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<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Note 1 - us-gaap:OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock--> <!-- xbrl,ns --> <div style="font-family: Helvetica,Arial,sans-serif"> <div align="left"> </div> <div align="left" style="font-size: 12pt; margin-top: 0pt"><b></b> </div> <div style="position: relative"> <div align="left" style="font-size: 12pt; margin-top: 18pt"><b>Note 1 – Basis of presentation</b> </div> <div align="left" style="font-size: 10pt; margin-top: 0pt">JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”), a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with operations worldwide. The Firm is a leader in investment banking, financial services for consumers and businesses, financial transaction processing and asset management. For a discussion of the Firm’s business segment information, see Note 34 on pages 237–239 of this Annual Report. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The accounting and financial reporting policies of JPMorgan Chase and its subsidiaries conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”). Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Certain amounts in prior periods have been reclassified to conform to the current presentation. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b>Consolidation</b> </div> <div align="left" style="font-size: 10pt; margin-top: 0pt">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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The usual condition for a controlling financial interest is ownership of a majority of the voting interests of the entity. However, a controlling financial interest also may be deemed to exist with respect to entities, such as special purpose entities (“SPEs”), through arrangements that do not involve controlling voting interests. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">SPEs are an important part of the financial markets, providing market liquidity by facilitating investors’ access to specific portfolios of assets and risks. For example, they are critical to the functioning of the mortgage- and asset-backed securities and commercial paper markets. SPEs may be organized as trusts, partnerships or corporations and are typically established for a single, discrete purpose. SPEs are not typically operating entities and usually have a limited life and no employees. The basic SPE structure involves 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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">There are two different accounting frameworks applicable to SPEs: the qualifying SPE (“QSPE”) framework and the variable interest entity (“VIE”) framework. The applicable framework depends on the nature of the entity and the Firm’s relation to that entity. The QSPE framework is applicable when an entity transfers (sells) financial assets to an SPE meeting certain defined criteria. These criteria are designed to ensure that the activities of the entity are essentially predetermined at the inception of the vehicle and that the transferor of the financial assets cannot exercise control over the entity and the assets therein. Entities meeting these criteria are not consolidated by the transferor or other counterparties as long as they do not have the unilateral ability to liquidate or to cause the entity to no longer meet the QSPE criteria. The Firm primarily follows the QSPE model for securitizations of its residential and commercial mortgages, and credit card, automobile and student loans. For further details, see Note 15 on pages 198–205 of this Annual Report. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">When an SPE does not meet the QSPE criteria, consolidation is assessed pursuant to the VIE framework. A VIE is defined as an entity that: (1) lacks enough equity investment at risk to permit the entity to finance its activities without additional subordinated financial support from other parties; (2) has equity owners that lack the right to make significant decisions affecting the entity’s operations; and/or (3) has equity owners that do not have an obligation to absorb the entity’s losses or the right to receive the entity’s returns. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">U.S. GAAP requires a variable interest holder (i.e., a counterparty to a VIE) to consolidate the VIE if that party will absorb a majority of the expected losses of the VIE, receive the majority of the expected residual returns of the VIE, or both. This party is considered the primary beneficiary. In making this determination, the Firm thoroughly evaluates the VIE’s design, capital structure and relationships among the variable interest holders. When the primary beneficiary cannot be identified through a qualitative analysis, the Firm performs a quantitative analysis, which computes and allocates expected losses or residual returns to variable interest holders. The allocation of expected cash flows in this analysis is based on the relative rights and preferences of each variable interest holder in the VIE’s capital structure. The Firm reconsiders whether it is the primary beneficiary of a VIE when certain events occur. For further details, see Note 16 on pages 206–214 of this Annual Report. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">All retained interests and significant transactions between the Firm, QSPEs and nonconsolidated VIEs are reflected on JPMorgan Chase’s Consolidated Balance Sheets and in the Notes to consolidated financial statements. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Investments in companies that are considered to be voting-interest entities in which the Firm has significant influence over operating and financing decisions are either accounted for in accordance with the equity method of accounting or at fair value if elected under fair value option. These investments are generally included in other assets, with income or loss included in other income. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Generally, Firm-sponsored asset management funds are considered voting entities as the funds do not meet the conditions to be VIEs. In instances where the Firm is the general partner or managing member of limited partnerships or limited liability companies, the non-affiliated partners or members have the substantive ability to remove the Firm as the general partner or managing member without cause (i.e., kick-out rights), based on a simple unaffiliated majority vote, or have substantive participating rights. Accordingly, the Firm does not consolidate these funds. In limited cases where the non-affiliated partners or members do not have substantive kick-outs or participating right, the Firm consolidates the funds. </div> </div> <div align="center"> <table style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <tr valign="bottom"> <td width="47%"></td> <td width="5%"></td> <td width="47%"></td> </tr> <!