided payment relief, including those currently enrolled in relief and those who have exited relief. Includes residential real estate loans held in Consumer & Community Banking, Asset & Wealth Management and Corporate. 13 Dealogic as of January 4, 2021. 14 Coalition Competitor Analytics, preliminary 2020 rank; 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. 15 Client deposits and other third-party liabilities pertain to the Wholesale Payments and Securities Services businesses. 16 Based on Firmwide data. 2006 data not archived. 2019 restated based on 2020 methodology using Regulatory reporting guidelines. 17 Institutional Investor. 18 Based on third-party data. 19 Assets under custody based on Company filings. 20 Represents total JPMorgan Chase revenue from investment banking products sold to Commercial Banking clients. 21 S&P Global Market Intelligence as of December 31, 2020. 22 Commercial and industrial groupings for CB are generally based on client segments and do not align with regulatory definitions. 23 Refinitiv LPC, FY20. 24 Affordable housing consists of Community Reinvestment Act qualified, rent-restricted and naturally occurring affordable units; i.e., includes affordable housing units that are in low-to-moderate income neighborhoods. 25 Euromoney; 2020 results released February 2021. 26 Based on Company filings and JPMorgan Chase estimates. Rankings reflect publicly traded peer group as follows: 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 ranking reflects Asset & Wealth Management client assets, Chase Wealth Management investments and new-to-firm Chase Private Client deposits. 32 All quartile rankings, assigned peer categories and the asset values used to derive the 10-year J.P. Morgan Asset Management long-term mutual fund AUM are sourced from Lipper, Morningstar and Nomura 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. Quartile rankings are done on the net-of-fee absolute return of each fund. The data providers redenominate the asset values into U.S. dollars. This percentage 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. 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. Performance data could have been different if all funds/accounts had been included. Past perfor- mance is not indicative of future results. The classifications in terms of product suites and product engines shown are J.P. Morgan’s own and are based on internal investment management structures. 33 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. 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 performance figures associated with a fund’s three-, five- and 10-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 and the assigned peer categories used to derive this analysis are sourced from these fund rating providers as mentioned. Past performance is not indicative of future results. 34 Represents AUM in a strategy with at least one listed female and/or diverse portfolio manager. “Diverse” defined as U.S. ethnic minority. JPMorgan Chase Is in Line with Best-in-Class Peers in Both Efficiency and Returns (page 8) 1 Best-in-class peer overhead ratio represents the comparable business segments of JPMorgan Chase (JPM) peers: Capital One Consumer Banking & Domestic Card (COF–CB & DC), Citigroup Institutional Clients Group (C–ICG), US Bancorp Corporate and Commercial Banking (USB–C & CB), Credit Suisse Private Banking (CS–PB) and T. Rowe Price (TROW). 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: Bank of America Consumer Banking (BAC–CB), Morgan Stanley Institutional Securities (MS–IS), PNC Bank (PNC), UBS Global Wealth Management (UBS–GWM) 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 consistent with JPM’s. 4 Citigroup Inc. (C), Bank of America Corporation (BAC), 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. Size of the Financial Sector / Industry (page 28) 1 Banks over $5B in assets as of 2020. 2 H.8 data. 3 US Banks over $50B in assets as of 2020. 4 Consists of cash assets and Treasury and agency securities. 5 Real Gross Domestic Product, Billions of Chained 2012 Dollars, Quarterly, Seasonally Adjusted Annual Rate. 27 Ranking as of December 31, 2020. Source: Morningstar, as of February 28, 2021, including 6 Federal Reserve Financial Accounts Z.1 data composed of total financial assets of the following long-term open-end mutual funds and ETFs only, excluding feeder funds and fund of funds. China inbound funds AUM is aggregated based on equity, fixed income and allocation funds domiciled outside of China that invest primarily in Greater China as defined by J.P. Morgan Asset Management. 28 Reflects J.P. Morgan Asset Management global long-term active fund AUM market share as of December 31, 2020. Source: ISS Market Intelligence Simfund retrieved March 17, 2021. Excludes index, fund of funds and money market funds. 29 In the fourth quarter of 2020, the Firm realigned certain Wealth Management clients from Asset & Wealth Management to Consumer & Community Banking. Prior-period amounts have been revised to conform with the current presentation. 30 Effective in the first quarter of 2021, the Wealth Management business was renamed Global Private Bank. 31 Source: IXI, J.P. Morgan estimates subcategories: mutual funds, ETFs, closed end funds, brokers and dealers and funding corporations. 7 Data from Preqin; Hedge Fund AUM is not included in 2000; 2020 figure is annualized based on available data through 3Q. 8 Represents market capitalization; Facebook not included in 2010. 9 Represents market capitalization; Private companies use the latest valuations. Complexities of the Regulatory System (page 42) 1 The Council, through Office of Financial Research, may request reports from systemically important BHCs. 2 The FDIC may conduct exams of systemically important BHCs for purposes of implementing its authority for orderly liquidations but may not examine those in generally sound condition. 3 The Dodd-Frank Act expanded the FDIC’s authority when liquidating a financial institution to include the bank holding company, not just entities that house FDIC-insured deposits. 67 FOOT NOTESConsumer & Community Banking competition, both traditional and new. I often remind the team of this wisdom from the late Andy Grove, former Intel CEO: “Only the para- noid survive.” Big Tech and fintech companies are competing with all of our businesses: offering new credit cards and banking services, demystifying stock and retirement investing, simplifying financing options for large purchases and making it effortless to send money – to a friend down the street or a family member in another coun- try. Other companies are catering to business owners, making it easier than ever to start a business, accept payments, invoice customers and bor- row money. These competitors start with the customer’s pain points, obsess over them and strive to deliver a superb customer experience. There are many examples of how these competitors have reset cus- tomer expectations with simple and easy digital experiences. As they build customer relationships, they also test, learn and develop new capabilities that customers want, try and adopt quickly. These companies release new features with urgency and grow their customer bases with speed. We are in a race to match their expertise in simplicity and ease of use before they can match our dis- tribution and scale. 2020 financial results Consumer & Community Banking delivered a 15% return on equity on net income of $8.2 billion. Our $51.3 billion in revenue was down 7% year-over-year, while our overhead ratio increased to 55% as we contin- ued to invest heavily for future growth. Our customer base was rela- tively stable with over 63 million When we planned for 2020, we could not have imagined the circum- stances that would unfold. It was a challenging year for the world, for the country and for JPMorgan Chase. We are fortunate to be a part of one of the world’s greatest companies. Our Consumer & Community Bank- ing (CCB) franchise is resilient, and 2020 demonstrated that. Throughout the COVID-19 crisis, we supported our consumer and small business customers – and our employees – with compassion and flexibility. Our performance in 2020 reflected the state of the broader economy and of our customers. While our deposit businesses were impacted by low rates and our credit card business was affected by lower spending, our Home Lending, Auto and Wealth Management businesses performed well. Despite many challenges, our largest businesses still reached nota- ble milestones. For the first time, we led the nation in retail deposit market share at 9.8%. We maintained pri- mary bank relationships with more than 75% of our Consumer Banking checking households. In Business Banking, we held the highest market share among all banks. We main- tained our position as the #1 U.S. credit card issuer based on sales vol- ume and outstanding balances. Home Lending originations reached their highest level since 2013. In the fourth quarter, we were ranked the #1 bank in auto lending. During the year, we also realigned and rebranded our Wealth Management business unit, J.P. Morgan Wealth Manage- ment, to capture the opportunity to help more customers manage their investments. We accomplished these achievements while responding to a global pandemic and continuing to invest in our businesses. While we are proud of our accom- plishments, we take nothing for granted and are intensely focused on our increasing and formidable #1 #1 63+M #1 in total U.S. credit card sales volume and outstandings #1 in U.S. retail deposit share More than 63 million U.S. households served #1 #1 #1 most-visited banking portal in the U.S. #1 primary bank within our footprint 1 $1.1T More than $1 trillion in credit and debit card sales volume 1 Chase is tied with one other bank for first place, as per the Kantar 2020 Retail Banking Monitor (~3,000 surveys per quarter or ~12,000 per rolling four quarters). Data are based on Chase footprint, excluding recent expansion markets. 68 60+% 55+M 40+M Digital share of consumer Home Lending Applications (Q4) More than 55 million active digital customers More than 40 million active mobile customers ~10 PERCENTAGE POINTS 158 NEW BRANCHES Chase Business Complete BankingSM with QuickAcceptSM account launched Increase in share of checks deposited 158 new branches, including 87 in through QuickDepositSM (Q4) new markets, in 2020 NEW TOOLS FOR CUSTOMERS In 2020, customers engaged even more with our digital tools. We accelerated the rollout of some features and added functionality to help customers navigate the impacts of the pandemic. With Chase Digital AssistantSM, we added the ability to inquire about stimulus payments, change travel plans booked with rewards and dispute transactions. We also made it easier for customers to schedule an in-person meet- ing or a phone call with a banker or advisor from their local branch. Chase Digital Assistant Through a text- based conversation, customers can use the assistant to complete tasks in their account, such as replacing or locking their card, viewing account balances or getting help with an investment rollover. Additionally, we remained committed to offer- ing new tools that support our customers’ financial education and well-being. To help parents teach their kids good money habits, we launched Chase First BankingSM — an account that puts parents in control but gives their children the freedom to learn how to earn, spend and save through the Chase Mobile® app. We also launched new goals-based savings and budgeting tools. New features in the Chase Mobile app give customers a more personal- ized look at their finances. SnapshotSM, for example, provides easy-to-digest daily insights into customers’ everyday spending, saving, earning and more. We continue to innovate and invest in our digital capabilities to complement our strong branch network, enabling our customers to bank how and where they want. Transaction disputes Customers can now report a problem with a debit or credit card transaction via the Chase Mobile app and chase.com. Snapshot Customers received more than 7 billion personalized insights. U.S. households, including 4.3 mil- lion small business relationships. Our average deposits of $851 billion were up 22% over 2019, and client investment assets reached $590 bil- lion, up 18%. We ended 2020 with $448 billion in average loans, down 6%, reflecting the decline in credit card spend and loan balances during the year. Our customer base of active mobile users is the largest and the fastest growing among U.S. banks: 40.9 million, up 10% year-over-year. We built our credit reserves by $7.8 billion in response to the pandemic’s economic impacts. Losses did not materialize at the pace we expected in the early stages of the crisis; critical federal govern- ment support to consumers and small businesses provided a bridge to our customers; and, as a result, credit performance was better than we anticipated. As in years past, our performance in 2020 resulted from our contin- ued focus on four key areas: cus- tomers, profitability, people and controls. Below are some of the noteworthy accomplishments in each of these areas. Customers We supported our growing base of consumer and small business cus- tomers throughout the year in mul- tiple ways: 1) direct relief, including payment deferrals and fee waivers, 2) facilitation of federal government relief and 3) commitments to advance racial equity in the U.S. The firm provided customer assis- tance to approximately 2 million accounts with balances totaling roughly $83 billion. We facilitated federal stimulus payments to tens of millions of our customers. Through the Small Business Administration’s (SBA) Paycheck Protection Program (PPP), we delivered firmwide $32 billion in loans to small businesses ($28 billion excluding SBA safe harbor refunds), more than any other lender on a dollar basis. No less than 75% of our branches continued oper- ating throughout the pandemic. We also committed $30 billion across the firm to advance racial equity over the next five years, promoting and expanding affordable housing and financial health, among other initia- 69 #1 #1 63+M #1 in total U.S. credit card sales volume and outstandings #1 in U.S. retail deposit share More than 63 million U.S. households served #1 #1 #1 most-visited banking portal in the U.S. #1 primary bank within our footprint 1 $1.1T More than $1 trillion in credit and debit card sales volume 60+% 55+M 40+M Digital share of consumer Home Lending Applications (Q4) More than 55 million active digital customers More than 40 million active mobile customers ~10 PERCENTAGE POINTS Chase Business Complete BankingSM with QuickAcceptSM account launched Increase in share of checks deposited through QuickDepositSM (Q4) 158 NEW BRANCHES 158 new branches, including 87 in new markets, in 2020 tives. As an example, we will provide $12 billion in home loans for Black and Latinx households. Customers continue to choose Chase – and stay with us – because of our best-in-class products and the value they offer. Still, we have an opportu- nity to improve the customer experi- ence, particularly for those who use more than one of our products. Navigating across our products and channels can be disjointed. While we remove friction wherever we detect it, we must step up our progress toward simplifying the experience for our customers. Profitability We entered this challenging year in a position of strength and were able to adapt quickly, adjusting risk decisions throughout. While the events of 2020 interrupted the recent down- ward trend in our overhead ratio, they did not disrupt our focus on becoming more efficient and serving 70 our growing customer base more profitably. We invest in our busi- nesses to drive long-term, profitable growth – and one of the ways we have done that, over time, is by investing in efficiency. Our digital and mobile capabilities are a great example. Digital adoption, including mobile, increased at an accelerated rate due to the pandemic. Overall, 69% of our customers are digitally engaged. Among Business Banking customers, that figure is 86%. During the pandemic, we encouraged – and drove – self-service to reduce the need to visit a branch or speak with us by phone. We created new ways for customers to self-serve, including digital and interactive voice response tools, which we launched within days so customers could request help quickly. These tools also enabled us to serve a greater volume of custom- ers and proved to be critical when so many of them needed us urgently and all at the same time. We also built a digital intake process and application for PPP loans in a matter of days and revised those applica- tions as new SBA guidance or requirements evolved. In addition to tools created to facili- tate much-needed pandemic relief, we continued to release and refine digital features and capabilities so they could be used more widely by our custom- ers. Our digital account opening prod- uct processed nearly 80% of all new accounts last April. We processed more than 40% of all checks through QuickDepositSM in the last quarter of 2020, up nearly 10 percentage points year-over-year. More than 60% of con- sumer home loan applications were opened digitally in the fourth quarter, a rate six times higher than the prior year. In addition, customers were able to dispute credit and debit card charges digitally. We also developed convenient, less intrusive and more effective ways to communicate with – and collect payments from – custom- ers who fall behind. By updating our communication strategy and tactics, we reduced the time required to set up a payment plan and, as a result, doubled the share of digital payment plans year-over-year. We continue to seek out opportuni- ties to invest in future growth. In 2020, we saw such an opportunity and acquired cxLoyalty, a leading U.S. travel and loyalty business. We are optimistic that consumer travel will rebound after the pandemic. This transaction allowed us to upgrade our travel-focused credit card products so we can own the end-to-end travel experience. This offering also allowed us to address a pain point for our customers: Millions of travel plans were disrupted simultaneously at the start of the pandemic, and customers needed our help making adjustments. While these investments drive returns, they also serve to position Chase as the financial partner of choice for all our customers. We want to build deeper, lifelong cus- tomer relationships that allow us to do more for them. When we already know a customer, we can make it eas- ier to do more with us. For example, we can often pre-approve existing customers for credit and provide certainty of ultimate approval. We can verify income when deposit custom- ers apply for a loan, prefill the infor- mation we have on file and so on. These stronger relationships also last longer and, as a result, are more profit- able. As an example, deposit custom- ers who also have a Chase credit card are almost 60% less likely to leave us than those without a card relationship. People Our team of more than 122,000 continued to shine during this challenging year. I have such deep appreciation for everything they have done and continue to do for our customers, clients and communities each day. This is especially true for those on the front lines in our branches interacting with our cus- tomers face to face. Those who could work from home pivoted quickly to do so, and, after an adjustment period, most performed their job remotely as well as they had on-site before the crisis. Those who could not do their job remotely continued to serve our customers from our offices and branches, executing criti- cal processes that kept our business running – generating cards for cus- tomers, printing statements, moving currency and much more. We took additional steps to make sure our employees could work safely and to give them peace of mind during an uncertain time. All employees received extra days off to deal with impacts of the crisis. We distributed special payments to employees serv- ing customers in branches and call centers, recognizing their exceptional contributions. Employees who worked in locations that were temporarily closed or had reduced operating schedules continued to be paid for full-time work. We offered alternative positions to those who were unable or unwilling to return to their pre- pandemic role. We also provided extra benefits for employees with children to help with childcare and education. We have a sustained commitment to diversity and inclusion on our team. In 2020, we made progress toward establishing new representation goals. Our actions took on even greater meaning and importance amid our country’s social unrest in response to profound racial inequalities. Controls Our customers rely on us to protect them, especially during a crisis. That responsibility guides all our work. We use many systems, processes and procedures to ensure we exe- cute within all the laws and require- ments that govern us. Crisis situa- tions demand even more focus and attention so we can respond quickly but in a well-controlled manner. Where we miss the mark, we work tirelessly to address it so that we resolve issues and ensure they don’t reoccur. We evaluate and upgrade these safeguards as an ongoing, evergreen practice. Our resiliency planning is a key disci- pline we leaned on heavily through- out the year. Although we test and revise our resiliency planning annu- ally, 2020 proved to be its greatest test yet. While we learned our limita- tions, we also discovered that we had underestimated what was possible out of our remote work capabilities. Providing work-from-home capabili- ties to customer service specialists – sending work-from-home technology kits to employees across the globe – is one such example. Conclusion We always aspire to be better, faster and more efficient. Customers expect it, competition is fierce and we take nothing for granted. We strive every day to improve and make it both simple and easy for customers to manage their finances with us. Despite the challenges of 2020 – some of which we still are facing – I remain hopeful and optimistic about our future. We demonstrated what we are capable of doing under the most trying of circumstances, and what we learned will continue to inspire us to achieve even more. Gordon Smith Co-President and Chief Operating Officer, JPMorgan Chase & Co., and CEO, Consumer & Community Banking 71 Corporate & Investment Bank In the dozen years since the global financial crisis, the banking system has been rigorously stress tested to ensure it can withstand severe mar- ket shocks. In 2020, the COVID-19 pandemic offered a stress test beyond any that our industry has experienced to date. The demand for our balance sheet – in terms of capital and liquidity – was unprecedented last year. In the months of March and April alone, we helped clients raise more than $940 billion in the capital markets and extended more than $80 billion in credit, giving companies and govern- ments the lifelines they needed. As the pandemic took hold, markets saw the most rapid sell-off in history. Amid spiking volatility, our Equities business witnessed many days of record volumes, while at the height of the crisis, our Wholesale Payments team processed up to $11 trillion in payments in a single day. Our firm’s strategy – to be global, complete and at scale – has cemented its reputation as a port in the storm, able to shore up crisis-hit firms and national economies while continuing to grow even as margins tighten and capital buffers increase. That strategy has also provided the springboard for our growth into new markets and geographies and has enabled our heavy investment in technology. In 2020, that investment meant that we could not only move forward with advancements in artificial intelli- gence, cloud and blockchain but also ensure that more than 90% of our employees could work securely from home in a matter of days. An exceptional performance The Corporate & Investment Bank (CIB) achieved a 20% return on equity in 2020 by generating earn- ings of $17.1 billion on revenue of $49.3 billion – a historic performance in a tumultuous, impossible-to- predict year. Discounting that excep- tional performance, over the last five INVESTMENT BANKING FEES AND MARKET SHARE HAVE RISEN STEADILY ($ in billions) (cid:31) (cid:31) Market share (cid:31) (cid:31) Investment banking fees 8.6% (cid:29) 8.9% (cid:29) 8.1% (cid:29) $7.4 $7.5 $7.6 9.2% (cid:29) $9.5 7.9% (cid:29) $6.5 2016 2017 2018 2019 2020 Source: J.P. Morgan; Dealogic 72 years our return on equity has stood consistently between 14% and 16% on an adjusted basis1. In fact, during that time, we have increased revenue by 16% and net income by 32%. Our Investment Banking business ended the year with 9.2% of global market share, its highest since 2009, and generated record fees of $9.5 bil- lion to maintain our #1 ranking. As COVID-19 spread across the globe, we helped clients bolster their balance sheets, including those in hard-hit sectors like retail, travel and hospital- ity. As a result, underwriting fees in our Debt Capital Markets business hit an all-time record. The business, which has ranked #1 for the last five years, extended its leadership posi- tion with nearly 10% of market share. Stimulated by unprecedented cen- tral bank support, the reversal in market sentiment and the activity that followed in the second half of the year were extraordinary. In 2020, our Equity Capital Markets team helped clients raise $389 billion of capital in 563 deals around the world, which represented one-third of the total market. One major development in 2020 was the evolution of the initial public offering (IPO) market as special pur- pose acquisition companies (SPAC) became mainstream, a byproduct of low interest rates and excess capital stockpiled by investors. These “blank check” companies, which are formed for the sole purpose of acquiring a private company, accounted for more than half of all IPOs in 2020. We have led our share of SPACs, but as with any growing trend, we want to remain diligent and seek to do the right deals with credible sponsors. 1 As reported for 2020 Investor Day. In our M&A business, announced volumes returned to pre-pandemic levels later in the year as government stimulus packages took effect and companies shifted their stance from defensive to more opportunistic. Our M&A ranking in EMEA rose to the #1 position, and we retained the #2 spot in North America. The pandemic, the U.S. presidential election and Brexit all spurred trading activity. With so much to navigate, investors turned to J.P. Morgan as a reliable provider of liquidity, which resulted in record volumes across many of our trading areas. At peak moments, our foreign exchange (FX) desk was executing 730 trades per sec- ond, underlining years of investment in technology and highlighting just how critical we are to well-functioning markets during times of volatility. Overall, Markets revenue climbed 41% to a record $29.5 billion, with our Fixed Income Markets business gen- erating $20.9 billion and Equity Mar- kets producing $8.6 billion. Our Securities Services business, which provides pre- and post-trade services to asset manager clients, had a strong year of growth in 2020. Clients outsourced more of their middle and back office functions to J.P. Morgan as scalable infrastructure and timely insights became critical to handling massive spikes in volume and volatility. The team onboarded $4 trillion in assets under adminis- tration², further strengthening our position as a leader in fund account- ing and administration, and ended the year with record assets under custody³ of $31 trillion. We launched our next-generation Middle Office offering, leveraging the capabilities 2 Assets under administration: Represents the market value of client assets for which administrative and other related services are performed. 3 Assets under custody: Represents assets held directly or indirectly on behalf of clients under safekeeping, custody and servicing arrangements. CONSISTENT INVESTMENT HAS LED TO SHARE GAINS IN MARKETS Markets Fixed Income Equities J.P. Morgan share of wallet 12.9% 9.4% 13.1% 9.8% 12.3% 8.6% 2015 2020 2015 2020 2015 2020 J.P. Morgan rank #1 #1 #1 #1 #3 co–#1 Source: Coalition Competitor Analytics. Rankings and share based on J.P. Morgan’s internal business structure of the CIB to offer market-leading solutions to our clients at a time of industry consolidation and growth in complex assets. Our Wholesale Payments unit, which includes Treasury Services, Trade Finance and Merchant Services, also experienced strong growth in 2020. A decline in revenue, mostly attrib- utable to low rates, was offset by notable deposit growth. Throughout the pandemic, Treasury Services has processed payments and facilitated the flow of essential funds to compa- nies and governments. As the world’s largest transaction bank, the business moves trillions of dollars every day and remains #1 in U.S. dollar clearing by volume. Innovation in payments is exploding, driven by the growth in e-commerce and digital wallets. In 2020, we went live with ConcourseTM, a highly configurable global platform that allows clients to send and receive payments in a more seamless way; J.P. Morgan also announced fintech partnerships in areas such as sup- ply chain finance and corporate credit cards. Legacy of a pandemic The pandemic has accelerated the shift to digital platforms and has transformed the way we and our clients work. Last year showed us how quickly we can adapt; for the first time, many of the year’s biggest banking deals were conducted virtually or by phone – unthinkable before 2020. As the crisis recedes, it is likely that we will adopt the best of these new virtual environments to complement what we miss most about working together in person. We are, at heart, a collaborative business – and work- ing together is critical to innovation, creativity and a stronger culture. After the pandemic, we will likely see some shift in working patterns. While some job functions will need to remain on-site full time, a differ- ent working model is starting to emerge in which employees rotate between working at home and in the office. This creates more flexibility for employees and also enables us to 73 ASSETS UNDER CUSTODY HAVE CONTINUED TO GROW IN SECURITIES SERVICES ($ in trillions) +55% $19.9 2015 $31.0 2020 INNOVATION AND SCALE HAVE CONTRIBUTED TO GROWING SHARE IN PAYMENTS 19.5% 20.8% 22.0% 22.5% 23.8% 2016 2017 2018 2019 2020 Source: J.P. Morgan’s SWIFT market share for U.S. dollar wire payments shrink our real estate footprint, oper- ate buildings more efficiently with fewer empty seats and eliminate the need for costly recovery sites. Clients want to access the full breadth of our franchise from any- where and at any time, and we are transforming to meet that future. Meeting the needs of the future From established rivals to tech giants and fast-moving fintechs adept at delivering a great client experience, competitors are crowd- ing up across all fronts. The CIB is not immune to these competitive threats, which is why our focus on innovation and technology is at the heart of our investments. This transformation presents differ- ent opportunities across our busi- nesses. For example, in Securities Services, we are evolving from a pro- vider of back office services to a fully integrated platform that delivers scale and efficiency for clients across the entire investment life cycle. In the U.S., the number of publicly listed companies has fallen by 24% since the mid-1990s as start-ups delay 74 IPOs. To help those private compa- nies through their extended life cycles, we are working to provide a platform that offers everything from primary issuance to secondary trad- ing, as well as data and equity administration capabilities. In part- nering with Commercial Banking, which serves thousands of smaller, privately held companies, we see a wealth of untapped opportunities. The trend in electronification contin- ues in market trading, and we are expanding connectivity options for our clients, improving efficiency through automation and digitization, and more effectively participating in multi-dealer platforms. There is also an opportunity to act as the trading interface for smaller banks and to partner with Commercial Banking and Treasury Services to manage the FX needs of smaller companies oper- ating in international markets. Our ambition is to create a single pay- ment and hedging platform for cor- porations that enables them to more efficiently reduce currency exposure and manage cross-border payments. And in Wholesale Payments, where we now have the world’s most com- plete payments network, our focus is on global e-commerce and online marketplaces. We want to help clients plug into a comprehensive payments and account administration service in one place and support more small businesses looking for FX expertise and working capital. Central to all this change is a multi- year program to modernize our technology infrastructure. We are becoming a digital-first organiza- tion, able to harness – safely and smartly – the power of data and artificial intelligence across our firm in order to provide a more seamless client experience. A sustainable future ... Climate change is a defining issue of our age. Given our firm’s scale and financing capabilities, we can play a leading role in helping companies and economies transition to a low- carbon world. As part of our efforts to limit global temperature rise by 2050, we are aligning our financing portfo- lio with the Paris Agreement. We will also establish intermediate emission targets for 2030, with a focus on the oil and gas, electric power and auto- motive manufacturing sectors. In 2020, we achieved our goal of becoming carbon neutral in our operations, which includes sourcing renewable energy for 100% of our global power needs. The firm also launched the Center for Carbon Tran- sition to provide clients with central- ized access to sustainability-focused financing, research and advice. Business and government must join forces to address the challenge of climate change. Meeting the target of the Paris Agreement requires massive restructuring in how the world pro- duces and consumes energy. We are helping clients make the transition by financing technology to reduce emis- sions and by supporting investment in green energy. In industrialized sectors, we will continue to advocate for market-based policy solutions, including a price on carbon. … and a diverse future Stubborn structural challenges per- sist across our society, and in every industry human potential continues to go untapped as racial prejudice goes unchallenged. The killing of George Floyd in May 2020 and the subsequent protests across the U.S. and around the world impelled us to seek new solutions to address the challenges Black and minority individuals face in the workplace – and in society. Our efforts to close the racial wealth divide include a $30 billion injection of additional capital and other resources for Black and Latinx cli- ents, employees and communities in the U.S. and globally over the next five years. As part of our invest- ments, we will work to boost the flow of capital to minority-owned banks and businesses, expand sup- port for minority-owned enterprises, improve financial health and broaden the diversity of our suppli- ers. Programs such as the Entrepre- neurs of Color Fund and Advancing Black Pathways, for example, provide Black and other minority groups with access to capital, education and our technical expertise. Our own success depends on hiring the best people, no matter where they grew up, how they were educated or what they look like. Internally, we have focused on inclusive recruiting, invested in new programs to advance Black talent and created a team dedi- cated to discovering recruits from more diverse communities. Conclusion In a year like no other, we did what we have always done: We supported our clients and employees through tough times. The strategy we set years ago remains as relevant as ever. We are focused on running our business effi- ciently, managing risk prudently and delivering for clients. We are opti- mizing our business and closing any addressable gaps in our offering, and we are continuing to transform our business for the future. From the pandemic crisis, we take forward some vivid lessons; namely, to preserve our ability to innovate and execute at speed, even as a large and complex organization. And we must do that in a way that enables our people, communities and planet to thrive over the long term. The global vaccine rollout provides hope for our collective long-term health and economic well-being. As we emerge from this tumultuous time, one of the lingering concerns is whether the extreme infusion of liquidity and fiscal stimulus might ultimately create inflationary condi- tions in the medium term. The performance of the CIB in 2020 is testament to the extraordinary com- mitment of our employees who sup- ported clients while facing their own personal challenges. I am very proud of what they have accomplished. Daniel E. Pinto Co-President and Chief Operating Officer, JPMorgan Chase & Co., and CEO, Corporate & Investment Bank 75 Commercial Banking I want to begin this letter with a heartfelt thank you to all of my col- leagues in Commercial Banking (CB). Without a doubt, 2020 presented tremendous challenges, which our team met directly with unwavering commitment and dedication. Amid enormous uncertainty and adapting to a new work environment, we remained relentlessly focused on supporting our clients, our commu- nities and each other. Looking back, we faced this past year from a position of strength, having maintained our credit disci- pline, prepared extensively for a potential downturn, and made sig- nificant investments in our plat- forms and technology. It was this consistent execution of our long- term strategy that led to CB’s strong performance last year. There’s so much to highlight about our business and our team – this letter will give you but a small glimpse. Standing with our clients We take great pride in standing with our clients during challenging times. The breadth and magnitude of finan- cial stresses across the globe in 2020 were astounding – operations were halted, supply chains were disrupted and revenue across many industries fell dramatically. Through all of this, our CB team supported our clients and helped them access vital liquid- ity as they adapted to the pandemic and faced tremendous uncertainty. For example, we extended $13 billion in new credit1 to many healthcare cli- ents, including New York-Presbyterian Health System – which experienced a significant increase in overnight patients as a result of COVID-19. We moved quickly to provide neces- sary liquidity, enabling them to acquire additional medical supplies and equipment, expand their staff, and serve the community in a time of crisis. Moreover, our team worked tirelessly to facilitate the distribution of fed- eral government emergency funding through various stimulus programs. In March of 2020, we rapidly built the processes, platforms and technol- ogy needed to deliver critical financ- ing to our clients, partnering across the firm to help protect millions of jobs. This important work has con- tinued into 2021. Supporting our communities The pandemic has had a profound impact on our communities and has magnified the challenges they face, especially in underserved segments of society. In 2020, we extended $21 billion in financing to states and municipalities, educational institu- tions and healthcare providers. Given the importance of these vital institu- tions, particularly during times of crisis, we are proud to support them in their delivery of essential services to our communities. In addition, our Commercial Real Estate businesses continued to pro- vide much-needed resources to help expand and preserve access to affordable housing. As part of the firm’s Path Forward commitment to advance racial equity, we have committed to finance an additional 100,000 affordable rental units over the next five years to further address this systemic challenge. Through this commitment, we will provide $14 billion in new loans, equity investments and other support to increase and sustain affordable hous- ing in underserved communities. GROWING OUR CLIENT FRANCHISE EXTENDING CREDIT TO SUPPORT OUR COMMUNITIES 1 $13B TO HOSPITALS AND HEALTHCARE SERVICES $4B TO EDUCATIONAL INSTITUTIONS $4B TO STATE AND LOCAL GOVERNMENTS $3B TO AFFORDABLE HOUSING 1 Includes new credit commitment originations and existing credit commitments that experienced a major modification during 2020. 76 GROWING OUR CLIENT FRANCHISE #2 $27T $4B 290+K CLIENT CALLS MADE 290+K CLIENT CALLS MADE 290+K CLIENT CALLS MADE FINANCING AFFORDABLE HOUSING Mercy Housing is a nonprofit that helps people access safe, stable and quality affordable housing. In 2020, we provided the construction financing and equity for two major Mercy projects in California: 1064 Mission Street, co-developed with Episcopal Community Services, in San Francisco and Capitol Park Hotel in Sacramento. These projects will create nearly 400 affordable housing units and house vital services for people experiencing homelessness. Investing in our long-term strategy In CB, we are executing a long-term, disciplined strategy, focused on add- ing great clients and delivering valu- able solutions to help them succeed. Throughout 2020, we remained focused on our strategic priorities and continued to invest and innovate across our business. Investing to serve more clients Being able to deliver our broad-based capabilities at a very local level dis- tinguishes us from our competitors. As such, we now have teams in 137 U.S. locations. Through data-driven analysis, we’ve identified over 50,000 prospective clients across our Com- mercial & Industrial businesses2 and have expanded local coverage accord- ingly. Since 2008, we’ve essentially doubled our footprint across the U.S., as we moved into 47 new, high- potential markets, and we’re excited to deepen our presence in these mar- kets in the years to come. We also have an incredible opportu- nity to serve non-U.S.-headquartered, multinational companies overseas. Since launching our international expansion initiative in 2018, we’ve 2 Commercial & Industrial businesses are generally based on client segments and do not align with regulatory definitions. 1064 Mission Street Capitol Park Hotel added bankers to cover high-quality companies across 17 countries. While we’re just getting started, we’re very excited about the client response and activity we have seen so far. Similar to our domestic strategy, we are tak- ing a long-term view and focused on covering only the best clients. Market expansion is only one part of CB’s growth strategy – deepening relationships with clients is equally important. We know our clients have unique needs and value indus- try-specific insights and solutions. To better serve them, we’ve added a number of new industries to our coverage model over the last several years and now have specialized teams aligned to 17 industry sectors. We expect these dedicated efforts to drive meaningful future growth in our business. Investing in innovation We are innovating and building for the future while at the same time managing a franchise at scale. As we look forward, we continue to take a design-driven approach to assess our clients’ evolving needs and expecta- tions, directing our investments in data capabilities, technology, plat- forms and solutions to help further differentiate our value proposition and how we do business. With many working remotely, our clients faced complex challenges in 2020. Through our digital banking platforms and payment solutions, we provided ready access to the tools clients needed to continue to run their businesses. Digital adop- tion accelerated last year, and we added more than 1,800 new relation- ships – many onboarded completely virtually. We are continuing to invest substantially across all of our platforms to more seamlessly inte- grate them with those of our clients and deliver a superior experience. Investing in our team Our outstanding team and culture of excellence are the foundation of our success in CB – this was especially true last year. By the end of March, 98% of our team was working remotely – and a small group of truly heroic colleagues continued to carry out essential operations on-site. The leadership, creativity and partner- ship demonstrated across our busi- ness were inspiring and reinforced the importance of our people. 77 DELIVERING THE BEST INVESTMENT BANK TO CB CLIENTS Commercial Banking Gross Investment Banking Revenue3 ($ in billions) $4.0 $3.3 $2.3 $2.4 $2.7 $2.5 $2.2 $2.0 $1.6 $1.7 $1.3 $1.4 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Long-term target 3 Represents total JPMorgan Chase revenue from investment banking products provided to CB clients. As always, we remain focused on hir- ing, training and enabling the best team to execute our strategy. Our technology investments are connect- ing us in meaningful new ways, rein- forcing our values of teamwork and collaboration. As we seek to foster even more innovation across our business, we’re adding expertise and training in design, data and technol- ogy. We’re empowering our people with tools and analytics that allow them to more effectively and effi- ciently serve our clients. Fostering an inclusive workplace took on new meaning last year, and we are committed to building an organization representative of the communities we serve. Despite the recruiting challenges posed by COVID-19, we increased diverse rep- resentation across all demographics and welcomed our most diverse full- time analyst class in recent years. Solid financial performance We don’t measure our success on an annual basis; rather, we take a long- term view and invest through the cycle. The investments we’ve made in our people and capabilities, com- bined with our patience and disci- pline, continue to drive strong results across our business. In 2020, 78 CB delivered net income of $2.6 bil- lion on $9.3 billion in revenue, gen- erating a return-on-equity of 11%. We are proud of our performance despite market volatility, lower inter- est rates and a significant build in our credit reserves. Our underwriting discipline and client selection helped drive our solid credit performance last year, with net charge-offs of 18 basis points, primarily concentrated in certain industries. While our actual credit losses were modest, CB added $1.7 billion in credit reserves for the year as we prepared for a variety of economic outcomes. Being able to deliver the full power of JPMorgan Chase to our clients remains a key value driver. Perhaps the best example is our close partner- ship with the Corporate & Investment Bank, which resulted in record gross Investment Banking (IB) revenue of $3.3 billion, up 22% year-over-year and surpassing our $3 billion long- term target. We see tremendous opportunity in the years to come and have increased our long-term IB revenue target to $4 billion. While no one could have predicted the events of 2020, our results con- firm our strategy and highlight the resilience of our business. Looking forward I am more optimistic than ever about the future for CB. We have excep- tional talent, outstanding capabilities and enormous potential. We have an incredible opportunity to continue to grow our franchise, and we are not standing still – we are innovating and investing across our business for the long term. Looking forward, we do not intend to simply go back to normal. Last year’s challenges made us stronger, giving us an opportunity to learn and grow as a business – finding new ways to serve our clients and strengthen the places we call home. We will capture the many lessons learned in 2020 to help accelerate the execution of our strategy and position CB for even greater success in the future. I’ll close this letter the same way I began, by acknowledging our excep- tional team and thanking them for their unbelievable support of our clients and each other. Douglas B. Petno CEO, Commercial Banking Asset & Wealth Management When last year’s shareholder letter was published, the world and finan- cial markets were just coming to grips with COVID-19. Since then, the global pandemic has affected all of us in unforgiving ways – with loss of life, strained healthcare systems and economic setbacks that will be felt for years to come. Fortunately, governments and central banks acted swiftly and decisively to infuse capital and provide support for what could have been very fragile markets. If there is a silver lining to this horrible pandemic, it is how much the world acted in unison to try to do the right thing. We are hopeful that 2021 will be a better year for all. GROWING OUR CLIENT FRANCHISE Rising to meet an unprecedented challenge In March 2020, over the course of two weeks, we transitioned more than 90% of our global Asset & Wealth Management (AWM) team from on-site to remote work settings. In doing so, we proved that we can serve our clients under any and all circumstances, even without ever leaving our homes. We also showed that we can make sound and fast decisions under intense pressure and uncertainty. As always, clients were our focus. Helping them as we all went through AWM COVID-19 RESILIENCY HIGHLIGHTS AWM COVID-19 RESILIENCY HIGHLIGHTS these challenges, together, was a source of great pride and drove us to be at our best. Across AWM, our years of resil- iency testing and preparation enabled us to pivot swiftly and seamlessly. As CEO, I have written annually about how proud I am of my colleagues and our firm. This was especially true in 2020, when we intensified our work on: • Digital acceleration. Operating almost exclusively in a digital world, we were able to quickly identify manual or inefficient pr0c- esses. As volumes surged and we overcame various work environ- ment and personal challenges, we worked tirelessly to accelerate our digital engagement with clients, counterparties and one another. In 2021, we are focused on closing remaining process gaps and pull- ing forward multi-year plans. • Connectivity with our clients. As the world locked down, we were given the gift of redirecting time previously devoted to travel and other in-person activities to con- nect with tens of thousands of cli- ents eager for our insights and thought leadership. The success of this shift is demonstrated by our results: record attraction and retention of assets and clients. • Operational excellence. With an agile mindset, we accelerated the move- ment of reports to dashboards, sim- plified processes and strengthened the governance of our technology investments. Strong investment performance for clients Year in and year out, we are focused on delivering outstanding investment performance. This is why maintain- ing a 95+% retention rate of our top- performing investment team heads, portfolio managers and research ana- lysts is such a high priority. With the volatility that occurred in 2020, active management was never more impor- tant and its value never more appar- ent, and, accordingly, our long-term investment performance was strong across asset classes. Clients vote with their feet, and they continue to entrust us with more of their assets every year. In 2020, our client assets grew to a record $3.7 trillion, and we received a record $276 billion in net client asset flows. Our record flows were the result of a diversified business that meets all of our clients’ needs – we had positive flows across all regions, segments and products. Having our breadth and depth of solutions was especially important during a very volatile market environment. 360M MINUTES 670,000 >3x 135,000 TIME SPENT ON ZOOM BY AWM EMPLOYEES EXTERNAL ATTENDEES JOINING DIGITAL EVENTS YoY INCREASE IN EQUITY TRADING VOLUMES FOR WM CLIENTS DIGITAL PORTFOLIO INSIGHTS ANALYSES COMPLETED YoY = Year-over-year WM = Wealth Management >$60M FRAUDULENT TRANSACTIONS PREVENTED 79 80% 91% 80% 2020 % of J.P. Morgan Asset Management Long-Term Mutual Fund AUM Outperforming Peer Median1 over 10 Years (net of fees) 80% 91% 57% Total J.P. Morgan Asset Management Equity Fixed Income Multi-Asset Solutions & Alternatives 80% 91% 57% 83% AUM = Assets under management 2020 — A Record Year for J.P. Morgan Asset & Wealth Management² 91% 57% 83% Revenue Pretax Income Net Income Loans (EOP) Deposits (EOP) Assets Flows 2020 performance 57% $14.2B $4.0B 83% $3.0B $187B $199B $3.7T $276B Record P P P P P P P EOP = End of period 83% • Liquidity: $104 billion in flows, as more risk-averse clients looked to reduce their market exposure, par- ticularly during the first half of the year when flows reached $170 bil- lion. Two of our money market funds, U.S. Government and U.S. Treasury, each attracted over $25 billion in flows last year3. • Fixed Income: $48 billion in flows, as market volatility and the low inter- est rate environment caused clients to seek high-quality income sources. We had strong flows into our Income funds ($8 billion)4, High Yield Bond funds ($6 billion)5 and Ultra-Short Income ETF (JPST) ($5 billion)6. • Equity: $33 billion in flows, as mar- kets rebounded and clients increased their exposure, particu- larly during the second half of the year. There was strong activity across our offering, including signif- icant flows into our Emerging Markets Equity funds ($6 billion)7, U.S. Large Cap Growth funds ($4 billion)8 and China A-Share funds ($3 billion)9. • Multi-Asset: $5 billion in flows, as clients continued to seek actively managed, outcome-oriented strate- gies. Our SmartRetirement Blend Target Date funds were an example of this, with $4 billion in flows3. • Alternatives: $6 billion in flows across a range of income-oriented and higher-returning strategies, including Infrastructure, Private Credit and our Highbridge offering. • Custody/Brokerage/Administration/ Deposits: $80 billion in flows, as cli- ents trusted us to support their trading and banking needs. 80 Having dedicated market experts to support our clients is almost as impor- tant as the breadth and depth of our offering. In addition to the nearly 2,500 Global Private Bank10 client advi- sors and more than 1,000 Asset Man- agement investment professionals, we have over 120 market strategists, port- folio analysts and goals-based advisors whose sole job is to provide timely advice and insights to our clients. 1 For footnote, refer to page 67 footnote 32 in this Annual Report. 2 For footnote, refer to page 67 footnote 29 in this Annual Report. 3 Source: ISS Market Intelligence Simfund 4 Source: ISS Market Intelligence Simfund. Total flows into U.S.- and Luxembourg-domiciled funds 5 Source: ISS Market Intelligence Simfund. Total flows into High Yield Fund (U.S.-domiciled) and Global High Yield Bond Funds (Luxembourg- and U.K.-domiciled) 6 Source: ISS Market Intelligence Simfund. U.S.-domiciled ETF 7 Source: ISS Market Intelligence Simfund. Total flows into Emerging Markets Equity Funds (U.S.- and Luxembourg- domiciled) and Emerging Markets Fund (U.K.-domiciled) 8 Source: ISS Market Intelligence Simfund. Total flows into Large Cap Growth Fund (U.S.-domiciled) and U.S. Growth Fund (Luxembourg-domiciled) 9 Source: ISS Market Intelligence Simfund. Total flows into China A-Share Opportunities Funds (Luxembourg- and Hong Kong-domiciled), China Pioneer A-Share Fund (Hong Kong- domiciled) and China A Share Equity Fund (Taiwan-domiciled) 10 For footnote, refer to page 67 footnotes 29 and 30 in this Annual Report. In 2021, J.P. Morgan will celebrate its 100th year in China. Today, the country represents one of the largest opportunities for our clients and the firm. For AWM, 2021 is especially important because we have agreed on terms with our joint venture partner to purchase China International Fund Management (CIFM), the culmination of a successful 17-year partnership. Given our firm’s heritage in China, established brand, and current on-the- ground investment teams and distribution channels, we are very excited about the possibilities that full ownership of CIFM will bring to our business and clients — and we look forward to our next 100 years in China. When you bring these strengths together – the focus on investment performance, the breadth and depth of our offering, and the expertise and advice we offer our clients – it’s clear how, since 2010, we have averaged more than $100 billion per year in cli- ent flows2 – quite rare in our industry. Equally important, the acknowledg- ment from our clients has validated our strategy to be the leader in active management. Looking specifically at flows through this lens, I am very proud of the fact that Asset Manage- ment ranked #1 in global long-term active fund flows in 202011. And across all of AWM, we maintained our #2 ranking against publicly traded peers in five-year cumulative total client asset flows12. Record year for shareholders As a result of our clients’ trust in us and the incredibly hard work of our employees, we delivered extraordi- nary results for our shareholders. This included record performance across nearly all financial metrics, including revenue, pretax income, net income, loans, deposits and assets. Both of AWM’s lines of business also performed well. Asset Management reached record revenue of $7.7 billion and record pretax income of $2.2 billion. The Global Private Bank was an equally powerful story, with record revenue of $6.6 billion and pretax income of $1.8 billion, despite the headwind of $263 million in credit costs as we grew our franchise10. 11 Source: ISS Market Intelligence Simfund retrieved March 17, 2021. Excludes index, fund of funds and money market funds 12 For footnote, refer to page 67 footnote 26 in this Annual Report. Investing in our business Our success would not be possible without constant reinvestment in our business – to accelerate our growth, expand our offering, and maintain a strong risk and control framework. As a result of our long-term focus, increased scale and business momen- tum, our investment budget for 2021 is the largest in AWM’s history. Our most significant investments are aligned with the following areas: • Hiring: Grow market share domestically and internationally by hiring advisors and investment professionals. • Digital and Data: Digitize everything, and leverage data to deliver insights to our clients, investors and advisors. • Environmental, Social and Governance: Rank among the top three in active sustainable funds. • China: Become the #1 foreign asset manager onshore in China. Optimism for our future Over a century ago, we launched one of our first investment funds, Mercan- tile Investment Trust. That fund, with a 136-year track record, thrives today as a great example of our consistent and steadfast management of assets. Clients choose J.P. Morgan as a long- term partner because we have with- stood the test of time and are well- positioned for centuries to come. As our business helps governments, central banks, individuals, corpora- tions and pensions all around the world, we have a global perspective that few others enjoy. This, coupled with top-ranked performance in successfully managing client assets directly and in choosing third-party managers who we believe can do the same, gives us a unique understand- ing of the ever-changing investment landscape. That is why clients turn to us in uncertain times just as much as they do in more optimistic times. In 2020, we experienced both extremes. Simply put, delivering performance and doing first-class business in a first-class way, decade after decade, is the core of what we do in AWM. While new challenges undoubtedly lie ahead, I have never been more proud of the resiliency of our people, more grateful for our clients’ trust and confidence or more optimistic about our business’s future. Mary Callahan Erdoes CEO, Asset & Wealth Management 81 Corporate Responsibility 2020 will be remembered as a defin- ing moment for humanity. It was a year that both reinforced and exacer- bated profound inequities – from the pandemic’s disproportionate impact on Black and Latinx communities, to the killing of Black citizens by police officers, to violence against members of the Asian and Pacific Islander community amid cries for racial justice. These events have brought a long overdue focus on removing barriers to racial equity, and they demand fundamental change around the globe. Last April, I wrote that business needed to step up and collaborate with local, government and commu- nity leaders by providing resources and expertise to find solutions for those most in need. That same month, first-ever National Youth Poet Laureate Amanda Gorman shared a poem that read in part, “Do not ignore the pain. Give it purpose. Use it.” Her sentiments have reverberated over this past painful year. It is time to change how we operate both pub- lic and private systems, dismantling what has been holding too many people back for far too long. Today, 10 million Americans are out of work. The most financially vulner- able have been hit hardest, with Black and Latinx workers facing the highest unemployment rates, espe- cially women1. Lower-income fami- lies are dealing with the largest drop in savings since April 2020. Even pre-pandemic, Black and Latinx fami- lies held less than 50 cents for every dollar in liquid assets compared with families who are white2 – underlin- ing the dire need for a truly inclusive economic recovery. 1 https://www.dol.gov/sites/dolgov/files/OPA/newsreleases/ ui-claims/20210420.pdf 2 https://www.jpmorganchase.com/content/dam/jpmc/ jpmorgan-chase-and-co/institute/pdf/institute-race-report.pdf 8282 Getting back to better business – not business as usual – starts with acknowledging that we all have fallen short. Throughout 2020, several thousand colleagues looked across our entire firm to examine where JPMorgan Chase could do more and do better. In October, we announced a massive $30 billion commitment over the next five years to advance racial equity, drive an inclusive recovery, support employees and break down barriers of systemic racism, includ- ing changes across our firm to help us better serve our customers, our communities and our own employ- ees by leading with diversity, equity and inclusion. We were deeply hon- ored that JPMorgan Chase was named the Corporate Funder of the Year by Inside Philanthropy, which noted the size, substance and strate- gic focus of our commitments. Our company alone cannot end sys- temic racism, but we can do our part to drive clear policy, as well as busi- ness and community solutions, that create an inclusive recovery and pro- mote shared prosperity. In February 2021, the JPMorgan Chase Institute and PolicyCenter shared new research and data-driven policy recommenda- tions to inform immediate support to those most impacted by COVID-19, as well as longer-term policies to increase the financial health and stability of households and small businesses. These include support for extending and expanding unem- ployment benefits, providing addi- tional rental assistance funding to stabilize families, and reforming Small Business Administration programs to better support Black, Latinx, women and other under- served entrepreneurs. This year, the J.P. Morgan International Council also put forth a series of recommen- dations, focused on the future of the international system and the future of work, advocating for business leaders to engage with policymakers to advance the public’s interest – not just business – and drive solutions in the post-pandemic world. Bringing bold ideas about an inclu- sive recovery and removing structural barriers are not just matters of better government policy and programs. Businesses must be at the table with ideas – and have a willingness to change their own practices – to effec- tively advance solutions that have the impact we so desperately need. That is why JPMorgan Chase is investing in economic opportunity. We will con- tinue to develop better programs and products and advance policies that can lead to an inclusive economic recovery and opportunity for all. Peter L. Scher Head of Corporate Responsibility and Chairman of the Mid-Atlantic Region “ For the sheer speed and size of its response to COVID and demands for racial equity, JPMorgan Chase earns the nod this year. It pledged – and is moving – a $250 million response to the pandemic, and a $30 billion (with a “b”) commitment in loans, equity and direct funding toward ” racial equity. The company’s giving is always strategic and substantial. Inside Philanthropy Driving an inclusive recovery In a year where our customers, employees and communities faced devastating social, eco- nomic and commercial consequences from the COVID-19 pandemic, JPMorgan Chase focused on applying the full force of its resources to serve all of its stakeholders. To address the immediate and long-term impact of COVID-19, our efforts included quickly deploying an initial $250 million in global business and philan- thropic support to vulnerable and underserved communities, existing nonprofit partners and underserved small businesses. Advancing racial equity In October, JPMorgan Chase announced a $30 billion initiative to advance racial equity and address key drivers of the racial wealth divide, combat systemic racism and support our own employees. Over the next five years, the firm will put this commitment into practice and help close the racial wealth divide by combining our business, policy, data and philanthropic expertise to increase affordable lending and housing, expand minority-owned small business credit and capi- tal, help more people gain the skills they need to be successful and build a diverse workforce. Advancing policy solutions through data Our JPMorgan Chase Institute and PolicyCenter use firmwide data to analyze, develop and pro- mote policy insights and solutions, educating and informing policymakers and business and nonprofit leaders. Through this work, we are able to advocate for sustainable solutions to economic inequality and help address other critical issues our communities are facing today. million, five-year investment to equip young people and adults with the skills they need to be successful in a rapidly changing economy, JPMorgan Chase is developing pathways and policy recommendations to help underserved students gain better access to higher education and real-world work experiences. We have made this support also available to those workers, regardless of age, most affected by the COVID-19 pandemic. In addition, we are testing new strategies to upskill and reskill our own employees to address changes in technol- ogy and business needs. Supporting small business growth and entrepreneurship Small businesses are the backbone of our communities, and the COVID-19 pandemic has profoundly affected the entire sector. Accord- ing to the JPMorgan Chase Institute, Black-, Latinx- and women-owned small businesses are underrepresented among firms with sub- stantial external financing, limiting opportuni- ties to scale their business. To help eliminate these barriers, JPMorgan Chase announced a new $350 million, five-year global commitment to foster Black-, Latinx-, women-owned and other underserved small businesses. This includes philanthropic invest- ments to support diverse-led nonprofit organi- zations; low-cost loans to invest in community development financial institutions (CDFIs); and direct equity investments in early-stage companies. As part of our commitment, JPMorgan Chase is also expanding its signature Entrepreneurs of Color Fund, which provides low-cost loans to minority-owned small busi- nesses, to more U.S. cities in 2021. Preparing workers for the future of work Promoting neighborhood development Even before the pandemic, rapid changes in technology, automation and artificial intelli- gence continued to exacerbate the disconnect between skills and jobs. As part of our $350 Affordable housing and homeownership are among the greatest factors that fuel the racial wealth divide. As a result, we are changing our business practices, advancing product innova- tion and advocating for more effective housing policies through our $30 billion commitment to advance racial equity. In Chicago, seven organizations received a $7.2 million philanthropic investment to boost long-term homeownership. This includes pro- moting innovative modular home construction, as well as providing financial products and coaching in South and West side neighbor- hoods, including Back of the Yards, North Lawndale and Chicago Lawn. Expanding financial health and wealth creation As part of our five-year, $125 million commit- ment to improve financial health, JPMorgan Chase is leveraging its philanthropic capital and expertise to seed and scale technology- based innovations specifically for low- and moderate-income households around the world. Through the Financial Solutions Lab, part of our 10-year partnership with the Financial Health Network program, we have supported 40 fintech companies, whose innovative products collectively reach more than 4.5 million people and have helped U.S. residents save over $1 billion. Globally, we support similar efforts to address the financial health needs of communities out- side the U.S., including the Financial Inclusion Lab in India and the Catalyst Fund to stimulate financial inclusion in emerging markets. Tackling climate change JPMorgan Chase is committed to advancing sustainable solutions for our clients and within our own operations. We are adopting a financ- ing commitment aligned with the goals of the Paris Agreement to help clients navigate the challenges and capitalize on the long-term economic and environmental benefits of transi- tioning to a low-carbon world. We’ll establish intermediate emission targets for 2030 for our financing portfolio, focusing first on the oil and gas, electric power and automotive manufac- turing sectors. We also committed to source renewable energy for 100% of the firm’s power needs — such as installing on-site solar panels at our retail branches and commercial offices. 83 83 2020 HIGHLIGHTS AND ACCOMPLISHMENTS Awards and recognition • Ranked in Top 10 on Fortune magazine’s World’s Most Admired Companies list • Ranked in Top 10 in Top Corporate Respond- ers, a list assessing pandemic mobilization compiled by Forbes and JUST Capital — Advancing policy solutions: We released new policy papers to provide data-driven analyses and policy recommendations that address the pandemic’s immediate and long-term financial impacts on households, small businesses and communities, as well as the need to ensure an equitable recovery. • Recognized by Inside Philanthropy as • Careers and skills: Corporate Funder of the Year for the firm’s response to the COVID-19 crisis and demand for racial equity • Earned 100% rating on the Human Rights Campaign’s Corporate Equality Index 2020 — 18th consecutive year Accomplishments • Inclusive recovery: In 2020, the firm commit- ted more than $500 million in low-cost loans, equity and philanthropic grants to address the immediate COVID-19 crisis, drive an inclu- sive recovery and advance racial equity. These efforts are targeted to help 1.3 million individuals gain access to financial coaching, help another 172,000 individuals enroll in jobs and skills programs, assist 64,000 underserved small businesses and create or preserve 43,000 affordable housing units. • Community development and AdvancingCities: We helped bolster the long-term vitality of global cities through low-cost, long-term loans and philanthropic investments: — Building on JPMorgan Chase’s $500 million commitment to drive inclusive growth and create greater economic opportunity in cities around the world, the firm awarded a total of $35 million to organizations in seven U.S. cities that won the firm’s 2020 AdvancingCities Challenge: Baton Rouge, Boston, Chicago, Minneapolis, New Orleans, Philadelphia and Portland. 8484 — We invested $75 million to better prepare young people for the jobs of today and tomorrow, beginning in six U.S. cities: Boston, Columbus, Dallas, Denver, Indianapolis and Nashville. — We celebrated 10 years of The Fellowship Initiative (TFI) and renewed our commit- ment to improving economic and social outcomes for young Black and Latinx men. TFI will triple the number of young people it serves to more than 1,000 over the next 10 years and broaden its reach across several U.S. cities. The program has driven 100% admission to college among graduating Fellows; among these, more than half were the first in their family to attend college. • Financial health: — In India, the Financial Inclusion Lab sup- ported 30 fintechs, which have expanded their services to reach over 20 million people in underserved communities. — To date, the Financial Solutions Lab Accel- erator has supported 43 fintech start-ups across six cohorts. — We provided immediate support to orga- nizations, such as Mission Asset Fund and the International Rescue Committee (and its CDFI affiliate, the Center for Economic Opportunity), to provide financial coaching and affordable loans to households and small business owners with a focus on underserved communities. — We have been long-standing supporters of the Cities for Financial Empowerment Fund, including its Bank On initiative to equip accounts with common standards that make banking accessible to more people. We worked closely with them to ensure our clients could receive stimulus and other emergency payments safely through Chase, following social distancing protocols. • Sustainability: Since 2003, our firm has com- mitted over $23.9 billion in tax equity financ- ing for wind, solar and geothermal energy projects in the U.S., including $5.7 billion for wind and solar projects in 2020. Through the Climate Leadership Council and membership in Business Roundtable, we've also supported market-based policy solutions to address carbon emissions. In 2020, we completed our inaugural green bond issuance of $1 billion. • Small business expansion: JPMorgan Chase launched its Small Business Forward initia- tive in 2015. Over the last five years, the firm has provided more than $200 million in phi- lanthropy, including $20 million in COVID-19 relief, to support underserved small busi- nesses in cities around the world. These funds provided access to capital and techni- cal support to over 1 million diverse small businesses, which have raised nearly $10 billion in capital and increased revenue by an average of 22%. • Employees serving our communities: — More than 18,000 employees volunteered over 116,000 hours in 2020. This includes nearly 220 JPMorgan Service Corp volun- teers from 13 countries who contributed nearly 9,500 hours working with nearly 50 nonprofits. — More than 500 employees participated in the Board Match Program, which deepens the impact of employees’ donations to nonprofits when they also serve on the organization’s board. In 2020, the firm matched more than $1.9 million in contributions to those nonprofits. — In 2020, our firm and its employees donated over $1 million to COVID-19 relief efforts and $7.2 million to disaster relief efforts around the globe. Table of contents Financial: 44 Five-Year Summary of Consolidated Financial Highlights Audited financial statements: 45 Five-Year Stock Performance 158 Management’s Report on Internal Control Over Financial Reporting 159 Report of Independent Registered Public Accounting Management’s discussion and analysis: Firm 46 Introduction 47 Executive Overview 162 Consolidated Financial Statements 167 Notes to Consolidated Financial Statements 54 Consolidated Results of Operations 57 Consolidated Balance Sheets and Cash Flows Analysis 60 Off–Balance Sheet Arrangements and Contractual Cash Obligations 62 Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures 65 Business Segment Results 85 Firmwide Risk Management Supplementary information: 299 Selected quarterly financial data (unaudited) 300 Distribution of assets, liabilities and stockholders’ equity; interest rates and interest differentials 90 Strategic Risk Management 305 Glossary of Terms and Acronyms 91 Capital Risk Management 102 Liquidity Risk Management 110 Credit and Investment Risk Management 135 Market Risk Management 143 Country Risk Management 145 Operational Risk Management 152 Critical Accounting Estimates Used by the Firm 156 Accounting and Reporting Developments 157 Forward-Looking Statements JPMorgan Chase & Co./2020 Form 10-K 43 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(a) Total noninterest expense(a) Pre-provision profit(b) 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”)(b) Cash dividends declared per share Selected ratios and metrics Return on common equity (“ROE”)(c) Return on tangible common equity (“ROTCE”)(b)(c) Return on assets (“ROA”)(b) Overhead ratio Loans-to-deposits ratio(d) Firm Liquidity coverage ratio (“LCR”) (average)(e) JPMorgan Chase Bank, N.A. LCR (average)(e) Common equity tier 1 (“CET1”) capital ratio(f)(g) Tier 1 capital ratio(f)(g) Total capital ratio(f)(g) Tier 1 leverage ratio(f)(g) Supplementary leverage ratio (“SLR”)(f)(g) Selected balance sheet data (period-end) Trading assets(d) Investment securities, net of allowance for credit losses Loans(d) Total assets Deposits Long-term debt Common stockholders’ equity Total stockholders’ equity Headcount Credit quality metrics Allowances for loan losses and lending-related commitments Allowance for loan losses to total retained loans Nonperforming assets(d) Net charge-offs Net charge-off rate 2020 2019 2018 2017 2016 $ 119,543 66,656 52,887 17,480 35,407 6,276 $ 29,131 $ 115,399 65,269 50,130 5,585 44,545 8,114 $ 36,431 $ 108,783 63,148 45,635 4,871 40,764 8,290 $ 32,474 $ 100,460 59,270 41,190 5,290 35,900 11,459 $ 24,441 $ 96,275 56,378 39,897 5,361 34,536 9,803 (h) $ 24,733 $ 8.89 8.88 3,082.4 3,087.4 $ 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 $ 387,492 3,049.4 81.75 66.11 3.60 $ 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 $ 6.24 6.19 3,658.8 3,690.0 $ 307,295 3,561.2 64.06 51.44 1.88 12 % 14 0.91 56 47 110 160 13.1 15.0 17.3 7.0 6.9 % 15 % 19 1.33 57 64 116 116 12.4 14.1 16.0 7.9 6.3 % 13 % 17 1.24 58 69 113 111 12.0 13.7 15.5 8.1 6.4 % 10 % 12 0.96 59 66 119 108 12.2 13.9 15.9 8.3 6.5 % 10 % 13 1.00 59 67 NA NA 12.3 14.0 15.5 8.4 6.5 % $ 503,126 589,999 1,012,853 3,386,071 2,144,257 281,685 249,291 279,354 255,351 $ 369,687 398,239 997,620 2,687,379 1,562,431 291,498 234,337 261,330 256,981 $ 378,551 261,828 1,015,760 2,622,532 1,470,666 282,031 230,447 256,515 256,105 $ 349,053 249,958 959,429 2,533,600 1,443,982 284,080 229,625 255,693 252,539 $ 342,436 289,059 922,831 2,490,972 1,375,179 295,245 228,122 254,190 243,355 $ 30,737 $ 14,314 $ 14,500 $ 14,672 $ 14,854 2.95 % 1.39 % 1.39 % 1.47 % 1.55 % $ 10,906 5,259 $ 5,054 5,629 $ 5,901 4,856 $ 0.55 % 0.60 % 0.52 % 7,119 5,387 0.60 % (i) $ 7,754 4,692 0.54 % Effective January 1, 2020, the Firm adopted the Financial Instruments – Credit Losses (“CECL”) accounting guidance. Refer to Note 1 for further information. (a) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation. (b) Pre-provision profit, TBVPS and ROTCE are each non-GAAP financial measures. Tangible common equity (“TCE”) is also a non-GAAP financial measure. Refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 62–64 for a further discussion of these measures. (c) Quarterly ratios are based upon annualized amounts. (d) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior- period amounts have been revised to conform with the current presentation. (e) For the years ended December 31, 2020, 2019, 2018 and 2017, the percentage represents average LCR for the three months ended December 31, 2020, 2019, 2018 and 2017. The U.S. LCR public disclosure requirements for the Firm became effective in 2017. Refer to Liquidity Risk Management on pages 102–108 for additional information on the LCR results. (f) As of December 31, 2020, the capital metrics reflect the relief provided by the Federal Reserve Board in response to the COVID-19 pandemic, including the CECL capital transition provisions that became effective in the first quarter of 2020. As of December 31, 2020, the SLR reflects the temporary exclusions of U.S. Treasury securities and deposits at Federal Reserve Banks that became effective in the second quarter of 2020. Refer to Regulatory Developments Relating to the COVID-19 Pandemic on pages 52-53 and Capital Risk Management on pages 91-101 for additional information. (g) The Basel III capital rules became fully phased-in effective January 1, 2019, and for the SLR became fully phased-in effective January 1, 2018. Prior to these dates, the required capital metrics were subject to the transitional rules. As of December 31, 2018, the risk-based capital metrics were the same on a fully phased-in and transitional basis. Refer to Capital Risk Management on pages 91-101 for additional information on these capital metrics. (h) 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. (i) 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%. 44 JPMorgan Chase & Co./2020 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, 2015, 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) 2015 $ 100.00 100.00 100.00 100.00 2016 $ 134.57 128.51 122.75 111.95 2017 $ 170.54 152.41 149.92 136.38 2018 $ 159.20 125.42 130.37 130.39 2019 $ 234.46 170.72 172.21 171.44 2020 $ 221.52 153.12 169.19 202.96 JPMorgan Chase & Co./2020 Form 10-K 45 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, 2020. The MD&A is included in both JPMorgan Chase’s Annual Report for the year ended December 31, 2020 (“Annual Report”) and its Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”) filed with the Securities and Exchange Commission (“SEC”). Refer to the Glossary of terms and acronyms on pages 305-311 for definitions of terms and acronyms used throughout the Annual Report and the 2020 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 157) and Part 1, Item 1A: Risk factors in the 2020 Form 10-K on pages 8-32 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 the Corporate & Investment Bank (“CIB”), Commercial Banking (“CB”), and Asset & Wealth Management (“AWM”). Refer to Business Segment Results on pages 65–84, 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 financial services firm based in the United States of America (“U.S.”), and has operations worldwide; JPMorgan Chase had $3.4 trillion in assets and $279.4 billion in stockholders’ equity as of December 31, 2020. 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, 2020. 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. 46 JPMorgan Chase & Co./2020 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 2020 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 LOBs, this 2020 Form 10-K should be read in its entirety. Effective January 1, 2020, the Firm adopted the CECL accounting guidance. Refer to Note 1 for further information. Financial performance of JPMorgan Chase Year ended December 31, (in millions, except per share data and ratios) Selected income statement data Total net revenue(a) Total noninterest expense(a) Pre-provision profit 2020 2019 Change $ 119,543 $ 115,399 4 % 66,656 65,269 52,887 50,130 Provision for credit losses 17,480 5,585 Net income 29,131 36,431 Diluted earnings per share 8.88 10.72 Selected ratios and metrics Return on common equity Return on tangible common equity 12 % 14 15 % 19 Book value per share $ 81.75 $ 75.98 Tangible book value per share Capital ratios(b) CET1 Tier 1 capital Total capital 66.11 60.98 13.1 % 12.4 % 15.0 17.3 14.1 16.0 2 5 213 (20) (17) 8 8 (a) In the second quarter of 2020, the Firm reclassified certain spend- based credit card reward costs from marketing expense to be a reduction of card income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation. (b) As of December 31, 2020, the capital metrics reflect the relief provided by the Federal Reserve Board in response to the COVID-19 pandemic, including the CECL capital transition provisions that became effective in the first quarter of 2020. Refer to Regulatory Developments relating to the COVID-19 Pandemic on pages 52-53 and Capital Risk Management on pages 91-101 for additional information. Comparisons noted in the sections below are for the full year of 2020 versus the full year of 2019, unless otherwise specified. Firmwide overview JPMorgan Chase reported net income of $29.1 billion for 2020, or $8.88 per share, on net revenue of $119.5 billion. The Firm reported ROE of 12% and ROTCE of 14%. The Firm's results for 2020 included net additions to the allowance for credit losses of $12.2 billion and Firmwide legal expense of $1.1 billion. • The Firm had net income of $29.1 billion, down 20%. • Total net revenue was up 4%. Noninterest revenue was $65.0 billion, up 12%, driven by higher CIB Markets revenue, Investment Banking fees and net production revenue in Home Lending. Net interest income was $54.6 billion, down 5%, driven by the impact of lower rates, predominantly offset by higher net interest income in CIB Markets as well as balance sheet growth. • Noninterest expense was $66.7 billion, up 2%, driven by higher volume- and revenue-related expense, legal expense and continued investments in the businesses, partially offset by lower structural expense. • The provision for credit losses was $17.5 billion, up $11.9 billion from the prior year, driven by net additions to the allowance for credit losses of $12.2 billion due to the deterioration and increased uncertainty in the macroeconomic environment as a result of the impact of the COVID-19 pandemic. • The total allowance for credit losses was $30.8 billion at December 31, 2020. The Firm had an allowance for loan losses to retained loans coverage ratio of 2.95%, compared with 1.39% in the prior year; the increase from the prior year was driven by the additions to the allowance for credit losses and the adoption of CECL. • The Firm’s nonperforming assets totaled $10.9 billion at December 31, 2020, an increase of $5.9 billion from the prior year, primarily reflecting client credit deterioration across multiple industries in the wholesale portfolio; and in the consumer portfolio, loans placed on nonaccrual status related to the impact of the COVID-19 pandemic, as well as the adoption of CECL, as the purchased credit deteriorated loans in the mortgage portfolio became subject to nonaccrual loan treatment. In the fourth quarter of 2020, nonperforming assets decreased $556 million from the prior quarter, reflecting some credit improvement in the wholesale portfolio. The consumer portfolio remained relatively flat, as the increase in loans placed on nonaccrual status in Home Lending related to the impact of the COVID-19 pandemic was predominantly offset by lower loans at fair value in CIB, largely due to sales. • Firmwide average loans of $1.0 trillion were up 1%, driven by higher loan balances in AWM and CIB, as well as loans originated under the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”), predominantly offset by lower loan balances in Home Lending and Card. • Firmwide average deposits of $1.9 trillion were up 25%, reflecting significant inflows across the Firm, primarily driven by the impact of the COVID-19 pandemic and the related effect of certain government actions. • As of December 31, 2020, the Firm had average eligible High Quality Liquid Assets (“HQLA”) of approximately $697 billion and unencumbered marketable securities with a fair value of approximately $740 billion, resulting in approximately $1.4 trillion of liquidity sources. Refer to Liquidity Risk Management on pages 102–108 for additional information. JPMorgan Chase & Co./2020 Form 10-K 47 Management’s discussion and analysis Selected capital-related metrics • The Firm’s CET1 capital was $205 billion, and the Standardized and Advanced CET1 ratios were 13.1% and 13.8%, respectively. • The Firm’s SLR was 6.9%. The SLR reflects the temporary exclusions of U.S. Treasury securities and deposits at Federal Reserve Banks, as required by the Federal Reserve’s interim final rule issued on April 1, 2020. The Firm’s SLR excluding the temporary relief was 5.8%. • The Firm grew TBVPS, ending 2020 at $66.11, up 8% versus the prior year. Pre-provision profit, ROTCE and TBVPS are non-GAAP financial measures. Refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 62–64, and Capital Risk Management on pages 91-101 for a further discussion of each of these measures. Business segment highlights Selected business metrics for each of the Firm’s four LOBs are presented below for the full year of 2020. 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 2020, consisting of: $2.3 trillion Total credit provided and capital raised (including loans and commitments)(a) $226 billion $18 billion $865 billion Credit for consumers Credit for U.S. small businesses Credit for corporations CCB ROE 15% CIB ROE 20% CB ROE 11% AWM ROE 28% • Average deposits up 22%; client investment assets up 17% • Average loans down 6%; debit and credit card sales volume down 3% • Active mobile customers up 10% $1.1 trillion Capital raised for corporate clients and non-U.S. government entities $103 billion Credit and capital raised for nonprofit and U.S. government entities(b) $28 billion Loans under the Small Business Administration’s Paycheck Protection Program (a) Excludes loans under the SBA’s PPP. (b) Includes states, municipalities, hospitals and universities. • $9.5 billion of Global Investment Banking fees, up 25% • #1 ranking for Global Investment Banking fees with 9.2% wallet share for the year • Total Markets revenue of $29.5 billion, up 41%, with Fixed Income Markets up 45% and Equity Markets up 33% • Gross Investment Banking revenue of $3.3 billion, up 22% • Average deposits up 38%; average loans up 5% • Assets under management (AUM) of $2.7 trillion, up 17% • Average deposits up 20%; average loans up 13% Refer to the Business Segment Results on pages 65–66 for a detailed discussion of results by business segment. 48 JPMorgan Chase & Co./2020 Form 10-K Recent events • On January 27, 2021, JPMorgan Chase announced that it will launch a digital retail bank in the U.K. this year, and on February 23, 2021, JPMorgan Chase announced that it will appoint Sanoke Viswanathan, head of International Consumer, to the Operating Committee. • On December 31, 2020, JPMorgan Chase acquired the Global Loyalty business (“cxLoyalty”) of cxLoyalty Group Holdings, Inc. This includes cxLoyalty’s technology platforms, full-service travel agency, and gift card and merchandise services. • On December 31, 2020, JPMorgan Chase acquired 55ip, a financial technology company and leading provider of automated tax-smart investment strategies. • On December 18, 2020, JPMorgan Chase received the results of the 2020 Comprehensive Capital Analysis and Review (“CCAR”) Round 2 stress test from the Federal Reserve. The Firm’s Stress Capital Buffer (“SCB”) requirement remained at 3.3%. The Federal Reserve also announced that all large banks, including the Firm, could resume share repurchases commencing in the first quarter of 2021, subject to certain restrictions. The Firm's Board of Directors has authorized a new common share repurchase program for up to $30 billion. The Firm expects to repurchase up to $4.5 billion of common stock in the first quarter of 2021 and, subject to approval by the Board of Directors, maintain the quarterly common stock dividend of $0.90 per share. • On December 18, 2020, JPMorgan Chase announced the retirement of Lee Raymond, the Firm’s Lead Independent Director. Stephen B. Burke has succeeded Mr. Raymond as Lead Independent Director effective January 1, 2021. • On December 7, 2020, Phebe N. Novakovic became a member of the Firm's Board of Directors. Ms. Novakovic is Chairman and Chief Executive Officer of General Dynamics Corporation. 2021 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 157, and the Risk Factors section on pages 8-32 of the Firm’s 2020 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 2021 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 current outlook for 2021 should be viewed against the backdrop of the global and U.S. economies, the COVID-19 pandemic, 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. The outlook information contained in this Form 10-K supersedes all outlook information included in the Firm’s periodic reports furnished or filed with the SEC prior to the date of this Form 10-K. Full-year 2021 • Management expects net interest income, on a managed basis, to be approximately $55 billion, market dependent. • Management expects adjusted expense to be approximately $69 billion, which includes accelerated contributions to the Firm’s Foundation in the form of equity investments, as well as higher revenue-related expense. First-quarter 2021 • Management expects net interest income, on a managed basis, to be approximately $13 billion, market dependent. • Investment banking fees are expected to be flat when compared with the fourth quarter of 2020, depending on market conditions. Fourth-quarter 2021 • Management expects net interest income, on a managed basis, to be in excess of $14 billion, market dependent. Net interest income, on a managed basis, and adjusted expense are non-GAAP financial measures. Refer to Explanation and Reconciliation of the Firm’s Use of Non- GAAP Financial Measures on pages 62-64. JPMorgan Chase & Co./2020 Form 10-K 49 Management’s discussion and analysis Business Developments COVID-19 Pandemic In response to the COVID-19 pandemic the Firm invoked resiliency plans to allow its businesses to remain operational, utilizing disaster recovery sites and implementing alternative work arrangements globally. Additionally, the Firm implemented strategies and procedures designed to help it respond to increased market volatility, client demand for credit and liquidity, distress in certain industries and the ongoing impacts to consumers and businesses. Throughout 2020, the Firm remained focused on serving its clients, customers and communities, as well as the well- being of its employees, during the pandemic. The Firm continues to actively monitor the health and safety situations at local and regional levels, and will continue to adapt as these situations evolve. Supporting clients and customers The Firm has supported its clients and customers during the challenging conditions caused by the COVID-19 pandemic by providing assistance, primarily in the form of payment deferrals on loans and extending credit, including through its participation in the Small Business Association’s (“SBA”) PPP. Refer to Credit Portfolio on page 112 for information on assistance granted to customers and clients. Refer to Consumer Credit portfolio on page 116 and Wholesale Credit Portfolio on page 122 for information on retained loans under payment deferral. The Firm has gradually re-opened its branches since April 2020, with nearly 90% of its branches returning to full service as of December 31, 2020. Additionally, the Firm continues to provide a wide range of banking services that are accessible to clients and customers through mobile and other digital channels. Protecting and supporting employees In response to the COVID-19 pandemic, the Firm implemented alternative work arrangements, with the vast majority of its global workforce working from home since the onset of the pandemic and continuing into the first quarter of 2021. The Firm also provided additional benefits to employees during the COVID-19 pandemic. Supporting communities Since March, the Firm has committed $250 million to help address humanitarian needs and long-term economic challenges posed by the COVID-19 pandemic on the communities in which the Firm operates. As of December 31, 2020, over 75% of this commitment has been funded. Departure of the U.K. from the EU The U.K.’s departure from the EU, which is commonly referred to as “Brexit,” was completed on December 31, 2020. The U.K. and the EU have entered into a Trade and Cooperation Agreement which delineates many significant aspects of the future relationship between the U.K. and the EU. However, the agreement contained very limited provisions relating to cross-border financial services, and the U.K. and the EU are expected to engage in further negotiations concerning financial services. The Firm has executed and continues to execute on its Firmwide Brexit Implementation program, which encompasses a strategic implementation plan across all impacted businesses and functions, including an ongoing assessment of political, legal and regulatory and other implementation risks. A key focus of the program has been to ensure continuity of service to the Firm’s EU clients in the following areas: regulatory and legal entities; clients; and business and operations. Regulatory and legal entities The Firm’s legal entities in Germany, Luxembourg and Ireland are now licensed to provide and are providing services to the Firm’s EU clients, including through a branch network covering locations such as Paris, Madrid and Milan. Subject to limited exceptions, the Firm’s U.K.-based legal entities are no longer permitted to transact business from the U.K. with EU clients. Clients Agreements covering substantially all of the Firm’s EU client activity have been re-documented to EU legal entities to facilitate continuation of service. The Firm continues to actively engage with those clients that have not completed re-documentation or required operational changes. Business and operations The COVID-19 pandemic introduced additional risk to the Firm’s Brexit Implementation program, particularly in relation to staff relocations. As a result, the Firm has worked closely with regulators and employees to ensure that critical staff are relocated in a safe and timely manner so that the Firm can meet its regulatory commitments and continue serving its clients. Further relocations are planned for 2021, and the Firm’s longer-term EU staffing strategy will be developed over time in cooperation with its regulators and as the post-Brexit market landscape evolves in order to ensure that the Firm maintains operational resilience and effective client coverage. 50 JPMorgan Chase & Co./2020 Form 10-K Interbank Offered Rate (“IBOR”) transition JPMorgan Chase and other market participants continue to make progress in preparing for the discontinuation of the London Interbank Offered Rate (“LIBOR”) and other IBORs to comply with the International Organization of Securities Commission’s standards for transaction-based benchmark rates. On November 30, 2020, ICE Benchmark Administration, the administrator of LIBOR, announced a public consultation on its proposal to cease the publication of the principal tenors of U.S. dollar LIBOR (i.e., overnight, one-month, three- month, six-month and 12-month LIBOR) immediately following a final publication on June 30, 2023. The Federal Reserve, the OCC and the FDIC also released guidance encouraging market participants to cease dealing in new U.S. dollar LIBOR contracts from the end of 2021. There has been no change in the scheduled cessation of U.K. sterling, Japanese yen, Swiss franc and Euro LIBOR, or the remaining tenors of U.S. dollar LIBOR, from December 31, 2021. The Firm continues to work towards reducing its exposure to IBOR-referencing contracts, including derivatives, bilateral and syndicated loans, securities, and debt and preferred stock issuances, to meet the industry milestones and recommendations published by National Working Groups (“NWG”), including the Alternative Reference Rates Committee (the “ARRC”) in the U.S. On October 23, 2020, the International Swaps and Derivatives Association, Inc. (“ISDA”) published a new supplement to the ISDA 2006 definitions and the related 2020 IBOR Fallbacks Protocol (the “Protocol”). These publications are intended to facilitate the incorporation of robust rate fallback provisions into both legacy and new derivative contracts with effect from January 25, 2021. The Firm’s client-facing legal entities have agreed to adhere to the Protocol, in accordance with recommendations from multiple industry working groups, including the ARRC. ISDA further announced that bilateral templates have been made available for use with counterparties who choose not to adhere to the Protocol. As a key objective of the ARRC’s transition plan to encourage adoption of the Secured Overnight Financing Rate (“SOFR”), counterparty clearing houses, clearing house members and other impacted market participants successfully executed the discounting and price alignment interest (“PAI”) switch from federal funds to SOFR on October 16, 2020. The industry completed a similar switch from EONIA to €STR on July 27, 2020. On March 12, 2020 and January 7, 2021, the Financial Accounting Standards Board (“FASB”) issued accounting standards updates providing optional expedients and exceptions for applying generally accepted accounting principles to contracts and hedge accounting relationships affected by reference rate reform. These optional expedients are intended to simplify the operational impact of applying U.S. GAAP to transactions impacted by reference rate reform. The Firm elected to apply certain of these expedients beginning in the third quarter of 2020. On August 27, 2020, the International Accounting Standards Board (“IASB”) issued guidance that provides similar relief for entities reporting under International Financial Reporting Standards ("IFRS"). Refer to Accounting and Reporting Developments on page 156 for additional information. The Firm continues to monitor the transition relief being considered by the U.S. Treasury Department regarding the tax implications of reference rate reform. The Firm’s initiatives in connection with LIBOR transition include: • continuing to reduce its overall exposure to LIBOR • implementing rate fallback provisions developed by NWGs in new LIBOR contracts, where appropriate • continuing to educate and inform clients on LIBOR transition and the necessity to prepare for the cessation of LIBOR • assisting clients with discontinuing their issuance or use of LIBOR-linked products within the timelines specified by NWGs • supporting clients in their efforts to remediate contracts linked to LIBOR, including contracts to which the Firm is a party, which it manages or for which it acts as agent • offering products linked to alternative reference rates (“ARRs”) across its businesses, and • planning for the implementation of rate fallback mechanisms across products based on the conventions recommended by NWGs to prepare for transition to ARRs upon the cessation of various IBORs. The Firm is on schedule to implement necessary changes to operational and risk management systems in order to transition away from IBORs, including by aiming to meet proposed deadlines set by NWGs for the cessation of new contracts referencing these benchmarks. The Firm continues to engage with and remains committed to NWGs in devising solutions to unresolved issues relating to IBOR transition. The Firm continues to engage with market participants, NWGs and regulators to address market-wide challenges associated with LIBOR transition, including efforts to: • improve liquidity in ARRs • develop and introduce forward-looking term rates linked to ARRs, and • support legislative proposals in the U.S., the U.K. and the EU that aim to resolve concerns involving “tough legacy” contracts (i.e. contracts that do not provide for automatic conversion to another rate or that are difficult to amend in order to add rate fallback provisions). Resolution of these challenges should provide more certainty and help to provide a framework for market participants in transitioning away from IBORs. JPMorgan Chase & Co./2020 Form 10-K 51 Management’s discussion and analysis Regulatory Developments Relating to the COVID-19 Pandemic Since March 2020, the U.S. government as well as central banks and banking authorities around the world have taken and continue to take actions to help individuals, households and businesses that have been adversely affected by the economic disruption caused by the COVID-19 pandemic. The CARES Act and the Consolidated Appropriations Act, which were signed into law on March 27, 2020 and December 27, 2020, respectively, provide, among other things, funding to support loan facilities to assist consumers and businesses. Set forth below is a summary as of the date of this Form 10-K of U.S. government actions currently impacting the Firm and U.S. government programs in which the Firm is participating. The Firm will continue to assess ongoing developments in government actions in response to the COVID-19 pandemic. U.S. government actions Eligible retained income definition. On March 17, 2020, the Office of the Comptroller of the Currency (“OCC”), the Board of Governors of the Federal Reserve System (“Federal Reserve”), and the Federal Deposit Insurance Corporation (“FDIC”), collectively the “federal banking agencies,” issued an interim final rule (issued as final on August 26, 2020) that revised the definition of “eligible retained income” in the regulatory capital rules that apply to all U.S. banking organizations. On March 23, 2020, the Federal Reserve issued an interim final rule (issued as final on August 26, 2020) that revised the definition of “eligible retained income” for purposes of the total loss-absorbing capacity (“TLAC”) buffer requirements that apply to global systemically important banking organizations. The revised definition of eligible retained income makes any automatic limitations on payout distributions that could apply under the agencies’ capital rules or TLAC rule take effect on a more graduated basis in the event that a banking organization’s capital, leverage and TLAC ratios were to decline below regulatory requirements (including buffers). The March 17, 2020 interim final rule was issued, in conjunction with an interagency statement encouraging banking organizations to use their capital and liquidity buffers, to further support banking organizations’ abilities to lend to households and businesses affected by the COVID-19 pandemic. Reserve requirements. On March 24, 2020, the Federal Reserve issued an interim final rule (issued as final on December 22, 2020) reducing reserve requirement ratios for all depository institutions to zero percent, effective March 26, 2020, an action intended to free up liquidity in the banking system to support lending to households and businesses. Refer to Note 26 for additional information on the reduction to the reserve requirement. Regulatory Capital - Current Expected Credit Losses (“CECL”) transition delay. On March 31, 2020, the federal banking agencies issued an interim final rule (issued as final on August 26, 2020) that provided banking organizations with the option to delay the effects of CECL on regulatory capital for two years, followed by a three-year transition period (“CECL capital transition provisions”). The Firm elected to apply the CECL capital transition provisions. Supplementary leverage ratio (“SLR”) temporary revision. On April 1, 2020, the Federal Reserve issued an interim final rule that requires, on a temporary basis, the calculation of total leverage exposure for purposes of calculating the SLR for bank holding companies (“BHC”), to exclude the on- balance sheet amounts of U.S. Treasury securities and deposits at Federal Reserve Banks. These exclusions became effective April 1, 2020, and will remain in effect through March 31, 2021. Refer to Capital Risk Management on pages 91-101 and Note 27 for additional information on the CECL capital transition provisions, the impact to the Firm’s capital metrics and the Firm’s SLR. Loan modifications. On April 7, 2020, the federal banking agencies along with the National Credit Union Administration, and the Consumer Financial Protection Bureau, in consultation with the state financial regulators, issued an interagency statement revising a March 22, 2020 interagency statement on loan modifications and the reporting for financial institutions working with customers affected by the COVID-19 pandemic (the “IA Statement”). The IA Statement reconfirmed that efforts to work with borrowers where the loans are prudently underwritten, and not considered past due or carried on nonaccrual status, should not result in the loans automatically being considered modified in a troubled debt restructuring (“TDR”) for accounting and financial reporting purposes, or for purposes of their respective risk-based capital rules, which would otherwise require financial institutions subject to the capital rules to hold more capital. The IA Statement also clarified the interaction between its previous guidance and Section 4013 of the CARES Act, as extended by Section 541 of the Consolidated Appropriations Act, which provides certain financial institutions with the option to suspend the application of accounting guidance for TDRs for a limited period of time for loan modifications made to address the effects of the COVID-19 pandemic. The Firm has granted various forms of assistance to customers and clients impacted by the COVID-19 pandemic, including payment deferrals and covenant modifications. The majority of the Firm’s COVID-19 related loan modifications have not been considered TDRs because: • they represent short-term or other insignificant modifications, whether under the Firm’s regular loan modification assessments or the IA Statement guidance, or • the Firm has elected to apply the option to suspend the application of accounting guidance for TDRs as provided by 52 JPMorgan Chase & Co./2020 Form 10-K the CARES Act and extended by the Consolidated Appropriations Act. To the extent that certain modifications do not meet any of the above criteria, the Firm accounts for them as TDRs. Refer to Credit Portfolio on pages 112-113 and Note 12 for additional information on the Firm’s loan modification activities. PPP. Beginning April 3, 2020, the PPP, established by the CARES Act and administered by the SBA, authorized eligible lenders to provide nonrecourse loans to eligible borrowers until August 8, 2020 to provide an incentive for these businesses to keep their workers on their payroll. As part of the Consolidated Appropriations Act, additional funding was provided for new PPP loans beginning in early January 2021. This program was designed to target smaller businesses as well as to simplify the loan forgiveness process for loans under $150,000. As of February 19, 2021, the Firm has funded approximately $5 billion under this extension of the program. U.S. government facilities. Beginning in March 2020, the Federal Reserve announced a suite of facilities using its emergency lending powers under section 13(3) of the Federal Reserve Act to support the flow of credit to individuals, households and businesses adversely affected by the COVID-19 pandemic and to support the broader economy. The Firm has participated and is participating in the PPP and certain of the other government facilities and programs, as needed, to assist its clients and customers or to support the broader economy. Refer to Capital Risk Management on pages 91-101, Liquidity Risk Management on pages 102–108, Credit Portfolio on pages 112-113, Note 12 and Note 27 for additional information on the Firm’s participation in the PPP and other government facilities and programs. JPMorgan Chase & Co./2020 Form 10-K 53 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, 2020, 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, 2019 (the “2019 Form 10-K”) for a discussion of the 2019 versus 2018 results. Factors that relate primarily to a single business segment are discussed in more detail within that business segment’s results. Refer to pages 152-155 for a discussion of the Critical Accounting Estimates Used by the Firm that affect the Consolidated Results of Operations. Revenue Year ended December 31, (in millions) 2020 2019 2018 Investment banking fees $ 9,486 $ 7,501 $ 7,550 Principal transactions Lending- and deposit-related fees(a) Asset management, administration and commissions(a) Investment securities gains/(losses) Mortgage fees and related income Card income(b) Other income(c) Noninterest revenue Net interest income Total net revenue 18,021 14,018 12,059 6,511 6,626 6,377 18,177 16,908 16,793 802 3,091 4,435 4,457 64,980 54,563 258 2,036 5,076 5,731 58,154 57,245 (395) 1,254 4,743 5,343 53,724 55,059 $ 119,543 $ 115,399 $ 108,783 (a) In the first quarter of 2020, the Firm reclassified certain fees from asset management, administration and commissions to lending- and deposit- related fees. Prior-period amounts have been revised to conform with the current presentation. (b) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation. (c) Included operating lease income of $5.5 billion for each of the years ended December 31, 2020 and 2019, and $4.5 billion for the year ended December 31, 2018. 2020 compared with 2019 Investment banking fees increased, driven by CIB, reflecting: • higher equity underwriting fees predominantly in follow- on offerings and convertible securities markets due to increased industry-wide fees • higher debt underwriting fees in investment-grade and high-yield bonds driven by increased industry-wide fees and wallet share gains. The increased activity resulted in part from clients seeking liquidity in the first half of the year as a result of the COVID-19 pandemic. Refer to CIB segment results on pages 71–76 and Note 6 for additional information. Principal transactions revenue increased, predominantly in CIB, reflecting higher revenue in Fixed Income Markets, driven by strong performance in Currencies & Emerging Markets, Rates, and Credit. The increase in principal transactions revenue also reflected higher net valuations on several legacy equity investments in Corporate, compared with net losses in the prior year. Principal transactions revenue in CIB may in certain cases have offsets across other revenue lines, including net interest income. The Firm assesses the performance of its CIB Markets business on a total revenue basis. Refer to CIB and Corporate segment results on pages 71–76 and pages 83–84, respectively, and Note 6 for additional information. Lending- and deposit-related fees decreased as a result of lower deposit-related fees in CCB, reflecting lower transaction activity and the impact of fee refunds related to the COVID-19 pandemic, predominantly offset by higher cash management fees in CIB and CB, as well as higher lending- related fees, particularly loan commitment fees in CIB. Refer to CCB, CIB and CB segment results on pages 67–70, pages 71–76 and pages 77–79, respectively, and Note 6 for additional information. Asset management, administration and commissions revenue increased driven by: • higher asset management fees in AWM as a result of net inflows into liquidity and long term products, and higher performance fees; and in CCB related to a higher level of investment assets • higher brokerage commissions in CIB and AWM on higher client-driven volume, partially offset by • lower volume of annuity sales in CCB. Refer to CCB, CIB and AWM segment results on pages 67– 70, pages 71–76 and pages 80–82, respectively, and Note 6 for additional information. Investment securities gains/(losses) increased due to the repositioning of the investment securities portfolio, including sales of U.S. GSE and government agency mortgage-backed securities, particularly in the first and third quarters of 2020. Refer to Corporate segment results on pages 83–84 and Note 10 for additional information. Mortgage fees and related income increased due to higher net mortgage production revenue reflecting higher mortgage production volumes and margins; the prior year included gains on sales of certain loans. Refer to CCB segment results on pages 67–70, Note 6 and 15 for further information. 54 JPMorgan Chase & Co./2020 Form 10-K Card income decreased due to: • lower net interchange income reflecting lower credit card sales volumes and debit card transactions as a result of the impact of the COVID-19 pandemic, largely offset by lower acquisition costs and higher annual fees in CCB, and • lower merchant processing fees in CIB predominantly driven by a reporting reclassification of certain expenses to be a reduction of revenue in Merchant Services. Refer to CCB and CIB segment results on pages 67–70 and pages 71–76, respectively, and Note 6 for further information. Other income decreased reflecting: • Increased amortization on higher levels of alternative energy investments in CIB. The increased amortization was more than offset by lower income tax expense from the associated tax credits • lower net valuation gains on certain investments in AWM • net losses on certain equity investments in CIB, compared with net gains in the prior year • higher costs associated with using forward contracts to hedge certain non-U.S. dollar-denominated net investment exposures, and • higher losses related to the early termination of certain of the Firm's long-term debt in Treasury and CIO, partially offset by • a net increase from a gain on an equity investment. Net interest income decreased due to the impact of lower rates, predominantly offset by higher net interest income in CIB Markets, as well as balance sheet growth. The Firm’s average interest-earning assets were $2.8 trillion, up $434 billion, and the yield was 2.34%, down 127 basis points (“bps”), primarily due to lower rates. The net yield on these assets, on an FTE basis, was 1.98%, a decrease of 48 bps. The net yield excluding CIB Markets was 2.30%, down 97 bps. Net yield excluding CIB Markets is a non-GAAP financial measure. Refer to the Consolidated average balance sheets, interest and rates schedule on pages 300–304 for further details; and the Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 62–64 for a further discussion of Net interest yield excluding CIB Markets. Provision for credit losses Year ended December 31, (in millions) 2020 2019 2018 Consumer, excluding credit card $ 1,016 $ (378) $ (119) Credit card Total consumer Wholesale Investment securities 10,886 11,902 5,510 68 5,348 4,970 615 NA 4,818 4,699 172 NA Total provision for credit losses $ 17,480 $ 5,585 $ 4,871 Effective January 1, 2020, the Firm adopted the CECL accounting guidance. In conjunction with the adoption of CECL, the Firm reclassified risk-rated loans and lending-related commitments from the consumer, excluding credit card portfolio segment to the wholesale portfolio segment, to align with the methodology applied when determining the allowance. Prior-period amounts have been revised to conform with the current presentation. Refer to Note 1 for further information. 2020 compared with 2019 The provision for credit losses increased in consumer and wholesale primarily driven by the deterioration and uncertainty in the macroeconomic environment, in particular in the first half of 2020, as a result of the impact of the COVID-19 pandemic. The increase in consumer reflected: • net additions of $7.4 billion to the allowance for credit losses, consisting of $6.6 billion for Card, $520 million for Auto, $252 million for Business Banking, partially offset by • lower net charge-offs largely in Card, reflecting lower charge-offs and higher recoveries, primarily benefiting from payment assistance and government stimulus. The prior year included a $244 million net reduction in the allowance for credit losses. The increase in wholesale reflected a net addition of $4.7 billion to the allowance for credit losses across the LOBs, impacting multiple industries. The investment securities provision for credit losses relates to the HTM portfolio, which became subject to the CECL accounting guidance beginning on January 1, 2020. Refer to the segment discussions of CCB on pages 67–70, CIB on pages 71–76, CB on pages 77–79, AWM on pages 80–82, the Allowance for Credit Losses on pages 132-133, and Notes 1, 10 and 13 for further discussion of the credit portfolio and the allowance for credit losses. JPMorgan Chase & Co./2020 Form 10-K 55 4,449 4,322 3,952 Income tax expense 6,276 8,114 8,290 Income tax expense Year ended December 31, (in millions, except rate) Income before income tax expense 2020 2019 2018 $ 35,407 $ 44,545 $ 40,764 Effective tax rate 17.7 % 18.2 % 20.3 % 2020 compared with 2019 The effective tax rate decreased, with the current year rate reflecting the impact of a lower level of pre-tax income and changes in the mix of income and expenses subject to U.S. federal, and state and local taxes, as well as other tax adjustments. The prior year included the effect of $1.1 billion of tax benefits related to the resolution of certain tax audits. Refer to Note 25 for further information. Management’s discussion and analysis Noninterest expense Year ended December 31, (in millions) 2020 2019 2018 Compensation expense $ 34,988 $ 34,155 $ 33,117 Noncompensation expense: Occupancy Technology, communications and equipment Professional and outside services Marketing(a) Other(b)(c) 10,338 8,464 2,476 5,941 9,821 8,533 3,351 5,087 8,802 8,502 3,044 5,731 Total noncompensation expense 31,668 31,114 30,031 Total noninterest expense $ 66,656 $ 65,269 $ 63,148 (a) In the second quarter of 2020, the Firm reclassified certain spend- based credit card reward costs from marketing expense to be a reduction of card income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation. (b) Included Firmwide legal expense of $1.1 billion, $239 million and $72 million for the years ended December 31, 2020, 2019 and 2018, respectively. (c) Included FDIC-related expense of $717 million, $457 million and $1.2 billion for the years ended December 31, 2020, 2019 and 2018, respectively. 2020 compared with 2019 Compensation expense increased driven by higher volume- and revenue-related expense, predominantly in CIB and CCB, as well as the impact of investments in the businesses. Noncompensation expense increased as a result of: • higher legal expense predominantly in CIB and AWM • higher volume-related expense, in particular brokerage expense in CIB and depreciation from growth in auto lease assets in CCB • higher investments in the businesses, including technology and real estate, • an impairment on a legacy investment in Corporate, and • higher FDIC-related expense, partially offset by • lower marketing expense as a result of lower investments in marketing campaigns and lower travel-related benefits in CCB, and • lower structural expense, including lower travel and entertainment across the businesses, and payment processing costs, partially offset by higher contributions to the Firm’s Foundation. 56 JPMorgan Chase & Co./2020 Form 10-K CONSOLIDATED BALANCE SHEETS AND CASH FLOWS ANALYSIS Effective January 1, 2020, the Firm adopted the CECL accounting guidance. Refer to Note 1 for further information. Consolidated balance sheets analysis The following is a discussion of the significant changes between December 31, 2020 and 2019. 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(a) Available-for-sale securities Held-to-maturity securities, net of allowance for credit losses Investment securities, net of allowance for credit losses Loans(a) 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(a) Total assets 2020 2019 Change $ 24,874 $ 21,704 502,735 296,284 160,635 503,126 388,178 201,821 589,999 1,012,853 (28,328) 984,525 90,503 27,109 53,428 241,927 249,157 139,758 369,687 350,699 47,540 398,239 997,620 (13,123) 984,497 72,861 25,813 53,341 152,853 130,395 15 % 108 19 15 36 11 325 48 2 116 — 24 5 — 17 $ 3,386,071 $ 2,687,379 26 % (a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-period amounts have been revised to conform with the current presentation. Cash and due from banks and deposits with banks increased primarily as a result of significant deposit inflows, which also funded asset growth across the Firm, including investment securities and securities purchased under resale agreements. 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 increased as a result of higher deployment of cash in Treasury and CIO, as well as the impact of client activity and higher demand for securities to cover short positions in CIB. Refer to Liquidity Risk Management on pages 102–108 and Note 11 for additional information. Securities borrowed increased driven by client-driven activities in CIB. Refer to Liquidity Risk Management on pages 102–108 and Note 11 for additional information. Trading assets remained elevated at the end of 2020, due to stronger client-driven market-making activities in debt and equity instruments and higher derivative receivables as a result of market movements in CIB Markets. Refer to Notes 2 and 5 for additional information. Investment securities increased, reflecting net purchases of U.S. Treasuries and U.S. GSE and government agency MBS in the available-for-sale (“AFS”) portfolio, driven by interest rate risk management activities and cash deployment. AFS securities of $164 billion were transferred to the held-to- maturity (“HTM”) portfolio, resulting in a decrease in AFS and a comparable increase in HTM securities. The transfers were executed for capital management purposes. Refer to Corporate segment results on pages 83–84, Investment Portfolio Risk Management on page 134 and Notes 2 and 10 for additional information on investment securities. Loans increased, reflecting: • growth in wholesale loans and mortgages in AWM and the impact of PPP loans in CBB and CB, as well as higher wholesale loans related to client-driven activities in CIB Markets largely offset by • lower loans in Home Lending primarily due to net paydowns; and lower loans in Card due to the decline in sales volumes that began in March as a result of the impact of the COVID-19 pandemic. The allowance for loan losses increased primarily reflecting the deterioration and uncertainty in the macroeconomic environment, in particular in the first half of 2020, as a result of the impact of the COVID-19 pandemic, consisting of: • a net $7.4 billion addition in consumer, predominantly in the credit card portfolio, and • a net $3.6 billion addition in wholesale, across the LOBs, impacting multiple industries. The adoption of CECL on January 1, 2020, resulted in a $4.2 billion addition to the allowance for loan losses. There were also additions to the allowance for lending- related commitments, which is included in other liabilities on the consolidated balance sheets, of $1.1 billion related to the impact of the COVID-19 pandemic, and $98 million related to the adoption of CECL. Total additions to the allowance for JPMorgan Chase & Co./2020 Form 10-K 57 Management’s discussion and analysis credit losses were $12.1 billion related to COVID-19, and $4.3 billion related to CECL, as of December 31, 2020. Refer to Credit and Investment Risk Management on pages 110–134, and Notes 1, 2, 3, 12 and 13 for further discussion of loans and the allowance for loan losses. Accrued interest and accounts receivable increased driven by higher client receivables related to client-driven activities in CIB prime brokerage. Refer to Note 16 and 18 for additional information on Premises and equipment. Goodwill, MSRs and other intangibles was flat as the increase in goodwill related to the acquisitions of cxLoyalty and 55ip was offset by lower MSRs as a result of faster prepayment speeds on lower rates, and the realization of expected cash flows, partially offset by net additions to the MSRs. Refer to Note 15 for additional information. Other assets increased reflecting higher cash collateral placed with central counterparties in CIB. 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 2020 2019 Change $ 2,144,257 $ 1,562,431 215,209 45,208 170,181 232,599 17,578 281,685 183,675 40,920 119,277 210,407 17,841 291,498 3,106,717 2,426,049 279,354 261,330 37 17 10 43 11 (1) (3) 28 7 Total liabilities and stockholders’ equity $ 3,386,071 $ 2,687,379 26 % Deposits increased reflecting significant inflows across the LOBs primarily driven by the impact of the COVID-19 pandemic and the related effect of certain government actions; • in the wholesale businesses, while the inflows principally occurred in March as clients sought to remain liquid as a result of market conditions, balances continued to increase through the end of 2020, and • in CCB, the increase was driven by lower spending and higher cash balances across both consumer and small business customers, as well as growth from existing and new accounts. Refer to the Liquidity Risk Management discussion on pages 102–108; and Notes 2 and 17 for more information. Federal funds purchased and securities loaned or sold under repurchase agreements increased reflecting: • higher secured financing of AFS investment securities in Treasury and CIO, as well as trading assets in CIB, partially offset by • a decline in client-driven market-making activities in CIB, including the Firm's non-participation in the Federal Reserve's open market operations. Refer to the Liquidity Risk Management discussion on pages 102–108 and Note 11 for additional information. Short-term borrowings increased reflecting higher financing of CIB prime brokerage activities. Refer to pages 102–108 for information on changes in Liquidity Risk Management. Trading liabilities increased reflecting client-driven market- making activities, which resulted in higher levels of short positions in debt and equity instruments and higher derivative payables as a result of market movements in CIB Markets. Refer to Notes 2 and 5 for additional information. Accounts payable and other liabilities increased reflecting higher client payables related to client-driven activities in CIB Markets. Refer to Note 19 for additional information. Refer to Off-Balance Sheet Arrangements on pages 60-61 and Note 14 and 28 for information on Beneficial interests issued by consolidated VIEs. Long-term debt decreased as a result of maturities of FHLB advances; net maturities of senior debt, which included the early termination of certain of the Firm's debt; partially offset by an issuance of subordinated debt, and higher fair value hedge accounting adjustments related to lower interest rates. Refer to Liquidity Risk Management on pages 102–108 and Note 20 for additional information. Stockholders’ equity increased reflecting the combined impact of net income, capital actions, the adoption of CECL and an increase in accumulated other comprehensive income (“AOCI”). The increase in AOCI was driven by net unrealized gains on AFS securities, and higher valuation of interest rate cash flow hedges. Refer to page 165 for information on changes in stockholders’ equity, and Capital actions on page 99, Note 24 for additional information on AOCI. 58 JPMorgan Chase & Co./2020 Form 10-K Consolidated cash flows analysis The following is a discussion of cash flow activities during the years ended December 31, 2020 and 2019. Refer to Consolidated cash flows analysis on page 54 of the Firm’s 2019 Form 10-K for a discussion of the 2018 activities. (in millions) 2020 2019 2018 Year ended December 31, Net cash provided by/(used in) Operating activities(a) Investing activities(a) Financing activities Effect of exchange rate changes on cash Net increase/(decrease) in cash and due from banks and deposits with banks $ (79,910) $ 4,092 $ 15,614 (261,912) (52,059) (199,420) 596,645 32,987 34,158 9,155 (182) (2,863) $ 263,978 $ (15,162) $ (152,511) (a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-period amounts have been revised to conform with the current presentation. 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 2020, cash used primarily reflected higher trading assets, other assets, and securities borrowed, partially offset by higher trading liabilities and net income excluding noncash adjustments. • In 2019, cash provided primarily reflected net income excluding noncash adjustments, lower trading assets, 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. 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 2020, cash used primarily reflected net purchases of investment securities, higher net originations of loans, and higher securities purchased under resale agreements. • 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. Financing activities The Firm’s financing activities include acquiring customer deposits and issuing long-term debt, as well as preferred stock. • In 2020, cash provided reflected higher deposits and an increase in securities loaned or sold under repurchase agreements, partially offset by net payments of long-term borrowings. • In 2019, cash provided reflected higher deposits, partially offset by a decrease in short-term borrowings and 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. On March 15, 2020, in response to the economic disruptions caused by the COVID-19 pandemic, the Firm temporarily suspended repurchases of its common stock. Subsequently, the Federal Reserve directed all large banks, including the Firm, to discontinue net share repurchases through the end of 2020. * * * Refer to Consolidated Balance Sheets Analysis on pages 57-58, Capital Risk Management on pages 91-101, and Liquidity Risk Management on pages 102–108 for a further discussion of the activities affecting the Firm’s cash flows. JPMorgan Chase & Co./2020 Form 10-K 59 Management’s discussion and analysis 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 as 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 2020 Form 10-K discussions 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 253-260 Refer to Note 28 283-288 60 JPMorgan Chase & Co./2020 Form 10-K Contractual cash obligations The accompanying table summarizes, by remaining maturity, JPMorgan Chase’s significant contractual cash obligations at December 31, 2020. 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 Deposits(a) 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) Total on-balance sheet obligations 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 2021 2022-2023 2024-2025 After 2025 Total 2020 2019 Total $ 2,134,256 $ 4,321 $ 2,931 $ 1,637 $ 2,143,145 $ 1,558,040 214,881 28,514 14,976 22,461 1,606 8,694 2,425,388 95,084 6,071 286 1,968 333 118 — 2,400 42,084 2,705 2,237 53,865 1,764 10,450 — 942 530 9 — — 189 — 223 215,197 183,675 28,514 17,599 35,107 17,874 42,180 123,477 230,202 250,415 2,070 2,008 3,602 2,592 9,983 15,531 10,090 15,568 49,198 131,720 2,660,171 2,070,769 — 8,128 — 225 240 — 29,719 — 198 79 96,848 54,368 286 3,333 1,182 117,951 54,681 539 2,929 1,548 Total off-balance sheet obligations 103,742 13,686 8,593 29,996 156,017 177,648 Total contractual cash obligations $ 2,529,130 $ 67,551 $ 57,791 $ 161,716 $ 2,816,188 $ 2,248,417 (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 $593 million and $846 million at December 31, 2020 and 2019, 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. JPMorgan Chase & Co./2020 Form 10-K 61 Management’s discussion and analysis EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES Non-GAAP financial measures The Firm prepares its Consolidated Financial Statements in accordance with U.S. GAAP; these financial statements appear on pages 162-166. 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 the U.S. GAAP financial statements of other companies. 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 65–84 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) Other income Total noninterest revenue(a) Net interest income Total net revenue Total noninterest expense(a) Pre-provision profit Provision for credit losses Income tax expense Net income Overhead ratio 2020 2019 2018 Fully taxable- equivalent adjustments(b) Managed basis Reported Fully taxable- equivalent adjustments(b) Managed basis Fully taxable- equivalent adjustments(b) Managed basis Reported Reported $ 4,457 $ 2,968 $ 7,425 $ 5,731 $ 2,534 $ 8,265 $ 5,343 $ 1,877 $ 7,220 64,980 54,563 119,543 66,656 52,887 17,480 2,968 67,948 58,154 2,534 60,688 53,724 418 54,981 57,245 531 57,776 55,059 3,386 122,929 115,399 3,065 118,464 108,783 NA 66,656 65,269 NA 65,269 63,148 1,877 55,601 628 55,687 2,505 111,288 NA 63,148 3,386 56,273 50,130 3,065 53,195 45,635 2,505 48,140 NA 17,480 5,585 NA 5,585 4,871 Income before income tax expense 35,407 3,386 38,793 44,545 3,065 47,610 40,764 6,276 $ 29,131 3,386 9,662 8,114 3,065 11,179 8,290 NA $ 29,131 $ 36,431 NA $ 36,431 $ 32,474 NA 4,871 2,505 43,269 2,505 10,795 NA $ 32,474 56 % NM 54 % 57 % NM 55 % 58 % NM 57 % (a) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation. (b) Predominantly recognized in CIB, CB and Corporate. 62 JPMorgan Chase & Co./2020 Form 10-K Net interest income and net yield excluding CIB Markets In addition to reviewing net interest income and the net yield on a managed basis, management also reviews these metrics excluding CIB Markets, as shown below; these metrics, which exclude CIB Markets, 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 Markets are referred to as non-markets-related net interest income and net yield. CIB Markets consists of 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. 2020 2019 2018 $ 54,563 $ 57,245 $ 55,059 418 531 628 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 Pre-provision profit Total net revenue – Total noninterest expense 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 In addition, the Firm reviews other non-GAAP financial measures which include: • Adjusted expense, which is noninterest expense excluding Firmwide legal expense • Allowance for loan losses to period-end loans retained excluding trade finance and conduits $ 54,981 $ 57,776 $ 55,687 • Pre-provision profit, which represents total net revenue less total noninterest expense. 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. 8,374 3,120 3,087 $ 46,607 $ 54,656 $ 52,600 $ 2,779,710 $ 2,345,279 $ 2,212,657 751,131 672,417 593,104 $ 2,028,579 $ 1,672,862 $ 1,619,553 1.98 % 2.46 % 2.52 % 1.11 0.46 0.52 2.30 % 3.27 % 3.25 % 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) Net interest income excluding CIB Markets(a) 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 Net yield on average CIB Markets interest-earning assets(b) Net yield on average interest-earning assets excluding CIB Markets (a) Interest includes the effect of related hedges. Taxable-equivalent amounts are used where applicable. (b) Refer to pages 74-75 for further information on CIB Markets. (c) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans. Prior-period amounts have been revised to conform with the current presentation. JPMorgan Chase & Co./2020 Form 10-K 63 Management’s discussion and analysis Tangible common equity, ROTCE and TBVPS Tangible common equity (“TCE”), ROTCE and TBVPS are each non-GAAP financial measures. TCE represents the Firm’s common stockholders’ equity (i.e., total stockholders’ equity less preferred stock) less goodwill and identifiable intangible assets (other than MSRs), net of related deferred tax liabilities. ROTCE measures the Firm’s net income applicable to common equity as a percentage of average TCE. TBVPS represents the Firm’s TCE at period-end divided by common shares at period-end. TCE, ROTCE and TBVPS are utilized by the Firm, as well as investors and analysts, in assessing the Firm’s use of equity. The following summary table provides a reconciliation from the Firm’s common stockholders’ equity to TCE. (in millions, except per share and ratio data) Common stockholders’ equity Less: Goodwill Less: Other intangible assets Add: Certain deferred tax liabilities(a) Tangible common equity Return on tangible common equity Tangible book value per share Period-end Average Dec 31, 2020 Dec 31, 2019 Year ended December 31, 2020 2019 2018 $ 249,291 $ 234,337 $ 236,865 $ 232,907 $ 229,222 49,248 47,823 47,820 47,620 47,491 904 2,453 819 2,381 781 2,399 789 2,328 807 2,231 $ 201,592 $ 188,076 $ 190,663 $ 186,826 $ 183,155 NA NA $ 66.11 $ 60.98 14 % NA 19 % NA 17 % 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. 64 JPMorgan Chase & Co./2020 Form 10-K 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, on pages 62–64 for a definition of managed basis. Consumer Businesses Wholesale Businesses JPMorgan Chase Consumer & Community Banking Corporate & Investment Bank Commercial Banking Asset & Wealth Management Consumer & Business Banking • Consumer Banking • J.P. Morgan Wealth Management • Business Banking Home Lending Card & Auto Banking • Home Lending Production • Home Lending Servicing • Real Estate Portfolios • Credit Card • Auto • Investment Banking • Wholesale Payments • Lending • Asset Management • Wealth Management • Middle Market Banking • Corporate Client Banking • Commercial Real Estate Banking Markets & Securities Services • Fixed Income Markets • Equity Markets • Securities Services • Credit Adjustments & Other Business segment changes In the fourth quarter of 2020, the Firm transferred certain assets, liabilities, revenue, expense and headcount associated with certain wealth management clients from AWM to the J.P. Morgan Wealth Management business unit within CCB. Prior- period amounts have been revised to conform with the current presentation, including the transfer of approximately 1,650 technology and support staff during the second and third quarters of 2020. Ultra-high-net-worth and certain high-net-worth client relationships remained in AWM. In the first quarter of 2020, the Firm began reporting a Wholesale Payments business unit within CIB following a realignment of the Firm’s wholesale payments businesses. The Wholesale Payments business comprises: • Merchant Services, which was realigned from CCB to CIB • Treasury Services and Trade Finance in CIB. Trade Finance was previously reported in Lending in CIB. In connection with the alignment of Wholesale Payments, the assets, liabilities and headcount associated with the Merchant Services business were realigned to CIB from CCB, and the revenue and expenses of the Merchant Services business are reported across CCB, CIB and CB based primarily on client relationships. In the fourth quarter of 2020, payment processing-only clients along with the associated revenue and expenses were realigned to CIB’s Wholesale Payments business from CCB and CB. Payment processing-only clients are those that only use payment services offered by Merchant Services, and in general do not currently utilize other services offered by the Firm. Prior-period amounts have been revised to reflect this realignment and revised allocation methodology. 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. 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, with allocations to the other segment(s) involved in the transaction. The segment results reflect these revenue-sharing agreements. 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 utilized by any LOB, are not JPMorgan Chase & Co./2020 Form 10-K 65 Management’s discussion and analysis 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; 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. 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. As of January 1, 2021, the Firm has changed its line of business capital allocations primarily as a result of changes in exposures for each LOB and an increase in the relative risk weighting toward Standardized RWA. The assumptions and methodologies used to allocate capital are periodically assessed and as a result, the capital allocated to the LOBs may change from time to time.  Refer to Line of business equity on page 98 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(a) Corporate & Investment Bank Commercial Banking (in millions, except ratios) 2020 2019 2018 2020 2019 2018 2020 2019 2018 Total net revenue $ 51,268 $ 55,133 $ 51,271 $ 49,284 $ 39,265 $ 37,382 $ 9,313 $ 9,264 $ 9,336 Total noninterest expense 27,990 28,276 27,168 23,538 22,444 21,876 Pre-provision profit/(loss) 23,278 26,857 24,103 25,746 16,821 15,506 Provision for credit losses 12,312 4,954 4,754 2,726 277 (60) Net income/(loss) 8,217 16,541 14,707 17,094 11,954 11,799 3,798 5,515 2,113 2,578 Return on equity (“ROE”) 15 % 31 % 28 % 20 % 14 % 16 % 11 % Year ended December 31, Asset & Wealth Management Corporate 3,627 5,709 129 4,264 20 % 3,735 5,529 296 3,958 17 % Total(a) (in millions, except ratios) 2020 2019 2018 2020 2019 2018 2020 2019 2018 Total net revenue $ 14,240 $ 13,591 $ 13,427 $ (1,176) $ 1,211 $ (128) $ 122,929 $ 118,464 $ 111,288 Total noninterest expense Pre-provision profit/(loss) Provision for credit losses 9,957 4,283 263 9,747 3,844 59 9,575 1,373 1,067 902 66,656 65,269 63,148 3,852 (2,549) 144 (1,030) 56,273 53,195 48,140 52 66 (1) (4) 17,480 5,585 4,871 Net income/(loss) 2,992 2,867 2,945 (1,750) 1,111 (1,241) 29,131 36,431 32,474 Return on equity (“ROE”) 28 % 26 % 32 % NM NM NM 12 % 15 % 13 % (a) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation. The following sections provide a comparative discussion of the Firm’s results by segment as of or for the years ended December 31, 2020 and 2019. 66 JPMorgan Chase & Co./2020 Form 10-K 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, J.P. Morgan Wealth Management and Business Banking), Home Lending (including Home Lending Production, Home Lending Servicing and Real Estate Portfolios) and Card & Auto. Consumer & Business Banking offers deposit and investment products, payments 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 & Auto issues credit cards to consumers and small businesses and originates and services auto loans and leases. Selected income statement data Year ended December 31, (in millions, except ratios) Revenue Lending- and deposit-related fees(a) Asset management, administration and commissions(a) Mortgage fees and related income Card income(b) All other income Noninterest revenue Net interest income Total net revenue 2020 2019 2018 $ 3,166 $ 3,938 $ 3,787 2,780 2,808 2,592 3,079 3,068 5,647 17,740 33,528 51,268 2,035 3,412 5,603 17,796 37,337 55,133 1,252 3,108 4,599 15,338 35,933 51,271 Provision for credit losses 12,312 4,954 4,754 Noninterest expense Compensation expense Noncompensation expense(b)(c) Total noninterest expense Income before income tax expense Income tax expense Net income Revenue by line of business Consumer & Business Banking Home Lending Card & Auto(b) Mortgage fees and related income details: Net production revenue Net mortgage servicing revenue(d) Mortgage fees and related income Financial ratios Return on equity Overhead ratio 11,014 16,976 27,990 10,966 2,749 $ 8,217 10,815 17,461 28,276 21,903 5,362 $ 16,541 10,580 16,588 27,168 19,349 4,642 $ 14,707 $ 22,955 6,018 22,295 $ 27,376 5,179 22,578 $ 25,607 5,484 20,180 2,629 1,618 450 417 268 984 $ 3,079 $ 2,035 $ 1,252 15 % 55 31 % 51 28 % 53 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. In the fourth quarter of 2020, payment processing-only clients along with the associated revenue and expenses were realigned to CIB’s Wholesale Payments business from CCB and CB. Prior-period amounts have been revised to conform with the current presentation. In the fourth quarter of 2020, the Firm realigned certain wealth management clients from AWM to CCB. Prior-period amounts have been revised to conform with the current presentation, including an increase to net revenue of $725 million and $649 million for the years ended December 31, 2019 and 2018, respectively. Ultra-high-net-worth and certain high-net-worth client relationships remained in AWM. (a) In the first quarter of 2020, the Firm reclassified certain fees from asset management, administration and commissions to lending- and deposit- related fees. Prior-period amounts have been revised to conform with the current presentation. (b) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation. (c) Included depreciation expense on leased assets of $4.2 billion, $4.0 billion and $3.4 billion for the years ended December 31, 2020, 2019 and 2018, respectively. (d) Included MSR risk management results of $(18) million, $(165) million and $(111) million for the years ended December 31, 2020, 2019 and 2018, respectively. JPMorgan Chase & Co./2020 Form 10-K 67 Management’s discussion and analysis 2020 compared with 2019 Net income was $8.2 billion, a decrease of 50%, largely driven by an increase in the provision for credit losses. Net revenue was $51.3 billion, a decrease of 7%. Net interest income was $33.5 billion, down 10%, driven by: • the impact of deposit margin compression in CBB, spread compression and lower loans in Home Lending, predominantly due to paydowns and prior year loan sales, and lower loans in Card due to the decline in sales volume as a result of the COVID-19 pandemic, partially offset by • growth in deposits in CBB, and loan margin expansion in Card, the prior year included charges for the unwind of the internal funding from Treasury and CIO associated with the sales of certain mortgage loans. Noninterest revenue was $17.7 billion, flat, reflecting: • lower deposit-related fees due to lower transaction activity and the impact of fee refunds related to the COVID-19 pandemic, • lower card income due to lower net interchange income reflecting lower credit card sales volumes and debit card transactions as a result of the impact of the COVID-19 pandemic, largely offset by lower acquisition costs and higher annual fees, and • lower asset management, administration and commissions due to a lower volume of annuity sales offset by a higher level of investment assets, offset by • higher net mortgage production revenue reflecting higher mortgage production volumes and margins; the prior year included gains on the sales of certain mortgage loans. Refer to Note 15 for further information regarding changes in the value of the MSR asset and related hedges, and mortgage fees and related income. Noninterest expense was $28.0 billion, relatively flat, reflecting: • lower marketing expense as a result of lower investments in marketing campaigns and lower travel-related benefits, and • lower structural expenses, offset by • investments in the business, higher volume-related compensation, and higher depreciation on auto lease assets. The provision for credit losses was $12.3 billion, an increase of $7.4 billion from the prior year, driven by: • additions to the allowance for credit losses as a result of the impact of the COVID-19 pandemic, consisting of: $6.6 billion for Card, $649 million for CBB, and $560 million for Auto, partially offset by • lower net charge-offs largely in Card, reflecting lower charge-offs and higher recoveries primarily benefiting from payment assistance and government stimulus. The prior year included a $300 million net reduction in the allowance for credit losses. Refer to Credit and Investment Risk Management on pages 110–134 and Allowance for Credit Losses on pages 132-133 for further discussions of the credit portfolios and the allowance for credit losses. 68 JPMorgan Chase & Co./2020 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: Consumer & Business Banking Home Lending(a)(b) Card Auto Total loans Deposits Equity Selected balance sheet data (average) Total assets Loans: Consumer & Business Banking Home Lending(a)(c) Card Auto Total loans Deposits Equity Headcount 2020 2019 2018 $ 496,705 $ 541,367 $ 560,177 (d) 48,810 182,121 144,216 66,432 441,579 958,706 52,000 29,585 213,445 168,924 61,522 473,476 723,418 52,000 28,450 247,721 156,632 63,573 496,376 684,124 51,000 $ 501,584 $ 543,127 $ 548,637 43,064 197,148 146,633 61,476 448,321 851,390 52,000 28,859 230,662 156,325 61,862 477,708 698,378 52,000 27,890 250,373 145,652 64,675 488,590 675,537 51,000 122,894 125,756 127,826 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. In the fourth quarter of 2020, payment processing-only clients along with the associated revenue and expenses were realigned to CIB’s Wholesale Payments business from CCB and CB. Prior-period amounts have been revised to conform with the current presentation, including a decrease to period-end assets of $6.6 billion and $6.2 billion and headcount of 4,022 and 4,092, as of December 31, 2019 and 2018, respectively. In the fourth quarter of 2020, the Firm realigned certain wealth management clients from AWM to CCB. Prior-period amounts have been revised to conform with the current presentation, including an increase to headcount of 2,641 and 2,400 as of December 31, 2019 and 2018, respectively. (a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans. Prior-period amounts have been revised to conform with the current presentation. (b) At December 31, 2020, 2019 and 2018, Home Lending loans held- for-sale and loans at fair value were $9.7 billion, $16.6 billion and $7.9 billion, respectively. (c) Average Home Lending loans held-for sale and loans at fair value were $11.1 billion, $14.1 billion and $9.0 billion, respectively, for the years ended December 31, 2020, 2019 and 2018. (d) At December 31, 2020 included $19.2 billion of loans in Business Banking under the PPP. Refer to Credit Portfolio on pages 112-113 for a further discussion of the PPP. Selected metrics As of or for the year ended December 31, (in millions, except ratio data) Credit data and quality statistics Nonaccrual loans(a)(b)(c) Net charge-offs/(recoveries) Consumer & Business Banking Home Lending Card Auto Total net charge-offs/ (recoveries) Net charge-off/(recovery) rate Consumer & Business Banking Home Lending Card Auto Total net charge-off/ (recovery) rate 30+ day delinquency rate Home Lending(d)(e) Card Auto 90+ day delinquency rate - Card Allowance for loan losses Consumer & Business Banking Home Lending Card Auto Total allowance for loan losses 2020 2019 2018 $ 5,675 (f) $ 3,027 $ 3,349 263 (169) 4,286 123 298 (98) 4,848 206 246 (294) 4,518 243 $ 4,503 $ 5,254 $ 4,713 0.61 % (g) (0.09) 2.93 0.20 1.03 % 0.88 % (0.05) 3.10 0.33 (0.12) 3.10 0.38 1.03 % 1.13 % 0.98 % 1.15 % (h) (h) 1.68 0.69 (h) 0.92 % (h) 1.58 % 1.63 % 1.87 0.94 1.83 0.93 0.95 % 0.92 % $ 1,372 1,813 17,800 1,042 $ 750 1,890 5,683 465 $ 796 2,791 5,184 464 $ 22,027 $ 8,788 $ 9,235 Effective January 1, 2020, the Firm adopted the CECL accounting guidance. The adoption resulted in a change in the accounting for PCI loans, which are considered purchased credit deteriorated (“PCD”) loans under CECL. Refer to Note 1 for further information. In the fourth quarter of 2020, the Firm realigned certain wealth management clients from AWM to CCB. Prior-period amounts have been revised to conform with the current presentation. (a) At December 31, 2020, nonaccrual loans included $1.6 billion of PCD loans. Prior to the adoption of CECL, nonaccrual loans excluded PCI loans as the Firm recognized interest income on each pool of PCI loans as each of the pools was performing. (b) At December 31, 2020, 2019 and 2018, nonaccrual loans excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $558 million, $963 million and $2.6 billion, respectively. These amounts have been excluded based upon the government guarantee. Prior-period amounts of mortgage loans 90 or more days past due and insured by U.S. government agencies excluded from nonaccrual loans have been revised to conform with the current presentation; refer to footnote (c) for additional information. (c) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans. Prior-period amounts have been revised to conform with the current presentation. (d) At December 31, 2020, the 30+ day delinquency rates included PCD loans. The rates prior to January 1, 2020 were revised to include the impact of PCI loans. (e) At December 31, 2020, 2019 and 2018, excluded mortgage loans insured by U.S. government agencies of $744 million, $1.7 billion and $4.1 billion, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee. Prior-period amounts of mortgage loans 30 or more days past due and insured by U.S. government agencies excluded from 30+ day delinquency rate have been revised to conform with the current presentation; refer to footnote (c) for additional information. JPMorgan Chase & Co./2020 Form 10-K 69 Management’s discussion and analysis (f) Generally excludes loans under payment deferral programs offered in response to the COVID-19 pandemic. Refer to Consumer Credit Portfolio on pages 114-116 for further information on consumer payment assistance activity. Includes loans to customers that have exited COVID-19 payment deferral programs and are 90 or more days past due, predominantly all of which were also at least 150 days past due and therefore considered collateral-dependent. Collateral- dependent loans are charged down to the lower of amortized cost or fair value of the underlying collateral less costs to sell. (g) At December 31, 2020, included $19.2 billion of loans in Business Banking under the PPP. Given that PPP loans are guaranteed by the SBA, the Firm does not expect to realize material credit losses on these loans. Refer to Credit Portfolio on pages 112-113 for a further discussion of the PPP. (h) At December 31, 2020, the principal balance of loans in Home Lending, Card and Auto under payment deferral programs offered in response to the COVID-19 pandemic were $9.1 billion, $264 million and $376 million, respectively. Loans that are performing according to their modified terms are generally not considered delinquent. Refer to Consumer Credit Portfolio on pages 114-116 for further information on consumer payment assistance activity. 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 2020 2019 2018 63.4 4,908 62.6 4,976 61.7 5,036 55,274 52,453 49,254 40,899 37,315 33,260 sales volume $ 1,081.2 $ 1,114.4 $ 1,016.9 Consumer & Business Banking Average deposits Deposit margin Business banking origination volume $ Client investment assets Number of client advisors Home Lending Mortgage origination volume $ 832.5 $ 683.7 $ 661.7 1.58 % 2.48 % 2.38 % 26.6 590.2 4,417 (f) $ 6.6 501.4 4,196 $ 6.7 399.7 3,929 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) MSR revenue multiple(d) Credit Card Credit card sales volume, $ 72.9 40.9 $ 51.0 54.2 $ 38.3 41.1 $ 113.8 $ 105.2 $ 79.4 $ 626.3 $ 761.4 $ 789.8 447.3 520.8 519.6 3.3 4.7 6.1 0.74 % 2.55x 0.90 % 2.65x 1.17 % 3.34x excluding commercial card $ 702.7 $ 762.8 $ 692.4 New accounts opened (in millions) Net revenue rate(e) Auto Loan and lease 5.4 10.92 % 7.8 $ 10.48 % 7.8 10.17 % origination volume $ 38.4 $ 34.0 $ 31.8 Average auto operating lease assets 22.0 21.6 18.8 In the fourth quarter of 2020, the Firm realigned certain wealth management clients from AWM to CCB. Prior-period amounts have been revised to conform with the current presentation, including an increase to client investment assets of $143.3 billion and $117.3 billion as of December 31, 2019 and 2018, respectively. (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 $133.4 billion, $115.9 billion and $86.9 billion for the years ended December 31, 2020, 2019 and 2018, 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). (e) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation. Included $21.9 billion of origination volume under the PPP for the year ended December 31, 2020. Refer to Credit Portfolio on pages 112-113 for a further discussion of the PPP. (f) 70 JPMorgan Chase & Co./2020 Form 10-K (b) 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 $2.8 billion, $2.3 billion and $1.7 billion for the years ended December 31, 2020, 2019 and 2018, respectively. Selected income statement data Year ended December 31, (in millions, except ratios) 2020 2019 2018 Financial ratios Return on equity Overhead ratio Compensation expense as percentage of total net revenue Revenue by business Investment Banking Wholesale Payments Lending Total Banking 20 % 48 14 % 57 16 % 59 24 28 29 $ 8,871 $ 7,215 $ 6,987 5,560 5,842 5,930 1,146 1,021 999 15,577 14,078 13,916 Fixed Income Markets 20,878 14,418 12,706 Equity Markets Securities Services Credit Adjustments & Other(a) Total Markets & Securities Services 8,605 6,494 6,888 4,253 4,154 4,245 (29) 121 (373) 33,707 25,187 23,466 Total net revenue $ 49,284 $ 39,265 $ 37,382 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. In the fourth quarter of 2020, payment processing-only clients along with the associated revenue and expenses were realigned to CIB’s Wholesale Payments business from CCB and CB. Prior-period amounts have been revised to conform with the current presentation. (a) Includes credit valuation adjustments (“CVA”) managed centrally within CIB and funding valuation adjustments (“FVA”) on derivatives and certain components of fair value option elected liabilities, 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. 