-- End Table Head --> <!-- Begin Table Body --> <tr valign="bottom"> <!-- Blank Space --> <td align="left" valign="top"></td> <td></td> <td align="right" valign="top"></td> </tr> <tr valign="bottom"> <td align="left" valign="top"></td> <td></td> <td align="right" valign="top"></td> </tr> <!-- End Table Body --> </table> </div> <!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family: Helvetica,Arial,sans-serif"> <div style="position: relative"> <div align="left" style="font-size: 10pt; margin-top: 6pt">Private equity investments, which are recorded in other assets on the Consolidated Balance Sheets, include investments in buyouts, growth equity and venture opportunities. These investments are accounted for under investment company guidelines. Accordingly, these investments, irrespective of the percentage of equity ownership interest held, are carried on the Consolidated Balance Sheets at fair value. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Assets held for clients in an agency or fiduciary capacity by the Firm are not assets of JPMorgan Chase and are not included in the Consolidated Balance Sheets. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b>Use of estimates in the preparation of consolidated financial statements</b><br /> The preparation of 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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b>Foreign currency translation</b><br /> JPMorgan Chase revalues assets, liabilities, revenue and expense denominated in non-U.S. currencies into U.S. dollars using applicable exchange rates. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Gains and losses relating to translating functional currency financial statements for U.S. reporting are included in other comprehensive income/(loss) within stockholders’ equity. Gains and losses relating to nonfunctional currency transactions, including non-U.S. operations where the functional currency is the U.S. dollar, are reported in the Consolidated Statements of Income. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b>Statements of cash flows</b><br /> For JPMorgan Chase’s Consolidated Statements of Cash Flows, cash is defined as those amounts included in cash and due from banks. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Significant accounting policies</b><br /> 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. </div> </div> <div style="position: relative"> <div align="center"> <table style="font-size: 8pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <tr valign="bottom"> <td width="74%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="7%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <!-- End Table Head --> <!-- Begin Table Body --> <tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Fair value measurement </div></td> <td> </td> <td colspan="3" align="right">Note 3</td> <td> </td> <td colspan="3" align="right"><font style="white-space: nowrap">Page 148</font></td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Fair value option </div></td> <td> </td> <td colspan="3" align="right">Note 4</td> <td> </td> <td colspan="3" align="right">Page 165</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Derivative instruments </div></td> <td> </td> <td colspan="3" align="right">Note 5</td> <td> </td> <td colspan="3" align="right">Page 167</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Noninterest revenue </div></td> <td> </td> <td colspan="3" align="right">Note 6</td> <td> </td> <td colspan="3" align="right">Page 175</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Pension and other postretirement employee benefit plans </div></td> <td> </td> <td colspan="3" align="right">Note 8</td> <td> </td> <td colspan="3" align="right">Page 176</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Employee stock-based incentives </div></td> <td> </td> <td colspan="3" align="right">Note 9</td> <td> </td> <td colspan="3" align="right">Page 184</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Noninterest expense </div></td> <td> </td> <td colspan="3" align="right">Note 10</td> <td> </td> <td colspan="3" align="right">Page 186</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Securities </div></td> <td> </td> <td colspan="3" align="right">Note 11</td> <td> </td> <td colspan="3" align="right">Page 187</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Securities financing activities </div></td> <td> </td> <td colspan="3" align="right">Note 12</td> <td> </td> <td colspan="3" align="right">Page 192</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Loans </div></td> <td> </td> <td colspan="3" align="right">Note 13</td> <td> </td> <td colspan="3" align="right">Page 192</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Allowance for credit losses </div></td> <td> </td> <td colspan="3" align="right">Note 14</td> <td> </td> <td colspan="3" align="right">Page 196</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Loan securitizations </div></td> <td> </td> <td colspan="3" align="right">Note 15</td> <td> </td> <td colspan="3" align="right">Page 198</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Variable interest entities </div></td> <td> </td> <td colspan="3" align="right">Note 16</td> <td> </td> <td colspan="3" align="right">Page 206</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Goodwill and other intangible assets </div></td> <td> </td> <td colspan="3" align="right">Note 17</td> <td> </td> <td colspan="3" align="right">Page 214</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Premises and equipment </div></td> <td> </td> <td colspan="3" align="right">Note 18</td> <td> </td> <td colspan="3" align="right">Page 218</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Other borrowed funds </div></td> <td> </td> <td colspan="3" align="right">Note 20</td> <td> </td> <td colspan="3" align="right">Page 219</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Accounts payable and other liabilities </div></td> <td> </td> <td colspan="3" align="right"><font style="white-space: nowrap">Note 21</font></td> <td> </td> <td colspan="3" align="right">Page 219</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Income taxes </div></td> <td> </td> <td colspan="3" align="right">Note 27</td> <td> </td> <td colspan="3" align="right">Page 226</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Commitments and contingencies </div></td> <td> </td> <td colspan="3" align="right">Note 30</td> <td> </td> <td colspan="3" align="right">Page 230</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Off–balance sheet lending-related financial instruments and guarantees </div></td> <td> </td> <td colspan="3" align="right">Note 31</td> <td> </td> <td colspan="3" align="right">Page 230</td> </tr> <tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top: 1px solid #000000"> </td> </tr> <!-- End Table Body --> </table> </div> </div> </div>
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