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, merchants, 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 Wholesale Payments, which provides payments services enabling clients to manage payments and receipts globally, and cross-border financing. Markets & Securities Services includes Markets, a global market-maker across products, including cash and derivative instruments, which 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 2020 2019 2018 Investment banking fees $ 9,477 $ 7,575 $ 7,473 Principal transactions Lending- and deposit-related fees(a) Asset management, administration and commissions(a) All other income Noninterest revenue Net interest income Total net revenue(b) 17,560 14,399 12,262 2,070 1,668 1,633 4,721 1,292 4,400 2,018 4,361 2,125 35,120 30,060 27,854 14,164 9,205 9,528 49,284 39,265 37,382 Provision for credit losses 2,726 277 (60) Noninterest expense Compensation expense 11,612 11,180 10,776 Noncompensation expense 11,926 11,264 11,100 Total noninterest expense 23,538 22,444 21,876 Income before income tax expense Income tax expense Net income 23,020 16,544 15,566 5,926 4,590 3,767 $ 17,094 $ 11,954 $ 11,799 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. In the fourth quarter of 2020, payment processing-only clients along with the associated revenue and expenses were realigned to CIB’s Wholesale Payments business from CCB and CB. Prior-period amounts have been revised to conform with the current presentation. (a) In the first quarter of 2020, the Firm reclassified certain fees from asset management, administration and commissions to lending- and deposit-related fees. Prior-period amounts have been revised to conform with the current presentation. JPMorgan Chase & Co./2020 Form 10-K 71 Markets & Securities Services revenue was $33.7 billion, up 34%. Markets revenue was $29.5 billion, up 41%. • Fixed Income Markets revenue was $20.9 billion, up 45%, driven by strong client activity across products primarily in Rates, Credit, Currencies & Emerging Markets, and Securitized Products. • Equity Markets revenue was $8.6 billion, up 33%, driven by strong client activity across products. • Securities Services revenue was $4.3 billion, up 2%, driven by deposit balance and fee growth largely offset by deposit margin compression. The provision for credit losses was $2.7 billion, compared with $277 million in the prior year. The increase was driven by net additions to the allowance for credit losses as a result of the impact of the COVID-19 pandemic across multiple industries. Noninterest expense was $23.5 billion, up 5%, driven by higher volume- and revenue-related expense and legal expense. Management’s discussion and analysis 2020 compared with 2019 Net income was $17.1 billion, up 43%. Net revenue was $49.3 billion, up 26%. Banking revenue was $15.6 billion, up 11%. • Investment Banking revenue was $8.9 billion, up 23%, driven by higher Investment Banking fees, up 25%, reflecting higher equity and debt underwriting fees. The Firm maintained its #1 ranking for Global Investment Banking fees with overall share gains, according to Dealogic. – Equity underwriting fees were $2.8 billion, up 66%, predominantly in follow-on offerings and convertible securities markets due to increased industry-wide fees. – Debt underwriting fees were $4.4 billion, up 23%, driven by increased industry-wide fees and wallet share gains in investment grade and high yield bonds. The increased activity resulted in part from clients seeking liquidity in the first half of the year as a result of the COVID-19 pandemic. – Advisory fees of $2.4 billion were flat, reflecting an increase in wallet share, despite a decrease in industry- wide fees. • Wholesale Payments revenue was $5.6 billion, down 5%, driven by deposit margin compression and a reporting reclassification for certain expenses which are now reported as a reduction of revenue in Merchant Services, largely offset by higher deposit balances. • Lending revenue was $1.1 billion, up 12%, predominantly driven by higher net interest income reflecting higher yields on new loans and higher loan balances, as well as higher loan commitment fees, largely offset by fair value losses on hedges of accrual loans. 72 JPMorgan Chase & Co./2020 Form 10-K Selected metrics As of or for the year ended December 31, (in millions, except headcount) Selected balance sheet data (period-end) Assets Loans: Loans retained(a) Loans held-for-sale and loans at fair value(b)(c) Total loans Equity Selected balance sheet data (average) Assets Trading assets-debt and equity instruments(c) Trading assets-derivative receivables Loans: Loans retained(a) Loans held-for-sale and loans at fair value(b)(c) Total loans Equity Headcount 2020 2019 2018 $ 1,097,219 $ 914,705 $ 909,292 133,296 121,733 129,389 39,588 34,317 36,407 172,884 156,050 165,796 80,000 80,000 70,000 $ 1,122,939 $ 993,508 $ 930,126 422,237 376,182 321,280 72,065 48,196 60,552 135,676 122,371 114,417 33,792 32,884 30,317 169,468 155,255 144,734 80,000 80,000 70,000 61,733 60,013 58,572 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. In the fourth quarter of 2020, payment processing-only clients along with the associated revenue and expenses were realigned to CIB’s Wholesale Payments business from CCB and CB. Prior-period amounts have been revised to conform with the current presentation, including an increase to period-end assets of $6.6 billion and $6.2 billion and headcount of 4,022 and 4,092, as of December 31, 2019 and 2018, respectively. (a) Loans retained includes credit portfolio loans, loans held by consolidated Firm-administered multi-seller conduits, trade finance loans, mortgage-related secured lending, other held-for-investment loans and overdrafts (b) Loans held-for-sale and loans at fair value primarily reflect lending- related positions originated and purchased in CIB Markets, including loans held for securitization. (c) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-period amounts have been revised to conform with the current presentation. 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(b)(c) 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(d) Allowance for loan losses to period-end loans retained Allowance for loan losses to period-end loans retained, excluding trade finance and conduits(e) Allowance for loan losses to nonaccrual loans retained(a) Nonaccrual loans to total period-end loans(b) 2020 2019 2018 $ 370 $ 183 $ 93 1,008 308 443 1,662 2,670 56 85 644 952 30 70 921 1,364 60 57 2,811 1,052 1,481 2,366 1,202 1,199 1,534 848 754 3,900 2,050 1,953 0.27 % 0.15 % 0.08 % 1.77 0.99 0.93 2.54 1.31 1.24 235 1.54 390 0.61 271 0.82 (a) Allowance for loan losses of $278 million, $110 million and $174 million were held against these nonaccrual loans at December 31, 2020, 2019 and 2018, respectively. (b) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans. Prior-period amounts have been revised to conform with the current presentation. (c) At December 31, 2020, 2019 and 2018, nonaccrual loans excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $316 million, $127 million and $155 million, respectively. These amounts have been excluded based upon the government guarantee. (d) Loans held-for-sale and loans at fair value were excluded when calculating the net charge-off/(recovery) rate. (e) 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. JPMorgan Chase & Co./2020 Form 10-K 73 Management’s discussion and analysis Investment banking fees (in millions) Advisory Equity underwriting Debt underwriting(a) Total investment banking fees (a) Represents long-term debt and loan syndications. 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) Year ended December 31, 2020 2019 2018 2,368 $ 2,377 $ 2,758 4,351 1,666 3,532 9,477 $ 7,575 $ 2,509 1,684 3,280 7,473 2020 2019 2018 Rank Share Rank Share Rank Share 2 2 2 2 1 1 1 1 1 9.3 % # 9.7 8.6 11.1 8.9 12.8 11.1 11.5 9.2 % # 2 2 1 2 1 1 1 1 1 8.9 % # 9.2 9.3 13.2 7.8 12.0 10.1 12.5 8.9 % # 2 2 1 1 1 1 1 1 1 8.6 % 8.8 9.0 12.3 7.2 11.4 10.1 12.3 8.6 % $ $ # # (a) Source: Dealogic as of January 4, 2021. 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 securities. 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.  Markets revenue The following table summarizes select income statement data for the Markets businesses. Markets consists of 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 74 JPMorgan Chase & Co./2020 Form 10-K For the periods presented below, the predominant source of principal transactions revenue was the amount recognized upon executing new transactions. Year ended December 31, (in millions, except where otherwise noted) Principal transactions Lending- and deposit-related fees Asset management, administration and commissions All other income Noninterest revenue Net interest income Total net revenue Loss days(a) 2020 2019 2018 Fixed Income Markets Equity Markets Total Markets Fixed Income Markets Equity Markets Total Markets Fixed Income Markets Equity Markets Total Markets $ 11,857 $ 6,087 $ 17,944 $ 226 10 236 8,786 $ 198 5,739 $ 14,525 $ 7 205 7,560 $ 197 5,566 $ 13,126 203 6 411 493 12,987 7,891 $ 20,878 $ 2,087 (62) 8,122 483 2,498 431 21,109 8,374 407 872 10,263 4,155 8,605 $ 29,483 $ 14,418 $ 1,775 8 7,529 (1,035) 6,494 $ 20,912 $ 12,706 $ 2,182 880 17,792 3,120 410 952 9,119 3,587 4 1 2,204 1,794 974 22 16,507 7,388 (500) 3,087 6,888 $ 19,594 5 (a) Loss days represent the number of days for which CIB Markets, which consists of Fixed Income Markets and Equity Markets, posted losses to total net revenue. The loss days determined under this measure differ from the measure used to determine backtesting gains and losses. Daily backtesting gains and losses include positions in the Firm’s Risk Management value-at-risk (“VaR”) measure and exclude select components of total net revenue, which may more than offset backtesting gains or losses on a particular day. For more information on daily backtesting gains and losses, refer to the VaR discussion on pages 137–139. 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 Merchant processing volume (in billions)(b) Client deposits and other third party liabilities (average)(c) 2020 2019 2018 $ $ $ $ 15,840 $ 13,498 $ 11,489 3,651 30,980 $ 1,597.3 $ 610,555 $ 10,100 3,233 26,831 $ 1,511.5 $ 464,795 $ 12,440 8,078 2,699 23,217 1,366.1 434,422 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. Prior-period amounts have been revised to conform with the current presentation. (a) Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts. (b) Represents total merchant processing volume across CIB, CCB and CB. (c) Client deposits and other third-party liabilities pertain to the Wholesale Payments and Securities Services businesses. JPMorgan Chase & Co./2020 Form 10-K 75 Management’s discussion and analysis 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 2020 2019(c) 2018(c) $ 13,872 $ 11,905 $ 7,524 1,931 23,327 25,957 5,319 1,543 18,767 20,498 49,284 $ 39,265 $ 27,659 $ 26,067 $ 12,802 5,425 45,886 87,410 14,759 6,173 46,999 74,734 12,422 5,077 1,473 18,972 18,410 37,382 23,648 17,101 6,515 47,264 82,125 133,296 $ 121,733 $ 129,389 211,592 $ 174,477 $ 124,145 37,664 90,364 29,024 373,401 $ 293,865 $ 237,154 170,930 610,555 $ 464,795 $ 20,028 $ 10,952 30,980 $ 16,855 $ 9,976 26,831 $ 162,846 82,867 26,668 272,381 162,041 434,422 14,359 8,858 23,217 $ $ $ $ $ $ $ $ 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. In the fourth quarter of 2020, payment processing-only clients along with the associated revenue and expenses were realigned to CIB’s Wholesale Payments business from CCB and CB. Prior-period amounts have been revised to conform with the current presentation. (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 Wholesale Payments and Securities Services businesses, and AUC, are based on the domicile of the client. (c) Prior-period amounts have been revised to conform with the current presentation. 76 JPMorgan Chase & Co./2020 Form 10-K 2020 compared with 2019 Net income was $2.6 billion, a decrease of 35%, driven by an increase in the provision for credit losses. Net revenue was $9.3 billion, flat compared to the prior year. Net interest income was $6.2 billion, a decrease of 5%, driven by deposit margin compression, predominantly offset by higher deposit balances and lending revenue. Noninterest revenue was $3.1 billion, an increase of 13%, driven by higher deposit-related fees, particularly cash management fees, higher investment banking revenue, and a gain on a strategic investment. The increase was partially offset by a $56 million markdown of a held-for-sale position and lower card income, primarily due to lower volumes as a result of the COVID-19 pandemic. Noninterest expense was $3.8 billion, an increase of 2%, driven by higher compensation expense. The provision for credit losses was $2.1 billion, compared to $296 million in the prior year. The increase was driven by net additions to the allowance for credit losses as a result of the impact of the COVID-19 pandemic across multiple industries. COMMERCIAL BANKING Commercial Banking provides comprehensive financial solutions, including lending, wholesale payments, 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 and midsized companies, 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) 2020 2019 2018 Revenue Lending- and deposit-related fees(a) All other income(a) Noninterest revenue Net interest income Total net revenue(b) $ 1,187 $ 941 $ 896 1,880 1,769 1,724 3,067 2,710 2,620 6,246 6,554 6,716 9,313 9,264 9,336 Provision for credit losses 2,113 296 129 Noninterest expense Compensation expense 1,854 1,785 1,694 Noncompensation expense 1,944 1,950 1,933 Total noninterest expense 3,798 3,735 3,627 Income before income tax expense 3,402 5,233 5,580 Income tax expense Net income 824 1,275 1,316 $ 2,578 $ 3,958 $ 4,264 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. In conjunction with this realignment, treasury services product revenue has been renamed wholesale payments. In the fourth quarter of 2020, payment processing-only clients along with the associated revenue and expenses were realigned to CIB’s Wholesale Payments business from CCB and CB. Prior-period revenue and expense amounts have been revised to conform with the current presentation. (a) In the first quarter of 2020, the Firm reclassified certain fees from asset management, administration and commissions (which are included in all other income) to lending and deposit-related fees. 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 $351 million, $460 million and $444 million for the years ended December 31, 2020, 2019 and 2018, respectively. JPMorgan Chase & Co./2020 Form 10-K 77 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. Wholesale payments 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 metrics As of or for the year ended December 31, (in millions, except headcount) Selected balance sheet data (period-end) Total assets Loans: 2020 2019 2018 $ 228,932 $ 220,514 $ 220,229 Loans retained 207,880 207,287 204,219 Loans held-for-sale and loans at fair value 2,245 1,009 1,978 Total loans $ 210,125 $ 208,296 $ 206,197 Equity 22,000 22,000 20,000 Period-end loans by client segment Middle Market Banking $ 61,115 Corporate Client Banking 47,420 (a) $ 54,188 $ 56,656 48,343 51,165 Commercial Real Estate Banking Other 101,146 101,951 100,088 444 992 1,110 Selected income statement data (continued) Year ended December 31, (in millions, except ratios) 2020 2019 2018 Total Commercial Banking loans $ 210,125 (a) $ 208,296 $ 206,197 Revenue by product Lending Wholesale payments Investment banking(a) Other $ 4,396 $ 4,057 $ 4,049 3,715 1,069 133 4,200 919 88 4,351 852 84 Total Commercial Banking net revenue $ 9,313 $ 9,264 $ 9,336 Selected balance sheet data (average) Total assets Loans: $ 233,158 $ 218,896 $ 218,259 Loans retained 217,767 206,837 204,243 Loans held-for-sale and loans at fair value 1,129 1,082 1,258 Investment banking revenue, gross(b) $ 3,348 $ 2,744 $ 2,491 Total loans $ 218,896 $ 207,919 $ 205,501 $ 3,640 $ 3,805 $ 3,797 Equity Client deposits and other third-party liabilities 237,825 172,734 170,901 22,000 22,000 20,000 Revenue by client segment Middle Market Banking Corporate Client Banking Commercial Real Estate Banking Other Total Commercial Banking net revenue Financial ratios Return on equity Overhead ratio 3,203 2,313 157 3,119 2,169 171 3,119 2,251 169 $ 9,313 $ 9,264 $ 9,336 11 % 41 17 % 40 20 % 39 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. In conjunction with this realignment, treasury services product revenue has been renamed wholesale payments. In the fourth quarter of 2020, payment processing-only clients along with the associated revenue and expenses were realigned to CIB’s Wholesale Payments business from CCB and CB. Prior-period revenue and expense amounts have been revised to conform with the current presentation. (a) Includes CB’s share of revenue from investment banking products sold to CB clients through the CIB. (b) Refer to Business Segment Results page 65 for a discussion of revenue sharing. Average loans by client segment Middle Market Banking $ 61,558 $ 55,690 $ 57,092 Corporate Client Banking 54,172 50,360 47,780 Commercial Real Estate Banking Other Total Commercial Banking loans Headcount 102,479 100,884 99,243 687 985 1,386 $ 218,896 $ 207,919 $ 205,501 11,675 11,629 11,042 (a) At December 31, 2020, total loans included $6.6 billion of loans under the PPP, of which $6.4 billion were in Middle Market Banking. Refer to Credit Portfolio on pages 112-113 for a further discussion of the PPP. 78 JPMorgan Chase & Co./2020 Form 10-K Selected metrics As of or for the year ended December 31, (in millions, except ratios) Credit data and quality statistics 2020 2019 2018 Net charge-offs/(recoveries) $ 401 $ 160 $ 53 Nonperforming assets Nonaccrual loans: Nonaccrual loans retained(a) 1,286 Nonaccrual loans held-for-sale and loans at fair value Total nonaccrual loans Assets acquired in loan satisfactions 120 1,406 24 Total nonperforming assets 1,430 Allowance for credit losses: 498 — 498 25 523 511 — 511 2 513 Allowance for loan losses 3,335 2,780 2,682 Allowance for lending-related commitments 651 293 254 Total allowance for credit losses 3,986 3,073 2,936 Net charge-off/(recovery) rate(b) 0.18 % 0.08 % 0.03 % Allowance for loan losses to period-end loans retained Allowance for loan losses to nonaccrual loans retained(a) Nonaccrual loans to period-end total loans 1.60 1.34 1.31 259 558 525 0.67 0.24 0.25 (a) Allowance for loan losses of $273 million, $114 million and $92 million was held against nonaccrual loans retained at December 31, 2020, 2019 and 2018, respectively. (b) Loans held-for-sale and loans at fair value were excluded when calculating the net charge-off/(recovery) rate. JPMorgan Chase & Co./2020 Form 10-K 79 2020 compared with 2019 Net income was $3.0 billion, an increase of 4%. Net revenue was $14.2 billion, an increase of 5%. Net interest income was $3.4 billion, up 2%, driven by higher deposit and loan balances as well as loan margin expansion, offset by deposit margin compression. Noninterest revenue was $10.8 billion, up 6%, predominantly driven by higher asset management fees as a result of net inflows into liquidity and long term products, higher performance fees and increased brokerage commissions on higher client- driven volume, partially offset by lower net investment valuation gains. Revenue from Asset Management was $7.7 billion, up 6%, predominantly driven by higher asset management fees as a result of net inflows into liquidity products as well as higher performance fees, partially offset by lower net investment valuation gains. Revenue from Wealth Management was $6.6 billion, up 4%, predominantly driven by higher deposit and loan balances, increased brokerage commissions and asset management fees, largely offset by deposit margin compression. The provision for credit losses was $263 million, driven by additions to the allowance for credit losses, predominantly as a result of the impact of the COVID-19 pandemic. Noninterest expense was $10.0 billion, an increase of 2%, driven by legal expense, volume- and revenue-related expense as well as investments in the business, partially offset by lower structural expense. Management’s discussion and analysis ASSET & WEALTH MANAGEMENT Asset & Wealth Management, with client assets of $3.7 trillion, is a global leader in investment and wealth management. Asset Management Offers multi-asset investment management solutions across equities, fixed income, alternatives and money market funds to institutional and retail investors providing for a broad range of clients’ investment needs. Wealth Management Provides retirement products and services, brokerage, custody, trusts and estates, loans, mortgages, deposits and investment management to high net worth clients. 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) 2020 Revenue Asset management, administration 2019 2018 and commissions All other income Noninterest revenue Net interest income Total net revenue $ 10,610 $ 9,818 $ 9,808 212 418 244 10,822 10,236 10,052 3,418 3,355 3,375 14,240 13,591 13,427 Provision for credit losses 263 59 52 Noninterest expense Compensation expense 4,959 5,028 4,888 Noncompensation expense 4,998 4,719 4,687 Total noninterest expense 9,957 9,747 9,575 Income before income tax expense 4,020 3,785 3,800 Income tax expense Net income 1,028 918 855 $ 2,992 $ 2,867 $ 2,945 Revenue by line of business Asset Management Wealth Management Total net revenue Financial ratios $ 7,654 $ 7,254 $ 7,163 6,586 6,337 6,264 $ 14,240 $ 13,591 $ 13,427 Return on common equity 28 % 26 % Overhead ratio Pre-tax margin ratio: Asset Management Wealth Management Asset & Wealth Management 70 29 27 28 72 26 30 28 32 % 71 26 30 28 In the fourth quarter of 2020, the Firm realigned certain wealth management clients from AWM to CCB. Prior-period amounts have been revised to conform with the current presentation, including a decrease to net revenue of $725 million and $649 million for the years ended December 31, 2019 and 2018, respectively. Effective in the first quarter of 2021, the Wealth Management business was renamed Global Private Bank. 80 JPMorgan Chase & Co./2020 Form 10-K AWM’s client segments consist of the following: Private Banking clients include high- and ultra-high-net-worth individuals, families, money managers and business owners. 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 Deposits Equity Selected balance sheet data (average)(c) Total assets Loans Deposits Equity 2020 2019 2018 55 % 61 % 58 % 55 69 68 59 77 75 68 73 85 $ 203,384 $ 173,175 $ 161,047 186,608 158,149 145,794 198,755 142,740 133,276 10,500 10,500 9,000 $ 181,432 $ 161,863 $ 151,632 166,311 147,404 136,929 161,955 135,265 132,123 10,500 10,500 9,000 Headcount 20,683 21,550 21,520 2,462 2,419 2,385 Number of Wealth Management client advisors Credit data and quality statistics(c) Net charge-offs/(recoveries) $ (14) $ 29 $ Nonaccrual loans 785 115 Allowance for credit losses: Allowance for loan losses Allowance for lending- related commitments Total allowance for credit losses 598 38 636 350 19 369 — 263 326 16 342 Net charge-off/(recovery) rate (0.01) % 0.02 % — % Allowance for loan losses to period-end loans Allowance for loan losses to nonaccrual loans Nonaccrual loans to period- end loans 0.32 0.22 76 304 0.42 0.07 0.22 124 0.18 In the fourth quarter of 2020, the Firm realigned certain wealth management clients from AWM to CCB. Prior-period amounts have been revised to conform with the current presentation, including a decrease to headcount of 2,641 and 2,400 as of December 31, 2019 and 2018, respectively. (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 and Nomura 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./2020 Form 10-K 81 Management’s discussion and analysis Client assets 2020 compared with 2019 Client assets were $3.7 trillion, an increase of 18%. Assets under management were $2.7 trillion, an increase of 17% 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 Alternatives 2020 2019 2018 $ 641 $ 539 $ 671 595 656 153 591 463 596 139 477 455 376 515 135 Total assets under management 2,716 2,328 1,958 Custody/brokerage/ administration/deposits 936 761 661 Total client assets $ 3,652 $ 3,089 $ 2,619 Assets by client segment Private Banking Institutional Retail $ 689 $ 628 $ 1,273 1,081 754 619 518 930 510 Total assets under management $ 2,716 $ 2,328 $ 1,958 Private Banking Institutional Retail $ 1,581 $ 1,359 $ 1,155 1,311 1,106 760 624 950 514 Total client assets $ 3,652 $ 3,089 $ 2,619 International metrics Year ended December 31, (in billions, except where otherwise noted) Total net revenue (in millions)(a) Europe/Middle East/Africa(b) Asia-Pacific(b) Latin America/Caribbean(b) Total international net revenue 2020 2019 2018 $ 2,956 $ 2,869 $ 2,850 1,665 1,509 1,538 782 724 755 5,403 5,102 5,143 North America Total net revenue 8,837 8,489 8,284 $ 14,240 $ 13,591 $ 13,427 Assets under management Europe/Middle East/Africa(b) Asia-Pacific(b) Latin America/Caribbean(b) $ 517 $ 428 $ 224 70 192 62 366 163 51 Total international assets under management 811 682 580 North America 1,905 1,646 1,378 Total assets under management $ 2,716 $ 2,328 $ 1,958 Client assets Europe/Middle East/Africa(b) Asia-Pacific(b) Latin America/Caribbean(b) Total international client assets $ 622 $ 520 $ 330 166 1,118 272 147 939 440 226 125 791 North America Total client assets 2,534 2,150 1,828 $ 3,652 $ 3,089 $ 2,619 In the fourth quarter of 2020, the Firm realigned certain wealth management clients from AWM to CCB. Prior-period amounts have been revised to conform with the current presentation, including a decrease to net revenue of $725 million and $649 million for the years ended December 31, 2019 and 2018, respectively, and client assets of $137 billion and $114 billion as of December 31, 2019 and 2018, respectively. (a) Regional revenue is based on the domicile of the client. (b) The prior period amounts have been revised to conform with the Client assets (continued) Year ended December 31, (in billions) Assets under management rollforward Beginning balance Net asset flows: Liquidity Fixed income Equity Multi-asset Alternatives Market/performance/other impacts 2020 2019 2018 $ 2,328 $ 1,958 $ 2,010 current period presentation. 104 48 33 5 6 61 104 (11) 2 2 30 (4) — 17 5 192 212 (100) Ending balance, December 31 $ 2,716 $ 2,328 $ 1,958 Client assets rollforward Beginning balance Net asset flows Market/performance/other impacts $ 3,089 $ 2,619 $ 2,685 276 287 176 74 294 (140) Ending balance, December 31 $ 3,652 $ 3,089 $ 2,619 In the fourth quarter of 2020, the Firm realigned certain wealth management clients from AWM to CCB. Prior-period amounts have been revised to conform with the current presentation, including a decrease to client assets of $137 billion and $114 billion as of December 31, 2019 and 2018, respectively. 82 JPMorgan Chase & Co./2020 Form 10-K 2020 compared with 2019 Net income was a loss of $1.8 billion compared with income of $1.1 billion in the prior year. Net revenue was a loss of $1.2 billion, compared with revenue of $1.2 billion in the prior year, driven by lower net interest income partially offset by higher noninterest revenue. The decrease in net interest income was predominantly driven by lower rates, including the impact of faster prepayments on mortgage-backed securities, as well as limited opportunities to deploy funds in response to significant deposit growth across the LOBs. Noninterest revenue increased reflecting higher net valuations on certain legacy equity investments and higher net investment securities gains due to the repositioning of the investment securities portfolio. Noninterest expense of $1.4 billion was up $305 million driven by an impairment on a legacy investment. The provision for credit losses relates to the HTM portfolio, which became subject to the CECL accounting guidance beginning on January 1, 2020. Refer to Note 10 and Note 13 for additional information on the investment securities portfolio and the allowance for credit losses. The current period income tax benefit was predominantly driven by a lower level of pre-tax income and changes in the level and mix of income and expenses subject to U.S. federal, and state and local taxes. The prior period included $1.1 billion of tax benefits related to the resolution of certain tax audits. 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) Revenue Principal transactions (461) $ 245 $ 2019 2020 $ 2018 Investment securities gains/ (losses) All other income Noninterest revenue Net interest income Total net revenue(a) Provision for credit losses 795 159 1,199 (2,375) (1,176) 66 258 89 (114) 1,325 1,211 (1) Noninterest expense 1,373 1,067 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) Headcount (2,615) (865) 145 (966) $ (1,750) $ 1,111 $ (1,368) 192 2,032 (821) $ (1,176) $ 1,211 $ (1,403) (347) 1,394 (283) $ (1,750) $ 1,111 $ $ 1,359,831 $ 837,618 $ 771,787 1,597 37,145 1,649 38,033 1,657 38,366 (426) (395) 558 (263) 135 (128) (4) 902 (1,026) 215 (1,241) 510 (638) (128) (69) (1,172) (1,241) (a) Included tax-equivalent adjustments, driven by tax-exempt income from municipal bonds, of $241 million, $314 million and $382 million for the years ended December 31, 2020, 2019 and 2018, respectively. JPMorgan Chase & Co./2020 Form 10-K 83 Selected income statement and balance sheet data As of or for the year ended December 31, (in millions) 2020 2019 2018 Investment securities gains/ (losses) Available-for-sale securities (average) Held-to-maturity securities (average) Investment securities portfolio (average) Available-for-sale securities (period-end) Held-to-maturity securities, net of allowance for credit losses (period–end)(a)(b) Investment securities portfolio, net of allowance for credit losses (period–end)(a) $ 795 $ 258 $ (395) $ 413,367 $ 283,205 $ 203,449 94,569 34,939 31,747 $ 507,936 $ 318,144 $ 235,196 $ 386,065 $ 348,876 $ 228,681 201,821 47,540 31,434 $ 587,886 $ 396,416 $ 260,115 (a) At December 31, 2020, the allowance for credit losses on HTM securities was $78 million. (b) During 2020, the Firm transferred $164.2 billion of investment securities from AFS to HTM for capital management purposes. Refer to Note 10 for further information. 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 102–108 for further information on liquidity and funding risk. Refer to Market Risk Management on pages 135–142 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, 2020, the investment securities portfolio was $587.9 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 Firm’s investment securities portfolio and internal risk ratings. 84 JPMorgan Chase & Co./2020 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 risks 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 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, including quantitative impacts 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 Risk Governance and Oversight Policy. 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 LOBs, 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 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. JPMorgan Chase & Co./2020 Form 10-K 85 Management’s discussion and analysis The IRM function is independent of the businesses and is the Firm’s “second line of defense.” The IRM function 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. Internal Audit is an independent function that provides objective assessment on the adequacy and effectiveness of Firmwide processes, controls, governance and risk management 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 but are not considered part of a particular line of defense, including Finance, Human Resources and Legal. 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 formal Risk Identification framework 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 identified 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, and impact to the Firm’s reputation. Risk Appetite results are reported to the Board Risk Committee. 86 JPMorgan Chase & Co./2020 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 committees of 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, General Counsel, CEOs of the LOBs 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. 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. JPMorgan Chase & Co./2020 Form 10-K 87 Management’s discussion and analysis 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 qualified benefits programs. The Committee reviews the performance of Operating Committee members against their goals, and approves their compensation awards. In addition, the CEO’s award is subject to ratification by the independent directors of the Board. 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 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 of Directors. It reviews the qualifications of and recommends to the Board of Directors proposed nominees for election to 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. 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 Function Control Committees oversee the operational risk and control environment of their respective business or function, inclusive of Operational Risk, Compliance and Conduct Risks. As part of that mandate, they are responsible for reviewing indicators of elevated or emerging risks and other data that may impact the level of operating risk in a business or function, addressing key operational risk issues, focusing on processes with control concerns and overseeing control remediation. The 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 Firmwide Valuation Governance Forum (“VGF”) is composed of senior finance and risk executives and is responsible for overseeing the management of risks arising from valuation activities conducted across the Firm. 88 JPMorgan Chase & Co./2020 Form 10-K 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 90 91-101 102-108 109 114-120 121-131 134 135-142 143-144 145-151 148 149 150 151 JPMorgan Chase & Co./2020 Form 10-K 89 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 relevant business reviews, LOB and Corporate senior management meetings, risk and control 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 senior management 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 senior 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 91-101 for further information on capital risk. Refer to Liquidity Risk Management on pages 102–108 for further information on liquidity risk. Refer to Reputation Risk Management on page 109 for further information on reputation risk. 90 JPMorgan Chase & Co./2020 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 oversight 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 capital 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 the Firm’s 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 governance framework. The internal minimum capital levels consider the Firm’s 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. Capital management is intended to be flexible in order to react to a range of potential events. The current capital governance framework requires regular monitoring of the Firm’s capital position and follows prescribed 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. Oversight of capital management 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 85-89 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 BHCs, including the Firm, to submit at least annually a capital plan that has been reviewed and approved by the Board of Directors. The Federal Reserve uses CCAR and other stress testing processes to ensure that large BHCs have sufficient capital during periods of economic and financial stress, and have robust, forward-looking capital assessment and planning processes in place that address each BHC’s unique risks to enable it to absorb losses under certain stress scenarios. Through 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. The Federal Reserve uses results under the severely adverse scenario from its supervisory stress test to determine each firm’s SCB requirement for the coming JPMorgan Chase & Co./2020 Form 10-K 91 Management’s discussion and analysis year. Refer to Key Regulatory Developments on pages 93– 94 for additional information. On June 29, 2020, the Firm announced that it had completed the 2020 CCAR stress test process. On August 10, 2020, the Federal Reserve affirmed the Firm's SCB requirement of 3.3% and the Firm's minimum Standardized CET1 capital ratio of 11.3% (up from 10.5%). The SCB requirement became effective on October 1, 2020. In June 2020, the Federal Reserve determined that changes in financial markets or the macroeconomic outlook due to the COVID-19 pandemic could have a material effect on a firm’s risk profile and financial condition and therefore required all large bank holding companies, including the Firm, to update and resubmit their capital plans by November 2, 2020. On December 18, 2020, the Federal Reserve released its results from the 2020 CCAR Round 2 stress test, which showed that large banks had strong levels of capital and announced that it would allow all large banks, including the Firm, to resume share repurchases commencing in the first quarter of 2021, subject to certain restrictions for at least the first quarter of 2021 given considerable economic uncertainty remained. The Federal Reserve has stated that due to uncertainty about future economic conditions and the ultimate path of the current recovery, the SCB will not be reset at this time. The Federal Reserve will notify firms by March 31, 2021 whether a revised SCB requirement based on the 2020 CCAR Round 2 stress test will be recalculated ahead of the 2021 annual CCAR assessment. Refer to Capital actions on page 99 for information on actions taken by the Firm’s Board of Directors following the 2020 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 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 OCC establishes similar minimum capital requirements and standards 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- 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”). For each of the risk-based capital ratios, the capital adequacy of the Firm is evaluated against the lower of the Standardized or Advanced approaches compared to their respective minimum capital ratios. 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 92 JPMorgan Chase & Co./2020 Form 10-K calculate the SLR. Refer to SLR on page 98 for additional information. COVID-19 Pandemic The Firm has been impacted by market events as a result of the COVID-19 pandemic, but remains well-capitalized. However, the continuation or further deterioration of the current macroeconomic environment could result in impacts to the Firm’s capital and leverage. Key Regulatory Developments Current Expected Credit Losses. Effective January 1, 2020, the Firm adopted the Financial Instruments – Credit Losses guidance under U.S. GAAP. As permitted under the U.S. capital rules issued by the federal banking agencies in 2019, the Firm initially elected to phase-in the January 1, 2020 (“day 1”) CECL adoption impact to retained earnings of $2.7 billion to CET1 capital, at 25% per year in each of 2020 to 2023. As part of their response to the impact of the COVID-19 pandemic, on March 31, 2020, the federal banking agencies issued an interim final rule (issued as final on August 26, 2020) that provided the option to delay the effects of CECL on regulatory capital for two years, followed by a three-year transition period (“CECL capital transition provisions”). The final rule provides a uniform approach for estimating the effects of CECL compared to the legacy incurred loss model during the first two years of the transition period (the “day 2” transition amount), whereby the Firm may exclude from CET1 capital 25% of the change in the allowance for credit losses (excluding allowances on PCD loans). The cumulative day 2 transition amount as at December 31, 2021 that is not recognized in CET1 capital, as well as the $2.7 billion day 1 impact, will be phased into CET1 capital at 25% per year beginning January 1, 2022. The Firm has elected to apply the CECL capital transition provisions, and accordingly, for the year ended December 31, 2020, the capital metrics of the Firm exclude $5.7 billion, which is the $2.7 billion day 1 impact to retained earnings and 25% of the $12.2 billion increase in the allowance for credit losses (excluding allowances on PCD loans). The impacts of the CECL capital transition provisions have also been incorporated into Tier 2 capital, adjusted average assets, and total leverage exposure. Refer to Note 1 for further information on the CECL accounting guidance. Money Market Mutual Fund Liquidity Facility ("MMLF"). The Federal Reserve established the MMLF facility on March 18, 2020, authorized through at least March 31, 2021, to enhance the liquidity and functioning of money markets. Under the MMLF, the Federal Reserve Bank of Boston (“FRBB”) makes nonrecourse advances to participating financial institutions to purchase certain types of assets from eligible money market mutual fund clients. These assets, which are reflected in other assets on the Firm’s Consolidated balance sheets, are pledged to the FRBB as collateral. On March 23, 2020, the federal banking agencies issued an interim final rule (issued as final on September 29, 2020) to neutralize the effects of purchasing assets through the program on risk-based and leverage-based capital ratios. As of December 31, 2020, the Firm excluded assets purchased from money market mutual fund clients pursuant to nonrecourse advances provided under the MMLF in the amount of $187 million from its RWA and $358 million from adjusted three month average assets and total leverage exposure. Supplementary leverage ratio temporary revision. On April 1, 2020, the Federal Reserve issued an interim final rule that requires, on a temporary basis, the calculation of total leverage exposure for purposes of calculating the SLR for bank holding companies, to exclude the on-balance sheet amounts of U.S. Treasury securities and deposits at Federal Reserve Banks. These exclusions became effective April 1, 2020, and will remain in effect through March 31, 2021. On June 1, 2020, the Federal Reserve, OCC and FDIC issued an interim final rule that provides IDI subsidiaries with an option to apply this temporary exclusion subject to certain restrictions. As of December 31, 2020, JPMorgan Chase Bank, N.A. has not elected to apply this exclusion. Paycheck Protection Program. On April 13, 2020, the federal banking agencies issued an interim final rule (issued as final on September 29, 2020) to neutralize the regulatory capital effects of participating in the PPP on risk- based capital ratios by applying a zero percent risk weight to loans originated under the program. Given that PPP loans are guaranteed by the SBA, the Firm does not expect to realize material credit losses on these loans. As of December 31, 2020, the Firm had approximately $27 billion of loans under the program. The rule also provides that if a PPP loan is pledged as collateral for a non-recourse loan under the Federal Reserve’s Paycheck Protection Program Lending (“PPPL”) Facility, the PPP loan can be excluded from leverage-based capital ratios. As of December 31, 2020, the Firm had not participated in the PPPL Facility. Refer to Regulatory Developments Relating to the COVID-19 Pandemic on pages 52-53 for additional information on regulatory actions and significant financing programs that the U.S. government and regulators have introduced to address the effects of the COVID-19 pandemic. Stress Capital Buffer. On March 4, 2020, the Federal Reserve issued the final rule introducing the SCB framework for the Basel III Standardized approach that is designed to more closely integrate the results of the quantitative assessment in the annual CCAR with the ongoing minimum capital requirements for BHCs under the U.S. Basel III rules. The final rule replaces the fixed 2.5% CET1 capital conservation buffer in the Standardized approach with a dynamic institution-specific SCB. The final rule does not apply to the U.S. Basel III Advanced approach capital requirements. The SCB requirement for BHCs will be effective on October 1 of each year and is expected to remain in effect until September 30 of the following year. JPMorgan Chase & Co./2020 Form 10-K 93 Management’s discussion and analysis TLAC Holdings rule. On October 20, 2020, the federal banking agencies issued a final rule prescribing the regulatory capital treatment for holdings of TLAC debt instruments by certain large banking organizations, such as the Firm and JPMorgan Chase Bank, N.A. This rule expands the scope of the existing capital deductions rule around the Risk-based Capital Regulatory Minimums holdings of capital instruments of financial institutions to also include TLAC debt instruments issued by systemically important banking organizations. The final rule will become effective on April 1, 2021 and is not expected to have a material impact on the Firm’s risk-based capital metrics. The following chart presents the Firm’s Basel III minimum CET1 capital ratio 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. 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 required to hold additional levels of capital to serve as a “capital conservation buffer”. The capital conservation buffer incorporates a global systemically important bank (“GSIB”) surcharge, a discretionary countercyclical capital buffer and a fixed capital conservation buffer of 2.5% for Advanced regulatory capital requirements and a variable SCB requirement, floored at 2.5%, for Standardized regulatory capital requirements. Under the Federal Reserve’s GSIB rule, the Firm is required to assess its GSIB surcharge on an annual basis under two separately prescribed methods based on data for the previous fiscal year-end, 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”. 94 JPMorgan Chase & Co./2020 Form 10-K 3.0%. Certain banking organizations, including the Firm, are also required to hold an additional 2.0% leverage buffer. The SLR is defined as Tier 1 capital under Basel III divided by the Firm’s total leverage exposure. Total leverage exposure is calculated by taking the Firm’s total average on-balance sheet assets, less amounts permitted to be deducted for Tier 1 capital, and adding certain off-balance sheet exposures, such as undrawn commitments and derivatives potential future exposure. Failure to maintain an SLR equal to or greater than the regulatory minimum will result in limitations on the amount of capital that the Firm may distribute such as through dividends and common share 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. 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. The following table presents the Firm’s effective GSIB surcharge for the years ended December 31, 2020 and 2019. Fully Phased-In: Method 1 Method 2 2020 2019 2.50 % 3.50 % 2.50 % 3.50 % The Firm’s effective regulatory minimum GSIB surcharge calculated under Method 2 remains unchanged at 3.5% for 2021. On November 11, 2020, the Financial Stability Board (“FSB”) released its annual GSIB list, which published the Firm’s Method 1 GSIB surcharge of 2.0% (down from 2.5%) effective January 1, 2021, based upon data as of December 31, 2019. The Firm’s estimated Method 2 surcharge calculated using data as of December 31, 2020 is 4.0%. Accordingly, based on the GSIB rule currently in effect, the Firm’s effective regulatory minimum GSIB surcharge is expected to increase to 4.0% on January 1, 2023 unless the Firm’s Method 2 GSIB surcharge calculation based upon data as of December 31, 2021 is lower. The U.S. federal regulatory capital standards include a framework for setting a discretionary countercyclical capital buffer taking into account the macro financial environment in which large, internationally active banks function. As of December 31, 2020, 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 will result in limitations to the amount of capital that the Firm may distribute, such as through dividends and common share repurchases, as well as certain executive discretionary bonus payments. The Firm has a target Basel III CET1 capital ratio of 12%. However, the Firm may remain above that level in order to satisfy leverage-based capital requirements if deposits continue to grow due to actions taken by the Federal Reserve and the U.S. government in response to the COVID-19 pandemic. Total Loss-Absorbing Capacity The Federal Reserve’s TLAC rule requires the U.S. GSIB top- tier holding companies, including the Firm, to maintain minimum levels of external TLAC and eligible long-term debt (“eligible LTD”). Refer to TLAC on page 100 for additional information. Leverage-based Capital Regulatory Minimums Supplementary leverage ratio Banking organizations subject to the Basel III Advanced approach are currently required to have a minimum SLR of JPMorgan Chase & Co./2020 Form 10-K 95 Management’s discussion and analysis The following table presents the Firm’s risk-based and leverage-based capital metrics under both the Basel III Standardized and Advanced approaches. (in millions, except ratios) Risk-based capital metrics: CET1 capital Tier 1 capital Total capital Risk-weighted assets CET1 capital ratio Tier 1 capital ratio Total capital ratio Leverage-based capital metrics: Adjusted average assets(a) Tier 1 leverage ratio Total leverage exposure(b) SLR(b) Standardized Advanced December 31, 2020(c)(d) December 31, 2019 Minimum capital ratios(e) December 31, 2020(c)(d) December 31, 2019 Minimum capital ratios(e) $ 205,078 $ 187,753 $ 205,078 $ 187,753 234,844 269,923 214,432 242,589 234,844 257,228 214,432 232,112 1,560,609 1,515,869 1,484,431 1,397,878 13.1 % 15.0 17.3 12.4 % 11.3 % 14.1 16.0 12.8 14.8 13.8 % 15.8 17.3 13.4 % 10.5 % 15.3 16.6 12.0 14.0 $ 3,353,319 $ 2,730,239 $ 3,353,319 $ 2,730,239 7.0 % 7.9 % 4.0 % 7.0 % 7.9 % 4.0 % NA NA NA NA $ 3,401,542 $ 3,423,431 NA 6.9 % 6.3 % 5.0 % (a) Adjusted average assets, for purposes of calculating the leverage ratios, 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) As of December 31, 2020, total leverage exposure for purposes of calculating the SLR excludes U.S. Treasury securities and deposits at Federal Reserve Banks, as provided by the interim final rule issued by the Federal Reserve on April 1, 2020. (c) As of December 31, 2020, the capital metrics reflect the CECL capital transition provisions. (d) As of December 31, 2020, the capital metrics reflect the exclusion of assets purchased from money market mutual fund clients pursuant to nonrecourse advances provided under the MMLF. Additionally, loans originated under the PPP receive a zero percent risk weight. (e) Represents minimum requirements and regulatory buffers applicable to the Firm. For the period ended December 31, 2019, the CET1, Tier 1, Total, Tier 1 leverage and SLR minimum capital ratios applicable to the Firm were 10.5%, 12.0%, 14.0%, 4.0% and 5.0%, respectively. Refer to Note 27 for additional information. 96 JPMorgan Chase & Co./2020 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, 2020 and 2019. 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, 2020. (in millions) Total stockholders’ equity Less: Preferred stock Common stockholders’ equity Add: December 31, 2020 279,354 $ December 31, 2019 261,330 $ 30,063 249,291 26,993 234,337 Certain deferred tax liabilities(a) 2,453 2,381 Less: Goodwill Other intangible assets Other CET1 capital adjustments(b) Standardized/Advanced CET1 capital Preferred stock Less: Other Tier 1 adjustments Standardized/Advanced Tier 1 capital Long-term debt and other instruments qualifying as Tier 2 capital Qualifying allowance for credit losses(c) Other Standardized Tier 2 capital Standardized Total capital Adjustment in qualifying allowance for credit losses for Advanced Tier 2 capital(d) Advanced Tier 2 capital Advanced Total capital 49,248 904 (3,486) 205,078 30,063 297 47,823 819 323 187,753 26,993 314 234,844 $ 214,432 16,645 $ 18,372 62 13,733 14,314 110 35,079 $ 28,157 269,923 $ 242,589 (12,695) (10,477) 22,384 $ 17,680 257,228 $ 232,112 $ $ $ $ $ $ (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. (b) As of December 31, 2020, the impact of the CECL capital transition provision was an increase in CET1 capital of $5.7 billion. (c) Represents the allowance for credit losses eligible for inclusion in Tier 2 capital up to 1.25% of credit risk RWA, including the impact of the CECL capital transition provision with any excess deducted from RWA. (d) Represents an adjustment to qualifying allowance for credit losses for the excess of eligible credit reserves over expected credit losses up to 0.6% of credit risk RWA, including the impact of the CECL capital transition provision with any excess deducted from RWA. Year Ended December 31, (in millions) 2020 Standardized/Advanced CET1 capital at December 31, 2019 $ 187,753 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 AOCI(a) Changes related to other CET1 capital adjustments(b) Change in Standardized/Advanced CET1 capital Standardized/Advanced CET1 capital at December 31, 2020 Standardized/Advanced Tier 1 capital at December 31, 2019 Change in CET1 capital(b) Net issuance of noncumulative perpetual preferred stock Other Change in Standardized/Advanced Tier 1 capital Standardized/Advanced Tier 1 capital at December 31, 2020 27,548 (11,119) (5,135) (128) 6,417 (1,829) 1,571 17,325 $ 205,078 $ 214,432 17,325 3,070 17 20,412 $ 234,844 Standardized Tier 2 capital at December 31, 2019 $ 28,157 Change in long-term debt and other instruments qualifying as Tier 2 Change in qualifying allowance for credit losses(b) Other Change in Standardized Tier 2 capital Standardized Tier 2 capital at December 31, 2020 Standardized Total capital at December 31, 2020 Advanced Tier 2 capital at December 31, 2019 Change in long-term debt and other instruments qualifying as Tier 2 Change in qualifying allowance for credit losses(b) Other Change in Advanced Tier 2 capital 2,912 4,058 (48) 6,922 $ 35,079 $ 269,923 $ 17,680 2,912 1,840 (48) 4,704 Advanced Tier 2 capital at December 31, 2020 Advanced Total capital at December 31, 2020 $ 22,384 $ 257,228 (a) Includes cash flow hedges and DVA related to structured notes recorded in AOCI. (b) Includes the impact of the CECL capital transition provisions. JPMorgan Chase & Co./2020 Form 10-K 97 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, 2020. The amounts in the rollforward categories are estimates, based on the predominant driver of the change. Year ended December 31, 2020 (in millions) Credit risk RWA Standardized Market risk RWA Total RWA Credit risk RWA Market risk RWA Operational risk RWA Total RWA Advanced December 31, 2019 Model & data changes(a) Portfolio runoff(b) Movement in portfolio levels(c) Changes in RWA $ 1,440,220 $ 75,649 $ 1,515,869 $ 932,948 $ 75,652 $ 389,278 $ 1,397,878 (800) (16,320) (4,450) 29,249 23,999 — 37,061 20,741 (17,120) (4,450) 66,310 44,740 (6,100) (4,000) 79,482 69,382 (16,320) — 37,578 21,258 — — (4,087) (4,087) (22,420) (4,000) 112,973 86,553 December 31, 2020 $ 1,464,219 $ 96,390 $ 1,560,609 $ 1,002,330 $ 96,910 $ 385,191 $ 1,484,431 (a) Model & data changes refer to material movements in levels of RWA as a result of revised methodologies and/or treatment per regulatory guidance (exclusive of rule changes). (b) Portfolio runoff for credit risk RWA primarily reflects 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; updates to cumulative losses for operational risk RWA; and deductions to credit risk RWA for excess eligible credit reserves not eligible for inclusion in Tier 2 capital. Supplementary leverage ratio The following table presents the components of the Firm’s SLR. Three months ended (in millions, except ratio) Tier 1 capital Total average assets December 31, 2020 December 31, 2019 $ 234,844 214,432 3,399,818 2,777,270 Less: Regulatory capital adjustments(a) Total adjusted average assets(b) Add: Off-balance sheet exposures(c) Less: Exclusion for U.S. Treasuries and Federal Reserve Bank deposits Total leverage exposure SLR 46,499 47,031 3,353,319 2,730,239 729,978 693,192 681,755 — $ 3,401,542 $ 3,423,431 6.9 % 6.3 % (a) 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. As of December 31, 2020, includes adjustments for the CECL capital transition provisions and the exclusion of average assets purchased from money market mutual fund clients pursuant to nonrecourse advances provided under the MMLF. (b) Adjusted average assets used for the calculation of Tier 1 leverage ratio. (c) 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. 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, the GSIB surcharge, and a simulation of capital in a severe stress environment. As of January 1, 2021, the Firm has changed its line of business capital allocations primarily as a result of changes in exposures for each LOB and an increase in the relative risk weighting toward Standardized RWA. The assumptions and methodologies used to allocate capital are periodically assessed and as a result, the capital allocated to the LOBs may change from time to time.  The following table presents the capital allocated to each business segment. Line of business equity (Allocated capital) (in billions) December 31, January 1, 2021 2020 2019 Consumer & Community Banking $ 50.0 $ 52.0 $ 52.0 Corporate & Investment Bank Commercial Banking Asset & Wealth Management Corporate 83.0 24.0 14.0 78.3 80.0 22.0 10.5 84.8 80.0 22.0 10.5 69.8 Total common stockholders’ equity $ 249.3 $ 249.3 $ 234.3 98 JPMorgan Chase & Co./2020 Form 10-K Capital actions 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. The Firm’s quarterly common stock dividend is currently $0.90 per share. 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. The following table shows the common dividend payout ratio based on net income applicable to common equity. Year ended December 31, Common dividend payout ratio 2020 40 % 2019 31 % 2018 30 % Common stock On March 15, 2020, in response to the economic disruptions caused by the COVID-19 pandemic, the Firm temporarily suspended repurchases of its common stock. Subsequently, the Federal Reserve directed all large banks, including the Firm, to discontinue net share repurchases through the end of 2020. On December 18, 2020, the Federal Reserve announced that all large banks, including the Firm, could resume share repurchases commencing in the first quarter of 2021. As directed by the Federal Reserve, total net repurchases and common stock dividends in the first quarter of 2021 are restricted and cannot exceed the average of the Firm’s net income for the four preceding calendar quarters. The Firm's Board of Directors has authorized a new common share repurchase program for up to $30 billion. The following table sets forth the Firm’s repurchases of common stock for the years ended December 31, 2020, 2019 and 2018. Year ended December 31, (in millions) 2020 2019 2018 Total number of shares of common stock repurchased Aggregate purchase price of common 50.0 213.0 181.5 stock repurchases $ 6,397 $ 24,121 $ 19,983 The authorization to repurchase common shares is utilized at management’s discretion, and the timing of purchases and the exact amount of common shares 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 suspended by management at any time; and may be executed through open market purchases or privately negotiated transactions, or utilizing Rule 10b5-1 plans, which are written trading plans that the Firm may enter into from time to time under Rule 10b5-1 of the Securities Exchange Act of 1934 and which allow the Firm to repurchase its common shares during periods when it may otherwise not be repurchasing common shares — for example, during internal trading blackout periods. Refer to Part II, Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities on page 34 of the 2020 Form 10-K for additional information regarding repurchases of the Firm’s equity securities. Preferred stock Preferred stock dividends declared were $1.6 billion for the year ended December 31, 2020. The Firm has not issued or redeemed any preferred stock since the first quarter of 2020. Refer to Note 21 for additional information on the Firm’s preferred stock, including the issuance and redemption of preferred stock. Subordinated Debt On May 13, 2020, the Firm issued $3.0 billion of fixed-to- floating rate subordinated notes due 2031. Refer to Long- term funding and issuance on page 107 and Note 20 for additional information. JPMorgan Chase & Co./2020 Form 10-K 99 Management’s discussion and analysis Other capital requirements Total Loss-Absorbing Capacity The Federal Reserve’s TLAC rule requires the U.S. GSIB top- tier holding companies, including the Firm, to maintain minimum levels of external TLAC and eligible long-term debt. The minimum external TLAC and the minimum level of eligible long-term debt requirements are shown below: The following table presents the eligible external TLAC and eligible LTD amounts, as well as a representation of the amounts as a percentage of the Firm’s total RWA and total leverage exposure applying the impact of the CECL capital transition provisions as of December 31, 2020 and 2019. December 31, 2019 December 31, 2020 (in billions, except ratio) Total eligible amount % of RWA Surplus/ (shortfall) % of total leverage exposure External TLAC LTD External TLAC LTD $ 421.0 $ 181.4 $ 386.4 $ 161.8 27.0 % 11.6 % 25.5 % 10.7 % $ 62.1 $ 33.1 $ 37.7 $ 17.8 12.4 % 5.3 % 11.3 % 4.7 % $ 97.9 Surplus/ (shortfall) $ 7.8 Refer to Part I, Item 1A: Risk Factors on pages 8-32 of the 2020 Form 10-K for information on the financial consequences to holders of the Firm’s debt and equity securities in a resolution scenario. 61.2 28.3 $ $ (a) RWA is the greater of Standardized and Advanced compared to their respective minimum capital ratios. Failure to maintain TLAC equal to or in excess of the regulatory minimum plus applicable buffers will result in limitations to the amount of capital that the Firm may distribute, such as through dividends and common share repurchases. The following table presents the TLAC and external long- term debt minimum requirements including applicable regulatory buffers, as of December 31, 2020 and 2019. TLAC to RWA TLAC to leverage exposure External long-term debt to RWA External long-term debt to leverage Minimum Requirements 23.0 % 9.5 9.5 4.5 Effective January 1, 2021, Method 1 GSIB surcharge is 2.0% (down from 2.5%). As a result, the Firm’s TLAC to RWA requirement will become 22.5%. Refer to Risk-based Capital Regulatory Minimums on pages 94-95 for further information on the GSIB surcharge. 100 JPMorgan Chase & Co./2020 Form 10-K 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 is subject to regulatory capital requirements, including those imposed by the SEC, Commodity Futures Trading Commission (“CFTC”), Financial Industry Regulatory Authority (“FINRA”) and the National Futures Association (“NFA”). 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, 2020 (in millions) Net Capital Actual(a) 27,651 $ Minimum 5,024 $ (a) Net capital reflects the exclusion of assets purchased from money market mutual fund clients pursuant to nonrecourse advances provided under the MMLF. 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, 2020, 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 implement Basel III and thereby subject J.P. Morgan Securities plc to its requirements. Effective January 1, 2021, J.P. Morgan Securities plc is subject to the amended EU Capital Requirement Regulation, as adopted in the U.K. 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, 2020, 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, 2020 (in millions, except ratios) Estimated Minimum ratios Total capital CET1 ratio Total capital ratio $ 55,156 17.9 % 22.8 % 4.5 % 8.0 % JPMorgan Chase & Co./2020 Form 10-K 101 Management’s discussion and analysis LIQUIDITY RISK MANAGEMENT Liquidity risk is the risk that the Firm will be unable to meet its contractual and contingent financial obligations as they arise or that it does not have the appropriate amount, composition and tenor of funding and liquidity to support its assets and liabilities. Liquidity risk oversight The Firm has a Liquidity Risk Oversight function whose primary objective is to provide oversight 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 The primary objectives of the Firm’s 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 85-89 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 liquidity requirements, and to manage through periods of 102 JPMorgan Chase & Co./2020 Form 10-K stress when access to normal funding sources may be disrupted. Contingency funding plan The Firm’s Contingency Funding Plan (“CFP”) sets out the strategies for addressing and managing liquidity resource needs during a liquidity stress event and incorporates liquidity risk limits, indicators and risk appetite tolerances that make up Liquidity Escalation Points. The CFP also 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 and JPMorgan Chase Bank, N.A. maintain an amount of eligible HQLA that is sufficient to meet its estimated total net cash outflows over a prospective 30 calendar-day period of significant stress. Eligible HQLA, for purposes of calculating the LCR, is the amount of unencumbered HQLA that satisfy certain operational considerations as defined in the LCR rule. HQLA primarily consist of cash and certain high-quality liquid securities as defined in the LCR rule. Under the LCR rule, the amount of eligible 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 eligible 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 for both the Firm and JPMorgan Chase Bank, N.A. is required to be a minimum of 100%. The following table summarizes the Firm and JPMorgan Chase Bank, N.A.’s average LCR for the three months ended December 31, 2020, September 30, 2020 and December 31, 2019 based on the Firm’s interpretation of the LCR framework. Average amount (in millions) December 31, 2020 September 30, 2020 December 31, 2019 Three months ended JPMorgan Chase & Co.: Eligible HQLA Eligible cash(a) Eligible securities(b)(c) Total eligible HQLA(d) Net cash outflows LCR Net excess eligible HQLA(d) $ 455,612 $ 458,336 $ 203,296 241,447 211,841 341,990 $ 697,059 $ 670,177 $ 545,286 $ 634,037 $ 587,811 $ 469,402 110 % 114 % 116 % $ 63,022 $ 82,366 $ 75,884 JPMorgan Chase Bank, N.A.: LCR Net excess eligible HQLA 160 % 157 % 116 % $ 401,903 $ 366,096 $ 79,483 (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) Eligible HQLA 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 eligible HQLA at JPMorgan Chase Bank, N.A. that are not transferable to non-bank affiliates. The Firm’s average LCR decreased during the three months ended December 31, 2020, compared with the three-month period ended September 30, 2020, predominantly driven by a decrease in cash from long-term debt maturities, including the early termination of certain of the Firm's debt at the end of the third quarter 2020. The Firm's average LCR decreased during the three months ended December 31, 2020, compared with the prior year period primarily due to the relative impact on net cash outflows from the significant increase in deposits as well as elevated market activities in the CIB. JPMorgan Chase Bank, N.A.’s average LCR increased during the three months ended December 31, 2020, compared with both the three month periods ended September 30, 2020 and December 31, 2019 primarily due to growth in deposits. Deposits continued to increase in the fourth quarter primarily driven by the COVID-19 pandemic and the related effect of certain government actions. The increase in excess liquidity in JPMorgan Chase Bank, N.A. 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 eligible 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. JPMorgan Chase & Co./2020 Form 10-K 103 Management’s discussion and analysis Other liquidity sources In addition to the assets reported in the Firm’s eligible HQLA above, the Firm had unencumbered marketable securities, such as equity and debt securities, that the Firm believes would be available to raise liquidity. This includes securities included as part of the excess eligible HQLA at JPMorgan Chase Bank, N.A. that are not transferable to non-bank affiliates. The fair value of these securities was approximately $740 billion and $315 billion as of December 31, 2020 and 2019, respectively, although the amount of liquidity that could be raised would be dependent on prevailing market conditions. The fair value increased compared to December 31, 2019, due to an increase in excess eligible HQLA at JPMorgan Chase Bank, N.A. which was primarily a result of increased deposits. 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 $307 billion and $322 billion as of December 31, 2020 and 2019, respectively. This borrowing capacity excludes the benefit of cash and securities reported in the Firm’s eligible HQLA or other unencumbered securities that are currently pledged at the Federal Reserve Bank discount window and other central banks. Available borrowing capacity decreased from December 31, 2019 primarily due to lower pledged credit card receivable balances driven by the COVID-19 pandemic and a decrease in pledged mortgage collateral as a result of paydown and maturity activity. 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. NSFR The net stable funding ratio (“NSFR”) is a liquidity requirement for large banking organizations that is intended to measure the adequacy of “available” and “required” amounts of stable funding over a one-year horizon. On October 20, 2020, the federal banking agencies issued a final NSFR rule under which large banking organizations such as the Firm will be required to maintain an NSFR of at least 100% on an ongoing basis. The final NSFR rule will become effective on July 1, 2021, and the Firm will be required to publicly disclose its quarterly average NSFR semi-annually beginning in 2023. As of December 31, 2020 the Firm estimates that it was compliant with the 100% minimum NSFR based on its current understanding of the final rule. 104 JPMorgan Chase & Co./2020 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 and Corporate, the period-end and average deposit balances as of and for the years ended December 31, 2020 and 2019. 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 2020 2019 2020 2019 $ 958,706 $ 723,418 851,390 $ 698,378 (a) $ (a) 702,215 284,263 198,755 318 511,905 184,115 142,740 (a) 253 655,095 237,645 161,955 666 (a) (a) 515,938 172,666 135,265 (a) 820 $ 2,144,257 $ 1,562,431 $ 1,906,751 $ 1,523,067 (a) In the fourth quarter of 2020, the Firm realigned certain wealth management clients from AWM to the J.P. Morgan Wealth Management business unit within CCB. 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. Prior-period amounts have been revised to conform with the current presentation. 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, 2020 and 2019. As of December 31, (in billions except ratios) Deposits 2020 2019 $ 2,144.3 $ 1,562.4 Deposits as a % of total liabilities 69 % 64 % Loans Loans-to-deposits ratio 1,012.9 997.6 47 % 64 % The Firm believes that average deposit balances are generally more representative of deposit trends than period-end deposit balances, over time. However, during periods of market disruption those trends could be affected. Average deposits increased for the year ended December 31, 2020, reflecting significant inflows across the LOBs primarily driven by the impact of the COVID-19 pandemic and the related effect of certain government actions. In the wholesale businesses, while the inflows principally occurred in March as clients sought to remain liquid as a result of market conditions, balances continued to increase through the end of 2020. In CCB, the increase was driven by lower spending and higher cash balances across both consumer and small business customers, as well as growth from existing and new accounts. Refer to the discussion of the Firm’s Business Segment Results and the Consolidated Balance Sheets Analysis on pages 65–84 and pages 57-58, respectively, for further information on deposit and liability balance trends. JPMorgan Chase & Co./2020 Form 10-K 105 Management’s discussion and analysis The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2020 and 2019, and average balances for the years ended December 31, 2020 and 2019. Refer to the Consolidated Balance Sheets Analysis on pages 57-58 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 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) Average 2020 2019 2020 2019 $ $ 12,031 $ 8,510 20,541 $ 14,754 $ 7,544 22,298 $ 12,129 $ 9,198 21,327 $ 22,977 10,369 33,346 $ 207,877 $ 175,709 $ 246,354 $ 217,807 8,816 26,050 10,929 5,983 18,622 9,223 6,536 23,812 11,430 4,886 24,667 10,523 $ 247,953 $ 209,537 $ 288,132 $ 263,602 $ 166,089 $ 166,185 $ 171,509 $ 168,546 21,608 75,325 17,591 74,724 20,789 73,056 17,387 65,487 $ 263,022 $ 258,500 $ 265,354 $ 251,420 $ 4,943 $ 6,461 $ 5,520 $ 9,707 14,123 4,540 28,635 4,363 27,076 4,460 34,143 4,643 23,606 $ 39,459 $ 37,056 $ 48,493 30,063 $ 26,993 $ 29,899 $ 27,511 $ $ $ 249,291 $ 234,337 $ 236,865 $ 232,907 (a) Primarily consists of short-term securities loaned or sold under agreements to repurchase. (b) Effective March 2020, includes nonrecourse advances provided under the MMLF. (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 91-101, Consolidated statements of changes in stockholders’ equity on page 165, 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 and U.S. GSE and government agency MBS. Securities sold under agreements to repurchase increased at December 31, 2020, compared with December 31, 2019, reflecting higher secured financing of AFS investment securities in Treasury and CIO, as well as trading assets in CIB, partially offset by a decline in client-driven market- making activities in CIB, including the Firm's non- participation in the Federal Reserve's open market operations. The balances associated with securities loaned or sold under agreements to repurchase fluctuate over time due to investment and financing activities of clients, 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. As of December 31, 2020, the Firm participated in the MMLF government facility. The secured nonrecourse advances under the MMLF are included in other borrowed funds. Refer to Capital Risk Management on pages 91-101 for additional information on the MMLF. The Primary Dealer Credit Facility ("PDCF") was established by the Federal Reserve on March 20, 2020. Under the PDCF, the Federal Reserve Bank of New York (“FRBNY”) provides collateralized financing on a term basis to primary dealers. These financing transactions were reported as securities sold under agreements to repurchase. The Firm participated in the PDCF in the first quarter of 2020, and ceased its participation in May 2020 as the secured financing market normalized. The Firm’s sources of short-term unsecured funding consist of other borrowed funds and issuance of wholesale commercial paper. The decrease in short-term unsecured funding at December 31, 2020, from December 31, 2019 and for the average year ended December 31, 2020 compared to the prior year period, was due to lower net commercial paper issuance primarily for short-term liquidity management. 106 JPMorgan Chase & Co./2020 Form 10-K Long-term funding and issuance Long-term funding provides an additional source 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. 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, 2020 and 2019. 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 Subordinated debt Structured notes(a) Total long-term unsecured funding – issuance Maturities/redemptions Senior notes Subordinated debt Structured notes 2020 2019 2020 2019 Parent Company Subsidiaries $ 25,500 $ 14,000 $ 60 $ 1,750 1,355 26,855 3,000 7,596 5,867 19,867 — — 60 — — 1,750 — 5,844 24,185 33,563 $ 37,451 $ 25,711 $ 24,245 $ 35,313 $ 28,719 $ 18,098 $ 7,701 $ 5,367 135 5,340 183 2,944 — — 30,002 19,271 Total long-term unsecured funding – maturities/redemptions $ 34,194 $ 21,225 $ 37,703 $ 24,638 (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 through FHLB advances. The following table summarizes the securitization issuance and FHLB advances and their respective maturities or redemptions for the years ended December 31, 2020 and 2019. 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 2020 2019 2020 2019 $ 1,000 $ — $ 2,525 $ 6,975 15,000 1,130 — 204 29,509 1,048 15,817 927 $ 17,130 $ 204 $ 33,082 $ 23,719 (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 a further description of client-driven loan securitizations. JPMorgan Chase & Co./2020 Form 10-K 107 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, 2020 were as follows: JPMorgan Chase & Co. JPMorgan Chase Bank, N.A. J.P. Morgan Securities LLC J.P. Morgan Securities plc December 31, 2020 Moody’s Investors Service Standard & Poor’s Fitch Ratings(a) Long-term issuer Short-term issuer A2 A- AA- P-1 A-2 F1+ Outlook Stable Stable Negative Long-term issuer Short-term issuer Aa2 A+ AA P-1 A-1 F1+ Outlook Stable Stable Negative Long-term issuer Short-term issuer Aa3 A+ AA P-1 A-1 F1+ Outlook Stable Stable Negative (a) On April 18, 2020, Fitch affirmed the credit ratings of the Parent Company and the Firm’s principal bank and non-bank subsidiaries but revised the outlook on the credit ratings from stable to negative given expectations that credit fundamentals will deteriorate as a result of the COVID-19 pandemic. 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. 108 JPMorgan Chase & Co./2020 Form 10-K Governance and oversight The 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. Sustainability, social responsibility and environmental impacts are important considerations in assessing the Firm’s reputation risk, and are a component of the Firm’s 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 perception of the Firm’s integrity and reduce confidence in the Firm’s competence by various constituents, including clients, counterparties, customers, investors, regulators, employees, communities or the broader public. Organization and management Reputation Risk Management establishes the governance framework for managing reputation risk across the Firm. As reputation risk is inherently challenging to identify, manage, and quantify, a reputation risk management function is critical. The Firm’s reputation risk management function includes the following activities: • Maintaining 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 wide-ranging and could be introduced in various ways, including by the Firm’s employees and the clients, customers and counterparties the Firm does business with. These events could result in financial losses, litigation and regulatory fines, as well as other damages to the Firm. JPMorgan Chase & Co./2020 Form 10-K 109 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), and securities financing activities. The Firm is also exposed to credit risk through its investment securities portfolio and cash placed with banks. Credit Risk Management 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: • Maintaining 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 and • 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 and Note 10, 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, the allowance for lending-related commitments reflects credit losses related to the Firm’s lending-related commitments and the allowance for investment securities reflects the credit losses related to the Firm’s HTM and AFS securities. Refer to Note 13, Note 10 and Critical Accounting Estimates used by the Firm on pages 152-155 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 stress testing 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. 110 JPMorgan Chase & Co./2020 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 credit portfolio, 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. 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. Wrong-way risk 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. 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, and • Collateral and other risk-reduction techniques JPMorgan Chase & Co./2020 Form 10-K 111 Management’s discussion and analysis CREDIT PORTFOLIO Effective January 1, 2020, the Firm adopted the CECL accounting guidance. The adoption resulted in a change in the accounting for PCI loans, which are considered PCD loans under CECL. In conjunction with the adoption of CECL, the Firm reclassified risk-rated loans and lending-related commitments from the consumer, excluding credit card portfolio segment to the wholesale portfolio segment, to align with the methodology applied when determining the allowance. Prior-period amounts have been revised to conform with the current presentation. Refer to Note 1 for further information. The Firm has provided various forms of assistance to customers and clients impacted by the COVID-19 pandemic, including payment deferrals and covenant modifications. The majority of the Firm’s COVID-19 related loan modifications have not been considered troubled debt restructurings (“TDRs”) because: • • they represent short-term or other insignificant modifications, whether under the Firm’s regular loan modification assessments or the IA Statement guidance, or the Firm has elected to apply the option to suspend the application of accounting guidance for TDRs provided by the CARES Act and extended by the Consolidated Appropriations Act. To the extent that certain modifications do not meet any of the above criteria, the Firm accounts for them as TDRs. The Firm considers expected losses of principal and accrued interest associated with all COVID-19 related loan modifications in its allowance for credit losses. Refer to Business Developments on pages 50-51 for more information on customer and client assistance granted. Refer to Notes 12 and 13 for further information on the Firm’s accounting policies on loan modifications and the allowance for credit losses. The effectiveness of the Firm’s actions in helping borrowers recover and in mitigating the Firm’s credit losses remains uncertain in light of the unpredictable nature and duration of the COVID-19 pandemic. Assistance provided in response to the COVID-19 pandemic could delay the recognition of delinquencies, nonaccrual status, and net charge-offs for those customers and clients who would have otherwise moved into past due or nonaccrual status. Refer to Consumer Credit Portfolio on pages 114-120 and Wholesale Credit Portfolio on pages 121-131 for information on loan modifications as of December 31, 2020. 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 114-120 and Note 12 for further discussions of the consumer credit environment and consumer loans. Refer to Wholesale Credit Portfolio on pages 121-131 and Note 12 for further discussions of the wholesale credit environment and wholesale loans. 112 JPMorgan Chase & Co./2020 Form 10-K Paycheck Protection Program The PPP, established by the CARES Act and implemented by the SBA, provided the Firm with delegated authority to process and originate PPP loans. When certain criteria are met, PPP loans are subject to forgiveness and the Firm will receive payment of the forgiveness amount from the SBA. PPP loans have a contractual term of two or five years and provide borrowers with an automatic payment deferral of principal and interest. Given that PPP loans are guaranteed by the SBA, the Firm does not expect to realize material credit losses on these loans. PPP processing fees are deferred and accreted into interest income over the contractual life of the loans, but may be accelerated upon forgiveness or prepayment. The impact on interest income related to PPP loans was not material for the year ended December 31, 2020. The Firm was in the early stages of the PPP loan forgiveness process at December 31, 2020. At December 31, 2020, the Firm had approximately $27 billion of loans under the PPP, of which $19 billion are in the consumer portfolio and $8 billion are in the wholesale portfolio. Total credit portfolio December 31, (in millions) Loans retained Credit exposure Nonperforming(f)(g) 2020 2019 2020 2019 $ 960,506 $ 945,601 $ 8,782 $ 3,983 Loans held-for-sale Loans at fair value (a) 7,873 44,474 7,064 44,955 284 1,507 7 647 Total loans – reported 1,012,853 997,620 10,573 4,637 Derivative receivables 79,630 49,766 47,710 33,706 56 — 30 — Receivables from customers(b) Total credit-related assets Assets acquired in loan satisfactions Real estate owned Other Total assets acquired in loan satisfactions Lending-related commitments(a) 1,140,193 1,081,092 10,629 4,667 NA NA NA NA NA 256 21 NA 277 1,165,688 1,108,399 577 344 43 387 474 Total credit portfolio $ 2,305,881 $ 2,189,491 $ 11,483 $ 5,528 Credit derivatives used in credit portfolio management activities(c)(d) Liquid securities and other cash collateral held against derivatives(e) Year ended December 31, (in millions, except ratios) Net charge-offs Average retained loans Net charge-off rates $ (22,239) $ (18,530) $ — $ — (14,806) (13,052) NA NA 2020 2019 $ 5,259 $ 5,629 958,303 941,919 0.55 % 0.60 % (a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans, which resulted in a corresponding reclassification of certain off- balance sheet commitments. Prior-period amounts have been revised to conform with the current presentation. (b) Receivables from customers reflect held-for-investment margin loans to brokerage clients in CIB, CCB and AWM; these are reported within accrued interest and accounts receivable on the Consolidated balance sheets. (c) 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 131 and Note 5 for additional information. (d) Prior-period amount has been revised to conform with the current presentation. (e) In the fourth quarter of 2020, the Firm refined its approach for disclosing additional collateral held by the Firm that may be used as security when the fair value of the client’s exposure is in the Firm’s favor. Prior-period amounts have been revised to conform with the current presentation. (f) At December 31, 2020 and 2019, nonperforming assets excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $874 million and $1.1 billion, respectively, and real estate owned (“REO”) insured by U.S. government agencies of $9 million and $41 million, respectively. Prior-period amount of mortgage loans 90 or more days past due and insured by U.S. government agencies excluded from nonperforming assets has been revised to conform with the current presentation; refer to footnote (a) for additional information. 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. (g) At December 31, 2020, nonperforming loans included $1.6 billion of PCD loans on nonaccrual status. Prior to the adoption of CECL, nonaccrual loans excluded PCI loans as the Firm recognized interest income on each pool of PCI loans as each of the pools was performing. JPMorgan Chase & Co./2020 Form 10-K 113 Management’s discussion and analysis CONSUMER CREDIT PORTFOLIO The Firm’s retained consumer portfolio consists primarily of residential real estate loans, credit card loans, scored auto 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 residential real estate 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. Refer to Note 12 for further information on the consumer loan portfolio. Refer to Note 28 for further information on lending-related commitments. In 2020, the allowance for credit losses increased, reflecting the deterioration in and uncertainty around the future macroeconomic environment as a result of the impact of the COVID-19 pandemic. Net charge-offs for the year ended December 31, 2020 decreased when compared to December 31, 2019, benefiting from payment assistance and government stimulus. The potential for increased infection rates and related lock downs, as well as the duration and effectiveness of government and other consumer relief measures remains uncertain which could have a longer term impact on delinquency rates and net charge-offs. 114 JPMorgan Chase & Co./2020 Form 10-K The following table presents consumer credit-related information with respect to the scored credit portfolio held in CCB, AWM, CIB and Corporate. Consumer credit portfolio As of or for the year ended December 31, (in millions, except ratios) Consumer, excluding credit card Residential real estate(a) Auto and other(b)(c)(d) Total loans - retained Loans held-for-sale Loans at fair value(e)(f) Total consumer, excluding credit card loans Lending-related commitments(g) Total consumer exposure, excluding credit card Credit Card Loans retained(h) Loans held-for-sale Total credit card loans Lending-related commitments(g)(i) Total credit card exposure(i) Total consumer credit portfolio(i) Credit exposure Nonaccrual loans(j)(k)(l) Net charge-offs/ (recoveries) Net charge-off/ (recovery) rate(m) 2020 2019 2020 2019 2020 2019 2020 2019 $ 225,302 $ 243,317 $ 5,313 $ 2,780 $ (164) $ (92) (0.07) % (0.04) % 76,825 302,127 1,305 15,147 318,579 57,319 375,898 51,682 151 $ 146 338 $ 294,999 5,464 2,926 174 (d) 456 364 NA NA 0.51 0.06 NA NA 0.88 0.12 NA NA 2 438 NA NA 3,366 174 364 0.06 0.12 — 1,003 6,467 3,002 19,816 317,817 40,169 357,986 143,432 168,924 784 144,216 658,506 802,722 — 168,924 650,720 819,644 NA NA NA NA NA NA 4,286 4,848 2.93 NA NA NA 4,286 4,848 2.93 3.10 NA 3.10 $ 1,178,620 $ 1,177,630 $ 6,467 $ 3,366 $ 4,460 $ 5,212 0.99 % 1.11 % (a) Includes scored mortgage and home equity loans held in CCB and AWM, and scored mortgage loans held in Corporate. (b) At December 31, 2020 and 2019, excluded operating lease assets of $20.6 billion and $22.8 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. (c) Includes scored auto and business banking loans and overdrafts. (d) At December 31, 2020, included $19.2 billion of loans in Business Banking under the PPP. Given that PPP loans are guaranteed by the SBA, the Firm does not expect to realize material credit losses on these loans. Refer to Credit Portfolio on pages 112-113 for a further discussion of the PPP. (e) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans. Prior-period amounts have been revised to conform with the current presentation. (f) Includes scored mortgage loans held in CCB and CIB. (g) Credit card, home equity and certain business banking 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 and certain business banking 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. (h) Includes billed interest and fees. (i) Also includes commercial card lending-related commitments primarily in CB and CIB. (j) At December 31, 2020 and 2019, nonaccrual loans excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $874 million and $1.1 billion, respectively. Prior-period amount of mortgage loans 90 or more days past due and insured by U.S. government agencies excluded from nonaccrual loans has been revised to conform with the current presentation; refer to footnote (e) for additional information. 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. (k) At December 31, 2020, nonaccrual loans included $1.6 billion of PCD loans. Prior to the adoption of CECL, nonaccrual loans excluded PCI loans as the Firm recognized interest income on each pool of PCI loans as each of the pools was performing. (l) Generally excludes loans under payment deferral programs offered in response to the COVID-19 pandemic. Includes loans to customers that have exited COVID-19 payment deferral programs and are 90 or more days past due, predominantly all of which were also at least 150 days past due and therefore considered collateral-dependent. Collateral-dependent loans are charged down to the lower of amortized cost or fair value of the underlying collateral less costs to sell. (m) Average consumer loans held-for-sale and loans at fair value were $18.3 billion and $20.4 billion for the years ended December 31, 2020 and 2019, respectively. Prior-period amounts have been revised to conform with the current presentation; refer to footnote (e) for additional information. These amounts were excluded when calculating net charge-off/(recovery) rates. JPMorgan Chase & Co./2020 Form 10-K 115 Management’s discussion and analysis Consumer assistance In March 2020, the Firm began providing assistance to customers in response to the COVID-19 pandemic, predominantly in the form of payment deferrals. As of December 31, 2020, the Firm had $10.7 billion of retained loans under payment deferral programs, which represented a decrease of approximately $1.5 billion from September 30, 2020 and $17.5 billion from June 30, 2020. During the fourth quarter of 2020, there were approximately $1.4 billion of new enrollments in payment deferral programs predominantly in residential real estate and credit card. Predominantly all borrowers that exited payment deferral programs are current. The Firm continues to monitor the credit risk associated with loans subject to payment deferrals throughout the deferral period and on an ongoing basis after the borrowers are required to resume making regularly scheduled payments and considers expected losses of principal and accrued interest on these loans in its allowance for credit losses. December 31, 2020 September 30, 2020 June 30, 2020 (in millions, except ratios) Loan balance Percent of loan class balance(e) Percent of accounts who exited payment deferral and are current Loan balance Loan balance Type of assistance Residential real estate(a)(b) $ 10,106 4.5 % 95 % $ 11,458 $ 20,548 Rolling three month payment deferral up to one year; in most cases, deferred payments will be due at the end of the loan term Auto and other(c) 377 0.5 94 457 3,357 Credit card 264 0.2 90 (f) 368 4,384 Total consumer(d) $ 10,747 2.4 % 91 % $ 12,283 $ 28,289 • Auto: Currently offering one month payment deferral (initially offered three month payment deferral). Maturity date is extended by number of months deferred • Business Banking: Three month deferral with automatic deferment to either maturity (loan) or one year forward (line) Currently offering deferral of one month minimum payment (initially offered three month minimum payment deferral). Interest continues to accrue during the deferral period and is added to the principal balance (a) Excludes $13.4 billion, $17.1 billion and $34.0 billion of third-party mortgage loans serviced at December 31, 2020, September 30, 2020 and June 30, 2020, respectively. (b) The weighted average LTV ratio of residential real estate loans under payment deferral at December 31, 2020 was 57%. (c) Excludes risk-rated business banking and auto dealer loans held in CCB and auto operating lease assets that were still under payment deferral programs as of December 31, 2020, September 30, 2020 and June 30, 2020. Auto operating lease asset payment assistance is currently offering one month payment deferral (initially offered three month payment deferral). Deferrals do not extend the term of the lease and all deferred payments are due at the end of the lease term. (d) Includes $3.8 billion, $3.8 billion and $5.7 billion of loans that were accounted for as TDRs prior to payment deferral as of December 31, 2020, September 30, 2020 and June 30, 2020, respectively. (e) Represents the unpaid principal balance of retained loans which were still under payment deferral programs, divided by the total unpaid principal balance of the respective loan classes retained loans. (f) 85% of the balance that exited deferral were current at December 31, 2020. Of the $10.7 billion of loans still under payment deferral programs as of December 31, 2020, approximately $4.0 billion were accounted for as TDRs, either because they were accounted for as TDRs prior to payment deferral, or because they did not qualify for or the Firm did not elect the option to suspend TDR accounting guidance provided by the CARES Act and extended by the Consolidated Appropriations Act. A portion of the remaining $6.7 billion of loans could become TDRs in future periods, depending on the nature and timing of further modifications or payment arrangements offered to these borrowers. If the remaining $6.7 billion of loans were considered TDRs, the Firm estimates that it would result in an increase in standardized RWA of as much as $2.5 billion. Predominantly all borrowers, including those accounted for as TDRs, were current upon enrollment in payment deferral programs and are expected to exit payment deferral programs in a current status, either because no payments are contractually due during the deferral period or because payments originally contractually due during the deferral period will be due at maturity upon exit. For those borrowers that are unable to resume making payments in accordance with the original or modified contractual terms of their agreements upon exit from deferral programs, they will be placed on nonaccrual status in line with the Firm’s nonaccrual policy, except for credit cards as permitted by regulatory guidance, and charged off or down in accordance with the Firm’s charge-off policies. Refer to Note 12 for additional information on the Firm’s nonaccrual and charge- off policies. 116 JPMorgan Chase & Co./2020 Form 10-K The following table provides a summary of the Firm’s residential mortgage portfolio insured and/or guaranteed by U.S. government agencies, predominantly loans held-for- sale and loans at fair value. 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 Total government guaranteed loans(a) $ December 31, 2020 December 31, 2019 $ 669 $ 235 874 1,778 $ 1,432 704 1,090 3,226 (a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans. Prior-period amounts have been revised to conform with the current presentation. Geographic composition and current estimated loan-to- value ratio of residential real estate loans At December 31, 2020, $146.6 billion, or 65% of the total retained residential real estate loan portfolio, excluding mortgage loans insured by U.S. government agencies, were concentrated in California, New York, Florida, Texas and Illinois, compared with $157.9 billion, or 65%, at December 31, 2019. 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 information on the geographic composition and current estimated LTVs of the Firm’s residential real estate loans. Consumer, excluding credit card Portfolio analysis Loan balances were flat from December 31, 2019 as PPP loan originations in Business Banking were offset by lower residential real estate loans, reflecting paydowns. The following discussions provide information concerning individual loan products. Refer to Note 12 for further information about this portfolio, including information about delinquencies, loan modifications and other credit quality indicators. Residential real estate: The residential real estate portfolio, including loans held-for-sale and loans at fair value, predominantly consists of prime mortgage loans and home equity lines of credit. The portfolio decreased from December 31, 2019 driven by paydowns largely offset by originations of prime mortgage loans that have been retained on the balance sheet. The 30+ delinquency rate decreased to 0.98% at December 31, 2020, from 1.35% at December 31, 2019, primarily due to payment assistance and government stimulus. Nonaccrual loans increased from December 31, 2019 due primarily to loans placed on nonaccrual status related to the impact of the COVID-19 pandemic as well as the adoption of CECL, as PCD loans became subject to nonaccrual treatment. Net recoveries for the year ended December 31, 2020 were higher when compared with the prior year as the current year benefited from a recovery on a loan sale. The carrying value of home equity lines of credit outstanding was $23.7 billion at December 31, 2020. This amount included $8.6 billion of HELOCs that have recast from interest-only to fully amortizing payments or have been modified and $7.7 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. At December 31, 2020 and 2019, the carrying value of interest-only residential mortgage loans were $25.6 billion and $22.5 billion, respectively. 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. The net charge-off rate for the year ended December 31, 2020 was consistent with the rate of the broader residential mortgage portfolio as the performance of this portfolio is generally in line with the performance of the broader residential mortgage portfolio. JPMorgan Chase & Co./2020 Form 10-K 117 benefited from payment assistance programs and high vehicle collateral values. Nonperforming assets The following table presents information as of December 31, 2020 and 2019, about consumer, excluding credit card, nonperforming assets. Nonperforming assets(a) December 31, (in millions) 2019 2020 Nonaccrual loans Residential real estate(b)(c)(d) Auto and other Total nonaccrual loans Assets acquired in loan satisfactions Real estate owned(e) Other $ 6,316 $ 3,220 151 6,467 131 21 146 3,366 229 24 Total assets acquired in loan satisfactions Total nonperforming assets 152 $ 6,619 $ 253 3,619 (a) At December 31, 2020 and 2019, nonperforming assets excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $874 million and $1.1 billion, respectively, and REO insured by U.S. government agencies of $9 million and $41 million, respectively. Prior-period amount of mortgage loans 90 or more days past due and insured by U.S. government agencies excluded from nonperforming assets has been revised to conform with the current presentation; refer to footnote (b) for additional information. These amounts have been excluded based upon the government guarantee. (b) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans. Prior-period amounts have been revised to conform with the current presentation. (c) Generally excludes loans under payment deferral programs offered in response to the COVID-19 pandemic. Includes loans to customers that have exited COVID-19 payment deferral programs and are 90 or more days past due, predominantly all of which were also at least 150 days past due and therefore considered collateral-dependent. Collateral- dependent loans are charged down to the lower of amortized cost or fair value of the underlying collateral less costs to sell. (d) At December 31, 2020, nonaccrual loans included $1.6 billion of PCD loans. Prior to the adoption of CECL, nonaccrual loans excluded PCI loans as the Firm recognized interest income on each pool of PCI loans as each of the pools was performing. (e) Prior-period amount has been revised to conform with the current presentation. Management’s discussion and analysis Modified residential real estate loans The following table presents information relating to modified retained residential real estate loans for which concessions have been granted to borrowers experiencing financial difficulty, which include both TDRs and modified loans accounted for as PCI loans prior to the adoption of CECL. The following table does not include loans with short- term or other insignificant modifications that are not considered concessions and, therefore, are not TDRs, or loans for which the Firm has elected to apply the option to suspend the application of accounting guidance for TDRs as provided by the CARES Act and extended by the Consolidated Appropriations Act. Refer to Note 12 for further information on modifications for the years ended December 31, 2020 and 2019. (in millions) Retained loans(a) PCI loans Nonaccrual retained loans(b)(c) December 31, 2020 December 31, 2019 $ $ 15,406 5,926 NA 12,372 (d) 3,899 2,332 (a) At December 31, 2020 and 2019, $7 million and $14 million, 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. (b) At December 31, 2020 and 2019, nonaccrual loans included $3.0 billion and $1.9 billion, respectively, of 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. (c) At December 31, 2020, nonaccrual loans included $1.3 billion of PCD loans. Prior to the adoption of CECL, nonaccrual loans excluded PCI loans as the Firm recognized interest income on each pool of PCI loans as each of the pools was performing. (d) Amount represents the unpaid principal balance of modified PCI loans at December 31, 2019, which were moved to retained loans upon the adoption of CECL. Auto and other: The auto and other loan portfolio predominantly consists of prime-quality scored auto and business banking loans, as well as overdrafts. The portfolio increased when compared with December 31, 2019, predominantly due to PPP loan originations of $21.9 billion in Business Banking of which $19.2 billion remained outstanding at December 31, 2020 as well as from growth in the auto portfolio from loan originations, partially offset by paydowns and charge-offs or liquidation of delinquent loans. The 30+ delinquency rate decreased to 0.60% at December 31, 2020, from 1.31% at December 31, 2019, primarily due to payment assistance and government stimulus, as well as PPP loan originations as these loans are all considered current. The scored auto portfolio net charge-off rates were 0.25% and 0.44% for the years ended December 31, 2020 and 2019, respectively. Auto charge-offs for the year ended December 31, 2020 118 JPMorgan Chase & Co./2020 Form 10-K Nonaccrual loans The following table presents changes in consumer, excluding credit card, nonaccrual loans for the years ended December 31, 2020 and 2019. Nonaccrual loan activity(a) Year ended December 31, (in millions) Beginning balance Additions: PCD loans, upon adoption of CECL Other additions Total additions Reductions: Principal payments and other(b) Charge-offs Returned to performing status Foreclosures and other liquidations Total reductions Net changes Ending balance 2020 3,366 $ $ 708 5,184 5,892 (c) 983 390 1,024 394 2,791 3,101 6,467 $ 2019 3,853 NA 2,174 2,174 1,167 371 751 372 2,661 (487) $ 3,366 (a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans. Prior-period amounts have been revised to conform with the current presentation. (b) Other reductions includes loan sales. (c) Includes loans to customers that have exited COVID-19 payment deferral programs and are 90 or more days past due, predominantly all of which were also at least 150 days past due and therefore considered collateral-dependent. Collateral-dependent loans are charged down to the lower of amortized cost or fair value of the underlying collateral less costs to sell. Active and suspended foreclosure: Refer to Note 12 for information on loans that were in the process of active or suspended foreclosure. Refer to Note 12 for further information about the consumer credit portfolio, including information about delinquencies, loan modifications and other credit quality indicators. Purchased credit deteriorated (“PCD”) loans The following tables provide credit-related information for PCD loans, which were accounted for as PCI loans prior to the adoption of CECL. PCI loans are considered PCD loans under CECL and are subject to the Firm’s nonaccrual and charge-off policies. PCD loans are now reported in the consumer, excluding credit card portfolio’s residential real estate class. Refer to Note 1 for further information. (in millions, except ratios) Loan delinquency(a) December 31, 2020 December 31, 2019 Current $ 16,036 $ 18,571 30-149 days past due 150 or more days past due(b) 432 573 970 822 Total PCD loans $ 17,041 $ 20,363 % of 30+ days past due to total retained PCD loans Nonaccrual loans(c) (in millions, except ratios) Net charge-offs Net charge-off rate 5.90 % 8.80 % $ 1,609 NA $ Twelve months ended December 31, 2020 74 0.39 % (a) At December 31, 2020, loans under payment deferral programs offered in response to the COVID-19 pandemic which are still within their deferral period and performing according to their modified terms are generally not considered delinquent. (b) Includes loans to customers that have exited COVID-19 payment deferral programs and are 150 or more days past due and therefore considered collateral-dependent. Collateral dependent loans are charged down to the lower of amortized cost or fair value of the underlying collateral less costs to sell. (c) Includes loans to customers that have exited COVID-19 payment deferral programs and are 90 or more days past due, predominantly all of which were also at least 150 days past due and therefore considered collateral-dependent. JPMorgan Chase & Co./2020 Form 10-K 119 Management’s discussion and analysis Credit card Total credit card loans decreased from December 31, 2019 reflecting a decline in sales volume that began in March as a result of the impact of the COVID-19 pandemic. The December 31, 2020 30+ and 90+ day delinquency rates of 1.68% and 0.92%, respectively, decreased compared to the December 31, 2019 30+ and 90+ day delinquency rates of 1.87% and 0.95%, respectively. The delinquency rates were positively impacted by borrowers who received payment assistance and government stimulus. Net charge- offs decreased for the year ended December 31, 2020 compared with the prior year reflecting lower charge-offs and higher recoveries primarily benefiting from payment assistance and government stimulus. Consistent with the Firm’s policy, all credit card loans typically remain on accrual status until charged off. However, the Firm’s allowance for loan losses includes 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, 2020, $65.0 billion, or 45% of the total retained credit card loan portfolio, was concentrated in California, Texas, New York, Florida and Illinois, compared with $77.5 billion, or 46%, at December 31, 2019. 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, 2020, the Firm had $1.4 billion of credit card loans outstanding that have been modified in TDRs, which does not include loans with short-term or other insignificant modifications that are not considered TDRs, compared to $1.5 billion at December 31, 2019. Refer to Note 12 for additional information about loan modification programs for borrowers. 120 JPMorgan Chase & Co./2020 Form 10-K 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 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. Refer to the industry discussion on pages 123-127 for further information. The Firm’s wholesale credit portfolio includes exposure held in CIB, CB, AWM and Corporate, as well as risk-rated business banking and auto dealer exposures held in CCB for which the wholesale methodology is applied when determining the allowance for credit losses. In 2020, the impacts of the COVID-19 pandemic resulted in broad-based credit deterioration and an increase in the allowance for credit losses. As of December 31, 2020, the investment-grade percentage of the portfolio decreased from 74% to 71%, and criticized exposure increased $26.5 billion from $15.1 billion to $41.6 billion. The increase in criticized exposure was largely driven by downgrades in Consumer & Retail, Oil & Gas and Real Estate, and to a lesser extent, net portfolio activity in Technology, Media & Telecommunications. The continuation or worsening of the effects of the COVID-19 pandemic on the macroeconomic environment could result in further impacts to credit quality metrics, including investment-grade percentages, as well as to criticized and nonperforming exposures and charge-offs. As of December 31, 2020 retained loans were up $33.3 billion predominantly driven by AWM and CIB, and lending- related commitments were up $32.4 billion, predominantly driven by CIB and CB. Wholesale credit portfolio December 31, (in millions) Loans retained Loans held-for-sale Loans at fair value (a) Loans – reported Credit exposure 2020 2019 Nonperforming(f) 2019 2020 $ 514,947 $ 481,678 $ 3,318 $ 1,057 5,784 4,062 29,327 25,139 284 504 5 209 550,058 510,879 4,106 1,271 Derivative receivables 79,630 49,766 47,710 33,706 56 — 30 — Receivables from customers(b) Total wholesale credit- related assets Assets acquired in loan satisfactions Real estate owned (c) Other Total assets acquired in loan satisfactions Lending-related commitments (a) Total wholesale credit portfolio Credit derivatives used in credit portfolio management activities(c)(d) Liquid securities and other cash collateral held against derivatives(e) 677,398 594,351 4,162 1,301 NA NA NA NA NA 125 — 115 19 NA 125 134 449,863 417,510 577 474 $ 1,127,261 $ 1,011,861 $ 4,864 $ 1,909 $ (22,239) $ (18,530) $ — $ — (14,806) (13,052) NA NA (a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans, which resulted in a corresponding reclassification of certain off- balance sheet commitments. Prior-period amounts have been revised to conform with the current presentation. (b) Receivables from customers reflect held-for-investment margin loans to brokerage clients in CIB, CCB and AWM; these are reported within accrued interest and accounts receivable on the Consolidated balance sheets. (c) Prior-period amounts have been revised to conform with the current presentation. (d) 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 131 and Note 5 for additional information. (e) In the fourth quarter of 2020, the Firm refined its approach for disclosing additional collateral held by the Firm that may be used as security when the fair value of the client’s exposure is in the Firm’s favor. Prior-period amounts have been revised to conform with the current presentation. (f) Loans that were modified in response to the COVID-19 pandemic continue to be risk-rated in accordance with the Firm’s overall credit risk management framework. As of December 31, 2020, predominantly all of these loans were considered performing. JPMorgan Chase & Co./2020 Form 10-K 121 Management’s discussion and analysis Wholesale assistance In March 2020, the Firm began providing assistance to clients in response to the COVID-19 pandemic, predominantly in the form of payment deferrals and covenant modifications. As of December 31, 2020, the Firm had approximately $1.6 billion of retained loans still under payment deferral, which has decreased approximately $4.6 billion from the third quarter, and $15.1 billion from the second quarter. Predominantly all clients that exited deferral are current or have paid down their loans, and the Firm has not experienced significant new payment deferral requests. The Firm continues to monitor the credit risk associated with loans subject to deferrals throughout the deferral period and on an ongoing basis after the borrowers are required to resume making regularly scheduled payments and considers expected losses of principal and accrued interest on these loans in its allowance for credit losses. (in millions, except ratios) December 31, 2020 September 30, 2020 June 30, 2020 Industry Real Estate Individuals and Individual Entities Transportation Consumer & Retail Automotive Industrials Healthcare All Other industries Total wholesale $ $ Loan balance 550 402 394 82 22 19 7 147 1,623 Percent of total industry loan balance(a) 0.46 % 0.37 5.99 0.21 0.13 0.09 0.04 0.08 0.32 % IG percentage of loan balance in payment deferral Loan balance Loan balance 36 % $ 4 92 2 — — — 99 45 % $ 4,385 $ 691 346 413 15 91 100 233 6,274 $ 5,211 809 294 690 8,827 335 300 309 16,775 (a) Represents the balance of the retained loans which were still under payment deferral, divided by the respective industry total retained loans balance. In addition, the Firm granted assistance in the form of covenant modifications. These types of assistance, both payment deferrals and covenant modifications, are generally not reported as TDRs, either because the modifications were insignificant or they qualified for the option to suspend the application of accounting guidance for TDRs as provided by the CARES Act and extended by the Consolidated Appropriations Act. A portion of the $1.6 billion of loans under payment deferral as December 31, 2020 could become TDRs in future periods, depending on the nature and timing of further modifications or payment arrangements offered to these borrowers. If the $1.6 billion of loans under payment deferral were considered TDRs, the Firm estimates that it would result in an increase in standardized RWA of as much as $500 million. Loans under assistance continue to be risk-rated in accordance with the Firm’s overall credit risk management framework. As of December 31, 2020, predominantly all of these loans were considered performing. Wholesale credit exposure – maturity and ratings profile The following tables present the maturity and internal risk ratings profiles of the wholesale credit portfolio as of December 31, 2020 and 2019. The Firm generally considers internal ratings with qualitative characteristics equivalent to BBB-/Baa3 or higher as investment grade, and takes into consideration collateral and structural support when determining the internal risk rating for each credit facility. Refer to Note 12 for further information on internal risk ratings. Maturity profile(g) Ratings profile December 31, 2020 (in millions, except ratios) Loans retained Derivative receivables Less: Liquid securities and other cash collateral held against derivatives(b) Total derivative receivables, net of collateral Lending-related commitments(c) Subtotal Loans held-for-sale and loans at fair value(c)(d) Receivables from customers Total exposure – net of liquid securities and other cash collateral held against derivatives Credit derivatives used in credit portfolio management activities(e)(f) 1 year or less 1 year through 5 years After 5 years Total Investment- grade Noninvestment- grade Total Total % of IG $ 183,969 $ 197,905 $ 133,073 $ 514,947 $ 379,273 $ 135,674 $ 514,947 74 % 79,630 (14,806) 18,456 17,599 28,769 64,824 38,941 116,950 315,179 17,734 449,863 312,694 25,883 137,169 79,630 (14,806) 64,824 449,863 319,375 530,683 179,576 1,029,634 730,908 298,726 1,029,634 35,111 47,710 $ 1,112,455 35,111 47,710 $ 1,112,455 60 70 71 $ (6,190) $ (13,223) $ (2,826) $ (22,239) $ (17,860) $ (4,379) $ (22,239) 80 % 122 JPMorgan Chase & Co./2020 Form 10-K December 31, 2019 (in millions, except ratios) Loans retained(a) Derivative receivables Less: Liquid securities and other cash collateral held against derivatives(b) Total derivative receivables, net of collateral Lending-related commitments(a)(c) Subtotal Loans held-for-sale and loans at fair value(c)(d) Receivables from customers Total exposure – net of liquid securities and other cash collateral held against derivatives Credit derivatives used in credit portfolio management activities(a)(e)(f) Maturity profile(g) Ratings profile 1 year or less 1 year through 5 years After 5 years Total Investment- grade Noninvestment- grade Total Total % of IG $ 159,006 $ 186,256 $ 136,416 $ 481,678 $ 363,444 $ 118,234 $ 481,678 75 % 49,766 (13,052) 7,136 7,569 22,009 36,714 87,577 312,939 16,994 417,510 253,719 506,764 175,419 935,902 29,416 296,702 689,562 7,298 120,808 246,340 29,201 33,706 $ 998,809 49,766 (13,052) 36,714 417,510 935,902 29,201 33,706 $ 998,809 80 71 74 $ (5,412) $ (10,031) $ (3,087) $ (18,530) $ (16,724) $ (1,806) $ (18,530) 90 % (a) Prior-period amounts have been revised to conform with the current presentation. (b) In the fourth quarter of 2020, the Firm refined its approach for disclosing additional collateral held by the Firm that may be used as security when the fair value of the client’s exposure is in the Firm’s favor. Prior-period amounts have been revised to conform with the current presentation. (c) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans, which resulted in a corresponding reclassification of certain off-balance sheet commitments. Prior-period amounts have been revised to conform with the current presentation. (d) Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value. (e) These derivatives do not qualify for hedge accounting under U.S. GAAP. (f) 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. (g) The maturity profile of retained loans, lending-related commitments and derivative receivables is generally based on remaining contractual maturity. Derivative contracts that are in a receivable position at December 31, 2020, 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. Total criticized exposure excluding loans held- for-sale and loans at fair value, was $41.6 billion at December 31, 2020, compared with $15.1 billion at December 31, 2019, representing approximately 4.0% and 1.5% of total wholesale credit exposure, respectively. The increase in total criticized exposure was largely driven by downgrades in Consumer & Retail, Oil & Gas and Real Estate due to impacts from the COVID-19 pandemic, and to a lesser extent, net portfolio activity in Technology, Media & Telecommunications. Predominantly all of the $41.6 billion was performing and largely undrawn. JPMorgan Chase & Co./2020 Form 10-K 123 Management’s discussion and analysis The table below summarizes by industry the Firm’s exposures as of December 31, 2020 and 2019. 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) Noninvestment-grade Credit exposure(f)(g) Investment- grade(g) Noncriticized(g) Criticized performing Criticized nonperforming Selected metrics 30 days or more past due and accruing loans(h) Net charge- offs/ (recoveries) Credit derivative hedges(i) Liquid securities and other cash collateral held against derivative receivables(k) $ 148,498 $ 116,124 $ 27,576 $ 4,294 $ 504 $ 374 $ 94 $ (110) $ As of or for the year ended December 31, 2020 (in millions) Real Estate Individuals and Individual Entities(b) Consumer & Retail Technology, Media & Telecommunications Asset Managers Industrials Healthcare Banks & Finance Cos Automotive Oil & Gas State & Municipal Govt(c) Utilities Chemicals & Plastics Central Govt Transportation Metals & Mining Insurance Securities Firms Financial Markets Infrastructure All other(d) 122,870 107,266 108,437 57,580 14,688 41,624 227 8,852 72,150 36,435 27,770 7,738 66,573 66,470 60,118 54,032 43,331 39,159 38,286 30,124 17,176 17,025 16,232 15,542 13,141 8,048 6,515 57,582 37,512 44,901 35,115 25,548 18,456 37,705 22,451 10,622 16,652 7,549 5,958 10,177 6,116 6,449 8,885 26,881 13,356 17,820 15,575 14,969 574 7,048 5,703 373 6,340 8,699 2,960 1,927 66 85 1,852 1,684 1,045 2,149 4,952 2 571 822 — 2,137 704 3 1 — 689 381 207 21 225 177 52 59 782 5 54 29 — 206 181 1 4 — 100,713 84,650 15,185 504 374 1,570 203 10 19 278 96 20 152 11 41 14 6 — 30 8 7 — — 83 (17) — (381) (934) (56) 55 73 1 70 104 13 22 249 — — (658) (378) (555) (434) (238) — (7) (402) — — 117 16 — 18 — (83) (8,364) (83) (141) — (49) — — — (5) (4,685) (61) (191) (1,648) — (4) (41) (1) — (982) (26) (13) (1,771) (3,423) (10) (9) (9,429) (1,889) Subtotal $ 1,044,440 $ 744,848 $ 258,019 $ 37,622 $ 3,951 $ 2,922 $ 799 $ (22,239) $ (14,806) Loans held-for-sale and loans at fair value Receivables from customers Total(e) 35,111 47,710 $ 1,127,261 124 JPMorgan Chase & Co./2020 Form 10-K Noninvestment-grade Credit exposure(f)(g) Investment- grade(g) Noncriticized(g) Criticized performing Criticized nonperforming Selected metrics 30 days or more past due and accruing loans Net charge- offs/ (recoveries) Credit derivative hedges(i) Liquid securities and other cash collateral held against derivative receivables(k) $ 150,919 $ 121,625 $ 27,779 $ 1,457 $ 58 $ 104 $ 13 $ (100) $ 105,027 106,986 93,181 58,704 11,617 45,806 192 2,261 60,033 35,878 21,066 2,953 54,304 62,483 50,824 50,786 35,118 41,641 30,095 34,843 17,499 14,865 14,497 15,586 12,348 7,381 4,121 47,569 39,434 36,988 34,941 24,255 22,244 29,586 22,213 12,033 14,524 8,734 7,095 9,458 6,010 3,969 79,598 73,453 6,716 21,673 12,544 15,031 10,246 17,823 509 12,316 5,243 341 5,336 7,789 2,867 1,344 152 5,722 6 1,157 1,141 808 615 995 — 301 221 — 353 661 19 27 — 412 37 215 136 13 219 151 6 2 579 — 13 2 — 74 41 4 — — 11 388 118 27 18 172 108 — 8 — 33 2 5 — 30 2 3 — — 4 33 124 27 — 48 14 — 1 98 7 39 — — 8 (1) — — — 4 — (235) (658) — (746) (405) (834) (194) (429) — (414) (10) (9,018) (37) (33) (36) (48) — (5,333) (j) — (287) (5) (13) (4,410) (1) (144) (1,419) — (6) (16) (34) (13) (850) (37) (2) (1,790) (3,088) (4) (933) As of or for the year ended December 31, 2019 (in millions) Real Estate Individuals and Individual Entities(b) Consumer & Retail Technology, Media & Telecommunications Asset Managers Industrials Healthcare Banks & Finance Cos Automotive Oil & Gas State & Municipal Govt(c) Utilities Chemicals & Plastics Central Govt Transportation Metals & Mining Insurance Securities Firms Financial Markets Infrastructure All other(d) Subtotal $ 948,954 $ 701,894 $ 231,920 $ 13,579 $ 1,561 $ 1,022 $ 415 $ (18,530) $ (13,052) Loans held-for-sale and loans at fair value Receivables from customers Total(e) 29,201 33,706 $ 1,011,861 (a) The industry rankings presented in the table as of December 31, 2019, are based on the industry rankings of the corresponding exposures at December 31, 2020, not actual rankings of such exposures at December 31, 2019. (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, 2020 and 2019, noted above, the Firm held: $7.2 billion and $6.5 billion, respectively, of trading assets; $20.4 billion and $29.8 billion, respectively, of AFS securities; and $12.8 billion and $4.8 billion, respectively, of 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 December 31, 2020 and 90% and 10%, respectively, at December 31, 2019 . (e) Excludes cash placed with banks of $516.9 billion and $254.0 billion, at December 31, 2020 and 2019, 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) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans, which resulted in a corresponding reclassification of certain off-balance sheet commitments. Prior-period amounts have been revised to conform with the current presentation. (h) Generally excludes loans under payment deferral programs offered in response to the COVID-19 pandemic. (i) 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. (j) Prior-period amount has been revised to conform with the current presentation. (k) In the fourth quarter of 2020, the Firm refined its approach for disclosing additional collateral held by the Firm that may be used as security when the fair value of the client’s exposure is in the Firm’s favor. Prior-period amounts have been revised to conform with the current presentation. JPMorgan Chase & Co./2020 Form 10-K 125 Management’s discussion and analysis Presented below is additional detail on certain of the Firm’s largest industry exposures and/or certain industries which present potential heightened credit concerns. Real Estate Real Estate exposure was $148.5 billion as of December 31, 2020, of which $85.6 billion was multifamily lending as shown in the table below. During the year ended December 31, 2020, the following changes were primarily driven by impacts from the COVID-19 pandemic: • • • the investment-grade portion of the Real Estate portfolio decreased from 81% to 78%. the drawn percentage of this portfolio increased from 78% to 80% criticized exposure increased by $3.3 billion from $1.5 billion to $4.8 billion (in millions, except ratios) Multifamily(a) Office Other Income Producing Properties(b) Retail Services and Non Income Producing Industrial Lodging Total Real Estate Exposure(c) (in millions, except ratios) Multifamily(a) Office Other Income Producing Properties(b) Retail Services and Non Income Producing Industrial Lodging Total Real Estate Exposure Loans and Lending-related Commitments(d) 85,368 $ 16,372 13,435 10,573 9,242 9,039 3,084 December 31, 2020 Derivative Receivables Credit exposure $ 183 475 421 199 22 69 16 $ 85,551 16,847 13,856 10,772 9,264 9,108 3,100 147,113 1,385 148,498 Loans and Lending-related Commitments(d) 86,381 $ 15,734 14,372 11,347 9,922 8,842 3,702 150,300 December 31, 2019 Derivative Receivables Credit exposure $ 58 231 181 87 19 24 19 619 $ 86,439 15,965 14,553 11,434 9,941 8,866 3,721 150,919 % Investment- grade 85 % % Drawn(e) 92 % 76 76 60 62 76 24 78 70 55 69 47 73 57 80 % Investment- grade 91 % % Drawn(e) 92 % 80 48 83 57 74 51 81 70 45 68 47 75 38 78 (a) Multifamily exposure is largely in California. (b) Other Income Producing Properties consists of clients with diversified property types or other property types outside of multifamily, office, retail, industrial and lodging with less material exposures. (c) Real Estate exposure is approximately 80% secured; unsecured exposure is approximately 78% investment-grade. (d) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans, which resulted in a corresponding reclassification of certain off-balance sheet commitments. Prior-period amounts have been revised to conform with the current presentation. (e) Represents drawn exposure as a percentage of credit exposure. 126 JPMorgan Chase & Co./2020 Form 10-K Consumer & Retail Consumer & Retail exposure was $108.4 billion as of December 31, 2020, and predominantly included Retail, Food and Beverage, and Business and Consumer Services as shown in the table below. During the year ended December 31, 2020, the following changes were primarily driven by impacts from the COVID-19 pandemic: • • • the investment-grade portion of the Consumer & Retail portfolio decreased from 55% to 53% the drawn percentage of this portfolio increased from 35% to 36% criticized exposure increased by $6.7 billion from $2.5 billion to $9.2 billion (in millions, except ratios) Retail(a) Food and Beverage Business and Consumer Services Consumer Hard Goods Leisure(b) Total Consumer & Retail(c) (in millions, except ratios) Retail(a) Food and Beverage Business and Consumer Services Consumer Hard Goods Leisure(b) Total Consumer & Retail December 31, 2020 Loans and Lending-related Commitments Derivative Receivables Credit exposure $ $ 32,486 28,012 24,760 12,937 7,440 887 897 599 178 241 $ 33,373 28,909 25,359 13,115 7,681 105,635 2,802 108,437 December 31, 2019 Loans and Lending-related Commitments Derivative Receivables Credit exposure $ $ 29,290 27,956 24,242 13,144 10,930 294 625 249 109 147 $ 29,584 28,581 24,491 13,253 11,077 105,562 1,424 106,986 % Investment- grade 52 % % Drawn(d) 33 % 62 52 59 18 53 33 41 36 43 36 % Investment- grade 54 % % Drawn(d) 37 % 67 51 65 21 55 36 37 35 19 35 (a) Retail consists of Home Improvement & Specialty Retailers, Restaurants, Supermarkets, Discount & Drug Stores, Specialty Apparel and Department Stores. (b) Leisure consists of Gaming, Arts & Culture, Travel Services and Sports & Recreation. As of December 31, 2020 approximately 75% of the noninvestment- grade Leisure portfolio is secured. (c) Approximately 80% of the noninvestment-grade portfolio is secured. (d) Represents drawn exposure as a percent of credit exposure. Oil & Gas Oil & Gas exposure was $39.2 billion as of December 31, 2020, including $19.3 billion of Exploration & Production and Oil field Services as shown in the table below. During the year ended December 31, 2020, the following changes were driven by lower oil prices and impacts from the COVID-19 pandemic: • • the investment-grade portion of the Oil & Gas portfolio decreased from 53% to 47% criticized exposure increased by $4.1 billion from $1.6 billion to $5.7 billion (in millions, except ratios) December 31, 2020 Loans and Lending-related Commitments Derivative Receivables Credit exposure Exploration & Production ("E&P") and Oil field Services Other Oil & Gas(a) Total Oil & Gas(b) $ 18,228 19,288 37,516 $ 1,048 $ 595 1,643 19,276 19,883 39,159 % Investment- grade 32 % 62 47 % Drawn(c) 37 % 21 29 (in millions, except ratios) December 31, 2019 Loans and Lending-related Commitments Derivative Receivables Credit exposure % Investment- grade Exploration & Production ("E&P") and Oil field Services Other Oil & Gas(a) Total Oil & Gas(b) $ $ 22,543 18,246 40,789 646 206 852 $ 23,189 18,452 41,641 38 % 73 53 % Drawn(c) 38 % 23 31 (a) Other Oil & Gas includes Integrated Oil & Gas companies, Midstream/Oil Pipeline companies and refineries. (b) Secured lending was $13.2 billion and $15.7 billion at December 31, 2020 and 2019, respectively, approximately half of which is reserve-based lending to the Exploration & Production sub-sector; unsecured exposure is largely investment-grade. (c) Represents drawn exposure as a percent of credit exposure. JPMorgan Chase & Co./2020 Form 10-K 127 The following table presents net charge-offs/recoveries, which are defined as gross charge-offs less recoveries, for the years ended December 31, 2020 and 2019. 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) 2020 2019 Loans – reported Average loans retained $ 509,907 $ 472,628 Gross charge-offs Gross recoveries collected Net charge-offs/(recoveries) 954 (155) 799 472 (57) 415 Net charge-off/(recovery) rate 0.16 % 0.09 % Management’s discussion and analysis 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, 2020 and 2019. The increase was driven by downgrades across multiple industries on client credit deterioration, with the largest concentration in Real Estate, predominantly within retail and lodging. Wholesale nonaccrual loan activity Year ended December 31, (in millions) Beginning balance Additions(a) Reductions: Paydowns and other Gross charge-offs Returned to performing status Sales Total reductions Net changes Ending balance 2020 2019 $ 1,271 $ 1,587 6,753 2,552 2,290 1,585 922 569 137 3,918 2,835 425 652 206 2,868 (316) $ 4,106 $ 1,271 (a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans. Prior-period amounts have been revised to conform with the current presentation. 128 JPMorgan Chase & Co./2020 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 have historically been refinanced, extended, cancelled, or expired 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 reflect held-for-investment margin loans to brokerage clients in CIB, CCB 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). Because of this collateralization, no allowance for credit losses is generally 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 risk 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 can also be 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. 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 88% and 90% at December 31, 2020 and 2019, respectively. Refer to Note 5 for additional information on the Firm’s use of collateral agreements. Refer to Note 5 for a further discussion of derivative contracts, counterparties and settlement types. The fair value of derivative receivables reported on the Consolidated balance sheets were $79.6 billion and $49.8 billion at December 31, 2020 and 2019, respectively, with increases in CIB resulting from market movements. Derivative receivables represent the fair value of the derivative contracts after giving effect to legally enforceable master netting agreements and the related cash collateral held by the Firm. In addition, the Firm held liquid securities and other cash collateral that the Firm believes is legally enforceable and may be used as security when the fair value of the client’s exposure is in the Firm’s favor. Liquid securities represents high quality liquid assets as defined in the LCR rule. In management’s view, the appropriate measure of current credit risk should also take into consideration other collateral, which generally represents securities that do not qualify as high quality liquid assets under the LCR rule, but that the Firm believes is legally enforceable. The collateral amounts for each counterparty are limited to the net derivative receivables for the counterparty. The following tables summarize the net derivative receivables and the internal ratings profile for the periods presented. Derivative receivables December 31, (in millions) 2020 2019 Total, net of cash collateral $ 79,630 $ 49,766 Liquid securities and other cash collateral held against derivative receivables(a) Total, net of liquid securities and other cash collateral Other collateral held against derivative receivables(a) (14,806) (13,052) $ 64,824 $ 36,714 (6,022) (1,837) Total, net of collateral $ 58,802 $ 34,877 (a) In the fourth quarter of 2020, the Firm refined its approach for disclosing additional collateral held by the Firm that may be used as security when the fair value of the client’s exposure is in the Firm’s favor. Prior-period amounts have been revised to conform with the current presentation. JPMorgan Chase & Co./2020 Form 10-K 129 Management’s discussion and analysis Ratings profile of derivative receivables December 31, (in millions, except ratios) Investment-grade Noninvestment-grade Total 2020(a) 2019(a) Exposure net of collateral % of exposure net of collateral Exposure net of collateral % of exposure net of collateral $ $ 37,013 21,789 58,802 63 % $ 37 100 % $ 27,851 7,026 34,877 80 % 20 100 % (a) In the fourth quarter of 2020, the Firm refined its approach for disclosing additional collateral held by the Firm that may be used as security when the fair value of the client’s exposure is in the Firm’s favor. Prior-period amounts have been revised to conform with the current presentation. 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 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. 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 a particular 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, 2020 (in billions) 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. 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 (“AVG”). These measures all incorporate netting and collateral benefits, where applicable. Peak represents a conservative measure of potential derivative exposure, including the benefit of collateral, 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, including the benefit of collateral, 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 exposure, including the benefit of collateral, at future time periods. 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. 130 JPMorgan Chase & Co./2020 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 lending-related 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(b) 2019 2020 Loans and lending-related commitments Derivative receivables (a) $ 3,877 $ 2,047 18,362 16,483 Credit derivatives used in credit portfolio management activities $ 22,239 $ 18,530 (a) Prior-period amount has been revised to conform with the current presentation. (b) 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./2020 Form 10-K 131 prospect that government and other consumer relief measures set to expire may not be extended, the Firm has placed significant weighting on its adverse scenarios. These scenarios incorporate more punitive macroeconomic factors than the central case assumptions, resulting in weighted average U.S. unemployment rates remaining elevated throughout 2021 and 2022, ending the fourth quarter of 2022 at approximately 6%, and in U.S. GDP ending 2022 approximately 0.9% higher than fourth quarter 2019 actual pre-pandemic levels. The Firm’s central case assumptions reflected U.S. unemployment rates and U.S. real GDP as follows: U.S. unemployment rate(a) Cumulative change in U.S. real GDP from 12/31/2019 Assumptions at January 1, 2020 4Q20(b) 2Q21 2Q20 3.7 % 3.8 % 4.0 % 0.9 % 1.7 % 2.4 % Assumptions at December 31, 2020 4Q21 2Q22 2Q21 U.S. unemployment rate(a) Cumulative change in U.S. real GDP from 12/31/2019 6.8 % 5.7 % 5.1 % (1.9) % 0.6 % 2.0 % (a) Reflects quarterly average of forecasted U.S. unemployment rate. (b) 4Q20 actual U.S. unemployment rate (quarterly average) was 6.8%. 4Q20 actual cumulative change in U.S. real GDP from 4Q19 was (2.5%). Subsequent changes to this forecast and related estimates will be reflected in the provision for credit losses in future periods. Refer to Note 13 and Note 10 for a description of the policies, methodologies and judgments used to determine the Firm’s allowances for credit losses on loans, lending-related commitments, and investment securities. Refer to Critical Accounting Estimates Used by the Firm on pages 152-155 for further information on the allowance for credit losses and related management judgments. Refer to Consumer Credit Portfolio on pages 114-120, Wholesale Credit Portfolio on pages 121-131 and Note 12 for additional information on the consumer and wholesale credit portfolios. Management’s discussion and analysis ALLOWANCE FOR CREDIT LOSSES Effective January 1, 2020, the Firm adopted the CECL accounting guidance. The adoption of this guidance established a single allowance framework for all financial assets measured at amortized cost and certain off-balance sheet credit exposures. This framework requires that management’s estimate reflects credit losses over the instrument’s remaining expected life and considers expected future changes in macroeconomic conditions. Refer to Note 1 for further information. The Firm’s allowance for credit losses comprises: • the allowance for loan losses, which covers the Firm’s retained loan portfolios (scored and risk-rated) and is presented separately on the Consolidated balance sheets, • the allowance for lending-related commitments, which is presented on the Consolidated balance sheets in accounts payable and other liabilities, and • the allowance for credit losses on investment securities, which covers the Firm’s HTM and AFS securities and is recognized within Investment Securities on the Consolidated balance sheets. The allowance for credit losses increased compared with December 31, 2019, primarily reflecting the deterioration and uncertainty in the macroeconomic environment, in particular in the first half of 2020, as a result of the impact of the COVID-19 pandemic, consisting of: • a net $7.4 billion addition in consumer, predominantly in the credit card portfolio, and • a net $4.7 billion addition in wholesale, across the LOBs, impacting multiple industries. The adoption of CECL on January 1, 2020, resulted in a $4.3 billion addition to the allowance for credit losses. Discussion of changes in the allowance during 2020 The increase in the allowance for loan losses and lending- related commitments was primarily driven by an increase in the provision for credit losses, reflecting the deterioration in and uncertainty around the future macroeconomic environment as a result of the impact of the COVID-19 pandemic. As of December 31, 2020, the Firm’s central case reflected U.S. unemployment rates of approximately 7% through the second quarter of 2021 and remaining above 5% until the second half of 2022. This compared with relatively low levels of unemployment of approximately 4% throughout 2020 and 2021 in the Firm’s January 1, 2020 central case. Further, while the Firm’s January 1, 2020 central case U.S. GDP forecast reflected a 1.7% expansion in 2020, actual U.S. GDP contracted approximately 2.5% in 2020. As of December 31, 2020, the Firm’s central case assumptions reflect a return to pre-pandemic GDP levels in the fourth quarter of 2021. Due to elevated uncertainty in the near term outlook, driven by the potential for increased infection rates and related lock downs resulting from the pandemic, as well as the 132 JPMorgan Chase & Co./2020 Form 10-K The adoption of the CECL accounting guidance resulted in a change in the accounting for PCI loans, which are considered PCD loans under CECL. In conjunction with the adoption of CECL, the Firm reclassified risk-rated loans and lending-related commitments from the consumer, excluding credit card portfolio segment to the wholesale portfolio segment, to align with the methodology applied when determining the allowance. Prior-period amounts have been revised to conform with the current presentation. Refer to Note 1 for further information. Allowance for credit losses and related information Year ended December 31, (in millions, except ratios) Allowance for loan losses 2020(d) 2019 Consumer, excluding credit card Credit card Wholesale Total Consumer, excluding credit card Credit card Wholesale Total Beginning balance at January 1, $ 2,538 $ 5,683 $ 4,902 $ 13,123 $ 3,434 $ 5,184 $ 4,827 $ 13,445 Cumulative effect of a change in accounting principle Gross charge-offs Gross recoveries collected Net charge-offs Write-offs of PCI loans(a) Provision for loan losses Other 297 805 (631) 174 5,517 5,077 (791) 4,286 (1,642) 954 (155) 799 4,172 6,836 (1,577) 5,259 NA NA NA NA 974 10,886 4,431 16,291 1 — — 1 NA NA NA NA 902 (536) 366 151 (378) (1) 5,436 (588) 4,848 — 5,348 (1) 472 (57) 415 — 479 11 6,810 (1,181) 5,629 151 5,449 9 Ending balance at December 31, $ 3,636 $ 17,800 $ 6,892 $ 28,328 $ 2,538 $ 5,683 $ 4,902 $ 13,123 Allowance for lending-related commitments Beginning balance at January 1, $ 12 $ Cumulative effect of a change in accounting principle Provision for lending-related commitments Other 133 42 — Ending balance at December 31, $ 187 $ — — — — — $ 1,179 $ 1,191 $ 12 $ — $ 1,043 $ 1,055 (35) 1,079 (1) 98 1,121 (1) NA — — $ 2,222 $ 2,409 $ 12 $ NA NA NA — — — 136 — 136 — $ 1,179 $ 1,191 Impairment methodology Asset-specific(b) Portfolio-based PCI $ (7) $ 633 $ 682 $ 1,308 $ 75 $ 477 $ 295 $ 847 3,643 17,167 6,210 27,020 1,476 5,206 4,607 11,289 NA NA NA NA 987 — — 987 Total allowance for loan losses $ 3,636 $ 17,800 $ 6,892 $ 28,328 $ 2,538 $ 5,683 $ 4,902 $ 13,123 Impairment methodology Asset-specific Portfolio-based Total allowance for lending-related commitments $ — $ 187 $ 187 $ — — — $ 114 $ 114 $ 2,108 2,295 $ — 12 $ 2,222 $ 2,409 $ 12 $ — — — $ 102 $ 102 1,077 1,089 $ 1,179 $ 1,191 Total allowance for credit losses $ 3,823 $ 17,800 $ 9,114 $ 30,737 $ 2,550 $ 5,683 $ 6,081 $ 14,314 Memo: Retained loans, end of period $ 302,127 $ 143,432 $ 514,947 $ 960,506 $ 294,999 $ 168,924 $ 481,678 $ 945,601 Retained loans, average Credit ratios 302,005 146,391 509,907 958,303 312,972 156,319 472,628 941,919 Allowance for loan losses to retained loans 1.20 % 12.41 % 1.34 % 2.95 % 0.86 % 3.36 % 1.02 % 1.39 % Allowance for loan losses to retained nonaccrual loans(c) Allowance for loan losses to retained nonaccrual loans excluding credit card Net charge-off rates 67 67 0.06 NM NM 2.93 208 208 0.16 323 120 0.55 87 87 0.12 NM NM 3.10 464 464 0.09 329 187 0.60 (a) Prior to the adoption of CECL, write-offs of PCI loans were recorded against the allowance for loan losses when actual losses for a pool exceeded estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan was recognized when the underlying loan was removed from a pool. (b) Includes modified PCD loans and loans that have been modified or are reasonably expected to be modified in a TDR. Also includes risk-rated loans that have been placed on nonaccrual status for the wholesale portfolio segment. The asset-specific credit card allowance for loan losses modified or reasonably expected to be modified in a TDR is calculated based on the loans’ original contractual interest rates and does not consider any incremental penalty rates. (c) The Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance. (d) Excludes HTM securities, which had an allowance for credit losses of $78 million and a provision for credit losses of $68 million as of and for the year ended December 31, 2020. JPMorgan Chase & Co./2020 Form 10-K 133 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 non-traded 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, 2020, the Treasury and CIO investment securities portfolio, net of allowance for credit losses, was $587.9 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 83–84 and Note 10 for further information on the investment securities portfolio and internal risk ratings. Refer to Market Risk Management on pages 135–142 for further information on the market risk inherent in the portfolio. Refer to Liquidity Risk Management on pages 102–108 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 privately held non- traded financial instruments representing ownership or other forms of junior capital and span multiple asset classes. These investments are made by dedicated investing businesses or as part of a broader business strategy. In general, principal investments include tax-oriented investments and investments made to enhance or accelerate the Firm’s business strategies. The Firm’s investments will continue to evolve in line with its strategies, including the Firm’s commitment to support underserved communities and minority-owned businesses. The Firm’s principal investments are managed by the LOBs and Corporate and are reflected within their respective financial results. The aggregate carrying values of the principal investment portfolios have not been significantly affected by recent market events as a result of the COVID-19 pandemic. However, the duration and severity of adverse macroeconomic conditions could subject certain principal investments to impairments, write-downs, or other negative impacts. As of December 31, 2020 and 2019, the aggregate carrying values of the principal investment portfolios were $27.5 billion and $24.2 billion, respectively, which included tax-oriented investments (e.g., alternative energy and affordable housing investments) of $21.3 billion and $18.2 billion, respectively, and private equity, various debt and equity instruments, and real assets of $6.2 billion and $6.0 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. 134 JPMorgan Chase & Co./2020 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: • Maintaining 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 reported 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. COVID-19 Pandemic Market Risk Management continues to actively monitor the impact of the COVID-19 pandemic on market risk exposures by leveraging existing risk measures and controls. Models used to measure market risk are inherently imprecise and are limited in their ability to measure certain risks or to predict losses. This imprecision may be heightened when sudden or severe shifts in market conditions occur, such as those observed at the onset of the COVID-19 pandemic. For additional discussion on model uncertainty refer to Estimations and Model Risk Management on page 151. Market Risk Management periodically reviews the Firm’s existing market risk measures to identify opportunities for enhancement, and to the extent appropriate, will calibrate those measures accordingly over time. This is increasingly important in periods of sustained, heightened market volatility. JPMorgan Chase & Co./2020 Form 10-K 135 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 and captured in the table below. Refer to Investment Portfolio Risk Management on page 134 for additional discussion on principal investments. LOBs and Corporate Predominant business activities CCB • Services mortgage loans • Originates loans and takes deposits Related market risks Positions included in Risk Management VaR Positions included in earnings-at-risk Positions included in other sensitivity-based measures • Risk from changes in the probability of newly originated mortgage commitments closing Interest rate risk and prepayment risk • • Mortgage commitments, classified as derivatives • Warehouse loans that are fair value option elected, classified as loans – debt instruments • Retained loan portfolio • Deposits • Fair value option elected liabilities DVA(a) • MSRs • Hedges of mortgage • commitments, warehouse loans and MSRs, classified as derivatives Interest-only and mortgage- backed securities, classified as trading assets debt instruments, and related hedges, classified as derivatives • Fair value option elected liabilities(a) • 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(a) • 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 • • Retained loan portfolio • Deposits • Privately held equity and other investments measured at fair value; and certain asset-backed fair value option elected loans • Derivatives FVA and fair value option elected liabilities DVA(a) CB • Originates loans and takes deposits • Interest rate risk and prepayment risk • Marketable equity investments(b) • 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., market prices, rates and credit spreads) Interest rate risk and prepayment risk • advance of distribution to clients, classified as trading assets - debt instruments(b) • Retained loan portfolio • Deposits • Initial seed capital investments and related hedges, classified as derivatives 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 (a) Reflects structured notes in Risk Management VaR and the DVA on structured notes in other sensitivity-based measures. (b) The AWM and CB contributions to Firmwide average VaR were not material for the year ended December 31, 2020 and 2019. 136 JPMorgan Chase & Co./2020 Form 10-K • Certain deferred compensation 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) • 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 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 “backtesting exceptions,” defined as losses greater than that predicted by VaR estimates, an average of five times every 100 trading days. The number of VaR backtesting exceptions observed can differ from the statistically expected number of backtesting 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 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 151 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./2020 Form 10-K 137 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. 2020 Min Max Avg. 2019 Min Max $ 98 $ 35 $ 156 $ 40 $ 31 $ 50 10 24 28 (67) (a) 93 16 (17) (a) 92 5 19 (4) (a) 20 (17) (a) 4 13 7 NM (b) (b) 32 3 NM (b) (b) 31 1 9 NM (b) (b) 10 NM (b) 18 41 47 NM (b) (b) 160 28 NM (b) (b) 162 12 (c) 82 NM (b) (b) 82 NM (b) (b) 7 20 8 (33) (a) 42 5 (5) (a) 42 5 10 (4) (a) 11 (10) (a) 4 13 6 NM (b) (b) 29 3 NM (b) (b) 29 1 9 NM (b) (b) 8 NM (b) 15 31 12 NM (b) (b) 61 7 NM (b) (b) 63 11 13 NM (b) (b) 17 NM (b) (b) $ 95 $ 32 (b) $ 164 $ 43 $ 30 (b) $ 65 (a) Diversification benefit represents the difference between the portfolio VaR and the sum of its individual components. This reflects the non-additive nature of VaR due to imperfect correlation across LOBs, Corporate, and risk types. (b) The maximum and minimum VaR for each portfolio may have occurred on different trading days than the components and consequently diversification benefit is not meaningful. (c) Maximum Corporate and other LOB VaR was higher than the prior year, due to increases in the fourth quarter of 2020 driven by a private equity position that became publicly traded at the end of the third quarter of 2020. Generally, average VaR and maximum VaR across risk types and LOBs were higher due to increased volatility that occurred at the onset of the COVID-19 pandemic, which remains in the one-year historical look-back period. As a result average total VaR increased by $52 million for the year-ended December 31, 2020 when compared with the prior year driven by the fixed income and commodities risk types. Effective January 1, 2020, the Firm refined the scope of VaR to exclude positions related to the risk management of interest rate exposure from changes in the Firm’s own credit spread on fair value option elected liabilities, and included these positions in other sensitivity-based measures. Additionally, effective July 1, 2020, the Firm refined the scope of VaR to exclude certain asset-backed fair value option elected loans, and included them in other sensitivity-based measures to more effectively measure the risk from these loans. In the absence of these refinements, the average Total VaR and each of the components would have been higher by the amounts reported in the following table: (in millions) CIB fixed income VaR CIB trading VaR CIB VaR Total VaR Amount by which reported average VaR would have been higher for the year ended December 31, 2020 $ 9 7 9 8 138 JPMorgan Chase & Co./2020 Form 10-K VaR backtesting The Firm performs daily VaR model backtesting, which compares the daily Risk Management VaR results with the daily gains and losses that are utilized for VaR backtesting purposes. The gains and losses in the chart below do not reflect the Firm’s revenue results as they exclude select components of total net revenue, such as those associated with the execution of new transactions (i.e., intraday client-driven trading and intraday risk management activities), fees, commissions, certain valuation adjustments and net interest income. These excluded components of total net revenue may more than offset backtesting gains and losses on a particular day. The definition of backtesting gains and losses above is consistent with the requirements for backtesting under Basel III capital rules. The following chart compares Firmwide daily backtesting gains and losses with the Firm’s Risk Management VaR for the year ended December 31, 2020. The results in the chart below differ from the results of backtesting 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, 2020, the Firm posted backtesting gains on 162 of the 260 days, and observed 10 VaR backtesting exceptions, which were predominantly driven by volatility at the onset of the COVID-19 pandemic that was materially higher than the levels realized in the historical data used for the VaR calculation. Firmwide backtesting loss days can differ from the loss days for which Fixed Income Markets and Equity Markets posted losses, as disclosed in CIB Markets revenue, as the population of positions which compose each metric are different and due to the exclusion of select components of total net revenue in backtesting gains and losses as described above. For more information on CIB Markets revenue, refer to pages 74-75. Daily Risk Management VaR Backtesting Results Year ended December 31, 2020 Backtesting Gains and Losses Risk Management VaR (1-day, 95% Confidence level) First Quarter 2020 Second Quarter 2020 Third Quarter 2020 Fourth Quarter 2020 JPMorgan Chase & Co./2020 Form 10-K 139 $ millions-550-500-450-400-350-300-250-200-150-100-50050100150200250300350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 market risk sensitive positions in the LOBs and Corporate. 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 136 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 CRO. This risk function is responsible for providing independent oversight and governance around assumptions and establishing and monitoring limits for structural interest rate risk. The Firm manages structural interest rate risk generally through its investment securities portfolio and interest rate derivatives. 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. 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 funds transfer pricing of positions in risk management VaR and other sensitivity-based measures as described on page 136. 140 JPMorgan Chase & Co./2020 Form 10-K 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; and a flatter yield curve involving increasing short-term rates and holding long-term rates constant. 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 or its clients and customers 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, known as deposit betas, 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 may differ from actual deposit rates paid, 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 Outlook on page 49 for additional information). The Firm’s U.S. dollar sensitivities are presented in the table below. December 31, (in billions) Parallel shift: 2020 2019 +100 bps shift in rates $ 6.9 $ Steeper yield curve: +100 bps shift in long-term rates Flatter yield curve: +100 bps shift in short-term rates 2.4 4.5 0.3 1.2 (0.9) The change in the Firm’s U.S. dollar sensitivities as of December 31, 2020 compared to December 31, 2019 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. In addition, during the fourth quarter of 2020 as part of the Firm’s continuous evaluation and periodic enhancement to its earnings-at-risk calculations, the Firm updated the deposit rates paid betas for consumer deposit products based upon observed pricing during the most recent economic cycle. In the absence of this update, the Firm’s U.S. dollar sensitivities as of December 31, 2020 would have been lower by $2.0 billion to the +100bps shift in short-term and parallel rate scenarios. The Firm’s sensitivity to rates is primarily a result of assets repricing at a faster pace than deposits. Based upon current and implied market rates as of December 31, 2020, scenarios reflecting lower rates could result in negative interest rates. The U.S. has never experienced an interest rate environment where the Federal Reserve has a negative interest rate policy. While the impact of negative interest rates on the Firm's earnings- at-risk would vary by scenario, a parallel shift downward of up to 100bps would negatively impact net interest income. In a negative interest rate environment, the modeling assumptions used for certain assets and liabilities require additional management judgment and therefore, the actual outcomes may differ from these assumptions. The Firm’s non-U.S. dollar sensitivities are presented in the table below. December 31, (in billions) Parallel shift: 2020 2019 +100 bps shift in rates $ 0.9 $ Flatter yield curve: +100 bps shift in short-term rates 0.8 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, 2020 and 2019. JPMorgan Chase & Co./2020 Form 10-K 141 Management’s discussion and analysis 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 debt and equity and funding activities by assessing the potential impact on net revenue, other comprehensive income (“OCI”) and noninterest expense due to changes in relevant market variables. Refer to the table Predominant business activities that give rise to market risk on page 136 for additional information on the positions captured in other sensitivity-based measures. The table below represents the potential impact to net revenue, OCI or noninterest expense for market risk sensitive instruments that are not included in VaR or earnings-at-risk. Where appropriate, instruments used for hedging purposes are reported net of 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, 2020 and 2019, 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 2020 2019 Debt and equity(a) Asset Management activities Other debt and equity Funding activities Non-USD LTD cross-currency basis Consists of seed capital and related hedges; fund co-investments(b); and certain deferred compensation and related hedges(c) Consists of certain asset-backed fair value option elected loans, privately held equity and other investments held at fair value(b) 10% decline in market value $ (48) $ (68) 10% decline in market value (919) (867) (e) Represents the basis risk on derivatives used to hedge the foreign exchange risk on the non-USD LTD(d) 1 basis point parallel tightening of cross currency basis (16) (17) 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(d) 10% depreciation of currency Impact of changes in the spread related to derivatives FVA(b) 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(d) 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(d) 1 basis point parallel increase in spread Interest rate sensitivity related to risk management of changes in the Firm’s own credit spread on fair value option liabilities(b) 1 basis point parallel increase in spread 13 (4) 33 (3) 3 15 (5) 29 (2) 2 (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 net revenue. (c) In the second quarter of 2020, the Firm refined the approach for risk management of certain deferred compensation, which is recognized through noninterest expense. As a result, certain deferred compensation and related hedges are now included in other sensitivity-based measures. (d) Impact recognized through OCI. (e) Prior-period amount has been revised to conform with the current presentation. In the absence of the scope refinement, Other debt and equity would have been $(203) million and $(192) million for the periods ending December 31, 2020 and 2019, respectively. Refer to Total VaR on page 138 for additional information. 142 JPMorgan Chase & Co./2020 Form 10-K obligor or guarantor is not suitable for attribution to an individual country. The use of different measurement approaches or assumptions could affect the amount of reported country exposure. Under the Firm’s internal country risk measurement framework: • Lending exposures are measured at the total committed amount (funded and unfunded), net of the allowance for credit losses and 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 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 318 of the 2020 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: • Maintaining 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 an individual 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. Individual country exposures reflect an aggregation of the Firm’s risk to an immediate default, with zero recovery, of the counterparties, issuers, obligors or guarantors attributed to that country. Activities which result in contingent or indirect exposure to a country are not included in the country exposure measure (for example, providing clearing services or secondary exposure to collateral on securities financing receivables). Assumptions are sometimes required in determining the measurement and allocation of country exposure, particularly in the case of certain non-linear or index products, or where the nature of the counterparty, issuer, JPMorgan Chase & Co./2020 Form 10-K 143 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. COVID-19 Pandemic Country Risk Management continues to monitor the impact of the COVID-19 pandemic, leveraging existing stress testing, exposure reporting and controls, as well as tailored analysis, to assess the extent to which individual countries may be adversely impacted. 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, 2020, and their comparative exposures as of December 31, 2019. The selection of countries represents the Firm’s largest total exposures by individual 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 overall increase in top 20 exposures was largely driven by client activity and growth in client deposits, relative to the period ending December 31, 2019. This resulted in an increase in cash placements with the central banks of Germany and the United Kingdom. Top 20 country exposures (excluding the U.S.)(a) December 31, (in billions) 2020 2019(f) Lending and deposits(c) Trading and investing(d) Other(e) Total exposure Total exposure Germany $ 120.8 $ 5.8 $ 0.6 $ 127.2 $ 51.6 United Kingdom Japan China France Switzerland Australia Canada Luxembourg Brazil India South Korea Italy Singapore Netherlands(b) Hong Kong SAR Spain Saudi Arabia Mexico Sweden 57.2 36.7 9.7 13.4 14.7 9.9 13.4 11.1 4.2 3.9 5.4 4.7 4.0 5.4 3.7 4.1 4.9 3.9 5.4 9.4 8.6 9.9 4.6 0.5 5.7 0.9 1.3 6.6 5.1 4.3 4.7 2.7 0.1 1.9 1.6 0.9 1.0 (1.1) 1.8 0.3 1.6 0.8 3.5 0.3 0.2 — — 1.5 0.4 0.3 2.0 2.2 0.6 0.1 — — — 68.4 45.6 21.2 18.8 18.7 15.9 14.5 12.4 10.8 10.5 10.1 9.7 8.7 7.7 6.2 5.8 5.8 4.9 4.3 42.4 43.8 19.2 18.1 18.3 11.7 13.2 12.9 7.2 11.3 6.4 6.8 6.8 5.8 5.1 5.8 5.2 4.7 1.1 (a) Country exposures presented in the table reflect 90% and 87% of total Firmwide non-U.S. exposure, where exposure is attributed to an individual country, at December 31, 2020 and 2019, respectively. (b) In the fourth quarter of 2020, Country Risk Management determined that the exposure for certain commodities contracts corresponds to an EU-wide risk and should not be attributed to the individual country of registration, previously the Netherlands. As such, the exposure is no longer included and the prior-period amount has been revised to conform with the current presentation. (c) Lending and deposits includes loans and accrued interest receivable, lending-related commitments (net of eligible collateral and the allowance for credit losses), deposits with banks (including central banks), acceptances, other monetary assets, and issued letters of credit net of participations. Excludes intra-day and operating exposures, such as those from settlement and clearing activities. (d) Includes market-making inventory, Investment 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. (e) Predominantly includes physical commodity inventory. (f) The country rankings presented in the table as of December 31, 2019, are based on the country rankings of the corresponding exposures at December 31, 2020, not actual rankings of such exposures at December 31, 2019. 144 JPMorgan Chase & Co./2020 Form 10-K OPERATIONAL RISK MANAGEMENT Operational risk is the risk of an adverse outcome resulting from inadequate or failed internal processes or systems; human factors; or external events impacting the Firm’s processes or systems; Operational Risk 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, cyber 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 are responsible 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. 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. The Firm’s Operational Risk and Compliance organization (“Operational Risk and Compliance”) 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 Operational Risk and Compliance 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 91-101 for information related to operational risk RWA, and CCAR. Operational Risk Monitoring and testing The results of risk assessments performed by Operational Risk and Compliance 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, Operational Risk and Compliance independently identify areas of operational risk and tests the effectiveness of controls within the LOBs and Corporate. 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. Operational Risk and JPMorgan Chase & Co./2020 Form 10-K 145 Management’s discussion and analysis Compliance 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 Operational Risk and Compliance are escalated to the appropriate LOB and Corporate Control Committees, as needed. Operational Risk and Compliance has established standards to ensure that consistent operational risk reporting and operational risk reports are produced on a Firmwide basis as well as by the 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. COVID-19 Pandemic Under the CCOR Management Framework, Operational Risk and Compliance monitors and assesses COVID-19 related legal and regulatory developments associated with the Firm’s financial products and services offered to clients and customers as part of the existing change management process. The Firm will continue to review and assess the impact of the pandemic on operational risk and implement adequate measures as needed. 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 148, 149, 150 and 151, 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 the risk of the Firm’s exposure to harm or loss resulting from misuse or abuse of technology by malicious actors. Cybersecurity risk is an important and continuously evolving focus for the Firm. Significant resources are devoted to protecting and enhancing the security of 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. Ongoing business expansions may expose the Firm to potential new threats as well as expanded regulatory scrutiny including the introduction of new cybersecurity requirements. The Firm continues to make significant investments in enhancing its cyber defense capabilities and to strengthen its partnerships with the appropriate government and law enforcement agencies and other businesses in order 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 of cybersecurity risks. Third parties with which the Firm does business or that facilitate the Firm’s business activities (e.g., vendors, supply chain, 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. Due to the impact of COVID-19, the Firm increased the use of remote access and also video conferencing solutions provided by third parties to facilitate remote work. As a result the Firm took additional precautionary measures to mitigate cybersecurity risks. 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 consists 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 146 JPMorgan Chase & Co./2020 Form 10-K 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, particularly during the current COVID-19 pandemic due to the use of contingent forms of payment authentication methods, scams involving the pandemic being perpetrated including an increase in the level of fraud attempts against consumers. The complexities of these incidents and the strategies used by perpetrators continue to evolve. The Firm employs various controls for managing payment fraud risk as well as providing employee and client education and awareness trainings. The Firm’s monitoring of customer behavior to detect new fraud strategies is periodically evaluated and enhanced in an effort to mitigate these fraud risks. 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 are 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. • 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 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 the spread of infectious diseases or pandemics, severe weather, power or telecommunications loss, accidents, failure of a third party to provide expected services, cyberattack, flooding, transit strikes, terrorism, health emergencies. 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. JPMorgan Chase & Co./2020 Form 10-K 147 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 Operational Risk and Compliance Organization (“Operational Risk and Compliance”), which is independent of the LOBs and Corporate, provides independent review, monitoring and oversight of business operations with a focus on compliance with the laws, rules, and regulations applicable to the delivery of the Firm’s products and services to clients and customers. These compliance risks relate to a wide variety of laws, rules and regulations 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 laws, 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. Operational Risk and Compliance implements policies and standards designed to govern, identify, measure, monitor and test, manage, and report on compliance risk. Governance and oversight Operational Risk and 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 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 potential or actual 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 JPMC Conduct 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. 148 JPMorgan Chase & Co./2020 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 148 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 Firm has a senior committee that 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. This committee is responsible for setting overall program direction for strategic enhancements to the Firm's employee conduct framework and review the consolidated Firmwide Conduct Risk Appetite Assessment. 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./2020 Form 10-K 149 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 to them advising on advocacy in connection with contemplated and proposed laws, rules and regulations, and • providing legal advice to the LOBs, Corporate, functions and the Board. 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 to the Audit Committee.  Legal serves on and advises various committees and advises the Firm’s LOBs and Corporate on potential reputation risk issues. 150 JPMorgan Chase & Co./2020 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 MRGR 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 MRGR. In its review of a model, the MRGR considers whether the model is suitable for the specific purposes for which it will be used. When reviewing a model, the MRGR 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 MRGR based on the relevant model tier. Under the Firm’s Estimations and Model Risk Management Policy, the MRGR 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 MRGR 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. While models are inherently imprecise, the degree of imprecision or uncertainty can be heightened by the market or economic environment. This is particularly true when the current and forecasted environment is significantly different from the historical macroeconomic environments upon which the models were trained, as the Firm has experienced during the COVID-19 pandemic. This uncertainty may necessitate a greater degree of judgment and analytics to inform adjustments to model outputs than in typical periods. Refer to Critical Accounting Estimates Used by the Firm on pages 152-155 and Note 2 for a summary of model-based valuations and other valuation techniques. JPMorgan Chase & Co./2020 Form 10-K 151 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 represents management’s estimate of expected credit losses over the remaining expected life of the Firm’s financial assets measured at amortized cost and certain off-balance sheet lending-related commitments. The allowance for credit losses comprises: • The allowance for loan losses, which covers the Firm’s retained loan portfolios (scored and risk-rated), • The allowance for lending-related commitments, and • The allowance for credit losses on investment securities, which covers the Firm’s HTM and AFS securities. The allowance for credit losses involves significant judgment on a number of matters including development and weighting of macroeconomic forecasts, incorporation of historical loss experience, assessment of risk characteristics, assignment of risk ratings, valuation of collateral, and the determination of remaining expected life. Refer to Note 10 and Note 13 for further information on these judgments as well as the Firm’s policies and methodologies used to determine the Firm’s allowance for credit losses. One of the most significant judgments involved in estimating the Firm’s allowance for credit losses relates to the macroeconomic forecasts used to estimate credit losses over the eight-quarter forecast period within the Firm’s methodology. The eight-quarter forecast incorporates hundreds of macroeconomic variables (“MEVs”) that are relevant for exposures across the Firm, with modeled credit losses being driven primarily by a subset of less than twenty variables. The specific variables that have the greatest effect on the modeled losses of each portfolio vary by portfolio and geography. • Key MEVs for the consumer portfolio include U.S. unemployment, house price index (“HPI”) and U.S. real gross domestic product (“GDP”). • Key MEVs for the wholesale portfolio include U.S. real GDP, U.S. unemployment, U.S. equity prices, corporate credit spreads, oil prices, commercial real estate prices and HPI. Changes in the Firm’s assumptions and forecasts of economic conditions could significantly affect its estimate of expected credit losses in the portfolio at the balance sheet date or lead to significant changes in the estimate from one reporting period to the next. The COVID-19 pandemic has resulted in a weak labor market and weak overall economic conditions that will continue to affect borrowers across the Firm’s consumer and wholesale lending portfolios. Significant judgment is required to estimate the severity and duration of the current economic downturn, as well as its potential impact on borrower defaults and loss severities. In particular, macroeconomic conditions and forecasts regarding the duration and severity of the economic downturn caused by the COVID-19 pandemic have been rapidly changing and remain highly uncertain. It is difficult to predict exactly how borrower behavior will be impacted by these changes in economic conditions. The effectiveness of government support, customer assistance and enhanced unemployment benefits should act as mitigants to credit losses, but the extent of the mitigation impact remains uncertain. It is difficult to estimate how potential changes in any one factor or input might affect the overall allowance for credit losses because management considers a wide variety of factors and inputs in estimating the allowance for credit losses. Changes in the factors and inputs considered may not occur at the same rate and may not be consistent across all geographies or product types, and changes in factors and inputs may be directionally inconsistent, such that improvement in one factor or input may offset deterioration in others. To consider the impact of a hypothetical alternate macroeconomic forecast, the Firm compared the modeled credit losses determined using its central and relative adverse macroeconomic scenarios, which are two of the five scenarios considered in estimating the allowances for loan losses and lending-related commitments. The central and relative adverse scenarios each included a full suite of MEVs, but differed in the levels, paths and peaks/troughs of those variables over the eight-quarter forecast period. For example, compared to the Firm’s central scenario described on page 132 and in Note 13, the Firm’s relative adverse scenario assumes a significantly elevated U.S. unemployment rate throughout 2021, averaging 3.0% higher over the eight-quarter forecast, with a peak difference of approximately 4.0% in the second quarter of 2021; lower U.S. real GDP with a slower recovery, 152 JPMorgan Chase & Co./2020 Form 10-K remaining nearly 2.6% lower at the end of the eight- quarter forecast, with a peak difference of nearly 4.1% in the third quarter of 2021; and a 10.1% further deterioration in the national HPI with a trough in the first quarter of 2022. This analysis is not intended to estimate expected future changes in the allowance for credit losses, for a number of reasons, including: • the Firm has placed significant weight on its adverse scenarios in estimating its allowance for credit losses as of December 31, 2020, and accordingly, the existing allowance already reflects credit losses beyond those estimated under the central scenario • the impacts of changes in many MEVs are both interrelated and nonlinear, so the results of this analysis cannot be simply extrapolated for more severe changes in macroeconomic variables • the COVID-19 pandemic has stressed many MEVs at a speed and to degrees not seen in recent history, adding significantly higher degrees of uncertainty around modeled credit loss estimations • significant changes in the expected severity and duration of the economic downturn caused by the COVID-19 pandemic, the effects of government support and customer assistance, and the speed of the subsequent recovery could significantly affect the Firm’s estimate of expected credit losses irrespective of the estimated sensitivities described below. Without considering the additional weight the Firm has placed on its adverse scenarios or any other offsetting or correlated effects in other qualitative components of the Firm’s allowance for credit losses for the lending exposures noted below, the difference between the modeled estimates under the Firm’s relative adverse and central scenarios at December 31, 2020 would result in the following: • An increase of approximately $700 million for residential real estate loans and lending-related commitments • An increase of approximately $5.1 billion for credit card loans • An increase of approximately $2.8 billion for wholesale loans and lending-related commitments This analysis relates only to the modeled credit loss estimates and is not intended to estimate changes in the overall allowance for credit losses as it does not reflect any potential changes in other adjustments to the quantitative calculation, which would also be influenced by the judgment management applies to the modeled lifetime loss estimates to reflect the uncertainty and imprecision of these modeled lifetime loss estimates based on then-current circumstances and conditions. Recognizing that forecasts of macroeconomic conditions are inherently uncertain, particularly in light of the recent economic conditions, the Firm believes that its process to consider the available information and associated risks and uncertainties is appropriately governed and that its estimates of expected credit losses were reasonable and appropriate for the period ended December 31, 2020. 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 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, 2020 (in billions, except ratios) Total assets at fair value Total level 3 assets Federal Funds sold and securities purchased under resale agreements Securities borrowed Trading assets: Trading debt and equity instruments Derivative receivables(a) Total 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 $ 238.0 $ 53.0 $ 423.5 $ 79.6 503.1 388.2 44.5 3.3 304.1 1,243.2 3.6 — — 2.6 7.7 10.3 — 2.3 3.3 0.5 16.4 2.0 Total assets measured at fair value $ 1,246.8 $ 18.4 Total Firm assets $ 3,386.1 Level 3 assets at fair value as a percentage of total Firm assets(a) Level 3 assets at fair value as a percentage of total Firm assets at fair value(a) 0.5% 1.5% (a) For purposes of the table above, the derivative receivables total reflects the impact of netting adjustments; however, the $7.7 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. JPMorgan Chase & Co./2020 Form 10-K 153 Management’s discussion and analysis 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, 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 speed, default rates, volatilities, correlations, prices (such as commodity, 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. In periods of heightened market volatility and uncertainty judgments are further affected by the wider variation of reasonable valuation estimates, particularly for positions that are less liquid. 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, 2020, the Firm reviewed current economic conditions, including the potential impacts of the COVID-19 pandemic on business performance, estimated market cost of equity, as well as actual business results and projections of business performance for all its reporting units. The Firm has concluded that the goodwill allocated to its reporting units was not impaired as of December 31, 2020. The fair values of these reporting units exceeded their carrying values by at least 15% 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 business outlook assumptions in the short term, and the Firm’s best estimates of long-term growth and return on equity in the longer term. 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, 2020. 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 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 liability is accrued as the cardholder earns the benefit and is reduced when the cardholder redeems points. This liability was $7.7 billion and $6.4 billion at December 31, 2020 and 2019, respectively, and is recorded in accounts payable and other liabilities on the Consolidated balance sheets. The rewards liability is sensitive to redemption rate (“RR”) and cost per point (“CPP”) assumptions. The RR assumption is used to estimate the number of points earned by customers that will be redeemed over the life of the account. The CPP assumption is used to estimate the cost of future point redemptions. These assumptions are evaluated periodically considering historical actuals and cardholder redemption behavior and updates to them will impact the rewards liability. As of December 31, 2020, a combined increase of 25 basis points in RR and 1 basis point in CPP would increase the rewards liability by approximately $215 million. 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 154 JPMorgan Chase & Co./2020 Form 10-K Litigation reserves Refer to Note 30 for a description of the significant estimates and judgments associated with establishing litigation reserves. 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 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, 2020, 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. JPMorgan Chase & Co./2020 Form 10-K 155 Management’s discussion and analysis ACCOUNTING AND REPORTING DEVELOPMENTS Financial Accounting Standards Board (“FASB”) Standards Adopted since January 1, 2020 Standard Summary of guidance Effects on financial statements Financial Instruments - Credit Losses (“CECL”) Issued June 2016 Goodwill Issued January 2017 Reference Rate Reform Issued March 2020 and updated January 2021 • Establishes a single allowance framework for all • Adopted January 1, 2020. • Refer to Note 1 for further information. • Adopted January 1, 2020. • No impact upon adoption as the guidance was applied prospectively. • Refer to Note 15 for further information. • Issued and effective March 12, 2020. The January 7, 2021 update was effective when issued. • The Firm elected to apply certain of the practical expedients related to contract modifications and hedge accounting relationships, and discounting transition beginning in the third quarter of 2020. The discounting transition election was applied retrospectively. The main purpose of the practical expedients is to ease the administrative burden of accounting for contracts impacted by reference rate reform, and these elections did not have a material impact on the Consolidated Financial Statements. financial assets measured at amortized cost and certain off-balance sheet credit exposures. This framework requires that management’s estimate reflects credit losses over the instrument’s 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 amortized cost of the related loans. • Requires inclusion of expected recoveries, limited to the cumulative amount of prior writeoffs, 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. • 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. • Provides optional expedients and exceptions to current accounting guidance when financial instruments, hedge accounting relationships, and other transactions are amended due to reference rate reform. • Provides an election to account for certain contract amendments related to reference rate reform as modifications rather than extinguishments without the requirement to assess the significance of the amendments. • Allows for changes in critical terms of a hedge accounting relationship without automatic termination of that relationship. Provides various practical expedients and elections designed to allow hedge accounting to continue uninterrupted during the transition period. • Provides a one-time election to transfer securities out of the held-to-maturity classification if certain criteria are met. • The January 2021 update provides an election to account for derivatives modified to change the rate used for discounting, margining, or contract price alignment (collectively “discounting transition”) as modifications. 156 JPMorgan Chase & Co./2020 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 2020 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: • • • Economic, financial, reputational and other impacts of the COVID-19 pandemic; 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; 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, including 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 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 and diverse 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 cyber attacks 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 JPMorgan Chase’s 2020 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./2020 Form 10-K 157 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, 2020. 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, 2020, 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, 2020. The effectiveness of the Firm’s internal control over financial reporting as of December 31, 2020, 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 23, 2021 158 JPMorgan Chase & Co./2020 Form 10-K Report of Independent Registered Public Accounting Firm perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 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, 2020 and 2019, 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, 2020, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 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, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO. Change in Accounting Principle As discussed in Note 1 and Note 13 to the consolidated financial statements, the Firm changed the manner in which it accounts for credit losses on certain financial instruments in 2020. 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 PricewaterhouseCoopers LLP Ÿ 300 Madison Avenue Ÿ New York, NY 10017 JPMorgan Chase & Co./2020 Form 10-K 159 Report of Independent Registered Public Accounting Firm Critical Audit Matters 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. Allowance for Loan Losses – Portfolio-based component of Wholesale Loan and Credit Card Loan Portfolios As described in Note 13 to the consolidated financial statements, the allowance for loan losses for the portfolio- based component of the wholesale and credit card loan portfolios was $23.4 billion on total portfolio-based retained loans of $653.4 billion at December 31, 2020. The Firm’s allowance for loan losses represents management’s estimate of expected credit losses over the remaining expected life of the Firm's loan portfolios and considers expected future changes in macroeconomic conditions. The portfolio-based component of the Firm’s allowance for loan losses for the wholesale and credit card retained loan portfolios begins with a quantitative calculation of expected credit losses over the expected life of the loan by applying credit loss factors to the estimated exposure at default. The credit loss factors applied are determined based on the weighted average of five internally developed macroeconomic scenarios that take into consideration the Firm's economic outlook as derived through forecast macroeconomic variables, the most significant of which are U.S. unemployment and U.S. real gross domestic product. This quantitative calculation is further adjusted to take into consideration model imprecision, emerging risk assessments, trends and other subjective factors that are not yet otherwise reflected in the credit loss estimate. The principal considerations for our determination that performing procedures relating to the allowance for loan losses for the portfolio-based component of the wholesale and credit card loan portfolios is a critical audit matter are (i) the significant judgment and estimation by management in the forecast of macroeconomic variables, specifically U.S. unemployment and U.S. real gross domestic product, as the Firm’s forecasts of economic conditions significantly affect its estimate of expected credit losses at the balance sheet date, (ii) the significant judgment and estimation by management in determining the quantitative calculation utilized in their credit loss estimates and the adjustments to take into consideration model imprecision, emerging risk assessments, trends and other subjective factors that are not yet otherwise reflected in the credit loss estimate, which both 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 credit loss estimates and the appropriateness of the adjustments to the credit loss estimates, and (iii) 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, including controls over model validation and generation of macroeconomic scenarios. These procedures also included, among others, testing management’s process for estimating the allowance for loan losses, which involved (i) evaluating the appropriateness of the models and methodologies used in quantitative calculations; (ii) evaluating the reasonableness of forecasts of U.S. unemployment and U.S. real gross domestic product; (iii) testing the completeness and accuracy of data used in the estimate; and (iv) evaluating the reasonableness of management’s adjustments to the quantitative output for the impacts of model imprecision, emerging risk assessments, trends and other subjective factors that are not yet otherwise reflected in the credit loss estimate. These procedures also included the use of professionals with specialized skill and knowledge to assist in evaluating the appropriateness of certain models, methodologies and macroeconomic variables. Fair Value of Certain Level 3 Financial Instruments As described in Notes 2 and 3 to the consolidated financial statements, the Firm carries $1.2 trillion of its assets and $437.6 billion of its liabilities at fair value on a recurring basis. Included in these balances are $10.3 billion of trading assets and $41.5 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 forward equity prices, volatility relating to interest rates and equity prices and correlation relating to interest rates, equity prices, credit 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) the 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. 160 JPMorgan Chase & Co./2020 Form 10-K Report of Independent Registered Public Accounting Firm 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. February 23, 2021 We have served as the Firm’s auditor since 1965. JPMorgan Chase & Co./2020 Form 10-K 161 Consolidated statements of income Year ended December 31, (in millions, except per share data) 2020 2019 2018 Revenue Investment banking fees Principal transactions Lending- and deposit-related fees(a) Asset management, administration and commissions(a) Investment securities gains/(losses) Mortgage fees and related income Card income(b) Other income Noninterest revenue Interest income Interest expense Net interest income Total net revenue Provision for credit losses Noninterest expense Compensation expense Occupancy expense Technology, communications and equipment expense Professional and outside services Marketing(b) 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 $ 9,486 $ 7,501 $ 18,021 6,511 18,177 802 3,091 4,435 4,457 64,980 64,523 9,960 54,563 14,018 6,626 16,908 258 2,036 5,076 5,731 58,154 84,040 26,795 57,245 7,550 12,059 6,377 16,793 (395) 1,254 4,743 5,343 53,724 76,100 21,041 55,059 119,543 115,399 108,783 17,480 5,585 4,871 34,155 33,117 34,988 4,449 10,338 8,464 2,476 5,941 66,656 35,407 6,276 4,322 9,821 8,533 3,351 5,087 65,269 44,545 8,114 $ $ $ 29,131 $ 36,431 $ 27,410 $ 34,642 $ 8.89 $ 10.75 $ 8.88 3,082.4 3,087.4 10.72 3,221.5 3,230.4 3,952 8,802 8,502 3,044 5,731 63,148 40,764 8,290 32,474 30,709 9.04 9.00 3,396.4 3,414.0 (a) In the first quarter of 2020, the Firm reclassified certain fees from asset management, administration and commissions to lending- and deposit-related fees. Prior-period amounts have been revised to conform with the current presentation. (b) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation. The Notes to Consolidated Financial Statements are an integral part of these statements. 162 JPMorgan Chase & Co./2020 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 2020 2019 2018 $ 29,131 $ 36,431 $ 32,474 4,123 234 19 2,320 212 (491) 6,417 2,855 (1,858) 20 30 172 964 (965) 3,076 20 (107) (201) (373) 1,043 (1,476) 30,998 $ 35,548 $ 39,507 $ The Notes to Consolidated Financial Statements are an integral part of these statements. JPMorgan Chase & Co./2020 Form 10-K 163 Consolidated balance sheets December 31, (in millions, except share data) Assets Cash and due from banks Deposits with banks Federal funds sold and securities purchased under resale agreements (included $238,015 and $14,561 at fair value) Securities borrowed (included $52,983 and $6,237 at fair value) Trading assets (included assets pledged of $130,645 and $111,522)(a) Available-for-sale securities (amortized cost of $381,729 and $345,306; included assets pledged of $32,227 and $10,325) Held-to-maturity securities (net of allowance for credit losses of $78) Investment securities, net of allowance for credit losses Loans (included $44,474 and $44,955 at fair value)(a) 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 $13,827 and $12,676 at fair value and assets pledged of $3,739 and $3,349)(a) Total assets(b) Liabilities Deposits (included $14,484 and $28,589 at fair value) Federal funds purchased and securities loaned or sold under repurchase agreements (included $155,735 and $549 at fair value) Short-term borrowings (included $16,893 and $5,920 at fair value) Trading liabilities Accounts payable and other liabilities (included $3,476 and $3,728 at fair value) Beneficial interests issued by consolidated VIEs (included $41 and $36 at fair value) Long-term debt (included $76,817 and $75,745 at fair value) Total liabilities(b) Commitments and contingencies (refer to Notes 28, 29 and 30) Stockholders’ equity Preferred stock ($1 par value; authorized 200,000,000 shares: issued 3,006,250 and 2,699,250 shares) Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares) Additional paid-in capital Retained earnings Accumulated other comprehensive income Shares held in restricted stock units (“RSU”) trust, at cost (zero and 472,953 shares) Treasury stock, at cost (1,055,499,435 and 1,020,912,567 shares) Total stockholders’ equity Total liabilities and stockholders’ equity 2020 2019 $ 24,874 $ 21,704 502,735 296,284 160,635 503,126 388,178 201,821 589,999 1,012,853 (28,328) 984,525 90,503 27,109 53,428 241,927 249,157 139,758 369,687 350,699 47,540 398,239 997,620 (13,123) 984,497 72,861 25,813 53,341 152,853 130,395 $ 3,386,071 $ 2,687,379 $ 2,144,257 $ 1,562,431 215,209 45,208 170,181 232,599 17,578 281,685 183,675 40,920 119,277 210,407 17,841 291,498 3,106,717 2,426,049 30,063 4,105 88,394 236,990 7,986 — (88,184) 279,354 26,993 4,105 88,522 223,211 1,569 (21) (83,049) 261,330 $ 3,386,071 $ 2,687,379 Effective January 1, 2020, the Firm adopted the CECL accounting guidance. Refer to Note 1 for further information. (a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-period amounts have been revised to conform with the current presentation. (b) The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at December 31, 2020 and 2019. 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) Assets Trading assets Loans All other assets Total assets Liabilities Beneficial interests issued by consolidated VIEs All other liabilities Total liabilities 2020 2019 $ $ $ $ 1,934 $ 37,619 681 2,633 42,931 881 40,234 $ 46,445 17,578 $ 17,841 233 447 17,811 $ 18,288 The Notes to Consolidated Financial Statements are an integral part of these statements. 164 JPMorgan Chase & Co./2020 Form 10-K Consolidated statements of changes in stockholders’ equity Year ended December 31, (in millions, except per share data) 2020 2019 2018 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 ($3.60, $3.40 and $2.72 per share for 2020, 2019 and 2018, 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 the beginning of the period Liquidation of RSU Trust Balance at December 31 Treasury stock, at cost Balance at January 1 Repurchase Reissuance Balance at December 31 Total stockholders’ equity $ 26,993 $ 26,068 $ 26,068 4,500 5,000 1,696 (1,430) (4,075) (1,696) 30,063 26,993 26,068 4,105 4,105 4,105 88,522 89,162 90,579 (72) (56) (591) (49) (738) (679) 88,394 88,522 89,162 223,211 199,202 177,676 (2,650) 29,131 62 (183) 36,431 32,474 (1,583) (1,587) (11,119) (10,897) (1,551) (9,214) 236,990 223,211 199,202 1,569 (1,507) — 6,417 7,986 (21) 21 — — 3,076 1,569 (21) — (21) (119) 88 (1,476) (1,507) (21) — (21) (83,049) (60,494) (42,595) (6,397) (24,121) (19,983) 1,262 1,566 2,084 (88,184) (83,049) (60,494) $ 279,354 $ 261,330 $ 256,515 Effective January 1, 2020, the Firm adopted the CECL accounting guidance. Refer to Note 1 for further information. The Notes to Consolidated Financial Statements are an integral part of these statements. JPMorgan Chase & Co./2020 Form 10-K 165 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(a) Proceeds from sales, securitizations and paydowns of loans held-for-sale(a) Net change in: Trading assets(a) Securities borrowed Accrued interest and accounts receivable Other assets(a) Trading liabilities Accounts payable and other liabilities Other operating adjustments(a) Net cash provided by/(used in) operating activities Investing activities Net change in: 2020 2019 2018 $ 29,131 $ 36,431 $ 32,474 17,480 8,614 (3,981) 1,649 5,585 8,368 949 1,996 4,871 7,791 1,721 2,717 (166,504) (169,289) (172,728) 175,490 171,415 163,747 (148,749) 6,551 (35,067) (20,734) (27,631) (18,012) (78) (42,434) (17,570) 77,198 (14,516) 7,827 3,115 (79,910) (352) 2,233 4,092 (6,861) (5,849) (8,779) 18,290 14,630 (1,343) 15,614 Federal funds sold and securities purchased under resale agreements (47,115) 72,396 (123,201) 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(a) All other investing activities, net Net cash (used in) investing activities Financing activities Net change in: Deposits Federal funds purchased and securities loaned or sold under repurchase agreements 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 21,360 3,423 2,945 (12,400) (13,427) (9,368) 57,675 149,758 52,200 70,181 37,401 46,067 (397,145) (242,149) (95,091) 23,559 62,095 29,826 (50,263) (51,743) (83,013) (7,341) (5,035) (4,986) (261,912) (52,059) (199,420) 602,765 101,002 31,528 1,347 4,438 1,347 78,686 (28,561) 4,289 61,085 26,728 23,415 18,476 1,712 71,662 (105,055) (69,610) (76,313) 4,500 5,000 1,696 (1,430) (4,075) (1,696) (6,517) (24,001) (19,983) (12,690) (12,343) (10,109) (927) (1,146) (1,430) 596,645 32,987 34,158 9,155 (182) (2,863) 263,978 (15,162) (152,511) 263,631 278,793 431,304 $ 527,609 $ 263,631 $ 278,793 $ 13,077 $ 29,918 $ 21,152 7,661 5,624 3,542 (a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-period amounts have been revised to conform with the current presentation. The Notes to Consolidated Financial Statements are an integral part of these statements. 166 JPMorgan Chase & Co./2020 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 in the U.S., with 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. Refer to Note 32 for a further 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 the accounting under 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./2020 Form 10-K 167 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. 168 JPMorgan Chase & Co./2020 Form 10-K 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 measured at amortized cost and certain off-balance sheet credit exposures. This framework requires that management’s estimate reflects credit losses over the instrument’s remaining expected life and considers expected future changes in macroeconomic conditions. Refer to Note 13 for further information. Prior to the adoption of the CECL accounting guidance, the Firm’s allowance for credit losses represented management’s estimate of probable credit losses inherent in the Firm’s retained loan portfolios and certain lending-related commitments. 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 Consumer, excluding credit card(a) Credit card Wholesale(a) Firmwide Retained earnings Firmwide allowance increase Balance sheet reclassification(b) Total pre-tax impact Tax effect Decrease to retained earnings December 31, 2019 CECL adoption impact January 1, 2020 $ 2.6 $ 0.4 $ 5.7 6.0 5.5 (1.6) 3.0 11.2 4.4 $ 14.3 $ 4.3 $ 18.6 $ $ 4.3 (0.8) 3.5 (0.8) 2.7 (a) In conjunction with the adoption of CECL, the Firm reclassified risk- rated business banking and auto dealer loans and lending-related commitments held in CCB from the consumer, excluding credit card portfolio segment to the wholesale portfolio segment, to align with the methodology applied when determining the allowance. Prior-period amounts have been revised to conform with the current presentation. Accordingly, $0.6 billion of the allowance for credit losses at December 31, 2019 and $(0.2) billion of the CECL adoption impact were reclassified. (b) Represents the recognition of the nonaccretable difference on purchased credit deteriorated loans 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. Securities Financing Agreements 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 11 for further information. Investment securities Upon adoption, HTM securities are presented net of an allowance for credit losses. The guidance also amended the previous other-than-temporary impairment (“OTTI”) model for AFS securities to incorporate an allowance. Refer to Note 10 for further information. Credit quality disclosures As a result of the adoption of this guidance, the Firm expanded credit quality disclosures for financial assets measured at amortized cost particularly within the retained loan portfolios. Refer to Note 12 for further information. PCD loans The adoption resulted in a change in the accounting for PCI loans, which are considered purchased credit deteriorated (“PCD”) loans under CECL. Upon adoption, the Firm recognized the nonaccretable difference on PCD loans in the allowance, which resulted in a corresponding increase to loans. PCD loans are subject to the Firm’s nonaccrual and charge-off policies and are now reported in the consumer, excluding credit card portfolio’s residential real estate loan JPMorgan Chase & Co./2020 Form 10-K 169 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 171 Note 3 page 192 Note 5 page 198 Note 6 page 212 Interest income and Interest expense Note 7 page 215 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 216 Note 9 page 221 Note 10 page 223 Note 11 page 229 Note 12 page 232 Note 13 page 248 Note 14 page 253 Goodwill and Mortgage servicing rights Note 15 page 261 Premises and equipment Leases Long-term debt Earnings per share Income taxes Off–balance sheet lending-related financial instruments, guarantees and other commitments Litigation Note 16 page 265 Note 18 page 266 Note 20 page 269 Note 23 page 274 Note 25 page 277 Note 28 page 283 Note 30 page 290 Notes to consolidated financial statements class. Refer to Note 12 for further information. Changes in credit portfolio segments and classes In conjunction with the adoption of CECL, the Firm reclassified risk-rated loans and lending-related commitments from the consumer excluding credit card portfolio segment to the wholesale portfolio segment, to align with the methodology applied when determining the allowance. The Firm also revised its loan classes. Prior- period amounts have been revised to conform with the current presentation. Refer to Note 12 for further information. Accrued interest receivables As permitted by the guidance, the Firm elected to continue classifying accrued interest on loans, including accrued but unbilled interest on credit card loans, and investment securities in accrued interest and accounts receivables on the Consolidated balance sheets. For credit card loans, accrued interest once billed is then recognized in the loan balances, with the related allowance recorded in the allowance for credit losses. Changes in the allowance for credit losses on accrued interest on credit card loans are recognized in the provision for credit losses and charge-offs are recognized by reversing interest income. For other loans and securities, the Firm generally does not recognize an allowance for credit losses on accrued interest receivables, consistent with its policy to write them off no later than 90 days past due by reversing interest income. Capital transition provisions As permitted under the U.S. capital rules issued by the federal banking agencies in 2019, the Firm initially elected to phase-in the January 1, 2020 (“day 1”) CECL adoption impact to retained earnings of $2.7 billion to CET1 capital, at 25% per year in each of 2020 to 2023. As part of their response to the impact of the COVID-19 pandemic, on March 31, 2020, the federal banking agencies issued an interim final rule (issued as final on August 26, 2020) that provided the option to delay the effects of CECL on regulatory capital for two years, followed by a three-year transition period (“CECL capital transition provisions”). Refer to Note 27 for further information. 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. 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. 170 JPMorgan Chase & Co./2020 Form 10-K Note 2 – Fair value measurement JPMorgan Chase carries a portion of its assets and liabilities at fair value. These assets and liabilities are predominantly carried at fair value on a recurring basis (i.e., assets 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 JPMorgan Chase & Co./2020 Form 10-K 171 Notes to consolidated financial statements 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. 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 188 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 MRGR 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 MRGR 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. 172 JPMorgan Chase & Co./2020 Form 10-K The following table describes the valuation methodologies generally used by the Firm to measure its significant products/ instruments at fair value, including the general classification of such instruments pursuant to the valuation hierarchy. Product/instrument Securities financing agreements Valuation methodology Valuations are based on discounted cash flows, which consider: • Derivative features: refer to the discussion of derivatives below Classifications in the valuation hierarchy Predominantly level 2 for further information. • Market rates for the respective maturity • Collateral characteristics Loans and lending-related commitments — wholesale Loans carried at fair value (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 Loans carried at fair value — 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 JPMorgan Chase & Co./2020 Form 10-K 173 Notes to consolidated financial statements Product/instrument Derivatives Valuation methodology Exchange-traded derivatives that are actively traded and valued using the exchange price. Classifications in the valuation hierarchy Level 1 Derivatives that are valued using models such as the Black-Scholes option pricing model, simulation models, or a combination of models that may use observable or unobservable valuation inputs as well as considering the contractual terms. Level 2 or 3 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 Commodity correlation Additionally, adjustments are made to reflect counterparty credit quality (CVA) and the impact of funding (FVA). Refer to page 188 of this Note. Mortgage servicing rights Refer to Mortgage servicing rights in Note 15. Level 3 Level 2 or 3 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 1 level. • Adjustments to the NAV as required, for restrictions on redemption (e.g., lock-up periods or withdrawal limitations) or where observable activity is limited. 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 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. 174 JPMorgan Chase & Co./2020 Form 10-K Product/instrument Structured notes (included in deposits, short-term borrowings and long-term debt) Valuation methodology • Valuations are based on discounted cash flow analyses that consider the embedded derivative and the terms and payment structure of the note. • The embedded derivative features are considered using models such as the Black-Scholes option pricing model, simulation models, or a combination of models that may use observable or unobservable valuation inputs, depending on the embedded derivative. The specific inputs used vary according to the nature of the embedded derivative features, as described in the discussion above regarding derivatives valuation. Adjustments are then made to this base valuation to reflect the Firm’s own credit risk (DVA). Refer to page 188 of this Note. Classification in the valuation hierarchy Level 2 or 3 JPMorgan Chase & Co./2020 Form 10-K 175 Notes to consolidated financial statements The following table presents the assets and liabilities reported at fair value as of December 31, 2020 and 2019, by major product category and fair value hierarchy. Assets and liabilities measured at fair value on a recurring basis December 31, 2020 (in millions) Federal funds sold and securities purchased under resale agreements Securities borrowed Trading assets: Debt instruments: 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(b)(f) Mortgage servicing rights Other assets(b)(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 Fair value hierarchy Level 1 Level 2 Level 3 Derivative netting adjustments(g) Total fair value $ — $ — 238,015 52,983 $ $ — — — $ — 238,015 52,983 — — — — 104,263 — — 26,772 — — — 131,035 97,035 6,382 — 234,452 2,318 — 146 — — 2,464 236,916 21,018 — — 21,018 201,951 — — 13,135 — — — 236,104 — — 8,110 68,395 2,138 1,327 71,860 10,996 7,184 1,230 40,671 21,017 6,101 2,304 161,363 2,652 5,189 17,165 186,369 386,865 12,879 205,127 71,279 21,272 697,422 883,791 92,283 10,233 2,856 105,372 — 20,396 — 9,793 216 10,048 6,249 152,074 42,169 — 4,561 $ $ 481,130 $ 1,373,593 — $ — — 11,571 155,735 14,473 82,669 16,838 2,496 — 132 — — 2,628 85,297 2,895 — — 349,082 14,344 214,373 74,032 21,767 673,598 690,436 513 41 53,420 926,189 449 28 3 480 — 8 — 182 507 893 28 2,098 179 — 346 2,623 2,307 624 987 3,519 231 7,668 10,291 — — — — — — — — — — — — 2,305 3,276 538 16,410 2,913 — 2,420 51 2,049 848 1,421 7,381 962 12,661 12,712 68 — 23,397 41,510 $ $ $ — — — — — — — — — — — — — — — — (355,765) (12,823) (190,479) (54,125) (14,732) (627,924) (627,924) — — — — — — — — — — — — — — — 68,844 2,166 1,330 72,340 115,259 7,192 1,230 67,625 21,524 6,994 2,332 294,496 99,866 11,571 17,511 423,444 35,725 680 15,781 20,673 6,771 79,630 503,074 113,301 10,233 2,856 126,390 201,951 20,396 — 22,928 216 10,048 6,249 388,178 44,474 3,276 13,209 (627,924) $ 1,243,209 $ $ — $ — — — (340,615) (13,197) (194,493) (55,515) (14,444) (618,264) (618,264) — — — 14,484 155,735 16,893 99,558 13,012 1,995 21,433 25,898 8,285 70,623 170,181 3,476 41 76,817 437,627 Total liabilities measured at fair value on a recurring basis $ 88,192 $ $ (618,264) $ 176 JPMorgan Chase & Co./2020 Form 10-K December 31, 2019 (in millions) Federal funds sold and securities purchased under resale agreements Securities borrowed Trading assets: Debt instruments: 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(b)(f) Mortgage servicing rights Other assets(b)(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 Fair value hierarchy Level 1 Level 2 Level 3 Total fair value $ 14,561 6,237 $ — $ — 14,561 6,237 $ — — — — 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 6,340 2,593 119,046 244 3,579 13,896 136,765 311,173 14,252 137,938 43,642 17,058 524,063 660,828 110,117 12,989 5,188 128,294 — 29,810 77 8,821 845 24,991 5,458 198,296 44,439 — 3,824 928,185 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 — 155 558 673 37 2,257 196 — 232 2,685 1,400 624 432 2,085 184 4,725 7,410 — 1 — 1 — — — — — — — — 1 516 4,699 917 13,543 3,360 — 1,674 41 1,732 763 1,039 5,480 200 9,214 9,255 45 — Derivative netting adjustments(g) $ — — — — — — — — — — — — — — — — — — (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 7,013 2,630 226,192 72,330 7,217 14,128 319,867 27,421 701 9,005 6,477 6,162 49,766 369,633 110,117 12,990 5,188 128,295 139,436 29,810 77 21,787 845 — 24,991 5,458 350,699 44,955 4,699 12,046 802,830 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 Total liabilities measured at fair value on a recurring basis $ 63,182 $ 23,339 37,673 $ (a) At December 31, 2020 and 2019, included total U.S. GSE obligations of $117.6 billion and $104.5 billion, respectively, which were mortgage-related. (b) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-period amounts have been revised to conform with the current presentation. (c) Physical commodities inventories are generally accounted for at the lower of cost or net realizable value. “Net realizable value” is a term defined in U.S. GAAP as not exceeding fair value less costs to sell (“transaction costs”). Transaction costs for the Firm’s physical commodities inventories are either not applicable or immaterial to the value of the inventory. Therefore, net realizable value approximates fair value for the Firm’s physical commodities inventories. When fair value hedging has been applied (or when net realizable value is below cost), the carrying value of physical commodities approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. Refer to Note 5 for a further JPMorgan Chase & Co./2020 Form 10-K 177 Notes to consolidated financial statements 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, 2020 and 2019, the fair values of these investments, which include certain hedge funds, private equity funds, real estate and other funds, were $670 million and $684 million, respectively. Included in these balances at December 31, 2020 and 2019, were trading assets of $52 million and $54 million, respectively, and other assets of $618 million and $630 million, respectively. (f) At December 31, 2020 and 2019, included within loans were $15.1 billion and $19.8 billion, respectively, of residential first-lien mortgages, and $6.3 billion and $8.2 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 $8.4 billion and $13.6 billion, respectively. (g) 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. 178 JPMorgan Chase & Co./2020 Form 10-K In the Firm’s view, the input range, weighted and arithmetic average values 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. 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 171-175 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 the weighted or arithmetic averages of such inputs. While the determination to classify an instrument within level 3 is based on the significance of the unobservable inputs to the overall fair value measurement, level 3 financial instruments typically include observable components (that is, components that are actively quoted and can be validated to external sources) in addition to the unobservable components. The level 1 and/or level 2 inputs are not included in the table. In addition, the Firm manages the risk of the observable components of level 3 financial instruments using securities and derivative positions that are classified within levels 1 or 2 of the fair value hierarchy. The range of values presented in the table is representative of the highest and lowest level input used to value the significant groups of instruments within a product/instrument classification. Where provided, the weighted averages of the input values presented in the table are calculated based on the fair value of the instruments that the input is being used to value. JPMorgan Chase & Co./2020 Form 10-K 179 Notes to consolidated financial statements Level 3 inputs(a) December 31, 2020 Product/Instrument Fair value (in millions) Principal valuation technique Unobservable inputs(g) Range of input values Average(i) Residential mortgage-backed securities and loans(b) $ 1,282 Discounted cash flows Yield Prepayment speed Conditional default rate Loss severity Commercial mortgage-backed securities and loans(c) Corporate debt securities Loans(d) Asset-backed securities Net interest rate derivatives 466 Market comparables 507 Market comparables 1,930 Market comparables 28 Market comparables Price Price Price Price 238 Option pricing Interest rate volatility 0% 0% 0% 0% $0 $2 $10 $1 7bps Interest rate spread volatility 11bps – – – – – – – – – – Net credit derivatives 20 Discounted cash flows (260) Discounted cash flows Interest rate correlation IR-FX correlation Prepayment speed Credit correlation Credit spread Recovery rate Conditional default rate Loss severity 36 Market comparables Price Net foreign exchange derivatives (298) Option pricing Net equity derivatives (136) Discounted cash flows (3,862) Option pricing Net commodity derivatives (731) Option pricing IR-FX correlation Prepayment speed Forward equity price(h) Equity volatility Equity correlation Equity-FX correlation Equity-IR correlation Oil Commodity Forward Forward power price Commodity volatility Commodity correlation 18% 46% 30% 107% $101 $116 $104 $97 513bps 23bps 99% 50% 30% 65% 6% 10% 14% 7% $84 $85 $72 $57 101bps 15bps 35% 0% 8% 48% 1,302bps 441bps (65)% – (35)% – 0% 34% 3bps 0% 2% – – – – – 9% – – – 61% 5% 18% (79)% – – $600 / MT – 20% 67% 100% 106% 138% 99% 55% 50% 100% $1 – (40)% – $115 65% $609 / MT $605 / MT $12 / MWH – $55 / MWH $34 / MWH 1% – (49)% – 58% 95% 46% 58% 100% $71 18% 9% 99% 35% 60% (27)% 28% 29% 23% 45bps 7% $29 MSRs Other assets 3,276 Discounted cash flows Refer to Note 15 299 Discounted cash flows Credit spread 45bps Long-term debt, short-term borrowings, and deposits(e) 585 Market comparables 27,912 Option pricing Yield Price Interest rate volatility Interest rate correlation IR-FX correlation Equity correlation Equity-FX correlation Equity-IR correlation Other level 3 assets and liabilities, net(f) 250 818 Discounted cash flows Credit correlation 4% $29 7bps – – (65)% – (35)% – 18% – (79)% – – – 20% 34% 30% $29 513bps 101bps 99% 50% 99% 55% 50% 65% 35% 0% 60% (27)% 28% 48% (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. GSE and government agency securities of $449 million, nonagency securities of $28 million and non-trading loans of $805 million. (c) Comprises nonagency securities of $3 million, trading loans of $43 million and non-trading loans of $420 million. (d) Comprises trading loans of $850 million and non-trading loans of $1.1 billion. (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. (i) Amounts represent weighted averages except for derivative related inputs where arithmetic averages are used. 180 JPMorgan Chase & Co./2020 Form 10-K Prepayment speeds may vary from collateral pool to collateral pool, and are driven by the type and location of the underlying borrower, and the remaining tenor of the obligation as well as the level and type (e.g., fixed or floating) of interest rate being paid by the borrower. Typically collateral pools with higher borrower credit quality have a higher prepayment rate than those with lower borrower credit quality, all other factors being equal. Conditional default rate – The conditional default rate is a measure of the reduction in the outstanding collateral balance underlying a collateralized obligation as a result of defaults. While there is typically no direct relationship between conditional default rates and prepayment speeds, collateralized obligations for which the underlying collateral has high prepayment speeds will tend to have lower conditional default rates. An increase in conditional default rates would generally be accompanied by an increase in loss severity and an increase in credit spreads. An increase in the conditional default rate, in isolation, would result in a decrease in a fair value measurement. Conditional default rates reflect the quality of the collateral underlying a securitization and the structure of the securitization itself. Based on the types of securities owned in the Firm’s market- making portfolios, conditional default rates are most typically at the lower end of the range presented. Loss severity – The loss severity (the inverse concept is the recovery rate) is the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding loan balance. An increase in loss severity is generally accompanied by an increase in conditional default rates. An increase in the loss severity, in isolation, would result in a decrease in a fair value measurement. The loss severity applied in valuing a mortgage-backed security investment depends on factors relating to the underlying mortgages, including the LTV ratio, the nature of the lender’s lien on the property and other instrument- specific factors. 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. JPMorgan Chase & Co./2020 Form 10-K 181 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, 2020, 2019 and 2018. 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. Notes to consolidated financial statements 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. 182 JPMorgan Chase & Co./2020 Form 10-K Fair value measurements using significant unobservable inputs Fair value at January 1, 2020 Total realized/ unrealized gains/(losses) Purchases(g) Sales Settlements(h) Transfers into level 3(i) Transfers (out of) level 3(i) Fair value at Dec. 31, 2020 Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2020 $ 797 $ (172) $ 134 $ (149) $ (161) $ — $ — $ 449 $ (150) 23 4 2 — 15 1 (5) — 824 (170) 150 (154) — 10 155 558 673 37 — — 21 (23) (73) (3) — — 281 582 1,112 44 — (1) (245) (205) (484) (40) (4) (1) (166) — (1) (7) (236) (182) (9) — 2 2 — — — 411 791 9 (3) (3) 28 3 (1) — (6) 480 (151) — — (23) (580) (944) (10) — 8 182 507 893 28 — — 11 (25) (40) (4) Year ended December 31, 2020 (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(b) Asset-backed securities Total debt instruments 2,257 (248) 2,169 (1,129) (601) 1,213 (1,563) 2,098 (209) Equity securities Other Total trading assets – debt and equity instruments Net derivative receivables:(c) Interest rate Credit Foreign exchange Equity Commodity 196 (75) 232 271 53 245 (376) (9) (1) 535 (154) 6 (153) (245) 179 346 (20) 206 2,685 (52) (d) 2,467 (1,514) (756) 1,754 (1,961) 2,623 (23) (d) (332) 2,682 (139) (212) (607) 49 308 73 49 (148) (154) (24) (3,395) (65) 1,664 (2,317) (16) (546) 27 (241) (2,228) (332) 308 258 325 181 83 1,162 356 59 13 (935) (310) (32) (224) (110) 3 (434) 116 24 (3,862) (556) (1) (731) 267 Total net derivative receivables (4,489) 1,908 (d) 2,121 (2,884) (446) (1,505) 302 (4,993) (d) 42 Available-for-sale securities: Mortgage-backed securities Asset-backed securities Total available-for-sale securities Loans(b) Mortgage servicing rights Other assets(b) 1 — 1 516 4,699 917 — — — (243) (d) (1,540) (e) (63) (d) — — — 962 1,192 75 — — — (84) (176) (104) (1) — (1) — — — — — — — — — (733) 2,571 (684) 2,305 (899) (320) — 40 — 3,276 (7) 538 — — — (18) (d) (1,540) (e) (3) (d) Fair value measurements using significant unobservable inputs Fair value at January 1, 2020 Total realized/ unrealized (gains)/losses Purchases Sales Issuances Settlements(h) Transfers into level 3(i) Transfers (out of) level 3(i) Fair value at Dec. 31, 2020 Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2020 $ 3,360 $ 165 (d)(f) $ 1,674 (338) (d)(f) — $ — $ 671 $ (605) $ 265 $ (943) $ 2,913 $ 455 — — 5,140 (4,115) 105 (46) 2,420 143 (d)(f) (d)(f) Year ended December 31, 2020 (in millions) Liabilities:(a) Deposits Short-term borrowings Trading liabilities – debt and equity instruments Accounts payable and other liabilities Beneficial interests issued by consolidated VIEs 41 45 — Long-term debt 23,339 (2) (d) (d) 33 — 40 (d)(f) (126) (87) — — 14 37 — — — — — (4) — — 136 47 — (8) (7) — 51 68 — (1) (d) (d) 28 — 9,883 (9,833) 1,250 (1,282) 23,397 1,920 (d)(f) JPMorgan Chase & Co./2020 Form 10-K 183 Notes to consolidated financial statements Fair value measurements using significant unobservable inputs Fair value at January 1, 2019 Total realized/ unrealized gains/ (losses) Purchases(g) Sales Settlements(h) Transfers into level 3(i) Transfers (out of) level 3(i) 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) — 689 155 334 738 127 2,667 232 301 — 13 1 47 29 — 55 (41) (36) — — 85 (159) 290 437 456 37 (287) (247) (519) (93) 2,181 (1,727) 58 50 (103) (26) (20) (14) (168) — (8) — (52) (82) (40) (350) (22) (54) 15 15 31 — — 14 112 437 28 622 181 2 (58) (4) 23 4 2 1 (82) 824 (55) — — (610) 10 (18) (73) (386) (22) 155 558 673 37 (1,191) 2,257 (109) (5) 196 232 — 13 4 40 13 (3) 12 (18) 91 3,200 (22) (d) 2,289 (1,856) (426) 805 (1,305) 2,685 (d) 85 (38) (394) (107) (36) (297) (551) (2,225) (310) (1,129) 497 109 (125) 20 17 397 36 (9) (67) (573) (348) 5 8 312 (7) 29 (22) 118 (332) (44) (139) 1 (607) (599) (127) (380) (503) (405) 224 (3,395) (1,608) 89 (6) 845 (16) 130 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(b) Asset-backed securities Total debt instruments Equity securities Other Total trading assets – debt and equity instruments Net derivative receivables:(c) Interest rate Credit Foreign exchange Equity Commodity Total net derivative receivables (3,796) (794) (d) 579 (1,122) (89) (411) 1,144 (4,489) (2,584) (d) Available-for-sale securities: Mortgage-backed securities Asset-backed securities Total available-for-sale securities Loans(b) Mortgage servicing rights Other assets(b) 1 — 1 — — — 856 6,130 1,161 (d) 59 (1,180) (e) (150) (d) — — — — — — 236 1,489 229 (188) (789) (166) — — — (482) (951) (156) — — — — — — 1 — 1 — — — 188 (153) 516 — 6 — 4,699 (7) 917 (d) 38 (1,180) (e) (180) (d) Year ended December 31, 2019 (in millions) Liabilities:(a) Deposits Short-term borrowings Fair value measurements using significant unobservable inputs Total realized/ unrealized (gains)/ losses Fair value at January 1, 2019 Purchases Sales Issuances Settlements(h) Transfers into level 3(i) Transfers (out of) level 3(i) Fair value at Dec. 31, 2019 Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2019 $ 4,169 $ 278 1,523 229 (d)(f) $ (d)(f) — — 3,441 (3,356) — $ — $ 916 $ (806) $ 12 $ (1,209) $ 3,360 $ 307 Trading liabilities – debt and equity instruments Accounts payable and other liabilities Beneficial interests issued by consolidated VIEs 50 10 1 (d) 2 (2) (d) (1) (d) Long-term debt 19,418 2,815 (d)(f) (22) 41 (84) 115 — — — — — — 1 — — — 10,441 (8,538) 651 (1,448) 23,339 2,822 (d)(f) 85 16 6 — (248) 1,674 155 (47) — — 41 45 — 3 29 — (d)(f) (d)(f) (d) (d) 184 JPMorgan Chase & Co./2020 Form 10-K Fair value measurements using significant unobservable inputs Fair value at January 1, 2018 Total realized/ unrealized gains/ (losses) Purchases(g) Sales Settlements(h) Transfers into level 3(i) Transfers (out of) level 3(i) 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) 78 312 612 153 2,278 295 (22) (18) 1 28 (51) (40) 690 (285) — 112 459 364 941 98 — (70) (277) (309) (536) (41) 2,548 (1,465) 118 55 (120) (40) (7) (17) (97) — (80) (12) (48) (219) (55) (511) (1) (118) 59 36 (74) (21) 64 11 1 (2) 189 (165) 624 (22) (1) — — — 689 (17) — — 23 262 619 45 (94) (229) (680) (101) 155 334 738 127 1,138 (1,270) 2,667 107 3 (127) (4) 232 301 3,263 (376) (d) 2,721 (1,625) (630) 1,248 (1,401) 3,200 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(b) Asset-backed securities Total debt instruments Equity securities Other Total trading assets – debt and equity instruments Net derivative receivables:(c) Interest rate Credit Foreign exchange Equity Commodity 264 150 (35) (40) (396) 103 107 5 52 (133) (7) (20) (3,409) 198 1,676 (2,208) (674) (73) 1 (72) Total net derivative receivables (4,250) 338 Available-for-sale securities: Mortgage-backed securities Asset-backed securities Total available-for-sale securities Loans(b) 1 276 277 2,152 — 1 1 9 (d) (j) (d) Mortgage servicing rights Other assets(b) 6,030 1,496 (e) 230 (319) (d) 1,841 (2,440) — — — — — — 412 (1,256) 1,246 195 (636) (38) (430) (57) 30 1,805 (301) 1,047 — (277) (277) (496) (740) (176) (15) 4 (108) (617) 19 23 42 (38) (107) (297) 330 (2,225) 7 (17) (1,129) (729) 397 (3,796) — — — — — — — 1 — 1 194 (159) 856 — 4 — 6,130 (1) 1,161 Fair value measurements using significant unobservable inputs Year ended December 31, 2018 (in millions) Liabilities:(a) Deposits Short-term borrowings Fair value at January 1, 2018 Total realized/ unrealized (gains)/ losses Purchases Sales Issuances Settlements(h) Transfers into level 3(i) Transfers (out of) level 3(i) Fair value at Dec. 31, 2018 $ 4,142 $ (136) (d)(f) $ 1,665 (329) (d)(f) — — $ — $ 1,437 $ (736) $ 2 $ (540) $ 4,169 — 3,455 (3,388) 272 (152) 1,523 Trading liabilities – debt and equity instruments 39 (d) 19 (99) 114 — — — (1) — (39) 14 4 — (36) — — 50 10 1 5 1 — 11,919 (7,769) 1,143 (831) 19,418 Accounts payable and other liabilities 13 — (12) Beneficial interests issued by consolidated VIEs Long-term debt 39 16,125 — (1,169) (d)(f) — — JPMorgan Chase & Co./2020 Form 10-K (9) (1) (13) 22 (40) 9 (301) (332) (d) 187 (28) (63) 561 146 803 — — (d) — (4) (d) (e) 230 (331) (d) Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2018 $ (204) (d)(f) (131) (d)(f) (d) 16 — — (1,385) (d)(f) 185 Notes to consolidated financial statements (a) Level 3 assets at fair value as a percentage of total Firm assets accounted for at fair value (including assets measured at fair value on a nonrecurring basis) were 1%, 2% and 3% at December 31, 2020, 2019 and 2018, respectively. Level 3 liabilities at fair value as a percentage of total Firm liabilities at fair value (including liabilities measured at fair value on a nonrecurring basis) were 9%, 16% and 15% at December 31, 2020, 2019 and 2018, respectively. (b) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-period amounts have been revised to conform with the current presentation. (c) All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty. (d) 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. (e) Changes in fair value for MSRs are reported in mortgage fees and related income. (f) 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, 2020, 2019 and 2018, respectively. Unrealized (gains)/losses are reported in OCI, and they were $221 million, $319 million and $(277) million for the years ended December 31, 2020, 2019 and 2018, respectively. (g) Loan originations are included in purchases. (h) 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. (i) 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. (j) 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, 2020 and 2019, respectively and $1 million recorded for the year ended December 31, 2018. There were no material unrealized gains/(losses) recorded on AFS securities in OCI for the years ended December 31, 2020, 2019 and 2018 respectively. Level 3 analysis Consolidated balance sheets changes Level 3 assets at fair value including assets measured at fair value on a nonrecurring basis were 0.5% of total Firm assets at December 31, 2020. The following describes significant changes to level 3 assets since December 31, 2019, 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 189 for further information on changes impacting items measured at fair value on a nonrecurring basis. For the year ended December 31, 2020 Level 3 assets were $16.4 billion at December 31, 2020, reflecting an increase of $2.9 billion from December 31, 2019. The increase for the year ended December 31, 2020 was driven by: • $907 million increase in gross interest rate derivative receivables and $1.4 billion increase in gross equity derivative receivables largely due to gains net of settlements. • $1.8 billion increase in non-trading loans due to net transfers. partially offset by • $1.4 billion decrease in MSRs due to losses and settlements partially offset by purchases. Refer to the sections below for additional information. Transfers between levels for instruments carried at fair value on a recurring basis During the year ended December 31, 2020, significant transfers from level 2 into level 3 included the following: • $1.8 billion of total debt and equity instruments, predominantly equity securities and trading loans, driven by a decrease in observability. • $2.6 billion of gross equity derivative receivables and $3.5 billion of gross equity derivative payables as a result of a decrease in observability and an increase in the significance of unobservable inputs. • $880 million of gross interest rate derivative payables as a result of a decrease in observability and an increase in the significance of unobservable inputs. • $2.6 billion of non-trading loans driven by a decrease in observability. • $1.2 billion of long-term debt driven by a decrease in observability and an increase in the significance of unobservable inputs for structured notes. During the year ended December 31, 2020, significant transfers from level 3 into level 2 included the following: • $2.0 billion of total debt and equity instruments, predominantly due to corporate debt and trading loans, driven by an increase in observability. • $2.4 billion of gross equity derivative receivables and $2.4 billion of gross equity derivative payables as a result of an increase in observability and a decrease in the significance of unobservable inputs. • $943 million of deposits as a result of an increase in observability and a decrease in the significance of unobservable inputs. • $1.3 billion of long-term debt driven by an increase in observability and a decrease in the significance of unobservable inputs for structured notes. 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. 186 JPMorgan Chase & Co./2020 Form 10-K 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. 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, 2020, 2019 and 2018. 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 182-186 for further information on these instruments. 2020 • $10 million of net gains on assets driven by gains in net interest rate derivative receivables due to market movements largely offset by losses in MSRs reflecting faster prepayment speeds on lower rates. Refer to Note 15 for additional information on MSRs. • $1.4 billion of long-term debt as a result of an increase in • $102 million of net gains on liabilities driven by market movements in short-term borrowings. 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. 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. 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. JPMorgan Chase & Co./2020 Form 10-K 187 Notes to consolidated financial statements 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: 2020 2019 2018 Derivatives CVA Derivatives FVA $ (337) $ 241 $ 193 (64) 199 (74) 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 186 in this Note and Note 24 for further information. 188 JPMorgan Chase & Co./2020 Form 10-K Assets and liabilities measured at fair value on a nonrecurring basis The following tables present the assets and liabilities held as of December 31, 2020 and 2019, respectively, for which nonrecurring fair value adjustments were recorded during the years ended December 31, 2020 and 2019, respectively, by major product category and fair value hierarchy. December 31, 2020 (in millions) Loans Other assets(a) Total assets measured at fair value on a nonrecurring basis Accounts payable and other liabilities(b) Total liabilities measured at fair value on a nonrecurring basis December 31, 2019 (in millions) Loans Other assets Total assets measured at fair value on a nonrecurring basis $ $ $ $ $ Fair value hierarchy Level 1 Level 2 Level 3 Total fair value 1,611 (c) $ 972 (d) $ — $ — 5 — $ 1,616 — — $ — — $ $ 979 1,951 12 12 Fair value hierarchy Level 1 Level 2 — $ — 3,462 (c) $ 14 — $ 3,476 $ Level 3 269 1,043 1,312 (e) 2,583 984 3,567 12 12 Total fair value 3,731 1,057 4,788 $ $ $ $ (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 $979 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2020, $535 million related to equity securities adjusted based on the measurement alternative. These equity securities are classified as level 3 due to the infrequency of the observable prices and/or the restrictions on the shares. (b) There were no liabilities measured at fair value on a nonrecurring basis at December 31, 2019. (c) Primarily includes certain mortgage loans that were reclassified to held-for-sale. (d) Of the $972 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2020, $602 million related to residential real estate loans carried at the net realizable value of the underlying collateral (e.g., collateral-dependent loans). 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 13% to 46% with a weighted average of 27%. (e) Prior-period amounts have been revised to conform with the current presentation. Nonrecurring fair value changes The following table presents the total change in value of assets and liabilities for which fair value adjustments have been recognized for the years ended December 31, 2020, 2019 and 2018, related to assets and liabilities held at those dates. December 31, (in millions) Loans(a) Other assets(b) Accounts payable and other liabilities Total nonrecurring fair value gains/(losses) 2020 2019 2018 $ (393) $ (274) $ (68) (529) 182 (c) 132 (11) — — $ (933) $ (92) $ 64 (a) Includes the impact of certain mortgage loans that were reclassified to held-for-sale. (b) Included $(134) million, $201 million and $149 million for the years ended December 31, 2020, 2019 and 2018, respectively,of net (losses)/gains as a result of the measurement alternative. (c) Prior-period amounts have been revised to conform with the current presentation. Refer to Note 12 for further information about the measurement of collateral-dependent loans. JPMorgan Chase & Co./2020 Form 10-K 189 Notes to consolidated financial statements 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, 2020 and 2019, 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(a) Upward carrying value changes(b) Downward carrying value changes/impairment(c) 2020 2019 $ 2,368 $ 2,441 167 (301) 243 (d) (42) (a) The period-end carrying values reflect cumulative purchases and sales in addition to upward and downward carrying value changes. (b) The cumulative upward carrying value changes between January 1, 2018 and December 31, 2020 were $708 million. (c) The cumulative downward carrying value changes/impairment between January 1, 2018 and December 31, 2020 were $(430) million. (d) Prior-period amounts have been revised to conform with the current presentation. Included in other assets above is the Firm’s interest in approximately 40 million Visa Class B common shares, recorded at a nominal carrying value. These shares are subject to certain transfer restrictions currently and will be convertible into Visa Class A common shares upon final resolution of certain litigation matters involving Visa. The conversion rate of Visa Class B common shares into Visa Class A common shares is 1.6228 at December 31, 2020, 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. 190 JPMorgan Chase & Co./2020 Form 10-K The following table presents by fair value hierarchy classification the carrying values and estimated fair values at December 31, 2020 and 2019, 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, 2020 Estimated fair value hierarchy December 31, 2019 Estimated fair value hierarchy Carrying value Level 1 Level 2 Level 3 Total estimated fair value Carrying value Level 1 Level 2 Level 3 Total estimated fair value (in billions) Financial assets Cash and due from banks $ 24.9 $ 24.9 $ — $ — — $ 24.9 $ 21.7 $ 21.7 $ — 502.7 241.9 241.9 — $ — — $ 21.7 — 241.9 89.3 0.1 89.4 71.3 71.2 0.1 71.3 Deposits with banks 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 502.7 502.7 89.4 58.3 107.7 — — — — — — 58.3 107.7 58.3 107.7 234.6 133.5 234.6 133.5 — — — 201.8 53.2 152.3 205.5 47.5 0.1 48.8 940.1 81.8 — — 210.9 80.0 755.6 1.9 966.5 81.9 939.5 61.3 — — 214.1 60.6 734.9 0.8 — — — 234.6 133.5 48.9 949.0 61.4 $ 2,129.8 $ — $ 2,128.9 $ — $ 2,128.9 $ 1,533.8 $ — $ 1,534.1 $ — $ 1,534.1 59.5 28.3 186.6 17.5 204.8 — — — — — 59.5 28.3 181.9 17.6 209.2 — — 4.3 — 3.2 59.5 28.3 183.1 35.0 — — 183.1 35.0 186.2 164.0 0.1 160.0 17.6 212.4 17.8 215.5 — — 17.9 218.3 — — 3.5 — 3.5 183.1 35.0 163.6 17.9 221.8 (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. Carrying value of the loan takes into account the loan’s allowance for loan losses, which represents the loan’s expected credit losses over its remaining expected life. The difference between the estimated fair value and carrying value of a loan is generally attributable to changes in market interest rates, including credit spreads, market liquidity premiums and other factors that affect the fair value of a loan but do not affect its carrying value. 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 and the estimated fair value of these wholesale lending-related commitments were as follows for the periods indicated. December 31, 2020 Estimated fair value hierarchy December 31, 2019 Estimated fair value hierarchy Carrying value(a)(b) Level 1 Level 2 Level 3 Total estimated fair value Carrying value(a)(b) Level 1 Level 2 Level 3 Total estimated fair value (in billions) Wholesale lending- related commitments $ 2.2 $ — $ — $ 2.1 $ 2.1 $ 1.2 $ — $ — $ 1.9 $ 1.9 (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) Includes the wholesale allowance for lending-related commitments. The Firm does not estimate the fair value of consumer off-balance sheet 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 173 of this Note for a further discussion of the valuation of lending-related commitments. JPMorgan Chase & Co./2020 Form 10-K 191 Notes to consolidated financial statements Note 3 – Fair value option The fair value option provides an option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, unrecognized firm commitments, and written loan commitments. The Firm has elected to measure certain instruments at fair value for several reasons including to mitigate income statement volatility caused by the differences between the measurement basis of elected instruments (e.g., certain instruments 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 • • 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 192 JPMorgan Chase & Co./2020 Form 10-K 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, 2020, 2019 and 2018, 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. 2020 2019 2018 Principal transactions All other income Total changes in fair value recorded(f) Principal transactions All other income Total changes in fair value recorded(f) Principal transactions All other income Total changes in fair value recorded(f) $ 12 $ 143 — — $ 12 $ (36) $ — $ (36) $ (35) $ — $ 143 133 — 133 22 — (35) 22 1,546 (1) (d) 1,545 2,482 (1) (d) 2,481 (1,680) (d) 1 (1,679) 135 (19) 190 — — 7 470 3,239 (d) (d) 103 (726) (65) (e) — (6) 294 2 — — — (94) (2,120) — (1) (d) 135 (19) 248 (1) — — 248 (1) 15 28 — — 197 3,709 38 (726) (6) 294 2 (94) 475 2 267 1,224 8 (1,730) (8) (693) 6 (16) (d) (d) (e) 477 1,491 14 (1,730) (8) (693) 6 (16) 6 — — — — — 1 385 1 138 185 (d) (d) 11 181 (45) (e) — 11 862 1 — — — — — — (2,121) (6,173) (d) (6,172) 2,695 15 28 386 323 (34) 181 11 862 1 — 2,695 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(a) Other changes in fair value(a) Loans: Changes in instrument-specific credit risk(a) Other changes in fair value(a) Other assets(a) Deposits(b) Federal funds purchased and securities loaned or sold under repurchase agreements Short-term borrowings(b) Trading liabilities Other liabilities Long-term debt(b)(c) (a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-period amounts have been revised to conform with the current presentation. (b) Unrealized gains/(losses) due to instrument-specific credit risk (DVA) for liabilities for which the fair value option has been elected are recorded in OCI and subsequently recorded in principal transactions revenue when realized. Realized gains/(losses) due to instrument-specific credit risk recorded in principal transactions revenue were $20 million for the year ended December 31,2020 and were not material for the years ended December 31, 2019 and 2018. (c) 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. (d) Reported in mortgage fees and related income. (e) Reported in other income. (f) 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 the fair value option was elected 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. JPMorgan Chase & Co./2020 Form 10-K 193 Notes to consolidated financial statements Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of December 31, 2020 and 2019, for loans, long-term debt and long-term beneficial interests for which the fair value option has been elected. 2020 2019 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 Nonaccrual loans Loans reported as trading assets(a) Loans(a) Subtotal 90 or more days past due and government guaranteed(b) $ 3,386 1,867 5,253 — 328 328 7,917 42,022 49,939 $ 555 $ (2,831) $ 2,563 $ 234 $ (2,329) 1,507 2,062 (360) (3,191) 964 3,527 — 317 317 — (11) (11) — 138 138 696 930 — 129 129 (268) (2,597) — (9) (9) 6,439 42,650 49,089 (1,478) 628 (850) 8,288 43,955 52,243 6,779 44,130 50,909 (1,509) 175 (1,334) $ 55,520 $ 51,468 $ (4,052) $ 55,908 $ 51,968 $ (3,940) $ 40,560 (e) $ 40,526 $ (34) $ 40,124 (e) $ 39,246 $ (878) NA NA NA NA 36,291 $ 76,817 $ $ 41 41 NA NA NA NA NA NA NA NA 36,499 $ 75,745 $ $ 36 36 NA NA NA NA Loans reported as trading assets Loans Subtotal All other performing loans(c) Loans reported as trading assets(a) Loans(a) Subtotal Total loans Long-term debt Principal-protected debt Nonprincipal-protected debt(d) Total long-term debt Long-term beneficial interests Nonprincipal-protected debt(d) Total long-term beneficial interests (a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-period amounts have been revised to conform with the current presentation. (b) These balances are excluded from nonaccrual loans as the loans are insured and/or guaranteed by U.S. government agencies. (c) There were no performing loans that were ninety days or more past due as of December 31, 2020 and 2019. (d) 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. (e) 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, 2020 and 2019, the contractual amount of lending-related commitments for which the fair value option was elected was $18.1 billion and $8.6 billion, respectively, with a corresponding fair value of $(39) million and $(120) million, respectively. Refer to Note 28 for further information regarding off-balance sheet lending-related financial instruments. Prior- period amounts have been revised to conform with the current presentation. 194 JPMorgan Chase & Co./2020 Form 10-K 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, 2020 December 31, 2019 Long-term debt Short-term borrowings Deposits Total Long-term debt Short-term borrowings Deposits Total $ 38,129 $ 65 $ 5,057 $ 43,251 $ 35,470 $ 34 $ 16,692 $ 52,196 6,409 3,613 1,022 92 — — 7,431 3,705 5,715 3,862 875 48 — 5 6,590 3,915 26,943 5,021 6,893 38,857 29,294 4,852 8,177 42,323 250 13 232 495 472 32 1,454 1,958 Total structured notes $ 75,344 $ 6,213 $ 12,182 $ 93,739 $ 74,813 $ 5,841 $ 26,328 $ 106,982 JPMorgan Chase & Co./2020 Form 10-K 195 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. 196 JPMorgan Chase & Co./2020 Form 10-K The table below presents both on–balance sheet and off–balance sheet consumer and wholesale credit exposure by the Firm’s three credit portfolio segments as of December 31, 2020 and 2019. The wholesale industry of risk category is generally based on the client or counterparty’s primary business activity. In conjunction with the adoption of CECL, the Firm reclassified risk-rated loans and lending-related commitments from the consumer, excluding credit card portfolio segment to the wholesale portfolio segment, to align with the methodology applied when determining the allowance. Prior-period amounts have been revised to conform with the current presentation. Refer to Note 1 for further information. 2020 2019 December 31, (in millions) Consumer, excluding credit card Credit card(a) Total consumer-related(a) Wholesale-related(b) Real Estate Individuals and Individual Entities(c) Consumer & Retail Technology, Media & Telecommunications Asset Managers Industrials Healthcare Banks & Finance Cos Automotive Oil & Gas State & Municipal Govt(d) Utilities Chemicals & Plastics Central Govt Transportation Metals & Mining Insurance Securities Firms Financial Markets Infrastructure All other(e) Subtotal On-balance sheet Credit exposure(h)(i) $ 375,898 $ 318,579 Loans(i) (j) $ Derivatives Off-balance sheet(i)(k) Credit exposure(h)(i) — $ 57,319 $ 357,986 $ 317,817 $ Loans(i) On-balance sheet Derivatives Off-balance sheet(i)(k) 802,722 144,216 1,178,620 462,795 — — 658,506 819,644 168,924 715,825 1,177,630 486,741 — $ 40,169 — — 650,720 690,889 148,498 118,299 122,870 109,746 108,437 39,013 1,385 1,750 2,802 28,814 11,374 66,622 150,919 117,709 105,027 106,986 94,616 36,985 619 694 32,591 9,717 1,424 68,577 72,150 14,687 4,252 53,211 60,033 15,322 2,766 41,945 66,573 66,470 60,118 54,032 43,331 39,159 38,286 30,124 17,176 17,025 16,232 15,542 13,141 8,048 6,515 31,059 21,143 19,405 31,004 17,128 11,267 18,054 4,874 4,884 3,396 6,566 4,854 1,042 469 19 100,713 58,038 9,277 1,851 3,252 8,044 5,995 1,643 2,347 3,340 856 12,313 1,495 882 2,527 4,838 3,757 7,024 26,237 43,476 37,461 14,984 20,208 26,249 17,885 21,910 11,436 1,316 8,171 9,806 9,572 2,741 2,739 54,304 62,483 50,824 50,786 35,118 41,641 30,095 34,843 17,499 14,865 14,497 15,586 12,348 7,381 4,121 24,008 22,063 17,607 31,191 18,844 13,101 13,271 5,157 4,864 2,840 5,253 5,364 1,356 757 13 35,651 79,598 51,357 7,160 878 2,078 5,165 368 852 2,000 2,573 459 10,477 715 402 2,282 4,507 2,482 1,865 23,136 39,542 31,139 14,430 15,906 27,688 14,824 27,113 12,176 1,548 8,529 9,820 8,710 2,117 1,626 26,376 1,044,440 514,947 79,630 449,863 948,954 481,678 49,766 417,510 35,111 Loans held-for-sale and loans at fair value Receivables from customers(f) Total wholesale-related Total exposure(g)(h) (a) Also includes commercial card lending-related commitments primarily in CB and CIB. (b) The industry rankings presented in the table as of December 31, 2019, are based on the industry rankings of the corresponding exposures at December 31, 2020, $ 79,630 $ 1,165,688 $ 2,189,491 $ 997,620 $ 49,766 $ 1,108,399 $ 2,305,881 $ 1,012,853 1,127,261 1,011,861 510,879 417,510 550,058 449,863 29,201 49,766 33,706 29,201 35,111 79,630 47,710 — — — — — — — — — — not actual rankings of such exposures at December 31, 2019. (c) Individuals and Individual Entities predominantly consists of Wealth Management clients within AWM and includes exposure to personal investment companies and personal and testamentary trusts. (d) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2020 and 2019, noted above, the Firm held: $7.2 billion and $6.5 billion, respectively, of trading assets; $20.4 billion and $29.8 billion, respectively, of AFS securities; and $12.8 billion and $4.8 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. Refer to Note 2 and Note 10 for further information. (e) All other includes: SPEs and Private education and civic organizations, representing approximately 92% and 8%, respectively, at December 31, 2020 and 90% and 10%, respectively, at December 31, 2019 . Refer to Note 14 for more information on exposures to SPEs. (f) Receivables from customers reflect held-for-investment margin loans to brokerage clients in CIB, CCB 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). Because of this collateralization, no allowance for credit losses is generally 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. (g) Excludes cash placed with banks of $516.9 billion and $254.0 billion, at December 31, 2020 and 2019, respectively, which is predominantly placed with various central banks, primarily Federal Reserve Banks. (h) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against derivative (i) receivables or loans and liquid securities and other cash collateral held against derivative receivables. In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans, which resulted in a corresponding reclassification of certain off-balance sheet commitments. Prior-period amounts have been revised to conform with the current presentation. (j) At December  31, 2020, included $19.2  billion of loans in Business Banking under the PPP. PPP loans are guaranteed by the SBA. Other than in certain limited circumstances, the Firm typically does not recognize charge-offs, classify as nonaccrual nor record an allowance for loan losses on these loans. (k) Represents lending-related financial instruments. JPMorgan Chase & Co./2020 Form 10-K 197 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 Credit derivatives section on pages 209-211 of this Note for a further discussion of credit derivatives. Refer to the risk management derivatives gains and losses table on page 209 of this Note, and the hedge accounting gains and losses tables on pages 206-208 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 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 202-209 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 a further discussion of derivatives embedded in structured notes. 198 JPMorgan Chase & Co./2020 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 expected to not 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./2020 Form 10-K 199 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 Fair value hedge Cash flow hedge Fair value hedge Cash flow hedge Corporate Corporate Corporate Corporate Net investment hedge Corporate 206-207 208 206-207 208 208 Fair value hedge CIB 206-207 Manage specifically identified risk exposures not designated in qualifying hedge accounting 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 209 209 209 209 209 200 JPMorgan Chase & Co./2020 Form 10-K Notional amount of derivative contracts The following table summarizes the notional amount of derivative contracts outstanding as of December 31, 2020 and 2019. 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) 2020 2019 $ 20,986 $ 21,228 3,057 3,375 3,675 31,093 1,201 3,924 6,871 830 825 3,152 3,938 4,361 32,679 1,242 3,604 5,577 700 718 Total foreign exchange contracts 12,450 10,599 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 448 140 676 621 406 142 646 611 1,885 1,805 138 198 124 105 565 147 211 135 124 617 Total derivative notional amounts $ 47,194 $ 46,942 (a) Refer to the Credit derivatives discussion on pages 209-211 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./2020 Form 10-K 201 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, 2020 and 2019, by accounting designation (e.g., whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type. Free-standing derivative receivables and payables(a) Gross derivative receivables 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) December 31, 2020 (in millions) Trading assets and liabilities Interest rate Credit Foreign exchange Equity Commodity Total fair value of trading assets and liabilities December 31, 2019 (in millions) Trading assets and liabilities Interest rate Credit Foreign exchange Equity Commodity Total fair value of trading assets and liabilities $ 390,659 $ 831 $ 391,490 $ 35,725 $ 353,627 $ $ 353,627 $ 13,012 13,503 205,359 74,798 20,579 — 13,503 680 15,192 15,192 901 206,260 15,781 214,229 1,697 215,926 — 924 74,798 21,503 20,673 6,771 81,413 20,834 — 1,895 81,413 22,729 1,995 21,433 25,898 8,285 $ 704,898 $ 2,656 $ 707,554 $ 79,630 $ 685,295 $ 3,592 $ 688,887 $ 70,623 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 $ 843 $ 313,294 $ 27,421 $ 279,272 $ $ 279,273 $ 8,603 14,876 138,179 45,727 16,914 — 14,876 701 15,121 15,121 308 138,487 9,005 144,125 983 145,108 — 328 45,727 17,242 6,477 6,162 52,741 19,736 — 149 52,741 19,885 1,652 13,158 12,537 7,758 — — 1 — $ 528,147 $ 1,479 $ 529,626 $ 49,766 $ 510,995 $ 1,133 $ 512,128 $ 43,708 (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. 202 JPMorgan Chase & Co./2020 Form 10-K Derivatives netting The following tables present, as of December 31, 2020 and 2019, 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 liquid securities and other 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. Liquid securities represent high quality liquid assets as defined in the LCR rule; • 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) Total interest rate contracts Credit contracts: OTC OTC–cleared Total credit contracts Foreign exchange contracts: OTC OTC–cleared Exchange-traded(a) Total foreign exchange contracts Equity contracts: OTC Exchange-traded(a) Total equity contracts Commodity contracts: OTC OTC–cleared Exchange-traded(a) Total commodity contracts 2020 Amounts netted on the Consolidated balance sheets Gross derivative receivables Net derivative receivables Gross derivative receivables 2019 Amounts netted on the Consolidated balance sheets Net derivative receivables $ 367,056 $ (337,451) $ 29,605 $ 299,205 $ (276,255) $ 22,950 18,340 (17,919) 554 (395) 421 159 9,442 347 (9,360) (258) 82 89 385,950 (355,765) 30,185 308,994 (285,873) 23,121 9,052 4,326 (8,514) (4,309) 13,378 (12,823) 538 17 555 10,743 3,864 14,607 (10,317) (3,858) (14,175) 426 6 432 201,349 (189,655) 11,694 136,252 (129,324) 6,928 834 35 (819) (5) 15 30 185 10 (152) (6) 33 4 202,218 (190,479) 11,739 136,447 (129,482) 6,965 34,030 28,294 62,324 (27,374) (26,751) (54,125) 6,656 1,543 8,199 10,924 (7,901) 3,023 20 (20) 6,833 (6,811) — 22 17,777 (14,732) 3,045 23,106 19,654 42,760 7,093 28 6,154 13,275 (20,820) (18,430) (39,250) 2,286 1,224 3,510 (5,149) 1,944 (28) (5,903) — 251 (11,080) 2,195 Derivative receivables with appropriate legal opinion 681,647 (627,924) 53,723 (d) 516,083 (479,860) 36,223 (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 25,907 25,907 13,543 $ 707,554 $ 79,630 $ 529,626 (14,806) $ 64,824 13,543 $ 49,766 (13,052) $ 36,714 JPMorgan Chase & Co./2020 Form 10-K 203 Notes to consolidated financial statements December 31, (in millions) U.S. GAAP nettable derivative payables Interest rate contracts: OTC OTC–cleared Exchange-traded(a) Total interest rate contracts Credit contracts: OTC OTC–cleared Total credit contracts Foreign exchange contracts: OTC OTC–cleared Exchange-traded(a) Total foreign exchange contracts Equity contracts: OTC Exchange-traded(a) Total equity contracts Commodity contracts: OTC OTC–cleared Exchange-traded(a) Total commodity contracts 2020 Amounts netted on the Consolidated balance sheets Gross derivative payables Net derivative payables Gross derivative payables 2019 Amounts netted on the Consolidated balance sheets Net derivative payables $ 331,854 $ (320,780) $ 11,074 $ 267,311 $ (260,229) $ 7,082 19,710 (19,494) 358 (341) 216 17 10,217 365 (10,138) (303) 79 62 351,922 (340,615) 11,307 277,893 (270,670) 7,223 10,671 4,075 (9,141) (4,056) 14,746 (13,197) 1,530 19 1,549 11,570 3,390 14,960 (10,080) 1,490 (3,389) 1 (13,469) 1,491 210,803 (193,672) 17,131 142,360 (131,792) 10,568 836 34 (819) (2) 17 32 186 12 (152) (6) 34 6 211,673 (194,493) 17,180 142,558 (131,950) 10,608 35,330 34,491 69,821 (28,763) (26,752) (55,515) 6,567 7,739 14,306 10,365 (7,544) 2,821 32 (32) 7,391 (6,868) — 523 17,788 (14,444) 3,344 27,594 20,216 47,810 8,714 30 6,012 14,756 (21,778) (18,426) (40,204) 5,816 1,790 7,606 (6,235) 2,479 (30) (5,862) — 150 (12,127) 2,629 Derivative payables with appropriate legal opinion 665,950 (618,264) 47,686 (d) 497,977 (468,420) 29,557 (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 22,937 22,937 14,151 $ 688,887 $ 70,623 $ 512,128 (11,964) $ 58,659 14,151 $ 43,708 (6,960) $ 36,748 (a) Exchange-traded derivative balances that relate to futures contracts are settled daily. (b) Includes liquid securities and other 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. In the fourth quarter of 2020, the Firm refined its approach for disclosing additional collateral held by the Firm that may be used as security when the fair value of the client’s exposure is in the Firm’s favor. Prior-period amounts have been revised to conform with the current presentation. (c) Derivative collateral relates only to OTC and OTC-cleared derivative instruments. (d) Net derivatives receivable included cash collateral netted of $88.0 billion and $65.9 billion at December 31, 2020 and 2019, respectively. Net derivatives payable included cash collateral netted of $78.4 billion and $54.4 billion at December 31, 2020 and 2019, respectively. Derivative cash collateral relates to OTC and OTC-cleared derivative instruments. 204 JPMorgan Chase & Co./2020 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, 2020 and 2019. OTC and OTC-cleared derivative payables containing downgrade triggers December 31, (in millions) Aggregate fair value of net derivative payables Collateral posted $ 2020 27,712 26,289 $ 2019 14,819 13,329 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, 2020 and 2019, 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) Amount of additional collateral to be posted upon downgrade(a) Amount required to settle contracts with termination triggers upon downgrade(b) 2020 2019 Single-notch downgrade Two-notch downgrade Single-notch downgrade Two-notch downgrade $ 119 $ 1,243 $ 153 2,449 189 $ 104 1,467 1,398 (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, 2020 and 2019. JPMorgan Chase & Co./2020 Form 10-K 205 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, 2020, 2019 and 2018, 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, 2020 (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(e) OCI impact Derivatives - Gains/(losses) recorded in OCI(f) Contract type Interest rate(a)(b) Foreign exchange(c) Commodity(d) Total $ 2,962 $ (1,889) $ 1,073 $ — $ 1,093 $ 793 (619) (2,507) 2,650 174 143 (457) — 174 137 $ 1,248 $ 142 $ 1,390 $ (457) $ 1,404 $ — 25 — 25 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(e) OCI impact Derivatives - Gains/(losses) recorded in OCI(f) Contract type Interest rate(a)(b) Foreign exchange(c) Commodity(d) Total $ 3,204 $ (2,373) $ 831 $ — $ 828 $ 154 (77) 328 148 482 71 (866) — 482 63 $ 3,281 $ (1,897) $ 1,384 $ (866) $ 1,373 $ — 39 — 39 Year ended December 31, 2018 (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(e) OCI impact Derivatives - Gains/(losses) recorded in OCI(f) Contract type Interest rate(a)(b) Foreign exchange(c) Commodity(d) Total $ (1,145) $ 1,782 $ 637 $ — $ 623 $ 1,092 789 (616) (754) 476 35 (566) — 476 26 $ 736 $ 412 $ 1,148 $ (566) $ 1,125 $ — (140) — (140) (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) 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. (f) 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. 206 JPMorgan Chase & Co./2020 Form 10-K As of December 31, 2020 and 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, 2020 (in millions) Assets Investment securities - AFS Liabilities Long-term debt Carrying amount of the hedged items(a)(b) Cumulative amount of fair value hedging adjustments included in the carrying amount of hedged items: Discontinued hedging relationships(d)(e) Active hedging relationships Total $ $ 139,684 (c) $ 3,572 $ 847 $ 4,419 177,611 $ 3,194 $ 11,473 $ 14,667 Beneficial interests issued by consolidated VIEs 746 — (3) (3) December 31, 2019 (in millions) Assets Investment securities - AFS Liabilities Long-term debt Beneficial interests issued by consolidated VIEs Carrying amount of the hedged items(a)(b) Cumulative amount of fair value hedging adjustments included in the carrying amount of hedged items: Discontinued hedging relationships(d)(e) Active hedging relationships Total $ $ 125,860 (c) $ 2,110 $ 278 $ 2,388 157,545 $ 6,719 $ 2,365 — 161 $ (8) 6,880 (8) (a) Excludes physical commodities with a carrying value of $11.5 billion and $6.5 billion at December 31, 2020 and 2019, 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, 2020 and 2019, the carrying amount excluded for AFS securities is $14.5 billion and $14.9 billion, respectively, and for long-term debt is $6.6 billion and $2.8 billion, respectively. (c) Carrying amount represents the amortized cost, net of allowance if applicable. Refer to Note 10 for additional information. (d) Represents basis adjustments existing on the balance sheet date associated with hedged items that have been de-designated from qualifying fair value hedging relationships. (e) Positive amounts related to assets represent cumulative fair value hedge basis adjustments that will reduce net interest income in future periods. Positive (negative) amounts related to liabilities represent cumulative fair value hedge basis adjustments that will increase (reduce) net interest income in future periods. JPMorgan Chase & Co./2020 Form 10-K 207 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, 2020, 2019 and 2018, respectively. The Firm includes the gains/(losses) 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, 2020 (in millions) Contract type Interest rate(a) Foreign exchange(b) Total 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 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 $ $ 570 $ — 570 $ 3,582 $ 41 3,623 $ 3,012 41 3,053 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) (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. The Firm did not experience any forecasted transactions that failed to occur for the years ended 2020, 2019 and 2018. Over the next 12 months, the Firm expects that approximately $818 million (after-tax) of net gains recorded in AOCI at December 31, 2020, 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 nine 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. 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, 2020, 2019 and 2018. Year ended December 31, (in millions) Foreign exchange derivatives 2020 2019 2018 Amounts recorded in income(a)(b) $(122) Amounts recorded in OCI $(1,408) 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 (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 $3 million and $18 million to other income, and $(17) million to other expense related to the liquidation of certain legal entities during the years ended December 31, 2020, 2019 and 2018, respectively. Refer to Note 24 for further information. 208 JPMorgan Chase & Co./2020 Form 10-K 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. 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 2020 2019 2018 $ 2,994 $ 1,491 $ (176) 43 (30) (5) $ 2,861 $ 1,456 $ 79 (21) 117 175 (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. JPMorgan Chase & Co./2020 Form 10-K 209 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, 2020 and 2019. 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. 210 JPMorgan Chase & Co./2020 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, 2020 (in millions) Protection sold Maximum payout/Notional amount Protection purchased with identical underlyings(b) Net protection (sold)/ purchased(c) Other protection purchased(d) Credit derivatives Credit default swaps Other credit derivatives(a) Total credit derivatives Credit-related notes Total December 31, 2019 (in millions) Credit derivatives Credit default swaps Other credit derivatives(a) Total credit derivatives Credit-related notes Total $ (535,094) $ 554,565 $ 19,471 $ (40,084) (575,178) — 57,344 611,909 — 17,260 36,731 — 4,001 9,415 13,416 10,248 $ (575,178) $ 611,909 $ 36,731 $ 23,664 Maximum payout/Notional amount Protection purchased with identical underlyings(b) Net protection (sold)/ purchased(c) Other protection purchased(d) $ 571,892 $ 9,554 $ 46,541 (e) 618,433 — (3,854) 5,700 — 3,936 7,364 11,300 9,606 Protection sold $ (562,338) (50,395) (e) (612,733) — $ (612,733) $ 618,433 $ 5,700 $ 20,906 (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. (e) Prior-period amounts have been revised to conform with the current presentation. 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, 2020 and 2019, 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, 2020 (in millions) Total notional amount Fair value of receivables(b) Fair value of payables(b) Net fair value 1–5 years >5 years <1 year Risk rating of reference entity Investment-grade $ (93,905) $ (307,648) $ (35,326) $ (436,879) $ Noninvestment-grade (31,809) (97,337) (9,153) (138,299) Total $ (125,714) $ (404,985) $ (44,479) $ (575,178) $ 5,521 3,953 9,474 $ (835) $ 4,686 (2,542) 1,411 $ (3,377) $ 6,097 December 31, 2019 (in millions) Risk rating of reference entity <1 year(c) 1–5 years >5 years Total notional amount Fair value of receivables(b)(c) Fair value of payables(b)(c) Net fair value Investment-grade $ (119,788) $ (311,407) $ (42,129) $ (473,324) $ Noninvestment-grade (41,799) (87,769) (9,841) (139,409) 6,168 4,287 $ (901) $ 5,267 (2,817) 1,470 Total $ (161,587) $ (399,176) $ (51,970) $ (612,733) $ 10,455 $ (3,718) $ 6,737 (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 including cash collateral netting. (c) Prior-period amounts have been revised to conform with the current presentation. JPMorgan Chase & Co./2020 Form 10-K 211 Notes to consolidated financial statements 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) 2020 2019 2018 Underwriting Equity Debt Total underwriting Advisory $ 2,759 $ 1,648 $ 1,684 4,362 7,121 2,365 3,513 5,161 2,340 3,347 5,031 2,519 Total investment banking fees $ 9,486 $ 7,501 $ 7,550 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. 212 JPMorgan Chase & Co./2020 Form 10-K Year ended December 31, (in millions) 2020 2019 2018 Trading revenue by instrument type Interest rate(a) Credit(b) Foreign exchange Equity Commodity $ 2,575 $ 2,739 2,753 4,253 6,171 2,088 1,628 3,179 5,589 1,133 (c) $ 1,844 (c) 1,625 (c) (c) (c) 3,222 4,822 895 (c) (c) (c) (c) (c) Total trading revenue 17,840 14,268 12,408 Private equity gains/ (losses) 181 (250) (349) Principal transactions $ 18,021 $ 14,018 $ 12,059 (a) Includes the impact of changes in funding valuation adjustments on derivatives. (b) Includes the impact of changes in credit valuation adjustments on derivatives, net of the associated hedging activities. (c) The prior-period amounts have been revised to conform with the current presentation. 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 from providing overdraft and other deposit account services, and from performing cash management activities. 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) 2020 2019 2018 Lending-related fees Deposit-related fees(a) Total lending- and deposit-related fees $ 6,511 $ 6,626 $ 6,377 $ 1,271 $ 1,184 $ 1,117 5,260 5,442 5,240 (a) In the first quarter of 2020, the Firm reclassified certain fees from asset management, administration and commissions to lending- and deposit-related fees. Prior-period amounts have been revised to conform with the current presentation. 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. The following table presents the components of Firmwide asset management, administration and commissions. Year ended December 31, (in millions) Asset management fees Investment management fees(a) All other asset management fees(b) Total asset management fees 2020 2019 2018 $ 11,694 $ 10,865 $ 10,768 338 315 270 12,032 11,180 11,038 Total administration fees(c) 2,249 2,197 2,179 Commissions and other fees Brokerage commissions(d) All other commissions and fees(e) Total commissions and fees 2,959 937 3,896 2,439 1,092 3,531 2,505 1,071 3,576 Total asset management, administration and commissions $ 18,177 $ 16,908 $ 16,793 (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. (e) In the first quarter of 2020, the Firm reclassified certain fees from asset management, administration and commissions to lending- and deposit-related fees. Prior-period amounts have been revised to conform with the current presentation. Asset management, administration and commissions are earned primarily by AWM, CIB and CCB. Refer to Note 32 for segment results. Mortgage fees and related income This revenue category 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. Net mortgage JPMorgan Chase & Co./2020 Form 10-K 213 Notes to consolidated financial statements 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 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(a) Other card income(b) Total card income 2020 2019 2018 $ 18,563 $ 20,370 $ 18,808 (13,637) (14,540) (491) (754) (13,320) (c) (745) $ 4,435 $ 5,076 $ 4,743 (a) In the second quarter of 2020, the Firm reclassified certain spend- based credit card reward costs from marketing expense to be a reduction of card income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation. (b) Predominantly represents the amortization of 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. (c) Card income is earned primarily by CCB, CIB 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) 2020 2019 Legal expense/(benefit) $ 1,115 $ 239 $ FDIC-related expense 717 457 2018 72 1,239 214 JPMorgan Chase & Co./2020 Form 10-K 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. 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)(b) Taxable securities Non-taxable securities(c) Total investment securities(a) Trading assets - debt instruments(b) Federal funds sold and securities purchased under resale agreements Securities borrowed(d) Deposits with banks 2020 2019 2018 $ 43,758 $ 51,855 $ 49,032 7,843 1,184 9,027 7,832 7,962 1,329 9,291 9,141 2,436 6,146 (302) 1,574 749 3,887 5,653 1,595 7,248 7,146 3,819 913 5,907 All other interest-earning assets(b)(e) Total interest income 1,023 2,146 2,035 $ 64,523 $ 84,040 $ 76,100 Interest expense Interest bearing deposits $ 2,357 $ 8,957 $ 5,973 Federal funds purchased and securities loaned or sold under repurchase agreements Short-term borrowings(f) Trading liabilities - debt and all other interest-bearing liabilities(d)(g) Long-term debt Beneficial interest issued by consolidated VIEs 1,058 372 4,630 1,248 195 5,764 2,585 8,807 3,066 1,144 2,387 7,978 214 568 493 Total interest expense $ 9,960 $ 26,795 $ 21,041 Net interest income $ 54,563 $ 57,245 $ 55,059 Provision for credit losses 17,480 5,585 4,871 Net interest income after provision for credit losses $ 37,083 $ 51,660 $ 50,188 (a) Includes the amortization/accretion of unearned income (e.g., purchase premiums/discounts, net deferred fees/costs, and others). (b) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-period amounts have been revised to conform with the current presentation. (c) Represents securities that are tax-exempt for U.S. federal income tax purposes. (d) Negative interest income is related to the impact of current interest rates combined with the fees paid on client-driven securities borrowed balances. The negative interest expense related to prime brokerage customer payables is recognized in interest expense and reported within trading liabilities - debt and all other interest-bearing liabilities. Includes interest earned on 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) (f) Includes commercial paper. (g) All other interest-bearing liabilities includes interest expense on brokerage-related customer payables. JPMorgan Chase & Co./2020 Form 10-K 215 Notes to consolidated financial statements Note 8 – Pension and other postretirement employee benefit plans The Firm has various defined benefit pension plans and OPEB plans that provide benefits to its employees in the U.S. and certain non-U.S. locations. The Firm also provides 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 who were hired prior to December 2, 2017. The Firm has frozen the U.S. defined benefit pension plan (the “Plan Freeze”). Effective as of January 1, 2020 (and January 1, 2019 for new hires), new pay credits have been directed to the U.S. defined contribution plan. Interest credits will continue to accrue on the U.S. defined benefit pension plan. As a result of the Plan Freeze, 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 2021. The 2021 contributions to the non-U.S. defined benefit pension plans are expected to be $50 million, of which $35 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 fair 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. 216 JPMorgan Chase & Co./2020 Form 10-K The following table presents the pretax changes in benefit obligations, plan assets, the net funded status, and the amounts recorded in AOCI on the Consolidated balance sheets for the Firm’s defined benefit pension and OPEB plans. As of or for the year ended December 31, (in millions) Change in projected and accumulated benefit obligations, U.S. defined benefit pension plans Benefit obligation, beginning of year Benefits earned during the year Interest cost on benefit obligations Plan amendments Net gain/(loss) Benefits paid Benefit obligations, end of year, U.S. defined benefit pension plans Benefit obligations, other defined benefit pension and OPEB plans Benefit obligations, end of year Change in plan assets, U.S. defined benefit pension plans Fair value of plan assets, beginning of year Actual return on plan assets Firm contributions Benefits paid Defined benefit pension and OPEB plans 2020 2019 $ (13,277) $ (12,173) (2) (422) — (1,086) 640 (327) (518) (5) (944) 690 $ (14,147) $ (13,277) (4,990) (4,428) $ (19,137) $ (17,705) $ 16,329 $ 14,521 1,901 29 (640) 2,465 33 (690) Fair value of plan assets, end of year, U.S. defined benefit pension plans $ 17,619 $ 16,329 Fair value of plan assets, other defined benefit pension and OPEB plans Fair value of plan assets, end of year Net funded status, U.S. defined benefit pension plans Net funded status, other defined benefit pension and OPEB plans Net funded status Amounts recorded in accumulated other comprehensive income/(loss), U.S. defined benefit pension plans Net gain/(loss), U.S. defined benefit pension plans Prior service credit/(cost), U.S. defined benefit pension plans Accumulated other comprehensive income/(loss), end of year, U.S. defined benefit pension plans Accumulated other comprehensive income/(loss), other defined benefit pension and OPEB plans Accumulated other comprehensive income/(loss) 7,798 7,037 25,417 $ 23,366 3,472 $ 2,808 6,280 $ 3,052 2,609 5,661 (1,558) $ (1,745) (4) (5) (1,562) $ (1,750) (24) (66) (1,586) $ (1,816) $ $ $ $ $ $ The following table presents the weighted-average actuarial assumptions used to value the benefit obligations for the U.S. defined benefit pension plans. As of December 31, Discount rate Rate of compensation increase Interest crediting rate U.S. defined benefit pension plans 2020 2019 2.50% 3.30% NA 4.65 NA 4.65 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 expected remaining lifetime of plan participants, which for the U.S. defined benefit pension plans is currently 37 years and for the non-U.S. defined benefit pension plans is the period appropriate for the affected plan. For the years ended December 31, 2020 and 2019, the net gain was primarily attributable to a market-driven increase in the fair value of plan assets, predominantly offset by a decrease in the discount rate. JPMorgan Chase & Co./2020 Form 10-K 217 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 defined benefit pension, defined contribution and OPEB plans, and in other comprehensive income for the defined benefit pension and OPEB plans. Year ended December 31, (in millions) Components of net periodic benefit cost, U.S. defined benefit pension plans 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 Net periodic defined benefit plan cost/(credit), U.S. defined benefit pension plans Other defined benefit pension and OPEB plans Total net periodic defined benefit plan cost/(credit) Total defined contribution plans Total pension and OPEB cost included in noninterest expense Changes recognized in other comprehensive income, U.S. defined benefit pension plans Prior service (credit)/cost arising during the year Net (gain)/loss arising during the year Amortization of net (loss)/gain Amortization of prior service (cost)/credit Curtailment (loss)/gain Total recognized in other comprehensive income, U.S. defined benefit pension plans Other defined benefit pension and OPEB plans Total recognized in other comprehensive income Total recognized in net periodic defined benefit plan cost/(credit) and other comprehensive income Pension and OPEB plans 2020 2019 2018 $ 2 $ 327 $ 422 (634) 518 (776) 6 — — (204) $ (81) (285) $ 1,332 147 — — 216 $ (72) 144 $ 952 1,047 $ 1,096 $ — (181) (6) — — (187) $ (27) (214) $ (499) $ 5 (745) (147) — — (887) $ (270) (1,157) $ (1,013) $ $ $ $ $ $ $ 323 478 (836) 80 (21) 21 45 (72) (27) 872 845 — 453 (80) 21 (21) 373 77 450 423 The following table presents the weighted-average actuarial assumptions used to determine the net periodic benefit costs for the U.S. defined benefit pension plans. Year ended December 31, (in millions) Discount rate Expected long-term rate of return on plan assets Rate of compensation increase Interest crediting rate U.S. defined benefit pension plans 2020 3.30% 4.00 NA 4.65 2019 2018 4.30% 3.70 / 4.50% 5.50 2.30 4.90 5.50 2.30 4.90 Plan assumptions The Firm’s expected long-term rate of return for defined benefit pension 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 portfolio mix of each plan. The discount rate used in determining the benefit obligation under the U.S. defined benefit pension plan 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. At December 31, 2020, the Firm decreased the discount rates used to determine its benefit obligations for the U.S. defined benefit pension plans in light of current market interest rates, which is expected to decrease expense by approximately $64 million in 2021. The 2021 expected long-term rate of return on U.S. defined benefit pension plan assets is 3.00%. The following table represents the effect of a 25-basis point decline in the expected long-term rate of return of 3.00% and discount rate of 2.50%. Effect on U.S. defined benefit pension plans (in millions) Pension expense Benefit obligation Expected long-term rate of return $ Discount rate 43 (20) NA 404 218 JPMorgan Chase & Co./2020 Form 10-K 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. 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 could impact the portfolios, which are rebalanced when deemed necessary. Investments held by the Firm’s defined benefit pension and OPEB 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, 2020, 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 defined benefit pension and OPEB plans hold investments that are sponsored or managed by affiliates of JPMorgan Chase in the amount of $2.7 billion and $3.1 billion, as of December 31, 2020 and 2019, respectively. The following table presents the weighted-average asset allocation of the fair values of total plan assets at December 31 for the years indicated, as well as the respective approved asset allocation ranges by asset class. December 31, Asset class Debt securities(a) Equity securities Real estate Alternatives(b) Total U.S. defined benefit pension plan(c) Asset % of plan assets Allocation 2020 2019 42-100% 77 % 74 % 0-40 0-4 0-15 15 1 7 16 1 9 100 % 100 % 100 % (a) 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. (b) Alternatives primarily include limited partnerships. (c) Represents the U.S. defined benefit pension plan only as it is the most significant plan. The other U.S. defined benefit pension plans are unfunded. The weighted-average asset allocation for the U.S. OPEB plan was 59% debt securities and 41% equity securities and 60% debt securities and 40% equity securities at December 31, 2020 and 2019, respectively. JPMorgan Chase & Co./2020 Form 10-K 219 Notes to consolidated financial statements 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 plan assets and liabilities measured at fair value Defined benefit pension and OPEB plans 2020 2019 December 31, (in millions) Equity securities Level 1 Level 2 Level 3 Total fair value Level 1 Level 2 Level 3 Total fair value $ 2,353 $ — $ 2 $ 2,355 $ 2,259 $ 3 $ 2 $ 2,264 Corporate debt securities — 7,414 U.S. federal, state, local and non-U.S. government debt securities Mortgage-backed securities Other(a) U.S. defined benefit pension plans(b) Other defined benefit pension and OPEB plans(c) 1,395 461 788 360 1,184 861 11 — 31 201 7,425 1,755 1,676 1,850 — 6,474 1,616 312 718 401 681 49 2 — 4 250 6,476 2,017 997 1,017 $ 4,997 $ 9,819 $ 245 $ 15,061 $ 4,905 $ 7,608 $ 258 $ 12,771 2,034 2,565 2,707 7,306 1,834 2,307 2,431 6,572 Total assets measured at fair value $ 7,031 $ 12,384 $ 2,952 $ 22,367 $ 6,739 $ 9,915 $ 2,689 $ 19,343 (a) Other consists primarily of mutual funds, money market funds and participating annuity contracts. (b) At December 31, 2020 and 2019, excludes $3.2 billion and $3.9 billion, respectively, of certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient, and $606 million and $343 million, respectively, of net defined benefit pension plan payables, primarily for investments sold and purchased, which are not required to be classified in the fair value hierarchy. Investments in level 3 of the valuation hierarchy include $199 million and $250 million of participating annuity contracts at December 31, 2020 and 2019, respectively. (c) At December 31, 2020 and 2019, excludes $487 million and $465 million, respectively, of certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient. Investments in level 3 of the valuation hierarchy include $2.7 billion and $2.4 billion of COLI policies at December 31, 2020 and 2019, respectively. Changes in level 3 fair value measurements using significant unobservable inputs Investments classified in level 3 of the valuation hierarchy increased $263 million in 2020 from $2.7 billion to $3.0 billion, consisting of $343 million in unrealized gains, partially offset by $113 million in settlements. In addition, there were transfers into level 3 of $33 million. In 2019, there was an increase of $307 million from $2.4 billion to $2.7 billion, consisting of $401 million in unrealized gains, partially offset by $85 million in settlements. Estimated future benefit payments The following table presents benefit payments expected to be paid for the U.S. defined benefit pension plans for the years indicated. Year ended December 31, (in millions) U.S. defined benefit pension plans 2021 2022 2023 2024 2025 Years 2026–2030 $ 912 918 897 847 829 3,843 220 JPMorgan Chase & Co./2020 Form 10-K Note 9 – Employee share-based incentives Employee share-based awards In 2020, 2019 and 2018, 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, 2020, 67 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 SARs or stock options in 2020, 2019 and 2018. 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 2020, 2019 and 2018, 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. JPMorgan Chase & Co./2020 Form 10-K 221 Notes to consolidated financial statements RSUs, PSUs, 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 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, SARs and stock options activity for 2020. Year ended December 31, 2020 (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 5,527 $ 41.36 52,239 $ 17,891 (21,502) (1,118) 99.62 132.17 96.64 111.59 NA NA 1 (2,389) (4) (11) 47,510 $ 112.85 3,124 $ NA NA 3,124 137.80 41.40 122.59 39.33 41.25 41.25 1.4 $ 265,059 1.4 265,059 The total fair value of RSUs that vested during the years ended December 31, 2020, 2019 and 2018, was $2.8 billion, $2.9 billion and $3.6 billion, respectively. The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018, was $182 million, $503 million and $370 million, respectively. Tax benefits Income tax benefits (including tax benefits from dividends or dividend equivalents) related to share-based incentive arrangements recognized in the Firm’s Consolidated statements of income for the years ended December 31, 2020, 2019 and 2018, were $837 million, $895 million and $1.1 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) 2020 2019 2018 Cost of prior grants of RSUs, PSUs, SARs and 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 $ 1,101 $ 1,141 $ 1,241 1,350 1,115 1,081 $ 2,451 $ 2,256 $ 2,322 At December 31, 2020, approximately $664 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. 222 JPMorgan Chase & Co./2020 Form 10-K 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. AFS securities are carried at fair value on the Consolidated balance sheets. Unrealized gains and losses, after any applicable hedge accounting adjustments or allowance for credit losses, are reported in AOCI. The specific identification method is used to determine realized gains and losses on AFS securities, which are included in investment securities gains/(losses) on the Consolidated statements of income. HTM securities, which the Firm has the intent and ability to hold until maturity, are carried at amortized cost, net of allowance for credit losses, on the Consolidated balance sheets. For both AFS and HTM 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. Effective January 1, 2020, the Firm adopted the CECL accounting guidance, which also amended the AFS securities impairment guidance. Refer to Note 1 for further information. During 2020, the Firm transferred $164.2 billion of investment securities from AFS to HTM for capital management purposes. AOCI included pretax unrealized gains of $5.0 billion on the securities at the dates of transfer. Unrealized gains or losses at the date of transfer of these securities continue to be reported in AOCI and are amortized into interest income on a level-yield basis over the remaining life of the securities. This amortization will offset the effect on interest income of the amortization of the premium or discount resulting from the transfer recorded at fair value. Transfers of securities from AFS to HTM are non-cash transactions and are recorded at fair value. JPMorgan Chase & Co./2020 Form 10-K 223 Notes to consolidated financial statements The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated. 2020 2019 Amortized cost(e) Gross unrealized gains Gross unrealized losses Fair value Amortized cost(e) Gross unrealized gains Gross unrealized losses Fair value $ 110,979 $ 2,372 $ 50 $ 113,301 $ 107,811 $ 2,395 $ 89 $ 110,117 6,246 3,751 2,819 — 22,587 215 10,055 6,174 224 20 71 2,687 2,141 1,404 — 354 4 24 91 3 5 34 92 6,467 3,766 2,856 10,223 2,477 5,137 126,390 125,648 100 201,951 139,162 1 — 13 3 31 16 20,396 27,693 — 77 22,928 21,427 216 823 10,048 6,249 25,038 5,438 233 64 64 2,756 449 2,118 — 377 22 9 40 6 1 13 109 175 1 — 17 — 56 20 10,450 2,540 5,188 128,295 139,436 29,810 77 21,787 845 24,991 5,458 381,729 6,705 256 388,178 345,306 5,771 378 350,699 December 31, (in millions) Available-for-sale securities Mortgage-backed securities: U.S. GSEs and government agencies(a) Residential: U.S. Non-U.S. Commercial Total mortgage-backed securities U.S. Treasury and government agencies 123,795 199,910 Obligations of U.S. states and municipalities 18,993 Certificates of deposit Non-U.S. government debt securities Corporate debt securities Asset-backed securities: Collateralized loan obligations Other Total available-for-sale securities(b) Held-to-maturity securities(c) Mortgage-backed securities: U.S. GSEs and government agencies(a) U.S. Residential Commercial 107,889 2,968 4,345 2,602 8 77 Total mortgage-backed securities 114,836 3,053 U.S. Treasury and government agencies Obligations of U.S. states and municipalities 53,184 12,751 50 519 Asset-backed securities: Collateralized loan obligations 21,050 90 29 30 — 59 — — 2 110,828 36,523 1,165 4,323 2,679 — — — — 117,830 36,523 1,165 53,234 13,270 51 4,797 — 299 21,138 6,169 — 62 — — 62 1 — — 37,626 — — 37,626 50 5,096 6,169 Total held-to-maturity securities, net of allowance for credit losses(d) Total investment securities, net of allowance for credit losses(d) 201,821 3,712 61 205,472 47,540 1,464 63 48,941 $ 583,550 $ 10,417 $ 317 $ 593,650 $ 392,846 $ 7,235 $ 441 $ 399,640 (a) Includes AFS U.S. GSE obligations with fair values of $65.8 billion and $78.5 billion, and HTM U.S. GSE obligations with amortized cost of $86.3 billion and $31.6 billion, at December 31, 2020 and 2019, respectively. As of December 31, 2020, 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 $95.7 billion and $98.8 billion, and $54.7 billion and $55.8 billion, respectively. (b) There was no allowance for credit losses on AFS securities at December 31, 2020. (c) The Firm purchased $12.4 billion, $13.4 billion and $9.4 billion of HTM securities for the years ended December 31, 2020, 2019 and 2018, respectively. (d) HTM securities measured at amortized cost are reported net of allowance for credit losses of $78 million at December 31, 2020. (e) Excludes $2.1 billion and $1.9 billion of accrued interest receivables at December 31, 2020 and 2019, respectively. The Firm did not reverse through interest income any accrued interest receivables for the years ended December 31, 2020 and 2019. At December 31, 2020, 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 risk ratings). Risk ratings are used to identify the credit quality of securities and differentiate risk within the portfolio. 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., probability of default (“PD”) and loss given default (“LGD”)) may differ as they reflect internal historical experiences and assumptions. Risk ratings are assigned at acquisition, are reviewed on a regular and ongoing basis by Credit Risk Management and are adjusted as necessary over the life of the investment for updated information affecting the issuer’s ability to fulfill its obligations. 224 JPMorgan Chase & Co./2020 Form 10-K  AFS securities impairment The following tables present the fair value and gross unrealized losses by aging category for AFS securities at December 31, 2020 and 2019. The tables exclude U.S. Treasury and government agency securities and U.S. GSE and government agency MBS with unrealized losses of $150 million and $264 million, at December 31, 2020 and 2019, respectively; changes in the value of these securities are generally driven by changes in interest rates rather than changes in their credit profile given the explicit or implicit guarantees provided by the U.S. government. December 31, 2020 (in millions) Fair value Gross unrealized losses Fair value Gross unrealized losses Total fair value Total gross unrealized losses Available-for-sale securities with gross unrealized losses Less than 12 months 12 months or more $ 562 $ 3 $ 32 $ — $ 594 $ 2,507 699 3,768 49 — 2,709 91 5,248 268 4 18 25 1 — 9 3 18 1 235 124 391 — — 968 5 2,645 685 1 16 17 — — 4 — 13 15 2,742 823 4,159 49 — 3,677 96 7,893 953 12,133 $ 57 $ 4,694 $ 49 $ 16,827 $ 106 Available-for-sale securities with gross unrealized losses Less than 12 months 12 months or more December 31, 2019 (in millions) Fair value Gross unrealized losses Fair value Gross unrealized losses Total fair value Total gross unrealized losses Available-for-sale securities Mortgage-backed securities: Residential: U.S. Non-U.S. Commercial Total mortgage-backed securities 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 with gross unrealized losses $ Available-for-sale securities Mortgage-backed securities: Residential: U.S. Non-U.S. Commercial Total mortgage-backed securities 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 with gross unrealized losses $ $ 1,072 $ 3 $ 423 $ 3 $ 1,495 $ 13 1,287 2,372 186 77 3,970 — 10,364 1,639 — 12 15 1 — 13 — 11 9 420 199 1,042 — — 1,406 — 7,756 753 1 1 5 — — 4 — 433 1,486 3,414 186 77 5,376 — 45 11 18,120 2,392 18,608 $ 49 $ 10,957 $ 65 $ 29,565 $ 114 3 5 34 42 1 — 13 3 31 16 6 1 13 20 1 — 17 — 56 20 JPMorgan Chase & Co./2020 Form 10-K 225 Notes to consolidated financial statements As a result of the adoption of the amended AFS securities impairment guidance, an allowance for credit losses on AFS securities is required for impaired securities if a credit loss exists. AFS securities are considered impaired if the fair value is less than the amortized cost. The Firm recognizes impairment 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. In these circumstances the impairment loss recognized in investment securities gains/(losses) is equal to the full difference between the amortized cost (net of allowance if applicable) and the fair value of the securities. For impaired debt securities that the Firm has the intent and ability to hold, the securities are evaluated to determine if a credit loss exists. If it is determined that a credit loss exists, that loss is recognized as an allowance for credit losses through the provision for credit losses in the Consolidated Statements of Income, limited by the amount of impairment. Any impairment not due to credit losses is recorded in OCI. Factors considered in evaluating credit losses include adverse conditions specifically related to the industry, geographic area or financial condition of the issuer or underlying collateral of a security; and payment structure of the security. When assessing securities issued in a securitization for credit losses, the Firm estimates cash flows considering relevant market and economic data, 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. 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 evaluates impairment for credit losses when there is an adverse change in expected cash flows. Allowance for credit losses Based on its assessment, the Firm did not recognize an allowance for credit losses on impaired AFS securities as of January 1, 2020 or December 31, 2020. 226 JPMorgan Chase & Co./2020 Form 10-K Selected impacts of investment securities on the Consolidated statements of income Year ended December 31, (in millions) Realized gains Realized losses 2020 2019 2018 $ 3,080 $ 650 $ 211 (2,278) (392) (606) Net investment securities gains/ (losses) $ 802 $ 258 $ (395) Provision for credit losses $ 68 NA NA HTM securities – credit risk The adoption of the CECL accounting guidance requires management to estimate expected credit losses on HTM securities over the remaining expected life and recognize this estimate as an allowance for credit losses. As a result of the adoption of this guidance, the Firm recognized an allowance for credit losses on HTM obligations of U.S. states and municipalities of $10 million as a cumulative-effect adjustment to retained earnings as of January 1, 2020. Credit quality indicator The primary credit quality indicator for HTM securities is the risk rating assigned to each security. At December 31, 2020, all HTM securities were rated investment grade and were current and accruing, with approximately 98% rated at least AA+. Allowance for credit losses The allowance for credit losses on HTM obligations of U.S. states and municipalities and commercial mortgage-backed securities is calculated by applying statistical credit loss factors (estimated PD and LGD) to the amortized cost. The credit loss factors are derived using a weighted average of five internally developed eight-quarter macroeconomic scenarios, followed by a single year straight-line interpolation to revert to long run historical information for periods beyond the forecast period. Refer to Note 13 for further information on the eight-quarter macroeconomic forecast. The allowance for credit losses on HTM collateralized loan obligations and U.S. residential mortgage-backed securities is calculated as the difference between the amortized cost and the present value of the cash flows expected to be collected, discounted at the security’s effective interest rate. These cash flow estimates are developed based on expectations of underlying collateral performance derived using the eight-quarter macroeconomic forecast and the single year straight-line interpolation, as well as considering the structural features of the security. The application of different inputs and assumptions into the calculation of the allowance for credit losses is subject to significant 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 on HTM securities. The allowance for credit losses on HTM securities was $78 million as of December 31, 2020, reflecting $68 million recognized in the provision for credit losses for the year ended December 31, 2020. JPMorgan Chase & Co./2020 Form 10-K 227 Notes to consolidated financial statements Contractual maturities and yields The following table presents the amortized cost and estimated fair value at December 31, 2020, of JPMorgan Chase’s investment securities portfolio by contractual maturity. By remaining maturity December 31, 2020 (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) 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 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ — — — % 33,633 33,678 0.42 % 33 33 4.11 % 8,282 8,297 1.25 % — — — % 554 554 1.31 % 42,502 42,562 0.59 % — — — % 501 501 1.86 % — — — % — — — % 501 501 1.86 % $ $ $ $ $ $ $ $ $ $ $ $ 741 756 1.66 % 110,033 111,014 0.53 % 203 211 4.59 % 8,011 8,225 1.70 % 141 139 1.21 % 2,569 2,591 2.00 % 121,698 122,936 0.65 % 158 160 1.56 % 42,477 42,511 0.60 % 65 67 3.09 % — — — % 42,700 42,738 0.60 % 7,797 8,139 1.67 % 46,827 47,675 0.79 % 1,047 1,111 4.84 % 5,615 5,726 0.68 % 74 77 1.92 % 5,987 5,990 1.33 % 67,347 68,718 1.00 % 11,908 12,707 2.42 % 10,206 10,222 0.94 % 532 565 3.57 % 11,617 11,658 1.40 % 34,263 35,152 $ $ $ $ $ $ $ $ $ $ $ $ 115,257 117,495 2.57 % 9,417 9,584 0.48 % 17,710 19,041 4.80 % 679 680 0.17 % — — — % 7,119 7,162 1.48 % 150,182 153,962 2.64 % 102,791 104,963 2.94 % — — — % 12,211 12,638 3.62 % 9,433 9,480 1.33 % 124,435 127,081 $ $ $ $ $ $ $ $ $ $ $ $ 123,795 126,390 2.51 % 199,910 201,951 0.57 % 18,993 20,396 4.80 % 22,587 22,928 1.24 % 215 216 1.45 % 16,229 16,297 1.50 % 381,729 388,178 1.49 % 114,857 117,830 2.88 % 53,184 53,234 0.67 % 12,808 13,270 3.62 % 21,050 21,138 1.37 % 201,899 205,472 1.65 % 2.88 % 2.19 % (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. However, for certain callable debt securities, the average yield is calculated to the earliest call date. (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 5 years for agency residential MBS, 4 years for agency residential collateralized mortgage obligations and 3 years for nonagency residential collateralized mortgage obligations. 228 JPMorgan Chase & Co./2020 Form 10-K Credit risk mitigation practices 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. 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. 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 not elected under the fair value option are measured at amortized cost. As a result of the Firm’s credit risk mitigation practices described below, the Firm did not hold any allowance for credit losses with respect to resale and securities borrowed arrangements as of December 31, 2020 and 2019. JPMorgan Chase & Co./2020 Form 10-K 229 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. Notes to consolidated financial statements The table below summarizes the gross and net amounts of the Firm’s securities financing agreements, as of December 31, 2020 and 2019. 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 December 31, (in millions) Gross amounts Assets 2020 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) 23,078 45,416 Securities purchased under resale agreements $ 666,467 $ (370,183) $ 296,284 $ (273,206) $ Securities borrowed Liabilities 193,700 (33,065) 160,635 (115,219) Securities sold under repurchase agreements Securities loaned and other(a) $ 578,060 $ (370,183) $ 207,877 $ (191,980) $ 15,897 41,366 (33,065) 8,301 (8,257) 44 December 31, (in millions) Gross amounts Assets 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) Securities purchased under resale agreements $ 628,609 $ (379,463) $ 249,146 $ Securities borrowed Liabilities 166,718 (26,960) 139,758 (231,147) (d) $ (104,990) 17,999 (d) 34,768 Securities sold under repurchase agreements Securities loaned and other(a) $ 555,172 $ (379,463) $ 175,709 $ (151,566) $ 24,143 36,649 (26,960) 9,689 (9,654) 35 (a) Includes securities-for-securities lending agreements of $3.4 billion and $3.7 billion at December 31, 2020 and 2019, 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, 2020 and 2019, included $17.0 billion and $11.0 billion, respectively, of securities purchased under resale agreements; $42.1 billion and $31.9 billion, respectively, of securities borrowed; $14.5 billion and $22.7 billion, respectively, of securities sold under repurchase agreements; and $8 million and $7 million, respectively, of securities loaned and other. (d) The prior period amounts have been revised to conform with the current period presentation. 230 JPMorgan Chase & Co./2020 Form 10-K The tables below present as of December 31, 2020 and 2019 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 2020 2019 Securities sold under repurchase agreements Securities loaned and other Securities sold under repurchase agreements Securities loaned and other U.S. GSEs and government agencies $ 56,744 $ 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 1,016 855 315,834 1,525 157,563 22,849 694 20,980 $ 578,060 $ — — — 143 2 1,730 1,864 — 37,627 41,366 $ 34,119 $ 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 2020 (in millions) Overnight and continuous Up to 30 days 30 – 90 days Greater than 90 days Total Total securities sold under repurchase agreements $ 238,667 $ 230,980 $ 70,777 $ 37,636 $ 578,060 Total securities loaned and other 37,887 1,647 500 1,332 41,366 Remaining contractual maturity of the agreements Remaining contractual maturity of the agreements 2019 (in millions) Overnight and continuous Up to 30 days 30 – 90 days Greater than 90 days Total securities sold under repurchase agreements $ 225,134 $ 195,816 (a) $ 56,020 (a) $ 78,202 (a) $ Total securities loaned and other 32,028 1,706 937 1,978 Total 555,172 36,649 (a) The prior period amounts have been revised to conform with the current period presentation. Transfers not qualifying for sale accounting At December 31, 2020 and 2019, the Firm held $598 million and $743 million, 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. JPMorgan Chase & Co./2020 Form 10-K 231 Notes to consolidated financial statements Note 12 – Loans Loan accounting framework The accounting for a loan depends on management’s strategy for the loan. The Firm accounts for loans based on the following categories: • Originated or purchased loans held-for-investment (i.e., “retained”) • • Loans held-for-sale Loans at fair value Effective January 1, 2020, the Firm adopted the CECL accounting guidance. Refer to Note 1 for further information. The following provides a detailed accounting discussion of the Firm’s loans by category: Loans held-for-investment Originated or purchased loans held-for-investment 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. Interest income Interest income on performing loans held-for-investment 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. The Firm classifies accrued interest on loans, including accrued but unbilled interest on credit card loans, in accrued interest and accounts receivables on the Consolidated balance sheets. For credit card loans, accrued interest once billed is then recognized in the loan balances, with the related allowance recorded in the allowance for credit losses. Changes in the allowance for credit losses on accrued interest on credit card loans are recognized in the provision for credit losses and charge-offs are recognized by reversing interest income. Expected losses related to accrued interest on certain performing, modified loans to borrowers impacted by COVID-19 are considered in the Firm’s allowance for loan losses. For other loans, the Firm generally does not recognize an allowance for credit losses on accrued interest receivables, consistent with its policy to write them off no later than 90 days past due by reversing interest income. 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. Allowance for loan losses The allowance for loan losses represents the estimated expected credit losses 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 amortized cost 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 are generally charged off or charged down to the lower of the amortized cost or the net realizable value of the underlying collateral (i.e., fair value less estimated 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, unmodified credit card loans and scored business banking 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. 232 JPMorgan Chase & Co./2020 Form 10-K 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 for which the fair value option has been elected 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. Certain consumer loans are 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 or charged down 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 the government- guaranteed portion of loans. Wholesale loans are charged off when it is highly certain that a loss has been realized. 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 lower of its amortized cost or the estimated net realizable value of the underlying collateral, 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 JPMorgan Chase & Co./2020 Form 10-K 233 Notes to consolidated financial statements Loan classification changes Loans in the held-for-investment portfolio that management decides to sell are transferred to the held-for- sale portfolio at the lower of cost or fair value on the date of transfer. Credit-related losses are charged against the allowance 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 amortized cost 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 delays, principal forgiveness, or the acceptance of equity or other assets in lieu of payments. Such modifications are accounted for and reported as TDRs. Loans with short-term and other insignificant modifications that are not considered concessions are not TDRs. 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. Loans modified in TDRs are generally 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 component of the allowance throughout its remaining life, regardless of whether the loan is performing and has been returned to accrual status. Refer to Note 13 for further discussion of the methodology used to estimate the Firm’s asset-specific allowance. The Firm has granted various forms of assistance to customers and clients impacted by the COVID-19 pandemic, including payment deferrals and covenant modifications. The majority of the Firm’s COVID-19 related loan modifications have not been considered TDRs because: • • they represent short-term or other insignificant modifications, whether under the Firm’s regular loan modification assessments or as permitted by regulatory guidance, or the Firm has elected to apply the option to suspend the application of accounting guidance for TDRs as provided by the CARES Act and extended by the Consolidated Appropriations Act. To the extent that certain modifications do not meet any of the above criteria, the Firm accounts for them as TDRs. As permitted by regulatory guidance, the Firm does not place loans with deferrals granted due to COVID-19 on nonaccrual status where such loans are not otherwise reportable as nonaccrual. The Firm considers expected losses of principal and accrued interest associated with all COVID-19 related loan modifications in its allowance for credit losses. Assistance provided in response to the COVID-19 pandemic could delay the recognition of delinquencies, nonaccrual status, and net charge-offs for those customers who would have otherwise moved into past due or nonaccrual status. 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 estimated 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. In response to the COVID-19 pandemic, the Firm has temporarily suspended certain foreclosure activities. This could delay recognition of foreclosed properties until the foreclosure moratoriums are lifted. 234 JPMorgan Chase & Co./2020 Form 10-K 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. In conjunction with the adoption of CECL, the Firm revised its loan classes. Prior-period amounts have been revised to conform with the current presentation: • The consumer, excluding credit card portfolio segment’s residential mortgage and home equity loans and lending-related commitments have been combined into a residential real estate class. • Upon adoption of CECL, the Firm elected to discontinue the pool-level accounting for PCI loans and to account for these loans on an individual loan basis. PCI loans are considered PCD loans under CECL and are subject to the Firm’s nonaccrual and charge-off policies. PCD loans are now reported in the consumer, excluding credit card portfolio segment’s residential real estate class. • Risk-rated business banking and auto dealer loans and lending-related commitments held in CCB were reclassified from the consumer, excluding credit card portfolio segment, to the wholesale portfolio segment, to align with the methodology applied when determining the allowance. The remaining scored auto and business banking loans and lending-related commitments have been combined into an auto and other class. The wholesale portfolio segment’s classes, previously based on the borrower’s primary business activity, have been revised to align with the loan classifications as defined by the bank regulatory agencies, based on the loan’s collateral, purpose, and type of borrower. • Consumer, excluding credit card • Residential real estate(a) • Auto and other(b) Credit card Wholesale(c) • Credit card loans • Secured by real estate • Commercial and industrial • Other(d) (a) Includes scored mortgage and home equity loans held in CCB and AWM, and scored mortgage loans held in CIB and Corporate. (b) Includes scored auto and business banking loans and overdrafts. (c) Includes loans held in CIB, CB, AWM, Corporate as well as risk-rated business banking and auto dealer loans held in CCB for which the wholesale methodology is applied when determining the allowance for loan losses. (d) Includes loans to financial institutions, states and political subdivisions, SPEs, nonprofits, personal investment companies and trusts, as well as loans to individuals and individual entities (predominantly Wealth Management clients within AWM). Refer to Note 14 for more information on SPEs. JPMorgan Chase & Co./2020 Form 10-K 235 Notes to consolidated financial statements The following tables summarize the Firm’s loan balances by portfolio segment. December 31, 2020 (in millions) Retained Held-for-sale At fair value(a) Total December 31, 2019 (in millions) Retained Held-for-sale At fair value(a) Total Consumer, excluding credit card Credit card Wholesale $ 302,127 $ 143,432 $ 514,947 1,305 15,147 784 — 5,784 29,327 Total(b)(c) $ 960,506 7,873 44,474 $ 318,579 $ 144,216 $ 550,058 $ 1,012,853 Consumer, excluding credit card Credit card Wholesale $ 294,999 $ 168,924 $ 481,678 3,002 19,816 — — 4,062 25,139 Total(b)(c) $ 945,601 7,064 44,955 $ 317,817 $ 168,924 $ 510,879 $ 997,620 (a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans. Prior-period amounts have been revised to conform with the current presentation. (b) Excludes $2.9 billion of accrued interest receivables at both December 31, 2020 and 2019. The Firm wrote off accrued interest receivables of $121 million and $50 million for the years ended December 31, 2020 and 2019, respectively. (c) Loans (other than 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, 2020 and 2019. The following tables provide information about the carrying value of retained loans purchased, sold and reclassified to held- for-sale during the periods indicated. 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 Consumer, excluding credit card Credit card Wholesale Total 2020 $ 3,474 (b)(c) $ Sales Retained loans reclassified to held-for-sale(a) 352 2,084 $ 1,159 $ 17,916 1,580 4,633 18,268 4,451 — — 787 2019 Year ended December 31, (in millions) Purchases Consumer, excluding credit card Credit card Wholesale Total $ 1,282 (b)(c) $ Sales Retained loans reclassified to held-for-sale(a) 30,474 9,188 Year ended December 31, (in millions) Purchases Sales Retained loans reclassified to held-for-sale(a) Consumer, excluding credit card Credit card (b)(c) $ $ 2,543 9,984 36 $ $ 2018 — — — — — — 1,291 23,445 2,371 $ 2,573 53,919 11,559 Wholesale Total 2,354 16,741 2,276 $ 4,897 26,725 2,312 (a) Reclassifications of loans to held-for-sale are non-cash transactions. (b) Predominantly includes purchases of residential real estate loans, including the Firm’s voluntary repurchases of certain delinquent loans from loan pools as permitted by Government National Mortgage Association (“Ginnie Mae”) guidelines for the years ended December 31, 2020, 2019 and 2018. 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. (c) Excludes purchases of retained loans sourced through the correspondent origination channel and underwritten in accordance with the Firm’s standards. Such purchases were $15.3 billion, $16.6 billion and $18.6 billion for the years ended December 31, 2020, 2019 and 2018, respectively. Gains and losses on sales of loans Net gains/(losses) on sales of loans and lending-related commitments (including adjustments to record loans and lending- related commitments held-for-sale at the lower of cost or fair value) recognized in noninterest revenue was $(43) million for the year ended December 31, 2020 of which $(36) million was related to loans. Net gains on sales of loans was $394 million for the year ended December 31, 2019. Gains and losses on sales of loans was not material for the year ended December 31, 2018. 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. 236 JPMorgan Chase & Co./2020 Form 10-K Consumer, excluding credit card loan portfolio Consumer loans, excluding credit card loans, consist primarily of scored residential mortgages, home equity loans and lines of credit, auto 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) Residential real estate Auto and other(a) Total retained loans 2020 2019 $ 225,302 $ 243,317 76,825 51,682 • $ 302,127 $ 294,999 (a) At December 31, 2020, included $19.2 billion of loans in Business Banking under the PPP. Delinquency rates are the 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 to be 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, 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 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. JPMorgan Chase & Co./2020 Form 10-K 237 Notes to consolidated financial statements Residential real estate The following table provides information on delinquency, which is the primary credit quality indicator for retained residential real estate loans. Term loans by origination year Revolving loans December 31, 2020 December 31, 2019 (in millions, except ratios) Loan delinquency(a)(b) 2020 2019 2018 2017 2016 Prior to 2016 Within the revolving period Converted to term loans Total Total Current $ 55,562 $ 31,820 $ 13,900 $ 20,410 $ 27,978 $ 50,232 $ 7,370 $ 15,792 $ 223,064 $ 239,979 30–149 days past due 150 or more days past due 9 3 25 14 20 10 22 18 29 18 674 844 21 22 245 264 1,045 1,910 1,193 1,428 Total retained loans $ 55,574 $ 31,859 $ 13,930 $ 20,450 $ 28,025 $ 51,750 $ 7,413 $ 16,301 $ 225,302 $ 243,317 % of 30+ days past due to total retained loans(c) 0.02 % 0.12 % 0.22 % 0.20 % 0.17 % 2.86 % 0.58 % 3.12 % 0.98 % 1.35 % (a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $36 million and $17 million; 30–149 days past due included $16 million and $20 million; and 150 or more days past due included $24 million and $26 million at December 31, 2020 and 2019, respectively. (b) At December 31, 2020, loans under payment deferral programs offered in response to the COVID-19 pandemic which are still within their deferral period and performing according to their modified terms are generally not considered delinquent. (c) At December 31, 2020 and 2019, residential real estate loans excluded mortgage loans insured by U.S. government agencies of $40 million and $46 million, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee. Approximately 35% of the total revolving loans are senior lien loans; the remaining balance are junior lien loans. The lien position the Firm holds is considered in the Firm’s allowance for credit losses. Revolving loans that have been converted to term loans have higher delinquency rates than those that are still 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 revolving loans within the revolving period. 238 JPMorgan Chase & Co./2020 Form 10-K Nonaccrual loans and other credit quality indicators The following table provides information on nonaccrual and other credit quality indicators for retained residential real estate loans. (in millions, except weighted-average data) Nonaccrual loans(a)(b)(c)(d)(e) 90 or more days past due and government guaranteed(f) Current estimated LTV ratios(g)(h) 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 Weighted average LTV ratio(g)(i) Weighted average FICO(h)(i) Geographic region(j) California New York Florida Texas Illinois Colorado Washington New Jersey Massachusetts Connecticut All other(k) Total retained loans December 31, 2020 December 31, 2019 $ $ $ $ 5,313 $ $ 33 10 18 72 65 2,365 435 208,457 12,072 1,732 76 225,302 $ 54 % 763 73,444 $ 32,287 13,981 13,773 13,130 8,235 7,917 7,227 5,784 5,024 44,500 $ 225,302 $ 2,780 38 31 38 134 132 5,953 764 219,469 14,681 2,052 63 243,317 55 % 758 82,147 31,996 13,668 14,474 15,587 8,447 8,990 7,752 6,210 4,954 49,092 243,317 (a) Includes collateral-dependent residential real estate loans that are charged down to the lower of amortized cost or 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, 2020, approximately 7% of Chapter 7 residential real estate loans were 30 days or more past due, respectively. (b) At December 31, 2020, nonaccrual loans included $1.6 billion of PCD loans. Prior to the adoption of CECL, nonaccrual loans excluded PCI loans as the Firm recognized interest income on each pool of PCI loans as each of the pools was performing. (c) Generally, all consumer nonaccrual loans have an allowance. In accordance with regulatory guidance, certain nonaccrual loans that are considered collateral- dependent have been charged down to the lower of amortized cost or the fair value of their underlying collateral less costs to sell. If the value of the underlying collateral improves subsequent to the charge down, the related allowance may be negative. (d) Interest income on nonaccrual loans recognized on a cash basis was $161 million and $166 million for the years ended December 31, 2020 and 2019, respectively. (e) Generally excludes loans under payment deferral programs offered in response to the COVID-19 pandemic. Includes loans to customers that have exited COVID-19 payment deferral programs and are 90 or more days past due, predominantly all of which were also at least 150 days past due and therefore considered collateral- dependent. Collateral-dependent loans are charged down to the lower of amortized cost or fair value of the underlying collateral less costs to sell. (f) 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, 2020 and 2019, these balances included $33 million and $34 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, 2020 and 2019. (g) 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. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as unused lines, related to the property. (h) Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis. (i) Excludes loans with no FICO and/or LTV data available. (j) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2020. (k) At December 31, 2020 and 2019, included mortgage loans insured by U.S. government agencies of $76 million and $63 million, respectively. These amounts have been excluded from the geographic regions presented based upon the government guarantee. JPMorgan Chase & Co./2020 Form 10-K 239 Notes to consolidated financial statements Loan modifications Modifications of residential real estate loans, where the Firm grants concessions to borrowers who are experiencing financial difficulty are generally accounted for and reported as TDRs. Loans with short-term or other insignificant modifications that are not considered concessions are not TDRs nor are loans for which the Firm has elected to apply the option to suspend the application of accounting guidance for TDRs as provided by the CARES Act and extended by the Consolidated Appropriations Act. The carrying value of new TDRs was $819 million, $490 million and $736 million for the years ended December 31, 2020, 2019 and 2018, respectively. There were no additional commitments to lend to borrowers whose residential real estate loans have been modified in TDRs. Nature and extent of modifications The Firm’s proprietary modification programs as well as government programs, including U.S. GSE programs, generally provide various concessions to financially troubled borrowers including, but not limited to, interest rate reductions, term or payment extensions and delays 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 were modified in TDRs 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, loans with short-term or other insignificant modifications that are not considered concessions, and loans for which the Firm has elected to apply the option to suspend the application of accounting guidance for TDRs as provided by the CARES Act and extended by the Consolidated Appropriations Act. Year ended December 31, 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) 2020 5,522 6,850 50 % 49 14 2 66 2019 5,872 4,918 77 % 71 13 5 63 2018 7,175 7,853 54 % 62 29 7 51 (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 and payment delays that meet the definition of a TDR for the years ended December 31, 2020, 2019 and 2018. 240 JPMorgan Chase & Co./2020 Form 10-K 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 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 do 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, loans with short-term or other insignificant modifications that are not considered concessions, and loans for which the Firm has elected to apply the option to suspend the application of accounting guidance for TDRs as provided by the CARES Act and extended by the Consolidated Appropriations Act. 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 Balance of loans that redefaulted within one year of permanent modification(a) 2020 5.09 % 3.28 22 39 5 16 5 $ 2019 5.68 % 3.81 20 39 1 19 7 $ 2018 5.50 % 3.60 21 38 2 30 17 199 $ 166 $ 161 $ $ (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 will generally be liquidated through foreclosure or another similar type of liquidation transaction. Redefaults of loans modified within the last twelve months may not be representative of ultimate redefault levels. At December 31, 2020, the weighted-average estimated remaining lives of residential real estate loans permanently modified in TDRs were 6 years. 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, 2020 and 2019, the Firm had residential real estate loans, excluding those insured by U.S. government agencies, with a carrying value of $846 million and $1.2 billion, respectively, that were not included in REO, but were in the process of active or suspended foreclosure. JPMorgan Chase & Co./2020 Form 10-K 241 Notes to consolidated financial statements Auto and other The following table provides information on delinquency, which is the primary credit quality indicator for retained auto and other consumer loans. Term Loans by origination year Revolving loans December 31, 2020 December 31, 2019 (in millions, except ratios) Loan delinquency(a) 2020 2019 2018 2017 2016 Prior to 2016 Within the revolving period Converted to term loans Total Total Current $ 46,169 (b) $ 12,829 $ 7,367 $ 4,521 $ 2,058 $ 742 $ 2,517 $ 158 $ 76,361 $ 51,005 30–119 days past due 120 or more days past due 97 — 107 — 77 — 53 1 42 — 23 1 30 8 17 8 446 18 667 10 Total retained loans $ 46,266 $ 12,936 $ 7,444 $ 4,575 $ 2,100 $ 766 $ 2,555 $ 183 $ 76,825 $ 51,682 % of 30+ days past due to total retained loans 0.21 % 0.83 % 1.03 % 1.18 % 2.00 % 3.13 % 1.49 % 13.66 % 0.60 % 1.31 % (a) At December 31, 2020, loans under payment deferral programs offered in response to the COVID-19 pandemic which are still within their deferral period and performing according to their modified terms are generally not considered delinquent. (b) At December 31, 2020, included $19.2 billion of loans in Business Banking under the PPP. PPP loans are guaranteed by the SBA. Other than in certain limited circumstances, the Firm typically does not recognize charge-offs, classify as nonaccrual nor record an allowance for loan losses on these loans. Nonaccrual and other credit quality indicators The following table provides information on nonaccrual and other credit quality indicators for retained auto and other consumer loans. (in millions, except ratios) Nonaccrual loans(a)(b)(c) Geographic region(d) California New York Texas Florida Illinois New Jersey Arizona Ohio Pennsylvania Colorado All other Total Auto and other December 31, 2020 December 31, 2019 151 $ 12,302 $ 146 7,795 3,706 5,457 3,025 2,443 1,798 1,347 1,490 1,721 1,247 21,653 51,682 8,824 8,235 4,668 3,768 2,646 2,465 2,163 1,924 1,910 27,920 76,825 $ Total retained loans $ (a) There were no loans that were 90 or more days past due and still accruing interest at December 31, 2020 and 2019. (b) All nonaccrual auto and other consumer loans generally have an allowance. Certain nonaccrual loans that are considered collateral-dependent have been charged down to the lower of amortized cost or the fair value of their underlying collateral less costs to sell. If the value of the underlying collateral improves subsequent to the charge down, the related allowance may be negative. (c) Interest income on nonaccrual loans recognized on a cash basis was not material for the years ended December 31, 2020 and 2019. (d) The geographic regions presented in this table are ordered based on the magnitude of the corresponding loan balances at December 31, 2020. Loan modifications Certain other consumer loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing financial difficulty. Loans with short-term or other insignificant modifications that are not considered concessions are not TDRs. The impact of these modifications, as well as new TDRs, were not material to the Firm for the years ended December 31, 2020, 2019 and 2018. Additional commitments to lend to borrowers whose loans have been modified in TDRs as of December 31, 2020 and 2019 were not material. 242 JPMorgan Chase & Co./2020 Form 10-K 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 following table provides information on delinquency, which is the primary credit quality indicator for retained credit card loans. (in millions, except ratios) Loan delinquency(a) 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 Total retained loans Loan delinquency ratios Within the revolving period December 31, 2020 Converted to term loans(b) December 31, 2019 Total Total $ $ 139,783 $ 1,239 $ 141,022 $ 165,767 997 1,277 94 42 1,091 1,319 1,550 1,607 142,057 $ 1,375 $ 143,432 $ 168,924 % of 30+ days past due to total retained loans % of 90+ days past due to total retained loans 1.60 % 0.90 9.89 % 3.05 1.68 % 0.92 1.87 % 0.95 (a) At December 31, 2020, loans under payment deferral programs offered in response to the COVID-19 pandemic which are still within their deferral period and performing according to their modified terms are generally not considered delinquent. (b) Represents TDRs. Other credit quality indicators The following table provides information on other credit quality indicators for retained credit card loans. December 31, 2020 December 31, 2019 (in millions, except ratios) Geographic region(a) California Texas New York Florida Illinois New Jersey Ohio Pennsylvania Colorado Michigan All other $ 20,921 $ 14,544 11,919 9,562 8,006 5,927 4,673 4,476 4,092 3,553 55,759 25,783 16,728 14,544 10,830 9,579 7,165 5,406 5,245 4,763 4,164 64,717 168,924 84.0 % 15.4 0.6 243 Total retained loans $ 143,432 $ Percentage of portfolio based on carrying value with estimated refreshed FICO scores Equal to or greater than 660 Less than 660 No FICO available 85.9 % 13.9 0.2 (a) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2020. JPMorgan Chase & Co./2020 Form 10-K Notes to consolidated financial statements Loan modifications The Firm may offer one of a number of loan modification programs granting concessions to credit card borrowers who are experiencing financial difficulty. The Firm grants concessions for most of the credit card loans under long- term programs. 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 under the Firm’s long- term programs are considered to be TDRs. Loans with short-term or other insignificant modifications that are not considered concessions are not 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. 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. For all periods disclosed, new enrollments were less than 1% of total retained credit card loans. Year ended December 31, (in millions, except weighted-average data) Balance of new TDRs(a) Weighted-average interest rate of loans – before TDR Weighted-average interest rate of loans – after TDR Balance of loans that redefaulted within one year of modification(b) 2020 2019 2018 $ 818 $ 961 $ 866 18.04 % 19.07 % 17.98 % 4.64 4.70 5.16 $ 110 $ 148 $ 116 (a) Represents the outstanding balance prior to modification. (b) 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. Defaulted modified credit card loans remain in the modification program and continue to be charged off in accordance with the Firm’s standard charge-off policy. 244 JPMorgan Chase & Co./2020 Form 10-K 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., PD and LGD) may differ as they reflect internal historical experiences and assumptions. The Firm generally considers internal ratings with qualitative characteristics 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. 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. JPMorgan Chase & Co./2020 Form 10-K 245 Notes to consolidated financial statements The following tables provide information on internal risk rating, which is the primary credit quality indicator for retained wholesale loans. December 31, (in millions, except ratios) Loans by risk ratings Secured by real estate Commercial and industrial Other(b) Total retained loans 2020 2019 2020 2019 2020 2019 2020 2019 Investment-grade $ 90,147 $ 96,611 $ 71,917 (a) $ 80,489 $ 217,209 $ 186,344 $ 379,273 (a) $ 363,444 Noninvestment- grade: Noncriticized 26,129 22,493 Criticized performing Criticized nonaccrual 3,234 483 1,131 183 Total noninvestment- grade 29,846 23,807 57,870 10,991 1,931 70,792 60,437 4,399 844 65,680 33,053 1,079 904 27,591 1,126 30 117,052 15,304 3,318 110,521 6,656 1,057 35,036 28,747 135,674 118,234 Total retained loans $ 119,993 $ 120,418 $ 142,709 $ 146,169 $ 252,245 $ 215,091 $ 514,947 $ 481,678 % of investment-grade to total retained loans % of total criticized to total retained loans % of criticized nonaccrual to total retained loans 75.13 % 80.23 % 50.39 % 55.07 % 86.11 % 86.63 % 73.65 % 75.45 % 3.10 0.40 1.09 0.15 9.05 1.35 3.59 0.58 0.79 0.36 0.54 0.01 3.62 0.64 1.60 0.22 Secured by real estate December 31, 2020 December 31, 2019 Term loans by origination year Revolving loans (in millions) 2020 2019 2018 2017 2016 Loans by risk ratings Prior to 2016 Within the revolving period Converted to term loans Total Total Investment-grade $ 16,560 $ 19,575 $ 12,192 $ 11,017 $ 13,439 $ 16,266 $ 1,098 $ Noninvestment-grade 3,327 4,339 4,205 2,916 2,575 11,994 489 Total retained loans $ 19,887 $ 23,914 $ 16,397 $ 13,933 $ 16,014 $ 28,260 $ 1,587 $ — 1 1 $ 90,147 $ 96,611 29,846 23,807 $ 119,993 $ 120,418 Commercial and industrial December 31, 2020 December 31, 2019 Term loans by origination year Revolving loans (in millions) 2020 2019 2018 2017 2016 Loans by risk ratings Prior to 2016 Within the revolving period Converted to term loans Total Total Investment-grade $ 21,211 (a) $ 7,304 $ 2,934 $ 1,748 $ 1,032 $ 1,263 $ 36,424 $ Noninvestment-grade 15,060 8,636 5,131 2,104 497 2,439 36,852 Total retained loans $ 36,271 $ 15,940 $ 8,065 $ 3,852 $ 1,529 $ 3,702 $ 73,276 $ 1 73 74 $ 71,917 $ 80,489 70,792 65,680 $ 142,709 $ 146,169 Other(b) December 31, 2020 December 31, 2019 Term loans by origination year Revolving loans (in millions) 2020 2019 2018 2017 2016 Loans by risk ratings Prior to 2016 Within the revolving period Converted to term loans Total Total Investment-grade $ 31,389 $ 10,169 $ 6,994 $ 6,206 $ 3,553 $ 12,595 $ 145,524 $ 779 $ 217,209 $ 186,344 Noninvestment-grade 5,009 2,220 1,641 550 146 636 24,710 124 35,036 28,747 Total retained loans $ 36,398 $ 12,389 $ 8,635 $ 6,756 $ 3,699 $ 13,231 $ 170,234 $ 903 $ 252,245 $ 215,091 (a) At December 31, 2020, included $8.0 billion of loans under the PPP, of which $7.4 billion is included in commercial and industrial. PPP loans are guaranteed by the SBA and considered investment-grade. Other than in certain limited circumstances, the Firm typically does not recognize charge-offs, classify as nonaccrual nor record an allowance for loan losses on these loans. (b) Includes loans to financial institutions, states and political subdivisions, SPEs, nonprofits, personal investment companies and trusts, as well as loans to individuals and individual entities (predominantly Wealth Management clients within AWM). Refer to Note 14 for more information on SPEs. 246 JPMorgan Chase & Co./2020 Form 10-K The following table presents additional information on retained loans secured by real estate within the Wholesale portfolio, which consists of loans secured wholly or substantially by a lien or liens on real property at origination. Multifamily lending includes financing for acquisition, leasing and construction of apartment buildings. Other commercial lending largely includes financing for acquisition, leasing and construction, largely for office, retail and industrial real estate. Included in secured by real estate loans is $6.4 billion and $6.3 billion as of December 31, 2020 and 2019, respectively, of construction and development loans made to finance land development and on-site construction of commercial, industrial, residential, or farm buildings. December 31, (in millions, except ratios) Multifamily Other Commercial Total retained loans secured by real estate 2020 2019 2020 2019 2020 2019 Retained loans secured by real estate $ 73,078 $ 73,840 $ 46,915 $ 46,578 $ 119,993 $ 120,418 Criticized 1,144 340 2,573 974 3,717 1,314 % of total criticized to total retained loans secured by real estate 1.57 % 0.46 % 5.48 % 2.09 % 3.10 % 1.09 % Criticized nonaccrual $ 56 $ 28 $ 427 $ 155 $ 483 $ 183 % of criticized nonaccrual loans to total retained loans secured by real estate 0.08 % 0.04 % 0.91 % 0.33 % 0.40 % 0.15 % The following table provides additional information about retained wholesale loans, including geographic distribution, delinquency and net charge-offs. December 31, (in millions) Loans by geographic distribution(a) Total U.S. Total non-U.S. Total retained loans Loan delinquency(b) Secured by real estate Commercial and industrial Other Total retained loans 2020 2019 2020 2019 2020 2019 2020 2019 $ 116,990 $ 117,836 $ 109,273 $ 111,954 $ 180,583 $ 150,512 $ 406,846 $ 380,302 3,003 2,582 33,436 34,215 71,662 64,579 108,101 101,376 $ 119,993 $ 120,418 $ 142,709 $ 146,169 $ 252,245 $ 215,091 $ 514,947 $ 481,678 Current and less than 30 days past due and still accruing $ 118,894 $ 120,119 $ 140,100 $ 144,839 $ 249,713 $ 214,641 $ 508,707 $ 479,599 30–89 days past due and still accruing 90 or more days past due and still accruing(c) Criticized nonaccrual Total retained loans Net charge-offs/(recoveries) % of net charge-offs/(recoveries) to end-of-period retained loans 601 15 483 115 1 183 658 20 1,931 449 37 844 1,606 22 904 415 5 30 2,865 57 979 43 3,318 1,057 $ 119,993 $ 120,418 $ 142,709 $ 146,169 $ 252,245 $ 215,091 $ 514,947 $ 481,678 $ 10 $ 44 $ 737 $ 335 $ 52 $ 36 $ 799 $ 415 0.01 % 0.04 % 0.52 % 0.23 % 0.02 % 0.02 % 0.16 % 0.09 % (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. Generally excludes loans under payment deferral programs offered in response to the COVID-19 pandemic. (c) Represents loans that are considered well-collateralized and therefore still accruing interest. Nonaccrual loans The following table provides information on retained wholesale nonaccrual loans. December 31, (in millions) Nonaccrual loans(a) Secured by real estate Commercial and industrial Other Total retained loans 2020 2019 2020 2019 2020 2019 2020 2019 With an allowance Without an allowance(b) Total nonaccrual loans(c) $ $ 351 $ 132 483 $ 169 $ 1,667 $ 688 $ 14 264 156 183 $ 1,931 $ 844 $ 800 $ 104 904 $ 28 $ 2,818 $ 2 500 885 172 30 $ 3,318 $ 1,057 (a) Loans that were modified in response to the COVID-19 pandemic continue to be risk-rated in accordance with the Firm’s overall credit risk management framework. As of December 31, 2020, predominantly all of these loans were considered performing. (b) When the discounted cash flows, collateral value or market price equals or exceeds the amortized cost of the loan, the loan does not require an allowance. This typically occurs when the loans have been partially charged off and/or there have been interest payments received and applied to the loan balance. (c) Interest income on nonaccrual loans recognized on a cash basis were not material for the years ended December 31, 2020 and 2019. Loan modifications Certain loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing financial difficulty. Loans with short-term or other insignificant modifications that are not considered concessions are not TDRs nor are loans for which the Firm has elected to apply the option to suspend the application of accounting guidance for TDRs as provided by the CARES Act and extended by the Consolidated Appropriations Act. The carrying value of TDRs was $954 million and $501 million as of December 31, 2020 and 2019, respectively. The carrying value of new TDRs was $734 million, $407 million and $718 million for the years ended December 31, 2020, 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, 2020, 2019 and 2018. JPMorgan Chase & Co./2020 Form 10-K 247 Notes to consolidated financial statements Note 13 – Allowance for credit losses Effective January 1, 2020, the Firm adopted the CECL accounting guidance. The adoption of this guidance established a single allowance framework for all financial assets measured at amortized cost and certain off-balance sheet credit exposures. This framework requires that management’s estimate reflects credit losses over the instrument’s remaining expected life and considers expected future changes in macroeconomic conditions. Refer to Note 1 for further information. JPMorgan Chase’s allowance for credit losses comprises: • the allowance for loan losses, which covers the Firm’s retained loan portfolios (scored and risk-rated) and is presented separately on the Consolidated balance sheets, • the allowance for lending-related commitments, which is presented on the Consolidated balance sheets in accounts payable and other liabilities, and • the allowance for credit losses on investment securities, which covers the Firm’s HTM and AFS securities and is recognized within Investment Securities on the Consolidated balance sheets. The income statement effect of all changes in the allowance for credit losses is recognized in the provision for credit losses. Determining the appropriateness of the allowance for credit losses is complex and requires significant judgment by management about the effect of matters that are inherently uncertain. At least quarterly, the allowance for credit losses is reviewed by the CRO, the CFO and the Controller of the Firm. Subsequent evaluations of credit exposures, considering the macroeconomic conditions, forecasts and other factors then prevailing, may result in significant changes in the allowance for credit losses in future periods. The Firm’s policies used to determine its allowance for loan losses and its allowance for lending-related commitments are described in the following paragraphs. Refer to Note 10 for a description of the policies used to determine the allowance for credit losses on investment securities. Methodology for allowances for loan losses and lending- related commitments The allowance for loan losses and allowance for lending- related commitments represents expected credit losses over the remaining expected life of retained loans and lending- related commitments that are not unconditionally cancellable. The Firm does not record an allowance for future draws on unconditionally cancellable lending-related commitments (e.g., credit cards). Expected losses related to accrued interest on credit card loans and certain performing, modified loans to borrowers impacted by COVID-19 are considered in the Firm’s allowance for loan losses. However, the Firm does not record an allowance on other accrued interest receivables, due to its policy to write these receivables off no later than 90 days past due by reversing interest income. The expected life of each instrument is determined by considering its contractual term, expected prepayments, cancellation features, and certain extension and call options. The expected life of funded credit card loans is generally estimated by considering expected future payments on the credit card account, and determining how much of those amounts should be allocated to repayments of the funded loan balance (as of the balance sheet date) versus other account activity. This allocation is made using an approach that incorporates the payment application requirements of the Credit Card Accountability Responsibility and Disclosure Act of 2009, generally paying down the highest interest rate balances first. The estimate of expected credit losses includes expected recoveries of amounts previously charged off or expected to be charged off, even if such recoveries result in a negative allowance. Collective and Individual Assessments When calculating the allowance for loan losses and the allowance for lending-related commitments, the Firm assesses whether exposures share similar risk characteristics. If similar risk characteristics exist, the Firm estimates expected credit losses collectively, considering the risk associated with a particular pool and the probability that the exposures within the pool will deteriorate or default. The assessment of risk characteristics is subject to significant management judgment. Emphasizing one characteristic over another or considering additional characteristics could affect the allowance. • Relevant risk characteristics for the consumer portfolio include product type, delinquency status, current FICO scores, geographic distribution, and, for collateralized loans, current LTV ratios. • Relevant risk characteristics for the wholesale portfolio include LOB, geography, risk rating, delinquency status, level and type of collateral, industry, credit enhancement, product type, facility purpose, tenor, and payment terms. The majority of the Firm’s credit exposures share risk characteristics with other similar exposures, and as a result are collectively assessed for impairment (“portfolio-based component”). The portfolio-based component covers consumer loans, performing risk-rated loans and certain lending-related commitments. If an exposure does not share risk characteristics with other exposures, the Firm generally estimates expected credit losses on an individual basis, considering expected repayment and conditions impacting that individual exposure (“asset-specific component”). The asset-specific component covers modified PCD loans, loans modified or reasonably expected to be modified in a TDR, collateral- dependent loans, as well as, risk-rated loans that have been placed on nonaccrual status. Portfolio-based component The portfolio-based component begins with a quantitative calculation that considers the likelihood of the borrower changing delinquency status or moving from one risk rating to another. The quantitative calculation covers expected credit losses over an instrument’s expected life and is estimated by applying credit loss factors to the Firm’s 248 JPMorgan Chase & Co./2020 Form 10-K estimated exposure at default. The credit loss factors incorporate the probability of borrower default as well as loss severity in the event of default. They are derived using a weighted average of five internally developed macroeconomic scenarios over an eight-quarter forecast period, followed by a single year straight-line interpolation to revert to long run historical information for periods beyond the eight-quarter forecast period. The five macroeconomic scenarios consist of a central, relative adverse, extreme adverse, relative upside and extreme upside scenario, and are updated by the Firm’s central forecasting team. The scenarios take into consideration the Firm’s overarching economic outlook, internal perspectives from subject matter experts across the Firm, and market consensus and involve a governed process that incorporates feedback from senior management across LOBs, Corporate Finance and Risk Management. The COVID-19 pandemic has stressed many MEVs to degrees not experienced in recent history, which has created additional challenges in the use of modeled credit loss estimates and increased the reliance on management judgment. In periods where certain MEVs are outside the range of historical experience on which the Firm’s models have been trained, the Firm makes adjustments to appropriately address these economic circumstances. The Firm also considers the impact of other events, such as government unemployment benefits or other stimulus programs, when determining whether adjustments are necessary. The quantitative calculation is adjusted to take into consideration model imprecision, emerging risk assessments, trends and other subjective factors that are not yet reflected in the calculation. These adjustments are accomplished in part by analyzing the historical loss experience, including during stressed periods, for each major product or model. Management applies judgment in making this adjustment, including taking into account uncertainties associated with the economic and political conditions, quality of underwriting standards, borrower behavior, credit concentrations or deterioration within an industry, product or portfolio, as well as other relevant internal and external factors affecting the credit quality of the portfolio. In certain instances, the interrelationships between these factors create further uncertainties. Throughout 2020, the Firm made adjustments to its quantitative calculation which placed significant weighting on its adverse scenarios, as a result of continued uncertainty related to the COVID-19 pandemic. The application of different inputs into the quantitative calculation, and the assumptions used by management to adjust the quantitative calculation, are subject to significant management judgment, and emphasizing one input or assumption over another, or considering other inputs or assumptions, could affect the estimate of the allowance for loan losses and the allowance for lending-related commitments. Asset-specific component To determine the asset-specific component of the allowance, collateral-dependent loans (including those loans for which foreclosure is probable) and larger, nonaccrual risk-rated loans in the wholesale portfolio segment are generally evaluated individually, while smaller loans (both scored and risk-rated) are aggregated for evaluation using factors relevant for the respective class of assets. The Firm generally measures the asset-specific allowance as the difference between the amortized cost of 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 generally recognized as an adjustment to the allowance for loan losses. For collateral-dependent loans, the fair value of collateral less estimated costs to sell is used to determine the charge-off amount for declines in value (to reduce the amortized cost of the loan to the fair value of collateral) or the amount of negative allowance that should be recognized (for recoveries of prior charge-offs associated with improvements in the fair value of collateral). The asset-specific component of the allowance for loan losses for loans that have been or are expected to be modified in TDRs incorporates the effect of the modification on the loan’s expected cash flows (including forgone interest, principal forgiveness, as well as other concessions), and also the potential for redefault. For residential real estate loans modified in or expected to be 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 housing 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 or expected to be modified in TDRs, expected losses incorporate projected delinquencies and charge-offs based on the Firm’s historical experience by type of modification program. For wholesale loans modified or expected to be modified in TDRs, expected losses incorporate management’s expectation of the borrower’s ability to repay under the modified terms. Estimating the timing and amounts of future cash flows 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. All of these estimates and assumptions require significant management judgment and certain assumptions are highly subjective. JPMorgan Chase & Co./2020 Form 10-K 249 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-related commitments, and includes a breakdown of loans and lending-related commitments by impairment methodology. Refer to Note 10 for further information on the allowance for credit losses on investment securities. The adoption of the CECL accounting guidance resulted in a change in the accounting for PCI loans, which are considered PCD loans. In conjunction with the adoption of CECL, the Firm reclassified risk-rated loans and lending-related commitments from the consumer, excluding credit card portfolio segment to the wholesale portfolio segment, to align with the methodology applied when determining the allowance. Prior-period amounts have been revised to conform with the current presentation. Refer to Note 1 for further information. (Table continued on next page) Year ended December 31, (in millions) Allowance for loan losses Beginning balance at January 1, Cumulative effect of a change in accounting principle Gross charge-offs Gross recoveries collected Net charge-offs Write-offs of PCI loans(a) Provision for loan losses Other Ending balance at December 31, Allowance for lending-related commitments Beginning balance at January 1, Cumulative effect of a change in accounting principle Provision for lending-related commitments Other Ending balance at December 31, Total allowance for credit losses Allowance for loan losses by impairment methodology Asset-specific(b) Portfolio-based PCI Total allowance for loan losses Loans by impairment methodology Asset-specific(b) Portfolio-based PCI Total retained loans Collateral-dependent loans Net charge-offs Loans measured at fair value of collateral less cost to sell Allowance for lending-related commitments by impairment methodology Asset-specific Portfolio-based Total allowance for lending-related commitments(c) Lending-related commitments by impairment methodology Asset-specific Portfolio-based(d) Total lending-related commitments $ $ $ $ $ Consumer, excluding credit card $ 2,538 $ 297 805 (631) 174 NA 974 1 2020(e) Credit card Wholesale Total 5,683 5,517 5,077 (791) 4,286 NA 10,886 — $ 4,902 $ 13,123 (1,642) 954 (155) 799 NA 4,431 — 4,172 6,836 (1,577) 5,259 NA 16,291 1 3,636 $ 17,800 $ 6,892 $ 28,328 $ 1,179 $ 1,191 12 133 42 — 187 3,823 $ $ $ — — — — — 17,800 (35) 1,079 (1) 2,222 9,114 $ $ $ $ (7) $ 633 $ 682 $ 3,643 NA 17,167 NA 6,210 NA $ 3,636 $ 17,800 $ 6,892 $ 28,328 $ 16,648 $ 1,375 $ 3,606 $ 21,629 285,479 142,057 511,341 938,877 NA NA NA NA $ 302,127 $ 143,432 $ 514,947 $ 960,506 $ 133 $ 4,956 — 187 187 — 37,783 37,783 $ $ $ $ $ $ $ $ — — — — — — — — $ $ $ $ 76 188 114 2,108 2,222 $ $ $ 209 5,144 114 2,295 2,409 577 $ 577 426,871 464,654 $ 427,448 $ 465,231 98 1,121 (1) 2,409 30,737 1,308 27,020 NA 250 JPMorgan Chase & Co./2020 Form 10-K (a) Prior to the adoption of CECL, write-offs of PCI loans were recorded against the allowance for loan losses when actual losses for a pool exceeded estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan was recognized when the underlying loan was removed from a pool. (b) Includes modified PCD loans and loans that have been modified or are reasonably expected to be modified in a TDR. Also includes risk-rated loans that have been placed on nonaccrual status for the wholesale portfolio segment. The asset-specific credit card allowance for loans modified, or reasonably expected to be 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) At December 31, 2020, 2019 and 2018, lending-related commitments excluded $19.5 billion, $9.8 billion and $8.7 billion, respectively, for the consumer, excluding credit card portfolio segment; $658.5 billion, $650.7 billion and $605.4 billion, respectively, for the credit card portfolio segment; and $22.4 billion, $24.1 billion and $24.8 billion, respectively, for the wholesale portfolio segment, which were not subject to the allowance for lending- related commitments. (e) Excludes HTM securities, which had an allowance for credit losses of $78 million and a provision for credit losses of $68 million as of and for the year ended December 31, 2020. (table continued from previous page) 2019 2018 Consumer, excluding credit card Credit card Wholesale Total Consumer, excluding credit card Credit card Wholesale Total $ 3,434 $ 5,184 $ 4,827 $ 13,445 $ 3,892 $ 4,884 $ 4,828 $ 13,604 NA 902 (536) 366 151 (378) (1) NA 5,436 (588) 4,848 — 5,348 (1) NA 472 (57) 415 — 479 11 NA 6,810 (1,181) 5,629 151 5,449 9 NA 977 (827) 150 187 (121) — NA 5,011 (493) 4,518 — 4,818 — NA 361 (173) 188 — 188 (1) NA 6,349 (1,493) 4,856 187 4,885 (1) 2,538 $ 5,683 $ 4,902 $ 13,123 $ 3,434 $ 5,184 $ 4,827 $ 13,445 12 NA — — 12 2,550 $ $ $ — NA — — — 5,683 $ 1,043 $ 1,055 $ NA 136 — 1,179 6,081 $ $ NA 136 — $ $ 1,191 14,314 $ $ 12 NA — — 12 3,446 $ $ $ — NA — — — 5,184 $ 1,056 $ 1,068 NA (14) 1 NA (14) 1 $ $ 1,043 5,870 $ $ 1,055 14,500 75 $ 477 $ 295 $ 847 $ 143 $ 440 $ 350 $ 1,476 987 5,206 — 4,607 — 11,289 987 2,538 $ 5,683 $ 4,902 $ 13,123 $ 1,503 1,788 3,434 4,744 — 4,477 — 933 10,724 1,788 $ 5,184 $ 4,827 $ 13,445 5,961 $ 1,452 $ 1,123 $ 8,536 $ 6,665 $ 1,319 $ 1,459 $ 9,443 268,675 20,363 167,472 480,555 — — 916,702 20,363 305,077 24,034 155,297 475,561 — 3 935,935 24,037 $ 294,999 $ 168,924 $ 481,678 $ 945,601 $ 335,776 $ 156,616 $ 477,023 $ 969,415 $ $ $ $ $ 46 $ 2,053 — 12 12 — 30,417 30,417 $ $ $ $ — — — — — — — — $ $ $ $ 36 87 102 1,077 1,179 $ $ $ 82 $ 16 $ 2,140 2,076 102 $ 1,089 1,191 $ — 12 12 474 $ 474 $ 392,967 423,384 $ 393,441 $ 423,858 $ — 26,502 26,502 — — — — — — — — $ $ $ $ 29 206 99 944 1,043 $ $ $ 45 2,282 99 956 1,055 469 $ 469 374,996 401,498 $ 375,465 $ 401,967 $ $ $ $ JPMorgan Chase & Co./2020 Form 10-K 251 $ $ $ $ $ $ $ The Firm’s central case assumptions reflected U.S. unemployment rates and U.S. real GDP as follows: U.S. unemployment rate(a) Cumulative change in U.S. real GDP from 12/31/2019 Assumptions at January 1, 2020 4Q20(b) 2Q21 2Q20 3.8% 4.0% 3.7% 0.9% 1.7% 2.4% Assumptions at December 31, 2020 4Q21 2Q21 2Q22 U.S. unemployment rate(a) Cumulative change in U.S. real GDP from 12/31/2019 6.8% 5.7% 5.1% (1.9)% 0.6% 2.0% (a) Reflects quarterly average of forecasted U.S. unemployment rate. (b) 4Q20 actual U.S. unemployment rate (quarterly average) was 6.8%. 4Q20 actual cumulative change in U.S. real GDP from 4Q19 was (2.5%). Subsequent changes to this forecast and related estimates will be reflected in the provision for credit losses in future periods. Notes to consolidated financial statements Discussion of changes in the allowance during 2020 The increase in the allowance for loan losses and lending- related commitments was primarily driven by an increase in the provision for credit losses, reflecting the deterioration in and uncertainty around the future macroeconomic environment as a result of the impact of the COVID-19 pandemic. As of December 31, 2020, the Firm’s central case reflected U.S. unemployment rates of approximately 7% through the second quarter of 2021 and remaining above 5% until the second half of 2022. This compared with relatively low levels of unemployment of approximately 4% throughout 2020 and 2021 in the Firm’s January 1, 2020 central case. Further, while the Firm’s January 1, 2020 central case U.S. GDP forecast reflected a 1.7% expansion in 2020, actual U.S. GDP contracted approximately 2.5% in 2020. As of December 31, 2020, the Firm’s central case assumptions reflect a return to pre-pandemic GDP levels in the fourth quarter of 2021. Due to elevated uncertainty in the near term outlook, driven by the potential for increased infection rates and related lock downs resulting from the pandemic, as well as the prospect that government and other consumer relief measures set to expire may not be extended, the Firm has placed significant weighting on its adverse scenarios. These scenarios incorporate more punitive macroeconomic factors than the central case assumptions, resulting in weighted average U.S. unemployment rates remaining elevated throughout 2021 and 2022, ending the fourth quarter of 2022 at approximately 6%, and in U.S. GDP ending 2022 approximately 0.9% higher than fourth quarter 2019 actual pre-pandemic levels. 252 JPMorgan Chase & Co./2020 Form 10-K Note 14 – Variable interest entities Refer to Note 1 on page 167 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 2020 Form 10-K page references 253-254 254-256 254-256 256 256-257 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 258 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 consolidates the assets and liabilities of its sponsored credit card trusts as it is considered to be the primary beneficiary of these 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, 2020 and 2019, the Firm held undivided interests in Firm-sponsored credit card securitization trusts of $5.4 billion and $5.3 billion, respectively. The Firm maintained an average undivided interest in principal receivables owned by those trusts of approximately 39% and 50% for the years ended December 31, 2020 and JPMorgan Chase & Co./2020 Form 10-K 253 Notes to consolidated financial statements 2019. The Firm did not retain any senior securities and retained $1.5 billion and $3.0 billion of subordinated securities in certain of its credit card securitization trusts as of December 31, 2020 and 2019, 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 259 of this Note for further information regarding the Firm’s cash flows associated with and interests retained in nonconsolidated VIEs, and pages 259-260 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, 2020 (in millions) Securitization-related(a) Residential mortgage: Prime/Alt-A and option ARMs $ 49,644 $ 1,693 $ 12,896 119,732 46 — 41,265 12,154 92,351 $ 574 $ 724 $ — $ 1,298 9 955 — 1,549 — 262 9 2,766 $ 182,272 $ 1,739 $ 145,770 $ 1,538 $ 2,273 $ 262 $ 4,073 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 $ 60,348 $ 2,796 $ $ 535 $ 625 $ — $ 1,160 14,661 111,903 — — 7 785 — 773 — 241 $ 186,912 $ 2,796 $ 143,102 $ 1,327 $ 1,398 $ 241 $ 7 1,799 2,966 48,734 13,490 80,878 (a) Excludes U.S. GSEs and government agency securitizations and re-securitizations, which are not Firm-sponsored. Refer to pages 259-260 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 $105 million and $40 million, respectively, at December 31, 2020, and $106 million and $94 million, respectively, at December 31, 2019, 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, 2020 and 2019, 73% and 63%, respectively, of the Firm’s retained securitization interests, which are predominantly carried at fair value and include amounts required to be held pursuant to credit risk retention rules, were risk-rated “A” or better, on an S&P-equivalent basis. The retained interests in prime residential mortgages consisted of $1.3 billion and $1.1 billion of investment-grade retained interests, and $41 million and $72 million of noninvestment-grade retained interests at December 31, 2020 and 2019, respectively. The retained interests in commercial and other securitization trusts consisted of $2.0 billion and $1.2 billion of investment-grade retained interests, and $753 million and $575 million of noninvestment-grade retained interests at December 31, 2020 and 2019, respectively. 254 JPMorgan Chase & Co./2020 Form 10-K Subprime Commercial and other(b) Total December 31, 2019 (in millions) Securitization-related(a) Residential mortgage: Subprime Commercial and other(b) Total information on interests held in nonconsolidated securitizations. Re-securitizations The Firm engages in certain re-securitization transactions in which debt securities are transferred to a VIE in exchange for new beneficial interests. These transfers occur in connection with both 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 2020 2019 2018 $ 46,123 $ 25,852 $ 15,532 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 2020, 2019 and 2018, respectively, and retained interests in any such Firm- sponsored VIEs as of December 31, 2020 and 2019 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. 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 Treasury and CIO or 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 257 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 257 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. Treasury and CIO may choose to invest in these securitizations as well. 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 257 of this Note for more information on the consolidated commercial mortgage securitizations, and the table on the previous page of this Note for further JPMorgan Chase & Co./2020 Form 10-K 255 Notes to consolidated financial statements The following table presents information on the Firm's interests in nonconsolidated re-securitization VIEs. December 31, (in millions) U.S. GSEs and government agencies Nonconsolidated re-securitization VIEs 2020 2019 Interest in VIEs $ 2,631 $ 2,928 As of December 31, 2020 and 2019, 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 257 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 $13.5 billion and $16.3 billion of the commercial paper issued by the Firm-administered multi-seller conduits at December 31, 2020 and 2019, 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 $12.2 billion and $8.9 billion at December 31, 2020 and 2019, 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 258 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 2020 and 2019. 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 256 JPMorgan Chase & Co./2020 Form 10-K 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, 2020 and 2019. December 31, 2020 (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 $ — $ 11,962 $ 148 $ 12,110 $ 4,943 $ 3 $ Firm-administered multi-seller conduits 2 23,787 Municipal bond vehicles Mortgage securitization entities(a) Other 1,930 — 2 — 1,694 176 188 2 94 249 23,977 1,932 1,788 427 10,523 1,902 210 — 33 — 108 89 4,946 10,556 1,902 318 89 Total $ 1,934 $ 37,619 $ 681 $ 40,234 $ 17,578 $ 233 $ 17,811 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 1 25,183 Municipal bond vehicles Mortgage securitization entities(a) Other 1,903 66 663 — 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 (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 $5.2 billion and $6.7 billion at December 31, 2020 and 2019, 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. JPMorgan Chase & Co./2020 Form 10-K 257 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. Notes to consolidated financial statements 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 $24.9 billion and $19.1 billion, of which $8.7 billion and $5.5 billion was unfunded at December 31, 2020 and 2019, 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, 2020 and 2019, was $6.7 billion and $5.5 billion, respectively. The fair value of assets held by such VIEs at December 31, 2020 and 2019 was $10.5 billion and $8.6 billion, respectively. Refer to Note 28 for more information on off-balance sheet lending- related commitments. 258 JPMorgan Chase & Co./2020 Form 10-K Securitization activity The following table provides information related to the Firm’s securitization activities for the years ended December 31, 2020, 2019 and 2018, 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. 2020 2019 2018 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 Cash flows received on interests Residential mortgage(d) $ Commercial and other(e) 7,103 $ 6,624 Residential mortgage(d) $ 9,957 $ Commercial and other(e) 9,390 Residential mortgage(d) $ Commercial and other(e) 6,431 $ 10,159 $ 7,321 $ 6,865 $ 10,238 $ 9,544 $ 6,449 $ 10,218 211 801 1 239 287 507 2 237 319 411 2 301 (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) Represents prime mortgages. Excludes loan securitization activity related to U.S. GSEs and government agencies. (e) Includes commercial mortgage and other consumer loans. Key assumptions used to value retained interests originated during the year are shown in the table below. Year ended December 31, 2020 2019 2018 Residential mortgage retained interest: Weighted-average life (in years) 4.7 4.8 7.6 Weighted-average discount rate 8.2 % 7.4 % 3.6 % Commercial mortgage retained interest: Weighted-average life (in years) 6.9 6.4 5.3 Weighted-average discount rate 3.0 % 4.1 % 4.0 % 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. JPMorgan Chase & Co./2020 Form 10-K 259 Notes to consolidated financial statements 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) 2020 2019 2018 Carrying value of loans sold $ 81,153 $ 92,349 $ 44,609 Proceeds received from loan sales as cash Proceeds from loan sales as securities(a)(b) $ 45 $ 73 $ 9 80,186 91,422 43,671 6 $ $ 80,231 $ 91,495 $ 43,680 Total proceeds received from loan sales(c) Gains/(losses) on loan sales(d)(e) $ (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. 499 $ (93) 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, 2020 and 2019. Substantially all of these loans and real estate are insured or guaranteed by U.S. government agencies. December 31, (in millions) Loans repurchased or option to repurchase(a) Real estate owned 2020 2019 $ 1,413 $ 2,941 9 41 Foreclosed government-guaranteed residential mortgage loans(b) 64 198 (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 and delinquencies related to nonconsolidated securitized financial assets held in Firm-sponsored private-label securitization entities, in which the Firm has continuing involvement as of December 31, 2020 and 2019. As of or for the year ended December 31, (in millions) 2020 2019 2020 2019 2020 2019 Securitized assets 90 days past due Net liquidation losses Securitized loans Residential mortgage: Prime/ Alt-A & option ARMs $ 41,265 $ 48,734 $ 4,988 $ 2,449 $ 212 $ 12,154 92,351 13,490 80,878 2,406 5,958 1,813 187 179 30 $ 145,770 $ 143,102 $ 13,352 $ 4,449 $ 421 $ 1,556 579 532 445 Subprime Commercial and other Total loans securitized 260 JPMorgan Chase & Co./2020 Form 10-K 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, and can be adjusted up to one year from the acquisition date as more information is obtained about the fair value of assets acquired and liabilities assumed. 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 that there may be an 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. The following table presents goodwill attributed to the business segments. 2018 2019 2020 7,913 7,901 $ 31,311 $ 30,133 $ 30,084 December 31, (in millions) Consumer & Community Banking(a) Corporate & Investment Bank(a) Commercial Banking Asset & Wealth Management(a) Total goodwill $ 49,248 $ 47,823 $ 47,471 (a) In 2020, goodwill of $959 million was transferred from CCB to CIB and $51 million from AWM to CCB related to business realignments. Prior- period amounts have been revised to conform with the current presentation. Refer to Note 32 for additional information on these realignments. 2,982 6,807 7,721 2,860 6,806 2,985 7,039 The following table presents changes in the carrying amount of goodwill. Year ended December 31, (in millions) 2020 2019 2018 Balance at beginning of period $ 47,823 $ 47,471 $ 47,507 Changes during the period from: Business combinations(a) Other(b) 1,412 13 349 3 — (36) Balance at December 31, $ 49,248 $ 47,823 $ 47,471 (a) For 2020, represents estimated goodwill associated with the acquisitions of cxLoyalty in CCB and 55ip in AWM. For 2019, represents goodwill associated with the acquisition of InstaMed. This goodwill was allocated to CIB, CB and CCB. (b) Primarily relates to foreign currency adjustments. Goodwill impairment testing The Firm’s goodwill was not impaired at December 31, 2020, 2019 and 2018. Effective January 1, 2020, the Firm adopted new accounting guidance related to goodwill impairment testing. The adoption of the guidance requires recognition of an impairment loss when the estimated fair value of a reporting unit falls below its carrying value. It eliminated the requirement that an impairment loss be recognized only if the estimated implied fair value of the goodwill is below its carrying value. The goodwill impairment test is performed by comparing the current fair value of each reporting unit 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 an impairment charge is recognized for the amount by which the reporting unit’s carrying value exceeds its fair value, up to the amount of goodwill allocated to that reporting unit. 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 capital 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. 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 overall 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 JPMorgan Chase & Co./2020 Form 10-K 261 Notes to consolidated financial statements 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. Unanticipated 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 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. 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. 262 JPMorgan Chase & Co./2020 Form 10-K 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), and certain derivatives (e.g., 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, 2020, 2019 and 2018. As of or for the year ended December 31, (in millions, except where otherwise noted) 2020 2019 2018 Fair value at beginning of period MSR activity: Originations of MSRs Purchase of MSRs Disposition of MSRs(a) Net additions/(Dispositions) 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) $ 4,699 $ 6,130 $ 6,030 944 248 (176) 1,016 (899) 1,384 105 (789) 700 (951) 931 315 (636) 610 (740) (1,568) (893) 300 (54) 199 (117) 28 (1,540) 3,276 (1,540) 1,325 448.0 1.8 (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 $ $ $ $ (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. JPMorgan Chase & Co./2020 Form 10-K 263 Notes to consolidated financial statements The following table presents the components of mortgage fees and related income (including the impact of MSR risk management activities) for the years ended December 31, 2020, 2019 and 2018. Year ended December 31, (in millions) CCB mortgage fees and related income 2020 2019 2018 Net production revenue $ 2,629 $ 1,618 $ 268 Net mortgage servicing revenue: Operating revenue: Loan servicing revenue 1,367 1,533 1,835 Changes in MSR asset fair value due to collection/realization of expected cash flows The table below outlines the key economic assumptions used to determine the fair value of the Firm’s MSRs at December 31, 2020 and 2019, 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) 2020 2019 14.90 % 11.67 % Impact on fair value of 10% adverse change $ (206) $ (200) Impact on fair value of 20% adverse change (392) (384) Weighted-average option adjusted spread(a) 7.19 % 7.93 % Impact on fair value of 100 basis points adverse change $ (134) $ (169) (899) (951) (740) Impact on fair value of 200 basis points adverse change (258) (326) (a) Includes the impact of operational risk and regulatory capital. 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. Total operating revenue 468 582 1,095 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 (1,568) (893) 300 28 (287) (70) 1,522 1,015 (18) (165) (341) (111) 450 417 984 3,079 2,035 1,252 12 1 2 Mortgage fees and related income $ 3,091 $ 2,036 $ 1,254 (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). 264 JPMorgan Chase & Co./2020 Form 10-K       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 remainder of the lease term, or estimated useful life of the improvements. 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, 2020 and 2019, noninterest-bearing and interest-bearing deposits were as follows. December 31, (in millions) 2020 2019 U.S. offices Noninterest-bearing (included $9,873 and $22,637 at fair value)(a) $ 572,711 $ 395,667 Interest-bearing (included $2,567 and $2,534 at fair value)(a) Total deposits in U.S. offices 1,197,032 876,156 1,769,743 1,271,823 Non-U.S. offices Noninterest-bearing (included $1,486 and $1,980 at fair value)(a) 23,435 20,087 Interest-bearing (included $558 and $1,438 at fair value)(a) Total deposits in non-U.S. offices Total deposits 351,079 270,521 374,514 290,608 $ 2,144,257 $ 1,562,431 (a) Includes structured notes classified as deposits for which the fair value option has been elected. Refer to Note 3 for further discussion. At December 31, 2020 and 2019, time deposits in denominations of $250,000 or more were as follows. December 31, (in millions) U.S. offices Non-U.S. offices Total 2020 2019 $ 33,812 $ 44,127 50,523 50,840 $ 84,335 $ 94,967 At December 31, 2020, the maturities of interest-bearing time deposits were as follows. December 31, 2020 (in millions) 2021 2022 2023 2024 2025 After 5 years Total U.S. Non-U.S. Total $ 44,785 $ 48,142 $ 92,927 1,451 259 210 197 451 175 7 36 633 298 1,626 266 246 830 749 $ 47,353 $ 49,291 $ 96,644 JPMorgan Chase & Co./2020 Form 10-K 265       Notes to consolidated financial statements Note 18 - Leases Firm as lessee At December 31, 2020, 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. All leases with lease terms greater than twelve months are reported as a lease liability with a corresponding right-of-use (“ROU”) asset. 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. 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 2020 2019 $ 8,006 $ 8,190 8,508 8,505 Weighted average remaining lease term (in years) Weighted average discount rate 8.7 8.8 3.48 % 3.68 % Supplemental cash flow information Cash paid for amounts included in the measurement of lease liabilities - operating cash flows Supplemental non-cash information $ 1,626 $ 1,572 Right-of-use assets obtained in exchange for operating lease obligations $ 1,350 $ 1,413 Year ended December 31, (in millions) Rental expense Gross rental expense Sublease rental income Net rental expense 2020 2019 $ $ 2,094 $ 2,057 (166) (184) 1,928 $ 1,873 The following table presents future payments under operating leases as of December 31, 2020: Year ended December 31, (in millions) 2021 2022 2023 2024 2025 After 2025 Total future minimum lease payments Less: Imputed interest Total $ 1,606 1,435 1,270 1,123 947 3,602 9,983 (1,475) $ 8,508 In addition to the table above, as of December 31, 2020, 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 2021 and 2023 with lease terms up to 25 years. 266 JPMorgan Chase & Co./2020 Form 10-K Notes to consolidated financial statements 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 subject to operating leases 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) Carrying value of assets subject to operating leases, net of accumulated depreciation Accumulated depreciation 2020 2019 $ 21,155 $ 23,587 6,388 6,121 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 2019 Operating lease income $ 5,539 $ 5,455 $ Depreciation expense 4,257 4,157 2018 4,540 3,522 The following table presents future receipts under operating leases as of December 31, 2020: Year ended December 31, (in millions) 2021 2022 2023 2024 2025 After 2025 $ 3,686 2,084 613 52 24 34 Total future minimum lease receipts $ 6,493 JPMorgan Chase & Co./2020 Form 10-K 267 Notes to consolidated financial statements Note 19 – Accounts payable and other liabilities Accounts payable and other liabilities consist of brokerage payables, which include payables to customers and payables related to security purchases that did not settle, as well as other accrued expenses, such as income tax payables, operating lease liabilities, credit card rewards liability, 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 2020 2019 $ 140,291 $ 118,375 92,308 92,032 $ 232,599 $ 210,407 (a) Includes credit card rewards liability of $7.7 billion and $6.4 billion at December 31, 2020 and 2019, respectively. 268 JPMorgan Chase & Co./2020 Form 10-K By remaining maturity at December 31, (in millions, except rates) Parent company Senior debt: Subordinated debt: Subsidiaries Federal Home Loan Banks advances: Senior debt: Subordinated debt: 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, 2020. 2020 Under 1 year 1-5 years After 5 years Total 2019 Total $ $ Fixed rate Variable rate Interest rates(a) Fixed rate Variable rate Interest rates(a) 9,225 1,580 $ 49,987 $ 114,296 $ 173,508 $ 161,198 1.33-4.63% 0.50-4.50% 0.17-6.40% 0.17-6.40% 8,644 8,353 18,577 18,615 0.15-6.40% — — $ 5,678 $ 13,577 $ 19,255 $ 15,155 — 9 9 9 —% 3.38-7.75% 2.96-8.00% 2.96-8.00% 3.38-8.00% Subtotal $ 10,805 $ 64,309 $ 136,235 $ 211,349 $ 194,977 Fixed rate $ 7 $ 45 $ 3,000 11,000 71 — $ 123 14,000 0.57-0.60% 0.19-0.24% 4.66-7.73% 0.19-7.73% $ 1,067 $ 3,157 $ 11,534 $ 15,758 12,055 18,448 7,608 38,111 7.28% 1.00-1.30% 1.00-7.28% Variable rate Interest rates(a) Fixed rate Variable rate Interest rates(a) Fixed rate Variable rate Interest rates(a) $ —% — — — % $ $ $ — — — % 19,213 738 1,297 $ $ $ 309 — 8.25 % 68,301 738 1,297 $ $ $ $ $ 135 28,500 1.67-8.31% (h) 19,597 45,861 1.00-9.43% 305 — 8.25 % 94,398 693 1,430 Subtotal $ 16,129 Junior subordinated debt: Fixed rate $ Variable rate Interest rates(a) Subtotal $ — — —% — Total long-term debt(b)(c)(d) Long-term beneficial interests: $ $ 26,934 625 1,924 Fixed rate Variable rate 309 — 8.25 % 32,959 — — —% — $ $ $ $ $ $ 0.71-8.75% 0.71-8.75% 2.41-8.75% $ 2,035 97,268 $ 157,483 $ 2,035 $ 281,685 $ (f)(g) $ 2,123 291,498 1,744 650 $ — 210 $ 2,369 2,784 $ 2,990 3,748 Interest rates 0.36-2.77% 0.00-2.39% 0.00-3.75% 0.00-3.75% 0.00-4.06% Total long-term beneficial interests(e) $ 2,549 $ 2,394 $ 210 $ 5,153 $ 6,738 (a) The interest rates shown are the range of contractual rates in effect at December 31, 2020 and 2019, 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, 2020, for total long-term debt was (0.40)% to 7.28%, versus the contractual range of 0.17% to 8.75% presented in the table above. The interest rate ranges shown exclude structured notes accounted for at fair value. (b) Included long-term debt of $17.2 billion and $32.0 billion secured by assets totaling $166.4 billion and $186.1 billion at December 31, 2020 and 2019, respectively. The amount of long-term debt secured by assets does not include amounts related to hybrid instruments. (c) Included $76.8 billion and $75.7 billion of long-term debt accounted for at fair value at December 31, 2020 and 2019, respectively. (d) Included $16.1 billion and $14.0 billion of outstanding zero-coupon notes at December 31, 2020 and 2019, respectively. The aggregate principal amount of these notes at their respective maturities is $45.3 billion and $39.7 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 $41 million and $36 million accounted for at fair value at December 31, 2020 and 2019, respectively. Excluded short-term commercial paper and other short-term beneficial interests of $12.4 billion and $11.1 billion at December 31, 2020 and 2019, respectively. (f) At December 31, 2020, long-term debt in the aggregate of $151.3 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 2020 is $26.9 billion in 2021, $18.4 billion in 2022, $32.2 billion in 2023, $29.6 billion in 2024 and $17.1 billion in 2025. (h) Prior-period amounts have been revised to conform with the current presentation. JPMorgan Chase & Co./2020 Form 10-K 269 Notes to consolidated financial statements The weighted-average contractual interest rates for total long-term debt excluding structured notes accounted for at fair value were 2.89% and 3.13% as of December 31, 2020 and 2019, 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 1.58% and 3.19% as of December 31, 2020 and 2019, respectively. JPMorgan Chase & Co. has guaranteed certain long-term debt of its subsidiaries, including 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 $13.8 billion and $14.4 billion at December 31, 2020 and 2019, 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. 270 JPMorgan Chase & Co./2020 Form 10-K Note 21 – Preferred stock At December 31, 2020 and 2019, 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, 2020 and 2019. Shares(a) Carrying value (in millions) December 31, December 31, 2020 2019 2020 2019 Issue date Contractual rate in effect at December 31, 2020 Earliest redemption date(b) Floating annualized rate of three-month LIBOR/Term SOFR plus: Dividend declared per share(c) Year ended December 31, 2020 2019 2018 Fixed-rate: Series P Series T Series W Series Y — — — — — — — 143,000 Series AA 142,500 142,500 Series BB 115,000 115,000 Series DD 169,625 169,625 Series EE 185,000 185,000 Series GG 90,000 90,000 Fixed-to-floating-rate: $ — $ — — — 1,425 1,150 1,696 1,850 900 — — — 2/5/2013 1/30/2014 6/23/2014 1,430 2/12/2015 — % 3/1/2018 — — — 3/1/2019 9/1/2019 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 1,850 1/24/2019 6.000 3/1/2024 900 11/7/2019 4.750 12/1/2024 NA NA NA NA NA NA NA NA NA $— — — 153.13 610.00 615.00 575.00 600.00 506.67 $545.00 $545.00 167.50 472.50 612.52 610.00 615.00 575.00 511.67 NA 670.00 630.00 612.52 610.00 615.00 111.81 NA NA 293,375 293,375 $ 2,934 $ 2,934 4/23/2008 LIBOR + 3.47% 4/30/2018 LIBOR + 3.47% $428.03 $593.23 $646.38 1,500 1,500 2,000 1,000 2,500 1,600 2,000 1,258 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 LIBOR + 3.80% 5/1/2020 LIBOR + 3.80 1,258 10/20/2017 4.625 11/1/2022 LIBOR + 2.58 Series I Series Q Series R Series S Series U Series V Series X Series Z 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 Series CC 125,750 125,750 Series HH 300,000 150,000 Series II Total preferred stock Series FF 225,000 225,000 2,250 2,250 7/31/2019 5.000 8/1/2024 SOFR + 3.38 — — 3,000 1,500 — — 1/23/2020 2/24/2020 4.600 2/1/2025 SOFR + 3.125 470.22 4.000 4/1/2025 SOFR + 2.745 341.11 3,006,250 2,699,250 $ 30,063 $ 26,993 (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 $111.81 per share were declared on December 1, 2018 and include dividends from the original issue date of September 21, 2018 through November 30, 2018. (e) 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. (f) No dividends were declared for Series GG from the original issue date of November 7, 2019 through December 31, 2019. (g) 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. (h) 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. (i) Prior to May 1, 2020, the dividend rate was fixed at 5.3%. (j) 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. (k) Dividends in the amount of $125.22 per share were declared on March 13, 2020 and include dividends from the original issue date of January 23, 2020 through April 30, 2020. Dividends in the amount of $115.00 per share were declared quarterly thereafter. (l) Dividends in the amount of $141.11 per share were declared on May 15, 2020 and include dividends from the original issue date of February 24, 2020 through June 30, 2020. Dividends in the amount of $100.00 per share were declared quarterly thereafter. JPMorgan Chase & Co./2020 Form 10-K 271 (d) (e) (f) (g) (h) (i) (j) (k) (l) 515.00 600.00 675.00 612.50 436.85 610.00 453.52 462.50 500.00 515.00 600.00 675.00 612.50 534.09 610.00 530.00 462.50 251.39 NA NA 515.00 600.00 675.00 612.50 500.00 610.00 530.00 462.50 NA NA NA Notes to consolidated financial statements 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 $30.5 billion at December 31, 2020. On March 1, 2020, the Firm redeemed all $1.43 billion of its 6.125% non-cumulative preferred stock, Series Y. On December 1, 2019, the Firm redeemed all $900 million of its 5.45% non-cumulative preferred stock, Series P. On October 30, 2019, the Firm redeemed $1.37 billion of its fixed-to-floating rate non-cumulative perpetual preferred stock, Series I. On September 1, 2019, the Firm redeemed all $880 million of its 6.30% non-cumulative preferred stock, Series W. On March 1, 2019, the Firm redeemed all $925 million of its 6.70% non-cumulative preferred stock, Series T. 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”). 272 JPMorgan Chase & Co./2020 Form 10-K Note 22 – Common stock At December 31, 2020 and 2019, JPMorgan Chase was authorized to issue 9.0 billion shares of common stock with a par value of $1 per share. Common shares issued (reissuances from treasury) by JPMorgan Chase during the years ended December 31, 2020, 2019 and 2018 were as follows. Year ended December 31, (in millions) Total issued – balance at January 1 2020 2019 2018 4,104.9 4,104.9 4,104.9 Treasury – balance at January 1 (1,020.9) (829.1) (679.6) Repurchase Reissuance: Employee benefits and compensation plans Warrant exercise Employee stock purchase plans Total reissuance Total treasury – balance at December 31 (50.0) (213.0) (181.5) 14.2 — 1.2 15.4 20.4 — 0.8 21.2 21.7 9.4 0.9 32.0 (1,055.5) (1,020.9) (829.1) Outstanding at December 31 3,049.4 3,084.0 3,275.8 There were no warrants to purchase shares of common stock (“Warrants”) outstanding at December 31, 2020 and December 31, 2019 as any Warrants that were not exercised on or before October 29, 2018 have expired. On March 15, 2020, in response to the economic disruptions caused by the COVID-19 pandemic, the Firm temporarily suspended repurchases of its common stock. Subsequently, the Federal Reserve directed all large banks, including the Firm, to discontinue net share repurchases through the end of 2020. On December 18, 2020, the Federal Reserve announced that all large banks, including the Firm, could resume share repurchases commencing in the first quarter of 2021, subject to certain restrictions. The Firm's Board of Directors has authorized a new common share repurchase program for up to $30 billion. The following table sets forth the Firm’s repurchases of common stock for the years ended December 31, 2020, 2019 and 2018. There were no Warrants repurchased during 2018. Year ended December 31, (in millions) 2020 2019 2018 Total number of shares of common stock repurchased Aggregate purchase price of common stock repurchases 50.0 213.0 181.5 $ 6,397 $ 24,121 $ 19,983 The authorization to repurchase common shares is utilized at management’s discretion, and the timing of purchases and the exact amount of common shares 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 suspended by management at any time; and may be executed through open market purchases or privately negotiated transactions, or utilizing Rule 10b5-1 plans, which are written trading plans that the Firm may enter into from time to time under Rule 10b5-1 of the Securities Exchange Act of 1934 and which allow the Firm to repurchase its common shares during periods when it may otherwise not be repurchasing common shares —for example, during internal trading blackout periods. As of December 31, 2020, approximately 62.1 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./2020 Form 10-K 273 Notes to consolidated financial statements 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, 2020, 2019 and 2018. Year ended December 31, (in millions, except per share amounts) Basic earnings per share 2020 2019 2018 Net income $ 29,131 $ 36,431 $ 32,474 Less: Preferred stock dividends 1,583 1,587 1,551 Net income applicable to common equity Less: Dividends and undistributed earnings allocated to participating securities Net income applicable to common stockholders 27,548 34,844 30,923 138 202 214 $ 27,410 $ 34,642 $ 30,709 Total weighted-average basic shares outstanding 3,082.4 3,221.5 3,396.4 Net income per share $ 8.89 $ 10.75 $ 9.04 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 nondividend-earning RSUs, and warrants Total weighted-average diluted shares outstanding $ 27,410 $ 34,642 $ 30,709 3,082.4 3,221.5 3,396.4 5.0 8.9 17.6 3,087.4 3,230.4 3,414.0 Net income per share $ 8.88 $ 10.72 $ 9.00 274 JPMorgan Chase & Co./2020 Form 10-K Year ended December 31, (in millions) Balance at December 31, 2017 Cumulative effect of changes in accounting principles(a) Net change Balance at December 31, 2018 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). 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) $ 2,164 $ (470) $ — $ 76 $ (1,521) $ (368) $ (119) 896 (1,858) (277) 20 (54) (107) 16 (201) (414) (373) $ 1,202 $ (727) $ (161) $ (109) $ (2,308) Net change 2,855 20 30 172 964 Balance at December 31, 2019 $ 4,057 $ (707) $ (131) $ 63 $ (1,344) Net change 4,123 234 19 2,320 212 (79) 1,043 596 (965) (369) (491) 88 (1,476) $ (1,507) $ 3,076 1,569 6,417 $ $ Balance at December 31, 2020 $ 8,180 (b) $ (473) $ (112) $ 2,383 $ (1,132) $ (860) $ 7,986 (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. (b) Includes after-tax net unamortized unrealized gains of $3.3 billion related to AFS securities that have been transferred to HTM. Refer to Note 10 for further information. JPMorgan Chase & Co./2020 Form 10-K 275 (922) 942 20 (107) (187) (14) (201) (373) 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: 2020 Tax effect After-tax Pre-tax 2019 Tax effect After-tax Pre-tax 2018 Tax effect After-tax Net unrealized gains/(losses) arising during the period $ 6,228 $ (1,495) $ 4,733 $ 4,025 $ (974) $ 3,051 $ (2,825) $ 665 $ (2,160) Reclassification adjustment for realized (gains)/losses included in net income(a) Net change Translation adjustments(b): Translation Hedges Net change Fair value hedges, net change(c): Cash flow hedges: (802) 192 (610) (258) 62 (196) 395 (93) 302 5,426 (1,303) 4,123 3,767 (912) 2,855 (2,430) 572 (1,858) 1,407 (103) 1,304 (1,411) 341 (1,070) (4) 25 238 (6) 234 19 (49) 46 (3) 39 33 (10) 23 (9) (16) (1,078) 36 20 30 1,236 158 (140) 156 (294) (138) 33 Net unrealized gains/(losses) arising during the period 3,623 (870) 2,753 122 (28) 94 (245) Reclassification adjustment for realized (gains)/losses included in net income(d) Net change (570) 137 (433) 3,053 (733) 2,320 103 225 (25) (53) Defined benefit pension and OPEB plans, net change: 214 (2) 212 1,157 (193) 78 172 964 (18) (263) (450) 58 4 62 77 DVA on fair value option elected liabilities, net change: $ (648) $ 157 $ (491) $ (1,264) $ 299 $ (965) $ 1,364 $ (321) $ 1,043 Total other comprehensive income/(loss) $ 8,066 $ (1,649) $ 6,417 $ 3,921 $ (845) $ 3,076 $ (1,761) $ 285 $ (1,476) (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, 2020, the Firm reclassified a net pre-tax gain of $6 million to other income related to the liquidation of legal entities, $3 million related to net investment hedge gains and $3 million related to cumulative translation adjustments. 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. (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. 276 JPMorgan Chase & Co./2020 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, 2020 2019 2018 Statutory U.S. federal tax rate 21.0 % 21.0 % 21.0 % 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(a) Other, net 2.5 (1.6) 1.4 (6.3) — — 0.7 3.5 (1.4) 1.8 (4.4) (2.3) — — 4.0 (1.5) 0.6 (3.5) (0.1) (0.7) 0.5 Effective tax rate 17.7 % 18.2 % 20.3 % (a) Represents changes in the estimates related to the remeasurement of certain deferred taxes and the deemed repatriation tax on non-U.S. earnings under SEC Staff Accounting Bulletin No. 118 which was completed in 2018. 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) 2020 2019 2018 $ 5,759 $ 3,284 $ 2,854 2,705 2,103 2,077 1,793 1,778 1,638 10,257 7,165 6,569 (3,184) 709 1,359 (126) (671) 20 220 (93) 455 (3,981) 949 1,721 Total income tax expense $ 6,276 $ 8,114 $ 8,290 Total income tax expense includes $72 million, $1.1 billion and $54 million of tax benefits recorded in 2020, 2019, and 2018, 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 $827 million and $862 million in 2020 and 2019, respectively, and an increase of $172 million in 2018. 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) 2020 2019 2018 U.S. Non-U.S.(a) Income before income tax expense $ 26,904 $ 36,670 $ 33,052 8,503 7,875 7,712 $ 35,407 $ 44,545 $ 40,764 (a) For purposes of this table, non-U.S. income is defined as income generated from operations located outside the U.S. The Firm will recognize any U.S. income tax expense it may incur on global intangible low tax income as income tax expense in the period in which the tax is incurred. JPMorgan Chase & Co./2020 Form 10-K 277 Notes to consolidated financial statements Affordable housing tax credits The Firm recognized $1.5 billion of tax credits and other tax benefits associated with investments in affordable housing projects within income tax expense for each of the three years ended 2020, 2019 and 2018. The amount of amortization of such investments reported in income tax expense was $1.2 billion, $1.1 billion and $1.2 billion, respectively. The carrying value of these investments, which are reported in other assets on the Firm’s Consolidated balance sheets, was $9.7 billion and $8.6 billion at December 31, 2020 and 2019, 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 $3.8 billion and $2.8 billion at December 31, 2020 and 2019, respectively. 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) Deferred tax assets 2020 2019 Allowance for loan losses $ 7,270 $ Employee benefits Accrued expenses and other Non-U.S. operations Tax attribute carryforwards Gross deferred tax assets Valuation allowance 1,104 3,332 849 757 13,312 (560) 3,400 1,039 2,767 949 605 8,760 (557) Deferred tax assets, net of valuation allowance Deferred tax liabilities Depreciation and amortization Mortgage servicing rights, net of $ $ hedges Leasing transactions Other, net 12,752 $ 8,203 3,329 $ 2,852 2,184 5,124 6,025 2,354 5,598 4,683 Gross deferred tax liabilities 16,662 15,487 Net deferred tax (liabilities)/assets $ (3,910) $ (7,284) JPMorgan Chase has recorded deferred tax assets of $757 million at December 31, 2020, in connection with U.S. federal and non-U.S. NOL carryforwards, FTC carryforwards, and state and local capital loss carryforwards. At December 31, 2020, total U.S. federal NOL carryforwards were $799 million, non-U.S. NOL carryforwards were $139 million, FTC carryforwards were $444 million, state and local capital loss carryforwards were $1.1 billion, and other federal tax attributes were $393 million. If not utilized, a portion of the U.S. federal NOL carryforwards and other U.S. federal tax attributes will expire between 2022 and 2037 whereas others have an unlimited carryforward period. Similarly, certain non-U.S. NOL carryforwards will expire between 2026 and 2036 whereas others have an unlimited carryforward period. The FTC carryforwards will expire between 2029 and 2030, and the state and local capital loss carryforwards will expire between 2021 and 2022.  The valuation allowance at December 31, 2020, 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, 2020, 2019 and 2018, JPMorgan Chase’s unrecognized tax benefits, excluding related interest expense and penalties, were $4.3 billion, $4.0 billion and $4.9 billion, respectively, of which $3.1 billion, $2.8 billion and $3.8 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 approximately $300 million. 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) Balance at January 1, 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 2020 2019 2018 $ 4,024 $ 4,861 $ 4,747 685 871 980 362 10 649 (705) (706) (1,249) Decreases related to cash settlements with taxing authorities (116) (1,012) (266) Balance at December 31, $ 4,250 $ 4,024 $ 4,861 After-tax interest expense/(benefit) and penalties related to income tax liabilities recognized in income tax expense were $147 million, $(52) million and $192 million in 2020, 2019 and 2018, respectively. At December 31, 2020 and 2019, in addition to the liability for unrecognized tax benefits, the Firm had accrued $966 million and $817 million, respectively, for income tax- related interest and penalties. 278 JPMorgan Chase & Co./2020 Form 10-K 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, 2020. Periods under examination JPMorgan Chase – U.S. 2009 – 2013 JPMorgan Chase – U.S. JPMorgan Chase – New York State 2014 - 2016 2012 - 2014 Status Field examination of 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 – 2018 Field examination of certain select entities JPMorgan Chase & Co./2020 Form 10-K 279 Notes to consolidated financial statements 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 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) 2020 2019 Cash reserves – Federal Reserve Banks(a) $ 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(b) $ — $ 26.6 19.3 16.0 5.1 24.4 $ 3.9 46.5 (a) Effective March 26, 2020, the Federal Reserve eliminated reserve requirements for depository institutions (b) Comprises $22.7 billion and $45.3 billion in deposits with banks, and $1.7 billion and $1.2 billion in cash and due from banks on the Consolidated balance sheets as of December 31, 2020 and 2019, respectively. Also, as of December 31, 2020 and 2019, the Firm had the following other restricted assets: • Cash and securities pledged with clearing organizations for the benefit of customers of $37.2 billion and $24.7 billion, respectively. • Securities with a fair value of $1.3 billion and $8.8 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, 2021, the Parent Company’s banking subsidiaries could pay, in the aggregate, approximately $13 billion in dividends to their respective bank holding companies without the prior approval of their relevant banking regulators. The capacity to pay dividends in 2021 will be supplemented by the banking subsidiaries’ earnings during the year. 280 JPMorgan Chase & Co./2020 Form 10-K 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 principal IDI subsidiary, 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”). 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 Standardized or Advanced approaches compared to their respective minimum capital ratios. The three components of regulatory capital under the Basel III rules are as illustrated below: Under the risk-based capital and leverage-based guidelines of the Federal Reserve, JPMorgan Chase is required to maintain minimum ratios for CET1 capital, Tier 1 capital, Total capital, 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 established by their respective primary regulators. The following table presents the minimum and well- capitalized ratios to which the Firm and its IDI subsidiaries were subject as of December 31, 2020 and 2019. Standardized Minimum capital ratios Advanced Minimum capital ratios Well-capitalized ratios BHC(a)(b)(c) IDI(c)(d) BHC(a)(c) IDI(c)(d) BHC(e) IDI(f) Capital ratios CET1 capital 11.3 % 7.0 % 10.5 % 7.0 % NA 6.5 % Tier 1 capital Total capital Tier 1 leverage SLR 12.8 14.8 8.5 10.5 4.0 4.0 NA NA 12.0 14.0 4.0 5.0 8.5 10.5 4.0 6.0 6.0 8.0 10.0 10.0 NA NA 5.0 6.0 Note: The table above is as defined by the regulations issued by the Federal Reserve, OCC and FDIC and to which the Firm and its IDI subsidiaries are subject. (a) Represents the minimum capital ratios applicable to the Firm. The CET1, Tier 1 and Total capital minimum capital ratios each include a respective minimum requirement plus a GSIB surcharge of 3.5% as calculated under Method 2; plus a 3.3% SCB for Basel III Standardized ratios and a fixed 2.5% capital conservation buffer for Basel III Advanced ratios. The countercyclical buffer is currently set to 0% by the federal banking agencies. (b) For the period ended December 31, 2019, the CET1, Tier 1, Total, Tier 1 leverage and SLR minimum capital ratios under Basel III Standardized applicable to the Firm were 10.5%, 12.0%, 14.0%, 4.0%, and 5.0%, respectively. (c) Represents minimum SLR requirement of 3.0%, as well as supplementary leverage buffer requirements of 2.0% and 3.0% for BHC and IDI, respectively. (d) Represents requirements for JPMorgan Chase’s IDI subsidiaries. The CET1, Tier 1 and Total capital minimum capital ratios include a fixed capital conservation buffer requirement of 2.5% that is applicable to the IDI subsidiaries. The IDI subsidiaries are not subject to the GSIB surcharge. (e) Represents requirements for bank holding companies pursuant to regulations issued by the Federal Reserve. (f) Represents requirements for IDI subsidiaries pursuant to regulations issued under the FDIC Improvement Act. Current Expected Credit Losses Effective January 1, 2020, the Firm adopted the Financial Instruments – Credit Losses guidance under U.S. GAAP. As permitted under the U.S. capital rules issued by the federal banking agencies in 2019, the Firm initially elected to phase-in the January 1, 2020 (“day 1”) CECL adoption impact to retained earnings of $2.7 billion to CET1 capital, at 25% per year in each of 2020 to 2023. As part of their response to the impact of the COVID-19 pandemic, on March 31, 2020, the federal banking agencies issued an interim final rule (issued as final on August 26, 2020) that provided the option to delay the effects of CECL on regulatory capital for two years, followed by a three-year transition period. The final rule provides a uniform approach for estimating the effects of CECL compared to the legacy incurred loss model during the first two years of the transition period (the “day 2” transition amount), whereby the Firm may exclude from CET1 capital 25% of the change in the JPMorgan Chase & Co./2020 Form 10-K 281     Notes to consolidated financial statements allowance for credit losses (excluding allowances on PCD loans). The cumulative day 2 transition amount as at December 31, 2021 that is not recognized in CET1 capital, as well as the $2.7 billion day 1 impact, will be phased into CET1 capital at 25% per year beginning January 1, 2022. The Firm has elected to apply the CECL capital transition provisions, and accordingly, for the year ended December 31, 2020, the capital metrics of the Firm exclude $5.7 billion, which is the $2.7 billion day 1 impact to retained earnings and 25% of the $12.2 billion increase in the allowance for credit losses (excluding allowances on PCD loans). The impacts of the CECL capital transition provisions have also been incorporated into Tier 2 capital, adjusted average assets, and total leverage exposure. Refer to Note 1 for further information on the CECL accounting guidance. 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, 2020, the capital metrics are presented applying the CECL capital transition provisions. As of December 31, 2020 and 2019, JPMorgan Chase and JPMorgan Chase Bank, N.A. were well-capitalized and met all capital requirements to which each was subject. December 31, 2020 (in millions, except ratios) Risk-based capital metrics: CET1 capital Tier 1 capital Total capital Risk-weighted assets CET1 capital ratio Tier 1 capital ratio Total capital ratio Leverage-based capital metrics: Adjusted average assets(a) Tier 1 leverage ratio Total leverage exposure(b) SLR(b) December 31, 2019 (in millions, except ratios) Risk-based capital metrics: CET1 capital Tier 1 capital Total capital Risk-weighted assets CET1 capital ratio Tier 1 capital ratio Total capital ratio Leverage-based capital metrics: Adjusted average assets(a) Tier 1 leverage ratio Total leverage exposure SLR Basel III Standardized Basel III Advanced JPMorgan Chase & Co.(c) JPMorgan Chase Bank, N.A.(c) JPMorgan Chase & Co.(c) JPMorgan Chase Bank, N.A.(c) $ 205,078 $ 234,235 $ 205,078 $ 234,844 269,923 234,237 252,045 234,844 257,228 234,235 234,237 239,673 1,560,609 1,492,138 1,484,431 1,343,185 13.1 % 15.0 17.3 15.7 % 15.7 16.9 13.8 % 15.8 17.3 17.4 % 17.4 17.8 $ 3,353,319 $ 2,970,285 7.0 % NA NA 7.9 % NA NA $ $ 3,353,319 $ 2,970,285 7.0 % 7.9 % 3,401,542 $ 3,688,797 6.9 % 6.3 % Basel III Standardized Basel III Advanced 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 1,457,689 1,397,878 1,269,991 12.4 % 14.1 16.0 14.2 % 14.2 15.4 13.4 % 15.3 16.6 16.3 % 16.3 16.9 $ 2,730,239 $ 2,353,432 7.9 % NA NA 8.8 % NA NA $ $ 2,730,239 $ 2,353,432 7.9 % 8.8 % 3,423,431 $ 3,044,509 6.3 % 6.8 % (a) Adjusted average assets, for purposes of calculating the 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) As of December 31, 2020, JPMorgan Chase’s total leverage exposure for purposes of calculating the SLR, excludes on-balance sheet amounts of U.S. Treasury securities and deposits at Federal Reserve Banks, as provided by the interim final rule issued by the Federal Reserve on April 1, 2020. On June 1, 2020, the Federal Reserve, OCC and FDIC issued an interim final rule that provides IDI subsidiaries with an option to apply this temporary exclusion subject to certain restrictions. As of December 31, 2020, JPMorgan Chase Bank, N.A. has not elected to apply this exclusion. (c) As of December 31, 2020, the capital metrics for the Firm reflect the exclusion of assets purchased from money market mutual fund clients pursuant to nonrecourse advances provided under the MMLF. Additionally, loans originated under the PPP for the Firm and JPMorgan Chase Bank, N.A. receive a zero percent risk weight. 282 JPMorgan Chase & Co./2020 Form 10-K 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 have historically been refinanced, extended, cancelled, or expired 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 expected credit losses in wholesale and certain consumer lending-related 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, including the impact of the Firm’s adoption of CECL accounting guidance on January 1, 2020. 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, 2020 and 2019. The amounts in the table below for credit card and home equity lending-related commitments represent the total available credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit for these products will be utilized at the same time. The Firm can reduce or cancel credit card lines of credit by providing the borrower notice or, in some cases as permitted by law, without notice. In addition, the Firm typically closes credit card lines when the borrower is 60 days or more past due. The Firm may reduce or close HELOCs when there are significant decreases in the value of the underlying property, or when there has been a demonstrable decline in the creditworthiness of the borrower. JPMorgan Chase & Co./2020 Form 10-K 283 Notes to consolidated financial statements In conjunction with the adoption of CECL, the Firm reclassified risk-rated loans and lending-related commitments from the consumer, excluding credit card portfolio segment to the wholesale portfolio segment, to align with the methodology applied in determining the allowance. Prior-period amounts have been revised to conform with the current presentation. Refer to Note 1 for further information. Off–balance sheet lending-related financial instruments, guarantees and other commitments Expires after 1 year through 3 years Expires in 1 year or less Contractual amount 2020 Expires after 3 years through 5 years Expires after 5 years 2019 Carrying value(j) 2019 2020 Total Total $ 26,788 $ 1,597 $ 3,962 $ 13,700 $ 46,047 $ 30,217 10,471 37,259 658,506 695,765 1 8 792 1,598 3,970 14,492 11,272 57,319 9,952 40,169 — — — 658,506 650,720 1,598 3,970 14,492 715,825 690,889 148 — 148 — 148 12 — 12 — 12 By remaining maturity at December 31, (in millions) Lending-related Consumer, excluding credit card: Residential Real Estate(a) Auto and other Total consumer, excluding credit card Credit card(b) Total consumer(b)(c) Wholesale: Other unfunded commitments to extend credit(d)(e) 96,490 174,335 128,736 16,267 415,828 380,307 2,148 952 Standby letters of credit and other financial guarantees(d) Other letters of credit(d) Total wholesale(c) Total lending-related Other guarantees and commitments Securities lending indemnification agreements and guarantees(f) Derivatives qualifying as guarantees 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(g) Other guarantees and commitments (e)(h) 17,478 7,986 4,051 1,467 2,982 45 26 — 30,982 3,053 34,242 2,961 443 14 618 4 116,950 182,366 132,813 17,734 449,863 417,510 2,605 1,574 $ 812,715 $ 183,964 $ 136,783 $ 32,226 $ 1,165,688 $ 1,108,399 $ 2,753 $ 1,586 $ 250,418 $ — $ — $ — $ 250,418 $ 204,827 $ — $ — 2,489 541 12,182 39,203 54,415 53,089 322 159 — — 96,848 117,951 2 104,901 73,351 (1) 95,084 1,764 104,289 612 NA NA 142,003 2,457 NA NA — 574 — — NA NA NA NA NA 889 NA 944 — 758 — 142,003 206,432 2,541 6,330 6,334 (i) — — 59 27 — (66) 84 23 — 52 (a) Includes certain commitments to purchase loans from correspondents. (b) Also includes commercial card lending-related commitments primarily in CB and CIB. (c) Predominantly all consumer and wholesale lending-related commitments are in the U.S. (d) At December 31, 2020 and 2019, reflected the contractual amount net of risk participations totaling $72 million and $76 million, respectively, for other unfunded commitments to extend credit; $8.5 billion and $9.8 billion, respectively, for standby letters of credit and other financial guarantees; and $357 million and $546 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk participations. (e) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans, which resulted in a corresponding reclassification of commitments from Other guarantees and commitments to Wholesale other unfunded commitments to extend credit. Prior-period amounts have been revised to conform with the current presentation. (f) At December 31, 2020 and 2019, collateral held by the Firm in support of securities lending indemnification agreements was $264.3 billion and $216.2 billion, respectively. Securities lending collateral primarily consists of cash, G7 government securities, and securities issued by U.S. GSEs and government agencies. (g) At December 31, 2020 and 2019, 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. (h) At December 31, 2020 and 2019, primarily includes letters of credit hedged by derivative transactions and managed on a market risk basis, and unfunded commitments related to certain tax-oriented equity investments. (i) Prior-period amounts have been revised to conform with the current presentation. (j) For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative- related products, and lending-related commitments for which the fair value option was elected, the carrying value represents the fair value. 284 JPMorgan Chase & Co./2020 Form 10-K Other unfunded commitments to extend credit Other unfunded commitments to extend credit generally consist of commitments for working capital and general corporate purposes, extensions of credit to support commercial paper facilities and bond financings in the 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 non- contingent obligation assumed (e.g., the amount of consideration received or the net present value of the premium receivable). For these obligations, 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. The lending-related contingent obligation is recognized based on expected credit losses in addition to, and separate from, any non-contingent obligation. Non-lending-related contingent obligations are recognized when the liability becomes probable and reasonably estimable. These obligations are not recognized if the estimated amount is less than the carrying amount of any non-contingent liability recognized at inception (adjusted for any amortization). Examples of non-lending-related contingent obligations include indemnifications provided in sales agreements, where 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). The contractual amount and carrying value of guarantees and indemnifications are included in the table on page 284. 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, 2020 and 2019. 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 2020 2019 Standby letters of credit and other financial guarantees Other letters of credit Standby letters of credit and other financial guarantees Other letters of credit $ $ $ $ $ 22,850 8,132 30,982 80 363 443 17,238 $ $ $ $ $ 2,263 790 3,053 14 — 14 498 $ $ $ $ $ 26,880 7,362 34,242 216 402 618 17,853 $ $ $ $ $ 2,137 824 2,961 4 — 4 728 (a) The ratings scale is based on the Firm’s internal risk ratings. Refer to Note 12 for further information on internal risk ratings. JPMorgan Chase & Co./2020 Form 10-K 285 Notes to consolidated financial statements Securities lending indemnifications Through the Firm’s securities lending program, counterparties’ securities, via custodial and non-custodial arrangements, may be lent to third parties. As part of this program, the Firm provides an indemnification in the lending agreements which protects the lender against the failure of the borrower to return the lent securities. To minimize its liability under these indemnification agreements, the Firm obtains cash or other highly liquid collateral with a market value exceeding 100% of the value of the securities on loan from the borrower. Collateral is marked to market daily to help assure that collateralization is adequate. Additional collateral is called from the borrower if a shortfall exists, or collateral may be released to the borrower in the event of overcollateralization. If a borrower defaults, the Firm would use the collateral held to purchase replacement securities in the market or to credit the lending client or counterparty with the cash equivalent thereof. 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, 2020 and 2019. (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, 2020 December 31, 2019 $ 54,415 $ 53,089 27,752 28,877 2,803 2,967 322 159 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. 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 286 JPMorgan Chase & Co./2020 Form 10-K 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, 2020 and 2019, the unpaid principal balance of loans sold with recourse totaled $889 million and $944 million, 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 $23 million and $27 million at December 31, 2020 and 2019, 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. The carrying value of the valuation allowance was $12 million and $11 million at December 31, 2020 and 2019, respectively. For the years ended December 31, 2020, 2019 and 2018, Merchant Services processed an aggregate volume of $1,597.3 billion, $1,511.5 billion, and $1,366.1 billion, respectively. 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. 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. JPMorgan Chase & Co./2020 Form 10-K 287 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 and consolidated finance subsidiary. All securities issued by JPMFC are fully and unconditionally guaranteed by the Parent Company and no other subsidiary of the parent company guarantees these securities. These guarantees, which rank on a parity with the Firm’s unsecured and unsubordinated indebtedness, are not included in the table on page 284 of this Note. Refer to Note 20 for additional information. Notes to 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 284, in the Exchange & clearing house guarantees and commitments line. Sponsored member repo program 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 284. 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 288 JPMorgan Chase & Co./2020 Form 10-K 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) 2020 2019 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) 2020 2019 Collateral permitted to be sold or repledged, delivered, or otherwise used Collateral sold, repledged, delivered or otherwise used $ 1,451.7 $ 1,282.5 1,038.9 1,000.5 (a) (a) Includes collateral repledged to the Federal Reserve under the Federal 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 $ 166.6 $ 125.2 113.9 80.2 Reserve’s open market operations. 455.3 478.9 $ 735.8 $ 684.3 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 2020 2019 $ 80.2 $ 35.9 420.5 235.1 460.4 188.0 $ 735.8 $ 684.3 JPMorgan Chase & Co./2020 Form 10-K 289 Notes to consolidated financial statements Note 30 – Litigation Contingencies As of December 31, 2020, 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 $1.5 billion at December 31, 2020. 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. Advisory and Other Activities. In November 2020, JPMorgan Chase Bank, N.A. entered into a resolution with the Office of the Comptroller of the Currency (“OCC”) regarding historical deficiencies in internal controls and internal audit for certain fiduciary activities. In connection with the resolution, JPMorgan Chase Bank, N.A. paid a $250 million Civil Money Penalty. The OCC found that JPMorgan Chase Bank, N.A. has remediated the deficiencies that led to the penalty. Amrapali. India’s Enforcement Directorate (“ED”) is investigating JPMorgan India Private Limited in connection with investments made in 2010 and 2012 by two offshore funds formerly managed by JPMorgan Chase entities into residential housing projects developed by the Amrapali Group (“Amrapali”). In 2017, numerous creditors filed civil claims against Amrapali including petitions brought by home buyers relating to delays in delivering or failure to deliver residential units. The home buyers’ petitions have been overseen by the Supreme Court of India since 2017 pursuant to its jurisdiction over public interest litigation. In July 2019, the Supreme Court of India issued an order making preliminary findings that Amrapali and other parties, including unspecified JPMorgan Chase entities and the offshore funds that had invested in the projects, violated certain currency control and money laundering provisions, and ordering the ED to conduct a further inquiry under India’s Prevention of Money Laundering Act (“PMLA”) and Foreign Exchange Management Act (“FEMA”). In May 2020, the Enforcement Directorate issued a provisional attachment order as part of the criminal PMLA proceedings freezing approximately $25 million held by JPMorgan India Private Limited. In June 2020, the funds were transferred to an account held by the Supreme Court of India. A separate civil proceeding relating to alleged FEMA violations is ongoing. The Firm is responding to and cooperating with the investigation.     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 290 JPMorgan Chase & Co./2020 Form 10-K notice that the payments may be fraudulent. JPMorgan Chase Bank, N.A. applied for summary judgment and was unsuccessful. The claim is ongoing and a trial has been scheduled to commence in February 2022. 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. Among those resolutions, 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 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. A South Africa Competition Commission matter is the remaining FX-related governmental inquiry, and is currently pending before the South Africa Competition Tribunal. 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 2020, the Court approved a settlement by the Firm and 11 other defendants of a class action filed by purported indirect purchasers for a total of $10 million. 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 United States District Court for the Eastern District of New York 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 appealed the District Court’s approval order, and those appeals are pending. 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 some of those actions remain pending. 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 JPMorgan Chase & Co./2020 Form 10-K 291 Notes to consolidated financial statements changes in these rates and assert a variety of claims including antitrust claims seeking treble damages. In actions related to U.S. dollar LIBOR during the period that it was administered by the BBA, the Firm has resolved certain of these actions, and others are in various stages of litigation. 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. In the consolidated putative class action related to the time period that U.S. dollar LIBOR was administered by ICE Benchmark Administration, the District Court granted defendants’ motion to dismiss plaintiffs’ complaint, and the plaintiffs have appealed. 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”), and the Australian Bank Bill Swap Reference Rate, and one 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. In addition to the actions pending or consolidated in the Southern District of New York, in August 2020, a group of individual plaintiffs filed a lawsuit asserting antitrust claims in the United States District Court for the Northern District of California, alleging that the Firm and other defendants were engaged in an unlawful agreement to set LIBOR and conspired to monopolize the market for LIBOR-based consumer loans and credit cards. The complaint seeks injunctive relief and monetary damages. Metals and U.S. Treasuries Investigations and Litigation and Related Inquiries. The Firm previously reported that it and/ or certain of its subsidiaries had entered into resolutions with the U.S. Department of Justice (“DOJ”), the U.S. Commodity Futures Trading Commission (“CFTC”) and the U.S. Securities and Exchange Commission (“SEC”), which, collectively, resolved those agencies’ respective investigations relating to historical trading practices by former employees in the precious metals and U.S. treasuries markets and related conduct from 2008 to 2016. The Firm entered into a Deferred Prosecution Agreement (“DPA”) with the DOJ in which it agreed to the filing of a criminal information charging JPMorgan Chase & Co. with two counts of wire fraud and agreed, along with JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC, to certain terms and obligations as set forth therein. Under the terms of the DPA, the criminal information will be dismissed after three years, provided that JPMorgan Chase & Co., JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC fully comply with all of their obligations. Across the three resolutions with the DOJ, CFTC and SEC, JPMorgan Chase & Co., JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC agreed to pay a total monetary amount of approximately $920 million. A portion of the total monetary amount includes victim compensation payments. 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, and the consolidated action is stayed through May 2021. In addition, several putative class actions have been filed in the United States District Courts for the Northern District of Illinois and Southern District of New York against the Firm, alleging manipulation of U.S. Treasury futures and options, and bringing claims under the Commodity Exchange Act. Some of the complaints also allege unjust enrichment. The actions in the Northern District of Illinois have been transferred to the Southern District of New York. The Court consolidated these putative class actions in October 2020 and set a deadline of February 2021 for the filing of a consolidated complaint. Two putative class action complaints have also been filed under the Securities Exchange Act of 1934 in the United States District Court for the Eastern District of New York against the Firm and certain individual defendants on behalf of shareholders who acquired shares during the putative class period alleging that certain SEC filings of the Firm were materially false or misleading in that they did not disclose certain information relating to the above-referenced investigations. Plaintiffs have filed a stipulation seeking consolidation of the actions and the appointment of co-lead plaintiffs and counsel, which is pending Court approval. Wendel. Since 2012, the French criminal authorities have been investigating a series of transactions entered into by senior managers of Wendel Investissement (“Wendel”) during the period from 2004 through 2007 to restructure their shareholdings in Wendel. JPMorgan Chase Bank, N.A., Paris branch provided financing for the transactions to a number of managers of Wendel in 2007. JPMorgan Chase has cooperated with the investigation. The investigating judges issued an ordonnance de renvoi in November 2016, referring JPMorgan Chase Bank, N.A. to the French tribunal correctionnel for alleged complicity in tax fraud. 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 292 JPMorgan Chase & Co./2020 Form 10-K 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. 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. The Court of Appeal found in January 2021 that it had no power to take further action against JPMorgan Chase following the Court of Cassation’s ruling. At the opening of a trial of the managers of Wendel in January 2021, the tribunal correctionnel directed the criminal authorities to clarify whether a further investigation should be opened against JPMorgan Chase, pending which the trial was postponed. In addition, a number of the managers have commenced civil proceedings against JPMorgan Chase Bank, N.A. The claims are separate, involve different allegations and are at various stages of proceedings. * * * In addition to the various legal proceedings discussed above, JPMorgan Chase and its subsidiaries are named as defendants or are otherwise involved in a substantial number of other legal proceedings. The Firm believes it has meritorious defenses to the claims asserted against it in its currently outstanding legal proceedings and it intends to defend itself vigorously. Additional legal proceedings may be initiated from time to time in the future. The Firm has established reserves for several hundred of its currently outstanding legal proceedings. In accordance with the provisions of U.S. GAAP for contingencies, the Firm accrues for a litigation-related liability when it is probable that such a liability has been incurred and the amount of the loss can be reasonably estimated. The Firm evaluates its outstanding legal proceedings each quarter to assess its litigation reserves, and makes adjustments in such reserves, upward or downward, as appropriate, based on management’s best judgment after consultation with counsel. The Firm’s legal expense was $1.1 billion, $239 million and $72 million for the years ended December 31, 2020, 2019 and 2018, 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 JPMorgan Chase & Co./2020 Form 10-K 293 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 2020 Europe/Middle East/Africa Asia-Pacific Latin America/Caribbean Total international North America(a) Total 2019(b) 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 $ 16,566 $ 10,987 $ 5,579 $ 3,868 $ 530,687 9,289 2,740 28,595 90,948 5,558 1,590 18,135 66,001 3,731 1,150 10,460 24,947 2,630 837 7,335 252,553 61,980 845,220 21,796 2,540,851 $ 119,543 $ 84,136 $ 35,407 $ 29,131 $ 3,386,071 $ 15,887 $ 9,860 $ 6,027 $ 4,158 $ 391,369 7,254 2,405 25,546 89,853 5,060 1,561 16,481 54,373 2,194 844 9,065 1,467 609 6,234 183,023 47,820 622,212 35,480 30,197 2,065,167 $ 115,399 $ 70,854 $ 44,545 $ 36,431 $ 2,687,379 $ 16,459 $ 10,032 $ 6,427 $ 4,569 $ 424,935 6,991 2,365 25,815 82,968 4,884 1,301 16,217 51,802 2,107 1,064 9,598 1,481 744 6,794 171,547 43,871 640,353 31,166 25,680 1,982,179 $ 108,783 $ 68,019 $ 40,764 $ 32,474 $ 2,622,532 (e) (e) (e) (a) Substantially reflects the U.S. (b) Prior-period amounts have been revised to conform with the current 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 $353 billion, $309 billion and $299 billion at December 31, 2020, 2019 and 2018, respectively. 294 JPMorgan Chase & Co./2020 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, J.P. Morgan Wealth Management and Business Banking), Home Lending (including Home Lending Production, Home Lending Servicing and Real Estate Portfolios) and Card & Auto. Consumer & Business Banking offers deposit and investment products, payments 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 & Auto issues credit cards to consumers and small businesses 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, merchants, 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 Wholesale Payments, which provides payments services enabling clients to manage payments and receipts globally, and cross-border financing. Markets & Securities Services includes Markets, a global market-maker across products, including cash and derivative instruments, which 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, wholesale payments, 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 and midsized companies, 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 $3.7 trillion, is a global leader in investment and wealth management. Asset Management Offers multi-asset investment management solutions across equities, fixed income, alternatives and money market funds to institutional and retail investors providing for a broad range of clients’ investment needs. Wealth Management Provides retirement products and services, brokerage, custody, trusts and estates, loans, mortgages, deposits and investment management to high net worth clients. 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./2020 Form 10-K 295 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, 2020, 2019 and 2018, 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. 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, the GSIB surcharge, and a simulation of capital in a severe stress environment. The assumptions and methodologies used to allocate capital are periodically assessed and as a result, the capital allocated to the LOBs may change from time to time.  Segment results and reconciliation(a) (Table continued on next page) Business segment changes In the fourth quarter of 2020, the Firm transferred certain assets, liabilities, revenue, expense and headcount associated with certain wealth management clients from AWM to the J.P. Morgan Wealth Management business unit within CCB. Prior- period amounts have been revised to conform with the current presentation, including the transfer of approximately 1,650 technology and support staff during the second and third quarters of 2020. Ultra-high-net-worth and certain high-net-worth client relationships remained in AWM. In the first quarter of 2020, the Firm began reporting a Wholesale Payments business unit within CIB following a realignment of the Firm’s wholesale payments businesses. The Wholesale Payments business comprises: • Merchant Services, which was realigned from CCB to CIB • Treasury Services and Trade Finance in CIB. Trade Finance was previously reported in Lending in CIB. In connection with the alignment of Wholesale Payments, the assets, liabilities and headcount associated with the Merchant Services business were realigned to CIB from CCB, and the revenue and expenses of the Merchant Services business are reported across CCB, CIB and CB based primarily on client relationships. In the fourth quarter of 2020, payment processing-only clients along with the associated revenue and expenses were realigned to CIB’s Wholesale Payments business from CCB and CB. Payment processing-only clients are those that only use payment services offered by Merchant Services, and in general do not currently utilize other services offered by the Firm. Prior-period amounts have been revised to reflect this realignment and revised allocation methodology. 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 Consumer & Community Banking(b) Corporate & Investment Bank Commercial Banking Asset & Wealth Management 2020 2019 2018 2020 2019 2018 2020 2019 2018 2020 2019 2018 $ 17,740 $ 17,796 $ 15,338 $ 35,120 $ 30,060 $ 27,854 $ 3,067 $ 2,710 $ 2,620 $ 10,822 $ 10,236 $ 10,052 33,528 37,337 35,933 14,164 9,205 9,528 6,246 6,554 6,716 3,418 3,355 3,375 51,268 55,133 51,271 49,284 39,265 37,382 9,313 9,264 9,336 14,240 13,591 13,427 12,312 4,954 4,754 2,726 277 (60) 2,113 296 129 263 59 52 27,990 28,276 27,168 23,538 22,444 21,876 3,798 3,735 3,627 9,957 9,747 9,575 10,966 21,903 19,349 23,020 16,544 15,566 3,402 5,233 5,580 4,020 3,785 3,800 2,749 5,362 4,642 5,926 4,590 3,767 824 1,275 1,316 1,028 918 855 $ 8,217 $ 16,541 $ 14,707 $ 17,094 $ 11,954 $ 11,799 $ 2,578 $ 3,958 $ 4,264 $ 2,992 $ 2,867 $ 2,945 $ 52,000 $ 52,000 $ 51,000 $ 80,000 $ 80,000 $ 70,000 $ 22,000 $ 22,000 $ 20,000 $ 10,500 $ 10,500 $ 9,000 496,705 541,367 560,177 1,097,219 914,705 909,292 228,932 220,514 220,229 203,384 173,175 161,047 15 % 31 % 28 % 20 % 14 % 16 % 11 % 17 % 20 % 28 % 26 % 32 % 55 51 53 48 57 59 41 40 39 70 72 71 296 JPMorgan Chase & Co./2020 Form 10-K (Table continued from previous page) Corporate Reconciling Items(a) Total(b) 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 2020 2019 2018 2020 2019 2018 2020 2019 2018 $ 1,199 $ (114) $ (263) $ (2,968) $ (2,534) $ (1,877) $ 64,980 $ 58,154 $ 53,724 (2,375) 1,325 (1,176) 1,211 66 (1) 1,373 1,067 135 (128) (4) 902 (418) (531) (628) 54,563 57,245 55,059 (3,386) (3,065) (2,505) 119,543 115,399 108,783 — — — — — — 17,480 5,585 4,871 66,656 65,269 63,148 (2,615) 145 (1,026) (3,386) (3,065) (2,505) 35,407 44,545 40,764 (865) (966) 215 (3,386) (3,065) (2,505) 6,276 8,114 8,290 $ $ (1,750) $ 1,111 $ (1,241) $ 72,365 $ 68,407 $ 79,222 $ 1,359,831 837,618 771,787 NM NM NM NM NM NM — $ — $ NA NM NM $ $ — — NA NM NM — — NA NM NM $ 29,131 $ 36,431 $ 32,474 $ 236,865 $ 232,907 $ 229,222 3,386,071 2,687,379 2,622,532 12 % 56 15 % 57 13 % 58 (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) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation. JPMorgan Chase & Co./2020 Form 10-K 297 Notes to consolidated financial statements 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) 2020 2019 2018 Income Dividends from subsidiaries and affiliates: Bank and bank holding company Non-bank(a) Interest income from subsidiaries Other income from subsidiaries: Bank and bank holding company Non-bank Other income Total income Expense Interest expense/(income) 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 Net income Other comprehensive income, net $ 6,000 $ 26,000 $ 32,501 — 63 — 223 2 216 2,019 (569) 205 7,718 (8,830) 14,150 2,222 7,542 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 8,665 176 1,324 17,492 2,033 25,013 1,838 27,631 16,906 5,623 $ 29,131 $ 36,431 $ 32,474 (1,476) 3,076 6,417 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: 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 2020 2019 2018 $ 29,131 $ 36,431 $ 32,474 33,631 42,906 38,125 (4,500) (6,475) (5,651) 6,000 26,000 32,501 15,357 9,862 (4,400) 16,857 29,387 22,450 (2,663) 24 (6) (e) 71 (2,639) 65 8,036 63 8,099 1,425 2,941 (20) (56) (2,273) (678) 37,312 25,569 25,845 (34,194) (21,226) (21,956) Redemption of preferred stock (1,430) (4,075) 4,500 5,000 1,696 (1,696) Treasury stock repurchased (6,517) (24,001) (19,983) Comprehensive income $ 35,548 $ 39,507 $ 30,998 Dividends paid (12,690) (12,343) (10,109) Balance sheets December 31, (in millions) Assets 2020 2019 Cash and due from banks $ 54 $ 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: 6,811 1,775 27 86 5,309 3,011 2,358 84 Bank and bank holding company 508,602 471,207 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 1,011 10,058 1,044 10,699 $ 528,424 $ 493,744 $ 25,150 $ 23,410 924 9,612 2,616 9,288 213,384 197,100 249,070 232,414 279,354 261,330 Total liabilities and stockholders’ equity $ 528,424 $ 493,744 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) (1,080) (1,290) (1,526) (12,694) (29,481) (30,680) 1,524 (29) (131) 5,341 5,370 5,501 $ 6,865 $ 5,341 $ 5,370 $ 5,445 $ 7,957 $ 6,911 5,366 3,910 1,782 (a) Affiliates include trusts that issued guaranteed capital debt securities (“issuer trusts”). (b) At December 31, 2020, long-term debt that contractually matures in 2021 through 2025 totaled $10.8 billion, $10.0 billion, $19.1 billion, $21.8 billion, and $13.5 billion, respectively. (c) Refer to Notes 20 and 28 for information regarding the Parent Company’s guarantees of its subsidiaries’ obligations. (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 $8.3 billion, $6.4 billion, and $1.2 billion for the years ended December 31, 2020, 2019, and 2018, 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. 298 JPMorgan Chase & Co./2020 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(a) Total noninterest expense(a) Pre-provision profit(b) 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(b) Cash dividends declared per share Selected ratios and metrics ROE(c) ROTCE(b)(c) ROA(b) Overhead ratio Loans-to-deposits ratio(d) Firm LCR (average) JPMorgan Chase Bank, N.A. LCR (average) CET1 capital ratio(e) Tier 1 capital ratio(e) Total capital ratio(e) Tier 1 leverage ratio(e) SLR(e) Selected balance sheet data (period-end) Trading assets(d) Investment Securities Loans(d) Total assets Deposits Long-term debt Common stockholders’ equity Total stockholders’ equity Headcount Credit quality metrics Allowance for loan losses and lending- related commitments Allowance for loan losses to total retained loans Nonperforming assets(d) 2020 2019 4th quarter 3rd quarter 2nd quarter 1st quarter 4th quarter 3rd quarter 2nd quarter 1st quarter $ $ $ 29,224 16,048 13,176 (1,889) 15,065 2,929 12,136 3.80 3.79 3,079.7 3,085.1 $ $ $ 29,147 16,875 12,272 611 11,661 2,218 9,443 2.93 2.92 3,077.8 3,082.8 $ $ $ 32,980 16,942 16,038 10,473 5,565 878 4,687 1.39 1.38 3,076.3 3,081.0 $ $ $ 28,192 16,791 11,401 8,285 3,116 251 2,865 0.79 0.78 3,095.8 3,100.7 $ $ $ 28,285 16,293 11,992 1,427 10,565 2,045 8,520 2.58 2.57 3,140.7 3,148.5 $ $ $ 29,291 16,372 12,919 1,514 11,405 2,325 9,080 2.69 2.68 3,198.5 3,207.2 $ $ $ 28,747 16,256 12,491 1,149 11,342 1,690 9,652 2.83 2.82 3,250.6 3,259.7 $ $ $ 29,076 16,348 12,728 1,495 11,233 2,054 9,179 2.65 2.65 3,298.0 3,308.2 $ 387,492 3,049.4 81.75 66.11 0.90 $ 293,451 3,048.2 79.08 63.93 0.90 $ 286,658 3,047.6 76.91 61.76 0.90 $ 274,323 3,047.0 75.88 60.71 0.90 $ 429,913 3,084.0 75.98 60.98 0.90 $ 369,133 3,136.5 75.24 60.48 0.90 $ 357,479 3,197.5 73.88 59.52 0.80 $ 328,387 3,244.0 71.78 57.62 0.80 19 % 24 1.42 55 47 110 160 13.1 15.0 17.3 7.0 6.9 15 % 19 1.14 58 49 114 157 13.1 15.0 17.3 7.0 7.0 7 % 9 0.58 51 52 117 140 12.4 14.3 16.7 6.9 6.8 4 % 5 0.40 60 57 114 117 11.5 13.3 15.5 7.5 6.0 14 % 17 1.22 58 64 116 116 12.4 14.1 16.0 7.9 6.3 15 % 18 1.30 56 64 115 112 12.3 14.1 15.9 7.9 6.3 16 % 20 1.41 57 65 113 112 12.2 14.0 15.8 8.0 6.4 16 % 19 1.39 56 66 111 109 12.1 13.8 15.7 8.1 6.4 $ 503,126 589,999 1,012,853 3,386,071 2,144,257 281,685 249,291 279,354 255,351 $ 505,822 531,136 989,740 3,246,076 2,001,416 279,175 241,050 271,113 256,358 $ 491,716 558,791 1,009,382 3,213,616 1,931,029 317,003 234,403 264,466 256,710 $ 510,923 471,144 1,049,610 3,139,431 1,836,009 299,344 231,199 261,262 256,720 $ 369,687 398,239 997,620 2,687,379 1,562,431 291,498 234,337 261,330 256,981 $ 457,274 394,251 980,019 2,764,661 1,525,261 296,472 235,985 264,348 257,444 $ 485,567 307,264 990,775 2,727,379 1,524,361 288,869 236,222 263,215 254,983 $ 495,021 267,365 990,515 2,737,188 1,493,441 290,893 232,844 259,837 255,998 $ 30,737 $ 33,637 $ 34,301 $ 25,391 $ 14,314 $ 14,400 $ 14,295 $ 14,591 2.95 % 3.26 % 3.27 % 2.32 % 1.39 % 1.42 % 1.39 % 1.43 % $ 10,906 $ 11,462 $ 9,715 $ 7,062 $ 5,054 $ 5,993 $ 5,260 $ 5,616 Net charge-offs Net charge-off rate 1,050 1,180 1,560 1,469 1,494 1,371 1,403 1,361 0.44 % 0.49 % 0.64 % 0.62 % 0.63 % 0.58 % 0.60 % 0.58 % Effective January 1, 2020, the Firm adopted the Financial Instruments – Credit Losses (“CECL”) accounting guidance. Refer to Note 1 for further information. (a) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation. (b) Pre-provision profit, TBVPS and ROTCE are each non-GAAP financial measures. Tangible common equity (“TCE”) is also a non-GAAP financial measure. Refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 62–64 for a further discussion of these measures. (c) Quarterly ratios are based on annualized amounts. (d) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-period amounts have been revised to conform with the current presentation. (e) The capital metrics reflect the relief provided by the Federal Reserve Board in response to the COVID-19 pandemic, including the CECL capital transition provisions that became effective in the first quarter of 2020. The SLR reflects the temporary exclusions of U.S. Treasury securities and deposits at Federal Reserve Banks that became effective in the second quarter of 2020. Refer to Regulatory Developments Relating to the COVID-19 Pandemic on pages 52-53 and Capital Risk Management on pages 91-101 for additional information. JPMorgan Chase & Co./2020 Form 10-K 299 Distribution of assets, liabilities and stockholders’ equity; interest rates and interest differentials Year ended December 31, (Taxable-equivalent interest and rates; in millions, except rates) Average balance 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 2018 through 2020. 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 (Table continued on next page) (Unaudited) Assets Deposits with banks Federal funds sold and securities purchased under resale agreements Securities borrowed Trading assets – debt instruments(a) Taxable securities Non-taxable securities(b) Total investment securities Loans(a) All other interest-earning assets(a)(c) Total interest-earning assets 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(a) Total assets Liabilities Interest-bearing deposits Federal funds purchased and securities loaned or sold under repurchase agreements Short-term borrowings(d) Trading liabilities – debt and all other interest-bearing liabilities(e)(f) Beneficial interests issued by consolidated VIEs Long-term debt Total interest-bearing liabilities Noninterest-bearing deposits Trading liabilities – equity and other instruments(f) Trading liabilities – derivative payables All other liabilities, including the allowance for lending-related commitments Total liabilities Stockholders’ equity Preferred stock Common stockholders’ equity Total stockholders’ equity Total liabilities and stockholders’ equity Interest rate spread Net interest income and net yield on interest-earning assets 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 2020, 2019 and 2018. 2020 Interest(h) $ 749 2,436 (302) 7,869 7,843 1,437 9,280 (i) 43,886 1,023 64,941 Rate 0.17 % 0.88 (0.21) (j) 2.44 1.65 4.32 1.82 4.37 1.30 2.34 (k) 444,058 275,926 143,472 322,936 476,650 33,287 509,937 1,004,597 78,784 2,779,710 (25,775) 22,241 118,055 76,572 51,934 180,411 3,203,148 $ $ $ 2,357 1,058 372 195 214 5,764 9,960 0.17 % 0.41 0.96 0.10 1.12 2.27 0.46 (j) 1,389,224 $ 255,421 38,853 205,255 19,216 254,400 2,162,369 517,527 32,628 61,593 162,267 2,936,384 29,899 236,865 266,764 3,203,148 (g) $ $ 54,981 1.88 % 1.98 (a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-period amounts have been revised to conform with the current presentation. (b) Represents securities that are tax-exempt for U.S. federal income tax purposes. (c) Includes 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 brokerage-related customer payables. 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. 300 JPMorgan Chase & Co./2020 Form 10-K Rate 1.39 % 2.23 1.20 3.12 2.80 4.63 3.01 5.25 3.99 3.61 (k) (Table continued from previous page) Average balance 2019 Interest(h) $ 3,887 6,146 1,574 9,189 7,962 1,655 9,617 (i) 52,012 2,146 84,571 280,004 275,429 131,291 294,958 284,127 35,748 319,875 989,943 53,779 2,345,279 (13,331) 20,645 114,323 53,786 53,683 167,456 2,741,841 $ $ $ 8,957 4,630 1,248 2,585 568 8,807 26,795 0.80 % 2.03 2.38 1.42 2.52 3.55 1.45 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 $ $ $ Rate 1.46 % 1.76 0.79 3.46 2.91 4.68 3.23 5.03 3.87 3.47 (k) Average balance 2018 Interest(h) $ 5,907 3,819 913 7,206 5,653 1,987 7,640 (i) 49,208 2,035 76,728 405,514 217,150 115,082 208,266 194,232 42,456 236,688 977,406 52,551 2,212,657 (13,269) 21,694 118,152 60,734 54,669 154,261 2,608,898 5,973 3,066 1,144 2,387 493 7,978 21,041 0.57 % 1.62 2.08 1.34 2.34 3.28 1.22 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 27,511 232,907 260,418 2,741,841 (g) $ 26,249 229,222 255,471 2,608,898 (g) $ $ 57,776 2.16 % 2.46 $ 55,687 2.25 % 2.52 (f) The combined balance of trading liabilities – debt and equity instruments was $106.5 billion, $101.0 billion and $107.0 billion for the years ended December 31, 2020, 2019 and 2018, respectively. (g) The ratio of average stockholders’ equity to average assets was 8.3%, 9.5% and 9.8% for the years ended December 31, 2020, 2019 and 2018, respectively. The return on average stockholders’ equity, based on net income, was 10.9%, 14.0% and 12.7% for the years ended December 31, 2020, 2019 and 2018, 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 $1.0 billion for the year ended December 31, 2020, and $1.2 billion each for the years ended December 31, 2019 and 2018. (j) Negative interest income and yield are related to the impact of current interest rates combined with the fees paid on client-driven securities borrowed balances. The negative interest expense related to prime brokerage customer payables is recognized in interest expense and reported within trading liabilities - debt and all other interest-bearing liabilities. (k) The annualized rate for securities based on amortized cost was 1.85%, 3.05% and 3.25% for the years ended December 31, 2020, 2019 and 2018, respectively, and does not give effect to changes in fair value that are reflected in AOCI. JPMorgan Chase & Co./2020 Form 10-K 301 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 2018 through 2020. 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: (b) U.S. Non-U.S. Investment securities: U.S. Non-U.S. Loans:(b) U.S. Non-U.S. All other interest-earning assets, predominantly U.S.(b) Total interest-earning assets Interest-bearing liabilities Interest-bearing deposits: U.S. Non-U.S. Federal funds purchased and securities loaned or sold under repurchase agreements: U.S. Non-U.S. Trading liabilities – debt, short-term and all other interest-bearing liabilities:(a)(c) U.S. Non-U.S. Beneficial interests issued by consolidated VIEs, predominantly U.S. Long-term debt: U.S. Non-U.S. Intercompany funding: U.S. Non-U.S. Total interest-bearing liabilities Noninterest-bearing liabilities(d) 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 2020 Average balance Interest Rate $ 294,669 $ 149,389 141,409 134,517 100,026 43,446 216,025 106,911 475,832 34,105 909,850 94,747 78,784 2,779,710 768 (19) 1,341 1,095 (305) 3 5,056 2,813 8,703 577 41,708 2,178 1,023 64,941 1,068,857 320,367 2,288 69 204,958 50,463 151,120 92,988 19,216 247,623 6,777 (46,327) 46,327 2,162,369 617,341 2,779,710 $ $ $ 863 195 (30) 597 214 5,704 60 (1,254) 1,254 9,960 9,960 54,981 49,242 5,739 0.26 % (0.01) 0.95 0.81 (0.30) 0.01 2.34 2.63 1.83 1.69 4.58 2.30 1.30 2.34 0.21 0.02 0.42 0.39 (0.02) 0.64 1.12 2.30 0.89 — — 0.46 0.36 % 1.98 % 2.25 0.97 23.5 20.9 (a) Negative interest income and yield are related to the impact of current interest rates combined with the fees paid on client-driven securities borrowed balances. The negative interest expense related to prime brokerage customer payables is recognized in interest expense and reported within trading liabilities - debt and all other interest-bearing liabilities. (b) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-period amounts have been revised to conform with the current presentation. (c) Includes commercial paper. (d) Represents the amount of noninterest-bearing liabilities funding interest-earning assets. 302 JPMorgan Chase & Co./2020 Form 10-K Refer to the “Net interest income” discussion in Consolidated Results of Operations on pages 54-56 for further information. (Table continued from previous page) 2019 2018 Average balance Interest Rate Average balance Interest Rate $ 165,066 $ 114,938 150,205 125,224 92,625 38,666 200,811 94,147 287,961 31,914 898,570 91,373 53,779 2,345,279 850,493 265,355 164,284 63,710 147,247 87,284 22,501 241,914 6,054 (42,947) 42,947 1,848,842 496,437 2,345,279 $ $ $ 3,588 299 4,068 2,078 1,423 151 6,157 3,032 8,963 654 49,058 2,954 2,146 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 $ 305,117 $ 100,397 102,144 115,006 77,027 38,055 121,967 86,299 200,883 35,805 882,314 95,092 52,551 2,212,657 802,786 242,251 117,754 71,528 147,512 85,269 21,079 239,718 3,528 (51,933) 51,933 1,731,425 481,232 2,212,657 $ $ $ 2.71 1.66 1.54 0.39 3.07 3.22 3.11 2.05 5.46 3.23 3.99 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 5,703 204 2,427 1,392 825 88 4,229 2,977 6,943 697 46,227 2,981 2,035 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 2.38 1.21 1.07 0.23 3.47 3.45 3.46 1.95 5.24 3.13 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 JPMorgan Chase & Co./2020 Form 10-K 303           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 300–304 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) 2020 versus 2019 2019 versus 2018 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 agreements: U.S. Non-U.S. Securities borrowed:(a) U.S. Non-U.S. Trading assets – debt instruments:(b) U.S. Non-U.S. Investment securities: U.S. Non-U.S. Loans:(b) U.S. Non-U.S. All other interest-earning assets, predominantly U.S.(b) Change in interest income Interest-bearing liabilities Interest-bearing deposits: U.S. Non-U.S. Federal funds purchased and securities loaned or sold under repurchase agreements: U.S. Non-U.S. Trading liabilities – debt, short-term and all other interest-bearing liabilities: (a)(c) U.S. Non-U.S. Beneficial interests issued by consolidated VIEs, predominantly U.S. Long-term debt: U.S. Non-U.S. Intercompany funding: U.S. Non-U.S. Change in interest expense Change in net interest income $ 333 $ (8) (3,153) $ (310) (2,820) (318) $ (3,030) $ 35 915 $ 60 (2,115) 95 (83) 81 (24) (1) 365 336 3,426 38 557 74 324 (2,644) (1,064) (2,727) (983) (1,704) (147) (1,728) (148) (1,466) (555) (1,101) (219) (3,686) (115) (7,907) (850) (1,447) (260) (77) (7,350) (776) (1,123) 5,418 (25,048) (19,630) 1,304 168 236 2 2,416 253 2,723 (79) 890 (122) 48 4,844 337 518 362 61 (488) (198) (703) 36 1,941 95 63 2,999 1,641 686 598 63 1,928 55 2,020 (43) 2,831 (27) 111 7,843 495 25 (5,103) (2,017) (4,608) (1,992) 407 165 1,927 485 2,334 650 176 (51) (3,302) (395) (3,126) (446) 1,133 (85) 294 222 1,427 137 2 36 (2,606) (698) (2,604) (662) (37) (317) (354) (3,193) 13 (3,062) 19 (5) 30 37 93 17 354 (77) 38 719 — 349 (47) 75 812 17 249 (249) (17,618) 160 (160) (16,835) 293 (293) 1,792 (961) 961 3,962 (668) 668 5,754 $ 4,635 $ (7,430) $ (2,795) $ 3,052 $ (963) $ 2,089 131 6 (89) 89 783 (a) Negative interest income and yield are related to the impact of current interest rates combined with the fees paid on client-driven securities borrowed balances. The negative interest expense related to prime brokerage customer payables is recognized in interest expense and reported within trading liabilities - debt and all other interest-bearing liabilities. In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-period amounts have been revised to conform with the current presentation. Includes commercial paper. (b) (c) 304 JPMorgan Chase & Co./2020 Form 10-K   Glossary of Terms and Acronyms 2020 Form 10-K: Annual report on Form 10-K for year ended December 31, 2020, filed with the U.S. Securities and Exchange Commission. ABS: Asset-backed securities AFS: Available-for-sale ALCO: Asset Liability Committee Amortized cost: Amount at which a financing receivable or investment is originated or acquired, adjusted for accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, charge-offs, foreign exchange, and fair value hedge accounting adjustments. For AFS securities, amortized cost is also reduced by any impairment losses recognized in earnings. Amortized cost is not reduced by the allowance for credit losses, except where explicitly presented net. 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. AWM: Asset & Wealth Management 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 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 CFP: Contingency funding plan Chase Bank USA, N.A.: Chase Bank USA, National Association CIB: Corporate & Investment Bank CIO: Chief Investment Office Client assets: Represent assets under management as well as custody, brokerage, administration and deposit accounts. Client deposits and other third-party liabilities: Deposits, as well as deposits that are swept to on-balance sheet liabilities (e.g., commercial paper, federal funds purchased and securities loaned or sold under repurchase agreements) as part of client cash management programs. CLO: Collateralized loan obligations CLTV: Combined loan-to-value Collateral-dependent: A loan is considered to be collateral- dependent when repayment of the loan is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty, including when foreclosure is deemed probable based on borrower delinquency. 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. 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. JPMorgan Chase & Co./2020 Form 10-K 305 Glossary of Terms and Acronyms Criticized: Criticized loans, lending-related commitments and derivative receivables that are classified as special mention, substandard and doubtful categories for regulatory purposes. CRO: Chief Risk Officer 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 HQLA: Eligible high-quality liquid assets, for purposes of calculating the LCR, is the amount of unencumbered HQLA that satisfy certain operational considerations as defined in the LCR rule. 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 ETD: “Exchange-traded derivatives”: Derivative contracts that are executed on an exchange and settled via a central clearing house. Expense categories: • Volume- and revenue-related expenses generally correlate with changes in the related business/ transaction volume or revenue. Examples of volume- and revenue-related expenses include commissions and incentive compensation, depreciation expense related to operating lease assets, and brokerage expense related to equities trading transaction volume. • Investments include expenses associated with supporting medium- to longer-term strategic plans of the Firm. Examples of investments include initiatives in technology (including related compensation), marketing, and compensation for new bankers and client advisors. • Structural expenses are those associated with the day- today cost of running the bank and are expenses not covered by the above two categories. Examples of structural expenses include employee salaries and benefits, as well as noncompensation costs such as real estate and all other expenses. EU: European Union Fannie Mae: Federal National Mortgage Association FASB: Financial Accounting Standards Board FCA: Financial Conduct Authority FCC: Firmwide Control Committee FDIA: Federal Depository Insurance Act FDIC: Federal Deposit Insurance Corporation Federal Reserve: The Board of the Governors of the Federal Reserve System 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. FINRA: Financial Industry Regulatory Authority 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. FRBB: Federal Reserve Bank of Boston FRBNY: Federal Reserve Bank of New York 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 306 JPMorgan Chase & Co./2020 Form 10-K Glossary of Terms and Acronyms FTE: Fully taxable equivalent LDA: Loss Distribution Approach FVA: Funding valuation adjustment LGD: Loss given default FX: Foreign exchange LIBOR: London Interbank Offered Rate 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. HELOC: Home equity line of credit 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. HQLA: “High-quality liquid assets” consist of cash and certain high-quality liquid securities as defined in the LCR rule. HTM: Held-to-maturity IBOR: Interbank Offered Rate ICAAP: Internal capital adequacy assessment process IDI: Insured depository institutions IHC: JPMorgan Chase Holdings LLC, an intermediate holding company 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 JPMorgan Chase & Co./2020 Form 10-K 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 date. 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). 307 Glossary of Terms and Acronyms MBS: Mortgage-backed securities triggers. MD&A: Management’s discussion and analysis 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. Merchant Services: offers merchants payment processing capabilities, fraud and risk management, data and analytics, and other payments services. Through Merchant Services, merchants of all sizes can accept payments via credit and debit cards and payments in multiple currencies. MEV: Macroeconomic variable MMLF: Money Market Mutual Fund Liquidity Facility Moody’s: Moody’s Investor Services Mortgage origination channels: Retail – Borrowers who buy or refinance a home through direct contact with a mortgage banker employed by the Firm using a branch office, the Internet or by phone. Borrowers are frequently referred to a mortgage banker by a banker in a Chase branch, real estate brokers, home builders or other third parties. Correspondent – Banks, thrifts, other mortgage banks and other financial institutions that sell closed loans to the Firm. Mortgage product types: Alt-A Alt-A loans are generally higher in credit quality than subprime loans but have characteristics that would disqualify the borrower from a traditional prime loan. Alt-A lending characteristics may include one or more of the following: (i) limited documentation; (ii) a high CLTV ratio; (iii) loans secured by non-owner occupied properties; or (iv) a debt-to-income ratio above normal limits. A substantial proportion of the Firm’s Alt-A loans are those where a borrower does not provide complete documentation of his or her assets or the amount or source of his or her income. Option ARMs The option ARM real estate loan product is an adjustable- rate mortgage loan that provides the borrower with the option each month to make a fully amortizing, interest-only or minimum payment. The minimum payment on an option ARM loan is based on the interest rate charged during the introductory period. This introductory rate is usually significantly below the fully indexed rate. The fully indexed rate is calculated using an index rate plus a margin. Once the introductory period ends, the contractual interest rate charged on the loan increases to the fully indexed rate and adjusts monthly to reflect movements in the index. The minimum payment is typically insufficient to cover interest accrued in the prior month, and any unpaid interest is deferred and added to the principal balance of the loan. Option ARM loans are subject to payment recast, which converts the loan to a variable-rate fully amortizing loan upon meeting specified loan balance and anniversary date Prime Prime mortgage loans are made to borrowers with good credit records who meet specific underwriting requirements, including prescriptive requirements related to income and overall debt levels. New prime mortgage borrowers provide full documentation and generally have reliable payment histories. Subprime Subprime loans are loans that, prior to mid-2008, were offered to certain customers with one or more high risk characteristics, including but not limited to: (i) unreliable or poor payment histories; (ii) a high LTV ratio of greater than 80% (without borrower-paid mortgage insurance); (iii) a high debt-to-income ratio; (iv) an occupancy type for the loan is other than the borrower’s primary residence; or (v) a history of delinquencies or late payments on the loan. MSA: Metropolitan statistical areas MSR: Mortgage servicing rights Multi-asset: Any fund or account that allocates assets under management to more than one asset class. NA: Data is not applicable or available for the period presented. NAV: Net Asset Value Net Capital Rule: Rule 15c3-1 under the Securities Exchange Act of 1934. Net charge-off/(recovery) rate: Represents net charge- offs/(recoveries) (annualized) divided by average retained loans for the reporting period. Net 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 generally tied to sales transactions. • 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 308 JPMorgan Chase & Co./2020 Form 10-K Glossary of Terms and Acronyms 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 Credit Card 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. NFA: National Futures Association NM: Not meaningful NOL: Net operating loss Nonaccrual loans: Loans for which interest income is not recognized on an accrual basis. Loans (other than credit card loans and certain consumer loans insured by U.S. government agencies) are placed on nonaccrual status when full payment of principal and interest is not expected, regardless of delinquency status, or when principal and interest have been in default for a period of 90 days or more unless the loan is both well-secured and in the process of collection. Collateral-dependent loans are typically maintained on nonaccrual status. Nonperforming assets: Nonperforming assets include nonaccrual loans, nonperforming derivatives and certain assets acquired in loan satisfaction, predominantly real estate owned and other commercial and personal property. NOW: Negotiable Order of Withdrawal NSFR: Net Stable Funding Ratio OAS: Option-adjusted spread 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 PCD: “Purchased credit deteriorated” assets represent acquired financial assets that as of the date of acquisition have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Firm. PCI: “Purchased credit-impaired” loans represented certain loans that were acquired and deemed to be credit- impaired on the acquisition date. The superseded FASB guidance allowed purchasers to aggregate credit-impaired loans acquired in the same fiscal quarter into one or more pools, provided that the loans had common risk characteristics (e.g., product type, LTV ratios, FICO scores, past due status, geographic location). A pool was then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. PD: Probability of default PDCF: Primary Dealer Credit Facility PPP: Paycheck Protection Program PPPL Facility: Paycheck Protection Program Lending Facility OCC: Office of the Comptroller of the Currency PRA: Prudential Regulation Authority 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. 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 JPMorgan Chase & Co./2020 Form 10-K 309 Glossary of Terms and Acronyms 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. 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 SCB: Stress Capital Buffer Scored portfolios: Consumer loan portfolios that predominantly include residential real estate loans, credit card loans, auto loans to individuals and certain small business loans. 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 securities: Securities registered with the SEC under a shelf registration statement that have not been issued, offered or sold. These securities are not included in league tables until they have actually been issued. Single-name: Single reference-entities 310 JPMorgan Chase & Co./2020 Form 10-K 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 loans. Glossary of Terms and Acronyms 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. Loans with short-term and other insignificant modifications that are not considered concessions are not TDRs. TLAC: Total loss-absorbing capacity U.K.: United Kingdom Unaudited: Financial statements and information that have not been subjected to auditing procedures sufficient to permit an independent certified public accountant to express an opinion. U.S.: United States of America U.S. 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. JPMorgan Chase & Co./2020 Form 10-K 311 Board of Directors Linda B. Bammann2, 4 Retired Deputy Head of Risk Management JPMorgan Chase & Co. (Financial services) Stephen B. Burke2, 3 Retired Chairman and Chief Executive Officer NBCUniversal, LLC (Television and entertainment) Todd A. Combs2, 3 Investment Officer Berkshire Hathaway Inc.; President and Chief Executive Officer GEICO (Conglomerate and insurance) James S. Crown4, 5 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 Retired Chairman and Chief Executive Officer KPMG (Professional services) Mellody Hobson4, 5 Co-CEO and President Ariel Investments, LLC (Investment management) Operating Committee Member of: 1 Audit Committee 2 Compensation & Management Development Committee 3 Corporate Governance & Nominating Committee 4 Risk Committee 5 Public Responsibility Committee Michael A. Neal 1, 5 Retired Vice Chairman General Electric Company; Retired Chairman and Chief Executive Officer GE Capital (Industrial and financial services) Phebe N. Novakovic 1 Chairman and Chief Executive Officer General Dynamics (Aerospace and defense) Virginia M. Rometty 1, 3 Retired Executive Chairman and Chief Executive Officer International Business Machines Corporation (Technology) James Dimon Chairman and Chief Executive Officer Ashley Bacon Chief Risk Officer Takis T. Georgakopoulos Global Head of Wholesale Payments Douglas B. Petno CEO, Commercial Banking Daniel E. Pinto Co-President and Chief Operating Officer; CEO, Corporate & Investment Bank Gordon A. Smith Co-President and Chief Operating Officer; CEO, Consumer & Community Banking Marc K. Badrichani Head of Global Sales & Research Teresa A. Heitsenrether Global Head of Securities Services Jennifer A. Piepszak Chief Financial Officer Lori A. Beer Chief Information Officer Mary Callahan Erdoes CEO, Asset & Wealth Management Stacey Friedman General Counsel Carlos M. Hernandez Executive Chair of Investment & Corporate Banking Marianne Lake CEO, Consumer Lending Robin Leopold Head of Human Resources Troy L. Rohrbaugh Head of Global Markets Peter L. Scher Vice Chairman Sanoke Viswanathan Head of International Consumer Banking Other Corporate Officers Reggie A. Chambers Investor Relations Elena A. Korablina Firmwide Controller John H. Tribolati Secretary Joseph M. Evangelisti Corporate Communications Lou Rauchenberger General Auditor 312 JPMorgan Chase & Co./2020 Annual Report Regional Chief Executive Officers Asia Pacific Filippo Gori Europe/Middle East/Africa Latin America/Canada Viswas Raghavan Alfonso Eyzaguirre Senior Country Officers and Location Heads Asia Pacific Europe/Middle East/Africa Latin America/Caribbean Saudi Arabia Bader A. Alamoudi Sub-Saharan Africa Kevin G. Latter Switzerland Nick Bossart Turkey Mustafa Bagriacik Andean, Caribbean and Central America Moises Mainster Colombia Angela M. Hurtado Argentina Facundo D. Gómez Minujin Brazil Daniel Darahem Chile Andres Errazuriz Mexico Felipe García-Moreno North America Canada David E. Rawlings Australia and New Zealand Robert P. Bedwell Austria Anton J. Ulmer China Mark C.M. Leung Hong Kong Filippo Gori Japan Steve Teru Rinoie Korea Tae Jin Park Bahrain, Egypt and Lebanon Ali Moosa Belgium Tanguy A. Piret France Kyril Courboin Germany Stefan P. Povaly South and South East Asia Murlidhar Maiya Iberia Ignacio de la Colina India Madhav Kalyan Indonesia Gioshia Ralie Malaysia Steve R. Clayton Ireland Carin Bryans Israel Roy Navon Italy Francesco Cardinali Philippines Carlos Ma. G Mendoza Luxembourg Pablo Garnica Singapore Edmund Y. Lee Thailand Marco Sucharitku Taiwan Carl K. Chien Vietnam Van Bich Phan Middle East and North Africa Khaled Hobballah Karim Tannir The Netherlands Cassander Verwey Russia and Kazakhstan Yan L. Tavrovsky JPMorgan Chase Vice Chairs Phyllis J. Campbell Mark S. Garvin Vittorio U. Grilli Mel R. Martinez David Mayhew E. John Rosenwald Peter L. Scher 313 JPMorgan Chase & Co./2020 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 Nassef Sawiris Chief Executive Officer OCI N.V. London, United Kingdom 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 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 Amin H. Nasser President and Chief Executive Officer Saudi Aramco Dhahran, Saudi Arabia 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 Ratan Naval Tata Chairman Emeritus Tata Sons Ltd Mumbai, India Joseph C. Tsai Executive Vice Chairman Alibaba Group Hong Kong, China The Hon. Tung Chee Hwa GBM Vice Chairman National Committee of the Chinese People’s Political Consultative Conference Hong Kong, China Masahiko Uotani President and Group Chief Executive Officer Shiseido Co., Ltd. Tokyo, Japan Jaime Augusto Zobel de Ayala Chairman and Chief Executive Officer Ayala Corporation Makati City, Philippines *Ex-officio 314 JPMorgan Chase & Co./2020 Annual ReportCorporate headquarters 383 Madison Avenue New York, NY 10179-0001 Telephone: 212-270-6000 jpmorganchase.com Annual Report on Form 10-K The Annual Report on Form 10-K of JPMorgan Chase & Co. as filed with the U.S. Securities and Exchange Commission will be made available without charge upon request to: Office of the Secretary JPMorgan Chase & Co. 4 New York Plaza New York, NY 10004-2413 Stock listing New York Stock Exchange The New York Stock Exchange ticker symbol for the common stock of JPMorgan Chase & Co. is JPM. Financial information about JPMorgan Chase & Co. can be accessed by visiting the Investor Relations website at jpmorganchase.com. 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